0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2019-12-31 0001108426 pnm:ServiceBillingsMember pnm:TNMPtoPNMMember 2018-01-01 2018-12-31




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
 _________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)(Mark One)
OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended fiscal year ended December 31, 20172019


Commission
File Number
NamesName of Registrants, Registrant, State of Incorporation
, Address and Of Principal Executive Offices, Telephone Number
I.R.S., Commission File No., IRS Employer
Identification No.
001-32462
PNM Resources, Inc.
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
(505) 241-2700
85-0468296
001-06986
Public Service Company of New Mexico
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
(505) 241-2700
85-0019030
002-97230
Texas-New Mexico Power Company
(A Texas Corporation)
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
(972) 420-4189
75-0204070

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

Securities Registered Pursuant Toregistered pursuant to Section 12(g) Of Theof the Act:
Registrant 
Title of Each Class
each class
Public Service Company of New Mexico 1965 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”)Yes
YES  ü
No
 
NO  
Public Service Company of New Mexico (“PNM”)Yes
YES 
No
 
NO ü
Texas-New Mexico Power Company (“TNMP”)Yes
YES 
No
NO ü

Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
PNMRYes
YES 
No
 
NO ü
PNM
YesNo
PNM
YES 
NO ü
TNMPYes
YES  ü
No
NO 








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.
PNMRYes
YES  ü
No
 
NO  
PNM
YesNo
PNM
YES  ü
NO  
TNMPYes
YES  
No
NO  ü
(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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
PNMRYes
YES ü
No
 
NO  
PNM
YesNo
PNM
YES ü
NO  
TNMPYes
YES ü
No
NO  
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S–K is not contained herein, and will not be contained, to the best of registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  
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
filer (Do not check if a smaller reporting company)
 
Smaller reporting
company
 Emerging growth company
PNMRTNMP 
ü
      
PNM   
ü
   
TNMP
ü
 


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 registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act). YES      NO  üYes   No


As of February 20, 2018,21, 2020, shares of common stock outstanding were:
PNMR79,653,624

PNM39,117,799

TNMP6,358



On June 30, 2017,28, 2019, 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 $38.25$50.91 per share reported by The Wall Street Journal, was $3,046,751,118.$4,055,165,998. 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 stockholdersshareholders of PNMR to be held on May 22, 2018.12, 2020.

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
OPERATIONS AND REGULATION
 
EMPLOYEES
EMPLOYEES
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II 
ITEM 5. MARKET FOR PNMR’S COMMON EQUITY, RELATED STOCKHOLDER  
 MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCEGOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSIPOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR 
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
 


iii





GLOSSARY
Definitions:   
2014 IRP PNM’s 2014 IRP
2017 IRP PNM’s 2017 IRP
ABCWUA Albuquerque Bernalillo County Water Utility Authority
ABO  Accumulated Benefit Obligation
AEP OnSite Partners AEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
Afton  Afton Generating Station
AFUDC Allowance for Funds Used During Construction
ALJ  Administrative Law Judge
AMI Advanced Metering Infrastructure
AMS Advanced Meter System
Anaheim City 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
ASU Accounting Standards Update
August 2016 RD Recommended Decision in PNM’s NM 2015 Rate Case issued by the Hearing Examiner on August 4, 2016
BART  Best Available Retrofit Technology
BDT Balanced Draft Technology
BHP  BHP Billiton, Ltd
Board  Board of Directors of PNMR
BSERBest system of emission reduction technology
BTMU TheMUFG Bank Ltd., formerly the Bank of Tokyo-Mitsubishi UFJ, Ltd.
BTMU Term Loan Agreement NM Capital’s $125.0 Million Unsecured Term Loan
BTU  British Thermal Unit
CAA Clean Air Act
CCBCasa Mesa Wind Coal Combustion ByproductsCasa Mesa Wind Energy Center
CCN Certificate of Convenience and Necessity
CCRCoal Combustion Residuals
CIAC Contributions in Aid of Construction
CO2
CO2
  Carbon Dioxide
CSA Coal Supply Agreement
CTC  Competition Transition Charge
DC Circuit United States Court of Appeals for the District of Columbia Circuit
DeltaDecember 2018 Compliance Filing Delta-Person Generating Station, now known as Rio BravoPNM’s December 31, 2018 filing with the NMPRC regarding SJGS
DOE  United States Department of Energy
DOI  United States Department of Interior
EGU Electric Generating Unit
EIPEIM  Eastern Interconnection ProjectCalifornia Independent System Operator Western Energy Imbalance Market
EIS Environmental Impact Study
EPA  United States Environmental Protection Agency
EPE  El Paso Electric Company
ERCOT  Electric Reliability Council of Texas
ESA Endangered Species Act
ETAThe New Mexico Energy Transition Act
Exchange Act Securities Exchange Act of 1934
Farmington The City of Farmington, New Mexico
FASB  Financial Accounting Standards Board
FERC  Federal Energy Regulatory Commission

iv



FIP  Federal Implementation Plan
Four Corners  Four Corners Power Plant
FPL  FPL Energy New Mexico Wind, LLC
FPPAC  Fuel and Purchased Power Adjustment Clause

iv



FTY Future Test Year
GAAP  Generally Accepted Accounting Principles in the United States of America
GHG  Greenhouse Gas Emissions
GWh  Gigawatt hours
IBEW  International Brotherhood of Electrical Workers
IRCInternal Revenue Code
IRP Integrated Resource Plan
IRS  Internal Revenue Service
ISFSIkV Independent Spent Fuel Storage InstallationKilovolt
KW  Kilowatt
KWh  Kilowatt Hour
La Luz  La Luz Generating Station
LIBOR  London Interbank Offered Rate
Lightning Dock Geothermal Lightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
Lordsburg  Lordsburg Generating Station
Los Alamos The 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
MMBTU  Million BTUs
Moody’s  Moody’s Investor Services, Inc.
MSR M-S-R Public Power Agency
MW  Megawatt
MWh  Megawatt Hour
NAAQS National 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
NEC Navopache Electric Cooperative, Inc.
NEE New Energy Economy
NEPA National Environmental Policy Act
NERC  North American Electric Reliability Corporation
New Mexico Wind New Mexico Wind Energy Center
NM 2015 Rate Case Request for a General Increase in Electric Rates Filed by PNM on August 27, 2015
NM 2016 Rate Case Request 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 Capital 
NM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR, now known as
New Mexico PPA Corporation
NM District Court United States District Court for the District of New Mexico
NM Supreme Court New Mexico Supreme Court
NMAG  New Mexico Attorney General
NMED  New Mexico Environment Department
NMIECNew Mexico Industrial Energy Consumers Inc.
NMMMD The Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
NMPRC  New Mexico Public Regulation Commission
NMRD NM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
NOx  Nitrogen Oxides
NOPR Notice of Proposed Rulemaking

v



NPDES National 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
OCI  Other Comprehensive Income
OPEB  Other Post-Employment Benefits
OSM United States Office of Surface Mining Reclamation and Enforcement
PBO  Projected Benefit Obligation

v



PCRBs  Pollution Control Revenue Bonds
PNM  Public Service Company of New Mexico and Subsidiaries
PNM 2014 New Mexico Credit Facility PNM’s $50.0 Million Unsecured Revolving Credit Facility
PNM 2014 Term Loan Agreement PNM’s $175.0 Million Unsecured Term Loan
PNM 2016 Term Loan Agreement PNM’s $175.0 Million Unsecured Term Loan
PNM 2017 New Mexico Credit Facility PNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Senior Unsecured Note Agreement PNM’s Agreement for the sale of Senior Unsecured Notes, aggregating $450.0 million
PNM 2017 Term Loan Agreement PNM’s $200.0 Million Unsecured Term Loan
PNM 2018 SUNs PNM’s Senior Unsecured Notes to be 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 Multi-draw Term Loan PNM’s $125.0 Million Unsecured Multi-draw Term Loan Facility
PNM Revolving Credit Facility PNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMR  PNM Resources, Inc. and Subsidiaries
PNMR 2015 Term

Loan Agreement
 PNMR’s $150.0 Million Three-Year Unsecured Term Loan that matured on March 9, 2018
PNMR 2016 One-Year Term Loan PNMR’s $100.0 Million One-Year Unsecured Term Loan that matured on December 14, 2018
PNMR 2016 Two-Year Term Loan PNMR’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 was 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 2020 Forward Equity Sale AgreementsPNMR’s Block Equity Sale of 6.2 million Shares of PNMR Common Stock with Forward Sales Agreement
PNMR 2019 Term LoanPNMR’s $150.0 Million Unsecured Term Loan
PNMR Development PNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit FacilityPNMR Development’s $25.0 million Unsecured Revolving Credit Facility
PNMR Development Term LoanPNMR Development’s $90.0 Million Unsecured Term Loan
PNMR Revolving Credit Facility PNMR’s $300.0 Million Unsecured Revolving Credit Facility
PNMR Term Loan Agreement  PNMR’s $150.0 Million One-Year Unsecured Term Loan that matured on December 21, 2016
PPA  Power Purchase Agreement
PSA Power Sales Agreement
PSD  Prevention of Significant Deterioration
PUCT  Public Utility Commission of Texas
PV  Photovoltaic
PVNGS  Palo Verde Nuclear Generating Station
RARestructuring Agreement
RCRA  Resource Conservation and Recovery Act
RCT  Reasonable Cost Threshold
REA New Mexico’s Renewable Energy Act of 2004
REC  Renewable Energy Certificates

vi



Red Mesa Wind Red Mesa Wind Energy Center
REP  Retail Electricity Provider

vi



RFP Request For Proposal
Rio Bravo Rio Bravo Generating Station, formerly known as Delta
RMC  Risk Management Committee
ROE Return on Equity
RPS  Renewable Energy Portfolio Standard
RSIP Revised State Implementation Plan
S&P  Standard and Poor’s Ratings Services
SCE  Southern California Edison Company
SCPPA  Southern California Public Power Authority
SCR Selective 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 CSA San Juan Generating Station Coal Supply Agreement
SJGS RA San Juan Project Restructuring Agreement
SJPPA San Juan Project Participation Agreement
SNCR Selective Non-Catalytic Reduction
SO2
SO2
  Sulfur Dioxide
SPS  Southwestern Public Service Company
SRP  Salt River Project
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
Tenth Circuit United States Court of Appeals for the Tenth Circuit
TNMP  Texas-New Mexico Power Company and Subsidiaries
TNMP 20152018 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 AgreementTNMP’s $60.0 Million First Mortgage Bonds
TNMP 20172019 Bond Purchase Agreement TNMP’s Agreement for the issuanceto Issue an Aggregate of $60.0$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
UG-CSA Underground Coal Sales Agreement for San Juan Generating Station
U.S.The Unites States of America
US Supreme Court United States Supreme Court
Valencia  Valencia Energy Facility
VaRValue at Risk
VIE Variable Interest Entity
WACC  Weighted Average Cost of Capital
WEG WildEarth 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
Westmoreland Westmoreland Coal Company
Westmoreland Loan $125.0 Million of funding provided by NM Capital to WSJ
WSJ Westmoreland 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


vii





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 the followingthree key strategic goals:
 
Earning authorized returns on its regulated businesses
Delivering at or above industry-average earnings and dividend growth
Maintaining solid investment grade credit ratings


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


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


PNMR’s success in accomplishing these strategic goals is highly dependent on favorabletwo key factors: fair and timely regulatory treatment for its regulated utilities.utilities and the utilities’ strong operating performance. Both PNM and TNMP seek cost recovery for their investments through general rate cases 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 plans to filefiled 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 income,earnings, and total assets of reportable segments is contained in MD&A and Note 2.


WEBSITES
The PNMR website, www.pnmresources.com, is an important source of Company information. New or updated information for public access is routinely posted.  PNMR encourages analysts, investors, and other interested parties to register on the website to automatically receive Company information by e-mail. This information includes news releases, notices of webcasts, and filings with the SEC. Participants will not receive information that was not requested and can unsubscribe at any time.
Our corporate internet addresses are:


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

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

The PNMR website includes a link to PNMR’s Sustainability Portal, www.pnmresources.com/about-us/sustainability-portal.aspx. This portal provides access to key sustainability information, including a Climate Change Report, related to the operations of PNM and TNMP and reflects PNMR’s commitment to do business in an ethical, open, and transparent manner.manner, and


A - 1





outlines PNM’s plans to exit all coal-fired generation by 2031 (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. These documents may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Further information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. Reports filed with the SEC are available on its website, www.sec.gov. These reports are also available in print upon request from PNMR free of charge.


Also available on the Company’s website at http://www.pnmresources.com/corporate-governance.aspx and in print upon request from any shareholder are PNMR’s:


Corporate Governance Principles
Code of Ethics (Do the Right Thing Principles of Business Conduct)
Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee
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


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 centralnorth-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 2.4%2.6% of its revenues for the year ended December 31, 2017.2019. Other services provided by PNM include wholesale transmission services to third parties as well as the generation and sale of electricity into the wholesale market, which services are regulated by FERC. 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 NoteNotes 16 and 17 for additional information on rate cases and other regulatory matters.


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 is appealingappealed certain aspects of the NMPRC’s order into the NM Supreme Court. OtherCourt and other parties in that rate case have filed cross-appeals contesting other aspects of the NMPRC ruling. Oral argument atOn May 16, 2019, the NM Supreme Court was held on October 30, 2017. Although appeals of regulatory actionsaffirmed all but one of the NMPRC’s decisions in the NM 2015 Rate Case and remanded the case to the NMPRC have priority atfor 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, there is no required time frameCourt’s remand. The NMPRC order reaffirmed its September 2016 order except for the courtdecision to act onpermanently 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 appeal. See Note 17.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 (the “NM 2016 Rate Case”)filing. In accordance with the NMPRC. The December 2016 application proposed a non-fuel revenue increase of $99.2 million above the October 1, 2016 rates to be effective on January 1, 2018. The requested increase was based on a calendar 2018 future test year (“FTY”) and a ROE of 10.125% compared to a ROE of 9.575% authorized in the NM 2015 Rate Case. The primary drivers of PNM’s identified revenue deficiency were the implementation of the plan for SJGS to comply with the CAA Note 16, including the shutdown of Units 2 and 3 of SJGS, recovery of 50% of the net book value of those units, and the inclusion in retail rates of PVNGS Unit 3 as replacement power. The increase also reflects new infrastructure investments and declines in forecasted energy sales resulting from PNM’s successful energy efficiency programs and other economic factors.NMPRC’s final order, PNM also proposed changes to rate design to better align electric rates with the actual costs to serve customers and encourage continued energy efficiency while proposing a rate mechanism that eliminates the disincentives associated with energy efficiency and load management programs. In May 2017, PNM and several intervenors filed a stipulation that, subject to approval by the NMPRC, would reduce the requested non-fuel revenue increase to $62.3 million, with an initial increase of $32.3 million beginning January 1, 2018 and the remaining increase beginning January 1, 2019. Among


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other things, the revised stipulation proposed to reduce the ROE to 9.575% and to provide a debt-only return on PNM’s investment in SCRs at Four Corners. Hearings on the revised stipulation were held in August 2017. On October 31, 2017, the Hearing Examiners to the NM 2016 Rate Case issued their Certification of Stipulation recommending approval of the agreed upon revised stipulation with certain modifications, including identifying PNM’s continuation in Four Corners as imprudent and recommending against PNM’s ability to collect a debt or equity return on certain investments in that facility. On December 20, 2017, the NMPRC issued an order partially adopting the Certification of Stipulation, which approved the requested non-fuel revenue increase of $62.3 million over two years, but including additional modifications to reflect the impact of federal tax reform in customer rates beginning in 2018, rather than in 2019 as proposed in the revised stipulation, and deferring further consideration regarding PNM’s prudence related to Four Corners to a future proceeding. On December 28, 2017, PNM filed a motion for rehearing asking the NMPRC to vacate the December 20, 2017 order and requesting oral argument. After rehearing, the NMPRC issued a new order partially adopting the Certification of Stipulation with certain modifications, which, after further clarification, allows PNM to collect a debt return, but not an equity return, on certain of PNM’s investments in Four Corners; defers further consideration regarding the prudency of PNM’s continued participation in Four Corners to PNM’s next general rate case; requires PNM to reduce the $62.3 million annual non-fuel revenue increase by $4.4 million; requires the annual impacts of federal tax reform, estimated to amount to $47.6 million, to be reflected in customer rates beginning in 2018; and requiresimplemented 50% of the approved rate increase be implemented for service rendered (rather than for bills rendered as PNM had requested) on or afterbeginning February 1, 2018 and the rest of the increase for service rendered on or after January 1, 2019. The order results in an annual non-fuel revenue increase of $10.3 million. On February 7, 2018, NEE filed a notice of appeal with the NM Supreme Court asking the court to review the NMPRC’s decisions in the NM 2016 Rate Case. The notice does not set forth the basis of the appeal, which, as required by the court’s rules, is to be filed by March 9, 2018. See Note 17.


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. Through 2017, PNM’s earned return on jurisdictional equity hasPNM did not exceededexceed the limitation.limitation in 2018 and does not expect to exceed the limitation in 2019. 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 Operations


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 large 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, which are subject to certain conditions being met prior to closing, the Western Spirit Line will be purchased by PNM to serve approximately 800 MW of wind generation to be located in eastern New Mexico beginning in 2021. FERC approved PNM’s request to provide transmission to the facilities using an incremental rate based on construction and other ongoing costs for the line, including adjustments for construction costs funded by the customer, effective July 9, 2019 and approved PNM’s request to purchase the Western Spirit Line on August 8, 2019. The low natural gas price environmentNMPRC approved PNM’s planned purchase of the Western Spirit Line on October 2, 2019. See Note 17.

PNM currently has resulted in market prices for power being substantially lower that what PNM has been able to offerno full-requirement wholesale generation customers under the cost of service model that FERC requires PNM to use. Consequently, PNM requested FERC approval to enter into arrangements to sell electricity at wholesale prices within PNM’s balance authority area using rates based on market conditions. In October 2015, FERC denied PNM’s request. Accordingly, PNM has decided to stop pursuing wholesale generation contracts.customers.


Operational Information


Weather-normalized retail electric KWh sales decreasedincreased by 0.9%0.3% in 20172019 and 0.7%increased by 0.6% in 2016.2018. The system peak demands for retail and firm-requirements customers were as follows:


System Peak Demands
2017 2016 20152019 2018 2017
(Megawatts)(Megawatts)
Summer1,843
 1,908
 1,889
1,937
 1,885
 1,843
Winter1,289
 1,376
 1,433
1,440
 1,351
 1,289


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

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agreements have expired in some areas PNM serves, including Albuquerque, Rio Rancho, and Santa Fe.Albuquerque. 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 48.2%40.5%, 9.9%7.3%, and 9.5%6.7% of PNM’s 20172019 revenues and no other franchise area represents more than 5%. Although PNM is not required to collect or pay franchise feesalso earns revenues from its electric retail operations in some areas it serves, the utility continues to collect and pay such fees in certain parts of its service territory, including Albuquerque, Rio Rancho, and Santa Fe.areas that do not require franchise agreements.


As discussed in Note 16, PNM and other utilities challenged the legal validity of an ordinance passed by the County Commission of Bernalillo County, New Mexico passed an ordinance in January 2014 that would require PNM and otherproposed utilities to enter into a use agreement and pay a yet-to-be-determined fee as a condition for installing, maintaining, and operating facilities on county rights-of-way. After court-ordered settlement discussions, PNM and other utilities have filed complaints in federal and state courts challenging the validity of the ordinance. If the challengeBernalillo County executed a franchise agreement whereby PNM will pay franchise fees to the ordinancecounty and will recover those fees as a direct pass-through to customers located in Bernalillo County. The agreement is unsuccessful, PNM believes any fees paid pursuantsubject to approval by the ordinance would be considered franchise fees and would be recoverable from customers.New Mexico Second District Court in Bernalillo County. PNM is unable to predict the outcome of this matter.



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PNM owns 3,2003,206 miles of electric transmission lines that interconnect with other utilities in New Mexico, Arizona, Colorado, Texas, and Utah. There has been little development of new bulk transmission facilities since 1985. 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 constructinvest approximately $170$377 million for anticipated expansions of newPNM’s transmission facilitiessystem by 2020from 2020-2024 to provide additional transmission service to delivertransmit power from these generation resources to customers in New Mexico and California.


PNM also generates and sells electricity into the wholesale market.Shareholders realize any earnings or losses from generating resources that are not included in retail rates. Through December 31, 2017, PNM’s 134 MW share of Unit 3 at PVNGS was excluded from retail rates and was being sold in the wholesale market. In December 2015,Effective January 1, 2018, the NMPRC approved PNM’s requestauthorized PNM to include PVNGS Unit 3 as a jurisdictional resource to serve New Mexico retail customers beginning in 2018 and also authorized PNM to acquire 65 MW of SJGS Unit 4 as merchant plant. PNM has executed agreements to sell the majority of the power generated by its 65 MW interest in SJGS Unit 4 to a third-party through June 2022. 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. Shareholders realize any earnings or losses from generating resources that are not included in retail rates. In addition, 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 any excess generation not required to fulfill retail load and contractual commitments. Through PNM’s FPPAC, 90% of the margins from these optimization sales were credited to retail customers through December 31, 2016, after which date 100% of the marginsThese activities are credited to customers.customers through PNM’s FPPAC.


Use of Future Test Year (“FTY”)


Under New Mexico law, the NMPRC must set rates using the test period, including a FTY that best reflects the conditions the utility will experience when new rates are anticipated to go into effect. In November 2015, the NMPRC clarified that FTY could begin up to 13 months after the filing of a rate case application. The NMPRC also must include certain construction work in progress for environmental improvement, generation, and transmission projects in rate base. These provisions are designed to promote more timely recovery of reasonable costs of providing utility service.


The use of a FTY should help PNM mitigate the adverse effects of regulatory lag, which is inherent when using a historical test year. Accordingly, the utility’s earnings should more closely reflect the rate of return allowed by the NMPRC. PNMR believes that achieving earnings that approximate its allowed rate of return is an important factor in attracting equity investors, as well as being considered favorably by credit rating agencies and financial analysts.


As with any forward lookingforward-looking financial information, utilizing a FTY in a rate filing presents challenges. These include forecasts of both operating and capital expenditures that necessitate reliance on many assumptions concerning future conditions and operating results. In the rate making process, PNM’s assumptions are subject to challenge by regulators and intervenors who may assert different interpretations or assumptions.


Renewable Energy


The REA was enacted to encourage the development of renewable energy in New Mexico. The act establishes a mandatory RPS requiring a utilityPrior to the enactment of the ETA, utilities operating in New Mexico were required to acquire a renewable energy portfolio equal to 10%15% of retail electric sales by 2011, 15% by 2015 and 20% by 2020. The actETA 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, assuresprovides utilities recovery of costs incurred consistent with approved procurement plans, and requires the NMPRC to establishsets 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.



The Energy Transition Act (“ETA”)

The ETA became effective on June 14, 2019. As discussed above, 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 securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used 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. The NMPRC is expected to provide a final order on the abandonment and securitization portion of PNM's filing by April 1, 2020.

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 PNM’s participation in Four Corners after the agreements governing that facility expire in 2031.

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PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement filings with the NMPRC.

TNMP


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 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 customers billed on KWh usage, TNMP experienced increasesa decrease in weather-normalized retail KWh sales of 1.2%2.0% in 20172019 and 3.0%an increase of 3.2% in 2016.2018. For its demand-based load customers, TNMP experienced increases of 4.9% in 2019 and 6.8% in 2018. As of December 31, 2017, 1012019, 103 active REPs receive transmission and distribution services from TNMP. In 2017,2019, the three largest REP customers of TNMP accounted for operating revenues of 16%22%, 11%17%, and 10%.12% of TNMP’s operating revenues. No other customer accounted for more than 10% of revenues.


Regulatory Activities

In July 2011, the PUCT approved a settlement and authorized an AMS deployment plan that permits TNMP to collect $113.4 million in deployment costs through a surcharge over a 12-year period. TNMP began collecting the surcharge on August 11, 2011 and deployment of advanced meters began in September 2011. TNMP completed its mass deployment of AMS in 2016 and has installed more than 242,000 advanced meters.


The PUCT approved interim adjustments to TNMP’s transmission rates of $4.4$0.6 million in March 2015, $1.42018, $14.3 million in March 2019, and $3.3 million in September 2015, $4.3 million in March 2016, $1.8 million in September 2016, $4.8 million in March 2017, and $4.7 million in September 2017.2019. On January 30, 2018,February 6, 2020, TNMP filed an application to further update its transmission rates, which would increase revenues by $0.6$7.8 million annually. The application is pending before the PUCT.

On January 1, 2019, TNMP plansimplemented a PUCT order in TNMP’s 2018 Rate Case to fileincrease annual base rates by $10.0 million based on a generalROE 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 case in May 2018to 21%. Under the approved settlement stipulation TNMP was granted authority to update depreciation rates and is prohibited from filing additional interim adjustmentsrefund the regulatory liability related to its transmission rates while the general rate case is in progress. See Note 17.federal tax reform to customers.


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.



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SOURCES OF POWER
PNM
Generation Capacity


As of January 1, 2018,December 31, 2019, the total net generation capacity of facilities owned or leased by PNM was 2,1022,152 MW. PNM also obtains power under long-term PPAs for the power produced by Valencia, New Mexico Wind, Red Mesa Wind, Casa Mesa Wind, La Joya Wind, the Lightning Dock Geothermal facility, and the NMRD-owned solar facility.facilities.


PNM’s capacity in electric generating facilities, which are owned, leased, or under PPAs, in commercial serviceoperation as of January 1, 2018December 31, 2019 is:
Generation
Capacity
TypeNameLocation(MW)
CoalSJGSWaterflow, New Mexico562
CoalFour CornersFruitland, New Mexico200
GasReeves StationAlbuquerque, New Mexico154
GasAfton (combined cycle)La Mesa, New Mexico230
GasLordsburgLordsburg, New Mexico80
GasLuna (combined cycle)Deming, New Mexico189
Gas/OilRio BravoAlbuquerque, New Mexico138
GasValenciaBelen, New Mexico158
GasLa LuzBelen, New Mexico40
NuclearPVNGSWintersburg, Arizona402
SolarPNM-owned solarFifteen sites in New Mexico107
SolarNMRD-owned solarLos Lunas, New Mexico10
WindNew Mexico WindHouse, New Mexico204
WindRed Mesa WindSeboyeta, New Mexico102
GeothermalLightning Dock GeothermalLordsburg, New Mexico4
2,580
      Generation Percent of
      Capacity Generation
Type Name Location (MW) Capacity
Coal SJGS Waterflow, New Mexico 562
 20.4%
Coal Four Corners Fruitland, New Mexico 200
 7.2%
    Coal-fired resources   762
 27.6%
         
Gas Reeves Station Albuquerque, New Mexico 154
 5.6%
Gas Afton (combined cycle) La Mesa, New Mexico 230
 8.3%
Gas Lordsburg Lordsburg, New Mexico 80
 2.9%
Gas Luna (combined cycle) Deming, New Mexico 189
 6.8%
Gas/Oil Rio Bravo Albuquerque, New Mexico 138
 5.0%
Gas Valencia Belen, New Mexico 158
 5.7%
Gas La Luz Belen, New Mexico 40
 1.4%
Gas-fired resources   989
 35.8%
         
Nuclear PVNGS Wintersburg, Arizona 402
 14.6%
         
Solar PNM-owned solar Twenty-four sites in New Mexico 157
 5.7%
Solar NMRD-owned solar Los Lunas, New Mexico 80
 2.9%
Wind New Mexico Wind House, New Mexico 204
 7.4%
Wind Red Mesa Wind Seboyeta, New Mexico 102
 3.7%
Wind Casa Mesa Wind House, New Mexico 50
 1.8%
Geothermal Lightning Dock Geothermal Lordsburg, New Mexico 15
 0.5%
Renewable resources   608
 22.0%
      2,761
 100.0%


The NMPRC has approved plans for PNM to procure energy and RECs from additional wind and solar-PV renewable resources totaling 316 MW. In addition, the NMPRC approved a PPA for 140 MW of wind energy in PNM’s 2020 renewable energy procurement plan. PNM’s SJGS Abandonment Application seeks NMPRC approval to abandon SJGS in 2022 and for related replacement resources. See Note 17. If adjusted for these plans, the table above would reflect the percentage of generation capacity from fossil-fueled resources of 43.0%, from nuclear resources of 11.8%, and from renewable and battery storage resources of 45.2%.

Fossil‑Fueled Plants


SJGS is operated by PNM and, until December 2017, consisted of four units. As discussed in Note 16, SJGS Units 2 and 3 were retired in December 2017 and the ownership interests in SJGS Unit 4 were restructured as of December 31, 2017. PNM is seeking NMPRC approval to retire its remaining ownership in SJGS in 2022. See Note 17.

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The table below presents the rated capacities and ownership interests of each participant in each unit of SJGS before and after these events:
 Unit MW Capacity and Ownership Interests
 Prior to Restructuring After Restructuring
 Unit 1 Unit 2 Unit 3 Unit 4 Unit 1 Unit 4
Capacity (MW)340
 340
 497
 507
 340
 507
            
PNM (1)
50.000% 50.000% 50.000% 38.457% 50.000% 77.297%
Tucson50.000
 50.000
 
 
 50.000
 
SCPPA
 
 41.800
 
 
 
Tri-State
 
 8.200
 
 
 
MSR
 
 
 28.800
 
 
Anaheim
 
 
 10.040
 
 
Farmington
 
 
 8.475
 
 8.475
Los Alamos
 
 
 7.200
 
 7.200
UAMPS
 
 
 7.028
 
 7.028
Total100.000% 100.000% 100.000% 100.000% 100.000% 100.000%


(1) After restructuring includes a 12.8% interest held in SJGS Unit 4 as a merchant plant .plant.


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Four Corners Units 4 and 5 are 13% owned by PNM. These units are jointly owned with APS, an APS affiliate, SRP, Tucson, and TucsonNTEC, and are operated by APS. Prior to July 22, 2018, NTEC’s 7% share of Four Corners was owned by an affiliate of APS, which had acquired the interest from EPE on July 7, 2016. PNM had no ownership interest in Four Corners Units 1, 2, or 3, which were shut down by APS on December 30, 2013. The Four Corners plant site is leased fromlocated on land within the Navajo Nation and is also subject to an easement from the federal government. APS, on behalf of the Four Corners participants, negotiated amendments to an existing facility lease withextend the Navajo Nation, which extendsowners’ right to operate the Four Corners leasehold interest from 2016plant on the site to 2041. The Navajo Nation approved these amendments in March 2011. The effectiveness of the amendments also required the approval of the DOI, as did a related federal rights-of-way grant, which was received in July 2015. An affiliate of APS acquired the 7% interest formerly owned by EPE on July 7, 2016. NTEC, an entity owned by the Navajo Nation, has the option to purchase the 7% interest. NTEC provided notice of its intent to exercise the option, but has not yet acquired the 7% interest. APS and NTEC are currently in discussions as to the future of the option transaction.2041. See Note 16 for additional information about Four Corners.


PNM owns 100% of Reeves, Afton, Rio Bravo, Lordsburg, and La Luz and one-third of Luna.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 9,10, Valencia is a variable interest entity and is consolidated by PNM as required by GAAP.


Nuclear Plant


PNM is participating in the three units of PVNGS, also known as the Arizona Nuclear Power Project, 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. See Note 7 for additional information concerning the PVNGS leases, including the renewal of the four PVNGS Unit 1 leases and one of the PVNGS Unit 2 leases and the purchase of the assets underlying the other three Unit 2 leases. 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 NoteNotes 16 and 17 for information on other PVNGS matters, including the NMPRC’s approval for PNM to include PVNGS Unit 3 as a jurisdictional resource to serve New Mexico retail customers beginning in 2018 and Note 17 for information concerning the NMPRC’s treatment of the purchased assets and extended leases in PNM’s NM 2015 Rate Case. See Note 8 for additional information concerning the PVNGS leases including PNM’s option to purchase or return the assets underlying four leases in PVNGS Unit 1 and one lease in PVNGS Unit 2 that expire January 2023 and January 2024, as well as waivers obtained that extend PNM’s required notice to purchase or return the assets underlying the PVNGS Unit 1 leased interests to March 16, 2020.


Solar


PNM completed several utility-owned solar PV facilities between 2011 and 2015. In addition, PNM completed its solar-storage demonstration project, which has a generation capacity of 0.5 MW. At December 31, 2017,2019, PNM owns a total of 107157 MW of solar facilities. PNMR Development began construction of 30facilities in commercial operation. PNM is also entitled to the entire output from 80 MW of newNMRD-owned solar capacity in 2017. In December 2017, interest in that 30facilities. PNM expects it will begin purchasing power from an additional 50 MW of NMRD-owned solar capacity was transferred to NMRD, which is 50% owned by PNMR Development.facilities in June 2020. As discussed in Note 17,1, NMRD is a 50% equity method investee of PNMR Development. If approved by the NMPRC, PNM’s 2018recommended resource scenario to replace the planned retirement of SJGS would result in PNM executing PPAs to purchase renewable energy procurement plan includes the addition of 50and RECs from an additional 350 MW of PNM-owned solar PVsolar-PV facilities and to be constructed in 2018procure energy and 2019. In January 2018,construct a total of 130 MW of battery storage facilities. If approved, PNM would procure power under a PPA from one of the United States imposed a 30% tariff on certain importedStates’ largest solar panels. PNM is currently unable to predictfacilities and would have one of the impact, if any,nation’s highest percentage of this tariff on these projects. The NMPRC has approved a voluntary tariff that allows PNM retail customers to buy renewable electricity for a small monthly premium. Power from 1.5 MWbattery storage capacity integration. See additional discussion of PNM’s solar capacity is used to service load under the voluntary tariff.SJGS Abandonment Application in Note 17.



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Plant Operating Statistics


Equivalent availability of PNM’s major base-load generating stations was:
Plant Operator 2017 2016 2015 Operator 2019 2018
SJGS PNM 84.1% 76.5% 67.4% PNM 73.1% 71.4%
Four Corners APS 50.6% 62.0% 77.8% APS 78.2% 61.7%
PVNGS APS 91.9% 91.4% 94.2% APS 90.8% 88.6%


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

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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. See Note 16 for a discussion of the restructuring of SJGS ownership. In December 2013, a coal supply arrangement for Four Corners that runs through July 6, 2031 was executed. As described above, Four Corners is situatedlocated on land under a leasewithin the Navajo Nation and is subject to an easement from the Navajo Nation.federal government. Portions of PNM’s interests in PVNGS Units 1 and 2 are held under leases. See Nuclear Plant above and Note 78 regarding PNM’s actions related to these leases.


On July 1, 2019, PNM submitted its SJGS Abandonment Application with the NMPRC requesting approval to retire SJGS in 2022, for replacement resources, and for issuance of securitized financing under the ETA. Many of the assumptions and findings included in PNM’s July 1, 2019 filing were consistent with those identified in PNM’s 2017 IRP. In addition, PNM’s 2017 IRP also indicates customers would benefit from PNM’s exit from Four Corners when the current coal supply agreement for that facility expires in 2031. See Notes 16 and 17 for additional information about PNM’s coal supply, PNM’s SJGS Abandonment Application, PNM’s 2017 IRP, and PNM’s 2020 IRP. 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 CCBs,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 discussiondiscussions and negotiations concerning the status of the joint projects as the expiration of basic operational agreements approaches.

PNM’s 2017 IRP, which was filed on July 3, 2017, indicates that it would be cost beneficial to PNM’s customers for PNM to retire its SJGS capacity in 2022 and for PNM to exit its ownership interest in Four Corners in 2031. See additional discussion of PNM’s 2017 IRP and PNM’s regulatory recovery of certain investments in Four Corners under the NM 2016 Rate Case, in Note 17. 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.

In 2002, PNM entered into a 25-year agreement to purchase all of the power and RECs generated by New Mexico Wind. PNM began receiving power from the project in June 2003. FPL owns and operates New Mexico Wind, which currently consists of 136 wind-powered turbines having an aggregate capacity of 204 MW on a site in eastern New Mexico. PNM also has a 20-year agreement to purchase energy and RECs from the Lightning Dock Geothermal facility built near Lordsburg, New Mexico. The current capacity of the facility is 4 MW. PNM’s 2018 renewable plan filing, which was approved by the NMPRC on November 15, 2017, included requests to procure an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind and an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal. The PPAs now expire in 2044 for New Mexico Wind and 2042 for Lightning Dock Geothermal.

In June 2013, PNM entered into a 20-year PPA with Red Mesa Wind, LLC, a subsidiary of NextEra Energy Resources, LLC, to purchase all of the power and RECs produced by Red Mesa Wind beginning on January 1, 2015. Red Mesa Wind, LLC owns and operates the facility, which consists of 64 wind-powered turbines having an aggregate capacity of 102 MW on a site west of Albuquerque.


PNM and Tri-State have a hazard sharing agreement, which expires on May 31, 2022. Under this agreement, each party sells the other party 100 MW of capacity and energy from a designated generation resource on a unit contingent basis, subject to certain performance guarantees.  Both the purchases and sales are made at the same market index price.  This agreement serves to reduce the magnitude of each party’s single largest generating hazard and assists in enhancing the reliability and efficiency of their respective operations. See Note 17 for details related to purchases and sales. Since PNM purchases and sells approximately the same amount of energy under the hazard sharing agreement, it is not included as a capacity resource in the above table.

As discussed in Note 1, PNMR Development and AEP OnSite Partners created NMRD on September 22, 2017 to pursue the acquisition, development, and ownership of renewable energy generation projects primarily in the State of New Mexico. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD, a limited liability company. In December 2017, PNMR Development made a contribution to NMRD of its interest in three 10 MW solar facilities and assigned its interests in severalhas agreements related to those facilities to NMRD. AEP OnSite Partners made a cash contribution to NMRD equal to 50% of the value of the 30 MW solar capacity, which cash was then distributed from NMRD to PNMR Development.  Power from the 30 MWs of solar capacity will be sold to PNM under 25-year PPAs to supply renewable energy to a new data center being constructed in PNM’s service territory by Facebook, Inc. (Note 17). At January 1, 2018, the first 10 MW of solar capacity was in commercial operation and the remaining capacity is expected to begin commercial operation by mid-2018.

In late 2017, PNM entered into three separate 25-year PPAs 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, 2019, renewable energy procured under these agreements from wind, solar-PV, and geothermal facilities aggregated to 356 MW, 80 MW, and 15 MW. These agreements currently have expiration dates beginning in December 2034 and extending through December 2046. The NMPRC has approved PNM’s request to enter into additional PPAs for renewable energy and RECs for an additional 166 MW of wind energy from the La Joya Wind Facility, which is expected to be usedoperational in November 2020, and for an additional 100 MW of energy from solar-PV facilities that are expected to be operational by PNMDecember 2021. PNM’s 2020 renewable energy procurement plan, which was approved by the NMPRC in January 2020, includes a 20-year PPA to supplypurchase an additional 140 MW of renewable power to Facebook, Inc. Theseenergy and RECs from the La Joya Wind Facility beginning in 2020. The costs of these PPAs are subjectpassed through to PNM’s New Mexico jurisdictional retail customers under NMPRC approvalapproved rate riders. PNM’s recommended replacement scenario for the retirement of SJGS in 2022 includes a request to enter into additional PPAs for 350 MWs of renewable energy from solar-PV facilities and PNM made a filing requesting approval on January 17, 2018 (Note 17). These PPAs include the purchase of the power and RECs from:60 MWs from battery storage facilities. See Note 17.



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Casa Mesa Wind, LLC, a subsidiary of NextEra Energy Resources, LLC., which is expected to be located near House, New Mexico, have a total capacity of 50 MW, and be operational at December 31, 2018
A 166 MW portion of the La Joya Wind Project, owned by Avangrid Renewables, LLC, which is expected to be located near Estancia, New Mexico and be operational in November 2020
Route 66 Solar Energy Center, LLC, a subsidiary of NextEra Energy Resources, LLC., which is expected to be located west of Albuquerque, New Mexico, have a total capacity of 50 MW, and be operational in December 2021


A summary of purchased power, excluding Valencia, is as follows:
Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018
Purchased under long-term PPAs        
MWh1,574,716
 1,211,852
 599,562
1,853,225
 1,626,300
Cost per MWh$29.02
 $28.26
 $22.18
$31.62
 $32.49
Other purchased power        
Total MWh445,464
 502,893
 729,895
333,137
 444,347
Cost per MWh$31.74
 $27.78
 $28.94
$43.74
 $41.46
TNMP

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


FUEL AND WATER SUPPLY
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:
 Coal Nuclear Gas and Oil
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
201756.5% $2.16
 31.9% $0.64
 9.2% $3.02
201654.1% $2.34
 31.6% $0.71
 11.8% $2.80
201553.3% $2.88
 32.6% $0.70
 12.6% $2.91
 Coal Nuclear Gas and Oil
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
201944.2% $2.80
 33.7% $0.66
 19.1% $1.35
201844.7% $2.60
 34.1% $0.58
 18.5% $2.43


In 2017, 2016,2019 and 2015, 2.4%, 2.5%,2018, 3.0% and 1.5%2.7% of PNM’s generation was from utility-owned solar, which has no fuel cost. In December 2017, SJGS Units 2 and 3 were retired and PNM assumed a greater interest in SJGS Unit 4, which results in a lower percentage of PNM’s electric generation capacity being fueled by coal. The generation mix for 20182020, including power procured under PPAs, is expected to be 44.3%41.9% coal, 29.4%31.9% nuclear, 23.8%13.1% gas and oil, and 2.5% utility-owned solar.13.1% 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 itits 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. Coal supply has not been arranged for periods after the existing contract expires. PNM believes there is adequate availability of coal resources to continue to operate SJGS. In 2018 and before entering into a binding agreement for post-2022 coal supply for SJGS PNM must file its position in a NMPRC case to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs afterthrough mid-2022.


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In late December 2013, a fifteen-year coal supply contract for Four Corners, which began in July 2016, was executed. The average coal price per ton underSince that time, certain amendments have been made to the new contract was approximately 51% higherincluding amendments to reduce annual take-or-pay minimums and to change the annual contract period to end in the twelve months ended June 30, 2017May rather than in July of each year. None of these amendments have extended the twelve months ended June 30, 2016, excluding disputed amounts discussed in Note 16.contract beyond its July 2031 expiration. The contract provides for pricing adjustments over its term based on economic indices.


See NoteNotes 16 and 17 for additional information about PNM’s coal supply.December 2018 Compliance Filing and PNM’s SJGS Abandonment Application which seeks NMPRC approval to retire SJGS in 2022. As discussed in Note 17, PNM’s 2017 IRP indicated retiring PNM’s remaining interest in SJGS in 2022 after the expiration of the current operating and coal supply agreements andalso indicates that PNM exiting ownership in Four Corners after the end of its current coal supply agreement in 2031 would provide long-term cost savings to PNM’s customers.
Natural Gas
The natural gas used as fuel for the electric generating plants is procured on the open market and delivered by third partythird-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

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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. It is likely PNM’s reliance on its natural gas generating resources will increasehas increased with the December 2017 retirement of SJGS Units 2 and 3, which will increase3. Substantially all of PNM’s exposure to fluctuations in natural gas prices although substantially all 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 PVNGPVNGS participants have contracted for 100% of PVNGS’s requirements for uranium concentrates through 20232025, and 50%30% of its requirements for 2024 and 2025. Additionally, PVNGS has contracts in various phases of negotiation to procure an additional 1.5 years supply of uranium concentrates, which would result inthrough 2028; 100% of uranium concentrate requirements being assured through 2026. The PVNGS participants have also contracted for 100% of theits requirements for conversion services through 20212025, and 46% of its requirements for 202240% through 2025. Additional contracts are being negotiated for 4.3 years supply of conversion services, which would result in2030; 100% of those services being assured through 2027. The PVNGS participants have also contracted for 100% of the requirements for enrichment services through 2020 and 20% of its enrichment services for 2021 through 2026. Additionally, PVNGS has several contracts in negotiation to procure an additional 4.3 years supply of enrichment services, which would result in 100% of those services being assured through 2021, 90% infor 2022, and 80% in 2023 through 2026. All2026; and 100% of PVNGS’sits fuel assembly fabrication services are contracted through 2024.2027.
The Nuclear Waste Policy Act of 1982 required the DOE to begin to accept, transport, and dispose of spent nuclear fuel and high levelhigh-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 interested parties have intervened in the NRC proceeding. Additionally, a numberlegal proceedings followed challenging DOE’s withdrawal of interested parties have filed a variety of lawsuits in different jurisdictions around the country challenging the DOE’s authority to withdraw theits Yucca Mountain construction authorization application. None of these lawsuits hashave been conclusively decided by the courts.decided. However, in August 2013, the DC Circuit ordered the NRC to resume its review of the application with available appropriated funds.

On October 16, 2014, the NRC issued Volume 3application. The results of the safety evaluation report developed as part of the Yucca Mountain construction authorization application. This volume addresses repository safety after permanent closure, and its issuance is a key milestone in the Yucca Mountain licensing process. Volume 3 contains the NRC staff’s finding that the DOE’s repository design meets the requirements that apply after the repository is permanently closed, including but not limited to the post-closure performance objectives in NRC’s regulations. On December 18, 2014, the NRC issued Volume 4 of the safety evaluation report developed as part of the Yucca Mountain construction authorization application. This volume covers administrative and programmatic requirements for the repository and documents the staff’s evaluation of whether the DOE’s research and development and performance confirmation programs, as well as other administrative controls and systems, meet applicable NRC requirements. Volume 4 contains the staff’s finding that most administrative and programmatic requirements in NRC regulations are met, except

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for certain requirements relating to ownership of land and water rights. Publication of Volumes 3 and 4 doesreview 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.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 NovemberDecember 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.
Water Supply


See Note 16 for information about PNM’s water supply.


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. The construction expenditure projection (Note 14) includes the environmental upgrades at Four Corners discussed in Note 16 of $7.9 million in 2018. 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
Environmental Matters under the caption “The Clean Air Act”
WEG v. OSM NEPA Lawsuit
Navajo Nation Environmental Issues
Cooling Water Intake Structures
Effluent Limitation Guidelines
Santa Fe Generating Station
Environmental Matters under the caption “Coal Combustion ByproductsResiduals Waste Disposal”
Environmental Matters under the caption “Coal Supply”


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

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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 although PNM has decided to stop pursuing wholesale generation contracts.  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.



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EMPLOYEES
The following table sets forth the number of employees of PNMR, PNM, and TNMP as of December 31, 20172019:
PNMR PNM TNMPPNMR PNM TNMP
Corporate (1)
396
 
 
388
 
 
PNM938
 938
 
915
 915
 
TNMP365
 
 365
365
 
 365
Total1,699
 938
 365
1,668
 915
 365


(1)Represents employees of PNMR Services Company.
As of December 31, 20172019, PNM had 495466 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, 2020. In December 2019, PNM and IBEW Local 611 agreed to a successor collective bargaining agreement effective May 1, 2020 through April 30, 2023. As of December 31, 20172019, TNMP had 198194 employees represented by IBEW Local 66 covered by a collective bargaining agreement that is in effect through August 31, 2019.2021. 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 control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:


The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, andthe NM Supreme Court’s decisions in the appeal of that order, the NM 2016 Rate Case appeals of those orders, theand related deferral of the issue of PNM’sthe prudence of continuation ofPNM’s decision to continue participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments inand other costs associated with that plant, and any actions resulting from PNM’s SJGS Abandonment Application, which requests NMPRC approval to retire PNM’s share of SJGS in 2022 and for recovery of undepreciated investments and other costs associated with the retirement, and/or the conclusions reached in PNM’s 2017 IRP (collectively, the “Regulatory Proceedings”) and the impact on service levels for PNM customers if the ultimate outcomes do not provide for the recovery of costs ofand operating and capital expenditures, as well as other impacts of federal or state regulatory and judicial actions
The ability of the Company to successfully forecast and manage its operating and capital expenditures, including aligning expenditures with the revenue levels resulting from the ultimate outcomes in PNM’s NM 2015 Rate Case and NM 2016 Rate Case, including appeals, and TNMP’s rate case anticipated to be filed in May 2018of the Regulatory Proceedings and supporting forecasts utilized in future test yearFTY rate proceedings
The impacts onUncertainty regarding what actions PNM may take with respect to the electricity usagegenerating capacity in PVNGS Units 1 and 2 that is under lease at the expiration of customersthe lease terms in 2023 and consumers due2024, including PNM’s decisions related to performancepurchasing or returning the assets underlying the leases, or upon the occurrence of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, and other changes in supply and demandcertain specific events, as well as the related treatment for ratemaking purposes by the NMPRC
Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, as well as the 2018 required NMPRC filing to determineoutcome of PNM’s SJGS Abandonment Application, the extent to which SJGS should continue serving PNM’s retail customers beyond mid-2022 and any actions resulting fromresults of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s

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exit from Four Corners in 2031, including regulatory recovery of undepreciated investments and other costs in the event the NMPRC orders generating facilities to be retired, before currently estimatedand 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 order in the NM 2015 Rate Case and NM 2016 Rate Case, appeals of those orders, and PNM’s 2017 IRP
Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2, which is under lease, at the expirationultimate outcomes of the lease termsRegulatory 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 2023technology, and 2024, as well as the related treatment of the NMPRC for ratemaking purposesother 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 outcome in PNM’s NM 2015 Rate Caseoutcomes of the Regulatory Proceedings
The risks associated with completion of generation, transmission, distribution, and NM 2016 Rate Case,other projects, including appeals

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counterparties to meet their obligations under certain arrangements
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, 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, tax,and taxes, including guidance related to the impacts and related uncertainties of tax reform enacted in 2017,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,
Uncertainty surrounding counterparty credit risk, including financial support provided to facilitate the coal supply and ownership restructuring at SJGS
The performanceimpacts of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality, unplanned outages, extreme weather conditions, terrorism, cybersecurity breaches, and other catastrophic eventsthe 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
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
The risks associated with completion of generation, transmission, distribution, and other projects
Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties
The risk that FERC rulemakings or lack of additional capacity during peak hours may negatively impact the operation of PNM’s transmission system
The impacts of decreases in the values of marketable securities maintained in trusts to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits, including potential increased volatility resulting from international developments, 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.



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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, including costs of replacing generating capacity as coal-fired plants areit is retired. While increased capital investments and other costs are placing upward pressure on rates charged to customers, energy efficiency initiatives and a sluggish New Mexico economyother factors are reducing usage by customers.placing downward pressure on customer usage. The combination of these matters could adversely affect the Company’s results of operations and cash flows.
 

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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 2018-20222020-2024 to be $2,712.1 million.$3.8 billion. See Note 14. PNM and TNMP anticipate a trend toward increasing costs, for which itthey will have to seek regulatory recovery. These costs include or are related to:

Coststo costs of asset construction for generation, transmission, and distribution systems necessary to provide electric service, including new generation and transmission resources, as well as the cost to remove and retire existing assets,
Environmental environmental compliance expenditures,
The regulatory mandatemandates to acquire power from renewable resources,
Increased increased regulation related to nuclear safety,
Increased increased costs related to cybersecurity, increased interest costs to finance capital investments,
Depreciation and depreciation.
 
At the same time costs are increasing, there are factors placing downward pressurespressure on the demand for power, thereby reducing load growth and customer usage. These factors include:

Changinginclude changing customer behaviors, including increased emphasis on energy efficiency measures and utilization of alternative sources of power,
Rate rate design that is not driven by economics, which could influence customer behavior,
Unfavorable unfavorable economic conditions,
Reductions in costs of self-generation energy resources and energy efficiency technology
Reduced reduced new sources of demand, and unpredictable weather patterns.
Unpredictable weather patterns

In 2017 and 2016, PNM experienced decreases in weather-normalized retail sales of 0.9% and 0.7%. The sales decreases reflect a continued sluggish economy in New Mexico. However, economic conditions in Albuquerque appear to have stabilized. The Albuquerque metro area is showing employment growth, although it continues to be lower than the national average. The economy in New Mexico continues to have mixed indicators and experience softness.


The combination of costs increasing relatively rapidly and the slowing of customer usagetechnologies 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 energy efficiency or to pursue self-generation or other alternative sources of power.measures. Without timely cost 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 future test year (“FTY”)FTY in establishing rates. As with any forward lookingforward-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, PNM filed an application for a general rate increase in December 2014, which the NMPRC dismissed in May 2015, based on the Hearing Examiners recommendation, which cited procedural defects in the filing. In August 2015, PNM filed a newan application (the “NM 2015 Rate Case”) with the NMPRC for a general rate increase, including base non-fuel revenueswhich included a request to recover certain costs related to environmental upgrades at SJGS and for the purchase of $121.5 million. The primary drivers of PNM’s identified revenue deficiency were infrastructure investments and the recovery of those investment dollars, including depreciation based on an updated depreciation study, and declinescertain interests in forecasted energy sales as a result of PNM’s successful energy efficiency programs and other economic factors. The NMPRC issued an order authorizing an increase in non-fuel revenues of $61.2 million effective beginning in October 2016.PVNGS. The NMPRC disallowed recovery of PNM’scertain capital investmentinvestments made by PNM in BDT equipment installed on SJGS Units 1 and 4, which is required by the NSR permit for SJGS (Note 16), and a portion of the acquisition costs for PNM’s January 15, 2016 purchase of 64.1 MW of PVNGS Unit 2, which were previously leased to PNM, as well as the undepreciated costs of capitalized improvements made during the period that capacity was leased.PVNGS. PNM filed an appeal of these disallowances at the NM Supreme Court and other parties filed cross-appeals to PNM appeal. In May 2019, the NM Supreme Court issued its decision on the case. The NM Supreme Court rejected the matters appealed by the cross-appellants and affirmed the NMPRC’s disallowance of certain investments in SJGS and PVNGS. The NM Supreme Court’s decision also ruled that the NMPRC’s decision to permanently disallow PNM recovery of future decommissioning costs related to certain interests in PVNGS deprived PNM of its right to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. In July 2019, the NMPRC heard oral argument from parties in the case on how to best proceed with the NM Supreme Court. OtherCourt’s remand. At oral argument, parties to that rate case have filed cross-appeals to PNM’s appeal in order to appeal other decisionspresented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC regarding issues in the rate case. On October 30, 2017,and affirmed by the NM Supreme Court heard oral argument on to re-affirming

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the case, but has not yet renderedNMPRC’s final order with a decision onsingle modification to address recovery of future PVNGS decommissioning costs in a future case. On January 8, 2020, the appealed matters and there is no required time frameNMPRC 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 athe 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 issued.addressed in a future proceeding and closed the NM 2015 Rate Case docket.


In December 2016, PNM filed a request (the “NM 2016 Rate Case”) for a general increase in rates of $99.2 million. The primary drivers of PNM’s identified revenue deficiency were implementation of the plan for SJGS to comply with the CAA,

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including the shutdown of Units 2 and 3 of SJGS, recovery of 50% of the net book value of those units, and the inclusion in retail rates of PVNGS Unit 3 as replacement power (Note 16). The requested increase also reflected new infrastructure investments, including the installation of SCRs at Four Corners, and declines in forecasted energy sales as a result of PNM’s successful energy efficiency programs and other economic factors. PNM also proposed changes in rate design to better align electric rates with the actual costs to serve customers and encourage continued energy efficiency while proposing a rate mechanism that eliminates the disincentives associated with energy efficiency and load management programs. On May 23, 2017, PNM and several signatories filed a revised comprehensive stipulation, which reduced the non-fuel revenue increase to $62.3 million and provided that PNM would only earn a debt return on its investments in SCR technology at Four Corners.(the “NM 2016 Rate Case”). In January 2018, the NMPRC issued an order which approved many aspectsapproving a comprehensive settlement stipulation allowing for an increase in annual non-fuel retail rates of the revised comprehensive stipulation with several modifications. These modifications include$10.3 million. The NMPRC’s order also included a requirement for PNM to reflect the impacts of recently enacted federal tax reform in rates beginning in 2018, apartial disallowance of PNM’s ability to collect an equity return on its $90.1 million investmentshare of certain environmental upgrades and other investments in SCRs at Four Corners and on $58.0 million of projected additional capital improvements at Four Corners, and a requirement that PNM reduce the $62.3 million non-fuel revenue requested increase by $4.4 million. The NMPRC deferred further consideration regardingof the prudency of PNM’s continuation ofcontinued participation in Four Corners to PNM’s next general rate case. On February 7, 2018, NEE filed a notice of appeal with the NM Supreme Court asking the court to review the NMPRC’s decisions in the NM 2016 Rate Case.case filing.


As discussed in Note 17,16, PNM filed itssubmitted the December 2018 Compliance Filing to the NMPRC on December 31, 2018 indicating that, consistent with the conclusions reached in PNM’s 2017 IRP, on July 3, 2017. Key findingsPNM’s customers would benefit from the retirement of PNM’s share of SJGS (subject to future NMPRC approval) after the 2017 IRP include that retiringcurrent 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, and after the expirationeffective date of the current operatingETA, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. 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 proposes 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 includes a request to issue up to $361 million of energy transition bonds (the “Securitized Bonds”). The amount of Securitized Bonds to be issued will be dependent upon several factors, including NMPRC approval.

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. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings would be evaluated under the requirements of the ETA. The NMPRC denied motions for clarification regarding the applicability of the ETA to PNM’s SJGS Abandonment Application and the Hearing Examiners assigned to the application required PNM to file legal brief regarding the extent to which the state constitution might prevent the ETA from applying to the issues in each proceeding, and provided parties the opportunity to file testimony on the merits of their claims regarding the SJGS abandonment and replacement resources if the ETA is ultimately determined to not apply to PNM’s application.

NEE and other advocacy groups filed an emergency petition for a writ of mandamus requesting the NM Supreme Court stay the SJGS abandonment and financing proceedings, declare the ETA inapplicable to such proceedings and declare certain provisions of the ETA unconstitutional because they limit the regulatory oversight responsibilities of the NMPRC. PNM and other parties also filed a petition for a writ of mandamus requesting the NM Supreme Court clarify that the reason underlying its June 2019 decision denying the stay was due to the passage of the ETA and to clarify that the ETA applies to any application filed after the stay had been lifted. The NM Supreme Court denied both PNM’s and NEE’s petitions for writ of mandamus without discussion. In December 2019, the Governor of the State of New Mexico, the President of the Navajo Nation, and several New Mexico state senators and representatives filed an emergency petition for a writ of mandamus requesting the NM Supreme Court require the NMPRC to comply with its constitutional duties and apply the ETA to every aspect of PNM’s SJGS Abandonment Application. In January 2020, the NM Supreme Court denied NEE’s and other parties petitions, granted PNM’s motion to intervene, and scheduled oral argument to be presented by the NMPRC and PNM. On January 29, 2020, and after oral argument, the NM Supreme Court issued a ruling requiring the NMPRC apply the ETA to all aspects of PNM’s SJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with their ruling should be vacated, and denying parties’ request for stay.

On February 21, 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 long-term cost savingsimmediate credits to customers for the full value of PNM’s revenue requirement related to SJGS until those reductions are reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that

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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 costs.  Exceptions to the recommended decisions are due March 4, 2020 and responses to exceptions are due March 6, 2020.  The Hearing Examiners also found that the statutory deadline for action by the Commission is April 1, 2020.

PNM’s 2017 IRP also indicates PNM’s customers and that PNM exiting its ownership interest inwould benefit from PNM’s exit from participation from Four Corners after its current coal supply agreement expires in 2031 would also provide long-term cost savings for customers.2031. The SJGS Abandonment Application and the 2017 IRP are not final determinations of PNM’s future generation portfolio.  Retiring PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, which PNM would make at appropriate times in the future.filings. NMPRC approval of new generation resources through CCN, PPA, or other applicable filings, would also be required. The NMPRC has issued regulatory orders requiring depreciation (and resultant regulatory recovery) of significant portions of these resources through estimated lives of 2053 for SJGS and 2041 for Four Corners. If

In April 2019, NEE and other parties filed a joint petition requesting the NMPRC approvesopen an investigation regarding PNM’s option to purchase the retirementassets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. In response to a NMPRC order, in May 2019 PNM submitted a filing indicating the joint petition should be denied and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. In September 2019, NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of SJGS in 2022a hearing examiner to preside over the requested proceeding and exiting Four Corners in 2031, PNM filed a response opposing the motion. On January 3, 2020, PNM notified the NMPRC that PNM had obtained 60-day waivers of the deadline to notify the lessors of its intent to purchase or return the assets underlying the PVNGS Unit 1 leases. The deadline for PNM to provide irrevocable notice of its intent to purchase or return these interests is now March 16, 2020. The deadline to provide notice under the PVNGS Unit 2 lease has not changed and remains January 15, 2021. On January 8, 2020, the NMPRC issued an order denying the petition for investigation. PNM has committed to provide the NMPRC with updates on any decisions related to these interests and will have significant un-recovered investments in those plants. PNM would seek NMPRCfile any necessary requests for approval to recover those investments from ratepayers. At December 31, 2017, the net book values of PNM’s investments in SJGS and Four Corners were $406.7 million and $165.3 million.associated with its decisions.


An adverse outcome indecision of the NM 2015 Rate Case or the NM 2016 Rate Case, including the pending appeals of those orders before the NM Supreme Court, or the decision inNMPRC regarding PNM’s next rate case on the issue regardingability to recover certain PVNGS decommissioning costs, PNM’s SJGS Abandonment Application, the prudency of PNM’s continued participation in Four Corners in PNM’s next rate case, or in any future decision made by PNM to purchase or 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 remaining investments in SJGS and Four Cornersundepreciated 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.
 
PNM currently recovers the cost of fuel for its generation facilities through its FPPAC. A new coal supply contract for SJGS, which expires on June 30, 2022, became effective on January 31, 2016 and provides for lower coal pricing than under the prior contract. In December 2013, a new fifteen-year coal supply contract for Four Corners beginning in July 2016 was executed. The average coal price per MMBTU under the new contract for Four Corners was approximately 51% higher in the twelve months ended June 30, 2017 than in the twelve months ended June 30, 2016. 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 be allowed.

PNM’s regulatory approvals from the NMPRC, which are necessary for PNM to comply with the regional haze requirements of the CAA pertaining to SJGS, have been appealed to the NM Supreme Court. Furthermore, the NMPRC approval requires PNM to make a filing in 2018 to determine the extent to which SJGS should continue to serve PNM’s retail customers after June 30, 2022, on which date the SJPPA and the current coal supply agreement will expire. PNMR has counterparty credit risk in connection with financial support 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.

SJGS, which currently comprises 26.7% of PNM’s owned and leased generation capacity and is its largest generation resource, is subject to the CAA. As discussed in Note 16, in December 2015, the NMPRC approved a plan enabling SJGS to comply with the CAA (the “BART Approval”). The plan required the shutdown of SJGS Units 2 and 3 by December 31, 2017 and the shutdown was completed by that date. NEE, an intervenor in the NMPRC proceeding regarding the approval of the plan, has appealed the BART Approval to the NM Supreme Court. NEE has also filed a complaint with the NMPRC against PNM regarding the financing provided by NM Capital, a subsidiary of PNMR, to facilitate the sale of SJCC, which is discussed below and described under Coal Supply in Note 16. The complaint alleges that PNM failed to comply with its discovery obligation in

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the SJGS abandonment case and requests the NMPRC to investigate whether the financing transactions could adversely affect PNM’s ability to provide electric service to its retail customers. The NMPRC has taken no action on this matter. If the NM Supreme Court were to negate the BART Approval, it is unclear what the impact would be since SJGS Units 2 and 3 have been retired and ownership of SJGS has been restructured.

The BART Approval also requires PNM to make a filing with the NMPRC no later than December 31, 2018, and before entering into an agreement for post-2022 coal supply for SJGS, setting forth its position in a case to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after mid-2022. The existing SJPPA among the SJGS participants, which governs the operations of SJGS, expires on July 1, 2022 and the new SJGS CSA for coal supply at SJGS described in Note 16 expires on June 30, 2022. PNM has the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In order to extend, PNM must give written notice of that intent to the miner by July 1, 2018 and the parties must agree to the terms of the extension by January 1, 2019.

As discussed in Note 17, PNM’s 2017 IRP indicates that retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreements and exiting ownership in Four Corners after the current coal supply agreement expires in 2031 would provide long-term cost savings for PNM’s customers. The 2017 IRP addresses a 20-year planning period, from 2017 through 2036, and includes an action plan describing PNM’s plan to implement the 2017 IRP in the four-year period following its filing.

The restructuring of SJGS ownership and obtaining the new coal supply for SJGS were integral components of the process to achieve compliance with the CAA at SJGS. The effectiveness of the new SJGS CSA was dependent on the closing of the purchase of the existing coal mine operation by a new mine operator. In support of the closing of the mine purchase, NM Capital provided a loan of $125.0 million to the purchaser, which has been organized to be a bankruptcy-remote entity. In addition, 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 mine’s operating permit. See Note 6 and Note 16.

The inability to operate SJGS or Four Corners prior to the planned retirement dates, or their early retirement would require approvalthe NMPRC’s denial, modification or delay of the NMPRC andPNM’s application 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 that the NMPRC would approve early retirement or thatwill determine PNM’s decision to continue its participation in Four Corners was prudent and continue to provide PNM recovery of any undepreciated investments through rates chargedits costs related to customers would be authorized.that facility. In addition, there can be no assurance the NMPRC will approve any future application by PNM to retire Four Corners or other generation interests. 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 economic.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 SJGS and Four Corners,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 SJGS and/or Four Cornerscertain generating facilities or the ability or willingness of individual participants to continue their participation through the periods currently contemplated in them.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. 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.


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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.

The restructuring of SJGS ownership and obtaining the new coal supply for SJGS from the current San Juan mine operator were integral components of a process to achieve compliance with the CAA at SJGS. 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.

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.


Environmental policies and regulations remain significant concerns for PNMR. Compliance with federal, state, tribal, and local environmental laws and regulations, including those addressing climate change, air quality, CCBs,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 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 statutes and ruleslaws 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 mandated standards of performancerequired states to develop and implement plans to ensure compliance with emissions guidelines that would limit carbon dioxide emissionsGHG from existing power plants. Individual states would develop and implement plans to ensure compliance with the proposed standards. Currently, the Clean Power Plan is stayed and under review. The Trump Administration has also proposed to repealrepealed the Clean Power Plan and is considering a possible replacement rule.has published the Affordable Clean Energy rule, which requires states to set performance standards consistent with the EPA’s determination of “best system of emission reduction” technology. In addition, on June 1, 2017, President Trump announced that the United StatesU.S. would withdraw from the Paris Agreement. On November 4, 2019, President Trump announced that the U.S. has notified the United Nations that the U.S. will withdraw from the Paris Agreement on climate change. While the U.S. will be able to withdraw officially from the Paris Agreement in November 2020, a future administration would have the opportunity to rejoin. Therefore, PNMR is dealing with an uncertain regulatory and policy environment. While EPA and other federal agencies may be seeking to reduce climate change regulations,

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some state agencies, environmental advocacy groups, and other organizations have been focusing considerable attention on GHG from power generation facilities. See discussion above and Note 17, regarding PNM’s SJGS Abandonment Application 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. This includes new, existing, and modified or reconstructed EGUs.EGUs which are also being considered in a proposed rule by EPA to revise the GHG NSPS rule. The uncertainty regarding climate change regulation presents challenges and represents a possible shift of greater authority to the states to make decisions and issue and enforce regulations. Federal and/or state regulations could result in additional operating restrictions on facilities and increased generation and compliance costs.


CCBsCCRs from the operation of SJGS are currently being used in the reclamation of a surface coal mine. These CCBsCCRs consist of fly ash, bottom ash, and gypsum. Any new regulation that would affect the reclamation process, including mine useany future decision regarding classification of CCBs being classifiedCCRs as hazardous waste or non-hazardous waste, could significantly increase the costs of the disposal of CCBsCCRs 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, which wouldarea. Those determinations require facilities to reduce the levels of NOx emitted at both plants.visibility-impairing emissions, including NOx. Significant capital expenditures have been made at SJGS and are continuing at Four Corners for the installation of control technology, resulting

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in operating costscost 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 preparing its next regional haze SIP and has notified PNM that they will not require PNM to complete a regional haze four-factor analysis for SJGS, provided the plant under PNM’s ownership is planning to close 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, including the Clean Power Plan, how CCBs used for mine reclamation will be regulated,CCRs and regulation of other power plant emissions, including changes to the ambient air quality standards, 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 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 Trump 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:

Ratesto rates charged by PNM and TNMP,
Rates rates charged by REPs utilizing TNMP’s facilities to deliver power,
Energy energy efficiency initiatives,

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Availability availability and cost of alternative sources of power,
National, and national, regional, or local economic conditionsconditions.


These factors and others may prompt customers to institute additional energy efficiency measures or take other actions that would result in lower powerenergy 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-mandatedincluding federally-mandated base closures, or significant curtailment of the activities at the bases or national laboratories,
Closure and closure of industrial facilities or significant curtailment of their activitiesactivities.
 

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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. It is possible that further advances in technology will continue to reduce the costs of these alternative methods of producing power to a level that is competitive with that of central station power production. AdvancesContinued advances being made in the capabilities forof energy storage could also have impacts onfurther decrease power production by PNM as it would be increasingly simple to reduceand peak usage by dispatchingthrough the dispatch of more battery systems. This could result in demand reduction that could negatively impact revenue and/or result in underutilized assets that had been built to serve peak usage. IfIn 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 and achieve economies of scale,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. PNMplants and is obligated to pay for the costs of decommissioning its share of the power plants.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 in accordance with GAAP. These estimates include many assumptions about future events and are inherently imprecise. As discussed above, on July 1, 2019, PNM submitted its SJGS Abandonment Application requesting NMPRC approval to retire PNM’s share of SJGS in Note 17,2022. The SJGS Abandonment Application includes a request to recover PNM’s share of reclamation related to the underground mine that serves SJGS as well as other costs associated with retiring the facility. In addition, PNM’s 2017 IRP indicates that retiring PNM’s share of SJGS in 2022 and exiting PNM’s ownership interest in Four Corners in 2031 would provide long-term cost savings for customers. Should those events occur,See additional discussion of PNM’s December 2018 Compliance Filing, the costs of reclamation for the coal mines serving those plants would increaseSJGS Abandonment Application, and the increases could be significant.its 2017 IRP in Notes 16 and 17. In the event any of thesethe costs to decommission those 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 unless the NMPRC authorizes recovery of the additional costs from ratepayers.impacted. In addition, the NMPRC’s order in the NM 2015 Rate Case (Note 17) disallowsdisallowed recovery of future contributions for the decommissioning of certain portions of PVNGS. The NM Supreme Court determined that the NMPRC’s decision to not provide PNM has appealedrecovery of future contributions for the decommissioning of certain portions of PVNGS denied PNM due process of law and remanded the matter to the NMPRC decisionfor consideration consistent with the court’s findings. On January 8, 2020, the NMPRC amended its order in the NM 2015 Rate Case, oral argument has been held,case to remove the disallowance of certain decommissioning costs and the appeal isindicated this matter will be addressed in a future docket. See Note 17.

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pending before the NM Supreme Court. An adverse outcome of the appeal could negatively impact PNM’s future results of operations, cash flows, and liquidity.


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.


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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. As indicated above,PNM’s SJGS Units 2 and 3 were shut down in December 2017. Also, PNM’s 2017 IRP indicates that retiringAbandonment Application requests NMPRC approval to retire PNM’s share of SJGS after the coal supply agreement for that facility expires in 2022 andmid-2022. PNM’s 2017 IRP also indicates that PNM exiting its ownership interest in Four Corners in 2031 would also provide long-term cost savings for customers. These actions will increase PNM’s dependency on other generation resources, particularlyincluding 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 electric 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. Assured supplies of water are important for PNM’s generating plants. Water in the southwestern United States is limited and there are conflicting claims regarding water rights. In addition, the “four corners” region where SJGS and Four Corners are located is prone to drought conditions, which could potentially affect the plants’ water supplies. 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 used to transport power, 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 cybersecurity threats and respond to data security incidents, the techniques used by those who wish to obtain unauthorized access, and possibly disable or sabotage systems and/or abscond with confidential information and data, change frequently and the Company may not be able to protect against all such actions.


In the event a capable party desiresattempts to disrupt the bulk powergeneration, transmission, or transmissiondistribution systems in the United States,U.S., the Company’s computer and operating systems could be subject to physical or cybersecurity attack.  Although the Company has implemented security measures to identify, prevent, detect, respond to, and recover from cyber and physical security events, 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.  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 significant 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. Moreover, aA breach of the Company’s information technology systems could also lead to the loss and destruction of confidential and proprietary data, customer and employee data (which may include personally identifiable information, such as names, addresses, phone numbers, email addresses

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and payment account 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 a materialan 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 19.1%14.6% of PNM’s total owned and leased generating capacity.capacity as of December 31, 2019. PVNGS is subject to environmental, health, and financial risks including but not limited to:
Theto the ability to obtain adequate supplies of nuclear fuel and water,
The the ability to dispose of spent

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nuclear fuel,
Decommissioning decommissioning of the plant (see above)
Securing, securing the facilities against possible terrorist attacks,
Unscheduled and unscheduled outages due to equipment failuresfailures.
 
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.

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


PNM is obligated to supply power to retail customers and certain wholesale customers. At peak times, power demand could exceed PNM’s available generation capacity, particularly if PNM’s power plants are not performing as anticipated. In addition, SJGS unitsUnits 2 and 3 were shut down in December 2017 and PNM is currently seeking NMPRC approval to retire PNM’s share of SJGS in 2022. In addition, PNM’s 2017 IRP indicates that it would also save customers money for PNM to shut down the remaining two units of SJGS in 2022 and to exit ownership in Four Corners in 2031. SJGS and Four Corners comprise a significant portion of PNM’s base load generation capacity and their retirement would increase reliance on other existing or new generating and/or battery storage resources. Market forces, competitive forces, or adverse regulatory actions may require PNM to purchase capacity on the open market or build additional generation capabilities.resources to meet customers’ energy needs. Regulators or market conditions may not permit PNM to pass all of these purchases or construction costs on to customers. If that occurs, PNM may not be able to fully recover these costs or there may be 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.


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.

General Economic and Weather Factors
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 impactaffect 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,

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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.
 
Uncertainties regarding the impacts and implementation
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Table of recent United States tax reform legislation may negatively impact PNMR’s, PNM’s, and TNMP’s businesses, financial position, results of operations, and cash flows.Contents


On December 22, 2017, comprehensive changes in United States federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). 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 effective September 28, 2017, and, effective January 1, 2018, limits interest deductibility for non-utility businesses and limits the deductibility of certain officer compensation. In December 2017, the SEC issued Staff Accounting Bulletin No. 118, which provides guidance to address the application of GAAP to reflect the Tax Act in circumstances where all information and analysis of the Tax Act is not yet available or complete. This bulletin provides for up to a one-year period in which to complete the required analyses and accounting for the impacts of the Tax Act.

In accordance with GAAP, the Company adjusted its deferred tax assets and liabilities as of December 31, 2017 resulting in increases in regulatory liabilities related to adjustments of net deferred tax liabilities associated with regulated activities, which will be returned to PNM’s and TNMP’s ratepayers over time, and increases in income tax expense related to adjustments of net deferred tax assets related to items excluded from regulated activities. The Company believes it has made reasonable estimates of the effects of the Tax Act as of December 31, 2017 and reflected the impacts in the Consolidated Financial Statements.

The Company currently 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, primarily interest expense on holding company debt, will be negatively impacted by the reduced rate. Furthermore, there is uncertainty regarding the interpretation of the provision of the Tax Act that limits the deductibility of interest for non-utility businesses under the interest expense allocation methodology that is generally used by the utility industry.

It is possible that changes to U.S. Treasury regulations, IRS interpretations of the provisions of the Tax Act, actions by the NMPRC, PUCT, and FERC, or the Company’s further analysis of historical records could cause the estimates of the impacts recorded as of December 31, 2017 to change or cause the Company’s current assessment of future impacts to change. Any such change could adversely affect the Company’s financial position, results of operations, and cash flows.


The operating results of PNMR and its operating subsidiaries fluctuate on aare seasonal and quarterly basis, as well as beingare 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.
Assured supplies of water are important for PNM’s generating plants. 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.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.

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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 incomeearnings 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, the Company’sPNMR’s financing agreements generally include a covenant to maintain a debt-to-capitaldebt-to-capitalization ratio that does not exceed 65%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:

Theupon the extent to which cash flows will support dividends,
The the Company’s financial circumstances and performance,
Decisions 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 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 conditions imposed by the NMPRC, PUCT, or Federal Power Act,
The and the effect of federal regulatory decisions and legislative actsacts.
Economic conditions in the United States and in the Company’s service areas
Future growth plans and the related capital requirements
Other business considerations


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 2018-20222020-2024, including capital requirements related to its investment in NMRD, to be $2,712.1 million.$3.8 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:
Anby an economic recession,
Declines declines in the health of the banking sector generally or the failure of specific

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banks who are parties to the Company’s credit facilities,
Deterioration deterioration in the overall health of the utility industry,
The the bankruptcy of an unrelated energy company,
War, war, terrorist attacks, or cybersecurity attacks, or threatened attacksattacks.
 
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 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.
 

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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. On January 16, 2018, S&P changed the outlook for PNMR, PNM and TNMP from stable to negative while affirming the investment grade ratings of each entity. 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. 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. 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.


Through 2017,The pension plans’ targeted asset allocation is 50% return generating and 50% liability matching fixed income. The Company uses a strategy, known as Liability Driven Investing, which seeks to select investments that match the Company targeted 21%liabilities of itsthe pension trust fundsplans. 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 70% of its trust funds for other postretirement benefits to be invested in marketable equity securities. Historically, over one-half of funds held in the NDTequities and mine reclamation trusts have been invested in marketable equity securities. 30% fixed income.

Due to the current funded status of the NDT and recent overall market performance, PNM began re-balancing the NDT investment portfolio with a target of 85% fixed income (debt) securities. The re-balancing was completed in January 2018 and increases the exposure ofhas re-balanced the NDT investment portfolio to interest rate risk.a target of 80% fixed income securities. The Company is also contemplating decreasing itscurrent asset allocation target beginning in 2018 for liability matching fixed-income securities inexposes the pension trusts from 65%NDT investment portfolio to 50%.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 requiresrequired that all changes in the fair value of equity securities recorded on the Company’s balance sheet be reflected in earnings beginning in 2018, which could resultresults 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 181 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

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“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 7.8. If these events were to occur, there is no assurance PNM would be provided cost recovery from customers.

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 further changes to U.S. Treasury regulations, IRS interpretations of the provisions of the Tax Act, actions by the NMPRC, PUCT, and FERC could cause the Company’s expectations of the impacts of the Tax Act to change. Any such change 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

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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 stockholdersshareholders
 
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.



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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, 2017,2019, PNM owned, or jointly owned, 3,2003,206 miles of electric transmission lines, 6,0636,071 miles of distribution overhead lines, 5,8285,934 miles of underground distribution lines (excluding street lighting), and 254255 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, data processing, communication, office and other equipment, office space, vehicles, and real estate. PNM also owns and leases service and office facilities in Albuquerque and in other areas throughout its service territory. See Note 78 for additional information concerning leases, including PNM’s renewal of certain of the PVNGS leases and exercise of its option to purchase the assets underlying certain other leases at the expiration of the original lease terms. See Note 9 for additional information about Valencia.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, 2017,2019, TNMP owned 978981 miles of overhead electric transmission lines, 7,1197,236 miles of overhead distribution lines, 1,2411,324 miles of underground distribution lines, and 116125 substations. Substantially all of TNMP’s property is pledged to secure its first mortgage bonds. See Note 6.7.



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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


The Clean Air Act – Regional Haze – SJGSNEE Complaint
The Clean Air Act – Regional Haze – Four Corners – Four Corners Federal Agency Lawsuit
WEG v. OSM NEPA Lawsuit
Navajo Nation Environmental Issues
Santa Fe Generating Station
Coal Supply – Four Corners – Four Corners Coal Supply ArbitrationCombustion Residuals Waste Disposal
Continuous Highwall Mining Royalty Rate
PVNGS Water Supply Litigation
San Juan River Adjudication
Rights-of-Way Matter
Navajo Nation Allottee Matters
Sales Tax Audits


Note 17

PNM – New Mexico General Rate Cases
PNM – Renewable Portfolio Standard
PNM – Renewable Energy Rider
PNM – Energy Efficiency and Load Management
PNM – Integrated Resource Plans
PNM – San Juan Generating Station Units 2 and 3 Retirement
PNM – Advanced Metering InfrastructureSJGS Abandonment Application
TNMP – Transmission Cost of Service Rates
TNMP – Order Related to Changes in Federal Income Tax Rates


ITEM 4.MINE SAFETY DISCLOSURES


Not Applicable.



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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 23, 201821, 2020 and offices held with PNMR for the past five years are as follows:
Name Age Office Initial Effective Date
P. K. Collawn 5961 Chairman, President, and Chief Executive Officer January 2012
C. N. EldredJ. D. Tarry 6449 ExecutiveSenior Vice President and Chief Financial Officer July 2007January 2020
P. V. Apodaca 66 Senior Vice President, General Counsel,Controller and SecretaryTreasurer January 2010September 2018
R. N. Darnell 60Senior Vice President, Public PolicyJanuary 2012
J. D. Tarry47 Vice President, Finance and Controller February 2017
    Vice President, Corporate Controller, and Chief Information Officer April 2015
    Vice President, Customer Service and Chief Information Officer May 2012
C. N. Eldred

66Executive Vice President, Corporate Development and FinanceJanuary 2020
Executive Vice President and Chief Financial OfficerJuly 2007
P. V. Apodaca68Senior Vice President, General Counsel, and SecretaryJanuary 2010
R. N. Darnell62Senior Vice President, Public PolicyJanuary 2012
C. M. Olson 6062 Senior Vice President, Utility Operations February 2018
    Vice President, Utility Operations December 2016
    Vice President, Generation – PNM November 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 (Symbol: PNM). Ranges of sales prices of PNMR’s common stock, reported as composite transactions, and dividends declared onunder the common stock for 2017 and 2016, by quarter, are as follows:symbol “PNM”.
Quarter Ended
Range of
Sales Prices
 Dividends Declared Per Share
 High Low 
2017     
March 31$37.60
 $33.45
 $0.2425
June 3040.00
 36.30
 0.2425
September 3042.95
 37.35
 0.2425
December 3145.50
 40.20
 0.2650
Fiscal Year45.50
 33.45
 0.9925
2016     
March 31$34.07
 $29.22
 $0.2200
June 3035.46
 30.62
 0.2200
September 3036.15
 31.20
 0.2200
December 3134.53
 30.95
 0.2425
Fiscal Year36.15
 29.22
 0.9025

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 $0.22$0.265 per share in July 20162018 and $0.2425$0.29 per share in July 2017,2019, which are reflected as being in the second quarter above.quarter. The Board declared dividends on common stock considered to be for the third quarter of $0.22$0.265 per share in September 20162018 and $0.2425$0.29 per share in September 2017,2019, which are reflected as being in the third quarter above. On February 23, 2018,21, 2020, the Board declared a quarterly dividend of $0.2650$0.3075 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 earnings determined in accordance with GAAP 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 20, 2018,21, 2020, there were 8,9468,219 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. Settlement of the forward sale agreements is expected to occur on or prior to January 7, 2021.

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 56 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, 2019, 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 20172019 and 2016.2018. 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
         
2017 2016 2015 2014 20132019 2018 2017 2016 2015
(In thousands except per share amounts and ratios)(In thousands except per share amounts and ratios)
Total Operating Revenues$1,445,003
 $1,362,951
 $1,439,082
 $1,435,853
 $1,387,923
$1,457,603
 $1,436,613
 $1,445,003
 $1,362,951
 $1,439,082
Net Earnings$95,419
 $131,896
 $31,078
 $130,909
 $115,556
$92,131
 $101,282
 $95,419
 $131,896
 $31,078
Net Earnings Attributable to PNMR$79,874
 $116,849
 $15,640
 $116,254
 $100,507
$77,362
 $85,642
 $79,874
 $116,849
 $15,640
Net Earnings Attributable to PNMR per Common Share                  
Basic$1.00
 $1.47
 $0.2
 $1.46
 $1.26
$0.97
 $1.07
 $1.00
 $1.47
 $0.20
Diluted$1.00
 $1.46
 $0.2
 $1.45
 $1.25
$0.97
 $1.07
 $1.00
 $1.46
 $0.20
Cash Flow Data                  
Net cash flows from operating activities$524,462
 $415,454
 $386,874
 $414,876
 $386,587
$503,163
 $428,226
 $523,462
 $408,283
 $395,045
Net cash flows from investing activities$(466,163) $(699,375) $(544,528) $(485,329) $(331,446)$(673,898) $(475,724) $(466,163) $(699,375) $(544,528)
Net cash flows from financing activities$(58,847) $242,392
 $175,431
 $96,194
 $(61,593)$172,446
 $45,646
 $(58,847) $242,392
 $175,431
Total Assets$6,646,103
 $6,471,080
 $6,009,328
 $5,790,237
 $5,426,858
$7,298,774
 $6,865,551
 $6,646,103
 $6,471,080
 $6,009,328
Long-Term Debt, including current installments$2,437,645
 $2,392,712
 $2,091,948
 $1,962,385
 $1,730,749
$3,007,717
 $2,670,111
 $2,437,645
 $2,392,712
 $2,091,948
Financing Leases(1)
$8,739
 $
 $
 $
 $
Common Stock Data                  
Market price per common share at year end$40.45
 $34.30
 $30.57
 $29.63
 $24.12
$50.71
 $41.09
 $40.45
 $34.30
 $30.57
Book value per common share at year end$21.28
 $21.04
 $20.78
 $21.61
 $21.01
$21.07
 $21.20
 $21.28
 $21.04
 $20.78
Tangible book value per share at year end$17.79
 $17.55
 $17.28
 $18.12
 $17.52
$17.58
 $17.70
 $17.79
 $17.55
 $17.28
Average number of common shares outstanding – diluted80,141
 80,132
 80,139
 80,279
 80,431
79,990
 80,012
 80,141
 80,132
 80,139
Dividends declared per common share$0.9925
 $0.9025
 $0.8200
 $0.7550
 $0.6800
$1.1775
 $1.0850
 $0.9925
 $0.9025
 $0.8200
Capitalization                  
PNMR common stockholders’ equity40.9% 41.1% 44.0% 46.6% 49.0%35.8% 38.6% 40.9% 41.1% 44.0%
Preferred stock of subsidiary, without mandatory redemption requirements0.3
 0.3
 0.3
 0.3
 0.3
0.2
 0.3
 0.3
 0.3
 0.3
Long-term debt58.8
 58.6
 55.7
 53.1
 50.7
64.0
 61.1
 58.8
 58.6
 55.7
100.0% 100.0% 100.0% 100.0% 100.0%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 SUBSIDIARIESCOMPARATIVE OPERATING STATISTICS
         
2017 2016 2015 2014 20132019 2018 2017 2016 2015
(In thousands)(In thousands)
PNM Revenues                  
Residential$419,105
 $395,490
 $427,958
 $411,412
 $411,579
$427,883
 $433,009
 $419,105
 $395,490
 $427,958
Commercial408,354
 394,150
 437,279
 428,085
 415,621
396,987
 408,333
 408,354
 394,150
 437,279
Industrial58,851
 56,650
 75,308
 73,002
 74,552
69,601
 61,119
 58,851
 56,650
 75,308
Public authority23,604
 23,174
 26,202
 25,278
 25,745
20,322
 21,688
 23,604
 23,174
 26,202
Economy service30,645
 31,121
 35,132
 39,123
 32,909
25,757
 26,764
 30,645
 31,121
 35,132
Transmission45,932
 34,267
 33,216
 38,284
 38,228
57,214
 54,280
 45,932
 34,267
 33,216
Firm-requirements wholesale4,468
 22,497
 31,263
 38,313
 42,370

 
 4,468
 22,497
 31,263
Other sales for resale (1)
101,897
 70,375
 63,195
 82,508
 67,538
81,934
 76,168
 101,897
 70,375
 63,195
Mark-to-market activity1,317
 (1,645) (5,270) 5,996
 293
(997) (1,051) 1,317
 (1,645) (5,270)
Other10,057
 9,834
 6,912
 5,913
 7,477
Other miscellaneous (2)
13,134
 14,098
 10,057
 9,834
 6,912
Alternative revenue programs (3)
1,987
 (2,443) 
 
 
Total PNM Revenues$1,104,230
 $1,035,913
 $1,131,195
 $1,147,914
 $1,116,312
$1,093,822
 $1,091,965
 $1,104,230
 $1,035,913
 $1,131,195
TNMP Revenues                  
Residential$126,587
 $124,462
 $120,771
 $114,826
 $111,373
$150,742
 $130,288
 $126,587
 $124,462
 $120,771
Commercial106,503
 103,174
 102,956
 99,701
 95,098
116,953
 111,261
 106,503
 103,174
 102,956
Industrial18,140
 17,427
 16,316
 15,049
 13,084
22,405
 17,317
 18,140
 17,427
 16,316
Other89,543
 81,975
 67,844
 58,363
 52,056
Other miscellaneous76,210
 81,583
 89,543
 81,975
 67,844
Alternative revenue programs (3)
(2,529) 4,199
 
 
 
Total TNMP Revenues$340,773
 $327,038
 $307,887
 $287,939
 $271,611
$363,781
 $344,648
 $340,773
 $327,038
 $307,887


(1) Includes sales to Tri-State under hazard sharing agreement (Note 17).
(2) For the years ended December 31, 2019 and 2018, $6.8 million and $7.6 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.
2019 2018 2017 2016 2015
PNM MWh Sales                  
Residential3,136,066
 3,189,527
 3,185,363
 3,169,071
 3,304,350
3,227,338
 3,250,560
 3,136,066
 3,189,527
 3,185,363
Commercial3,774,417
 3,831,295
 3,800,472
 3,874,292
 3,954,774
3,732,099
 3,814,659
 3,774,417
 3,831,295
 3,800,472
Industrial850,914
 875,109
 957,308
 984,130
 1,041,160
1,152,536
 879,308
 850,914
 875,109
 957,308
Public authority250,500
 249,860
 246,496
 251,187
 266,368
231,538
 241,238
 250,500
 249,860
 246,496
Economy service722,501
 805,733
 796,430
 758,629
 719,342
Firm-requirements wholesale87,600
 429,345
 444,495
 527,597
 654,135
Other sales for resale (1)
3,632,137
 2,899,322
 2,110,947
 2,271,480
 2,061,851
Economy service(1)
670,128
 667,288
 722,501
 805,733
 796,430
Firm-requirements wholesale (2)

 
 87,600
 429,345
 444,495
Other sales for resale (3)
2,842,759
 2,525,220
 3,632,137
 2,899,322
 2,110,947
Total PNM MWh Sales12,454,135
 12,280,191
 11,541,511
 11,836,386
 12,001,980
11,856,398
 11,378,273
 12,454,135
 12,280,191
 11,541,511
TNMP MWh Sales                  
Residential2,936,291
 2,933,938
 2,912,019
 2,802,768
 2,796,661
3,044,760
 3,094,965
 2,936,291
 2,933,938
 2,912,019
Commercial2,793,263
 2,742,366
 2,654,102
 2,583,664
 2,472,979
3,401,288
 3,186,788
 2,793,263
 2,742,366
 2,654,102
Industrial3,202,528
 2,976,800
 2,804,919
 2,708,151
 2,576,762
4,281,962
 3,681,480
 3,202,528
 2,976,800
 2,804,919
Other94,767
 98,596
 100,999
 102,118
 104,516
99,863
 100,300
 94,767
 98,596
 100,999
Total TNMP MWh Sales9,026,849
 8,751,700
 8,472,039
 8,196,701
 7,950,918
10,827,873
 10,063,533
 9,026,849
 8,751,700
 8,472,039


(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 (Note 17).




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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
          
 2019 2018 2017 2016 2015
PNM Customers         
Residential473,803
 470,192
 465,950
 462,921
 459,353
Commercial57,369
 57,000
 56,655
 56,357
 56,107
Industrial201
 236
 239
 247
 250
Economy service1
 1
 1
 1
 1
Other sales for resale26
 39
 36
 36
 39
Other930
 932
 931
 887
 908
Total PNM Customers532,330
 528,400
 523,812
 520,449
 516,658
TNMP Consumers         
Residential213,435
 210,696
 207,788
 204,744
 202,359
Commercial41,054
 40,508
 39,814
 39,817
 39,014
Industrial96
 88
 82
 66
 70
Other1,911
 1,924
 1,948
 1,993
 2,018
Total TNMP Consumers256,496
 253,216
 249,632
 246,620
 243,461
PNM Generation Statistics         
Net Capability – MW, including PPAs (1)
2,761
 2,661
 2,580
 2,791
 2,787
Coincidental Peak Demand – MW1,937
 1,885
 1,843
 1,908
 1,889
Average Fuel Cost per MMBTU$1.716
 $1.808
 $1.704
 $1.821
 $2.168
BTU per KWh of Net Generation10,055
 10,193
 10,396
 9,975
 10,456
          
(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.



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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
 2017 2016 2015 2014 2013
PNM Customers         
Residential465,950
 462,921
 459,353
 455,907
 453,218
Commercial56,655
 56,357
 56,107
 55,853
 55,447
Industrial239
 247
 250
 249
 251
Economy service1
 1
 1
 1
 1
Other sales for resale36
 36
 39
 39
 34
Other931
 887
 908
 911
 928
Total PNM Customers523,812
 520,449
 516,658
 512,960
 509,879
TNMP Consumers         
Residential207,788
 204,744
 202,359
 199,963
 196,799
Commercial39,814
 39,817
 39,014
 38,033
 37,460
Industrial82
 66
 70
 70
 70
Other1,948
 1,993
 2,018
 2,044
 2,070
Total TNMP Consumers249,632
 246,620
 243,461
 240,110
 236,399
PNM Generation Statistics         
Net Capability – MW, including PPAs (1)
2,580
 2,791
 2,787
 2,707
 2,572
Coincidental Peak Demand – MW1,843
 1,908
 1,889
 1,878
 2,008
Average Fuel Cost per MMBTU$1.704
 $1.821
 $2.168
 $2.415
 $2.237
BTU per KWh of Net Generation10,396
 9,975
 10,456
 10,422
 10,308
          
(1) 2017 amount is 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



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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 2018 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 773,000789,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:


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


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


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


Earning Authorized Returns on Regulated Businesses


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


Fair and timely rate treatment from regulators is crucial to PNM and TNMP in earning their allowed returns and critical for PNMR to achieve its strategic goals. PNMR believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the Company’s ratings could lower costs to utility customers. Also, earning allowed returns should result in increased earnings for PNMR. Additional information about rate filings is provided in Note 17.


State Regulation


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

On September 28, 2016, the NMPRC issued an increase in base non-fuel revenues of $121.5 million based on a future test year (“FTY”) beginning October 1, 2015. The primary drivers of the revenue deficiency were infrastructure investments and declines in forecasted energy sales due to successful energy efficiency programs and other economic factors. PNM also proposed changes to rate design to provide fairer pricing across rate classes and better align cost recovery with cost causation.

Following public hearings, the Hearing Examinerorder in the case issuedthat included a recommended decision in August 2016 proposing an increase in non-fuel revenues of $41.3 million (the “August 2016 RD”). The NMPRC’s September 26, 2016 order approved many aspects of the August 2016 RD, including the determination that PNM was imprudent in purchasing 64.1 MW of previously leased capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing BDT

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equipment on SJGS Units 1 and 4. However, the order also made certain significant modifications to the August 2016 RD. Major components of the difference between the increase in non-fuel revenues approved in the order and PNM’s request, include:included:



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A ROE of 9.575%, compared to the 10.5% requested by PNM
Inclusion of the January 2016 purchase of the assets underlying three leases of capacity, totaling 64.1 MW of PVNGS Unit 2 (Note 7) at an initial rate base value of $83.7 million, compared to PNM’s request for recovery of the fair market value purchase price of $163.3 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which costs totaled $43.8 million when the order was issued
Disallowance of recovery of the costs associated with converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS; PNM’s share of the costs of installing the BDT equipment was $52.3 million, $40.0 million of which PNM requested be included in rate base in the NM 2015 Rate Case
Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016 and the 114.6 MW of the leased capacity in PVNGS Units 1 and 2 that were extended for eight years beginning January 15, 2015 and 2016 (Note 7)
Disallowance of recovery of the costs associated with converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS (Note 16), but allows recovery of avoided operating and maintenance expenses of $0.3 million annually related to BDT; PNM’s share of the costs of installing the BDT equipment was $52.3 million, $40.0 million of which PNM requested be included in rate base in the NM 2015 Rate Case
Disallowance of recovery of $4.5 million of amounts recorded as regulatory assets and deferred charges

The order continued the renewable energy rider and approved certain aspects of PNM’s proposals regarding rate design, but did not approve certain other rate design proposals or PNM’s request for a revenue decoupling pilot program. The order also proposed changes in the methods of recovering certain costs through PNM’s FPPAC and renewable energy rider. The order credited retail customers with 100% of the New Mexico jurisdictional portion of revenues from “refined coal” (a third-party pre-treatment process) at SJGS. The order approved PNM’s proposals for revised depreciation rates (with certain exceptions), and the ratemaking treatment of the “prepaid pension asset.”


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

Disallowance of recovery of the full fair market value purchase price of the 64.1 MW of capacity in PVNGS Unit 2, purchased in January 2016
Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM,
Disallowance the costs of recovery ofconverting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases
Disallowance of recovery of the costs of converting SJGS Units 1 and 4 to BDT

leases. NEE, NMIEC,NM AREA, and ABCWUA filed notices of cross appealcross-appeal to PNM’s appeal. The issues that are being appealed by the various cross-appellants are:

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


NEE subsequently filed a motion for a partial stayDuring the pendency of the order at the NM Supreme Court, which was denied. The NM Supreme Court stated that the court’s intent was to request that PNM reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits.

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


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appeal, PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the likelihood of being successful on the issues it is appealing inrelated appeals to the NM Supreme Court as required under GAAP. The evaluationThese evaluations indicated that it iswas reasonably possible that PNM willwould be successful on the issues it is appealing. Ifwas appealing but would not be provided capital cost recovery until the NMPRC acted on a decision of the NM Supreme Court rules in PNM’s favor on some or allCourt. PNM also evaluated the accounting consequences of the issues thosebeing appealed by the cross-appellants and concluded that the issues would be remanded back toraised in the NMPRC for further action.cross-appeals did not have substantial merit.

In accordance with GAAP, PNM originally estimated that it would take a minimumperiodically updated its estimate of 15 months, from the date PNM filed its appeal,amount of time necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. During such time, the rates specified in the order will remain in effect. Accordingly, at September 30, 2016, PNM recordedAs a pre-tax regulatory disallowanceresult of $11.3 million, representing 15 months of capital cost recovery for the period October 1, 2016these evaluations, through December 31, 20172018, PNM recorded accumulated pre-tax impairments of its capital investments subject to the appeal in the amount of $18.4 million.

On May 16, 2019, the NM Supreme Court issued its decision on its investmentsthe matters that had been appealed in the order disallowed, as well as amounts recorded as regulatory assets and deferred charges that the order disallowed and which PNM did not challenge in its appeal.NM 2015 Rate Case. The NM Supreme Court did not render a decision onrejected the casematters appealed by December 31, 2017, the endcross-appellants and all but one of the originally estimated 15 month period. As of December 31, 2017, PNM updated its evaluation of the issues it is appealing in the NM Supreme Court. Although PNM cannot predict the ultimate outcome of this matter, PNM’s evaluation continues to indicate it is reasonably possible that PNM will be successful on the issues it is appealing and that it will take a minimum of an additional seven months from December 31, 2017 for thematters appealed by PNM. The NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. On December 31, 2017, PNM recorded an additional pre-tax regulatory disallowance of $3.1 million, representing seven months of capital cost recovery on its investments the order disallowed. Additional losses will be recorded if the estimated time frame for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues is further extended.

PNM continues to believeruled that the disallowed investments, which are the subject of PNM’s appeal, were prudently incurred and that PNM is entitledNMPRC’s decision to fullpermanently disallow recovery of those investments through the ratemaking process. If PNM’s appeal is unsuccessful, PNM would record additional pre-tax lossesfuture decommissioning costs related to any unsuccessful issues. The December 31, 2017 book values of PNM’s investments that the order disallowed, after considering the losses recorded through December 31, 2017, were $75.3 million for the 64.1 MW of purchased capacity in PVNGS Unit 2, $39.1 million for the PVNGS Unit 2 disallowed capital improvements, and $49.4 million for the BDT equipment.

PNM does not believe that the likelihood of the cross-appeals being successful is probable. However, if the NM Supreme Court were to overturn all of the issues subject to the cross-appeals and, upon remand, the NMPRC did not provide any cost recovery of those items, PNM would write-off all of the costs to acquire the assets previously leased under three leases aggregating 64.1 MW of PVNGS Unit 2 capacity, totaling $151.1and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. On July 17, 2019, the NMPRC heard oral argument from parties in the case. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming the NMPRC’s final order with a single modification to address recovery of PVNGS decommissioning costs in a future case. On January 8, 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand. The NMPRC 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 atwhich is reflected as regulatory disallowances and restructuring costs in the Consolidated Statements of Earnings for the year ended December 31, 2017 (which amount includes $75.3 million that is2019. The impairment reflects capital costs not previously impaired during the subjectpendency of PNM’sthe appeal discussed above) after considering the losses recorded through December 31, 2017. Theand was offset by tax impacts of not recovering costs for$45.7 million which are reflected as income taxes on the lease extensions, new coal supply contract for Four Corners, and “prepaid pension asset” in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The outcomesConsolidated Statements of the cross-appeals regarding the FPPAC and rate design should not have a financial impact to PNM.Earnings.


New Mexico 2016 Rate Case On December 7, 2016, PNM filed an application withIn 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”). PNM did not include anyThe key terms of the costs disallowed in the NM 2015 Rate Case that are at issue in its pending appeal to the NM Supreme Court. Key aspects of PNM’s request in the NM 2016 Rate Case were:order include:


An increase in base non-fuel revenues of $99.2 million
Based on a FTY beginning January 1, 2018 (the NMPRC’s rules specify that a FTY is a 12 month period beginning up to 13 months after the filing of a rate case application)
A ROE of 10.125%
Drivers of revenue deficiency
Implementation of the modifications in PNM’s resource portfolio, which were previously approved by the NMPRC as part of the SJGS regional haze compliance plan (see below and Note 16)
Infrastructure investments, including environmental upgrades at Four Corners
Declines in forecasted energy sales due to successful energy efficiency programs and other economic factors
Updates in the FERC/retail jurisdictional allocations
Proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation
Increased customer and demand charges
A “lost contribution to fixed cost” mechanism applicable to residential and small commercial customers to address the regulatory disincentive associated with PNM’s energy efficiency programs

After NMPRC ordered settlement discussions were held, PNM and representatives of several intervenors reached an agreement on the parameters for a settlement in this proceeding. In May 2017, PNM and thirteen intervenors (the “Signatories”) entered into a comprehensive stipulation. On May 12, 2017, the Hearing Examiners issued an order rejecting the stipulation in its then current form and allowing the Signatories to revise the stipulation. On May 23, 2017, the Signatories filed a revised


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stipulation that addressed the issues raised by the Hearing Examiners in their order. NEE was the sole party opposing the revised stipulation. The terms of the revised stipulation included:

A revenue increase totaling $62.3 million, with an initial increase of $32.3 million beginning January 1, 2018 and the remaining increase beginning January 1, 2019
A ROE of 9.575%
Full recovery of PNM’s investment in SCRs at Four Corners with a debt-onlyA requirement to return
An agreement not to seek to adjust non-fuel base rate changes to be effective prior to January 1, 2020
An agreement to adjust the January 2019 increase for certain changes in federal corporate tax laws and to true-up PNM’s cost of debt
Returning 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)
PNM would withdraw its proposal for a “lost contribution to fixed cost” mechanism with the issue to be addressed in a future docket
PNM would perform a cost benefit analysis in its 2020 IRPA disallowance of the impact of a possible early exit from Four Corners in 2024 and 2028

A public hearing on the revised stipulation was held in August 2017. On October 31, 2017, the Hearing Examiners issued a Certification of Stipulation recommending modifications to the revised stipulation that would identify PNM’s decision to continue its participation in Four Corners as imprudent, not allow PNMability to collect a debt oran equity return on certain investments aggregating $148.1 million of investments in SCRs and other projects at Four Corners, and to temporarily disallowbut allowing recovery of $36.8 of PNM’s projected capital improvements at SJGS. On December 20, 2017, the NMPRC issued anorder approving the Certification of Stipulation with certaina debt-only return
An agreement to not implement non-fuel base rate changes, which included requiring the impacts ofother than changes related to the reduction in the federal corporate income taxPNM’s rate and PNM’s cost of debt be implementedriders, with an effective date prior to January 1, 2018 rather than January 1, 2019 and deferring further consideration regarding2020
A requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners to a future proceeding.

On December 28, 2017, PNM filed a motion requesting rehearing and asking the NMPRC to vacate their December 20, 2017 order. Several signatories to the revised stipulation filed a separate motion for rehearing asking that the NMPRC approve the revised stipulation without modification. NEE filed a response urging the NMPRC to reject PNM’s motion. On January 3, 2018, the NMPRC vacated its December 20, 2017 order and granted the motions for rehearing, which was held on January 10, 2018. The NMPRC issued an order dated January 10, 2018 that approved the Certification of Stipulation with certain changes, which included allowing PNM to recover its $148.1 million of investments in SCR and other projects at Four Corners with a debt-only return (but maintaining the recommended disallowance of an equity return), deferring further consideration regarding the prudency of PNM’s decisions to continue its participation in Four Corners to PNM’s next general rate case requiring the impacts of changes related to the reduction in the federal corporate income tax rate and PNM’s cost of debt be implemented in 2018 rather than January 1, 2019, and requiring PNM to reduce its requested $62.3 million increase in non-fuel revenues by $9.1 million.filing


On January 16, 2018, PNM requested clarifying changes to that order to adjust the $9.1 million reduction to $4.4 million, asserting that $4.7 million of the reduction was duplicative. PNM’s request was approved by the NMPRC. After implementation of changes to the federal corporate income tax rate and cost of debt, the order results in a net increase to PNM’s non-fuel revenue requirement of $10.3 million. PNM implemented 50% of the approved increase for service rendered rather than bills rendered, on or afterbeginning February 1, 2018 and will implementimplemented the rest of the increase for service rendered on or afterbeginning January 1, 2019. GAAP requires PNMThis matter is now concluded.

TNMP 2018 Rate Case – On December 20, 2018, the PUCT approved a settlement stipulation allowing TNMP to recognizeincrease annual base rates by $10.0 million based on a loss reflecting that it will earnROE of 9.65%, a debt-only return on $148.1 millioncost of investmentsdebt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. Under the approved settlement stipulation TNMP was granted authority to integrate revenues previously recorded under the AMS rider, as well as other unrecovered AMS costs, into base rates; establish a new rider to recover Hurricane Harvey restoration costs, net of amounts owed to customers as a result of the reduction in the federal corporate income tax rate during 2018; and to update depreciation rates. In addition, the approved settlement stipulation allows TNMP to refund the regulatory liability recorded at Four Corners rather than a full return. Accordingly, PNM recorded a pre-tax regulatory disallowance of $27.9 million as of December 31, 2017.

On February 7, 2018, NEE filed a notice of appeal with2017 related to federal tax reform to customers and reflects the NM Supreme Court asking the court to review the NMPRC’s decisionsreduction in the NM 2016federal corporate income tax rate to 21%. New rates under the TNMP 2018 Rate Case. The notice does not set forth the basis of the appeal, which, as required by the court’s rules, is to be filed by March 9, 2018. PNM cannot predict the outcome of this matter.Case became effective January 1, 2019.

Advanced Metering In September 2011, TNMP begancompleted its mass deployment of advanced meters for homes and businesses across its service area. TNMP completed its mass deploymentterritory in 2016 and has installed more than 242,000 advanced meters. As part ofdiscussed above, beginning in 2019 the State of Texas’ long-term initiative to create an advanced electric grid, installation of advanced meters will ultimately give consumers more data about their energy consumption and help them make more informed decisions. costs associated with TNMP’s AMS program are being recovered through base rates.

In addition, TNMP has completed installation of a new outage management system that will leverage capabilities of the advanced metering infrastructure to enhance TNMP’s responsiveness to outages.

On February 26, 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”). The application also asks the NMPRC to authorize the recovery, in future ratemaking proceedings, of the cost of the project, currently estimated to be $95.1 million, as well as to

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approve the recovery of the remaining undepreciated investment in existing metering equipment estimated to be approximately $33 million and the costs of customer education and severance for any affected employees. During a March 2017 hearing, it, which was identified that the proposed meter contractor may not have complied with certain New Mexico contractor licensing requirements. PNM subsequently filed testimony regarding that matter asdenied. As ordered by the Hearing Examiner and requestedNMPRC, PNM’s 2020 filing for energy efficiency programs to be offered in 2021 should include a new procedural schedule to allow it to issue a new RFPproposal for contracting work related to the meter installation and to update its cost-benefit analysis. An additional hearing was held in October 2017. PNM does not intend to proceed with thean AMI project unless the NMPRC approves the entire application. PNM cannot predict the outcome of this matter.pilot project.


