0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SurfaceMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2018-12-31
Table of Contents


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


FORM 10-Q


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


For the quarterly period ended September 30, 20182019


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

001-06986    Public Service Company of New Mexico                                                            85-0019030
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
(505) 241-2700

002-97230    Texas-New Mexico Power Company                                                                75-0204070
(A Texas Corporation)
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
(972) 420-4189



Securities registered pursuant to Section 12(b) of the Act:
001-32462
RegistrantTitle of each classTrading Symbol(s)Name of exchange on which registered
PNM Resources, Inc.Common Stock, no par value85-0468296
PNM(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
(505) 241-2700
001-06986Public Service Company of New Mexico85-0019030
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
(505) 241-2700
002-97230Texas-New Mexico Power Company75-0204070
(A Texas Corporation)
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
(972) 420-4189York Stock Exchange


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


(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).

 PNMRYESYesü☑NONo☐
 PNMYESYesü
☑

NONo☐
 TNMPYESYesü☑NONo☐




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


 
Large accelerated
filer
 
Accelerated
filer
 
Non-accelerated
filer
 Smaller reporting company Emerging growth company
PNMR ü☑   ☐   ☐   ☐   ☐ 
Large accelerated
filer


Accelerated
filer
Non-accelerated filerSmaller reporting companyEmerging growth company
PNM☐   ☐   ü☑   ☐   ☐ 
Large accelerated
filer
Accelerated
filer
Non-accelerated filerSmaller reporting companyEmerging growth company
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 any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   NO üYes ☐   No ☑


As of October 30, 201825, 2019, 79,653,624 shares of common stock, no par value per share, of PNMR were outstanding.


The total number of shares of common stock of PNM, no par value per share, outstanding as of October 30, 201825, 2019 was 39,117,799 all held by PNMR (and none held by non-affiliates).


The total number of shares of common stock of TNMP, $10 par value per share, outstanding as of October 30, 201825, 2019 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).


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


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





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


INDEX


 Page No.
GLOSSARY
4
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 
PNM RESOURCES, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Earnings
7
Condensed Consolidated Statements of Comprehensive Income
8
Condensed Consolidated Statements of Comprehensive IncomeCash Flows
9
Condensed Consolidated Balance Sheets
11
Condensed Consolidated Statements of Cash FlowsChanges in Equity
1013
Condensed Consolidated Balance SheetsPUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
12
Condensed Consolidated StatementStatements of Changes in EquityEarnings
14
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
Condensed Consolidated Statements of EarningsComprehensive Income
15
Condensed Consolidated Statements of Comprehensive IncomeCash Flows
16
Condensed Consolidated Balance Sheets
18
Condensed Consolidated Statements of Cash FlowsChanges in Equity
1720
Condensed Consolidated Balance SheetsTEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
19
Condensed Consolidated StatementStatements of Changes in EquityEarnings
21
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of EarningsCash Flows
22
Condensed Consolidated Statements of Cash FlowsBalance Sheets
23
Condensed Consolidated Balance SheetsStatements of Changes in Common Stockholder’s Equity
2425
Condensed Consolidated Statement of Changes in Common Stockholder's EquityNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
26
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
9283
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
131120
ITEM 4. CONTROLS AND PROCEDURES
133122
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
134122
ITEM 1A. RISK FACTORS
134123
ITEM 6. EXHIBITS
135123
SIGNATURE
136124



GLOSSARY
Definitions:   
2014 IRP PNM’s 2014 IRP
2017 IRP PNM’s 2017 IRP
ABCWUA Albuquerque Bernalillo County Water Utility Authority
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
AMIAdvanced Metering Infrastructure
AMS Advanced Meter System
AOCI  Accumulated Other Comprehensive Income
APS  Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
ARPAlternative Revenue Program
ASU Accounting Standards Update
August 2016 RDRecommended 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
Board  Board of Directors of PNMR
BSERBest System of Emissions Reduction Technology
BTMU MUFG Bank Ltd., formerly Thethe Bank of Tokyo-Mitsubishi UFJ, Ltd.
BTMU Term Loan Agreement NM Capital’s $125.0 Million Unsecured Term Loan
CAA Clean Air Act
CCBCasa Mesa Wind Coal Combustion ByproductsCasa Mesa Wind Energy Center
CCN Certificate of Convenience and Necessity
CCRCoal Combustion Residuals
CIACContributions in Aid of Construction
CO2
  Carbon Dioxide
CSA Coal Supply Agreement
CTCCompetition Transition Charge
DC Circuit United States Court of Appeals for the District of Columbia Circuit
December 2018 Compliance FilingPNM’s December 31, 2018 filing with the NMPRC regarding SJGS
DOE  United States Department of Energy
DOI  United States Department of Interior
EGU Electric Generating Unit
EIM  California Independent System Operator Western Energy Imbalance Market
EIS Environmental Impact Study
EPA  United States Environmental Protection Agency
ERCOTElectric 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
FIPFederal Implementation Plan
Four Corners  Four Corners Power Plant
Four Corners CSAFour Corners Power Plant Coal Supply Agreement
FPPAC  Fuel and Purchased Power Adjustment Clause
FTY Future Test Year
GAAP  Generally Accepted Accounting Principles in the United States of America
GHG  Greenhouse Gas Emissions
GWh  Gigawatt hours
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 British Thermal Units
Moody’s  Moody’s Investor Services, Inc.
MW  MegawattMegawatts
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
NECNavopache 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
NMAGNew 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
NO2
Nitrogen Dioxide
NOx  Nitrogen OxideOxides
NOPR Notice of Proposed Rulemaking
NPDES National Pollutant Discharge Elimination System
NRC  United States Nuclear Regulatory Commission
NSPSNew 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
PCRBsPollution Control Revenue Bonds
PNM  Public Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit Facility PNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Senior Unsecured Note AgreementPNM’s Agreement for the sale of Senior Unsecured Notes, aggregating $450.0 million
PNM 2017 Term Loan Agreement PNM’s $200.0 Million Unsecured Term Loan

PNM 2018 SUNs2019 Term Loan PNM’s Senior$250.0 Million Unsecured Notes to be issued under the PNM 2017 Senior Unsecured Note AgreementTerm Loan
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
PNMR 20162018 One-Year Term Loan PNMR’s $100.0$150.0 Million One-Year Unsecured Term Loan
PNMR 20162018 SUNSPNMR’s $300.0 Million Senior Unsecured Notes issued on March 9, 2018
PNMR 2018 Two-Year Term Loan PNMR’s $100.0$50.0 Million Two-Year Unsecured Term Loan
PNMR 2018 SUNsPNMR’s $300.0 Million Aggregate Principal Amount of Senior Unsecured Notes due 2021
PNMR Development PNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit Facility PNMR Development’s $24.5$40.0 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
PPA  Power Purchase Agreement
PSDPrevention of Significant Deterioration
PUCT  Public Utility Commission of Texas
PV  Photovoltaic
PVNGS  Palo Verde Nuclear Generating Station
RCRA  Resource Conservation and Recovery Act
RCT  Reasonable Cost Threshold
REA New Mexico’s Renewable Energy Act, of 2004as amended by the ETA
REC  Renewable Energy Certificates
Red Mesa Wind Red Mesa Wind Energy Center
REP  Retail Electricity Provider
RFPRequest For Proposal
Rio Bravo Rio Bravo Generating Station
ROE Return on Equity
RPS  Renewable Energy Portfolio Standard
S&P  Standard and Poor’s Ratings Services
SCRSelective Catalytic Reduction
SEC  United States Securities and Exchange Commission
SIP  State Implementation Plan
SJCC  San Juan Coal Company
SJGS  San Juan Generating Station
SJGS Abandonment ApplicationPNM’s July 1, 2019 consolidated application seeking NMPRC approval to retire PNM’s share of SJGS in 2022, for related replacement generating resources, and for the issuance of securitized bonds under the ETA
SJGS CSA San Juan Generating Station Coal Supply Agreement
SJGS RA San Juan Project Restructuring Agreement
SJPPASan Juan Project Participation Agreement
SNCR Selective Non-Catalytic Reduction
SO2
  Sulfur Dioxide
SOxTax Act Sulfur Oxide
SUNsSenior Unsecured NotesFederal tax reform legislation enacted on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act
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 2018 Rate Case TNMP’s General Rate Case Application Filed on May 30, 2018
TNMP 2018 Term LoanTNMP’s $35.0 Million Unsecured Term Loan
TNMP 2019 BondsTNMP’s First Mortgage Bonds issued under the TNMP 2019 Bond Purchase Agreement
TNMP 2019 Bond Purchase Agreement TNMP’s $20.0An agreement under which TNMP issued an aggregate of $305.0 Million Unsecured Two-Year Term Loanof First Mortgage Bonds in 2019
TNMP Revolving Credit Facility  TNMP’s $75.0 Million Secured Revolving Credit Facility
TNPTNP Enterprises, Inc. and Subsidiaries
Tri-State  Tri-State Generation and Transmission Association, Inc.

Tucson  Tucson Electric Power Company
UAMPS  Utah Associated Municipal Power Systems
US Supreme Court United States Supreme Court
Valencia  Valencia Energy Facility
VaRValue at Risk
VIE Variable Interest Entity
WACCWeighted 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 millionMillion of funding provided by NM Capital to WSJ
WSJ Westmoreland San Juan, LLC, formerly an indirect wholly-owned subsidiary of Westmoreland, and former owner of SJCC
WSJ LLC

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

PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS




PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 20172019 2018 2019 2018
(In thousands, except per share amounts)(In thousands, except per share amounts)
Electric Operating Revenues:
              
Contracts with customers$400,023
 $392,607
 $1,042,033
 $1,016,384
$418,673
 $400,023
 $1,049,287
 $1,042,033
Alternative revenue programs(8,050) (1,908) (1,466) 11,591
(6,779) (8,050) (300) (1,466)
Other electric operating revenue30,693
 29,201
 52,290
 84,423
21,692
 30,693
 64,471
 52,290
Total electric operating revenues422,666
 419,900
 1,092,857
 1,112,398
433,586
 422,666
 1,113,458
 1,092,857
Operating Expenses:
   
 

   
 
Cost of energy113,536
 103,748
 293,803
 310,818
108,736
 113,536
 314,145
 293,803
Administrative and general49,969
 44,130
 141,607
 132,509
47,613
 49,969
 142,782
 141,607
Energy production costs31,350
 31,970
 108,588
 98,150
30,877
 31,350
 108,853
 108,588
Regulatory disallowances and restructuring costs(1,645) —
 149
 —
—
 (1,645) 150,599
 149
Depreciation and amortization61,580
 58,821
 180,365
 172,829
68,350
 61,580
 199,771
 180,365
Transmission and distribution costs19,394
 16,801
 54,800
 50,309
16,461
 19,394
 52,333
 54,800
Taxes other than income taxes20,492
 19,808
 60,094
 57,820
21,009
 20,492
 61,327
 60,094
Total operating expenses294,676
 275,278
 839,406
 822,435
293,046
 294,676
 1,029,810
 839,406
Operating income127,990
 144,622
 253,451
 289,963
140,540
 127,990
 83,648
 253,451
Other Income and Deductions:              
Interest income3,400
 3,582
 11,862
 12,348
3,440
 3,400
 10,489
 11,862
Gains on investment securities2,463
 5,406
 1,081
 17,730
1,686
 2,463
 20,299
 1,081
Other income3,735
 6,275
 12,000
 14,626
4,256
 3,735
 11,050
 12,000
Other (deductions)(2,624) (6,709) (9,867) (17,372)(3,612) (2,624) (9,980) (9,867)
Net other income and deductions6,974
 8,554
 15,076
 27,332
5,770
 6,974
 31,858
 15,076
Interest Charges30,492
 32,106
 96,868
 96,137
30,359
 30,492
 91,785
 96,868
Earnings before Income Taxes104,472
 121,070
 171,659
 221,158
115,951
 104,472
 23,721
 171,659
Income Taxes12,899
 42,743
 18,838
 75,154
Income Taxes (Benefits)9,188
 12,899
 (32,420) 18,838
Net Earnings91,573
 78,327
 152,821
 146,004
106,763
 91,573
 56,141
 152,821
(Earnings) Attributable to Valencia Non-controlling Interest(3,920) (4,456) (11,706) (11,452)(3,860) (3,920) (10,188) (11,706)
Preferred Stock Dividend Requirements of Subsidiary(132) (132) (396) (396)(132) (132) (396) (396)
Net Earnings Attributable to PNMR$87,521
 $73,739
 $140,719
 $134,156
$102,771
 $87,521
 $45,557
 $140,719
Net Earnings Attributable to PNMR per Common Share:              
Basic$1.10
 $0.92
 $1.76
 $1.68
$1.29
 $1.10
 $0.57
 $1.76
Diluted$1.09
 $0.92
 $1.76
 $1.67
$1.28
 $1.09
 $0.57
 $1.76
Dividends Declared per Common Share$0.2650
 $0.2425
 $0.7950
 $0.7275
$0.290
 $0.265
 $0.870
 $0.795


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





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


Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 20172019 2018 2019 2018
(In thousands)(In thousands)
Net Earnings$91,573
 $78,327
 $152,821
 $146,004
$106,763
 $91,573
 $56,141
 $152,821
Other Comprehensive Income:              
Unrealized Gains on Available-for-Sale Securities:
              
Unrealized holding gains arising during the period, net of income tax (expense) of $(356), $(2,871), $(730), and $(8,654)1,044
 4,528
 2,142
 13,648
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $91, $1,601, $885, and $4,302(266) (2,526) (2,598) (6,786)
Unrealized holding gains arising during the period, net of income tax (expense) of $(1,821), $(356), $(5,869), and $(730)5,347
 1,044
 17,237
 2,142
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $1,768, $91, $3,191, and $885(5,194) (266) (9,372) (2,598)
Pension Liability Adjustment:              
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(480), $(626), $(1,442), and $(1,878)1,410
 987
 4,236
 2,961
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(470), $(480), $(1,410), and $(1,442)1,381
 1,410
 4,143
 4,236
Fair Value Adjustment for Cash Flow Hedges:              
Change in fair market value, net of income tax (expense) benefit of $(3), $(4), $(618), and $1088
 6
 1,813
 (170)
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(28), $(62), $(27), and $(187)81
 99
 75
 297
Change in fair market value, net of income tax (expense) benefit of $126, $(3), $931, and $(618)(369) 8
 (2,733) 1,813
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(46), $(28), $(179), and $(27)136
 81
 528
 75
Total Other Comprehensive Income2,277
 3,094
 5,668
 9,950
1,301
 2,277
 9,803
 5,668
Comprehensive Income93,850
 81,421
 158,489
 155,954
108,064
 93,850
 65,944
 158,489
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,920) (4,456) (11,706) (11,452)(3,860) (3,920) (10,188) (11,706)
Preferred Stock Dividend Requirements of Subsidiary(132) (132) (396) (396)(132) (132) (396) (396)
Comprehensive Income Attributable to PNMR$89,798
 $76,833
 $146,387
 $144,106
$104,072
 $89,798
 $55,360
 $146,387


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





PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,Nine Months Ended September 30,
2018 20172019 2018
(In thousands)(In thousands)
Cash Flows From Operating Activities:      
Net earnings$152,821
 $146,004
$56,141
 $152,821
Adjustments to reconcile net earnings to net cash flows from operating activities:      
Depreciation and amortization207,406
 200,286
225,182
 207,406
Deferred income tax expense18,706
 75,224
Net unrealized (gains) losses on commodity derivatives(84) 968
Deferred income tax expense (benefit)(33,220) 18,706
(Gains) on investment securities(1,081) (17,730)(20,299) (1,081)
Stock based compensation expense4,551
 5,322
5,424
 4,551
Regulatory disallowances and restructuring costs149
 —
150,599
 149
Allowance for equity funds used during construction(7,098) (6,217)(6,714) (7,098)
Other, net2,715
 1,409
1,945
 2,631
Changes in certain assets and liabilities:      
Accounts receivable and unbilled revenues(20,447) (21,077)(24,698) (20,447)
Materials, supplies, and fuel stock(8,731) (203)(5,908) (8,731)
Other current assets(13,657) 21,761
(1,851) (13,657)
Other assets2,608
 (5,981)33,284
 2,608
Accounts payable(32,638) 3,729
(5,469) (32,638)
Accrued interest and taxes17,113
 20,722
12,182
 17,113
Other current liabilities4,220
 (1,588)(2,530) 4,220
Other liabilities(9,656) (6,292)(32,812) (9,656)
Net cash flows from operating activities316,897
 416,337
351,256
 316,897
      
Cash Flows From Investing Activities:      
Additions to utility and non-utility plant(365,484) (353,423)
Additions to utility plant(444,920) (365,484)
Proceeds from sales of investment securities911,899
 456,577
375,382
 911,899
Purchases of investment securities(920,217) (461,126)(385,313) (920,217)
Principal repayments on Westmoreland Loan56,640
 28,770
—
 56,640
Investments in NMRD(9,000) —
(29,250) (9,000)
Other, net(365) 160
(192) (365)
Net cash flows from investing activities(326,527) (329,042)(484,293) (326,527)


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



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


Nine Months Ended September 30,Nine Months Ended September 30,
2018 20172019 2018
(In thousands)(In thousands)
Cash Flows From Financing Activities:      
Revolving credit facilities borrowings (repayments), net(42,800) (20,600)53,700
 (42,800)
Long-term borrowings829,652
 317,000
555,000
 829,652
Repayment of long-term debt(650,162) (263,323)(372,302) (650,162)
Proceeds from stock option exercise937
 1,739
943
 937
Awards of common stock(12,505) (13,816)(9,897) (12,505)
Dividends paid(63,721) (58,344)(69,695) (63,721)
Valencia’s transactions with its owner(12,677) (12,963)(10,225) (12,677)
Amounts received under transmission interconnection arrangements—
 11,879
Transmission interconnection and security deposit arrangements

8,340
 —
Refunds paid under transmission interconnection arrangements(2,246) (9,368)(2,246) (2,246)
Debt issuance costs and other, net(5,858) (1,872)(2,609) (5,858)
Net cash flows from financing activities40,620
 (49,668)151,009
 40,620
      
Change in Cash, Restricted Cash, and Equivalents30,990
 37,627
17,972
 30,990
Cash, Restricted Cash, and Equivalents at Beginning of Period3,974
 5,522
2,122
 3,974
Cash, Restricted Cash, and Equivalents at End of Period$34,964
 $43,149
$20,094
 $34,964
      
Restricted Cash Included in Other Current Assets on Condensed Consolidated Balance Sheets:   
At beginning of period$—
 $1,000
At end of period$—
 $—
   
Supplemental Cash Flow Disclosures:      
Interest paid, net of amounts capitalized$81,203
 $75,356
$85,721
 $81,203
Income taxes paid (refunded), net$842
 $625
$(2,929) $842
      
Supplemental schedule of noncash investing activities:      
(Increase) decrease in accrued plant additions$16,177
 $(4,499)$25,023
 $16,177


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





PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2018		 December 31,
2017		September 30,
2019		 December 31,
2018
(In thousands)(In thousands)
ASSETS      
Current Assets:      
Cash and cash equivalents$34,964
 $3,974
$20,094
 $2,122
Accounts receivable, net of allowance for uncollectible accounts of $1,433 and $1,081108,648
 90,473
Accounts receivable, net of allowance for uncollectible accounts of $1,191 and $1,406115,448
 92,800
Unbilled revenues53,832
 54,055
57,146
 57,092
Other receivables22,246
 17,582
14,058
 11,369
Current portion of Westmoreland Loan—
 3,576
Materials, supplies, and fuel stock75,234
 66,502
77,742
 71,834
Regulatory assets7,261
 2,933
3,678
 4,534
Commodity derivative instruments1,083
 1,088
Income taxes receivable7,589
 6,879
4,237
 7,965
Other current assets53,068
 47,358
48,761
 54,808
Total current assets363,925
 294,420
341,164
 302,524
Other Property and Investments:      
Long-term portion of Westmoreland Loan—
 53,064
Investment securities331,746
 323,524
369,017
 328,242
Equity investment in NMRD26,029
 16,510
56,084
 26,564
Other investments348
 503
240
 297
Non-utility property3,404
 3,404
Non-utility property, net10,633
 3,404
Total other property and investments361,527
 397,005
435,974
 358,507
Utility Plant:      
Plant in service and held for future use7,527,250
 7,238,285
Plant in service, held for future use, and to be abandoned7,680,996
 7,548,581
Less accumulated depreciation and amortization2,683,626
 2,592,692
2,688,066
 2,604,177
4,843,624
 4,645,593
4,992,930
 4,944,404
Construction work in progress227,367
 245,933
258,285
 194,427
Nuclear fuel, net of accumulated amortization of $49,376 and $43,52492,838
 88,701
Nuclear fuel, net of accumulated amortization of $48,364 and $42,51195,916
 95,798
Net utility plant5,163,829
 4,980,227
5,347,131
 5,234,629
Deferred Charges and Other Assets:      
Regulatory assets580,828
 600,672
566,314
 598,930
Goodwill278,297
 278,297
278,297
 278,297
Commodity derivative instruments2,741
 3,556
Operating lease right-of-use assets, net of accumulated amortization137,637
 —
Other deferred charges97,848
 91,926
94,415
 92,664
Total deferred charges and other assets959,714
 974,451
1,076,663
 969,891
$6,848,995
 $6,646,103
$7,200,932
 $6,865,551


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





PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2018		 December 31,
2017		September 30,
2019		 December 31,
2018
(In thousands, except share information)(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current Liabilities:      
Short-term debt$262,600
 $305,400
$289,600
 $235,900
Current installments of long-term debt471,880
 256,895
385,227
 —
Accounts payable72,568
 121,383
81,679
 112,170
Customer deposits10,833
 11,028
10,730
 10,695
Accrued interest and taxes80,181
 62,357
73,610
 65,156
Regulatory liabilities9,300
 2,309
6,938
 9,446
Commodity derivative instruments1,092
 1,182
Operating lease liabilities28,204
 —
Dividends declared21,240
 21,240
23,231
 23,231
Other current liabilities50,781
 53,850
46,510
 55,855
Total current liabilities980,475
 835,644
945,729
 512,453
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs2,142,631
 2,180,750
2,467,002
 2,670,111
Deferred Credits and Other Liabilities:      
Accumulated deferred income taxes586,295
 547,210
614,011
 600,719
Regulatory liabilities925,116
 933,578
871,132
 891,428
Asset retirement obligations155,203
 146,679
179,646
 158,674
Accrued pension liability and postretirement benefit cost80,871
 94,003
88,335
 100,375
Commodity derivative instruments2,741
 3,556
Operating lease liabilities106,621
 —
Other deferred credits127,612
 131,706
181,839
 167,668
Total deferred credits and other liabilities1,877,838
 1,856,732
2,041,584
 1,918,864
Total liabilities5,000,944
 4,873,126
5,454,315
 5,101,428
Commitments and Contingencies (Note 11)

 



 


Cumulative Preferred Stock of Subsidiary      
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529
 11,529
11,529
 11,529
Equity:      
PNMR common stockholders' equity:   
PNMR common stockholders’ equity:   
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)1,150,648
 1,157,665
1,149,583
 1,153,113
Accumulated other comprehensive income (loss), net of income taxes(101,480) (95,940)(98,881) (108,684)
Retained earnings722,130
 633,528
620,211
 643,953
Total PNMR common stockholders’ equity1,771,298
 1,695,253
1,670,913
 1,688,382
Non-controlling interest in Valencia65,224
 66,195
64,175
 64,212
Total equity1,836,522
 1,761,448
1,735,088
 1,752,594
$6,848,995
 $6,646,103
$7,200,932
 $6,865,551
      


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



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

 Attributable to PNMR 
Non-
controlling
Interest
in Valencia
  
 
Common
Stock
 AOCI 
Retained
Earnings
 Total PNMR Common Stockholders’ Equity  
Total
Equity
 (In thousands)
Balance at June 30, 2019$1,148,690
 $(100,182) $563,640
 $1,612,148
 $62,592
 $1,674,740
Net earnings before subsidiary preferred stock dividends—
 —
 102,903
 102,903
 3,860
 106,763
Total other comprehensive income—
 1,301
 —
 1,301
 —
 1,301
Subsidiary preferred stock dividends—
 —
 (132) (132) —
 (132)
Dividends declared on common stock—
 —
 (46,200) (46,200) —
 (46,200)
Awards of common stock(5) —
 —
 (5) —
 (5)
Stock based compensation expense898
 —
 —
 898
 —
 898
Valencia’s transactions with its owner—
 —
 —
 —
 (2,277) (2,277)
Balance at September 30, 2019$1,149,583
 $(98,881) $620,211
 $1,670,913
 $64,175
 $1,735,088
            
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—
 —
 45,953
 45,953
 10,188
 56,141
Total other comprehensive income—
 9,803
 —
 9,803
 —
 9,803
Subsidiary preferred stock dividends—
 —
 (396) (396) —
 (396)
Dividends declared on common stock—
 —
 (69,299) (69,299) —
 (69,299)
Proceeds from stock option exercise943
 —
 —
 943
 —
 943
Awards of common stock(9,897) —
 —
 (9,897) —
 (9,897)
Stock based compensation expense5,424
 —
 —
 5,424
 —
 5,424
Valencia’s transactions with its owner—
 —
 —
 —
 (10,225) (10,225)
Balance at September 30, 2019$1,149,583
 $(98,881) $620,211
 $1,670,913
 $64,175
 $1,735,088

Attributable to PNMR 
Non-
controlling
Interest
in Valencia
  
Common
Stock
 AOCI 
Retained
Earnings
 Total PNMR Common Stockholders’ Equity 
Total
Equity
Balance at June 30, 2018$1,149,646
 $(103,757) $676,826
 $1,722,715
 $65,600
 $1,788,315
Net earnings before subsidiary preferred stock dividends—
 —
 87,653
 87,653
 3,920
 91,573
Total other comprehensive income—
 2,277
 —
 2,277
 —
 2,277
Subsidiary preferred stock dividends—
 —
 (132) (132) —
 (132)
Dividends declared on common stock—
 —
 (42,217) (42,217) —
 (42,217)
Proceeds from stock option exercise13
 —
 —
 13
 —
 13
Awards of common stock(237) —
 —
 (237) —
 (237)
Stock based compensation expense1,226
 —
 —
 1,226
 —
 1,226
Valencia’s transactions with its owner—
 —
 —
 —
 (4,296) (4,296)
Balance at September 30, 2018$1,150,648
 $(101,480) $722,130
 $1,771,298
 $65,224
 $1,836,522
(In thousands)           
Balance at December 31, 2017, as originally reported$1,157,665
 $(95,940) $633,528
 $1,695,253
 $66,195
 $1,761,448
$1,157,665
 $(95,940) $633,528
 $1,695,253
 $66,195
 $1,761,448
Cumulative effect adjustment (Note 7)—
 (11,208) 11,208
 —
 —
 —
—
 (11,208) 11,208
 —
 —
 —
Balance at January 1, 2018, as adjusted1,157,665
 (107,148) 644,736
 1,695,253
 66,195
 1,761,448
1,157,665
 (107,148) 644,736
 1,695,253
 66,195
 1,761,448
Net earnings before subsidiary preferred stock dividends—
 —
 141,115
 141,115
 11,706
 152,821
—
 —
 141,115
 141,115
 11,706
 152,821
Total other comprehensive income—
 5,668
 —
 5,668
 —
 5,668
—
 5,668
 —
 5,668
 —
 5,668
Subsidiary preferred stock dividends—
 —
 (396) (396) —
 (396)—
 —
 (396) (396) —
 (396)
Dividends declared on common stock—
 —
 (63,325) (63,325) —
 (63,325)—
 —
 (63,325) (63,325) —
 (63,325)
Proceeds from stock option exercise937
 —
 —
 937
 —
 937
937
 —
 —
 937
 —
 937
Awards of common stock(12,505) —
 —
 (12,505) —
 (12,505)(12,505) —
 —
 (12,505) —
 (12,505)
Stock based compensation expense4,551
 —
 —
 4,551
 —
 4,551
4,551
 —
 —
 4,551
 —
 4,551
Valencia’s transactions with its owner—
 —
 —
 —
 (12,677) (12,677)—
 —
 —
 —
 (12,677) (12,677)
Balance at September 30, 2018$1,150,648
 $(101,480) $722,130
 $1,771,298
 $65,224
 $1,836,522
$1,150,648
 $(101,480) $722,130
 $1,771,298
 $65,224
 $1,836,522



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



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


Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 20172019 2018 2019 2018
(In thousands)(In thousands)
Electric Operating Revenues:
              
Contracts with customers$306,019
 $300,604
 $783,310
 $769,069
$311,793
 $306,019
 $775,795
 $783,310
Alternative revenue programs(5,338) (2,551) (3,484) 1,417
(2,372) (5,338) (1,617) (3,484)
Other electric operating revenue30,693
 29,201
 52,290
 84,423
21,692
 30,693
 64,471
 52,290
Total electric operating revenues331,374
 327,254
 832,116
 854,909
331,113
 331,374
 838,649
 832,116
Operating Expenses:              
Cost of energy92,384
 82,367
 229,547
 246,635
84,915
 92,384
 243,120
 229,547
Administrative and general44,923
 39,888
 129,571
 120,598
44,468
 44,923
 132,107
 129,571
Energy production costs31,350
 31,970
 108,588
 98,150
30,877
 31,350
 108,853
 108,588
Regulatory disallowances and restructuring costs(1,645) —
 149
 —
—
 (1,645) 150,599
 149
Depreciation and amortization38,474
 36,764
 113,314
 109,228
40,545
 38,474
 119,581
 113,314
Transmission and distribution costs12,408
 10,207
 33,228
 30,301
10,858
 12,408
 33,329
 33,228
Taxes other than income taxes10,964
 10,668
 34,033
 32,837
10,997
 10,964
 34,292
 34,033
Total operating expenses228,858
 211,864
 648,430
 637,749
222,660
 228,858
 821,881
 648,430
Operating income102,516
 115,390
 183,686
 217,160
108,453
 102,516
 16,768
 183,686
Other Income and Deductions:              
Interest income3,472
 1,782
 9,340
 6,457
3,515
 3,472
 10,701
 9,340
Gains on investment securities2,463
 5,406
 1,081
 17,730
1,686
 2,463
 20,299
 1,081
Other income2,137
 3,762
 6,821
 10,270
2,095
 2,137
 6,647
 6,821
Other (deductions)(2,085) (4,964) (7,314) (14,490)(3,011) (2,085) (7,639) (7,314)
Net other income and deductions5,987
 5,986
 9,928
 19,967
4,285
 5,987
 30,008
 9,928
Interest Charges18,063
 20,451
 58,881
 62,393
18,492
 18,063
 55,379
 58,881
Earnings before Income Taxes90,440
 100,925
 134,733
 174,734
Income Taxes9,012
 35,642
 11,009
 58,865
Earnings (Loss) before Income Taxes94,246
 90,440
 (8,603) 134,733
Income Taxes (Benefits)9,525
 9,012
 (31,984) 11,009
Net Earnings81,428
 65,283
 123,724
 115,869
84,721
 81,428
 23,381
 123,724
(Earnings) Attributable to Valencia Non-controlling Interest(3,920) (4,456) (11,706) (11,452)(3,860) (3,920) (10,188) (11,706)
Net Earnings Attributable to PNM77,508
 60,827
 112,018
 104,417
80,861
 77,508
 13,193
 112,018
Preferred Stock Dividends Requirements(132) (132) (396) (396)(132) (132) (396) (396)
Net Earnings Available for PNM Common Stock$77,376
 $60,695
 $111,622
 $104,021
$80,729
 $77,376
 $12,797
 $111,622


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



PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 20172019 2018 2019 2018
(In thousands)(In thousands)
Net Earnings$81,428
 $65,283
 $123,724
 $115,869
$84,721
 $81,428
 $23,381
 $123,724
Other Comprehensive Income:              
Unrealized Gains on Available-for-Sale Securities:
              
Unrealized holding gains arising during the period, net of income tax (expense) of $(356), $(2,871), $(730), and $(8,654)1,044
 4,528
 2,142
 13,648
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $91, $1,601, $885, and $4,302(266) (2,526) (2,598) (6,786)
Unrealized holding gains arising during the period, net of income tax (expense) of $(1,821), $(356), $(5,869), and $(730)5,347
 1,044
 17,237
 2,142
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $1,768, $91, $3,191, and $885(5,194) (266) (9,372) (2,598)
Pension Liability Adjustment:              
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(480), $(626), $(1,442), and $(1,878)1,410
 987
 4,236
 2,961
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(470), $(480), $(1,410), and $(1,442)1,381
 1,410
 4,143
 4,236
Total Other Comprehensive Income2,188
 2,989
 3,780
 9,823
1,534
 2,188
 12,008
 3,780
Comprehensive Income83,616
 68,272
 127,504
 125,692
86,255
 83,616
 35,389
 127,504
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,920) (4,456) (11,706) (11,452)(3,860) (3,920) (10,188) (11,706)
Comprehensive Income Attributable to PNM$79,696
 $63,816
 $115,798
 $114,240
$82,395
 $79,696
 $25,201
 $115,798


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





PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,Nine Months Ended September 30,
2018 20172019 2018
(In thousands)(In thousands)
Cash Flows From Operating Activities:      
Net earnings$123,724
 $115,869
$23,381
 $123,724
Adjustments to reconcile net earnings to net cash flows from operating activities:      
Depreciation and amortization137,224
 134,541
143,175
 137,224
Deferred income tax expense11,894
 59,866
Net unrealized (gains) losses on commodity derivatives(84) 968
Deferred income tax expense (benefit)(31,382) 11,894
(Gains) on investment securities(1,081) (17,730)(20,299) (1,081)
Regulatory disallowances and restructuring costs149
 —
150,599
 149
Allowance for equity funds used during construction(5,473) (5,908)(4,904) (5,473)
Other, net2,495
 1,705
1,911
 2,411
Changes in certain assets and liabilities:      
Accounts receivable and unbilled revenues(14,164) (13,881)(11,187) (14,164)
Materials, supplies, and fuel stock(7,308) 1,385
(5,275) (7,308)
Other current assets(15,493) 23,488
1,076
 (15,493)
Other assets11,829
 6,925
25,884
 11,829
Accounts payable(23,990) 123
(3,090) (23,990)
Accrued interest and taxes13,560
 16,221
20,182
 13,560
Other current liabilities(14,838) (17,988)24,072
 (14,838)
Other liabilities(12,228) (8,792)(35,488) (12,228)
Net cash flows from operating activities206,216
 296,792
278,655
 206,216
      
Cash Flows From Investing Activities:      
Utility plant additions(177,550) (206,499)
Additions to utility plant(234,773) (177,550)
Proceeds from sales of investment securities911,899
 456,577
375,382
 911,899
Purchases of investment securities(920,217) (461,126)(385,313) (920,217)
Other, net141
 150
28
 141
Net cash flows from investing activities(185,727) (210,898)(244,676) (185,727)


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





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


Nine Months Ended September 30,Nine Months Ended September 30,
2018 20172019 2018
(In thousands)(In thousands)
Cash Flows From Financing Activities:      
Revolving credit facilities borrowings (repayments), net(39,800) (61,000)(42,400) (39,800)
Short-term borrowings (repayments) – affiliate, net(19,800) —
Long-term borrowings450,000
 257,000
250,000
 450,000
Repayment of long-term debt(450,025) (232,000)(200,000) (450,025)
Dividends paid(396) (396)(396) (396)
Valencia’s transactions with its owner(12,677) (12,963)(10,225) (12,677)
Amounts received under transmission interconnection arrangements68,200
 11,879
Transmission interconnection and security deposit arrangements8,340
 68,200
Refunds paid under transmission interconnection arrangements(2,246) (9,368)(2,246) (2,246)
Debt issuance costs and other, net(3,167) (1,000)(198) (3,167)
Net cash flows from financing activities9,889
 (47,848)(16,925) 9,889
      
Change in Cash, Restricted Cash, and Equivalents30,378
 38,046
17,054
 30,378
Cash, Restricted Cash, and Equivalents at Beginning of Period1,108
 1,324
85
 1,108
Cash, Restricted Cash, and Equivalents at End of Period$31,486
 $39,370
$17,139
 $31,486
      
Restricted Cash Included in Other Current Assets on Condensed Consolidated Balance Sheets:   
At beginning of period$—
 $1,000
At end of period$—
 $—
   
Supplemental Cash Flow Disclosures:      
Interest paid, net of amounts capitalized$50,160
 $48,627
$42,284
 $50,160
Income taxes paid (refunded), net$—
 $—
$(3,544) $—
      
Supplemental schedule of noncash investing activities:      
(Increase) decrease in accrued plant additions$(27) $(9,399)$12,980
 $(27)


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





PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2018		 December 31,
2017		September 30,
2019		 December 31,
2018
(In thousands)(In thousands)
ASSETS      
Current Assets:      
Cash and cash equivalents$31,486
 $1,108
$17,139
 $85
Accounts receivable, net of allowance for uncollectible accounts of $1,433 and $1,08179,526
 67,227
Accounts receivable, net of allowance for uncollectible accounts of $1,191 and $1,40680,250
 68,603
Unbilled revenues43,239
 43,869
44,657
 47,113
Other receivables21,158
 14,541
13,587
 10,650
Affiliate receivables8,855
 9,486
8,883
 15,871
Materials, supplies, and fuel stock68,167
 60,859
72,372
 67,097
Regulatory assets7,063
 2,139
779
 4,534
Commodity derivative instruments1,083
 1,088
Income taxes receivable4,294
 3,410
9,907
 12,850
Other current assets46,467
 39,904
37,213
 43,516
Total current assets311,338
 243,631
284,787
 270,319
Other Property and Investments:      
Investment securities331,746
 323,524
369,017
 328,242
Other investments142
 283
62
 91
Non-utility property96
 96
Non-utility property, net3,839
 96
Total other property and investments331,984
 323,903
372,918
 328,429
Utility Plant:      
Plant in service and held for future use5,681,620
 5,501,070
Plant in service, held for future use, and to be abandoned5,626,070
 5,623,520
Less accumulated depreciation and amortization2,087,595
 2,029,534
2,049,859
 2,006,266
3,594,025
 3,471,536
3,576,211
 3,617,254
Construction work in progress141,174
 204,079
144,778
 134,221
Nuclear fuel, net of accumulated amortization of $49,376 and $43,52492,838
 88,701
Nuclear fuel, net of accumulated amortization of $48,364 and $42,51195,916
 95,798
Net utility plant3,828,037
 3,764,316
3,816,905
 3,847,273
Deferred Charges and Other Assets:      
Regulatory assets440,346
 459,239
444,048
 460,903
Goodwill51,632
 51,632
51,632
 51,632
Commodity derivative instruments2,741
 3,556
Operating lease right-of-use assets, net of accumulated amortization126,313
 —
Other deferred charges76,683
 75,286
80,228
 77,327
Total deferred charges and other assets571,402
 589,713
702,221
 589,862
$5,042,761
 $4,921,563
$5,176,831
 $5,035,883
      