PVNGS Unit 3 Through December 31, 2017, PNM’s 134 MW interest in PVNGS Unit 3 was excluded from NMPRC jurisdictional rates. The power generated from that interest was sold into the wholesale market and any earnings or losses were realized by shareholders. As part of compliance with the requirements for BART at SJGS discussed below, the NMPRC approved including PVNGS Unit 3 as a jurisdictional resource in the determination of rates charged to customers in New Mexico beginning in 2018. PVNGS Unit 3 is included as a jurisdictional resource in PNM’s NM 2016 Rate Case (Note 17).

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

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 improveauthorization to establish a regulatory asset to recover other expenses that would be incurred in order to join the EIM. PNM’s abilityapplication proposed recovery of the costs incurred to earn its authorized return.

TNMP General Rate Case – TNMP’s lastjoin 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 filedsubsequently 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 2010 with new rates becoming effective on February 1, 2011. In connection with TNMP’s deployment of its AMS, TNMP has committeda regulatory asset, and the period over which costs would be charged to file acustomers until PNM’s next general rate case no later than September 1, 2018. TNMP currentlyfiling. 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 filing its general rate caseit will begin participating in May 2018 using a 2017 calendar year test period. New rates are anticipated to become effective during January 2019.the EIM in April 2021.


FERC Regulation


Rates PNM charges wholesale transmission customers and wholesale generation services customers are subject to traditional rate regulation by FERC. For a number of years, PNM allocated a portion of its generation assets to serve FERC wholesale generation services customers. The low natural gas price environment resulted in market prices for power being substantially lower than what PNM is able to offer wholesale generation customers under the cost of service model that FERC requires PNM to use.  As a result of this change in market conditions, PNM had not been earning an adequate return on the assets required to serve wholesale generation contracts. Consequently, PNM decided to stop pursuing wholesale generation contracts. Currently, PNM has no full-requirements wholesale generation customers.

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 large transmission capital projects to be placed into service in the following year. The projections included are subject to true-up in the following year formula rate.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.

Navopache Electric Cooperative, Inc. – PNM had a PSA, which contained an expiration date in 2035, to supply power to NEC that was approved by FERC in April 2013. On April 8, 2015, NEC filed a petition for a declaratory order requesting that FERC find that NEC could purchase an unlimited amount of power and energy from third party supplier(s) under the PSA. PNM intervened, requesting that FERC deny NEC’s petition. FERC set the matter for a public hearing concerning the parties’ intent with regard to certain provisions of the PSA and held the hearing in abeyance to provide time for settlement judge procedures.

On October 29, 2015, PNM and NEC entered into, and filed with FERC, a settlement agreement, which FERC approved in January 2016. Under the agreement, PNM served all of NEC’s load through December 31, 2015 at rates that were substantially consistent with those provided under the PSA. In 2016, PNM served all of NEC’s load at reduced demand and energy rates from those under the PSA. The PSA terminated on December 31, 2016. In 2017, PNM served 10 MW of NEC’s load under a short-term coordination tariff at a rate lower than provided under the PSA, but higher than prices available under short-term market rates at the time of the settlement. In 2017, 2016 and 2015, revenues from NEC were $4.5 million, $20.0 million, and $27.1 million. Although the settlement agreement negatively impacted results of operations in 2017, PNM mitigated these impacts through market sales of power that would have been sold to NEC, reductions in fuel and transmission expenses, and other measures. PNM’s NM


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2016 Rate Case discussed above reflects
On May 10, 2019, PNM filed an application with FERC requesting approval to purchase and provide transmission service on a reallocationnew 165-mile long 345-kV transmission line and related facilities (the “Western Spirit Line”). Under related agreements, which are subject to certain conditions being met prior to closing, the Western Spirit Line will be purchased by PNM to serve approximately 800 MW of wind generation to be located in eastern New Mexico beginning in 2021. FERC approved PNM’s request to provide transmission to the facilities using an incremental rate based on construction and other ongoing costs among regulatory jurisdictions reflectingfor the terminationline, including adjustments for construction costs funded by the customer, effective July 9, 2019 and approved PNM’s request to purchase the Western Spirit Line on August 8, 2019. The NMPRC approved PNM’s planned purchase of the contract to serve NEC.Western Spirit Line on October 2, 2019. See Note 17.

PNM has no full-requirements wholesale generation customers.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR’s strategic goal to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 20182020 through 2021.2023. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.


PNMR targets a dividend payout ratio ofin the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The Board will continue
to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:
Approval Date Percent Increase
February 201216%
February 201314%
December 201312%
December 20148%
December 201510%
December 201610%
December 2017 9%
December 20189%
December 20196%


Maintaining Solid Investment Grade Credit Ratings


The Company is committed to maintaining solid investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. In June 2017, Moody’s changed the outlook for PNMR and PNM from stable to positive while maintaining a stable outlook for TNMP. In January 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative.


BusinessRenewable Energy

The REA was enacted to encourage the development of renewable energy in New Mexico. Prior to the enactment of the ETA, utilities operating in New Mexico were required to acquire a renewable energy portfolio equal to 15% of retail electric sales by 2015 and Strategic Focus

PNMR strives20% by 2020. The ETA amended the REA and requires utilities operating in New Mexico to create enduring valuehave 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 customers, communities, and shareholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power. The Company works closelystreamlined proceedings for approval of utilities’ renewable energy procurement plans, provides utilities recovery of costs incurred consistent with customers, stakeholders, legislators, and regulators to ensure that resourceapproved procurement plans, and infrastructure investments benefitsets 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.

The Energy Transition Act (“ETA”)

The ETA became effective on June 14, 2019. As discussed above, 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 robust public dialoguefossil-fueled generating resources to renewable and balanceother carbon-free resources by allowing utilities to issue securitized bonds, or “energy transition bonds,” related to the diverse needsretirement of our communities. Equally importantcertain coal-fired generating facilities to qualified investors. 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. The NMPRC is expected to provide a final order on the focusabandonment and securitization portion of PNMR’s utilitiesPNM's filing by April 1, 2020.

PNM expects the ETA will have a significant impact on customer satisfactionPNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022 and community engagement.PNM’s participation in Four Corners after the agreements governing that facility expire in 2031.


Reliable and Affordable Power
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PNMR and its utilities are aware

PNM cannot predict the full impact of the important roles they playETA or the outcome of its pending and potential future generating resource abandonment and replacement filings with the NMPRC.

TNMP

TNMP is a regulated utility operating and incorporated in enhancing economic vitalitythe State of Texas. TNMP’s predecessor was organized 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 and1925. TNMP strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a 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 reliable electric service.

Utility Plant and Strategic Investments

Utility Plant Investments – During the 2015 to 2017 period, PNM and TNMP together invested $1,552.0 million in utility plant, including substations, power plants, nuclear fuel, andprovides transmission and distribution systems. PNM completedservices in Texas under the 40 MW natural gas-fired La Luz peaking generating station located near Belen, New Mexico in December 2015. PNM also completed installationprovisions of SNCR and BDT equipment on SJGS Units 1 and 4 in early 2016TECA and the additionTexas Public Utility Regulatory Act. TNMP is subject to traditional cost-of-service regulation with respect to rates and service under the jurisdiction of 40 MWthe 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 PNM-owned solarTexas. 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 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 customers billed on KWh usage, TNMP experienced a decrease in weather-normalized retail KWh sales of 2.0% in 2019 and an increase of 3.2% in 2018. For its demand-based load customers, TNMP experienced increases of 4.9% in 2019 and 6.8% in 2018. As of December 31, 2019, 103 active REPs receive transmission and distribution services from TNMP. In 2019, the three largest REP customers of TNMP accounted for 22%, 17%, and 12% of TNMP’s operating revenues. No other customer accounted for more than 10% of revenues.

Regulatory Activities

The PUCT approved interim adjustments to TNMP’s transmission rates of $0.6 million in March 2018, $14.3 million in March 2019, and $3.3 million in September 2019. On February 6, 2020, TNMP filed an application to further update its transmission rates, which would increase revenues by $7.8 million annually. The application is pending before the PUCT.

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.

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.

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SOURCES OF POWER
PNM
Generation Capacity

As of December 31, 2019, the total net generation capacity of facilities owned or leased by PNM was 2,152 MW. PNM also obtains power under long-term PPAs for the power produced by Valencia, New Mexico Wind, Red Mesa Wind, Casa Mesa Wind, La Joya Wind, the Lightning Dock Geothermal facility, and the NMRD-owned solar facilities.

PNM’s capacity in electric generating facilities, which are owned, leased, or under PPAs, in commercial operation as of December 31, 2019 is:
      Generation Percent of
      Capacity Generation
Type Name Location (MW) Capacity
Coal SJGS Waterflow, New Mexico 562
 20.4%
Coal Four Corners Fruitland, New Mexico 200
 7.2%
    Coal-fired resources   762
 27.6%
         
Gas Reeves Station Albuquerque, New Mexico 154
 5.6%
Gas Afton (combined cycle) La Mesa, New Mexico 230
 8.3%
Gas Lordsburg Lordsburg, New Mexico 80
 2.9%
Gas Luna (combined cycle) Deming, New Mexico 189
 6.8%
Gas/Oil Rio Bravo Albuquerque, New Mexico 138
 5.0%
Gas Valencia Belen, New Mexico 158
 5.7%
Gas La Luz Belen, New Mexico 40
 1.4%
Gas-fired resources   989
 35.8%
         
Nuclear PVNGS Wintersburg, Arizona 402
 14.6%
         
Solar PNM-owned solar Twenty-four sites in New Mexico 157
 5.7%
Solar NMRD-owned solar Los Lunas, New Mexico 80
 2.9%
Wind New Mexico Wind House, New Mexico 204
 7.4%
Wind Red Mesa Wind Seboyeta, New Mexico 102
 3.7%
Wind Casa Mesa Wind House, New Mexico 50
 1.8%
Geothermal Lightning Dock Geothermal Lordsburg, New Mexico 15
 0.5%
Renewable resources   608
 22.0%
      2,761
 100.0%

The NMPRC has approved plans for PNM to procure energy and RECs from additional wind and solar-PV renewable resources totaling 316 MW. In addition, the NMPRC approved a PPA for 140 MW of wind energy in PNM’s 2020 renewable energy procurement plan. PNM’s SJGS Abandonment Application seeks NMPRC approval to abandon SJGS in 2022 and for related replacement resources. See Note 17. If adjusted for these plans, the table above would reflect the percentage of generation capacity from fossil-fueled resources of 43.0%, from nuclear resources of 11.8%, and from renewable and battery storage resources of 45.2%.

Fossil‑Fueled Plants

SJGS is operated by PNM and, until December 2017, consisted of four units. As discussed in Note 16, SJGS Units 2 and 3 were retired in December 2017 and the ownership interests in SJGS Unit 4 were restructured as of December 31, 2017. PNM is seeking NMPRC approval to retire its remaining ownership in SJGS in 2022. See Note 17.

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PV facilitiesThe table below presents the rated capacities and ownership interests of each participant in 2015. In addition,each unit of SJGS before and after these events:
 Unit MW Capacity and Ownership Interests
 Prior to Restructuring After Restructuring
 Unit 1 Unit 2 Unit 3 Unit 4 Unit 1 Unit 4
Capacity (MW)340
 340
 497
 507
 340
 507
            
PNM (1)
50.000% 50.000% 50.000% 38.457% 50.000% 77.297%
Tucson50.000
 50.000
 
 
 50.000
 
SCPPA
 
 41.800
 
 
 
Tri-State
 
 8.200
 
 
 
MSR
 
 
 28.800
 
 
Anaheim
 
 
 10.040
 
 
Farmington
 
 
 8.475
 
 8.475
Los Alamos
 
 
 7.200
 
 7.200
UAMPS
 
 
 7.028
 
 7.028
Total100.000% 100.000% 100.000% 100.000% 100.000% 100.000%

(1) After restructuring 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. Prior to July 22, 2018, NTEC’s 7% share of Four Corners was owned by an affiliate of APS, which had acquired the interest from EPE on January 15, 2016,July 7, 2016. PNM completedhad no ownership interest in Four Corners Units 1, 2, or 3, which were shut down by APS on December 30, 2013. The Four Corners plant site is located on land within the $163.3 million acquisitionNavajo Nation and is subject to an easement from the federal government. APS, on behalf of 64.1 MWthe Four Corners participants, negotiated amendments to extend the owners’ right to operate the plant on the site to July 2041. See Note 16 for additional information about Four Corners.

PNM owns 100% of capacityReeves, 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 as required by GAAP.

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, including the NMPRC’s approval for PNM to include PVNGS Unit 3 as a jurisdictional resource to serve New Mexico retail customers beginning in 2018 and for information concerning the NMPRC’s treatment of the purchased assets and extended leases in PNM’s NM 2015 Rate Case. See Note 8 for additional information concerning the PVNGS leases including PNM’s option to purchase or return the assets underlying four leases in PVNGS Unit 1 and one lease in PVNGS Unit 2 that had previously beenexpire January 2023 and January 2024, as well as waivers obtained that extend PNM’s required notice to purchase or return the assets underlying the PVNGS Unit 1 leased interests to PNM.March 16, 2020.


Strategic Investments – In 2017,Solar

At December 31, 2019, PNM owns a total of 157 MW of solar facilities in commercial operation. PNM is also entitled to the entire output from 80 MW of NMRD-owned solar facilities. PNM expects it will begin purchasing power from an additional 50 MW of NMRD-owned solar facilities in June 2020. As discussed in Note 1, NMRD is a 50% equity method investee of PNMR Development and AEP OnSite Partners created NM Renewable Development, LLC (“NMRD”)Development. If approved by the NMPRC, PNM’s recommended resource scenario to pursuereplace the acquisition, development, and ownershipplanned retirement of SJGS would result in PNM executing PPAs to purchase renewable energy generation projects, primarily in the stateand RECs from an additional 350 MW of New Mexico. Abundant renewable resources, large tractssolar-PV facilities and to procure energy and construct a total of affordable land, and strong government and community support make New Mexico130 MW of battery storage facilities. If approved, PNM would procure power under a favorable location for renewable generation. New Mexico has the 2nd highest technical potential of the 48 contiguous states for utility scale solar photovoltaics as noted in 2015 by the National Renewable Energy Laboratory, while New Mexico is 6th for technical potential for land-based wind. 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 ofPPA from one of the United States’ largest electric utilities.solar facilities and would have one of the nation’s highest percentage of battery storage capacity integration. See additional discussion of the SJGS Abandonment Application in Note 17.


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Plant Operating Statistics

Equivalent availability of PNM’s major base-load generating stations was:
Plant Operator 2019 2018
SJGS PNM 73.1% 71.4%
Four Corners APS 78.2% 61.7%
PVNGS APS 90.8% 88.6%

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 formationprimary 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. See Note 16 for a discussion of thisthe restructuring of SJGS ownership. 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. 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.

On July 1, 2019, PNM submitted its SJGS Abandonment Application with the NMPRC requesting approval to retire SJGS in 2022, for replacement resources, and for issuance of securitized financing under the ETA. Many of the assumptions and findings included in PNM’s July 1, 2019 filing were consistent with those identified in PNM’s 2017 IRP. In addition, PNM’s 2017 IRP also indicates customers would benefit from PNM’s exit from Four Corners when the current coal supply agreement for that facility expires in 2031. See Notes 16 and 17 for additional information about PNM’s coal supply, PNM’s SJGS Abandonment Application, PNM’s 2017 IRP, and PNM’s 2020 IRP. It is possible that other participants in the joint venture provides a more efficient useprojects have circumstances and objectives that have changed from those existing at the time of PNMR’s capitalbecoming 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 support new renewable investment opportunities while maintaininggenerating its own power, PNM purchases power under long-term PPAs. PNM also purchases power in the necessary capitalforward, day-ahead, and real-time markets.

PNM has agreements to support investments required by PNM’s regulated jurisdictions. NMRD’s currentpurchase renewable energy capacity under contract is 31.8 MW. This includes 11.8 MW of solar PV facilities currently in operation, consisting of 10 MW requiredand RECs to supply energy toserve New Mexico retail customers, including a new data center located in PNM’s service territory (Note 17) and 1.8 MW to supply energy to Columbus Electric Cooperative located in southwest New Mexico.territory. At December 31, 2017, NMRD also had 202019, renewable energy procured under these agreements from wind, solar-PV, and geothermal facilities aggregated to 356 MW, 80 MW, and 15 MW. These agreements currently have expiration dates beginning in December 2034 and extending through December 2046. The NMPRC has approved PNM’s request to enter into additional PPAs for renewable energy and RECs for an additional 166 MW of wind energy from the La Joya Wind Facility, which is expected to be operational in November 2020, 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, includes a 20-year PPA to purchase an additional 140 MW of renewable energy and RECs from the La Joya Wind Facility beginning in 2020. The costs of these PPAs are passed through to PNM’s New Mexico jurisdictional retail customers under NMPRC approved rate riders. PNM’s recommended replacement scenario for the retirement of SJGS in 2022 includes a request to enter into additional PPAs for 350 MWs of renewable energy from solar-PV facilities and 60 MWs from battery storage facilities. See Note 17.


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A summary of purchased power, excluding Valencia, is as follows:
 Year Ended December 31,
 2019 2018
Purchased under long-term PPAs   
MWh1,853,225
 1,626,300
Cost per MWh$31.62
 $32.49
Other purchased power   
Total MWh333,137
 444,347
Cost per MWh$43.74
 $41.46
TNMP

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

FUEL AND WATER SUPPLY
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:
 Coal Nuclear Gas and Oil
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
201944.2% $2.80
 33.7% $0.66
 19.1% $1.35
201844.7% $2.60
 34.1% $0.58
 18.5% $2.43

In 2019 and 2018, 3.0% and 2.7% of PNM’s generation was from utility-owned solar, PV facilitieswhich has no fuel cost. In December 2017, SJGS Units 2 and 3 were retired and PNM assumed a greater interest in SJGS Unit 4, which results in a lower percentage of PNM’s electric generation capacity being fueled by coal. The generation mix for 2020, including power procured under construction,PPAs, is expected to be 41.9% coal, 31.9% nuclear, 13.1% gas and oil, and 13.1% 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 will be completed in mid-2018 and will also be used toexpires 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 data center. NMRDcontract are being passed through to PNM’s customers under the FPPAC. PNM believes there is actively exploring opportunitiesadequate 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. None of these amendments have extended the contract beyond its July 2031 expiration. The contract provides for pricing adjustments over its term based on economic indices.

See Notes 16 and 17 for additional renewable projects. In addition, NMRD will evaluateinformation about PNM’s December 2018 Compliance Filing and PNM’s SJGS Abandonment Application which seeks NMPRC approval to retire SJGS in 2022. As discussed in Note 17, PNM’s 2017 IRP also indicates that PNM exiting ownership in Four Corners after the end of its current coal supply agreement in 2031 would provide long-term cost savings to PNM’s customers.
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 bid opportunities for future renewable projects, including large-scale projectsdisruptions due to serve future data center andextreme

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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 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. PNM filedusers. PNM’s reliance on its 2014 IRP on July 1, 2014. The four-year action plan was consistentnatural gas generating resources has increased with the replacement resources identified in PNM’s application to retireDecember 2017 retirement of SJGS Units 2 and 3. Substantially all of PNM’s natural gas costs are recovered through the FPPAC.
Nuclear Fuel and Waste
PNM indicated that itis 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 30% of its requirements through 2028; 100% of its requirements for conversion services through 2025, and 40% through 2030; 100% of its enrichment services through 2021, 90% for 2022, and 80% through 2026; and 100% of its fuel assembly fabrication services 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 anticipated energy demanddisposal 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 combinationportion of additional renewable energy resources,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.
Water Supply

See Note 16 for information about PNM’s water supply.

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
Environmental Matters under the caption “The Clean Air Act”
WEG v. OSM NEPA Lawsuit
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”

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

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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 natural gas-fired facilities.TNMP systems.


PNM filedis 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 2017 IRP on July 3, 2017. Underregion as well as rural electric cooperatives and municipal utilities.  PNM is involved in the NMPRC’s order concerning SJGS’ compliancegeneration and sale of electricity into the wholesale market although PNM has decided to stop pursuing wholesale generation contracts.  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.

EMPLOYEES
The following table sets forth the number of employees of PNMR, PNM, and TNMP as of December 31, 2019:
 PNMR PNM TNMP
Corporate (1)
388
 
 
PNM915
 915
 
TNMP365
 
 365
   Total1,668
 915
 365

(1) Represents employees of PNMR Services Company.
As of December 31, 2019, PNM had 466 employees in its power plant and operations areas that are currently covered by a collective bargaining agreement with the BART requirementsIBEW Local 611 that is in effect through April 30, 2020. In December 2019, PNM and IBEW Local 611 agreed to a successor collective bargaining agreement effective May 1, 2020 through April 30, 2023. As of December 31, 2019, TNMP had 194 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 CAA discussedIBEW are typically included in Note 16, PNM is requiredthe rates charged to make a filing in 2018electric customers and consumers, subject to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after June 30, 2022. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findingsapproval of the 2017 IRPNMPRC 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 control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:


RetiringThe ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, the NM Supreme Court’s decisions in the appeal of that order, the NM 2016 Rate Case and related deferral of the issue of the prudence of PNM’s decision to continue participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments and other costs associated with that plant, any actions resulting from PNM’s SJGS Abandonment Application, which requests NMPRC approval to retire PNM’s share of SJGS in 2022 afterand for recovery of undepreciated investments and other costs associated with the retirement, and/or the conclusions reached in PNM’s 2017 IRP (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 and supporting forecasts utilized in FTY rate proceedings
Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2 that is under lease at the expiration of the currentlease terms in 2023 and 2024, including PNM’s decisions related to purchasing or returning the assets underlying the leases, or upon the occurrence of certain specific events, as well as the related treatment for ratemaking purposes by the NMPRC
Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, the outcome of PNM’s SJGS Abandonment Application, the results of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s

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exit from Four Corners in 2031, including regulatory recovery of undepreciated investments and other costs in the event the NMPRC orders generating facilities be retired, and the impacts of the ETA
Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings
The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, 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
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
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, 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
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, 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.


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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, including costs of replacing generating capacity as it is retired. 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 2020-2024 to be $3.8 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 generation and 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 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 coal supply agreements would provide long-term cost savingscapital 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 and other parties filed cross-appeals to PNM appeal. In May 2019, the NM Supreme Court issued its decision on the case. The NM Supreme Court rejected the matters appealed by the cross-appellants and affirmed the NMPRC’s disallowance of certain investments in SJGS and PVNGS. The NM Supreme Court’s decision also ruled that the NMPRC’s decision to permanently disallow PNM recovery of future decommissioning costs related to certain interests in PVNGS deprived PNM of its right to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. In July 2019, the NMPRC heard oral argument from parties in the case on how to best proceed with the NM Supreme Court’s remand. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming

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the NMPRC’s final order with a single modification to address recovery of future PVNGS decommissioning costs in a future case. 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 customersability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.

In December 2016, PNM exiting its ownership interestfiled 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.

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 itsthe 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, and after the effective date of the ETA, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. On July 1, 2019, PNM filed the SJGS Abandonment Application seeking approval to retire PNM’s share of SJGS after the existing coal supply agreement expiresand participation agreements end in 2031June 2022, for approval of replacement resources, and for the issuance of “energy transition bonds,” as provided by the ETA. PNM’s application proposes several replacement resource scenarios including PNM’s recommended replacement scenario as well as three other replacement resource scenarios that would also provide long-term cost savings for customersplace 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 includes a request to issue up to $361 million of energy transition bonds (the “Securitized Bonds”). The amount of Securitized Bonds to be issued will be dependent upon several factors, including NMPRC approval.

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. The best mix of new resourcesNMPRC indicated that PNM’s July 1, 2019 filing is responsive to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could include energy storageJanuary 30, 2019 order but did not definitively indicate if the economics support itabandonment and wind energyfinancing proceedings would be evaluated under the requirements of the ETA. The NMPRC denied motions for clarification regarding the applicability of the ETA to PNM’s SJGS Abandonment Application and the Hearing Examiners assigned to the application required PNM to file legal brief regarding the extent to which the state constitution might prevent the ETA from applying to the issues in each proceeding, and provided additional transmission capacity becomes availableparties the opportunity to file testimony on the merits of their claims regarding the SJGS abandonment and replacement resources if the ETA is ultimately determined to not apply to PNM’s application.
Significant increases in future wind energy supplies will likely
NEE and other advocacy groups filed an emergency petition for a writ of mandamus requesting the NM Supreme Court stay the SJGS abandonment and financing proceedings, declare the ETA inapplicable to such proceedings and declare certain provisions of the ETA unconstitutional because they limit the regulatory oversight responsibilities of the NMPRC. PNM and other parties also filed a petition for a writ of mandamus requesting the NM Supreme Court clarify that the reason underlying its June 2019 decision denying the stay was due to the passage of the ETA and to clarify that the ETA applies to any application filed after the stay had been lifted. The NM Supreme Court denied both PNM’s and NEE’s petitions for writ of mandamus without discussion. In December 2019, the Governor of the State of New Mexico, the President of the Navajo Nation, and several New Mexico state senators and representatives filed an emergency petition for a writ of mandamus requesting the NM Supreme Court require new transmission capacitythe NMPRC to comply with its constitutional duties and apply the ETA to every aspect of PNM’s SJGS Abandonment Application. In January 2020, the NM Supreme Court denied NEE’s and other parties petitions, granted PNM’s motion to intervene, and scheduled oral argument to be built from eastern New Mexicopresented by the NMPRC and PNM. On January 29, 2020, and after oral argument, the NM Supreme Court issued a ruling requiring the NMPRC apply the ETA to all aspects of PNM’s service territorySJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with their ruling should be vacated, and denying parties’ request for stay.

On February 21, 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 reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that

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PNM should retain the currently leased capacity in PVNGS, which would avoid replacement with carbon-emitting generation
PNM should continue to develop and implement energy efficiency and demand management programs
PNM should assess the costs and benefits of participating in the California Energy Imbalance Market
PNM should analyze its current Reeves Generating Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage

Several parties filed protestswill 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 costs.  Exceptions to the recommended decisions are due March 4, 2020 and responses to exceptions are due March 6, 2020.  The Hearing Examiners also found that the statutory deadline for action by the Commission is April 1, 2020.

PNM’s 2017 IRP. The issues addressed in the protests includeIRP also indicates PNM’s future interest in SJGS,customers would benefit from PNM’s exit from participation from Four Corners and PVNGSin 2031. The SJGS Abandonment Application and the timing of future procurement of renewable resources. The 2017 IRP isare not a final determinationdeterminations of PNM’s future generation portfolio.  Retiring PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, which PNM would make at appropriate times in the future. Likewise,filings. NMPRC approval of new generation resources through CCN, PPA, or other applicable filings, would also be required. The NMPRC has issued regulatory orders requiring depreciation (and resultant regulatory recovery) of significant portions of these resources through estimated lives of 2053 for SJGS and 2041 for Four Corners.

In April 2019, NEE and other parties filed a joint petition requesting the NMPRC open an investigation regarding PNM’s option to purchase the assets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. In response to a NMPRC order, in May 2019 PNM cannot predictsubmitted a filing indicating the ultimate outcomejoint petition should be denied and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. In September 2019, NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding and PNM filed a response opposing the motion. On January 3, 2020, PNM notified the NMPRC that PNM had obtained 60-day waivers of the 2017 IRP processdeadline to notify the lessors of its intent to purchase or whetherreturn the assets underlying the PVNGS Unit 1 leases. The deadline for PNM to provide irrevocable notice of its intent to purchase or return these interests is now March 16, 2020. The deadline to provide notice under the PVNGS Unit 2 lease has not changed and remains January 15, 2021. On January 8, 2020, the NMPRC issued an order denying the petition for investigation. PNM has committed to provide the NMPRC with updates on any decisions related to these interests and will file any necessary requests for approval associated with its decisions.

An adverse decision of the NMPRC regarding PNM’s ability to recover certain PVNGS decommissioning costs, PNM’s SJGS Abandonment Application, the prudency of PNM’s continued participation in Four Corners in PNM’s next rate case, or in any future decision made by PNM to purchase or 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 SJGS or Four Corners prior to the planned retirement dates, or the NMPRC’s denial, modification or delay of PNM’s application 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 determine PNM’s decision to continue its participation in Four Corners was prudent and continue to provide PNM recovery of its costs related to that facility. In addition, there can be no assurance the NMPRC will approve subsequent filingsany future application by PNM to retire Four Corners or other generation interests. 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 encompass actionsbe available, that adequate transmission capabilities would be available to implementbring that power into PNM’s service territory, or whether the conclusionscost 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 2017 IRP.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. 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.


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Environmentally Responsible Power
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 long-standing recordnegative impact on the business, financial condition, results of operations, and cash flows of PNM and PNMR.

The restructuring of SJGS ownership and obtaining the new coal supply for SJGS from the current San Juan mine operator were integral components of a process to achieve compliance with the CAA at SJGS. 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.

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.

Environmental policies and regulations remain significant concerns for PNMR. 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 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 has published the Affordable Clean Energy rule, which requires states to set performance standards consistent with the EPA’s determination of “best system of emission reduction” technology. In addition, on June 1, 2017, President Trump announced that the U.S. would withdraw from the Paris Agreement. On November 4, 2019, President Trump announced that the U.S. has notified the United Nations that the U.S. will withdraw from the Paris Agreement on climate change. While the U.S. will be able to withdraw officially from the Paris Agreement in November 2020, a future administration would have the opportunity to rejoin. Therefore, PNMR is dealing with an uncertain regulatory and policy environment. While EPA and other federal agencies may be seeking to reduce climate change regulations, some state agencies, environmental advocacy groups, and other organizations have been focusing considerable attention on GHG from power generation facilities. See discussion above and Note 17, regarding PNM’s SJGS Abandonment Application 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. This includes new, existing, and modified or reconstructed EGUs which are also being considered in a proposed rule by EPA to revise the GHG NSPS rule. The uncertainty regarding climate change regulation presents challenges and represents a shift of greater authority to the states to make decisions and issue and enforce regulations. Federal and/or 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 or non-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

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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 preparing its next regional haze SIP and has notified PNM that they will not require PNM to complete a regional haze four-factor analysis for SJGS, provided the plant under PNM’s ownership is planning to close 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 stewardship.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 and other power plant emissions, including changes to the ambient air quality standards, 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 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 Trump 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.

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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. It is possible that further advances in technology will continue to reduce the costs of these alternative methods of producing power to a level that is competitive with that of central station power production. Continued advances being made in the capabilities of energy storage could further decrease power production and peak usage through the dispatch of more battery systems. This could result in demand reduction that could negatively impact revenue and/or result in underutilized assets that had been 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 in accordance with GAAP. These estimates include many assumptions about future events and are inherently imprecise. As discussed above, on July 1, 2019, PNM submitted its SJGS Abandonment Application requesting NMPRC approval to retire PNM’s share of SJGS in 2022. The SJGS Abandonment Application includes a request to recover PNM’s share of reclamation related to the underground mine that serves SJGS as well as other costs associated with retiring the facility. In addition, PNM’s 2017 IRP indicates that exiting PNM’s ownership interest in Four Corners in 2031 would provide long-term cost savings for customers. See additional discussion of PNM’s December 2018 Compliance Filing, the SJGS Abandonment Application, and its 2017 IRP in Notes 16 and 17. In the event the costs to decommission those 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. In addition, the NMPRC’s order in the NM 2015 Rate Case disallowed recovery of future contributions for the decommissioning of certain portions of PVNGS. The NM Supreme Court determined that the NMPRC’s decision to not provide PNM recovery of future contributions for the decommissioning of certain portions of PVNGS denied PNM due process of law and remanded the matter to the NMPRC for consideration consistent with the court’s findings. On January 8, 2020, the NMPRC amended its order in the case to remove the disallowance of certain decommissioning costs and indicated this matter will be addressed in a future docket. See Note 17.

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.

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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 SJGS Abandonment Application requests NMPRC approval to retire PNM’s share of SJGS after the coal supply agreement for that facility expires in mid-2022. PNM’s 2017 IRP also indicates that PNM exiting its ownership interest in Four Corners in 2031 would provide long-term cost savings for customers. These actions will increase PNM’s dependency on other generation resources, including 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 focuscompliance, 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 used to transport power, 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 techniques used by those who wish to obtain unauthorized access, and possibly disable or sabotage systems and/or abscond with confidential 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.  Although the Company has beenimplemented security measures to identify, prevent, detect, respond to, and recover from cyber and physical security events, 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.  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 threethe 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 14.6% of PNM’s total generating capacity as of December 31, 2019. 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

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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.

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

PNM is obligated to supply power to retail customers and certain wholesale customers. At peak times, power demand could exceed PNM’s available generation capacity, particularly if PNM’s power plants are not performing as anticipated. SJGS Units 2 and 3 were shut down in December 2017 and PNM is currently seeking NMPRC approval to retire PNM’s share of SJGS in 2022. In addition, PNM’s 2017 IRP indicates that it would also save customers money for PNM to exit ownership in Four Corners in 2031. SJGS and Four Corners comprise a significant portion of PNM’s base load generation capacity and their retirement would increase reliance on other existing or new generating and/or battery storage resources. Market forces, competitive forces, or adverse regulatory actions may require PNM to purchase capacity on the open market or build additional resources to meet customers’ energy needs. Regulators or market conditions may not permit PNM to pass all of these purchases or construction costs on to customers. If that occurs, PNM may not be able to fully recover these costs or there may be 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.

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.

General Economic and Weather Factors
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 areas: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.


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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.
Assured supplies of water are important for PNM’s generating plants. 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.
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 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 2020-2024, including capital requirements related to its investment in NMRD, to be $3.8 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

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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 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. On January 16, 2018, S&P changed the outlook for PNMR, PNM and TNMP from stable to negative while affirming the investment grade ratings of each entity. 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. 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. 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% return generating and 50% liability matching fixed 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 70% equities and 30% fixed income.

Due to the funded status of the NDT and recent overall market performance, PNM has re-balanced the NDT investment portfolio to a target of 80% fixed income 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 beginning in 2018, 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

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“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.

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 further changes to U.S. Treasury regulations, IRS interpretations of the provisions of the Tax Act, actions by the NMPRC, PUCT, and FERC could cause the Company’s expectations of the impacts of the Tax Act to change. Any such change 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.
Developing strategies to meet regional haze rules at the coal-fired SJGS as cost-effectively as possible while providing broad environmental benefits that also demonstrate progress in addressing CO2 emissions from existing power plants
UNRESOLVED STAFF COMMENTS
PreparingNone.


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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, 2019, PNM owned, or jointly owned, 3,206 miles of electric transmission lines, 6,071 miles of distribution overhead lines, 5,934 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, 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, 2019, TNMP owned 981 miles of overhead electric transmission lines, 7,236 miles of overhead distribution lines, 1,324 miles of underground distribution lines, and 125 substations. Substantially all of TNMP’s property is pledged to meet New Mexico’s increasing renewable energy requirements as cost-effectively as possiblesecure its first mortgage bonds. See Note 7.
Increasing energy efficiency participation

ITEM 3.LEGAL PROCEEDINGS

PNMR’s Sustainability Portal provides key environmentalSee Note 16 and sustainabilityNote 17 for information related to the following matters for PNMR, PNM, and TNMP, incorporated in this item by reference.

Note 16

The Clean Air Act – Regional Haze – NEE Complaint
The Clean Air Act – Regional Haze – Four Corners – Four Corners Federal Agency Lawsuit
WEG v. OSM NEPA Lawsuit
Navajo Nation Environmental Issues
Santa Fe Generating Station
Coal Combustion Residuals Waste Disposal
Continuous Highwall Mining Royalty Rate
PVNGS Water Supply Litigation
San Juan River Adjudication
Rights-of-Way Matter
Navajo Nation Allottee Matters

Note 17

PNM – Renewable Portfolio Standard
PNM – Renewable Energy Rider
PNM – Energy Efficiency and Load Management
PNM – Integrated Resource Plans
PNM – SJGS Abandonment Application
TNMP – Transmission Cost of Service Rates

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.


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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 21, 2020 and offices held with PNMR for the past five years are as follows:
NameAgeOfficeInitial Effective Date
P. K. Collawn61Chairman, President, and Chief Executive OfficerJanuary 2012
J. D. Tarry49Senior 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
Vice President, Customer Service and Chief Information OfficerMay 2012
C. N. Eldred

66Executive Vice President, Corporate Development and FinanceJanuary 2020
Executive Vice President and Chief Financial OfficerJuly 2007
P. V. Apodaca68Senior Vice President, General Counsel, and SecretaryJanuary 2010
R. N. Darnell62Senior Vice President, Public PolicyJanuary 2012
C. M. Olson62Senior Vice President, Utility OperationsFebruary 2018
Vice President, Utility OperationsDecember 2016
Vice President, Generation – PNMNovember 2012

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 $0.265 per share in July 2018 and $0.29 per share in July 2019, which are reflected as being in the second quarter. The Board declared dividends on common stock considered to be for the third quarter of $0.265 per share in September 2018 and $0.29 per share in September 2019, which are reflected as being in the third quarter above. On February 21, 2020, the Board declared a quarterly dividend of $0.3075 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 earnings determined in accordance with GAAP 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 21, 2020, there were 8,219 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. Settlement of the forward sale agreements is expected to occur on or prior to January 7, 2021.

All of PNM’s and TNMP’s operationscommon stock is owned by PNMR and is availablenot 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, 2019, 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 http://www.pnmresources.com/about-us/sustainability-portal.aspx. the stated rates during 2019 and 2018. 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 portalselected 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
          
 2019 2018 2017 2016 2015
 (In thousands except per share amounts and ratios)
Total Operating Revenues$1,457,603
 $1,436,613
 $1,445,003
 $1,362,951
 $1,439,082
Net Earnings$92,131
 $101,282
 $95,419
 $131,896
 $31,078
Net Earnings Attributable to PNMR$77,362
 $85,642
 $79,874
 $116,849
 $15,640
Net Earnings Attributable to PNMR per Common Share         
Basic$0.97
 $1.07
 $1.00
 $1.47
 $0.20
Diluted$0.97
 $1.07
 $1.00
 $1.46
 $0.20
Cash Flow Data         
Net cash flows from operating activities$503,163
 $428,226
 $523,462
 $408,283
 $395,045
Net cash flows from investing activities$(673,898) $(475,724) $(466,163) $(699,375) $(544,528)
Net cash flows from financing activities$172,446
 $45,646
 $(58,847) $242,392
 $175,431
Total Assets$7,298,774
 $6,865,551
 $6,646,103
 $6,471,080
 $6,009,328
Long-Term Debt, including current installments$3,007,717
 $2,670,111
 $2,437,645
 $2,392,712
 $2,091,948
Financing Leases(1)
$8,739
 $
 $
 $
 $
Common Stock Data         
Market price per common share at year end$50.71
 $41.09
 $40.45
 $34.30
 $30.57
Book value per common share at year end$21.07
 $21.20
 $21.28
 $21.04
 $20.78
Tangible book value per share at year end$17.58
 $17.70
 $17.79
 $17.55
 $17.28
Average number of common shares outstanding – diluted79,990
 80,012
 80,141
 80,132
 80,139
Dividends declared per common share$1.1775
 $1.0850
 $0.9925
 $0.9025
 $0.8200
Capitalization         
PNMR common stockholders’ equity35.8% 38.6% 40.9% 41.1% 44.0%
Preferred stock of subsidiary, without mandatory redemption requirements0.2
 0.3
 0.3
 0.3
 0.3
Long-term debt64.0
 61.1
 58.8
 58.6
 55.7
 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
          
 2019 2018 2017 2016 2015
 (In thousands)
PNM Revenues         
Residential$427,883
 $433,009
 $419,105
 $395,490
 $427,958
Commercial396,987
 408,333
 408,354
 394,150
 437,279
Industrial69,601
 61,119
 58,851
 56,650
 75,308
Public authority20,322
 21,688
 23,604
 23,174
 26,202
Economy service25,757
 26,764
 30,645
 31,121
 35,132
Transmission57,214
 54,280
 45,932
 34,267
 33,216
Firm-requirements wholesale
 
 4,468
 22,497
 31,263
Other sales for resale (1)
81,934
 76,168
 101,897
 70,375
 63,195
Mark-to-market activity(997) (1,051) 1,317
 (1,645) (5,270)
Other miscellaneous (2)
13,134
 14,098
 10,057
 9,834
 6,912
Alternative revenue programs (3)
1,987
 (2,443) 
 
 
Total PNM Revenues$1,093,822
 $1,091,965
 $1,104,230
 $1,035,913
 $1,131,195
TNMP Revenues         
Residential$150,742
 $130,288
 $126,587
 $124,462
 $120,771
Commercial116,953
 111,261
 106,503
 103,174
 102,956
Industrial22,405
 17,317
 18,140
 17,427
 16,316
Other miscellaneous76,210
 81,583
 89,543
 81,975
 67,844
Alternative revenue programs (3)
(2,529) 4,199
 
 
 
Total TNMP Revenues$363,781
 $344,648
 $340,773
 $327,038
 $307,887

(1) Includes sales to Tri-State under hazard sharing agreement (Note 17).
(2) For the years ended December 31, 2019 and 2018, $6.8 million and $7.6 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 containsinclude 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.
 2019 2018 2017 2016 2015
PNM MWh Sales         
Residential3,227,338
 3,250,560
 3,136,066
 3,189,527
 3,185,363
Commercial3,732,099
 3,814,659
 3,774,417
 3,831,295
 3,800,472
Industrial1,152,536
 879,308
 850,914
 875,109
 957,308
Public authority231,538
 241,238
 250,500
 249,860
 246,496
Economy service(1)
670,128
 667,288
 722,501
 805,733
 796,430
Firm-requirements wholesale (2)

 
 87,600
 429,345
 444,495
Other sales for resale (3)
2,842,759
 2,525,220
 3,632,137
 2,899,322
 2,110,947
Total PNM MWh Sales11,856,398
 11,378,273
 12,454,135
 12,280,191
 11,541,511
TNMP MWh Sales         
Residential3,044,760
 3,094,965
 2,936,291
 2,933,938
 2,912,019
Commercial3,401,288
 3,186,788
 2,793,263
 2,742,366
 2,654,102
Industrial4,281,962
 3,681,480
 3,202,528
 2,976,800
 2,804,919
Other99,863
 100,300
 94,767
 98,596
 100,999
Total TNMP MWh Sales10,827,873
 10,063,533
 9,026,849
 8,751,700
 8,472,039

(1) PNM purchases energy for a Climate Changelarge 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 (Note 17).


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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
          
 2019 2018 2017 2016 2015
PNM Customers         
Residential473,803
 470,192
 465,950
 462,921
 459,353
Commercial57,369
 57,000
 56,655
 56,357
 56,107
Industrial201
 236
 239
 247
 250
Economy service1
 1
 1
 1
 1
Other sales for resale26
 39
 36
 36
 39
Other930
 932
 931
 887
 908
Total PNM Customers532,330
 528,400
 523,812
 520,449
 516,658
TNMP Consumers         
Residential213,435
 210,696
 207,788
 204,744
 202,359
Commercial41,054
 40,508
 39,814
 39,817
 39,014
Industrial96
 88
 82
 66
 70
Other1,911
 1,924
 1,948
 1,993
 2,018
Total TNMP Consumers256,496
 253,216
 249,632
 246,620
 243,461
PNM Generation Statistics         
Net Capability – MW, including PPAs (1)
2,761
 2,661
 2,580
 2,791
 2,787
Coincidental Peak Demand – MW1,937
 1,885
 1,843
 1,908
 1,889
Average Fuel Cost per MMBTU$1.716
 $1.808
 $1.704
 $1.821
 $2.168
BTU per KWh of Net Generation10,055
 10,193
 10,396
 9,975
 10,456
          
(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.



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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 2018 Annual Report which outlines planson Form 10-K. A reference to be coal-free by 2031 (subjecta “Note” in this Item 7 refers to regulatory approval). This could enable an 87% reductionthe accompanying Notes to Consolidated Financial Statements included in CO2 emissions in 2040 comparedPart II, Item 8, unless otherwise specified. Certain of the tables below may not appear visually accurate due to 2012 levels. Thisrounding.
MD&A FOR PNMR
EXECUTIVE SUMMARY
Overview and Strategy
PNMR is a significantly greater reduction than that requiredholding company with two regulated utilities serving approximately 789,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico under EPA’s Clean Power Plan.and Texas. PNMR’s electric utilities are PNM and TNMP.

Strategic Goals
SJGSPNMR is focused on achieving three key strategic goals:


Regional Haze Rule Compliance Plan 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 goals, PNM and TNMP are dedicated to:

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

Earning Authorized Returns on Regulated Businesses

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

Fair and timely rate treatment from regulators is crucial to PNM and TNMP in earning their allowed returns and critical for PNMR to achieve its strategic goals. PNMR believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the Company’s ratings could lower costs to utility customers. Additional information about rate filings is provided in Note 17.

State Regulation

New Mexico 2015 Rate Case In DecemberOn 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.

On September 28, 2016, the NMPRC issued an order in the case that included a determination that PNM received NMPRC approvalwas imprudent in purchasing 64.1 MW of previously leased capacity in PVNGS Unit 2, extending the leases for the plan to comply with the EPA regional haze rule at SJGS that minimizes the cost impact to customers while still achieving broad environmental benefits. Under the approved plan, the installation114.6 MW of SNCRscapacity of PVNGS Units 1 and 2, and installing BDT equipment on SJGS Units 1 and 4 was completed in early 2016 and Units 2 and 3 were retired in December 2017. The plan provides for similar visibility improvements, but at a lower cost to PNM customers than a previous EPA ruling that would have required the installation of more expensive SCRs on all four units at SJGS. The plan has the added advantage of reducing other emissions in addition to NOx, including SO2, particulate matter, CO2, and mercury, as well as reducing water usage. Additional information is contained in Note 16.

Under the key provisions4. Major components of the difference between the increase in non-fuel revenues approved in the order approvingand PNM’s request, included:


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A ROE of 9.575%, compared to the compliance plan, PNM:10.5% requested by PNM

Retired SJGS Units 2 and 3 (PNM’s ownership interest was 418 MW) in December 2017 and will recover, over 20 years, 50% ($125.5 million)Inclusion of their undepreciated net book value at that date and earn a regulated return on those costs
Acquired an additional 132 MW in SJGS Unit 4 under an approved CCN, with an initial book valuethe January 2016 purchase of zero plus SNCR costs and whatever portionthe assets underlying three leases of BDT costs the NMPRC determines to be reasonable and prudent to be allowed for recovery in rates (an aggregate of $20.7 million) (see New Mexico Rate Cases above and Note 17)
Was granted a CCN for 134capacity, totaling 64.1 MW of PVNGS Unit 3 with2 at an initial rate base value equalof $83.7 million, compared to the book value as of December 31, 2017 ($154.9 million)
Acquired 65 MW of SJGS Unit 4 as merchant utility plant, which will not be included in rates charged to retail customers
Will acceleratePNM’s request for recovery of SNCRthe fair market value purchase price of $163.3 million; and disallowance of the recovery of the undepreciated costs onof capitalized improvements made during the period the 64.1 MW was being leased by PNM, which costs totaled $43.8 million when the order was issued
Disallowance of recovery of the costs associated with converting SJGS Units 1 and 4 so thatto BDT, which is required by the NSR permit for SJGS; PNM’s share of the costs are fully recovered by July 1, 2022
Is required to make a NMPRC filing in 2018 to determineof installing the extent that SJGS should continue serving PNM’s customers’ needs after mid-2022
Will acquire and retire one MWh of RECs that include a zero-CO2 emission attribute beginning January 1, 2020 for every MWh produced by 197 MW of coal-fired generation from PNM’s ownership share of SJGS (the cost of these RECs would be capped at $7.0 million per year and recovered in rates)
Did not recover approximately $20BDT equipment was $52.3 million, $40.0 million of increased operations and maintenance expenses and other costs incurredwhich PNM requested be included in connection with CAA compliancerate base in the NM 2015 Rate Case

At December 31, 2015, PNM recorded pre-tax losses aggregating $165.7 million to reflect the write-offDisallowance of the 50%recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016 and the 114.6 MW of the estimated December 31, 2017 net book value of SJGSleased capacity in PVNGS Units 1 and 2 that were extended for eight years beginning January 15, 2015 and 3 that will not be recovered, the other unrecoverable costs, and the increase in the estimated liability recorded for coal mine reclamation resulting from the new coal mine reclamation arrangement entered into in conjunction with the new coal supply agreement (“SJGS CSA”). PNM recorded additional pre-tax losses of $3.7 million in 2016 and reversed previously recorded losses of $4.0 million in 2017 resulting from revised estimates of these items. Additional information about the SJGS CSA is discussed below and in Note 16.


On January 14,September 30, 2016, NEEPNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. Specifically, PNM appealed the NMPRC’s determination that PNM was imprudent in certain matters in the case, including the disallowance of the NMPRC’sfull purchase price of the 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. NEE, NM AREA, and ABCWUA filed notices of cross-appeal to PNM’s appeal. The issues appealed by the various cross-appellants included, among other things, the NMPRC allowing PNM to recover any of the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2, as well as the costs incurred under the Four Corners CSA and the inclusion of the “prepaid pension asset” in rate base.

During the pendency of the appeal, PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the related appeals to the NM Supreme Court as required under GAAP. These evaluations indicated that it was reasonably possible that PNM would be successful on the issues it was appealing but would not be provided capital cost recovery until the NMPRC acted on a decision of the NM Supreme Court. PNM also evaluated the accounting consequences of the issues being appealed by the cross-appellants and concluded that the issues raised in the cross-appeals did not have substantial merit.

In accordance with GAAP, PNM periodically updated its estimate of the amount of time necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. As a result of these evaluations, through December 31, 2018, PNM recorded accumulated pre-tax impairments of its capital investments subject to the appeal in the amount of $18.4 million.

On May 16, 2019, the NM Supreme Court issued its decision on the matters that had been appealed in the NM 2015 order.Rate Case. The NM Supreme Court has taken no action onrejected the matters appealed by the cross-appellants and all but one of the matters appealed by PNM. The NM Supreme Court ruled that the NMPRC’s decision to permanently disallow recovery of future decommissioning costs related to the 64.1 MW of PVNGS Unit 2 and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. On July 17, 2019, the NMPRC heard oral argument from parties in the case. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming the NMPRC’s final order with a single modification to address recovery of PVNGS decommissioning costs in a future case. On January 8, 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand. The NMPRC 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. The impairment reflects capital costs not previously impaired during the pendency of the appeal and there is no required time frame for the court to actwas offset by tax impacts of $45.7 million which are reflected as income taxes on the appeal. 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:


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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. This matter is now concluded.

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

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

In February 2016, PNM filed a complaint against PNMan application with the NMPRC regarding the financing provided by NM Capitalrequesting approval of a project to facilitate the sale of SJCC. The complaint alleges that PNM failed to complyreplace its existing customer metering equipment with its discovery obligation in the SJGS abandonment case and requests the NMPRC investigate whether the financing transactions could adversely affect PNM’s ability to provide electric service to its retail customers. PNM responded to the complaint on May 4, 2016. The NMPRC has taken no action on this matter.


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SJGS Ownership Restructuring In connection with the proposed retirement of SJGS Units 2 and 3, some of the SJGS participants expressed a desire to exit their ownership in the plant. As a result, the SJGS participants negotiated a restructuring of the ownership in SJGS and addressed the obligations of the exiting participants for plant decommissioning, mine reclamation, environmental matters, and certain future operating costs, among other items.

The San Juan Project Restructuring AgreementAdvanced Metering Infrastructure (“SJGS RA”AMI”) sets forth the agreement among the SJGS owners regarding ownership restructuring. Key provisions of the SJGS RA include:

Capacity acquisition – On December 31, 2017, PNM, which was to acquire 132 MW and PNMR Development was to acquire 65 MW of the exiting owners’ capacity in SJGS Unit 4. PNMR Development assigned the rights and obligations related to the 65 MW to PNM effective on December 31, 2017, to facilitate dispatch of power from that capacity.denied. As ordered by the NMPRC, PNM’s 2020 filing for energy efficiency programs to be offered in 2021 should include a proposal for an AMI pilot project.

Rate Riders and Interim Rate Relief The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case. The NMPRC has approved PNM will treatrecovering fuel costs through the 65 MWFPPAC, as merchant utility plantwell as rate riders for renewable energy and energy efficiency. These mechanisms allow for more timely recovery of investments.

Cost Recovery Related to Joining the EIM – In 2018, PNM completed a cost-benefit analysis that willindicated 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 excluded from retail rates. In anticipationincurred in order to join the EIM. PNM’s application proposed recovery of the transfercosts incurred to join the EIM beginning on the effective date of ownership, PNM entered into agreementsnew rates in PNM’s next general rate case and that the benefits of participating in the EIM be credited to sellretail customers through PNM’s existing FPPAC. In December 2018, the power from 36 MWNMPRC issued an order approving the establishment of that capacitya 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 third party atrevised 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 fixed price forregulatory asset, and the period January 1, 2018 through June 30, 2022.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.
Coal inventory – The SJGS RA also sets forth the terms under
FERC Regulation

Rates PNM charges wholesale transmission customers and wholesale generation customers are subject to traditional rate regulation by FERC. Rates charged to wholesale electric transmission customers are based on a formula rate mechanism pursuant to which PNM acquired the coal inventory of the exiting SJGS participants as of January 1, 2016 and supplied coal to the exiting participants during the period from January 1, 2016 through December 31, 2017, which arrangement provided economic benefits that were passed on to PNM’s customers through the FPPAC.
Coal supply – The SJGS RA became effective contemporaneously with the effectiveness of the new SJGS CSA. The effectiveness of the new SJGS CSA was dependent on the closing of the purchase of the existing coal mine operation by a new mine operator, which occurred on January 31, 2016. In support of the closing of the mine purchase and to facilitate PNM customer savings, NM Capital, a wholly-owned subsidiary of PNMR, provided funding of $125.0 million to Westmoreland San Juan, LLC (“WSJ”), a ring-fenced, bankruptcy-remote, special-purpose entity that is a subsidiary of Westmoreland Coal Company to finance the purchase price. NM Capital was able to provide the $125.0 million financing to WSJ by first entering into a $125.0 million term loan agreement with a commercial bank. PNMR guarantees NM Capital’s obligations to the bank. The Westmoreland Loan matures on February 1, 2021 and had an initial interest rate of 7.25% plus LIBOR, which escalates over time. Such rate is 12.25% plus LIBORrates for the period from February 1, 2018 through January 31, 2019. WSJ must pay principal and interest quarterly to NM Capitalwholesale transmission service are calculated annually in accordance with an amortization schedule. Asapproved formula. The formula includes updating cost of February 20, 2018, the balance of the Westmoreland Loan was $51.0 million.
Coal mine reclamation – Under the terms of the SJGS CSA, PNMservice components, including investment in plant and the other SJGS owners are obligated to compensate SJCC for all reclamation costs associatedoperating expenses, based on information contained in PNM’s annual financial report filed with the supply of coal from the San Juan mine. In connection with certain mining permits relating to the operation of the San Juan mine, SJCC is required to post reclamation bonds, which currently aggregate $118.7 million, with the NMMMD. PNMR has arrangements under which a bank has issued $30.3 million in letters of credit to facilitate posting of the required reclamation bonds. See Note 16.
Other SJGS Environmental Matters In addition to the regional haze rule, SJGS is required to comply with other rules currently being developed or implemented that affect coal-fired generating units, including rules regarding GHG under Section 111(d) of the CAA. Implementation of the Clean Power Plan, which was published by EPA in October 2015, is currently stayed by order of the US Supreme Court pending further proceedings before the DC Circuit. Oral argument was heard by the DC Circuit in September 2016, but the court has taken no action. On March 28, 2017, President Trump issued an Executive Order on Energy Independence.  The order sets out two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.  The order rescinds various actions undertaken by the previous administration and directs the EPA Administrator to review and if appropriate suspend, revise, or rescind the Clean Power Plan,FERC, as well as other environmental regulations. 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.

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On OctoberMay 10, 2017, EPA issued2019, PNM filed an application with FERC requesting approval to purchase and provide transmission service on a proposalnew 165-mile long 345-kV transmission line and related facilities (the “Western Spirit Line”). Under related agreements, which are subject to repealcertain conditions being met prior to closing, the Clean Power PlanWestern Spirit Line will be purchased by PNM to serve approximately 800 MW of wind generation to be located in eastern New Mexico beginning in 2021. FERC approved PNM’s request to provide transmission to the facilities using an incremental rate based on a legal interpretationconstruction and other ongoing costs for the line, including adjustments for construction costs funded by the customer, effective July 9, 2019 and approved PNM’s request to purchase the Western Spirit Line on August 8, 2019. The NMPRC approved PNM’s planned purchase of the CAA under which the Clean Power Plan exceeds EPA’s statutory authority. EPA published the proposed repeal ruleWestern Spirit Line on October 16, 2017 and is accepting public comments until April 26, 2018. In addition, EPA published an advanced NOPR on December 28, 2017 to take comment on whether EPA should adopt a rule to replace the Clean Power Plan and what such a replacement rule might include, for which public comments were due February 26, 2018.2, 2019. See Note 17.

PNM estimateshas no full-requirements wholesale generation customers.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR’s strategic goal to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 2020 through 2023. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that implementationexcludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the BART plan at SJGS, as well as potentially exiting ownershipCompany’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.

PNMR targets a dividend payout ratio in the remaining units50% to 60% range of its ongoing earnings. PNMR expects to provide at SJGS (as well as Four Corners), as discussedor above should provide significant steps for New Mexicoindustry-average dividend growth in the near-term and to manage the payout ratio to meet its ultimate compliance with Section 111(d) underlong-term target. The Board will continue to evaluate the Clean Power Plan or any replacement rule. PNM is unable to predictdividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the impact of this rule on its fossil-fueled generation.

Because of environmental upgrades completed in 2009, SJGS has a mercury removal efficiency of 98% and mercury emissions are well below the mercury limit imposed by EPAfollowing increases in the 2011 Mercuryindicated annual common stock dividend:
Approval DatePercent Increase
December 20179%
December 20189%
December 20196%

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 Air Toxics Standards. Major environmental upgrades on eachto help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. Currently, all of the four units at SJGS have significantly reduced emissions of NOx, SO2, particulate matter,credit ratings issued by both Moody’s and mercury.S&P on the Company’s debt are investment grade.


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Between 2006 and 2017, SJGS has reduced NOx emissions by 41%, SO2 by 70%, particulate matter by 61%, and mercury by 98%.

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Renewable Energy

The REA was enacted to encourage the development of renewable energy in New Mexico. Prior to the enactment of the ETA, utilities operating in New Mexico were required to acquire a renewable energy portfolio equal to 15% of retail electric sales by 2015 and 20% by 2020. 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.

The Energy Transition Act (“ETA”)

The ETA became effective on June 14, 2019. As discussed above, 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 securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used 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. The NMPRC is expected to provide a final order on the abandonment and securitization portion of PNM's filing by April 1, 2020.

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 PNM’s participation in Four Corners after the agreements governing that facility expire in 2031.

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PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement filings with the NMPRC.

TNMP

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 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 customers billed on KWh usage, TNMP experienced a decrease in weather-normalized retail KWh sales of 2.0% in 2019 and an increase of 3.2% in 2018. For its demand-based load customers, TNMP experienced increases of 4.9% in 2019 and 6.8% in 2018. As of December 31, 2019, 103 active REPs receive transmission and distribution services from TNMP. In 2019, the three largest REP customers of TNMP accounted for 22%, 17%, and 12% of TNMP’s operating revenues. No other customer accounted for more than 10% of revenues.

Regulatory Activities

The PUCT approved interim adjustments to TNMP’s transmission rates of $0.6 million in March 2018, $14.3 million in March 2019, and $3.3 million in September 2019. On February 6, 2020, TNMP filed an application to further update its transmission rates, which would increase revenues by $7.8 million annually. The application is pending before the PUCT.

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.

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.

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SOURCES OF POWER
PNM
Generation Capacity

As of December 31, 2019, the total net generation capacity of facilities owned or leased by PNM was 2,152 MW. PNM also obtains power under long-term PPAs for the power produced by Valencia, New Mexico Wind, Red Mesa Wind, Casa Mesa Wind, La Joya Wind, the Lightning Dock Geothermal facility, and the NMRD-owned solar facilities.

PNM’s capacity in electric generating facilities, which are owned, leased, or under PPAs, in commercial operation as of December 31, 2019 is:
      Generation Percent of
      Capacity Generation
Type Name Location (MW) Capacity
Coal SJGS Waterflow, New Mexico 562
 20.4%
Coal Four Corners Fruitland, New Mexico 200
 7.2%
    Coal-fired resources   762
 27.6%
         
Gas Reeves Station Albuquerque, New Mexico 154
 5.6%
Gas Afton (combined cycle) La Mesa, New Mexico 230
 8.3%
Gas Lordsburg Lordsburg, New Mexico 80
 2.9%
Gas Luna (combined cycle) Deming, New Mexico 189
 6.8%
Gas/Oil Rio Bravo Albuquerque, New Mexico 138
 5.0%
Gas Valencia Belen, New Mexico 158
 5.7%
Gas La Luz Belen, New Mexico 40
 1.4%
Gas-fired resources   989
 35.8%
         
Nuclear PVNGS Wintersburg, Arizona 402
 14.6%
         
Solar PNM-owned solar Twenty-four sites in New Mexico 157
 5.7%
Solar NMRD-owned solar Los Lunas, New Mexico 80
 2.9%
Wind New Mexico Wind House, New Mexico 204
 7.4%
Wind Red Mesa Wind Seboyeta, New Mexico 102
 3.7%
Wind Casa Mesa Wind House, New Mexico 50
 1.8%
Geothermal Lightning Dock Geothermal Lordsburg, New Mexico 15
 0.5%
Renewable resources   608
 22.0%
      2,761
 100.0%

The NMPRC has approved plans for PNM to procure energy and RECs from additional wind and solar-PV renewable resources totaling 316 MW. In addition, the NMPRC approved a PPA for 140 MW of wind energy in PNM’s 2020 renewable energy procurement plan. PNM’s SJGS Abandonment Application seeks NMPRC approval to abandon SJGS in 2022 and for related replacement resources. See Note 17. If adjusted for these plans, the table above would reflect the percentage of generation capacity from fossil-fueled resources of 43.0%, from nuclear resources of 11.8%, and from renewable and battery storage resources of 45.2%.

Fossil‑Fueled Plants

SJGS is operated by PNM and, until December 2017, consisted of four units. As discussed in Note 16, SJGS Units 2 and 3 were retired in December 2017 and the ownership interests in SJGS Unit 4 were restructured as of December 31, 2017. PNM is seeking NMPRC approval to retire its remaining ownership in SJGS in 2022. See Note 17.

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The table below presents the rated capacities and ownership interests of each participant in each unit of SJGS before and after these events:
 Unit MW Capacity and Ownership Interests
 Prior to Restructuring After Restructuring
 Unit 1 Unit 2 Unit 3 Unit 4 Unit 1 Unit 4
Capacity (MW)340
 340
 497
 507
 340
 507
            
PNM (1)
50.000% 50.000% 50.000% 38.457% 50.000% 77.297%
Tucson50.000
 50.000
 
 
 50.000
 
SCPPA
 
 41.800
 
 
 
Tri-State
 
 8.200
 
 
 
MSR
 
 
 28.800
 
 
Anaheim
 
 
 10.040
 
 
Farmington
 
 
 8.475
 
 8.475
Los Alamos
 
 
 7.200
 
 7.200
UAMPS
 
 
 7.028
 
 7.028
Total100.000% 100.000% 100.000% 100.000% 100.000% 100.000%

(1) After restructuring 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. Prior to July 22, 2018, NTEC’s 7% share of Four Corners was owned by an affiliate of APS, which had acquired the interest from EPE on July 7, 2016. PNM had no ownership interest in Four Corners Units 1, 2, or 3, which were shut down by APS on December 30, 2013. 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. See Note 16 for additional information about Four Corners.

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 as required by GAAP.

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, including the NMPRC’s approval for PNM to include PVNGS Unit 3 as a jurisdictional resource to serve New Mexico retail customers beginning in 2018 and for information concerning the NMPRC’s treatment of the purchased assets and extended leases in PNM’s NM 2015 Rate Case. See Note 8 for additional information concerning the PVNGS leases including PNM’s option to purchase or return the assets underlying four leases in PVNGS Unit 1 and one lease in PVNGS Unit 2 that expire January 2023 and January 2024, as well as waivers obtained that extend PNM’s required notice to purchase or return the assets underlying the PVNGS Unit 1 leased interests to March 16, 2020.

Solar

At December 31, 2019, PNM owns a total of 157 MW of solar facilities in commercial operation. PNM is also entitled to the entire output from 80 MW of NMRD-owned solar facilities. PNM expects it will begin purchasing power from an additional 50 MW of NMRD-owned solar facilities in June 2020. As discussed in Note 1, NMRD is a 50% equity method investee of PNMR Development. If approved by the NMPRC, PNM’s recommended resource scenario to replace the planned retirement of SJGS would result in PNM executing PPAs to purchase renewable energy and RECs from an additional 350 MW of solar-PV facilities and to procure energy and construct a total of 130 MW of battery storage facilities. If approved, PNM would procure power under a PPA from one of the United States’ largest solar facilities and would have one of the nation’s highest percentage of battery storage capacity integration. See additional discussion of the SJGS Abandonment Application in Note 17.


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Plant Operating Statistics

Equivalent availability of PNM’s major base-load generating stations was:
Plant Operator 2019 2018
SJGS PNM 73.1% 71.4%
Four Corners APS 78.2% 61.7%
PVNGS APS 90.8% 88.6%

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. See Note 16 for a discussion of the restructuring of SJGS ownership. 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. 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.

On July 1, 2019, PNM submitted its SJGS Abandonment Application with the NMPRC requesting approval to retire SJGS in 2022, for replacement resources, and for issuance of securitized financing under the ETA. Many of the assumptions and findings included in PNM’s July 1, 2019 filing were consistent with those identified in PNM’s 2017 IRP. In addition, PNM’s 2017 IRP also indicates customers would benefit from PNM’s exit from Four Corners when the current coal supply agreement for that facility expires in 2031. See Notes 16 and 17 for additional information about PNM’s coal supply, PNM’s SJGS Abandonment Application, PNM’s 2017 IRP, and PNM’s 2020 IRP. 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, 2019, renewable energy procured under these agreements from wind, solar-PV, and geothermal facilities aggregated to 356 MW, 80 MW, and 15 MW. These agreements currently have expiration dates beginning in December 2034 and extending through December 2046. The NMPRC has approved PNM’s request to enter into additional PPAs for renewable energy and RECs for an additional 166 MW of wind energy from the La Joya Wind Facility, which is expected to be operational in November 2020, 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, includes a 20-year PPA to purchase an additional 140 MW of renewable energy and RECs from the La Joya Wind Facility beginning in 2020. The costs of these PPAs are passed through to PNM’s New Mexico jurisdictional retail customers under NMPRC approved rate riders. PNM’s recommended replacement scenario for the retirement of SJGS in 2022 includes a request to enter into additional PPAs for 350 MWs of renewable energy from solar-PV facilities and 60 MWs from battery storage facilities. See Note 17.


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A summary of purchased power, excluding Valencia, is as follows:
 Year Ended December 31,
 2019 2018
Purchased under long-term PPAs   
MWh1,853,225
 1,626,300
Cost per MWh$31.62
 $32.49
Other purchased power   
Total MWh333,137
 444,347
Cost per MWh$43.74
 $41.46
TNMP

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

FUEL AND WATER SUPPLY
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:
 Coal Nuclear Gas and Oil
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
 
Percent of
Generation
 
Average
Cost
201944.2% $2.80
 33.7% $0.66
 19.1% $1.35
201844.7% $2.60
 34.1% $0.58
 18.5% $2.43

In 2019 and 2018, 3.0% and 2.7% of PNM’s generation was from utility-owned solar, which has no fuel cost. In December 2017, SJGS Units 2 and 3 were retired and PNM assumed a greater interest in SJGS Unit 4, which results in a lower percentage of PNM’s electric generation capacity being fueled by coal. The generation mix for 2020, including power procured under PPAs, is expected to be 41.9% coal, 31.9% nuclear, 13.1% gas and oil, and 13.1% 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. None of these amendments have extended the contract beyond its July 2031 expiration. The contract provides for pricing adjustments over its term based on economic indices.

See Notes 16 and 17 for additional information about PNM’s December 2018 Compliance Filing and PNM’s SJGS Abandonment Application which seeks NMPRC approval to retire SJGS in 2022. As discussed in Note 17, PNM’s 2017 IRP also indicates that PNM exiting ownership in Four Corners after the end of its current coal supply agreement in 2031 would provide long-term cost savings to PNM’s customers.
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

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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. PNM’s reliance on its natural gas generating resources has increased with the December 2017 retirement of SJGS Units 2 and 3. 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 30% of its requirements through 2028; 100% of its requirements for conversion services through 2025, and 40% through 2030; 100% of its enrichment services through 2021, 90% for 2022, and 80% through 2026; and 100% of its fuel assembly fabrication services 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.
Water Supply

See Note 16 for information about PNM’s water supply.

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
Environmental Matters under the caption “The Clean Air Act”
WEG v. OSM NEPA Lawsuit
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”

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

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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 although PNM has decided to stop pursuing wholesale generation contracts.  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.

EMPLOYEES
The following table sets forth the number of employees of PNMR, PNM, and TNMP as of December 31, 2019:
 PNMR PNM TNMP
Corporate (1)
388
 
 
PNM915
 915
 
TNMP365
 
 365
   Total1,668
 915
 365

(1) Represents employees of PNMR Services Company.
As of December 31, 2019, PNM had 466 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, 2020. In December 2019, PNM and IBEW Local 611 agreed to a successor collective bargaining agreement effective May 1, 2020 through April 30, 2023. As of December 31, 2019, TNMP had 194 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 control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:

The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, the NM Supreme Court’s decisions in the appeal of that order, the NM 2016 Rate Case and related deferral of the issue of the prudence of PNM’s decision to continue participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments and other costs associated with that plant, any actions resulting from PNM’s SJGS Abandonment Application, which requests NMPRC approval to retire PNM’s share of SJGS in 2022 and for recovery of undepreciated investments and other costs associated with the retirement, and/or the conclusions reached in PNM’s 2017 IRP (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 and supporting forecasts utilized in FTY rate proceedings
Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2 that is under lease at the expiration of the lease terms in 2023 and 2024, including PNM’s decisions related to purchasing or returning the assets underlying the leases, or upon the occurrence of certain specific events, as well as the related treatment for ratemaking purposes by the NMPRC
Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, the outcome of PNM’s SJGS Abandonment Application, the results of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s

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exit from Four Corners in 2031, including regulatory recovery of undepreciated investments and other costs in the event the NMPRC orders generating facilities be retired, and the impacts of the ETA
Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings
The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, 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
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
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, 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
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, 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.


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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, including costs of replacing generating capacity as it is retired. 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 2020-2024 to be $3.8 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 generation and 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 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 and other parties filed cross-appeals to PNM appeal. In May 2019, the NM Supreme Court issued its decision on the case. The NM Supreme Court rejected the matters appealed by the cross-appellants and affirmed the NMPRC’s disallowance of certain investments in SJGS and PVNGS. The NM Supreme Court’s decision also ruled that the NMPRC’s decision to permanently disallow PNM recovery of future decommissioning costs related to certain interests in PVNGS deprived PNM of its right to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. In July 2019, the NMPRC heard oral argument from parties in the case on how to best proceed with the NM Supreme Court’s remand. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming

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the NMPRC’s final order with a single modification to address recovery of future PVNGS decommissioning costs in a future case. 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.

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, and after the effective date of the ETA, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. 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 proposes 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 includes a request to issue up to $361 million of energy transition bonds (the “Securitized Bonds”). The amount of Securitized Bonds to be issued will be dependent upon several factors, including NMPRC approval.

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. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings would be evaluated under the requirements of the ETA. The NMPRC denied motions for clarification regarding the applicability of the ETA to PNM’s SJGS Abandonment Application and the Hearing Examiners assigned to the application required PNM to file legal brief regarding the extent to which the state constitution might prevent the ETA from applying to the issues in each proceeding, and provided parties the opportunity to file testimony on the merits of their claims regarding the SJGS abandonment and replacement resources if the ETA is ultimately determined to not apply to PNM’s application.

NEE and other advocacy groups filed an emergency petition for a writ of mandamus requesting the NM Supreme Court stay the SJGS abandonment and financing proceedings, declare the ETA inapplicable to such proceedings and declare certain provisions of the ETA unconstitutional because they limit the regulatory oversight responsibilities of the NMPRC. PNM and other parties also filed a petition for a writ of mandamus requesting the NM Supreme Court clarify that the reason underlying its June 2019 decision denying the stay was due to the passage of the ETA and to clarify that the ETA applies to any application filed after the stay had been lifted. The NM Supreme Court denied both PNM’s and NEE’s petitions for writ of mandamus without discussion. In December 2019, the Governor of the State of New Mexico, the President of the Navajo Nation, and several New Mexico state senators and representatives filed an emergency petition for a writ of mandamus requesting the NM Supreme Court require the NMPRC to comply with its constitutional duties and apply the ETA to every aspect of PNM’s SJGS Abandonment Application. In January 2020, the NM Supreme Court denied NEE’s and other parties petitions, granted PNM’s motion to intervene, and scheduled oral argument to be presented by the NMPRC and PNM. On January 29, 2020, and after oral argument, the NM Supreme Court issued a ruling requiring the NMPRC apply the ETA to all aspects of PNM’s SJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with their ruling should be vacated, and denying parties’ request for stay.

On February 21, 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 reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that

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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 costs.  Exceptions to the recommended decisions are due March 4, 2020 and responses to exceptions are due March 6, 2020.  The Hearing Examiners also found that the statutory deadline for action by the Commission is April 1, 2020.

PNM’s 2017 IRP also indicates PNM’s customers would benefit from PNM’s exit from participation from Four Corners in 2031. The SJGS Abandonment Application and the 2017 IRP are not final determinations of PNM’s future generation portfolio.  Retiring PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings. NMPRC approval of new generation resources through CCN, PPA, or other applicable filings, would also be required. The NMPRC has issued regulatory orders requiring depreciation (and resultant regulatory recovery) of significant portions of these resources through estimated lives of 2053 for SJGS and 2041 for Four Corners.

In April 2019, NEE and other parties filed a joint petition requesting the NMPRC open an investigation regarding PNM’s option to purchase the assets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. In response to a NMPRC order, in May 2019 PNM submitted a filing indicating the joint petition should be denied and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. In September 2019, NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding and PNM filed a response opposing the motion. On January 3, 2020, PNM notified the NMPRC that PNM had obtained 60-day waivers of the deadline to notify the lessors of its intent to purchase or return the assets underlying the PVNGS Unit 1 leases. The deadline for PNM to provide irrevocable notice of its intent to purchase or return these interests is now March 16, 2020. The deadline to provide notice under the PVNGS Unit 2 lease has not changed and remains January 15, 2021. On January 8, 2020, the NMPRC issued an order denying the petition for investigation. PNM has committed to provide the NMPRC with updates on any decisions related to these interests and will file any necessary requests for approval associated with its decisions.

An adverse decision of the NMPRC regarding PNM’s ability to recover certain PVNGS decommissioning costs, PNM’s SJGS Abandonment Application, the prudency of PNM’s continued participation in Four Corners in PNM’s next rate case, or in any future decision made by PNM to purchase or 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 SJGS or Four Corners prior to the planned retirement dates, or the NMPRC’s denial, modification or delay of PNM’s application 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 determine PNM’s decision to continue its participation in Four Corners was prudent and continue to provide PNM recovery of its costs related to that facility. In addition, there can be no assurance the NMPRC will approve any future application by PNM to retire Four Corners or other generation interests. 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. 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.


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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.

The restructuring of SJGS ownership and obtaining the new coal supply for SJGS from the current San Juan mine operator were integral components of a process to achieve compliance with the CAA at SJGS. 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.

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.

Environmental policies and regulations remain significant concerns for PNMR. 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 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 has published the Affordable Clean Energy rule, which requires states to set performance standards consistent with the EPA’s determination of “best system of emission reduction” technology. In addition, on June 1, 2017, President Trump announced that the U.S. would withdraw from the Paris Agreement. On November 4, 2019, President Trump announced that the U.S. has notified the United Nations that the U.S. will withdraw from the Paris Agreement on climate change. While the U.S. will be able to withdraw officially from the Paris Agreement in November 2020, a future administration would have the opportunity to rejoin. Therefore, PNMR is dealing with an uncertain regulatory and policy environment. While EPA and other federal agencies may be seeking to reduce climate change regulations, some state agencies, environmental advocacy groups, and other organizations have been focusing considerable attention on GHG from power generation facilities. See discussion above and Note 17, regarding PNM’s SJGS Abandonment Application 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. This includes new, existing, and modified or reconstructed EGUs which are also being considered in a proposed rule by EPA to revise the GHG NSPS rule. The uncertainty regarding climate change regulation presents challenges and represents a shift of greater authority to the states to make decisions and issue and enforce regulations. Federal and/or 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 or non-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

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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 preparing its next regional haze SIP and has notified PNM that they will not require PNM to complete a regional haze four-factor analysis for SJGS, provided the plant under PNM’s ownership is planning to close 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 and other power plant emissions, including changes to the ambient air quality standards, 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 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 Trump 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.

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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. It is possible that further advances in technology will continue to reduce the costs of these alternative methods of producing power to a level that is competitive with that of central station power production. Continued advances being made in the capabilities of energy storage could further decrease power production and peak usage through the dispatch of more battery systems. This could result in demand reduction that could negatively impact revenue and/or result in underutilized assets that had been 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 in accordance with GAAP. These estimates include many assumptions about future events and are inherently imprecise. As discussed above, on July 1, 2019, PNM submitted its SJGS Abandonment Application requesting NMPRC approval to retire PNM’s share of SJGS in 2022. The SJGS Abandonment Application includes a request to recover PNM’s share of reclamation related to the underground mine that serves SJGS as well as other costs associated with retiring the facility. In addition, PNM’s 2017 IRP indicates that exiting PNM’s ownership interest in Four Corners in 2031 would provide long-term cost savings for customers. See additional discussion of PNM’s December 2018 Compliance Filing, the SJGS Abandonment Application, and its 2017 IRP in Notes 16 and 17. In the event the costs to decommission those 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. In addition, the NMPRC’s order in the NM 2015 Rate Case disallowed recovery of future contributions for the decommissioning of certain portions of PVNGS. The NM Supreme Court determined that the NMPRC’s decision to not provide PNM recovery of future contributions for the decommissioning of certain portions of PVNGS denied PNM due process of law and remanded the matter to the NMPRC for consideration consistent with the court’s findings. On January 8, 2020, the NMPRC amended its order in the case to remove the disallowance of certain decommissioning costs and indicated this matter will be addressed in a future docket. See Note 17.

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.

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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 SJGS Abandonment Application requests NMPRC approval to retire PNM’s share of SJGS after the coal supply agreement for that facility expires in mid-2022. PNM’s 2017 IRP also indicates that PNM exiting its ownership interest in Four Corners in 2031 would provide long-term cost savings for customers. These actions will increase PNM’s dependency on other generation resources, including 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 used to transport power, 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 techniques used by those who wish to obtain unauthorized access, and possibly disable or sabotage systems and/or abscond with confidential 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.  Although the Company has implemented security measures to identify, prevent, detect, respond to, and recover from cyber and physical security events, 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.  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 14.6% of PNM’s total generating capacity as of December 31, 2019. 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

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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.

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

PNM is obligated to supply power to retail customers and certain wholesale customers. At peak times, power demand could exceed PNM’s available generation capacity, particularly if PNM’s power plants are not performing as anticipated. SJGS Units 2 and 3 were shut down in December 2017 and PNM is currently seeking NMPRC approval to retire PNM’s share of SJGS in 2022. In addition, PNM’s 2017 IRP indicates that it would also save customers money for PNM to exit ownership in Four Corners in 2031. SJGS and Four Corners comprise a significant portion of PNM’s base load generation capacity and their retirement would increase reliance on other existing or new generating and/or battery storage resources. Market forces, competitive forces, or adverse regulatory actions may require PNM to purchase capacity on the open market or build additional resources to meet customers’ energy needs. Regulators or market conditions may not permit PNM to pass all of these purchases or construction costs on to customers. If that occurs, PNM may not be able to fully recover these costs or there may be 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.

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.

General Economic and Weather Factors
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.

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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.
Assured supplies of water are important for PNM’s generating plants. 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.
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 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 2020-2024, including capital requirements related to its investment in NMRD, to be $3.8 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

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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 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. On January 16, 2018, S&P changed the outlook for PNMR, PNM and TNMP from stable to negative while affirming the investment grade ratings of each entity. 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. 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. 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% return generating and 50% liability matching fixed 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 70% equities and 30% fixed income.

Due to the funded status of the NDT and recent overall market performance, PNM has re-balanced the NDT investment portfolio to a target of 80% fixed income 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 beginning in 2018, 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

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“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.

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 further changes to U.S. Treasury regulations, IRS interpretations of the provisions of the Tax Act, actions by the NMPRC, PUCT, and FERC could cause the Company’s expectations of the impacts of the Tax Act to change. Any such change 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.


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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, 2019, PNM owned, or jointly owned, 3,206 miles of electric transmission lines, 6,071 miles of distribution overhead lines, 5,934 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, 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, 2019, TNMP owned 981 miles of overhead electric transmission lines, 7,236 miles of overhead distribution lines, 1,324 miles of underground distribution lines, and 125 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

The Clean Air Act – Regional Haze – NEE Complaint
The Clean Air Act – Regional Haze – Four Corners – Four Corners Federal Agency Lawsuit
WEG v. OSM NEPA Lawsuit
Navajo Nation Environmental Issues
Santa Fe Generating Station
Coal Combustion Residuals Waste Disposal
Continuous Highwall Mining Royalty Rate
PVNGS Water Supply Litigation
San Juan River Adjudication
Rights-of-Way Matter
Navajo Nation Allottee Matters

Note 17

PNM – Renewable Portfolio Standard
PNM – Renewable Energy Rider
PNM – Energy Efficiency and Load Management
PNM – Integrated Resource Plans
PNM – SJGS Abandonment Application
TNMP – Transmission Cost of Service Rates

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.


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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 21, 2020 and offices held with PNMR for the past five years are as follows:
NameAgeOfficeInitial Effective Date
P. K. Collawn61Chairman, President, and Chief Executive OfficerJanuary 2012
J. D. Tarry49Senior 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
Vice President, Customer Service and Chief Information OfficerMay 2012
C. N. Eldred

66Executive Vice President, Corporate Development and FinanceJanuary 2020
Executive Vice President and Chief Financial OfficerJuly 2007
P. V. Apodaca68Senior Vice President, General Counsel, and SecretaryJanuary 2010
R. N. Darnell62Senior Vice President, Public PolicyJanuary 2012
C. M. Olson62Senior Vice President, Utility OperationsFebruary 2018
Vice President, Utility OperationsDecember 2016
Vice President, Generation – PNMNovember 2012

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 $0.265 per share in July 2018 and $0.29 per share in July 2019, which are reflected as being in the second quarter. The Board declared dividends on common stock considered to be for the third quarter of $0.265 per share in September 2018 and $0.29 per share in September 2019, which are reflected as being in the third quarter above. On February 21, 2020, the Board declared a quarterly dividend of $0.3075 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 earnings determined in accordance with GAAP 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 21, 2020, there were 8,219 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. Settlement of the forward sale agreements is expected to occur on or prior to January 7, 2021.

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, 2019, 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 2019 and 2018. 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
          
 2019 2018 2017 2016 2015
 (In thousands except per share amounts and ratios)
Total Operating Revenues$1,457,603
 $1,436,613
 $1,445,003
 $1,362,951
 $1,439,082
Net Earnings$92,131
 $101,282
 $95,419
 $131,896
 $31,078
Net Earnings Attributable to PNMR$77,362
 $85,642
 $79,874
 $116,849
 $15,640
Net Earnings Attributable to PNMR per Common Share         
Basic$0.97
 $1.07
 $1.00
 $1.47
 $0.20
Diluted$0.97
 $1.07
 $1.00
 $1.46
 $0.20
Cash Flow Data         
Net cash flows from operating activities$503,163
 $428,226
 $523,462
 $408,283
 $395,045
Net cash flows from investing activities$(673,898) $(475,724) $(466,163) $(699,375) $(544,528)
Net cash flows from financing activities$172,446
 $45,646
 $(58,847) $242,392
 $175,431
Total Assets$7,298,774
 $6,865,551
 $6,646,103
 $6,471,080
 $6,009,328
Long-Term Debt, including current installments$3,007,717
 $2,670,111
 $2,437,645
 $2,392,712
 $2,091,948
Financing Leases(1)
$8,739
 $
 $
 $
 $
Common Stock Data         
Market price per common share at year end$50.71
 $41.09
 $40.45
 $34.30
 $30.57
Book value per common share at year end$21.07
 $21.20
 $21.28
 $21.04
 $20.78
Tangible book value per share at year end$17.58
 $17.70
 $17.79
 $17.55
 $17.28
Average number of common shares outstanding – diluted79,990
 80,012
 80,141
 80,132
 80,139
Dividends declared per common share$1.1775
 $1.0850
 $0.9925
 $0.9025
 $0.8200
Capitalization         
PNMR common stockholders’ equity35.8% 38.6% 40.9% 41.1% 44.0%
Preferred stock of subsidiary, without mandatory redemption requirements0.2
 0.3
 0.3
 0.3
 0.3
Long-term debt64.0
 61.1
 58.8
 58.6
 55.7
 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
          
 2019 2018 2017 2016 2015
 (In thousands)
PNM Revenues         
Residential$427,883
 $433,009
 $419,105
 $395,490
 $427,958
Commercial396,987
 408,333
 408,354
 394,150
 437,279
Industrial69,601
 61,119
 58,851
 56,650
 75,308
Public authority20,322
 21,688
 23,604
 23,174
 26,202
Economy service25,757
 26,764
 30,645
 31,121
 35,132
Transmission57,214
 54,280
 45,932
 34,267
 33,216
Firm-requirements wholesale
 
 4,468
 22,497
 31,263
Other sales for resale (1)
81,934
 76,168
 101,897
 70,375
 63,195
Mark-to-market activity(997) (1,051) 1,317
 (1,645) (5,270)
Other miscellaneous (2)
13,134
 14,098
 10,057
 9,834
 6,912
Alternative revenue programs (3)
1,987
 (2,443) 
 
 
Total PNM Revenues$1,093,822
 $1,091,965
 $1,104,230
 $1,035,913
 $1,131,195
TNMP Revenues         
Residential$150,742
 $130,288
 $126,587
 $124,462
 $120,771
Commercial116,953
 111,261
 106,503
 103,174
 102,956
Industrial22,405
 17,317
 18,140
 17,427
 16,316
Other miscellaneous76,210
 81,583
 89,543
 81,975
 67,844
Alternative revenue programs (3)
(2,529) 4,199
 
 
 
Total TNMP Revenues$363,781
 $344,648
 $340,773
 $327,038
 $307,887

(1) Includes sales to Tri-State under hazard sharing agreement (Note 17).
(2) For the years ended December 31, 2019 and 2018, $6.8 million and $7.6 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.
 2019 2018 2017 2016 2015
PNM MWh Sales         
Residential3,227,338
 3,250,560
 3,136,066
 3,189,527
 3,185,363
Commercial3,732,099
 3,814,659
 3,774,417
 3,831,295
 3,800,472
Industrial1,152,536
 879,308
 850,914
 875,109
 957,308
Public authority231,538
 241,238
 250,500
 249,860
 246,496
Economy service(1)
670,128
 667,288
 722,501
 805,733
 796,430
Firm-requirements wholesale (2)

 
 87,600
 429,345
 444,495
Other sales for resale (3)
2,842,759
 2,525,220
 3,632,137
 2,899,322
 2,110,947
Total PNM MWh Sales11,856,398
 11,378,273
 12,454,135
 12,280,191
 11,541,511
TNMP MWh Sales         
Residential3,044,760
 3,094,965
 2,936,291
 2,933,938
 2,912,019
Commercial3,401,288
 3,186,788
 2,793,263
 2,742,366
 2,654,102
Industrial4,281,962
 3,681,480
 3,202,528
 2,976,800
 2,804,919
Other99,863
 100,300
 94,767
 98,596
 100,999
Total TNMP MWh Sales10,827,873
 10,063,533
 9,026,849
 8,751,700
 8,472,039

(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 (Note 17).


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PNM RESOURCES, INC. AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
          
 2019 2018 2017 2016 2015
PNM Customers         
Residential473,803
 470,192
 465,950
 462,921
 459,353
Commercial57,369
 57,000
 56,655
 56,357
 56,107
Industrial201
 236
 239
 247
 250
Economy service1
 1
 1
 1
 1
Other sales for resale26
 39
 36
 36
 39
Other930
 932
 931
 887
 908
Total PNM Customers532,330
 528,400
 523,812
 520,449
 516,658
TNMP Consumers         
Residential213,435
 210,696
 207,788
 204,744
 202,359
Commercial41,054
 40,508
 39,814
 39,817
 39,014
Industrial96
 88
 82
 66
 70
Other1,911
 1,924
 1,948
 1,993
 2,018
Total TNMP Consumers256,496
 253,216
 249,632
 246,620
 243,461
PNM Generation Statistics         
Net Capability – MW, including PPAs (1)
2,761
 2,661
 2,580
 2,791
 2,787
Coincidental Peak Demand – MW1,937
 1,885
 1,843
 1,908
 1,889
Average Fuel Cost per MMBTU$1.716
 $1.808
 $1.704
 $1.821
 $2.168
BTU per KWh of Net Generation10,055
 10,193
 10,396
 9,975
 10,456
          
(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.



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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 2018 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 789,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:

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

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

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

Earning Authorized Returns on Regulated Businesses

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

Fair and timely rate treatment from regulators is crucial to PNM and TNMP in earning their allowed returns and critical for PNMR to achieve its strategic goals. PNMR believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the Company’s ratings could lower costs to utility customers. Additional information about rate filings is provided in Note 17.

State Regulation

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.

On September 28, 2016, the NMPRC issued an order in the case that included a determination that PNM was imprudent in purchasing 64.1 MW of previously leased capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing BDT equipment on SJGS Units 1 and 4. Major components of the difference between the increase in non-fuel revenues approved in the order and PNM’s request, included:


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

On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. 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 the 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. NEE, NM AREA, and ABCWUA filed notices of cross-appeal to PNM’s appeal. The issues appealed by the various cross-appellants included, among other things, the NMPRC allowing PNM to recover any of the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2, as well as the costs incurred under the Four Corners CSA and the inclusion of the “prepaid pension asset” in rate base.

During the pendency of the appeal, PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the related appeals to the NM Supreme Court as required under GAAP. These evaluations indicated that it was reasonably possible that PNM would be successful on the issues it was appealing but would not be provided capital cost recovery until the NMPRC acted on a decision of the NM Supreme Court. PNM also evaluated the accounting consequences of the issues being appealed by the cross-appellants and concluded that the issues raised in the cross-appeals did not have substantial merit.

In accordance with GAAP, PNM periodically updated its estimate of the amount of time necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. As a result of these evaluations, through December 31, 2018, PNM recorded accumulated pre-tax impairments of its capital investments subject to the appeal in the amount of $18.4 million.

On May 16, 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 rejected the matters appealed by the cross-appellants and all but one of the matters appealed by PNM. The NM Supreme Court ruled that the NMPRC’s decision to permanently disallow recovery of future decommissioning costs related to the 64.1 MW of PVNGS Unit 2 and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. On July 17, 2019, the NMPRC heard oral argument from parties in the case. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming the NMPRC’s final order with a single modification to address recovery of PVNGS decommissioning costs in a future case. On January 8, 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand. The NMPRC 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. The impairment reflects capital costs not previously impaired during the pendency of the appeal and 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:


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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. This matter is now concluded.

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

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

In February 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”), which was denied. As ordered by the NMPRC, PNM’s 2020 filing for energy efficiency programs to be offered in 2021 should include a proposal for an AMI pilot project.

Rate Riders and Interim Rate Relief The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case. 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.

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

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On May 10, 2019, PNM filed an application with FERC requesting approval to purchase and provide transmission service on a new 165-mile long 345-kV transmission line and related facilities (the “Western Spirit Line”). Under related agreements, which are subject to certain conditions being met prior to closing, the Western Spirit Line will be purchased by PNM to serve approximately 800 MW of wind generation to be located in eastern New Mexico beginning in 2021. FERC approved PNM’s request to provide transmission to the facilities using an incremental rate based on construction and other ongoing costs for the line, including adjustments for construction costs funded by the customer, effective July 9, 2019 and approved PNM’s request to purchase the Western Spirit Line on August 8, 2019. The NMPRC approved PNM’s planned purchase of the Western Spirit Line on October 2, 2019. See Note 17.

PNM has no full-requirements wholesale generation customers.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR’s strategic goal to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 2020 through 2023. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.

PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:
Approval DatePercent Increase
December 20179%
December 20189%
December 20196%

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. Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade.

Business and Strategic Focus

PNMR strives to create enduring value for customers, communities, and shareholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power. The Company works closely with 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.

Reliable and Affordable Power
PNMR and its utilities are aware of the important roles they play in enhancing economic vitality in their service territories. Management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth. When contemplating expanding or relocating their operations, businesses consider energy affordability and reliability to be important factors. PNM and TNMP strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a 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 reliable electric service.

Utility Plant and Strategic Investments

Utility Plant Investments – During the 2017 to 2019 period, PNM and TNMP together invested $1.5 billion in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. During 2018 and 2019, PNM

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constructed an additional 50 MW of PNM-owned solar-PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. In late 2018, PNM installed a new type of protective relay on its high-voltage transmission lines, which help to ensure the reliability of PNM’s electrical system. On May 1, 2019, PNM executed an agreement to purchase 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. PNM’s SJGS Abandonment Application requests NMPRC approval of a replacement resource scenario that would result in PNM investing approximately $298 million to construct and own a new 280 MW gas-fired generation facility to be located at the existing SJGS site, 70 MW of battery storage facilities, and other transmission upgrades to replace PNM’s capacity in SJGS. See the subheading Capital Requirements included in the full discussion of Liquidity and Capital Resources below for additional discussion of the Company’s projected capital requirements.

Strategic Investments – In 2017, PNMR Development and AEP OnSite Partners created NMRD to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. Abundant renewable resources, large tracts of affordable land, and strong government and community support make New Mexico a favorable location for renewable generation. New Mexico ranks 3rd in the nation for energy potential from solar power according to the Nebraska Department of Energy & Energy Sun Index and ranks 3rd 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. The formation of this joint venture provides a more efficient use of PNMR’s capital to support new renewable investment opportunities while maintaining the necessary capital to support investments required by regulated jurisdictions. As of December 31, 2019, NMRD’s renewable energy capacity in operation was 85.1 MW, which includes 80 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. The NMPRC has approved PNM’s request to enter into an additional 25-year PPA to purchase renewable energy and RECs from an aggregate of approximately 50 MW of capacity from solar-PV facilities to be constructed by NMRD to supply power to the Facebook data center. These facilities are expected to begin commercial operation by June 2020. See Note 17. 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.

PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP included, among other things, that retiring PNM’s share of SJGS in 2022 and exiting ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS.

In December 2018, the NMPRC issued an order accepting PNM’s 2017 IRP as compliant with applicable statute and NMPRC rules. Several parties appealed the NMPRC’s final order to the NM Supreme Court. These appeals were ultimately withdrawn by parties or denied by the NM Supreme Court. See additional discussion regarding PNM’s leased capacity in PVNGS in Note 8 and PNM’s 2017 IRP and the SJGS Abandonment Application in Note 17.

In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. NMPRC rules require PNM to file its 2020 IRP in July 2020. PNM will continue to seek input from interested parties as a part of this process. PNM cannot predict the outcome of this matter.
Environmentally Responsible Power
PNMR has a long-standing record of environmental stewardship. PNM’s environmental focus is in three key areas:

Developing strategies to provide reliable and affordable power while transitioning to a 100% emissions-free generating portfolio by 2040

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Preparing PNM’s system to meet New Mexico’s increasing renewable energy requirements as cost-effectively as possible
Increasing energy efficiency participation

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

The Energy Transition Act (“ETA”)

On June 14, 2019, Senate Bill 489, known as the ETA, became effective. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used to provide utility service to customers and for other costs as defined by the ETA. These costs may include coal mine and plant decommissioning that have not yet been charged to customers. Proceeds from energy transition bonds may also be used to fund severances to employees of the retired facility and related coal mine, and to promote economic development, education and job training in areas impacted by the retirement of the coal-fired facilities. The ETA requires the NMPRC to prioritize replacement resources in a manner intended to mitigate the economic impact to communities affected by these plant retirements. See additional discussion of the ETA and PNM’s SJGS Abandonment Application below and in Notes 16 and 17.

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

SJGS

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 seeks 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 energy transition bonds as provided by the ETA. The application includes several replacement resource scenarios including PNM’s recommended replacement scenario, which is consistent with PNM’s goal of having a 100% emissions-free generating portfolio by 2040 and would provide cost savings to customers while preserving system reliability. The application includes three other replacement resource scenarios that would place a greater amount of resources in the San Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. When compared to PNM’s recommended replacement resource scenario, the three alternative resource scenarios are expected to result in increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities are expected to provide lower system reliability.

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. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings would be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. The NMPRC denied motions for clarification regarding the applicability of the ETA to PNM’s SJGS

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Abandonment Application and indicated that the Hearing Examiners assigned to the proceeding would address the issue of law applicable to the approvals sought by PNM in the procedural orders. The Hearing Examiners subsequently issued procedural orders that set public hearings on SJGS abandonment and related financing to begin in December 2019 and for hearings on replacement resources to begin in January 2020. The Hearing Examiners also required PNM to file legal brief by August 23, 2019 regarding the extent to which the state constitution might prevent the ETA from applying to the issues in each proceeding, that parties file responses to PNM’s legal briefs by October 18, 2019, and provided parties the opportunity to file testimony on the merits of their claims regarding the SJGS abandonment and replacement resources if the ETA is ultimately determined to not apply to PNM’s application. Hearings on the abandonment and securitized financing proceedings were held in December 2019 and hearings on replacement resources were held in January 2020.

On August 30, 2019, PNM and other parties filed a petition for a writ of mandamus requesting the NM Supreme Court clarify that the reason underlying its June 2019 decision to deny the stay was due to the passage of the ETA and to clarify that the ETA applies to any application filed after the stay had been lifted. On September 18, 2019, NEE and other advocacy groups filed an amended emergency petition for a writ of mandamus requesting the NM Supreme Court stay the SJGS abandonment and financing proceedings, declare the ETA inapplicable to such proceedings and declare certain provisions of the ETA unconstitutional because they limit the regulatory oversight responsibilities of the NMPRC. In early October 2019, the NM Supreme Court denied both PNM’s and NEE’s petitions for writ of mandamus without discussion. On December 9, 2019, the Governor of the State of New Mexico, the President of the Navajo Nation, and several New Mexico state senators and representatives filed an emergency petition for a writ of mandamus requesting the NM Supreme Court require the NMPRC to comply with its constitutional duties and apply the ETA to every aspect of PNM’s SJGS Abandonment Application. In January 2020, the NM Supreme Court denied NEE’s and other parties petitions, granted PNM’s motion to intervene, and scheduled oral argument to be presented by the NMPRC and PNM. On January 29, 2020, and after oral argument, the NM Supreme Court issued a ruling requiring the NMPRC apply the ETA to all aspects of PNM’s SJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with their ruling should be vacated, and denying parties’ request for stay.

On February 21, 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 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 costs.  Exceptions to the recommended decisions are due March 4, 2020, and responses to exceptions are due March 6, 2020.  The Hearing Examiners also found that the statutory deadline for action by the Commission is April 1, 2020. See Note 17.

The financial impact of an early retirement of SJGS and the NMPRC approval process are influenced by many factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment on the area surrounding the plant and the related mine, as well as the overall political and economic conditions of New Mexico. PNM cannot predict the outcome of this matter.

Other Environmental Matters In addition to the regional haze rule and the ETA, SJGS and Four Corners may be required to comply with other rules that affect coal-fired generating units. On March 28, 2017, President Trump issued an Executive Order on Energy Independence.  The order sets out two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.  On June 19, 2019, EPA released the final Affordable Clean Energy rule. EPA is taking three separate actions in the final rule: (1) repealing the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d) which, among other things, extends the deadline for state plans and the timing of EPA’s approval process. 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. The final rule requires states to submit a plan to EPA by July 8, 2022, and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval). The Company is reviewing the rule with respect to impacts to Four Corners. See Note 16.

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On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule issued in October 2015 for certain fossil-fueled power plants. The proposal would revise the emissions standards for new, reconstructed, or modified coal-fired EGUs to make them less stringent. PNM does not expect SJGS or Four Corners will be subject to the Carbon Pollution Standards rule that EPA has proposed to revise.

PNM’s review of the GHG emission reductions standards under the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. As discussed above, 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.
Renewable Energy
PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As of December 31, 2017,2019, PNM had 107has 157 MW of utility-owned solar capacity.capacity in operation. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 81.6127.6 MW at December 31, 2017.2019. PNM also owns the 500 KW PNM Prosperity Energy Storage Project, which uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited.Project. The project was one of the first combinations of battery storage and PVsolar-PV energy in the nation and involved extensive research and development of advanced grid concepts. The facility also was the nation’s first solar storage facility fully integrated into a utility’s power grid. Since 2003, PNM has purchasedalso purchases the output from New Mexico Wind, a 204 MW wind facility, and began purchasing the output of Red Mesa Wind, an existing 102 MW wind energy center, on January 1, 2015.center. If approved by the NMPRC, PNM’s recommended resource scenario to replace the planned retirement of SJGS would result in PNM has a 20-year agreementexecuting PPAs to purchase renewable energy and RECs from a total of 350 MW of solar-PV facilities and to procure energy from and construct a total of 130 MW of battery storage facilities. If approved, PNM would procure power under a PPA from one of the Lightning Dock Geothermal facility built near Lordsburg, New Mexico. The geothermal facility, which has a currentUnited States’ largest solar facilities and would have one of the nation’s highest percentage of battery storage capacity of 4 MW, began providing power to PNM in January 2014. PNM also purchases RECs as necessary to meet the RPS.integration.
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, if that can be accomplished without exceeding the RCT limitincluding those set by the NMPRC.recently enacted ETA, without exceeding cost requirements. PNM makes renewable procurements consistent with the plans approved by the NMPRC. PNM’s 20172020 renewable energy procurement plan meets RPS and diversity requirements for 2017 and 2018 using existing resources and does not propose any significant new procurements. The NMPRC approved the plan on November 23, 2016. On June 1, 2017, PNM filed its 2018 renewable energy procurement plan. PNM requested approval to procure an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind; approval to procure an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; approval to procure 50 MW of new solar facilities to be constructed beginning in 2018; continuation of customer REC purchase programs; and other purchases of RECs to ensure annual compliance with the RPS. A public hearing on the application was held in September 2017. On October 17, 2017, the Hearing Examiner issued a recommended decision that PNM’s 2018 renewable energy procurement plan be approved by the NMPRC except for the re-powering of Lightning Dock Geothermalin January 2020 and PNM’s requestincludes a PPA to procure 50140 MW of new solar facilities. The Hearing Examiner recommended that the PPA forrenewable energy and RECs from La Joya Wind beginning in 2021.
As discussed in Strategic Investments above, PNM is currently purchasing the output of energy from Lightning Dock Geothermal be terminated effective January 1, 2018. The Hearing Examiner also recommended that PNM be required to issue another all-renewables RFP allowing developers to utilize PNM-owned sites to construct facilities, the output from which facilities would be sold to PNM through PPAs. PNM disagreed with the Hearing Examiner’s recommendations and filed exceptions contesting the Hearing Examiner’s proposals. On November 15, 2017, the NMPRC issued an order approving PNM’s plan and rejecting the Hearing Examiner’s recommendations. NMIEC filed an appeal with the NM Supreme Court objecting to the fuel allocation methodology. NEE filed a motion to intervene and cross-appeal objecting to the approval of the 5080 MW of new solar facilities.capacity from NMRD that is used to serve the Facebook data center. PNM filed a motion to intervene. The NM Supreme Court granted the motions to intervene. NMIEC filed a motion for a partial stay and PNM filed a response opposing the request. A briefing schedule has not been determined. PNM cannot predict the outcome of this matter.

In late 2017, PNM 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 Inc. These PPAs are subject to NMPRC approval and PNM made a filing requesting approval on January 17, 2018 (Note 17).data center. These PPAs include the purchase of the power and RECs from a 50 MW wind project, to be operational at December 31,which was placed in commercial operation in November 2018, a 166 MW wind project to be operational in November 2020, and a 50 MW solarsolar-PV project to be operational in December 2021. In August 2018, the NMPRC approved PNM’s request to enter into two additional 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook, Inc. The first 50 MW of these facilities began commercial operations in December 2019 and the remaining capacity is expected to begin commercial operation by June 2020. 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 proposes to recover costs of the program directly from subscribing customers through a rate rider. If approved by the NMPRC, PNM would procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. PNM had fully subscribed the entire output of the 50 MW facilities at the time of the filing. Hearings on the application concluded on January 9, 2020. On February 14, 2020, PNM and several other parties filed a joint proposed recommended decision addressing the Hearing Examiner’s questions in the filing and recommending the NMPRC approve PNM’s application. PNM cannot predict the outcome of this matter.
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 also plays a significant role in helping to keep customers’ electricity costs low while meeting their energy needs.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 2017, annual2019, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs wasis estimated to be approximately 7865 GWh. This is equivalent to the annual consumption of approximately 11,5009,500 homes in PNM’s service territory. PNM’s load management and annual energy

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efficiency programs also help lower peak demand requirements. In 2019, TNMP’s incremental energy saved as a result of new participation in TNMP’s energy efficiency programs in 2017 resulted in energy savings totaling anis estimated 21to be approximately 16 GWh. This is equivalent to the annual consumption of approximately 2,3001,285 homes in TNMP’s service territory. In April 2016 and again in April 2017, TNMP was recognized by Energy Star for TNMP’s successful energy efficiency efforts.2018, TNMP received the “Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program.


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Water Conservation and Solid Waste Reduction


PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 20%35% more efficient than in 2007).  Continued growth in PNM’s fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction.  Water usage will continuehas continued to decline as PNM substituteshas substituted less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018, whenas water consumption at that plant will behas been reduced by aroundapproximately 50%.  Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy.

In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2017, 182019, 16 of the Company’s 23 facilities met the solid waste diversion goal of a 60%65% diversion rate, while recycling at least the same number of waste streams as 2016.rate. The Company expects to continue to do well in this area in the future.


Customer, Stakeholder, and Community Engagement


The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has demonstrated a demonstrated commitment to buildbuilding 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 billing and paymentenhanced customer service engagement options, strategic customer engagement,outreach, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers at regional and community levels.customers.
The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM’s website, www.pnm.com, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. In May 2017, a chat function was added to PNM’sThe Company’s website to allow customers options when communicating with its customer service representatives and an online management system was launched to expedite solar interconnection applications from retail customers. The website continues to beis also a resource for the factsinformation about PNM’s operations and community supportoutreach efforts, including plans for building a sustainable energy future for New Mexico. In September 2016, 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.
PNMR launchedalso has a dedicated sustainability portalSustainability Portal on its corporate website www.pnmresources.com, to provide additional information regarding the Company’s environmental and other sustainability efforts. The site provides the key corporate governance and sustainability information related to the operations of PNM and TNMP. In January 2018, PNM added a Climate Change Report to this portal. The portal also includes information is presented under four mainthe additional headings: Environment, Generation Portfolio, Social, Economic, and Governance.
With reliability being the primary role of a transmission and distribution service provider in Texas'Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage customerconsumer preparation when severe weather is forecasted. In August 2017, Hurricane Harvey made landfall in the gulf coast region and TNMP employees worked diligently to restore power safely and efficiently for affected customers. In addition, PNMR made donations to support relief and restoration efforts in the gulf coast region. TNMP employees who were impacted by Hurricane Harvey were provided emergency crisis funds supported by the PNM Resources Foundation and other employee donations.
Local relationships and one-on-one communications remain two of the most valuable ways both PNM and TNMP connect with their stakeholders. Both companies maintain long-standing relationships with governmental representatives and key customerselectricity consumers to ensure that these stakeholders are updated on companyCompany investments and initiatives. Key stakeholderselectricity consumers also have dedicated Company contacts that support their important service needs.