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





PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2018		 December 31,
2017		September 30,
2019		 December 31,
2018
(In thousands, except share information)(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY      
Current Liabilities:      
Short-term debt$—
 $39,800
$—
 $42,400
Short-term debt - affiliate—
 19,800
Current installments of long-term debt199,993
 23
350,227
 —
Accounts payable53,131
 77,094
59,043
 75,114
Affiliate payables3,148
 22,875
11,537
 164
Customer deposits10,833
 11,028
10,730
 10,695
Accrued interest and taxes48,389
 33,945
53,005
 35,767
Regulatory liabilities5,796
 784
5,620
 5,975
Commodity derivative instruments1,092
 1,182
Operating lease liabilities24,940
 —
Dividends declared132
 132
132
 132
Other current liabilities30,582
 31,633
96,100
 32,976
Total current liabilities353,096
 218,496
611,334
 223,023
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs1,456,109
 1,657,887
1,357,410
 1,656,490
Deferred Credits and Other Liabilities:      
Accumulated deferred income taxes480,479
 449,012
508,115
 502,767
Regulatory liabilities736,123
 754,441
688,109
 713,971
Asset retirement obligations154,171
 145,707
178,731
 157,814
Accrued pension liability and postretirement benefit cost74,368
 86,124
81,871
 92,981
Commodity derivative instruments2,741
 3,556
Operating lease liabilities98,394
 —
Other deferred credits171,345
 106,442
154,999
 215,737
Total deferred credits and liabilities1,619,227
 1,545,282
1,710,219
 1,683,270
Total liabilities3,428,432
 3,421,665
3,678,963
 3,562,783
Commitments and Contingencies (Note 11)

 



 


Cumulative Preferred Stock      
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529
 11,529
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(104,521) (97,093)(98,414) (110,422)
Retained earnings377,179
 254,349
255,660
 242,863
Total PNM common stockholder’s equity1,537,576
 1,422,174
1,422,164
 1,397,359
Non-controlling interest in Valencia65,224
 66,195
64,175
 64,212
Total equity1,602,800
 1,488,369
1,486,339
 1,461,571
$5,042,761
 $4,921,563
$5,176,831
 $5,035,883


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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Attributable to PNM    Attributable to PNM    
    
Total PNM
Common
Stockholder’s
Equity
 
Non-
controlling
 Interest in Valencia
      
Total PNM
Common
Stockholder’s
Equity
 
Non-
controlling
 Interest in Valencia
  
          
Common
Stock
 AOCI 
Retained
Earnings
 
Total
Equity
Common
Stock
 AOCI 
Retained
Earnings
 
Total
Equity
 
Total PNM
Common
Stockholder’s
Equity
Non-
controlling
 Interest in Valencia
 
Total PNM
Common
Stockholder’s
Equity
Non-
controlling
 Interest in Valencia
(In thousands)(In thousands)
Balance at December 31, 2017, as originally reported$1,264,918
 $(97,093) $254,349
 $1,422,174
$66,195
$1,488,369
Cumulative effect adjustment (Note 7)—
 (11,208) 11,208
 —
—
—
Balance at January 1, 2018, as adjusted1,264,918
 (108,301) 265,557
 1,422,174
 66,195
 1,488,369
Balance at June 30, 2019$1,264,918
 $(99,948) $174,931
 $1,339,901
 $62,592
 $1,402,493
Net earnings—
 —
 112,018
 112,018
 11,706
 123,724
—
 —
 80,861
 80,861
 3,860
 84,721
Total other comprehensive income—
 3,780
 —
 3,780
 —
 3,780
—
 1,534
 —
 1,534
 —
 1,534
Dividends declared on preferred stock—
 —
 (396) (396) —
 (396)—
 —
 (132) (132) —
 (132)
Valencia’s transactions with its owner—
 —
 —
 —
 (12,677) (12,677)—
 —
 —
 —
 (2,277) (2,277)
Balance at September 30, 2018$1,264,918
 $(104,521) $377,179
 $1,537,576
 $65,224
 $1,602,800
Balance at September 30, 2019$1,264,918
 $(98,414) $255,660
 $1,422,164
 $64,175
 $1,486,339
           
Balance at December 31, 2018$1,264,918
 $(110,422) $242,863
 $1,397,359
 $64,212
 $1,461,571
Net earnings—
 —
 13,193
 13,193
 10,188
 23,381
Total other comprehensive income—
 12,008
 —
 12,008
 —
 12,008
Dividends declared on preferred stock—
 —
 (396) (396) —
 (396)
Valencia’s transactions with its owner—
 —
 —
 —
 (10,225) (10,225)
Balance at September 30, 2019$1,264,918
 $(98,414) $255,660
 $1,422,164
 $64,175
 $1,486,339



Balance at June 30, 2018$1,264,918
 $(106,709) $299,803
 $1,458,012
 $65,600
 $1,523,612
Net earnings—
 —
 77,508
 77,508
 3,920
 81,428
Total other comprehensive income—
 2,188
 —
 2,188
 —
 2,188
Dividends declared on preferred stock—
 —
 (132) (132) —
 (132)
Valencia’s transactions with its owner—
 —
 —
 —
 (4,296) (4,296)
Balance at September 30, 2018$1,264,918
 $(104,521) $377,179
 $1,537,576
 $65,224
 $1,602,800
            
Balance at December 31, 2017, as originally reported$1,264,918
 $(97,093) $254,349
 $1,422,174
 $66,195
 $1,488,369
Cumulative effect adjustment (Note 7)—
 (11,208) 11,208
 —
 —
 —
Balance at January 1, 2018, as adjusted1,264,918
 (108,301) 265,557
 1,422,174
 66,195
 1,488,369
Net earnings—
 —
 112,018
 112,018
 11,706
 123,724
Total other comprehensive income—
 3,780
 —
 3,780
 —
 3,780
Dividends declared on preferred stock—
 —
 (396) (396) —
 (396)
Valencia’s transactions with its owner—
 —
 —
 —
 (12,677) (12,677)
Balance at September 30, 2018$1,264,918
 $(104,521) $377,179
 $1,537,576
 $65,224
 $1,602,800


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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 20172019 2018 2019 2018
(In thousands)(In thousands)
Electric Operating Revenues:
              
Contracts with customers$94,004
 $92,003
 $258,723
 $247,315
$106,880
 $94,004
 $273,492
 $258,723
Alternative revenue programs(2,712) 643
 2,018
 10,174
(4,407) (2,712) 1,317
 2,018
Total Electric Operating Revenues
91,292
 92,646
 260,741
 257,489
102,473
 91,292
 274,809
 260,741
Operating Expenses:              
Cost of energy21,152
 21,381
 64,256
 64,183
23,821
 21,152
 71,025
 64,256
Administrative and general9,781
 10,765
 29,342
 30,402
9,418
 9,781
 30,073
 29,342
Depreciation and amortization17,176
 16,424
 49,676
 47,392
22,005
 17,176
 62,722
 49,676
Transmission and distribution costs6,986
 6,594
 21,572
 20,008
5,603
 6,986
 19,004
 21,572
Taxes other than income taxes8,373
 8,008
 22,710
 21,778
9,030
 8,373
 24,226
 22,710
Total operating expenses63,468
 63,172
 187,556
 183,763
69,877
 63,468
 207,050
 187,556
Operating income27,824
 29,474
 73,185
 73,726
32,596
 27,824
 67,759
 73,185
Other Income and Deductions:              
Other income1,300
 2,258
 4,276
 3,621
2,012
 1,300
 3,952
 4,276
Other (deductions)(149) (1,030) (1,209) (1,229)(246) (149) (869) (1,209)
Net other income and deductions1,151
 1,228
 3,067
 2,392
1,766
 1,151
 3,083
 3,067
Interest Charges8,241
 7,704
 23,771
 22,619
7,047
 8,241
 22,408
 23,771
Earnings before Income Taxes20,734
 22,998
 52,481
 53,499
27,315
 20,734
 48,434
 52,481
Income Taxes4,634
 8,271
 11,602
 18,964
2,228
 4,634
 3,982
 11,602
Net Earnings$16,100
 $14,727
 $40,879
 $34,535
$25,087
 $16,100
 $44,452
 $40,879


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







TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,Nine Months Ended September 30,
2018 20172019 2018
(In thousands)(In thousands)
Cash Flows From Operating Activities:      
Net earnings$40,879
 $34,535
$44,452
 $40,879
Adjustments to reconcile net earnings to net cash flows from operating activities:      
Depreciation and amortization51,076
 48,754
63,654
 51,076
Deferred income tax expense (benefit)(3,259) 8,578
(12,286) (3,259)
Allowance for equity funds used during construction(1,624) (309)(1,810) (1,624)
Other, net184
 (296)33
 184
Changes in certain assets and liabilities:      
Accounts receivable and unbilled revenues(6,283) (7,196)(13,512) (6,283)
Materials and supplies(1,423) (1,588)(633) (1,423)
Other current assets759
 (1,674)(3,870) 759
Other assets(9,169) (13,799)6,444
 (9,169)
Accounts payable(4,277) 669
848
 (4,277)
Accrued interest and taxes18,389
 13,550
12,000
 18,389
Other current liabilities6,092
 945
1,684
 6,092
Other liabilities2,613
 1,633
(289) 2,613
Net cash flows from operating activities93,957
 83,802
96,715
 93,957
Cash Flows From Investing Activities:      
Utility plant additions(170,785) (106,914)
Additions to utility plant(195,054) (170,785)
Net cash flows from investing activities(170,785) (106,914)(195,054) (170,785)
Cash Flow From Financing Activities:      
Revolving credit facilities borrowings (repayments), net17,500
 —
(2,500) 17,500
Short-term borrowings (repayments) – affiliate, net4,100
 (4,600)700
 4,100
Long-term borrowings80,000
 60,000
305,000
 80,000
Repayment of long-term debt(172,302) —
Dividends paid(25,804) (29,663)(30,178) (25,804)
Debt issuance costs and other, net(668) (874)(2,381) (668)
Net cash flows from financing activities75,128
 24,863
98,339
 75,128
      
Change in Cash and Cash Equivalents(1,700) 1,751
—
 (1,700)
Cash and Cash Equivalents at Beginning of Period1,700
 671—
 1,700
Cash and Cash Equivalents at End of Period$—
 $2,422
$—
 $—
      
Supplemental Cash Flow Disclosures:      
Interest paid, net of amounts capitalized$16,338
 $16,721
$24,238
 $16,338
Income taxes paid (refunded), net$842
 $750
$615
 $842
      
Supplemental schedule of noncash investing activities:      
(Increase) decrease in accrued plant additions$12,822
 $(251)$7,799
 $12,822


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







TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2018		 December 31,
2017		September 30,
2019		 December 31,
2018
(In thousands)(In thousands)
ASSETS      
Current Assets:      
Cash and cash equivalents$—
 $1,700
$—
 $—
Accounts receivable29,122
 23,246
35,198
 24,196
Unbilled revenues10,593
 10,186
12,489
 9,979
Other receivables2,315
 2,860
1,981
 1,721
Affiliate receivables—
 336
—
 164
Materials and supplies7,067
 5,643
5,370
 4,737
Regulatory assets198
 794
2,899
 —
Other current assets1,490
 1,131
1,825
 1,114
Total current assets50,785
 45,896
59,762
 41,911
Other Property and Investments:      
Other investments206
 220
178
 206
Non-utility property2,240
 2,240
Non-utility property, net5,653
 2,240
Total other property and investments2,446
 2,460
5,831
 2,446
Utility Plant:      
Plant in service and plant held for future use1,602,210
 1,504,778
1,809,374
 1,686,119
Less accumulated depreciation and amortization477,213
 460,858
513,141
 487,734
1,124,997
 1,043,920
1,296,233
 1,198,385
Construction work in progress77,456
 34,350
103,923
 51,459
Net utility plant1,202,453
 1,078,270
1,400,156
 1,249,844
Deferred Charges and Other Assets:      
Regulatory assets140,482
 141,433
122,266
 138,027
Goodwill226,665
 226,665
226,665
 226,665
Operating lease right-of-use assets, net of accumulated amortization10,649
 —
Other deferred charges6,011
 6,046
6,737
 6,284
Total deferred charges and other assets373,158
 374,144
366,317
 370,976
$1,628,842
 $1,500,770
$1,832,066
 $1,665,177


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



TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
2018		 December 31,
2017		September 30,
2019		 December 31,
2018
(In thousands, except share information)(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY      
Current Liabilities:      
Short-term debt$17,500
 $—
$15,000
 $17,500
Short-term debt – affiliate4,100
 —
800
 100
Current installments of long-term debt171,889
 —
35,000
 —
Accounts payable12,714
 29,812
16,853
 23,804
Affiliate payables3,792
 667
4,641
 1,210
Accrued interest and taxes48,008
 29,619
53,881
 41,882
Regulatory liabilities3,504
 1,525
1,318
 3,471
Operating lease liabilities2,862
 —
Other current liabilities3,102
 2,450
3,952
 2,861
Total current liabilities264,609
 64,073
134,307
 90,828
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs388,404
 480,620
670,756
 575,398
Deferred Credits and Other Liabilities:      
Accumulated deferred income taxes123,318
 126,415
133,910
 136,238
Regulatory liabilities188,993
 179,137
183,023
 177,458
Asset retirement obligations843
 793
915
 860
Accrued pension liability and postretirement benefit cost6,503
 7,879
6,464
 7,394
Operating lease liabilities7,655
 —
Other deferred credits6,692
 7,448
6,669
 2,908
Total deferred credits and other liabilities326,349
 321,672
338,636
 324,858
Total liabilities979,362
 866,365
1,143,699
 991,084
Commitments and Contingencies (Note 11)

 



 


Common Stockholder's Equity:   
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
 504,166
534,166
 534,166
Retained earnings145,250
 130,175
154,137
 139,863
Total common stockholder’s equity649,480
 634,405
688,367
 674,093
$1,628,842
 $1,500,770
$1,832,066
 $1,665,177


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



TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
(Unaudited)
Common Stock Paid-in Capital Retained Earnings Total Common Stockholder’s EquityCommon Stock Paid-in Capital Retained Earnings Total Common Stockholder’s Equity
(In thousands)(In thousands)
Balance at December 31, 2017$64
 $504,166
 $130,175
 $634,405
Balance at June 30, 2019$64
 $534,166
 $144,417
 $678,647
Net earnings—
 —
 40,879
 40,879
—
 —
 25,087
 25,087
Dividends declared on common stock—
 —
 (25,804) (25,804)—
 —
 (15,367) (15,367)
Balance at September 30, 2018$64
 $504,166
 $145,250
 $649,480
Balance at September 30, 2019$64
 $534,166
 $154,137
 $688,367
       
Balance at December 31, 2018$64
 $534,166
 $139,863
 $674,093
Net earnings—
 —
 44,452
 44,452
Dividends declared on common stock—
 —
 (30,178) (30,178)
Balance at September 30, 2019$64
 $534,166
 $154,137
 $688,367


Balance at June 30, 2018$64
 $504,166
 $144,518
 $648,748
Net earnings—
 —
 16,100
 16,100
Dividends declared on common stock—
 —
 (15,368) (15,368)
Balance at September 30, 2018$64
 $504,166
 $145,250
 $649,480
        
Balance at December 31, 2017$64
 $504,166
 $130,175
 $634,405
Net earnings—
 —
 40,879
 40,879
Dividends declared on common stock—
 —
 (25,804) (25,804)
Balance at September 30, 2018$64
 $504,166
 $145,250
 $649,480


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





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






(1)Significant Accounting Policies and Responsibility for Financial Statements


Financial Statement Preparation


In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at September 30, 20182019 and December 31, 2017,2018, and the consolidated results of operations and comprehensive income for the three and nine months ended September 30, 20182019 and 2017,2018, and cash flows for the nine months ended September 30, 20182019 and 2017.2018. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.


The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the 20172018 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 20182019 financial statement presentation.


These Condensed Consolidated Financial Statements are unaudited. Certain information and note disclosures normally included in the annual audited Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s, and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 20172018 Annual Reports on Form 10-K.


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


Principles of Consolidation

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


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


Dividends on Common Stock


Dividends on PNMR’s common stock are declared by the Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. This has historically resulted in dividends 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 attributableconsidered to be for the second quarter of $0.2650$0.290 per share in July 2019 and $0.265 per share in July 2018, and $0.2425 in July 2017, which are reflected

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


as being in the second quarter within “Dividends Declared per Common Share” on the PNMR Condensed Consolidated Statements of Earnings. The Board declared dividends on common stock for the third quarter of $0.2650$0.290 per share

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


in September 2019 and $0.265 per share in September 2018, and $0.2425 per share in September 2017, which are reflected as being in the third quarter within “Dividends Declared per Common Share” on the PNMR Condensed Consolidated StatementsStatement of Earnings.


TNMP declared and paid cash dividends on common stock to PNMR of $25.8$15.4 million and $29.7$30.2 million in the three and nine months ended September 30, 20182019 and 2017.$15.4 million and $25.8 million in the three and nine months ended September 30, 2018.


Investment in NM Renewable Development, LLC


As discussed in Note 1 of the 20172018 Annual Reports on Form 10-K, PNMR Development and AEP OnSite Partners created NMRD in September 2017 to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. As of September 30, 2019, NMRD’s current renewable energy capacity in operation is 34.3was 35.1 MW. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. The investment in NMRD is accounted for using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.


In the nine months ended September 30, 2019 and 2018, PNMR Development made cash contributions of $29.3 million and $9.0 million to NMRD to be used primarily for its construction activities. For the three and nine months ended September 30, 2018, NMRD had revenues

PNMR presents its share of $1.0 million and $2.5 million and net earnings of $0.5 million and $1.0 million. At September 30, 2018,from NMRD had $2.3 million of current assets, $50.4 million of property, plant, and equipment and other assets, $0.7 million of current liabilities, and $52.0 million of owners’ equity.

Cash and Restricted Cash

Additional information concerning the Company’s policy for recording cash and cash equivalents is discussed in Note 1 of the 2017 Annual Reports on Form 10-K. In November 2016, the FASB issued Accounting Standards Update 2016-18 – Statement of Cash Flows (Topic 230), which requires amounts generally described as restricted cash and restricted cash equivalents (collectively, “restricted cash”) to be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statements of cash flows and adds disclosures necessary to reconcile such amounts to cash and cash equivalents on the balance sheets. ASU 2016-18 does not require that restricted cash be reflected as cash in the statement of financial position and does not provide a definition of what should be considered restricted cash.

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. During 2016, PNM utilized $7.2 million of such third-party deposits to offset construction costs for the interconnection facilities. The remaining $1.0 million was held as restricted cash until the second quarter of 2017, at which time a refund was made to the third party. The balances of this deposit arrangement were included in other current assets on the balance sheets of PNMR and PNM. Under the terms of the BTMU Term Loan Agreement (Note 9), 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 its obligations under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements (Note 6). Cash held by NM Capital was included in cash and cash equivalents on the balance sheets of PNMR and was less than $0.1 million at December 31, 2017.

The Company adopted ASU 2016-18 as of January 1, 2018, its required effective date. Upon adoption, ASU 2016-18 requires the use of a retrospective transition method for the statement of cash flows in each period presented. Accordingly, PNM made retrospective adjustments to its Condensed Consolidated Statements of Cash Flows to increase beginning cash, restricted cash, and equivalents at January 1, 2017 by $1.0 million and to reduce operating cash in-flows – other current assets by $1.0 million during the nine months ending September 30, 2017. In addition, the beginning and ending balances of cash, restricted cash, and equivalents are presentedincome on the Condensed Consolidated Statements of Cash Flows. No other changes were made to the Condensed Consolidated Financial Statements in connection with the adoption of ASU 2016-18.Earnings. Summarized financial information for NMRD is as follows:

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


 
Results of Operations

 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (In thousands)
Operating revenues$892
 $1,007
 $2,720
 $2,516
Operating expenses730
 472
 2,181
 1,478
Net earnings$162
 $535
 $539
 $1,038
 
Financial Position

 September 30, December 31,
 2019 2018
 (In thousands)
Current assets$2,243
 $2,581
Net property, plant, and equipment111,056
 50,784
Total assets113,299
 53,365
Current liabilities1,132
 237
Owners’ equity$112,167
 $53,128


New Accounting Pronouncements


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


Accounting Standards Update 2016-02 – 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. ASU 2016-02 originally required 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 that expired during the periods presented.
As further discussed in Note 7 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, the Company has operating leases of office buildings, vehicles, and equipment. PNM also has operating lease interests in PVNGS Units 1 and 2 that will expire in January 2023 and 2024. In addition, the Company also routinely enters into land easements and right-of-way agreements.

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, is conducting outreach activities across its lines of business, and is in the process of implementing software to help administer and account for its leasing activities. The Company has made significant progress in identifying arrangements that may be classified as leases under ASU 2016-02 in addition to those currently classified as operating leases. 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 anticipates its leases of vehicles and certain office equipment commencing after January 1, 2019 will be classified as financing leases. The Company is in the process of analyzing each of the identified contractual arrangements to determine if it contains lease elements under the new standard and quantifying the potential impacts of identified lease arrangements. The Company anticipates this process will continue throughout 2018. The Company will adopt this standard effective as of January 1, 2019, its required effective date. The Company anticipates it will elect the “package” of practical expedients provided by ASU 2016-02 upon adoption. As a result, the Company will not reassess, as of the date of adoption, whether contracts should be accounted for as leases under ASU 2016-02, the classification of contracts accounted for as leases (as operating or financing), or whether any initial direct costs associated with contracts accounted for as leases should be recognized as a component of right-of-use assets.

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, which is discussed in Note 7 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K. The Company anticipates it will elect to use the practical expedient for its existing and expired land easements upon adoption of ASU 2016-02.

In July 2018, the FASB issued ASU 2018-11, which provides entities an optional transitional relief method to apply ASU 2016-02 as of the date of initial application of the standard rather than as of the earliest period presented. The Company anticipates it will elect to use this optional transitional relief method.

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 asIn November 2018, the FASB clarified that receivables arising from operating leases are not within the scope of Topic 326 for assets measured at amortized costs. Instead, impairments of receivables arising from operating leases should be accounted for in accordance with Topic 842. In May 2019, the FASB issued

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




January 1, 2020, its required effective date, although early adoption is permitted beginning on January 1, 2019.transition relief by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. The Company’s trade receivables and PNMR’s guarantees of certain PNMR Development debt arrangements are within the scope of ASU 2016-13. 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.reserves for trade receivables or on PNMR’s guarantees of certain PNMR Development debt arrangements. 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 entire decrease in value has been realized as an impairment. As discussed in Note 1 of the 2018 Annual Reports on Form 10-K, PNM records a realized loss as an impairment for any available-for-sale debt security that has a fair value that is less than carrying value at the end of each quarter. As a result, the Company does not anticipate the new standard will impact its accounting for available-for-sale debt securities. The Company will adopt ASU 2016-13 as of January 1, 2020, its required effective date.


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


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

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 2017-12 is effective for the Company on January 1, 2019, although early adoption is permitted. At adoption, ASU 2017-12 is to be applied prospectively and allows entities to record a cumulative-effect adjustment at the transition date as well as allowing entities to elect certain practical expedients upon adoption. As discussed in Note 6 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 9, the Company periodically enters into, and designates as cash flow hedges, interest rate swaps to hedge its exposure to changes in interest rates. In addition, as discussed in Note 8 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 7, the Company enters into various derivative instruments to economically hedge the risk of changes in commodity prices, which are not currently designated as cash flow hedges. The Company is evaluating the requirements of ASU 2017-12, but does not anticipate the changes will have a significant impact on the Company’s accounting treatment for derivative instruments or on its financial statements.


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


In August 2018, the FASB issued ASU 2018-13 to improve fair value disclosures. ASU 2018-13 eliminates certain disclosure requirements related to transfers between Levels 1 and 2 of the fair value hierarchy and the requirement to disclose the valuation process for Level 3 fair value measurements. ASU 2018-13 also amends certain disclosure requirements for investments measured at net asset value and requires new disclosures for Level 3 investments, including a new requirement to disclose changes in unrealized gains or losses recorded in OCI related to Level 3 fair value measurements. ASU 2018-13 is effective for the Company beginning on January 1, 2020 and permits entities to adopt all or certain elements of the new guidance prior to its effective date. ASU 2018-13 requires retrospective application, except for the new disclosures related to Level 3 investments which are to be applied prospectively. As discussed in Note 89 of the Notes to the Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K and in Note 7, PNM and TNMP have investment securities in trusts for decommissioning, reclamation, pension benefits, and other post-employmentpostretirement benefits, which are measured at fair value. Certain investments in these trusts are measured at net asset value per share. These trusts also hold Level 3 investments. The Company is evaluating the requirements of ASU 2018-13, but does not anticipate it will have a significant impact on the Company’s fair value disclosures.


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



Accounting Standards Update 2018-14 – 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 January 1, 2021,December 31, 2020, although early adoption is permitted, and requires retrospective application. As discussed in Note 1211 of the Notes to the Consolidated Financial

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


Statements in the 20172018 Annual Reports on Form 10-K and in Note 10, PNM and TNMP maintain qualified defined benefit, other postretirement benefit plans providing medical and dental benefits, and executive retirement programs. The Company is 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 although early adoption is permitted, 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 2018-18 – Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606

In November 2018, the FASB issued ASU 2018-18 to clarify transactions between collaborative arrangement participants that should be recognized as revenue under Topic 606. ASU 2018-18 is effective for the Company on January 1, 2020 and requires retrospective application. The Company has collaborative arrangements related to its interests in SJGS, Four Corners, PVNGS, and Luna. The Company believes its current accounting practices comply with the requirements of ASU 2018-18 but is in the process of analyzing the impacts of the new standard.

(2)Segment Information


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 capacity, as well as the capacity excluded from retail rates. FERC has jurisdiction over wholesale power and transmission rates.


TNMP

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


Corporate and Other


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


The following tables present summarized financial information for PNMR by segment. PNM and TNMP each operate in only 1 segment. Therefore, tabular segment information is not presented for PNM and TNMP.


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




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

PNMR SEGMENT INFORMATION
PNM TNMP 
Corporate
and Other
 PNMR ConsolidatedPNM TNMP 
Corporate
and Other
 PNMR Consolidated
(In thousands)(In thousands)
Three Months Ended September 30, 2018 
Three Months Ended September 30, 2019 
Electric operating revenues$331,374
 $91,292
 $—
 $422,666
$331,113
 $102,473
 $—
 $433,586
Cost of energy92,384
 21,152
 —
 113,536
84,915
 23,821
 —
 108,736
Utility margin238,990
 70,140
 —
 309,130
246,198
 78,652
 —
 324,850
Other operating expenses98,000
 25,140
 (3,580) 119,560
97,200
 24,051
 (5,291) 115,960
Depreciation and amortization38,474
 17,176
 5,930
 61,580
40,545
 22,005
 5,800
 68,350
Operating income (loss)102,516
 27,824
 (2,350) 127,990
108,453
 32,596
 (509) 140,540
Interest income3,472
 —
 (72) 3,400
3,515
 —
 (75) 3,440
Other income (deductions)2,515
 1,151
 (92) 3,574
770
 1,766
 (206) 2,330
Interest charges(18,063) (8,241) (4,188) (30,492)(18,492) (7,047) (4,820) (30,359)
Segment earnings (loss) before income taxes90,440
 20,734
 (6,702) 104,472
94,246
 27,315
 (5,610) 115,951
Income taxes (benefit)9,012
 4,634
 (747) 12,899
9,525
 2,228
 (2,565) 9,188
Segment earnings (loss)81,428
 16,100
 (5,955) 91,573
84,721
 25,087
 (3,045) 106,763
Valencia non-controlling interest(3,920) —
 —
 (3,920)(3,860) —
 —
 (3,860)
Subsidiary preferred stock dividends(132) —
 —
 (132)(132) —
 —
 (132)
Segment earnings (loss) attributable to PNMR$77,376
 $16,100
 $(5,955) $87,521
$80,729
 $25,087
 $(3,045) $102,771
              
Nine Months Ended September 30, 2018       
Nine Months Ended September 30, 2019       
Electric operating revenues$832,116
 $260,741
 $—
 $1,092,857
$838,649
 $274,809
 $—
 $1,113,458
Cost of energy229,547
 64,256
 —
 293,803
243,120
 71,025
 —
 314,145
Utility margin602,569
 196,485
 —
 799,054
595,529
 203,784
 —
 799,313
Other operating expenses305,569
 73,624
 (13,955) 365,238
459,180
 73,303
 (16,589) 515,894
Depreciation and amortization113,314
 49,676
 17,375
 180,365
119,581
 62,722
 17,468
 199,771
Operating income (loss)183,686
 73,185
 (3,420) 253,451
16,768
 67,759
 (879) 83,648
Interest income9,340
 —
 2,522
 11,862
10,701
 —
 (212) 10,489
Other income (deductions)588
 3,067
 (441) 3,214
19,307
 3,083
 (1,021) 21,369
Interest charges(58,881) (23,771) (14,216) (96,868)(55,379) (22,408) (13,998) (91,785)
Segment earnings (loss) before income taxes134,733
 52,481
 (15,555) 171,659
(8,603) 48,434
 (16,110) 23,721
Income taxes (benefit)11,009
 11,602
 (3,773) 18,838
(31,984) 3,982
 (4,418) (32,420)
Segment earnings (loss)123,724
 40,879
 (11,782) 152,821
23,381
 44,452
 (11,692) 56,141
Valencia non-controlling interest(11,706) —
 —
 (11,706)(10,188) —
 —
 (10,188)
Subsidiary preferred stock dividends(396) —
 —
 (396)(396) —
 —
 (396)
Segment earnings (loss) attributable to PNMR$111,622
 $40,879
 $(11,782) $140,719
$12,797
 $44,452
 $(11,692) $45,557
              
At September 30, 2018:       
At September 30, 2019:       
Total Assets$5,042,761
 $1,628,842
 $177,392
 $6,848,995
$5,176,831
 $1,832,066
 $192,035
 $7,200,932
Goodwill$51,632
 $226,665
 $—
 $278,297
$51,632
 $226,665
 $—
 $278,297

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




 PNM TNMP 
Corporate
and Other
 PNMR Consolidated
 (In thousands)
Three Months Ended September 30, 2018       
Electric operating revenues$331,374
 $91,292
 $—
 $422,666
Cost of energy92,384
 21,152
 —
 113,536
Utility margin238,990
 70,140
 —
 309,130
Other operating expenses98,000
 25,140
 (3,580) 119,560
Depreciation and amortization38,474
 17,176
 5,930
 61,580
Operating income (loss)102,516
 27,824
 (2,350) 127,990
Interest income3,472
 —
 (72) 3,400
Other income (deductions)2,515
 1,151
 (92) 3,574
Interest charges(18,063) (8,241) (4,188) (30,492)
Segment earnings (loss) before income taxes90,440
 20,734
 (6,702) 104,472
Income taxes (benefit)9,012
 4,634
 (747) 12,899
Segment earnings (loss)81,428
 16,100
 (5,955) 91,573
Valencia non-controlling interest(3,920) —
 —
 (3,920)
Subsidiary preferred stock dividends(132) —
 —
 (132)
Segment earnings (loss) attributable to PNMR$77,376
 $16,100
 $(5,955) $87,521
        
Nine Months Ended September 30, 2018       
Electric operating revenues$832,116
 $260,741
 $—
 $1,092,857
Cost of energy229,547
 64,256
 —
 293,803
Utility margin602,569
 196,485
 —
 799,054
Other operating expenses305,569
 73,624
 (13,955) 365,238
Depreciation and amortization113,314
 49,676
 17,375
 180,365
Operating income (loss)183,686
 73,185
 (3,420) 253,451
Interest income9,340
 —
 2,522
 11,862
Other income (deductions)588
 3,067
 (441) 3,214
Interest charges(58,881) (23,771) (14,216) (96,868)
Segment earnings (loss) before income taxes134,733
 52,481
 (15,555) 171,659
Income taxes (benefit)11,009
 11,602
 (3,773) 18,838
Segment earnings (loss)123,724
 40,879
 (11,782) 152,821
Valencia non-controlling interest(11,706) —
 —
 (11,706)
Subsidiary preferred stock dividends(396) —
 —
 (396)
Segment earnings (loss) attributable to PNMR$111,622
 $40,879
 $(11,782) $140,719
        
At September 30, 2018:       
Total Assets$5,042,761
 $1,628,842
 $177,392
 $6,848,995
Goodwill$51,632
 $226,665
 $—
 $278,297

 PNM TNMP 
Corporate
and Other
 PNMR Consolidated
 (In thousands)
Three Months Ended September 30, 2017       
Electric operating revenues$327,254
 $92,646
 $—
 $419,900
Cost of energy82,367
 21,381
 —
 103,748
Utility margin244,887
 71,265
 —
 316,152
Other operating expenses92,733
 25,367
 (5,391) 112,709
Depreciation and amortization36,764
 16,424
 5,633
 58,821
Operating income (loss)115,390
 29,474
 (242) 144,622
Interest income1,782
 —
 1,800
 3,582
Other income (deductions)4,204
 1,228
 (460) 4,972
Interest charges(20,451) (7,704) (3,951) (32,106)
Segment earnings (loss) before income taxes100,925
 22,998
 (2,853) 121,070
Income taxes (benefit)35,642
 8,271
 (1,170) 42,743
Segment earnings (loss)65,283
 14,727
 (1,683) 78,327
Valencia non-controlling interest(4,456) —
 —
 (4,456)
Subsidiary preferred stock dividends(132) —
 —
 (132)
Segment earnings (loss) attributable to PNMR$60,695
 $14,727
 $(1,683) $73,739
        
Nine Months Ended September 30, 2017       
Electric operating revenues$854,909
 $257,489
 $—
 $1,112,398
Cost of energy246,635
 64,183
 —
 310,818
Utility margin608,274
 193,306
 —
 801,580
Other operating expenses281,886
 72,188
 (15,286) 338,788
Depreciation and amortization109,228
 47,392
 16,209
 172,829
Operating income (loss)217,160
 73,726
 (923) 289,963
Interest income6,457
 —
 5,891
 12,348
Other income (deductions)13,510
 2,392
 (918) 14,984
Interest charges(62,393) (22,619) (11,125) (96,137)
Segment earnings (loss) before income taxes174,734
 53,499
 (7,075) 221,158
Income taxes (benefit)58,865
 18,964
 (2,675) 75,154
Segment earnings (loss)115,869
 34,535
 (4,400) 146,004
Valencia non-controlling interest(11,452) —
 —
 (11,452)
Subsidiary preferred stock dividends(396) —
 —
 (396)
Segment earnings (loss) attributable to PNMR$104,021
 $34,535
 $(4,400) $134,156
        
At September 30, 2017:       
Total Assets$5,023,816
 $1,465,219
 $208,219
 $6,697,254
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.



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




(3)Accumulated Other Comprehensive Income (Loss)


Information regarding accumulated other comprehensive income (loss) for the nine months ended September 30, 20182019 and 20172018 is as follows:
Accumulated Other Comprehensive Income (Loss)Accumulated Other Comprehensive Income (Loss)
PNM PNMRPNM PNMR
Unrealized     Fair Value  Unrealized     Fair Value  
Gains on     Adjustment  Gains on     Adjustment  
Available-for- Pension   for Cash  Available-for- Pension   for Cash  
Sale Liability   Flow  Sale Liability   Flow  
Securities Adjustment Total Hedges TotalSecurities Adjustment Total Hedges Total
(In thousands)(In thousands)
Balance at December 31, 2017, as originally reported$13,169
 $(110,262) $(97,093) $1,153
 $(95,940)
Cumulative effect adjustment (Note 7)(11,208) —
 (11,208) —
 (11,208)
Balance at January 1, 2018, as adjusted1,961
 (110,262) (108,301) 1,153
 (107,148)
Balance at December 31, 2018$1,939
 $(112,361) $(110,422) $1,738
 $(108,684)
Amounts reclassified from AOCI (pre-tax)(3,483) 5,678
 2,195
 102
 2,297
(12,563) 5,553
 (7,010) 707
 (6,303)
Income tax impact of amounts reclassified885
 (1,442) (557) (27) (584)3,191
 (1,410) 1,781
 (179) 1,602
Other OCI changes (pre-tax)2,872
 —
 2,872
 2,431
 5,303
23,106
 —
 23,106
 (3,664) 19,442
Income tax impact of other OCI changes(730) —
 (730) (618) (1,348)(5,869) —
 (5,869) 931
 (4,938)
Net after-tax change(456) 4,236
 3,780
 1,888
 5,668
7,865
 4,143
 12,008
 (2,205) 9,803
Balance at September 30, 2018$1,505
 $(106,026) $(104,521) $3,041
 $(101,480)
Balance at September 30, 2019$9,804
 $(108,218) $(98,414) $(467) $(98,881)
Balance at December 31, 2017, as originally reported$13,169
 $(110,262) $(97,093) $1,153
 $(95,940)
Cumulative effect adjustment (Note 7)(11,208) —
 (11,208) —
 (11,208)
Balance at January 1, 2018, as adjusted1,961
 (110,262) (108,301) 1,153
 (107,148)
 Amounts reclassified from AOCI (pre-tax)(3,483) 5,678
 2,195
 102
 2,297
Income tax impact of amounts reclassified885
 (1,442) (557) (27) (584)
 Other OCI changes (pre-tax)2,872
 —
 2,872
 2,431
 5,303
Income tax impact of other OCI changes(730) —
 (730) (618) (1,348)
Net after-tax change(456) 4,236
 3,780
 1,888
 5,668
Balance at September 30, 2018$1,505
 $(106,026) $(104,521) $3,041
 $(101,480)

Balance at December 31, 2016$4,320
 $(96,748) $(92,428) $(23) $(92,451)
 Amounts reclassified from AOCI (pre-tax)(11,088) 4,839
 (6,249) 484
 (5,765)
Income tax impact of amounts reclassified4,302
 (1,878) 2,424
 (187) 2,237
 Other OCI changes (pre-tax)22,302
 —
 22,302
 (278) 22,024
Income tax impact of other OCI changes(8,654) —
 (8,654) 108
 (8,546)
Net after-tax change6,862
 2,961
 9,823
 127
 9,950
Balance at September 30, 2017$11,182
 $(93,787) $(82,605) $104
 $(82,501)


The Condensed Consolidated 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 related to Fair Value Adjustment for Cash Flow Hedges in interest charges. The income tax impacts of all amounts reclassified from AOCI are included in income taxes in the Condensed Consolidated Statements of Earnings.

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




(4)Earnings Per Share


In accordance with GAAP, dual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. PNMR’s potentially dilutive shares consist of stock options and restricted stock. See Note 8. Information regarding the computation of earnings per share is as follows:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (In thousands, except per share amounts)
Net Earnings Attributable to PNMR$102,771
 $87,521
 $45,557
 $140,719
Average Number of Common Shares:       
Outstanding during period79,654
 79,654
 79,654
 79,654
    Vested awards of restricted stock
294
 215
 265
 210
Average Shares – Basic79,948
 79,869
 79,919
 79,864
Dilutive Effect of Common Stock Equivalents:       
Stock options and restricted stock53
 111
 61
 126
Average Shares – Diluted80,001
 79,980
 79,980
 79,990
Net Earnings Per Share of Common Stock:       
Basic$1.29
 $1.10
 $0.57
 $1.76
Diluted$1.28
 $1.09
 $0.57
 $1.76

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands, except per share amounts)
Net Earnings Attributable to PNMR$87,521
 $73,739
 $140,719
 $134,156
Average Number of Common Shares:       
Outstanding during period79,654
 79,654
 79,654
 79,654
    Vested awards of restricted stock
215
 284
 210
 215
Average Shares – Basic79,869
 79,938
 79,864
 79,869
Dilutive Effect of Common Stock Equivalents:       
Stock options and restricted stock111
 216
 126
 263
Average Shares – Diluted79,980
 80,154
 79,990
 80,132
Net Earnings Per Share of Common Stock:       
Basic$1.10
 $0.92
 $1.76
 $1.68
Diluted$1.09
 $0.92
 $1.76
 $1.67


(5)Electric Operating Revenues


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

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 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 incur 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 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 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 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 (Note 7).