PNMR has a long tradition of supporting the communities it serves in New Mexico and Texas. The Company demonstrates its core value of caring through the PNM Resources Foundation, corporate giving, widespread employee volunteerism, and PNM’s low-income assistance programs. In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, the PNM Resources Foundation provides more than $1 million in grant funding each year across New Mexico and Texas. These grants help nonprofits collaborate more efficientlyinnovate or sustain programs to grow and support community projects such as providing software coding camps to underserved youths, funding murals in neighborhoods,develop business, develop and by providingimplement

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environmental programs, and provide educational opportunities. PNMR also provides employee matching and volunteer grants. In 2017, “A New Century of Service” grants which celebrate PNM’s 100th anniversary, funded 62 community projectsfor various purposes.

Over the past three years, the Company has contributed approximately $6.2 million to build a better future for local communities. In December 2017, PNM announced an additional $1.0 million in donations to the PNM Resources Foundationcivic, educational, environmental, low income, and economic development organizations. PNMR is proud to support future economicprograms and educational programsorganizations that enrich the quality of life for the people in New Mexico.

PNM provides funds to support nonprofits in New Mexico focused in the areas of economic development, education,its service territories and the environment.communities. One of PNM’s most important outreach programs is tailored for low-income customers. In 2017,2019, PNM hosted

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44 46 community events throughout its service territory to connect low-income customers with nonprofit community service providers offering support and help with such needs as water and gas utility bills, food, clothing, medical programs, and services for seniors. Additionally, through its Good Neighbor Fund, PNM provided $0.5$0.4 million of assistance with electric bills to 3,8043,734 families in 20172019 and offered financial literacy training to further support customers.


Volunteerism is an important facet of the PNMR culture. The mission of the PNMR Corporate Volunteer Group is to help make the communities PNMR serves safer, stronger, smarter, and more vibrant. In 2017, more than 8002019, PNM and TNMP employees and retirees contributed approximately 10,800over 13,300 volunteer hours serving their local communities.communities by supporting at least 250 organizations. Company volunteers participate in an annual Day of Service at nonprofits across New Mexico and Texas. Employees and retirees also actively participate on a variety of nonprofit boards in educational, economic, and environmental forums, as well as safety seminars.independent volunteer activities throughout the year. PNMR employees are, in large part, responsible for the success of the Company’s customer, stakeholder, and community outreach. PNMR employees want to make the Company the best place to work by connecting and growing with others to realize their objectives. By doing this the Company hopes to increase customer satisfaction.


The Company illustrates that the overall safety of employees, customers, and the general public is a top priority by embracing collaboration and offering a dedicated Safety Day, annual safety-oriented goals, safety trainings, and an emergency alert system to communicate unsafe conditions with employees, should the need arise.

Economic Factors
    
PNM – In 2017 and 2016,2019, PNM experienced decreasesan increase in weather-normalized retail load of 0.9% and 0.7%, reflecting a continued sluggish economy0.3%. Customer growth in New Mexico. However, economicPNM’s service territory is being partially offset by customers’ energy efficiency programs. Economic conditions in Albuquerque appearcontinue to have stabilized. Thea positive trend in 2019 with more announcements of businesses moving to the state or expanding. In 2018, Netflix, Inc. announced that it is coming to New Mexico. In 2019, NBCUniversal announced a 10-year venture in Albuquerque, metro area is showing employment growth, but continues to be lower than the national average. Also, some of the previously announced successful economic development efforts, such as the selection of a site within PNM’s New Mexico, service territory forSandia National Laboratories announced that it planned to hire 1,900 employees, and another of PNM’s customers announced plans to add over 300 jobs in central New Mexico. In addition, in December 2019 an engineering company announced that it will be opening a datanew engineering center by Facebook, Inc., appearbringing approximately $100 million of new investments to have started their hiring process. There also have been some expansions of existing businesses, particularly in healthcare, education, and professional services. The economy inAlbuquerque, New Mexico, continues to have mixed indicators and experience softness.in 2020.


TNMP – In 2017 and 2016,2019, TNMP experienced increasesa decrease in volumetric weather normalized retail load of 1.2% and 3.0%2.0%. Most of TNMP’s industrial and largerlarge commercial customers are billed based on their peak demand. Demand-based load, excluding retail transmission customers, increased 4.0% and 2.4%4.9% in 2017 and 2016. The Texas economy continues to grow, primarily due to its diverse base, which offsets some of the impacts of Hurricane Harvey. Because TNMP’s service territory is geographically dispersed and was largely on the edges of the storm, a smaller percentage of customers were impacted by the hurricane as compared to some other utilities. The relocation of some national and global corporate headquarters to the Dallas-Fort Worth area has led to growth in commercial customers and also contributes to growth in residential and small business customers.2019. TNMP continues to addexperience increases in new transmission customersservice requests and some previously delayed service requests were completed in its West Texas service territory where oillate 2019. TNMP is continuing to evaluate additional interconnection requests and gas production continuesplans to grow.invest in additional reliability projects to support increases in forecasted demand in the Delaware Basin.


Results of Operations


Net earnings attributable to PNMR were $79.9$77.4 million, or $1.00$0.97 per diluted share in the year ended December 31, 20172019 compared to $116.8$85.6 million, or $1.46$1.07 per diluted share in 2016.2018. Among other things, earnings in 20172019 benefited from additional revenues due to theretail rate increaseincreases approved in thePNM’s NM 20152016 Rate Case at PNM,and TNMP’s 2018 Rate Case, higher revenues under FERC formula transmission ratesincome from investment securities held in the NDT and new transmission customers at PNM, rate increases and increased load at TNMP,coal mine reclamation trusts, lower plant maintenance costs at PNM, higher gains on available-for-sale securities, higher AFUDC due to higher levels of construction expendituresdemand-based revenues at TNMP, lower interest expense at PNM and excessTNMP, and lower income taxes (or higher income tax benefits related to stock compensation recognized under a new accounting standard (Note 13).benefits) at PNM and TNMP. These increases were more than offset by decreased loadmild weather conditions at PNM, milder weather at PNM and TNMP, lower revenue from NEC at PNM, greater regulatory disallowances at PNM,resulting from the NM Supreme Court’s May 2019 decision in PNM’s NM 2015 Rate Case, net of regulatory disallowances in 2018 related to PNM’s December 2018 Compliance Filing, increased depreciation and property taxes due to increased plant in service at PNM and TNMP, and higherincreased depreciation rates approved in PNM’s NM 2015resulting from TNMP’s 2018 Rate Case, and lower interest income on the Westmoreland Loan and from the IRS, as well as the additional income taxes resulting from the reduction in the federal corporate income tax rate (Note 11) and increased pre-tax earnings.at PNMR. Additional information on factors impacting results of operationoperations for each segment is discussed below under Results of Operations below.Operations.


Liquidity and Capital Resources


PNMR and PNM have revolving credit facilities that expire in October 2022. The PNMR and PNM facilities havewith capacities of $300.0 million and $400.0 million throughthat currently expire in October 2020 and $290.0 million and $360.0 million from November 2020 through October 2022.2023. Both facilities provide for short-term borrowings and letters of credit.credit and can be extended through October

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2024, subject to approval by a majority of the lenders. In addition, PNM has a $40.0 million revolving credit facility which expires in December 2022, with banks having a significant presence in New Mexico, which expires in December 2022, and TNMP has a $75.0 million revolving credit facility, which expires in September 2022. PNMR Development has a revolving credit facility with a capacity of $40.0 million, with the option to further increase the capacity up to $50.0 million upon 15-days advance notice, that expires in February 2021. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. Total availability for PNMR on a consolidated basis was $522.3$595.4 million at February 20, 2018. On February 26, 2018, PNMR Development entered into a $24.5 million revolving credit facility that matures on February 25, 2019.21, 2020. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries.
PNMR projects that its consolidated capital requirements, consisting of construction expenditures, capital contributions for PNMR Development’s 50% ownership interest in NMRD, and dividends, will total $3,136.8 million$4.4 billion for 2018-2022.2020-2024. The construction expenditures include estimated amounts for environmental upgrades at Four Corners, 50 MWan anticipated expansion of new solar facilitiesPNM’s transmission system, including the planned purchase of the Western Spirit Line, and proposed replacement generation resources included in PNM’s 2018 renewable energy procurement plan, an anticipated expansion ofSJGS Abandonment Application.

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PNM’s transmission system, and the initial costs of replacement resources related to the potential shutdown of SJGS Units 1 and 4 in 2022.
In July 2017,On January 18, 2019, PNM entered into the PNM 2017 Senior Unsecured Note Agreement, under2019 $250.0 million Term Loan, which $450.0 million of the PNM 2018 SUNs are tobears interest at a variable rate and must be issued in 2018 and the proceeds will berepaid on or before July 17, 2020. Proceeds from this issuance were used to repay $450.0the PNM 2017 Term Loan, short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. On February 26, 2019, TNMP entered into the TNMP 2019 Bond Purchase Agreement for the sale of $305.0 million aggregate principal amount of TNMP 2019 Bonds. TNMP issued $225.0 million of currently outstanding Senior Unsecured NotesTNMP 2019 Bonds on March 29, 2019 (at fixed annual interest rates ranging from 3.79% to 4.06% for terms ranging from 15 to 25 years) and used a portion of the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity dateson April 1, 2019. TNMP issued the remaining $80.0 million of TNMP 2019 Bonds on July 1, 2019 (at a fixed annual interest rate of 3.60% for a term of ten years) and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for general corporate purposes. On December 13, 2019, the PNMR 2018 One-Year Term Loan was extended to June 11, 2021. On December 18, 2019, PNM entered into the PNM 2019 $40.0 Million Term Loan, which bears interest at a variable rate and must be repaid on or before June 18, 2021. Proceeds from this issuance were used to repay short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. On December 30, 2019, TNMP repaid the $35 million TNMP 2018 Term Loan. In January 2020, PNMR entered into agreements to sell approximately 6.2 million shares of PNMR common stock under forward purchase arrangements (the “PNMR 2020 Forward Equity Sale Agreements”). Under the PNMR 2020 Forward Equity Sale Agreements, PNMR has the option to physically deliver, cash settle, or net share settle all or a portion of PNMR common stock on or before a date that is 12 months from their effective dates. PNMR did not initially receive any proceeds upon execution of these agreements. The initial forward sales price of $47.21 per share is subject to adjustments based on net interest rate factor and by expected future dividends on PNMR’s common stock. PNMR expects to physically settle all shares under the agreements on or before January 7, 2021. See Note 7. See discussion of PNM’s SJGS Abandonment Application in 2018. Note 17, which includes a request to issue approximately $361 million of energy transition bonds upon the proposed retirement of SJGS in 2022.
After considering the effects of these financings, PNMRthe Company has consolidated maturities of long-term and repayments of short-term and long-term debt aggregating $357.3$675.4 million in the period from January 1, 20182020 through December 31, 2018. Furthermore the $200.02020, and an additional $300.0 million PNM 2017 Term Loan Agreement matures in January 2019 and TNMP has $172.3 million of first mortgage bonds that are due in April 2019.will mature by March 31, 2021. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2018-20222020-2024 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. The Company is in compliance with its debt covenants.

RESULTS OF OPERATIONS


The following discussion and analysis should be read in conjunction with the 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.



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A summary of net earnings attributable to PNMR is as follows:
Year Ended December 31, Change
2017 2016 2015 2017/2016 2016/2015Year Ended December 31, Change
(In millions, except per share amounts)2019 2018 2019/2018
     (In millions, except per share amounts)
Net earnings attributable to PNMR$79.9
 $116.8
 $15.6
 $(37.0) $101.2
$77.4
 $85.6
 $(8.3)
Average diluted common and common equivalent shares80.1
 80.1
 80.1
 
 
80.0
 80.0
 
Net earnings attributable to PNMR per diluted share$1.00
 $1.46
 $0.20
 $(0.46) $1.26
$0.97
 $1.07
 $(0.10)


The components of the changes in net earnings attributable to PNMR by segment are:
ChangeChange
2017/2016 2016/20152019/2018
(In millions)(In millions)
PNM$(5.0) $92.7
$(14.0)
TNMP(6.1) (0.3)4.2
Corporate and Other(25.9) 8.9
1.5
Net change$(37.0) $101.2
$(8.3)


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

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under PNM’s FPPAC. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.


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The following table summarizes the operating results for PNM:
Year Ended December 31, ChangeYear Ended December 31, Change
2017 2016 2015 2017/2016 2016/20152019 2018 2019/2018
(In millions)(In millions)
Electric operating revenues$1,104.2
 $1,035.9
 $1,131.2
 $68.3
 $(95.3)$1,093.8
 $1,092.0
 $1.8
Cost of energy321.7
 299.7
 391.1
 22.0
 (91.4)317.7
 314.0
 3.7
Utility margin782.6
 736.2
 740.1
 46.4
 (3.9)776.1
 777.9
 (1.8)
Operating expenses423.0
 414.7
 591.0
 8.3
 (176.3)554.7
 481.0
 73.7
Depreciation and amortization147.0
 133.4
 115.7
 13.6
��17.7
160.4
 151.9
 8.5
Operating income212.5
 188.1
 33.4
 24.4
 154.7
61.1
 145.0
 (83.9)
Other income (deductions)39.1
 32.2
 33.5
 6.9
 (1.3)41.3
 (4.2) 45.5
Interest charges(82.7) (87.5) (80.0) 4.8
 (7.5)(72.9) (76.5) 3.6
Segment earnings (loss) before income taxes169.0
 132.9
 (13.1) 36.1
 146.0
29.5
 64.4
 (34.9)
Income (taxes) benefit(81.6) (40.9) 12.8
 (40.7) (53.7)26.0
 6.0
 20.0
Valencia non-controlling interest(15.0) (14.5) (14.9) (0.5) 0.4
(14.2) (15.1) 0.9
Preferred stock dividend requirements(0.5) (0.5) (0.5) 
 
(0.5) (0.5) 
Segment earnings (loss)$71.9
 $76.9
 $(15.8) $(5.0) $92.7
$40.7
 $54.7
 $(14.0)



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The following table shows GWh sales, including the impacts of weather, by customer class and average number of customers:
Year Ended December 31, ChangeYear Ended December 31, Percent Change
2017 2016 2015 2017/2016 2016/20152019 2018 2019/2018
(Gigawatt hours, except customers)(Gigawatt hours, except customers)
Residential3,136.1
 3,189.5
 3,185.4
 (53.4) 4.1
3,227.3
 3,250.6
 (0.7)%
Commercial3,774.4
 3,831.3
 3,800.5
 (56.9) 30.8
3,732.1
 3,814.7
 (2.2)
Industrial850.9
 875.1
 957.3
 (24.2) (82.2)1,152.5
 879.3
 31.1
Public authority250.5
 249.9
 246.5
 0.6
 3.4
231.5
 241.2
 (4.0)
Economy service (1)
722.5
 805.7
 796.4
 (83.2) 9.3
670.1
 667.3
 0.4
Firm-requirements wholesale (2)
87.6
 429.3
 444.5
 (341.7) (15.2)
Other sales for resale (3)
3,632.1
 2,899.3
 2,110.9
 732.8
 788.4
Other sales for resale2,842.8
 2,525.2
 12.6
12,454.1
 12,280.2
 11,541.5
 174.0
 738.6
11,856.3
 11,378.3
 4.2 %
Average retail customer (thousands)522.0
 518.6
 514.9
 3.4
 3.7
530.3
 526.3
 0.7 %


(1) 
PNM purchases energy for a majorlarge 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 no impact to PNM’s utility margin so there is only a minor impact in utility margin resulting from providing ancillary services.
(2)
Decrease in 2017 reflects reduced sales to NEC (Note 17) and loss of other firm-requirements wholesale customers.
(3)
Increases in 2017 and 2016 include the hazard sharing agreement with Tri-State (Note 17). Increase is also due to more power available for off-system sales, primarily related to SJGS and Four Corners, as well as power that was previously sold to NEC and other firm-requirements wholesale customers. Substantially all of the margin from off-system sales is returned to customers through the FPPAC.



Operating results2019 compared to 2018

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Operating Results2017 Compared to 2016


The following table summarizes the significant changes to utility margin:

   Year Ended
December 31, 2017
   Change
Utility margin: (In millions)
    
 
Rate relief – Additional revenue due to rate increase approved by the NMPRC on September 28, 2016 and certain fuel costs being passed through the FPPAC
 $51.9
 
Customer usage/load – PNM’s weather normalized retail KWh sales decreased 0.9%, due to decreased sales to residential, commercial, and industrial customers
 (5.9)
 
Weather – Milder weather; heating degree days were 8.9% lower, partially offset by higher cooling degree days of 2.0%
 (3.8)
 
Leap Year – Decrease in revenue due to additional day in 2016
 (1.6)
 
Transmission  Higher revenues under formula transmission rates and the addition of new customers
 12.1
 
Wholesale contracts  Primarily due to NEC (Note 17)
 (7.8)
 
Unregulated margin  Higher hedged prices for PVNGS Unit 3 power sales
 3.9
 
Rate riders  Includes renewable energy and energy efficiency riders, which are partially offset in operating expenses, depreciation and amortization, and interest charges
 (1.9)
 
Net unrealized economic hedges  Losses related to hedges of NEC power sales, partially offset by gains related to hedges of PVNGS
 (1.3)
 Other 0.8
 Net Change $46.4
   Year Ended December 31, 2019
   Change
Utility margin: (In millions)
    
 
Rate relief – Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 and January 1, 2019 (Note 17)
 $6.1
 
Customer usage/load – Weather normalized retail KWh sales increased 0.3%, primarily due to increased sales to industrial customers, partially offset by decreased sales to commercial customers
 (0.7)
 
Weather – Milder weather in 2019; cooling degree days were 13.2% lower
 (5.7)
 
Transmission  Increase primarily due to the addition of new customers partially offset by lower revenues under formula transmission rates
 1.5
 
Coal mine decommissioning  Decrease primarily due to remeasurement of PNM’s obligation for Four Corners coal mine reclamation and higher accretion expense on SJGS coal mine reclamation (Note 16)
 (2.7)
 Other (0.3)
 Net Change $(1.8)




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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, 2017
   Change
Operating expenses: (In millions)
   
 2017 regulatory disallowance due to the NMPRC’s January 17, 2018 order in PNM’s NM 2016 Rate Case (Note 17) $27.9
 Regulatory disallowances due to the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 17) (8.1)
 Regulatory disallowances due to change in estimated write-offs associated with the SJGS BART determination and ownership restructuring (Note 16) (7.8)
 Lower plant maintenance costs at SJGS, Four Corners, and PVNGS, partially offset by increased costs at gas-fired plants (3.8)
 Implementation of process improvement initiatives in 2016 associated with reducing future costs (3.7)
 Lower employee related expenses and outside consulting costs (3.4)
 Lower rent expense associated with PVNGS leases (Note 7) (0.9)
 Higher capitalized administrative and general expenses due to higher construction spending (1.7)
 Higher allocated corporate depreciation, primarily related to computer software 5.4
 Training costs associated with new software implementation 1.1
 Contribution to the PNM Resources Foundation 1.0
 Higher property taxes due to increased utility plant in service 0.9
 Higher environmental expenses 0.5
 Other 0.9
 Net Change $8.3
   Year Ended December 31, 2019
   Change
Operating expenses: (In millions)
   
 Lower plant maintenance costs, primarily at Four Corners and PVNGS $(8.5)
 Higher capitalized administrative and general expenses due to higher construction spending in 2019 (1.6)
 Regulatory disallowance resulting from the NM Supreme Court’s May 2019 decision on PNM’s appeal of the NM 2015 Rate Case (Note 17) 146.6
 2018 increase in estimated coal mine reclamation costs associated with ownership restructuring of SJGS (Note 16) (27.3)
 2018 regulatory disallowance associated with 132 MW and restructuring costs associated with 65 MW of SJGS Unit 4 (Note 16) (35.0)
 Higher property taxes due to increases in utility plant in service and higher assessed property taxes 1.1
 Lower vegetation management expenses (1.0)
 Other (0.6)
 Net Change $73.7
Depreciation and amortization:  
   
 Higher depreciation rates approved by the NMPRC in PNM’s 2015 NM Rate Case, including the impacts of impairments (Note 17) $6.1
 Increased utility plant in service 6.8
 Other 0.7
 Net Change $13.6
Depreciation and amortization:  
   
 Increased utility plant in service, including solar facilities under the renewable rider $6.4
 Higher depreciation resulting from amortization of stranded costs associated with the retirement of SJGS Units 2 and 3 0.5
 Higher accretion on AROs, primarily related to PVNGS 0.9
 Other 0.7
 Net Change $8.5


Other income (deductions):  
   
 Higher gains on investment securities in the NDT and coal mine reclamation trusts $46.8
 Lower equity AFUDC (1.5)
 Higher interest income and lower trust expenses related to investment securities in the NDT and coal mine reclamation trusts 1.5
 Other (1.3)
 Net Change $45.5
Interest charges:  
   
 Lower interest on $350.0 million of SUNs refinanced in May 2018 $5.9
 Lower interest on $100.0 million of SUNs refinanced in August 2018 1.8
 Higher interest on term loans (1.9)
 Lower debt AFUDC (1.1)
 Interest on deposit by PNMR Development for potential transmission interconnection which is offset in Corporate and Other (Note 7) (1.0)
 Other (0.1)
 Net Change $3.6

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   Year Ended
December 31, 2017
   Change
Other income (deductions): (In millions)
   
 Higher gains on available-for-sale securities in the NDT and coal mine reclamation trusts $7.6
 Higher equity AFUDC, primarily due to increased levels of construction expenditures 4.5
 Interest income from third party transmission service provider due to FERC ruling 1.0
 Lower income from “refined coal” (a third-party pre-treatment process); income is now passed through to customers as ordered in PNM’s NM 2015 Rate Case (3.8)
 2016 interest income from IRS, net of related expenses (Note 11) (2.9)
 Other 0.5
 Net Change $6.9
   Year Ended December 31, 2019
   Change
Income taxes: (In millions)
   
 Lower segment earnings before income taxes $8.6
 Amortization of excess deferred income taxes, as ordered by the NMPRC in the NM 2016 Rate Case 1.7
 Reversal of deferred items related to the retirement of SJGS Units 2 and 3 1.6
 Reversal of excess deferred income taxes resulting from regulatory disallowances in the NM 2015 Rate Case (Note 17) 7.5
 Decrease in excess tax benefits related to stock compensation (0.5)
 Impairments, valuation allowances, and non-deductible compensation 1.1
 Net Change $20.0
Interest charges:  
   
 Lower interest on $146.0 million of PCRBs refinanced in September 2016 $2.6
 Lower interest on $57.0 million of PCRBs refinanced in June 2017 0.6
 Lower short term debt borrowings 0.8
 Higher debt AFUDC as a result of higher construction spending 1.0
 Other (0.2)
 Net Change $4.8
Income taxes:  
   
 Increase due to higher segment earnings before income taxes $(13.8)
 Impacts of increase in equity AFUDC 1.7
 Regulatory recovery of prior year impairments of state net operating loss carryforwards due to NMPRC orders in PNM rate cases (Note 17) (net of amortization) 0.3
 Impacts of phased-in reduction in New Mexico corporate income tax rates 2.0
 Decrease due to excess tax benefits related to stock compensation awards (Note 13) 1.7
 Impairments of state NOL carryforwards (0.9)
 Impact of change in federal corporate income tax rate (29.6)
 Other impairments and valuation allowances (2.1)
 Net Change $(40.7)



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Operating Results– 2016 Compared to 2015

The following table summarizes the significant changes to utility margin:
   Year Ended
December 31, 2016
   Change
Utility margin: (In millions)
    
 
Customer usage/load  PNM’s weather normalized retail KWh sales decreased 0.7%; decreased industrial sales were offset by increases in residential and commercial customer sales, who pay a higher price per KWh
 $1.1
 
Rate relief – Additional revenue due to the rate increase and certain fuel costs being passed through the FPPAC
 19.6
 
Weather – Milder weather; heating degree days were lower by 3.9% and cooling degree days were lower by 2.2% in 2016
 (0.9)
 
Transmission  Higher revenues under formula transmission rates and lower cost of third party transmission
 3.2
 
Wholesale contracts  Primarily lower revenues from NEC (Note 17)
 (5.8)
 
Unregulated margin  Lower market prices for PVNGS Unit 3 sales
 (12.1)
 
Rate riders  Includes renewable energy and energy efficiency riders, which are partially offset in operating expenses, depreciation and amortization, and interest charges
 (6.3)
 
Net unrealized economic hedges  Primarily related to hedges of PVNGS Unit 3 power sales
 3.6
 
Settlements  2015 refunds under FERC tariff for gas transportation agreement and SPS settlement (Note 16)
 (5.4)
 Other (0.9)
 Net Change $(3.9)


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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, 2016
   Change
Operating expenses: (In millions)
   
 Regulatory disallowance due to the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 17) $11.3
 Regulatory disallowances associated with the SJGS BART determination and ownership restructuring (Note 16) (162.0)
 2015 regulatory disallowance of rate case expenses resulting from the NMPRC dismissal of the 2014 general rate case (1.5)
 Lower rent expense associated with PVNGS leases (Note 7) (21.7)
 Lower rent expense due to the termination of the EIP lease on April 1, 2015 (0.7)
 Lower plant maintenance costs at SJGS and gas-fired plants, partially offset by increased costs at Four Corners plant (8.5)
 Higher labor, pension, benefits, and OPEB costs 6.6
 Implementation of process improvement initiatives associated with reducing future costs 3.7
 Higher property taxes due to increases in utility plant in service 2.3
 Higher costs associated with rate riders, which are offset in utility margin 1.8
 Lower environmental expenses (1.0)
 2015 costs associated with exploring alternative fuel supply for SJGS (2.2)
 Other (4.4)
 Net Change $(176.3)
Depreciation and amortization:  
   
 Purchase of assets underlying PVNGS Unit 2 leases (Note 7) $4.8
 Higher depreciation rates approved in the NM 2015 Rate Case 3.3
 Other additions to utility plant in service, including PNM-owned solar PV facilities and environmental upgrades at SJGS 9.6
 Net Change $17.7
Other income (deductions):  
   
 Higher gains on available-for-sale securities in the NDT and coal mine reclamation trusts $3.5
 Interest income from IRS, net of expenses (Note 11) 2.9
 Sale of substations and associated transmission facilities in 2015 (1.1)
 Higher interest income and lower trust expenses related to available-for-sale securities in the NDT and coal mine reclamation trusts 1.5
 Lower equity AFUDC as a result of lower construction spending (6.3)
 Lower income from refined coal (a third-party pre-treatment process at SJGS), due to the decision in the NM 2015 Rate Case directing that such income be passed through to customers (1.0)
 Other (0.8)
 Net Change $(1.3)

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   Year Ended
December 31, 2016
   Change
Interest charges: (In millions)
   
 Issuance of $250.0 million of long-term debt on August 11, 2015 $(5.5)
 Lower debt AFUDC as a result of lower construction spending (2.2)
 Other 0.2
 Net Change $(7.5)
Income taxes:  
   
 Increase due to higher segment earnings before income taxes $(57.1)
 Impacts of decrease in equity AFUDC (2.4)
 Impacts of phased-in reduction in New Mexico corporate income tax rates (1.3)
 Reversal of deferred income tax items related to the BART determination for SJGS in 2015 1.8
 Allowed regulatory recovery of 2014 impairment of state net operating loss carryforward (net of amortization) 1.9
 Impairments of state net operating loss carryforwards in 2015 3.6
 Other (0.2)
 Net Change $(53.7)


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
 2017 2016 2015 2017/2016 2016/2015
 (In millions)
Electric operating revenues$340.8
 $327.0
 $307.9
 $13.8
 $19.1
Cost of energy85.8
 80.9
 73.5
 4.9
 7.4
Utility margin255.0
 246.2
 234.4
 8.8
 11.8
Operating expenses98.2
 93.4
 88.1
 4.8
 5.3
Depreciation and amortization63.1
 61.1
 56.3
 2.0
 4.8
Operating income93.6
 91.6
 90.0
 2.0
 1.6
Other income (deductions)3.6
 3.2
 3.7
 0.4
 (0.5)
Interest charges(30.1) (29.3) (27.7) (0.8) (1.6)
Segment earnings before income taxes67.1
 65.5
 66.1
 1.6
 (0.6)
Income (taxes)(31.5) (23.8) (24.1) (7.7) 0.3
Segment earnings$35.6
 $41.7
 $42.0
 $(6.1) $(0.3)

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 Year Ended December 31, Change
 2019 2018 2019/2018
 (In millions)
Electric operating revenues$363.8
 $344.6
 $19.2
Cost of energy95.1
 85.7
 9.4
Utility margin268.7
 259.0
 9.7
Operating expenses98.6
 96.3
 2.3
Depreciation and amortization84.3
 66.2
 18.1
Operating income85.8
 96.5
 (10.7)
Other income (deductions)4.1
 4.1
 
Interest charges(29.1) (32.1) 3.0
Segment earnings before income taxes60.8
 68.5
 (7.7)
Income (taxes)(5.0) (16.9) 11.9
Segment earnings$55.8
 $51.6
 $4.2
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 ChangeYear Ended December 31, Percentage Change
2017 2016 2015 2017/2016 2016/20152019 2018 2019/2018
Volumetric load (1) (GWh)
  
Residential2,936.6
 2,933.9
 2,912.0
 0.1 % 0.8 %3,044.8
 3,095.0
 (1.6)%
Commercial and other34.0
 42.4
 49.3
 (19.8)% (14.0)%31.5
 32.2
 (2.2)%
Total volumetric load2,970.6
 2,976.3
 2,961.3
 (0.2)% 0.5 %3,076.3
 3,127.2
 (1.6)%
Demand-based load (2) (MW)
16,599.5
 15,564.8
 14,781.3
 6.6 % 5.3 %19,386.7
 18,181.2
 6.6 %
Average retail consumers (thousands) (3)
248.3
 245.3
 241.6
 1.2 % 1.5 %255.2
 251.6
 1.4 %


(1) 
Volumetric load consumers are billed on KWh usage.
(2) 
Demand-based load includes consumers billed on a monthly KW peak and also includes 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.



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Operating results20172019 compared to 20162018


The following table summarizes the significant changes to utility margin:
   Year Ended December 31, 2017
   Change
Utility margin: (In millions)
    
 
Rate relief  Transmission cost of service rate increases in March and September of 2017 and 2016
 $6.7
 
Retail customer usage/load  Weather normalized retail KWh sales increased 1.2%, primarily related to the residential class; the average number of retail consumers increased 1.2%
 0.6
 
Demand based customer usage/load  Higher demand-based revenues for large commercial and industrial retail consumers; billed demand, excluding retail transmission customers, increased 4.0%
 2.5
 
Wholesale transmission load – Increased coincidental peak load for third-party transmission customers

 1.3
 
Rate riders – Impacts of rate riders, including the AMS surcharge, CTC surcharge, energy efficiency rider, and transmission cost recovery factor, which are partially offset in operating expenses, depreciation and amortization, and interest charges
 (1.4)
 
Weather – Milder weather in 2017; heating degree days were 13.1% lower
 (0.8)
 Other (0.1)
 Net Change $8.8
   Year Ended December 31, 2019
   Change
Utility margin: (In millions)
    
 
Retail Rate relief  TNMP 2018 Rate Case retail rate increase effective January 1, 2019, including integration of amounts previously recovered in the AMS rate rider and the effect of rate design changes between customer classes (Note 17)
 $7.3
 
Retail customer usage/load  Weather normalized retail KWh sales decreased 2.0%, primarily related to the residential class; the average number of retail consumers increased 1.4%
 (1.6)
 
Demand based customer usage/load  Higher demand-based revenues for large commercial and industrial retail consumers; billed demand, excluding retail transmission customers, increased 4.9%
 3.6
 
Rate riders – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, and transmission cost recovery factor
 0.4
 Net Change $9.7


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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, 2017
   Change
Operating expenses: (In millions)
   
 Higher allocated corporate depreciation, primarily related to computer software $1.9
 Higher outside consulting costs, including vegetation management 2.8
 Higher property taxes due to increased utility plant in service 1.4
 Higher employee related expenses 0.4
 Training costs associated with new software implementation 0.4
 Higher capitalized administrative and general expenses due to higher construction spending in 2017 (1.3)
 2016 lease abandonment costs associated with building consolidation efforts (1.0)
 Other 0.2
 Net Change $4.8
   Year Ended December 31, 2019
   Change
Operating expenses: (In millions)
   
 Higher employee related expenses $1.8
 Higher capitalized administrative and general expenses due to higher construction expenditures (2.1)
 Higher property tax due to increased utility plant in service 1.4
 2019 regulatory disallowance resulting from the January 2020 approval of a settlement to recover costs in the TNMP 2018 Rate Case 0.5
 2018 regulatory recovery resulting from the December 2018 approval of TNMP’s 2018 Rate Case 0.7
 Higher allocated corporate depreciation primarily related to computer software 0.5
 Other (0.5)
 Net Change $2.3
Depreciation and amortization:  
   
 Increased utility plant in service $3.0
 Reduced CTC amortization and AMS depreciation (1.0)
 Net Change $2.0
Depreciation and amortization:  
   
 Increased utility plant in service $5.9
 Higher depreciation rates approved in the TNMP 2018 Rate Case 9.5
 Higher amortization of AMS and Hurricane Harvey regulatory assets approved in the TNMP 2018 Rate Case 2.2
 Other 0.5
 Net Change $18.1
Other income (deductions):  
   
 Higher CIAC $0.2
 2016 interest income from IRS, net of related expenses (Note 11) (0.3)
 Other 0.5
 Net Change $0.4
Other income (deductions):  
   
 Higher equity AFUDC $0.6
 Lower CIAC and other (0.6)
 Net Change $
Interest charges:  
   
 Increase due to the issuance of $60.0 million of long-term debt in February 2016 $(0.2)
 Increase due to the issuance of $60.0 million of long-term debt in August 2017 (0.7)
 Higher debt AFUDC 0.3
 Other (0.2)
 Net Change $(0.8)
Income taxes:  
   
 Increase due to higher segment earnings before income taxes $(0.5)
 Decrease due to excess tax benefits related to stock compensation awards (Note 13) 0.6
 Impact of change in federal corporate income tax rate (7.9)
 Other 0.1
 Net Change $(7.7)



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Operating Results – 2016 compared to 2015

The following table summarizes the significant changes to utility margin:
   Year Ended December 31, 2016
   Change
Utility margin: (In millions)
    
 
Rate relief  Transmission cost of service rate increases in March and September of 2016 and 2015 (See Note 17)
 $4.5
 
Customer usage/load  3.0% increase in weather normalized retail KWh sales, primarily related to the residential and commercial classes; higher demand-based revenues for large commercial and industrial retail customers; and increased wholesale transmission load in 2016; the average number of retail customers increased 1.5%
 5.7
 
Rate riders – Impacts of rate riders, including the AMS surcharge, CTC surcharge, energy efficiency rider, and transmission cost recovery factor, which are partially offset in operating expenses, depreciation and amortization, and interest charges
 3.3
 
Weather – Milder weather in 2016; heating degree days were 19.6% lower and cooling degree days were 1.3% higher compared to 2015
 (1.8)
 
Energy efficiency program – Higher incentive bonus in 2016
 0.1
 Net Change $11.8

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, 2019
   Change
Interest charges: (In millions)
   
 Repayment of $172.3 million 9.5% first mortgage bonds in April 2019 $12.8
 Issuance of $225.0 million first mortgage bonds in March 2019 (6.8)
 Issuance of $80.0 million first mortgage bonds in July 2019 (1.5)
 Issuance of $60.0 million of first mortgage bonds in June 2018 (1.2)
 Issuance of $20.0 million term loan in July 2018 and $15.0 million term loan in December 2018 (0.7)
 Other 0.4
 Net Change $3.0
   Year Ended December 31, 2016
   Change
Operating expenses: (In millions)
   
 Higher property taxes due to increases in utility plant in service and higher assessed values $1.2
 Lease abandonment costs associated with building consolidation efforts 1.0
 Higher pension and benefit expense 0.9
 Higher rate rider related costs, which are offset in utility margin 0.8
 Higher labor 0.8
 Other 0.6
 Net Change $5.3
Income (taxes) benefits:  
   
 Lower segment earnings before income taxes $1.6
 
Amortization of excess deferred income taxes, as ordered by the PUCT in the TNMP 2018 Rate Case

 8.9
 Impairments, valuations allowances, and non-deductible expenses 1.4
 Net Change $11.9
Depreciation and amortization:  
   
 Increase due to AMS deployment and CTC amortization $2.0
 Increase due to increases in utility plant in service 2.8
 Net Change $4.8
Other income (deductions):  
   
 Decrease primarily due to lower CIAC, partially offset by higher equity AFUDC and interest income from IRS (Note 17) $(0.5)

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   Year Ended December 31, 2016
   Change
Interest charges: (In millions)
   
 Increase primarily due to the issuance of $60.0 million of long-term debt on February 10, 2016, partially offset by debt AFUDC $(1.6)
Income taxes:  
   
 Decrease primarily due to lower segment earnings before income taxes $0.3


Corporate and Other
The table below summarizes the operating results for Corporate and Other:
Year Ended December 31, ChangeYear Ended December 31, Change
2017 2016 2015 2017/2016 2016/20152019 2018 2019/2018
  (In millions)  (In millions)
Total revenues$
 $
 $
 $
 $
$
 $
 $
Cost of energy
 
 
 
 

 
 
Utility margin
 
 
 
 

 
 
Operating expenses(22.1) (12.8) (14.9) (9.3) 2.1
(20.5) (17.7) (2.8)
Depreciation and amortization21.8
 14.5
 13.9
 7.3
 0.6
23.2
 23.1
 0.1
Operating income (loss)0.4
 (1.7) 0.9
 2.1
 (2.6)(2.7) (5.5) 2.8
Other income (deductions)4.2
 10.4
 (0.6) (6.2) 11.0
(1.8) 0.4
 (2.2)
Interest charges(14.8) (11.8) (7.2) (3.0) (4.6)(19.0) (18.7) (0.3)
Segment earnings (loss) before income taxes(10.3) (3.2) (6.9) (7.1) 3.7
(23.5) (23.8) 0.3
Income (taxes) benefit(17.3) 1.5
 (3.7) (18.8) 5.2
4.4
 3.1
 1.3
Segment earnings (loss)$(27.6) $(1.7) $(10.6) $(25.9) $8.9
$(19.1) $(20.6) $1.5


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 depreciation expense primarily relatesoperating expenses includes a decrease of approximately $0.9 million in legal and consulting costs that were not allocated to increased corporate depreciation rates and computer software.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.


Operating results20172019 compared to 20162018


The following tables summarize the primary drivers for other income (deductions), interest charges, and income taxes:
   Year ended December 31, 2017
   Change
Other income (deductions): (In millions)
   
 Decrease in interest income on the Westmoreland Loan (Note 16) $(3.7)
 2016 interest income from IRS, net of related expenses (Note 11) (0.8)
 Increase in donations, including the PNM Resources Foundation (1.5)
 Other (0.2)
 Net Change $(6.2)
   Year Ended December 31, 2019
   Change
Other income (deductions): (In millions)
   
 Decrease in interest income on the Westmoreland Loan (Note 16) $(2.7)
 Decrease in donations and other contributions 0.9
 Lower equity method investment income from NMRD (0.1)
 Other (0.3)
 Net Change $(2.2)


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   Year ended December 31, 2017
   Change
Interest charges: (In millions)
   
 Issuance of the $100.0 million 2016 Two-Year Term Loan in December 2016 $(2.0)
 Issuance of the $100.0 million 2016 One-Year Term Loan in December 2016 (1.9)
 Higher short term borrowings and interest rates (2.4)
 Repayment of a $150.0 million PNMR term loan in December 2016 2.0
 Decrease in interest expense on the BTMU Loan Agreement (Note 6) 1.2
 Other 0.1
 Net Change $(3.0)
   Year Ended December 31, 2019
   Change
Interest charges: (In millions)
   
 Issuance of $90.0 million PNMR Development Term Loan in November 2018 $(2.7)
 Issuance of $300.0 million PNMR 2018 SUNs in March 2018 (2.0)
 Repayment of $150.0 million PNMR 2015 Term Loan in March 2018 0.6
 Repayment of $100.0 million PNMR 2016 Two-Year Term Loan 2.7
 Issuance of $50.0 million PNMR 2018 Two-Year Term Loan (1.5)
 Repayment of the BTMU Term Loan in May 2018 1.8
 Elimination of intercompany interest (Note 7) 1.0
 Other (0.2)
 Net Change $(0.3)
Income taxes:  
   
 Increase in benefit due to change in segment (earnings) loss before income taxes $2.7
 Impact of change in federal corporate income tax rate (20.0)
 Other impairments and valuation allowances (1.1)
 Other (0.4)
 Net Change $(18.8)
Income (taxes) benefits:  
   
 Lower segment loss before income taxes $(0.1)
 Other impairments, valuation allowances, and non-deductible expenses 1.3
 Other 0.1
 Net Change $1.3

Operating Results2016 compared to 2015
The following tables summarize the primary drivers for other income (deductions), interest charges, and income taxes:
   Year ended December 31, 2016
   Change
Other income (deductions): (In millions)
   
 Interest income on the $125.0 million Westmoreland Loan (Note 16) beginning February 1, 2016 $11.3
 Losses recorded in 2015 on items included in other investments related to a former PNMR subsidiary that ceased operations in 2008 1.1
 Interest income from IRS, net of related expenses (Note 11) 0.8
 PNMR Development’s share of the fee resulting from the ownership restructuring of SJGS recorded at December 31, 2015 (Note 16) (3.1)
 Other 0.9
 Net Change $11.0
Interest charges:
Issuance of the $125.0 million BTMU Term Loan Agreement on February 1, 2016 (Note 6)$(4.6)
Issuance of the $150.0 million PNMR 2015 Term Loan Agreement on March 9, 2015(1.5)
Maturity of $118.8 million of long-term debt on May 15, 20154.3
Higher short term borrowings(2.6)
Other��(0.2)
Net Change$(4.6)

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   Year ended December 31, 2016
   Change
Income taxes: (In millions)
   
 Reduction in benefit due to change in segment earnings (loss) before income taxes $(1.4)
 Impairment of wind energy production tax credits recorded in 2015 3.1
 Impairment of state net operating loss recorded in 2015 1.7
 Impairment of charitable contributions carry forward recorded in 2015 2.0
 Other (0.2)
 Net Change $5.2



LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows
The information concerning PNMR’s cash flows is summarized as follows:
Year Ended December 31, ChangeYear Ended December 31, Change
2017 2016 2015 2017/2016 2016/20152019 2018 2019/2018
(In millions)(In millions)
Net cash flows from:  
Operating activities$524.5
 $415.5
 $386.9
 $109.0
 $28.6
$503.2
 $428.2
 $75.0
Investing activities(466.2) (699.4) (544.5) 233.2
 (154.9)(673.9) (475.7) (198.2)
Financing activities(58.8) 242.4
 175.4
 (301.2) 67.0
172.4
 45.6
 126.8
Net change in cash and cash equivalents$(0.5) $(41.5) $17.8
 $41.0
 $(59.3)$1.7
 $(1.9) $3.6


Cash Flows from Operating Activities
Changes in PNMR’s cash flow from operating activities result from net earnings, adjusted for items impacting earnings that do not provide or use cash. See Results of Operations above. Certain changes in assets and liabilities resulting from normal operations, including the effects of the seasonal nature of the Company’s operations, also impact operating cash flows.



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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 Westmoreland Loan and NMRD. Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:

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Year Ended December 31, ChangeYear Ended December 31, Change
2017 2016 2015 2017/2016 2016/20152019 2018 2019/2018
Cash (Outflows) for Utility Plant Additions(In millions)(In millions)
PNM:              
Generation$(74.4) $(84.3) $(193.6) $9.9
 $109.3
$(72.1) $(46.9) $(25.2)
Renewables(62.7) (8.4) (54.3)
Transmission and distribution(173.4) (127.2) (182.0) (46.2) 54.8
(180.1) (163.1) (17.0)
Purchase of previously leased capacity in PVNGS Unit 2
 (163.3) 
 163.3
 (163.3)
Four Corners SCRs(34.9) (40.9) 
 6.0
 (40.9)
 (7.6) 7.6
Nuclear fuel(26.4) (29.8) (29.2) 3.4
 (0.6)(26.9) (29.6) 2.7
(309.1) (445.5) (404.8) 136.4
 (40.7)
         (341.8) (255.6) (86.2)
TNMP:              
Transmission(60.7) (71.5) (49.7) 10.8
 (21.8)(73.9) (87.5) 13.6
Distribution(83.5) (39.4) (58.7) (44.1) 19.3
(180.1) (135.9) (44.2)
AMS(1.3) (11.6) (16.2) 10.3
 4.6
(145.5) (122.5) (124.6) (23.0) 2.1
         (254.0) (223.4) (30.6)
Corporate and Other:              
Computer hardware and software(19.9) (31.0) (21.0) 11.1
 (10.0)(20.5) (22.1) 1.6
PNMR Development utility plant additions(25.9) (1.1) (8.2) (24.8) 7.1
(45.8) (32.1) (29.2) (13.7) (2.9)(616.3) (501.1) (115.2)
Other Cash Flows from Investing Activities     
Proceeds from sales of investment securities494.5
 984.5
 (490.0)
Purchases of investment securities(513.8) (1,007.0) 493.2
Principal payments on the Westmoreland Loan
 56.6
 (56.6)
Investments in NMRD(38.3) (9.0) (29.3)
Other, net
 0.3
 (0.3)
$(500.4) $(600.1) $(558.6) $99.7
 $(41.5)(57.6) 25.4
 (83.0)
         
Cash Inflows (Outflows) on the Westmoreland Loan         
Loan origination$
 $(122.3) $
 $122.3
 $(122.3)
Principal payments38.4
 30.0
 
 8.4
 30.0
$38.4
 $(92.3) $
 $130.7
 $(92.3)
         
Cash Inflows (Outflows) Related to NMRD         
Investments in NMRD$(4.1) $
 $
 $(4.1) $
Disbursements from NMRD12.4
 $
 
 12.4
 
$8.3
 $
 $
 $8.3
 $
Net cash flows from investing activities$(673.9) $(475.7) $(198.2)


Cash Flow from Financing Activities
The changes in PNMR’s cash flows from financing activities include:

NM Capital made principal payments on the BTMU Term Loan Agreement for the full balance of $50.1 million in 2018
In 2018, PNMR issued $300.0 million aggregate principal amount of 3.25% SUNs and used the proceeds to repay the $150.0 million PNMR 2015 Term Loan and to reduce short-term borrowings
In 2018, PNM issued $450.0 million of SUNs and repaid $350.0 million of 7.95% SUNs and $100.0 million of 7.50% SUNs
TNMP issued $60.0 million of 3.85% first mortgage bonds in 2018
In 2018, TNMP borrowed $35.0 million under the TNMP 2018 Term Loan, used the proceeds to reduce short-term borrowings and for general corporate purposes, and repaid the TNMP 2018 Term Loan on December 30, 2019
In 2018, PNMR Development borrowed $90.0 million under the PNMR Development Term Loan
In 2018, PNMR borrowed $150.0 million under the PNMR 20152018 One-Year Term Loan Agreement and repaid $118.8 million of 9.25% Senior Unsecured Notes withused the proceeds; PNMR also increased its borrowings underproceeds to repay the PNMR 2016 One-Year Term Loan, Agreement from $100.0 million to $150.0 milliona portion of the PNMR 2016 Two-Year Term Loan, and for general corporate purposes
In 2015, PNM issued $250.0 million aggregate principal amount of its 3.850% Senior Unsecured Notes and repaid a $175.0 million term loan with the proceeds; PNM also drew the remaining capacity of $25.0 million under the $125.0 million PNM Multi-draw Term Loan
In 2016,2018, PNMR borrowed $100.0$50.0 million under the PNMR One-Year2018 Two-Year Term Loan (included in short-term borrowings) and $100.0 million underused the proceeds to repay the remaining amount of the PNMR 2016 Two-Year Term Loan and repaid the PNMR Term Loan Agreement with the proceedsfor general corporate purposes
In 2016,2019, PNM borrowed $175.0$290.0 million under the PNM 20162019 $250.0 Million Term Loan Agreement and repaid the PNM Multi-draw2019 $40.0 Million Term Loan with the proceeds
NM Capital received net proceeds of $122.5 million under the $125.0 million BTMU Term Loan Agreement in 2016 and utilizedused the proceeds to provide funds forrepay the Westmoreland Loan; in accordance with the BTMU Term Loan Agreement, NM Capital made principal paymentsremaining amount of $42.1 million in 2017 and $32.8 million in 2016
In 2017, PNM borrowed $200.0 million under the PNM 2017 Term Loan, Agreementreduce short-term borrowings and repaid the PNM 2016 Term Loan Agreement with the proceedsfor general corporate purposes
PNM successfully remarketed PCRBs of $57.0 million in 2017, $146.0 million in 2016, and $39.3 million in 2015
In 2019, TNMP issued $60.0 millionfour series of 3.22% first mortgage bonds in 2017aggregating $305.0 million and $60.0used a portion of the proceeds to repay TNMP’s $172.3 million of 3.53%9.50% first mortgage bonds in 2016and to repay borrowings under the TNMP Revolving Credit Facility

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In 2019, PNMR extended the PNMR 2018 One-Year Term Loan (as extended, the “PNMR 2019 Term Loan”)
Short-term borrowings increased $18.3decreased $50.8 million in 20172019 compared to an increasea decrease of $86.5$119.5 million in 2016 and an increase of $95.0 million in 2015,2018, resulting in a net decreaseincrease in cash flows from financing activities of $68.2$68.7 million in 2017 and $8.5 million in 20162019

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In 2017, PNM2019, PNMR had net repayments of amounts received under transmission interconnection arrangements of $9.4$5.7 million compared to net amounts received in 2016 of $4.3 million and net amounts repaid of $2.3$1.2 million in 20152018


Financing Activities
See Note 67 for additional information concerning the Company’s financing activities. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. The Company’s ability to access the credit and capital markets at a reasonable cost is largely dependent upon its:
Ability to earn a fair return on equity
Results of operations
Ability to obtain required regulatory approvals
Conditions in the financial markets
Credit ratings
EachPrior to July 2018, each of the Company’s revolving credit facilities and term loans containscontained a single financial covenant, which requiresrequired the maintenance of debt-to-capital ratiosa 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 includealso contain customary covenants, events of default, cross defaultcross-default provisions, and change of controlchange-of-control provisions. The Company is in compliance with its debt covenants.


As discussed in Note 16, NM Capital, a wholly-owned subsidiary of PNMR, entered into the $125.0 million BTMU Term Loan Agreementagreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”),BTMU, as lender and administrative agent. The BTMU Term Loan Agreement has a maturity of February 1, 2021 and bears interest at a rate based on LIBOR plus a customary spread, which aggregated 4.13% at December 31, 2017. The principal balance outstanding under the BTMU Term Loan Agreement was $50.1 million at December 31, 2017 and $45.1 million at February 20, 2018. PNMR, as parent company of NM Capital, has guaranteed NM Capital’s obligations to BTMU. NM Capital utilized the proceeds of the BTMU Term Loan Agreement to provide funding for the $125.0 million Westmoreland Loan (Note 16) to a ring-fenced, bankruptcy-remote, special-purpose entity which is a subsidiary of Westmoreland to finance Westmoreland’s purchase of SJCC. On May 22, 2018, the full principal balance outstanding under the Westmoreland Loan of $50.1 million was repaid. NM Capital used a portion of the proceeds to repay all remaining principal of $43.0 million owed under the BTMU Term Loan. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated. See Note 10.


On October 21, 2016, PNMR entered into letterhas 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 (Note 16).mine. See Note 16.


At January 1, 2017, PNM2018, PNMR had $37.0 million of outstanding PCRBs, which have a final maturity of June 1, 2040, and $20.0 million of outstanding PCRBs, which have a final maturity of June 1, 2042. These PCRBs were subject to mandatory tender for remarketing on June 1, 2017 and were successfully remarketed on that date. Both series are now subject to mandatory tender for remarketing on June 1, 2022.

On June 14, 2017, TNMP entered into an agreement, which provided that TNMP would issue $60.0 million aggregate principal amount of 3.22% first mortgage bonds on or about August 25, 2017. TNMP issued the 2017 Series A Bonds on August 24, 2017 and used the proceeds to reduce short-term and intercompany debt and for general corporate purposes.

On July 20, 2017, PNM entered into the $200.0 million PNM 2017 Term Loan Agreement, which bears interest at a variable rate and must be repaid on or before January 18, 2019. PNM used the proceeds of the PNM 2017 Term Loan Agreement to prepay the $175.0 million PNM 2016 Term Loan Agreement, which was to mature on November 17, 2017, and to reduce short-term borrowings.

On July 28, 2017, PNM entered into the PNM 2017 Senior Unsecured Note Agreement with institutional investors for the sale of $450.0 million aggregate principal amount of eight series of Senior Unsecured Notes (the “PNM 2018 SUNs”) offered in private placement transactions. PNM has agreed to issue $350.0 million of the PNM 2018 SUNs (at fixed annual interest rates ranging from 3.15% to 4.50% for terms between 5 and 30 years) on or about May 15, 2018 and $100.0 million of the PNM 2018 SUNs (at fixed annual interest rates of 3.78% and 4.60% for terms of 10 and 30 years) on or about August 1, 2018. The issuances of the PNM 2018 SUNs are subject to the satisfaction of customary conditions. PNM will use the gross proceeds from the PNM 2018 SUNs to pay $350.0 million of PNM’s 7.95% Senior Unsecured Notes that mature on May 15, 2018 and $100.0 million of PNM’s 7.50% Senior Unsecured Notes that mature on August 1, 2018.


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On December 21, 2016, PNMR entered into two term loan agreements: (1) the $100.0 million PNMR 2016 One-Year Term Loan that was to mature on December 21, 2017; and (2) the $100.0 million PNMR 2016 Two-Year Term Loan that matureswas to mature on December 21, 2018. On December 15, 2017, the PNMR 2016 One-Year Term Loan was extended to mature on December 14, 2018. Both the PNMR 2016 One-Year Term Loan (as extended) and the PNMR 2016 Two-Year Term Loan were repaid in December 2018.

On March 9, 2018, PNMR issued $300.0 million aggregate principal amount of 3.25% SUNs (the “PNMR 2018 SUNs”), which mature on March 9, 2021. The proceeds offrom the term loansoffering were used to repay the $150.0 million twelve-month PNMR 2015 Term Loan Agreementthat was due on March 9, 2018 and to reduce borrowings under the PNMR Revolving Credit Facility.

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. The PNMR Development Term Loan bears interest at a variable rate, which was 2.60% on December 31, 2019, and matures on November 26, 2020. PNMR, as parent company of PNMR Development, has guaranteed PNMR Development’s obligations under the loan. The PNMR Development Term Loan requires PNMR to maintain a debt-to-capitalization ratio of less than or equal to 70%, and contains customary events of default, a cross-default, and a change-of-control provision.

On December 15, 2017,14, 2018, PNMR amendedentered into a $150.0 million term loan agreement (the “PNMR 2018 One-Year Term Loan”) among PNMR, the lenders identified therein, and MUFG Bank, Ltd., as administrative agent. The proceeds from the PNMR 20162018 One-Year Term Loan were used to extend the maturity date to December 14, 2018.

At December 31, 2017, variable interest rates were 2.34% for the PNMR 2015 Term Loan Agreement, 2.32% forrepay the PNMR 2016 One-Year Term Loan (as extended), 2.32% fora portion of the PNMR 2016 Two-Year Term Loan, and 2.29% for general corporate purposes. On December 13, 2019, the PNMR 2018 One-Year Term Loan

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was extended to June 11, 2021 (the “PNMR 2019 Term Loan”). The PNMR 2019 Term Loan bears interest at a variable rate, which was 2.70% at December 31, 2019.

On December 21, 2018, PNMR entered into a $50.0 million term loan agreement (the “PNMR 2018 Two-Year Term Loan”), between PNMR and Bank of America, N.A. as sole lender. Proceeds from the PNMR 2018 Two-Year Term Loan were used to repay the remaining amount owed under the PNMR 2016 Two-Year Term Loan and for general corporate purposes. The PNMR 2018 Two-Year Term Loan bears interest at a variable rate, which was 2.60% at December 31, 2019, and matures on December 21, 2020.

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 is subject to adjustments based on a net interest rate factor and by expected future dividends paid on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates. PNMR expects to physically settle all shares under the agreements on or before January 7, 2021.

At January 1, 2018, PNM had outstanding the $200.0 million PNM 2017 Term Loan which was repaid on January 18, 2019.

On July 28, 2017, PNM entered into the PNM 2017 Senior Unsecured Note Agreement with institutional investors for the sale of $450.0 million aggregate principal amount of eight series of SUNs (the “PNM 2018 SUNs”) offered in private placement transactions. On May 14, 2018, PNM issued $350.0 million of the PNM 2018 SUNs under that agreement (at fixed annual interest rates ranging from 3.15% to 4.50% for terms between 5 and 30 years) and used the proceeds to repay an equal amount of PNM’s 7.95% SUNs that matured on May 15, 2018. On July 31, 2018, PNM issued the remaining $100.0 million of the PNM 2018 SUNs (at fixed annual interest rates of 3.78% and 4.60% for terms of 10 and 30 years) and used the proceeds to repay an equal amount of PNM’s 7.50% SUNs on that matured on August 1, 2018.

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, Agreement.to reduce short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. The PNM 2019 $250.0 Million Term Loan bears interest at a variable rate, which was 2.45% on December 31, 2019, and must be repaid on or before July 17, 2020.


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 2.39% at December 31, 2019, and must be repaid on or before June 18, 2021.

See discussion of PNM’s SJGS Abandonment Application in Note 17, which includes a request to issue approximately $361 million of energy transition bonds, as provided by the ETA, upon the proposed retirement of SJGS in 2022.

On June 28, 2018, TNMP entered into an agreement under which TNMP issued $60.0 million aggregate principal amount of 3.85% first mortgage bonds, due 2028.

On July 25, 2018, TNMP entered into a $20.0 million term loan agreement. On December 17, 2018, the TNMP term loan agreement was amended and restated to add an additional $15.0 million, which results in a total committed amount of $35.0 million under the agreement (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 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 TNMP 2019 Bond Purchase Agreement include customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default,

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a cross-default provision, and a change-of-control provision. TNMP will have 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 hashad a hedging agreement whereby itthat 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 Agreement for the period from January 11, 2016 through its maturity on March 9, 2018. In 2017, PNMR entered into three separate four-year hedging agreements whereby itthat 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. The Finance Committee of the Board has authorized management to enter into additional transactions to hedge against exposure to changes in interest rates on its variable rate debt of up to an additional notional amount of $150.0 million.
Capital Requirements
PNMR’s total capital requirements consist of construction expenditures, and cash dividend requirements for PNMR common stock and PNM preferred stock.stock, and capital contributions for PNMR Development’s 50% ownership interest in NMRD. Key activities in PNMR’s current construction program include:
Upgrading and replacing generation resources including expenditures for compliance with environmental requirements and for renewable energy resources
Expanding the electric transmission and distribution systems
Purchasing nuclear fuel
Projected capital requirements for 2018-20222020-2024 are:    
2018 2019-2022 Total2020 2021-2024 Total
(In millions)(In millions)
Construction expenditures$500.2
 $2,211.9
 $2,712.1
$811.7
 $3,004.4
 $3,816.1
Capital contributions to NMRD27.0
 
 27.0
Dividends on PNMR common stock84.4
 337.7
 422.1
98.0
 422.3
 520.3
Dividends on PNM preferred stock0.5
 2.1
 2.6
0.5
 2.1
 2.6
Total capital requirements$585.1
 $2,551.7
 $3,136.8
$937.2
 $3,428.8
 $4,366.0


The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. TheIncluded in construction expenditures for 2020 - 2021 above include environmental upgrades of $7.9 million at Four Corners, $72.8are $91.8 million for 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, approximately $170 million for an anticipated expansionexpansions of PNM’s transmission system and net investments of approximately $100$285 million for PNM’s agreement to purchase the Western Spirit Line, subject to certain conditions being met prior to closing. Construction expenditures also include approximately $298 million in 2021 and $300 million in2020 - 2022 for PNM’s recommended SJGS replacement resource scenario included in the costs of replacement resources related to the potential shutdown of SJGS Units 1 and 4 in 2022.Abandonment Application, which is pending NMPRC approval. See Note 16 and 17. ExpendituresNot included in the table above are potential incremental expenditures for thenew customer growth in New Mexico and Texas, and other transmission and renewable energy expansion of PNM’s transmission system and SJGS replacement resources are subject to obtaining necessary approvals of the NMPRC.in New Mexico. PNM willmay be required to file CCN or other applications with the NMPRC to obtain those approvals. Expenditures for environmental upgrades are estimated to be $7.9 million in 2018. See Note 16 and Commitments and Contractual Obligations below. 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 5 describes6 for a discussion of regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.
During the year ended December 31, 20172019, 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 $150.0PNM has $100.3 million of long-term debt that must be repriced by June 2020 and the PNM 2019 $250.0 Million Term Loan matures in July 2020. In addition, the $90.0 million PNMR 2015Development Term Loan Agreement matures on March 9,in November 2020, the $50.0 million PNMR 2018 the $100.0 million PNM 2016 One-Year Term Loan (as extended) matures on December 14, 2018, and the $100 million PNM 2016 Two-Year Term Loan matures onin December 21, 2018. Also, $350.02020, and the $300.0 million of PNM Senior Unsecured NotesPNMR 2018 SUNs mature on May 15, 2018 and $100.0 million of PNM Senior Unsecured Notes mature on August 1, 2018. As described above, PNM entered into the PNM 2017 Senior UnsecuredMarch 9, 2021. See Note Agreement on July 28, 2017. Proceeds from the $450.0 million of the PNM 2018 SUNs to be issued under that agreement will be used to repay the senior unsecured notes that mature on May 15, 2018 and

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August 1, 2018. The BTMU Term Loan Agreement requires that NM Capital utilize all amounts, less taxes and fees, it receives under the Westmoreland Loan to repay the BTMU Term Loan Agreement. Based on scheduled payments on the Westmoreland Loan, NM Capital estimates it will make principal payments of $10.6 million on the BTMU Term Loan Agreement in the year ended December 31, 2018, including $5.0 million paid on February 1, 2018. Note 6 contains7 for additional information about the maturities ofCompany’s long-term debt. PNMRdebt and PNM anticipateequity arrangements. The Company anticipates that funds to repay these long-term debt maturities and term loans will come from enteringthe issuance of approximately 6.2 million shares of PNMR common stock in late 2020 under the PNMR 2020 Forward Equity Sale Agreements. The Company may also enter into new arrangements similar to the existing agreements, borrowingborrow under theirthe revolving credit facilities, issuance ofor 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.
Liquidity
PNMR’s liquidity arrangements include the PNMR Revolving Credit Facility, the PNM Revolving Credit Facility, and the TNMP Revolving Credit Facility. Currently,In July 2018, the PNMR Revolving Credit Facility haswas amended to provide for two one-year extension options, subject to approval by a financing capacitymajority of $300.0 million,the lenders. In October 2018, the PNM Revolving Credit Facility haswas

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amended to add two one-year extension options, subject to approval by a financing capacitymajority of the lenders. As a result, PNMR and PNM have the opportunity to extend these facilities through October 2024. On December 19, 2018, PNMR and PNM each exercised the first of these one-year extension options resulting in the PNMR and PNM Revolving Credit Facilities maturing in October 2023. The PNMR and PNM facilities have capacities of $300.0 million and $400.0 million, and the. The $75.0 million TNMP Revolving Credit Facility has a financing capacity of $75.0 million. PNMR and PNM entered into agreements to extend the maturity of the PNMR Revolving Credit Facility and the PNM Revolving Credit Facility to October 31,matures in September 2022. However, one lender, whose current commitment is $10.0 million under the PNMR Revolving Credit Facility andThe $40.0 million under the PNM Revolving Credit Facility, did not agree to extend its commitment beyond October 31, 2020. Unless one or more of the other current lenders or a new lender assumes the commitments of the non-extending lender, the financing capacities will be reduced to $290.0 million for the PNMR Revolving Credit Facility and $360.0 million for the PNM Revolving Credit Facility from November 1, 2020 through October 31, 2022. On September 25, 2017 the TNMP Revolving Credit Facility was amended and restated to extend its maturity from September 18, 2018 to September 23, 2022. PNM had the $50.0 million PNM 2014 New Mexico Credit Facility with banks having a significant presence in New Mexico, that was scheduled to expire on January 8, 2018. On December 12, 2017, PNM entered into the PNM 2017 New Mexico Credit Facility, a similar $40.0 million unsecured revolving credit facility to replace the PNM 2014 New Mexico Credit Facility. The PNM 2017 New Mexico Credit Facility expires on December 12, 2022. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry. 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.

On February 26, 2018, PNMR Development entered into a $24.5 million revolving credit facility that was scheduled to expire on February 25, 2019. On February 22, 2019, PNMR Development amended the revolving credit facility to increase the capacity to $25.0 million. On July 22, 2019, the PNMR Development Revolving Credit Facility was amended to increase the capacity to $40.0 million with the option to further increase the capacity to $50.0 million upon 15-days advance notice. On February 21, 2020, PNMR Development extended the revolving credit facility to expire on February 23, 2021. The facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. See Note 1.

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 Ended Year Ended December 31 Three Months Ended Year Ended December 31
 December 31, 2017 2017 2016 2015 December 31, 2019 2019 2018
Range of Borrowings Low High Low High Low High Low High Low High Low High Low High
 (In millions) (In millions)
PNM:                            
PNM Revolving Credit Facility $
 $65.0
 $
 $65.0
 $
 $135.0
 $
 $48.4
 $
 $53.4
 $
 $53.4
 $
 $64.2
PNM New Mexico facilities (1)
 
 
 
 26.0
 
 50.0
 
 20.0
PNM 2017 New Mexico Credit Facility 
 40.0
 
 40.0
 
 20.0
TNMP Revolving Credit Facility 
 23.8
 
 53.0
 
 70.0
 
 64.0
 13.7
 22.0
 
 55.0
 
 73.9
PNMR Revolving Credit Facility 117.7
 194.7
 111.8
 235.3
 40.0
 179.5
 
 45.3
 59.0
 112.1
 20.0
 112.1
 20.0
 210.0
PNMR Development Revolving Credit Facility 
 38.9
 
 38.9
 
 24.5
(1) Includes bothAt December 31, 2019, the average interest rates were 3.02% for the PNMR Revolving Credit Facility, 2.87% for the PNM 2014 New MexicoRevolving Credit Facility, and2.84% for the PNM 2017 New Mexico Credit Facility,
At December 31, 2017, the average interest rates were 2.76% and 2.47% for the PNMR Revolving Credit Facility and 2.59% for the PNMTNMP Revolving Credit Facility. There were no borrowings outstanding under the PNM 2017 New Mexico Facility or the TNMPPNMR Development Revolving Credit Facility at December 31, 2017.2019.
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. 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 2018-2022

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period.replacement resources prior to the issuance of the energy transition bonds included in PNM’s SJGS Abandonment Application. This could include new debt and/or equity issuances. The Company currently anticipates utilizing a three-year at-the-market equity issuance program to raise equityissuances, including instruments such as mandatory convertible securities beginning in 2020 to partially fund capital requirements. This at-the-market program should provide a flexible, efficient, and low-cost way to issue equity as needed. The Company also expects to issue new debt periodically to fund capital investments.2021. To cover the difference in the amounts and timing of internal cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements.arrangements or other short-term loans. However, if difficult market conditions return, 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. Also, PNM could consider seeking authorization for

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Currently, all of the issuance of first mortgage bonds to improve access to the capital markets.
PNMR currently has no senior unsecured notes outstanding. On June 22, 2015, Moody’s assigned an issuer rating of Baa3 to PNMR, upgraded the issuer rating of TNMP to A3 from Baa1, upgraded the senior secured debt rating of TNMP to A1 from A2, and changed the outlook for PNMR, PNM, and TNMP to stable from positive. On December 21, 2015, S&P raised by one notch the issuer credit ratings for PNMR, PNM,issued by both Moody’s and TNMP andS&P on the Company’s debt ratings for PNM and TNMP, with a stable outlook. In June 2017, Moody’s changed the outlook for PNMR and PNM from stable to positive while maintaining a stable outlook for TNMP.are investment grade. On January 16, 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative while affirming the ratings set forth below for allPNMR and PNM. On June 29, 2018, Moody’s changed the entities. 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. 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.
As of February 20, 201821, 2020, ratings on the Company’s securities were as follows:
 PNMR PNM TNMP
S&P     
Issuer ratingBBB+ BBB+ BBB+A-
Senior secured debt* * A
Senior unsecured debt*BBB BBB+ *
Preferred stock* BBB- *
Moody’s     
Issuer ratingBaa3 Baa2 A3
Senior secured debt* * A1
Senior unsecured debt*Baa3 Baa2 *
* Not applicable     


Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. However, the ultimate outcomes from PNM’s NM 2015 Rate Case and NM 2016 Rate Case, including the pending appeals before the NM Supreme Court, as discussed in Note 17, could affect both the outlook and credit ratings. 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 20, 201821, 2020, is as follows:
PNMR
Separate
 
PNM
Separate
 
TNMP
Separate
 
PNMR
Consolidated
PNM TNMP 
PNMR
Separate
 PNMR Development 
PNMR
Consolidated
  (In millions)  (In millions)
Financing capacity:                
Revolving credit facility$300.0
 $400.0
 $75.0
 $775.0
Revolving Credit Facility$400.0
 $75.0
 $300.0
 $40.0
 $815.0
PNM 2017 New Mexico Credit Facility
 40.0
 
 40.0
40.0
 
 
 
 40.0
Total financing capacity$300.0
 $440.0
 $75.0
 $815.0
$440.0
 $75.0
 $300.0
 $40.0
 $855.0
Amounts outstanding as of February 20, 2018:       
Revolving credit facility$182.4
 $57.4
 $23.9
 $263.7
Amounts outstanding as of February 21, 2020:         
Revolving Credit Facility$35.4
 $43.1
 $143.8
 $
 $222.3
PNM 2017 New Mexico Credit Facility
 20.0
 
 20.0
30.0
 
 
 
 30.0
Letters of credit6.4
 2.5
 0.1
 9.0
2.5
 0.1
 4.7
 
 7.3
Total short-term debt and letters of credit188.8
 79.9
 24.0
 292.7
67.9
 43.2
 148.5
 
 259.6
Remaining availability as of February 20, 2018$111.2
 $360.1
 $51.0
 $522.3
Invested cash as of February 20, 2018$0.9
 $
 $
 $0.9
Remaining availability as of February 21, 2020$372.1
 $31.8
 $151.5
 $40.0
 $595.4
Invested cash as of February 21, 2020$
 $
 $0.9
 $
 $0.9
In addition to the above, PNMR hadhas $30.3 million of letters of credit outstanding under the JPM LOC Facility. The above table excludes intercompany debt. As of February 20, 2018,21, 2020, PNM and TNMP had no intercompany borrowings from PNMR.

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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.

On February 26, 2018, PNMR Development entered into a $24.5 million revolving credit facility that matures on February 25, 2019. The facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development anticipates using the facility to finance its participation in NMRD (Note 1).
PNMR can offer new shares of common stock through the PNM Resources Direct Plan under a SECan automatic shelf registration statementthat provides for the issuance of various types of debt and equity securities that expires in August 2018.March 2021. PNM has a shelf registration statement for up to $475.0 million of Senior Unsecured Notes that expires in May 2020.
Off-Balance Sheet Arrangements
PNMR’sPNMR has no off-balance sheet arrangements include PNM’s operating leases for portionsthat have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of PVNGS Units 1 and 2 and, until April 1, 2015, the EIP transmission line. These arrangements help ensure PNM the availability of lower-cost generation neededoperations, liquidity, capital expenditures or capital resources that are material to serve customers.investors.
In 1985 and 1986, PNM consummated sale and leaseback transactions for its interest in PVNGS Units 1 and 2. The original purpose of the sale-leaseback financing was to lower revenue requirements and to levelize the ratemaking impact of PVNGS being placed in-service. The lease payments reflected lower capital costs as the equity investors were able to capitalize the investment with greater leverage than PNM and because the sale transferred tax benefits that PNM could not fully utilize. Under traditional ratemaking, the capital costs of ownership of a major rate base addition, such as a nuclear plant, are front-end loaded with higher revenue requirements in the initial years that decline over the life of the plant as depreciation occurs. By contrast, the revenue requirements for lease payments are level over the lease term. The leases, which were scheduled to expire in 2015 and 2016, contained options to renew the leases at a fixed price or to purchase the property for fair market value.
As discussed in Note 7, PNM and the lessors under each of the PVNGS Unit 1 leases entered into amendments to those leases that extended the leases through January 15, 2023 from their original expiration on January 15, 2015. In addition, PNM entered into an amendment with the lessor under one of the PVNGS Unit 2 leases that extended that lease through January 15, 2024 from its original expiration on January 15, 2016. PNM entered into agreements with the lessors under the other three PVNGS Unit 2 leases under which PNM exercised its option to purchase the assets underlying the leases at the agreed to fair market values aggregating $163.3 million at the expiration of the leases on January 15, 2016. The semiannual renewal payments aggregate $8.3 million under the PVNGS Unit 1 leases and are $0.8 million for the one renewed PVNGS Unit 2 lease. See Sources of Power in Part I, Item 1 and Note 7 for additional information.
The future lease payments for the PVNGS leases are shown below.
 
PVNGS
Units 1&2
 (In thousands)
2018$18,139
201918,139
202018,139
202118,139
202218,139
Thereafter10,705
Total$101,400
For reasons similar to the PVNGS sale and leaseback transactions, PNM built the EIP transmission line and sold it in sale and leaseback transactions in 1985. Prior to April 1, 2015, PNM owned 60% and operated the other 40% of the EIP line under the terms of a lease agreement. The lease, which contained fixed-rate and fair market value renewal options and a fair market value purchase option, expired on April 1, 2015. PNM exercised its option to purchase the leased assets at expiration of the lease at the agreed to fair market value of $7.7 million. See Note 7.


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Commitments and Contractual Obligations
The following table sets forth PNMR’s long-term contractual obligations as of December 31, 20172019. See Note 78 for further details about the Company’s significant leases.
 Payments Due Payments Due
Contractual Obligations 2018 2019-2020 2021-2022 2023 and Thereafter Total 2020 2021-2022 2023-2024 2025 and Thereafter Total
 (In thousands) (In thousands)
Long-term debt (a)
 $257,293
 $510,866
 $367,650
 $1,295,698
 $2,431,507
 $490,345
 $853,000
 $135,000
 $1,525,698
 $3,004,043
Interest on long-term debt (b)
 110,771
 159,647
 132,460
 708,144
 1,111,022
 108,487
 159,823
 141,026
 716,620
 1,125,956
Operating leases (c)
 26,802
 50,846
 50,244
 60,708
 188,600
Leases (c)
 27,542
 51,920
 25,206
 35,361
 140,029
Transmission service arrangements 16,956
 21,102
 17,793
 9,440
 65,291
 17,178
 33,998
 17,500
 7,170
 75,846
Coal contracts (d)
 104,782
 224,477
 192,507
 375,941
 897,707
 110,298
 141,330
 74,010
 260,182
 585,820
Coal mine decommissioning (e) (f)
 10,689
 22,469
 24,498
 157,772
 215,428
Nuclear decommissioning funding requirements (f)
 2,637
 5,274
 5,274
 
 13,185
SJGS decommissioning funding requirements 
 
 16,920
 
 16,920
Coal mine reclamation (e) (f)
 14,752
 38,132
 32,521
 48,442
 133,847
Nuclear decommissioning funding requirements (f) (j)
 1,300
 2,600
 2,600
 
 6,500
SJGS plant decommissioning 
 14,670
 
 
 14,670
Outsourcing 4,555
 3,430
 
 
 7,985
 5,833
 11,925
 8,492
 262
 26,512
Pension and retiree medical (g)
 1,936
 3,778
 9,092
 
 14,806
 1,552
 2,983
 2,773
 
 7,308
Equity contributions to NMRD(h)
 7,700
 
 
 
 7,700
 27,000
 
 
 
 27,000
Construction expenditures (i)
 500,205
 1,027,235
 1,184,627
 
 2,712,067
 811,726
 1,687,013
 1,317,398
 
 3,816,137
Total (j)(k)
 $1,044,326
 $2,029,124
 $2,001,065
 $2,607,703
 $7,682,218
 $1,616,013
 $2,997,394
 $1,756,526
 $2,593,735
 $8,963,668


(a) 
Represents total long-term debt, excluding unamortized discounts, premiums, and issuance costs (Note 6)7)
(b) 
Represents interest payments during the period
(c) 
The operating lease amounts includeAmounts exclude expected future payments of $21.8 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 thetheir expiration of the leases; see Off-Balance Sheet Arrangements above,dates Note 7,8 and Note 910
(d) 
Represents only certain minimum payments that may be required under the coal contracts in effect on December 31, 20172019 if no deliveries are taken for SJGS and Four Corners
(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 commitments to fund NMRD for its contractual construction obligations
(i) 
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
(j) 
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
(k)
PNMR is unable to reasonably estimate the timing of liability for uncertain income tax positions (Note 11)18) in individual years due to uncertainties in the timing of the effective settlement of tax positions and, therefore, PNMR’s liability of $9.4$10.7 million is not reflected in this table; amounts PNM is obligated to pay Valencia are not included above since Valencia is consolidated by PNM in accordance with GAAP, as discussed in Note 9;10; no amounts are included above for the New Mexico Wind, Lightning Dock Geothermal, and Red Mesa Wind, Casa Mesa Wind, La Joya Wind, 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.

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The PNMR Revolving Credit Facility, PNM Revolving Credit Facility, PNM 2017 New Mexico Credit Facility, and the TNMP Revolving Credit Facility and the PNMR 2015 Term Loan Agreement 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. In addition,Prior to July 2018, these facilities, as well as the Company’s other term loans, each containcontained a covenant requiring the maintenance

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debt-to-capitalization ratio of debt-to-capital ratios of not moreless 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 that ratiothese ratios were to exceed 65%,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.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“material adverse changechange” 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,December 31,
PNMR2017 20162019 2018
PNMR common equity40.9% 41.1%35.8% 38.6%
Preferred stock of subsidiary0.3% 0.3%0.2
 0.3
Long-term debt58.8% 58.6%64.0
 61.1
Total capitalization100.0% 100.0%100.0% 100.0%
PNM      
PNM common equity46.0% 46.0%45.2% 45.6%
Preferred stock0.4% 0.4%0.4
 0.4
Long-term debt53.6% 53.6%54.4
 54.0
Total capitalization100.0% 100.0%100.0% 100.0%
TNMP      
Common equity56.9% 58.5%52.9% 53.9%
Long-term debt43.1% 41.5%47.1
 46.1
Total capitalization100.0% 100.0%100.0% 100.0%


OTHER ISSUES FACING THE COMPANY
Climate Change Issues


Background

For the past several years, management has identified multiple risks and opportunities related to climate change, including potential environmental regulation, technological innovation, and availability of fuel and water for operations, as among the most significant risks facing the Company. Accordingly, these risks are overseen by the full Board in order to facilitate more integrated risk and strategy oversight and planning. Board oversight includes understanding the various challenges and opportunities presented by these risks, including the financial consequences that might result from enacted and potential federal and/or state regulation of

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GHG; plans to mitigate thethese risks; and the impacts these risks may have on the Company’s strategy. In addition, the Board approves certain PNM investments inprocurements of environmental equipment, and grid modernization technologies.technologies, and replacement generation resources.

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Management is also responsible for assessing significant risks, developing and executing appropriate responses, and reporting to the Board on the status of risk activities. For example, management periodically updates the Board on the implementation of the 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 advisedinformed of the Company’s practices and procedures to assess the sustainability impacts of operations on the environment.  Management has recently published, with Board oversight, a Climate Change Report available at http://www.pnmresources.com/about-us/sustainability-portal.aspx, that details PNM’s efforts to transition to a coal-free generation portfolio. 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.


ChangesAs 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 climate are generally not expected to have material consequences to the Company“2 Degree Scenario” planning by participating in the near-term. 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 assets and operations.results of operations, financial position, or cash flows.


GHGGreenhouse Gas Emissions Exposures


In 2017,2019, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 6.95.7 million metric tons of CO2, which comprises the vast majority of PNM’s GHG.  By comparison, the total GHG in the United States in 2015, the latest year for which EPA has published final data, were approximately 6.6 billion metric tons (in CO2 equivalents), of which approximately 5.4 billion metric tons were CO2.


As of January 1, 2018,December 31, 2019, approximately 67.9%63% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the United States,U.S., consisted of coal or gas-fired generation that produces GHG. This reflects the retirement of SJGS Units 2 and 3 that occurred in December 2017 and the restructuring of ownership in SJGS Unit 4. These events reduced PNM’s entitlement in SJGS from 783 MW to 562 MW and will causecaused the Company’s output of GHG to decrease in 2018when 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 2017,2018, production from PNM’s largest single renewable energy resource, New Mexico Wind, has varied from a high of 580 GWh in 2011 to a low of 405 GWh in 2014.2015. Variations are primarily due to how much and how often the wind blows. In addition, if PVNGS experienced prolonged outages or if PNM’s entitlement from PVNGS were reduced, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG.


PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. See Note 17. 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 is expected to resultresulted in a reduction of GHG for the entire station of approximately 50%, including an overall54% for 2018, reflecting a reduction of approximately 40%32% of GHG from the Company’s owned interests. In addition, as discussedinterests in Note 17,SJGS, below 2005 levels. PNM’s 2017 IRP indicates that retiring PNM’s share of SJGS in 2022 and exiting ownership in the remaining SJGS units in 2022 and Four Corners in 2031 would provide long-term cost savings to its customerscustomers. See additional discussion of PNM’s 2017 IRP and the SJGS Abandonment Application 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 of December 31, 2019, PNM owns utility-scale solaror procures power under PPAs from 608 MW of capacity from renewable generation withresources, which include solar-PV, wind, and geothermal facilities including 50 MW of new solar-PV capacity to serve retail customers and 50 MW of new solar-PV capacity to serve a total generation capacity of 107 MW. Since 2003,data center located in PNM’s service territory. In addition, the NMPRC has granted PNM has purchased the entire output of New Mexico Wind, which hasauthority to procure an aggregate capacity of 204316 MW of additional renewable energy and since January 2015, has purchased the full output of Red Mesa Wind, which has an aggregate capacity of 102 MW. PNM hasRECs from solar-PV and wind facilities to serve a 20-year PPA for the output of Lightning Dock Geothermal, which began providing power to PNMdata center located in January 2014. The current capacity of the geothermal facility is 4 MW. On November 15, 2017 the NMPRC approved PNM’s 2018service territory. PNM’s 2020 renewable energy procurement plan, (Note 17). Aswhich was approved by the NMPRC in January 2020, includes a result, PNM will acquirePPA for an additional 80 GWh140 MW of wind energy to serve retail customers beginning in 2021 and PNM’s SJGS Abandonment Application, which was filed with the NMPRC on July 1, 2019, includes a request to replace SJGS capacity with 350 MW of solar-PV, 130 MW of battery storage facilities, and 105 GWh in 2020 from a re-powering of New Mexico Wind; an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; and PNM will construct 50280 MW of new solargas-fired peaking capacity. If approved, these resources would result in PNM owning, leasing, or procuring through PPAs capacity from renewable resources and battery storage facilities totaling 1,544 MW and capacity from emissions-free resources totaling 1,946 MW. See additional discussion of these resources in 2018. Additionally, Notes 16 and 17.


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PNM also has a customer distributed solar generation program that represented 81.6127.6 MW at December 31, 2017.2019. PNM’s distributed solar programs will reduce PNM’s annual production from fossil-fueled electricity generation by about 180255.2 GWh. PNM has offered its customers a comprehensive portfolio of energy efficiency and load management programs since 2007, with a budget of $23.6 million for the 2018 program year. Cumulative annual2007. PNM’s cumulative savings from these programs werewas approximately 6254,496 GWh of electricity through 2017.2019. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 9,6008,756 GWh of electricity, which will avoid at least 5.24.7 million metric tons of CO2 based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in PNM’s generation portfolio, demand for electricity, energy efficiency, and complex relationships between those variables.


Because of PNM’s dependence on fossil-fueled generation, legislation or regulation that imposes a limit or cost on GHG could impact the cost at which electricity is produced. While PNM expects to recover any such costs through rates, the timing and outcome of proceedings for cost recovery are uncertain. In addition, to the extent that any additional costs are recovered through rates, customers may reduce their usage, relocate facilities to other areas with lower energy costs, or take other actions that ultimately willcould adversely impact PNM.



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Other Climate Change Risks


PNM’s generating stations are located in the arid southwest. Access to water for cooling for some of these facilities is critical to continued operations. Forecasts for the impacts of climate change on water supply in the southwest range from reduced precipitation to changes in the timing of precipitation. In either case, PNM’s generating facilities requiring water for cooling will need to mitigate the impacts of climate change through adaptive measures. Current measures employed by PNM generating stations such as air cooling, use of grey water, improved reservoir operations, and shortage sharing arrangements with other water users will continue to be important to sustain operations.


PNM’s service areas occasionally experience periodic high winds forest fires, and severe thunderstorms. TNMP has operations in the Gulf Coast area of Texas, which experiences periodic hurricanes and droughtother 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. DuringIn addition, other events influenced by climate change, such as wildfires, could disrupt Company operations or result in third-party claims against the third quarter of 2017, Hurricane Harvey had significant impacts on the Gulf Coast region, including certain areas serviced by TNMP. While Hurricane Harvey did not have a significant impact on TNMP’s facilities, the hurricane impacted customer usage and could impact future usage or create resource constraints that could delay or disrupt the supply of materials necessary to maintain historical levels of system reliability.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 emissionsGHG from new motor vehicles, stating that the atmospheric concentrations of six key greenhouse gases (CO2, methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) endanger the public health and welfare of current and future generations. In May 2010, EPA released the final PSDPrevention of Significant Deterioration (“PSD”) and Title V Greenhouse Gas Tailoring Rule (the “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 emissions.GHG. However, the court upheld EPA’s authority to apply the PSD program for GHGsGHG to “anyway” sources - those sources that have to comply with the PSD program for other non-GHG pollutants.


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


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


EPA’s Carbon Pollution Standards for new sources (those constructed after January 8, 2014) established separate standards for gas-gas and coal-fired units. The standards reflect the degree of emission limitation achievable through the application of what EPA determined to be the best system of emission reduction (“BSER”)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.

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 final Clean Power Plan established numeric “emission standards” for existing electric generating units - one for “fossil-steam” units (coal-(coal and oil-fired units) and one for natural gas-fired units (combined cycle only). The emission standards arewere based on emission reduction opportunities that EPA deemed achievable using technical assumptions for three “building blocks”: efficiency improvements at coal-fired EGUs, displacement of affected EGUs with renewable energy, and displacement of coal-fired generation with natural gas-fired generation.



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Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. The DC Circuit first refused to stay the rule, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016. As a result,2016, thus halting implementation of the Clean Power Plan is not in effect and neither states nor sources are obliged to comply with its requirements.Plan. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a 10-judge

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en banc panel. However, before the DC Circuit could issue an opinion, President Trump took office and his administration asked the court to hold the case in abeyance while the rule iswas re-evaluated, which the court granted. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss the cases challenging the Clean Power Plan as moot due to EPA’s issuance of the Affordable Clean Energy rule, which repeals the Clean Power Plan.


On March 28, 2017, President Trump issued an Executive Order titled “Promoting Energy Independence and Economic Growth.” Among its goals are to “promote clean and safe development of our Nation’s vast energy resources, while at the same time avoiding regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation.” The order rescinds several key pieces of the Obama Administration’s climate agenda, including the Climate Action Plan and the Final Guidance on Consideration of Climate Change in NEPA Reviews. It directs agencies to review and suspend, revise or rescind any regulations or agency actions that potentially burden the development or use of domestically produced energy resources.

Most notably, the order directsdirected EPA to immediately review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Carbon Pollution Standards for new, reconstructed or modified electric utilities, (2) the Clean Power Plan, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. In response, the EPA signed a NOPR to repeal the Clean Power Plan on October 10, 2017. The notice proposesproposed a legal interpretation concluding that the Clean Power Plan exceedsexceeded EPA’s statutory authority. On June 19, 2019, EPA recently announced that it will continue to accept comments on that proposed interpretation until April 26, 2018. Anyreleased the final rule will likely be subject to judicial review.version of the Affordable Clean Energy rule. EPA indicated it has not determined whether it will promulgate a new rule under section 111(d) or what form a new rule would take, but it did seek comment on that questiontakes three actions in a separate advanced notice of proposed rulemaking published December 28, 2017.

PNM is unable to predict the impact to the Company of this Executive Order or the potential repeal offinal rule: (1) repealing the Clean Power Plan. ItPlan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under CAA Section 111(d) which, among other things, extends the deadline for state plans and extends the timing of EPA’s approval process. EPA set the 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. The final rule requires states to submit a plan to EPA by July 8, 2022, and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is uncertain the directionnot acceptable, EPA will take, if any,have two years to replacedevelop a federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).

While corresponding NSR reform regulations were proposed as part of the proposed Affordable Clean Energy rule, the final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing rule. Ifsource of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from projects are to be considered in determining whether the proposed project will result in an increase in air emissions.

On December 20, 2018, EPA published in the Federal Register a future regulation limiting GHG from fossil-fueled EGUs is adopted, such regulations could impact PNM’s existing and future fossil-fueled EGUs. The existingproposed rule that would revise the Carbon Pollution Standards coveringrule published in October 2015 for new, sourcesreconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on the revised BSER as the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon capture and sequestration. As a result, the proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. The 2018 proposed Carbon Pollution Standards rule could also impact PNM’s generation fleet to the extent any EGUs qualify as new, reconstructed, or modified, although that rule remains under review by EPAEPA. Comments on the proposal were due on March 18, 2019 and a final rule is expected in 2020.

The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. The results of additional judicial review and the DC Circuit.outcome of those proceedings cannot be predicted.


Federal Legislation


Prospects for enactment in Congress of legislation imposing a new or enhanced regulatory program to address climate change are highly unlikely in 2018.  2020.  Although the democratic leadership in the U.S. House of Representatives may soon begin to reconsider proposals for legislation aimed at addressing climate change, such legislation is unlikely to pass the republican controlled U.S. Senate or be signed by the President.


State and Regional Activity


Pursuant to New Mexico law, each utility must submit an IRP to the NMPRC every three years to evaluate renewable energy, energy efficiency, load management, distributed generation, and conventional supply-side resources on a consistent and comparable basis.  The IRP is required to take into consideration risk and uncertainty of fuel supply, price volatility, and costs of

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anticipated environmental regulations when evaluating resource options to meet supply needs of the utility’s customers.  The NMPRC requires that New Mexico utilities factor a standardized cost of carbon emissions into their IRPs using prices ranging between $8 and $40 per metric ton of CO2 emitted and escalating these costs by 2.5% per year.  Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs.  Reflecting the developingevolving nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances.  Although these prices may not reflect the costs that ultimately will be incurred, PNM is required to use these prices for purposes of its IRP.  As discussed in Note 17, inIn its 2017 IRP, PNM analyzed resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations by the end of 2022.2022 as discussed in Note 17. The key findings of the 2017 IRP include that exiting SJGS in 2022 would provide long-term costeconomic benefits to PNM’s customers and that PNM exiting its ownership interest in Four Corners in 2031 would also save customers money. The materials presented in the IRP process are available at www.pnm.com\irp. See additional discussion of PNM’s 2017 IRP in Note 17.


On August 30, 2017, Western Resource Advocates providedSenate Bill 489, known as the NMPRC withEnergy 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 presentation onmandatory RPS requiring utilities to acquire a proposed rulemaking forrenewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the adoption of a clean energy standardREA 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 suggestiontransition from coal-fired generating resources to carbon-free resources by allowing investor-owned utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include coal mine decommissioning, plant decommissioning, and other costs that have not yet been charged to customers or disallowed by the NMPRC or by a court order. Proceeds provided by energy transition bonds may also be used to pay for severances for employees of the retired coal-fired generating facility and related coal mine, as well as to pay for job training, education, and economic development. Energy transition bonds must be issued under an NMPRC financing order and are paid by a non-bypassable charge paid by all customers of the issuing utility. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC issuehas 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 NOPR.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 planned retirement of SJGS in 2022. The NMAG’s officeNMPRC had not definitively indicated its intent to apply the requirements of the ETA to PNM’s SJGS Abandonment Application and Prosperity Works joined inseveral parties to that case questioned whether the petition. The proposed clean energy standard, if adopted, wouldETA 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 utilitiesthe NMPRC to reduce carbon emissions by four percent per yearapply the ETA to PNM’s application. On January 29, 2020, the NM Supreme Court ruled that the NMPRC is required to apply the ETA to all of PNM’s SJGS Abandonment Application and denied petitions for a stay. In February 2020, the Hearing Examiners assigned to the SJGS abandonment and financing proceedings issued recommended decisions recommending approval of PNM’s abandonment application and for the next 20 years. The NMPRC has convened a seriesissuance of workshops to develop a clean energy standard rule that could be proposed for a future rulemaking proceeding. The major topic areas discussed atSecuritized Bonds consistent with the workshops are: jurisdictional and other legal issues; selectionrequirements of the timeframe forETA. See additional discussion of PNM’s SJGS Abandonment Application in Note 17. PNM cannot predict the emissions baseline year to be used, unspecified power,full impact of the ETA or the outcome of its existing and electric vehicle credits; and cost responsibilities, benefits, reasonable cost threshold, impact on rates, compliance issues, reliability impacts and unintended consequences. Workshops are scheduled to continue in 2018.potential future generating resource abandonment filings with the NMPRC.



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International Accords


The United Nations Framework Convention on Climate Change (“UNFCCC”) is an international environmental treaty that was negotiated at the 1992 United Nations Conference on Environment and Development (informally known as the Earth Summit) and entered into force in March 1994. The objective of the treaty is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.”  Parties to the UNFCCC, including the United States,U.S., have been meeting annually in Conferences of the Parties (“COP”) to assess progress in meeting the objectives of the UNFCCC. 


On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The aim of the Paris Agreement is to limit global temperature rise to two degrees Celsius above pre-industrial levels. The agreement, which was agreed to by more than 190 nations,approximately 200 parties, requires that countries submit Intended Nationally Determined Contributions (“NDCs”INDCs”). NDCsINDCs 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 United States NDC isU.S. INDC was part of an overall effort by the former administration to have the United StatesU.S. achieve economy-wide reductions of around 80% by 2050.  The former administration’s GHG reduction target for the electric utility industry iswas a key element of its NDCINDC and iswas based on EPA’s final GHG regulations for new, existing, and modified and reconstructed sources. The United States was one of 189 nationssources at that offered intended NDCs.time. Thresholds for the number of countries necessary to ratify or accede to the Paris Agreement and total global GHG percentage were achieved on October 5, 2016 and the Paris Agreement entered into force on November 4, 2016.  To date, 174 countries have ratified the Paris Agreement.  On June 1, 2017, President Trump announced that the United StatesU.S. would withdraw from the Paris Agreement. In his public statement, he indicated that the United StatesU.S. would "begin“begin negotiations to reenter either the Paris Accord or a .... new transaction on terms that are fair to the United States,U.S., its businesses, its workers, its people, its taxpayers." To date there” On November 4, 2019, President Trump announced that the U.S. has officially notified the United Nations that the U.S. will withdraw from the Paris Agreement. The rules of the Paris Agreement impose a one-year waiting period after official notice of withdrawal. As a

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result of the President’s notice to the United Nations, the U.S. will officially be able to withdraw from the Paris Agreement on November 4, 2020. A future administration would have been no specific detailsan opportunity to rejoin the Agreement. It is uncertain if the U.S. will ultimately choose to pursue a transition to a low-carbon economy using a pathway that aligns with the Paris Agreement to keep global temperature rise to below two degrees Celsius (the “2 Degree Scenario”) above pre-industrial levels or in connection with other regulation or legislation. PNM has calculated GHG reductions that would result from implementation of the 2017 IRP scenarios that assume PNM would retire its share of the SJGS in 2022 and would exit from Four Corners in 2031 and PNM has set a goal to have a 100% emissions-free generating portfolio by 2040. While PNM has not conducted a 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 how thiscomply 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. As discussed in Note 17, on July 1, 2019, PNM submitted its SJGS Abandonment Application to the NMPRC. PNM will be accomplished.file for abandonment of Four Corners at an appropriate time in the future.


PNM will continue to monitor the United States’ and other parties’ involvement in international accords, but the potential impact that such accords may have on the Company cannot be determined at this time.


Assessment of Legislative/Regulatory Impacts


The Company has assessed, and continues to assess, the impacts of climate change legislation and regulation on its business.  This assessment is ongoing and future changes arising out of the legislative or regulatory process could impact the assessment significantly.  PNM’s assessment includes assumptions regarding specific GHG limits; the timing of implementation of these limits; the possibility of a market-based trading program, including the associated costs and the availability of emission credits or allowances; the development of emission reduction and/or renewable energy technologies; and provisions for cost containment. Moreover, the assessment assumes various market reactions such as the price of coal and gas and regional plant economics.  These assumptions are, at best, preliminary and speculative. However, based upon these assumptions, the enactment of climate change legislation or regulation could, among other things, result in significant compliance costs, including large capital expenditures by PNM, and could jeopardize the economic viability of certain generating facilities. See Note 16.  In turn, theseNotes 16 and 17.  While PNM currently expects the planned retirement of SJGS in 2022 (subject to NMPRC approval) will provide savings to customers, the ultimate consequences of climate change and environmental regulation could lead to increased costs to customers and affect results of operations, cash flows, and financial condition if the incurred costs are not fully recovered through regulated rates. Higher rates could also contribute to reduced usage of electricity.  PNM’s assessment process is evolving and is too preliminary and speculative at this time for a meaningful prediction of the long-term financial impact.


Transmission Issues


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


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

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


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


A final ballot for MOD-001-2 concluded on December 20, 2013 and received sufficient affirmative votes for approval. On February 10, 2014, NERC filed with FERC a petition for approval of MOD-001-2 and retirement of the “MOD A” reliability standards that consist of MOD-001-1a, MOD-004-1, MOD-008-1, MOD-028-2, MOD-029-1a, and MOD-030-2. On June 19, 2014, FERC issued a NOPR to approve a new reliability standard. The


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On June 7, 2019, NERC submitted to FERC a notice to withdraw proposed MOD-001-2 standard will becomeand to retire the currently effective on the first dayversions of the calendar quarter that is 18 months afterMOD A Standards subject to FERC approval. The retirement of the dateMOD A standards removes all risk associated with the standard is approved by FERC. MOD-001-2 will replace multiple existing reliability standards and will remove the risk of reduced TTC for PNM and other western utilities.reductions.


Financial Reform Legislation


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


Other Matters

See Notes 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.
Unbilled Revenues
The Company records unbilled revenues representing management’s assessment of the estimated amount of revenue earned from customers for services rendered between the meter-reading dates in a particular month and the end of that month. Unbilled revenues are estimated based on daily generation volumes, estimated customer usage by class, line losses, and applicable customer rates reflecting historical trends and experience. The estimate requires the use of various judgments and assumptions; significant changes to these judgments and assumptions could have a material impact to the Company’s results of operations.

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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 4.13.

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 in accordance with GAAP. 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. GAAP allows impairment testing to be performed based on either a qualitative analysis or quantitative analysis. Note 1819 contains information on the impairment testing performed by the Company on goodwill. For 2017,2019, the Company

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utilized a qualitative analysis for both the PNM and TNMP reporting units. No impairments were indicated in the Company’s annual goodwill testing, which was performed as of April 1, 2017.2019. 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 qualitative analysis performed in 2017 for both the PNM and TNMP reporting units performed in 2019, 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 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 owns and leases nuclear and fossil-fuel generation facilities.
In accordance with GAAP, 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 80%77% of PNM’s ARO liability. A 10% increase in the estimates of future de

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commissioningdecommissioning costs at current price levels would have increased the ARO liability by $10.7$21.8 million at December 31, 2017.2019. 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 the treatment of nuclear decommissioning in the NMPRC’s order in PNM’s NM 2015 Rate Case and PNM’s appeal of that order.

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 $5.3$10.9 million at December 31, 2017.2019. 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 1211 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

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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 1118 for additional information, including a discussion of the impacts of tax reform under the Tax Cuts and Jobs Act enacted on December 22, 2017.2017, and the related measurement period adjustments recorded in 2018.

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.


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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 limitstolerance levels 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 8,9, 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, 20172019 and 2016,2018, the Company had no commodity derivative instruments designated as cash flow hedging instruments.


Commodity contracts, other than those that do not meet the definition of a derivative under GAAP, are recorded at fair value on the Consolidated Balance Sheets. The following table details the changes in the net asset or liability balance sheet position forimpact of commodity derivative mark-to-market energy transactions.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, 2019 and 2018.
 Year Ended December 31,
 2017 2016
Economic Hedges(In thousands)
Sources of fair value gain (loss):   
Net fair value at beginning of period$2,885
 $4,576
Amount realized on contracts delivered during period(2,640) (316)
Changes in fair value(235) (1,261)
Net mark-to-market change recorded in earnings(2,875) (1,577)
Net change recorded as regulatory liability(104) (114)
Net fair value at end of period$(94) $2,885


All of the fair values as of December 31, 20172019 were determined based on prices provided by external sources other than actively quoted market prices. All of the mark-to-market amounts will settle in 2018.2020.



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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.


Prior to 2018, PNM measuresmeasured the market risk of its wholesale activities not covered by the FPPAC using a Monte Carlo VaR (“Value at Risk”) simulation model to report the possible loss in value from price movements. VaR is not a measure of the potential accounting mark-to-market loss. The quantitative risk information is limited by the parameters establishedIn January 2018, PNM’s interest in creating the model. The Monte Carlo VaR methodology employs the following critical parameters: historical volatility estimates, market values of all contractual commitments, a three-day holding period, seasonally adjusted and cross-commodity correlation estimates, and a 95% confidence

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level. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used.

PNM measures VaR for the positions in its wholesale portfolio (not covered by the FPPAC).  For the year ended December 31, 2017, the high, low, and average VaR amounts were $0.7 million, $0.1 million, and $0.3 million. For the year ended December 31, 2016, the high, low and average VaR amounts were $1.3 million, $0.3 million, and $0.6 million. At December 31, 2017 and December 31, 2016, the VaR amounts for the PNM wholesale portfolio were $0.3 million and $0.6 million.

The VaR represents an estimate of the potential gains or losses that could be recognized on the Company’s portfolios, subject to market risk, given volatility in the market, and is not necessarily indicative of actual results that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ due to fluctuations in market prices, operating exposures, and the timing thereof, as well as changes to the underlying portfolios during the year. VaR limits were not exceeded during 2017 or 2016.

PNM has significantly reduced its market risk exposure through the inclusion of PVNGS Unit 3 inbecame a jurisdictional resource to serve New Mexico retail ratescustomers and the hedging, through June 2022, ofPNM began selling 36 MW of theits 65 MW ofmerchant interest in SJGS Unit 4 which is treated as merchant plant. Asto a result, PNM is reviewing itsthird party at a fixed price. These events significantly reduced PNM’s exposure to commodity risk level and, associated processes, includingbeginning in February 2018, the use ofCompany no longer uses VaR as a risk metric.

Credit Risk

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


Schedule of Credit Risk Exposure
December 31, 20172019
Rating (1)
 
Credit
Risk
Exposure(2)
 
Number of
Counter-parties >10%
 
Net Exposure of
Counter-parties >10%
 
Credit
Risk
Exposure(2)
 
Number of
Counter-parties >10%
 
Net Exposure of
Counter-parties >10%
 (Dollars in thousands) (Dollars in thousands)
External ratings:            
Investment grade $2,534
 1
 $650
 $1,069
 1
 $695
Non-investment grade 1
 
 
 
 
 
Split ratings 210
 
 
 
 
 
Internal ratings:            
Investment grade 84
 
 
 893
 1
 615
Non-investment grade 3,027
 1
 2,957
 
 
 
Total $5,856
   $3,607
 $1,962
   $1,310



(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 firm-requirements wholesale customers and 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, 2017,2019, PNMR held $0.9 million of cash collateral to offset its credit exposure.


Net credit risk for the Company’s largest counterparty as of December 31, 20172019 was $3.0$0.7 million.

As discussed in Note 16, PNMR’s subsidiary, NM Capital, entered into the Westmoreland Loan to facilitate the acquisition of SJCC by WSJ, a subsidiary of Westmoreland, and PNMR has arranged for letters of credit to be issued to support the coal

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mining operations of SJCC. PNMR is exposed to credit risk under these arrangements in the event of default by WSJ. As of February 20, 2018, remaining required principal payments under the Westmoreland Loan are $2.7 million in 2018 (after reflecting the $5.6 million paid on February 1, 2018), $8.6 million in 2019, $23.3 million in 2020, and $16.4 million in 2021. In addition, the Westmoreland Loan requires that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it is fully repaid. The Westmoreland Loan is secured by the assets of and the equity interests in SJCC. In the event of a default by WSJ, NM Capital would have the ability to take over the mining operations, the value of which PNMR believes approximates the amount outstanding under the Westmoreland Loan.  Furthermore, PNMR considers the possibility of loss under the letters of credit to be remote as discussed in Note 9. Accordingly, PNMR does not consider its credit risk under these arrangements to be material.


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 1.6%2.2%, 1.3%1.6%, and 3.5%5.3%, if interest rates were to decline by 50 basis points from their levels at December 31, 2017.2019. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if all or a portion of debt instruments were acquired in the open market prior to their maturity. At February 20, 2018, PNMR, PNM, and TNMP had $182.4 million, $57.4 million, and $23.9 million of short-term debt outstanding under their revolving credit facilities, which allow for a maximum aggregate borrowing capacity of $300.0 million for PNMR, $400.0 million for PNM, and $75.0 million for TNMP. PNM also had borrowings of $20.0 million under the $40.0 million PNM 2017 New Mexico Credit Facility at February 20, 2018. The revolving credit facilities, the PNM 2017 New Mexico Credit Facility, the $150.0 million PNMR 2015 Term Loan Agreement, the $100.0 million PNMR 2016 One-Year Term Loan Agreement (as extended), the $100.0 million PNMR 2016 Two-Year Term Loan Agreement, the $200.0 million PNM 2017 Term Loan Agreement, and the $125.0 million BTMU Term Loan Agreement bear interest at variable rates. On February 20, 2018, interest rates on borrowings averaged 2.83% for the PNMR Revolving Credit Facility, 2.48% for the PNMR 2015 Term Loan Agreement, 4.32% for the BTMU Term Loan Agreement, 2.39% for the PNMR 2016 One-Year Term Loan Agreement (as extended), 2.35% for the PNMR 2016 Two-Year Term Loan Agreement, 2.71% for the PNM Revolving Credit Facility, 2.70% for the PNM 2017 New Mexico Credit Facility, 2.30% for the PNM 2017 Term Loan Agreement, and 2.33% for the TNMP Revolving Credit Facility. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 6,7, PNMR has entered into hedging arrangements to effectively establish fixed interest rates on the PNMR 2015 Term Loan Agreement and $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.

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At February 21, 2020, variable rate debt balances and weighted average interest rates were as follows:
Variable Rate Debt Weighted Average Interest Rate Balance Outstanding Capacity
    (In thousands)
Short-term Debt:      
PNMR Revolving Credit Facility 2.91% 148,458
 $300,000
PNM Revolving Credit Facility 2.77
 37,928
 400,000
PNM 2017 New Mexico Credit Facility 2.79
 30,000
 40,000
TNMP Revolving Credit Facility 2.40
 43,170
 75,000
PNMR-D Revolving Credit Facility 
 
 40,000
    259,556
 $855,000
Long-term Debt:      
PNMR 2018 Two-Year Term Loan 2.45% $50,000
  
PNMR 2019 Term Loan 2.61
 150,000
  
PNM 2019 $250.0 Million Term Loan 2.30
 250,000
  
PNM 2019 $40.0 Million Term Loan 2.31
 40,000
  
PNMR Development Term Loan 2.45
 90,000
  
    $580,000
  

The investments held by PNM in trusts for decommissioning, reclamation, pension benefits, and other post-employment benefits had an estimated fair value of $967.0 million$1.0 billion at December 31, 2017,2019, of which 55.8%45.6% 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, 2017,2019, the decrease in the fair value of the fixed-rate securities would be 6.8%3.9%, or $36.7$17.9 million. Due to the funded status of the nuclear decommissioning trust and overall market performance, PNM began to re-balance the decommissioning investment portfolio in late 2017 to increase the percentage of the investments in fixed income (debt) securities to approximately 85%. The portfolio re-balancing was completed in early 2018 and is expected to increase the exposure related to interest rate risk and reduce the equity market risk referenced below. The securities held by TNMP in trusts for pension and other post-employment benefits had an estimated fair value of $73.7$70.0 million at December 31, 2017,2019, of which 59.2%33.6% 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, 2017,2019, the decrease in the fair value of the fixed-rate securities would be 8.2%6.1%, or $3.6$1.4 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. However, as describedThe NMPRC ruled in Note 17, the NMPRC has ruledNM 2015 Rate Case that PNM would not be able to include future contributions made byrecover certain PVNGS decommissioning costs from customers. The NM Supreme Court ruled that the NMPRC’s decision to disallow recovery of such costs denied PNM for decommissioning of PVNGS,due process and remanded the matter back to the extent applicable to certain capacity previously leased by PNM, in rates charged to retail customers. PNM has appealed the NMPRC’s ruling to the NM Supreme Court.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.