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers (Topic 606). 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 and requires that revenue from contracts with customers be reported separately from other revenues. ASU 2014-09 provides that it could 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.

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



The Company adopted ASU 2014-09 effective 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 Company’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 amount 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 2018 are presented in accordance with the standard on the Condensed Consolidated Statements of Earnings and 2017 revenues are presented on a comparative basis. Additional disclosures to further disaggregate 2018 revenues are presented below.

Under ASU 2014-09, 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 GAAP, the Company has elected to exclude all sales and similar taxes from revenue.

Revenue from contracts with customers is recorded based upon the total 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 its regulator that allows PNM or TNMP to adjust future rates in response to past activities or completed events, if certain criteria are met. GAAP requires that ARP revenues be reported separately from 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 billed to customers in that period.

Sources of Revenue


Additional information about the nature of revenuesconcerning electric operating revenue is provided below. Additional information about matters affecting PNM’s and TNMP’s regulated revenues is providedcontained in Note 12.

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.

Other –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 11). 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 subjectNotes 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

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


service area. 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

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 rate impacts of the 2017 changeConsolidated Financial Statements in the corporate income tax rate; and the energy efficiency incentive bonus at both PNM and TNMP. GAAP provides for the recognition of regulatory assets 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. Accordingly, the Company has deferred certain costs and recorded certain liabilities pursuant to the rate actions of the NMPRC, PUCT, and FERC.2018 Annual Reports on Form 10-K.


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 contracts with customers under ASU 2014-09. 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-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. In December 2015, the NMPRC approved PNM’s request to include PVNGS Unit 3 as a jurisdictional resource to service New Mexico retail customers beginning in 2018.

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 ARPalternative revenue program revenues (“ARP”) and other revenues.
  PNM TNMP PNMR Consolidated
Three Months Ended September 30, 2019 (In thousands)
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $137,741
 $50,718
 $188,459
Commercial 121,702
 31,042
 152,744
Industrial 20,946
 5,415
 26,361
Public authority 6,140
 1,440
 7,580
Economy energy service 5,731
 —
 5,731
Transmission 16,068
 17,384
 33,452
Miscellaneous 3,465
 881
 4,346
Total revenues from contracts with customers 311,793
 106,880
 418,673
Alternative revenue programs (2,372) (4,407) (6,779)
Other electric operating revenues 21,692
 —
 21,692
Total Electric Operating Revenues $331,113
 $102,473
 $433,586
       
  PNM TNMP PNMR Consolidated
Three Months Ended September 30, 2018 (In thousands)
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $138,091
 $40,227
 $178,318
Commercial 121,755
 28,850
 150,605
Industrial 17,919
 4,402
 22,321
Public authority 6,872
 1,390
 8,262
Economy energy service 6,158
 —
 6,158
Transmission 13,538
 16,743
 30,281
Miscellaneous 1,686
 2,392
 4,078
Total revenues from contracts with customers 306,019
 94,004
 400,023
Alternative revenue programs (5,338) (2,712) (8,050)
Other electric operating revenues 30,693
 —
 30,693
Total Electric Operating Revenues $331,374
 $91,292
 $422,666



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



  PNM TNMP PNMR Consolidated
Nine Months Ended September 30, 2019 (In thousands)
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $331,371
 $114,791
 $446,162
Commercial 305,903
 86,529
 392,432
Industrial 51,022
 16,326
 67,348
Public authority 15,447
 4,204
 19,651
Economy energy service 18,677
 —
 18,677
Transmission 43,794
 48,972
 92,766
Miscellaneous 9,581
 2,670
 12,251
Total revenues from contracts with customers 775,795
 273,492
 1,049,287
Alternative revenue programs (1,617) 1,317
 (300)
Other electric operating revenues 64,471
 —
 64,471
Total Electric Operating Revenues $838,649
 $274,809
 $1,113,458

Three Months Ended September 30, 2018  
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $138,091
 $40,227
 $178,318
Commercial 121,755
 28,850
 150,605
Industrial 17,919
 4,402
 22,321
Public authority 6,872
 1,390
 8,262
Economy energy service 6,158
 —
 6,158
Transmission 13,538
 16,743
 30,281
Miscellaneous 1,686
 2,392
 4,078
Total revenues from contracts with customers 306,019
 94,004
 400,023
Alternative revenue programs (5,338) (2,712) (8,050)
Other electric operating revenues 30,693
 —
 30,693
Total Electric Operating Revenues $331,374
 $91,292
 $422,666
       
Nine Months Ended September 30, 2018  
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $334,767
 $100,808
 $435,575
Commercial 315,256
 84,084
 399,340
Industrial 45,976
 12,891
 58,867
Public authority 16,726
 4,205
 20,931
Economy energy service 19,825
 —
 19,825
Transmission 40,128
 49,995
 90,123
Miscellaneous 10,632
 6,740
 17,372
Total revenues from contracts with customers 783,310
 258,723
 1,042,033
Alternative revenue programs (3,484) 2,018
 (1,466)
Other electric operating revenues 52,290
 —
 52,290
Total Electric Operating Revenues $832,116
 $260,741
 $1,092,857



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

  PNM TNMP PNMR Consolidated
Nine Months Ended September 30, 2018 (In thousands)
Electric Operating Revenues:      
Contracts with customers:      
Retail electric revenue      
Residential $334,767
 $100,808
 $435,575
Commercial 315,256
 84,084
 399,340
Industrial 45,976
 12,891
 58,867
Public authority 16,726
 4,205
 20,931
Economy energy service 19,825
 —
 19,825
Transmission 40,128
 49,995
 90,123
Miscellaneous 10,632
 6,740
 17,372
Total revenues from contracts with customers 783,310
 258,723
 1,042,033
Alternative revenue programs (3,484) 2,018
 (1,466)
Other electric operating revenues 52,290
 —
 52,290
Total Electric Operating Revenues $832,116
 $260,741
 $1,092,857


Contract balancesBalances


Performance obligations related to contracts with customers are typically satisfied when the energy is delivered and the customer or end-user utilizes the energy. Accounts receivable from customers represent amounts billed to the customer or end-user, including amounts under ARP programs.ARPs. For PNM, accounts receivable reflected on the Condensed Consolidated Balance Sheets, net of allowance for uncollectible accounts, includes $76.9$76.7 million at September 30, 20182019 and $61.8$61.7 million at December 31, 20172018 resulting from contracts with customers. All of TNMP’s accounts receivable results from contracts with customers.


Contract assets are an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance). The Company has no0 contract assets as of September 30, 2019 or December 31, 2018. Contract liabilities arise when consideration is received in advance from a customer before satisfying the performance obligations. Therefore, revenue is deferred and not recognized until the obligation is satisfied. Under its OATT,Open Access Transmission Tariff, PNM accepts upfront consideration for capacity reservations requested by transmission customers, which requires PNM to defer the customer’s transmission capacity rights for a specific period of time. PNM recognizes the revenue of these capacity reservations over the period it defers the customer’s capacity rights. Other utilities payrights have been reserved, which is generally over one year. PNM and TNMP also receive payments in advance for the joint-use of their utility poles. These revenues are recognized over the period of time specified in the joint-use contract, typically for one calendar year. Deferred revenues on these arrangements are recorded as contract liabilities. The Company has no other arrangements with remaining performance obligations to which a portion of the transaction price would be required to be allocated.


Changes during the period in the balances of contract liabilities, which are included in other current liabilities on the Condensed Consolidated Balance Sheets, are as follows:
  PNM TNMP PNMR Consolidated
  (In thousands)
Balance at December 31, 2018 $349
 $—
 $349
Consideration received in advance of service to be provided 4,384
 1,518
 5,902
Deferred revenue earned (3,369) (1,147) (4,516)
Balance at September 30, 2019 $1,364
 $371
 $1,735

  PNM TNMP PNMR Consolidated
  (In thousands)
Balance at December 31, 2017 $349
 $—

$349
Consideration received in advance of service to be provided 4,174
 1,512
 5,686
Deferred revenue earned (3,304) (1,134) (4,438)
Balance at September 30, 2018 $1,219
 $378

$1,597

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


(6)Variable Interest Entities


GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity (“VIE”). GAAP also requires continual reassessment of the primary beneficiary of a VIE. Additional information concerning PNM’s VIEs is contained in Note 910 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.


Valencia


PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 158 MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed operation and maintenance and capacity charges in addition to variable operation and maintenance charges under this PPA. For the three and nine months ended September 30, 2019, PNM paid $5.0 million and $14.9 million for fixed charges and $0.4 million and $0.7 million for variable charges. For the three and nine months ended September 30, 2018, PNM paid $4.9 million and $14.7 million for fixed charges and $0.5 million and $1.4 million for variable charges. For the three and nine months ended September 30, 2017, PNM paid $4.9 million and $14.7 million for fixed charges and $0.9 million and $1.2 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

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


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


Summarized financial information for Valencia is as follows:
Results of Operations

Results of Operations

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 20172019 2018 2019 2018
(In thousands)(In thousands)
Operating revenues$5,368
 $5,859
 $16,047
 $15,880
$5,409
 $5,368
 $15,538
 $16,047
Operating expenses(1,448) (1,403) (4,341) (4,428)1,549
 1,448
 5,350
 4,341
Earnings attributable to non-controlling interest$3,920
 $4,456
 $11,706
 $11,452
$3,860
 $3,920
 $10,188
 $11,706
 
Financial Position

 September 30, December 31,
 2019 2018
 (In thousands)
Current assets$5,789
 $2,684
Net property, plant, and equipment59,292
 62,066
Total assets65,081
 64,750
Current liabilities906
 538
Owners’ equity – non-controlling interest$64,175
 $64,212

 
Financial Position

 September 30, December 31,
 2018 2017
 (In thousands)
Current assets$3,449
 $2,688
Net property, plant, and equipment62,698
 64,109
Total assets66,147
 66,797
Current liabilities923
 602
Owners’ equity – non-controlling interest$65,224
 $66,195


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



Westmoreland San Juan Mining, LLC (“WSJ”) and SJCC


As discussed in the subheading Coal Supply in Note 11, 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 the $125.0 million loan (the “Westmoreland Loan”) from NM Capital, a subsidiary of PNMR, to WSJ, which loan provided substantially all of the funds required for the purchase of SJCC. On May 22, 2018, the full principal outstanding under the Westmoreland Loan 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 11.

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 have 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 were required quarterly thereafter. Interest was also paid quarterly beginning on May 3, 2016.

The Westmoreland Loan required 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 was fully repaid. As discussed in Note 11, the full principal outstanding under the Westmoreland Loan of $50.1 million was repaid on May 22, 2018. NM Capital used a portion of the proceeds to repay all remaining amounts owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements and PNMR’s guarantee of NM Capital’s obligations under the BTMU Term Loan Agreement. The Westmoreland Loan was secured by the assets of and the equity interests in SJCC.PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


credit support. PNMR considers the possibility of loss under the letters of credit support to be remote since the purpose of posting the bonds is to provide assurance that 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. In addition, each of the SJGS participants hashave established and funds a trustfund trusts to meet its future reclamation obligations.

On May 21, 2018, Westmoreland filed a Current Report on Form 8-K with the SEC indicating it had obtained a new credit agreement with certain of its existing creditors that provided Westmoreland with additional financing. In the May 21, 2018 Form 8-K, Westmoreland indicated that “A portion of the proceeds of the Financing have been used to refinance in full the Company’s and its subsidiaries’ existing asset-based revolving credit facilities and Westmoreland San Juan, LLC’s existing term loan facility.” As mentioned above, the Westmoreland Loan was repaid in full in May 2018. 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. In the October 9, 2018 Form 8-K, Westmoreland indicated thatWSJ LLC is has agreed to terms with its secured creditors that will allow it to fund its normal course operations and that will allow it to continue to serve its customers during the course of the bankruptcy case (Note 11).
Both WSJ and SJCC are 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 were the typical protective rights of a lender, but did not give NM Capital any oversight over mining operations.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.  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 letter of credit support constitute PNMR’s maximum exposure to loss from the VIEsVIE at September 30, 2018.2019.



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


(7)Fair Value of Derivative and Other Financial Instruments


Additional information concerning energy related derivative contracts and other financial instruments is contained in Note 89 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.


Fair value is defined under GAAP as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. Valuations of derivative assets and liabilities take into account nonperformance risk, including the effect of counterparties’ and the Company’s credit risk. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.


Energy Related Derivative Contracts

Overview


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


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 interest in SJGS Unit 4, which is held as merchant plant as ordered by the NMPRC (Note 11).NMPRC. PNM entered into agreements to sell power from 36 MW of that capacity to a third party at a fixed price for the period January 1, 2018 through June 30, 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, 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

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


to reduce the magnitude of each party’s single largest generating hazard and assists in enhancing the reliability and efficiency of their respective operations. PNM passes the sales and purchases through to customers under PNM’s FPPAC.

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

Commodity Risk

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


Accounting for Derivatives


Under derivative accounting and related rules for energy contracts, PNM accounts for its various instruments for the purchase and sale of energy, which meet the definition of a derivative, based on PNM’s intent. During the nine months ended September 30, 20182019 and the year ended December 31, 2017,2018, 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

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


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.


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 Condensed Consolidated Balance Sheets:
 Economic Hedges
 September 30,
2018		 December 31,
2017
 (In thousands)
Current assets$1,083
 $1,088
Deferred charges2,741
 3,556
 3,824
 4,644
Current liabilities(1,092) (1,182)
Long-term liabilities(2,741) (3,556)
 (3,833) (4,738)
Net$(9) $(94)
 Economic Hedges
 September 30,
2019		 December 31,
2018
 (In thousands)
Other current assets$1,157
 $1,083
Other deferred charges1,770
 2,511
 2,927
 3,594
Other current liabilities(1,097) (1,177)
Other deferred credits(1,770) (2,511)
 (2,867) (3,688)
Net$60
 $(94)
Certain of PNM’s commodity derivative instruments in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. PNM does not offset fair value and cash collateral for derivative instruments under master netting arrangements and the above table reflects the gross amounts of fair value assets and liabilities for commodity derivatives. Included in the above table are equal amounts of assets and liabilities aggregating $3.8$2.9 million at September 30, 20182019 and $4.6$3.6 million at December 31, 2017, which result2018 resulting from PNM’s hazard sharing arrangements with Tri-State. The hazard sharing arrangements are net-settled upon delivery. Other amounts that could be offset under master netting agreements were immaterial.

At September 30, 2018 and December 31, 2017, PNM had no amounts recognized for the legal right to reclaim cash collateral. However, at September 30, 2018 and December 31, 2017, amounts posted as cash collateral under margin arrangements were $0.5 million and $0.8 million. At September 30, 2018 and December 31, 2017, obligations to return cash collateral were $1.0 million and $0.9 million. Cash collateral amounts are included in other current assets and other current liabilities on the Condensed Consolidated Balance Sheets.

PNM has a NMPRC-approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. There were no amounts hedged under this plan as of September 30, 2018 or December 31, 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
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands)
Electric operating revenues$(93) $(2,237) $(95) $5,697
Cost of energy93
 (14) 97
 (5,289)
   Total gain$—
 $(2,251) $2
 $408


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




At September 30, 2019 and December 31, 2018, PNM had 0 amounts recognized for the legal right to reclaim cash collateral. However, at September 30, 2019 and December 31, 2018, amounts posted as cash collateral under margin arrangements were $0.5 million and $1.0 million. At September 30, 2019 and December 31, 2018, obligations to return cash collateral were $0.9 million and $1.0 million. Cash collateral amounts are included in other current assets and other current liabilities on the Condensed Consolidated Balance Sheets.

PNM has a NMPRC-approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. There was $0.1 million hedged under this plan as of September 30, 2019 and 0 amounts were hedged under this plan as of December 31, 2018.
The effects of mark-to-market commodity derivative instruments on PNM’s revenues and cost of energy during the three and nine months ended September 30, 2019 and 2018 were less than $0.1 million. Commodity derivatives had no impact on OCI for the periods presented.

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
  MMBTU MWh
     
September 30, 2018 100,000
 4,800
December 31, 2017 100,000
 —
  Economic Hedges
  MMBTU MWh
September 30, 2019 100,000
 (11,200)
December 31, 2018 100,000
 —
PNM has contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. In connection with managing its commodity risks, PNM enters into master agreements with certain counterparties. If PNM is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral if PNM’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that PNM will perform; and others have no provision for collateral. At September 30, 20182019 and December 31, 2017,2018, PNM had no0 such contracts in a net liability position.


Non-Derivative Financial Instruments


The carrying amounts reflected on the Condensed Consolidated Balance Sheets approximate fair value for cash, receivables, and payables due to the short period of maturity. Investment securities are carried at fair value. Investment securities consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS and trusts for PNM’s share of final reclamation costs related to the coal mines serving SJGS and Four Corners (Note 11).Corners. See Note 11. At September 30, 20182019 and December 31, 2017,2018, the fair value of investment securities included $298.4$322.2 million and $293.7$287.1 million for the NDT and $33.3$46.8 million and $29.8$41.1 million for the mine reclamation trusts.


InAs discussed in Note 9 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, on January 2016,1, 2018 the FASB issued Company adopted Accounting Standards Update 2016-01 – Financial Instruments (Subtopic 825-10). Accordingly, 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 income rather than in OCI. Under ASU 2016-01, the accounting for available-for-sale debt securities remains essentially unchanged. The accounting required by ASU 2016-01 is to be applied prospectively with a cumulative effect adjustment recorded as of the beginning of the year of adoption. ASU 2016-01 also revises certain presentation and disclosure requirements. Accordingly, the following information for 2018 is presented under ASU 2016-01 and the information for 2017 is presented under prior GAAP.

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 Condensed Consolidated Balance Sheets. After January 1, 2018, all gains and losses resulting from sales and changes in the fair value of equity securities are recognized in earnings. Under ASU 2016-01, the accounting for available-for-sale debt securities remains essentially unchanged. See discussion of New Accounting Pronouncements in Note 1 regarding ASU 2016-13.

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






Gains and losses recognized on the Condensed Consolidated Statements of Earnings related to investment securities in the NDT and reclamation trusts are presented in the following table.table:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (In thousands)
Equity securities:       
Net gains from equity securities sold$514
 $113
 $4,675
 $5,443
Net gains from equity securities still held1,011
 2,943
 10,916
 2,636
Total net gains on equity securities1,525
 3,056
 15,591
 8,079
Available-for-sale debt securities:       
Net gains (losses) on debt securities161
 (593) 4,708
 (6,998)
Net gains on investment securities$1,686
 $2,463
 $20,299
 $1,081

  
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
  (In thousands)
Equity securities:    
Net gains from equity securities sold $113
 $5,443
Net gains from equity securities still held 2,943
 2,636
Total net gains on equity securities 3,056
 8,079
Available-for-sale debt securities:    
Net (losses) on debt securities (593) (6,998)
Net gains on investment securities $2,463
 $1,081


The proceeds and gross realized gains and losses on the disposition of securities held in the NDT and coal mine reclamation trusts are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. Gross realized losses shown below exclude the (increase)/decrease in realized impairment losses of $0.2 million and $2.8 million for the three and nine months ended September 30, 2019 and $(0.8) million and $(4.6) million for the three and nine months ended September 30, 2018 and $0.1 million and $1.1 million for the three and nine months ended September 30, 2017.

2018.
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (In thousands)
Proceeds from sales$141,371
 $117,801
 $375,382
 $911,899
Gross realized gains$6,510
 $3,460
 $21,605
 $17,030
Gross realized (losses)$(6,026) $(3,149) $(14,998) $(14,018)

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands)
Proceeds from sales$117,801
 $98,532
 $911,899
 $456,577
Gross realized gains$3,460
 $8,128
 $17,030
 $24,745
Gross realized (losses)$(3,149) $(2,829) $(14,018) $(8,150)

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, PNMR’s held-to-maturity debt securities consisted of the Westmoreland Loan. In May 2018, the full amount owed under the Westmoreland Loan was repaid (Note 11).

The Company has no0 available-for-sale debt 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.

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


At September 30, 20182019, the available-for-sale debt securities held by PNM, had the following final maturities:
 Fair Value
 (In thousands)
Within 1 year$28,015
After 1 year through 5 years79,195
After 5 years through 10 years65,492
After 10 years through 15 years13,960
After 15 years through 20 years9,598
After 20 years39,894
 $236,154

 Fair Value
 (In thousands)
Within 1 year$9,986
After 1 year through 5 years59,944
After 5 years through 10 years67,585
After 10 years through 15 years10,375
After 15 years through 20 years11,151
After 20 years46,887
 $205,928


Fair Value Disclosures

The Company determines the fair values of its derivative and other financial instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company records any

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


transfers between fair value hierarchy levels as of the end of each calendar quarter. There were no0 transfers between levels during the nine months ended September 30, 20182019 or the year ended December 31, 2017.2018.


For investment securities, Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For Level 2 fair values, the pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value as of year-end.value. Level 3 investments are comprised of corporate term loans. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. The valuation of Level 3 investments 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. For the Westmoreland Loan, fair values were determined using an internal valuation model of discounted cash flows that took into consideration discount rates observable for similar types of assets and liabilities. Management of the Company independently verifies the information provided by pricing services.


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



Items recorded at fair value by PNM on the Condensed Consolidated Balance Sheets are presented below by level of the fair value hierarchy along with gross unrealized gains on investments in available-for-sale securities. Under ASU 2016-01, PNM does not classify its investments in equity instruments as available-for-sale securities beginning January 1, 2018.debt 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)
September 30, 2019         
Cash and cash equivalents$1,455
 $1,455
 $—
 $—
  
Equity securities:         
Corporate stocks, common58,820
 58,820
 —
 —
  
Corporate stocks, preferred8,877
 2,014
 6,863
 —
  
Mutual funds and other63,711
 63,694
 17
 —
  
Available-for-sale debt securities:         
     U.S. Government40,959
 15,458
 25,501
 —
 $832
     International Government12,975
 —
 12,975
 —
 819
     Municipals44,706
 —
 44,706
 —
 1,896
     Corporate and other137,514
 946
 133,772
 2,796
 9,591
          $369,017
 $142,387
 $223,834
 $2,796
 $13,138
          
Commodity derivative assets$2,927
 $—
 $2,927
 $—
  
Commodity derivative liabilities(2,867) —
 (2,867) —
  
          Net$60
 $—
 $60
 $—
  
          
   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)
September 30, 2018         
Cash and cash equivalents$3,527
 $3,527
 $—
 $—
  
Equity securities:         
Corporate stocks, common40,017
 40,017
 —
 —
  
Corporate stocks, preferred7,239
 1,587
 5,652
 —
  
Mutual funds and other75,035
 75,035
 —
 —
  
Available-for-sale debt securities:         
     U.S. Government25,689
 15,400
 10,289
 —
 $23
     International Government8,460
 —
 8,460
 —
 90
     Municipals51,280
 —
 51,280
 —
 78
     Corporate and other120,499
 —
 117,445
 3,054
 1,827
          $331,746
 $135,566
 $193,126
 $3,054
 $2,018
          
Commodity derivative assets$3,824
 $—
 $3,824
 $—
  
Commodity derivative liabilities(3,833) —
 (3,833) —
  
          Net$(9) $—
 $(9) $—
  
          
December 31, 2017         
Available-for-sale securities
        
   Cash and cash equivalents$52,636
 $52,636
 $—
 $—
  
   Equity securities:
        
     Domestic value40,032
 40,032
 —
 —
 $4,011
     Domestic growth35,456
 35,456
 —
 —
 3,995
     International and other45,867
 42,332
 3,535
 —
 6,810
   Fixed income securities:         
     U.S. Government34,317
 33,645
 672
 —
 273
     Municipals48,076
 —
 48,076
 —
 1,225
     Corporate and other67,140
 —
 67,140
 —
 1,714
          $323,524
 $204,101
 $119,423
 $—
 $18,028
 
        
Commodity derivative assets$4,644
 $—
 $4,644
 $—
  
Commodity derivative liabilities(4,738) —
 (4,738) —
  
          Net$(94) $—
 $(94) $—
  



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




 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, 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) $—
  


A reconciliation of the changes in Level 3 fair value measurements is as follows:
 Corporate Debt
 (In thousands)
Balance at December 31, 2018$2,156
Actual return on assets sold during the period(54)
Actual return on assets still held at period end41
Purchases2,090
Sales(1,437)
Balance at September 30, 2019$2,796
  
Balance at December 31, 2017$—
Actual return on assets sold during the period(6)
Actual return on assets still held at period end16
Purchases5,234
Sales(2,190)
Balance at September 30, 2018$3,054



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

 Corporate Debt
 (In thousands)
Balance at December 31, 2017$—
Actual return on assets sold during the period(6)
Actual return on assets still held at period end16
Purchases5,234
Sales(2,190)
Balance at September 30, 2018$3,054


The carrying amounts and fair values of investments in the Westmoreland Loan, other investments, and long-term debt, which areis not recorded at fair value on the Condensed Consolidated Balance Sheets, are presented below:
     GAAP Fair Value Hierarchy
 Carrying Amount Fair Value Level 1 Level 2 Level 3
September 30, 2019(In thousands)
PNMR$2,852,229
 $3,030,720
 $—
 $3,030,720
 $—
PNM$1,707,637
 $1,787,761
 $—
 $1,787,761
 $—
TNMP$705,756
 $799,425
 $—
 $799,425
 $—
          
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 Level 1 Level 2 Level 3
September 30, 2018(In thousands)
PNMR         
Long-term debt$2,614,511
 $2,642,154
 $—
 $2,642,154
 $—
Other investments$348
 $348
 $348
 $—
 $—
PNM         
Long-term debt$1,656,102
 $1,665,064
 $—
 $1,665,064
 $—
Other investments$142
 $142
 $142
 $—
 $—
TNMP         
Long-term debt$560,293
 $580,017
 $—
 $580,017
 $—
Other investments$206
 $206
 $206
 $—
 $—
          
December 31, 2017         
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
 $—
 $—


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

(8)Stock-Based Compensation


PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. The Company has not awarded0t issued stock options since 2010.2010 and all employee stock options expire in February 2020. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 1312 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.



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


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, awards to employees vest ratably over three years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in certain stock awards. Awards of restricted stock to non-employee members of the Board are expensed over a one yearone-year vesting period.


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 over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At September 30, 2018 and December 31, 20172019, PNMR had unrecognized expense related to stock awards of $4.4$4.7 million, and $3.8 million, which areis expected to be recognized over an average of 1.64 and 1.531.59 years.


PNMR receives a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the options are sold over the exercise prices of the options, and a tax deduction for the value of restricted stock at the vesting date. GAAP requires that all excess tax benefits and deficiencies be recorded to tax expense and classified as operating cash flows when used to reduce income taxes payable, classified as cash flows from operating activities.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, which will not be received prior to vesting, applied to the total number of shares that are anticipated to vest, although thevest. The number of performance shares that ultimately vest cannot be determined until after the performance periods end.period ends. The grant date fair value

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


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:
 Nine Months Ended September 30, Nine Months Ended September 30,
Restricted Shares and Performance Based Shares 2018 2017 2019 2018
Expected quarterly dividends per share $0.2650
 $0.2425
 $0.290
 $0.265
Risk-free interest rate 2.38% 1.50% 2.47% 2.38%
        
Market-Based Shares        
Dividend yield 2.96% 2.67% 2.59% 2.96%
Expected volatility 19.12% 20.80% 19.55% 19.12%
Risk-free interest rate 2.36% 1.54% 2.51% 2.36%



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


The following table summarizes activity in restricted stock awards, including performance-based and market-based shares, and stock options, for the nine months endedSeptember 30, 20182019:
 Restricted Stock Stock Options
 Shares 
Weighted-
Average
Grant Date Fair Value
 Shares 
Weighted-
Average
Exercise Price
Outstanding at December 31, 2018166,651
 $32.93
 81,000
 $11.94
Granted134,573
 37.92
 —
 —
Exercised(137,601) 31.44
 (79,000) 11.93
Forfeited(1,681) 39.61
 —
 —
Expired—
 —
 —
 —
Outstanding at September 30, 2019161,942
 $38.21
 2,000
 $12.22

 Restricted Stock Stock Options
 Shares 
Weighted-
Average
Grant Date Fair Value
 Shares 
Weighted-
Average
Exercise Price
Outstanding at December 31, 2017189,045
 $31.11
 193,441
 $9.98
Granted221,062
 $29.65
 —
 $—
Exercised(235,868) $28.44
 (109,441) $8.56
Forfeited(6,054) $31.37
 —
 $—
Expired—
 $—
 —
 $—
Outstanding at September 30, 2018168,185
 $32.93
 84,000
 $11.82


PNMR’s stock-based compensation program provides for performance and market targets through 2020.2021. In February 2019, the Board approved amendments to exclude certain impacts of the Tax Act on performance metrics for the performance periods ending in 2018 and 2019. These amendments did not impact the Company’s calculation of grant date fair values under the plans. However, at the time these amendments were made, the achievement levels for the performance period ending in 2018 increased from below “threshold” to below “target” level and anticipated achievement for the performance period ending in 2019 from below “target” to the “maximum” level. Included as granted and as exercised in the table above table are 97,69747,279 previously awarded shares that were earned for the 20152016 through 20172018 performance measurement period and ratified by the Board in February 20182019 (based upon achieving market targets at “target”below “threshold” levels, weighted at 60%40%, and performance targets at belowabove “target” levels, together weighted at 40%60%). Excluded from the table above table are maximums of 132,729, 130,302,, 146,941, and 146,941135,678 shares for the three-year performance periods ending in 2018, 2019, 2020, and 20202021 that would be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.


Effective as of January 1, 2015, the Company entered into a retention award agreement with its Executive Vice President and Chief Financial Officer under which he would receive awards of restricted stock if PNMR met specific performance targets at the end of 2016 and 2017 and he remained an employee of the Company. If PNMR achieved the specified performance target for the period from January 1, 2015 through 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. The specified market 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. 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 the market value per share of $35.85 on the grant date of March 2, 2018, or 7,670 shares, which are included in the above table. The retention award was made under the PEP and was approved by the Board on December 9, 2014.

In March 2015, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive 53,859 shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2019 and she remains an employee of the Company. Under the agreement, she was to receive 17,953 of the total shares if PNMR achieved specific performance targets at the end of 2017. The specified performance target was achieved at the end of 2017 and the Board ratified her receiving the 17,953 shares in February 2018, which are included in the above table.2018. The retention award was made under the PEP and was approved by the Board on February 26, 2015. The above table does not include the restricted stock shares that remain unvested under this retention award agreement.     
At September 30, 2018, the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was $2.3 million with a weighted-average remaining contract life of 1.3 years. At September 30, 2018, no outstanding stock options had an exercise price greater than the closing price of PNMR common stock on that date.


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




At September 30, 2019, the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was $0.1 million with a weighted-average remaining contract life of 0.4 years. At September 30, 2019, 0 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-based and market-based shares, and stock options:
  Nine Months Ended September 30,
Restricted Stock 2019 2018
Weighted-average grant date fair value $37.92
 $29.65
Total fair value of restricted shares that vested (in thousands) $6,227
 $8,493
     
Stock Options    
Total intrinsic value of options exercised (in thousands) $2,617
 $3,016

  Nine Months Ended September 30,
Restricted Stock 2018 2017
Weighted-average grant date fair value $29.65
 $23.06
Total fair value of restricted shares that vested (in thousands) $8,493
 $5,666
     
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) $3,016
 $2,234


(9)Financing


The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures. Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities or refinance other debt. Prior to July 2018, eachEach of the Company’s revolving credit facilities and term loans containedcontain a single financial covenant which requiredthat requires the maintenance of a debt-to-capitalization ratio. For the PNMR and PNMR Development agreements this ratio ofmust be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. In July 2018, the PNMR Revolving Credit Facility, the PNMR 2016 One-Year Term Loan (as extended), the PNMR 2016 Two-Year Term Loan, 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 PNM and TNMP agreements. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. 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. Additional information concerning financing activities is contained in Note 67 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.


Financing Activities

As discussed in Note 11, NM Capital, a wholly-owned subsidiary of PNMR, entered into a $125.0 million term loan agreement (the “BTMU Term Loan Agreement”) with BTMU, as lender and administrative agent, as of February 1, 2016. The BTMU Term Loan Agreement had a maturity date of February 1, 2021 and bore interest at a rate based on LIBOR plus a customary spread. PNMR, as parent company of NM Capital, 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 subsidiary of Westmoreland to finance Westmoreland’s purchase of SJCC. See Note 6. The BTMU Term Loan Agreement required that NM Capital utilize all amounts, less taxes and fees, it received under the Westmoreland Loan to repay the BTMU Term Loan Agreement. On May 22, 2018, the full principal outstanding under the Westmoreland Loan of $50.1 million was repaid. NM Capital used a portion of the proceeds to repay all remaining principal of $43.0 million owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated.


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

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 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 and used the proceeds

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


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 and used the proceeds to repay an equal amount of PNM’s 7.50% SUNs on August 1, 2018. The PNM 2017 Senior Unsecured Note Agreement includes customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 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. Information concerning the maturities and interest rates on the PNM 2018 SUNs is as follows:
Funding Maturity Principal Interest
Date Date Amount Rate
    (In millions)  
       
May 14, 2018 May 15, 2023 $55.0
 3.15%
May 14, 2018 May 15, 2025 104.0
 3.45%
May 14, 2018 May 15, 2028 88.0
 3.68%
May 14, 2018 May 15, 2033 38.0
 3.93%
May 14, 2018 May 15, 2038 45.0
 4.22%
May 14, 2018 May 15, 2048 20.0
 4.50%
    350.0
  
July 31, 2018 August 1, 2028 15.0
 3.78%
July 31, 2018 August 1, 2048 85.0
 4.60%
    100.0
  
    $450.0
  

mine. On March 9, 2018,15, 2019, WSJ LLC acquired the assets of SJCC following the bankruptcy of Westmoreland. WSJ LLC assumed the obligations to PNMR issued $300.0 million aggregate principal amount of 3.250% 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 Agreement and to reduce borrowings under the PNMR Revolving Credit Facility.letters of credit support. See Note 11.


On April 9, 2018, PNMR Development deposited $68.2 million with PNM related to potential transmission network interconnections, which is shownwas classified as a cash inflow from financing activities on PNM’s Condensed Consolidated Statements of Cash Flows.Flows in the nine months ended September 30, 2018. PNM used the deposit to repay intercompany borrowings. PNM is required to pay interest to PNMR Development to the extent work under the interconnections has not been performed. During the three and nine months ended September 30, 2019, PNM recognized $1.0 million and $2.9 million of interest expense under the agreement. During the three and nine months ended September 30, 2018, PNM recognized $0.8 million and $1.5 million of interest expense under the agreement. At September 30, 2018,2019, PNM’s remaining obligation under the interconnection agreement with PNMR Development of $68.2 million, excluding unpaid interest, is reflected in other deferred creditscurrent liabilities on PNM’s Condensed Consolidated Balance Sheets. As required by GAAP, all intercompany transactions related to this deposit have been eliminated on PNMR’s Condensed Consolidated Financial Statements.


On 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, TNMPJanuary 18, 2019, PNM entered into a $20.0$250.0 million term loan agreement (the “TNMP 2018“PNM 2019 Term Loan”) among PNM, the lenders identified therein, and U.S. Bank N.A., as administrative agent. PNM used the proceeds of the PNM 2019 Term Loan Agreement”) thatto repay the PNM 2017 Term Loan, to reduce short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. The PNM 2019 Term Loan bears interest at a variable rate and has a maturitymust be repaid on or before July 17, 2020.

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



On February 26, 2019, TNMP entered into the TNMP 2019 Bond Purchase Agreement with institutional investors for the sale of July 25, 2020.$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 from these issuances to repay short-termTNMP’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 TNMP’s 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 TNMP 2019 Bonds are subject to continuing compliance with the representations, warranties and covenants of the TNMP 2019 Bond Purchase Agreement. 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 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. In accordance with GAAP, borrowings under the $172.3 million 9.50% TNMP first mortgage bonds are reflected as being long-term in the Condensed Consolidated Balance Sheets at December 31, 2018 since TNMP demonstrated its intent and ability to re-finance the agreement on a long-term basis.


Information concerning the funding dates, maturities and interest rates on the TNMP 2019 Bonds is as follows:
Funding Date Maturity Date Principal Amount Interest Rate
    (In millions)  
March 29, 2019 March 29, 2034 $75.0
 3.79%
March 29, 2019 March 29, 2039 75.0 3.92%
March 29, 2019 March 29, 2044 75.0 4.06%
    225.0
  
July 1, 2019 July 1, 2029 80.0
 3.60%
    $305.0
  


At September 30, 2018,2019, variable interest rates were 3.03%2.85% on the $100.0$50.0 million PNMR 20162018 Two-Year Term Loan, which matures in December 2018, 2.98%2020, 2.70% on the $200.0$250.0 million PNM 20172019 Term Loan, Agreement, which matures in January 2019, and 2.94%July 2020, 2.74% on the $20.0$35.0 million TNMP 2018 Term Loan, Agreement, which matures in July 2020, and 2.84% on the $90.0 million PNMR Development Term Loan, which matures in November 2020.


See discussion of PNM’s SJGS Abandonment Application in Note 12, 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.

Short-term Debt and Liquidity


Currently, theThe 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 onin October 22, 2022,2023 but contain options to be extended through October 2024. However, one lender whose current commitment2024, subject to approval by a majority of the lenders. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires on December 12, 2022. The TNMP Revolving Credit Facility is $10.0a $75.0 million underrevolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds and matures on September 23, 2022.

On February 22, 2019, PNMR Development amended its $24.5 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 $50.0 million upon 15-days advance notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate, contains terms similar to the PNMR Revolving Credit Facility, and $40.0 millionexpires on February 24, 2020. PNMR has guaranteed the obligations of PNMR Development under the PNM Revolving Credit Facility, did not agreefacility. PNMR Development uses the facility to extendfinance its commitments beyondparticipation in NMRD and for other activities.


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



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 beginning on November 1, 2020. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires on December 12, 2022. The TNMP Revolving Credit Facility is a $75.0 million revolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds and matures on September 23, 2022. In July 2018, the PNMR Revolving Credit Facility was amended to provide for two one-year extension options, subject to approval by a majority of the lenders. In October 2018, and after receiving NMPRC approval, the PNM Revolving Credit Facility was amended to add two one-year extension options, subject to approval by a majority of the lenders.

On February 26, 2018, PNMR Development entered into a revolving credit facility with Wells Fargo Bank, National Association, as lender, which allows PNMR Development to borrow up to $24.5 million on a revolving credit basis and also provides for the issuance of letters of credit. The facility expires on February 25, 2019, 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 other activities.