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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, 2017.2019. These equity securities expose PNM and TNMP to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 30.3%42.4% and 25.5%48.4% of the securities held by the various PNM and TNMP trusts as of December 31, 2017.2019. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $29.3$42.7 million for PNM and $1.9$3.4 million for TNMP.

Alternatives Investment Risk
The Company
As of December 31, 2019, PNM and TNMP had 13.6%16.3% of its combined pension assets invested in the alternativesalternative asset class as of December 31, 2017.class. The Company’s target for this class is 14%20%. This includesAlternative investments include investments in hedge funds, real estate funds, and private equity funds. The hedge funds and hedge funds. These investmentsprivate equity funds are limited partner structures that are structured as multi-manager multi-strategy funds. This investment approach gives broad diversification and minimizes risk comparedfund of funds to achieve a direct investmentdiversified position in any one component of the funds.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 consultant,consultants, monitors the performance of the funds and general partner’s investmentinvestments 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 value.values. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $8.5$9.7 million.


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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
 
  Page
  
  
   
PNM Resources, Inc. and Subsidiaries   
  
  
  
  
  
Public Service Company of New Mexico and Subsidiaries   
  
  
  
  
  
Texas-New Mexico Power Company and Subsidiaries   
  
  
  
  
  
Supplementary Data:   
  
  




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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, 20172019.
The effectiveness of our internal control over financial reporting as of and for the year ended December 31, 20172019 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/ Charles N. EldredJoseph D. Tarry
Charles N. EldredJoseph D. Tarry
ExecutiveSenior Vice President and
Chief Financial Officer




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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, 20172019.


/s/ Patricia K. Collawn
Patricia K. Collawn,
President and Chief Executive Officer
 
/s/ Charles N. EldredJoseph D. Tarry
Charles N. EldredJoseph D. Tarry
ExecutiveSenior Vice President and
Chief Financial Officer




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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, 20172019.


/s/ Patricia K. Collawn
Patricia K. Collawn,
Chief Executive Officer
 
/s/ Charles N. EldredJoseph D. Tarry
Charles N. EldredJoseph D. Tarry
ExecutiveSenior Vice President and
Chief Financial Officer


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


Opinions on the Consolidated Financial Statements and Internal Control overOver Financial Reporting
We have audited the accompanying consolidated balance sheets of PNM Resources, Inc. and subsidiaries (the Company) as of December 31, 20172019 and 2016,2018, the related consolidated statements of earnings, consolidated statements of comprehensive income, consolidated statements of changes in equity, and consolidated statements of cash flows for each of the years in the threeyearthree-year period ended December 31, 2017,2019, and the related notes andfinancial statement Schedule I - Condensed Financial Information of Parent Company and Schedule II - Valuation and Qualifying Accounts(collectively, (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2019, 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, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the threeyearthree-year period ended December 31, 2017,2019, 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, 2017,2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for OpinionOpinions
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 overOver 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

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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.


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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 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 judgment. 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.
Evaluation of 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 $773.4 million as of December 31, 2019.
We identified the evaluation of the pension and other postretirement benefit obligations as a critical audit matter because specialized skills were necessary to evaluate the Company’s actuarial models and the discount rates used in the models. 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 primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s pension and other postretirement benefits process, including controls related to the development of the discount rates used and the calculation of the projected benefit obligation and accumulated benefit obligation using actuarial models. We involved an actuarial professional 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 Company’s discount rates to independently developed discount rates using publicly available market data, such as published bond yield curves and pension liability indices.


/s/ KPMG LLP


We have served as the Company’s auditor since 2013.
Albuquerque, New Mexico
March 1, 20182, 2020




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Report of Independent Registered Public Accounting Firm
TheTo 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, 20172019 and 2016,2018, the related consolidated statements of earnings, (loss), consolidated statements of comprehensive income, (loss), consolidated statements of changes in equity, and consolidated statements of cash flows for each of the years in the three‑year period ended December 31, 2017,2019, and the related notes andSchedule 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, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017,2019, 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.


/s/ KPMG LLP


We have served as the Company’s auditor since 2013.
Albuquerque, New Mexico
March 1, 20182, 2020








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Report of Independent Registered Public Accounting Firm
TheTo 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, 20172019 and 2016,2018, the related consolidated statements of earnings, consolidated statements of changes in common stockholder’s equity, and consolidated statements of cash flows for each of the years in the three‑year period ended December 31, 2017,2019, and the related notes andSchedule 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, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017,2019, 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.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. 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.


/s/ KPMG LLP


We have served as the Company’s auditor since 2013.
Albuquerque, New Mexico
March 1, 20182, 2020




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PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
 
Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands, except per share amounts)(In thousands, except per share amounts)
Electric Operating Revenues$1,445,003
 $1,362,951
 $1,439,082
     
Contracts with customers$1,377,208
 $1,359,740
 $1,321,023
Alternative revenue programs(542) 1,756
 15,779
Other electric operating revenue80,937
 75,117
 108,201
Total electric operating revenues1,457,603
 1,436,613
 1,445,003
Operating Expenses:          
Cost of energy407,479
 380,596
 464,649
412,812
 399,726
 407,479
Administrative and general186,345
 191,514
 179,100
189,227
 188,470
 177,791
Energy production costs137,450
 146,187
 176,752
142,545
 149,477
 137,450
Regulatory disallowances and restructuring costs27,036
 15,011
 167,471
151,095
 65,598
 27,036
Depreciation and amortization231,942
 209,110
 185,919
267,808
 241,188
 231,942
Transmission and distribution costs71,576
 66,227
 69,157
69,862
 76,434
 71,576
Taxes other than income taxes76,690
 76,321
 71,684
80,054
 79,673
 76,690
Total operating expenses1,138,518
 1,084,966
 1,314,732
1,313,403
 1,200,566
 1,129,964
Operating income306,485
 277,985
 124,350
144,200
 236,047
 315,039
Other Income and Deductions:          
Interest income15,916
 22,293
 6,498
14,022
 15,540
 15,916
Gains on available-for-sale securities27,161
 19,517
 16,060
Gains (losses) on investment securities29,589
 (17,176) 27,161
Other income19,515
 17,796
 26,833
15,382
 17,586
 19,515
Other (deductions)(15,693) (13,784) (12,728)(15,328) (15,696) (24,247)
Net other income and deductions46,899
 45,822
 36,663
43,665
 254
 38,345
Interest Charges127,625
 128,633
 114,860
121,016
 127,244
 127,625
Earnings before Income Taxes225,759
 195,174
 46,153
66,849
 109,057
 225,759
Income Taxes130,340
 63,278
 15,075
Income Taxes (Benefits)(25,282) 7,775
 130,340
Net Earnings95,419
 131,896
 31,078
92,131
 101,282
 95,419
(Earnings) Attributable to Valencia Non-controlling Interest(15,017) (14,519) (14,910)(14,241) (15,112) (15,017)
Preferred Stock Dividend Requirements of Subsidiary(528) (528) (528)(528) (528) (528)
Net Earnings Attributable to PNMR$79,874
 $116,849
 $15,640
$77,362
 $85,642
 $79,874
Net Earnings Attributable to PNMR per Common Share:          
Basic$1.00
 $1.47
 $0.20
$0.97
 $1.07
 $1.00
Diluted$1.00
 $1.46
 $0.20
$0.97
 $1.07
 $1.00
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
Net Earnings$95,419
 $131,896
 $31,078
$92,131
 $101,282
 $95,419
Other Comprehensive Income (Loss):          
Unrealized Gains on Available-for-Sale Securities:          
Unrealized holding gains arising during the period, net of income tax (expense) of $(10,927), $(304), and $(4,310)17,233
 474
 6,688
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $6,816, $8,639, and $11,181(10,751) (13,500) (17,350)
Unrealized holding gains arising during the period, net of income tax (expense) of $(6,534), $(963), and $(10,927)19,190
 2,827
 17,233
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $3,572, $970, and $6,816(10,491) (2,849) (10,751)
Pension Liability Adjustment:          
Experience gains (losses), net of income tax (expense) benefit of $(919), $7,219, and $1,7262,699
 (11,282) (2,679)
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(2,504), $(2,148), and $(2,332)3,948
 3,356
 3,620
Experience gains (losses), net of income tax (expense) benefit of $973, $2,673, and $(919)(2,856) (7,745) 2,699
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(1,880), $(1,922), and $(2,504)5,524
 5,646
 3,948
Fair Value Adjustment for Cash Flow Hedges:          
Change in fair market value, net of income tax (expense) benefit of $(388), $341, and $(28)612
 (533) 44
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(225), $(298), and $0356
 466
 
Change in fair market value, net of income tax (expense) benefit of $888, $(145), and $(388)(2,607) 425
 612
Reclassification adjustment for losses included in net earnings, net of income tax (benefit) of $(186), $(56), and $(225)547
 160
 356
Total Other Comprehensive Income (Loss)14,097
 (21,019) (9,677)9,307
 (1,536) 14,097
Comprehensive Income109,516
 110,877
 21,401
101,438
 99,746
 109,516
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(15,017) (14,519) (14,910)(14,241) (15,112) (15,017)
Preferred Stock Dividend Requirements of Subsidiary(528) (528) (528)(528) (528) (528)
Comprehensive Income Attributable to PNMR$93,971
 $95,830
 $5,963
$86,669
 $84,106
 $93,971
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
Cash Flows From Operating Activities:          
Net earnings$95,419
 $131,896
 $31,078
$92,131
 $101,282
 $95,419
Adjustments to reconcile net earnings to net cash flows from operating activities:          
Depreciation and amortization
268,194
 242,033
 222,861
301,068
 275,641
 268,194
Deferred income tax expense130,528
 63,805
 16,451
Net unrealized (gains) losses on commodity derivatives2,875
 1,577
 5,188
Realized (gains) on available-for-sale securities(27,161) (19,517) (16,060)
Deferred income tax expense (benefit)(25,385) 8,019
 130,528
(Gains) losses on investment securities(29,589) 17,176
 (27,161)
Stock based compensation expense6,194
 5,634
 4,863
6,414
 7,120
 6,194
Regulatory disallowances and restructuring costs27,036
 15,011
 167,471
151,095
 65,598
 27,036
Allowance for equity funds used during construction(9,516) (4,949) (10,430)(9,478) (10,404) (9,516)
Other, net2,329
 3,060
 3,934
2,395
 3,529
 5,204
Changes in certain assets and liabilities:          
Accounts receivable and unbilled revenues(1,846) 2,543
 (3,298)3,796
 (8,702) (1,846)
Materials, supplies, and fuel stock1,473
 (4,169) (180)(6,095) (5,331) 1,473
Other current assets32,298
 (2,469) 29,370
1,872
 2,491
 31,298
Other assets(5,486) (42,864) 2,369
42,803
 (840) (5,486)
Accounts payable14,468
 3,159
 (32,269)(272) (20,714) 14,468
Accrued interest and taxes(327) 3,345
 4,957
14,691
 1,713
 (327)
Other current liabilities(6,513) (12,509) 2,633
(7,212) 2,614
 (6,513)
Other liabilities(5,503) 29,868
 (42,064)(35,071) (10,966) (5,503)
Net cash flows from operating activities524,462
 415,454
 386,874
503,163
 428,226
 523,462
Cash Flows From Investing Activities:          
Additions to utility and non-utility plant(500,461) (600,076) (558,589)(616,273) (501,213) (500,461)
Proceeds from sales of available-for-sale securities637,492
 522,601
 252,174
Purchases of available-for-sale securities(650,284) (538,383) (262,548)
Return of principal on PVNGS lessor notes
 8,547
 21,694
Proceeds from sales of investment securities494,528
 984,533
 637,492
Purchases of investment securities(513,866) (1,007,022) (650,284)
Investments in NMRD(4,077) 
 
(38,250) (9,000) (4,077)
Disbursements from NMRD12,415
 
 

 
 12,415
Investment in Westmoreland Loan
 (122,250) 
Principal repayments on Westmoreland Loan38,360
 30,000
 

 56,640
 38,360
Other, net392
 186
 2,741
(37) 338
 392
Net cash flows from investing activities(466,163) (699,375) (544,528)(673,898) (475,724) (466,163)
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.



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PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
Cash Flows From Financing Activities:          
Short-term loan
 100,000
 50,000
Repayment of short-term loan
 (150,000) 
Short-term loan borrowings (repayments)(150,000) 50,000
 
Revolving credit facilities borrowings (repayments), net18,300
 86,500
 95,000
99,200
 (119,500) 18,300
Long-term borrowings317,000
 603,500
 463,605
745,000
 984,652
 317,000
Repayment of long-term debt(274,070) (303,793) (333,066)(407,302) (750,162) (274,070)
Proceeds from stock option exercise1,739
 7,028
 5,619
943
 963
 1,739
Awards of common stock(13,929) (15,451) (17,720)(9,918) (12,635) (13,929)
Dividends paid(77,792) (70,623) (64,251)(92,926) (84,961) (77,792)
Valencia’s transactions with its owner(17,742) (17,006) (17,049)(15,401) (17,095) (17,742)
Amounts received under transmission interconnection arrangements11,879
 7,171
 27
10,015
 4,060
 11,879
Refunds paid under transmission interconnection arrangements(21,290) (2,830) (2,338)(4,325) (2,830) (21,290)
Other, net(2,942) (2,104) (4,396)(2,840) (6,846) (2,942)
Net cash flows from financing activities(58,847) 242,392
 175,431
172,446
 45,646
 (58,847)
Change in Cash and Cash Equivalents(548) (41,529) 17,777
1,711
 (1,852) (1,548)
Cash and Cash Equivalents at Beginning of Year4,522
 46,051
 28,274
2,122
 3,974
 5,522
Cash and Cash Equivalents at End of Year$3,974
 $4,522
 $46,051
$3,833
 $2,122
 $3,974
     
Restricted Cash Included in Other Current Assets on Consolidated Balance Sheets:     
At beginning of period$
 $
 $1,000
At end of period$
 $
 $
     
Supplemental Cash Flow Disclosures:          
Interest paid, net of amounts capitalized$120,955
 $115,043
 $103,382
$115,476
 $119,308
 $120,955
Income taxes paid (refunded), net$625
 $(307) $(1,890)$(2,929) $842
 $625
          
Supplemental schedule of noncash investing and financing activities:          
(Increase) decrease in accrued plant additions$(25,261) $18,345
 $(19,080)$8,781
 $(11,502) $(25,261)
Contribution of utility plant to NMRD$24,829
 

 

$
 $578
 $24,829
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.








B - 12

Table of Contents






PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

December 31,December 31,
2017 20162019 2018
(In thousands)(In thousands)
ASSETS      
Current Assets:      
Cash and cash equivalents$3,974
 $4,522
$3,833
 $2,122
Accounts receivable, net of allowance for uncollectible accounts of $1,081 and $1,20990,473
 87,012
Accounts receivable, net of allowance for uncollectible accounts of $1,163 and $1,40685,889
 92,800
Unbilled revenues54,055
 58,284
57,416
 57,092
Other receivables17,582
 28,245
12,165
 11,369
Current portion of Westmoreland Loan3,576
 38,360
Materials, supplies, and fuel stock66,502
 73,027
77,929
 71,834
Regulatory assets2,933
 3,855
7,373
 4,534
Commodity derivative instruments1,088
 5,224
Income taxes receivable6,879
 6,066
4,933
 7,965
Other current assets47,358
 73,444
44,472
 54,808
Total current assets294,420
 378,039
294,010
 302,524
Other Property and Investments:      
Long-term portion of Westmoreland Loan53,064
 56,640
Available-for-sale securities323,524
 272,977
Investment securities388,832
 328,242
Equity investment in NMRD16,510
 
65,159
 26,564
Other investments503
 547
356
 297
Non-utility property3,404
 3,404
12,459
 3,404
Total other property and investments397,005
 333,568
466,806
 358,507
Utility Plant:      
Plant in service, held for future use, and to be abandoned7,238,285
 6,944,534
7,918,601
 7,548,581
Less accumulated depreciation and amortization2,592,692
 2,334,938
2,713,503
 2,604,177
4,645,593
 4,609,596
5,205,098
 4,944,404
Construction work in progress245,933
 208,206
161,106
 194,427
Nuclear fuel, net of accumulated amortization of $43,524 and $43,90588,701
 86,913
Nuclear fuel, net of accumulated amortization of $42,354 and $42,51199,805
 95,798
Net utility plant4,980,227
 4,904,715
5,466,009
 5,234,629
Deferred Charges and Other Assets:      
Regulatory assets600,672
 501,223
556,930
 598,930
Goodwill278,297
 278,297
278,297
 278,297
Commodity derivative instruments3,556
 
Operating lease right-of-use assets, net of accumulated amortization131,212
 
Other deferred charges91,926
 75,238
105,510
 92,664
Total deferred charges and other assets974,451
 854,758
1,071,949
 969,891
$6,646,103
 $6,471,080
$7,298,774
 $6,865,551
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.













B - 13

Table of Contents




PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,December 31,
2017 20162019 2018
(In thousands, except share
information)
(In thousands, except share
information)
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current Liabilities:      
Short-term debt$305,400
 $287,100
$185,100
 $235,900
Current installments of long-term debt256,895
 273,348
490,268
 
Accounts payable121,383
 86,705
103,118
 112,170
Customer deposits11,028
 11,374
10,585
 10,695
Accrued interest and taxes62,357
 61,871
76,815
 65,156
Regulatory liabilities2,309
 3,609
505
 9,446
Commodity derivative instruments1,182
 2,339
Operating lease liabilities29,068
 
Dividends declared21,240
 19,448
24,625
 23,231
Other current liabilities53,850
 59,314
47,397
 55,855
Total current liabilities835,644
 805,108
967,481
 512,453
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs2,180,750
 2,119,364
2,517,449
 2,670,111
Deferred Credits and Other Liabilities:      
Accumulated deferred income taxes547,210
 940,650
626,058
 600,719
Regulatory liabilities933,578
 455,649
866,243
 891,428
Asset retirement obligations146,679
 127,519
181,962
 158,674
Accrued pension liability and postretirement benefit cost94,003
 125,844
95,037
 100,375
Commodity derivative instruments3,556
 
Operating lease liabilities105,512
 
Other deferred credits131,706
 140,545
185,753
 167,668
Total deferred credits and other liabilities1,856,732
 1,790,207
2,060,565
 1,918,864
Total liabilities4,873,126
 4,714,679
5,545,495
 5,101,428
Commitments and Contingencies (See Note 16)
 

 

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
11,529
 11,529
Equity:      
PNMR common stockholders’ equity:      
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)1,157,665
 1,163,661
1,150,552
 1,153,113
Accumulated other comprehensive income (loss), net of income taxes(95,940) (92,451)(99,377) (108,684)
Retained earnings633,528
 604,742
627,523
 643,953
Total PNMR common stockholders’ equity1,695,253
 1,675,952
1,678,698
 1,688,382
Non-controlling interest in Valencia66,195
 68,920
63,052
 64,212
Total equity1,761,448
 1,744,872
1,741,750
 1,752,594
$6,646,103
 $6,471,080
$7,298,774
 $6,865,551
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.




B - 14

Table of Contents






PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
Attributable to PNMR

 
Non-
controlling
Interest
in Valencia
   
Attributable to PNMR

 
Non-
controlling
Interest
in Valencia
  
       Total PNMR Common Stockholder’s Equity         Total PNMR Common Stockholder’s Equity  
 
Common
Stock
 AOCI 
Retained
Earnings
 
Non-
controlling
Interest
in Valencia
Total
Equity
 
Common
Stock
 AOCI 
Retained
Earnings
 
Non-
controlling
Interest
in Valencia
Total
Equity
 (In thousands) (In thousands)
Balance at December 31, 2014 $1,173,845
 $(61,755) $609,456
 $1,721,546
 $73,546
Balance at December 31, 2016, as originally reported $1,163,661
 $(92,451) $604,742
 $1,675,952
 $68,920
 $1,744,872
Cumulative effect adjustment (Note 12) 
 
 10,382
 10,382
 
 10,382
Balance at January 1, 2017, as adjusted 1,163,661
 (92,451) 615,124
 1,686,334
 68,920
 1,755,254
Reclassification of stranded income taxes resulting from tax reform (Note 18) 
 (17,586) 17,586
 
 
 
Net earnings before subsidiary preferred stock dividends 
 
 16,168
 16,168
 14,910
 31,078
 
 
 80,402
 80,402
 15,017
 95,419
Total other comprehensive income (loss) 
 (9,677) 
 (9,677) 
 (9,677) 
 14,097
 
 14,097
 
 14,097
Subsidiary preferred stock dividends 
 
 (528) (528) 
 (528) 
 
 (528) (528) 
 (528)
Dividends declared on common stock 
 
 (65,316) (65,316) 
 (65,316) 
 
 (79,056) (79,056) 
 (79,056)
Proceeds from stock option exercise 5,619
 
 
 5,619
 
 5,619
 1,739
 
 
 1,739
 
 1,739
Awards of common stock (17,720) 
 
 (17,720) 
 (17,720) (13,929) 
 
 (13,929) 
 (13,929)
Excess tax (shortfall) from stock-based payment arrangements (142) 
 
 (142) 
 (142)
Stock based compensation expense 4,863
 
 
 4,863
 
 4,863
 6,194
 
 
 6,194
 
 6,194
Valencia’s transactions with its owner 
 
 
 
 (17,049) (17,049) 
 
 
 
 (17,742) (17,742)
Balance at December 31, 2015 1,166,465
 (71,432) 559,780
 1,654,813
 71,407
 1,726,220
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 adjusted 1,157,665
 (107,148) 644,736
 1,695,253
 66,195
 1,761,448
Net earnings before subsidiary preferred stock dividends 
 
 117,377
 117,377
 14,519
 131,896
 
 
 86,170
 86,170
 15,112
 101,282
Total other comprehensive income (loss) 
 (21,019) 
 (21,019) 
 (21,019) 
 (1,536) 
 (1,536) 
 (1,536)
Subsidiary preferred stock dividends 
 
 (528) (528) 
 (528) 
 
 (528) (528) 
 (528)
Dividends declared on common stock 
 
 (71,887) (71,887) 
 (71,887) 
 
 (86,425) (86,425) 
 (86,425)
Proceeds from stock option exercise 7,028
 
 
 7,028
 
 7,028
 963
 
 
 963
 
 963
Awards of common stock (15,451) 
 
 (15,451) 
 (15,451) (12,635) 
 
 (12,635) 
 (12,635)
Excess tax (shortfall) from stock-based payment arrangements (15) 
 
 (15) 
 (15)
Stock based compensation expense 5,634
 
 
 5,634
 
 5,634
 7,120
 
 
 7,120
 
 7,120
Valencia’s transactions with its owner 
 
 
 
 (17,006) (17,006) 
 
 
 
 (17,095) (17,095)
Balance at December 31, 2016, as originally reported 1,163,661
 (92,451) 604,742
 1,675,952
 68,920
 1,744,872
Cumulative effect adjustment (Note 13) 
 
 10,382
 10,382
 
 10,382
Balance at January 1, 2017, as adjusted 1,163,661
 (92,451) 615,124
 1,686,334
 68,920
 1,755,254
Reclassification of stranded income taxes resulting from tax reform (Note 11) 
 (17,586) 17,586
 
 
 
Balance at December 31, 2018 1,153,113
 (108,684) 643,953
 1,688,382
 64,212
 1,752,594
Net earnings before subsidiary preferred stock dividends 
 
 80,402
 80,402
 15,017
 95,419
 
 
 77,890
 77,890
 14,241
 92,131
Total other comprehensive income 
 14,097
 
 14,097
 
 14,097
Total other comprehensive income (loss) 
 9,307
 
 9,307
 
 9,307
Subsidiary preferred stock dividends 
 
 (528) (528) 
 (528) 
 
 (528) (528) 
 (528)
Dividends declared on common stock 
 
 (79,056) (79,056) 
 (79,056) 
 
 (93,792) (93,792) 
 (93,792)
Proceeds from stock option exercise 1,739
 
 
 1,739
 
 1,739
 943
 
 
 943
 
 943
Awards of common stock (13,929) 
 
 (13,929) 
 (13,929) (9,918) 
 
 (9,918) 
 (9,918)
Stock based compensation expense 6,194
 
 
 6,194
 
 6,194
 6,414
 
 
 6,414
 
 6,414
Valencia’s transactions with its owner 
 
 
 
 (17,742) (17,742) 
 
 
 
 (15,401) (15,401)
Balance at December 31, 2017 $1,157,665
 $(95,940) $633,528
 $1,695,253
 $66,195
 $1,761,448
Balance at December 31, 2019 $1,150,552
 $(99,377) $627,523
 $1,678,698
 $63,052
 $1,741,750
The accompanying notes, as they relate to PNMR, are an integral part of these consolidated financial statements.


B - 15

Table of Contents






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

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

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

Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
Electric Operating Revenues$1,104,230
 $1,035,913
 $1,131,195
     
Contracts with customers$1,010,898
 $1,019,291
 $992,462
Alternative revenue programs1,987
 (2,443) 3,567
Other electric operating revenue80,937
 75,117
 108,201
Total electric operating revenues1,093,822
 1,091,965
 1,104,230
Operating Expenses:          
Cost of energy321,677
 299,714
 391,131
317,725
 314,036
 321,677
Administrative and general172,446
 169,209
 161,953
172,903
 173,178
 163,892
Energy production costs137,450
 146,187
 176,752
142,545
 149,477
 137,450
Regulatory disallowances and restructuring costs27,036
 15,011
 167,471
150,599
 66,339
 27,036
Depreciation and amortization147,017
 133,447
 115,717
160,368
 151,866
 147,017
Transmission and distribution costs42,370
 39,657
 43,642
42,970
 46,855
 42,370
Taxes other than income taxes43,709
 44,598
 41,149
45,644
 45,181
 43,709
Total operating expenses891,705
 847,823
 1,097,815
1,032,754
 946,932
 883,151
Operating income212,525
 188,090
 33,380
61,068
 145,033
 221,079
Other Income and Deductions:          
Interest income8,454
 10,173
 6,574
14,303
 13,089
 8,454
Gains on available-for-sale securities27,161
 19,517
 16,060
Gains (losses) on investment securities29,589
 (17,176) 27,161
Other income13,527
 12,088
 19,347
9,213
 10,992
 13,527
Other (deductions)(10,002) (9,539) (8,493)(11,813) (11,128) (18,556)
Net other income and deductions39,140
 32,239
 33,488
Net other income and (deductions)41,292
 (4,223) 30,586
Interest Charges82,697
 87,469
 79,950
72,900
 76,458
 82,697
Earnings (Loss) before Income Taxes168,968
 132,860
 (13,082)
Earnings before Income Taxes29,460
 64,352
 168,968
Income Taxes (Benefit)81,555
 40,922
 (12,758)(25,962) (5,971) 81,555
Net Earnings (Loss)87,413
 91,938
 (324)
Net Earnings55,422
 70,323
 87,413
(Earnings) Attributable to Valencia Non-controlling Interest(15,017) (14,519) (14,910)(14,241) (15,112) (15,017)
Net Earnings (Loss) Attributable to PNM72,396
 77,419
 (15,234)
Net Earnings Attributable to PNM41,181
 55,211
 72,396
Preferred Stock Dividends Requirements(528) (528) (528)(528) (528) (528)
Net Earnings (Loss) Available for PNM Common Stock$71,868
 $76,891
 $(15,762)
Net Earnings Available for PNM Common Stock$40,653
 $54,683
 $71,868
The accompanying notes, as they relate to PNM, are an integral part of these consolidated financial statements.


B - 16

Table of Contents




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

 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Net Earnings (Loss)$87,413
 $91,938
 $(324)
Other Comprehensive Income (Loss):     
Unrealized Gains on Available-for-Sale Securities:     
Unrealized holding gains arising during the period, net of income tax (expense) of $(10,927), $(304), and $(4,310)17,233
 474
 6,688
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $6,816, $8,639, and $11,181(10,751) (13,500) (17,350)
Pension Liability Adjustment:     
Experience gains (losses), net of income tax (expense) benefit of $(919), $7,219, and $1,7262,699
 (11,282) (2,679)
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(2,504), $(2,148), and $(2,332)3,948
 3,356
 3,620
Total Other Comprehensive Income (Loss)13,129
 (20,952) (9,721)
Comprehensive Income (Loss)100,542
 70,986
 (10,045)
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(15,017) (14,519) (14,910)
Comprehensive Income (Loss) Attributable to PNM$85,525
 $56,467
 $(24,955)
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 Year Ended December 31, 2019
 2019 2018 2017
 (In thousands)
Net Earnings$55,422
 $70,323
 $87,413
Other Comprehensive Income (Loss):     
Unrealized Gains on Available-for-Sale Securities:     
Unrealized holding gains arising during the period, net of income tax (expense) of $(6,534), $(963), and $(10,927)19,190
 2,827
 17,233
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $3,572, $970, and $6,816(10,491) (2,849) (10,751)
Pension Liability Adjustment:     
Experience gains (losses), net of income tax (expense) benefit of $973, $2,637, and $(919)(2,856) (7,745) 2,699
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(1,880), $(1,922), and $(2,504)5,524
 5,646
 3,948
Total Other Comprehensive Income (Loss)11,367
 (2,121) 13,129
Comprehensive Income66,789
 68,202
 100,542
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(14,241) (15,112) (15,017)
Comprehensive Income Attributable to PNM$52,548
 $53,090
 $85,525


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




B - 17

Table of Contents




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

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

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

Year Ended December 31,Year Ended December 31, 2019
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
Cash Flows From Operating Activities:          
Net earnings (loss)$87,413
 $91,938
 $(324)
Net earnings$55,422
 $70,323
 $87,413
Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 

 
 
Depreciation and amortization180,500
 166,047
 150,538
191,213
 182,355
 180,500
Deferred income tax expense82,549
 53,119
 (2,836)
Net unrealized (gains) losses on commodity derivatives2,875
 1,577
 5,188
Realized (gains) on available-for-sale securities(27,161) (19,517) (16,060)
Deferred income tax expense (benefit)(20,145) 3,334
 82,549
(Gains) losses on investment securities(29,589) 17,176
 (27,161)
Regulatory disallowances and restructuring costs27,036
 15,011
 167,471
150,599
 66,339
 27,036
Allowance for equity funds used during construction(8,664) (4,163) (10,430)(6,656) (8,173) (8,664)
Other, net2,615
 3,046
 2,794
2,697
 3,395
 5,490
Changes in certain assets and liabilities:
 
 

 
 
Accounts receivable and unbilled revenues(419) 4,769
 (2,515)5,877
 (7,959) (419)
Materials, supplies, and fuel stock3,542
 (3,924) 381
(5,128) (6,238) 3,542
Other current assets32,775
 1,127
 23,693
(1,453) (468) 31,775
Other assets15,121
 (23,880) 4,194
31,409
 6,894
 15,121
Accounts payable9,736
 5,614
 (31,139)(3,617) (14,290) 9,736
Accrued interest and taxes21,523
 (9,601) (5,343)5,579
 (7,617) 21,523
Other current liabilities(11,099) (12,136) (275)18,002
 (17,975) (11,099)
Other liabilities(9,389) 20,119
 (33,503)(39,087) (3,761) (9,389)
Net cash flows from operating activities408,953
 289,146
 251,834
355,123
 283,335
 407,953
Cash Flows From Investing Activities:          
Utility plant additions(309,142) (445,464)��(404,840)(341,847) (255,627) (309,142)
Proceeds from sales of available-for-sale securities637,492
 522,601
 252,174
Purchases of available-for-sale securities(650,284) (538,383) (262,548)
Return of principal on PVNGS lessor notes
 8,547
 21,694
Proceeds from sales of investment securities494,528
 984,533
 637,492
Purchases of investment securities(513,866) (1,007,022) (650,284)
Other, net33
 171
 2,935
(87) 544
 33
Net cash flows from investing activities(321,901) (452,528) (390,585)(361,272) (277,572) (321,901)


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




B - 18

Table of Contents




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

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

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

Year ended December 31,Year ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
Cash Flows From Financing Activities:          
Short-term borrowings (repayments), net(21,200) 61,000
 
15,600
 2,600
 (21,200)
Short-term borrowings (repayments) - affiliate, net(19,800) 19,800
 
Long-term borrowings257,000
 321,000
 313,605
290,000
 450,000
 257,000
Repayment of long-term debt(232,000) (271,000) (214,300)(200,000) (450,025) (232,000)
Equity contribution from parent
 28,142
 175,000
Valencia’s transactions with its owner(17,742) (17,006) (17,049)(15,401) (17,095) (17,742)
Dividends paid(61,223) (4,670) (94,968)(528) (77,904) (61,223)
Amounts received under transmission interconnection arrangements11,879
 7,171
 27
10,015
 72,260
 11,879
Refunds paid under transmission interconnection arrangements(21,290) (2,830) (2,338)(72,525) (2,830) (21,290)
Other, net(1,692) (1,239) (3,568)(296) (3,592) (1,692)
Net cash flows from financing activities(86,268) 120,568
 156,409
7,065
 (6,786) (86,268)
          
Change in Cash and Cash Equivalents784
 (42,814) 17,658
916
 (1,023) (216)
Cash and Cash Equivalents at Beginning of Year324
 43,138
 25,480
85
 1,108
 1,324
Cash and Cash Equivalents at End of Year$1,108
 $324
 $43,138
$1,001
 $85
 $1,108
          
Restricted Cash Included in Other Current Assets on Consolidated Balance Sheets:     
At beginning of period$
 $
 $1,000
At end of period$
 $
 $
     
Supplemental Cash Flow Disclosures:          
Interest paid, net of amounts capitalized$77,960
 $82,514
 $69,936
$65,445
 $73,029
 $77,960
Income taxes paid (refunded), net$(23,391) $(967) $(1,450)$(3,544) $134
 $(23,391)
          
Supplemental schedule of noncash investing activities:          
(Increase) decrease in accrued plant additions$(11,792) $22,433
 $(17,469)$4,751
 $(12,310) $(11,792)


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


B - 19

Table of Contents






PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,December 31,
2017 20162019 2018
(In thousands)(In thousands)
ASSETS      
Current Assets:      
Cash and cash equivalents$1,108
 $324
$1,001
 $85
Accounts receivable, net of allowance for uncollectible accounts of $1,081 and $1,20967,227
 65,003
Accounts receivable, net of allowance for uncollectible accounts of $1,163 and $1,40660,447
 68,603
Unbilled revenues43,869
 48,289
46,602
 47,113
Other receivables14,541
 25,514
11,039
 10,650
Affiliate receivables9,486
 8,886
8,825
 15,871
Materials, supplies, and fuel stock60,859
 64,401
72,225
 67,097
Regulatory assets2,139
 3,442
7,373
 4,534
Commodity derivative instruments1,088
 5,224
Income taxes receivable3,410
 25,807
15,122
 12,850
Other current assets39,904
 67,355
36,561
 43,516
Total current assets243,631
 314,245
259,195
 270,319
Other Property and Investments:      
Available-for-sale securities323,524
 272,977
Investment securities388,832
 328,242
Other investments283
 316
178
 91
Non-utility property96
 96
4,470
 96
Total other property and investments323,903
 273,389
393,480
 328,429
Utility Plant:      
Plant in service, held for future use, and to be abandoned5,501,070
 5,359,211
5,753,267
 5,623,520
Less accumulated depreciation and amortization2,029,534
 1,809,528
2,076,291
 2,006,266
3,471,536
 3,549,683
3,676,976
 3,617,254
Construction work in progress204,079
 158,122
108,787
 134,221
Nuclear fuel, net of accumulated amortization of $43,524 and $43,90588,701
 86,913
Nuclear fuel, net of accumulated amortization of $42,354 and $42,51199,805
 95,798
Net utility plant3,764,316
 3,794,718
3,885,568
 3,847,273
Deferred Charges and Other Assets:      
Regulatory assets459,239
 365,413
435,467
 460,903
Goodwill51,632
 51,632
51,632
 51,632
Commodity derivative instruments3,556
 
Operating lease right-of-use assets, net of accumulated amortization120,585
 
Other deferred charges75,286
 68,149
97,064
 77,327
Total deferred charges and other assets589,713
 485,194
704,748
 589,862
$4,921,563
 $4,867,546
$5,242,991
 $5,035,883
The accompanying notes, as they relate to PNM, are an integral part of these consolidated financial statements.


 












B - 20

Table of Contents




PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,December 31,
2017 20162019 2018
(In thousands, except share
information)
(In thousands, except share
information)
LIABILITIES AND STOCKHOLDER’S EQUITY      
Current Liabilities:      
Short-term debt$39,800
 $61,000
$58,000
 $42,400
Short-term debt - affiliate
 19,800
Current installments of long-term debt23
 231,880
350,268
 
Accounts payable77,094
 55,566
66,746
 75,114
Affiliate payables22,875
 23,183
12,524
 164
Customer deposits11,028
 11,374
10,585
 10,695
Accrued interest and taxes33,945
 34,819
43,617
 35,767
Regulatory liabilities784
 3,517
371
 5,975
Commodity derivative instruments1,182
 2,339
Operating lease liabilities25,927
 
Dividends declared132
 132
132
 132
Other current liabilities31,633
 33,551
25,066
 32,976
Total current liabilities218,496
 457,361
593,236
 223,023
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs1,657,887
 1,399,489
1,397,752
 1,656,490
Deferred Credits and Other Liabilities:      
Accumulated deferred income taxes449,012
 748,666
521,990
 502,767
Regulatory liabilities754,441
 423,701
683,398
 713,971
Asset retirement obligations145,707
 126,601
181,081
 157,814
Accrued pension liability and postretirement benefit cost86,124
 114,427
87,838
 92,981
Commodity derivative instruments3,556
 
Operating lease liabilities97,992
 
Other deferred credits106,442
 118,980
155,744
 215,737
Total deferred credits and liabilities1,545,282
 1,532,375
1,728,043
 1,683,270
Total liabilities3,421,665
 3,389,225
3,719,031
 3,562,783
Commitments and Contingencies (See Note 16)
 

 

Cumulative Preferred Stock      
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529
 11,529
11,529
 11,529
Equity:      
PNM common stockholder’s equity:      
Common stock (no par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)1,264,918
 1,264,918
1,264,918
 1,264,918
Accumulated other comprehensive income (loss), net of income taxes(97,093) (92,428)(99,055) (110,422)
Retained earnings254,349
 225,382
283,516
 242,863
Total PNM common stockholder’s equity1,422,174
 1,397,872
1,449,379
 1,397,359
Non-controlling interest in Valencia66,195
 68,920
63,052
 64,212
Total equity1,488,369
 1,466,792
1,512,431
 1,461,571
$4,921,563
 $4,867,546
$5,242,991
 $5,035,883
The accompanying notes, as they relate to PNM, are an integral part of these consolidated financial statements.




B - 21

Table of Contents




PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to PNM    Attributable to PNM    
Common
Stock
 AOCI 
Retained
Earnings
 
Total PNM
Common
Stockholder’s
Equity
 
Non-
controlling
Interest
in Valencia
 
Total
Equity
Common
Stock
 AOCI 
Retained
Earnings
 
Total PNM
Common
Stockholder’s
Equity
 
Non-
controlling
Interest
in Valencia
 
Total
Equity
(In thousands)(In thousands)
Balance at December 31, 2014$1,061,776
 $(61,755) $262,835
 $1,262,856
 $73,546
 $1,336,402
Net earnings (loss)
 
 (15,234) (15,234) 14,910
 (324)
Total other comprehensive income (loss)
 (9,721) 
 (9,721) 
 (9,721)
Dividends declared on preferred stock
 
 (528) (528) 
 (528)
Equity contribution from parent175,000
 
 
 175,000
 
 175,000
Dividends declared on common stock
 
 (94,440) (94,440) 
 (94,440)
Valencia’s transactions with its owner
 
 
 
 (17,049) (17,049)
Balance at December 31, 20151,236,776
 (71,476) 152,633
 1,317,933
 71,407
 1,389,340
Net earnings
 
 77,419
 77,419
 14,519
 91,938
Total other comprehensive income (loss)
 (20,952) 
 (20,952) 
 (20,952)
Dividends declared on preferred stock
 
 (528) (528) 
 (528)
Equity contributions from parent28,142
 
 
 28,142
 
 28,142
Dividends declared on common stock
 
 (4,142) (4,142) 
 (4,142)
Valencia’s transactions with its owner
 
 
 
 (17,006) (17,006)
Balance at December 31, 20161,264,918
 (92,428) 225,382
 1,397,872
 68,920
 1,466,792
$1,264,918
 $(92,428) $225,382
 $1,397,872
 $68,920
 $1,466,792
Reclassification of stranded income taxes resulting from tax reform (Note 11)
 (17,794) 17,794
 
 
 
Reclassification of stranded income taxes resulting from tax reform (Note 18)
 (17,794) 17,794
 
 
 
Net earnings
 
 72,396
 72,396
 15,017
 87,413

 
 72,396
 72,396
 15,017
 87,413
Total other comprehensive income
 13,129
 
 13,129
 
 13,129

 13,129
 
 13,129
 
 13,129
Dividends declared on preferred stock
 
 (528) (528) 
 (528)
 
 (528) (528) 
 (528)
Dividends declared on common stock
 
 (60,695) (60,695) 
 (60,695)
 
 (60,695) (60,695) 
 (60,695)
Valencia’s transactions with its owner
 
 
 
 (17,742) (17,742)
 
 
 
 (17,742) (17,742)
Balance at December 31, 2017$1,264,918
 $(97,093) $254,349
 $1,422,174
 $66,195
 $1,488,369
Balance at December 31, 2017, as originally reported1,264,918
 (97,093) 254,349
 1,422,174
 66,195
 1,488,369
Cumulative effect adjustment (Note 9)
 (11,208) 11,208
 
 
 
Balance at January 1, 2018, as adjusted1,264,918
 (108,301) 265,557
 1,422,174
 66,195
 1,488,369
Net earnings
 
 55,211
 55,211
 15,112
 70,323
Total other comprehensive income (loss)
 (2,121) 
 (2,121) 
 (2,121)
Dividends declared on preferred stock
 
 (528) (528) 
 (528)
Dividends declared on common stock
 
 (77,377) (77,377) 
 (77,377)
Valencia’s transactions with its owner
 
 
 
 (17,095) (17,095)
Balance at December 31, 20181,264,918
 (110,422) 242,863
 1,397,359
 64,212
 1,461,571
Net earnings
 
 41,181
 41,181
 14,241
 55,422
Total other comprehensive income
 11,367
 
 11,367
 
 11,367
Dividends declared on preferred stock
 
 (528) (528) 
 (528)
Valencia’s transactions with its owner
 
 
 
 (15,401) (15,401)
Balance at December 31, 2019$1,264,918
 $(99,055) $283,516
 $1,449,379
 $63,052
 $1,512,431


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




B - 22

Table of Contents






TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS

Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
          
Electric Operating Revenues$340,773
 $327,038
 $307,887
     
Contracts with customers$366,310
 $340,449
 $328,561
Alternative revenue programs(2,529) 4,199
 12,212
Total electric operating revenues363,781
 344,648
 340,773
Operating Expenses:          
Cost of energy85,802
 80,882
 73,518
95,087
 85,690
 85,802
Administrative and general39,828
 39,423
 36,755
40,530
 38,642
 39,828
Regulatory disallowances496
 (741) 
Depreciation and amortization63,146
 61,126
 56,285
84,259
 66,189
 63,146
Transmission and distribution costs29,206
 26,570
 25,515
26,892
 29,579
 29,206
Taxes other than income taxes29,187
 27,396
 25,781
30,703
 28,792
 29,187
Total operating expenses247,169
 235,397
 217,854
277,967
 248,151
 247,169
Operating income93,604
 91,641
 90,033
85,814
 96,497
 93,604
Other Income and Deductions:          
Other income4,994
 4,629
 4,240
5,559
 5,487
 4,994
Other (deductions)(1,443) (1,427) (504)(1,428) (1,422) (1,443)
Net other income and deductions3,551
 3,202
 3,736
4,131
 4,065
 3,551
Interest Charges30,084
 29,335
 27,681
29,100
 32,091
 30,084
Earnings before Income Taxes67,071
 65,508
 66,088
60,845
 68,471
 67,071
Income Taxes31,512
 23,836
 24,125
5,046
 16,880
 31,512
Net Earnings$35,559
 $41,672
 $41,963
$55,799
 $51,591
 $35,559
The accompanying notes, as they relate to TNMP, are an integral part of these consolidated financial statements.


B - 23

Table of Contents






TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
Cash Flows From Operating Activities:          
Net earnings$35,559
 $41,672
 $41,963
$55,799
 $51,591
 $35,559
Adjustments to reconcile net earnings to net cash flows from operating activities:          
Depreciation and amortization64,939
 62,866
 57,909
85,453
 68,078
 64,939
Regulatory disallowances496
 (741) 
Deferred income tax expense27,275
 12,662
 20,883
(7,650) 1,780
 27,275
Allowance for equity funds used during construction and other, net(1,120) (772) 18
(2,808) (2,048) (1,120)
Changes in certain assets and liabilities:          
Accounts receivable and unbilled revenues(1,427) (2,226) (783)(2,081) (744) (1,427)
Materials and supplies(2,069) (245) (561)(967) 907
 (2,069)
Other current assets(1,253) (621) 3,928
(798) 1,929
 (1,253)
Other assets(20,967) (19,126) (2,310)8,366
 (7,174) (20,967)
Accounts payable2,419
 (2,040) (1,782)1,829
 (4,199) 2,419
Accrued interest and taxes(15,962) 12,690
 4,317
186
 12,263
 (15,962)
Other current liabilities(2,236) 298
 1,019
771
 6,719
 (2,236)
Other liabilities1,334
 6,822
 (9,823)(1,004) (6,610) 1,334
Net cash flows from operating activities86,492
 111,980
 114,778
137,592
 121,751
 86,492
Cash Flows From Investing Activities:          
Utility plant additions(145,495) (122,518) (124,584)(254,006) (223,448) (145,495)
Net cash flows from investing activities(145,495) (122,518) (124,584)(254,006) (223,448) (145,495)
The accompanying notes, as they relate to TNMP, are an integral part of these consolidated financial statements.




B - 24

Table of Contents




TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,Year Ended December 31,
2017 2016 20152019 2018 2017
(In thousands)(In thousands)
          
Cash Flow From Financing Activities:          
Short-term borrowings (repayments), net
 (59,000) 54,000
(2,500) 17,500
 
Short-term borrowings (repayments) – affiliate, net(4,600) (7,200) (10,900)(100) 100
 (4,600)
Long-term borrowings60,000
 60,000
 
305,000
 95,000
 60,000
Repayment of long-term debt(207,302) 
 
Equity contribution from parent50,000
 50,000
 
80,000
 30,000
 50,000
Dividends paid(44,389) (31,817) (33,248)(55,265) (41,903) (44,389)
Other, net(979) (775) (46)(2,419) (700) (979)
Net cash flows from financing activities60,032
 11,208
 9,806
117,414
 99,997
 60,032
Change in Cash and Cash Equivalents1,029
 670
 
1,000
 (1,700) 1,029
Cash and Cash Equivalents at Beginning of Year671
 1
 1

 1,700
 671
Cash and Cash Equivalents at End of Year$1,700
 $671
 $1
$1,000
 $
 $1,700
Supplemental Cash Flow Disclosures:          
Interest paid, net of amounts capitalized$29,251
 $26,766
 $26,216
$28,055
 $28,629
 $29,251
Income taxes paid, (refunded) net$21,436
 $660
 $290
$13,611
 $4,266
 $21,436
          
Supplemental schedule of noncash investing and financing activities:          
(Increase) decrease in accrued plant additions$(15,737) $(1,271) $(5)$5,035
 $1,810
 $(15,737)
The accompanying notes, as they relate to TNMP, are an integral part of these consolidated financial statements.


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

December 31,December 31,
2017 20162019 2018
(In thousands)(In thousands)
ASSETS      
Current Assets:      
Cash and cash equivalents$1,700
 $671
$1,000
 $
Accounts receivable23,246
 22,009
25,442
 24,196
Unbilled revenues10,186
 9,995
10,814
 9,979
Other receivables2,860
 2,090
2,713
 1,721
Affiliate receivables336
 

 164
Materials and supplies5,643
 8,626
5,704
 4,737
Regulatory assets794
 413
Other current assets1,131
 1,031
1,280
 1,114
Total current assets45,896
 44,835
46,953
 41,911
Other Property and Investments:      
Other investments220
 231
178
 206
Non-utility property2,240
 2,240
6,684
 2,240
Total other property and investments2,460
 2,471
6,862
 2,446
Utility Plant:      
Plant in service and plant held for future use1,504,778
 1,380,584
1,919,256
 1,686,119
Less accumulated depreciation and amortization460,858
 429,397
516,795
 487,734
1,043,920
 951,187
1,402,461
 1,198,385
Construction work in progress34,350
 16,978
42,554
 51,459
Net utility plant1,078,270
 968,165
1,445,015
 1,249,844
Deferred Charges and Other Assets:      
Regulatory assets141,433
 135,810
121,463
 138,027
Goodwill226,665
 226,665
226,665
 226,665
Operating lease right-of-use assets, net of accumulated amortization9,954
 
Other deferred charges6,046
 5,277
3,527
 6,284
Total deferred charges and other assets374,144
 367,752
361,609
 370,976
$1,500,770
 $1,383,223
$1,860,439
 $1,665,177
The accompanying notes, as they relate to TNMP, are an integral part of these consolidated financial statements.




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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,December 31,
2017 20162019 2018
(In thousands, except share
information)
(In thousands, except share
information)
LIABILITIES AND STOCKHOLDER’S EQUITY      
Current Liabilities:      
Short-term debt$15,000
 $17,500
Short-term debt – affiliate$
 $4,600

 100
Accounts payable29,812
 16,709
20,598
 23,804
Affiliate payables667
 3,793
5,419
 1,210
Accrued interest and taxes29,619
 45,581
42,068
 41,882
Regulatory liabilities1,525
 92
134
 3,471
Operating lease liabilities2,753
 
Other current liabilities2,450
 2,134
3,565
 2,861
Total current liabilities64,073
 72,909
89,537
 90,828
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs480,620
 420,875
670,691
 575,398
Deferred Credits and Other Liabilities:      
Accumulated deferred income taxes126,415
 245,785
140,151
 136,238
Regulatory liabilities179,137
 31,948
182,845
 177,458
Asset retirement obligations793
 754
881
 860
Accrued pension liability and postretirement benefit cost7,879
 11,417
7,199
 7,394
Operating lease liabilities7,039
 
Other deferred credits7,448
 6,300
7,469
 2,908
Total deferred credits and other liabilities321,672
 296,204
345,584
 324,858
Total liabilities866,365
 789,988
1,105,812
 991,084
Commitments and Contingencies (See Note 16)

 



 


Common Stockholder’s Equity:      
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)64
 64
64
 64
Paid-in-capital504,166
 454,166
614,166
 534,166
Retained earnings130,175
 139,005
140,397
 139,863
Total common stockholder’s equity634,405
 593,235
754,627
 674,093
$1,500,770
 $1,383,223
$1,860,439
 $1,665,177
The accompanying notes, as they relate to TNMP, are an integral part of these consolidated financial statements.


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Total
Common
Stockholder’s
Equity
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Total
Common
Stockholder’s
Equity
(In thousands)(In thousands)
Balance at December 31, 2014$64
 $404,166
 $120,435
 $524,665
Balance at December 31, 2016$64
 $454,166
 $139,005
 $593,235
Net earnings
 
 41,963
 41,963

 
 35,559
 35,559
Equity contribution from parent
 50,000
 
 50,000
Dividends declared on common stock
 
 (33,248) (33,248)
 
 (44,389) (44,389)
Balance at December 31, 201564
 404,166
 129,150
 533,380
Balance at December 31, 201764
 504,166
 130,175
 634,405
Net earnings
 
 41,672
 41,672

 
 51,591
 51,591
Equity contributions from parent
 50,000
 
 50,000

 30,000
 
 30,000
Dividends declared on common stock
 
 (31,817) (31,817)
 
 (41,903) (41,903)
Balance at December 31, 201664
 454,166
 139,005
 593,235
Balance at December 31, 201864
 534,166
 139,863
 674,093
Net earnings
 
 35,559
 35,559

 
 55,799
 55,799
Equity contributions from parent
 50,000
 
 50,000

 80,000
 
 80,000
Dividends declared on common stock
 
 (44,389) (44,389)
 
 (55,265) (55,265)
Balance at December 31, 2017$64
 $504,166
 $130,175
 $634,405
Balance at December 31, 2019$64
 $614,166
 $140,397
 $754,627


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


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017



(1)Summary of the Business and Significant Accounting Policies
Nature of Business
PNMR is an investor-owned holding company of energywith 2 regulated utilities providing electricity and energy-related businesses.electric services in New Mexico and Texas. PNMR’s primary subsidiaries are PNM and TNMP. PNM is a public utility with regulated operations primarily engaged in the generation, transmission, and distribution of electricity. TNMP is a wholly-owned subsidiary of TNP, which is a holding company that is wholly-owned by PNMR. TNMP provides regulated transmission and distribution services in Texas. PNMR’s common stock trades on the New York Stock Exchange under the symbol PNM.
Financial Statement Preparation and Presentation
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated.
The Notes to Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. For discussion purposes, thisThis report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated.
Certain amounts in the 20162018 and 20152017 Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 20172019 financial statement presentation.
GAAP defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Based on their nature, magnitude, and timing, certain subsequent events may be required to be reflected at the balance sheet date and/or required to be disclosed in the financial statements. The Company has evaluated subsequent events as required by GAAP.
Principles of Consolidation
The Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNM also consolidates Valencia (Note 9) and, through January 15, 2016, the PVNGS Capital Trust.10). PNM owns undivided interests in several jointly-owned power plants and records its pro-rata share of the assets, liabilities, and expenses for those plants. The agreements for the jointly-owned plants provide that if an owner were to default on its payment obligations, the non-defaulting owners would be responsible for their proportionate share of the obligations of the defaulting owner. In exchange, the non-defaulting owners would be entitled to their proportionate share of the generating capacity of the defaulting owner. There have been no0 such payment defaults under any of the agreements for the jointly-owned plants.
PNMR shared services’ administrative and general expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments. These services are billed at cost.cost and are reflected as general and administrative expenses in the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include interest and income tax sharing payments, as well as equity transactions.transactions, and interconnection billings. All intercompany transactions and balances have been eliminated. See Note 3.20.
 
Accounting for the Effects of Certain Types of Regulation

The Company maintains its accounting records in accordance with the uniform system of accounts prescribed by FERC and adopted by the NMPRC and PUCT.

Certain of the Company’s operations are regulated by the NMPRC, PUCT, and FERC and the provisions of GAAP for rate-regulated enterprises are applied to the regulated operations. Regulators may assign costs to accounting periods that differ from accounting methods applied by non-regulated utilities.  When it is probable that regulators will permit recovery of costs through future rates, costs are deferred as regulatory assets that otherwise would be expensed.  Likewise, regulatory liabilities are recognized when it is probable that regulators will require refunds through future rates or when revenue is collected for expenditures that have not yet been incurred.  GAAP also provides for the recognition of revenue and regulatory assets and liabilities associated

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

with “alternative revenue programs” authorized by regulators. Such programs allow the utility to adjust future rates in response to past activities or completed events, if certain criteria are met, even for programs that do not otherwise qualify for recognition of regulatory assets and liabilities. Regulatory assets and liabilities are amortized into earnings over the authorized recovery period.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

Accordingly, the Company has deferred certain costs and recorded certain liabilities pursuant to the rate actions of the NMPRC, PUCT, and FERC. Information on regulatory assets and regulatory liabilities is contained in Note 4.13.

In some circumstances, regulators allow a requested increase in rates to be implemented, subject to refund, before the regulatory process has been completed and a decision rendered by the regulator. When this occurs, the Company assesses the possible outcomes of the rate proceeding. The Company records a provision for refund to the extent the amounts being collected, subject to refund, exceed the amount the Company determines is probable of ultimately being allowed by the regulator.
In connection with the adoption of Senate Bill 7 by the Texas Legislature in 1999 that deregulated electric utilities operating within ERCOT, TNMP was allowed to recover its stranded costs through the CTC and to recover a carrying charge on the CTC. The amounts yet to be collected are recorded as regulatory assets by TNMP. TNMP’s calculation of allowable carrying charges on stranded costs recoverable from its transmission and distribution customers is based on a Texas Supreme Court ruling and the PUCT’s application of that ruling. TNMP estimates the CTC will be fully recovered in November 2020.
Cash and Restricted Cash Equivalents

Investments in highly liquid investments with original maturities of three months or less at the date of purchase are considered cash and cash equivalents. See New Accounting Pronouncements below.

As of January 1, 2017, PNM held a deposit of $1.0 million from a third party that was restricted for PNM’s construction of transmission interconnection facilities and was held as restricted cash until the second quarter of 2017, at which time a refund was made to the third party. Under the terms of the BTMU Term Loan agreement (Note 7), all cash of NM Capital was restricted to be used for payments required under that agreement or for taxes and fees. On May 22, 2018, Westmoreland repaid the Westmoreland Loan in full. NM Capital used a portion of the proceeds to repay all of its obligations under the BTMU Term Loan. These payments effectively terminated the loan agreements (Note 10).
Utility Plant
Utility plant is stated at original cost whichand includes capitalized payroll-related costs such as taxes, pension, other fringe benefits, administrative costs, and AFUDC, where authorized by rate regulation, or capitalized interest.
Repairs, including major maintenance activities, and minor replacements of property are expensed when incurred, except as required by regulators for ratemaking purposes. Major replacements are charged to utility plant. Gains, losses, and costs to remove resulting from retirements or other dispositions of regulated property in the normal course of business are credited or charged to accumulated depreciation.
PNM and TNMP may receive reimbursements, referred to as contributions in aid of construction (“CIAC”),CIAC, from customers to pay for all or part of certain construction projects to the extent thatthe project does not benefit regulated customers in general. PNM and TNMP account for these reimbursements as offsets to utility plant additions based on the requirements of the NMPRC, FERC, and PUCT. Due to the PUCT’s regulatory treatment of CIAC reimbursements, TNMP also receives a financing component that is recognized as other income on the Consolidated Statements of Earnings. Under the NMPRC regulatory treatment, PNM typically does not receive a financing component.
Depreciation and Amortization
PNM’s provision for depreciation and amortization of utility plant, other than nuclear fuel, is based upon straight-line rates approved by the NMPRC and FERC. Amortization of nuclear fuel is based on units-of-production. TNMP’s provision for depreciation and amortization of utility plant is based upon straight-line rates approved by the PUCT. Depreciation of non-utility property is computed based on the straight-line method. The provision for depreciation of certain equipment is allocated between operating expenses and construction projects based on the use of the equipment. Average straight-line rates used were as follows:
 Year ended December 31,
 2019 2018 2017
PNM     
Electric plant2.47% 2.40% 2.52%
Common, intangible, and general plant7.91% 8.18% 8.36%
TNMP4.04% 3.49% 3.57%

 Year ended December 31
 2017 2016 2015
PNM     
Electric plant2.52% 2.33% 2.27%
Common, intangible, and general plant8.36% 5.40% 4.66%
TNMP3.57% 3.66% 3.65%

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

Allowance for Funds Used During Construction
As provided by the FERC uniform systems of accounts, AFUDC is charged to regulated utility plant for construction projects. This allowance is designed to enable a utility to capitalize financing costs during periods of construction of property subject to rate regulation. It represents the cost of borrowed funds (allowance for borrowed funds used during construction or “debt AFUDC”) and a return on other funds (allowance for equity funds used during construction or “equity AFUDC”). The debt

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

AFUDC is recorded in interest charges and the equity AFUDC is recorded in other income on the Consolidated Statements of Earnings.
For the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, PNM recorded $6.3$5.0 million,, $5.3 $6.1 million,, and $7.8$6.3 million of debt AFUDC at annual rates of 2.99%, 3.19%, and 3.14% and $6.7 million, $8.2 million, and $8.7 million $4.2of equity AFUDC at annual rates of 3.95%, 4.25%, and 4.30%. For the years ended December 31, 2019, 2018, and 2017, TNMP recorded $2.4 million, $2.3 million, and $10.4$1.2 million of debt AFUDC at rates of 3.23%, 3.32%, and 3.17% and $2.8 million, $2.2 million, and $0.9 million of equity AFUDC. TNMP recorded $1.2 millionAFUDC at rates of 3.78%, $0.9 million3.29%, and $0.5 million of debt AFUDC and $0.9 million, $0.8 million, and zero of equity AFUDC.
Capitalized Interest
The Company capitalizes interest on its construction projects and major computer software projects not subject to the computation of AFUDC. Capitalized interest is recorded in interest charges. Interest was capitalized at the overall weighted average borrowing rate of 5.9%, 6.1%, and 6.6% for 2017, 2016, and 20152.29%. In 2017, 2016, and 2015, capitalized interest was $1.3 million, $1.8 million, and $1.5 million for PNMR consolidated; $0.6 million, $0.8 million, and $0.8 million for PNM; and less than $0.1 million, $0.1 million, and $0.1 million for TNMP.
Materials, Supplies, and Fuel Stock
Materials and supplies relate to transmission, distribution, and generating assets. Materials and supplies are charged to inventory when purchased and are expensed or capitalized as appropriate when issued. Materials and supplies are valued using an average costing method. Coal is valued using a rolling weighted average costing method that is updated based on the current period cost per ton. Periodic aerial surveys are performed on the coal piles and adjustments are made. Average cost is equal to net realizable value under the ratemaking process.
Inventories consisted of the following at December 31:31:
 PNMR PNM TNMP
 2019 2018 2019 2018 2019 2018
 (In thousands)
Coal$24,914
 $22,777
 $24,914
 $22,777
 $
 $
Materials and supplies53,015
 49,057
 47,311
 44,320
 5,704
 4,737
 $77,929
 $71,834
 $72,225
 $67,097
 $5,704
 $4,737

 PNMR PNM TNMP
 2017 2016 2017 2016 2017 2016
 (In thousands)
Coal$16,714
 $19,940
 $16,714
 $19,940
 $
 $
Materials and supplies49,788
 53,087
 44,145
 44,461
 5,643
 8,626
 $66,502
 $73,027
 $60,859
 $64,401
 $5,643
 $8,626


Investments
In 1985 and 1986, PNM entered into eleven operating leases for interests in certain PVNGS generation facilities (Note 7). The 10.3% and 10.15% lessor notes that were issued by the owners of the assets subject to these leases were subsequently purchased and held by the PVNGS Capital Trust, which was consolidated by PNM. The PVNGS Capital Trust held certain of the lessor notes to their maturities in January 2015 and January 2016. Upon final maturity of the lessor notes, the PVNGS Capital Trust ceased to exist. The PVNGS lessor notes were carried at amortized cost.
PNM holds investment securities in the NDT for the purpose of funding its share of the decommissioning costs of PVNGS and trusts for PNM’s share of final reclamation costs related to the coal mines serving SJGS and Four Corners (Note 16). All of these investments are classified as available-for-sale. PNM evaluates the securities for impairment on an on-going basis. Since third party investment managers have sole discretion over the purchase and salessale of the securities, PNM records a realized loss as an impairment for any available-for-sale debt security that has a market value that is less than cost at the end of each quarter. ForPrior to 2018, PNM classified all debt and equity investments in the years ended December 31, 2017, 2016,NDT and 2015,coal mine reclamation trusts as available-for-sale securities. Effective January 1, 2018, the Company adopted Accounting Standards Update 2016-01 Financial Instruments (Subtopic 825-10), which eliminates the requirement to classify investments in equity securities with readily determinable fair values into trading or available-for-sale categories and requires those equity securities to be measured at fair value with changes in fair value recognized in earnings rather than in OCI. On January 1, 2018, PNM recorded impairment lossesa cumulative effect adjustment to reclassify unrealized holding gains on the available-for-saleequity securities held in the NDT and coal mine reclamation trusts from AOCI to retained earnings on the Consolidated Balance Sheets. Accordingly, the information for investment securities in the NDT and coal mine reclamation trusts for 2019 and 2018 is presented under ASU 2016-01 and the information for 2017 is presented under prior GAAP. For the years ended December 31, 2019 and 2018, PNM recorded impairment losses on the available-for-sale debt securities of $7.1 million, $13.9$5.7 million and $10.4$13.7 million. For the year ended December 31, 2017, PNM recorded impairment losses on the available-for-sale securities, which included both debt and equity securities, of $7.1 million. No gains or losses are deferred as regulatory assets or liabilities. Through December 31, 2017, unrealized gains on these investments, net of related tax effects, are included in OCISee Notes 3 and AOCI. The available-for-sale securities are primarily comprised of international, United States, state, and municipal government obligations and corporate debt and equity securities.9. All investments are held in PNM’s name and are in the custody

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

of major financial institutions. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in other income and deductions. See New Accounting Pronouncements below.


Investment in NM Renewable Development, LLC


On September 22, 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. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. In December 2017, PNMR Development made a contribution to NMRD of its interest in three3 10 MW solar facilities it was constructing and assigned its interests in several agreements related to those facilities to NMRD. The facilities had a book value of $24.8 million, which approximated fair value at that time. AEP OnSite Partners made a cash contribution to NMRD equal to 50% of the value of the 30 MW solar capacity, amounting to $12.4 million, which cash was then distributed from NMRD to PNMR Development. During 2019, 2018, and 2017 PNMR Development and AEP OnSite Partners each made cash contributions of $38.3 million, $9.0 million, and $4.1 million to NMRD for its construction activities. At December 31, 2017,2019, NMRD’s renewable energy capacity under contractin operation is 31.885.1 MW, which includes 11.880 MW of solar PVsolar-PV facilities in operation, consisting of 10 MW required to supply energy to a newthe Facebook data center inlocated within PNM’s service territory, (Note 17)1.9

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 1.8 2017

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 201.2 MW of solar PV under construction.solar-PV facilities to supply energy to the City of Rio Rancho, New Mexico. PNMR accounts for its investment in NMRD using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.  PNMR records as income its percentage share of earnings or loss of NMRD and carries its investment at cost, adjusted for its share of undistributed earnings or losses.


PNMR presents its share of net earnings from NMRD in other income on the Consolidated Statements of Earnings. For the year ended December 31, 2017, NMRD revenues, expenses, and net income were each less than $0.1 million. At December 31, 2017,Summarized financial information for NMRD had $6.0 million in cash, $30.9 million of property, plant, and equipment, $3.9 million in accounts payable, and $33.0 million of owners’ equity. NMRD anticipates it will complete the remaining 20 MW of solar PV facilities under construction by mid-2018, which is anticipated to be funded by additional equity contributions.as follows:
 
Results of Operations

 December 31,
 2019 2018
 (In thousands)
Operating revenues$3,662
 $3,147
Operating expenses2,971
 2,136
Net earnings$691
 $1,011
 
Financial Position

 December 31,
 2019 2018
 (In thousands)
Current assets$7,187
 $2,581
Net property, plant, and equipment132,772
 50,784
Total assets139,959
 53,365
Current liabilities9,640
 237
Owners’ equity$130,319
 $53,128

Goodwill
Under GAAP, the Company does not amortize goodwill. Goodwill is evaluated for impairment annually, or more frequently if events and circumstances indicate that the goodwill might be impaired. See Note 18.19.
Asset Impairment
Tangible long-lived assets and right-of-use assets associated with leases are evaluated in relation to the estimated future undiscounted cash flows to assess recoverability when events and circumstances indicate that the assets might be impaired. See Note 16.
Revenue Recognition
Electric operating revenues are recorded in the periodSee Note 4 for a discussion of energy delivery, which includes estimated amounts for service rendered but unbilled at the end of each accounting period. The determination of the energy sales billed to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading and the corresponding unbilled revenue are estimated. Unbilled electric revenue is estimated based on the daily generation volumes, estimated customer usage by class, line losses, and applicable customer rates reflecting historical trends and experience.
PNM’s wholesale electricity sales are recorded as electric operating revenues and the wholesale electricity purchases are recorded as costs of energy sold. In accordance with GAAP, derivative contracts that are subject to unplanned netting are recorded net in earnings. A “book-out” is the planned or unplanned netting of off-setting purchase and sale transactions. A book-out is a transmission mechanism to reduce congestion on the transmission system or administrative burden. For accounting purposes, a book-out is the recording of net revenues upon the settlement of a derivative contract.
Unrealized gains and losses on contracts that are not designated for hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power and fuel supply agreements, used to hedge generation assets and purchased power costs. Changes in the fair value of economic hedges are reflected in results of operations, with changes related to economic hedges on sales included in operating revenues and changes related to economic hedges on purchases included in cost of energy sold.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

See New Accounting Pronouncements below.revenues.
Accounts Receivable and Allowance for Uncollectible Accounts
Accounts receivable consists primarily of trade receivables from customers. In the normal course of business, credit is extended to customers on a short-term basis. The Company calculates the allowance for uncollectible accounts based on historical experience and estimated default rates. The accounts receivable balances are reviewed monthly and adjustments to the allowance for uncollectible accounts and bad debt expense are made as necessary. Amounts that are deemed uncollectible are written off.
Amortization of Debt Acquisition Costs
Discount, premium, and expense related to the issuance of long-term debt are amortized over the lives of the respective issues. Gains and losses incurred upon the early retirement of long-term debt are recognized in other income or other deductions, except for amounts recoverable through NMPRC, FERC, or PUCT regulation, which are recorded as regulatory assets or liabilities and amortized over the lives of the respective issues. Unamortized debt premium, discount, and expense related to long-term debt are reflected as part of the debt liabilitiesrelated liability on the Consolidated Balance Sheets.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

Derivatives
The Company records derivative instruments, including energy contracts, on the balance sheet as either an asset or liability measured at their fair value. GAAP requires that changes in the derivatives’ fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For qualifying hedges, an entity must formally document, designate, and assess the effectiveness ofPNM also records certain commodity derivative transactions that receive hedge accounting. GAAP provides that the effective portion of the gainrecoverable through NMPRC regulation as regulatory assets or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of AOCI and be reclassified into earnings in the period during which the hedged forecasted transaction affects earnings. The results of hedge ineffectiveness and the portion of the change in fair value of a derivative that an entity has chosen to exclude from hedge effectiveness are required to be presented in current earnings.liabilities. See Note 67 and Note 8.9.
The Company treats all forward commodity purchases and sales contracts subject to unplanned netting or book-out“book-out” by the transmission provider as derivative instruments subject to mark-to-market accounting. GAAP provides guidance on whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis and concludes such classification is a matter of judgment that depends on the relevant facts and circumstances. See Note 4.
Decommissioning and Reclamation Costs
PNM owns and leases nuclear and fossil-fuel generating facilities. In accordance with GAAP, PNM is only required to recognize and measure decommissioning liabilities for tangible long-lived assets for which a legal obligation exists. Nuclear decommissioning costs and related accruals are based on periodic site-specific estimates of the costs for removing all radioactive and other structures at PVNGS and are dependent upon numerous assumptions, including estimates of future decommissioning costs at current price levels, inflation rates, and discount rates. PNM’s accruals for PVNGS Units 1, 2, and 3, including portions held under leases, have been made based on such estimates, the guidelines of the NRC, and the extended PVNGS license periods. PVNGS Units 1 and 2 are included in PNM’s retail rates and PVNGS Unit 3 was excluded through December 31, 2017 but is included in retail rates beginning in 2018. See Note 15 and Note 16. See Note 17 for information concerning the treatment of nuclear decommissioning costs for thecertain purchased and leased portions of PVNGS in the NMPRC’s order in PNM’s NM 2015 Rate Case and the NM Supreme Court’s decision on PNM’s appeal of that order.
In connection with both the SJGS and Four Corners coal supply agreements, 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. PNM considers the contemporaneous reclamation costs part of the cost of its delivered coal costs. See Note 16 for a discussion of reclamation costs.
Environmental Costs
The normal operations of the Company involve activities and substances that expose the Company to potential liabilities under laws and regulations protecting the environment. Liabilities under these laws and regulations can be material and in some

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

instances may be imposed without regard to fault, or may be imposed for past acts, even though the past acts may have been lawful at the time they occurred.
The Company records its environmental liabilities when site assessments or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. The Company reviews its sites and measures the liability by assessing a range of reasonably likely costs for each identified site using currently available information and the probable level of involvement and financial condition of other potentially responsible parties. These estimates are based on assumptions regarding the costs for site investigations, remediation, operations and maintenance, monitoring, and site closure. The ultimate cost to clean up the Company’s identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process. Amounts recorded for environmental expense in the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, as well as the amounts of environmental liabilities at December 31, 20172019 and 20162018 were insignificant.
Pension and Other Postretirement Benefits
See Note 1211 for a discussion of pension and postretirement benefits expense, including a discussion of the actuarial assumptions.
Stock-Based Compensation
See Note 1312 for a discussion of stock-based compensation expense.
Income Taxes
Income taxes are recognized using the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax basis. In accordance with GAAP, all deferred taxes are

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

reflected as non-current on the Consolidated Balance Sheets. Current NMPRC, FERC, and PUCT approved rates include the tax effects of the majority of these differences. GAAP requires that rate-regulated enterprises record deferred income taxes for temporary differences accorded flow-through treatment at the direction of a regulatory commission. The resulting deferred tax assets and liabilities are recorded based on the expected cash flow to be reflected in future rates. Because the NMPRC, FERC, and the PUCT have consistently permitted the recovery of tax effects previously flowed-through earnings, the Company has established regulatory liabilitiesassets and assetsliabilities offsetting such deferred tax assets and liabilities. The Company recognizes only the impact of tax positions that, based on their merits, are more likely than not to be sustained upon an IRS audit. The Company defers investment tax credits related to rate regulated assets and amortizes them over the estimated useful lives of thosethe assets. See Note 1118 for additional information, including a discussion of the impacts of tax reform under the Tax Cuts and Jobs Act enacted on December 22, 2017.Act.


The Company makes an estimate of its anticipated effective tax rate for the year as of the end of each quarterly period within its fiscal year. In interim periods, income tax expense is calculated by applying the anticipated annual effective tax rate to year-to-date earnings before taxes, which includes the earnings attributable to the Valencia non-controlling interest. GAAP also provides that certain unusual or infrequently occurring items, as well as adjustments due to enactment of new tax laws, be excluded from the estimated annual effective tax rate calculation.


Excise TaxesLease Commitments


The Company pays certain fees or taxes which are either considered to be an excise tax or similar to an excise tax. Substantially allSee Note 13 for a discussion of these taxes are recorded on a net basis in the Consolidated Statements of Earnings.lease commitments.


New Accounting Pronouncements


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



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

Accounting Standards Update 2014-09 Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-09. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also revises the disclosure requirements regarding revenue. Since the issuance of ASU 2014-09, the FASB issued a one-year deferral of the effective date and has issued additional ASUs that clarify implementation guidance regarding principal versus agent considerations, licensing, and identifying performance obligations, as well as adding certain additional practical expedients. The new standard will replace most existing revenue recognition guidance in GAAP. ASU 2014-09 can be applied retrospectively to each prior period presented or on a modified retrospective basis with a cumulative effect adjustment to retained earnings on the date of adoption. The Company will adopt ASU 2014-09 effective as of January 1, 2018, its required effective date, using the modified retrospective method of adoption.
The Company has monitored the activities of the FASB and other non-authoritative groups regarding certain issues specific to the power and utility industry. These specific issues include the impacts of the new guidance on accounting for CIAC and the presentation of revenues associated with “alternative revenue programs,” which primarily result from certain of the Company’s approved rate rider programs. The appropriate authoritative accounting organization has given tentative approval of the utility industry’s positions on all power and utility specific issues. The Company has substantially completed its assessment of ASU 2014-09 and does not anticipate a cumulative effect adjustment on the date of adoption or changes to the amount and timing of its current revenue recognition practices. The Company believes its existing policies, processes, information technology infrastructure, and internal controls properly capture and report revenue in accordance with ASU 2014-09.

Accounting Standards Update 2016-01 Financial Instruments (Subtopic 825-10):Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, which makes targeted improvements to GAAP regarding financial instruments. ASU 2016-01 eliminates the requirement to classify investments in equity securities with readily determinable fair values into trading or available-for-sale categories and requires those equity securities to be measured at fair value with changes in fair value recognized in net earnings rather than in OCI. Unrealized gains, net of income taxes, recorded in AOCI related to equity securities will be reclassified to retained earnings as a cumulative effect adjustment. ASU 2016-01 also revises certain presentation and disclosure requirements. Under ASU 2016-01, accounting for investments in debt securities remains essentially unchanged.

PNM currently classifies all investments held in the NDT and coal mine reclamation trusts as available-for-sale securities. Unrealized losses on these securities are recorded immediately through earnings and unrealized gains are recorded in AOCI until the securities are sold. The Company will adopt ASU 2016-01 effective as of January 1, 2018, its required effective date. On January 1, 2018, PNMR and PNM will record a cumulative effect adjustment, net of income taxes, to increase retained earnings by $11.1 million with an offset to AOCI. Future changes in the fair value of equity securities will be recorded in earnings.

Accounting Standards Update 2016-02 Leases (Topic 842)

In February 2016, the FASB issued ASU 2016-02 to provide guidance on the recognition, measurement, presentation, and disclosure of leases. ASU 2016-02 will require that a liability be recorded on the balance sheet for all leases, based on the present value of future lease obligations. A corresponding right-of-use asset will also be recorded. Amortization of the lease obligation and the right-of-use asset for certain leases, primarily those classified as operating leases, will be on a straight-line basis, which is not expected to have a significant impact on the statements of earnings, whereas other leases will be required to be accounted for as financing arrangements similar to the accounting treatment for capital leases under current GAAP. ASU 2016-02 also revises certain disclosure requirements. At adoption, ASU 2016-02 requires that leases be recognized and measured as of the earliest period presented using a modified retrospective approach with all periods presented being restated and presented under the new guidance. The ASU allows entities to apply certain practical expedients to arrangements that exist upon adoption or expired during the periods presented.

As further discussed in Note 7, the Company has operating leases of office buildings, vehicles, and equipment. The Company also routinely enters into land easements and right-of-way agreements. PNM also has operating lease interests in PVNGS Units 1 and 2 that will expire in January 2023 and 2024.


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

The Company, along with others in the utility industry, is continuing to monitor the activities of the FASB and other non-authoritative groups regarding industry specific issues for further clarification. The Company has formed a project team, conducted outreach activities across its lines of business, and made significant progress in identifying arrangements, in addition to its existing operating lease arrangements, that may be classified as leases under ASU 2016-02. It is likely the arrangements currently classified as leases will continue to be recognized as leases under ASU 2016-02. It is possible that other contractual arrangements not previously meeting the lease definition may contain elements that qualify as leases and that previously identified operating leases may be classified as financing leases under ASU 2016-02. The Company is in the process of analyzing each of the identified contractual arrangement to determine if it contains lease elements under the new standard and quantifying the potential impacts of identified lease arrangements. The Company is also evaluating the practical expedients, if any, it will elect upon adoption. The Company anticipates this process will continue into 2018. The Company will adopt this standard effective as of January 1, 2019, its required effective date.

In January 2018, the FASB issued ASU 2018-01, which clarifies that land easements are to be evaluated under ASU 2016-02, but provides an additional optional practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under the current guidance. The Company has numerous land easements and right-of-way agreements that would fall under this clarification. The only such agreement that has been accounted for as a lease under current guidance is the right-of-way agreement with the Navajo Nation (Note 7). The Company anticipates it will elect to use the practical expedient for its existing and expired land easements upon adoption of ASU 2016-02.

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


In June 2016, the FASB issued ASU 2016-13, which changes the way entities recognize impairment of many financial assets, including accounts receivable and investments in certain debt securities, by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. The Company anticipates adopting ASU 2016-13 effective asIn November 2018, the FASB clarified that receivables arising from operating leases are not within the scope of January 1, 2020 although early adoption is permitted beginning on January 1, 2019.Topic 326 for assets measured at amortized costs. Instead, impairments of receivables arising from operating leases should be accounted for in accordance with Topic 842. In May 2019, the FASB issued transition relief by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. The Company is in the process of analyzing the impacts of thisthe new standard but does not anticipate it will have a significant impact on its financial statements.

Accounting Standards Update 2016-18 Statementreserves for trade receivables or on PNMR’s guarantees of Cash Flows (Topic 230): Restricted Cash

In November 2016,certain PNMR Development debt arrangements. A cumulative effect adjustment is also not anticipated upon implementation. ASU 2016-13 also requires entities to separately measure and realize an impairment for credit losses on available-for-sale debt securities for which carrying value exceeds fair value, unless such securities have been determined to be other than temporarily impaired and the FASB issued ASU 2016-18, which requiresentire decrease in value has been realized as an impairment. PNM records a realized loss as an impairment for any available-for-sale debt security that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconcilinghas a fair value that is less than carrying value at the beginning of period and end of period amounts shown oneach quarter. As a result, the statements of cash flows and adds disclosures necessary to reconcile such amounts to cash and cash equivalents on the balance sheets. ASU 2016-18Company does not provide a definition of what should be considered restricted cash. Upon adoption, ASU 2016-18 requiresanticipate the use of a retrospective transition methodnew standard will impact its accounting for each period presented.available-for-sale debt securities. The Company has substantially completed its analysis of ASU 2016-18 and will adopt the standard effectiveASU 2016-13 as of January 1, 2018,2020, its required effective date. During 2015, PNM received a deposit of $8.2 million from a third party that was restricted for PNM’s construction of transmission interconnection facilities for that party. PNM recorded the deposit in Other deferred charges and it was not included in cash on the Consolidated Statements of Cash Flows. Construction of the interconnection was completed in 2018, at which time $7.1 million was refunded to the third party. Other amounts considered to be restricted cash under ASU 2016-18 were insignificant. In 2018, PNM will reclassify amounts related to restricted cash on the Consolidated Statements of Cash Flows in accordance with ASU 2016-18 and provide the required additional disclosures.


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


In January 2017, the FASB issued ASU 2017-04 to simplify the annual goodwill impairment assessment process. Currently, the first step of a quantitative impairment test requires an entity to compare the fair value of each reporting unit containing goodwill with its carrying value (including goodwill). If as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, the entity is required to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise requires the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. ASU 2017-04 eliminates the second step of the impairment analysis. Accordingly, if the first step of a quantitative goodwill impairment analysis performed after adoption of ASU 2017-04 indicates that the fair


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


if the first step of a quantitative goodwill impairment analysis performed after adoption of ASU 2017-04 indicates that the fair value of a reporting unit is less than its carrying value, the goodwill of that reporting unit would be impaired to the extent of that difference. The Company anticipates it will adopt ASU 2017-04 for impairment testing after January 1, 2020, its required effective date, although early adoption is permitted. However, if there is an indication of potential impairment of goodwill as a result of an impairment assessment prior to 2020, the Company will evaluate the impact of ASU 2017-04 and could elect to early adopt this standard.date.


Accounting Standards Update 2017-07 2018-13 Compensation Retirement BenefitsFair Value Measurements (Topic 715): Improving820) Disclosure Framework: Changes to the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostDisclosure Requirements for Fair Value Measurements


In March 2017,August 2018, the FASB issued ASU 2017-072018-13 to improve the presentation of net periodic pensionfair value disclosures. ASU 2018-13 eliminates certain disclosure requirements related to transfers between Levels 1 and other postretirement benefit costs. Currently, the Company presents all of its net periodic benefit costs, net of amounts capitalized to construction and other accounts, as administrative and general expenses on its statements of earnings. The amendments in ASU 2017-07 require the service cost component of net benefit costs be presented in the same line item or items as employees’ compensation. The other components of net benefit cost (the “non-service cost components”) are required to be presented in the income statement separately from the service cost component and outside of operating income with disclosures identifying where the non-service cost components have been presented. ASU 2017-07 also limits capitalization to only the service cost component of benefit costs. PNMR and its subsidiaries maintain qualified defined benefit pension and OPEB plans. Currently, net periodic benefit cost for the Company’s defined benefit pension plans do not include a service cost component and there is only a minor amount of service cost for the OPEB plans. Additional information about the Company’s benefit plans is discussed in Note 12. ASU 2017-07 requires retrospective presentation2 of the servicefair value hierarchy and non-service cost components ofthe requirement to disclose the valuation process for Level 3 fair value measurements. ASU 2018-13 also amends certain disclosure requirements for investments measured at net benefit costsasset value and requires new disclosures for Level 3 investments, including a new requirement to disclose changes in the income statement and prospective application regarding the capitalization of only the service cost component of net benefit costs. The Company will adopt the standard effective as of January 1, 2018, its required effective date. In 2017 and 2016, PNMunrealized gains or losses recorded pre-tax Administrative and general expenses of $4.7 million and $3.0 million and TNMP recorded less than $0.1 million and less than $0.1 millionin OCI related to their non-service cost components of net periodic benefit costs. Beginning in 2018, such costs will be reclassified to Other (deductions) on the Consolidated Statements of Earnings. The Company believes PNM and TNMP can continue to capitalize the non-service cost components of net benefit costs as regulatory assets to the extent attributable to regulated operations and does not anticipateLevel 3 fair value measurements. ASU 2017-07 will have a significant impact on its financial statements.
Accounting Standards Update 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12 to better align hedge accounting with an organization’s risk management activities and to simplify the application of hedge accounting guidance. ASU 2017-122018-13 is effective for the Company on January 1, 2019 although early adoption is permitted beginning on January 1, 2018.2020 and permits entities to adopt all or certain elements of the new guidance prior to its effective date. ASU 2018-13 requires retrospective application, except for the new disclosures related to Level 3 investments which are to be applied prospectively. As discussed in Note 6, the Company periodically enters into,9, PNM and designates as cash flow hedges, interest rate swaps to hedge its exposure to changesTNMP have investment securities in interest rates. In addition, as discussed in Note 8, the Company enters into various derivative instruments to economically hedge the risk of changes in commodity prices,trusts for decommissioning, reclamation, pension benefits, and other postretirement benefits, which are notmeasured at fair value. Certain investments in these trusts are measured at net asset value per share. These trusts currently designated as cash flow hedges.hold no Level 3 investments. The Company is evaluating the requirements of ASU 2017-12,2018-13, but does not anticipate it will have a significant impact on the Company’s fair value disclosures.

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

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

Accounting Standards Update 2018-15 – Intangibles - Goodwill and Other - Internal Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for implementation costs incurred to develop or obtain internal-use software. Under ASU 2018-15, entities are required to capitalize implementation costs for hosting arrangements if those costs meet the capitalization requirements for internal-use software arrangements. ASU 2018-15 requires entities to present cash flows, capitalized costs, and amortization expense in the same financial statement line items as other costs incurred for such hosting arrangements. ASU 2018-15 is effective for the Company on January 1, 2020 and allows entities to apply the new requirements retrospectively or prospectively. The Company is in the process of analyzing the impacts of this new standard.

Accounting Standards Update 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12 as part of its initiative to reduce complexity in accounting treatmentstandards. The amendments in ASU 2019-12 simplify accounting for derivative instrumentsincome taxes by removing several accounting exceptions to accounting for income taxes. ASU 2019-12 also eliminates or simplifies other income tax accounting requirements, including a requirement that entities recognize franchise tax (or similar tax) that is partially based on its financial statements.income as an income-based tax. ASU 2019-12 is effective for the Company beginning on January 1, 2021 and allows for early adoption. ASU 2019-12 is to be applied prospectively or retrospectively in the period of adoption depending on the type of amendment. The Company is in the process of analyzing the impacts of this new standard.


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

(2)Segment Information
The following segment presentation is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. A reconciliation of the segment presentation to the GAAP financial statements is provided.
PNM
PNM includes the retail electric utility operations of PNM that are subject to traditional rate regulation by the NMPRC. PNM provides integrated electricity services that include the generation, transmission, and distribution of electricity for retail electric customers in New Mexico. PNM also includes the generation and sale of electricity into the wholesale market, as well as providing transmission services to third parties. The sale of electricity includes the asset optimization of PNM’s jurisdictional assetscapacity as well as the capacity excluded from retail rates. FERC has jurisdiction over wholesale power and transmission rates.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

TNMP
TNMP is an electric utility providing services in Texas under the TECA. TNMP’s operations are subject to traditional rate regulation by the PUCT. TNMP provides transmission and distribution services at regulated rates to various REPs that, in turn, provide retail electric service to consumers within TNMP’s service area. TNMP also provides transmission services at regulated rates to other utilities that interconnect with TNMP’s facilities.
Corporate and Other
The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and PNMR Services Company. The activities of PNMR Development, and NM Capital, and the equity method investment in NMRD are also included in Corporate and Other. Eliminations of intercompany income and expense transactions are reflected in the Corporate and Other segment.
PNMR SEGMENT INFORMATION

The following tables present summarized financial information for PNMR by segment. PNM and TNMP each operate in only one1 segment. Therefore, tabular segment information is not presented for PNM and TNMP.
2017PNM TNMP 
Corporate
and Other
 PNMR Consolidated
2019PNM TNMP 
Corporate
and Other
 PNMR Consolidated
(In thousands)(In thousands)
Electric operating revenues$1,104,230
 $340,773
 $
 $1,445,003
$1,093,822
 $363,781
 $
 $1,457,603
Cost of energy321,677
 85,802
 
 407,479
317,725
 95,087
 
 412,812
Utility margin782,553
 254,971
 
 1,037,524
776,097
 268,694
 
 1,044,791
Other operating expenses423,011
 98,221
 (22,135) 499,097
554,661
 98,621
 (20,499) 632,783
Depreciation and amortization147,017
 63,146
 21,779
 231,942
160,368
 84,259
 23,181
 267,808
Operating income212,525
 93,604
 356
 306,485
Operating income (loss)61,068
 85,814
 (2,682) 144,200
Interest income8,454
 
 7,462
 15,916
14,303
 
 (281) 14,022
Other income (deductions)30,686
 3,551
 (3,254) 30,983
26,989
 4,131
 (1,477) 29,643
Interest charges(82,697) (30,084) (14,844) (127,625)(72,900) (29,100) (19,016) (121,016)
Segment earnings (loss) before income taxes168,968
 67,071
 (10,280) 225,759
29,460
 60,845
 (23,456) 66,849
Income taxes81,555
 31,512
 17,273
 130,340
Income taxes (benefit)(25,962) 5,046
 (4,366) (25,282)
Segment earnings (loss)87,413
 35,559
 (27,553) 95,419
55,422
 55,799
 (19,090) 92,131
Valencia non-controlling interest(15,017) 
 
 (15,017)(14,241) 
 
 (14,241)
Subsidiary preferred stock dividends(528) 
 
 (528)(528) 
 
 (528)
Segment earnings (loss) attributable to PNMR$71,868
 $35,559
 $(27,553) $79,874
$40,653
 $55,799
 $(19,090) $77,362
              
At December 31, 2017:       
At December 31, 2019:       
Total Assets$4,921,563
 $1,500,770
 $223,770
 $6,646,103
$5,242,991
 $1,860,439
 $195,344
 $7,298,774
Goodwill$51,632
 $226,665
 $
 $278,297
$51,632
 $226,665
 $
 $278,297


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


2016PNM TNMP 
Corporate
and Other
 PNMR Consolidated
2018PNM TNMP 
Corporate
and Other
 PNMR Consolidated
       (In thousands)
Electric operating revenues$1,035,913
 $327,038
 $
 $1,362,951
$1,091,965
 $344,648
 $
 $1,436,613
Cost of energy299,714
 80,882
 
 380,596
314,036
 85,690
 
 399,726
Utility margin736,199
 246,156
 
 982,355
777,929
 258,958
 
 1,036,887
Other operating expenses414,662
 93,389
 (12,791) 495,260
481,030
 96,272
 (17,650) 559,652
Depreciation and amortization133,447
 61,126
 14,537
 209,110
151,866
 66,189
 23,133
 241,188
Operating income (loss)188,090
 91,641
 (1,746) 277,985
Operating income145,033
 96,497
 (5,483) 236,047
Interest income10,173
 
 12,120
 22,293
13,089
 
 2,451
 15,540
Other income (deductions)22,066
 3,202
 (1,739) 23,529
(17,312) 4,065
 (2,039) (15,286)
Interest charges(87,469) (29,335) (11,829) (128,633)(76,458) (32,091) (18,695) (127,244)
Segment earnings (loss) before income taxes132,860
 65,508
 (3,194) 195,174
64,352
 68,471
 (23,766) 109,057
Income taxes (benefit)40,922
 23,836
 (1,480) 63,278
Income taxes(5,971) 16,880
 (3,134) 7,775
Segment earnings (loss)91,938
 41,672
 (1,714) 131,896
70,323
 51,591
 (20,632) 101,282
Valencia non-controlling interest(14,519) 
 
 (14,519)(15,112) 
 
 (15,112)
Subsidiary preferred stock dividends(528) 
 
 (528)(528) 
 
 (528)
Segment earnings (loss) attributable to PNMR$76,891
 $41,672
 $(1,714) $116,849
$54,683
 $51,591
 $(20,632) $85,642
              
At December 31, 2016:       
At December 31, 2018:       
Total Assets$4,867,546
 $1,383,223
 $220,311
 $6,471,080
$5,035,883
 $1,665,177
 $164,491
 $6,865,551
Goodwill$51,632
 $226,665
 $
 $278,297
$51,632
 $226,665
 $
 $278,297
2017PNM TNMP 
Corporate
and Other
 PNMR Consolidated
 (In thousands)
Electric operating revenues$1,104,230
 $340,773
 $
 $1,445,003
Cost of energy321,677
 85,802
 
 407,479
Utility margin782,553
 254,971
 
 1,037,524
Other operating expenses414,457
 98,221
 (22,135) 490,543
Depreciation and amortization147,017
 63,146
 21,779
 231,942
Operating income (loss)221,079
 93,604
 356
 315,039
Interest income8,454
 
 7,462
 15,916
Other income (deductions)22,132
 3,551
 (3,254) 22,429
Interest charges(82,697) (30,084) (14,844) (127,625)
Segment earnings (loss) before income taxes168,968
 67,071
 (10,280) 225,759
Income taxes (benefit)81,555
 31,512
 17,273
 130,340
Segment earnings (loss)87,413
 35,559
 (27,553) 95,419
Valencia non-controlling interest(15,017) 
 
 (15,017)
Subsidiary preferred stock dividends(528) 
 
 (528)
Segment earnings (loss) attributable to PNMR$71,868
 $35,559
 $(27,553) $79,874
        
At December 31, 2017:       
Total Assets$4,921,563
 $1,500,770
 $223,770
 $6,646,103
Goodwill$51,632
 $226,665
 $
 $278,297

2015PNM TNMP 
Corporate
and Other
 PNMR Consolidated
        
Electric operating revenues$1,131,195
 $307,887
 $
 $1,439,082
Cost of energy391,131
 73,518
 
 464,649
Utility margin740,064
 234,369
 
 974,433
Other operating expenses590,967
 88,051
 (14,854) 664,164
Depreciation and amortization115,717
 56,285
 13,917
 185,919
Operating income33,380
 90,033
 937
 124,350
Interest income6,574
 
 (76) 6,498
Other income (deductions)26,914
 3,736
 (485) 30,165
Interest charges(79,950) (27,681) (7,229) (114,860)
Segment earnings (loss) before income taxes(13,082) 66,088
 (6,853) 46,153
Income taxes (benefit)(12,758) 24,125
 3,708
 15,075
Segment earnings (loss)(324) 41,963
 (10,561) 31,078
Valencia non-controlling interest(14,910) 
 
 (14,910)
Subsidiary preferred stock dividends(528) 
 
 (528)
Segment earnings (loss) attributable to PNMR$(15,762) $41,963
 $(10,561) $15,640
        
At December 31, 2015:       
Total Assets$4,599,344
 $1,297,139
 $112,845
 $6,009,328
Goodwill$51,632
 $226,665
 $
 $278,297


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


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


Major Customers


No individual customer accounted for more than 10% of the electric operating revenues of PNMR or PNM. Three REPs accounted for more than 10% of the electric operating revenues of TNMP, as follows:
 Year Ended December 31,
 2019 2018 2017
REP A22% 21% 16%
REP B17% 15% 11%
REP C12% 12% 10%
 Year Ended December 31,
 2017 2016 2015
REP A16% 16% 16%
REP B11% 11% 13%
REP C10% 11% 11%

 
(3)Related Party TransactionsAccumulated Other Comprehensive Income (Loss)
PNMR, PNM,
AOCI reports a measure for accumulated changes in equity that result from transactions and TNMP are considered related partiesother economic events other than transactions with shareholders. Information regarding AOCI is as defined under GAAP, as is PNMR Services Company, a wholly-owned subsidiary of PNMR that provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. These services are billed at cost on a monthly basis to the business units.follows:
PNMR files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PNMR and each of its affiliated companies. These agreements provide that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PNMR. If there are net operating losses and/or tax credits, the subsidiary shall receive payment for the tax savings from PNMR to the extent that PNMR is able to utilize those benefits.
 Accumulated Other Comprehensive Income (Loss)
 PNM PNMR
 Unrealized Gains on Available-for-Sale Securities 
Pension
Liability
Adjustment
 Total Fair Value Adjustment for Cash Flow Hedges Total
 (In thousands)
Balance at December 31, 2016$4,320
 $(96,748) $(92,428) $(23) $(92,451)
 Amounts reclassified from AOCI (pre-tax)(17,567) 6,452
 (11,115) 581
 (10,534)
Income tax impact of amounts reclassified6,816
 (2,504) 4,312
 (225) 4,087
 Other OCI changes (pre-tax)28,160
 3,618
 31,778
 1,000
 32,778
Income tax impact of other OCI changes(10,927) (919) (11,846) (388) (12,234)
Net after-tax change6,482
 6,647
 13,129
 968
 14,097
Reclassification of stranded income taxes to retained earnings (Note 18)2,367
 (20,161) (17,794) 208
 (17,586)
Balance at December 31, 2017, as originally reported13,169
 (110,262) (97,093) 1,153
 (95,940)
Cumulative effect adjustment (Note 9)(11,208) 
 (11,208) 
 (11,208)
Balance at January 1, 2018, as adjusted1,961
 (110,262) (108,301) 1,153
 (107,148)
 Amounts reclassified from AOCI (pre-tax)(3,819) 7,568
 3,749
 216
 3,965
Income tax impact of amounts reclassified970
 (1,922) (952) (56) (1,008)
 Other OCI changes (pre-tax)3,790
 (10,382) (6,592) 570
 (6,022)
Income tax impact of other OCI changes(963) 2,637
 1,674
 (145) 1,529
Net after-tax change(22) (2,099) (2,121) 585
 (1,536)
Balance at December 31, 20181,939
 (112,361) (110,422) 1,738
 (108,684)
 Amounts reclassified from AOCI (pre-tax)(14,063) 7,404
 (6,659) 733
 (5,926)
Income tax impact of amounts reclassified3,572
 (1,880) 1,692
 (186) 1,506
 Other OCI changes (pre-tax)25,724
 (3,829) 21,895
 (3,495) 18,400
Income tax impact of other OCI changes(6,534) 973
 (5,561) 888
 (4,673)
Net after-tax change8,699
 2,668
 11,367
 (2,060) 9,307
Balance at December 31, 2019$10,638
 $(109,693) $(99,055) $(322) $(99,377)

 
See Note 6 for information on intercompany borrowing arrangements. The table below summarizes the nature and amount of related party transactions of PNMR, PNM and TNMP:    
 Year Ended December 31,
 2017 2016 2015
   (In thousands)  
Services billings:     
PNMR to PNM$97,914
 $94,606
 $90,827
PNMR to TNMP31,095
 28,907
 28,109
PNM to TNMP382
 427
 554
TNMP to PNMR141
 66
 41
TNMP to PNM154
 172
 
Interest billings:     
PNMR to PNM21
 11
 54
PNM to PNMR220
 150
 110
PNMR to TNMP133
 132
 276
Income tax sharing payments:     
PNMR to TNMP
 
 
PNMR to PNM23,391
 
 1,450
  TNMP to PNMR20,686
 
 
(4)    Regulatory Assets and Liabilities
The operations of PNM and TNMP are regulated by the NMPRC, PUCT, and FERC and the provisions of GAAP for rate-regulated enterprises are applied to its regulated operations. Regulatory assets represent probable future recovery of previously incurred costs that will be collected from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets are presented below.


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017

 PNM TNMP
 December 31, December 31,
 2017 2016 2017 2016
Assets:(In thousands)
Current:       
FPPAC$363
 $1,451
 $
 $
Energy efficiency costs1,776
 1,991
 794
 413
 2,139
 3,442
 794
 413
Non-Current:       
CTC, including carrying charges
 
 26,998
 36,328
Coal mine reclamation costs16,462
 22,383
 
 
Deferred income taxes59,220
 62,918
 9,621
 9,932
Loss on reacquired debt22,744
 24,404
 32,808
 34,107
Pension and OPEB222,774
 249,286
 26,153
 27,661
Shutdown of SJGS Units 2 and 3125,539
 
 
 
Hurricane recovery costs
 
 6,640
 
AMS surcharge
 
 27,903
 14,669
AMS retirement costs
 
 8,948
 11,086
Other12,500
 6,422
 2,362
 2,027
 459,239
 365,413
 141,433
 135,810
Total regulatory assets$461,378
 $368,855
 $142,227
 $136,223
        
 PNM TNMP
 December 31, December 31,
 2017 2016 2017 2016
Liabilities:(In thousands)
Current:       
Renewable energy rider$(779) $(3,411) $
 $
Other(5) (106) (1,525) (92)
 (784) (3,517) (1,525) (92)
Non-Current:       
Cost of removal(256,493) (297,087) (26,541) (26,900)
Deferred income taxes(445,390) (62,920) (148,455) (2,644)
PVNGS ARO(24,889) (30,621) 
 
Renewable energy tax benefits(21,383) (22,540) 
 
Nuclear spent fuel reimbursements(5,518) (8,875) 
 
Pension and OPEB
 
 (3,442) (1,955)
Other(768) (1,658) (699) (449)
 (754,441) (423,701) (179,137) (31,948)
Total regulatory liabilities$(755,225) $(427,218) $(180,662) $(32,040)


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

(4)Electric Operating Revenues

PNMR is an investor-owned holding company with 2 regulated utilities providing electricity and electric services in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.

Revenue Recognition

Electric operating revenues are recorded in the period of energy delivery, which includes estimated amounts for service rendered but unbilled at the end of each accounting period. The determination of the energy sales billed to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers or have been addressed in a regulatory proceeding.since the date of the last meter reading and the corresponding unbilled revenue are estimated. Unbilled electric revenue is estimated based on daily generation volumes, estimated customer usage by class, line losses, historical trends and experience, and applicable customer rates. Amounts billed are generally due within the next month. The Company does not receiveincur incremental costs to obtain contracts for its energy services.

PNM’s wholesale electricity sales are recorded as electric operating revenues and wholesale electricity purchases are recorded as costs of energy sold. In accordance with GAAP, derivative contracts that are subject to unplanned netting are recorded net in earnings. A “book-out” is the planned or payunplanned netting of off-setting purchase and sale transactions. A book-out is a rate of returntransmission mechanism to reduce congestion on the following regulatorytransmission system or administrative burden. For accounting purposes, a book-out is the recording of net revenues upon the settlement of a derivative contract.

Unrealized gains and losses on derivative contracts that are not designated for hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power and fuel supply agreements, used to hedge generation assets and regulatory liabilities (and their remaining amortization periods): coal mine reclamation costs (through 2020); deferred income taxes (overpurchased power costs. Changes in the remaining lifefair value of economic hedges are reflected in results of operations, with changes related to economic hedges on sales included in operating revenues and changes related to economic hedges on purchases included in cost of energy sold. See Note 9.

The Company adopted ASU 2014-09 – Revenue from Contracts with Customers (Topic 606) as of January 1, 2018, its required effective date, using the modified retrospective method of adoption. The adoption of ASU 2014-09 did not result in changes to the nature, amount, and timing of the taxable item, upCompany’s existing revenue recognition processes or information technology infrastructure. Therefore, the adoption of ASU 2014-09 had no effect on the amount of revenue recorded in 2018 compared to the remaining lifeamount that would have been recorded under prior GAAP, no effect on total electric operating revenues or any other caption within the Company’s financial statements, and no cumulative effect adjustment was recorded. Revenues for 2019 and 2018 are presented in accordance with the standard on the Consolidated Statements of utility plant); pensionEarnings and OPEB costs (through 2033);2017 revenues are presented on a comparative basis. Additional disclosures to further disaggregate 2019 and PVNGS ARO (to be determined in a future regulatory proceeding). In addition, TNMP does not currently receive a return on its loss on reacquired debt (through 2043).2018 revenues are presented below.


The Company isadopted ASU 2018-18 – Collaborative Arrangements (Topic 808) in 2019, ahead of its required effective date, using the retrospective method of adoption. The Company has collaborative arrangements related to its interest in SJGS, Four Corners, PVNGS, and Luna. The Company has determined that during the years ended December 31, 2019, 2018, and 2017 none of the joint owners in its collaborative arrangements were customers under Topic 606. Therefore, the adoption of this standard did not impact the financial statements. The Company will continue to evaluate transactions between collaborative arrangement participants in future periods under the requirements of the new standard.

PNM and TNMP recognize revenue as they satisfy performance obligations, which typically occurs as the customer or end-user consumes the electric service provided. Electric services are typically for a bundle of services that are distinct and transferred to the end-user in one performance obligation measured by KWh or KW. Electric operating revenues are recorded in the period of energy delivery, including estimated unbilled amounts. As permitted under rate regulation,GAAP, the Company has elected to accrueexclude all sales and record a regulatory liability forsimilar taxes from revenue.

Revenue from contracts with customers is recorded based upon the estimated cost of removaltotal authorized tariff price at the time electric service is rendered, including amounts billed under arrangements qualifying as an Alternative Revenue Program (“ARP”). ARP arrangements are agreements between PNM or TNMP and salvage associated withits regulator that allow PNM or TNMP to adjust future rates in response to past activities or completed events, if certain of its assets through depreciation expense. Undercriteria are met. GAAP actuarial losses and prior service costs for pension plans are required torequires that ARP revenues be recorded in AOCI; however, to the extent authorized for recovery through thereported separately from


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


contracts with customers. ARP revenues in a given period include the recognition of “originating” ARP revenues (i.e. when the regulator-specific conditions are met) in the period, offset by the reversal of ARP revenues when billed to customers.

Sources of Revenue

Additional information about the nature of revenues is provided below. Additional information about matters affecting PNM’s and TNMP’s regulated revenues is provided in Note 17.

Revenue from Contracts with Customers

PNM

NMPRC Regulated Retail Electric Service – PNM provides electric generation, transmission, and distribution service to its rate-regulated customers in New Mexico. 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. Customer rates for retail electric service are set by the NMPRC and revenue is recognized as energy is delivered to the customer. PNM invoices customers on a monthly basis for electric service and generally collects billed amounts within one month.

Transmission Service to Third Parties – PNM owns transmission lines that are interconnected with other utilities in New Mexico, Texas, Arizona, Colorado, and Utah. Transmission customers receive service for the transmission of energy owned by the customer utilizing PNM’s transmission facilities. Customers generally receive transmission services, which are regulated by FERC, from PNM through PNM’s Open Access Transmission Tariff (“OATT”) or a specific contract. Customers are billed based on capacity and energy components on a monthly basis.

Miscellaneous Beginning on January 1, 2018, PNM acquired a 65 MW interest in SJGS Unit 4, which is held as merchant plant as ordered by the NMPRC (Note 16). PNM sells power from 36 MW of this capacity to a third party at a fixed price that is recorded as revenue from contracts with customers. PNM is obligated to deliver power under this arrangement only when SJGS Unit 4 is operating. Other market sales from this 65 MW interest are recorded in other electric operating revenues.

TNMP

PUCT Regulated Retail Electric Service – 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 and not subject to traditional rate regulation by FERC. 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 territory. Revenue is recognized as energy is delivered to the consumer. TNMP invoices REPs on a monthly basis and is generally paid within a month.

Transmission Cost of Service (“TCOS”) – TNMP is a transmission service provider that is allowed to recover its TCOS through a network transmission rate that is approved by the PUCT. TCOS customers are other utilities that receive service for the transmission of energy owned by the customer utilizing TNMP’s transmission facilities.