Short-term debt outstanding consisted of:
  September 30, December 31,
Short-term Debt 2019 2018
  (In thousands)
PNM:    
PNM Revolving Credit Facility $—
 $32,400
PNM 2017 New Mexico Credit Facility —
 10,000
  —
 42,400
TNMP Revolving Credit Facility 15,000
 17,500
PNMR:    
PNMR Revolving Credit Facility 85,700
 20,000
PNMR 2018 One-Year Term Loan 150,000
 150,000
     PNMR Development Revolving Credit Facility 38,900
 6,000
  $289,600
 $235,900

  September 30, December 31,
Short-term Debt 2018 2017
  (In thousands)
PNM:    
PNM Revolving Credit Facility $—
 $39,800
PNM 2017 New Mexico Credit Facility —
 —
  —
 39,800
TNMP Revolving Credit Facility 17,500
 —
PNMR:    
PNMR Revolving Credit Facility 120,600
 165,600
PNMR 2016 One-Year Term Loan (as extended) 100,000
 100,000
     PNMR Development Revolving Credit Facility 24,500
 —
  $262,600
 $305,400


At September 30, 2018,2019, the weighted average interest rate was 3.34%3.29% for the PNMR Revolving Credit Facility, 2.99%2.81% for the PNMR 2018 One-Year Term Loan, 2.77% for the TNMP Revolving Credit Facility, 3.07%and 3.05% for the PNMR Development Revolving Credit Facility, and 3.02% for the PNMR 2016 One-Year Term Loan (as extended).Facility.


In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $4.7 million, $2.5 million, and $0.1 million at September 30, 20182019 that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of September 30, 20182019, and December 31, 2017,2018, TNMP had $4.1$0.8 million and zero$0.1 million of intercompany borrowings from PNMR, PNM had 0 and $19.8 million of intercompany borrowings from PNMR, and PNMR Development had $0.1 million and $0.5 million of intercompany borrowings from PNMR.


In 2017, PNMR entered into three3 separate four-year hedging agreements whereby it 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. Thesehedges and had fair values of $0.6 million at September 30, 2019 that are included in other current liabilities on the Condensed Consolidated Balance Sheets. At December 31, 2018, the hedge agreements had fair value gains totaling $4.0values aggregating $1.0 million at September 30, 2018 that is included in other deferred charges and $1.4 million at December 31, 2017 that isare included in other current assets on the Condensed Consolidated Balance Sheets. As discussed in Note 3, changes in the fair value of the cash flow hedges are deferred in AOCI and amounts reclassified to the Condensed Consolidated Statement of Earnings are recorded in interest charges. The fair values were determined using Level 2 inputs under GAAP, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement. On January 1, 2019, the Company adopted Accounting Standards Update 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. Adoption of the updated standard did not have a significant impact on these cash flow hedges.


At October 30, 2018,25, 2019, PNMR, PNM, TNMP, and PNMR Development had availability of $168.8215.9 million, $397.5 million, $47.459.6 million, and none$1.1 million under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit, and PNM had $40.0 million of availability under the PNM 2017 New Mexico Credit Facility. Total availability at October 30, 2018,25, 2019, on a consolidated basis, was $653.7714.1 million for PNMR. As of October 30, 2018,25, 2019, PNM and TNMP had no borrowings from PNMR under their intercompany loan agreements. As of October 25, 2019, PNMR Development had $0.1 million of intercompany borrowings from PNMR. At October 25, 2019, PNMR, PNM, and TNMP had invested cash of $0.9 million, $20.5 million, and 0.

The Company’s debt arrangements have various maturities and expiration dates. The $150.0 million PNMR 2018 One-Year Term Loan will mature in December 2019. PNM has $100.3 million of long-term debt that must be repriced by June 2020 and the $250.0 million PNM 2019 Term Loan matures in July 2020. In addition, the $35.0 million TNMP 2018 Term Loan matures in July 2020 and the $90.0 million PNMR Development Term Loan matures in November 2020. Additional information on debt maturities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K.

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



from PNMR under their intercompany loan agreements of zero and $5.4 million. At October 30, 2018, PNMR, PNM, and TNMP had invested cash of $0.9 million, $55.3 million, and none.

The Company’s debt arrangements have various maturities and expiration dates. These maturities include the $200.0 million PNM 2017 Term Loan Agreement, which matures on January 18, 2019. TNMP has $172.3 million of first mortgage bonds that are due in April 2019. The $100.0 million PNMR 2016 One-Year Term Loan (as extended) matures on December 14, 2018 and the $100.0 million PNMR 2016 Two-Year Term Loan matures on December 21, 2018. The Company has no other long-term debt due through September 30, 2019. The $24.5 million PNMR Development Revolving Credit Facility expires on February 25, 2019. Additional information on debt maturities is contained in Note 6 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K.

(10)Pension and Other Postretirement Benefit Plans


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


Additional information concerning pension and OPEB plans is contained in Note 1211 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K. Annual net periodic benefit cost for the plans is actuarially determined using the methods and assumptions set forth in that note and is recognized ratably throughout the year.


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 Condensed 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 $2.1 million and $6.4 million, net of amounts capitalized prior to the adoption of the standard, in the three and nine months ended September 30, 2017. The non-service components of TNMP’s 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. During the three and nine months ended September 30, 2018, PNM recorded $1.1 million and $3.2 million of non-service cost as other (deductions), which is net of $0.1 million and $0.3 million deferred as regulatory assets, and TNMP recorded $0.1 million and $0.3 million of non-service cost to other income, which is net of less than $0.1 million and $0.1 million deferred as regulatory liabilities.

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


PNM Plans


The following table presents the components of the PNM Plans’ net periodic benefit cost:
Three Months Ended September 30,Three Months Ended September 30,
Pension Plan OPEB Plan Executive Retirement ProgramPension Plan OPEB Plan Executive Retirement Program
2018 2017 2018 2017 2018 20172019 2018 2019 2018 2019 2018
(In thousands)(In thousands)
Components of Net Periodic Benefit Cost                      
Service cost$—
 $—
 $21
 $24
 $—
 $—
$—
 $—
 $13
 $21
 $—
 $—
Interest cost6,068
 6,727
 860
 1,006
 155
 174
6,294
 6,068
 829
 860
 163
 155
Expected return on plan assets(8,672) (8,451) (1,353) (1,308) —
 —
(8,527) (8,672) (1,320) (1,353) —
 —
Amortization of net (gain) loss4,087
 4,001
 588
 921
 90
 78
3,880
 4,087
 169
 588
 79
 90
Amortization of prior service cost(241) (241) (416) (416) —
 —
(241) (241) (99) (416) —
 —
Net periodic benefit cost$1,242
 $2,036
 $(300) $227
 $245
 $252
Net Periodic Benefit Cost (Income)$1,406
 $1,242
 $(408) $(300) $242
 $245
                      
                      
Nine Months Ended September 30,Nine Months Ended September 30,
Pension Plan OPEB Plan Executive Retirement ProgramPension Plan OPEB Plan Executive Retirement Program
2018 2017 2018 2017 2018 20172019 2018 2019 2018 2019 2018
(In thousands)(In thousands)
Components of Net Periodic Benefit Cost                      
Service cost$—
 $—
 $62
 $72
 $—
 $—
$—
 $—
 $39
 $62
 $—
 $—
Interest cost18,203
 20,181
 2,579
 3,019
 467
 523
18,881
 18,203
 2,487
 2,579
 487
 467
Expected return on plan assets(26,014) (25,352) (4,061) (3,923) —
 —
(25,577) (26,014) (3,956) (4,061) —
 —
Amortization of net (gain) loss12,261
 12,004
 1,765
 2,762
 269
 235
11,639
 12,261
 507
 1,765
 237
 269
Amortization of prior service cost(724) (724) (1,248) (1,248) —
 —
(724) (724) (297) (1,248) —
 —
Net periodic benefit cost$3,726
 $6,109
 $(903) $682
 $736
 $758
Net Periodic Benefit Cost (Income)$4,219
 $3,726
 $(1,220) $(903) $724
 $736


PNM did not0t make any contributions to its pension plan trust in the nine months ended September 30, 2019 and 2018 and 2017 and does not0t anticipate making any contributions to the pension plan in 20182019-2021, but expects to contribute $5.5$23.0 million in 2022 and $27.4 million in 2023, based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. The funding assumptions were developed using a discount ratesrate of 4.0% 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. PNM may make additional contributions at its discretion. PNM made no contributionsDisbursements attributable to the OPEB trust, in the nine months ended September 30, 2018 and 2017. PNM does not expect to make any contributions to the OPEB trust in 2018-2022.  Disbursements under the executive retirement program,a portion of which are funded by PNM and considered to be contributions to the plan, were $0.4 million and $1.3 million in the three and nine months ended September 30, 2018 and $0.4 million and $1.2 million in the three and nine months ended September 30, 2017 and are expected to total $1.6 million during 2018 and $5.7 million for 2019-2022.


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




OPEB plan, were $0.9 million and $2.4 million in the three and nine months ended September 30, 2019. PNM made 0 cash contributions to the OPEB trust in the three and nine months ended September 30, 2018, however, PNM funded disbursements attributable to a portion of the OPEB trust of $0.9 million and $1.5 million. Although PNM does 0t expect to make any cash contributions to the OPEB trust in 2019-2023, disbursements attributable to the OPEB plan that are expected to be funded by PNM are estimated to be $3.7 million in 2019 and $13.7 million for 2020-2023. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were $0.4 million and $1.1 million in the three and nine months ended September 30, 2019 and $0.4 million and $1.3 million in the three and nine months ended September 30, 2018 and are expected to total $1.5 million during 2019 and $5.6 million for 2020-2023.

TNMP Plans


The following table presents the components of the TNMP Plans’ net periodic benefit cost:
 Three Months Ended September 30,
 Pension Plan OPEB Plan Executive Retirement Program
 2019 2018 2019 2018 2019 2018
 (In thousands)
Components of Net Periodic Benefit Cost           
Service cost$—
 $—
 $12
 $33
 $—
 $—
Interest cost672
 656
 113
 119
 7
 7
Expected return on plan assets(967) (991) (129) (135) —
 —
Amortization of net (gain) loss235
 272
 (111) (56) 4
 4
Amortization of prior service cost—
 —
 —
 —
 —
 —
Net Periodic Benefit Cost (Income)$(60) $(63) $(115) $(39) $11
 $11
            
 Nine Months Ended September 30,
 Pension Plan OPEB Plan Executive Retirement Program
 2019 2018 2019 2018 2019 2018
 (In thousands)
Components of Net Periodic Benefit Cost           
Service cost$—
 $—
 $39
 $100
 $—
 $—
Interest cost2,015
 1,968
 338
 358
 24
 22
Expected return on plan assets(2,901) (2,972) (387) (406) —
 —
Amortization of net (gain) loss706
 816
 (332) (170) 11
 11
Amortization of prior service cost—
 —
 —
 —
 —
 —
Net Periodic Benefit Cost (Income)$(180) $(188) $(342) $(118) $35
 $33

 Three Months Ended September 30,
 Pension Plan OPEB Plan Executive Retirement Program
 2018 2017 2018 2017 2018 2017
 (In thousands)
Components of Net Periodic Benefit Cost           
Service cost$—
 $—
 $33
 $36
 $—
 $—
Interest cost656
 722
 119
 139
 7
 8
Expected return on plan assets(991) (945) (135) (114) —
 —
Amortization of net (gain) loss272
 231
 (56) (20) 4
 2
Amortization of prior service cost—
 —
 —
 —
 —
 —
Net Periodic Benefit Cost$(63) $8
 $(39) $41
 $11
 $10
            
 Nine Months Ended September 30,
 Pension Plan OPEB Plan Executive Retirement Program
 2018 2017 2018 2017 2018 2017
 (In thousands)
Components of Net Periodic Benefit Cost           
Service cost$—
 $—
 $100
 $107
 $—
 $—
Interest cost1,969
 2,165
 358
 417
 22
 25
Expected return on plan assets(2,972) (2,834) (406) (342) —
 —
Amortization of net (gain) loss816
 692
 (170) (60) 11
 7
Amortization of prior service cost—
 —
 —
 —
 —
 —
Net Periodic Benefit Cost$(187) $23
 $(118) $122
 $33
 $32


TNMP did not0t make any contributions to its pension plan trust in the nine months ended September 30, 2019 and 2018 and 2017 and does not0t anticipate making any contributions in 2018-2022,2019-2021, but expects to contribute $1.0 million in 2022 and $3.7 million in 2023, based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. The funding assumptions were developed using a discount ratesrate of 4.0% to 5.1%3.5%. Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made 0 contributions of zero and $0.3 million to the OPEB trust in the three and nine months ended September 30, 20182019 and zero0 and $0.7$0.3 million in the three and nine months ended September 30, 2017.2018. TNMP expectsdoes 0t expect to make no additional contributions to the OPEB trust in 2018 and $1.4 million for 2019-2022.during the period 2019-2023. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were less than $0.1 million in the three and nine months ended September 30, 20182019 and 20172018 and are expected to total $0.1 million during 20182019 and $0.4$0.3 million in 2019-2022.2020-2023.


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


(11)Commitments and Contingencies


Overview
There are various claims and lawsuits pending against the Company. In addition, the Company is subject to federal, state, and local environmental laws and regulations and periodically participates in the investigation and remediation of various sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. Also, the Company is involved in various legal and regulatory (Note 12) proceedings in the normal course of its business. See Note 12. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.

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


With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. The Company assesses legal and regulatory matters based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of any damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, or other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. Except as otherwise disclosed, the Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.
Additional information concerning commitments and contingencies is contained in Note 16 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.


Commitments and Contingencies Related to the Environment


Nuclear Spent Fuel and Waste Disposal


Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE that require the DOE to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance of these requirements. In November 1997, the DC Circuit issued a decision preventing the DOE from excusing its own delay but refused to order the DOE to begin accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other PVNGS owners, including PNM), filed damages actions against the DOE in the Court of Federal Claims. The lawsuits filed by APS alleged that damages were incurred due to DOE’s continuing failure to remove spent nuclear fuel and high-level waste from PVNGS. In August 2014, APS and the DOE entered into a settlement agreement which establishedthat establishes a process for the payment of claims for costs incurred through December 31, 2016. The settlement agreement has been extended to December 31, 2019. Under the settlement agreement, APS must submit claims annually for payment of allowable costs. PNM records estimated claims on a quarterly basis. The benefit from the claims is passed through to customers under the FPPAC to the extent applicable to NMPRC regulated operations.


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 September 30, 20182019 and December 31, 2017,2018, PNM had a liability for interim storage costs of $12.512.6 million and $12.312.4 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 States government’s obligation to accept and store spent fuel

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


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 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 enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA requires the NMPRC to review and approve utilities’ annual renewable portfolio plans to ensure compliance with the RPS. The ETA also directs the New Mexico Environmental Improvement Board to adopt standards of performance that limit CO2 emissions to no more than 1,100 lbs. per MWh beginning January 1, 2023 for new or existing coal-fired EGUs with original installed capacities exceeding 300 MW.

The ETA provides for a transition from fossil-fuel generation resources to renewable and other carbon-free resources through certain provisions relating to the abandonment of coal-fired generating facilities. These provisions include the use of “energy transition bonds,” which are designed to be highly rated bonds that can be issued to finance certain costs of abandoning coal-fired facilities that are retired prior to January 1, 2023 for facilities operated by a “qualifying utility,” or prior to January 1, 2032 for facilities that are not operated by the qualifying utility. The amount of energy transition bonds that can be issued to recover abandonment costs is limited to the lesser of $375.0 million or 150% of the undepreciated investment of the facility as of the abandonment date. Proceeds provided by energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include plant decommissioning and coal mine reclamation costs provided those costs have not previously been recovered from customers or disallowed by the NMPRC or by a court order. See Note 12 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, and ability to provide jobs with comparable pay and benefits to those lost upon retirement of the facility. In determining whether to approve replacement resources, the NMPRC must give preference to resources with the least environmental impacts, those with higher ratios of capital costs to fuel costs, and those located in the school district of the abandoned facility able to reduce the cost of reclamation and use for lands previously mined within the county of the EGU to be abandoned. 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 ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022. See additional discussion in Note 12 of PNM’s SJGS Abandonment Application. PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement resource filings with the NMPRC.


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


The Clean Air Act


Regional Haze


In 1999, EPA developed a regional haze program and regional haze rules under the CAA. The rule directs each of the 50 states to address regional haze. Pursuant to the CAA, states have the primary role to regulate visibility requirements by promulgating SIPs. States are required to establish goals for improving visibility in national parks and wilderness areas (also known as Class I

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


areas) and to develop long-term strategies for reducing emissions of air pollutants that cause visibility impairment in their own states and for preventing degradation in other states. States must establish a series of interim goals to ensure continued progress by adopting a new SIP every ten years. In the first SIP planning period, states were required to conduct BART determinations for certain covered facilities, including utility boilers, built between 1962 and 1977 that have the potential to emit more than 250 tons per year of visibility impairing pollution. If it was demonstrated that the emissions from these sources caused or contributed to visibility impairment in any Class I area, then BART must have been installed by the beginning of 2018. For all future SIP planning periods, states must evaluate whether additional emissions reduction measures may be needed to continue making reasonable progress toward natural visibility conditions.


On January 10, 2017, EPA published in the Federal Register revisions to the regional haze rule. EPA also provided a companion draft guidance document for public comment. The new rule delayed the due date for the next cycle of SIPs from 2019 to 2021, altered the planning process that states must employ in determining whether to impose “reasonable progress” emission reduction measures, and gave new authority to federal land managers to seek additional emission reduction measures outside of the states’ planning process. Finally, the rule made several procedural changes to the regional haze program, including changes to the schedule and process for states to file 5-year progress reports. EPA’s new rule was challenged by numerous parties. On January 19, 2018, EPA filed a motion to hold the case in abeyance in light of several letters issued by EPA on January 17, 2018 to grant various petitions for reconsideration of the 2017 rule revisions. On January 30, 2018, the court placed the case in abeyance and directed EPA to file status reports on 90-day intervals beginning April 30, 2018. On September 11, 2018, EPA released a memo titled “Regional Haze Reform Roadmap.” The memo covers forthcoming tools and guidance to support states in their SIP development processes for the second planning period, including updated 2028 visibility modeling. SIPs for the second compliance period are due in July 2021. EPA plans to initiate a notice-and-comment rulemaking to address certain aspects of its Regional Haze Rule. EPA’s decision to revisit the 2017 rule is not a determination on the merits of the issues raised in the petitions.

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


SJGS


BARTDecember 2018 Compliance Filing –SJGS is a source that is subject to the statutory obligations of the CAA to reduce visibility impacts.As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K, contains detailed information concerning the BART compliance process, including interactions with governmental agencies responsible for environmental oversight and the NMPRC approval process. Inin December 2015 PNM received NMPRC approval for thea plan to comply with the EPAEPA’s regional haze rule at SJGS. Under the approved plan, the installation of selective non-catalytic reduction technology (“SNCR”) on SJGS Units 1 and 4 was completed in early 2016 and Units 2 and 3 were retired in December 2017. In addition to the required SNCR equipment, 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”). See Note 12 for information concerningAmong other things, the NMPRC’s treatment of BDT in PNM’s NM 2015 Rate Case.
The December 2015 NMPRC order also provided, among other things, that:

PNM was granted a CCN to acquire an additional 132 MW in SJGS Unit 4 effective January 1, 2018
PNM was granted a CCN for 134 MW of PVNGS Unit 3 as a jurisdictional resource to serve New Mexico customers beginning January 1, 2018
PNM was authorized to acquire 65 MW of SJGS Unit 4 as merchant plant
Norequired that, no later than December 31, 2018, and before entering intoPNM make a binding agreement for post-2022 coal supply for SJGS, PNM will file its position in a NMPRC casefiling with the NMRPC to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after mid-2022 (see OtherJune 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, Matters below and Note 12)

NEE filed a notice of appeal with the NM Supreme Court of theunless PNM did not intend to pursue an agreement for post-2022 coal supply at SJGS. The NMPRC’s December 2015 order allegingalso indicated that, if SJGS Unit 4 is abandoned with undepreciated investment on PNM’s books, PNM is prohibited from recovering the NMPRC’s decision violatedundepreciated 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 statutes and NMPRC regulations because PNM did not adequately consider replacement resources other than those proposed by PNM, the NMPRC did not require PNM to adequately address and mitigate ratepayer risk, the NMPRC unlawfully shifted the burden of proof, and the NMPRC’s decision was arbitrary and capricious.  The parties presented oral argument to the court on January 25, 2017. On March 5, 2018, the NM Supreme Court issued its opinion affirming the NMPRC’s December 2015 order, thereby denying NEE’s appeal. A request for rehearing of the NM Supreme Court’s decision was not filed by the statutory deadline. This matter is now concluded.retail customers.