Alternative Revenue Programs

The Company defers certain costs and records certain liabilities pursuant to the rate actions of the NMPRC, PUCT, and FERC. ARP revenues, which are discussed above, include recovery or refund provisions under PNM’s renewable energy rider and true-ups to PNM’s formula transmission rates; TNMP’s AMS surcharge, transmission cost recovery factor, and the impacts of the PUCT’s January 25, 2018 order regarding the change in the federal corporate income tax rate; and the energy efficiency incentive bonus at both PNM and TNMP. GAAP provides for the recognition of regulatory processassets and liabilities for the difference between ARP revenues and amounts billed under those programs. Regulatory assets and liabilities are amortized into earnings as amounts are billed. As discussed in Note 17, TNMP’s 2018 Rate Case integrates AMS costs into base rates beginning January 1, 2019. These costs are being amortized into earnings as alternative revenues over a period of five years.

Other Electric Operating Revenues

Other electric operating revenues consist primarily of PNM’s sales for resale meeting the definition of a derivative under GAAP. Derivatives are not considered revenue from contracts with customers. PNM engages in activities meeting the definition of derivatives to optimize its existing jurisdictional assets and long-term power agreements through spot market, hour-ahead, day-

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

ahead, week-ahead, month-ahead, and other sales of excess generation not required to fulfill retail load and contractual commitments. Through December 31, 2017, PNM’s 134 MW share of Unit 3 at PVNGS was excluded from retail rates and was being sold in the wholesale market. Effective January 1, 2018, PNM’s share of PVNGS Unit 3 is included in retail rates and recorded as revenue from contracts with customer.

Disaggregation of Revenues

A disaggregation of revenues from contracts with customers by the type of customer is presented in the table below. The table also reflects ARP revenues and other revenues.
  PNM TNMP PNMR Consolidated
Year Ended December 31, 2019 (In thousands)
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $427,883
 $150,742
 $578,625
Commercial 396,987
 116,953
 513,940
Industrial 69,601
 22,405
 92,006
Public authority 20,322
 5,694
 26,016
Economy energy service 25,757
 
 25,757
Transmission 57,214
 66,948
 124,162
Miscellaneous 13,134
 3,568
 16,702
Total revenues from contracts with customers 1,010,898
 366,310
 1,377,208
Alternative revenue programs 1,987
 (2,529) (542)
Other electric operating revenues 80,937
 
 80,937
Total Electric Operating Revenues $1,093,822
 $363,781
 $1,457,603
       
Year Ended December 31, 2018      
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $433,009
 $130,288
 $563,297
Commercial 408,333
 111,261
 519,594
Industrial 61,119
 17,317
 78,436
Public authority 21,688
 5,609
 27,297
Economy energy service 26,764
 
 26,764
Transmission 54,280
 66,991
 121,271
Miscellaneous 14,098
 8,983
 23,081
Total revenues from contracts with customers 1,019,291
 340,449
 1,359,740
Alternative revenue programs (2,443) 4,199
 1,756
Other electric operating revenues 75,117
 
 75,117
Total Electric Operating Revenues $1,091,965
 $344,648
 $1,436,613


Contract Balances

Performance obligations related to contracts with customers are typically satisfied when the energy is delivered and the customer or end-user utilizes the energy. Accounts receivable from customers represent amounts billed, including amounts under ARP programs. For PNM, accounts receivable reflected on the Consolidated Balance Sheets, net of allowance for uncollectible accounts, includes $59.3 million and $61.7 million at December 31, 2019 and 2018 resulting from contracts with customers. All of TNMP’s accounts receivable results from contracts with customers.

Contract assets are an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance). The Company has 0 contract assets as of December 31, 2019. Contract liabilities arise when consideration is received in advance

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

from a customer before satisfying the performance obligations. Therefore, revenue is deferred and not recognized until the obligation is satisfied. Under its OATT, PNM accepts upfront consideration for capacity reservations requested by transmission customers, which requires PNM to defer the customer’s transmission capacity rights for a specific period of time. PNM recognizes the revenue of these amountscapacity reservations over the period it defers the customer’s capacity rights. Other utilities pay PNM and TNMP in advance for the joint-use of their utility poles. These revenues are recognized over the period of time specified in the joint-use contract, typically for one calendar year. Deferred revenues on these arrangements are recorded as regulatory assets orcontract liabilities. Based on prior regulatory approvals, the amortization of these amounts will be included in the Company’s rates.

Based onPNMR’s, PNM’s, and TNMP’s contract liabilities and related revenues are insignificant for all periods presented. The Company has no other arrangements with remaining performance obligations to which a current evaluationportion of the various factors and conditions that are expectedtransaction price would be required to impact future cost recovery, the Company believes that future recovery of its regulatory assets is probable.be allocated.


(5)Earnings and Dividends Per Share
In accordance with GAAP, dual presentation of basic and diluted earnings per share has been presented in the Consolidated Statements of Earnings of PNMR. Information regarding the computation of earnings per share and dividends per share is as follows:
 Year Ended December 31,
 2019 2018 2017
 (In thousands, except per share amounts)
Net Earnings Attributable to PNMR$77,362
 $85,642
 $79,874
Average Number of Common Shares:     
Outstanding during year79,654
 79,654
 79,654
Vested awards of restricted stock277
 236
 237
Average Shares – Basic79,931
 79,890
 79,891
Dilutive Effect of Common Stock Equivalents:     
Stock options and restricted stock59
 122
 250
Average Shares – Diluted79,990
 80,012
 80,141
Net Earnings Attributable to PNMR Per Share of Common Stock:     
Basic$0.97
 $1.07
 $1.00
Diluted$0.97
 $1.07
 $1.00
Dividends Declared per Common Share$1.1775
 $1.0850
 $0.9925

(6)Stockholders’ Equity
Common Stock and Equity Contributions
PNMR, PNM, and TNMP did not issue any common stock during the three yearthree-year period ended December 31, 2017.2019. PNMR fundeddid 0t fund any cash equity contributions of $28.1to PNM during the three-year period ended December 31, 2019, and funded $80.0 million in 2016 and $175.02019, $30.0 million in 2015 to PNM2018 and $50.0 million in 2017 and $50.0 million in 2016 to TNMP. PNMR offers shares of PNMR common stock through the PNMR Direct Plan. PNMR utilizes shares of its common stock purchased on the open market, by an independent agent, rather than issuing additional shares to satisfy subscriptions under the PNMR Direct Plan. The shares of PNMR common stock utilized in the PNMR Direct Plan are offered under a SEC shelf registration statement that expires in August 2018.March 2021. See Note 7 regarding the planned issuance of common stock under the PNMR 2020 Forward Equity Sale Agreements.
Dividends on Common Stock
The declaration of common dividends by PNMR is dependent upon a number of factors, including the ability of PNMR’s subsidiaries to pay dividends. PNMR’s primary sources of dividends are its operating subsidiaries.
PNM declared and paid cash dividends to PNMR of $60.70, $77.4 million,, $4.1 and $60.7 million, in 2019, 2018, and $94.4 million in 2017, 2016,2017. TNMP declared and 2015. TNMP paid cash dividends to PNMR of $44.4$55.3 million,, $31.8 $41.9 million,, and $33.2$44.4 million in 2017, 2016,2019, 2018, and 2015.2017.
The NMPRC has placed certain restrictions on the ability of PNM to pay dividends to PNMR, including the restriction that PNM cannot pay dividends that cause its debt rating to fall below investment grade. The NMPRC provisions allow PNM to pay dividends, without prior NMPRC approval, from current earnings, which is determined on a rolling four quarter basis, or from equity contributions previously made by PNMR. The Federal Power Act also imposes certain restrictions on dividends by public utilities, including that dividends cannot be paid from paid-in capital. ThePrior to July 2018, the Company’s revolving credit facilities

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

and term loans containcontained a covenant requiring the maintenance of debt-to-capitaldebt-to-capitalization ratios of not moreless than or equal to 65%, which. In July 2018, PNMR’s revolving credit facility and term loans 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 requirements remain at less than or equal to 65% for PNM and TNMP. These debt-to-capitalization ratio requirements could limit the amounts of dividends that could be paid. PNM also has other financial covenants that limit the transfer of assets, through dividends or other means, including a requirement to obtain the approval of certain financial counterparties to transfer more than five5 percent of PNM’s assets. As of December 31, 2017:2019, none of the numerical tests would restrict the payment of dividends from the retained earnings of TNMP;TNMP, restrictions related to retained earnings under the transfer of assets limitation would allowFederal Power Act may limit the payment of dividends by PNM of up to $246.1 million;$283.5 million, and the 65% debt-to-capital70% debt-to-capitalization covenant would allow the payment of dividends by PNMR of up to $133.9$257.6 million.
 
In addition, the ability of PNMR to declare dividends is dependent upon the extent to which cash flows will support dividends, the availability of retained earnings, financial circumstances and performance, current and future regulatory decisions, Congressional and legislative acts, and economic conditions. Conditions imposed by the NMPRC or PUCT, future growth plans and related capital requirements, and business considerations may also affect PNMR’s ability to pay dividends.
Preferred Stock
PNM’s cumulative preferred shares outstanding bear dividends at 4.58% per annum. PNM preferred stock does not have a mandatory redemption requirement, but may be redeemed, at PNM’s option, at 102% of the stated value plus accrued dividends. The holders of the PNM preferred stock are entitled to payment before the holders of common stock in the event of any liquidation or dissolution or distribution of assets of PNM. In addition, PNM’s preferred stock is not entitled to a sinking fund and cannot be converted into any other class of stock of PNM.
PNMR and TNMP have no0 preferred stock outstanding. The authorized shares of PNMR and TNMP preferred stock are 10 million shares and 1 million shares.


(6)(7)Financing

The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities or refinance other debt. EachPrior to July 2018, each of the Company’s revolving credit facilities and term loans containscontained a single financial covenant, which requiresrequired the maintenance of a debt-to-capitaldebt-to-capitalization ratio of less than or equal to 65%,. In July 2018, the PNMR and the PNMR Development agreements were each amended such that each 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 includecontain customary covenants, events of default, cross defaultcross-default provisions, and change of controlchange-of-control provisions.

PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC.

Financing Activities
PNMR


At January 1, 2015,2017, PNMR had outstanding the one-year $100.0 million PNMR Term Loan Agreement, which was due in December 2015. In December 2015, PNMR entered into an agreement that extended the maturity date for an additional year and increased the amount outstanding to $150.0 million. The PNMR Term Loan Agreement was repaid on December 21, 2016.

On March 9, 2015, PNMR entered into a $150.0 million Term Loan Agreement (the “PNMR 2015 Term Loan Agreement”) between PNMR, the lenders identified therein, and Wells Fargo Bank, National Association, as lender and administrative agent. The PNMR 2015 Term Loan, Agreement bears interest at a variable rate, which was 2.34% at December 31, 2017,matured and must bewas repaid on or before March 9, 2018.

At January 1, 2015, PNMR had an aggregate outstanding principal amount of $118.8 million of its 9.25% Senior Unsecured Notes, Series A, which were due on May 15, 2015. PNMR repaid all of the 9.25% Senior Unsecured Notes at the scheduled maturity, utilizing proceeds from the PNMR 2015 Term Loan Agreement and borrowings under the PNMR Revolving Credit Facility.


As discussed in Note 16, at January 1, 2018, NM Capital, a wholly-owned subsidiary of PNMR, entered into ahad outstanding $50.1 million of the $125.0 million term loan agreement (the “BTMU Term Loan Agreement”Loan”) with BTMU, as lender and administrative agent, as of February 1, 2016. The BTMU Term Loan Agreement has a maturity of February 1, 2021 and bears interest at a rate based on LIBOR plus a customary spread, which aggregated 4.13% at December 31, 2017.BTMU. PNMR, as parent company of NM Capital, has guaranteed NM Capital’s obligations to BTMU. NM Capital utilized the proceeds of the BTMU Term Loan Agreement to provide funding of $125.0 million (the “Westmoreland Loan”) to a ring-fenced, bankruptcy-remote, special-purpose entity that is a subsidiary of Westmoreland Coal Company to finance Westmoreland’s purchase of SJCC. The BTMU Term Loan Agreement requiresagreement required that NM Capital utilize all amounts, less taxes and fees, it receivesreceived under the Westmoreland Loan to repay the BTMU Term Loan Agreement. TheLoan. On May 22, 2018, the full principal balance outstanding under the BTMU TermWestmoreland Loan Agreement wasof $50.1 million at December 31, 2017 and $45.1 million at February 20, 2018. Based on scheduled payments on the Westmoreland Loan and WSJ’s payment of $5.6 million on February 1, 2018, (which included $4.8 million in excesswas repaid. NM Capital used a portion of the scheduled payment), NM Capital estimates it will makeproceeds to repay all remaining principal payments of $10.6$43.0 million onowed under the BTMU Term Loan Agreement inLoan. These payments effectively terminated the year ended loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated. See Note 10.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 including the payment made on Februaryand 2017


At January 1, 2018 of $5.0 million (which included $3.3 million in excess of the payment previously scheduled).

On October 21, 2016,2017, PNMR entered into letterhad 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 iswas required to post in connection with permits relating to the operation of the San Juan mine (Note 16).mine. On March 15, 2019, WSJ LLC acquired the assets of SJCC following the bankruptcy of Westmoreland. WSJ LLC assumed the obligations to PNMR under the letters of credit support. See Note 16.


On December 21, 2016,January 1, 2017, PNMR entered into twohad outstanding 2 term loan agreements: (1) a $100.0 million term loan agreement (the “PNMR 2016 One-Year Term Loan”) among PNMR, the lenders identified therein, and Wells Fargo Bank, National Association, as administrative agent, that was to mature on December 21, 2017; and (2) a $100.0 million term loan agreement (the “PNMR 2016 Two-Year Term Loan”) among PNMR and JPMorgan Chase Bank, N.A., as lender and administrative agent, that maturesmatured on December 21, 2018. The proceeds of the term loans were used to repay the $150.0 million PNMR Term Loan Agreement and to reduce borrowings under the PNMR Revolving Credit Facility. On December 15, 2017, the PNMR 2016 One-Year Term Loan was extended to December 14, 2018. TheIn December 2018, both the PNMR 2016 One-Year Term Loan (as extended) and the PNMR 2016 Two-Year Term Loan bearwere repaid.

On March 9, 2018, PNMR issued $300.0 million aggregate principal amount of 3.25% SUNs (the “PNMR 2018 SUNs”), which mature on March 9, 2021. The proceeds from the offering were used to repay the $150.0 million PNMR 2015 Term Loan that was due on March 9, 2018 and to reduce borrowings under the PNMR Revolving Credit Facility.

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 short-term borrowings under the PNMR Development’s revolving credit facility and to repay borrowings under its intercompany loan from PNMR. The PNMR Development Term Loan bears interest at a variable rates,rate, which was 2.60% on December 31, 2019, and matures on November 26, 2020. PNMR, as parent company of PNMR Development, has guaranteed PNMR Development’s obligations under the loan. The PNMR Development Term Loan requires PNMR to maintain a debt-to-capitalization ratio of less than or equal to 70%, and contains customary events of default, a cross-default provision, and a change-of-control provision.

On December 14, 2018, PNMR entered into a $150.0 million term loan agreement (the “PNMR 2018 One-Year Term Loan”) among PNMR, the lenders identified therein, and MUFG Bank, Ltd., as administrative agent. The proceeds from the PNMR 2018 One-Year Term Loan were 2.32%used to repay the PNMR 2016 One-Year Term Loan (as extended), a portion of the PNMR 2016 Two-Year Term Loan, and 2.32%for general corporate purposes. On December 13, 2019, the PNMR 2018 One-Year Term Loan was extended to June 11, 2021 (as extended, the “PNMR 2019 Term Loan”). The PNMR 2019 Term Loan bears interest at a variable rate, which was 2.70% at December 31, 2017.2019.


On December 21, 2018, PNMR entered into a $50.0 million term loan agreement (the “PNMR 2018 Two-Year Term Loan”), between PNMR and Bank of America, N.A. as sole lender. Proceeds from the PNMR 2018 Two-Year Term Loan were used to repay the remaining amount owed under the PNMR 2016 Two-Year Term Loan and for general corporate purposes. The PNMR 2018 Two-Year Term Loan bears interest at a variable rate, which was 2.60% at December 31, 2019, and matures on December 21, 2020.

On January 7, 2020, PNMR entered into forward sale agreements with each of Citibank N.A., and Bank of America N.A., as forward purchases and an underwriting agreement with Citigroup Global Markets Inc., and BofA Securities, Inc. as representatives of the underwriters named therein, relating to an aggregate of approximately 6.2 million shares of PNMR common stock (including 0.8 million shares of PNMR common stock pursuant to the underwriters’ option to purchase additional shares) with each of Citibank N.A., and Bank of America N.A., as forward purchasers (the “PNMR 2020 Forward Equity Sales Agreements”). On January 8, 2020, the underwriters exercised in full their option to purchase an additional 0.8 million shares of PNMR common stock and PNMR entered into separate forward sales agreements with respect to the additional shares. The initial forward sale price of $47.21 per share is subject to adjustments based on a net interest rate factor and by expected future dividends paid on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates. PNMR expects to physically settle all shares under the agreements on or before January 7, 2021 at the then applicable forward sales price. Pursuant to a cash settlement of the PNMR 2020 Forward Equity Sales Agreements, PNMR would expect to receive significantly lower net proceeds or may owe cash, which could be a significant amount, to the forward purchasers. Under a net share settlement, PNMR would not receive any cash proceeds and may be required to deliver shares of PNMR common stock to the forward purchasers. The forward sale agreements meet the derivative scope exception requirements for contracts involving an entity’s own equity. Until settlement of the forward sale agreements, PNMR’s EPS dilution resulting from the agreements, if any, will be determined using the treasury stock method, which will result in dilution during periods when the average market price of PNMR stock during the reporting period is higher than the applicable forward sales price as of the end of that period.


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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


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
On January 1, 2015, PNM had a $125.0 million multi-draw term loan facility (the “PNM Multi-draw Term Loan”) that had outstanding borrowings of $100.0 million and a maturity date of June 21, 2016. PNM drew the remaining capacity of $25.0 million on May 8, 2015. The PNM Multi-draw Term Loan was repaid on May 20, 2016.


At January 1, 2015,2017, PNM had a $39.3 million series of outstanding Senior Unsecured Notes, Pollution Control Revenue Bonds, which have a final maturity of June 1, 2043. These PCRBs were subject to mandatory tender for remarketing on June 1, 2015 and were successfully remarketed on that date. The notes now bear interest at 2.45%, continue to have an outstanding amount of $39.3 million, and are subject to mandatory tender for remarketing on June 1, 2020.

On August 11, 2015, PNM issued $250.0 million aggregate principal amount of its 3.850% Senior Unsecured Notes due 2025. The notes will mature on August 1, 2025. Portions of the proceeds from the offering were used to repay an existing $175.0 million term loan and to repay outstanding borrowings under the PNM Revolving Credit Facility, the PNM 2014 New Mexico Credit Facility, and PNM’s intercompany loan from PNMR.

On May 20, 2016, PNM entered into a $175.0 million term loan agreement (the “PNM 2016 Term Loan Agreement”Loan”) between PNM and JPMorgan Chase Bank, N.A., as lender and administrative agent.that matured on November 17, 2017. The PNM 2016 Term Loan Agreement bore interest at a variable rate and had a maturity date of November 17, 2017. PNM used a portion of the proceeds of the PNM 2016 Term Loan Agreement to prepay without penalty the $125.0 million outstanding under the PNM Multi-draw Term Loan. The PNM 2016 Term Loan Agreement was repaid on July 20, 2017.

On September 27, 2016, PNM participated in the issuance and sale of an aggregate of $146.0 million of PCRBs by the City of Farmington, New Mexico. The proceeds from the sale were utilized to refund an aggregate of $146.0 million of outstanding PCRBs previously issued by the City of Farmington. The arrangements governing the PCRBs result in PNM reflecting the bonds as debt on its financial statements. The PCRBs bear interest at a rate of 1.875% for the period from September 27, 2016 through September 30, 2021, have a mandatory tender for remarketing on October 1, 2021, and a final maturity on April 1, 2033.


At January 1, 2015,2017, PNM had $37.0 million of outstanding PCRBs, which have a final maturity of June 1, 2040, and $20.0 million of outstanding PCRBs which have a final maturity of June 1, 2042. These PCRBs were subject to mandatory tender for remarketing on June 1, 2017 and were successfully remarketed on that date. The $37.0 million of PCRBs now bear interest at 2.125% and the $20.0 million of PCRBs now bear interest at 2.45%. Both series are now subject to mandatory tender for remarketing on June 1, 2022.


On July 20, 2017, PNM entered into a $200.0 million term loan agreement (the “PNM 2017 Term Loan Agreement”Loan”) between PNM and JPMorgan Chase Bank, N.A., as lender and administrative agent, and U.S. Bank National Association, as lender. The PNM 2017 Term Loan Agreement bears interest at a variable rate, which was 2.29% at December 31, 2017, and must be repaid on or before January 18, 2019. PNM used the proceeds of the PNM 2017 Term Loan Agreement to prepay without penalty the $175.0 million PNM 2016 Term Loan Agreement and to reduce short-term borrowings. The PNM 2017 Term Loan was repaid on January 18, 2019.


On July 28, 2017, PNM entered into an agreement (the “PNM 2017 Senior Unsecured Note Agreement”) with institutional investors for the sale of $450.0 million aggregate principal amount of eight series of Senior Unsecured Notes (the “PNM 2018 SUNs”) offered in private placement transactions. Under theOn May 14, 2018, PNM 2017 Senior Unsecured Note Agreement, PNM has agreed to issueissued $350.0 million of the PNM 2018 SUNs under that agreement (at fixed annual interest rates ranging from 3.15% to 4.50% for terms between 5 and 30 years) and used the proceeds to repay an equal amount of PNM’s 7.95% SUNs that matured on or about May 15, 2018. On July 31, 2018, andPNM issued the remaining $100.0 million of the PNM 2018 SUNs on or about August 1, 2018. The issuances(at fixed annual interest rates of 3.78% and 4.60% for terms of 10 and 30 years) and used the PNM 2018 SUNs are subject to the satisfaction of customary conditions. PNM will use the gross proceeds from the PNM 2018 SUNs to repay $350.0 million of PNM’s 7.95% Senior Unsecured Notes that mature on May 15, 2018 and $100.0 millionan equal amount of PNM’s 7.50% Senior Unsecured Notes that matureSUNs on August 1, 2018. The terms of the PNM 2017 Senior Unsecured Note Agreement includeincludes customary covenants, including a covenant that requires the maintenance of a debt-to-capitaldebt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross defaultcross-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 2018 SUNs at par. PNM will have the right to redeem any or all of the PNM 2018 SUNs prior to their respective maturities, subject to payment of a customary make-whole premium. In accordance

On April 9, 2018, PNMR Development deposited $68.2 million with GAAP, aggregate borrowingsPNM related to potential transmission network interconnections. PNM used the deposit to repay intercompany borrowings. PNM was required to pay interest to PNMR Development to the extent work under the interconnections has not been performed. The entire deposit of $450.0$68.2 million and accrued interest of $5.7 million was refunded in November 2019. The interconnection deposit and related refund is presented in financing activities and the interest payment is presented in operating activities on PNM’s Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018. During the years ended December 31, 2019 and December 31, 2018, PNM recognized $3.3 million and $2.4 million of interest expense under the agreement. At December 31, 2018, PNM’s Senior Unsecured Notes dueobligation under the interconnection agreement with PNMR Development of $68.2 million, excluding unpaid interest, is reflected in other deferred credits on May 15, 2018 and August 1, 2018, are reflected as being long-term in thePNM’s Consolidated Balance SheetSheets. As required by GAAP, all intercompany transactions related to this deposit have been eliminated on PNMR’s Consolidated Financial Statements.

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 bears interest at a variable rate, which was 2.45% at December 31, 2017 since2019, and must be repaid on or before July 17, 2020.

On December 18, 2019, PNM entered into a $40.0 million term loan agreement (the “PNM 2019 $40.0 million Term Loan”), between PNM and Bank of America, N.A. as sole lender and administrative agent. PNM used the proceeds of the PNM 2017 Senior Unsecured2019 $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 2.39% at December 31, 2019, and must be repaid on or before June 18, 2021.

See discussion of PNM’s SJGS Abandonment Application in Note Agreement demonstrates PNM’s ability and intent17, which includes a request to re-financeissue approximately $361 million of energy transition bonds, as provided by the aggregate $450.0 million Senior Unsecured Notes on aETA, upon the proposed retirement of SJGS in 2022.



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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

long-term basis. Information concerning the maturities and interest rates on the PNM 2018 SUNs to be issued in May2019, 2018 and August 2018 is as follows:
2017
Scheduled      
Funding Maturity Principal Interest
Date Date Amount Rate
    (In millions)  
       
May 15, 2018 May 15, 2023 $55.0
 3.15%
May 15, 2018 May 15, 2025 104.0
 3.45%
May 15, 2018 May 15, 2028 88.0
 3.68%
May 15, 2018 May 15, 2033 38.0
 3.93%
May 15, 2018 May 15, 2038 45.0
 4.22%
May 15, 2018 May 15, 2048 20.0
 4.50%
    350.0
  
August 1, 2018 August 1, 2028 15.0
 3.78%
August 1, 2018 August 1, 2048 85.0
 4.60%
    100.0
  
    $450.0
  


PNM has a shelf registration statement, which will expire in May 2020, with capacity for the issuance of up to $475.0 million of senior unsecured notes.
TNMP

On December 17, 2015, TNMP entered into an agreement (the “TNMP 2015 Bond Purchase Agreement”), which provided that TNMP would issue $60.0 million aggregate principal amount of 3.53% first mortgage bonds, due 2026 on or about February 10, 2016, subject to satisfaction of certain conditions. TNMP issued the bonds on February 10, 2016 and used the proceeds to reduce short-term debt and intercompany debt.


On June 14, 2017, TNMP entered into an agreement (the “TNMP 2017 Bond Purchase Agreement”), which provided TNMP would issue $60.0 million aggregate principal amount of 3.22% first mortgage bonds, due 2027, on or about August 25, 2017, subject to satisfaction of certain conditions. TNMP issued the bonds on August 24, 2017 and used the proceeds to reduce short-term and intercompany debt and for general corporate purposes.


On June 28, 2018, TNMP entered into an agreement under which TNMP issued $60.0 million aggregate principal amount of 3.85% first mortgage bonds, due 2028.

On July 25, 2018, TNMP entered into a $20.0 million term loan agreement. On December 17, 2018, the TNMP 2018 Term Loan agreement was amended to provide additional funding of $15.0 million, which results in a total committed amount of $35.0 million under the agreement (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 4 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 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 borrowing 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 borrowing under the TNMP Revolving Credit Facility and for general corporate purposes. The terms of the TNMP 2019 Bond Purchase Agreement include customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP 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.

Interest Rate Hedging Activities


In September 2015,At January 1, 2017, PNMR entered intohad a hedging agreement whereby itthat 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 PNMR 2015 Term Loan Agreement for the period from January 11, 2016 through its maturity on March 9, 2018. In 2017, PNMR entered into three3 separate four-year hedging agreements whereby itthat 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 three3 separate tranches, each of $50.0 million, of its variable rate debt.


These hedge agreements are accounted for as cash flow hedges. Thehedges and had fair valuevalues of the hedge related to the PNMR 2015 Term Loan Agreement was a gain of $0.2$0.4 million at December 31, 2017 and is$1.0 million that are included in Otherother current liabilities and other current assets on the Consolidated Balance Sheets and a loss of less than $0.1 million at December 31, 2016. At December 31, 2017,2019 and 2018. As discussed in Note 3, changes in the remaining hedge agreements had fair value gains totaling $1.4 million, whichof the cash flow hedges are includeddeferred in Other current assets onAOCI and amounts reclassified to the Condensed Consolidated Balance Sheets.Statement of Earnings are recorded in interest charges. The fair values were determined using Level 2 inputs under GAAP, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement. On January 1, 2019, the Company adopted Accounting Standards Update 2017-12- Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. Adoption of the updated standard did not have a significant impact on these cash flow hedges.
Borrowing Arrangements Between PNMR and its Subsidiaries
PNMR has one-year intercompany loan agreements with its subsidiaries. Individual subsidiary loan agreements vary in amount up to $100.0 million and have either reciprocal or non-reciprocal terms. Interest charged to the subsidiaries is equivalent to interest paid by PNMR on its short-term borrowings or the money-market interest rate if PNMR does not have any short-term borrowings outstanding. TNMP had no outstanding0 borrowings from PNMR at December 31, 2017 or2019 and 0 borrowings at February 20, 2018,21, 2020. TNMP had outstanding borrowings of $0.1 million from PNMR at December 31, 2018. PNM had 0 borrowings from PNMR at December 31, 2019 and 0 borrowings at February 21, 2020. PNM had outstanding borrowings of $19.8 million from PNMR at December 31, 2018.


Short-term Debt

Currently, the PNMR Revolving Credit Facility has a financing capacity of $300.0 million and the PNM Revolving Credit Facility has a financing capacity of $400.0 million. Both facilities currently expire on October 31, 2023 and contain options to

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


$4.6 million at December 31, 2016. PNM had no outstanding borrowings from PNMR at December 31, 2017, December 31, 2016, or February 20, 2018.

Short-term Debt

Currently, the PNMR Revolving Credit Facility hasbe extended through October 2024, subject to approval by a financing capacity of $300.0 million and the PNM Revolving Credit Facility has a financing capacity of $400.0 million. PNMR and PNM have entered into agreements to extend the maturity of both facilities from October 31, 2020 to October 31, 2022. However, one lender, whose current commitment is $10.0 million under the PNMR Revolving Credit Facility and $40.0 million under the PNM Revolving Credit Facility, did not agree to extend its commitments beyond October 31, 2020. Unless one or moremajority of the other current lenders or a new lender assumes the commitments of the non-extending lender, the financing capacities will be reduced to $290.0 million for the PNMR Revolving Credit Facility and $360.0 million for the PNM Revolving Credit Facility from November 1, 2020 through October 31, 2022.lenders. The TNMP Revolving Credit Facility is a $75.0 million revolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds. In September 2017, the TNMP Revolving Credit Facility was extended to mature on September 23, 2022.
At January 1, 2015,2017, PNM had a $50.0 million unsecured revolving credit facility (the “PNM 2014 New Mexico Credit Facility”) that was scheduled to expire on January 8, 2018. On December 12, 2017, PNM entered into a new $40.0 million unsecured revolving credit facility (the “PNM 2017 New Mexico Credit Facility”) by and among PNM, the lenders identified therein, U.S. Bank National Association, as Administrative Agent, and BOKF, NA dba Bank of Albuquerque, as Syndication Agent to replace the PNM 2014 New Mexico Credit Facility. The eight8 participating lenders are all banks that have a significant presence or are headquartered in New Mexico. The PNM 2017 New Mexico Credit Facility expires on December 12, 2022 and contains covenants and conditions similar to those in the PNM Revolving Credit Facility.


On February 26, 2018, PNMR Development entered into a revolving credit facility with Wells Fargo Bank, National Association, as lender, which allowed PNMR Development to borrow up to $24.5 million on a revolving credit basis and also provides for the issuance of letters of credit. On February 22, 2019, PNMR Development amended its $24.5 million revolving credit facility to increase the capacity to $25.0 million. On July 22, 2019, the PNMR Development Revolving Credit Facility was amended to increase the capacity to $40.0 million with the option to further increase the capacity to $50 million upon 15-days advance notice. On February 21, 2020, PNMR Development extended the revolving credit facility to expire on February 23, 2021. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities.

Short-term debt outstanding consists of:
 December 31, December 31,
Short-term Debt 2017 2016 2019 2018
 (In thousands) (In thousands)
PNM:        
PNM Revolving Credit Facility $39,800
 $35,000
 $48,000
 $32,400
PNM 2014 New Mexico Credit Facility 
 26,000
PNM 2017 New Mexico Credit Facility 
 
 10,000
 10,000
 39,800
 61,000
 58,000
 42,400
TNMP Revolving Credit Facility 
 
 15,000
 17,500
PNMR:        
PNMR Revolving Credit Facility 165,600
 126,100
 112,100
 20,000
PNMR 2016 One-Year Term Loan 100,000
 100,000
PNMR 2018 One-Year Term Loan 
 150,000
PNMR Development Revolving Credit Facility 
 6,000
 $305,400
 $287,100
 $185,100
 $235,900
In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $6.4$4.7 million,, $2.5 $2.5 million,, and $0.1$0.1 million at December 31, 20172019 that reduce the available capacity under their respective revolving credit facilities. In addition, PNMR had $30.3 million of letters of credit outstanding under the JPM LOC Facility. At December 31, 2017,2019, interest rates on outstanding borrowings were 2.76%3.02% for the PNMR Revolving Credit Facility, and 2.59%2.87% for the PNM Revolving Credit Facility, 2.84% for the PNM 2017 New Mexico Credit Facility, and 2.47% for the TNMP Revolving Credit Facility. There were 0 borrowings outstanding under the PNMR Development Revolving Credit Facility at December 31, 2019.


At February 20, 2018,21, 2020, PNMR, PNM, and TNMP had $111.2$151.5 million, $340.1$362.1 million, and $51.0$31.8 million of availability under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit, andcredit. PNM also had $20.0$10.0 million of availability under the PNM 2017 New Mexico Credit Facility and PNMR Development had $40.0 million of availability under the PNMR Development Revolving Credit Facility. Total availability at February 20, 2018,21, 2020, on a consolidated basis, was $522.3$595.4 million for PNMR. At February 20, 2018,21, 2020, PNMR, PNM, and TNMP had invested cash of $0.9 million. PNMmillion, 0, and TNMP had no invested cash at February 20, 2018.0.


On February 26, 2018, PNMR Development entered into a $24.5 million credit facility with Wells Fargo Bank, National Association, as lender. The facility allows PNMR Development to borrow on a revolving credit basis and also provides for the issuance of letters of credit. The facility matures on February 25, 2019. The facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development anticipates using the facility to finance its participation in NMRD (Note 1).


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


Long-Term Debt


As discussed above, on January 18, 2019, PNM entered into the $250.0 million PNM 2019 Term Loan and used a portion of the proceeds under that agreement to repay the $200.0 million PNM 2017 Term Loan on that date. On February 26, 2019, TNMP entered into the TNMP 2019 Bond Purchase Agreement under which an aggregate of $305.0 million of TNMP 2019 Bonds were issued on March 29, 2019 and July 1, 2019. TNMP used a portion of the proceeds from the TNMP 2019 Bonds to repay the $172.3 million 9.50% TNMP first mortgage bonds due on April 1, 2019. In accordance with GAAP, borrowings under the $200.0 million PNM 2017 Term Loan and the $172.3 million 9.50% TNMP first mortgage bonds are reflected as being long-term in the Consolidated Balance Sheets at December 31, 2018 since PNM and TNMP demonstrated their intent and ability to re-finance these agreements on a long-term basis.

Information concerning long-term debt outstanding and unamortized (premiums), discounts, and debt issuance costs is as follows:
 December 31, 2017 December 31, 2016 December 31, 2019 December 31, 2018
 Principal Unamortized Discounts, (Premiums), and Issuance Costs, net Principal Unamortized Discounts, (Premiums), and Issuance Costs, net Principal Unamortized Discounts, (Premiums), and Issuance Costs, net Principal Unamortized Discounts, (Premiums), and Issuance Costs, net
 (In thousands) (In thousands)
PNM Debt                
Senior Unsecured Notes, Pollution Control Revenue Bonds:                
1.875% due April 2033, mandatory tender - October 1, 2021 $146,000
 $1,383
 $146,000
 $1,807
 $146,000
 $662
 $146,000
 $1,022
6.25% due January 2038 36,000
 228
 36,000
 239
 36,000
 205
 36,000
 216
4.75% due June 2040, mandatory tender - June 1, 2017 
 
 37,000
 25
2.125% due June 2040, mandatory tender - June 1, 2022 37,000
 404
 
 
 37,000
 224
 37,000
 314
5.20% due June 2040, mandatory tender - June 1, 2020 40,045
 105
 40,045
 147
 40,045
 17
 40,045
 62
5.90% due June 2040 255,000
 2,040
 255,000
 2,131
 255,000
 1,857
 255,000
 1,950
6.25% due June 2040 11,500
 92
 11,500
 96
 11,500
 84
 11,500
 88
2.54% due September 2042, mandatory tender - June 1, 2017 
 
 20,000
 67
2.45% due September 2042, mandatory tender - June 1, 2022 20,000
 153
 
 
 20,000
 85
 20,000
 119
2.40% due June 2043, mandatory tender - June 1, 2020 39,300
 243
 39,300
 340
 39,300
 50
 39,300
 146
5.20% due June 2043, mandatory tender - June 1, 2020 21,000
 53
 21,000
 75
 21,000
 10
 21,000
 31
Senior Unsecured Notes:                
7.95% due May 2018 350,000
 272
 350,000
 995
7.50% due August 2018 100,025
 73
 100,025
 197
5.35% due October 2021 160,000
 617
 160,000
 780
 160,000
 292
 160,000
 455
3.15% due May 2023 55,000
 261
 55,000
 338
3.45% due May 2025 104,000
 562
 104,000
 666
3.85% due August 2025 250,000
 2,274
 250,000
 2,574
 250,000
 1,675
 250,000
 1,974
PNM 2016 Term Loan Agreement due November 2017 
 
 175,000
 28
PNM 2017 Term Loan Agreement due January 2019 200,000
 23
 
 
3.68% due May 2028 88,000
 518
 88,000
 581
3.78% due August 2028 15,000
 91
 15,000
 101
3.93% due May 2033 38,000
 238
 38,000
 256
4.22% due May 2038 45,000
 291
 45,000
 307
4.50% due May 2048 20,000
 133
 20,000
 138
4.60% due August 2048 85,000
 570
 85,000
 590
PNM 2017 Term Loan due January 2019 
 
 200,000
 1
PNM 2019 $250.0 Million Term Loan due July 2020 250,000
 
 
 
PNM 2019 $40.0 Million Term Loan due June 2021 40,000
      

 1,665,870
 7,960
 1,640,870
 9,501
 1,755,845
 7,825
 1,665,845
 9,355
Less current maturities 25
 2
 232,000
 120
 350,345
 77
 
 

 1,665,845
 7,958
 1,408,870
 9,381
 1,405,500
 7,748
 1,665,845
 9,355
TNMP Debt        
First Mortgage Bonds:        
9.50% due April 2019 172,302
 1,032
 172,302
 1,857
6.95% due April 2043 93,198
 (18,057) 93,198
 (18,773)
4.03% due July 2024 80,000
 686
 80,000
 792
3.53% due February 2026 60,000
 667
 60,000
 749
3.22% due August 2027 60,000
 552
 
 
 465,500
 (15,120) 405,500
 (15,375)        
Less current maturities 
 
 
 
 465,500
 (15,120) 405,500
 (15,375)
PNMR Debt        
PNMR 2015 Term Loan Agreement due March 2018 150,000
 12
 150,000
 84
BTMU Term Loan Agreement, payments through February 2021 50,137
 1,001
 92,207
 1,634
PNMR 2016 Two-Year Term Loan due December 2018 100,000
 9
 100,000
 21
 300,137
 1,022
 342,207
 1,739
Less current maturities 257,268
 396
 42,025
 557
 42,869
 626
 300,182
 1,182
Total Consolidated PNMR Debt 2,431,507
 (6,138) 2,388,577
 (4,135)
Less current maturities 257,293
 398
 274,025
 677
 $2,174,214
 $(6,536) $2,114,552
 $(4,812)


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017




  December 31, 2019 December 31, 2018
  Principal Unamortized Discounts, (Premiums), and Issuance Costs, net Principal Unamortized Discounts, (Premiums), and Issuance Costs, net
  (In thousands)
TNMP Debt        
First Mortgage Bonds:        
9.50% due April 2019 
 
 172,302
 206
6.95% due April 2043 93,198
 (16,632) 93,198
 (17,347)
4.03% due July 2024 80,000
 475
 80,000
 580
3.53% due February 2026 60,000
 502
 60,000
 585
3.22% due August 2027 60,000
 437
 60,000
 494
3.85% due June 2028 60,000
 531
 60,000
 584
3.79% due March 2034 75,000
 535
 
 
3.92% due March 2039 75,000
 542
 
 
4.06% due March 2044 75,000
 546
 
 
3.60% due July 2029 80,000
 571
 
 
TNMP 2018 Term Loan due July 2020 
 
 35,000
 
  658,198
 (12,493) 560,500
 (14,898)
Less current maturities 
 
 
 
  658,198
 (12,493) 560,500
 (14,898)
PNMR Debt        
PNMR 3.25% 2018 SUNs due March 2021 300,000
 917
 300,000
 1,690
PNMR Development Term Loan due November 2020 90,000
 42
 90,000
 88
PNMR 2018 Two-Year Term Loan due December 2020 50,000
 
 50,000
 
PNMR 2019 Term Loan due June 2021 150,000
 35
 
 
  590,000
 994
 440,000
 1,778
Less current maturities 140,000
 
 
 
  450,000
 994
 440,000
 1,778
Total Consolidated PNMR Debt 3,004,043
 (3,674) 2,666,345
 (3,765)
Less current maturities 490,345
 77
 
 
  $2,513,698
 $(3,751) $2,666,345
 $(3,765)

Reflecting mandatory tender dates, and the impacts of the refinancing under the PNM 2017 Senior Unsecured Note Agreement discussed above, long-term debt maturesmaturities as of December 31, 2019 are follows:
 PNMR PNM TNMP PNMR Consolidated
 (In thousands)
2020$140,000
 $350,345
 $
 $490,345
2021450,000
 346,000
 
 796,000
2022
 57,000
 
 57,000
2023
 55,000
 
 55,000
2024
 
 80,000
 80,000
Thereafter
 947,500
 578,198
 1,525,698
   Total$590,000
 $1,755,845
 $658,198
 $3,004,043

 PNMR PNM TNMP PNMR Consolidated
 (In thousands)
2018$257,268
 $25
 $
 $257,293
201912,357
 200,000
 172,302
 384,659
202025,862
 100,345
 
 126,207
20214,650
 306,000
 
 310,650
2022
 57,000
 
 57,000
Thereafter
 1,002,500
 293,198
 1,295,698
   Total$300,137
 $1,665,870
 $465,500
 $2,431,507


(7)(8)Lease Commitments

The Company leases office buildings, vehicles,enters into various lease agreements to meet its business needs and other equipment under operating leases. In addition, PNM leases interests in Units 1 and 2to satisfy the needs of PVNGS and, through April 1, 2015, leased an interest in the EIP transmission line. Many of PNM’s electric transmission and distribution facilities are located on lands that require the grant of rights-of-way from governmental entities, Native American tribes, or private parties. PNM has completed several renewals of rights-of-way, the largest of which is a renewal with the Navajo Nation, and has no significant rights-of-way that will expire within the next five years. PNM is obligated to pay the Navajo Nation annual payments of $6.0 million, subject to adjustment each year based on the Consumer Price Index, through 2029. All ofits customers. Historically, the Company’s leases as well as the Navajo Nation rights-of-way agreement, are accounted forwere classified as operating leases. See New Accounting Pronouncements in Note 1.

The PVNGS leases were entered into in 1985 and 1986 and initially were scheduled to expire on January 15, 2015 for the four Unit 1 leases and January 15, 2016 for the four Unit 2 leases. Each of the leases provided PNM with an option to purchase the leased assets at fair market value at the end of the leases, but PNM did not have a fixed price purchase option. In addition, the leases provided PNM with options to renew the leases at fixed rates set forth in each of theincluded leases for two years beyondgenerating capacity from PVNGS Units 1 and 2, certain rights-of-way agreements for transmission lines and facilities, vehicles and equipment necessary to construct and maintain the termination ofCompany’s assets, and building and office equipment. In February 2016, the original lease terms. The option periods on certain leases could be further extended for upFASB issued ASU 2016-02 – Leases (Topic 842) to an additional six years (the “Maximum Option Period”) if the appraised remaining useful lives and fair value of the leased assets were greater than parameters set forth in the leases. The rental payments during the fixed renewal option periods are 50% of the amounts during the original terms of the leases. Gross annual lease payments aggregated $33.0 million for the Unit 1 leases and $23.7 million for the Unit 2 leases prior to the expiration of their original terms.

Following procedures set forth in the PVNGS leases, PNM notified each of the four lessors under the Unit 1 leases and the lessor under the one Unit 2 lease containing the Maximum Option Period provision that it would elect to renew those leases for the Maximum Option Periodprovide guidance on the expiration daterecognition, measurement, presentation, and disclosure of leases. Among other things, ASU 2016-02 requires that all leases be recorded on the original leases. PNM and each of those lessors entered into amendments to each of the leases setting forth the terms and conditions that would implement the extension of the term of the leases through the agreed upon Maximum Option Period. The four Unit 1 leases now expire on January 15, 2023 and the one Unit 2 lease now expires on January 15, 2024. The annual payments during the renewal periods aggregate $16.5 millionbalance sheets by recognizing a present value liability for the PVNGS Unit 1 leases and $1.6 million for the Unit 2 lease, which are included in the table of future lease payments shown below.cash

For leases that were extended, the leases provide PNM with the option to purchase the leased assets at fair market value at the end of the extended lease terms. Each extended lease provides that no later than three years prior to the expiration of the lease, PNM is required to give notice to the lessor if it will “retain” the leased assets, through the purchase of the assets at the end of the lease, or “return” the leased assets to the lessor. The election made under each of the leases is irrevocable and independent of the elections made under the other leases. PNM has begun to analyze what action it will take with respect to each lease. If PNM elects to exercise its purchase option under any of the leases, PNM would attempt to negotiate the purchase price with the lessor of the lease. The leases provide an appraisal process to determine fair market value in the event the lessor and lessee cannot agree on a purchase price.


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

flows of the lease agreement and a corresponding right-of-use asset. The Company adopted Topic 842 on January 1, 2019, its required effective date. The Company elected to use many of the practical expedients available upon adoption of the standard. As a result, the Company will continue to classify its leases existing as of December 31, 2018 as operating leases until they expire or are modified. In addition, the Company elected the practical expedient to not reevaluate the accounting for land easements and rights-of-way agreements existing at December 31, 2018. The Company also elected the use of the practical expedient to apply the requirements of the new standard on its effective date and has not restated prior periods to conform to the new guidance. Adoption of the lease standard has a material impact on the Company’s Consolidated Balance Sheets but does not have a material impact on the Consolidated Statements of Earnings or the Consolidated Statements of Cash Flows.

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

PVNGS

PNM leases interests in Units 1 and 2 of PVNGS. The PVNGS leases were entered into in 1985 and 1986 and initially were scheduled to expire on January 15, 2015 for the 4 Unit 1 leases and January 15, 2016 and 2015


Forfor the three PVNGS4 Unit 2 leases that did not contain the Maximum Option Period provisions, PNM, followingleases. Following procedures set forth in the PVNGS leases, PNM notified each4 of the lessors under the Unit 1 leases and 1 lessor under the Unit 2 lease that PNMit would elect to purchase the assets underlyingrenew those leases on the expiration date of the original leases. PNMThe 4 Unit 1 leases now expire on January 15, 2023 and the lessors under these1 Unit 2 lease now expires on January 15, 2024. The annual lease payments during the renewal periods aggregate $16.5 million for PVNGS Unit 1 and $1.6 million for Unit 2.

The terms of each of the extended leases entered into agreements that establisheddo not provide for additional renewal options beyond their currently scheduled expiration dates. PNM has the option to purchase price, representing the assets underlying each of the extended leases at their fair market value or to bereturn the lease interests to the lessors on the expiration dates. Under the terms of the extended leases, PNM had until January 15, 2020 for the Unit 1 leases and has until January 15, 2021 for the Unit 2 lease to provide notices to the lessors of PNM’s intent to exercise the purchase options or to return the leased assets to the lessors. On January 3, 2020, PNM executed 60-day waivers of the deadline to provide notice of its intent to purchase or return the assets underlying the PVNGS Unit 1 leases. Under the waivers, PNM is required to provide notice by March 16, 2020. The waivers did not impact the PVNGS Unit 1 leases’ current January 15, 2023 expiration dates. PNM’s elections are independent for each lease and are irrevocable. In the proceeding addressing PNM’s 2017 IRP (Note 17), PNM agreed to promptly notify the NMPRC of a decision to extend the Unit 1 or 2 leases, or to exercise its option to purchase the leased assets at fair market value upon the expiration of leases. If PNM elects to exercise its purchase option under any of the leases, the leases provide an appraisal process to determine fair market value. If PNM elects to return the assets underlying the extended leases, PNM will retain certain obligations related to PVNGS, including costs to decommission the facility. PNM is depreciating its capital improvements related to the extended leases using NMPRC approved rates through the end of the NRC license period for each unit, which expire in June 2045 for Unit 1 and in June 2046 for Unit 2. Whether PNM retains or returns the assets underlying the extended leases, PNM will seek to recover its undepreciated investments, and any amounts paid by PNM forto purchase the assets, as well as any other obligations related to PVNGS from NM retail customers. Any transfer of the assets underlying the leases on January 15, 2016. On January 15, 2016, PNM paid $78.1 millionwill be required to the lessor under one lease for 31.25 MW of the entitlement from PVNGS Unit 2 and $85.2 million to the lessors under the other two leases for 32.76 MW of the entitlement from PVNGS Unit 2. comply with NRC licensing requirements.

See Note 17 for information concerning the NMPRC’s treatment of PNM’s purchase of assets underlying 64.1 MW and extension of 114.6 MW of leased capacity in PVNGS Unit 2, the purchased assets and extended leasesNM Supreme Court’s decision regarding PNM’s appeal of certain matters in PNM’sthe NM 2015 Rate Case.Case, as well as information concerning a joint petition to investigate PNM’s option to purchase additional assets underlying the extended leased capacity in PVNGS.


Covenants in PNM’s PVNGS Units 1 and 2 lease agreements limit PNM’sPNM���s ability, without consent of the owner participants in the lease transactions, (i) to enter into any merger or consolidation, or (ii) except in connection with normal dividend policy, to convey, transfer, lease or dividend more than 5% of its assets in any single transaction or series of related transactions. PNM is exposed to losses under the PVNGS lease arrangements upon the occurrence of certain events that PNM does not consider to be reasonably likely to occur. Under certain circumstances (for example, the NRC issuing specified violation orders with respect to PVNGS or the occurrence of specified nuclear events), PNM would be required to make specified payments to the owner participants,lessors and take title to the leased interests. Exercise of renewal options under the leases required that amounts payable to the owner participants under the circumstances described above would increase to the fair market value as of the renewal date. If such an event had occurred as of December 31, 2017,2019, amounts due to the lessors under the circumstances described above would be up to $169.9 million, payable on January 15, 2018 in addition to the scheduled lease payments due on January 15, 2018. In such event, PNM would record the acquired assets at the lower of their fair value or the amount paid.
PNM owned 60% of the EIP and leased the other 40%, under a lease that expired on April 1, 2015. The lease provided PNM the option of purchasing the leased assets at the end of the lease for fair market value, as well as options to renew the lease. On November 1, 2012, PNM and the lessor entered into a definitive agreement for PNM to exercise the option to purchase on April 1, 2015 the leased capacity at fair market value, which the parties agreed would be $7.7 million. PNM closed on the purchase on April 1, 2015 and recorded the purchase of the assets underlying the lease at that date.

Operating lease expense, including the PVNGS and EIP leases, was:
 PNMR PNM TNMP
 (In thousands)
2017$35,972
 $31,817
 $3,570
2016$37,432
 $32,843
 $3,748
2015$61,088
 $55,994
 $3,688

Future minimum operating lease payments at December 31, 2017 are shown below:

 PNMR PNM TNMP
 (In thousands)
2018$26,802
 $25,726
 $791
201925,638
 25,241
 296
202025,208
 25,122
 
202125,122
 25,122
 
202225,122
 25,122
 
Later years60,708
 60,708
 
   Total minimum lease payments$188,600
 $187,041
 $1,087


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


circumstances described above would be up to $157.6 million, payable on January 15, 2020 in addition to the scheduled lease payments due on January 15, 2020. In such event, PNM would record the acquired assets at the lower of their fair value or the amount paid. 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.

Land Easements and Rights-of-Ways

Many of PNM’s electric transmission and distribution facilities are located on lands that require the grant of rights-of-way from governmental entities, Native American tribes, or private parties. PNM has completed several renewals of rights-of-way, the largest of which is a renewal with the Navajo Nation. PNM is obligated to pay the Navajo Nation annual payments of $6.0 million, subject to adjustment each year based on the Consumer Price Index, through 2029. PNM’s April 2018 payment for the amount due under the Navajo Nation right-of-way lease was $6.9 million, which included amounts due under the Consumer Price Index adjustment, and was used to determine PNM’s operating lease liability as of January 1, 2019. Changes in the Consumer Price Index subsequent to January 1, 2019 are considered variable lease payments.

PNM has other prepaid rights-of-way agreements that are not accounted for as leases or recognized as a component of plant in service. PNM reflects the unamortized balance of these prepayments in other deferred charges on the Consolidated Balance Sheets and recognizes amortization expense associated with these agreements in the Consolidated Statement of Earnings over their term. As of December 31, 2019 and 2018, the unamortized balance of these rights-of-ways was $60.2 million and $63.0 million. During the years ended December 31, 2019, 2018, and 2017, PNM recognized amortization expense associated with these agreements of $3.7 million, $3.8 million, and $3.5 million.

Fleet Vehicles and Equipment

As of December 31, 2018, all of the Company’s leases of fleet vehicles and equipment were classified as operating leases. Historically, the Company has utilized substantially all of the economic value of its fleet and equipment leases by the end of the lease term. The Company generally has the contractual ability to return its fleet vehicle and equipment leases to the lessor after one year provided the lessor can recover remaining amounts owed under the agreement from third-parties or through make-whole provisions in the contract but does not typically exercise this right. As a result, fleet vehicle and equipment leases commencing on or after January 1, 2019 are classified as financing leases. The Company’s fleet vehicle and equipment lease agreements include non-lease components for insignificant administrative and other costs that are billed over the life of the agreement. The Company has elected to combine these fees with the lease components of the agreement. Certain of the Company’s fleet vehicle and equipment leases contain residual value guarantees. At December 31, 2019, residual value guarantees on fleet vehicle and equipment leases are $0.7 million, $1.2 million, and $1.9 million for PNM, TNMP, and PNMR.

Other

The Company holds a number of office space and office equipment leases. The Company’s current office space leases, all of which existed as of December 31, 2018, are classified as operating leases. These agreements include non-lease components for costs such as common area maintenance fees, which the Company has elected to combine with the lease component of the agreements. Certain of the Company’s office space leases are held between the Company’s consolidated subsidiaries and have been eliminated on consolidation. See Note 20. The Company’s office equipment leases are primarily for copiers and other graphics equipment. The Company classifies its office equipment leases existing as of December 31, 2018 as operating leases. Office equipment leases commencing on or after January 1, 2019 are classified as financing leases.


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

Information related to the Company’s operating leases recorded on the Consolidated Balance Sheets, including amounts recognized upon adoption of ASU 2016-02, is presented below:
 December 31, 2019 January 1, 2019
 PNM TNMP PNMR Consolidated PNM TNMP PNMR Consolidated
 (In thousands)
Operating leases:           
Operating lease assets, net of amortization$120,585
 $9,954
 $131,212
 $143,816
 $12,942
 $157,440
Current portion of operating lease liabilities25,927
 2,753
 29,068
 21,589
 3,132
 25,189
Long-term portion of operating lease liabilities97,992
 7,039
 105,512
 124,891
 9,787
 135,174

As discussed above, the Company classifies its fleet vehicle and equipment leases and its office equipment leases commencing on or after January 1, 2019 as financing leases. Information related to the Company’s financing leases recorded on the Consolidated Balance Sheets is presented below:
 December 31, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Financing leases:     
Non-utility property$4,857
 $4,910
 $10,028
Accumulated depreciation(482) (466) (973)
Non-utility property, net$4,375
 $4,444
 $9,055
      
Other current liabilities$722
 $850
 $1,637
Other deferred credits3,333
 3,597
 7,102


Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities is presented below:
 December 31, 2019
 PNM TNMP PNMR Consolidated
Weighted average remaining lease term (years):     
Operating leases6.70
 4.10
 6.49
Financing leases5.64
 5.54
 5.54
      
Weighted average discount rate:     
Operating leases3.89% 3.95% 3.90%
Financing leases3.68% 3.65% 3.64%


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

Information for the components of lease expense is as follows:
 Year Ended December 31, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Operating lease cost$28,254
 $3,341
 $31,963
Less: amounts capitalized(1,319) (2,594) (3,913)
Total operating lease expense26,935
 747
 28,050
Financing lease cost:     
Amortization of right-of-use assets481
 466
 973
Interest on lease liabilities92
 100
 194
Less: amounts capitalized(280) (423) (704)
Total financing lease expense293
 143
 463
      
Variable lease expense96
 
 96
Short-term lease expense346
 26
 414
Total lease expense for the period$27,670
 $916
 $29,023


Supplemental cash flow information related to the Company’s leases is as follows:
 Year Ended December 31, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows from operating leases$26,392
 $935
 $27,849
Operating cash flows from financing leases44
 25
 71
Finance cash flows from financing leases183
 109
 313
      
Non-cash information related to right-of-use assets obtained in exchange for lease obligations:     
Operating leases$143,816
 $12,942
 $157,816
Financing leases4,473
 4,910
 9,645


Excluded from the operating and financing cash paid for leases above are $1.3 million and $0.3 million at PNM, $2.6 million and $0.4 million at TNMP, and $3.9 million and $0.7 million at PNMR. These capitalized costs are reflected as investing activities on the Company’s Consolidated Statements of Cash Flows for the twelve months ended December 31, 2019.

Future expected lease payments as of December 31, 2019 and December 31, 2018 are shown below:
 As of December 31, 2019
 PNM TNMP PNMR Consolidated
 Financing Operating Financing Operating Financing Operating
 (In thousands)
2020$857
 $27,028
 $998
 $3,078
 $1,925
 $30,660
2021830
 26,576
 966
 2,448
 1,866
 29,316
2022803
 26,266
 934
 1,996
 1,807
 28,473
2023767
 17,735
 819
 1,508
 1,624
 19,423
2024505
 7,908
 648
 877
 1,153
 8,833
Later years723
 34,466
 526
 765
 1,249
 35,489
Total minimum lease payments4,485
 139,979
 4,891
 10,672
 9,624
 152,194
Less: Imputed interest430
 16,060
 444
 880
 885
 17,614
Lease liabilities as of December 31, 2019$4,055
 $123,919
 $4,447
 $9,792
 $8,739
 $134,580


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

 Operating leases
 As of December 31, 2018
 PNM TNMP PNMR Consolidated
 (In thousands)
2019$27,691
 $3,664
 $31,772
202027,000
 3,102
 30,404
202126,462
 2,324
 29,012
202226,217
 1,795
 28,175
202317,447
 1,279
 18,868
Later years42,329
 1,150
 43,489
Total minimum lease payments$167,146
 $13,314
 $181,720


The above tables include $8.7 million, $13.1 million, and $21.8 million for PNM, TNMP, and PNMR at December 31, 2019 for expected future payments on fleet vehicle and equipment leases that could be avoided if the leased assets were returned and the lessor is able to recover estimated market value for the equipment from third parties. The Company’s contractual commitments for leases that have not yet commenced are insignificant.
(8)(9)Fair Value of Derivative and Other Financial Instruments


Fair value is defined under GAAP as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement, and, for commodities, location.agreement. Valuations of derivative assets and liabilities take into account nonperformance risk, including the effect of counterparties’ and the Company’s credit risk. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.

Energy Related Derivative Contracts
Overview

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

PNM was exposed to market risk for its share of PVNGS Unit 3 through December 31, 2017, at which time PVNGS Unit 3 became a jurisdictional resource to serve New Mexico retail customers. Beginning January 1, 2018, PNM is exposed to market risk for its 65 MW ofinterest in SJGS Unit 4, thatwhich is held as merchant plant as ordered by the NMPRC (Note 16). PNM has entered into agreements to sell the power from 36 MW of that capacity to a third party at a fixed price for the period January 1, 2018 through June 30,May 31, 2022, subject to certain conditions. Under these agreements, PNM is obligated to deliver 36 MW of power only when SJGS Unit 4 is operating.  These agreements are not considered derivatives because there is no notional amount due to the unit-contingent nature of the transactions.

PNM and Tri-State have a hazard sharing agreement that expires in May 2022. Under this agreement, each party sells the other party 100 MW of capacity and energy from a designated generation resource on a unit contingent basis, subject to certain performance guarantees.  Both the purchases and sales are made at the same market index price.  This agreement serves to reduce the magnitude of each party’s single largest generating hazard and assists in enhancing the reliability and efficiency of their respective operations. PNM passes the sales and purchases through to customers under PNM’s FPPAC. See Note 17.

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

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017


Commodity Risk

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

Accounting for Derivatives

Under derivative accounting and related rules for energy contracts, PNM accounts for its various instruments for the purchase and sale of energy, which meet the definition of a derivative, based on PNM’s intent. During the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, PNM was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flows hedges. The derivative contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. PNM has no trading transactions.
 

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

Commodity Derivatives

PNM’s commodity derivative instruments that are recorded at fair value, all of which are accounted for as economic hedges, are summarized as follows:presented in the following line items on the Consolidated Balance Sheets:
 Economic Hedges
 December 31,
 2017 2016
 (In thousands)
Current assets$1,088
 $5,224
Deferred charges3,556
 
 4,644
 5,224
Current liabilities(1,182) (2,339)
Long-term liabilities(3,556) 
 (4,738) (2,339)
Net$(94) $2,885
 Economic Hedges
 December 31,
 2019 2018
 (In thousands)
Other current assets$1,089
 $1,083
Other deferred charges1,507
 2,511
 2,596
 3,594
Other current liabilities(1,089) (1,177)
Other deferred credits(1,507) (2,511)
 (2,596) (3,688)
Net$
 $(94)
Included in the above table are $2.7 million of current assets at December 31, 2016 related to contracts for the sale of energy from PVNGS Unit 3 through 2017 at market price plus a premium. As noted above, PVNGS Unit 3 has become a jurisdictional resource to serve New Mexico retail customers beginning January 1, 2018. Certain of PNM’s commodity derivative instruments in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. PNM does not offset fair value and cash collateral for derivative instruments under master netting arrangements and the above table reflects the gross amounts of fair value assets and liabilities for commodity derivatives. Included in the above table are equal amounts of assets and liabilities aggregating $4.6$2.6 million at December 31, 20172019 and $0.5$3.6 million at December 31, 2016,2018 resulting from PNM’s hazard sharing arrangements with Tri-State (Note 17). The hazard sharing arrangements are net-settled upon delivery. Other amounts that could be offset under master netting agreements were immaterial.
At December 31, 20172019 and 20162018, PNM had no0 amounts recognized for the legal right to reclaim cash collateral. However, at December 31, 20172019 and 20162018, amounts posted as cash collateral under margin arrangements were $0.8$0.5 million and $2.61.0 million. At December 31, 20172019 and 20162018, obligations to return cash collateral were $0.9 million and $0.1$1.0 million. Cash collateral amounts are included in other current assets and other current liabilities on the Consolidated Balance Sheets.


PNM has a NMPRC-approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. There were no amounts hedged under this plan as of December 31, 2017. The table above includes $0.2 million2019 or 2018.

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Table of current assets and $0.1 million of current liabilities at Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 related to this plan. The offsets to these amounts are recorded as regulatory assets2019, 2018 and liabilities on the Consolidated Balance Sheets.2017

The following table presents the effect of mark-to-market commodity derivative instruments on PNM’s earnings, excluding income tax effects. Commodity derivatives had no impact on OCI for the periods presented.
 Economic Hedges
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Electric operating revenues$97
 $(50) $5,151
Cost of energy(97) (52) (5,386)
Total gain (loss)$
 $(102) $(235)
 
Economic
Hedges
 Year Ended
December 31,
 2017 2016 2015
 (In thousands)
Electric operating revenues$5,151
 $(53) $7,156
Cost of energy(5,386) (1,208) (293)
Total gain (loss)$(235) $(1,261) $6,863

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015


Commodity contract volume positions are presented in MMBTU for gas related contracts and in MWh for power related contracts. The table below presents PNM’s net buy (sell) volume positions:
Economic Hedges
MMBTUMWh
December 31, 2019

December 31, 2018100,000


 Economic Hedges
 MMBTU MWh
December 31, 2017100,000
 
December 31, 2016254,100
 (2,471,600)


PNM has contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. In connection with managing its commodity risks, PNM enters into master agreements with certain counterparties. If PNM is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral if PNM’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that PNM will perform; and others have no provision for collateral. At December 31, 20172019 and 2016,2018, PNM had no0 such contracts in a net liability position.

Non-Derivative Financial Instruments

The carrying amounts reflected on the Consolidated Balance Sheets approximate fair value for cash, receivables, and payables due to the short period of maturity. Available-for-saleInvestment securities are carried at fair value. Available-for-saleInvestment securities consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS and trusts for PNM’s share of final reclamation costs related to the coal mines serving SJGS and Four Corners (Note 16).Corners. See Note 16. At December 31, 20172019 and 2016,2018, the fair value of available-for-saleinvestment securities included $293.7$336.0 million and $253.9$287.1 million for the NDT and $29.8$52.8 million and $19.1$41.1 million for the coal mine reclamation trusts. The

Prior to 2018, PNM classified all debt and equity investments held in the NDT and coal mine reclamation trusts as available-for-sale securities. Unrealized losses on these securities were recorded immediately through earnings and unrealized gains were recorded in AOCI until the securities were sold. On January 1, 2018, PNM recorded an after-tax cumulative effect adjustment of $11.2 million to reclassify unrealized holding gains on equity securities held in the NDT and coal mine reclamation trusts from AOCI to retained earnings on the Consolidated Balance Sheets. After January 1, 2018, all gains and losses resulting from sales and changes in the fair value of equity securities are recognized in earnings. Under ASU 2016-01, the Company’s accounting for available-for-sale debt securities remains essentially unchanged. See Note 1 for investment accounting policies and gross unrealized gainsdiscussion of investmentsNew Accounting Pronouncements regarding ASU 2016-13.

Gains and losses recognized on the Consolidated Statements of Earnings related to investment securities in available-for-sale securitiesthe NDT and reclamation trusts are presented in the following table.table:
  Year ended December 31,
  2019 2018
  (In thousands)
Equity securities:    
Net gains from equity securities sold $5,698
 $4,864
Net gains (losses) from equity securities still held 18,319
 (10,523)
Total net gains (losses) on equity securities 24,017
 (5,659)
Available-for-sale debt securities:    
Net gains (losses) on debt securities 5,572
 (11,517)
Net gains (losses) on investment securities $29,589
 $(17,176)


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
 December 31, 2017 December 31, 2016
 
Unrealized
 Gains
 Fair Value 
Unrealized
 Gains
 Fair Value
   (In thousands)  
Cash and cash equivalents$
 $52,636
 $
 $23,683
Equity securities:       
Domestic value4,011
 40,032
 1,135
 34,796
Domestic growth3,995
 35,456
 3,032
 47,595
International and other6,810
 45,867
 2,029
 27,481
Fixed income securities:       
U.S. Government273
 34,317
 115
 40,962
Municipals1,225
 48,076
 585
 43,789
Corporate and other1,714
 67,140
 553
 54,671
 $18,028
 $323,524
 $7,449
 $272,977


Due to the funded status of the nuclear decommissioning trust and overall market performance, PNM began to re-balance the decommissioning investment portfolio in late 2017 to increase the percentage of the investments in fixed income (debt) securities to approximately 85%. The portfolio re-balancing was completed in early 2018.


The proceeds and gross realized gains and losses on the disposition of available-for-sale securities held in the NDT and coal mine reclamation trusts are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. Gross realized losses shown below exclude the (increase)/decrease in realized impairment losses of $3.3$3.0 million, $(1.2)$(9.4) million, and $(4.3)$3.3 million for the years ended December 31, 2017, 20162019, 2018 and 2015. See New Accounting Pronouncements in Note 1.

2017.
B - 52
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Proceeds from sales$494,528
 $984,533
 $637,492
Gross realized gains$25,760
 $19,358
 $36,896
Gross realized (losses)$(17,453) $(16,624) $(12,993)

Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Proceeds from sales$637,492
 $522,601
 $252,174
Gross realized gains$36,896
 $46,116
 $29,663
Gross realized (losses)$(12,993) $(25,430) $(9,259)

Held-to-maturity securities are those investments in debt securities that the Company has the ability and intent to hold until maturity. At December 31, 2017, and 2016, PNMR’s held-to-maturity securities consistconsisted of the Westmoreland Loan. In May 2018, the full amount owed under the Westmoreland Loan was repaid (Note 16).

The Company has no0 available-for-sale or held-to-maturitydebt securities for which carrying value exceeds fair value. There are no0 impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings.

At December 31, 2017,2019, the available-for-sale and held-to-maturity debt securities held by PNM, had the following final maturities:
 Fair Value
 (In thousands)
Within 1 year$20,148
After 1 year through 5 years80,052
After 5 years through 10 years84,603
After 10 years through 15 years13,090
After 15 years through 20 years11,950
After 20 years39,975
 $249,818

 Fair Value
 Available-for-Sale Held-to-Maturity
 PNMR and PNM PNMR
 (In thousands)
Within 1 year$4,460
 $
After 1 year through 5 years32,693
 66,588
After 5 years through 10 years48,681
 
After 10 years through 15 years5,934
 
After 15 years through 20 years11,983
 
After 20 years45,782
 
 $149,533
 $66,588

Fair Value Disclosures

The Company determines the fair values of its derivative and other financial instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Level 3 inputs used in determining fair values for the Company consist of internal valuation models. The Company records any transfers between fair value hierarchy levels as of the end of each calendar quarter. There were no0 transfers between levels during the yearsyear ended December 31, 2017 and 2016.2018. See New Accounting Pronouncements in Note 1.

For available-for-saleinvestment securities, Level 2 and Level 3 fair values are provided by the trusteefund managers utilizing a pricing service. TheFor Level 2 fair values, the pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value. Level 3 investments at December 31, 2018 were comprised of corporate term loans. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. For investments categorized asThe valuation of Level 3 primarilyinvestments requires significant judgment by the Westmoreland Loan, fairpricing provider due to the absence of quoted market values, were determined by discounted cash flow modelschanges in market conditions, and the long-term nature of the assets. The significant unobservable inputs include the trading multiples of public companies that take into considerationare considered comparable to the company being valued, company specific issues, estimates of liquidation value, current operating performance and future expectations of performance, changes in market outlook and the financing environment, capitalization rates, discount rates, that are observable for similar typesand cash flows. The Company has no Level 3 investments as of assets and liabilities.December 31, 2019. Management of the Company independently verifies the information provided by pricing services.


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017



Items recorded at fair value by PNM on the Consolidated Balance Sheets are presented below by level of the fair value hierarchy. There were no Level 3 fair value measurements at December 31, 2017 and 2016 for items recorded at fair value.hierarchy along with gross unrealized gains on investments in available-for-sale securities.
   GAAP Fair Value Hierarchy  
 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs
(Level 2)
 Significant Unobservable Inputs
(Level 3)
 Unrealized Gains
 (In thousands)
December 31, 2019         
Cash and cash equivalents$15,606
 $15,606
 $
 $
  
Equity securities:         
Corporate stocks, common64,527
 64,527
 
 
  
Corporate stocks, preferred9,033
 2,212
 6,821
 
  
Mutual funds and other49,848
 49,786
 62
 
  
Available-for-sale debt securities:
        
U.S. government48,439
 31,389
 17,050
 
 $535
International government15,292
 
 15,292
 
 1,193
Municipals46,642
 
 46,642
 
 1,768
Corporate and other139,445
 187
 139,258
 
 10,801
 $388,832
 $163,707
 $225,125
 $
 $14,297
          
Commodity derivative assets$2,596
 $
 $2,596
 $
  
Commodity derivative liabilities(2,596) 
 (2,596) 
  
Net$
 $
 $
 $
  
   GAAP Fair Value Hierarchy
 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs
(Level 2)
   (In thousands)
December 31, 2017     
Available-for-sale securities     
Cash and cash equivalents$52,636
 $52,636
 $
Equity securities:     
Domestic value40,032
 40,032
 
Domestic growth35,456
 35,456
 
International and other45,867
 42,332
 3,535
Fixed income securities:
    
U.S. Government34,317
 33,645
 672
Municipals48,076
 
 48,076
Corporate and other67,140
 
 67,140
 $323,524
 $204,101
 $119,423
      
Commodity derivative assets$4,644
 $
 $4,644
Commodity derivative liabilities(4,738) 
 (4,738)
Net$(94) $
 $(94)

December 31, 2018  
    
Cash and cash equivalents$11,472
 $11,472
 $
 $
  
Equity securities:         
Corporate stocks, common32,997
 32,997
 
 
 


Corporate stocks, preferred7,258
 1,654
 5,604
 
 


Mutual funds and other70,777
 70,777
 
 
 


Available-for-sale debt securities:         
U.S. government29,503
 18,662
 10,841
 
 $1,098
International government8,435
 
 8,435
 
 90
Municipals53,642
 
 53,642
 
 489
Corporate and other114,158
 588
 111,414
 2,156
 923
 $328,242
 $136,150
 $189,936
 $2,156
 $2,600
          
Commodity derivative assets$3,594
 $
 $3,594
 $
  
Commodity derivative liabilities(3,688) 
 (3,688) 
  
Net$(94) $
 $(94) $
  
December 31, 2016  
Available-for-sale securities     
Cash and cash equivalents$23,683
 $23,683
 $
Equity securities:     
Domestic value34,796
 34,796
 
Domestic growth47,595
 47,595
 
International and other27,481
 27,481
 
Fixed income securities:     
U.S. Government40,962
 39,723
 1,239
Municipals43,789
 
 43,789
Corporate and other54,671
 23,158
 31,513
 $272,977
 $196,436
 $76,541
      
Commodity derivative assets$5,224
 $
 $5,224
Commodity derivative liabilities(2,339) 
 (2,339)
Net$2,885
 $
 $2,885

 


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


A reconciliation of the changes in Level 3 fair value measurements is as follows:
Corporate debt
(In thousands)
Balance at December 31, 2017$
Actual return on assets sold during the period(38)
Actual return on assets still held at period end(107)
Purchases5,539
Sales(3,238)
Balance at December 31, 20182,156
Actual return on assets sold during the period(84)
Actual return on assets still held at period end56
Purchases3,110
Sales(5,238)
Balance at December 31, 2019$

The carrying amounts and fair values of investments in the Westmoreland Loan, other investments, and long-term debt, which are not recorded at fair value on the Consolidated Balance Sheets are presented below:
     GAAP Fair Value Hierarchy
 
Carrying
Amount
 Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) 
Significant Unobservable Inputs
(Level 3)
December 31, 2019(In thousands)
PNMR$3,007,717
 $3,142,704
 $
 $3,142,074
 $
PNM$1,748,020
 $1,795,149
 $
 $1,795,149
 $
TNMP$670,691
 $753,317
 $
 $753,317
 $
          
December 31, 2018         
PNMR$2,670,111
 $2,703,810
 $
 $2,703,810
 $
PNM$1,656,490
 $1,668,736
 $
 $1,668,736
 $
TNMP$575,398
 $597,236
 $
 $597,236
 $

     GAAP Fair Value Hierarchy
 
Carrying
Amount
 Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) 
Significant Unobservable Inputs
(Level 3)
December 31, 2017(In thousands)
PNMR         
Long-term debt$2,437,645
 $2,554,836
 $
 $2,554,836
 $
Westmoreland Loan$56,640
 $66,588
 $
 $
 $66,588
Other investments$503
 $503
 $503
 $
 $
PNM         
Long-term debt$1,657,910
 $1,727,135
 $
 $1,727,135
 $
Other investments$283
 $283
 $283
 $
 $
TNMP         
Long-term debt$480,620
 $527,563
 $
 $527,563
 $
Other investments$220
 $220
 $220
 $
 $
          
December 31, 2016         
PNMR         
Long-term debt$2,392,712
 $2,540,693
 $
 $2,540,693
 $
Westmoreland Loan$95,000
 $100,893
 $
 $
 $100,893
Other investments$547
 $1,164
 $547
 $
 $617
PNM         
Long-term debt$1,631,369
 $1,730,157
 $
 $1,730,157
 $
Other investments$316
 $316
 $316
 $
 $
TNMP         
Long-term debt$420,875
 $468,329
 $
 $468,329
 $
Other investments$231
 $231
 $231
 $
 $


The carrying amount and fair value of the Company’s other investments presented on the Consolidated Balance Sheets are not material and not shown in the above table.
Investments Held by Employee Benefit Plans
As discussed in Note 12,11, PNM and TNMP have trusts that hold investment assets for their pension and other postretirement benefit plans. The fair value of the assets held by the trusts impacts the determination of the funded status of each plan (Note 12), but the assets are not reflected on the Company’s Consolidated Balance Sheets. Both the PNM Pension Plan and the TNMP Pension Plan hold units of participation in the PNM Resources, Inc. Master Trust (the “PNMR Master Trust”), which was established for the investment of assets of the pension plans. The Company is contemplating changing itsCompany’s investment allocation targets by decreasing thein 2019 consist of 30% equities, 20% alternative investments (both of which are considered return generating), and 50% fixed income investments used to match pension liabilities from 65% to 50% beginning in 2018.

income.
GAAP provides a practical expedient that allows the net asset value per share to be used as fair value for investments in certain entities that do not have readily determinable fair values and are considered to be investment companies.  Fair values for alternative investments held by the PNMR Master Trust are valued using this practical expedient. Under GAAP, investments for which fair value is measured using that practical expedient are not required to be categorized within the fair value hierarchy. Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For level 2 fair values, the pricing provider predominately uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value as of year-end. Level 3 investments areat December 31, 2018 were comprised of corporate term loans. Fair value prices for Level 2 corporate term loans predominately use the market approach which uses bid side market values based upon hierarchy information for specific securities or securities with similar characteristics. Alternative investments include private equity funds, hedge funds, and real estate funds. The private equity funds are not voluntarily redeemable. These investments are realized through periodic distributions occurring over a 10 to 15 year term after the initial investment. The real estate funds and hedge funds may


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


and real estate funds. The private equity funds are not voluntarily redeemable. These investments are realized through periodic distributions occurring over a 10 to 15 years term after the initial investment. The real estate funds and hedge funds may be voluntarily redeemed but are subject to redemption provisions that may result in the funds not being able to be redeemedredeemable in the near term. Audited financial statements are received for each fund and are reviewed by the Company annually.
The valuation of Level 3 investments and alternative investments requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The significant unobservable inputs include the trading multiples of public companies that are considered comparable to the company being valued, company specific issues, estimates of liquidation value, current operating performance and future expectations of performance, changes in market outlook and the financing environment, capitalization rates, discount rates, and cash flows. Neither the employee benefit plans nor the PNMR Master Trust have any Level 3 investments as of December 31, 2019.
The fair values of investments held by the employee benefit plans are as follows:
  GAAP Fair Value Hierarchy  GAAP Fair Value Hierarchy
Total 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Total 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
December 31, 2017  (In thousands)  
December 31, 2019  (In thousands)  
PNM Pension Plan              
Participation in PNMR Master Trust Investments:              
Investments categorized within fair value hierarchy$487,498
 $140,218
 $347,089
 $191
$445,984
 $152,158
 $293,826
 $
Uncategorized investments74,768
      86,675
      
Total Master Trust Investments$562,266
      $532,659
      
              
TNMP Pension Plan              
Participation in PNMR Master Trust Investments:              
Investments categorized within fair value hierarchy$53,273
 $15,244
 $38,008
 $21
$49,353
 $17,335
 $32,018
 $
Uncategorized investments10,260
      9,974
      
Total Master Trust Investments$63,533
      $59,327
      
              
PNM OPEB Plan              
Cash and cash equivalents$437
 $437
 $
 $
$1,022
 $1,022
 $
 $
Equity securities:              
International funds10,636
 
 10,636
 
Domestic value10,816
 10,816
 
 
Domestic growth6,710
 6,710
 
 
Other funds31,660
 
 31,660
 
Fixed income securities:       
Mutual funds20,918
 20,918
 
 
85,727
 39,361
 46,366
 
$81,177
 $38,881
 $42,296
 $
$86,749
 $40,383
 $46,366
 $
TNMP OPEB Plan              
Cash and cash equivalents$149
 $149
 $
 $
$275
 $275
 $
 $
Equity securities:              
International funds1,597
 
 1,597
 
Domestic value293
 293
 
 
Domestic growth1,410
 1,410
 
 
Other funds4,011
 
 4,011
 
Fixed income securities:       
Mutual funds2,685
 2,685
 
 
10,635
 4,075
 6,560
 
$10,145
 $4,537
 $5,608
 $
$10,910
 $4,350
 $6,560
 $


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


  GAAP Fair Value Hierarchy  GAAP Fair Value Hierarchy
Total 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Total 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
December 31, 2016(In thousands)
December 31, 2018(In thousands)
PNM Pension Plan              
Participation in PNMR Master Trust Investments:              
Investments categorized within fair value hierarchy$467,965
 $129,624
 $337,989
 $352
$412,790
 $139,673
 $272,829
 $288
Uncategorized investments75,685
      76,874
      
Total Master Trust Investments$543,650
      $489,664
      
              
TNMP Pension Plan              
Participation in PNMR Master Trust Investments:              
Investments categorized within fair value hierarchy$50,901
 $14,447
 $36,416
 $38
$45,283
 $15,149
 $30,101
 $33
Uncategorized investments9,729
      9,378
      
Total Master Trust Investments$60,630
      $54,661
      
              
PNM OPEB Plan              
Cash and cash equivalents$2,567
 $2,567
 $
 $
$190
 $190
 $
 $
Equity securities:              
International funds9,300
 
 9,300
 
Domestic value10,260
 10,260
 
 
Domestic growth6,338
 6,338
 
 
Other funds26,405
 
 26,405
 
Fixed income securities:  
    
Mutual funds18,959
 18,959
 
 
69,513
 32,325
 37,188
 
$73,829
 $38,124
 $35,705
 $
$69,703
 $32,515
 $37,188
 $
TNMP OPEB Plan              
Cash and cash equivalents$308
 $308
 $
 $
$66
 $66
 $
 $
Equity securities:              
International funds1,279
 
 1,279
 
Domestic value449
 449
 
 
Domestic growth1,089
 1,089
 
 
Other funds3,060
 
 3,060
 
Fixed income securities:       
Mutual funds2,593
 2,593
 
 
8,725
 3,723
 5,002
 
$8,778
 $4,439
 $4,339
 $
$8,791
 $3,789
 $5,002
 $




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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


The fair values of investments in the PNMR Master Trust are as follows:
   GAAP Fair Value Hierarchy
 Total 
Quoted Prices
in Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
December 31, 2019(In thousands)
PNMR Master Trust       
Cash and cash equivalents$19,982
 $19,982
 $
 $
Equity securities:       
Corporate stocks, common68,497
 68,497
 
 
Corporate stocks, preferred825
 
 825
 
Mutual funds and other172,326
 
 172,326
 
Fixed income securities:       
U.S. government90,970
 81,014
 9,956
 
International government5,411
 
 5,411
 
Municipals6,980
 
 6,980
 
Corporate and other130,346
 
 130,346
 
Total investments categorized within fair value hierarchy495,337
 $169,493
 $325,844
 $
Uncategorized investments:       
Private equity funds15,827
      
Hedge funds47,618
      
Real estate funds33,204
      
 $591,986
      
December 31, 2018 
PNMR Master Trust       
Cash and cash equivalents$20,120
 $20,120
 $
 $
Equity securities:       
Corporate stocks, common54,270
 54,270
 
 
Corporate stocks, preferred874
 
 874
 
Mutual funds and other143,517
 
 143,517
 
Fixed income securities:       
U.S. government84,459
 80,482
 3,977
 
International government5,721
 
 5,721
 
Municipals9,558
 
 9,558
 
Corporate and other139,554
 (50) 139,283
 321
Total investments categorized within fair value hierarchy458,073
 $154,822
 $302,930
 $321
Uncategorized investments:       
Private equity funds18,021
      
Hedge funds45,589
      
Real estate funds22,642
      
 $544,325
      

   GAAP Fair Value Hierarchy
 Total 
Quoted Prices
in Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
December 31, 2017(In thousands)
PNMR Master Trust       
Cash and cash equivalents$7,697
 $7,697
 $
 $
Equity securities:       
International42,048
 
 42,048
 
Domestic value37,026
 37,026
 
 
Domestic growth19,136
 19,136
 
 
Other funds25,099
 
 25,099
 
Fixed income securities:       
Corporate215,535
 
 215,323
 212
U.S. Government117,572
 91,603
 25,969
 
Municipals11,438
 
 11,438
 
Other funds65,220
 
 65,220
 
Total investments categorized within fair value hierarchy540,771
 $155,462
 $385,097
 $212
Uncategorized investments:       
Private equity funds22,281
      
Hedge funds45,615
      
Real estate funds17,132
      
 $625,799
      
December 31, 2016 
PNMR Master Trust       
Cash and cash equivalents$20,503
 $20,503
 $
 $
Equity securities:       
International38,401
 
 38,401
 
Domestic value36,036
 36,036
 
 
Domestic growth18,484
 18,484
 
 
Other funds27,532
 
 27,532
 
Fixed income securities:       
Corporate205,419
 
 205,029
 390
U.S. Government94,359
 69,048
 25,311
 
Municipals13,970
 
 13,970
 
Other funds64,162
 
 64,162
 
Total investments categorized within fair value hierarchy518,866
 $144,071
 $374,405
 $390
Uncategorized investments:       
Private equity funds27,060
      
Hedge funds42,070
      
Real estate funds16,284
      
 $604,280
      




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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


A reconciliation of the changes in Level 3 fair value measurements is as follows:
 Fixed Income - Corporate
PNMR Master TrustPNM Pension TNMP Pension Total Master Trust
 (In thousands)
Balance at December 31, 2017$191
 $21
 $212
Actual return on assets sold during the period(7) (1) (8)
Actual return on assets still held at period end(1) 
 (1)
Purchases192
 23
 215
Sales(87) (10) (97)
Balance at December 31, 2018288
 33
 321
Actual return on assets sold during the period(48) (5) (53)
Actual return on assets still held at period end
 
 
Purchases133
 15
 148
Sales(373) (43) (416)
Balance at December 31, 2019$
 $
 $

 Fixed Income - Corporate
PNMR Master TrustPNM Pension TNMP Pension Total Master Trust
 (In thousands)
Balance at December 31, 2015$719
 $78
 $797
Actual return on assets sold during the period1
 
 1
Actual return on assets still held at period end19
 2
 21
Purchases
 
 
Sales(387) (42) (429)
Balance at December 31, 2016352
 38
 390
Actual return on assets sold during the period1
 
 1
Actual return on assets still held at period end(7) (1) (8)
Purchases92
 10
 102
Sales(247) (26) (273)
Balance at December 31, 2017$191
 $21
 $212


(9)(10)Variable Interest Entities
GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity (“VIE”). GAAP also requires continual reassessment of the primary beneficiary of a VIE.
 
Valencia


PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 158 MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed operation and maintenance and capacity charges in addition to variable operation and maintenance charges under this PPA. For the years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, PNM paid $19.6$19.9 million,, $19.3 $19.6 million,, and $19.2$19.6 million for fixed charges and $1.3$1.2 million,, $1.1 $1.4 million,, and $1.6$1.3 million for variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy its obligations and creditors of Valencia do not have any recourse against PNM’s assets. During the term of the PPA, PNM has the option, under certain conditions, to purchase and own up to 50% of the plant or the VIE. The PPA specifies that the purchase price would be the greater of 50% of book value reduced by related indebtedness or 50% of fair market value.
PNM sources fuel for the plant, controls when the facility operates through its dispatch, and receives the entire output of the plant, which factors directly and significantly impact the economic performance of Valencia. Therefore, PNM has concluded that the third-party entity that owns Valencia is a VIE and that PNM is the primary beneficiary of the entity under GAAP since PNM has the power to direct the activities that most significantly impact the economic performance of Valencia and will absorb the majority of the variability in the cash flows of the plant. As the primary beneficiary, PNM consolidates Valencia in its financial statements. Accordingly, the assets, liabilities, operating expenses, and cash flows of Valencia are included in the Consolidated Financial Statements of PNM although PNM has no legal ownership interest or voting control of the VIE. The assets and liabilities of Valencia set forth below are immaterial to PNM and, therefore, not shown separately on the Consolidated Balance Sheets. The owner’s equity and net income of Valencia are considered attributable to non-controlling interest.

Summarized financial information for Valencia is as follows:
Results of Operations
 Year Ended December 31
 2019 2018 2017
 (In thousands)
Operating revenues$21,073
 $21,025
 $20,887
Operating expenses(6,832) (5,913) (5,870)
Earnings attributable to non-controlling interest$14,241
 $15,112
 $15,017

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


Summarized financial information for Valencia is as follows:
Financial Position
 December 31,
 2019 2018
 (In thousands)
Current assets$5,094
 $2,684
Net property, plant and equipment58,581
 62,066
Total assets63,675
 64,750
Current liabilities623
 538
Owners’ equity – non-controlling interest$63,052
 $64,212

Results of Operations
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Operating revenues$20,887
 $20,371
 $20,687
Operating expenses(5,870) (5,852) (5,777)
Earnings attributable to non-controlling interest$15,017
 $14,519
 $14,910
Financial Position
 December 31,
 2017 2016
 (In thousands)
Current assets$2,688
 $2,551
Net property, plant and equipment64,109
 66,947
Total assets66,797
 69,498
Current liabilities602
 578
Owners’ equity – non-controlling interest$66,195
 $68,920


Westmoreland San Juan Mining, LLC (“WSJ”) and SJCC


As discussed in the subheading Coal Supply in Note 16, PNM purchases coal for SJGS from SJCC under a coal supply agreement (“SJGS CSA”). That section includes information on the acquisition of SJCC by WSJ, a subsidiary of Westmoreland Coal Company (“Westmoreland”), on January 31, 2016, as well as athe $125.0 million loan (the “Westmoreland Loan”) from NM Capital, a subsidiary of PNMR, to WSJ, which loan provided substantially all of the funds required for the purchase of SJCC. On May 22, 2018, the full principal outstanding under the Westmoreland Loan was repaid. NM Capital used a portion of the proceeds to repay all remaining amounts owed under the BTMU Term Loan. These payments effectively terminated the loan agreements and PNMR’s guarantee of NM Capital’s obligations under the BTMU Term Loan. Prior to its repayment, the Westmoreland Loan resulted in PNMR being considered to have a variable interest in WSJ, including its subsidiary, SJCC, purchase,since PNMR and NM Capital were subject to possible loss in the issuanceevent of default of WSJ.

On October 9, 2018, Westmoreland filed a Current Report on Form 8-K with the SEC announcing it had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. On March 15, 2019, Westmoreland emerged from Chapter 11 bankruptcy as a privately held company owned and operated by a group of its former creditors. Under the reorganization, the assets of SJCC were sold to Westmoreland San Juan Mining, LLC (“WSJ LLC”), a subsidiary of Westmoreland Mining Holdings, LLC. As successor entity to SJCC, WSJ LLC assumed all rights and obligations of WSJ including obligations to PNM under the SJGS CSA and to PNMR under a letter of credit support agreement. See Note 16.

PNMR issued $30.3 million in letters of credit to facilitate the issuance of reclamation bonds required in order for SJCC to mine coal to be supplied to SJGS. The Westmoreland LoanAs discussed above, WSJ LLC assumed the rights and obligations of SJCC, including obligations to PNMR for the letters of credit. The letters of credit support resultresults in PNMR being considered to havehaving a variable interest in WSJ including its subsidiary, SJCC,LLC since PNMR and NM Capital could beis subject to possible loss in the event of a defaultperformance by WSJ under the Westmoreland Loan and/or performance wasPNMR is required under the letterletters of credit support.  Principal payments under the Westmoreland Loan began on August 1, 2016 and are required quarterly thereafter. Interest is also paid quarterly beginning on May 3, 2016.

At December 31, 2017, the amount outstanding under the Westmoreland Loan was $56.6 million. In addition, interest receivable of $1.0 million is included in Other receivables. The Westmoreland Loan requires that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it is fully repaid. As of February 20, 2018, the amount outstanding under the Westmoreland Loan was $51.0 million, reflecting the February 1, 2018 principal payment of $5.6 million. The Westmoreland Loan is secured by the assets of and the equity interests in SJCC. In the event of a default by WSJ, NM Capital would have the ability to take over the mining operations.  In such event, NM Capital would likely engage a third-party mining company to operate SJCC so that operations of the mine are not disrupted. The acquisition of SJCC for approximately $125.0 million on January 31, 2016 was an arm’s-length negotiated transaction between Westmoreland and BHP, which amount should approximate the fair value of SJCC at the date of acquisition. If WSJ were to default, NM Capital should be able to acquire assets of approximately the value of the Westmoreland Loan without a significant loss. Furthermore, PNMR considers the possibility of loss under the letters of credit support to be remote since the purpose of posting the bonds is to provide assurance that SJCCWSJ LLC performs the required reclamation of the mine site in accordance with applicable regulations and all reclamation costs are reimbursable under the SJGS CSA. Also, much of the mine reclamation activities will not be performed until after the expiration of the SJGS CSA and the final maturity of the Westmoreland Loan.CSA. In addition, each of the SJGS participants has established and funds a trustactively fund trusts to meet its future reclamation obligations.

Both WSJ and SJCC areLLC is considered to be VIEs.a VIE.  PNMR’s analysis of theseits arrangements with WSJ LLC concluded that Westmoreland, as the parent of WSJ LLC has the ability to direct the SJCCits mining operations, which is the factor that most significantly impacts the economic performance of WSJ and SJCC.  NM Capital’s rights under the Westmoreland Loan are the typical protective rights of

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

a lender, but do not give NM Capital any oversight over mining operations unless there is a default under the loan agreement.LLC.  Other than PNM being able to ensure that coal is supplied in adequate quantities and of sufficient quality to provide the fuel necessary to operate SJGS in a normal manner, the mining operations are solely under the control of Westmoreland and its subsidiaries,WSJ LLC, including developing mining plans, hiring of personnel, and incurring operating and maintenance expenses. Neither PNMR nor PNM has any ability to direct or influence the mining operation.  Therefore, PNM’s involvement through the SJGS CSA, which was assumed by WSJ LLC pursuant to the March 15, 2019 purchase of the assets owned by SJCC by WSJ LLC, is a protective right rather than a participating right and WestmorelandWSJ LLC has the power to direct the activities that most significantly impact the economic performance of SJCC.WSJ LLC.  The SJGS CSA requires SJCCWSJ LLC to deliver coal required to fuel SJGS in exchange for payment of a set price per ton, which is escalated over time for inflation.  If SJCCWSJ LLC is able to mine more efficiently than anticipated, its economic performance will be improved.  Conversely, if SJCCWSJ LLC cannot mine as efficiently as anticipated, its economic performance will be negatively impacted.  Accordingly, PNMR believes WestmorelandWSJ LLC is the primary beneficiary of WSJ and, therefore, WSJ and SJCC areLLC is not consolidated by either PNMR or PNM. The amounts outstanding under the Westmoreland Loan and the letterletters of credit support constitute PNMR’s maximum exposure to loss from the VIEs.

PVNGS Leases

PNM leased portions of its interests in Units 1 and 2 of PVNGS under leases, which initially were scheduled to expire on January 15, 2015 for the four Unit 1 leases and January 15, 2016 for the four Unit 2 leases. See Note 7 for additional information regarding the leases and actions PNM has taken with respect to its renewal and purchase options. Each of the lease agreements was with a different trust whose beneficial owners were five different institutional investors. PNM is not the legal or tax owner of the leased assets. The beneficial owners of the trusts possess all of the voting control and pecuniary interests in the trusts. At January 15, 2015, the four Unit 1 leases were extended. At January 15, 2016, one of the Unit 2 leases was extended and PNM purchased the assets underlying the other three Unit 2 leases. See Note 17 for information concerning the NMPRC’s treatment of the purchased assets and extended leases in PNM’s NM 2015 Rate Case. PNM is only obligated to make payments to the trusts for the scheduled semi-annual lease payments and has no other financial obligations or commitments to the trusts or the beneficial owners although PNM is responsible for all decommissioning obligations related to its entire interest in PVNGS both during and after termination of the leases. Creditors of the trusts have no recourse to PNM’s assets other than with respect to the contractual lease payments. PNM has no additional rights to the assets of the trusts other than the use of the leased assets. PNM has no assets or liabilities recorded on its Consolidated Balance Sheets related to the trusts other than accrued lease payments of $8.3 millionVIE at December 31, 2017 and 2016, which are included in other current liabilities on the Consolidated Balance Sheets.2019.
Prior to their exercise or expiration, the fixed rate renewal options were considered to be variable interests in the trusts and resulted in the trusts being considered variable interest entities under GAAP. Upon execution of documents establishing terms of the asset purchases or lease extensions, the fixed rate renewal options ceased to exist as did PNM’s variable interest in the trusts. PNM evaluated the PVNGS lease arrangements, including actions taken with respect to the renewal and purchase options, and concluded that it did not have the power to direct the activities that most significantly impacted the economic performance of the trusts and, therefore, was not the primary beneficiary of the trusts under GAAP. The significant factors considered in reaching this conclusion were: the periods covered by fixed price renewal options were significantly shorter than the anticipated remaining useful lives of the assets since the operating licenses for the plants were extended for 20 years through 2045 for Unit 1 and 2046 for Unit 2; PNM’s only financial obligation to the trusts is to make the fixed lease payments and the payments do not vary based on the output of the plants or their performance; during the lease terms, the economic performance of the trusts is substantially fixed due to the fixed lease payments; PNM is only one of several participants in PVNGS and is not the operating agent for the plants, so does not significantly influence the day-to-day operations of the plants; the operations of the plants, including plans for their decommissioning, are highly regulated by the NRC, leaving little room for the participants to operate the plants in a manner that impacts the economic performance of the trusts; the economic performance of the trusts at the end of the lease terms is dependent upon the fair value and remaining lives of the plants at that time, which are determined by factors such as power prices, outlook for nuclear power, and the impacts of potential carbon legislation or regulation, all which are outside of PNM’s control; and while PNM had some benefit from its renewal options, the vast majority of the value at the end of the leases would accrue to the beneficial owners of the trusts, particularly given increases in the value of existing nuclear generating facilities, which have no GHG, resulting from potential carbon legislation or regulation.



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017

(10)Earnings and Dividends Per Share
In accordance with GAAP, dual presentation of basic and diluted earnings per share has been presented in the Consolidated Statements of Earnings of PNMR. Information regarding the computation of earnings per share and dividends per share is as follows:
 Year Ended December 31,
 2017 2016 2015
 (In thousands, except per share amounts)
Net Earnings Attributable to PNMR$79,874
 $116,849
 $15,640
Average Number of Common Shares:     
Outstanding during year79,654
 79,654
 79,654
Vested awards of restricted stock237
 104
 105
Average Shares – Basic79,891
 79,758
 79,759
Dilutive Effect of Common Stock Equivalents:     
Stock options and restricted stock250
 374
 380
Average Shares – Diluted80,141
 80,132
 80,139
Net Earnings Attributable to PNMR Per Share of Common Stock:     
Basic$1.00
 $1.47
 $0.20
Diluted$1.00
 $1.46
 $0.20
Dividends Declared per Common Share$0.9925
 $0.9025
 $0.8200

(11)Income Taxes

Federal Income Tax Reform

On December 22, 2017, comprehensive changes in United States federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes many significant modifications to the tax laws, including reducing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also eliminates federal bonus depreciation for utilities effective September 28, 2017 and, effective January 1, 2018, limits interest deductibility for non-utility businesses and limits the deductibility of certain officer compensation.

Although most of the provisions of the Tax Act are not effective until 2018, GAAP requires that some effects must be recognized in 2017. Under the asset and liability method of accounting for income taxes used by the Company, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. At the date of enactment of the Tax Act, the Company had net deferred tax liabilities for its regulated activities and net deferred tax assets for non-regulated activities. As a result of the change in the federal income tax rate, the Company re-measured and adjusted its deferred tax assets and liabilities as of December 31, 2017. The portion of that adjustment not related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax assets and an increase in income tax expense. The portion related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax liabilities and an increase in regulatory liabilities, based on the assumption that PNM and TNMP will be required to return the benefit to ratepayers over time. PNM’s NM 2016 Rate Case (Note 17) reflects that assumption by including an amortization of the estimated benefit of the reduction in existing deferred federal income taxes as a reduction to customer rates over a twenty-one year period beginning in 2018. In addition, in January 2018, the PUCT issued an order requiring Texas utilities, including TNMP, to begin recording regulatory liabilities for the effects of the Tax Act with the stated purpose of reflecting those effects in the utility bills of Texas ratepayers.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

In December 2017, the SEC issued Staff Accounting Bulletin No. 118, which provides guidance to address the application of GAAP to reflect the Tax Act in circumstances where all information and analysis of the Tax Act is not yet available or complete. This bulletin provides for up to a one-year period in which to complete the required analyses and accounting for the impacts of the Tax Act. The Company believes it has made reasonable estimates of the effects of the Tax Act and reflected the impacts in the Consolidated Financial Statements. However, the reported effects on the Company’s deferred tax assets and liabilities, regulatory assets and liabilities, and income tax expense are provisional and it is possible that changes to U.S. Treasury regulations, IRS interpretations of the provisions of the Tax Act, actions by the NMPRC, PUCT, and FERC, or the Company’s further analysis of historical records could cause these estimates to change.

The adjustments to deferred income taxes recorded as increases in regulatory liabilities and income tax expense as a result of the enactment of the Tax Act are presented below:
  PNM TNMP Corporate and Other Consolidated
  (In thousands)
Net increase in regulatory liabilities $402,501
 $146,451
 $
 $548,952
Net decrease in deferred income tax liabilities (deferred income tax assets) 372,895
 138,586
 (19,990) 491,491
Net deferred income tax expense $29,606
 $7,865
 $19,990
 $57,461

GAAP requires that the impacts of adjusting existing deferred tax assets and liabilities for a change in an income tax rate be recognized in income tax expense during the period of enactment, including impacts that are reflected in AOCI. This results in the tax effects of items within AOCI not reflecting the appropriate tax rate and being stranded in AOCI. In February 2018, the FASB issued Accounting Standards Update 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income to address this issue by allowing entities to reclassify the income tax effects of the Tax Act on items within AOCI to retained earnings. The Company records in AOCI, net of income taxes, unamortized gains and losses related to PNM’s defined benefit pension plans to the extent not attributed to regulated operations, unrealized gains on PNM’s available-for-sale securities, and unrealized gains and losses on cash flow hedges related to PNMR’s interest rate swaps. When amounts are reclassified from AOCI to the Consolidated Statement of Earnings, the Company recognizes the related income tax expense (benefit) at the tax rate in effect at that time. As permitted by ASU 2018-02, as of December 31, 2017, the Company reclassified the stranded federal income tax effects of the Tax Act on items recorded in AOCI, resulting in a net increase in retained earnings of $17.6 million. See Note 19.
PNMR
PNMR’s income taxes consist of the following components:
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Current federal income tax$
 $
 $
Current state income tax(188) (527) (1,376)
Deferred federal income tax119,182
 60,892
 5,488
Deferred state income tax11,632
 3,886
 12,305
Amortization of accumulated investment tax credits(286) (973) (1,342)
Total income taxes$130,340
 $63,278
 $15,075


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

PNMR’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Federal income tax at statutory rates$79,016
 $68,311
 $16,154
Amortization of accumulated investment tax credits(286) (973) (1,342)
Flow-through of depreciation items1,147
 1,227
 1,485
Earnings attributable to non-controlling interest in Valencia(5,256) (5,082) (5,218)
State income tax, net of federal benefit5,398
 4,537
 (1,781)
Impairment of state net operating loss carryforwards819
 (311) 5,278
Impairment of state production tax credits
 
 3,092
Allowance for equity funds used during construction(3,331) (1,732) (3,650)
Reversal of deferred items related to BART at SJGS
 
 1,826
Impairment of charitable contribution carryforward909
 
 2,042
Regulatory recovery of prior year impairments of state net operating loss carryforward, net of amortization(2,225) (1,877) 
Federal income tax rate change57,461
 
 
Excess tax benefits related to stock compensation awards(2,324) 
 
Other(988) (822) (2,811)
Total income taxes$130,340
 $63,278
 $15,075
Effective tax rate57.73% 32.42% 32.66%

The components of PNMR’s net accumulated deferred income tax liability were:
 December 31,
 2017 2016
 (In thousands)
Deferred tax assets:   
Net operating loss$98,301
 $160,901
Regulatory liabilities related to income taxes189,501
 64,657
Federal tax credit carryforwards71,849
 78,675
Shutdown of SJGS Units 2 and 32,204
 53,434
Other45,656
 75,805
Total deferred tax assets407,511
 433,472
Deferred tax liabilities:   
Depreciation and plant related(690,909) (1,102,458)
Investment tax credit(55,731) (56,017)
Regulatory assets related to income taxes(61,956) (66,378)
CTC(5,670) (12,715)
Pension(56,070) (57,287)
Regulatory asset for shutdown of SJGS Units 2 and 3(31,887) 
Other(52,498) (79,267)
Total deferred tax liabilities(954,721) (1,374,122)
Net accumulated deferred income tax liabilities$(547,210) $(940,650)


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

The following table reconciles the change in PNMR’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:
 Year Ended
 December 31, 2017
 (In thousands)
Net change in deferred income tax liability per above table$(393,440)
Change in tax effects of income tax related regulatory assets and liabilities(16,444)
Tax effect of mark-to-market adjustments(4,724)
Tax effect of excess pension liability(3,421)
Adjustment for uncertain income tax positions2,677
Reclassification of unrecognized tax benefits(2,677)
Regulatory recovery of prior year impairments of state net operating loss carryforward, net of amortization(2,225)
Federal income tax rate change548,952
Cumulative effect adjustment for excess tax benefit related to stock compensation awards10,382
Alternative minimum tax carryforward reclassified to receivable(8,336)
Other(216)
Deferred income taxes$130,528
PNM
PNM’s income taxes (benefit) consist of the following components:
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Current federal income tax$118
 $(10,290) $(7,934)
Current state income tax(1,112) (1,907) (1,988)
Deferred federal income tax73,308
 49,123
 (6,827)
Deferred state income tax9,527
 4,969
 5,333
Amortization of accumulated investment tax credits(286) (973) (1,342)
Total income taxes (benefit)$81,555
 $40,922
 $(12,758)


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

PNM’s provision for income taxes (benefit) differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Federal income tax (benefit) at statutory rates$59,139
 $46,501
 $(4,579)
Amortization of accumulated investment tax credits(286) (973) (1,342)
Flow-through of depreciation items1,103
 1,185
 1,465
Earnings attributable to non-controlling interest in Valencia(5,256) (5,082) (5,218)
State income tax, net of federal benefit4,926
 3,921
 (2,162)
Impairment of state net operating loss carryforwards627
 (213) 3,619
Allowance for equity funds used during construction(3,032) (1,457) (3,650)
Reversal of deferred items related to BART at SJGS
 
 1,826
Regulatory recovery of prior year impairment of state net operating loss carryforward, net of amortization(2,225) (1,877) 
Federal income tax rate change29,606
 
 
Allocation of excess tax benefit related to stock compensation awards(1,708) 
 
Other(1,339) (1,083) (2,717)
Total income taxes (benefit)$81,555
 $40,922
 $(12,758)
Effective tax rate48.27% 30.80% 97.52%

The components of PNM’s net accumulated deferred income tax liability were:
 December 31,
 2017 2016
 (In thousands)
Deferred tax assets:   
Net operating loss$67,719
 $117,922
Regulatory liabilities related to income taxes152,059
 60,940
Federal tax credit carryforwards60,085
 59,156
Shutdown of SJGS Units 2 and 32,204
 53,434
Other23,801
 41,700
Total deferred tax assets305,868
 333,152
Deferred tax liabilities:   
Depreciation and plant related(544,270) (891,578)
Investment tax credit(55,731) (56,017)
Regulatory assets related to income taxes(52,392) (56,577)
Pension(51,774) (50,134)
Regulatory asset for shutdown of SJGS Units 2 and 3(31,887) 
Other(18,826) (27,512)
Total deferred tax liabilities(754,880) (1,081,818)
Net accumulated deferred income tax liabilities$(449,012) $(748,666)


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

The following table reconciles the change in PNM’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:
 Year Ended
 December 31, 2017
 (In thousands)
Net change in deferred income tax liability per above table$(299,654)
Change in tax effects of income tax related regulatory assets and liabilities(16,332)
Tax effect of mark-to-market adjustments(4,110)
Tax effect of excess pension liability(3,421)
Adjustment for uncertain income tax positions2,614
Reclassification of unrecognized tax benefits(2,614)
Regulatory recovery of prior year impairment of state net operating loss carryforward, net of amortization(2,225)
Federal income tax rate change402,501
Allocation of cumulative effect adjustment for excess tax benefit related to stock compensation awards7,770
Other(1,980)
Deferred income taxes$82,549
TNMP
TNMP’s income taxes consist of the following components:
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Current federal income tax$2,472
 $9,445
 $1,603
Current state income tax1,765
 1,729
 1,639
Deferred federal income tax27,304
 12,690
 20,904
Deferred state income tax(29) (28) (21)
Total income taxes$31,512
 $23,836
 $24,125
TNMP’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the periods shown. The differences are attributable to the following factors:
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Federal income tax at statutory rates$23,475
 $22,928
 $23,131
State income tax, net of federal benefit1,198
 1,132
 1,065
Federal income tax rate change7,865
 
 
Allocation of excess tax benefit related to stock compensation awards(616) 
 
Other(410) (224) (71)
Total income taxes$31,512
 $23,836
 $24,125
Effective tax rate46.98% 36.39% 36.5%


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

The components of TNMP’s net accumulated deferred income tax liability at December 31, were:
 December 31,
 2017 2016
 (In thousands)
Deferred tax assets:   
Regulatory liabilities related to income taxes$43,103
 $3,718
Other3,762
 6,016
Total deferred tax assets46,865
 9,734
Deferred tax liabilities:   
Depreciation and plant related(135,647) (201,017)
CTC(5,670) (12,715)
Regulatory assets related to income taxes(9,564) (9,800)
Loss on reacquired debt(6,890) (11,937)
Pension(4,296) (7,153)
AMS(7,707) (8,928)
Other(3,506) (3,969)
Total deferred tax liabilities(173,280) (255,519)
Net accumulated deferred income tax liabilities$(126,415) $(245,785)

The following table reconciles the change in TNMP’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:
 Year Ended
 December 31, 2017
 (In thousands)
Net change in deferred income tax liability per above table$(119,370)
Change in tax effects of income tax related regulatory assets and liabilities(112)
Federal income tax rate change146,451
Other306
Deferred income taxes$27,275

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

Other Disclosures

GAAP requires that the Company recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. A reconciliation of unrecognized tax benefits (expenses) is as follows:
 PNMR PNM TNMP
 (In thousands)
Balance at December 31, 2014$15,031
 $12,228
 $
Additions based on tax positions related to 20151,214
 1,214
 
Additions (reductions) for tax positions of prior years(9,790) (9,790) 
Settlement payments
 
 
Balance at December 31, 20156,455
 3,652
 
Additions based on tax positions related to 2016242
 242
 
Additions (reductions) for tax positions of prior years55
 55
 
Settlement payments
 
 
Balance at December 31, 20166,752
 3,949
 
Additions based on tax positions related to 2017262
 262
 
Additions (reductions) for tax positions of prior years2,415
 2,352
 63
Settlement payments
 
 
Balance at December 31, 2017$9,429
 $6,563
 $63

Included in the balance of unrecognized tax benefits at December 31, 2017 are $8.9 million, $6.1 million, and $0.1 million that, if recognized, would affect the effective tax rate for PNMR, PNM, and TNMP. The Company does not anticipate that any unrecognized tax expenses or unrecognized tax benefits will be reduced or settled in 2018.

In 2016, the Company undertook an analysis of interest income and interest expense applicable to federal income tax matters. The analysis encompassed the impacts of IRS examinations, amended income tax returns, and filings for carrybacks of tax matters to previous taxable years applicable to all years not closed under the IRS rules. As a result of this effort, PNMR received net refunds from the IRS of $6.5 million. Of the refunds, $2.1 million was recorded as a reduction of the net interest receivable and $5.1 million was recorded as interest income, which was partially offset by $0.7 million of interest expense. In addition, PNMR incurred $0.9 million in professional fees related to the analysis. Of the net pre-tax impacts aggregating $3.5 million, $2.6 million is reflected in the PNM segment, $0.3 million in the TNMP segment, and $0.6 million in the Corporate and Other segment.
Estimated interest income related to refunds the Company expects to receive is included in Other income and estimated interest expense and penalties related to potential cash settlements are included in Interest Charges in the Consolidated Statements of Earnings. Interest income (expense) related to income taxes was as follows:
 PNMR PNM TNMP
 (In thousands)
2017$
 $
 $
2016$4,398
 $3,625
 $345
2015$
 $
 $

There was no accumulated accrued interest receivable or payable related to income taxes as of December 31, 2017 and 2016.

The Company files a federal consolidated and several consolidated and separate state income tax returns. The tax years prior to 2013 are closed to examination by either federal or state taxing authorities other than Arizona. The tax years prior to 2012 are closed to examination by Arizona taxing authorities. Other tax years are open to examination by federal and state taxing authorities. At December 31, 2017, the Company has $410.4 million of federal net operating loss carryforwards that expire

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

beginning in 2030 and $71.8 million of federal tax credit carryforwards that expire beginning in 2023. State net operating losses expire beginning in 2017 and vary from federal due to differences between state and federal tax law.

In 2013, New Mexico House Bill 641 reduced the New Mexico corporate income tax rate from 7.6% to 5.9%. The rate reduction is being phased-in from 2014 to 2018. In accordance with GAAP, PNMR and PNM adjusted accumulated deferred income taxes to reflect the tax rate at which the balances are expected to reverse during the period that includes the date of enactment, which was in the year ended December 31, 2013. At that time, the portion of the adjustment related to PNM’s regulated activities was recorded as a reduction in deferred tax liabilities and an increase in a regulatory liability, based on the assumption that PNM will be required to return the benefit to customers over time. PNM’s NM 2016 Rate Case (Note 17) reflects that assumption. In addition, the portion of the adjustment that was not related to PNM’s regulated activities was recorded as a reduction in deferred tax assets and an increase in income tax expense. Changes in the estimated timing of reversals of deferred tax assets and liabilities resulted in refinements of the impacts of this change in tax rates being recorded periodically until the rate reduction was fully phased-in. Adjustments to deferred income taxes recorded as increases (decreases) in the regulatory liability and income tax expense are as follows:

 PNMR PNM TNMP
 (In thousands)
December 31, 2017:     
Regulatory liability$(10,109) $(10,109) $
Income tax expense$(1,259) $(1,179) $
December 31, 2016:     
Regulatory liability$(7,132) $(7,132) $
Income tax expense$712
 $804
 $
December 31, 2015:     
Regulatory liability$(1,903) $(1,903) $
Income tax expense$(674) $(470) $

In 2008, fifty percent bonus tax depreciation was enacted as a temporary two-year stimulus measure as part of the Economic Stimulus Act of 2008. Bonus tax depreciation in various forms was continuously extended since that time, including by the Protecting Americans from Tax Hikes Act of 2015. The 2015 act extended and phased-out bonus tax depreciation through 2019. As discussed above the Tax Act eliminated bonus depreciation for utilities effective September 28, 2017. As a result of the net operating loss carryforwards for income tax purposes created by bonus depreciation and reduced future income taxes payable resulting from New Mexico House Bill 641, certain tax carryforwards are not expected to be utilized before their expiration. In accordance with GAAP, PNMR and PNM have impaired the tax carryforwards which were not expected to be utilized prior to their expiration. The impairments, net of federal tax benefit, for 2015 through 2017 are as follows:
 PNMR PNM TNMP
 (In thousands)
December 31, 2017:     
State tax credit carryforwards$
 $
 $
State net operating loss carryforwards$819
 $627
 $
Charitable contribution carryforwards$909
 $
 $
December 31, 2016:     
State tax credit carryforwards$
 $
 $
State net operating loss carryforwards$(311) $(213) $
Charitable contribution carryforwards$
 $
 $
December 31, 2015:     
State tax credit carryforwards$3,092
 $
 $
State net operating loss carryforwards$5,278
 $3,619
 $
Charitable contribution carryforwards$2,042
 $
 $


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

The impairments of unexpired state tax credits, state net operating loss, and charitable contribution carryforwards are reflected as a valuation allowance against deferred tax assets. The reserve balances, after reflecting expiration of carryforwards under applicable tax laws, at December 31, 2017 and 2016 are as follows:

 PNMR PNM TNMP
 (In thousands)
December 31, 2017:     
State tax credit carryforwards$2,487
 $
 $
State net operating loss carryforwards$1,131
 $839
 $
Charitable contribution carryforwards$952
 $
 $
December 31, 2016:     
State tax credit carryforwards$3,986
 $
 $
State net operating loss carryforwards$361
 $248
 $
Charitable contribution carryforwards$659
 $
 $

The NMPRC’s order in the NM 2015 Rate Case (Note 17) approved PNM’s request to record a regulatory asset, which net of federal income taxes, amounted to $2.1 million, to recover a 2014 impairment of PNM’s New Mexico net operating loss carryforward resulting from an extension of the income tax provision for fifty percent bonus depreciation. The regulatory asset is being recovered through rates over two years. The settlement of the NM 2016 Rate Case (Note 17) included $3.3 million, net of federal tax, resulting from impairment of a 2015 New Mexico net operating loss as an addition to the remaining unamortized balance of the regulatory asset from the NM 2015 Rate Case. The total balance will be recovered over three years beginning in 2018. These impacts, net of amortization, are reflected in income tax expense on the Consolidated Statement of Earnings.

(12)Pension and Other Postretirement Benefits
PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. The periodic costs or income of the PNM Plans and TNMP Plans are included in regulated rates to the extent attributable to regulated operations. PNM and TNMP receive a regulated return on the amounts funded for pension and OPEB plans in excess of the periodic cost or income to the extent included in retail rates (a “prepaid pension asset”).
Participants in the PNM Plans include eligible employees and retirees of PNMR and PNM. Participants in the TNMP Plans include eligible employees and retirees of TNMP. The PNM pension plan was frozen at the end of 1997 with regard to new participants, salary levels, and benefits. Through December 31, 2007, additional credited service could be accrued under the PNM pension plan up to a limit determined by age and service. The TNMP pension plan was frozen at December 31, 2005 with regard to new participants, salary levels, and benefits.
GAAP requires a plan sponsor to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur.
GAAP requires unrecognized prior service costs and unrecognized gains or losses to be recorded in AOCI and subsequently amortized. The amortization of these incurred costs is included as pension and postretirement benefit periodic cost or income in subsequent years. To the extent the amortization of these items will ultimately be recovered or returned through future rates, PNM and TNMP record the costs as a regulatory asset or regulatory liability. The amortization of these incurred costs is included as pension and postretirement benefit periodic cost or income in subsequent years.
The Company maintains trust funds for the pension and OPEB plans from which benefits are paid to eligible employees and retirees. The Company’s funding policy is to make contributions to the trusts, as determined by an independent actuary, that comply with minimum guidelines of the Employee Retirement Income Security Act and the Internal Revenue Code.IRC. Information concerning the investments is contained in Note 8.9. The Company has in place a policy that defines the investment objectives, es

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

tablishesestablishes performance goals of asset managers, and provides procedures for the manner in which investments are to be reviewed. The plans implement investment strategies to achieve the following objectives:
 
Implement investment strategies commensurate with the risk that the Corporate Investment Committee deems appropriate to meet the obligations of the pension plans and OPEB plans, minimize the volatility of expense, and account for contingencies
Transition asset mix over the long-term to a higher proportion of high qualityhigh-quality fixed income investments as the plans’ funded statuses improve


Management is responsible for the determination of the asset target mix and the expected rate of return. The target asset allocations are determined based on consultations with external investment advisors. The expected long-term rate of return on pension and postretirement plan assets is calculated on the market-related value of assets. GAAP requires that actual gains and losses on pension and OPEB plan assets be recognized in the market-related value of assets equally over a period of not more than five years, which reduces year-to-year volatility. For the PNM Plans and TNMP Plans, the market-related value of assets is equal to the prior year’s market-related value of assets adjusted for contributions, benefit payments and investment gains and losses that are within a corridor of plus or minus 4.0% around the expected return on market value. Gains and losses that are outside the corridor are amortized over five years.


In March 2017, the FASB issued Accounting Standards Update 2017-07 - Compensation - Retirement Benefits (Topic 715) to improve the presentation of net periodic pension and other postretirement benefit costs. Prior to ASU 2017-07, the Company presented all of its net periodic benefit costs, net of amounts capitalized to construction and other accounts, as administrative and general expenses on its statements of earnings. ASU 2017-07 requires the service cost component of net benefit costs be presented in the same line item or items as employees’ compensation. The other components of net periodic benefit cost (the “non-service cost components”) are required to be presented separately from the service cost component and outside of operating income. ASU 2017-07 also limits capitalization of net periodic benefit costs to only the service cost component. ASU 2017-07 requires retrospective presentation of the service and non-service cost components of net periodic benefit costs in the income statement and prospective application regarding the capitalization of only the service cost component of net periodic benefit costs. The Company adopted ASU 2017-07 as of January 1, 2018, its required effective date. In accordance with the standard, the PNM and PNMR Consolidated Statements of Earnings reflect a reclassification from administrative and general expenses to other (deductions) for the non-service cost components of net periodic benefit costs in the amount of $8.6 million, net of amounts capitalized prior to the adoption of the standard, in the year ended December 31, 2017. The non-service components of TNMP’s

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

net periodic benefit costs in 2017 were insignificant. The Company believes PNM and TNMP can continue to capitalize the non-service cost components of net periodic benefit costs as regulatory assets and liabilities to the extent attributable to regulated operations. See Note 13. See New Accounting Pronouncements in Note 1 regarding updates to disclosure requirements that will be effective in future periods.

Pension Plans
For defined benefit pension plans, including the executive retirement plans, the PBO represents the actuarial present value of all benefits attributed by the pension benefit formula to employee service rendered prior to that date using assumptions regarding future compensation levels. The ABO represents the PBO without considering future compensation levels. Since the pension plans are frozen, the PBO and ABO are equal. The following table presents information about the PBO, fair value of plan assets, and funded status of the plans:
 PNM TNMP
 Year Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (In thousands)
PBO at beginning of year$564,258
 $623,983
 $60,587
 $68,423
Service cost
 
 
 
Interest cost25,175
 24,270
 2,686
 2,625
Actuarial (gain) loss61,151
 (41,025) 7,889
 (5,216)
Benefits paid(44,839) (42,970) (5,588) (5,245)
PBO at end of year605,745
 564,258
 65,574
 60,587
Fair value of plan assets at beginning of year489,978
 562,016
 55,074
 63,499
Actual return on plan assets86,328
 (29,068) 9,881
 (3,180)
Employer contributions
 
 
 
Benefits paid(44,839) (42,970) (5,588) (5,245)
Fair value of plan assets at end of year531,467
 489,978
 59,367
 55,074
Funded status – asset (liability) for pension benefits$(74,278) $(74,280) $(6,207) $(5,513)

 PNM Plan TNMP Plan
 Year Ended December 31, Year Ended December 31,
 2017 2016 2017 2016
 (In thousands)
PBO at beginning of year$621,751
 $597,900
 $67,061
 $64,198
Service cost
 
 
 
Interest cost26,908
 30,307
 2,887
 3,304
Actuarial (gain) loss26,298
 39,463
 3,050
 4,318
Benefits paid(50,974) (45,919) (4,575) (4,759)
PBO at end of year623,983
 621,751
 68,423
 67,061
Fair value of plan assets at beginning of year543,601
 557,923
 60,624
 62,082
Actual return on plan assets69,389
 31,597
 7,450
 3,301
Employer contributions
 
 
 
Benefits paid(50,974) (45,919) (4,575) (4,759)
Fair value of plan assets at end of year562,016
 543,601
 63,499
 60,624
Funded status – asset (liability) for pension benefits$(61,967) $(78,150) $(4,924) $(6,437)


Actuarial (gain) loss results from changes in:

 PNM TNMP
 Year Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (in thousands)
Discount rates$66,108
 $(34,769) $8,006
 $(4,278)
Demographic experience(732) 431
 394
 (301)
Mortality rate(4,225) (6,966) (296) (705)
Other assumptions and experience
 279
 (215) 68
 $61,151
 $(41,025) $7,889
 $(5,216)


The following table presents pre-tax information about net actuarial (gain) loss in AOCI as of December 31, 2019.
 PNM TNMP
 (In thousands)
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at beginning of year$150,274
 $
Experience (gain) loss8,926
 1,877
Regulatory asset (liability) adjustment(5,539) (1,877)
Amortization recognized in net periodic benefit cost (income)(7,270) 
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at end of year$146,391
 $
Amortization expected to be recognized in 2020$8,131
 $


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017

Actuarial (gain) loss results from changes in:
 PNM Plan TNMP Plan
 Year Ended December 31, Year Ended December 31,
 2017 2016 2017 2016
 (in thousands)
Discount rates$27,547
 $41,849
 $3,528
 $5,055
Demographic experience(1,249) (334) (517) (556)
Other assumption and experience
 (2,052) 39
 (181)
 $26,298
 $39,463
 $3,050
 $4,318

The following table presents pre-tax information about prior service cost and net actuarial (gain) loss in AOCI as of December 31, 2017.
 PNM Plan TNMP Plan
 December 31, 2017 December 31, 2017
 
Prior service
cost
 
Net actuarial
(gain) loss
 
Net actuarial
(gain) loss
 (In thousands)
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at beginning of year$(1,450) $159,149
 $
Experience (gain) loss
 (9,288) (621)
Regulatory asset (liability) adjustment
 5,387
 621
Amortization recognized in net periodic benefit cost (income)405
 (6,722) 
Amounts in AOCI not yet recognized in net periodic benefit cost (income) at end of year$(1,045) $148,526
 $
Amortization expected to be recognized in 2018$(405) $6,653
 $

The following table presents the components of net periodic benefit cost (income):
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
PNM     
Service cost$
 $
 $
Interest cost25,175
 24,270
 26,908
Expected return on plan assets(34,103) (34,686) (33,803)
Amortization of net (gain) loss15,518
 16,348
 16,006
Amortization of prior service cost(965) (965) (965)
Net periodic benefit cost$5,625
 $4,967
 $8,146
TNMP     
Service cost$
 $
 $
Interest cost2,686
 2,625
 2,887
Expected return on plan assets(3,868) (3,963) (3,779)
Amortization of net (gain) loss941
 1,088
 923
Amortization of prior service cost
 
 
Net periodic benefit cost (income)$(241) $(250) $31

 Year Ended December 31,
 2017 2016 2015
 (In thousands)
PNM Plan     
Service cost$
 $
 $
Interest cost26,908
 30,307
 28,255
Expected return on plan assets(33,803) (35,416) (39,323)
Amortization of net (gain) loss16,006
 13,820
 14,820
Amortization of prior service cost(965) (965) (965)
Net periodic benefit cost$8,146
 $7,746
 $2,787
TNMP Plan     
Service cost$
 $
 $
Interest cost2,887
 3,304
 3,043
Expected return on plan assets(3,779) (3,943) (4,420)
Amortization of net (gain) loss923
 700
 782
Amortization of prior service cost
 
 
Net periodic benefit cost (income)$31
 $61
 $(595)


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015


The following significant weighted-average assumptions were used to determine the PBO and net periodic benefit cost (income). Should actual experience differ from actuarial assumptions, the PBO and net periodic benefit cost (income) would be affected.
 Year Ended December 31,
PNM2019 2018 2017
Discount rate for determining December 31 PBO3.42% 4.65% 4.05%
Discount rate for determining net periodic benefit cost (income)4.65% 4.05% 4.51%
Expected return on plan assets6.86% 6.54% 6.40%
Rate of compensation increaseN/A
 N/A
 N/A
TNMP    
Discount rate for determining December 31 PBO3.46% 4.63% 4.01%
Discount rate for determining net periodic benefit cost (income)4.63% 4.01% 4.49%
Expected return on plan assets6.90% 6.57% 6.40%
Rate of compensation increaseN/A
 N/A
 N/A

 Year Ended December 31,
PNM Plan2017 2016 2015
Discount rate for determining December 31 PBO4.05% 4.51% 5.29%
Discount rate for determining net periodic benefit cost (income)4.51% 5.29% 4.48%
Expected return on plan assets6.40% 6.50% 6.80%
Rate of compensation increaseN/A
 N/A
 N/A
TNMP Plan    
Discount rate for determining December 31 PBO4.01% 4.49% 5.39%
Discount rate for determining net periodic benefit cost (income)4.49% 5.39% 4.39%
Expected return on plan assets6.40% 6.50% 6.80%
Rate of compensation increaseN/A
 N/A
 N/A
The assumed discount rate for determining the PBO was determined based on a review of long-term high-grade bonds and management’s expectations. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the PBO. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. If all other factors were to remain unchanged, a 1% decrease in the expected long-term rate of return would cause PNM’s and TNMP’s 20182020 net periodic benefit cost to increase $5.3$5.0 million and $0.6$0.6 million (analogous changes would result from a 1% increase). The actual rate of return for the PNM and TNMP pension plans was 13.4%18.5% and 12.8%18.9% for the year ended December 31, 2017.2019.


The Company’s long-term pension investment strategy is to invest in assets whose interest rate sensitivity is correlated with the pension liability. The Company has chosen to implement thisuses an investment strategy, known as Liability Driven Investing, (“LDI”) by increasingthat increases the liability matching investments as the funded status of the pension plans improves. These liability matchingimprove. The Company’s investment allocation targets consist of 30% equities, 20% alternative investments (both of which are currentlyconsidered return generating), and 50% fixed income securities. Prior to 2018, the pension plans targeted asset allocation was 21% equities, 65% fixed income, and 14% alternative investments. The Company is contemplating modifying the LDI strategy by decreasing the liability matching fixed income investments portfolio from 65% to 50% beginning in 2018. The new asset allocation will be implemented in 2018.income. Equity investments are primarily in domestic securities that include large, mid,large-, mid-, and small capitalizationsmall-capitalization companies. The pension plans have a 6%7% targeted allocation to equities of companies domiciled primarily in developed countries outside of the United States. ThisU.S. The equity investments category includes actively managed international and domestic equity securities that are benchmarked against a variety of style indices. Fixed income investments are primarily corporate bonds of companies from diversified industries and government securities. Alternative investments include investments in hedge funds, real estate funds, and private equity funds. The hedge funds and private equity funds are structured as multi-manager multi-strategy fund of funds to achieve a diversified position in these asset classes. 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 investment is structured as an open-ended, commingled private real estate portfolio that invests in a diversified portfolio of assets including commercial property and multi-family housing. See Note 8 for fair value information concerning assets held by the pension plans.

The following pension benefit payments are expected to be paid:
 PNM Plan TNMP Plan
 (In thousands)
2018$49,221
 $5,929
201948,639
 5,215
202047,069
 5,108
202145,246
 5,373
202244,232
 4,856
2023 - 2027201,389
 22,085


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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


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. See Note 9 for fair value information concerning assets held by the pension plans.

The following pension benefit payments are expected to be paid:
 PNM TNMP
 (In thousands)
2020$46,600
 $5,321
202145,636
 5,244
202244,702
 5,111
202343,595
 4,895
202442,637
 4,652
2025 - 2029193,885
 20,846

Based on current law, funding requirements, and estimates of portfolio performance, the Company does not0t expect to make any cash contributions to the pension plans in 2018-2021, but expects2020 or 2021. PNM and TNMP expect to contribute $5.1$4.6 million and zero0 to the PNM and TNMP pension plans in 2022, based on current law, including recent amendments to$19.1 million and $1.1 million in 2023, and $19.0 million and $2.8 million in 2024. The funding requirements, and estimates of portfolio performance. These anticipationsassumptions were developed using current funding assumptions with discount rates of 4.0%3.4% to 5.1%3.5%. Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rate.rates. PNM and TNMP may make additional contributions at their discretion.
Other Postretirement Benefit Plans
For postretirement benefit plans, the APBO is the actuarial present value of all future benefits attributed under the terms of the postretirement benefit plan to employee service rendered to date.
The following table presents information about the APBO, the fair value of plan assets, and the funded status of the plans:
 PNM TNMP
 Year Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (In thousands)
APBO at beginning of year$75,305
 $89,897
 $10,064
 $12,279
Service cost53
 83
 50
 134
Interest cost3,316
 3,439
 451
 477
Participant contributions2,131
 2,390
 316
 174
Actuarial (gain) loss2,587
 (12,206) 1,004
 (2,213)
Benefits paid(8,271) (8,298) (650) (787)
APBO at end of year75,121
 75,305
 11,235
 10,064
Fair value of plan assets at beginning of year69,703
 80,356
 8,744
 10,002
Actual return on plan assets19,257
 (7,669) 2,434
 (988)
Employer contributions3,580
 2,924
 
 343
Participant contributions2,131
 2,390
 316
 174
Benefits paid(8,271) (8,298) (650) (787)
Fair value of plan assets at end of year86,400
 69,703
 10,844
 8,744
Funded status – asset (liability)$11,279
 $(5,602) $(391) $(1,320)
 PNM Plan TNMP Plan
 Year Ended December 31, Year Ended December 31,
 2017 2016 2017 2016
 (In thousands)
APBO at beginning of year$94,269
 $84,674
 $12,830
 $13,106
Service cost96
 140
 143
 186
Interest cost4,025
 4,346
 556
 677
Participant contributions3,069
 2,690
 379
 520
Actuarial (gain) loss(1,601) 17,877
 (381) (96)
Benefits paid(9,961) (11,734) (1,248) (1,563)
Plan design changes
 (3,724) 
 
APBO at end of year89,897
 94,269
 12,279
 12,830
Fair value of plan assets at beginning of year72,694
 72,952
 8,544
 9,111
Actual return on plan assets14,222
 5,923
 1,642
 476
Employer contributions332
 2,863
 685
 
Participant contributions3,069
 2,690
 379
 520
Benefits paid(9,961) (11,734) (1,248) (1,563)
Fair value of plan assets at end of year80,356
 72,694
 10,002
 8,544
Funded status – asset (liability)$(9,541) $(21,575) $(2,277) $(4,286)

 
Actuarial (gain) loss results from changes in:
 PNM Plan TNMP Plan
 Year Ended December 31, Year Ended December 31,
 2017 2016 2017 2016
 (in thousands)
Discount rates$3,536
 $6,569
 $613
 $1,112
Claims, contributions, and demographic experience(5,845) 19,562
 (994) (102)
Assumed participation rate
 (6,335) 
 (1,013)
Mortality rate
 (691) 
 (93)
Medical benefits1,425
 (1,228) 
 
Dental trend assumption(717) 
 
 
 $(1,601) $17,877
 $(381) $(96)

In the year ended December 31, 2017, actuarial gains of $10.6 million were recorded as adjustments to regulatory assets for the PNM Plan. For the TNMP Plan, actuarial gains of $1.6 million were recorded as adjustments to regulatory liabilities.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


As of December 31, 2019, the fair value of plan assets exceeds the APBO for PNM’s OPEB Plan and the resulting net asset is presented in other deferred charges on the Consolidated Balance Sheets.

Actuarial (gain) loss results from changes in:
 PNM TNMP
 Year Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
 (in thousands)
Discount rates$7,236
 $(4,076) $1,375
 $(710)
Claims, contributions, and demographic experience(4,022) (3,174) (311) 72
Assumed participation rate
 (4,040) 
 (1,461)
Mortality rate(627) (916) (60) (114)
 $2,587
 $(12,206) $1,004
 $(2,213)


In the year ended December 31, 2019, actuarial gains of $11.4 million were recorded as adjustments to regulatory assets for the PNM OPEB plan. For the TNMP OPEB plan, actuarial gains of $0.9 million were recorded as adjustments to regulatory liabilities.

The following table presents the components of net periodic benefit cost:cost (income):
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
PNM     
Service cost$53
 $83
 $96
Interest cost3,316
 3,439
 4,025
Expected return on plan assets(5,278) (5,414) (5,230)
Amortization of net (gain) loss675
 2,354
 3,682
Amortization of prior service credit(397) (1,664) (1,663)
Net periodic benefit cost (income)$(1,631) $(1,202) $910
TNMP     
Service cost$50
 $134
 $143
Interest cost451
 477
 556
Expected return on plan assets(517) (542) (456)
Amortization of net (gain) loss(444) (227) (79)
Amortization of prior service cost
 
 
Net periodic benefit cost (income)$(460) $(158) $164

 Year Ended December 31,
 2017 2016 2015
 (In thousands)
PNM Plan     
Service cost$96
 $140
 $204
Interest cost4,025
 4,346
 4,089
Expected return on plan assets(5,230) (5,483) (5,610)
Amortization of net (gain) loss3,682
 1,145
 1,966
Amortization of prior service credit(1,663) (30) (642)
Net periodic benefit cost$910
 $118
 $7
TNMP Plan     
Service cost$143
 $186
 $247
Interest cost556
 677
 608
Expected return on plan assets(456) (490) (520)
Amortization of net (gain) loss(79) (40) 
Amortization of prior service cost
 
 
Net periodic benefit cost$164
 $333
 $335


The following significant weighted-average assumptions were used to determine the APBO and net periodic benefit cost. Should actual experience differ from actuarial assumptions, the APBO and net periodic benefit cost would be affected.
 Year Ended December 31,
PNM2019 2018 2017
Discount rate for determining December 31 APBO3.42% 4.63% 4.00%
Discount rate for determining net periodic benefit cost4.63% 4.00% 4.47%
Expected return on plan assets7.20% 7.42% 7.50%
Rate of compensation increaseN/A
 N/A
 N/A
TNMP     
Discount rate for determining December 31 APBO3.42% 4.63% 4.00%
Discount rate for determining net periodic benefit cost4.63% 4.00% 4.47%
Expected return on plan assets5.80% 5.86% 5.40%
Rate of compensation increaseN/A
 N/A
 N/A

 Year Ended December 31,
PNM Plan2017 2016 2015
Discount rate for determining December 31 APBO4.00% 4.47% 5.34%
Discount rate for determining net periodic benefit cost4.47% 5.34% 4.45%
Expected return on plan assets7.50% 7.70% 7.70%
Rate of compensation increaseN/A
 N/A
 N/A
TNMP Plan     
Discount rate for determining December 31 APBO4.00% 4.47% 5.34%
Discount rate for determining net periodic benefit cost4.47% 5.34% 4.45%
Expected return on plan assets5.40% 5.70% 5.70%
Rate of compensation increaseN/A
 N/A
 N/A
The assumed discount rate for determining the APBO was determined based on a review of long-term high-grade bonds and management’s expectations. The expected long-term rate of return on plan assets reflects the average rate of earnings expected

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

on the funds invested, or to be invested, to provide for the benefits included in the APBO. Factors that are considered include, but are not limited to, historic returns on plan assets, current market information on long-term returns (e.g., long-term bond rates), and current and target asset allocations between asset categories. If all other factors were to remain unchanged, a 1% decrease in the expected long-term rate of return would cause PNM’s and TNMP’s 2018 postretirement2020 net periodic benefit cost to increase $0.7$0.8 million and $0.1$0.1 million (analogous changes would result from a 1% increase). The actual rate of return for the PNM and TNMP postretirement benefitOPEB plans was 20.5%28.1% and 19.4%28.4% for the year ended December 31, 2017.2019.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

The following table shows the assumed health care cost trend rates for the PNM postretirement benefitOPEB plan:
PNM PlanPNM
December 31,December 31,
2017 20162019 2018
Health care cost trend rate assumed for next year6.5% 6.8%6.5% 6.5%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)5.0% 5.0%5.0% 5.0%
Year that the rate reaches the ultimate trend rate2024
 2024
2026
 2026
 
The following table shows the impact of a one-percentage-point change in assumed health care cost trend rates:
 PNM
 
1-Percentage-
Point Increase
 
1-Percentage-
Point Decrease
 (In thousands)
Effect on total of service and interest cost$55
 $(77)
Effect on APBO$1,310
 $(1,744)

 PNM Plan
 
1-Percentage-
Point  Increase
 
1-Percentage-
Point  Decrease
 (In thousands)
Effect on total of service and interest cost$72
 $(111)
Effect on APBO$1,452
 $(2,235)
TNMP’s exposure to cost increases in the OPEB plan is minimized by a provision that limits TNMP’s share of costs under the plan. Costs of the plan in excess of the limit, which was reached at the end of 2001, are wholly borne by the participants. TNMP reached the cost limit at the end of 2001. As a result, a one-percentage-point change in assumed health care cost trend rates would have no0 effect on either the net periodic expense or the year-end APBO. Effective January 1, 2018, the PNM OPEB plan was amended to limit the annual increase in the Company’s costs to 5%. Increases in excess of the limit are born by the PNM OPEB plan participants.
The Company’s OPEB plans invest in a portfolio that is diversified by asset class and style strategies. The OPEB plans generally use the same pension fixed income and equity investment managers and utilize the same overall investment strategy as described above for the pension plans, except there is no allocation to alternative investments. The other postretirement benefitOPEB plans have a target asset allocation of 70% equities and 30% fixed income. See Note 89 for fair value information concerning assets held by the other postretirement benefit plans.
The following other postretirement benefitOPEB payments, which reflect expected future service and are net of participant contributions, are expected to be paid:
 PNM TNMP
 (In thousands)
2020$6,770
 $647
20216,584
 670
20226,216
 695
20236,017
 709
20245,755
 719
2025 - 202924,122
 3,497

 PNM Plan TNMP Plan
 (In thousands)
2018$7,829
 $708
20197,730
 725
20207,605
 748
20217,442
 774
20227,132
 795
2023 - 202731,250
 4,126
PNM expectsand TNMP made 0 cash contributions to the OPEB trusts in 2019 or 2018 and PNM and TNMP do 0t expect to make nocash contributions to the OPEB trusts in 2020-2024. However, a portion of the disbursements attributable to the OPEB trust are paid by PNM and are therefore considered to be contributions to the PNM OPEB plan. Payments by PNM on behalf of the PNM OPEB plan for 2018-2022. TNMP expectsare expected to make contributions to the TNMP OPEB totaling $0.3be $3.7 million in 20182020 and $1.4$13.5 million for 2019-2022.in 2021-2024.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


Executive Retirement Programs
For the executive retirement programs, the following table presents information about the PBO and funded status of the plans:
 PNM TNMP
 Year Ended
December 31,
 Year Ended
December 31,
 2019 2018 2019 2018
 (In thousands)
PBO at beginning of year$14,726
 $16,117
 $702
 $771
Service cost
 
 
 
Interest cost651
 622
 30
 29
Actuarial (gain) loss1,053
 (508) 54
 (4)
Benefits paid(1,436) (1,505) (94) (94)
PBO at end of year – funded status14,994
 14,726
 692
 702
Less current liability1,434
 1,627
 91
 141
Non-current liability$13,560
 $13,099
 $601
 $561
 PNM Plan TNMP Plan
 Year Ended
December 31,
 Year Ended
December 31,
 2017 2016 2017 2016
 (In thousands)
PBO at beginning of year$16,212
 $16,105
 $787
 $794
Service cost
 
 
 
Interest cost697
 812
 33
 40
Actuarial (gain) loss674
 768
 44
 47
Benefits paid(1,466) (1,473) (93) (94)
PBO at end of year – funded status16,117
 16,212
 771
 787
Less current liability1,501
 1,510
 93
 93
Non-current liability$14,616
 $14,702
 $678
 $694

 
The following table presents pre-tax information about net actuarial loss in AOCI as of December 31, 20172019.
 December 31, 2019
 PNM TNMP
 (In thousands)
Amount in AOCI not yet recognized in net periodic benefit cost at beginning of year$2,086
 $
Experience (gain) loss1,053
 54
Regulatory asset (liability) adjustment(611) (54)
Amortization recognized in net periodic benefit cost (income)(133) 
Amount in AOCI not yet recognized in net periodic benefit cost at end of year$2,395
 $
Amortization expected to be recognized in 2020$169
 $

 December 31, 2017
 PNM Plan TNMP Plan
 (In thousands)
Amount in AOCI not yet recognized in net periodic benefit cost at beginning of year$2,299
 $
Experience (gain) loss674
 44
Regulatory asset (liability) adjustment(391) (44)
Amortization recognized in net periodic benefit cost (income)(132) 
Amount in AOCI not yet recognized in net periodic benefit cost at end of year$2,450
 $
Amortization expected to be recognized in 2018$151
 $

The following table presents the components of net periodic benefit cost:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
PNM     
Service cost$
 $
 $
Interest cost651
 622
 697
Amortization of net (gain) loss318
 359
 313
Amortization of prior service cost
 
 
Net periodic benefit cost$969
 $981
 $1,010
TNMP     
Service cost$
 $
 $
Interest cost30
 29
 33
Amortization of net (gain) loss15
 15
 9
Amortization of prior service cost
 
 
Net periodic benefit cost$45
 $44
 $42

 Year Ended December 31,
 2017 2016 2015
 (In thousands)
PNM Plan     
Service cost$
 $
 $
Interest cost697
 812
 760
Amortization of net (gain) loss313
 256
 325
Amortization of prior service cost
 
 
Net periodic benefit cost$1,010
 $1,068
 $1,085
TNMP Plan     
Service cost$
 $
 $
Interest cost33
 40
 36
Amortization of net (gain) loss9
 2
 5
Amortization of prior service cost
 
 
Net periodic benefit cost$42
 $42
 $41



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


The following significant weighted-average assumptions were used to determine the PBO and net periodic benefit cost. Should actual experience differ from actuarial assumptions, the PBO and net periodic benefit cost would be affected.
 Year Ended December 31,
PNM2019 2018 2017
Discount rate for determining December 31 PBO3.44% 4.66% 4.05%
Discount rate for determining net periodic benefit cost4.66% 4.05% 4.51%
Long-term rate of return on plan assetsN/A
 N/A
 N/A
Rate of compensation increaseN/A
 N/A
 N/A
TNMP     
Discount rate for determining December 31 PBO3.46% 4.63% 4.01%
Discount rate for determining net periodic benefit cost4.63% 4.01% 4.49%
Long-term rate of return on plan assetsN/A
 N/A
 N/A
Rate of compensation increaseN/A
 N/A
 N/A
 Year Ended December 31,
PNM Plan2017 2016 2015
Discount rate for determining December 31 PBO4.05% 4.51% 5.29%
Discount rate for determining net periodic benefit cost4.51% 5.29% 4.48%
Long-term rate of return on plan assetsN/A
 N/A
 N/A
Rate of compensation increaseN/A
 N/A
 N/A
TNMP Plan     
Discount rate for determining December 31 PBO4.01% 4.49% 5.39%
Discount rate for determining net periodic benefit cost4.49% 5.39% 4.39%
Long-term rate of return on plan assetsN/A
 N/A
 N/A
Rate of compensation increaseN/A
 N/A
 N/A

 
The assumed discount rate for determining the PBO was determined based on a review of long-term high-grade bonds and management’s expectations. The impacts of changes in assumptions or experience were not significant.

Disbursements under the executive retirement program, funded by PNM and TNMP, which are considered to be contributions to the plan were $1.4 million and $0.1 million in the year ended December 31, 2019 and $1.5 million and $0.1 million for the year ended December 31, 2018. The following executive retirement plan payments, which reflect expected future service, are expected:
 PNM TNMP
 (In thousands)
2020$1,459
 $93
20211,424
 90
20221,383
 86
20231,335
 82
20241,280
 76
2025 - 20295,419
 273

 PNM Plan TNMP Plan
 (In thousands)
2018$1,501
 $93
20191,473
 91
20201,441
 89
20211,405
 85
20221,363
 81
2023 - 20276,014
 324

Other Retirement Plans

PNMR sponsors a 401(k) defined contribution plan for eligible employees, including those of its subsidiaries. PNMR’s contributions to the 401(k) plan consist of a discretionary matching contribution equal to 75% of the first 6% of eligible compensation contributed by the employee on a before-tax basis. PNMR also makes a non-matching contribution ranging from 3% to 10% of eligible compensation based on the eligible employee’s age.
PNMR also provides executive deferred compensation benefits through an unfunded, non-qualified plan. The purpose of this plan is to permit certain key employees of PNMR who participate in the 401(k) defined contribution plan to defer compensation and receive credits without reference to the certain limitations on contributions.


A summary of expenses for these other retirement plans is as follows:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
PNMR     
401(k) plan$16,097
 $16,677
 $16,452
Non-qualified plan$4,551
 $865
 $3,702
PNM     
401(k) plan$11,587
 $12,052
 $12,120
Non-qualified plan$3,384
 $621
 $2,834
TNMP     
401(k) plan$4,511
 $4,625
 $4,332
Non-qualified plan$1,167
 $244
 $868


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017

A summary of expenses for these other retirement plans is as follows:
 Year Ended December 31,
 2017 2016 2015
 (In thousands)
PNMR     
401(k) plan$16,452
 $17,762
 $16,725
Non-qualified plan$3,702
 $2,017
 $1,436
PNM     
401(k) plan$12,120
 $13,397
 $12,679
Non-qualified plan$2,834
 $1,535
 $1,090
TNMP     
401(k) plan$4,332
 $4,365
 $4,046
Non-qualified plan$868
 $482
 $346

(13)(12)Stock-Based Compensation

PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. In 2011, theThe Company changed its approach to awarding stock-based compensation. As a result, nohas not awarded stock options have been granted since 2010 and awards of restrictedall employee stock have increased.options expired or were exercised in February 2020. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements.
 
Performance Equity Plan


The PEP provides for the granting of non-qualified stock options, restricted stock rights, performance shares, performance units, and stock appreciation rights to officers, key employees, and non-employee members of the Board. Restricted stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, the awards vest ratably over three years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in certain stock awards. Beginning with 2017 awards, theThe vesting period for awards of restricted stock to non-employee members of the Board is one year. The total number of shares of PNMR common stock subject to all awards under the PEP, as approved by PNMR’s shareholders in May 2014, may not exceed 13.5 million shares, subject to adjustment and certain share counting rules set forth in the PEP. This current share pool is charged five5 shares for each share subject to restricted stock or other full value award. Re-pricing of stock options is prohibited unless specific shareholder approval is obtained.

Source of Shares

The source of shares for exercised stock options and vested restricted stock is shares acquired on the open market by an independent agent, rather than newly issued shares.

Accounting for Stock Awards
    
The stock-based compensation expense related to restricted stock awards without performance or market conditions to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized to compensation expense over the shorter of the requisite vesting period or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized ratably over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements.

Total compensation expense for stock-based payment arrangements recognized by PNMR for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 was $6.4 million, $7.1 million, and $6.2 million, $5.6 million, and $4.9 million.million. Stock compensation expense of $4.2 million, $4.9 million, and $4.4 million$4.2 million,

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

and $3.6 million was charged to PNM and $2.2 million, $2.2 million, and $1.8 million$1.5 million, and $1.3 million was charged to TNMP. At December 31, 2017,2019, PNMR had unrecognized compensation expense related to stock awards of $3.8$3.5 million, which is expected to be recognized over an average of 1.531.52 years.


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



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

The FASB issued Company adopted Accounting Standards Update 2016-09 Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting to simplify several aspects of the accounting for share-based payment transactions and eliminate diversity in practice. PNMR’s historical accounting for stock compensation complies with ASU 2016-09, except for the treatment of the income tax consequences of awards and the presentation of reductions to taxes payable on the Consolidated Statements of Cash Flows. Prior to ASU 2016-09, benefits resulting from income tax deductions in excess of compensation cost recognized under GAAP for vested restricted stock and on exercised stock options (collectively, “excess tax benefits”) were recorded to equity provided the excess tax benefits reduced income taxes payable. Deficiencies resulting from tax deductions related to stock awards that were below recognized compensation cost upon vesting and on canceled stock options were recorded to equity. PNMR had not recorded excess tax benefits to equity since 2009 because it is in a net operating loss position for income tax purposes.January 1, 2017, its required effective date. ASU 2016-09 requires that all excess tax benefits and deficiencies be recorded to tax expense and, to the extent affect taxes payable, be classified as cash flows from operating activities. PNMR adopted ASU 2016-09 as of January 1, 2017 and recorded excess tax benefits of $2.3 million in the year ended December 31, 2017 of which $1.7 million was allocated to PNM and $0.6 million was allocated to TNMP. As required by ASU 2016-09, PNMR recorded the excess tax benefits that were not recognized in prior years, due to its net operating loss position, as a cumulative effect adjustment of $10.4 million on January 1, 2017, increasing retained earnings and decreasing accumulated deferred income taxes on the Consolidated Balance Sheets. When
  Year Ended December 31,
Excess Tax Benefits 2019 2018 2017
  (In thousands)
PNM $559
 $1,007
 $1,708
TNMP 236
 377
 616
PNMR 795
 1,384
 2,324

TNMP used excess tax benefits are used to reduce income taxes payable and the benefit will bewas reflected in cash flows from operating activities. The benefit of excess tax benefits at PNM and PNMR will be reflected in operating cash flows when they reduce income taxes payable.

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

The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:
 Year Ended December 31, Year Ended December 31,
Restricted Shares and Performance-Based Shares 2017 2016 2015  2019 2018 2017
Expected quarterly dividends per share $0.2425
 $0.2200
 $0.2000
  $0.2900
 $0.2650
 $0.2425
Risk-free interest rate 1.50% 0.94% 0.92%  2.47% 2.38% 1.50%
             
Market-Based Shares             
Dividend yield 2.67% 2.74% 2.87%  2.59% 2.96% 2.67%
Expected volatility 20.80% 20.44% 18.73%  19.55% 19.12% 20.80%
Risk-free interest rate 1.54% 0.97% 1.00%  2.51% 2.36% 1.54%

The following table summarizes activity in restricted stock awards, including performance-based and market-based shares, and stock options:
  Restricted Stock Stock Options
  Shares Weighted-Average Grant Date Fair Value Shares 
Weighted
Average
Exercise
Price
Outstanding at December 31, 2018 166,651
 $32.93
 81,000
 $11.94
Granted 134,573
 37.92
 
 
Exercised (138,001) 31.44
 (79,000) 11.93
Forfeited (1,681) 39.61
 
 
Expired 
 
 
 
Outstanding at December 31, 2019 161,542
 $38.21
 2,000
 $12.22

PNMR’s current stock-based compensation program provides for performance and market targets through 2022. In February 2019, the Board approved amendments to exclude certain impacts of the Tax Act on performance metrics for the performance periods ending in 2018 and 2019. These amendments did not impact the Company’s calculation of grant date fair values under the plans but did increase actual achievement levels for the performance period ending in 2018 from below “threshold” levels to below “target” levels and anticipated achievement levels for the performance period ending in 2019 from below “target” levels to the “maximum” levels. As a result of these amendments for the year ended December 31, 2018, the Company recorded

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


The following table summarizes activity in restricted stock awards, including performance-basedadditional pre-tax expense of $1.0 million, of which $0.7 million was allocated to PNM and market-based shares, and stock options:
  Restricted Stock Stock Options
  Shares Weighted-Average Grant Date Fair Value Shares 
Weighted
Average
Exercise
Price
Outstanding at December 31, 2016 218,316
 $27.59
 305,874
 $12.29
Granted 248,271
 $23.06
 
 $
Exercised (273,530) $21.01
 (109,433) $15.89
Forfeited (4,012) $29.96
 
 $
Expired 
 $
 (3,000) $30.50
Outstanding at December 31, 2017 189,045
 $31.11
 193,441
 $9.98
PNMR’s stock-based compensation program provides for performance and market targets through 2018.$0.3 million was allocated to TNMP. Included as granted and as exercised in the table above table are 49,68247,279 previously awarded shares that were earned for the 2014 through 2016 - 2018 performance measurement period and ratified by the Board in February 20172019 (based upon achieving market targets at “target”below “threshold” levels, weighted at 60%40%, and not meeting performance targets at above “target” levels, together weighted at 40%60%). Excluded from the above table are 97,697122,277 previously awarded shares that were earned for the 2015 through 2017 - 2019 performance measurement period and ratified by the Board in February 20182020 (based upon achieving market targets at above “target” levels, weighted at 40%, and performance targets at below “target” levels, weighted at 60%), as well as maximums of 137,036near “maximum” levels). Also excluded from the table above are 150,543 and 133,632147,202 shares for the three-year performance periods ending in 20182020 and 20192021 that wouldwill be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.
 
In March 2012, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she was to receive 135,000 shares of PNMR’s common stock if PNMR met specific market targets at the end of 2016 and she remained an employee of the Company. Under the agreement, she received 35,000 of the total shares in 2015 since PNMR achieved the specified market targets at the end of 2014. The specified market target was achieved at the end of 2016 and the Board ratified her receiving the remaining 100,000 shares, which are included in the above table, in February 2017. The retention award was made under the PEP and was approved by the Board on February 28, 2012.

Effective as of January 1, 2015, the Company entered into a retention award agreement with its then Executive Vice President and Chief Financial Officer under which he would receive awards of restricted stock if PNMR meetsmet specified performance targets at the end of 2016 and 2017 and he remainsremained an employee of the Company. If PNMR achievedThe retention award was made under the specific performance target forPEP and was approved by the period from January 1, 2015 throughBoard on December 31, 2016, he was to receive $100,000 of PNMR common stock based on the market value per share on the grant date in early 2017.9, 2014. The specified performance target was achieved at the end of 2016 and the Board ratified him receiving $100,000 of PNMR common stock in February 2017 based on a market per share value of $36.30 on the grant date of March 3, 2017, or 2,754 shares, which are included in the above table.shares. Similarly, if PNMR achieved the specified performance target for the period from January 1, 2015 through December 31, 2017, he was to receive $275,000 of PNMR common stock based on the market value per share on the grant date in early 2018. The specified performance target was achieved at the end of 2017 and the Board ratified him receiving $275,000 of PNMR common stock in February 2018 based on thea market value per share of $35.85 on the grant date in earlyof March 2018. The above table does not include the restricted stock shares granted in 2018. The retention award was made under the PEP and was approved by the Board on December 9, 2014.2, 2018, or 7,670 shares.


In March 2015, the Company entered into an additional retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive a total 53,859 shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2017 and 2019 and she remains an employee of the Company. UnderThe retention award was made under the agreement, she would receive 17,953 ofPEP and was approved by the total shares if PNMR achieves specified performance targets at the end of 2017.Board on February 26, 2015. The specified performance target was achieved at the end of 2017 and the Board ratified her receiving the 17,953 shares in February 2018. The second portion of the 2015 agreement of 35,906 shares was achieved at the end of 2019 and the Board ratified her receiving the shares in February 2020. The above table does not include any restricted stock shares that remain unvested under this retention award agreement.

At December 31, 2019, the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was less than $0.1 million. All the options were exercised or expired in February 2020. At December 31, 2019, 0 outstanding stock options had an exercise price greater than the closing price of PNMR common stock on that date.

The retention award was made under the PEPfollowing table provides additional information concerning restricted stock activity, including performance-based and was approved by the Board on February 26, 2015.market-based shares, and stock options:

  Year Ended December 31,
Restricted Stock 2019 2018 2017
Weighted-average grant date fair value $37.92
 $29.65
 $23.06
Total fair value of restricted shares that vested (in thousands) $6,246
 $8,558
 $5,747
       
Stock Options      
Total intrinsic value of options exercised (in thousands) $2,617
 $3,117
 $2,234



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


(13)    Regulatory Assets and Liabilities
The operations of PNM and TNMP are regulated by the NMPRC, PUCT, and FERC and the provisions of GAAP for rate-regulated enterprises are applied to its regulated operations. Regulatory assets represent probable future recovery of previously incurred costs that will be collected from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets are presented below.
At
 PNM TNMP
 December 31, December 31,
 2019 2018 2019 2018
Assets:(In thousands)
Current:       
FPPAC$7,373
 $4,104
 $
 $
Energy efficiency costs
 430
 
 
 7,373
 4,534
 
 
Non-Current:       
CTC, including carrying charges
 
 7,412
 17,744
Coal mine reclamation costs(3)
13,995
 19,915
 
 
Deferred income taxes66,296
 63,369
 8,997
 9,309
Loss on reacquired debt19,426
 21,085
 30,212
 31,510
Pension and OPEB(1)
214,771
 227,400
 27,947
 26,972
Shutdown of SJGS Units 2 and 3113,508
 119,785
 
 
Hurricane recovery costs(2)

 
 1,041
 1,551
AMS surcharge
 
 25,015
 31,435
AMS retirement and other costs
 
 15,542
 16,489
Renewable energy costs643
 
 
 
Other6,828
 9,349
 5,297
 3,017
 435,467
 460,903
 121,463
 138,027
Total regulatory assets$442,840
 $465,437
 $121,463
 $138,027
        
Liabilities: 
Current:       
Renewable energy rider$
 $(4,475) $
 $
Other(371) (1,500) (134) (3,471)
 (371) (5,975) (134) (3,471)
Non-Current:       
Cost of removal(271,025) (263,597) (46,091) (29,637)
Deferred income taxes(374,122) (407,978) (131,871) (143,745)
PVNGS ARO(11,341) (18,397) 
 
Renewable energy tax benefits(19,069) (20,226) 
 
Accelerated depreciation SNCRs(7,758) (3,690) 
 
Pension and OPEB
 
 (4,775) (3,940)
Other(83) (83) (108) (136)
 (683,398) (713,971) (182,845) (177,458)
Total regulatory liabilities$(683,769) $(719,946) $(182,979) $(180,929)

(1) Includes $0.7 million for certain PNM pension costs as described in Note 11
(2) Amount shown is net of amounts owed under the PUCT’s January 25, 2018 order as described in Note 17
(3) Includes $9.4 million in coal mine reclamation costs related to PNM’s planned retirement of SJGS in 2022 as described in Note 16

The Company’s regulatory assets and regulatory liabilities are reflected in rates charged to customers or have been addressed in a regulatory proceeding. The Company does not receive or pay a rate of return on the following regulatory assets and regulatory liabilities (and their remaining amortization periods): coal mine reclamation costs (through 2020); deferred income taxes (over the remaining life of the taxable item, up to the remaining life of utility plant); pension and OPEB costs (through 2033); and PVNGS ARO (to be determined in a future regulatory proceeding).

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017 the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was $5.9 million with a weighted-average remaining contract life of 1.55 years. At December 31, 2017, no outstanding stock options had an exercise price greater than the closing price of PNMR common stock on that date.


The following table provides additional information concerning restricted stock activity, including performance-basedCompany is permitted, under rate regulation, to accrue and market-based shares,record a regulatory liability for the estimated cost of removal and stock options:salvage associated with certain of its assets through depreciation expense. Under GAAP, actuarial losses and prior service costs for pension plans are required to be recorded in AOCI; however, to the extent authorized for recovery through the regulatory process these amounts are recorded as regulatory assets or liabilities. Based on prior regulatory approvals, the amortization of these amounts will be included in the Company’s rates.
  Year Ended December 31,
Restricted Stock 2017 2016 2015
Weighted-average grant date fair value $23.06
 $26.49
 $20.34
Total fair value of restricted shares that vested (in thousands) $5,747
 $5,079
 $6,507
       
Stock Options      
Weighted-average grant date fair value of options granted $
 $
 $
Total fair value of options that vested (in thousands) $
 $
 $
Total intrinsic value of options exercised (in thousands) $2,234
 $1,242
 $2,350


Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, the Company believes that future recovery of its regulatory assets is probable.

(14)Construction Program and Jointly-Owned Electric Generating Plants
PNM is a participant in several jointly-owned power plant projects. 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.
PNM’s expenditures for additions to utility plant were $309.1341.8 million in 20172019, including expenditures on jointly-owned projects. TNMP does not participate in the ownership or operation of any generating plants, but incurred expenditures for additions to utility plant of $145.5254.0 million during 20172019. On a consolidated basis, PNMR’s expenditures for additions to utility plant were $500.5616.3 million in 20172019.
 
Joint Projects


Under the agreements for the jointly-owned projects, PNM has an undivided interest in each asset and liability of the project and records its pro-rata share of each item in the corresponding asset and liability account on PNM’s Consolidated Balance Sheets. Likewise, PNM records its pro-rata share of each item of operating and maintenance expenses for its jointly-owned plants within the corresponding operating expense account in its Consolidated Statements of Earnings. PNM is responsible for financing its share of the capital and operating costs of the joint projects.
At December 31, 20172019, PNM’s interests and investments in jointly-owned generating facilities are:
Station (Fuel Type)
Plant in
Service
 
Accumulated
Depreciation(1)
 
Construction
Work in
Progress
 
Composite
Interest
 (In thousands)
SJGS (Coal) (2)
$920,950
 $(522,750) $8,512
 46.30%
PVNGS (Nuclear) (3)
$918,830
 $(353,054) $35,038
 10.20%
Four Corners Units 4 and 5 (Coal)$204,432
 $(100,914) $61,755
 13.00%
Luna (Gas)$70,995
 $(27,023) $(13) 33.33%
(1)
Includes cost of removal.
(2)
See Note 16 for a discussion of the December 2017 shutdown of SJGS Units 2 and 3 and the restructuring of the ownership of SJGS Unit 4.
(3)
Includes interest in PVNGS Unit 3, interest in common facilities for all PVNGS units, and owned interests in PVNGS Units 1 and 2, including improvements.

Station (Fuel Type)
Plant in
Service
 
Accumulated
Depreciation(1)
 
Construction
Work in
Progress
 
Composite
Interest
 (In thousands)
SJGS (Coal)$779,236
 $(435,312) $486
 66.35%
PVNGS (Nuclear) (2)
$819,613
 $(369,431) $31,275
 10.20%
Four Corners Units 4 and 5 (Coal)$283,939
 $(100,137) $10,794
 13.00%
Luna (Gas)$78,258
 $(30,255) $
 33.33%
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Table(1) Includes cost of Contentsremoval.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016(2) Includes interest in PVNGS Unit 3, interest in common facilities for all PVNGS units, and 2015owned interests in PVNGS Units 1 and 2, including improvements.

San Juan Generating Station
PNM operates and jointly owns SJGS. Effective January 1, 2018, SJGS Unit 1 is owned 50% by PNM and 50% by Tucson and SJGS Unit 4 is owned 77.297% by PNM, including a 12.8% interest held as merchant plant, 8.475% by Farmington, 7.2% by Los Alamos, and 7.028% by UAMPS. See NoteNotes 16 and 17 for additional information about SJGS, including the shutdown of SJGS Units 2 and 3 in December 2017 and the restructuring of SJGS ownership.ownership as well as information on PNM’s SJGS Abandonment Application.
Palo Verde Nuclear Generating Station
PNM is a participant in the three3 units of PVNGS also known as the Arizona Nuclear Power Project, with APS (the operating agent), SRP, EPE, SCE, SCPPA, and The Department of Water and Power of the City of Los Angeles. PNM has a 10.2% undivided interest in PVNGS, with portions of its interests in Units 1 and 2 held under leases. See Note 78 for additional information concerning the PVNGS leases, including

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

PNM’s purchase of the assets underlying certain of the leases at the expiration of the leases onin January 15, 2016, PNM’s option to purchase or return certain lease interests that have been extended through 2023 and 2024, and Note 17 for the outcome of PNM’s appeal to the NM Supreme Court regarding the NMPRC’s treatment of those purchases and lease extensions in the ratemaking process.NM 2015 Rate Case.
Operation of each of the three3 PVNGS units requires an operating license from the NRC. The NRC issued full power operating licenses for Unit 1 in June 1985, Unit 2 in April 1986, and Unit 3 in November 1987. The full power operating licenses were originally for a period of 40 years and authorize APS, as operating agent for PVNGS, to operate the three3 PVNGS units. In April 2011, the NRC approved extensions in the operating licenses for the plants for 20 years through June 2045 for Unit 1, April 2046 for Unit 2, and November 2047 for Unit 3. In April 2010, APS entered into a Municipal Effluent Purchase and Sale Agreement that provides effluent water rights necessary for cooling purposes at PVNGS through 2050.
Four Corners Power Plant
PNM is a participant in two2 units of Four Corners with APS (the operating agent), an affiliate of APS, SRP, and Tucson. PNM has a 13.0% undivided interest in Units 4 and 5 of Four Corners. The Four Corners plant site is leased fromlocated on land within the Navajo Nation and is also subject to an easement from the federal government. APS, on behalf of the Four Corners participants, negotiated amendments to an existing facility leaseagreement with the Navajo Nation, which extends the Four Corners leasehold interest from 2016owners’ right to operate the plant on the site to July 2041. See Note 16 for additional information about Four Corners.
The NMPRC indicated in the NM 2016 Rate Case that it will review the prudency of PNM’s decision to continue its participation in Four Corners in PNM’s next general rate case filing. See Note 17.
Luna Energy Facility
Luna is a combined-cycle power plant near Deming, New Mexico. Luna is owned equally by PNM, Tucson, and Samchully Power & Utilities 1, LLC. The operation and maintenance of the facility has been contracted to North American Energy Services.
Construction Program
The Company anticipates making substantial capital expenditures for the construction and acquisition of utility plant and other property and equipment. An unaudited summary of the budgeted construction expenditures, including expenditures for jointly-owned projects, and nuclear fuel, is as follows:
 2020 2021 2022 2023 2024 Total
     (In millions)    
PNM$447.5
 $701.4
 $331.6
 $398.0
 $280.4
 $2,158.9
TNMP337.2
 270.0
 342.0
 348.0
 245.0
 1,542.2
Corporate and Other27.0
 21.0
 21.0
 25.0
 21.0
 115.0
Total PNMR$811.7
 $992.4
 $694.6
 $771.0
 $546.4
 $3,816.1
 2018 2019 2020 2021 2022 Total
     (In millions)    
PNM$295.0
 $339.0
 $313.4
 $315.8
 $493.7
 $1,756.9
TNMP185.8
 170.5
 170.0
 170.5
 170.1
 866.9
Corporate and Other19.4
 17.3
 17.0
 17.5
 17.1
 88.3
Total PNMR$500.2
 $526.8
 $500.4
 $503.8
 $680.9
 $2,712.1

 
The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The above construction expenditures include $7.9$297.6 million for environmental upgrades at Four Corners, $72.8 million for 50 MW of new solar facilities includedreplacement power in PNM’s 2018 renewable energy procurement plan,anticipation of the SJGS abandonment and approximately $170.0$376.8 million for an anticipated expansion of PNM’s transmission system, and approximately $100.0 million in 2021 and $300.0 million in 2022 for the costs of replacement resources related to the potential shutdown of SJGS Units 1 and 4 in 2022.system. See Note 17. Expenditures for the expansion of PNM’s transmission system and SJGS replacement sources are subject to obtaining necessary approvals of the NMPRC. PNM will be required to file CCN applications with the NMPRC to obtain those approvals.



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

(15)Asset Retirement Obligations
AROs are recorded based on studies to estimate the amount and timing of future ARO expenditures and reflect underlying assumptions, such as discount rates, estimates of the future costs for decommissioning, and the timing of the removal activities to be performed. Approximately 80%76% of PNM’s total ARO liabilities isare related to nuclear decommissioning of PVNGS. 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. Studies of the decommissioning costs of PVNGS, as well as SJGS, and Four Corners, and other facilities are performed periodically and revisions to the ARO liabilities are recorded. Changes in the assumptions underlying the calculations may also require revisions to the estimated AROs when identified.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

A reconciliation of the ARO liabilities is as follows:
PNMR PNM TNMPPNMR PNM TNMP
(In thousands)(In thousands)
Liability at December 31, 2014$104,170
 $103,182
 $848
Liabilities incurred(1)
 
 
Liabilities settled(730) (506) (224)
Accretion expense8,625
 8,543
 71
Revisions to estimated cash flows(170) (170) 
Liability at December 31, 2015111,895
 111,049
 695
Liabilities incurred
 
 
Liabilities settled(14) (14) 
Accretion expense9,170
 9,098
 59
Revisions to estimated cash flows6,468
 6,468
 
Liability at December 31, 2016127,519
 126,601
 754
$127,519
 $126,601
 $754
Liabilities incurred(1)
1,854
 1,853
 
1,854
 1,853
 
Liabilities settled(968) (944) (24)(968) (944) (24)
Accretion expense10,680
 10,603
 63
10,680
 10,603
 63
Revisions to estimated cash flows7,594
 7,594
 
7,594
 7,594
 
Liability at December 31, 2017$146,679
 $145,707
 $793
146,679
 145,707
 793
Liabilities incurred
 
 
Liabilities settled(192) 
 
Accretion expense11,482
 11,402
 67
Revisions to estimated cash flows705
 705
 
Liability at December 31, 2018158,674
 157,814
 860
Liabilities incurred(1)

 
 
Liabilities settled(987) (935) (52)
Accretion expense12,635
 12,562
 73
Revisions to estimated cash flows(2)
11,640
 11,640
 
Liability at December 31, 2019$181,962
 $181,081
 $881

(1)Represents the obligation related to the additional ownership interest in SJGS Unit 4 that PNM acquired on December 31, 2017 due to the restructuring of the ownership of SJGS.

(2) Reflects the impacts of an updated SJGS decommissioning study that assumes PNM will retire its share of SJGS in 2022. PNM is seeking recovery of these costs in its SJGS Abandonment Application currently pending before the NMPRC. See Note 17.

(16)Commitments and Contingencies


Overview
There are various claims and lawsuits pending against the Company. TheIn addition, the Company also is subject to federal, state, and local environmental laws and regulations and periodically participates in the investigation and remediation of various sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. Also, the Company is involved in various legal and regulatory (Note 17) proceedings in the normal course of its business. See Note 17. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.
With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. Nevertheless, theThe Company assesses legal and regulatory matters based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of any damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, or other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. Except as otherwise disclosed, the Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.



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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

Commitments and Contingencies Related to the Environment


PVNGS Decommissioning Funding


The costs of decommissioning a 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 has a program for funding its share of decommissioning costs for PVNGS, including portions held under leases. The nuclear decommissioning funding program is invested in equities and fixed income instruments in qualified and non-qualified trusts. PNM funded $2.0$1.3 million, $4.2$1.3 million, and $4.92.0 million for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 into the qualified and non-qualified trust funds. The market value of the trusts at December 31, 20172019 and 20162018 was $293.7336.0 million and $253.9287.1 million. See Note 17 for additional discussion of the NM Supreme Court’s decisions in PNM’s appeal of the NMPRC’s decisions in the NM 2015 Rate Case.


Nuclear Spent Fuel and Waste Disposal
 
Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE that require the DOE to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance of these requirements. In November 1997, the DC Circuit issued a decision preventing the DOE from excusing its own delay but refused to order the DOE to begin accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other PVNGS owners, including PNM), filed damages actions against the DOE in the Court of Federal Claims. The lawsuits filed by APS alleged that damages were incurred due to DOE’s continuing failure to remove spent nuclear fuel and high-level waste from PVNGS. In August 2014, APS and the DOE entered into a settlement agreement which establishedthat establishes a process for the payment of claims for costs incurred.incurred through December 31, 2019. Under the settlement agreement, APS must submit claims annually for payment of allowable costs. In 2015, PNM recorded $5.6 million, including $3.6 million credited back to PNM’s customers, for its share of the settlement under this process for costs incurred from July 2011 through June 2015. Thereafter, PNM began recordingrecords estimated claims quarterly.on a quarterly basis. The settlement agreement has been extendedbenefit from the claims is passed through to December 31, 2019.customers under the FPPAC to the extent applicable to NMPRC regulated operations.


PNM estimates that it will incur approximately $57.7 million (in 2016 dollars) for its share of the costs related to the on-site interim storage of spent nuclear fuel at PVNGS during the term of the operating licenses. PNM accrues these costs as a component of fuel expense as the nuclear fuel is consumed. At December 31, 20172019 and 2016,2018, PNM had a liability for interim storage costs of $12.312.7 million and $12.112.4 million, which is included in other deferred credits.


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


The Energy Transition Act

On March 22, 2019, the Governor signed into New Mexico state law Senate Bill 489, known as the Energy Transition Act (“ETA”). The ETA became effective as of June 8, 2012,14, 2019 and sets a statewide standard that requires investor-owned electric utilities to have specified percentages of their electric-generating portfolios be from renewable and zero-carbon generating resources. Prior to the DC Circuit issued its decision on a challenge by several states and environmental groupsenactment of the NRC’s rulemaking regarding temporary storageETA, 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 permanent disposal20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of high level nuclear wastethe REA to allow for the recovery of undepreciated investments and spent nuclear fuel.  The petitioners had challenged the NRC’s 2010 updatedecommissioning costs related to the agency’s Waste Confidence Decision and temporary storage rule (the “Waste Confidence Decision”). The DC Circuit foundqualifying EGUs that the Waste Confidence Decision update constituted a major federal action, which, consistentNMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA requires the NMPRC to review and approve utilities’ annual renewable portfolio plans to ensure compliance with NEPA, requires either an environmental impact statement or a findingthe RPS. The ETA also directs the New Mexico Environmental Improvement Board to adopt standards of performance that limit CO2 emissions to no significant impact from the NRC’s actions.  The DC Circuit found that the NRC’s evaluation of the environmental risks from spent nuclear fuel was deficient and, therefore, remanded the Waste Confidence Decision update for further action consistent with NEPA. On September 6, 2012, the NRC commissioners issued a directive to the NRC staff to proceed with development of a generic EIS to support an updated Waste Confidence Decision, which was issued in September 2013.  On August 26, 2014, the NRC approved a final rule on the environmental effects of continued storage of spent nuclear fuel. The continued storage rule adopted the findings of the generic EIS regarding the environmental impacts of storing spent fuel at any reactor site after the reactor’s licensed period of operations.more than


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


As1,100 lbs. per MWh beginning January 1, 2023 for new or existing coal-fired EGUs with original installed capacities exceeding 300 MW.

The ETA provides for a result,transition from fossil-fuel generation resources to renewable and other carbon-free resources through certain provisions relating to the abandonment of coal-fired generating facilities. These provisions include the use of “energy transition bonds,” which are designed to be highly rated bonds that can be issued to finance certain costs of abandoning coal-fired facilities that are retired prior to January 1, 2023 for facilities operated by a “qualifying utility,” or prior to January 1, 2032 for facilities that are not operated by the qualifying utility. The amount of energy transition bonds that can be issued to recover abandonment costs is limited to the lesser of $375.0 million or 150% of the undepreciated investment of the facility as of the abandonment date. Proceeds provided by energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include plant decommissioning and coal mine reclamation costs provided those generic impactscosts have not previously been recovered from customers or disallowed by the NMPRC or by a court order. See Note 17 for a discussion of the NM Supreme Court’s decision to affirm the NMPRC’s disallowance of certain costs, including the cost of BDT at SJGS, in PNM’s NM 2015 Rate Case. Proceeds from energy transition bonds may also be used to fund severances for employees of the retired facility and related coal mine and to promote economic development, education and job training in areas impacted by the retirement of the coal-fired facilities. Energy transition bonds must be issued under a NMPRC approved financing order, are secured by “energy transition property,” are non-recourse to the issuing utility, and must be repaid by a non-bypassable charge paid by all customers of the issuing utility. These customer charges are subject to an adjustment mechanism designed to provide for timely and complete payment of principal and interest due under the energy transition bonds.

The ETA also provides that utilities must obtain NMPRC approval of competitively procured replacement resources that shall be evaluated based on their cost, economic development opportunity, ability to provide jobs with comparable pay and benefits to those lost upon retirement of the facility, and that do not need to be re-analyzedexceed emissions thresholds specified in the ETA. In determining whether to approve replacement resources, the NMPRC must give preference to resources with the least environmental reviews for individual licenses. The August 2014 final rule has been subjectimpacts, those with higher ratios of capital costs to continuing legal challenges before the NRCfuel costs, and the United States Court of Appeals. On May 19, 2016, the NRC denied petitions filed by multiple petitioners to revise the August 2014 rule. The DC Circuit issued an order upholding the August 2014 rule on June 3, 2016 and denied a subsequent petition for rehearing on August 8, 2016.

In 2011, the National Association of Regulatory Utility Commissioners and the Nuclear Energy Institute challenged,those located in the DC Circuit, DOE’s 2010 determinationschool district of the adequacyabandoned facility. The ETA also provides for the procurement of energy storage facilities and gives utilities discretion to maintain, control, and operate these systems to ensure reliable and efficient service.

PNM expects the one tenthETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of a cent per KWh fee (the “one-mill fee”) paid by the nation’s commercial nuclear power plant owners pursuant to their individual contracts with the DOE. On January 3, 2014, the DOE notified CongressSJGS in 2022. See additional discussion in Note 17 of its intention to suspend collection of the one-mill fee, subject to Congress’ disapproval, as ordered by the DC Circuit. On May 16, 2014, the DOE adjusted the fee to zero.PNM’s SJGS Abandonment Application. PNM cannot predict if there will be challenges to this actionthe full impact of the ETA or the potential outcome of such challenges.its pending and potential future generating resource abandonment and replacement resource filings with the NMPRC.


The Clean Air Act
 
Regional Haze


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


On January 10, 2017, EPA published in the Federal Register revisions to the regional haze rule. EPA also provided a companion draft guidance document for public comment. The new rule delayed the due date for the next cycle of SIPs from 2019 to 2021, altered the planning process that states must employ in determining whether to impose “reasonable progress” emission reduction measures, and gave new authority to federal land managers to seek additional emission reduction measures outside of

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

the states’ planning process. Finally, the rule made several procedural changes to the regional haze program, including changes to the schedule and process for states to file 5-year progress reports. EPA’s new rule was challenged by numerous parties. On January 19, 2018, EPA filed a motion to hold the case in abeyance in light of several letters issued by EPA on January 17, 2018 to grant various petitions for reconsideration of the 2017 rule revisions. Although EPA’s decision to revisit the 2017 rule is not a determination on the merits of the issues raised in those petitions,the petitions.

On December 20, 2018, EPA released a new guidance document on tracking visibility progress for the second planning period. EPA is likelyallowing states discretion to proposedevelop SIPs that may differ from EPA’s guidance as long as they are consistent with the CAA and take comment on additional revisionsother applicable regulations. On August 20, 2019, EPA finalized the draft guidance that was released in 2017 as a companion to the regional haze rulesrule revisions. The final guidance differs from the draft in several ways. For example, the near future.final guidance recognizes that sources already subject to BART may not need to be re-evaluated under the full four-factor analysis whereas the draft guidance encouraged states to evaluate all sources regardless of whether they were previously subject to BART. In addition, the final guidance recognizes that states may consider both visibility benefits and the cost of different control options when applying the four-factor analysis whereas the draft guidance recommended states require any control measures identified to be reasonable after considering the four-factor analysis alone. SIPs for the second compliance period are due in July 2021. NMED is currently preparing its SIP for the second compliance period and has notified PNM that it will not require a regional haze four-factor analysis for SJGS provided PNM is evaluatingstill planning to retire its share of SJGS in 2022. PNM is continuing to evaluate the potential impacts of this rule.these matters.


SJGS
 
BART Compliance SJGS is a source that is subject to the statutory obligations of the CAA to reduce visibility impacts. The State of New Mexico submitted its SIP on the regional haze and interstate transport elements of the visibility rules for review by EPA in June 2011. The SIP required SJGS to reduce NOx emissions by installing selective non-catalytic reduction technology (“SNCR”) as BART. Nevertheless, in August 2011, EPA published a FIP, which included a regional haze BART determination for SJGS that required installation of selective catalytic reduction technology (“SCR”) as BART on all four units by September 21, 2016.

PNM, as the operating agent for SJGS, engaged in discussions with NMED and EPA regarding an alternative to the FIP and SIP, which resulted in a non-binding agreement that included the retirement of SJGS Units 2 and 3 by the end of 2017 and the installation of SNCRs on Units 1 and 4 (the Revised State Implementation Plan or “RSIP”), which was approved by the later of January 31, 2016 or 15 months after EPA approval of a revised SIP (the “RSIP”). EPA issued final rules, which became effective on November 10, 2014, approving the RSIP and withdrawing the FIP.


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

EPA. In addition to the SNCR equipment required by the RSIP, the NSR permit, which was required to be obtained in order to install the SNCRs, specified that SJGS Units 1 and 4 be converted to balanced draft technology (“BDT”). The requirement to install BDT was made binding and enforceable in the NSR permit issued by NMED that accompanied the RSIP submitted to the EPA. EPA’s rule approving the RSIP specifically references the NSR permit by including a condition that requires “modification of the fan systems on Units 1 and 4 to achieve ‘balanced’ draft configuration ….”

Following issuance of the FIP, PNM estimated the total cost to install SCRs on all four units of SJGS to be between approximately $824 million and $910 million, including BDT equipment to assist with compliance with the NAAQS requirements and to eliminate fugitive boiler emissions. PNM had previously indicated it estimated the cost of SNCRs on all four units of SJGS to be between approximately $85 million and $90 million based on a conceptual design study. Along with the SNCR installation, additional BDT equipment would be required to be installed, the cost of which had been estimated to total between approximately $105 million and $110 million for all four units of SJGS. Based upon its SJGS ownership interest at that time, PNM’s share of the costs described above would have been about 46.3%.

Following the February 2013 development of the alternative BART compliance plan, PNM began taking steps to prepare for the potential installation of SNCR and BDT equipment on Units 1 and 4 and entered into contracts for the work. Installation of SNCRs on Unit 1 and BDT equipment on both Units 1 and 4 was completed in 2015 and installation of SNCRs on Unit 4 was completed in January 2016, which dates were within the timeframetime frame contained in the RSIP. PNM’s share of the total costs for SNCRs and BDT equipment was $77.7 million. See Note 17 for information concerning the NMPRC’s treatment of BDT in PNM’s NM 2015 Rate Case. Although operating costs will be reduced due to the retirementCase, parties’ appeals of SJGS Units 2that order, and 3, the operating costs for SJGS Units 1 and 4 have increased with the installation of SNCR and BDT equipment.

On December 20, 2013, PNM made a filing with the NMPRC requesting certain approvals necessary to effectuate the RSIP. In this filing, PNM requested:

Permission to retire SJGS Units 2 and 3 at December 31, 2017 and to recover over 20 years their net book value at that date along with a regulated return on those costs
A CCN to include PNM’s ownership of PVNGS Unit 3, amounting to 134 MW, as a resource to serve New Mexico retail customers at a proposed value of $2,500 per KW, effective January 1, 2018
An order allowing cost recovery for PNM’s share of the installation of SNCR and BDT equipment to comply with NAAQS requirements on SJGS Units 1 and 4, not to exceed a total cost of $82 million

PNM’s filing also addressed replacement of the capacity from the shutdown of SJGS Units 2 and 3 (which would reduce PNM’s ownership in SJGS by 418 MW), a possible increase in PNM’s ownership in SJGS Unit 4, the identification of a new natural gas-fired generation source, and 40 MW of new utility-scale solar PV. PNM received approval to construct the 40 MW of solar PV facilities in its 2015 Renewable Energy Plan. See Note 17. PNM’s requests in the December 20, 2013 NMPRC filing were based on the status of the negotiations among the SJGS owners at that time regarding ownership restructuring and other matters (see SJGS Ownership Restructuring Matters below). On October 1, 2014, PNM and certain intervenors filed a stipulation with the NMPRC that would have settled all matters in PNM’s filing. On April 8, 2015, the Hearing Examiner in the case issued a Certification of Stipulation, which recommended the NMPRC reject the stipulation as proposed. In June 2015, a NMPRC Commissioner issued an order designating a facilitator to determine whether an uncontested settlement among some or all of the parties in this case could be accomplished. On August 13, 2015, as a result of the facilitation process, PNM, the staff of the NMPRC, the NMAG, Western Resource Advocates, and the Coalition for Clean Affordable Energy filed a settlement agreement with the NMPRC. NMIEC, Interwest Energy Alliance, and New Mexico Independent Power Producers subsequently joined in this agreement and NEE filed in opposition to the agreement. The stipulating parties agreed that the October 2014 stipulation should be approved, as modified by the settlement agreement (collectively, the “Stipulated Settlement”).

The Hearing Examiner scheduled a hearing on PNM’s application concerning BART for SJGS to begin on October 13, 2015. NEE previously filed motions before the NMPRC requesting that four of the five NMPRC commissioners recuse themselves, alleging they had improper ex-parte communications, were biased, and had pre-judged the outcome of the BART case. Each of the four commissioners declined to recuse themselves. On October 5, 2015, NEE filed a Petition for a Writ of Mandamus and Request for Stay in the NM Supreme Court requestingCourt’s May 2019 decision in the four commissioners be recused from this caseappeals.

After extensive settlement negotiations and that PNM’s application be dismissed.  On October 9,public hearings, in December 2015, the NM Supreme Court issued orders that allowed the hearing conducted by the Hearing Examiner to proceed, but ordered that any action by the NMPRC be stayed, pending a decision by the NM Supreme Court on

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

NEE’s petition. The hearing on the Stipulated Settlement was held from October 13, 2015 through October 20, 2015. Oral argument on NEE’s petition was held before the NM Supreme Court on November 9, 2015. On November 9, 2015, the NM Supreme Court denied NEE’s petition.

On December 16, 2015, following oral argument, the NMPRC issued an order adopting the Stipulated Settlement.a settlement agreement between several parties. As provided in that order:


PNM would retire SJGS Units 2 and 3 (PNM’s ownership interest was 418 MW) by December 31, 2017 and recover, over 20 years, 50% of their undepreciated net book value at that date and earn a regulated return on those costs at PNM’s WACC
PNM was granted a CCN to acquire an additional 132 MW in SJGS Unit 4 effective January 1, 2018, with an initial book value of zero,0, plus the costs of SNCR and other capital additions (an aggregateas a jurisdictional resource to serve PNM’s New Mexico retail customers, and to acquire 65 MW of $20.7 million)SJGS Unit 4 as merchant plant effective January 1, 2018; PNM is prohibited from seeking recovery of any undepreciated investment in the 132 MW interest in the event SJGS Unit 4 is abandoned and PNM and PNMR commit that no further coal-fired merchant plant will be acquired at any time by PNM, PNMR, or any PNM affiliate. See additional discussion below regarding these interests under PNM’s December 2018 Compliance Filing
PNM was granted a CCN for 134 MW of PVNGS Unit 3 with an initial rate base value equal to the book value as of December 31, 2017, including transmission assets associated with PVNGS Unit 3 (an aggregate of $154.9 million)
No later than December 31,as a jurisdictional resource to serve PNM’s New Mexico retail customers beginning January 1, 2018 and before entering into a binding agreement for post-2022 coal supply for SJGS, PNM will file its position and supporting testimony in a NMPRC case to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after mid-2022; all parties to the stipulation agree to support this case being decided within six months (see Other SJGS Matters below and Note 17)
PNM was authorized to acquire 65 MW of SJGS Unit 4 as merchant plant; PNM and PNMR commit that no further coal-fired merchant plant will be acquired at any time by PNM, PNMR, or any PNM affiliate; PNM is not precluded from seeking a CCN to include the 65 MW or other coal capacity in rate base
Beginning January 1, 2020, for every MWh produced by 197 MW of coal-fired generation from PNM’s ownership share of SJGS, PNM will acquire and retire one1 MWh of RECs or allowances that include a zero-CO2 emission attribute compliant with EPA’s Clean Power Plan; this REC retirement is in addition to what is required to meet the RPS; the cost of these RECs are to be capped at $7.0 million per year and will be recovered in rates; PNM should purchase EPA-compliant RECs from New Mexico renewable generation unless those RECs are more costly
PNM would accelerate recovery of SNCR costs on SJGS Units 1 and 4 so that the costs are fully recovered by July 1, 2022 (cost recovery for PNM’s BDT project is discussed in Note 17)
PNM would not recover approximately $20 million of other costs incurred in connection with CAA compliance
The NMPRC would issue a Notice of Proposed Dismissal in PNM’s 2014 IRP

At December 31, 2015, PNM’s carrying value for its current ownership share of SJGS Units 2 and 3 included plant in service of $468.2 million, accumulated depreciation and amortization (including cost of removal) of $193.3 million, and construction work in progress of $2.2 million for a net book value of $277.1 million. PNM estimated the undepreciated net book value of SJGS Units 2 and 3 at December 31, 2017 would be approximately $255.3 million, 50% of which would be recovered over a 20-year period, including a return on the unrecovered amount at PNM’s WACC. At December 31, 2015, PNM recorded a $127.6 million regulatory disallowance to reflect the write-off of the 50% of the estimated December 31, 2017 net book value that would not be recovered. A regulatory disallowance of $21.6 million was also recorded at December 31, 2015 for other unrecoverable costs based on the approved Stipulated Settlement. The new coal mine reclamation arrangement entered into in conjunction with the new coal supply agreement (“SJGS CSA”), described under Coal Supply below, resulted in a $16.5 million increase in the liability recorded for coal mine reclamation. The expense recorded for this increase and the above disallowances, aggregating $165.7 million, is included in regulatory disallowances and restructuring costs on the Consolidated Statements of Earnings. In addition, the shutdown of SJGS Units 2 and 3 would result in the reversal of certain deferred income tax items. The estimated impact of these tax items resulted in an expense of $1.8 million being recorded at December 31, 2015, which amount is included in income tax expense on the Consolidated Statement of Earnings.

During 2016, PNM revised its estimates of the December 31, 2017 projected book value of SJGS Units 2 and 3 and the other unrecoverable costs, which resulted in a net expense of $3.7 million, consisting of a $0.9 million expense due to a revision of the estimated net book value of SJGS Units 2 and 3, a $4.5 million expense related to a refinement of the estimated liability for coal mine reclamation resulting from the new coal mine reclamation arrangement, and a $1.7 million reduction of the other unrecoverable costs that is reflected in regulatory disallowances and restructuring costs on the Consolidated Statement of Earnings. In addition, PNMR Development recorded an expense of $0.6 million in 2016 for costs it was obligated to reimburse the other SJGS participants under the restructuring arrangement, which is included in other deductions on the Consolidated Statement of Earnings. At December 31, 2016, the carrying value for PNM’s current ownership share of SJGS Units 2 and 3 was comprised of plant in service of $471.8 million and accumulated depreciation and amortization (including cost of removal) of $203.9 million


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


forPNM was required to make a net undepreciated book value of $267.9 million, offset by 50% (which equaled $128.6 million) offiling with the anticipatedNMPRC no later than December 31, 2017 net undepreciated book value2018 to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after June 30, 2022. See additional discussion of this matter below under PNM’s December 2018 Compliance Filing

SJGS Units 2 and 3 that will not be recovered, resulting in the net carrying value for SJGS Units 2 and 3 being $139.3 million at December 31, 2016.

SJGS Unit 3 waswere shut down onin December 19, 2017 and SJGS Unit 2 was shut down on December 20, 2017. At shutdown, the carrying value for PNM’s ownership share of SJGS Units 2 and 3 was comprised of plant in service of $439.4 million and accumulated depreciation and amortization (including cost of removal) of $188.3 million for a net book value of $251.1 million. As of December 31, 2017, these amounts were written off and offset by previouslylosses recorded losses ofupon the NMPRC’s December 2015 approval and subsequent adjustments totaling $128.6 million. PNM also recorded a regulatory asset of $125.5 million for the 50% of the undepreciated book value that is to bebeing recovered from ratepayers pursuant to the NMPRC’s December 15, 2015 NMPRC order described above. This resulted in the reversal of previously recorded losses of $3.0 million being recorded at December 31, 2017. In addition, PNM recognized a reversal of $1.0 million of previously recorded losses for other unrecoverable costs. These reversals, which total $4.0 million, are included in regulatory disallowances and restructuring costs on the Consolidated Statements of Earnings. All appeals of this matter have been resolved and the matter is now concluded.


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

PNM submitted the December 2018 Compliance Filing to the NMPRC on December 31, 2018 indicating that, consistent with the conclusions reached in PNM’s 2017 IRP, PNM’s customers would benefit from the retirement of PNM’s share of SJGS after the current SJGS CSA expires in mid-2022. The December 2018 Compliance Filing also indicated that, pursuant to the terms of the agreements governing SJGS, all of the SJGS owners except for Farmington provided written notice that they do not intend to extend the SJGS operating agreements beyond their June 30, 2022 expiration dates, and that PNM has provided written notice to the San Juan mine operator that PNM does not intend to extend the SJGS CSA beyond June 30, 2022. On January 14, 2016, NEE30, 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 by March 1, 2019. PNM filed a notice of appealmotion requesting the NMPRC vacate the January 30, 2019 order, which was deemed denied. On February 27, 2019, PNM filed a petition with the NM Supreme Court stating that the requirements of the January 30, 2019 order exceed the NMPRC’s authority by, among other things, mandating PNM to make a filing that is legally voluntary, and that the order is contrary to NMPRC precedent which requires abandonment applications to also include identified replacement resources and other information that would not be available to PNM by March 1, 2019. On March 1, 2019, the NM Supreme Court granted a temporary stay of the NMPRC’s December 16, 2015 order. Various parties intervened in the petition. On June 26, 2019, and after the effective date of the ETA, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. On July 22, 2016, NEE1, 2019, PNM filed its SJGS Abandonment Application. See Note 17.

GAAP requires that long-lived assets be tested for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. As of December 31, 2018, PNM evaluated the events surrounding its future participation in SJGS and determined that it is more likely than not that PNM’s share of SJGS will be retired in 2022. As a brief allegingresult, PNM performed an impairment analysis that assumed SJGS would not continue to operate through 2053, as previously approved by the NMPRC. PNM’s impairment analysis indicated that, pursuant to the NMPRC’s December 2015 order, PNM’s undepreciated 132 MW interest in SJGS Unit 4 at June 30, 2022 will not be recovered from customers; that the NMPRC’s decision violated New Mexico statutesestimated future cash flows expected to result from the operation of SJGS Unit 4 through June 30, 2022 are not sufficient to provide for recovery of PNM’s 65 MW merchant interest in the facility; and NMPRC regulations becausethat it is unlikely PNM did not adequately consider replacement resources other than those proposed bywill be able to sell or transfer its interests in SJGS to third parties at amounts sufficient to provide for their recovery. As a result, as of December 31, 2018, PNM the NMPRC did not require PNM to adequately addressrecorded a pre-tax impairment of its investment in SJGS of approximately $35.0 million, which is reflected as regulatory disallowances and mitigate ratepayer risk, the NMPRC unlawfully shifted the burden of proof, and the NMPRC’s decision was arbitrary and capricious.  Answer briefs refuting NEE’s claims were filed on November 2, 2016 by PNM, the NMPRC, and certain intervenors. Reply briefs were filed by NEE on January 9, 2017 and the parties presented oral argument to the court on January 25, 2017. The court has not rendered a decisionrestructuring costs on the appealConsolidated Statements of Earnings. This amount includes the entire $11.9 million carrying value of PNM’s 65 MW interest in SJGS Unit 4

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as of December 31, 2018 and $23.1 million of estimated undepreciated investments in PNM’s 132 MW jurisdictional interest as of June 30, 2022 that will not be recovered from customers. See additional discussion below regarding the increase in PNM’s estimated liability for a decision. In addition, oncoal mine reclamation.
NEE Complaint – On March 31, 2016, NEE filed a complaint with the NMPRC against PNM regarding the financing provided by NM Capital to facilitate the sale of SJCC (see Coal Supply below). The complaint allegesalleging that PNM failed to comply with its discovery obligation in the case authorizing the shutdown of SJGS abandonment caseUnits 2 and requests3 and requesting the NMPRC investigate whether financing provided by NM Capital to the financing transactionsformer owner of SJCC (the “Westmoreland Loan”) could adversely affect PNM’s ability to provide electric service to its retail customers. On January 31, 2018, NEE filed a motion asking the NMPRC to investigate whether PNM’s relationship with the former owner of SJCC could be harmful to PNM’s customers. On May 23, 2018, PNM respondedfiled its response to the complaintNMPRC staff’s comments noting that the Westmoreland Loan was paid in full on May 4, 2016.22, 2018. On October 11, 2018, PNM notified the NMPRC that the former owner of SJCC, Westmoreland, had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. As discussed in Note 10, on March 15, 2019, Westmoreland announced that it had emerged from Chapter 11 bankruptcy as a privately held company owned and operated by a group of its former creditors. Under the reorganization, all the assets of SJCC were sold to WSJ LLC. As successor entity to SJCC, WSJ LLC assumed all rights and obligations of Westmoreland including obligations to PNM under the SJGS CSA. The NMPRC has taken no further action on this matter.NEE’s complaints. PNM cannot currentlyis not able to predict the potential outcome of these matters.this matter but does not anticipate the NMPRC will take any further action.


SJGS Ownership Restructuring Matters – Prior to December 31, 2017, SJGS was jointly owned by PNM and eight8 other entities, including three3 participants that operate in the State of California. Furthermore, each participant did not have the same ownership interest in each unit. The SJPPA that governs the operation of SJGS expires on July 1, 2022. In connection with requirements to install SNCR and BDT equipment at SJGS, the Californiacertain participants indicated that, under California law, they might be prohibited from making significant capital improvements to SJGS and expressed the intent to exit their ownership in SJGS by December 31, 2017. One other participant also expressed a similar intent to exit ownership in the plant. As a result, the SJGS participants negotiated a restructuring of the ownership in SJGS and addressed the obligations of the exiting participants for plant decommissioning, mine reclamation, environmental matters, and certain future operating costs, among other items. Prior to the restructuring, the exiting participants owned 50.0% of SJGS Unit 3 and 38.8% of SJGS Unit 4, but none of SJGS Units 1 and 2, and PNM owned 50.0% of SJGS Units 1, 2, and 3 and 38.5% of SJGS Unit 4.


Following mediated negotiations, the SJGS participants executed the San Juan Project Restructuring Agreement (“SJGS RA”) on July 31, 2015.. The SJGS RA provides the essential terms of restructured ownership and addresses other related matters, including that the exiting participants remain obligated for their proportionate shares of environmental, mine reclamation, and certain other legacy liabilities that are attributable to activities that occurred prior to their exit. PNMR Development became a party to the SJGS RA and agreed to acquire an ownership interest in SJGS Unit 4 on the December 31, 2017 exit date, but had obligations related to Unit 4 before then. Under the SJGS RA, PNM would acquire 132 MW and PNMR Development would acquire 65 MW of the capacity in SJGS Unit 4 from the exiting owners on the exit date for no initial cost other than funding certain capital improvements, including the costs of installing SNCR and BDT equipment. PNMR Development’s share of the costs of installing SNCR and BDT equipment amounted to $7.6 million.improvements. Consistent with the NMPRC order, PNM acquired the rights and obligations related to the 65 MW from PNMR Development effective on December 31, 2017 in order to facilitate dispatch of power from that capacity.

The SJGS RA became effective contemporaneously with the effectiveness of the new SJGS CSA. The effectiveness of the new SJGS CSA was dependent on the closing of the purchase of the existing coal mine operation by a new mine operator, which as discussed in Coal Supply below, occurred on January 31, 2016. The SJGS RA sets forth the terms under which PNM acquired the coal inventory of the exiting SJGS participants as of January 1, 2016 and supplied coal to the exiting participants for

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the period from January 1, 2016 through December 31, 2017, which arrangement provided economic benefits that were passed on to PNM’s customers through the FPPAC. The SJGS RA also included provisions whereby the exiting owners made payments to certain of the remaining participants, not including PNM, related to the restructuring. PNMR Development’s share of the restructuring fee was recorded at December 31, 2015 and the $3.1 million impact is included in other income on the Consolidated Statements of Earnings.

On September 25, 2015, PNM made an application at FERC seeking certain approvals necessary for implementation of the restructured SJGS participation agreements. FERC approved the application on December 30, 2015.


SJGS Units 2 and 3 were shut down in December 2017 and the restructuring of SJGS ownership under the SJGS RA occurred on December 31, 2017, including PNM’s acquisition of the additional 132 MW and 65 MW ownership interests in SJGS Unit 4 as set forth above. In accordance with the FERC chart of accounts, plant in service for utility assets acquired is to be recorded at the original cost of the assets less accumulated depreciation. Since PNM did not pay for any costs incurred prior to the effective date of the SJGS RA, PNM increased both plant in service and accumulated depreciation for the original cost of the acquired interests at that date, estimated to be $261.8 million, on December 31, 2017. As ordered by the NMPRC, PNM will treattreats the 65 MW interest as merchant utility plant that will beis excluded from retail rates. In anticipation of the transfer of ownership, PNM entered intohas agreements to sell the power from 36 MW of that capacity to a third party at a fixed price for the period January 1, 2018 through June 30, 2022 (Note 8).2022. See Note 9. Beginning in 2018, SJGS is jointly owned by five5 entities. Including the 65 MW considered to be merchant plant, PNM’s ownership share is 77.3% in SJGS Unit 4 and an aggregate of 66.3% in SJGS Units 1 and 4. See Note 17 for additional discussion of PNM’s July 1, 2019 SJGS Abandonment Application.


Other SJGS Matters – The SJPPA requires PNM, as operating agent, to obtain approval of capital improvement project expenditures from participants who have an ownership interest in the relevant unit or property common to more than one unit. The SJPPA also obligates PNM to take reasonable and prudent actions necessary for the successful and proper operation of SJGS if the participants fail to approve the requested expenditures. PNM presented the SNCR project, including BDT equipment, to the SJGS participants in Unit 1 and Unit 4 for approval in October 2013. The project was approved for Unit 1, but the Unit 4 project, which included some of the California participants, was not approved. PNM subsequently submitted several requests to the owners of Unit 4 for approval of certain expenditures critical to comply with the time frame in the RSIP, as well as requests to approve the total forecasted project expenses. The required majority of Unit 4 owners did not approve these requests. PNM, in its capacity as operating agent, subsequently issued several “Prudent Utility Practice” notices under the SJPPA indicating PNM was undertaking certain critical activities to comply with regulatory requirements and keep the Unit 4 SNCR project on schedule.

Although the SJGS RA results in an agreement among the SJGS participants enabling compliance with current CAA requirements, it is possible that the financial impact of climate change regulation or legislation, other environmental regulations, the result of litigation, and other business considerations, could jeopardize the economic viability of SJGS or the ability or willingness of individual participants to continue participation in the plant. PNM’s 2017 IRP (Note 17) filed with the NMPRC on July 3, 2017 presented resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations after mid-2022. The 2017 IRP data shows that retiring SJGS in 2022 would provide long-term cost benefits to PNM’s customers.

Four Corners


On August 6, 2012, EPA issued its Four Corners FIP with a final BART determination for Four Corners. The rule included two2 compliance alternatives. On December 30, 2013, APS notified EPA that the Four Corners participants selected the alternative that required APS to permanently close Units 1, 2, and 3 by January 1, 2014 and install SCR post-combustion NOx controlscontrol technology on each of Units 4 and 5 by July 31, 2018. Installation of SCRs on Four Corners Unit 5 was completed in March 2018 and the installation on Unit 4 was completed in June 2018. PNM owns a 13% interest in Units 4 and 5, but had no ownership interest in Units 1, 2, and 3, which were shut down by APS on December 30, 2013. For particulate matter emissions, EPA is requiring Units 4 and 5 to meet an emission limit of 0.015 lbs/ lbs./MMBTU and the plant to meet a 20% opacity limit, both of which are achievable through operation of the existing baghouses. Although unrelated to BART, the final BART rule also imposes a 20% opacity limitation on certain fugitive dust emissions from Four Corners’ coal and material handling operations.
PNM estimates its share of costs for post-combustion controls at Four Corners Units 4 and 5 to be up to $88.9 million, including amounts incurred through December 31, 2017 and PNM’s AFUDC. See Note 17 for information on the NMPRC’s treatment of these costs in PNM’s NM 2016 Rate Case.


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are achievable through operation of the existing baghouses. Although unrelated to BART, the final BART rule also imposes a 20% opacity limitation on certain fugitive dust emissions from Four Corners’ coal and material handling operations.
PNM share of costs for post-combustion controls at Four Corners Units 4 and 5 through December 31, 2018 was $88.7 million, including PNM’s AFUDC. See Note 17 for information on the NMPRC’s treatment of these costs in PNM’s NM 2016 and 2015

Rate Case.
The Four Corners plant site is leased fromlocated on land within the Navajo Nation. APS, on behalf of the Four Corners participants, negotiated amendments to the existing facility leaseagreement with the Navajo Nation, which extends the Four Corners leasehold interest from 2016owners’ right to operate the plant on the site to July 2041.  The DOI issued a Record of Decision on July 17, 2015 approving the 25-year site lease extension for Four Corners, authorizes continued mining operations to supply the remaining units at Four Corners, renews transmission line and access road rights-of-way on the Navajo and Hopi Reservations, and accepts the proposed mining plan for the Navajo Mine.  


The Four Corners participants’ obligations to comply with EPA’s final BART determinations, coupled with the financial impact of climate change regulation or legislation, other environmental regulations, and other business or regulatory considerations, could jeopardize the economic viability of Four Corners or the ability of individual participants to continue their participation in Four Corners.


Four Corners Federal Agency Lawsuit – On April 20, 2016, several environmental groups filed a lawsuit against OSM and other federal agencies in the United StatesU.S. District Court for the District of Arizona in connection with their issuance of the approvals that extended the life of Four Corners and the adjacent mine.  The lawsuit alleges that these federal agencies violated both the ESA and NEPA in providing the federal approvals necessary to extend operations at Four Corners and the adjacent mine past July 6, 2016.  The court granted an APS motion to intervene in the litigation on August 3, 2016.litigation. On September 15, 2016, NTEC, the current owner of the mine providing coal to Four Corners, filed a motion to intervene for the limited purpose of seeking dismissal of the lawsuit based on NTEC’s tribal sovereign immunity. On September 11, 2017, the court granted NTEC’s motion and dismissed the case with prejudice, terminating the proceedings. The environmental group plaintiffs filed a Notice of Appeal of the dismissed orderdismissal in the United StatesU.S. Court of Appeals for the Ninth Circuit on November 9, 2017.2017, and the court granted their subsequent motion to expedite the appeal. Oral arguments for the appeal were held on March 7, 2019. On July 29, 2019, the Ninth Circuit issued a decision affirming the District Court’s dismissal of the case. In September 2019, the environmental groups filed a motion for reconsideration, which was denied in December 2019. PNM cannot predict if such appealwhether parties will be successful and, if it is successful,seek further review of this matter by means of petitioning the U.S. Supreme Court or the outcome of further district court proceedings.potential future litigation.
 
Carbon Dioxide Emissions
On August 3, 2015, EPA established final standards to limit CO2 emissions from power plants. EPA took three separate but related actions in which it: (1) established the final carbon pollution standardsCarbon Pollution Standards for new, modified, and reconstructed power plants; (2) established the final Clean Power Plan to set standards for carbon emission reductions from existing power plants; and (3) released a proposed federal plan associated with the final Clean Power Plan. The Clean Power Plan was published on October 23, 2015.


Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. On January 21, 2016, the DC Circuit denied petitions to stay the Clean Power Plan, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016. The decision meansmeant that the Clean Power Plan iswas not in effect and neither states nor sources arewere obliged to comply with its requirements. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a ten judge en banc panel. However, before the DC Circuit could issue an opinion, the Trump Administration asked that the case be held in abeyance while the rule iswas being re-evaluated, which was granted.


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

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


OnEPA’s efforts to replace the Clean Power Plan with the Affordable Clean Energy rule began on October 10, 2017, when EPA issued a NOPR proposing to repeal the Clean Power Plan and filed its status report with the court requesting the case be held in abeyance until the completion of the rulemaking on the proposed repeal. The NOPR proposesproposed a legal interpretation concluding that the Clean Power Plan exceedsexceeded EPA’s statutory authority. UnderOn August 31, 2018, EPA published a proposed rule, known as the Affordable Clean Energy rule, to replace the Clean Power Plan. On June 19, 2019, EPA released the final version of the Affordable Clean Energy rule. EPA takes three actions in the final rule: (1) repealing the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d), which, among other things, extends the deadline for state plans and the timing for EPA’s approval process. The final rule is very similar to the August 2018 proposed rule. EPA set the Best System of Emissions Reduction (“BSER”) for existing 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.  The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).

Since the Navajo Nation does not have primacy over its air quality program, EPA would be the regulatory authority responsible for implementing the Affordable Clean Energy rule on the Navajo Nation. PNM is currently reviewing the requirements of the Affordable Clean Energy rule and is unable to predict the potential financial or operational impacts on Four Corners.

While corresponding NSR reform regulations were proposed as part of the proposed interpretation,Affordable Clean Energy rule, the final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from a project are to be considered in determining whether the proposed project will result in an increase in air emissions.

On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule published in October 2015 for new, reconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on the revised BSER as the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon capture and sequestration. As a result, the proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. Comments on the proposal were due on March 18, 2019 and a final rule is expected in 2020.

PNM’s review of the GHG emission reductions standards under the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. As discussed above, 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.

National Ambient Air Quality Standards (“NAAQS”)

The CAA requires EPA to set NAAQS for pollutants reasonably anticipated to endanger public health or welfare. EPA has set NAAQS for certain pollutants, including NOx, SO2,ozone, and particulate matter. In 2010, EPA updated the primary NOx

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Section 111(d) limits EPA’s authority to adopt performance standards to only those physical and operational changes that can be implemented within an individual source. Therefore, measures in the Clean Power Plan that would require power generators to change their energy portfolios by shifting generation from coal to gas and from fossil fuel to renewable energy exceed EPA’s statutory authority. The NOPR was published in the Federal Register on October 16, 2017, starting a 60-day public comment period and the EPA has indicated that it will continue to accept comments until April 26, 2018. Any final rule will be subject to judicial review. In a separate but related action, on December 28, 2017, EPA published the Advance Notice of Proposed Rulemaking for replacement of the Clean Power Plan. EPA indicated it has not determined whether it will promulgate a new rule under section 111(d) or what form a new rule would take, but is seeking public comment on that question.

The proposed federal plan released concurrently with the Clean Power Plan is important to Four Corners and the Navajo Nation. Since the Navajo Nation does not have primacy over its air quality program, EPA would be the regulatory authority responsible for implementing the Clean Power Plan on the Navajo Nation if the Clean Power Plan is ultimately sustained. In addition, the proposed rule recommended that EPA determine it is “necessary or appropriate” for EPA to regulate COSO2 emissions on the Navajo Nation. The comment period for the proposed rule closed on January 21, 2016. APS and PNM filed separate comments with EPA on EPA’s draft plan and model trading rules, advocating that such a federal plan is neither necessary nor appropriate to protect air quality on the Navajo Nation. PNM is unable to predict the financial or operational impacts on Four Corners operations if the Clean Power Plan is ultimately implemented as proposed and EPA determines that a federal plan is necessary or appropriate for the Navajo Nation.

PNM’s review of the CO2 emission reductions standards under the Clean Power Plan is ongoing and the assessment of its impacts will depend on the proposed repeal of the Clean Power Plan, future GHG reduction rulemaking, litigation of any final rule, and other actions the Trump Administration is taking through judicial and regulatory proceedings. Accordingly, PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.

National Ambient Air Quality Standards (“NAAQS”)

The CAA requires EPA to set NAAQS for pollutants considered harmful to public health and the environment. EPA has set NAAQS for certain pollutants, including NOx, SO2,ozone, and particulate matter. In 2010, EPA updated the primary NOx and SO2 NAAQS to include a 1-hour maximum standard while retaining the annual standards for NOx and SO2 and the 24-hour SO2 standard. New Mexico EPA also updated the final particulate matter standard in 2012 and updated the ozone standard in 2015.

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

SO2 Standard On May 13, 2014, EPA released the draft data requirements rule for the 1-hour SO2 NAAQS, which directs state and tribal air agencies to characterize current air quality in areas with large SO2 sources to identify maximum 1-hour SO2 concentrations. The proposed rule also describes the process and timetable by which air regulatory agencies would characterize air quality around large SO2 sources through ambient monitoring or modeling. This characterization willwould result in these areas being designated as attainment, nonattainment, or unclassifiedunclassifiable for compliance with the 1-hour SO2 NAAQS. On March 2, 2015, the United StatesU.S. District Court for the Northern District of California approved a settlement that imposesimposed deadlines for EPA to identify areas that violate the NAAQS standards for 1-hour SO2 emissions. The settlement resultsresulted from a lawsuit brought by Earthjustice on behalf of the Sierra Club and the Natural Resources Defense Council under the CAA. The consent decree requires the following: (1) within 16 months of the consent decree entry, EPA must issue area designations for areas containing non-retiring facilitiesrequired, among other things, that either emitted more than 16,000 tons of SO2 in 2012 or emitted more than 2,600 tons with an emission rate of 0.45 lbs/MMBTU or higher in 2012; (2) by December 2017, EPA must issue designations for areas for which states have not adopted a new monitoring network under the proposed data requirements rule; and (3) by December 2020, EPA must issue designations for areas for which states have adopted a new monitoring network under the proposed data requirements rule.  SJGS and Four Corners SO2 emissions are below the thresholds set forth in (1) above.rule by December 2020. EPA regions sent letters to state environmental agencies explaining how EPA plans to implement the consent decree.  The letters outline the schedule that EPA expects states to follow in moving forward with new SO2 non-attainment designations. NMED did not receive a letter.


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

On February 25, 2019, EPA announced its final decision to retain without changes the primary health-based NAAQS for SOx. Specifically, EPA will retain the current 1-hour standard for SO2emissions from SJGS, which is 75 parts per billion, based on the 3-year average of the 99th percentile of daily maximum 1-hour SO2 concentrations.  SO2 is the most prevalent SOx compound and is used as the associated compliance status.indicator for the primary SOx NAAQS.



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On May 14, 2015, PNM received an amendment to its NSR air permit for SJGS, which reflects the revised state implementation plan for regional haze BART and requiresrequired the installation of SNCRs as described above.SNCRs. The revised permit also requiresrequired the reduction of SO2 emissions to 0.10 pound per MMBTU on SJGS Units 1 and 4 and the installation of BDT equipment modifications for the purpose of reducing fugitive emissions, including NOx, SO2, and particulate matter. These reductions should help SJGS meet the NAAQS for these constituents. The BDT equipment modifications were installed at the same time as the SNCRs, in order to most efficiently and cost effectively conduct construction activities at SJGS. See Regional Hazea discussion of the regulatory treatment of BDT in Note 17.

Ozone StandardSJGS above.

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


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


On February 25, 2016,During 2017 and 2018, EPA released guidance onrules establishing area designations which states used to determine their initial designation recommendations by October 1, 2016. EPA recommended that states and tribes use the three most recent years of quality assured monitoring data available (e.g., 2013 to 2015) to recommend designations. In their submittals, states and tribes were also able to use preliminary 2016 data. EPA was expected to release final designations of attainment/nonattainment for areas by October 1, 2017. On June 6, 2017, the EPA Administrator sent letters to state governors announcing that EPA was extending, by one year, the deadline for promulgating area designations. However, on August 2, 2017, the Trump Administration reversed the decision to extend the deadline to issue area designations, thereby requiring EPA to issue designations for ozone attainment areas by October 1, 2017.

NMED published its 2015 Ozone NAAQS Designation Recommendation Report on September 2, 2016. In New Mexico, NMED is designating only a small area in southern Dona Ana County as non-attainment for ozone. NMED will have responsibility for bringing this non-attainment area into compliance and will look at all sources of NOx and volatile organic compounds since these are the pollutants that form ground-level ozone. According to NMED’s website, “If emissions from Mexico keep New Mexico from meeting the standards, the New Mexico area could remain non-attainment but would not face more stringent requirements over time.”

On November 6, 2017, EPA released a final rule establishing some, but not all, initial area designations.  In that final rule, EPA designated 2,646 counties (representing about 85% of the counties in the U.S.) as attainment/unclassifiable, and three counties in Washington as unclassifiable.those rules, San Juan County, New Mexico, where SJGS and Four Corners are located, is designated as attainment/unclassifiable. On December 21, 2017, EPA issuedunclassifiable and only a notice of availability of its intended designations for the remaining undesignated areas. EPA stated that it intended to address the remaining areas in a separate future action, but did not specify a time frame for doing so.  Under the CAA, EPA was required to promulgate area designations no later than October 1, 2017. The notice announces the availability of “120-day letters,” which were sent directly to states and tribes on December 20, 2017, and contain EPA’s intended air quality designations for the remaining areas. The only county in New Mexico designated as non-attainment is Dona Ana County.  By February 28, 2018, states and tribes must provide EPA any additional information they would like EPA to consider before it promulgates final designations.  EPA stated it intends to finalize designations for all areas addressed in the 120-day letters no later than April 30, 2018.

By October 2018, NMED is required to submit an infrastructure SIP that provides the basic air quality management program to implement the revised ozone standard. These plans are generally due within 36 months from the date of designation and are expected to be submitted to EPA by October 1, 2020.

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


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County, New Mexico is designated as marginal non-attainment.  The final rule also establishes the timing of attainment dates for each non-attainment area classification, which are marginal, moderate, serious, severe, or extreme. The rule became effective May 8, 2018. Attainment plans for nonattainment areas are due in August 2021.

NMED has responsibility for bringing the small area in Dona Ana County designated as marginal/non-attainment for ozone into compliance and will look at all sources of NOx and volatile organic compounds. On November 22, 2019, EPA issued findings that several states, including New Mexico, had failed to submit SIPs for the 8-hour ozone NAAQS. In response, in December 2019, NMED published the Public Review Draft of the New Mexico 2013 NAAQS Good Neighbor SIP that outlines the strategies and emissions control measures that are expected to improve air quality in the area by May 8, 2021. These strategies and measures would aim to reduce the amount of NOx and volatile organic compounds emitted to the atmosphere and will rely upon current or upcoming federal rules, new or revised state rules, and other programs.

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

PM Standard – On September 11, 2019, EPA published its policy assessment for review of the NAAQS for particle pollution. The draft assessment considers lowering the existing primary standard for PM2.5 from 12 micrograms per cubic meter to a level above 8 micrograms per cubic meter. Comments on the draft assessment were due November 12, 2019. EPA anticipates issuing a final rulemaking in late 2020. PNM cannot predict the outcome of this matter or whether it will have a material impact on its financial position, results of operations, or cash flows.

WEG v. OSM NEPA Lawsuit


In February 2013, WEG filed a Petition for Review in the United StatesU.S. District Court of Colorado against OSM challenging federal administrative decisions affecting seven7 different mines in four4 states issued at various times from 2007 through 2012.  In its petition, WEG challengeschallenged several unrelated mining plan modification approvals, which were each separately approved by OSM.  WEG allegesalleged various NEPA violations against OSM, including, but not limited to, OSM’s alleged failure to provide requisite public notice and participation, alleged failure to analyze certain environmental impacts, and alleged reliance on outdated and insufficient documents.  WEG’s petition seekssought various forms of relief, including a finding that the federal defendants violated NEPA by approving the mine plans; voiding, reversing, and remanding the various mining modification approvals; enjoining the federal defendants from re-issuing the mining plan approvals for the mines until compliance with NEPA has been demonstrated; and enjoining operations at the seven7 mines.


Of the fifteen15 claims for relief in the WEG Petition, two concern SJCC’s2 concerned San Juan mine. WEG’s allegations concerning the San Juan mine arisearose from OSM administrative actions in 2008. SJCC, as San Juan mine operator at the time, intervened in this matter. The court granted SJCC’s motion to sever its claims from the lawsuit and transfer venue to the United States District Court for the District of New Mexico. In July 2016, OSM filed a Motion for Voluntary Remand to allow the agency to conduct a new environmental analysis. On August 31, 2016,analysis and the court entered an order remanding the matter to OSM for the completion of an EIS by August 31, 2019. The court ruled that mining operations maycould continue in the interim and administratively closed the litigation is administratively closed.litigation. If OSM doeshad not completecompleted the EIS within the time frame provided, the court willhad authority to order immediate vacatur of the mining plan at issue, absent a further court order based on good cause shown.  On March 22, 2017, OSM issued its Notice of IntentThe final EIS, which allows for continued mining beyond 2022 at quantities similar to initiatethose currently being provided, was approved on August 26, 2019. PNM cannot predict if the public scoping process and prepare an EIS for the project. The Notice of Intent provided that, in addition to analyzing the environmental effects of the mining project, therevised final EIS will also analyze the indirect effects of coal combustion at SJGS. The public comment period ended on May 8, 2017 and the EIS resource data submittal phase was completed in November 2017. The draft EIS is expectedbe subject to be available for public comment in mid-2018. PNM cannot currently predict the outcome of this matter.additional legal challenge.
Navajo Nation Environmental Issues
Four Corners is located on the Navajo ReservationNation and is held under an easementeasements granted by the federal government, as well as a lease fromagreements with the Navajo Nation.Nation which grant each of the owners the right to operate on the site. The Navajo Acts purport to give the Navajo Nation Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation challenging the applicability of the Navajo Acts to Four Corners. In May 2005, APS and the Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation’s authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement,

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APS sought, and the court granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts. PNM cannot currently predict the outcome of these matters or the range of their potential impacts.
Cooling Water Intake Structures
In 2014, EPA signed its final cooling water intake structuresissued a rule on May 16, 2014, which establishesestablishing national standards for certain cooling water intake structures at existing power plants and other facilities under the Clean Water Act to protect fish and other aquatic organisms by minimizing impingement mortality (the capture of aquatic wildlife on intake structures or against screens) and entrainment mortality (the capture of fish or shellfish in water flow entering and passing through intake structures). The final rule was published on August 15, 2014 and became effective October 14, 2014.
The final rule allows multiple compliance options and considerations for site specific conditions and the permit writer is granted a significant amount of discretion in determining permit requirements, schedules, and conditions. To minimize impingement mortality, the rule provides operators of facilities, such as SJGS and Four Corners, seven7 options for meeting Best Technology Available (“BTA”) standards for reducing impingement. SJGS has a closed-cycle recirculating cooling system, which is a listed BTA and may also qualify for the “de minimis rate of impingement” based on the design of the intake structure. To minimize entrainment mortality, theThe permitting authority must establish the BTA for entrainment on a site-specific basis, taking into consideration an array of factors, including endangered species and social costs and benefits. Affected sources must submit source water baseline characterization data to the permitting authority to assist in the determination. Compliance deadlines under the rule are tied to permit renewal and will be subject to a schedule of compliance established by the permitting authority.

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The rule is not clear as to how it applies and what the compliance timelines are for facilities like SJGS that have a cooling water intake structure and only a multi-sector general stormwater permit. However, EPA has indicated that it is contemplating a December 31, 2023 compliance deadline. PNM is working with EPA regarding this issue. However, PNMissue and does not expect material changes as a result of any requirements that may be imposed upon SJGS.
On May 23, 2018, several environmental groups sued EPA Region IX in the U.S. Court of Appeals for the Ninth Circuit Court over EPA’s failure to timely reissue the Four Corners NPDES permit. The requirementspetitioners asked the court to issue a writ of mandamus compelling EPA Region IX to take final action on the pending NPDES permit by a reasonable date. EPA subsequently reissued the NPDES permit on June 12, 2018. The permit did not contain conditions related to the cooling water intake structure rule as EPA determined that the facility has achieved BTA for both impingement and entrainment by operating a closed-cycle recirculation system. On July 16, 2018, several environmental groups filed a petition for review with EPA’s Environmental Appeals Board concerning the reissued permit. The environmental groups alleged that the permit was reissued in contravention of several requirements under the Clean Water Act and did not contain required provisions concerning certain revised effluent limitation guidelines, existing-source regulations governing cooling-water intake structures, and effluent limits for surface seepage and subsurface discharges from coal-ash disposal facilities. On December 19, 2018, EPA withdrew the Four Corners NPDES permit in order to examine issues raised by the environmental groups. Withdrawal of the permit moots the appeal pending before the Environmental Appeals Board. EPA’s Environmental Appeals Board thereafter dismissed the environmental groups’ appeal. EPA issued an updated NPDES permit on September 30, 2019. The permit has been stayed pending an appeal filed by several environmental groups on November 1, 2019 to EPA’s Environmental Appeals Board. PNM cannot predict the outcome of this matter or whether it will be addressed inhave a subsequent NPDES permitting cycle that will determine APS’s costs to comply with the rule. PNM does not expect such costs to be material.material impact on PNM’s financial position, results of operations or cash flows.


Effluent Limitation Guidelines


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


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


On April 14,
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The Effluent Limitations Guidelines rule was challenged in the United StatesU.S. Court of Appeals for the Fifth Circuit relatingby numerous parties. On April 12, 2017, EPA signed a notice indicating its intent to ongoing litigationreconsider portions of the 2016 Steam Electric Effluent Guidelines rule. EPA askedrule, and on August 22, 2017, the court to hold all proceedings inFifth Circuit issued an order severing the issues under reconsideration and holding the case in abeyance until August 12, 2017 while EPA reconsiders the rule. EPA also askedas to be allowed to file a motion on August 12, 2017 to informthose issues. However, the court if EPA wishesallowed challenges to seek a remand of any provisionsother portions of the rule so that EPA may conduct further rulemaking, if appropriate. The motion referred to the notice signed by the EPA Administrator onproceed. On April 12, 2017, which announced EPA’s intent to reconsider this rule, as well as EPA’s administrative stay2019, the Fifth Circuit granted those challenges and issued an opinion vacating several portions of the compliance deadlines. On August 22, 2017,rule, specifically those related to legacy wastewater and leachate, for which the court granteddeemed the government’s motionstandards selected by EPA arbitrary and the litigation is held in abeyance until EPA’s further rulemaking has concluded.capricious.

On April 25, 2017, EPA published in the Federal Register a notice of postponement of certain compliance dates for the 2016 Steam Electric Effluent Guidelines rule, consistent with the EPA's decision to grant reconsideration of the rule. Specifically, the deadlines that will be postponed are the "best available technology" limitations and pretreatment standards for certain waste streams.


On September 18, 2017, EPA published thea final rule for postponement of certain compliance dates, thatwhich have not yet passed for the Effluent Limitations Guidelines rule, consistent with the EPA's decision to grant reconsideration of that rule. The final rule postponed the earliest date on which compliance with the effluent limitation guidelines for these waste streams would be required from November 1, 2018 until November 1, 2020. Although the new deadlines were challenged in court, the Fifth Circuit rejected those challenges on August 28, 2019. On November 22, 2019, EPA published a proposed rule revising the original Effluent Limitation Guidelines while maintaining the compliance dates. Comments were due January 21, 2020.


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


EPA reissued an NPDES permit for Four Corners on June 12, 2018. Since that time, the NPDES permit at Four Corners has been subject to various challenges by environmental groups. See Cooling Water Intake Structures above for additional discussion of Four Corner’s current NDPES permit. Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques. Until a drafttechniques during the next NPDES permit is proposed for Four Corners, APS is uncertain what will be required to comply with the revised effluent limitations during the revised compliance timeframe (from November 1, 2020 through December 31, 2023).renewal in 2023.  PNM is unable to predict the outcome of this matterthese matters or a range of the potential costs of compliance.
Santa Fe Generating Station
PNM and the NMED are parties to agreements under which PNM has installed a remediation system to treat water from a City of Santa Fe municipal supply well and an extraction well and monitoring wells to address gasoline contamination in the groundwater at the site of PNM’s former Santa Fe Generating Station and service center. A 2008 NMED site inspection report states that neither the source nor extent of contamination at the site has been determined and that the source may not be the former Santa Fe Generating Station. During 2013 and 2014, PNM and NMED collected additional samples that showed elevated concentrations of nitrate and volatile organic compounds in some of the monitoring wells at the site. In addition, one monitoring well contained free-phase hydrocarbon products. PNM collected a sample of the product for “fingerprint” analysis. The results of this analysis indicated the product was a mixture of older and newer fuels. The presence of newer fuels in the sample suggests the hydrocarbon product likely originated from off-site sources. In December 2015, PNM and NMED entered into a memorandum of understanding to address changing groundwater conditions at the site under which PNM agreed to continue hydrocarbon investigation under the supervision of NMED. Qualified costs are eligible for payment through the New Mexico Corrective Action Fund (“CAF”), which is administered by the NMED Petroleum Storage Tank Bureau. In March 2019, PNM received notice from NMED that an abatement plan for the site is required to address concentrations of previously identified compounds, unrelated to those discussed above, found in the groundwater. NMED approved PNM’s abatement plan proposal, which covers field work and reporting.

Field work related to the investigation under both the CAF and abatement plan requirements was completed in October 2019. Activities and findings associated with the field work will be presented in two separate reports, which were released to stakeholders in early 2020. The reports’ conclusions support PNM’s contention that off-site sources have impacted, and are continuing to impact, the local groundwater in the vicinity of Santa Fe Station.
The City of Santa Fe has stopped operating its well at the site, which is needed for PNM’s groundwater remediation system to operate. As a result, PNM has stopped performing remediation activities at the site. However, PNM’s monitoring and other abatement activities at the site are ongoing and will continue until the groundwater meets applicable federal and state standards or until the NMED determines remediation is not required, whichever is earlier. PNM is not able to assess the duration of this project or estimate the impact on its obligations if PNM is required to resume groundwater remediation activities at the site. PNM is unable to predict the outcome of these matters.

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groundwater at the site of PNM’s former Santa Fe Generating Station and service center. PNM believes the observed groundwater contamination originated from off-site sources, but agreed to operate the remediation facilities until the groundwater meets applicable federal and state standards or until the NMED determines that additional remediation is not required, whichever is earlier. The City of Santa Fe has indicated that since the City no longer needs the water from the well, the City would prefer to discontinue its operation and maintain it only as a backup water source. However, for PNM’s groundwater remediation system to operate, the water well must be in service. Currently, PNM is not able to assess the duration of this project or estimate the impact on its obligations if the City of Santa Fe ceases to operate the water well.
The Superfund Oversight Section of the NMED also has conducted multiple investigations into the chlorinated solvent plume in the vicinity of the site of the former Santa Fe Generating Station. In February 2008, a NMED site inspection report was submitted to EPA, which states that neither the source nor extent of contamination has been determined and that the source may not be the former Santa Fe Generating Station. Results of tests conducted by NMED in April 2012 and April 2013 showed elevated concentrations of nitrate in three monitoring wells and an increase in free-phase hydrocarbons in another well. PNM conducted similar site-wide sampling activities in April 2014 and obtained results similar to the 2013 data. As part of this effort, PNM also collected a sample of hydrocarbon product for “fingerprint” analysis from a monitoring well located on the northeastern corner of the property.  This analysis indicated that the hydrocarbon product was a mixture of newer and older fuels, and the location of the monitoring well suggests that the hydrocarbon product is likely from offsite sources. PNM does not believe the former generating station is the source of the increased levels of free-phase hydrocarbons, but no conclusive determinations have been made. However, it is possible that PNM’s prior activities to remediate hydrocarbon contamination, as conducted under an NMED-approved plan, may have resulted in increased nitrate levels.  Therefore, PNM has agreed to monitor nitrate levels in a limited number of wells under the terms of the renewed discharge permit for the former generating station. 

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

PNM is unable to predict the outcome of these matters.
Coal Combustion ByproductsResiduals Waste Disposal
CCBsCCRs consisting of fly ash, bottom ash, and gypsum generated from coal combustion and emission control equipment at SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCBCCR impoundments or landfills. The NMMMD currently regulates placement of ash inmine reclamation activities at the San Juan mine, including placement of CCRs in the surface mine pits, with federal oversight by the OSM. APS disposes of CCBsCCRs in ash ponds and dry storage areas at Four Corners.  Ash management at Four Corners is regulated by EPA and the New Mexico State Engineer’s Office. 
In June 2010, EPA published a proposed rule that included two options for waste designation of coal ash. One option was to regulate CCBs as a hazardous waste, which would allow EPA to create a comprehensive federal program for waste management and disposal of CCBs. The other option was to regulate CCBs as a non-hazardous waste, which would provide EPA with the authority to develop performance standards for waste management facilities handling CCBs and would be enforced primarily by state authorities or through citizen suits. Both options allow for continued use of CCBs in beneficial applications.

On December 19, 2014, EPA issued itsEPA’s final coal ash rule, includingwhich became effective on October 19, 2015, included a non-hazardous waste determination for coal ash. Coal ash will be regulated as a solid wasteThe rule was promulgated under Subtitle D of RCRA. The ruleRCRA and sets minimum criteria for existing and new CCBCCR landfills and existing and new CCB surface impoundments and all lateral expansions consisting of location restrictions, design and operating criteria; groundwater monitoring and corrective action; closure requirements and post closure care; and recordkeeping, notification, and internet posting requirements. Because the rule is promulgated under Subtitle D, it does not require regulated facilities to

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obtain permits, does not require the states to adopt and implement the new rules, and is not within EPA’s enforcement jurisdiction. Instead, the rule’s compliance mechanism is for a state or citizen group to bring a RCRA citizen suit in federal district court against any facility that is alleged to be in non-compliance with the new requirements. EPA published the final CCB rule in the Federal Register on April 17, 2015, with an effective date of October 19, 2015. Based upon the requirements of the final rule, PNM conducted a CCB assessment at SJGS and made minor modifications at the plant to ensure that there are no facilities which would be considered impoundments or landfills under the rule. PNM does not expect the rule to have a material impact on operations, financial position, or cash flows.

As indicated above, CCBs at Four Corners are currently disposed of in ash ponds and dry storage areas. The CCB rule requires ongoing, phased groundwater monitoring. By October 17, 2017, utilities that own or operate CCB disposal units, such as those at Four Corners must have collected sufficient groundwater sampling data to initiate a detection monitoring program.  To the extent that certain threshold constituents are identified through this initial detection monitoring at levels above the CCB rule’s standards, the rule requires the initiation of an assessment monitoring program by April 15, 2018.  If this assessment monitoring program reveals concentrations of certain constituents above the CCB rule standards that trigger remedial obligations, a corrective measures evaluation must be completed by January 2019. Depending upon the results of such groundwater monitoring and data evaluations, Four Corners may be required to take corrective actions, the costs of which cannot be reasonably estimated at this time.

Pursuant to a June 24, 2016 order by the DC Circuit in litigation by industry and environmental groups challenging EPA’s CCB regulations, EPA is required to complete a rulemaking proceeding by June 2019 to address specific technical issues related to the handling of CCBs.  EPA is not required to take final action approving the inclusion of boron, but EPA must propose and consider its inclusion.  Should EPA take final action adding boron to the list of groundwater constituents, corrective action may be required. Any resulting corrective action measures may increase costs of compliance with the CCB rule at coal-fired generating facilities.  At this time, PNM cannot predict when EPA will commence its rulemaking concerning boron or the eventual results of those proceedings.

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

On July 30, 2018, EPA published a rule that constitutes “Phase One, Part One” of its ongoing reconsideration and revision of the April 17, 2015 coal ash rule. The final rule includes two types of revisions. The first revision extended the deadline to allow EGUs with unlined impoundments or that fail to meet the uppermost aquifer requirement to continue to receive coal ash until October 31, 2020. The rule also authorized a “Participating State Director” or EPA to approve suspension of groundwater monitoring and to issue certifications related to the location restrictions, design criteria, groundwater monitoring, remedy selection and implementation. The revisions also modify groundwater protection standards for certain constituents, which include cobalt, molybdenum, lithium, and lead without a maximum contamination level. EPA intends to issue multiple proposed rulemakings with a final rule expected in 2020 that will include the following: (1) deadlines for unlined surface impoundments to cease receiving waste; (2) a “Phase Two” rule to address amendments to the national minimum criteria; and (3) rulemaking for alternative demonstration for unlined surface impoundments with a request for comment letteron inclusion of legacy units. On August 14, 2019, the “Phase Two” proposed rule was published in the Federal Register with comments due on October 15, 2019. This rule proposes revisions to reporting and accessibility to public information, the definition of CCR piles, the definition of beneficial use, and the requirements for management of CCR piles. A final rule is expected in mid to late 2020. On November 4, 2019, EPA seeking clarification asproposed a change to whenthe CCR rule that, subject to EPA authorization for each facility, would allow facilities that have committed to cease burning coal in the near-term to qualify for alternative closure. This would allow CCR disposal units at such plants to continue operating even though they would otherwise have been subject to forced closure. On December 2, 2019, EPA published the proposed Part A CCR rule requiring a new date of August 31, 2020 for companies to initiate closure of unlined CCR impoundments and howchanging the classification of compacted soil-lined or clay-lined surface impoundments from “lined” to “unlined”. Comments were due January 31, 2020. On December 19, 2019, EPA released a proposed rule establishing a federal permitting program for the handling of CCR within the boundaries of Native American reservations and in states without their own federally authorized state programs. Permits for units within the boundaries of Native American reservations would be initiating permit proceedings for facilities on tribal reservations, including Four Corners. PNM is unable to predict when EPAdue 18 months after the effective date of the rule. Once published in the Federal Register, there will be issuing permits fora 60-day comment period. The final rule is expected in mid to late 2020. PNM cannot predict the outcome of EPA’s rule making activity or the outcome of any related litigation, and whether or how such a ruling would affect operations at Four Corners.

On September 13, 2017, EPA agreed to evaluate whether to revise the CCB regulations based upon utility industry petitions for EPA to reconsider the RCRA Subtitle D regulations for CCBs, which were premised in part on the provisions of the WIIN Act. In light of the WIIN Act and the petitions for rulemaking, the EPA is considering making additional changes to the CCB rule to provide flexibility to state programs consistent with the WIIN Act. With respect to ongoing litigation initiated by industry and environmental groups challenging the legality of the CCB regulations and pursuant to an order issued by the DC Circuit, EPA filed a status report on November 15, 2017 on the challenges to the CCB rule identifying provisions it intends to reconsider. On November 20, 2017, the DC Circuit heard oral arguments from industry groups, environmentalists, and EPA. EPA and the industry groups argued the court should postpone adjudication until EPA completes the reconsideration process for the affected provision. On December 20, 2017, a proposal to remand the CCB rule was transmitted to the Office of Management and Budget for interagency review.


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


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


regarding CCB regulation, including mine placement
As indicated above, CCRs at Four Corners are currently disposed of CCBs,in ash ponds and dry storage areas. The CCR rule requires ongoing, phased groundwater monitoring. Utilities that own or whether OSM’soperate CCR disposal units, such as those at Four Corners were required to collect sufficient groundwater sampling data to initiate a detection monitoring program.  Four Corners completed the analysis for its CCR disposal units, which identified several units that will need corrective action or will need to cease operations and initiate closure by August 31, 2020. As part of this assessment, Four Corners will continue to gather additional groundwater data and perform remedial evaluations. At this time, PNM does not anticipate its share of the cost to complete these corrective actions, to close the CCR disposal units, or to gather and perform remedial evaluations on groundwater at Four Corners will have a materialsignificant impact on PNM’sits operations, financial position, or cash flows.  PNM would seek recovery from its ratepayers of all CCB costs that are ultimately incurred.
Other Commitments and Contingencies
Coal Supply


SJGS


The coal requirements for SJGS are supplied by SJCC. SJCCWSJ LLC. WSJ LLC holds certain federal, state, and private coal leases. Through January 31, 2016, SJCC, the former San Juan mine owner, was a wholly-owned subsidiary of BHP and supplied processed coal for operation of SJGS under an underground coal sales agreement (“UG-CSA”) that was to expire on December 31, 2017. The parties to the UG-CSA were SJCC, PNM, and Tucson. Under the UG-CSA, SJCC was reimbursed for all costs for mining and delivering the coal, including an allocated portion of administrative costs, and received a return on its investment. In addition to coal delivered to meet the current needs of SJGS, PNM has prepaid SJCCthe current San Juan mine owner and operator, WSJ LLC, for certain coal mined but not yet delivered to the plant site. At both December 31, 20172019 and 2016,2018, prepayments for coal, (including amounts purchased from the existing SJGS participants discussed below), which are included in other current assets, amounted to $26.3 million and $48.7 million.


In conjunction with the activities undertaken to comply with the CAA for SJGS, as discussed above, PNM and the other owners of SJGS evaluated alternatives for the supply of coal to SJGS after the expiration of the UG-CSA. Following extensive negotiations among the SJGS participants, the former owner of SJCC, and third-party miners, agreements were negotiated under which the ownership of SJCC would transfer to a new third-party miner and PNM would enter into a new coal supply agreement and agreements for CCBCCR disposal and mine reclamation services with SJCC on or about January 1, 2016. Effectiveness of the agreements was dependent upon the closing of the purchase of SJCC by the new third-party miner and the finalization of the SJGS RA and other agreements, which along with regulatory approvals, were necessary for the restructuring of ownership in SJGS to be consummated.


On July 1, 2015, PNM and Westmoreland Coal Company (“Westmoreland”) entered into a new coal supply agreement (“SJGS(the “SJGS CSA”), pursuant to which Westmoreland, isthrough its indirectly wholly-owned subsidiary SJCC, agreed to supply all of the coal requirements of SJGS through June 30, 2022. PNM and Westmoreland also entered into agreements under which Westmoreland is to provide CCBCCR disposal and mine reclamation services for SJGS. ContemporaneousSJGS would be provided. As discussed in Note 10, with the entry into the coal-related agreements, Westmoreland entered into a stock purchase agreement (the “Stock Purchase Agreement”) on July 1, 2015 to acquire allclosing of the capital stock of SJCC. In addition, PNM, Tucson, SJCC, and SJCC’s owner entered into an agreement to terminate the existing UG-CSA upon the effective datesale of the new SJGS CSA.

The SJGS CSA became effective asassets of 11:59 PMSJCC on January 31, 2016, uponMarch 15, 2019, WSJ LLC assumed the closing under the Stock Purchase Agreement. Upon closing under the Stock Purchase Agreement, Westmoreland’s rights and obligations of SJCC under the SJGS CSA and the agreements for CCBCCR disposal and mine reclamation services were assigned to SJCC. Westmoreland has guaranteed SJCC’s performance under the SJGS CSA.services.


Pricing under the SJGS CSA is primarily fixed, adjustedwith adjustments to reflect changes in general inflation. The pricing structure takes into account that SJCCWSJ LLC has been paid for coal mined but not delivered, as discussed above. PNM hashad the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In order to extend,2018, PNM, must give writtenLos Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022 and Farmington gave notice that intent by July 1, 2018it wishes to continue SJGS operations and the parties must agree to extend the terms of the extension by January 1, 2019. However, as discussed in Note 17, PNM’s 2017 IRP showsboth agreements. On November 30, 2018, PNM provided notice to Westmoreland that retirement of PNM’s SJGS capacity in 2022 would be cost-effective for customers. If retirement of SJGS is approved by the NMPRC, there will be no needPNM does not intend to extend the term of the SJGS CSA.CSA or to negotiate a new coal supply agreement for SJGS, which will result in the current agreement expiring on its own terms on June 30, 2022. See additional discussion of PNM’s December 2018 Compliance Filing above and its SJGS Abandonment Application in Note 17.


The SJGS RA sets forth terms under which PNM acquired the coal inventory, including coal mined but not delivered, of the exiting SJGS participants as of January 1, 2016 and supplied coal to the SJGS exiting participants for the period from January 1, 2016 through December 31, 2017 and is supplying coal to the SJGS remaining participants over the term of the SJGS CSA. Coal costs under the SJGS CSA are significantly less than under the previous arrangement with SJCC. Since substantially all of PNM’s coal costs are passed through the FPPAC, the benefit of the reduced costs and the economic benefits of the coal inventory arrangement with the exiting owners areis passed through to PNM’s customers.



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017



In support of the closing under the Stock Purchase Agreement and to facilitate PNM customer savings, NM Capital, a wholly-owned subsidiary of PNMR, provided funding of $125.0 million (the “Westmoreland Loan”) to Westmoreland San Juan, LLC (“WSJ”), a ring-fenced, bankruptcy-remote, special-purpose entity that is a subsidiary of Westmoreland, to finance WSJ’s purchase of the stock of SJCC (including an insignificant affiliate) under the Stock Purchase Agreement. NM Capital was able to provideprovided the $125.0 million financing to WSJ by first entering into a $125.0 million term loan agreement (the “BTMU Term Loan Agreement”Loan”) with BTMU, as lender and administrative agent. The BTMU Term Loan Agreementagreement became effective as of February 1, 2016, matures onhad a maturity date of February 1, 2021, and bearsbore interest at a rate based on LIBOR plus a customary spread. In connection with the BTMU Term Loan, Agreement, PNMR, as parent company of NM Capital, has guaranteed NM Capital’s obligations to BTMU. The balance outstanding under the BTMU Term Loan Agreement was $50.1 million at December 31, 2017 and $45.1 million at February 20, 2018.


The Westmoreland Loan iswas a $125.0 million loan agreement among NM Capital, as lender, WSJ, as borrower, and SJCC and its affiliate, as guarantors, BTMU, as administrative agent, and MUFG Union Bank, N.A., as depository bank.guarantors. The Westmoreland Loan became effective as of February 1, 2016 and matures onhad a maturity date of February 1, 2021. The interest rate on the Westmoreland Loan escalatesescalated over time and was initially a rate of 7.25% plus LIBOR. Such rate was 9.25% plus LIBOR for the period from February 1, 2017 through January 31, 2018 and is 12.25% plus LIBOR for the period frombeginning February 1, 2018. On May 22, 2018, through January 31, 2019. WSJ must paythe full principal and interest quarterly to NM Capital in accordance with an amortization schedule. In addition, the Westmoreland Loan requires that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it is fully repaid. At December 31, 2017, the amount outstanding under the Westmoreland Loan of $50.1 million was $56.6 million. Reflecting the principal payment of $5.6 million that was paid when due on February 1, 2018, the balancerepaid. NM Capital used a portion of the Westmoreland Loanproceeds to repay all remaining principal of $43.0 million owed under the BTMU Term Loan. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was $51.0 million as of February 20, 2018. The Westmoreland Loan is secured by the assets of and the equity interests in SJCC and its affiliate. The Westmoreland Loan also includes customary representations and warranties, covenants, and events of default. There are no prepayment penalties.effectively terminated.


In connection with certain mining permits relating to the operation of the San Juan mine, SJCC isthe San Juan mine owner was required to post reclamation bonds of $118.7 million with the NMMMD. In order to facilitate the posting of reclamation bonds by sureties on behalf of SJCC,the San Juan mine owner, PNMR entered into letter of credit arrangements with a bank under which letters of credit aggregating $30.3 million have been issued.

As discussed in Note 10, on March 15, 2019, Westmoreland emerged from Chapter 11 bankruptcy as a privately held company owned and operated by a group of its former creditors. Under the reorganization, the assets of SJCC were sold to WSJ LLC, a subsidiary of Westmoreland Mining Holdings, LLC. As successor entity to SJCC, WSJ LLC assumed all rights and obligations of WSJ including obligations to PNM under the SJGS CSA and to PNMR under a letter of credit support agreement.

Four Corners
APS purchasedpurchases all of Four Corners’ coal requirements from a supplier that was also a subsidiary of BHP and had a long-term lease of coal reserves with the Navajo Nation. That contract was to expire on July 6, 2016 with pricing determined using an escalating base-price. On December 30, 2013, ownership of the mine was transferred to NTEC, an entity owned by the Navajo Nation, andunder a new coal supply contract for Four Corners (the “Four Corners CSA”), beginning that expires in July 2016 and expiring in 2031, was entered into2031. The coal comes from reserves located within the Navajo Nation. NTEC has contracted with NTEC. The BHP subsidiary was retained as the mine manager and operator through December 2016. Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, took overfor management and operation of the mine effective January 1, 2017. The average coal price per ton under the new contract was approximately 51% higher in the twelve months ended June 30, 2017 than in the twelve months ended June 30, 2016, excluding the disputed amounts discussed below.mine. The contract provides for pricing adjustments over its term based on economic indices. PNM anticipates that itsPNM’s share of the increasedcoal costs will beis being recovered through itsthe FPPAC.
Four Corners Coal Supply Arbitration – The owners of Four Corners are obligated to purchase a specified minimum amount of coal each contract year and to pay for any shortfall of coal that they fail to take delivery of below the minimum amount, except when caused by “uncontrollable forces” as defined in the Four Corners CSA.  On June 13, 2017, APS received a demand for arbitration from NTEC in connection with the Four Corners CSA.  NTEC originally sought a declaratory judgment to support its interpretation of a provision regarding uncontrollable forces in the agreement relating to the annual minimum quantities of coal to be purchased by the Four Corners owners. NTEC also alleged a shortfall in those purchases for the initial contract year, which ended June 30, 2017, of which PNM’s share is estimated to be approximately $6.5 million.  On September 20, 2017, NTEC amended its demand for arbitration removing the request for a declaratory judgment and is now only seeking relief for the alleged shortfall in purchases in the initial contract year. PNM anticipates that substantially all of any amount it ultimately is required to pay would be passed through to customers under PNM’s FPPAC. Although PNM cannot predict the timing or outcome of the arbitration, the outcome is not expected to have a material impact on its financial position, results of operations or cash flows.

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

Coal Mine Reclamation
In conjunction with the proposed shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, an updatedperiodic updates to the coal mine reclamation study waswere requested by the SJGS participants. In 2013, PNM updated its studyThese updates have generally increased PNM’s share of the finalestimated cost of mine reclamation costs for bothand have included adjustments to reflect the surface mines that previously provided coal to SJGS and the current underground mine providing coal and revised its estimates of the final reclamation costs. This estimate reflected that, with the proposedDecember 2017 shutdown of SJGS Units 2 and 3, described above, the terms of the reclamation services agreement with WSJ LLC, and changes to reflect the requirements of the 2015 San Juan mine providing coalpermit plan.
The SJGS RA required PNM to SJGS would continue to operate through 2053, the anticipated life of SJGS. The 2013 coal mine reclamation study indicated reclamation costs had increased, including significant increases duecomplete an update to the proposedreclamation cost estimate after the December 31, 2017 shutdown of SJGS Units 2 and 3, which would reduce the amount of CCBs generated over the remaining life of SJGS and result in a significant increase in the amount of fill dirt required to remediate the underground mine area thereby increasing the overall reclamation costs. As discussed under Coal Combustion Byproducts Waste Disposal above, SJGS currently disposes of CCBs from the plant in the surface mine pits adjacent to the plant.

In 2015, PNM updated its final reclamation costs estimates to reflect the terms of the new reclamation services agreement with Westmoreland, discussed above, and changes resulting from the approval of the 2015 SJCC Mine Permit Plan. The 2015 reclamation cost estimate reflected that the scope and pricing structure of the reclamation service agreement with Westmoreland would significantly increase reclamation costs. In addition, design plan changes, updated regulatory expectations, and common mine reclamation practices incorporated into the 2015 SJCC Mine Permit reflect an increase in the 2015 reclamation cost estimate. The impacts of these increases, amounting to $16.5 million, were recorded at December 31, 2015 and were reflected in regulatory disallowances and restructuring costs on the Consolidated Statements of Earnings.
Upon effectiveness of the SJGS CSA and the SJGS RA, PNM, on behalf of the SJGS owners, coordinated a more detailed coal mine reclamation cost study, which was completed in the third quarter of 2016. To complete the study, PNM was provided access to the mine site and obtained supporting data from Westmoreland, allowing for the 2015 study to be refined with a more extensive engineering analysis.3. This reclamation cost estimate reflected the terms of the new reclamation services agreement with Westmorelandwas completed in October 2018 and assumed continuation of mining operations through 2053.2053, the life of SJGS currently approved by the NMPRC. The study indicated an increasea decrease in reclamation costs primarily driven by lower inflationary factors used to determine the estimated future cost of reclamation cost estimate. PNM’s $4.5activities. PNM recorded its $2.5 million share of the increase was recordedthis decrease in 2016 andSeptember 2018, which is reflected in regulatory disallowances and restructuring costs in the Consolidated Statements of Earnings. The current estimate for decommissioningAs discussed above, PNM submitted the mine serving Four Corners reflectsDecember 2018 Compliance Filing to the operation ofNMPRC indicating that, consistent with the mine through 2031, the term of the new agreement for coal supply.

Based on the 2016 estimates andconclusions reached in PNM’s current ownership2017 IRP, PNM expects to retire its share of SJGS PNM’s remaining payments for mine reclamation,after the current SJGS CSA expires in future dollars, are estimated to be $100.4 million formid-2022. PNM determined that events and circumstances regarding SJGS, including the surface mines at both SJGS and Four Corners and $127.1 million for the underground mine at SJGS as of December 31, 2017. At December 31, 2017 and 2016, liabilities, in current dollars, of $41.4 million and $41.0 million for surface mine reclamation and $14.7 million and $14.0 million for underground mine reclamation were recorded in other deferred credits.

As discussed in Note 17, PNM filed its 2017 IRP on July 3, 2017. The conclusions contained in the 2017 IRP indicate2018 Compliance Filing, indicated that it would be cost beneficial to PNM’s customers for PNM to retire its SJGS capacity in 2022 and for PNM to exit its ownership interest in Four Corners in 2031. The 2017 IRP is more likely than not a final determination of PNM’s future generation portfolio. Retiringthat PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, whichwill be retired in 2022. As a result, in December 2018 PNM would make at appropriate times in the future. If the NMPRC orders the abandonment of those facilities, PNM would be required to remeasureagain remeasured its liability for coal mine reclamation for the mine that serves SJGS to reflect that reclamation activities wouldmay occur soonerbeginning in 2022, rather than currentlyin 2053 as previously anticipated. The remeasurement would likely resultThis estimate resulted in a significant increase in PNM’s liability for SJGS mine reclamation due to a further increase in the amount of fill dirt required to remediate the mine areas thereby increasing the overall reclamation costs. PNM would record an additional amount when it is determined that the increase to the liability is probable and can be reasonably estimated, which would be dependent on receiving the NMPRC approvals indicated above. The amount of the increase in the liability would depend on the timing of those approvals and other regulatory actions, as well estimates made at that time of the costs to perform the future reclamation activities, as well as the then current inflation and discount rates. Preliminary calculations indicate the increase in PNM’s liability for December 31, 2017 SJGS mine reclamation would be approximately $35 million for the surface mine and $5 million for the underground mine. PNM would record a regulatory asset for amounts recoverable from ratepayers under existing or future orders of the NMPRC and amounts not recoverable would be expensed. PNM cannot predict what actions the NMPRC might take.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


an increase in overall reclamation costs due to an increase in the amount of fill dirt required to remediate the mine areas and the timing of activities necessary to reclaim the mine that serves SJGS. This remeasurement increased PNM’s liability for coal mine reclamation as of December 31, 2018 by $39.2 million, which includes both the underground and surface mines that serve SJGS. PNM recovers from retail customers reclamation costs associated with the underground mine. However, the NMPRC has capped the amount that can be collected from retail customers for final reclamation of the surface mines at $100.0 million. As a result, PNM recorded $9.4 million of the increase in the liability at December 31, 2018 related to the underground mine in regulatory assets on the Consolidated Balance Sheets and recorded the remaining $29.8 million associated with the surface mine as regulatory disallowances and restructuring costs on the Consolidated Statements of Earnings. PNM’s estimate of the costs necessary to reclaim the mine that serves SJGS is subject to many assumptions, including the timing of reclamation, generally accepted practices at the time reclamation activities occur, and then current inflation and discount rates. In addition, PNM may be exposed to additional loss if the cost of reclamation activities is not approved by the NMPRC. See additional discussion of PNM’s SJGS Abandonment Application in Note 17.
A draft coal mine reclamation study for the mine that serves Four Corners was issued in 2019. The study reflected operation of the mine through 2031, the term of the Four Corners CSA. The study resulted in a net increase in PNM’s share of the coal mine reclamation obligation of $0.8 million, which was primarily driven by lower overhead costs offset by an increase due to a reduction in the discount rate used to measure the liability and is reflected in cost of energy in the Consolidated Statements of Earnings.
Based on the most recent estimates and PNM’s ownership share of SJGS, PNM’s remaining payments for mine reclamation, in future dollars, are estimated to be $92.6 million for the surface mines at both SJGS and Four Corners and $40.0 million for the underground mine at SJGS as of December 31, 2019. At December 31, 2019 and 2018, liabilities, in current dollars, of $70.3 million and $70.1 million for surface mine reclamation and $25.3 million and $23.2 million for underground mine reclamation were recorded in other deferred credits.
Under the terms of the SJGS CSA, PNM and the other SJGS owners are obligated to compensate SJCCWSJ LLC for all reclamation costs associated with the supply of coal from the San Juan mine. The SJGS owners entered into a reclamation trust funds agreement to provide funding to compensate SJCCWSJ LLC for post-term reclamation obligations under the UGCSA.obligations. As part of the restructuring of SJGS ownership (see SJGS Ownership Restructuring Matters above), the SJGS owners and PNMR Development negotiated the terms of an amended agreement to fund post-term reclamation obligations under the SJGS CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable reclamation trust, and periodically deposit funds into the reclamation trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. PNM funded $5.5 million in 2019, $10.0 million in 2018, and $5.8 million in 2017, $7.0 million in 2016, and $4.3 million in 2015.2017. Based on PNM’s reclamation trust fund balance at December 31, 2017,2019, the current funding curves indicate PNM’s required contributions to its reclamation trust fund would be $8.3$9.7 million in 2018, $8.72020, $10.9 million in 2019,2021, and $9.2$11.7 million in 2020.2022.


Under the Four Corners CSA, which became effective on July 7, 2016, PNM is required to fund its ownership share of estimated final reclamation costs in thirteen annual installments beginning on August 1, 2016, into an irrevocable escrow account solely dedicated to the final reclamation cost of the surface mine at Four Corners. PNM contributed $2.3 million in 2017each of 2019, 2018, and $1.9 million in 2016 to the escrow account2017 and anticipates providing additional funding of $2.3 million, $2.3 million, and $2.3$1.9 million in 2018, 2019, and 2020.
PNM collects a provision for surface and underground mine reclamation costs in its rates. The NMPRC has capped the amount that can be collected from retail customers for final reclamationeach of the surface mines at $100.0 million. Previously, PNM recorded a regulatory asset for the $100.0 million and recovers the amortization of this regulatory asset in rates. years from 2020 through 2024.
If future estimates increase the liability for surface mine reclamation, the excess would be expensed at that time. The reclamation amounts discussed above reflect PNM’s estimatesimpacts of its sharechanges in New Mexico state law as a result of the revised costs. Regulatoryenactment of the ETA and regulatory determinations made by the NMPRC may also affect the impact on PNM.PNM’s financial position, results of operations, and cash flows. See additional discussion regarding PNM’s December 2018 Compliance Filing above and its SJGS Abandonment Application in Note 17. PNM is currently unable to determine the outcome of these matters or the range of possible impacts.


Continuous Highwall Mining Royalty Rate


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



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

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


PVNGS Liability and Insurance Matters
Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both commercial sources and an industry-wide retrospective payment plan. In accordance with this act, the PVNGS participants are insured against public liability exposure for a nuclear incident up to $13.413.9 billion per occurrence. PVNGS maintains the maximum available nuclear liability insurance in the amount of $450 million, which is provided by American Nuclear Insurers. The remaining $13.013.5 billion is provided through a mandatory industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, PNM could be assessed retrospective premium adjustments. Based on PNM’s 10.2% interest in each of the three3 PVNGS units, PNM’s maximum potential retrospective premium assessment per incident for all three3 units is $38.942.1 million, with a maximum annual payment limitation of $5.86.2 million, to be adjusted periodically for inflation.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015


The PVNGS participants maintain insurance for damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.752.8 billion, a substantial portion of which must first be applied to stabilization and decontamination. These coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). The primary policy offered by NEIL contains a sublimit of $2.25 billion for non-nuclear property damage. If NEIL’s losses in any policy year exceed accumulated funds, PNM is subject to retrospective premium adjustments of $5.4 million for each retrospective premium assessment declared by NEIL’s Board of Directors due to losses. The insurance coverages discussed in this and the previous paragraph are subject to certain policy conditions, sublimits, and exclusions.
Natural Gas Supply
PNM procures gas supplies for its power plants from third-party sources and contracts with third party transportation providers.

Water Supply
Because of New Mexico’s arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. Although PNM does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast long-term weather patterns. Public policy, local, state and federal regulations, and litigation regarding water could also impact PNM operations. To help mitigate these risks, PNM has secured permanent groundwater rights for the existing plants at Reeves Station, Rio Bravo, Afton, Luna, Lordsburg, and La Luz. Water availability is not an issue for these plants at this time. However, prolonged drought, ESA activities, and a federal lawsuit by the State of Texas (suing the State of New Mexico over water deliveries) could pose a threat of reduced water availability for these plants.
For SJGS and Four Corners, PNM and APS have negotiated an agreement with the more senior water rights holders (tribes, municipalities, and agricultural interests) in the San Juan basin to mutually share the impacts of water shortages with tribes and other water users in the San Juan basin. The agreement to share shortages in 20172018 through 20202021 has been negotiated and awaits endorsementendorsed by the parties and is being reviewed by the New Mexico Office of the State Engineer.
In April 2010, APS signed an agreement on behalf of the PVNGS participants with five5 cities to provide cooling water essential to power production at PVNGS for 40 years.
PVNGS Water Supply Litigation
In 1986, an action commenced regarding the rights of APS and the other PVNGS participants to the use of groundwater and effluent at PVNGS. APS filed claims that dispute the court’s jurisdiction over PVNGS’ groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In 1999, the Arizona Supreme Court issued a decision finding that certain groundwater rights may be available to the federal government and IndianNative American tribes.

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December 31, 2019, 2018 and 2017

In addition, the Arizona Supreme Court issued a decision in 2000 affirming the lower court’s criteria for resolving groundwater claims. Litigation on these issues has continued in the trial court. No trial dates have been set in these matters. PNM does not expect that this litigation will have a material impact on its results of operation, financial position, or cash flows.
San Juan River Adjudication
In 1975, the State of New Mexico filed an action in New MexicoNM District Court to adjudicate all water rights in the San Juan River Stream System, including water used at Four Corners and SJGS. PNM was made a defendant in the litigation in 1976. In March 2009, then President Obama signed legislation confirming a 2005 settlement with the Navajo Nation. Under the terms of the settlement agreement, the Navajo Nation’s water rights would be settled and finally determined by entry by the court of two proposed adjudication decrees.  The court issued an order in August 2013 finding that no evidentiary hearing was warranted in the Navajo Nation proceeding and, on November 1, 2013, issued a Partial Final Judgment and Decree of the Water Rights of the Navajo Nation approving the proposed settlement with the Navajo Nation. Several parties filed a joint motion for a new trial, which was denied by the court. A number of parties subsequently appealed to the New Mexico Court of Appeals. PNM has entered its appearance in the appellate case. The issues have been fully briefedcase and supported the matter is pendingsettlement agreement in the NM District Court. On April 3, 2018, the New Mexico Court of Appeals issued an order affirming the decision of the NM District Court. Several parties filed motions requesting a rehearing with the New Mexico Court of Appeals.Appeals seeking clarification of the order, which were denied. The State of New Mexico and various other appellants filed a writ of certiorari with the NM Supreme Court. The NM Supreme Court granted the State of New Mexico’s petition and denied the other parties’ requests. The issues regarding the Navajo Nation settlement have been briefed and are awaiting a decision by the NM Supreme Court. Adjudication of non-Indian water rights continues during the pendency of the appeal of the Navajo Nation settlement.

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December 31, 2017, 2016 and 2015

is ongoing.
PNM is participating in this proceeding since PNM’s water rights in the San Juan Basin may be affected by the rights recognized in the settlement agreement and adjudicated to the Navajo Nation, which comprise a significant portion of water available from sources on the San Juan River and in the San Juan Basin and which have priority in times of shortages. PNM is unable to predict the ultimate outcome of this matter or estimate the amount or range of potential loss and cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. Final resolution of the case cannot be expected for several years. An agreement reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.
Rights-of-Way Matter


On January 28, 2014, the County Commission of Bernalillo County, New Mexico passed an ordinance requiring utilities to enter into a use agreement and pay a yet-to-be-determined fee as a condition to installing, maintaining, and operating facilities on county rights-of-way. The fee is purported to compensate the county for costs of administering and maintaining the rights-of-way, as well as for capital improvements. On February 27, 2014, PNM and other utilities filed a Complaint for Declaratory and Injunctive Relief in the United States District Court for the District of New Mexico challengingAfter extensive challenges to the validity of the ordinance. The court denied the utilities’ motion for judgment. The court further granted the County’s motion to dismiss the state law claims. The utilities filed an amended complaint reflecting the two federal claims remaining before the federal court. The utilities also filed a complaint in Bernalillo County, New Mexico District Court reflecting the state law counts dismissed by the federal court. In subsequent briefing in federal court, the County filed a motion for judgment on one of the utilities’ claims, which was granted by the court, leaving a claim regarding telecommunications service as the remaining federal claim. On January 4, 2016,ordinance, the utilities filed an Application for Interlocutory Appeal from the state court, which was denied. On March 28, 2017, the utilities filed a Writ writ of Certioraricertiorari with the NM Supreme Court, which was denied. The matter will proceed in New Mexico District Court. The utilities and Bernalillo County had reached a standstill agreement whereby the Countycounty would not take any enforcement action against the utilities pursuant to the ordinance during the pendency of thethen pending litigation, but not including any period for appeal of a judgment, or upon 30 days written notice by either the Countycounty or the utilities of their intention to terminate the agreement.  IfAfter court-ordered settlement discussions, PNM and Bernalillo County executed a franchise fee agreement with a term of 15 years. Under the challengesagreement, PNM will pay franchise fees to the ordinance are unsuccessful,county at an amount similar to those paid by PNM believes any fees paid pursuant toin other jurisdictions. PNM will recover the ordinance would be consideredcost of the franchise fees and would be recoverable from customers.as a direct pass-through to customers located in Bernalillo County. The agreement is subject to approval by the New Mexico Second District Court in Bernalillo County. PNM is unable tocannot predict the outcome of this matter or its impact on PNM’s operations.
Complaint Against Southwestern Public Service Company
In September 2005, PNM filed a complaint under the Federal Power Act against SPS alleging SPS overcharged PNM for deliveries of energy through its fuel cost adjustment clause practices and that rates for sales to PNM were excessive. PNM also intervened in a similar proceeding brought by other SPS customers and a proceeding filed by SPS to revise its rates for sales to PNM. On October 29, 2015, FERC approved a settlement agreement resolving all outstanding issues between SPS and PNM. Under the settlement, SPS paid PNM $4.2 million. Of this amount, $2.6 million was passed back to PNM’s customers through its FPPAC.matter.
Navajo Nation Allottee Matters
A putative class action was
In September 2012, 43 landowners filed againsta notice of appeal with the Bureau of Indian Affairs (“BIA”) appealing a March 2011 decision of the BIA Regional Director regarding renewal of a right-of-way for a PNM and other utilities in February 2009 in the United States District Court for the District of New Mexico. Plaintiffstransmission line. The landowners claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes Act of 1887, were allotted ownership in land carved out of the Navajo Nation and allege that defendants, including PNM areis a rights-of-way granteesgrantee with rights-of-way across the allotted lands and are either in trespass or have paid insufficient fees for the grant of rights-of-way or both.  In March 2010, the court ordered that the entirety of the plaintiffs’ case be dismissed. The court did not grant plaintiffs leave to amend their complaint, finding that they instead must pursue and exhaust their administrative remedies before seeking redress in federal court.  In May 2010, plaintiffs filed a notice of appeal with the Bureau of Indian Affairs (“BIA”), which was denied by the BIA Regional Director. In May 2011, plaintiffs appealed the Regional Director’s decision to the DOI, Office of Hearings and Appeals, Interior Board of Indian Appeals. Following briefing on the merits, on August 20, 2013, that board issued a decision upholding the Regional Director’s decision that the allottees had failed to perfect their appeals, and dismissed the allottees’ appeals, without prejudice.  The allottees have not refiled their appeals. Although this matter was dismissed without prejudice, PNM considers the matter concluded. However, PNM continues to monitor this matter in order to preserve its interests regarding any PNM-acquired rights-of-way.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

In a separate matter, in September 2012, 43 landowners claiming to be Navajo allottees filed a notice of appeal with the BIA appealing a March 2011 decision of the BIA Regional Director regarding renewal of a right-of-way for a PNM transmission line. The allottees, many of whom are also allottees in the above matter, generally allege that they were not paid fair market value for the right-of-way, that they were denied the opportunity to make a showing as to their view of fair market value, and thus denied due process. On January 6, 2014, PNM received notice that the BIA, Navajo Region, requested a review of an appraisal report on 58 allotment parcels. After review, the BIA concluded it would continue to rely on the values of the original appraisal. On March 27, 2014, while this matter was stayed, theThe allottees filed a motion to dismiss their appeal with prejudice.  Onprejudice, which was granted in April 2, 2014, the allottees’ appeal was dismissed with prejudice.2014. Subsequent to the dismissal, PNM received a letter from counsel on behalf of what appears to be a subset

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December 31, 2019, 2018 and 2017

of the 43 landowner allottees involved in the appeal, notifying PNM that the specified allottees were revoking their consents for renewal of right of way on six6 specific allotments.  On January 22, 2015, PNM received a letter from the BIA Regional Director identifying ten10 allotments with rights-of-way renewals that were previously contested.  The letter indicated that the renewals were not approved by the BIA because the previous consent obtained by PNM was later revoked, prior to BIA approval, by the majority owners of the allotments.  It is the BIA Regional Director’s position that PNM must re-obtain consent from these landowners.  On July 13, 2015, PNM filed a condemnation action in the NM District Court regarding the approximately 15.49 acres of land at issue. On September 18, 2015 the allottees filed a separate complaint against PNM for federal trespass. On December 1, 2015, the court ruled that PNM could not condemn two2 of the five5 allotments at issue based on the Navajo Nation’s fractional interest in the land.  PNM filed a motion for reconsideration of this ruling, which was denied. On March 31, 2016, the Tenth Circuit granted PNM’s petition to appeal the December 1, 2015 ruling. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. Both matters have been consolidated. On June 27, 2016, PNM filed its opening brief in the Tenth Circuit. Amicus briefs were filed in support of PNM’s position. On October 5, 2016, the United States, the Navajo Nation, and individual allottees filed their response briefs. After the response briefs were filed, other entities requested leave to file amicus briefs addressing arguments raised in the United States’ response brief. Oral argument before the Tenth Circuit was heard on January 17, 2017. On May 26, 2017, the Tenth Circuit affirmed the district court. On July 8, 2017, PNM filed a Motion for Reconsideration en banc with the Tenth Circuit. On July 21, 2017, the court denied PNM’s Motion for Reconsideration. On July 26, 2017, PNM filed a motion to stay implementation of the court’s decision,Circuit, which was denied. On September 11, 2017, PNM filed an Application for Extension of Time to File a Petition for Writ of Certiorari in the US Supreme Court. PNM’s application for an extension of time to November 20, 2017 was granted. The NM District Court has stayed the case until May 15, 2018 based on the Navajo Nation’s acquisition of interests in two2 additional allotments and the unresolved ownership of the fifth allotment due to the owner’s death. On November 20, 2017, PNM filed its Petitionpetition for Writwrit of Certioraricertiorari with the US Supreme Court, which was denied. The underlying litigation continues in the NM District Court. On December 22, 2017, amicus briefs supporting PNM’s PetitionMarch 27, 2019, several individual allottees filed a motion for Writpartial summary judgment on the issue of Certiorari were filed withtrespass. The Court held a hearing on the US Supreme Court. The US Supreme Court extendedmotion on June 18, 2019 and took the United States’ response periodmotion under advisement. Mediation on the matter is ongoing and parties are continuing to March 23, 2018.
discuss a potential settlement. PNM cannot predict the outcome of these matters.


Sales Tax Audits


In November 2011, PNMR completed the sale of its retail electric provider, which operated in Texas under the name First Choice Power (“First Choice”). Under the sale agreement, PNMR is contractually obligated for First Choice’s taxes relating to periods prior to the sale.


The Texas Comptroller of Public Accounts (“Comptroller”) has initiated audits of First Choice’s sales and use tax filings and miscellaneous gross receipts tax filings for periods prior to the sale. During the course of the audits, PNMR accrued an immaterial liability for items identified in the audits for which PNMR believed an unfavorable resolution was probable. The Comptroller has issued notifications of audit results indicating additional tax due of $5.0 million, plus penalties and interest.was due. The primary issue in dispute iswas the disallowance by the auditor of the tax benefits of bad debt charge-offs and billing credits. On behalf of First Choice, PNMR filed requests for redetermination for both audits.

In 2018, PNMR has engagedsettled the sales and use tax audit and all matters related to the miscellaneous gross tax audit for a total of $2.3 million, of which $1.4 million and $0.2 million are reflected in continued discussions withtaxes other than income taxes on PNMR’s Consolidated Statements of Earnings for the Comptroller, as well as supplying additional documentation in support of PNMR’s positions. If PNMR and the Comptroller do not reach agreement, this matter will go to hearing with the Texas State Office of Administrative Hearings. Although PNMR believes its positions are correct, it is unable to predict the outcome of this matter.


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years ended December 31, 2017, 20162018 and 2015
2017. These matters are now concluded.


(17)Regulatory and Rate Matters


The Company is involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 16.
PNM


New Mexico General Rate Cases


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

On December 11, 2014, PNM filed an application for revision of electric retail rates based upon a calendar year 2016 future test year (“FTY”) period. The application proposed a revenue increase of $107.4 million, effective January 1, 2016. Several parties filed briefs, which alleged that PNM’s application was incomplete and challenged other aspects of PNM’s filing. On April 17, 2015, the Hearing Examiner in the case issued an Initial Recommended Decision to the NMPRC recommending that the NMPRC find PNM’s application incomplete and reject it on the grounds that it did not comply with the FTY rule. The Hearing Examiner cited procedural defects in the filing, including a lack of fully functional electronic files and appropriate justification of certain costs in the future test year period. On May 13, 2015, the NMPRC voted to accept the Initial Recommended Decision regarding the completeness of PNM’s application and dismissed PNM’s application.


On August 27, 2015, PNM filed a newan application with the NMPRC for a general increase in retail electric rates. The application proposed a revenue increase of $123.5 million, including base non-fuel revenues of $121.7 million. PNM’s new application was based on a FTY period beginning October 1, 2015, which met the NMPRC’s May 2015 interpretation of the FTY statute discussed below,million, and proposed a ROE of 10.5%. The primary drivers of PNM’s identified revenue deficiency were the cost of infrastructure investments, including depreciation expense based on an updated depreciation study, and a decline in energy sales as a result of PNM’s successful energy efficiency programs and economic factors. The new application included several proposed changes in rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation. Specific rate design proposals included higher customer and demand charges, a revenue decoupling pilot program applicable to residential and small commercial customers, a re-allocation of revenue among PNM’s customer classes, a new economic development rate, and continuation of PNM’s renewable energy rider. PNM requested that the proposed new rates become effective beginning in July 2016. On March 2, 2016, the NMPRC required PNM to file supplemental testimony regarding the treatment of renewable energy in PNM’s FPPAC. See Renewable Portfolio Standard below. A public hearing on the proposed new rates was held in April 2016. Subsequent to this hearing,public hearings, the NMPRC ordered PNM to file additional testimony regarding PNM’s interests in PVNGS, including the 64.1 MW of PVNGS Unit 2 that PNM repurchased in January 2016 pursuant to the terms of the initial sales-leaseback transactions (Note 7). A subsequent public hearing was held in June 2016. After the June hearing, PNM and other parties were ordered to file supplemental briefs and to provide final recommended revenue requirements that incorporated fuel savings that PNM implemented effective January 1, 2016 from PNM’s SJGS coal supply agreement (“SJGS CSA”).  PNM’s filing indicated that recovery for fuel related costs would be reduced by approximately $42.9 million reflecting the current SJGS CSA (Note 16), which also reduced the request for base non-fuel related revenues by $0.2 million to $121.5 million.transactions.


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

A ROE of 9.575% compared to the 10.5% requested by PNM
Disallowing recovery of the entire $163.3 million purchase price for the January 15, 2016 purchases of the assets underlying three leases of portions of PVNGS Unit 2 (Note 7); the August 2016 RD proposed that power from the previously leased assets, aggregating 64.1 MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expenses (other than property taxes, which were $0.8 million per year at that time), but the customers would not bear any capital or depreciation costsamong other than those related to improvements made after the date of the original leases
Disallowing recovery from retail customers of the rent expense, which aggregates $18.1 million per year, under the four leases of capacity in PVNGS Unit 1 that were extended for eight years beginning January 15, 2015 and the one lease of

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December 31, 2017, 2016 and 2015

capacity in PVNGS Unit 2 that was extended for eight years beginning January 15, 2016 (Note 7) and related property taxes, which were $1.5 million per year at that time; the August 2016 RD proposed that power from the leased assets, aggregating 114.6 MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expense, except that customers would not bear rental costs or property taxes
Disallowing recovery of the costs of converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS, (Note 16); PNM’s share of the costs of installing the BDT equipment was $52.3 million of which $40.0 million was included in rate base in PNM’s rate request
Disallowing recovery of $4.5 million of amounts recorded as regulatory assets and deferred charges

The August 2016 RDthings, recommended that the NMPRC find PNM was imprudent in the actions taken to purchase the previously leased 64.1 MW of capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing the BDT equipment on SJGS Units 1 and 4. The August 2016 RD also proposed that all fuel costs be removed from base rates and be recovered through the FPPAC. The August 2016 RD would credit retail customers with 100% of the New Mexico jurisdictional portion of revenues from “refined coal” (a third-party pre-treatment process) at SJGS. In addition,As a result, the August 2016 RD would removerecommended the NMPRC disallow recovery of the entire $163.3 million purchase price for the January 15, 2016 purchases of the assets underlying 3 leases aggregating 64.1 MW of PVNGS Unit 2, the undepreciated capital improvements made during the period the 64.1 MW

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December 31, 2019, 2018 and 2017

of purchased capacity was leased, rent expense aggregating $18.1 million annually for leases aggregating 114.6 MW of capacity that were extended through January 2023 and 2024 (Note 8), and recovery of the costs of power obtained from New Mexico Wind from the FPPACconverting SJGS Units 1 and include recovery of those costs through PNM’s renewable energy rider discussed below. The August 2016 RD recommended continuation of the renewable energy rider and certain aspects of PNM’s proposals regarding rate design, but would not approve certain other rate design proposals or PNM’s request for a revenue decoupling pilot program. The August 2016 RD proposed approving PNM’s proposals for revised depreciation rates (except the August 2016 RD would require depreciation on Four Corners be calculated based on a 2041 life rather than the 2031 life proposed by PNM), the inclusion of construction work in progress in rate base, and ratemaking treatment of the “prepaid pension asset.” The August 2016 RD did not preclude PNM from supporting the prudence of the PVNGS purchases and lease renewals in its next general rate case and seeking recovery of those costs. PNM disagreed with many of the key conclusions reached by the Hearing Examiner in the August 2016 RD and filed exceptions4 to defend its prudent utility investments. Other parties also filed exceptions to the August 2016 RD.   BDT.


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


Inclusion of the January 2016 purchase of the assets underlying three3 leases of capacity, aggregating 64.1 MW, of PVNGS Unit 2 at an initial rate base value of $83.7 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which aggregated $43.8 million when the order was issued
Full recoveryRecovery of theannual rent expense and property taxesexpenses associated with the extended leases for capacity, aggregating 114.6 MW in Palo Verde Units 1 and 2of capacity under the extended leases
Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity purchased in January 2016 and the 114.6 MW of capacity under the extended leases
Recovery of assumed operating and maintenance expense savings of $0.3 million annually related to BDT


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

Disallowance of recoverydisallowance of the full purchase price representing fair market value, of the 64.1 MW of capacity in PVNGS Unit 2, purchased in January 2016
Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM,
Disallowance the cost of recovery ofconverting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to the 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases
Disallowanceleases. NEE, NM AREA, and ABCWUA filed notices of recoverycross-appeal to PNM’s appeal. The issues appealed by the various cross-appellants included, among other things, the NMPRC allowing PNM to recover any of the costs of convertingthe lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and the purchase price for the 64.1 MW in PVNGS Unit 2, the costs incurred under the Four Corners CSA, and the inclusion of the “prepaid pension asset” in rate base.

During the pendency of the appeal, PNM evaluated the consequences of the order in the NM 2015 Rate Case and the related appeals to the NM Supreme Court as required under GAAP. These evaluations indicated that it was reasonably possible that PNM would be successful on the issues it was appealing but would not be provided capital costs recovery until the NMPRC acted on a decision of the NM Supreme Court. PNM also evaluated the accounting consequences of the issues being appealed by the cross-appellants and concluded that the issues raised in the cross-appeals did not have substantial merit. In accordance with GAAP, PNM periodically updated its estimate of the amount of time necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. As a result of those evaluations, through December 31, 2018, PNM recorded accumulated pre-tax impairments of its capital investments subject to the appeal in the amount of $18.4 million, of which $4.0 million was recorded during the year ended December 31, 2018, and $3.1 million was recorded during the year ended December 31, 2017.

On May 16, 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 rejected the matters appealed by the cross-appellants and affirmed the NMPRC’s disallowance of a portion of the purchase price of the 64.1 MW of capacity in PVNGS Unit 2; the undepreciated costs of capital improvements made during the time the 64.1 MW capacity was leased by PNM; and the costs to install BDT at SJGS Units 1 and 4. The NM Supreme Court’s decision also ruled that the NMPRC’s decision to permanently disallow recovery of future decommissioning costs related to the 64.1 MW of PVNGS Unit 2 and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. On July 17, 2019, the NMPRC heard oral argument from parties in the case on how to best proceed with the NM Supreme Court’s remand. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming the NMPRC’s final order with a single modification to address recovery of future PVNGS decommissioning costs in a future case. On January 8, 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand. The NMPRC 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, during the year ended December 31, 2019, PNM recorded pre-tax impairments of $150.6 million, which includes $73.2 million for a portion of the purchase price for 64.1 MW in PVNGS Unit 2, $39.7 million of undepreciated capitalized improvements made during the period the 64.1 MW was being leased by PNM, and $37.7 million for BDT on SJGS Units 1 and 4 to BDTand is reflected as regulatory disallowances and restructuring costs in the Consolidated Statements of Earnings. The impairment was offset by tax impacts of $45.7 million, which are reflected as income taxes on the Consolidated Statements of Earnings.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015


The issues that are being appealed by the various cross-appellants include:

The NMPRC allowing PNM to recover the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2
The NMPRC allowing PNM to recover the costs incurred under the new coal supply contract for Four Corners
The revised method to collect PNM’s fuel and purchased power costs under the FPPAC
The final rate design
The NMPRC allowing PNM to include the “prepaid pension asset” in rate base

NEE subsequently filed a motion for a partial stay of the order at the NM Supreme Court. This motion was denied. The NM Supreme Court stated that the court’s intent was to request that PNM reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits.

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

GAAP requires that a loss is to be recognized when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. When there is a range of the amount of the probable loss, the minimum amount of the range is to be accrued unless an amount within the range is a better estimate than any other amount. As of September 30, 2016, PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the likelihood of being successful on the issues it is appealing in the NM Supreme Court as required under GAAP. The evaluation indicated it is reasonably possible that PNM will be successful on the issues it is appealing. If the NM Supreme Court rules in PNM’s favor on some or all of the issues, those issues would be remanded back to the NMPRC for further action. At that time, PNM estimated that it would take a minimum of 15 months, from the date PNM filed its appeal, for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. During such time, the rates specified in the order would remain in effect. PNM concluded that a range of probable loss resulted from the NMPRC order in the NM 2015 Rate Case; that the minimum amount of loss was 15 months of capital cost recovery that the order disallowed for PNM’s investments in the PVNGS Unit 2 purchases, PVNGS Unit 2 capitalized improvements, and BDT; and that no amount within the range of possible loss was a better estimate than any other amount. Accordingly, PNM recorded a pre-tax regulatory disallowance of $6.8 million at September 30, 2016 for the capital costs that will not be covered during that 15 month appeal period. In addition, PNM recorded a pre-tax regulatory disallowance for $4.5 million of costs recorded as regulatory assets and deferred charges (which the order disallowed and which PNM did not challenge in its appeal) since PNM could no longer assert that those assets were probable of being recovered through the ratemaking process.

The NMPRC’s order approved PNM’s request to record a regulatory asset to recover a 2014 impairment of PNM’s New Mexico net operating loss carryforward resulting from an extension of the income tax provision for fifty percent bonus depreciation. The impact, net of federal income taxes, amounting to $2.1 million was reflected as a reduction of income tax expense on the Consolidated Statement of Earnings.

PNM also evaluated the accounting consequences of the issues that are being appealed by the cross-appellants. PNM does not believe the issues raised in the cross-appeals have substantial merit. Accordingly, PNM does not believe that the likelihood of the cross-appeals being successful is probable and, therefore, no loss was recorded in 2016 related to the issues subject to the cross-appeals.

Since the NM Supreme Court did not issue a decision on the appeals related to the NM 2015 Rate Case by December 31, 2017, which was 15 months from the date of the NMPRC’s order in that case, PNM has reevaluated the accounting consequences of the order in the NM 2015 Rate Case. PNM continues to believe that it is reasonably possible that PNM will be successful on the issues it is appealing and that it is not probable the cross appeals will be successful. However, based on the proceedings to date in the appeal process and other actions by the NM Supreme Court, PNM now estimates that it will take an additional seven months from December 31, 2017 for the NM Supreme Court to issue a decision and any remanded issues to be addressed by the NMPRC. Accordingly, PNM recorded an additional loss of $3.1 million at December 31, 2017, representing an additional disallowance of seven months of capital cost recovery that the order disallowed. Further losses will be recorded if the currently

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December 31, 2017, 2016 and 2015

estimated time frame for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues in extended.

PNM continues to believe that the disallowed investments, which are the subject of PNM’s appeal, were prudent and that PNM is entitled to full recovery of those investments through the ratemaking process. Although PNM believes it is reasonably possible that its appeals will be successful, it cannot predict what decision the NM Supreme Court will reach or what further actions the NMPRC will take on any issues remanded to it by the court. If PNM’s appeal is unsuccessful, PNM would record further pre-tax losses related to the capitalized costs for any unsuccessful issues. The impacts of not recovering future contributions for decommissioning would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The amounts of any such losses to be recorded would depend on the ultimate outcome of the appeal and NMPRC process, as well as the actual amounts reflected on PNM books at the time of the resolution. However, based on the book values recorded by PNM as of December 31, 2017, such losses could include:

The remaining costs to acquire the assets previously leased under three leases aggregating 64.1 MW of PVNGS Unit 2 capacity in excess of the recovery permitted under the NMPRC’s order; the net book value of such excess amount was $75.3 million, after considering the loss recorded in 20162019, 2018 and 2017
The undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity in PVNGS Unit 2 purchased by PNM in January 2016 was being leased by PNM; the net book value of these improvements was $39.1 million, after considering the loss recorded in 2016 and 2017
The remaining costs to convert SJGS Units 1 and 4 to BDT; the net book value of these assets was $49.4 million, after considering the loss recorded in 2016 and 2017

Although PNM does not believe that the likelihood of the cross-appeals being successful is probable, it is unable to predict what decision the NM Supreme Court will reach. If the NM Supreme Court were to overturn all of the issues subject to the cross-appeals and, upon remand, the NMPRC did not provide any cost recovery of those items, PNM would write-off all of the costs to acquire the assets previously leased under three leases, aggregating 64.1 MW of PVNGS Unit 2 capacity, totaling $151.1 million (which amount includes $75.3 million that is the subject of PNM’s appeal discussed above) at December 31, 2017, after considering the loss recorded in 2016 and 2017. The impacts of not recovering costs for the lease extensions, new coal supply contract for Four Corners, and “prepaid pension asset” in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The outcomes of the cross-appeals regarding the FPPAC and rate design should not have a financial impact to PNM.

PNM is unable to predict the outcome of this matter.

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


On December 7, 2016, PNM filed an application with the NMPRC for a general increase in retail electric rates. PNM did not include any of the costs disallowed in the NM 2015 Rate Case that arewere at issue in its then pending appeal to the NM Supreme Court. Key aspects of PNM’s request were:

Anoriginal application used a FTY beginning January 1, 2018 and requested an increase in base non-fuel revenues of $99.2 million
Based based on a FTY beginningROE of 10.125%. The primary drivers of PNM’s revenue deficiency included implementation of modifications to PNM’s resource portfolio, which were approved by the NMPRC in December 2015 as part of the SJGS regional haze compliance plan, infrastructure investments, including environmental upgrades at Four Corners, declines in forecasted energy sales due to successful energy efficiency programs and other economic factors, and updates to FERC/retail jurisdictional allocations.

After extensive settlement negotiations and public proceedings, the NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 1,10, 2018 (the NMPRC’s rules specify that“Revised Order”). The key terms of the Revised Order include:

An increase in base non-fuel revenues totaling $10.3 million, which includes a FTY is a 12 month period beginning upreduction to 13 months afterreflect the filingimpact of athe decrease in the federal corporate income tax rate case application)
ROEand updates to PNM’s cost of 10.125%
Drivers of revenue deficiencydebt (aggregating an estimated $47.6 million annually)
Implementation
A ROE of the modifications in PNM’s resource portfolio, which were previously approved by the NMPRC as part of the SJGS regional haze compliance plan (Note 16)9.575%
Infrastructure investments, including environmental upgrades at Four Corners
Declines in forecasted energy sales due to successful energy efficiency programs and other economic factors
Updates in the FERC/retail jurisdictional allocations
Proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation
Increased customer and demand charges

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

A “lost contribution to fixed cost” mechanism applicable to residential and small commercial customers to address the regulatory disincentive associated with PNM’s energy efficiency programs

The NMPRC scheduled a public hearing to begin on June 5, 2017, ordered that a settlement conference should be held, and that any resulting stipulation should be filed by March 27, 2017. Settlement discussions were held, but no agreements were reached by March 27, 2017, after which the date for filing a stipulation was extended. In early May 2017, PNM and thirteen intervenors (the “Signatories”) entered into a comprehensive stipulation. On May 12, 2017, the Hearing Examiners issued an order rejecting the stipulation in its then current form, but allowed the Signatories to revise the stipulation. On May 23, 2017, the Signatories filed a revised stipulation that addressed the issues raised by the Hearing Examiners in their order. NEE was the sole party opposing the revised stipulation. The terms of the revised stipulation, which required NMPRC approval in order to take effect, included:

A revenue increase totaling $62.3 million, with an initial increase of $32.3 million beginning January 1, 2018 and the remaining increase beginning January 1, 2019
A ROE of 9.575%
Full recovery of PNM’s investment in SCRs at Four Corners with a debt-only return
An agreement not to adjust non-fuel base rate changes to be effective prior to January 1, 2020
An agreement to adjust the January 2019 increase for certain changes in federal corporate tax laws enacted prior to November 1, 2018 and effective and applicable to PNM by January 1, 2019 and to true-up PNM’s cost of debt for refinancing transactions through 2018
Returning to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate (Note 11) to the extent attributable to PNM’s retail operations
PNM would withdraw its proposal for a “lost contribution to fixed cost” mechanism with the issue to be addressed in a future docket
PNM would perform a cost benefit analysis in its 2020 IRP of the impact of a possible early exit from Four Corners in 2024 and 2028

A hearing on the revised stipulation was held in August 2017. On October 31, 2017, the Hearing Examiners issued a Certification of Stipulation recommending a Modified Revised Stipulation. The significant changes to the revised stipulation in the Hearing Examiners’ Modified Revised Stipulation included:

Identifying PNM’s decision to continue its participation in Four Corners as imprudent (Note 18)
Disallowing PNM’s ability to collect a debt oran equity return on its $90.1certain investments aggregating $148.1 million investment in SCRs at Four Corners, and on $58.0 million of projected capital improvements during the period July 1, 2016 through December 31, 2018but allowing recovery with a debt-only return
Recommending a temporary disallowance of $36.8 million of PNM’s projected capital improvements at SJGS through December 31, 2018

On December 20, 2017, the NMPRC issued anOrder Partially Adopting Certification of Stipulation, which approved the Hearing Examiners’ Certification of Stipulation with certain changes. SubstantiveAn agreement to not implement non-fuel base rate changes, from the Certification of Stipulation included requiring the impacts ofother than changes related to the reduction in the federal corporate income taxPNM’s rate be implementedriders, with an effective date prior to January 1, 2018 rather than January 1, 2019 and deferring further consideration regarding2020
A requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners to a future proceeding.

On December 28, 2017 PNM filed a Motion for Rehearing and Request for Oral Argumentasking the NMPRC to vacate their December 20, 2017 order and allow the parties to present oral argument. Additionally, several signatories to the revised stipulation filed a Joint Motion for Partial Rehearing asking that the NMPRC approve the Revised Stipulation without modification. On January 2, 2018, NEE filed a response urging the NMPRC to reject PNM’s Motion.

On January 3, 2018, the NMPRC vacated its December 20, 2017 order and granted the motions for rehearing. The rehearing was held on January 10, 2017.

The NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 10, 2018 (the “Revised Order”). The Revised Order approved the Hearing Examiners’ Certification of Stipulation with certain changes including:


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December 31, 2017, 2016 and 2015

Requiring the impacts of changes related to the reduction in the federal corporate income tax rate and PNM’s cost of debt be implemented in 2018 rather than January 1, 2019
Deferring further consideration regarding the prudency of PNM’s decision to continue its participation in Four Corners to PNM’s next general rate case filing
Disallowing PNM’s ability to collect an equity return on its $90.1 million investment in SCRs at Four Corners and on $58.0 million of projected capital improvements during
In accordance with the period July 1, 2016 through December 31, 2018, but allowed recovery of the total $148.1 million of investments with a debt-only return
Requiring PNM to reduce the requested $62.3 million increase in non-fuel revenue by $9.1 million
Implementation of the first phase of the rate increase for services rendered, rather than bills rendered, on or after February 1, 2018 and of the second for services rendered on or after January 1, 2019

On January 16, 2018, PNM requested clarifying changes to the Revised Order to adjust the $9.1 million reduction to $4.4 million, asserting that $4.7 million of the reduction was duplicative. On January 17, 2018, the NMPRC issued an order approving the adjustment requested by PNM. On January 19, 2018, PNMsettlement agreement and the Signatories filed a Joint Notice of All Signatories of Acceptance of the Order on Notice of Acceptance. On January 31, 2018, the NMPRC issued an order closing the docket in the NM 2016 Rate Case. After implementation of changes to the federal corporate income tax rate and cost of debt, theNMPRC’s final order, results in a net increase to PNM’s non-fuel revenue requirement of $10.3 million. PNM implemented 50% of the approved increase for service rendered on or afterbeginning February 1, 2018 and will implementimplemented the rest of the increase for service rendered on or afterbeginning January 1, 2019.

GAAP requires PNM to recognize a loss to reflect that PNM will not earn an equity return on $148.1 million of investments at Four Corners. As of December 31, 2017, PNM recorded a pre-tax regulatory disallowance of $27.9 million. The amount of the loss was calculated by determining the present value of disallowed cash flows, which equals the difference between the cash flows resulting from recovery of those investments at PNM’s embedded cost of debt and the cash flows with a full return on investment (including an equity component), and discounting the differences at PNM’s WACC.

On February 7, 2018, NEE filed a notice of appeal with the NM Supreme Court asking the court to review the NMPRC’s decisions in the NM 2016 Rate Case. The notice does not set forth the basis of the appeal, which, as required by the court’s rules, is to be filed by March 9, 2018. PNM cannot predict the outcome of this matter.

Proceeding Regarding Definition of Future Test Year

On May 27, 2015, the NMPRC approved an order that defines a FTY as a period that begins no later than 45 days following the filing of an application to increase rates. PNM disagreed with the interpretation adopted by the NMPRC and believes that the correct interpretation of the New Mexico FTY statute allows a FTY to begin up to 13 months after the filing of an application.

On June 25, 2015, PNM filed a notice of appeal to the NM Supreme Court, challenging the NMPRC’s June 3, 2015 written order. On July 31, 2015, PNM and the NMPRC filed a joint motion for a temporary 30-day stay and remand of PNM’s appeal so that the NMPRC could reconsider its FTY order in PNM’s 2014 rate case. The NM Supreme Court remanded this matter back to the NMPRC. On November 30, 2015, the NMPRC modified its previous order to provide for a FTY to begin up to 13 months after the filing of a rate case application. PNM and the NMPRC filed for dismissal of the appeal and the NM Supreme Court dismissed the appeal on February 15, 2016.


Investigation/Rulemaking Concerning NMPRC Ratemaking Policies


On March 22, 2017, the NMPRC issued an order opening an investigation and rulemaking to simplify and increase “the transparency of NMPRC rate cases by reducing the number of issues litigated in rate cases,” and provide a “more level playing field among intervenors and NMPRC staff on the one hand, and the utilities on the other.” The order posed several questions establishing and monitoring utilities’ ROEs, the following questions: whether a standardized method should be established for determining ROE; should the ROE be subject to reward or penalty based on utilities meeting or failing to meet certain metrics, which could include customer complaints, outages, peak demand reductions, and RPS and energy efficiency compliance; whether recoveryrecoverability of utilityregulatory assets, including rate case expenses should be limited to 50% unless the case is settled; whether intervenors should be allowed to recover their expenses if the NMPRC accepts their position;costs, and whether parties should have access to software used by utilities to support their positions; and how regulatory assets should be authorized

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December 31, 2017, 2016 and 2015

and recovered. Initial comments were filed in July 2017 and several public workshops have been held. PNM cannotis not able to predict the potential outcome of this proceeding.matter but does not anticipate the NMPRC will take any further action.


Renewable Portfolio Standard
The
Prior to the enactment of the ETA, the REA establishesestablished a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. PNM files annualAs discussed in Note 16, the ETA was enacted on June 14, 2019. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy procurement plans for approval by the NMPRC.2045. The NMPRC requires renewable energy portfolios to be “fully diversified.” The currentETA also removes diversity requirements which are subjectand certain customer caps and exemptions relating to the limitationapplication of the RCT, are minimums of 30% wind, 20% solar, 3% distributed generation, and 5% other.RPS under the REA.
The REA provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures that utilities recover costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. Currently, theThe ETA sets a RCT is set at 3%of customers’$60 per MWh using an average annual electric charges.levelized resource cost basis. PNM makes renewable procurements consistent with the NMPRC approved plans. PNM recovers certain renewable procurement costs from customers through a rate rider. See Renewable Energy Rider below.
Included in PNM’s approved procurement plans are the following renewable energy resources:
107157 MW of PNM-owned solar PVsolar-PV facilities, including 40 MW constructed in 2015 that were identified as a cost-effective resource in PNM’s application to retire SJGS Units 2 and 3 (Note 16) and are being recovered in the base rates provided in the NM 2015 Rate Case discussed above rather than through PNM’s renewable energy rider; and an additional procurement of 1.550 MW of PNM-owned solar PVsolar-PV facilities to supplyapproved by the energy sold underNMPRC in PNM’s voluntary2018 renewable energy tariffprocurement plan that were placed in commercial operation in 2019

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December 31, 2019, 2018 and 2017

A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of 204 MW, and a PPA through 2035 for the output of Red Mesa Wind, an existing wind generator having an aggregate capacity of 102 MW
A PPA through 2042 for the output of the Lightning Dock Geothermal facility; the geothermal facility began providing power to PNM in January 2014; thewith a current capacity of the facility is 415 MW
Solar distributed generation, aggregating 81.6127.6 MW at December 31, 2017,2019, owned by customers or third parties from whom PNM purchases any net excess output and RECs
Solar and wind RECs as needed to meet the RPS requirements

PNM filed its 2016 renewable energy procurement plan on June 1, 2015. The plan met RPS and diversity requirements within the RCT in 2016 and 2017 using existing resources and did not propose any significant new procurements. The NMPRC approved the plan in November 2015, and, after granting a rehearing motion to consider issues regarding the rate treatment of certain customers eligible for a cap on, or an exemption from, RPS procurement, the NMPRC again approved the plan in an order issued on February 3, 2016. The NMPRC deferred issues related to capped and exempt customers to PNM’s NM 2015 Rate Case and to a new case, which the NMPRC subsequently initiated through issuance of an order to show cause. The NM 2015 Rate Case and show cause proceeding were to examine whether PNM miscalculated the FPPAC factor and base fuel costs in its treatment of renewable energy costs and application of the renewable procurement cost caps and exemptions. The show cause proceeding was stayed pending the outcome of the NM 2015 Rate Case. The September 28, 2016 order in the NM 2015 Rate Case directed that the cost of New Mexico Wind be recovered through PNM’s renewable rider, rather than the FPPAC, and ordered certain other modifications regarding the accounting for renewable energy in PNM’s FPPAC. These modifications do not affect the amount of fuel and purchased power or renewable costs that PNM will collect. No action has been taken in the show cause proceeding and PNM cannot predict its outcome.


PNM filed its 2017 renewable energy procurement plan on June 1, 2016. The plan met RPS and diversity requirements for 2017 and 2018 using existing resources and PNM did not propose any significant new procurements. PNM projected that its plan would slightly exceed the RCT in 2017 and would be within the RCT in 2018. PNM requested a variance from the RCT in 2017 to the extent the NMPRC determined a variance was necessary.2017. A public hearing was held on September 26, 2016. On October 21, 2016, the Hearing Examiner issued a recommended decision recommending that the plan be approved as filed and also found that a variance from the RCT was not required. The NMPRC approved the recommended decision on November 23, 2016.


On June 1, 2017, PNM filed its 2018 renewable energy procurement plan. PNM requested approval to procure an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind; approval to procure an additional 55 GWh in

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December 31, 2017, 2016 and 2015

2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; approval to procure 50 MW of new PNM-owned solar facilities to be constructed beginning in 2018, and continuation of customer REC purchase programs and other purchases of RECs to ensure annual compliance with the RPS. PNM’s proposed procurement cost for 2018 and 2019 will be within the RCT. The plan also sought a variance from the “other” diversity category in 2018 due to a revised production forecast of the Lightning Dock Geothermal facility in 2018. PNM also requested to adjust its annual renewable energy rate rider to collect the costs of renewable resources. A public hearing on the application was held in September 2017. On October 17, 2017, the Hearing Examiner issued a recommended decision that PNM’s 2018 renewable energy procurement plan be approved by the NMPRC, except for the re-powering of Lightning Dock Geothermal and PNM’s request to procure 50 MW of new PNM-owned solar facilities. The Hearing Examiner recommended that the PPA for the output of energy from Lightning Dock Geothermal be terminated effective January 1, 2018. The Hearing Examiner also recommended that PNM be required to issue another all-renewables RFP allowing developers to utilize PNM-owned sites to construct facilities, the output from which facilities would be sold to PNM through PPAs. PNM strongly disagreed with the Hearing Examiner’s recommendations and filed exceptions contesting the Hearing Examiner’s proposals. On November 15, 2017, the NMPRC issued an order approving PNM’s plan and rejecting the Hearing Examiner’s recommendations. On November 29, 2017, NMIECNM AREA filed an appeal with the NM Supreme Court objecting to the fuel allocation methodology. On December 14, 2017,methodology and requested a partial stay of the NMPRC order, which was denied. NEE subsequently filed a motion to intervene and cross-appeal objecting to the approval of the 50 MW of new PNM-owned solar facilities. On July 5, 2019, the NM Supreme Court approved a motion filed by NM AREA to dismiss its appeal. On August 8, 2019, the NM Supreme Court issued an opinion affirming the NMPRC’s approval of PNM’s 2018 renewable energy procurement plan and denying NEE’s cross appeal. This matter is now concluded.

On June 1, 2018, PNM filed its 2019 renewable energy procurement plan. The plan met RPS and diversity requirements for 2019 and 2020 using resources already approved by the NMPRC and did not propose any significant new procurements. PNM projected the plan would be within the RCT in 2019 and will slightly exceed the current RCT in 2020. The NMPRC approved PNM’s 2019 renewable energy procurement plan on November 28, 2018.

On June 3, 2019, PNM filed its 2020 renewable energy procurement plan. The plan requests approval of a 20-year PPA to purchase 140 MW of renewable energy and RECs from the La Joya Wind Facility (“La Joya Wind”), which is expected to be operational by December 18, 2017,31, 2020. PNM intends to utilize the BB2 line to deliver power from the PPA. See additional discussion below under Application for a New 345-kV Transmission Line. PNM’s 2020 renewable energy procurement plan requests a variance from the RPS for 2020 and proposes the shortfall be met with excess RECs that will be available under the La Joya Wind PPA in 2021. PNM also submitted proposed adjustments to the current FPPAC methodology for non-renewable fuel allocations to reflect the ETA’s removal of certain customer cost caps associated with the RPS and requested that the fuel clause year be reset to correspond to the January 1 reset date under the renewable energy rider. On July 17, 2019, PNM filed a motion to intervene, which was granted. NMIEC filed a motion for a partial staycorrected reconciliation of 2019 and estimated 2020 customer bill impacts that demonstrated the effect of removing certain customer caps and exemptions under the requirements of the NMPRC order and PNM filedETA. The Hearing Examiner issued a response opposingrequiring PNM to address why its application should not be dismissed, or alternatively, proposing an extended procedural schedule. PNM’s response proposed the request.application not be dismissed, that a corrected public notice be issued, and that the procedural schedule be extended by 60 days. On February 27, 2018,July 30, 2019, the courtHearing Examiner issued a revised procedural order that extended the statutory review period through January 29, 2020. On September 17, 2019, the Hearing Examiner issued an order denyingrequiring PNM to provide supplemental briefing supporting the motion for stay. A briefing scheduleapplicability of the ETA to PNM’s 2020 renewable energy procurement plan and, in the event the ETA should not apply, support PNM’s position that the NMPRC has not been determined.the authority to approve PNM’s requested variance. PNM cannot predictfiled its brief on September 24, 2019, supporting the outcomeapplicability of this matter.the ETA and the NMPRC’s authority to grant the requested variance. On October 4, 2019, the Hearing Examiner issued an order requiring PNM to provide RPS calculations using rules and regulations existing before the ETA. PNM filed its rebuttal testimony on October 15, 2019, which included the calculations required by the Hearing Examiner. Public hearings were held on October 24 and 25, 2019. On December 2, 2019, the Hearing Examiner issued a recommended decision in the case recommending approval of PNM’s 2020 renewable energy procurement plan including the 140 MW wind PPA and indicating that the recently enacted ETA could be applied to the case even though PNM’s filing was made

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December 31, 2019, 2018 and 2017

prior to the ETA’s effective date. On January 29, 2020, the NMPRC accepted the Hearing Examiners recommended decision and approved PNM’s 2020 renewable energy procurement plan.
Renewable Energy Rider
The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per KWh basis. In PNM’s NM 2015 Rate Case, the NMPRC authorized continuation of the renewable rider. PNM recorded revenues from the rider of $52.0 million, $41.4 million, and $45.2 million $42.0 million,in 2019, 2018, and $41.9 million in 2017, 2016, and 2015.2017. Beginning in 2017, the costscost of energy from New Mexico Wind is being recovered through the renewable rider, rather than through the FPPAC, in compliance with the NMPRC’s order in PNM’s NM 2015 Rate Case. In its 2018 renewable energy procurement plan case, PNM proposed to collect $43.5 million. The 20182019 renewable energy procurement plan became effective on January 1, 2018.2019. In its 2020 renewable energy procurement plan case, which was approved by the NMPRC on January 29, 2020, PNM proposed to collect $58.9 million.
Under the renewable rider, if PNM’s earned rate of return on jurisdictional equity in a calendar year, adjusted for weather and other items not representative of normal operations, exceeds the NMPRC-approved rate by 0.5%, PNM is required to refund the excess to customers during May through December of the following year. PNM’s annual compliance filings with the NMPRC show that its rate of return on jurisdictional equity did not exceed the limitation through 2016. Preliminary calculations indicate PNM did not exceed such limitation in 2017.2018 and does not expect to exceed the limitation in 2019.
Energy Efficiency and Load Management
Program Costs and Incentives/Disincentives


The New Mexico Efficient Use of Energy Act (“EUEA”) requires public utilities to achieve specified levels of energy savings and to obtain NMPRC approval to implement energy efficiency and load management programs. The EUEA requires the NMPRC to remove utility disincentives to implementing energy efficiency and load management programs and to provide incentives for such programs. The NMPRC has adopted a rule to implement this act. The EUEA sets an annual program budget equal to 3% of an electric utility’s annual revenue. PNM’s costs to implement approved programs are recovered through a rate rider. During the 2019 New Mexico legislative session, the EUEA was amended to, among other things, include a decoupling mechanism for disincentives, preclude a reduction to a utility’s ROE based on approval of disincentive or incentive mechanisms, and to establish savings targets for the period 2021 through 2025.

On October 6, 2014, PNM filed an energy efficiency program application for programs proposed to be offered beginning in June 2015. The filing included proposed program costs of $25.8 million plus a proposed profit incentive. The proposed energy efficiency budget and plan are consistent with the 2013 amendments to the EUEA. PNM and the NMPRC staff filed a stipulated settlement on January 30, 2015. After a public hearing, the NMPRC approved the settlement on April 29, 2015. The approval established program budgets and the incentive amounts.


On April 15, 2016, PNM filed an application for energy efficiency and load management programs to be offered in 2017. The proposed program portfolio consisted of ten10 programs with a total budget of $28.0 million. The application also sought approval of an incentive of $2.4 million based on targeted savings of 75 GWh. The actual incentive would be based on actual savings achieved. On January 11, 2017, the NMPRC approved an unopposed stipulation that established a method to ensure that

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December 31, 2017, 2016 and 2015

funding of PNM’s energy efficiency program is equal to 3% of retail revenues, with an estimated 2017 energy efficiency funding level of $26.0 million, and approved a sliding scale profit incentive with a base level of 7.1% of program costs, equal to $1.8 million, if PNM achieves a minimum proscribed level of energy savings, increasing to a maximum of 9.0% depending on actual energy savings achieved above the minimum. PNM’s preliminary estimateOn April 13, 2018, PNM filed its reconciliation of 2017 program costs and incentives, which indicated the incentive earned in 2017 is $2.1 million, which is subject to verification by an independent evaluator.was $2.3 million. The reconciliation filing and related incentive were accepted on May 23, 2018.


On April 14, 2017, PNM filed an application for energy efficiency and load management programs to be offered in 2018. The proposed program portfolio consists of a continuation of the ten programs approved in the 2016 application with a total budget of $25.1 million. The application also sought approval of a sliding scale incentive with a base incentive of $1.9 million if PNM iswas able to achieve savings of 53 GWh in 2018. As proposed, PNM would have earned an incentive of $2.1 million based on targeted savings of 70 GWh. The actual incentive would be based on actual savings achieved. PNM proposed to continue the same ten programs and a similar incentive mechanism in 2019, with a proposed budget of $28.2 million and a base level incentive of $2.1 million. On July 26, 2017, PNM, NMPRC staff, and other parties filed a stipulation that would resolve all issues in the case if approved by the NMPRC. Under the settlement, all of PNM’s proposed programs would be approved with limited modifications and PNM’s base level incentive would be $1.7 million in 2018. PNM wouldand could earn an incentive of up to $1.9 million based on targeted savings of 69 GWh.GWh in 2018. The settlement also established a base level incentive for PNM of $1.8 million with the opportunity to earn up to $2.7 million in 2019 and required PNM to make a filing in 2019 to address incentives to be earned in 2020. A public hearing was held in September 2017. On November 8, 2017, the Hearing Examiner issued a Certification of Stipulation recommendingrecommended approval of the stipulation with various modifications, including adoption of a discount rate equal to the tax-adjusted WACC of 9.59% rather than the 7.71% proposed in the stipulation and modifying the program budgets to $23.6 million for 2018 and $24.9 million for 2019. On January 31, 2018, the NMPRC issued an order that largely acceptsaccepted the certification with certain exceptions concerning the measurement and verification of the approved load management programs.



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December 31, 2019, 2018 and 2017

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

Energy Efficiency Rulemaking


In July 2012, the NMPRC opened an energy efficiency rulemaking docket to potentially address decoupling and incentives. Workshops to develop a proposed rule have been held, but no order proposing a rule has been issued. PNM is unable to predict the outcome of this matter.
On January 25, 2017, the NMPRC opened another energy efficiency rulemaking docket to consider whether applications for approval of energy efficiency and load management programs should be filed every two years rather than annually. On June 21, 2017, the NMPRC issued an order that modifies the filing frequency for utility energy efficiency plans to every three years. Also on
On June 21, 2017, the NMPRC also issued a new notice of proposed rulemaking to consider possible changes affecting a utility’s ability to modify NMPRC approved funding levels by up to 10% between energy efficiency program applications. This rulemaking is in response to consensus changes proposed by parties in the January 25, 2017 rulemaking. On September 13, 2017, the NMPRC approved the proposed rule. Under the new rule, PNM’s next application for energy efficiency and load management programs will be made in 2020 for programs to be offered beginning in 2021. As discussed below, PNM’s next energy efficiency application will include a proposal to implement an AMI pilot project.


Petition for Energy Efficiency Disincentive

PNM’s application in the NM 2016 Rate Case had requested a “lost contribution to fixed cost” mechanism to address the disincentives associated with PNM’s energy efficiency programs. In the revised stipulation to that case, PNM agreed to withdraw its proposal for such a mechanism and to address energy efficiency disincentives in a future docket. On March 2, 2018, PNM filed a petition proposing a “lost contribution to fixed cost mechanism” with substantially the same terms as those proposed in the NM 2016 Rate Case application. As discussed above, the ETA amended the EUEA to, among other things, include a decoupling mechanism for disincentives. On May 6, 2019, PNM submitted a request to the NMPRC to dismiss this matter. PNM will propose a mechanism to address disincentives in a future general rate case filing. The NMPRC approved PNM’s request to dismiss the matter on June 12, 2019, concluding this matter.

FPPAC Continuation Application
NMPRC rules require public utilities to file an application to continue using their FPPAC every four years. On April 23, 2018, PNM filed the required continuation application and requested that its FPPAC be continued without modification. On June 20, 2018, the NMPRC approved PNM’s continuation application.

Integrated Resource Plans
NMPRC rules require that investor owned utilities file an IRP every three years. The IRP is required to cover a 20-year20-year planning period and contain an action plan covering the first four years of that period.
2014 IRP
PNM filed its 2014 IRP on July 1, 2014. The four-year action plan was consistent with the replacement resources identified in PNM’s application to retire SJGS Units 2 and 3. PNM indicated that it planned to meet its anticipated long-term resource needs with a combination of additional renewable energy resources, energy efficiency, and natural gas-fired facilities. Consistent with statute and NMPRC rule, PNM incorporated a public advisory process into the development of its 2014 IRP. On July 31, 2014, several parties requested the NMPRC to not accept the 2014 IRP as compliant with NMPRC rulerules because to do so could affect the then pending proceeding on PNM’s application to abandon SJGS Units 2 and 3 and for CCNs for certain replacement resources (Note 16) and because they asserted that the 2014 IRP did not conform to the NMPRC’s IRP rule. Certain parties also asked that further proceedings on the 2014 IRP be held in abeyance until the conclusion of the SJGS abandonment/CCN proceeding. The NMPRC issued an order in August 2014 that docketed a case to determine whether the 2014 IRP complied with applicable NMPRC rules. The order also held the case in abeyance pending the issuance of final, non-appealable orders in PNM’s 2015 renewable energy procurement plan case and its application to retire SJGS Units 2 and 3. The order regarding PNM’s application to abandon SJGS Units 2 and 3 described in Note 16 states that the NMPRC will issue a Notice of Proposed Dismissal in the 2014 IRP docket.

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December 31, 2017, 2016 and 2015

On May 4, 2016, the NMPRC issued thea Notice of Proposed Dismissal, stating that the docket would be closed with prejudice within thirty days unless good cause was shown why the docket should remain open. On May 31, 2016, NEE filed a request to hold the protests filed against PNM’s 2014 IRP in abeyance or to dismiss those protests without prejudice. PNM responded on June 13, 2016 and requested that the NMPRC dismiss the case with prejudice. The NMPRC has not yet acted on its Notice of Proposed Dismissal or the request filed on May 31, 2016. PNM cannotis not able to predict the potential outcome of this matter.matter but does not anticipate the NMPRC will take any further action.

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December 31, 2019, 2018 and 2017

2017 IRP
PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP addresses athe 20-year planning period, from 2017 through 2036 and includes an action plan describing PNM’s plan to implement the 2017 IRP in the four-year period following its filing. PNM held its initial public advisory meeting on the 2017 IRP on June 30, 2016 and hosted 17 meetings statewide to present details of the process and receive public comment. The NMPRC’s order concerning SJGS’ compliance with the BART requirements of the CAA discussed in Note 16 requires PNM to make a filing in 2018 to determine the extent to which SJGS Units 1 and 4 should continue serving PNM’s retail customers’ needs after June 30, 2022. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP include:

Retiringincluded, among other things, that retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreementsexisting ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers
PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also save customers money
The and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could includecapacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available
Significant increases in future wind energy supplies will likely require new transmission capacity to be built from eastern New Mexico to PNM’s service territory
available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. See additional discussion of PNM’s leased capacity in PVNGS which would avoid replacement with carbon-emitting generationbelow and in Note 8.
PNM should continue to develop and implement energy efficiency and demand management programs
PNM should assess the costs and benefits of participating in the California Energy Imbalance Market
PNM should analyze its current Reeves Generating Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage


Protests to the 2017 IRP were filed by several parties. The issues addressed in the protests included the future of PNM’s interests in SJGS, Four Corners, and PVNGS and the timing of future procurement of renewable resources. The NMPRC has assigned the case to a Hearing Examiner. On January 16,December 19, 2018, after public hearings and consideration of the Hearing ExaminerExaminer’s recommendations, the NMPRC issued ana final order setting the scope of the proceedingsaccepting PNM’s 2017 IRP as the 2017 IRP’s compliancecompliant with applicable statute and NMPRC rules. On January 18, 2019, the Board of the County of Commissioners for San Juan County, New Mexico, the City of Farmington, New Mexico, and other parties filed a Notice of Appeal with the NM Supreme Court regarding the NMPRC’s final order in PNM’s 2017 IRP. On January 18, 2019, NEE submitted a motion requesting the NMPRC reconsider its acceptance of PNM’s 2017 IRP and alleging informational inadequacy and deficiencies in PNM’s filing, which was deemed denied. On February 19, 2019, NEE filed a motion with the NM Supreme Court to intervene in the appeal and to seek remand of the matter to the NMPRC. On March 11, 2019, PNM filed its response with the NM Supreme Court stating that the NMPRC has already considered and, by operation of law, denied NEE’s motion for reconsideration. On May 10, 2019, the appellants, excluding NEE, filed a motion with the NM Supreme Court to dismiss their appeal, which was supported by PNM. On May 31, 2019, the NM Supreme Court denied NEE’s request to remand the proceeding to the NMPRC and ordered NEE to respond to the motion to dismiss the appeal. On June 4, 2019, NEE responded that it did not oppose the appellants’ request to dismiss their appeal. On July 26, 2019, the NM Supreme Court granted the parties’ motions to dismiss the appeal. On September 19, 2019, NEE filed a second motion requesting the NMPRC reconsider its acceptance of PNM’s 2017 IRP, which was deemed denied. This matter is requirednow concluded.

As discussed below, on July 1, 2019, PNM submitted its SJGS Abandonment Application with the NMPRC requesting approval to provide certain underlying informationretire SJGS in 2022, for replacement resources, and clarify how costs, transmission constraints, energy storage,for issuance of securitized financing under the ETA. Many of the assumptions and public inputfindings included in PNM’s July 1, 2019 filing were consideredconsistent with those identified in developingPNM’s 2017 IRP. The SJGS Abandonment Application and the 2017 IRP. A pre-hearing conference was held on January 26, 2018 and hearingsIRP are scheduled to begin on June 4, 2018.

The 2017 IRP is not a final determinationdeterminations of PNM’s future generation portfolio. Retiring PNM’s share of SJGS capacity and exiting Four Corners would requirePNM will also be required to obtain NMPRC approval of abandonment filings,an exit from Four Corners, which PNM would makewill seek at an appropriate timestime in the future. Likewise, NMPRC approval of new generation resources through CCNCCNs, PPAs, or other applicable filings wouldwill be required.

2020 IRP

In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. NMPRC rules require PNM to file its 2020 IRP in July 2020. PNM will continue to seek input from interested parties as a part of this process. PNM cannot predict the ultimate outcome of these matters.
SJGS Abandonment Application

On July 1, 2019, PNM filed a Consolidated Application for the 2017 IRP process or whetherAbandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment Application”). The SJGS Abandonment Application seeks NMPRC will approve subsequent filingsapproval 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 proposes several replacement resource scenarios including PNM’s recommended replacement scenario, which would provide cost savings to customers compared to continued operation of SJGS, preserves system reliability, and is consistent with PNM’s plan to have an emissions-free generation portfolio by 2040. This plan would provide PNM authority to construct and own a 280 MW natural gas-fired peaking plant, to be located on the existing SJGS facility site, and 70 MW of battery storage facilities. In addition, PNM’s recommended replacement resource scenario would allow PNM to execute PPAs to procure renewable energy from a total of 350 MW of solar-PV generating facilities and for energy from a total of 60 MW of battery storage facilities. PNM’s application included 3 other replacement resource scenarios that would encompass actions to implementplace a greater amount of resources in the conclusions of the 2017 IRP.
San Juan Generating Station Units 2 and 3 Retirementarea, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. When compared to PNM’s recommended replacement resource scenario, the three alternative resource
On December 16, 2015, the NMPRC issued an order approving PNM’s retirement of SJGS Units 2 and 3 on December 31, 2017. On January 14, 2016, NEE filed an appeal of the order with the NM Supreme Court. SJGS Units 2 and 3 were retired in December 2017. Additional information concerning the NMPRC filing and related proceedings is set forth in Note 16.


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December 31, 2017, 20162019, 2018 and 20152017


scenarios are expected to result in increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities are expected to provide lower system reliability. The SJGS Abandonment Application includes a request to issue approximately $361 million of energy transition bonds (the “Securitized Bonds”). PNM’s request for Certificatethe issuance of ConvenienceSecuritized Bonds includes approximately $283 million of forecasted undepreciated investments in SJGS at June 30, 2020, an estimated $28.6 million for plant decommissioning and Necessitycoal mine reclamation costs, approximately $9.6 million in upfront financing costs, and approximately $20.0 million for job training and severance costs for affected employees. Proceeds from the Securitization Bonds would also be used to fund approximately $19.8 million for economic development in the four corners area.


The NM Supreme Court granted a request by PNM to stay a January 30, 2019 NMPRC order requiring PNM to file an abandonment application for SJGS by March 1, 2019. On June 26, 2019, and after the effective date of the ETA, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. See Note 16. 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. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings will be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. On July 22, 2019, Western Resource Advocates filed a motion for clarification, reconsideration, and request for oral argument with the NMPRC. The motion requested the NMPRC clarify whether it intends to evaluate the abandonment and financing proceeding under the requirements of the ETA and, in the event the abandonment and financing proceeding will not be evaluated under the ETA, to reconsider its decision and provide parties an opportunity to present oral argument on the matter. The NMPRC chair responded on July 24, 2019, indicating that the Hearing Examiners assigned to the proceeding would address the issue of law applicable to the approvals sought by PNM in the scheduling orders. On July 25, 2019, the Hearing Examiners issued procedural orders that set public hearings on SJGS abandonment and related financing to begin on December 10, 2019, on PNM’s proposed PPA replacement resources to begin on December 2, 2019, and on PNM-owned replacement resources to begin on March 2, 2020.  These procedural orders were subsequently amended to allow public hearings for both the PPA and PNM-owned replacement resources to begin in January 2020. The procedural orders also required PNM to file legal brief by August 23, 2019 regarding the extent to which the state constitution might prevent the ETA from applying to the issues in each proceeding, that parties file responses to PNM’s legal briefs by October 18, 2019, and that parties may file testimony on the merits of their claims regarding the SJGS abandonment and replacement resources if the ETA is ultimately determined to not apply to PNM’s application. On July 29, 2019, Western Resource Advocates filed a motion for interlocutory appeal of the July 24, 2019 order indicating that the procedural order would not provide parties adequate time to determine the applicability of the ETA and requesting an expedited decision from the NMPRC stating their intent to review the proceedings under the requirements of the ETA or under prior law. On August 21, 2019, the NMPRC denied the motion for interlocutory appeal. On August 23, 2019, PNM filed legal briefing in support of the applicability of the ETA to all aspects of the consolidated application. On October 18, 2019, various parties filed legal briefings with a range of positions that support or oppose the applicability of the ETA, as well as testimony regarding the SJGS abandonment and financing proceedings. Hearings on the abandonment and securitized financing proceedings were held in December 2019 and hearings on replacement resources were held in January 2020.

On August 26, 2019, NEE and other advocacy groups filed an emergency petition for a writ of mandamus requesting the NM Supreme Court stay the SJGS abandonment and financing proceedings, declare the ETA inapplicable to such proceedings and declare certain provisions of the ETA unconstitutional because they limit the regulatory oversight responsibilities of the NMPRC. The petition was dismissed for failure to comply with the appellate rules and an amended petition was filed on September 18, 2019. On August 30, 2019, PNM and other parties filed a petition for a writ of mandamus requesting the NM Supreme Court clarify that the reason underlying its June 2019 decision denying the stay was due to the passage of the ETA and to clarify that the ETA applies to any application filed after the stay had been lifted. In early October 2019, the NM Supreme Court denied both PNM’s and NEE’s petitions for writ of mandamus without discussion.

On December 9, 2019, the Governor of the State of New Mexico, the President of the Navajo Nation, and several New Mexico state senators and representatives filed an emergency petition for a writ of mandamus requesting the NM Supreme Court require the NMPRC to comply with its constitutional duties and apply the ETA to every aspect of PNM’s SJGS Abandonment Application. The petition indicated the NMPRC’s January 2019 order to initiate SJGS abandonment proceedings was intended to create a pending case predating the effectiveness of the ETA, that irreversible harm to the state of New Mexico and the Navajo Nation has resulted from the NMPRC’s refusal to establish the applicability of the ETA, and that the NMPRC’s refusal to review the SJGS abandonment and financing proceedings under the ETA violates the authority of the legislature and the separation of powers doctrine. On December 16, 2019, the NM Supreme Court issued an order requiring responses by January 3, 2020. PNM and other parties filed in support of the petition and NEE submitted a filing indicating the petition should be denied. On January 3, 2020, the NMPRC filed its response stating that, among other things, the NMPRC’s order initiating SJGS abandonment proceedings was made pursuant to the NMPRC’s December 2015 order authorizing the abandonment of SJGS Units 2 and 3 by

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December 31, 2019, 2018 and 2017

December 2017, which predates the ETA and required PNM to submit a filing regarding the future of SJGS by December 31, 2018, and that the NMPRC has an obligation to provide parties in the case due process regarding the applicability of the ETA to PNM’s application. In January 2020, the NM Supreme Court denied NEE’s and other parties petitions, granted PNM’s motion to intervene, and scheduled oral arguments to be presented by the NMPRC and PNM. On January 29, 2020, and after oral argument, the NM Supreme Court issued a ruling requiring the NMPRC apply the ETA to all aspects of PNM’s SJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with their ruling should be vacated, and denying parties’ request for stay.

On February 21, 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 that PNM be authorized to abandon SJGS by June 30, 2015,2022, and to record regulatory assets for certain other abandonment costs that are not specifically addressed under the provisions of the ETA. These additional costs would be subject to review in a future proceeding.  The Hearing Examiners also recommended PNM be authorized to issue Securitized Bonds of up to $361 million and establish a rate rider to collect non-bypassable customer charges for repayment of the bonds and be subject to bi-annual adjustments (the “Energy Transition Charge”). The Hearing Examiners recommended an interim rate rider adjustment upon the start date of the Energy Transition Charge to provide immediate credits to customers for the full value of PNM’s revenue requirement related to SJGS until those reductions are reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that 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 costs.  Exceptions to the recommended decisions are due March 4, 2020 and responses to exceptions are due March 6, 2020.  The Hearing Examiners also found that the statutory deadline for action by the Commission is April 1, 2020. 

The financial impact of an early retirement of SJGS and the NMPRC approval process are influenced by many factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment on the area surrounding the plant and the related mine, as well as the overall political and economic conditions of New Mexico. PNM cannot predict the outcome of this matter.

Joint Petition to Investigate PNM’s Option to Purchase Assets Underlying Certain Leases in PVNGS

On April 22, 2019, NEE and other parties, which consist primarily of environmental not-for-profit organizations, filed a joint petition for expedited investigation with the NMPRC. The joint petition requested the NMPRC open an investigation regarding PNM’s option to purchase the assets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. Various parties filed to participate in the request. On May 8, 2019, the NMPRC issued an order requiring a response from both PNM and NMPRC staff. PNM filed responses indicating, among other things, that the joint petition should be denied, and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. On September 16, 2019, NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding. On September 30, 2019, PNM filed its response in opposition stating that PNM had previously refuted NEE’s arguments and that there is no need for a hearing examiner to be assigned to this matter. On January 3, 2020, PNM filed notice with the NMPRC of 60-day waivers of the deadline to provide notice to purchase or return the assets underlying the PVNGS Unit 1 leases. The deadline for PNM to provide irrevocable notice of its intent to purchase or return these interests is now March 16, 2020. On January 8, 2020, the NMPRC issued an order denying the petition for investigation. PNM has committed to provide the NMPRC with timely updates on any decisions related to these interests and will file any necessary requests for approval associated with its decision. This matter is now completed.

Cost Recovery Related to Joining the EIM

The California Independent System Operator (“CAISO”) developed the Western Energy Imbalance Market (“EIM”) as a real-time wholesale energy trading market that enables participating electric utilities to buy and sell energy. The EIM aggregates the variability of electricity generation and load for multiple balancing authority areas and utility jurisdictions. In addition, the EIM facilitates greater integration of renewable resources through the aggregation of flexible resources by capturing diversity benefits from the expanded geographic footprint and the expanded potential uses for those resources.

In 2018, PNM completed a cost-benefit analysis of participating in the EIM. PNM’s analysis indicated participation in the EIM would provide substantial benefits to retail customers. On August 22, 2018, PNM filed an application with the NMPRC requesting, among other things, to recover an estimated $20.9 million of initial capital investments and authorization to establish a regulatory asset to recover an estimated $7.4 million of other expenses that would be incurred in order to join the EIM. PNM’s application proposed the regulatory asset be adjusted to provide for a CCN for a 187 MW gas plant to be located at SJGS. This resource was identified as a replacement resourcefull recovery of such costs, including carrying charges, until the effective date of new rates in PNM’s next general rate case. PNM’s application also proposed the benefits of participating

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

in the EIM be credited to retire SJGS Units 2retail customers through PNM’s existing FPPAC and 3.that PNM would seek recovery of its costs in a future proceeding. On December 19, 2018, the NMPRC issued an order approving the establishment of a regulatory asset to recover PNM’s cost of joining the EIM, which was subsequently challenged by several parties. On February 12, 2016, PNM filed a motion to withdraw its application. On May 18, 2016,6, 2019, the NMPRC issued an order granting PNM’s request to withdrawrehearing and vacating the application and closing the case.
December 19, 2018 order. On April 26, 2016, PNM filed an application for an 80 MW gas plant to be located at SJGS, with an anticipated June 2018 in-service date. On October 13, 2016, PNM filed a motion to vacate the procedural schedule to allow PNM to assess the continued need for the plant in light of possible changed circumstances affecting loads and resources. On October 28, 2016, PNM filed a motion to withdraw its application and close the docket. As grounds for the motion, PNM stated that, based on its updated peak demand forecast, the 80 MW plant would not be needed in 2018. On December 1, 2016,March 18, 2019, the Hearing Examiner issued aan updated recommended decision recommending approval of the establishment of a regulatory asset but deferring certain rate making issues, including but not limited to issues related to implementation and ongoing EIM costs and savings, the prudence and reasonableness of costs to be included in the regulatory asset, and the period over which costs would be charged to customers until PNM’s next general rate case filing, which was approved by the NMPRC. PNM and other parties filed a joint motion requesting the NMPRC clarify that would grant PNM’s motionthe quarterly benefits reports prepared by CAISO be used to withdraw its application.determine the benefits of participating in the EIM, as well as to support the prudence of costs incurred to join the EIM. On MayApril 24, 2017,2019, the NMPRC issued itsan order approving the recommended decision and granting the joint motion to withdrawfor clarification and indicating the application.CAISO quarterly benefits reports may be used in a future rate case. PNM anticipates it will continue to evaluate its resource needs as part of its ongoing resource planning activities.begin participating in the EIM in April 2021.


Advanced Metering Infrastructure Application


On February 26, 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”). The application asksasked the NMPRC to authorize the recovery of the cost of the project, up to $87.2 million, which was subsequently adjusted to $95.1 million, and includes the costs of customer education, severances for affected employees, and other costs, in future ratemaking proceedings, as well as to approve the recovery of the remaining undepreciated investment in existing metering equipment estimated to be approximately $33 million at the date of implementationimplementation. After extensive public hearings and discovery, on March 19, 2018, the costs of customer educationHearing Examiner issued a recommended decision finding that PNM had not proven a net public benefit in the case and severances for affected employees. Hearings in this matter were held in February and March 2017. Duringrecommending the March 2017 hearing, it was disclosedNMPRC not approve the application. On April 2, 2018, PNM filed a statement on exceptions to the recommended decision indicating, among other things, that PNM disagreed with the finding that the proposed meter contractor mayrecord did not have complied with certain New Mexico contractor licensing requirements.demonstrate a net public benefit to customers, but that PNM subsequentlywould not take exception to a recommendation to not approve the application. No other parties filed testimony regarding that matter as orderedexceptions to the recommended decision by the Hearing Examiner.required deadline. On May 12, 2017, PNM requested a new procedural schedule to allow it to issue a new RFP for contracting work related to the meter installation and to update its cost-benefit analysis. PNM subsequently updated the amount of the requested recovery for the anticipated cost of the project to $95.1 million. An additional hearing was held on October 25-26, 2017. PNM does not intend to proceed with the AMI project unlessApril 11, 2018, the NMPRC approvesadopted an order accepting the entirerecommended decision and disapproving PNM’s application. PNM cannot predict the outcome of this matter.The order indicated that PNM’s 2021 energy efficiency plan application, to be filed in 2020, should include a proposal for an AMI pilot project.


Facebook, Inc. Data Center Project


On July 8,August 17, 2016, PNM filed an application with the NMPRC approved a PNM application in connection with services to be provided to Facebook, Inc. for approval of:a data center being constructed in PNM’s service area. The application included:


TwoNaN new electric service rates
A PPA under which PNM would purchase renewable energy from an affiliate of PNMR Development
A special service contract to provide electric service to a prospective new customer, a large Internet company, that was considering locating a data center in PNM’s service area
The NMPRC approved PNM’s application on August 17, 2016. At that time, the new customer was also considering the state of Utah for the location of the data center. On September 15, 2016, PNM filed a notice informing the NMPRC that the customer, Facebook, Inc., had announced that it was selecting a site in New Mexico for its new data center.
Facebook’s service requirements include the acquisition by PNM of a sufficient amount of new renewable energy resources and RECs to match the energy and capacity requirements of the data center. PNM’s initial procurement was to be through a PPA with PNMR Development for the energy production from 30 MW of new solar capacity that PNMR Development was constructing. As discussed in Note 1, PNMR Development transferred its interests in the solar capacity and the PPA to NMRD in December 2017. The cost of the PPArenewable energy procured is to be passed through to Facebook under a new rate rider. A new special service rate will beis applied to Facebook’s energy consumption in those hours of the month when their consumption exceeds the energy production from the new renewable resources. The first 10As of December 31, 2019, PNM is procuring energy from 80 MW of solarsolar-PV capacity began commercial operation on January 1, 2018, which coincides with initial operationsfrom NMRD, a 50% equity method investee of the data center, and the remainderPNMR Development. See additional discussion of the capacity is anticipated to be completed by mid-2018.NMRD in Note 1.

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

The approval order included a provision requiring that in any future rate case filed by PNM requesting an increase in rates of any other customer class, the NMPRC shall determine whether or not any customer class will be subject to increased rates due to Facebook’s fixed “Contribution to Production Charge for System Supplied Energy” and, if so, the NMPRC shall determine whether or not PNM will be allowed to recover such increased costs in the form of increased rates to other customers. In the NM 2016 Rate Case filing discussed above, PNM indicated the Facebook arrangement did not result in increased rates to any other customer class.


In late 2017, PNM enteredobtained NMPRC approval to enter into three separateadditional 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable powerenergy to Facebook. These PPAs are subject to NMPRC approval and PNM made a filing requesting approval on January 17, 2018. A NMPRC hearing on PNM’s filing is scheduled for March 7, 2018.the data center. These PPAs include the purchase of the power and RECs from:


Casa Mesa Wind, LLC, a subsidiary of NextEra Energy Resources, LLC.,LLC, which is expected to be located near House, New Mexico, havehas a total capacity of 50 MW, and bebecame operational on December 31,in November 2018
A 166 MW potionportion of the La Joya Wind Project,Facility, owned by Avangrid Renewables, LLC, which is expected to be located near Estancia, New Mexico and be operational in November 2020
Route 66 Solar Energy Center, LLC, a subsidiary of NextEra Energy Resources, LLC.,LLC, which is expected to be located west of Albuquerque, New Mexico, have a total capacity of 50 MW, and be operational in December 2021
NaN PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from 2 solar-PV facilities to be owned and operated by NMRD. The first 50 MW of these facilities began commercial operation in December 2019 and the remaining capacity is expected to begin commercial operation in June 2020.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

The 2 PPAs aggregating approximately 100 MW of capacity were subject to FERC approval, which was granted on August 1, 2019.

PNM Solar Direct
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 proposes to recover costs of the program directly from subscribing customers through a rate rider. If approved by the NMPRC, PNM would procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. PNM had fully subscribed the entire output of the 50 MW facilities at the time of the filing. Hearings on the application concluded on January 9, 2020. On February 14, 2020, PNM and several other parties filed a joint proposed recommended decision addressing the Hearing Examiner’s questions in the filing and recommending the NMPRC approve PNM’s application. PNM cannot predict the outcome of this matter.

Application for a New 345-kV Transmission Line

On August 10, 2018, PNM filed an application seeking NMPRC approval of a CCN to construct and operate a 345-kV transmission line and associated facilities (the “BB2 Line”), and to determine the rate making treatment to apply to the BB2 line and related rights-of-way. In the application, PNM states that the BB2 line would run adjacent to one of PNM’s existing transmission lines and is necessary to serve additional renewable generating resources to be located in eastern New Mexico. PNM’s use of the BB2 line would benefit all customers and would include delivery of approximately 166 MW of renewable energy and RECs under a PPA, which had previously been approved by the NMPRC, from La Joya Wind and 140 MW from La Joya Wind that PNM included in PNM’s 2020 renewable energy procurement plan. PNM’s application requested that the NMPRC apply standard ratemaking treatment to the estimated $85 million cost of the project resulting in a jurisdictional allocation of costs to all of PNM’s transmission and retail customers. NMPRC staff supported PNM’s proposed ratemaking treatment of the BB2 project and indicated that the capacity and energy of the La Joya Wind PPA and related network upgrades to PNM’s transmission system would benefit all of PNM’s customers. On March 11, 2019, the Hearing Examiner assigned to the application issued a recommended decision recommending approval of the CCN and related rights-of-way but recommending the NMPRC deny PNM’s request to allocate a portion of cost of the BB2 Line to retail customers. The Hearing Examiner’s recommendation indicated the costs not recovered from retail customers be directly reimbursed to PNM by Facebook, Inc. As a result, Facebook, Inc. would be responsible for approximately 46%, or $39.0 million, of the estimated cost of the project. On March 20, 2019, PNM filed exceptions to the recommended decision and requested oral argument. In its filing, PNM refuted the proposed finding that the BB2 Line is not part of PNM’s overall transmission system, opposed the recommendation that approximately 46% of the estimated cost of the project be directly assigned to Facebook, Inc. and presented legal arguments in support of PNM’s originally proposed ratemaking treatment. On April 16, 2019, the NMPRC issued an order approving the Hearing Examiner’s recommended decision, including the requirement that PNM be directly reimbursed by Facebook, Inc. In late April 2019, PNM and other parties submitted filings with the NMPRC requesting rehearing and seeking reconsideration of the NMPRC’s decision to deny standard ratemaking treatment of the cost of the BB2 Line and associated facilities, which were denied. On May 21, 2019, PNM filed a motion requesting the NMPRC reopen the proceeding to admit new evidence of the benefits of the BB2 Line to retail customers and to modify the final order. On June 12, 2019, the NMPRC issued an updated final order but denied PNM’s motion to reopen the proceedings. The updated final order grants the CCN but defers rate making treatment to a future rate case. This matter is now concluded.

Western Spirit Line

On May 1, 2019, PNM, the New Mexico Renewable Energy Transmission Authority (“RETA”), a New Mexico state authority, and Western Spirit Transmission LLC (“Western Spirit”), an affiliate of Pattern Energy Group, Inc., entered into agreements for the construction of a transmission line to transmit power generated from wind facilities to be owned by Pattern Wind New Mexico, LLC (“Pattern Wind”), an affiliate of Western Spirit and Pattern Development. As a part of the arrangement, the parties executed a Build Transfer Agreement that would allow PNM to purchase the approximately 165-mile 345-kV transmission line and associated facilities (the “Western Spirit Line”). The Western Spirit Line will be developed and constructed by RETA and Western Spirit LLC and sold to PNM upon its commercial operation date. The Build Transfer Agreement contains a number of customary representations and warranties and indemnification provisions as well as closing conditions, including regulatory and third-party approvals, and if necessary, anti-trust review under the Hart-Scott-Rodino Act. The Build Transfer Agreement also includes termination provisions that can be exercised under certain circumstances, including failure of the developer to achieve project milestones or to achieve commercial operation by specified dates, and failure of an affiliate of Pattern Wind to provide adequate credit support prior to closing. PNM estimates the net cost of the project to be approximately $285 million, including an estimated $75 million that Pattern Wind has chosen to self-fund under the agreement.


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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

On May 10, 2019, PNM filed an application with the NMPRC requesting that the NMPRC determine that it is not unlawful or inconsistent with the public interest for PNM to purchase the Western Spirit Line and requesting the NMPRC rule by November 6, 2019. Hearings were held on August 13, 2019. On September 11, 2019, the Hearing Examiner assigned to the application issued a recommended decision that would allow PNM to purchase the Western Spirit Line, and indicating that PNM’s proposal satisfies the NMPRC’s acquisition standards and that no CCN is required until such time that PNM seeks recovery for costs associated with the line from retail rate payers. On October 2, 2019, the NMPRC approved the recommended decision with limited modifications.

PNM also has entered into Transmission Service Agreements and other ancillary agreements (“TSAs”) with Pattern Wind for firm transmission service. The TSAs use an incremental rate based on the construction and other ongoing costs of the Western Spirit Line, including adjustments for construction costs that Pattern Wind has chosen to self-fund under the agreement. FERC approved PNM’s TSAs with Pattern Wind effective July 9, 2019. On August 8, 2019, FERC approved PNM’s request to purchase the Western Spirit Line.
Hazard Sharing Agreements
On June 1, 2016, PNM and Tri-State entered into a one-year hazard sharing agreement, which expired on May 31, 2017.  PNM and Tri-State entered into an additional agreement, under substantially identical terms, for a term of five years beginning June 1, 2017, subject to NMPRC approval. NMPRC approvalwhich was not required forapproved by the one-year agreement, but was required for the five-year agreement. On May 10, 2017, the NMPRC issued an order approving the five-year agreement.NMPRC.
Under these agreements, each party sells the other party 100 MW of capacity and energy from each party’s designated primary resource, which is SJGS Unit 4 for PNM and Springerville Generating Station Unit 3 for Tri-State, on a unit contingent basis subject to certain performance guarantees.  The agreements reduce the magnitude of each party’s single largest generating hazard and assist in enhancing the reliability and efficiency of their respective operations. Both purchases and sales are made at the same market index price. PNM passes the sales and purchases through to customers under PNM’s FPPAC. 
Information about PNM’s purchases and sales is as follows:
 Sales Purchases
 GWh Amount GWh Amount
   (In millions)   (In millions)
        
Year Ended December 31, 2019766.4
 $21.7
 693.6
 $21.8
Year Ended December 31, 2018725.7
 25.8
 822.7
 28.7
Year Ended December 31, 2017827.1
 23.6
 849.0
 24.2
 Sales Purchases
 GWh Amount GWh Amount
   (In millions)   (In millions)
        
Year ended December 31, 2017827.1
 $23.6
 849.0
 $24.2
Year ended December 31, 2016482.3
 12.8
 484.6
 12.9

Formula Transmission Rate CaseRates
PNM filed an application with FERC for authorization to move from charging stated rates forcharges wholesale electric transmission service tocustomers using a formula rate mechanism pursuant to which rates for wholesale transmission service rates are calculated annually in accordance with an approved formula. The formula reflects a ROE of 10% and 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 large transmission capital projects to be placed into service in the following year. The projections included are subject to true-up in the following year formula rate. 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.

TNMP

TNMP 2018 Rate Case

On March 20, 2015, PNM alongMay 30, 2018, TNMP filed a general rate proceeding with five other parties entered into a settlement agreement, which was filed at FERC. The settlement reflectsthe PUCT (the “TNMP 2018 Rate Case”) requesting an annual increase to base rates of $25.9 million based on a ROE of 10%10.5%, a cost of debt of 7.2%, and results in an annualized increasea capital structure comprised of $1.3 million above50% debt and 50% equity. TNMP’s application included a request to establish new rate riders to recover Hurricane Harvey restoration, rate case, and additional vegetation management costs. The application also included the rates approved in the previous rate case. On March 25, 2015, the ALJ issued an order authorizing the interim implementationintegration of settled rates beginning on April 1, 2015, subject to refund. In May 2015, the settlement judge recommended that FERC approve the settlement. On March 17, 2016, FERC approved the settlement. PNM made the refunds requiredrevenues previously recorded under the settlementAMS rider and collection of other unrecovered AMS investments into base rates. In 2018, TNMP recorded revenues of $20.2 million under the AMS rider. The TNMP 2018 Rate Case application also proposed to return the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and to reduce the federal corporate income tax rate to 21%. As discussed in May 2016.Note 18, at December 31, 2017, TNMP recorded a regulatory liability of $146.5 million to reflect the change in federal corporate income tax rates that will be refunded to customers in future periods. The TNMP 2018


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


Firm-Requirements Wholesale Customers
Navopache Electric Cooperative, Inc.
PNM hadRate Case application proposed to refund $14.4 million of this regulatory liability over a PPA with NEC, previously PNM’s largest firm-requirements wholesale customer, that had an expiration dateperiod of five years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2035. 2017.

On April 8, 2015, NECNovember 2, 2018, TNMP and other parties to the case filed a petition for a declaratory order requesting that FERC find that NEC could purchase an unlimited amount of power and energy from third party supplier(s) under its PSA with PNM. Following proceedings before a settlement judge, PNM and NEC entered into, and filed with FERC, aunopposed settlement agreement that was approved by the PUCT on October 29, 2015 that includes certain amendmentsDecember 20, 2018. The PUCT’s final order results in a $10.0 million annual increase to base rates. The key elements of the PSAapproved settlement include a ROE of 9.65%, a cost of debt of 6.44%, and related contracts on file with FERC. FERC approved the settlement on January 21, 2016. Undera capital structure comprised of 55% debt and 45% equity. As stated by the settlement agreement, PNM served all of NEC’s load through December 31, 2015 at ratesthe PUCT’s final order excludes certain items from rate base that were substantially consistent with those provided underrequested in TNMP’s original filing, including approximately $10.6 million of transmission investments that TNMP included in its January 2019 transmission cost of service filing, which was approved by the PSA.PUCT in March 2019. In 2016, PNM served alladdition, the PUCT’s final order requires TNMP to refund approximately $37.8 million of NEC’s loadthe regulatory liability recorded at reduced demand and energy rates from those under the PSA. Beginning January 1, 2016, NEC also paid certain third-party transmission costs that it only partially paid previously. The PSA and related transmission agreements terminated on December 31, 2016. In 2017, PNM served 10 MW of NEC’s load under a short term coordination tariff at a rate lower than provided under the PSA. Amounts billed to NEC were $4.5 million, $20.0 million, and $27.1 million in the years ended December 31, 2017 2016,related to federal tax reform to customers over a period of five years and 2015. PNM’s NM 2016the remaining amount over the estimated useful lives of plant in service as of December 31, 2017; approves TNMP’s request to integrate revenues historically recorded under TNMP’s AMS rider, as well as other unrecovered AMS investments, into base rates; approves TNMP’s request for new depreciation rates; and approves a new rider to recover Hurricane Harvey restoration costs, net of amounts to be refunded to customers resulting from the reduction in the federal income tax rate in 2018. See Notes 13 and 18. The new rider is being charged to customers over a period of approximately three years beginning on the effective date of new base rates. New rates under the TNMP 2018 Rate Case discussed above reflects a reallocation of costs among regulatory jurisdictions reflecting the termination of the contract to serve NEC.were effective beginning on January 1, 2019.
TNMP
Advanced Meter System Deployment
In July 2011, the PUCT approved a settlement and authorized an AMS deployment plan that permits TNMP to collect $113.4$113.4 million in deployment costs through a surcharge over a 12-year12-year period. TNMP began collecting the surcharge on August 11, 2011. Deployment of advanced meters began in September 2011. TNMP completed its mass deployment in 2016 and has installed more than 242,000 advanced meters.
The PUCT adoptedTNMP 2018 Rate Case and associated approved settlement discussed above included a rule creating a non-standard metering service for retail customers choosing to decline standard metering service via an advanced meter. The cost of providing non-standard metering service is to be borne by opt-out customers through an initial fee and ongoing monthly charge. As approved by the PUCT, TNMP is recovering $0.2 million in costs through initial fees ranging from $63.97 to $168.61 and ongoing annual expenses of $0.5 million through a $36.78 monthly fee. These amounts presume up to 1,081 consumers will elect the non-standard meter service, but TNMP has the right to adjust the fees if the number of anticipated consumers differs from that estimate. As of February 20, 2018, 99 consumers have made the election. TNMP does not expect the implementation of non-standard metering service to have a material impact on its financial position, results of operations, or cash flows.
On October 2, 2015, TNMP filed a reconciliation of the costs and savings of its AMS deployment program with the PUCT. Those costs include $71.0 million in capital costs and $18.0 million in operation and maintenance expenses. However, since the deployment was not complete and the total program costs to date were $1.5 million below the original approved forecasts, TNMP did not request a change to its monthly surcharge amount. The PUCT approved TNMP’s reconciliation without adjustment on March 25, 2016. In connection with TNMP’s deployment of AMS, TNMP committed to file a general rate case no later than September 1, 2018. TNMP will include a final reconciliation of AMS costs in the 2018 filing.and integrate TNMP’s AMS recovery into base rates beginning on January 1, 2019.
Energy Efficiency
TNMP recovers the costs of its energy efficiency programs through an energy efficiency cost recovery factor (“EECRF”), which includes projected program costs, under or over collected costs from prior years, rate case expenses, and performance bonuses (if the programs exceed mandated savings goals).
The following sets forth TNMP’s approved EECRF increases:
Effective Date Aggregate Collection Amount Performance Bonus
  (In millions)
March 1, 2017 $6.0
 $0.8
March 1, 2018 6.0
 1.1
March 1, 2019 5.6
 0.8

Effective Date Aggregate Collection Amount Performance Bonus
  (In millions)
March 1, 2015 $5.7
 $1.5
March 1, 2016 6.0
 0.7
March 1, 2017 6.0
 0.8
March 1, 2018 6.0
 1.1


On May 30, 2019, TNMP filed its request to adjust the EECRF to reflect changes in costs for 2020. On August 30, 2019, a unanimous settlement stipulation was filed with the PUCT that would allow TNMP to recover its requested $5.9 million of program costs in 2020, which includes a performance bonus of $0.8 million based on TNMP’s energy efficiency achievements in the 2018 plan year. The PUCT approved the settlement on December 13, 2019.

Recovery of TNMP Rate Case Costs

Recovery of the cost of TNMP’s rate case was moved into separate proceedings to begin after the conclusion of TNMP 2018 Rate Case. TNMP sought recovery of costs incurred through August 2019 in the amount of $3.8 million and proposed these costs be collected from customers over a three-year period. In October 2019, TNMP and other parties to the proceedings filed an unopposed settlement stipulation that reduced TNMP’s cost recovery to $3.3 million and provide for recovery over a period not to exceed two-years beginning on March 1, 2020. On January 16, 2020, the PUCT approved the settlement. As a result of the PUCT’s order, TNMP recorded a pre-tax write-off of $0.5 million as of December 31, 2019, which is reflected as regulatory disallowances on TNMP’s Consolidated Statements of Earnings.

Transmission Cost of Service Rates

TNMP can update its transmission cost of service (“TCOS”) rates twice per year to reflect changes in its invested capital

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December 31, 2017, 20162019, 2018 and 20152017


Transmission Cost of Service Rates
TNMP can update its transmission rates twice per year to reflect changes in its invested capital although updates are not allowed while a general rate case is in progress.process. Updated rates reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities. The following sets forth TNMP’s recent interim transmission cost rate increases:
Effective Date Approved Increase in Rate Base Annual Increase in Revenue
  (In millions)
March 14, 2017 $30.2
 $4.8
September 13, 2017 27.5
 4.7
March 27, 2018 32.0
 0.6
March 21, 2019 111.8
 14.3
September 19, 2019 21.9
 3.3

Effective Date Approved Increase in Rate Base Annual Increase in Revenue
  (In millions)
March 16, 2015 $27.1
 $4.4
September 10, 2015 7.0
 1.4
March 23, 2016 25.8
 4.3
September 8, 2016 9.5
 1.8
March 14, 2017 30.2
 4.8
September 13, 2017 27.5
 4.7


On January 30, 2018,February 6, 2020, TNMP filed an application to further update its transmission rates, which would increase revenues by $0.6$7.8 million annually, based on an increase in rate base of $3.2$59.2 million. The application is pending before the PUCT.

On March 23, 2017, the PUCT staff filed proposed amendments to the interim transmission cost of service filing rule. If approved, the amendments could reduce the frequency of such filings to once per year. The amendments could also reduce the amount recovered by requiring that changes in accumulated deferred income taxes be considered and would preclude filings by utilities earning more than their authorized rate of return using weather-normalized data. On February 15, 2018, the PUCT announced at an open meeting that they would not proceed with the proposed amendments.
Periodic Distribution Rate Adjustment
PUCT rules permit interim rate adjustments to reflect changes in investments in distribution assets. Distribution utilities may file for a periodic rate adjustment between April 1 and April 8 of each year as long as the electric utility is not earning more than its authorized rate of return using weather-normalized data. However, TNMP has not made a filing to adjust rates for additional investments in distribution assets. In connection with TNMP’s deployment of its advanced meter system discussed above, TNMP committedassets but plans to filesubmit a generaldistribution rate case no later than September 1, 2018. TNMP has also committed that it would not file a request for an increaseadjustment filing in rates to reflect changes in investments in distribution assets until after the 2018 general rate case.April 2020.


Competition Transition Charge Compliance Filing


In connection with the adoption of legislationSenate Bill 7 by the Texas Legislature in 1999 that deregulated electric utilities operating within ERCOT, TNMP was allowed to recover its stranded costs through the CTC and to also recover a carrying charge on the CTC. The amounts yet to be collected are recorded as regulatory assets by TNMP. Further, the order authorizing TNMP'sTNMP’s CTC included a true-up provision requiring an adjustment to the CTC due to a cumulative over- or under-collection of revenues, including interest, greater-than or equal to 15% of the most recent annual CTC funding amount. On March 13, 2017, TNMP made a filing to true-up the CTC. The requested adjustment reduces the collection of the amortization by $1.1 million annually. On April 3, 2017, the PUCT staff filed its recommendation to approve the requested adjustment. The change was approved on April 5, 2017 and went into effect on June 1, 2017. TNMP estimates the CTC will be fully recovered in 2020.


Order Related to Changes in Federal Income Tax Rates


On January 25, 2018, the PUCT issued an accounting order that addresses the change in the federal corporate income tax rates on investor-owned utilities in the Statestate of Texas. The order requiresrequired investor-owned utilities to record a regulatory liability equal to the reduction in accumulated federal deferred income tax balances at the end of 2017 due to the change in the federal corporate income tax rate. In addition, the order requiresrequired that a regulatory liability be recorded to reflect the difference between revenues collected under existing rates and those that would have been collected had those rates been set reflecting federal income tax reform beginning on the date of the order. The order provides that these regulatory liabilities will be considered byIn compliance with the PUCT order, during the year ended December 31, 2018, TNMP reduced revenues by $5.4 million, which amount was offset against TNMP’s Hurricane Harvey restoration costs and is being refunded to customers as a component of a new rate rider over a period of approximately three years beginning on January 1, 2019.
(18)Income Taxes

Federal Income Tax Reform

On December 22, 2017, comprehensive changes in each utility’s nextU.S. federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made many significant modifications to the tax laws, including reducing the federal corporate income tax rate proceeding, whichfrom 35% to 21% effective January 1, 2018. The Tax Act also eliminated federal bonus depreciation for TNMP is anticipatedutilities, limited interest deductibility for non-utility businesses and limited the deductibility of officer compensation. During 2019, the IRS issued proposed regulations related to be filedcertain 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 May 2018. TNMP is evaluatingservice subsequent to the order and what actions it will take, as are other investor-owned utilities operating in Texas.third quarter of 2017.


B - 119110

Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017


(18)
Although most of the provisions of the Tax Act were not effective until 2018, GAAP required that some effects be recognized in 2017. Under the asset and liability method of accounting for income taxes used by the Company, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. At the date of enactment of the Tax Act, the Company had net deferred tax liabilities for its regulated activities and net deferred tax assets for non-regulated activities. As a result of the change in the federal income tax rate, the Company re-measured and adjusted its deferred tax assets and liabilities as of December 31, 2017. The portion of that adjustment not related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax assets and an increase in income tax expense. The portion related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax liabilities and an increase in regulatory liabilities.

Beginning February 2018, PNM’s NM 2016 Rate Case reflects the reduction in the federal corporate income tax rate, including amortization of excess deferred federal and state income taxes. In accordance with the order in that case, PNM is returning the protected portion of excess deferred federal income taxes to customers over the average remaining life of plant in service as of December 31, 2017, the unprotected portion of excess deferred federal income taxes to customers over a period of approximately twenty-three years, and excess deferred state income taxes to customers over a period of three years. The approved settlement in the TNMP 2018 Rate Case includes a reduction in customer rates to reflect the impacts of the Tax Act beginning on January 1, 2019. See additional discussion of PNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case in Note 17.

The adjustments to deferred income taxes recorded as increases in regulatory liabilities and income tax expense as a result of the enactment of the Tax Act at December 31, 2017 are presented below:
  PNM TNMP Corporate and Other Consolidated
  (In thousands)
Net increase in regulatory liabilities $402,501
 $146,451
 $
 $548,952
Net decrease in deferred income tax liabilities (deferred income tax assets) 372,895
 138,586
 (19,990) 491,491
Net deferred income tax expense $29,606
 $7,865
 $19,990
 $57,461


GAAP requires that the impacts of adjusting existing deferred tax assets and liabilities for a change in an income tax rate be recognized in income tax expense during the period of enactment, including impacts that are reflected in AOCI. This resulted in the tax effects of items within AOCI not reflecting the appropriate tax rate and being stranded in AOCI. In February 2018, the FASB issued Accounting Standards Update 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income to address this issue by allowing entities to reclassify the income tax effects of the Tax Act on items within AOCI to retained earnings. The Company records in AOCI, net of income taxes, unamortized gains and losses related to PNM’s defined benefit pension plans to the extent not attributed to regulated operations, unrealized gains on PNM’s available-for-sale debt securities, and unrealized gains and losses on cash flow hedges related to PNMR’s interest rate swaps. When amounts are reclassified from AOCI to the Consolidated Statement of Earnings, the Company recognizes the related income tax expense (benefit) at the tax rate in effect at that time. As permitted by ASU 2018-02, as of December 31, 2017, the Company reclassified the stranded federal income tax effects of the Tax Act on items recorded in AOCI, resulting in a net increase in retained earnings of $17.6 million. See Note 3.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided guidance to address the application of GAAP to reflect the Tax Act in circumstances where all information and analysis was not yet available or complete. This bulletin provided for a one-year period in which to complete the required analyses and accounting for the impacts of the Tax Act. In accordance with SAB 118, the Company completed its analysis of the impacts of the Tax Act in 2018.

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

The adjustments to deferred income taxes resulting from completion of the Company’s analysis, which resulted primarily from differences between the estimated amounts recorded as of December 31, 2017 and the actual amounts reflected in the Company’s 2017 tax return filing, including adjustments resulting from additional guidance and interpretations to the Tax Act issued in 2018 related to bonus depreciation, certain incentive compensation, and other items are presented below:
  PNM TNMP Corporate and Other Consolidated
  (In thousands)
Net increase (decrease) in regulatory liabilities $11,244
 $(4,069) $
 $7,175
Net decrease in deferred income tax liabilities (deferred income tax assets) (2,175) (9,784) 13,869
 1,910
Net increase in affiliate receivables
(affiliate payables)
 12,300
 4,042
 (16,342) 
Net deferred income tax expense $1,119
 $1,673
 $2,473
 $5,265


As discussed in Note 17, the NM Supreme Court issued a decision in May 2019 on the appeal of the NM 2015 Rate Case resulting in pre-tax impairments of $150.6 million in the year ending December 31, 2019. The impairments were recognized as discrete items within regulatory disallowances and restructuring costs resulting in tax benefits of $45.7 million, which is reflected in income taxes on the Company’s Consolidated Statements of Earnings for the year ended December 31, 2019.

PNMR
PNMR’s income taxes (benefits) consist of the following components:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Current federal income tax$60
 $
 $
Current state income tax43
 (244) (188)
Deferred federal income tax(20,372) 7,716
 119,182
Deferred state income tax(4,491) 648
 11,632
Amortization of accumulated investment tax credits(522) (345) (286)
Total income taxes (benefits)$(25,282) $7,775
 $130,340


PNMR’s provision for income taxes (benefits) differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Federal income tax at statutory rates$14,038
 $22,902
 $79,016
Amortization of accumulated investment tax credits(522) (345) (286)
Amortization of excess deferred income tax (Note 17)(37,799) (19,779) 
Flow-through of depreciation items1,136
 712
 1,147
Earnings attributable to non-controlling interest in Valencia(2,991) (3,173) (5,256)
State income tax, net of federal benefit298
 1,358
 5,398
Impairment of state net operating loss carryforwards
 
 819
Allowance for equity funds used during construction(1,990) (2,185) (3,331)
Impairment of charitable contribution carryforward
 
 909
Regulatory recovery of prior year impairments of state net operating loss carryforward, including amortization1,367
 1,367
 (2,225)
Federal income tax rate change
 2,914
 57,461
Tax expense (benefit) related to stock compensation awards(795) 4,647
 (2,324)
Other1,976
 (643) (988)
Total income taxes (benefits)$(25,282) $7,775
 $130,340

Effective tax rate(37.82)% 7.13% 57.73%

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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

The components of PNMR’s net accumulated deferred income tax liability were:
 December 31,
 2019 2018
 (In thousands)
Deferred tax assets:   
Net operating loss$59,488
 $82,386
Regulatory liabilities related to income taxes145,087
 158,416
Federal tax credit carryforwards101,231
 76,481
Shutdown of SJGS Units 2 and 3
 1,638
Regulatory disallowance related to NM 2015 Rate Case (Note 17)34,639
 
Other54,199
 97,515
Total deferred tax assets394,644
 416,436
Deferred tax liabilities:   
Depreciation and plant related(787,928) (767,482)
Investment tax credit(81,186) (57,853)
Regulatory assets related to income taxes(58,495) (62,889)
CTC(1,466) (3,613)
Pension(35,029) (35,407)
Regulatory asset for shutdown of SJGS Units 2 and 3(28,831) (30,425)
Other(27,767) (59,486)
Total deferred tax liabilities(1,020,702) (1,017,155)
Net accumulated deferred income tax liabilities$(626,058) $(600,719)


The following table reconciles the change in PNMR’s net accumulated deferred income tax liability to the deferred income tax (benefit) included in the Consolidated Statement of Earnings:
 Year Ended
 December 31, 2019
 (In thousands)
Net change in deferred income tax liability per above table$25,339
Change in tax effects of income tax related regulatory assets and liabilities(10,332)
Amortization of excess deferred income tax(37,799)
Tax effect of mark-to-market adjustments(2,261)
Tax effect of excess pension liability(908)
Adjustment for uncertain income tax positions499
Reclassification of unrecognized tax benefits(499)
Amortization of state net operating loss recovered in prior years1,367
Refundable alternative minimum tax credit carryforward reclassified to receivable(576)
Other(215)
Deferred income taxes (benefits)$(25,385)

PNM
PNM’s income taxes (benefit) consist of the following components:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Current federal income tax$(6,266) $(6,644) $118
Current state income tax449
 (2,661) (1,112)
Deferred federal income tax(12,308) 5,661
 73,308
Deferred state income tax(7,590) (2,080) 9,527
Amortization of accumulated investment tax credits(247) (247) (286)
Total income taxes (benefit)$(25,962) $(5,971) $81,555



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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

PNM’s provision for income taxes (benefit) differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Federal income tax at statutory rates$6,187
 $13,514
 $59,139
Amortization of accumulated investment tax credits(247) (247) (286)
Amortization of excess deferred income tax (Note 17)(28,923) (19,779) 
Flow-through of depreciation items1,077
 674
 1,103
Earnings attributable to non-controlling interest in Valencia(2,991) (3,173) (5,256)
State income tax, net of federal benefit92
 1,323
 4,926
Impairment of state net operating loss carryforwards
 
 627
Allowance for equity funds used during construction(1,398) (1,716) (3,032)
Regulatory recovery of prior year impairment of state net operating loss carryforward, net of amortization1,367
 1,367
 (2,225)
Federal income tax rate change
 (683) 29,606
Allocation of tax expense (benefit) related to stock compensation awards(559) 3,967
 (1,708)
Other(567) (1,218) (1,339)
Total income taxes (benefit)$(25,962) $(5,971) $81,555

Effective tax rate(88.13)% (9.28)% 48.27%

The components of PNM’s net accumulated deferred income tax liability were:
 December 31,
 2019 2018
 (In thousands)
Deferred tax assets:   
Net operating loss$25,889
 $50,762
Regulatory liabilities related to income taxes114,849
 125,395
Federal tax credit carryforwards82,983
 62,230
Shutdown of SJGS Units 2 and 3
 1,638
Regulatory disallowance34,639
 
Other38,735
 36,916
Total deferred tax assets297,095
 276,941
Deferred tax liabilities:   
Depreciation and plant related(630,293) (606,673)
Investment tax credit(74,667) (55,484)
Regulatory assets related to income taxes(49,479) (53,561)
Pension(30,609) (31,046)
Regulatory asset for shutdown of SJGS Units 2 and 3(28,831) (30,425)
Other(5,206) (2,519)
Total deferred tax liabilities(819,085) (779,708)
Net accumulated deferred income tax liabilities$(521,990) $(502,767)



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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

The following table reconciles the change in PNM’s net accumulated deferred income tax liability to the deferred income tax (benefit) included in the Consolidated Statement of Earnings:
 Year Ended
 December 31, 2019
 (In thousands)
Net change in deferred income tax liability per above table$19,223
Change in tax effects of income tax related regulatory assets and liabilities(7,861)
Amortization of excess deferred income tax(28,923)
Tax effect of mark-to-market adjustments(2,962)
Tax effect of excess pension liability(908)
Adjustment for uncertain income tax positions488
Reclassification of unrecognized tax benefits(488)
Amortization of state net operating loss recovered in prior years1,367
Other(81)
Deferred income taxes (benefits)$(20,145)

TNMP
TNMP’s income taxes consist of the following components:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Current federal income tax$10,792
 $13,347
 $2,472
Current state income tax1,904
 1,753
 1,765
Deferred federal income tax(7,621) (540) 27,304
Deferred state income tax(29) 2,320
 (29)
Total income taxes$5,046
 $16,880
 $31,512

TNMP’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the periods shown. The differences are attributable to the following factors:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Federal income tax at statutory rates$12,778
 $14,379
 $23,475
Amortization of excess deferred income tax(8,876) 
 
State income tax, net of federal benefit1,532
 1,454
 1,198
Federal income tax rate change
 
 7,865
Allocation of tax expense (benefit) related to stock compensation awards(236) 735
 (616)
Other(152) 312
 (410)
Total income taxes$5,046
 $16,880
 $31,512

Effective tax rate8.29% 24.65% 46.98%


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

The components of TNMP’s net accumulated deferred income tax liability at December 31, were:
 December 31,
 2019 2018
 (In thousands)
Deferred tax assets:   
Regulatory liabilities related to income taxes$30,238
 $33,021
Other3,788
 4,517
Total deferred tax assets34,026
 37,538
Deferred tax liabilities:   
Depreciation and plant related(142,791) (136,117)
CTC(1,466) (3,613)
Regulatory assets related to income taxes(9,016) (9,328)
Loss on reacquired debt(6,345) (6,617)
Pension(4,420) (4,361)
AMS(8,473) (10,030)
Other(1,666) (3,710)
Total deferred tax liabilities(174,177) (173,776)
Net accumulated deferred income tax liabilities$(140,151) $(136,238)


The following table reconciles the change in TNMP’s net accumulated deferred income tax liability to the deferred income tax (benefit) included in the Consolidated Statement of Earnings:
 Year Ended
 December 31, 2019
 (In thousands)
Net change in deferred income tax liability per above table$3,913
Change in tax effects of income tax related regulatory assets and liabilities(2,471)
Amortization of excess deferred income tax(8,876)
Other(216)
Deferred income taxes (benefits)$(7,650)

Other Disclosures

GAAP requires that the Company recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. A reconciliation of unrecognized tax benefits is as follows:
 PNMR PNM TNMP
 (In thousands)
Balance at December 31, 2016$6,752
 $3,949
 $
Additions based on tax positions related to 2017262
 262
 
Additions (reductions) for tax positions of prior years2,415
 2,352
 63
Settlement payments
 
 
Balance at December 31, 20179,429
 6,563
 63
Additions based on tax positions related to 2018543
 543
 
Additions (reductions) for tax positions of prior years222
 182
 40
Settlement payments
 
 
Balance at December 31, 201810,194
 7,288
 103
Additions based on tax positions related to 2019329
 329
 
Additions (reductions) for tax positions of prior years170
 159
 11
Settlement payments
 
 
Balance at December 31, 2019$10,693
 $7,776
 $114



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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

Included in the balance of unrecognized tax benefits at December 31, 2019 are $10.1 million, $7.2 million, and $0.1 million that, if recognized, would affect the effective tax rate for PNMR, PNM, and TNMP. The Company does not anticipate that any unrecognized tax expenses or unrecognized tax benefits will be reduced or settled in 2020.

PNMR, PNM, and TNMP had 0 estimated interest income or expense for the years ended December 31, 2019, 2018, and 2017. There was no accumulated accrued interest receivable or payable related to income taxes as of December 31, 2019 and 2018.

The Company files a federal consolidated and several consolidated and separate state income tax returns. The tax years prior to 2015 are closed to examination by either federal or state taxing authorities other than Arizona. The tax years prior to 2014 are closed to examination by Arizona taxing authorities. Other tax years are open to examination by federal and state taxing authorities and net operating loss carryforwards are open to examination for the years in which the carryforwards are utilized. At December 31, 2019, the Company has $286.6 million of federal net operating loss carryforwards that expire beginning in 2030 and $101.2 million of federal tax credit carryforwards that expire beginning in 2023. State net operating losses expire beginning in 2035 and vary from federal due to differences between state and federal tax law.

In 2013, New Mexico House Bill 641 reduced the New Mexico corporate income tax rate from 7.6% to 5.9%. The rate reduction was being phased-in from 2014 to 2018. In accordance with GAAP, PNMR and PNM adjusted accumulated deferred income taxes to reflect the tax rate at which the balances are expected to reverse during the period that includes the date of enactment, which was in the year ended December 31, 2013. At that time, the portion of the adjustment related to PNM’s regulated activities was recorded as a reduction in deferred tax liabilities and an increase in a regulatory liability, based on the assumption that PNM would be required to return the benefit to customers over time. PNM’s NM 2016 Rate Case (Note 17) reflects the benefit of the lower New Mexico corporate income tax rate being returned to customers over a three-year period beginning February 1, 2018. In addition, the portion of the adjustment that was not related to PNM’s regulated activities was recorded as a reduction in deferred tax assets and an increase in income tax expense. Changes in the estimated timing of reversals of deferred tax assets and liabilities resulted in refinements of the impacts of this change in tax rates being recorded through December 31, 2017, at which time the impacts of the rate reduction were fully phased-in. Adjustments to deferred income taxes recorded as increases (decreases) in the regulatory liability and income tax expense were as follows:
 PNMR PNM TNMP
 (In thousands)
December 31, 2017:     
Regulatory liability$(10,109) $(10,109) $
Income tax expense$(1,259) $(1,179) $


In 2008, fifty percent bonus tax depreciation was enacted as a temporary two-year stimulus measure as part of the Economic Stimulus Act of 2008. Bonus tax depreciation in various forms has been continuously extended since that time, including by the Protecting Americans from Tax Hikes Act of 2015. The 2015 act extended and phased-out bonus tax depreciation through 2019. As discussed above the Tax Act eliminated bonus depreciation for utilities effective September 28, 2017. However, in 2018 the IRS issued proposed regulations interpreting Tax Act amendments to depreciation provisions of the IRC which allowed the Company to claim a bonus depreciation deduction on certain construction projects placed in service after the third quarter of 2017. As a result of the net operating loss carryforwards for income tax purposes created by bonus depreciation, certain tax carryforwards were not expected to be utilized before their expiration. In addition, as a result of Tax Act changes to the deductibility of officer compensation, certain deferred tax benefits related to compensation are not expected to be realized. In accordance with GAAP, the Company has impaired the deferred tax assets for tax carryforwards which are not expected to be utilized and for compensation that is not expected to be deductible.


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Table of Contents
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

The impairments after reflecting the expiration of carryforwards under applicable tax laws, net of federal tax benefit, for 2017 through 2019 are as follows:
 PNMR PNM TNMP
 (In thousands)
December 31, 2019:     
State tax credit carryforwards$425
 $
 $
State net operating loss carryforwards$
 $
 $
Charitable contribution carryforwards$
 $
 $
Compensation expense$(99)
$(100) $2
December 31, 2018:     
State tax credit carryforwards$
 $
 $
State net operating loss carryforwards$
 $
 $
Charitable contribution carryforwards$
 $
 $
Compensation expense$410
 $298
 $111
December 31, 2017:     
State tax credit carryforwards$
 $
 $
State net operating loss carryforwards$819
 $627
 $
Charitable contribution carryforwards$909
 $
 $


The impairments of unexpired state tax credits, state net operating loss, and charitable contribution carryforwards are reflected as a valuation allowance against deferred tax assets. The reserve balances, after reflecting expiration of carryforwards under applicable tax laws, at December 31, 2019 and 2018 are as follows:
 PNMR PNM TNMP
 (In thousands)
December 31, 2019:     
State tax credit carryforwards$425
 $
 $
State net operating loss carryforwards$
 $
 $
Charitable contribution carryforwards$
 $
 $
Compensation expense$311
 $198
 $113
December 31, 2018:     
State tax credit carryforwards$
 $
 $
State net operating loss carryforwards$
 $
 $
Charitable contribution carryforwards$
 $
 $
Compensation expense$410
 $298
 $111


(19) Goodwill

The excess purchase price over the fair value of the assets acquired and the liabilities assumed by PNMR for its 2005 acquisition of TNP was recorded as goodwill and was pushed down to the businesses acquired. In 2007, the TNMP assets that were included in its New Mexico operations, including goodwill, were transferred to PNM. PNMR’s reporting units that currently have goodwill are PNM and TNMP.

GAAP requires the Company to evaluate its goodwill for impairment annually at the reporting unit level or more frequently if circumstances indicate that the goodwill may be impaired. Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit.

GAAP provides that in certain circumstances an entity may perform a qualitative analysis to conclude that the goodwill of a reporting unit is not impaired. Under a qualitative assessment an entity considers macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events affecting a reporting unit, as well as whether a sustained decrease (both absolute and relative to its peers) in share price has occurred. An entity considers the extent to which each of the adverse events and circumstances identified could affect the comparison of a reporting unit’s fair value with its carrying amount. An entity places more weight on the events and circumstances that most affect a reporting unit’s fair value or the carrying amount of its net assets. An entity also considers positive and mitigating events and circumstances that

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

may affect its determination of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity evaluates, on the basis of the weight of evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative analysis is not required if, after assessing the totality of events orand circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount.

In other circumstances, an entity may perform a quantitative analysis to reach the conclusion regarding impairment with respect to a reporting unit. An entity may choose to perform a quantitative analysis without performing a qualitative analysis and may perform a qualitative analysis for certain reporting units, but a quantitative analysis for others. The first step of the quantitative impairment test requires an entity to compare the fair value of the reporting unit with its carrying value, including goodwill. If as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, GAAP currently requires the entity to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise would require the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. As further discussed under New Accounting Pronouncements in Note 1, a new accounting pronouncement changes how goodwill impairment is determined by eliminating the second step of the quantitative impairment analysis.


PNMR periodically updates its quantitative analysis for both PNM and TNMP. The use of a quantitative approach in a given period is not necessarily an indication that a potential impairment has been identified under a qualitative approach.

When PNMR performs a quantitative analysis for PNM or TNMP, a discounted cash flow methodology is primarily used to estimate the fair value of the reporting unit. This analysis requires significant judgments, including estimations of future cash flows, which is dependent on internal forecasts, estimations of long-term growth rates for the business, and determination of appropriate weighted average cost of capital for the reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment.

When PNMR performs a qualitative or quantitative analysis for PNM or TNMP, PNMR considers market and macroeconomic factors including changes in growth rates, changes in the WACC, and changes in discount rates. The Company also evaluates its stock price relative to historical performance, industry peers, and to major market indices, including an evaluation of the Company’s market capitalization relative to the carrying value of its reporting units.

For both the PNM and TNMP reporting units, PNMR utilized qualitative analyses for theits annual evaluations performed as of April 1, 2017 and quantitative2019, PNMR performed qualitative analyses for both the evaluationsPNM and TNMP reporting units. The qualitative analysis was performed asby considering changes in the Company’s expectations of future financial performance since the April 1, 2016. 2018 quantitative analysis performed for PNM, as well as the quantitative analysis performed for TNMP at April 1, 2016 and the qualitative analyses through April 1, 2018. This analysis considered Company specific events such as the potential impacts of legal and regulatory matters discussed in Note 16 and Note 17, including potential outcomes in PNM’s SJGS Abandonment Application, the impacts of the NM Supreme Court’s decision in the appeal of the NM 2015 Rate Case, and other potential impacts of changes in PNM’s resource needs based on PNM’s 2017 IRP. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2019 carrying values of PNM or TNMP exceeded their fair values.

For the annual evaluations performed as of April 1, 2015,2018, PNMR utilized a quantitative analysis for the PNM reporting unit and a qualitative analysis for the TNMP reporting unit. The April 1, 2018 quantitative evaluations indicated the fair value of the PNM reporting unit, which has goodwill of $51.6 million, exceeded its carrying value by approximately 19%. The 2018 qualitative analysis for the TNMP reporting unit was performed by considering changes in expectations of future financial performance since the April 1, 2016 quantitative analysis that indicated the fair value of the TNMP reporting unit, which has goodwill of $226.7 million, exceeded its carrying value by approximately 32%. The 2018 analysis considered events specific to TNMP such as the potential impacts of legal and regulatory matters discussed in Note 16 and Note 17, including potential adverse outcomes in the then pending TNMP 2018 Rate Case. Based on an evaluation of these and other factors, the Company determined it is not more likely than not that the April 1, 2018 carrying values of PNM or TNMP exceed their fair values.


For the April 1, 2017 evaluation for both the PNM and TNMP reporting units, the qualitative analyses were performed by considering changes in the Company’s expectations of future financial performance since the April 1, 2016 quantitative analyses. These analyses considered Company specific events such as the potential impacts of legal and regulatory matters discussed in

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017

Note 16 and Note 17, including the estimated impacts of the proposed revised stipulation in the PNM NM 2016 Rate Case, the impacts of potential outcomes of the matters appealed to the NM Supreme Court under the NM 2015 Rate Case, and the impacts of changes in PNM’s resource needs based on PNM’s 2017 IRP. These evaluations also considered changes in TNMP’s regulatory environment such as the PUCT’s then proposed amendments to the interim transmission cost of service filing rule, as well as potential outcomes associated with TNMP’s general rate case filing, which the Company anticipates filingfiled in May 2018. The qualitative analyses also considered market and macroeconomic factors including changes in anticipated growth rates, anticipated changes in the WACC, and changes in discount rates. The Company also evaluated its stock price relative to historical performance, industry peers, and to major market indices, including an evaluation of the Company’s market capitalization relative to the carrying valu

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

e of its reporting units. Based on an evaluation of these and other factors, the Company determined it is not more likely than not that the April 1, 2017 carrying values of PNM or TNMP exceed their fair values.
For
(20)Related Party Transactions

PNMR, PNM, TNMP, and NMRD are considered related parties as defined under GAAP, as is PNMR Services Company, a wholly-owned subsidiary of PNMR that provides corporate services to PNMR and its annual evaluations performed assubsidiaries in accordance with shared services agreements. These services are billed at cost on a monthly basis to the business units. In addition, PNMR provides construction and operations and maintenance services to NMRD, a 50% owned subsidiary of April 1, 2016, PNMR performed quantitative analysesDevelopment (Note 1), and PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced. PNM also provides interconnection services to PNMR Development (Note 7) and NMRD.

PNMR files a consolidated federal income tax return with its affiliated companies. A tax allocation agreement exists between PNMR and each of its affiliated companies. These agreements provide that the subsidiary company will compute its taxable income on a stand-alone basis. If the result is a net tax liability, such amount shall be paid to PNMR. If there are net operating losses and/or tax credits, the subsidiary shall receive payment for both the tax savings from PNMR to the extent that PNMR is able to utilize those benefits.
See Note 7 for information on intercompany borrowing arrangements. The table below summarizes the nature and amount of related party transactions of PNMR, PNM and TNMP reporting units. For the quantitative analyses, a discounted cash flow methodology was primarily used to estimate the fair value of the reporting unit. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of long-term growth rates for the business, and determination of appropriate WACC for each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment. The April 1, 2016 and 2015 quantitative evaluations for PNM both indicated the fair value of the PNM reporting unit, which has goodwill of $51.6 million, exceeded its carrying value by approximately 25%. An increase of 0.5% in the expected return on equity capital utilized in discounting the forecasted cash flows, would have reduced the excess of PNM’s fair value over carrying value to approximately 18%. The April 1, 2016 quantitative evaluation indicated the fair value of the TNMP reporting unit, which has goodwill of $226.7 million, exceeded its carrying value by 32%. An increase of 0.5% in the expected return on equity capital utilized in calculating the WACC used to discount the forecasted cash flows, would have reduced the excess of TNMP’s fair value over carrying value to approximately 21% at April 1, 2016.TNMP:    
The 2015 qualitative analysis for TNMP included the consideration of various reporting unit specific factors as well as industry and macroeconomic factors to determine whether these factors were reasonably likely to have a material impact on the fair value of the reporting unit. Factors considered included the results of the April 1, 2012 quantitative analysis, which indicated that fair value of the reporting unit exceeded its carrying value by approximately 26%, current and long-term forecasted financial results, regulatory environment, credit rating, interest rate environment, absolute and relative price of PNMR’s common stock, and operating strategy. TNMP believes it is operating within a generally favorable regulatory environment, its historical and forecasted financial results are positive, and its credit is generally perceived positively. Based on the analysis of the relevant factors, PNMR concluded that it was more likely than not that the fair value of the TNMP reporting unit exceeds its carrying value at April 1, 2015.
 Year Ended December 31,
 2019 2018 2017
   (In thousands)  
Services billings:     
PNMR to PNM$96,327
 $95,637
 $97,914
PNMR to TNMP36,554
 33,493
 31,095
PNM to TNMP375
 367
 382
TNMP to PNMR141
 140
 141
TNMP to PNM
 
 154
PNMR to NMRD238
 183
 
Renewable energy purchases:     
PNM from NMRD3,124
 2,924
 
Interconnection and facility study billings:     
PNM to NMRD650
 2,108
 
PNM to PNMR
 68,820
 
PNMR to PNM68,820
 
 
Interest billings:     
PNMR to PNM3,365
 2,585
 21
PNM to PNMR299
 289
 220
PNMR to TNMP42
 136
 133
Income tax sharing payments:     
PNMR to TNMP
 
 
PNMR to PNM
 
 23,391
PNM to PNMR
 134
 
TNMP to PNMR12,996
 3,424
 20,686
Prior annual evaluations have not indicated impairments of any of PNMR’s reporting units, except in 2008. During 2008, the market capitalization of PNMR’s common stock was significantly below book value. In addition, a PNMR reporting unit, which was sold in 2011 was significantly impacted by depressed economic conditions and changes in the market in which it operated. As a result, goodwill impairments of $51.1 million for PNM, $34.5 million for TNMP, and an aggregate of $174.4 million for PNMR were recorded in 2008. Since 2008, the price of PNMR’s common stock has increased, improving the relationship between PNMR’s market capitalization and book value. In addition, improved regulatory treatment has been experienced by PNM in New Mexico and by TNMP in Texas. These factors resulted in more predictable earnings and increased fair values of the reporting units. Since 2008, the annual evaluations have not indicated that the fair values of the reporting units with recorded goodwill have decreased below their carrying values.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017

(19)Accumulated Other Comprehensive Income (Loss)
AOCI reports a measure for accumulated changes in equity that result from transactions and other economic events other than transactions with shareholders. Information regarding AOCI is as follows:
 Accumulated Other Comprehensive Income (Loss)
 PNM PNMR
 Unrealized Gains on Available-for-Sale Securities 
Pension
Liability
Adjustment
 Total Fair Value Adjustment for Cash Flow Hedges Total
 (In thousands)
Balance at December 31, 2014$28,008
 $(89,763) $(61,755) $
 $(61,755)
 Amounts reclassified from AOCI (pre-tax)(28,531) 5,952
 (22,579) 
 (22,579)
Income tax impact of amounts reclassified11,181
 (2,332) 8,849
 
 8,849
 Other OCI changes (pre-tax)10,998
 (4,405) 6,593
 72
 6,665
Income tax impact of other OCI changes(4,310) 1,726
 (2,584) (28) (2,612)
Net after-tax change(10,662) 941
 (9,721) 44
 (9,677)
Balance at December 31, 201517,346
 (88,822) (71,476) 44
 (71,432)
 Amounts reclassified from AOCI (pre-tax)(22,139) 5,504
 (16,635) 764
 (15,871)
Income tax impact of amounts reclassified8,639
 (2,148) 6,491
 (298) 6,193
 Other OCI changes (pre-tax)778
 (18,501) (17,723) (874) (18,597)
Income tax impact of other OCI changes(304) 7,219
 6,915
 341
 7,256
Net after-tax change(13,026) (7,926) (20,952) (67) (21,019)
Balance at December 31, 20164,320
 (96,748) (92,428) (23) (92,451)
 Amounts reclassified from AOCI (pre-tax)(17,567) 6,452
 (11,115) 581
 (10,534)
Income tax impact of amounts reclassified6,816
 (2,504) 4,312
 (225) 4,087
 Other OCI changes (pre-tax)28,160
 3,618
 31,778
 1,000
 32,778
Income tax impact of other OCI changes(10,927) (919) (11,846) (388) (12,234)
Net after-tax change6,482
 6,647
 13,129
 968
 14,097
Reclassification of stranded income taxes to retained earnings Note 112,367
 (20,161) (17,794) 208
 (17,586)
Balance at December 31, 2017$13,169
 $(110,262) $(97,093) $1,153
 $(95,940)
Pre-tax amounts reclassified from AOCI related to “Unrealized Gains on Available-for-Sale Securities” are included in “Gains on available-for-sale securities” in the Consolidated Statements of Earnings. Pre-tax amounts reclassified from AOCI related to “Pension Liability Adjustment” are reclassified to “Operating Expenses – Administrative and general” in the Consolidated Statements of Earnings. Pre-tax amounts reclassified from AOCI related to “Fair Value Adjustment for Cash Flow Hedges” are reclassified to “Interest Charges” in the Consolidated Statements of Earnings. An insignificant amount is included in capitalized interest. The income tax impacts of all amounts reclassified from AOCI are included in “Income Taxes” in the Consolidated Statements of Earnings.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

(20)(21) Quarterly Operating Results (Unaudited)
Unaudited operating results by quarters for 20172019 and 20162018 are presented below. In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included. The annual results of basic and diluted earnings per share shown below may be impacted by rounding.
Quarter Ended Quarter Ended 
March 31 June 30 September 30 December 31
(1) 
March 31 June 30 September 30 December 31 
(In thousands, except per share amounts) (In thousands, except per share amounts) 
PNMR                
2017        
2019       
(1) 
Operating revenues$330,178
 $362,320
 $419,900
 $332,605
 $349,645
 $330,228
 $433,586
 $344,144
 
Operating income55,960
 85,105
 142,484
 22,936
 
Operating income (loss)36,723
 (93,615) 140,540
 60,552
 
Net earnings (loss)26,446
 41,231
 78,327
 (50,585) 21,662
 (72,283) 106,763
 35,989
 
Net earnings (loss) attributable to PNMR22,862
 37,555
 73,739
 (54,282) 18,700
 (75,914) 102,771
 31,805
 
Net earnings (loss) attributable to PNMR per common share:                
Basic0.29
 0.47
 0.92
 (0.68) 0.23
 (0.95) 1.29
 0.40
 
Diluted0.29
 0.47
 0.92
 (0.68) 0.23
 (0.95) 1.28
 0.40
 
2016        
2018       
(2) 
Operating revenues$310,961
 $315,391
 $400,374
 $336,225
 $317,878
 $352,313
 $422,666
 $343,756
 
Operating income41,508
 64,822
 108,071
 63,584
 
Net earnings13,965
 30,952
 58,556
 28,423
 
Net earnings attributable to PNMR10,546
 27,076
 54,418
 24,809
 
Operating income (loss)46,132
 79,329
 127,990
 (17,404) 
Net earnings (loss)18,799
 42,449
 91,573
 (51,539) 
Net earnings (loss) attributable to PNMR14,990
 38,208
 87,521
 (55,077) 
Net earnings attributable to PNMR per common share:                
Basic0.13
 0.34
 0.68
 0.32
 0.19
 0.48
 1.10
 (0.70) 
Diluted0.13
 0.34
 0.68
 0.31
 0.19
 0.48
 1.09
 (0.69) 
PNM               
(1) 
2017        
2019        
Operating revenues$269,318
 $238,219
 $331,113
 $255,172
 
Operating income (loss)24,293
 (115,977) 108,453
 44,299
 
Net earnings (loss)21,974
 (83,313) 84,721
 32,040
 
Net earnings (loss) attributable to PNM19,144
 (86,812) 80,861
 27,988
 
2018       
(2) 
Operating revenues$251,558
 $276,097
 $327,254
 $249,321
 $236,232
 $264,511
 $331,374
 $259,848
 
Operating income38,331
 59,164
 113,252
 1,778
 28,292
 52,879
 102,516
 (38,654) 
Net earnings (loss)20,110
 30,476
 65,283
 (28,456) 11,514
 30,781
 81,428
 (53,400) 
Net earnings (loss) attributable to PNM16,658
 26,932
 60,827
 (32,021) 7,837
 26,672
 77,508
 (56,806) 
2016        
TNMP        
2019        
Operating revenues$235,606
 $233,346
 $311,276
 $255,685
 $80,327
 $92,009
 $102,473
 $88,972
 
Operating income23,297
 41,760
 80,057
 42,976
 12,585
 22,578
 32,596
 18,055
 
Net earnings7,561
 19,793
 44,990
 19,594
 4,098
 15,267
 25,087
 11,347
 
Net earnings attributable to PNM4,274
 16,049
 40,984
 16,112
 
TNMP        
2017        
2018        
Operating revenues$78,620
 $86,223
 $92,646
 $83,284
 $81,646
 $87,802
 $91,292
 $83,908
 
Operating income17,965
 26,286
 29,474
 19,879
 18,532
 26,829
 27,824
 23,312
 
Net earnings7,604
 12,204
 14,727
 1,024
 9,413
 15,367
 16,100
 10,711
 
2016        
Operating revenues$75,355
 $82,045
 $89,098
 $80,540
 
Operating income18,554
 23,375
 28,359
 21,353
 
Net earnings7,456
 10,508
 13,853
 9,855
 


(1) Reflects 2019 reflects pre-tax impairments of $150.6 million offset by $45.7 million of related tax impacts resulting from the impacts of changesNM Supreme Court’s ruling on the appeals in federal income tax rate of $57.5 million, $29.6 million, and $7.9 million for PNMR, PNM, and TNMP (Note 11); alsothe NM 2015 Rate Case. See Note 17.

(2) 2018 reflects a pre-tax regulatory disallowancedisallowances and restructuring costs of $63.3 million primarily resulting from the impairment of PNM’s NM 2016 Rate Case of $27.9 million132 MW and 65 MW interests in SJGS Unit 4 and for PNMRan adjustment to PNM’s coal mine reclamation obligation for the mine that serves SJGS. See additional discussion under December 2018 Compliance Filing and PNM (Note 17).under Coal Mine Reclamation in Note 16.

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SCHEDULE I
PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF EARNINGS
 
 Year ended December 31,
 2019 2018 2017
 (In thousands)
Operating Revenues$
 $
 $
Operating Expenses3,983
 7,475
 2,902
Operating income (loss)(3,983) (7,475) (2,902)
Other Income and Deductions:     
Equity in earnings of subsidiaries96,324
 109,995
 111,877
Other income731
 2,048
 1,181
Net other income and deductions97,055
 112,043
 113,058
Interest Charges19,581
 19,453
 12,490
Earnings Before Income Taxes73,491
 85,115
 97,666
Income Tax Expense (Benefit)(3,872) (527) 17,792
Net Earnings$77,363
 $85,642
 $79,874

 Year ended December 31,
 2017 2016 2015
 (In thousands)
Operating Revenues$
 $
 $
Operating Expenses2,902
 2,871
 1,221
Operating income (loss)(2,902) (2,871) (1,221)
Other Income and Deductions:     
Equity in earnings of subsidiaries111,877
 122,252
 27,352
Other income1,181
 1,711
 747
Net other income and deductions113,058
 123,963
 28,099
Interest Charges12,490
 8,102
 8,275
Earnings Before Income Taxes97,666
 112,990
 18,603
Income Tax Expense (Benefit)17,792
 (3,859) 2,963
Net Earnings$79,874
 $116,849
 $15,640






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SCHEDULE I
PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF CASH FLOWS
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Cash Flows From Operating Activities:     
Net Cash Flows From Operating Activities$2,001
 $(2,566) $(7,814)
Cash Flows From Investing Activities:     
Utility plant additions1,100
 826
 (180)
Investments in subsidiaries(80,000) (30,000) (50,000)
Cash dividends from subsidiaries54,465
 129,379
 105,084
Net cash flows from investing activities(24,435) 100,205
 54,904
Cash Flows From Financing Activities:     
Short-term loan borrowings (repayments)(150,000) 50,000
 
Revolving credit facility borrowings (repayments), net123,900
 (148,700) 42,600
Long-term borrowings150,000
 349,652
 
Repayment of long-term debt
 (250,000) 
Proceeds from stock option exercise943
 963
 1,739
Purchases to satisfy awards of common stock(9,918) (12,635) (13,929)
Dividends paid(92,398) (84,433) (77,264)
Other, net(107) (2,414) (269)
Net cash flows from financing activities22,420
 (97,567) (47,123)
Change in Cash and Cash Equivalents(14) 72
 (33)
Cash and Cash Equivalents at Beginning of Period93
 21
 54
Cash and Cash Equivalents at End of Period$79
 $93
 $21
Supplemental Cash Flow Disclosures:     
Interest paid, net of amounts capitalized$18,702
 $15,450
 $10,899
Income taxes paid (refunded), net$
 $
 $

 Year Ended December 31,
 2017 2016 2015
 (In thousands)
Net Cash Flows From Operating Activities$(7,814) $5,702
 $1,375
Cash Flows From Investing Activities:     
Utility plant additions(180) 341
 368
Investments in subsidiaries(50,000) (98,343) (175,000)
Cash dividends from subsidiaries105,084
 35,959
 127,688
Net cash flows from investing activities54,904
 (62,043) (46,944)
Cash Flows From Financing Activities:     
Short-term loan
 100,000
 50,000
Repayment of short-term loan
 (150,000) 
Revolving credit facility borrowings (repayments), net42,600
 84,500
 41,000
Long-term borrowings
 100,000
 150,000
Repayment of long-term debt
 
 (118,766)
Proceeds from stock option exercise1,739
 7,028
 5,619
Purchases to satisfy awards of common stock(13,929) (15,451) (17,720)
Dividends paid(77,264) (70,095) (63,723)
Other, net(269) (28) (782)
Net cash flows from financing activities(47,123) 55,954
 45,628
Change in Cash and Cash Equivalents(33) (387) 59
Cash and Cash Equivalents at Beginning of Period54
 441
 382
Cash and Cash Equivalents at End of Period$21
 $54
 $441
Supplemental Cash Flow Disclosures:     
Interest paid, net of amounts capitalized$10,899
 $5,906
 $7,559
Income taxes paid (refunded), net$
 $
 $(730)


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SCHEDULE I
PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
 
December 31,December 31,
2017 20162019 2018
(In thousands)(In thousands)
Assets      
Cash and cash equivalents$21
 $54
$79
 $93
Intercompany receivables96,227
 92,234
79,059
 82,539
Income taxes receivable1,818
 
4,635
 7,856
Other, net1,937
 233
2,876
 5,635
Total current assets100,003
 92,521
86,649
 96,123
Property, plant and equipment, net of accumulated depreciation of $13,229 and $12,29126,546
 26,366
Property, plant and equipment, net of accumulated depreciation of $14,583 and $13,51824,313
 25,413
Investment in subsidiaries2,056,198
 1,986,276
2,197,918
 2,064,693
Other long-term assets66,090
 79,314
55,077
 60,265
Total long-term assets2,148,834
 2,091,956
2,277,308
 2,150,371
$2,248,837
 $2,184,477
$2,363,957
 $2,246,494
Liabilities and Stockholders’ Equity      
Short-term debt$265,600
 $226,100
$112,100
 $170,000
Short-term debt-affiliate11,919
 8,819
40,619
 8,819
Current maturities of long-term debt249,979
 
50,000
 
Accrued interest and taxes1,661
 1,333
5,239
 4,885
Other current liabilities21,274
 19,374
25,450
 23,297
Total current liabilities550,433
 255,626
233,408
 207,001
Long-term debt
 249,895
449,048
 348,310
Other long-term liabilities3,151
 3,004
2,803
 2,803
Total liabilities553,584
 508,525
685,259
 558,114
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)1,157,665
 1,163,661
1,150,552
 1,153,112
Accumulated other comprehensive income (loss), net of tax(95,940) (92,451)(99,377) (108,685)
Retained earnings633,528
 604,742
627,523
 643,953
Total common stockholders’ equity1,695,253
 1,675,952
1,678,698
 1,688,380
$2,248,837
 $2,184,477
$2,363,957
 $2,246,494


See Notes 6, 7, 8, 14, and 16 for information regarding commitments, contingencies, and maturities of long-term debt.






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SCHEDULE II
PNM RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
 
     Additions Deductions  
 Description 
Balance at
beginning of
year
 
Charged to
costs and
expenses
 
Charged to
other
accounts
 Write-offs and other 
Balance at
end of year
     (In thousands)  
 Allowance for doubtful accounts, year ended December 31:          
 2017 $1,209
 $2,619
 $
 $2,747
 $1,081
 2018 $1,081
 $3,360
 $
 $3,035
 $1,406
 2019 $1,406
 $2,835
 $
 $3,078
 $1,163

     Additions Deductions  
 Description 
Balance at
beginning of
year
 
Charged to
costs and
expenses
 
Charged to
other
accounts
 Write-offs and other 
Balance at
end of year
     (In thousands)  
 Allowance for doubtful accounts, year ended December 31:          
 2015 $1,466
 $3,358
 $
 $3,427
 $1,397
 2016 $1,397
 $2,885
 $
 $3,073
 $1,209
 2017 $1,209
 $2,619
 $
 $2,747
 $1,081




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SCHEDULE II
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
VALUATION AND QUALIFYING ACCOUNTS
 
     Additions Deductions  
 Description 
Balance at
beginning of
year
 
Charged to
costs and
expenses
 
Charged to
other
accounts
 Write-offs 
Balance at
end of year
     (In thousands)  
 Allowance for doubtful accounts, year ended December 31:          
 2015 $1,466
 $3,344
 $
 $3,413
 $1,397
 2016 $1,397
 $2,871
 $
 $3,059
 $1,209
 2017 $1,209
 $2,615
 $
 $2,743
 $1,081
     Additions Deductions  
 Description 
Balance at
beginning of
year
 
Charged to
costs and
expenses
 
Charged to
other
accounts
 Write-offs 
Balance at
end of year
     (In thousands)  
 Allowance for doubtful accounts, year ended December 31:          
 2017 $1,209
 $2,615
 $
 $2,743
 $1,081
 2018 $1,081
 $3,338
 $
 $3,013
 $1,406
 2019 $1,406
 $2,790
 $
 $3,033
 $1,163
 




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SCHEDULE II
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
VALUATION AND QUALIFYING ACCOUNTS
 
    Additions Deductions  
Description 
Balance at
beginning of
year
 
Charged to
costs and
expenses
 
Charged to
other
accounts
 Write-offs 
Balance at
end of year
    (In thousands)  
Allowance for doubtful accounts, year ended December 31:          
2017 $
 $4
 $
 $4
 $
2018 $
 $22
 $
 $22
 $
2019 $
 $44
 $
 $44
 $

    Additions Deductions  
Description 
Balance at
beginning of
year
 
Charged to
costs and
expenses
 
Charged to
other
accounts
 Write-offs 
Balance at
end of year
    (In thousands)  
Allowance for doubtful accounts, year ended December 31:          
2015 $
 $14
 $
 $14
 $
2016 $
 $14
 $
 $14
 $
2017 $
 $4
 $
 $4
 $






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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
 
ITEM 9A.CONTROLS AND PROCEDURES


PNMR
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this annual report, PNMR conducted an evaluation under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective as of the end of the period covered by this report.
(b) Management’s report on internal control over financial reporting.
“Management’s Annual Report on Internal Control Over Financial Reporting” appears on page B-2. This report is incorporated by reference herein. PNMR’s internal control over financial reporting as of December 31, 20172019 has been audited by KPMG LLP, as an independent registered public accounting firm, as stated in their report which is included herein.
(c) Changes in internal controls.
There have been no changes in PNMR’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, PNMR’s internal control over financial reporting.
PNM
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this annual report, PNM conducted an evaluation under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective as of the end of the period covered by this report.
(b) Management’s report on internal control over financial reporting.


“Management’s Annual Report on Internal Control Over Financial Reporting” appears on page B-3. This report is incorporated by reference herein.


(c) Changes in internal controls.


There have been no changes in PNM’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, PNM’s internal control over financial reporting.


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


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(b) Management’s report on internal control over financial reporting.


“Management’s Annual Report on Internal Control Over Financial Reporting” appears on page B-4. This report is incorporated by reference herein.
(c) Changes in internal controls.


There have been no changes in TNMP’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, TNMP’s internal control over financial reporting.


ITEM 9B.OTHER INFORMATION


None.
PART III


ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Reference is hereby made to “Proposal 1: Elect Eight Directors”as Directors the Ten Director Nominees Named in the Proxy Statement” in PNMR’s Proxy Statement relating to the annual meeting of stockholdersshareholders to be held on May 22, 201812, 2020 (the “20182020 Proxy Statement”), to PART I, SUPPLEMENTAL ITEM – “EXECUTIVE OFFICERS OF THE COMPANY” in this Form 10-K, “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports”, “Code of Ethics,” and “Board Committees and Their Functions” – “Audit and Ethics Committee” in the 20182020 Proxy Statement. The Company intends to satisfy the disclosure requirements of Form 8-K relating to amendments to the Company’s code of ethics applicable to its senior executive and financial officers by posting such information on its Internet website. Information about the Company’s website is included under Part I, Item 1 – “Websites.”
 
ITEM 11.EXECUTIVE COMPENSATION
Reference is hereby made to “Executive Compensation”, and all subheadings thereunder from “Compensation Discussion and Analysis” to “Change in Control, Termination, Retirement, or Impaction”, and “Director Compensation,” and “Board Committees and Their Functions – Compensation and Human Resources Committee / Nominating and Governance Committee – Interlocks and Insider Participation” in the 20182020 Proxy Statement.


ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Reference is hereby made to “Ownership of Our Common Stock – Five PercentLargest Shareholders” and “ – Share Ownership of Executive Officers and Directors” and “Equity Compensation Plan Information” in the 20182020 Proxy Statement.
 
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Reference is hereby made to “Information About Our Corporate Governance – Related Person Transaction Policy” and “ – Director Independence” in the 20182020 Proxy Statement.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
Reference is hereby made to “Audit and Ethics Committee Report” and “Independent Auditor Fees” in the 20182020 Proxy Statement. Independent auditor fees for PNM and TNMP are reported in the 20182020 Proxy Statement for PNMR. All such fees are fees of PNMR. PNMR charges a management fee to PNM and TNMP that includes an allocation of independent auditor fees.




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PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) - 1.See Index to Financial Statements under Part II, Item 8.
   
(a) - 2.Financial Statement Schedules for the years 2018, 2017, 2016, and 20152016 are omitted for the reason that they are not required or the information is otherwise supplied under Part II, Item 8.
   
(a) - 3-A.Exhibits Filed:
   
Exhibit No Description
 
4.1PNMR
4.2PNM
   
10.1**PNMR
10.2**PNMR
10.3PNMR
10.4PNM
10.5**PNMR
10.6**PNMR
12.1PNMR
12.2PNM
12.3TNMP
   
21PNMR
   
23.1PNMR
   
23.2PNM
   
31.1PNMR
   
31.2PNMR
   
31.3PNM
   
31.4PNM
   
31.5TNMP
   
31.6TNMP
   
32.1PNMR
   
32.2PNM
32.3TNMP
 
32.3TNMP
   
101.INSPNMR, PNM, and TNMPXBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document
   
101.SCHPNMR, PNM, and TNMPPNMRInline XBRL Taxonomy Extension Schema Document
   
101.CALPNMR, PNM, and TNMPPNMRInline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEFPNMR, PNM, and TNMPPNMRInline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LABPNMR, PNM, and TNMPPNMRInline XBRL Taxonomy Extension Label Linkbase Document
   
101.PREPNMR, PNM, and TNMPPNMRInline XBRL Taxonomy Extension Presentation Linkbase Document
104PNMR, PNM, and TNMPCover Page Inline XBRL File (included in Exhibits 101)


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(a) -3- B. Exhibits Incorporated By Reference:
The documents listed below are being filed (as shown above) or have been previously filed on behalf of PNM Resources, PNM or TNMP and are incorporated by reference to the filings set forth below pursuant to Exchange Act Rule 12b-32 and Regulation S-K section 10, paragraph (d).
Exhibit No. Description of Exhibit Filed as Exhibit: 
Registrant
(s)
File No:
       
Articles of Incorporation and By-laws    
3.1  3.1 to PNMR’s Current Report on Form 8-K filed November 21, 2008 
1-32462
PNMR
       
3.2  3.1.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 
1-6986
PNM
       
3.3  3.1.2 to TNMP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 
2-97230
TNMP
       
3.4  3.4 to PNMR’s Current Report on Form 8-K filed October 25, 2017 
1-32462
PNMR
       
3.5  3.1.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 
1-6986
PNM
       
3.6  3.6 to TNMP’s Current Report on Form 8-K filed June 20, 2013 
2-97230
TNMP
       
Indentures‡Securities Instruments‡    
PNMR      
4.14.3 4.1 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 20191-32462
PNMR
4.4 10.2 to PNMR’s Current Report on Form 8-K filed March 31, 2005 
1-32462
PNMR
       
4.24.5 10.3 to PNMR’s Current Report on Form 8-K filed March 31, 2005
333-32170
PNMR
4.34.3 to PNMR’s Current Report on Form 8-K filed May 21, 2008
1-32462
PNMR
4.4 4.1 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 
1-32462
PNMR
       
4.64.2 to PNMR’s Current Report on Form 8-K filed March 9, 2018
1-32462
PNMR
PNM      
4.54.7 4.2 to PNM’s Annual Report on Form 10-K for the year ended December 31, 20191-6986
PNM
4.8 4.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 
1-6986
PNM
       
4.64.5 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
1-6986
PNM
4.74.6 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
1-6986
PNM

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4.84.6.1 to PNM’s Annual Report on Form 10-K for the year ended December 31, 1999
1-6986
PNM
4.9 4.6.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
1-6986
PNM
4.104.6.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
1-6986
PNM
4.11 4.6.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 
1-6986
PNM
       

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4.12
4.10 4.23 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
1-6986
PNM
4.13 10.1 to PNM’s Current Report on Form 8-K/A filed July 29, 2010 
1-6986
PNM
       
4.144.11  10.2 to PNM’s Current Report on Form 8-K/A filed July 29, 2010 
1-6986
PNM
       
4.154.12  4.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 
1-6986
PNM
       
4.164.13  4.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 
1-6986
PNM
       
4.174.14  4.1 to PNM’s Current Report on Form 8-K filed September 27, 2016 
1-6986
PNM
       
4.184.15  4.1 to PNM’s Registration Statement No. 333-53367 
333-53367
PNM
       
4.194.16 4.3 to PNM’s Current Report on Form 8-K filed August 7, 1998
1-6986
PNM
4.204.7.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003
1-6986
PNM

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4.214.1 to PNM’s Current Report on Form 8-K filed May 15, 2008
1-6986
PNM
4.22 4.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 
1-6986
PNM
       
4.234.17  4.1 to PNM’s Current Report on Form 8-K filed October 12, 2011 
1-6986
PNM
       
4.244.18  4.2 to PNM’s Current Report on Form 8-K filed August 11, 2015 
1-6986
PNM
       
TNMP      
4.254.19  4.1 to TNMP’s Current Report on Form 8-K filed March 27, 2009 
2-97230
TNMP
       
4.264.20 4.2 to TNMP’s Current Report on Form 8-K filed March 27, 2009
2-97230
TNMP
4.274.3 to TNMP’s Current Report on Form 8-K filed March 27, 2009
2-97230
TNMP
4.28 4.1 to TNMP’s Current Report on Form 8-K filed May 6, 2009 
2-97230
TNMP
       
4.294.21  4.1 to TNMP’s Current Report on Form 8-K filed December 17, 2010 
2-97230
TNMP
       

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Table of Contents


4.30
4.22  4.4 to TNMP’s Quarterly Report Form 10-Q for the quarter ended June 30, 2011 
2-97230
TNMP
       
4.314.23 4.1 to TNMP’s Current Report on Form 8-K filed October 6, 2011
2-97230
TNMP
4.32 4.1 to TNMP’s Current Report on Form 8-K filed April 3, 2013 
2-97230
TNMP
       
4.334.24  4.1 to TNMP’s Current Report on Form 8-K filed June 27, 2014 
2-97230
TNMP
       
4.344.25  4.1 to TNMP’s Current Report on Form 8-K filed February 10, 2016 
2-97230
TNMP
       
4.354.26  4.1 to TNMP’s Current Report on Form 8-K filed August 24, 2017 2-97230

TNMP
4.274.1 to TNMP’s Current Report on Form 8-K filed July 2, 20182-97230
TNMP
4.284.1 to TNMP's Current Report on Form 8-K filed March 29, 20192-97230
TNMP
4.294.1 to TNMP's Current Report on Form 8-K filed July 1, 20192-97230
TNMP
Material Contracts
10.210.1 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018
1-32462
PNMR
10.310.2 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2018
1-32462
PNMR
10.410.1 to PNMR’s Current Report on Form 8-K filed December 17, 2018
1-32462
PNMR
10.510.1 to PNMR’s Current Report on Form 8-K filed December 13, 20191-32462
PNMR
10.610.1 to PNMR’s Current Report on Form 8-K filed December 21, 2018
1-32462
PNMR


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Material Contracts
10.7  10.1 to PNMR’s Current Report on Form 8-K filed October 31, 2011November 28, 2018 
1-32462
PNMR
       
10.8  10.110.2 to PNMR’s AnnualCurrent Report on Form 10-K for the year ended December 31, 20118-K filed November 28, 2018 
1-32462
PNMR
       
10.9  10.210.1 to PNMR’s AnnualCurrent Report on Form 10-K for the year ended December 31, 20138-K filed January 10, 2020 
1-32462

PNMR
       
10.10  10.110.2 to PNMR’s Current Report on Form 8-K filed December 17, 2014January 10, 2020 
1-32462

PNMR
       
10.11  10.610.3 to PNMR’s QuarterlyCurrent Report on Form 10-Q for the quarter ended September 30, 20158-K filed January 10, 2020 
1-32462

PNMR
       
10.12  10.110.4 to PNMR'sPNMR’s Current Report on Form 8-K filed November 4, 2016January 10, 2020 
1-32462

PNMR
       
10.13  10.110.4 to PNMR's CurrentPNM’s Quarterly Report on Form 8-K filed December 21, 201610-Q for the quarter ended September 30, 2018 
1-32462
PNMR
1-6986
PNM
       
10.14 10.1 to PNMR's Current Report on Form 8-K filed December 18, 20171-32462
PNMR
10.1510.2 to PNMR's Current Report on Form 8-K filed December 21, 2016
1-32462
PNMR
10.1610.3 to PNMR's Annual Report on Form 10-K for the year ended December 31, 20171-32462
PNMR
10.1710.1 to PNMR’s Current Report on Form 8-K filed December 21, 2015
1-32462
PNMR
10.1810.1 to PNMR’s Current Report on Form 8-K filed March 9, 2015
1-32462
PNMR
10.1910.7 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015
1-32462
PNMR
10.2010.3 to PNMR’s Current Report on Form 8-K filed November 4, 2016
1-32462
PNMR

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Table of Contents


10.2110.1 to PNMR's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016
1-32462
PNMR
10.2210.2 to PNMR's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016
1-32462
PNMR
10.2310.5 to PNMR's Annual Report on Form 10-K for the year ended December 31, 2016
1-32462
PNMR
10.2410.3 to PNMR's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016
1-32462
PNMR
10.2510.4 to PNMR's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016
1-32462
PNMR
10.2610.1 to PNMR's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016
1-32462
PNMR
10.2710.1 to PNM's Quarterly Report on Form 10-Q for the quarter ended June 30, 20171-6986
PNM
10.2810.2 to PNM’s Current Report on Form 8-K filed October 31, 2011
1-6986
PNM
10.2910.2 to PNM’s Annual Report on Form 10-K for the year ended December 31, 2011
1-6986
PNM
10.3010.2 to PNM’s Current Report on Form 8-K filed December 17, 2014
1-6986
PNM
10.3110.2 to PNM’s Current Report on Form 8-K filed November 4, 2016
1-6986
PNM
10.32 10.1 to PNM’s Current Report on Form 8-K filed December 12, 2017 
1-6986
PNM
       
10.3310.15  10.1 to PNM'sPNM’s Current Report on Form 8-K filed January 18, 2019
1-6986
PNM
10.1610.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 1-6986

PNM
       
10.3410.17 10.1 to PNM's Current Report on Form 8-K filed May 1, 20191-6986
PNM
10.18 10.1 to TNMP’s Current Report on Form 8-K filed September 27, 2017 2-97230

TNMP
       
10.3510.19 10.6 to TNMP's Quarterly Report on Form 10-Q for the quarter ended March 31, 20192-97230
TNMP
10.2010.3 to TNMP’s Annual Report on Form 10-K for the year ended December 31, 20182-97230
TNMP
10.21 10.1 to TNMP’s Current Report on Form 8-K filed December 10, 2013July 2, 2018 
2-97230

TNMP
       


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10.3610.22 10.1 to TNMP’s Current Report on Form 8-K filed December 21, 2015
2-97230
TNMP
10.37 10.1 to PNM'sTNMP’s Current Report on Form 8-K filed June 14, 2017 2-97230

TNMP
       
10.38*10.23**  4.3 to PNMR’s Form S-8 Registration Statement filed May 15, 2014 
333-195974
PNMR
       
10.39*10.24**  99.1 to PNMR’s Current Report on Form 8-K filed December 15, 2015 
1-32462
PNMR
       
10.40*10.25**  10.2 to PNMR'sPNMR’s Annual Report on Form 10-K for the year ended December 31, 2016 
1-32462
PNMR
       
10.41*10.26**  4.1 to PNMR’s Form S-8 Registration Statement filed May 20, 2009 
333-159361
PNMR
       
10.42*10.27**  10.1 to PNMR’s Current Report Form 8-K filed May 20, 2011 
1-32462
PNMR
       
10.43*10.28**  10.6 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 
1-32462
PNMR
       
10.44*10.29**  10.1 to PNMR’s Current Report on Form 8-K filed May 17, 2012 
1-32462
PNMR
       
10.45*10.30**  10.3 to PNMR'sPNMR’s Annual Report on Form 10-K for the year ended December 31, 2016 
1-32462
PNMR
       
10.46*10.31**  10.610.1 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20162018 
1-32462
PNMR
       
10.47*10.32**  10.1 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20172019 
1-32462
PNMR
       
10.48*10.33** 10.2 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20181-32462
PNMR
10.34** 10.2 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 
1-32462
PNMR
       
10.49*10.35**  10.510.2 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20162019 
1-32462
PNMR
       
10.50*10.36**  10.210.4 to PNMR'sPNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20152019 
1-32462
PNMR
       
10.51*10.37** 10.4 to PNMR's Annual Report on Form 10-K for the year ended December 31, 2016
1-32462
PNMR
10.52** 10.1 to PNMR'sPNMR’s Annual Report on Form 10-K for the year ended December 31, 2017 1-32462

PNMR
       

D - 7

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10.53*10.38**  10.3 to PNMR’s Current Report on Form 8-K filed May 26, 2009 
1-32462
PNMR
       

D - 6

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10.54*
10.39**  10.2 to PNMR’s Current Report on Form 8-K filed February 16, 2007 
1-32462
PNMR
       
10.55*10.40** 10.2 to PNMR’s Annual Report on For 10-K for the year ended December 31, 2014
1-32462
PNMR
10.56** 10.3 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 
1-32462
PNMR
       
10.57*10.41** 10.5 to PNMR's Quarterly Report on Form 10-Q for the quarter ended March 31, 20191-32462
PNMR
10.42** 10.4.2 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2014 
1-32462
PNMR
       
10.58*10.43**  10.1 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 201620181-32462
PNMR
10.44**10.1 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2019 
1-32462
PNMR
       
10.59*10.45**  10.3 to PNMR’s Current Report on Form 8-K filed March 1, 2011 
1-32462
PNMR
       
10.60*10.46**  10.4.3 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2014 
1-32462
PNMR
       
10.61*10.47**  10.5 to PNMR'sPNMR’s Annual Report on Form 10-K for the year ended December 31, 2017 1-32462

PNMR
       
10.62*10.48**  10.4 to PNMR’s Current Report on Form 8-K filed March 1, 2011 
1-32462
PNMR
       
10.63*10.49**  10.7 to PNMR'sPNMR’s Current Report on Form 10-K for the year ended December 31, 2016 
1-32462
PNMR
       
10.64*10.50**  10.2 to PNMR'sPNMR’s Annual Report on Form 10-K for the year ended December 31, 2017 1-32462

PNMR
       
10.65*10.51** 10.3 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20181-32462
PNMR
10.52** 10.1.2 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2014 
1-32462
PNMR
       
10.66*10.53**  10.7 to PNMR'sPNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 
1-32462
PNMR
       
10.67*10.54**  10.6 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2016 
1-32462
PNMR
       
10.68*10.55**  10.7 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2013 
1-32462
PNMR


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10.69*
10.56**  10.3 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 
1-32462
PNMR
       
10.70*10.57**  10.3 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2008 
1-32462
PNMR
       
10.71*10.58**  10.8 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 
1-32462
PNMR
       
10.72*10.59**  10.6 to PNMR'sPNMR’s Annual Report on Form 10-K for the year ended December 31, 2017 
1-32462
PNMR
       
10.73*10.60**  10.7 to PNMR’s Quarterly Report inon Form 10-Q for the quarter ended March 31, 2012 
1-32462
PNMR
       
10.74*10.61**  10.24.1 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 
333-32170
PNMR
       
10.75*10.62**  10.27 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2004. 
333-32170
PNMR
       
10.76*10.63**  10.5 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 
1-32462
PNMR
       
10.77*10.64**  10.10 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2008 
1-32462
PNMR
       
10.78*10.65**  10.15 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2008 
1-32462
PNMR
       
10.79*10.66**  10.5 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2011 
1-32462
PNMR
       
10.80*10.67**  10.8 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2016 
333-32170
PNMR
       
10.81*10.68**  10.910.1 to PNMR’s AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended December 31, 2016September 30, 2019 1-32462

PNMR
       
10.8210.69 Supplemental Indenture of Lease dated as of July 19, 1966 between PNM and other participants in the Four Corners Project and the Navajo Indian Tribal Council 4-D to PNM’s Registration Statement No. 2-26116 
2-26116
PNM
       
10.8310.70  10.1.1 to PNM’s Annual Report on Form 10-K for year ended December 31, 1995 
1-6986
PNM
       
10.8410.71  10.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 
1-6986
PNM
       


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10.8510.72  10.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 
1-6986
PNM
       
10.8610.73  10.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 
1-6986
PNM
       
10.8710.74  10.4 to PNM'sPNM’s Annual Report on Form 10-K for the year ended December 31, 2017 1-6986

PNM
       
10.8810.75 10.2 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015
1-6986
PNM
10.89 10.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 
1-6986
PNM
       
10.9010.76  10.4 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 
1-6986
PNM
       
10.9110.77 10.5 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015
1-6986
PNM
10.92 10.1 to PNM'sPNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 1-6986

PNM
       
10.9310.78 Arizona Nuclear Power Project Participation Agreement among PNM and Arizona Public Service Company, Salt River Project Agricultural Improvement and Power District, Tucson Gas & Electric Company and El Paso Electric Company, dated August 23, 1973 5-T to PNM’s Registration Statement No. 2-50338 
2-50338
PNM
       
10.9410.79 Amendments No. 1 through No. 6 to Arizona Nuclear Power Project Participation Agreement 10.8.1 to PNM’s Annual Report on Form 10-K for year ended December 31, 1991 
1-6986
PNM
       
10.9510.80 Amendment No. 7 effective April 1, 1982, to the Arizona Nuclear Power Project Participation Agreement (refiled) 10.8.2 to PNM’s Annual Report on Form 10-K for year ended December 31, 1991 
1-6986
PNM
       

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10.9610.81  10.58 to PNM’s Annual Report on Form 10-K for year ended December 31, 1993 
1-6986
PNM
       
10.9710.82  10.8.4 to PNM’s Annual Report of the Registrant on Form 10-K for year ended December 31, 1994 
1-6986
PNM
       
10.9810.83  10.8.5 to PNM’s Annual Report of the Registrant on Form 10-K for year ended December 31, 1995 
1-6986
PNM
       

D - 9

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10.99
10.84 Amendment No. 12 to Arizona Nuclear Power Project Participation Agreement dated June 14, 1988, and effective August 5, 1988 19.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 
1-6986
PNM
       
10.10010.85 Amendment No. 13 to the Arizona Nuclear Power Project Participation Agreement dated April 4, 1990, and effective June 15, 1991 10.8.10 to PNM’s Annual Report on Form 10-K for the year ended December 31, 1990 
1-6986
PNM
       
10.10110.86  10.8.9 to PNM’s Annual Report on Form 10-K for the year ended December 31, 2000 
1-6986
PNM
       
10.10210.87  10.1 to PNM’s Current Report on Form 8-K filed March 1, 2011 
1-6986
PNM
       
10.10310.88  10.3 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 
1-6986
PNM
       
10.104*10.89  10.18 to PNM’s Annual Report on Form 10-K for year ended December 31, 1995 
1-6986
PNM
       
10.10510.90  10.19 to PNM’s Annual Report on Form 10-K for year ended December 31, 1996 
1-6986
PNM
       
10.10610.91  10.21 to PNM’s Annual Report on Form 10-K for year ended December 31, 1996 
1-6986
PNM
       
10.107*10.92  10.3 to PNM’s Annual Report on Form 10-K for year ended December 31, 2013 
1-6986
PNM
       
10.10810.93  10.22 to PNM’s Annual Report on Form 10-K for year ended December 31, 1996 
1-6986
PNM
       
10.10910.94  10.1 to PNM’s Current Report on Form 8-K filed March 18, 2014 
1-6986
PNM
       

D - 11

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10.11010.95  10.68 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 
1-6986
PNM
       
10.11110.96  10.68.1 to PNM’s Annual Report on Form 10-K for year ended December 31, 1997 
1-6986
PNM
       
10.11210.97  10.68.2 to PNM’s Annual Report on Form 10-K for year ended December 31, 2003 
1-6986
PNM
       

D - 10

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10.113
10.98  10.86 to PNM’s Annual Report on Form 10-K for the year ended December 31, 2002 
1-6986
PNM
       
10.11410.99  10.134 to PNMR’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 
1-32462
PNMR/
TNMP
       
Subsidiaries    
21  21 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 20172019 
1-32462
PNMR
       
Additional Exhibits    
99.1* Participation Agreement dated as of December 16, 1985, among the Owner Participant named therein, First PV Funding Corporation, The First National Bank of Boston, in its individual capacity and as Owner Trustee (under a Trust Agreement dated as of December 16, 1985 with the Owner Participant), Chemical Bank, in its individual capacity and as Indenture Trustee (under a Trust Indenture, Mortgage, Security Agreement and Assignment of Rents dated as of December 16, 1985 with the Owner Trustee), and PNM (Unit 1 transaction), including Appendix A definitions, together with Amendment No. 1 dated July 15, 1986 and Amendment No. 2 dated November 18, 1986 (refiled) 99.2 to PNM’s Annual Report on Form 10-K for year ended December 31, 1995 
1-6986
PNM
       
99.2  99.5 to PNM’s Annual Report on Form 10-K for year ended December 31, 1996 
1-6986
PNM
       
99.3  99.11 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 
1-6986
PNM
       

D - 12

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99.4  99.14 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 
1-6986
PNM
       

D - 11

Table of Contents


99.5  99.19 to PNM’s Annual Report on Form 10-K for year ended December 31, 2013 
1-6986
PNM
       
99.6  10.6 to PNM’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 
1-6986
PNM


* One or more additional documents, substantially identical in all material respects to this exhibit, have been entered into, relating to one or more additional sale and leaseback transactions. Although such additional documents may differ in other respects (such as dollar amounts and percentages), there are no material details in which such additional documents differ from this exhibit.


** Designates each management contract or compensatory plan or arrangement required to be identified pursuant to paragraph 3 of Item 15(a) of Form 10-K.


‡      Certain instruments defining the rights of holders of long-term debt of the registrants included in the financial statements of registrants filed herewith have been omitted because the total amount of securities authorized thereunder does not exceed 10% of the total assets of registrants. The registrants hereby agree to furnish a copy of any such omitted instrument to the SEC upon request.




ITEM 16. FORM 10-K SUMMARY


None.




D - 1312

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SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
    PNM RESOURCES, INC.
    (Registrant)
    
Date:March 1, 20182, 2020By /s/ P. K. Collawn
    P. K. Collawn
    
Chairman, President, and
Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature  CapacityDate
    
   
/s/ P. K. Collawn  Principal Executive Officer and DirectorMarch 1, 20182, 2020
P. K. Collawn    
Chairman, President, and    
Chief Executive Officer    
   
/s/ C. N. EldredJ. D. Tarry  Principal Financial OfficerMarch 1, 20182, 2020
C. N. EldredJ. D. Tarry    
ExecutiveSenior Vice President and    
Chief Financial Officer    
   
/s/ J. D. TarryH. E. Monroy  Principal Accounting OfficerMarch 1, 20182, 2020
J. D. TarryH. E. Monroy    
Vice President Finance and Corporate Controller
/s/ V.A. BaileyDirectorMarch 2, 2020
V.A. Bailey    
   
/s/ N.P. Becker  DirectorMarch 1, 20182, 2020
N. P. Becker    
   
/s/ E. R. Conley  DirectorMarch 1, 20182, 2020
E. R. Conley    
   
/s/ A. J. Fohrer DirectorMarch 1, 20182, 2020
A. J. Fohrer   
    
/s/ S. M. Gutierrez  DirectorMarch 1, 20182, 2020
S. M. Gutierrez    
   
/s/ J.A. HughesDirectorMarch 2, 2020
J.A. Hughes
/s/ M. T. Mullarkey  DirectorMarch 1, 20182, 2020
M. T. Mullarkey    
   
/s/ D. K. Schwanz  DirectorMarch 1, 20182, 2020
D. K. Schwanz    
   
/s/ B. W. Wilkinson  DirectorMarch 1, 20182, 2020
B. W. Wilkinson    


E - 1

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
    PUBLIC SERVICE COMPANY OF NEW MEXICO
    (Registrant)
    
Date:March 1, 20182, 2020By /s/ P. K. Collawn
    P. K. Collawn
    
President and
Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature  CapacityDate
   
/s/ P. K. Collawn  Principal Executive Officer and Chairman of the BoardMarch 1, 20182, 2020
P. K. Collawn   
President and    
Chief Executive Officer    
   
/s/ C. N. EldredJ. D. Tarry  Principal Financial Officer and DirectorMarch 1, 20182, 2020
C. N. EldredJ. D. Tarry   
ExecutiveSenior Vice President and    
Chief Financial Officer    
   
/s/ J. D. TarryH. E. Monroy  Principal Accounting OfficerMarch 1, 20182, 2020
J. D. TarryH. E. Monroy    
Vice President Finance and Corporate Controller    
   
/s/ R. N. Darnell  DirectorMarch 1, 20182, 2020
R. N. Darnell
/s/ C. N. EldredDirectorMarch 2, 2020
C. N. Eldred    
    
/s/ C. M. Olson  DirectorMarch 1, 20182, 2020
C. M. Olson    




E - 2

Table of Contents




SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
    TEXAS-NEW MEXICO POWER COMPANY
    (Registrant)
    
Date:March 1, 20182, 2020By /s/ P. K. Collawn
    P. K. Collawn
    Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature  CapacityDate
   
/s/ P. K. Collawn  Principal Executive Officer and Chairman of the BoardMarch 1, 20182, 2020
P. K. Collawn   
Chief Executive Officer    
   
/s/ C. N. EldredJ. D. Tarry  Principal Financial Officer and DirectorMarch 1, 20182, 2020
C. N. EldredJ. D. Tarry    
ExecutiveSenior Vice President and   
Chief Financial Officer   
    
/s/ J. D. TarryH. E. Monroy  Principal Accounting OfficerMarch 1, 20182, 2020
J. D. TarryH. E. Monroy   
Vice President Finance and Corporate Controller    
   
/s/ R. N. Darnell  DirectorMarch 1, 20182, 2020
R. N. Darnell
/s/ C. N. EldredDirectorMarch 2, 2020
C. N. Eldred    
   
/s/ C. M. Olson  DirectorMarch 1, 20182, 2020
C. M. Olson    
    
/s/ J. N. Walker  DirectorMarch 1, 20182, 2020
J. N. Walker    




E - 3