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






PNM 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 SJCC that PNM does not intend to extend the SJGS CSA beyond June 30, 2022. On January 30, 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 motion 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 order. Various parties intervened in the petition. On June 26, 2019, the NM Supreme Court lifted the stay, denied PNM’s petition without discussion, and vacated oral arguments that had been scheduled for July 9, 2019. On July 1, 2019, PNM filed its SJGS Abandonment Application. See Note 12.

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 result, PNM performed an impairment analysis that assumed SJGS would not continue to operate through 2053, as previously approved by the NMPRC. PNM’s impairment analysis indicated that, pursuant to the NMPRC’s December 2015 order, PNM’s undepreciated 132 MW interest in SJGS Unit 4 at June 30, 2022 will not be recovered from customers; that the estimated future cash flows expected to result from the operation of SJGS Unit 4 through June 30, 2022 are not sufficient to provide for recovery of PNM’s 65 MW merchant interest in the facility; and that it is unlikely PNM will be able to sell or transfer its interests in SJGS to third parties at amounts sufficient to provide for their recovery. As a result, as of December 31, 2018, PNM recorded a pre-tax impairment of its investment in SJGS of approximately $35.0 million, which is reflected as regulatory disallowances and restructuring costs on the Consolidated Statements of Earnings in the 2018 Annual Reports on Form 10-K. This amount includes the entire $11.9 million carrying value of PNM’s 65 MW interest in SJGS Unit 4 as of December 31, 2018 and $23.1 million of estimated undepreciated investments in PNM’s 132 MW jurisdictional interest as of June 30, 2022 that will not be recovered from customers. As of September 30, 2019, and December 31, 2018, the net book value of PNM’s investments in SJGS after considering the impairments discussed above is $345.5 million and $373.6 million. See additional discussion below regarding the increase in PNM’s estimated liability for coal 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. PNM responded to the complaint on May 4, 2016. On January 31, 2018, NEE filed a motion asking the NMPRC to investigate whether PNM’s relationship with WSJ, in lightthe former owner of Westmoreland’s financial condition,SJCC could be harmful to PNM’s customers. PNM responded requesting the NMPRC deny the motion and that NEE’s prior complaint be dismissed. On May 23, 2018, PNM filed its response to the NMPRC staff’s comments requesting additional information about the financing and noting that the Westmoreland Loan was paid in full on May 22, 2018. NEE and NMPRC staff responded on July 16, 2018. NEE continues its request that the NMPRC investigate whether Westmoreland’s financial condition could adversely affect PNM’s customers. The NMPRC staff response requested that PNM provide certain additional information about the financing transactions and stated an order to show cause requested by NEE is not warranted. On October 11, 2018, PNM filed a supplemental response notifyingnotified the NMPRC that the former owner of SJCC, Westmoreland, had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy CodeCode. As discussed in Note 6, on October 9, 2018. PNM’s supplemental response indicatedMarch 15, 2019, Westmoreland announced that it had agreedemerged 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 terms with its secured creditors that will allow itWSJ LLC. As successor entity to continueSJCC, WSJ LLC assumed all rights and obligations of Westmoreland including obligations to fund normal-course operations and to continue to serve its customers during the course of the bankruptcy case. See Note 6. PNM’s supplemental response also included a letter from the United States Southern District of Texas Bankruptcy Court indicating that, subject to specified conditions, Westmoreland is authorized to “perform under its coal contracts and to conduct its businessPNM under the ordinary course of business” without seeking Court approval.SJGS CSA. The NMPRC has taken no further action on NEE’s complaints. PNM cannot predict the outcome of these matters.

SJGS Ownership Restructuring Matters – As discussed in Note 16 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, SJGS was jointly owned by PNM and eight other entities. The SJPPA that governs the operation of SJGS expires on July 1, 2022. In connection with the plan to comply with EPA regional haze rules at SJGS, 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.

On July 31, 2015, the SJGS participants executed the San Juan Project Restructuring Agreement (“SJGS RA”). 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. 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 as discussed in Coal Supply below.

Other SJGS Matters – 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 12) 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 (see Coal Supply below) 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.

The 2017 IRP is not a final determination of PNM’s future generation portfolio.  Retiring PNM’s share of SJGS would require PNM to make a formal abandonment filing with the NMPRC.  The final determination of PNM’s exit from SJGS would be subject to NMPRC review and approval.  PNM would also be required to obtain NMPRC approval of replacement power resources through formal CCN filings. The December 2015 NMPRC order discussed above authorized PNM to acquire 132 MW of SJGS Unit 4 as a New Mexico jurisdictional resource and 65 MW of SJGS Unit 4 as merchant plant. That order also provides that, if SJGS Unit 4 is abandoned with undepreciated investment on PNM’s books, PNM would not be allowed to recover the undepreciated investment of its 132 MW interest. PNM is currently depreciating all its investments in SJGS through 2053, the expected life approved by the NMPRC.  PNM’s undepreciated investment in SJGS at September 30, 2018 was $405.5 million, which includes interests in the 132 MW and the 65 MW of $20.3 million and $10.1 million.  In the event of an early retirement of SJGS, PNM would be exposed to loss of its undepreciated investments in the facility and other costs, including costs associated

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with coal mine reclamation discussed below, if recovery of these items is not approved by the NMPRC.  The financial impact of early retirement and the NMPRC approval process are influenced by factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment on the area surrounding the plant and related mine, as well as overall political and economic conditions in New Mexico. Because of the uncertainty in obtaining the required approvals, PNM is unableable to predict the potential outcome of this matter.matter but does not anticipate the NMPRC will take any further action.


Four Corners


On August 6, 2012, EPA issued its Four Corners FIP with a final BART determination for Four Corners. The rule included two 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 selective catalytic reduction technology (“SCR”) post-combustion NOx controls 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./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 $88.6 million, including amounts incurred through September 30, 2018 and PNM’s AFUDC. See Note 17 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and Note 12 for a discussion of the treatment of these costs in PNM’s NM 2016 Rate Case.

The agreements governing the operation of Four Corners and its coal supply expire in 2031. 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 States 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

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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 States Court of Appeals for the Ninth Circuit on November 9, 2017, and the court granted their subsequent motion to expedite the appeal. The parties anticipate oralOral arguments will be heard in earlyfor 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. On September 12, 2019, the environmental groups filed a motion for reconsideration. PNM cannot predict if such appeal will be successful and, if it is successful, the outcome of further district court proceedings.this matter.


Carbon Dioxide Emissions

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


Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. On January 21, 2016, the DC Circuit denied petitions to stay the Clean Power Plan, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9,

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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 NSPSNew Source Performance Standards (“NSPS”) for GHG from new, reconstructed, or modified electric generating units, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. It also directs the EPA Administrator to notify the US Attorney General of his intent to review rules subject to pending litigation so that the US Attorney General may notify the court and, in his discretion, request that the court delay further litigation pending completion of the reviews. In response to the Executive Order, EPA filed a petition with the DC 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, which repeals the Clean Power Plan.


OnEPA’s efforts to replace the Clean Power Plan with the Affordable Clean Energy rule began on October 10, 2017, when EPA issued a NOPR proposing to repeal the Clean Power Plan and filed its status report with the court requesting the case be held in abeyance until the completion of the rulemaking on the proposed repeal. The NOPR proposesproposed a legal interpretation concluding that the Clean Power Plan exceedsexceeded EPA’s statutory authority. Under the proposed interpretation, Section 111(d) limits EPA’s authority to adopt performance standards to only those physical and operational changes that can be implemented within an individual source. Therefore, measures in the Clean Power Plan that would require power generators to change their energy portfolios by shifting generation from coal to gas and from fossil fuel to renewable energy exceed EPA’s statutory authority. The NOPR was published in the Federal Register on October 16, 2017 and comments were due by 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. On December 18, 2017, EPA released an advanced NOPR addressing GHG guidelines for existing electric utility generating units. Comments to EPA’s new rule were due by February 26, 2018. On August 31, 2018, EPA published a proposed rule, which is informally known as the Affordable Clean Energy rule, to replace the Clean Power Plan. The proposedOn June 19, 2019, EPA released the final version of the Affordable Clean Energy rule,rule. EPA takes three actions in the final rule: (1) finalizes the repeal of the Clean Power Plan; (2) finalizes the Affordable Clean Energy rule; and (3) revises the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d), which among other things, would establish guidelines that replaceextends the “outside-the-fenceline” control measures and specific numerical emission ratestiming of state plans. The final rule is very similar to the August 2018 proposed rule. EPA set the Best System of Emissions Reduction (“BSER”) for existing EGUs. These measures are replaced withcoal-fired power plants as heat rate efficiency improvements based on a listrange of “candidate technologies” for heat rate improvement measures, which include both technologies and operational changes, that EPA has identified as Best Systemcan be applied inside the fence-line. Rather than setting a specific numerical standard of Emission Reduction (“BSER”). States wouldperformance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable throughbased on the application of the selected BSER. States will have three years from when theThe final rule is finalizedrequires states to submit a plan to EPA. EPA willby July 8, 2022 and then haveEPA has one year to determine if each proposed plan is acceptable.approve the plan. If states do not submit a plan or if a state’stheir submitted plan is not acceptable, EPA will have two years to develop a federal plan for the state to implement.  EPA is also proposing revisions to the NSR program that would provide coal-fired power plants more latitude to make efficiency improvements consistent with BSER without triggering NSR permit requirements. Comments on the proposed Affordable Clean Energy rule were due to EPA by October 31, 2018.

The proposed Affordable Clean Energy rule and the 2015 federal plan released concurrently with the Clean Power Plan are important to Four Corners and the Navajo Nation. Since the Navajo Nation does not have primacy over its air quality program, EPA would be the regulatory authority responsible for implementing the proposed Affordable Clean Energy rule or the Clean Power Plan on the Navajo Nation. PNM is unable to predict the financial or operational impacts on Four Corners if the Affordable Clean Energy rule, the Clean Power Plan, or other future GHG reduction rulemaking are ultimately implemented 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 proposed Affordable Clean Energy rule and the Clean Power Plan is ongoing and the assessment of its impacts will depend on the proposed repeal of the Clean Power Plan, promulgation of the Affordable Clean Energy rule, other 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.


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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 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 late 2019.
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 considered harmfulreasonably anticipated to endanger public health and the environment.or welfare. EPA has set NAAQS for certain pollutants, including NOx, SO2, ozone, and particulate matter. In 2010, EPA updated the primary NOx and SO2 NAAQS to include a 1-hour maximum standard while retaining the annual standards for NOx and SO2 and the 24-hour SO2 standard. New Mexico isEPA also updated the final particulate matter standard in attainment for2012 and updated the 1-hour ozone standard in 2015.

NOx NAAQS.

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


SO2 Standard – On May 13, 2014, EPA released the draft data requirements rule for the 1-hour SO2 NAAQS, which directs state and tribal air agencies to characterize current air quality in areas with large SO2 sources to identify maximum 1-hour SO2 concentrations. This characterization would result in these areas being designated as attainment, nonattainment, or unclassifiedunclassifiable for compliance with the 1-hour SO2 NAAQS.  On March 2, 2015, the United States District Court for the Northern District of California approved a settlement that imposed deadlines for EPA to identify areas that violate the NAAQS standards for 1-hour SO2 emissions. The settlement resulted from a lawsuit brought by Earthjustice on behalf of the Sierra Club and the Natural Resources Defense Council under the CAA. The consent decree required, that: (1) within 16 months of the consent decree entry, EPA must issue area designations for areas containing non-retiring facilitiesamong 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.


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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. On June 27, 2018, NMED submitted the first annual report for SJGS as required by the Data Requirements Rule. TheRule in June 2018. That report recommendsrecommended that no further modeling was warranted due to decreased SO2 emissions. NMED submitted the second annual modeling report to EPA in July 2019. That report retained the recommendation that no further modeling is warrantedneeded at this time dueand is subject to decreasedEPA 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., which is 75 parts per billion (“ppb”), based on the 3-year average of the 99th percentile of daily maximum 1-hour SO2 concentrations.  SO2 is the most prevalent SOx compound and is used as the indicator for the primary SOx NAAQS.


On May 14, 2015, PNM received an amendment to its NSR air permit for SJGS, which reflects the revised state implementation plan for regional haze BART and 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 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 Haze – SJGS above.

On May 29, 2018, EPA released a proposed rule that would retain the primary health-based NAAQS for SOx. EPA is proposing to retain the current 1-hour standard for SO2, which is 75 parts per billion (“ppb”), based on the 3-year averagediscussion of the 99th percentileregulatory treatment of daily maximum 1-hour SO2 concentrations.  SO2 is the most prevalent SOx compound and is used as the indicator for the primary SOx NAAQS.BDT in Note 12.


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


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.

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The proposed rule is important in light of the new more stringent ozone NAAQS final rule since western states like New Mexico and Arizona are particularly subject to elevated background ozone transport from natural local sources, such as wildfires, and transported via winds from distant sources, such as the stratosphere or another region or country. EPA finalized the 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 for ozone, which states used to determine their initial designation recommendations by October 1, 2016. NMED published its 2015 Ozone NAAQS Designation Recommendation Report on September 2, 2016.ozone. In New Mexico, 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 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.

On November 6, 2017, EPA released a final rule establishing some, but not all, initial area designations.  In that final rule,those rules, San Juan County, New Mexico, where SJGS and Four Corners are located, is designated as attainment/unclassifiable. Theunclassifiable and only countya small area in Dona Ana County, New Mexico is designated as non-attainment is Dona Ana County.  On April 30, 2018, EPA completed additional area designations for the 2015 ozone standards. In a related matter, EPA published a final rule on March 9, 2018 establishing air quality thresholds that define the classifications assigned to all non-attainment areas for ozone NAAQS.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 County designated as marginal/non-attainment for ozone into compliance and will look at all sources of NOx and volatile organic compounds. NMED is requiredworking on the State Implementation Plan revision that outlines the strategies and emissions control measures that are expected to submit an infrastructure and transport SIP that provides the basicimprove air quality management programin the area by May 8, 2021. These strategies and measures would aim to implementreduce the revised ozone standard. This plan is generally due within 36 months from the date the NAAQS is promulgated. The NMED has published a proposed certification that New Mexico currently has an adequate, federally-approved SIP that addresses elementsamount of the CAA Section 110(a)(2) infrastructure SIP, as applicableNOx and volatile organic compounds emitted to the 2015 ozone NAAQS. The purpose of the proposed certification is to confirm to EPA that New Mexico has the required “infrastructure” in place under theatmosphere and will rely upon current SIP to implement, maintain,or upcoming federal rules, new or revised state rules, and enforce the revised 2015 ozone NAAQS. Comments on the proposed certification were due by October 29, 2018. State ozone attainment plans are generally due within five to six years from the date of the ozone NAAQS promulgation and are planned for submittal in 2020 and 2021.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, APSPNM 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 (“PM”). 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 are due November 12, 2019. EPA anticipates

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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 States 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 challenged several unrelated mining plan modification approvals, which were each separately approved by OSM.  WEG alleged various NEPA violations against OSM, including, but not limited to, OSM’s alleged failure to provide requisite public notice and participation, alleged failure to analyze certain environmental impacts, and alleged reliance on outdated and insufficient documents.  WEG’s petition sought various forms of relief, including a finding that the federal defendants violated NEPA by approving the mine plans; voiding, reversing, and remanding the various mining modification approvals; enjoining the federal defendants from re-issuing the mining plan approvals for the mines until compliance with NEPA has been demonstrated; and enjoining operations at the seven7 mines.


Of the fifteen15 claims for relief in the WEG Petition, two2 concerned SJCC’s San Juan mine. WEG’s allegations concerning the San Juan mine arisearose from OSM administrative actions in 2008. SJCC intervened in this matter. The court granted SJCC’s

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motion to sever its claims from the lawsuit and transfer venue to the NM District Court. In July 2016, OSM filed a Motion for Voluntary Remand to allow the agency to conduct a new environmental analysis. 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 was made available in May 2018. Public comments were due on July 9, 2018. PNM cannot currently predict the outcome of this matter.be subject to 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, APS sought, and the court granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts. PNM cannot currently predict the outcome of these matters or the range of their potential impacts.
Cooling Water Intake Structures
In 2014, EPA signed its final cooling water intake structuresissued a rule on May 16, 2014, which establishesestablishing national standards for certain cooling water intake structures at existing power plants and other facilities under the Clean Water Act to protect fish and other aquatic organisms by minimizing impingement mortality (the capture of aquatic wildlife on intake structures or against screens) and entrainment mortality (the capture of fish or shellfish in water flow entering and passing through intake structures). The final rule became effective October 14, 2014.
The final rule allows multiple compliance options and considerations for site specific conditions and the permit writer is granted a significant amount of discretion in determining permit requirements, schedules, and conditions. To minimize impingement mortality, the rule provides operators of facilities, such as SJGS and Four Corners, seven7 options for meeting Best Technology Available (“BTA”) standards for reducing impingement. SJGS has a closed-cycle recirculating cooling system, which is a listed BTA and may also qualify for the “de minimis rate of impingement” based on the design of the intake structure. To minimize entrainment mortality, theThe permitting authority must establish the BTA for entrainment on a site-specific basis, taking into consideration an array of factors, including endangered species and social costs and benefits. Affected sources must submit source water baseline characterization data to the permitting authority to assist in the determination. Compliance deadlines under the rule are tied to permit renewal and will be subject to a schedule of compliance established by the permitting authority.
The rule is not clear as to how it applies and what the compliance timelines are for facilities like SJGS that have a cooling water intake structure and only a multi-sector general stormwater permit. However, EPA has indicated that it is contemplating a

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December 31, 2023 compliance deadline. PNM is working with EPA regarding this issue. However, PNMissue but 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 United States Court of Appeals for the Ninth Circuit Court over EPA’s failure to timely reissue the Four Corners NPDES permit. The petitioners asked the court to issue a writ of mandamus compelling EPA Region IX to take final action on the pending NPDES permit by a reasonable date. EPA subsequently reissued the NPDES permit on June 12, 2018. The permit doesdid not contain conditions related to the cooling water intake structure rule as EPA determined that the facility has achieved BTA for both impingement and entrainment by operating a closed-cycle recirculation system and no additional conditions are necessary. On July 16, 2018, several environmental groups filed a petition for review with the EPA’s Environmental Appeals Board concerning the reissued permit. The environmental groups alleged that the permit was reissued in contravention of several requirements under the Clean Water Act and doesdid not contain required provisions

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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. The coalition is seekingOn December 19, 2018, EPA withdrew the Four Corners NPDES permit in order to haveexamine issues raised by the environmental groups. Withdrawal of the permit remanded tomoots the appeal pending before the Environmental Appeals Board. EPA’s Environmental Appeals Board thereafter dismissed the environmental groups’ appeal. EPA for revision to address these allegations.issued an updated NPDES permit on September 30, 2019. PNM cannot predict the outcome of this matter.matter or whether it will have a material impact on PNM’s financial position, results of operations or cash flows.


Effluent Limitation Guidelines


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


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


On April 14, 2017, EPA filed a motion withThe 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 September 18, 2017, EPA published thea final rule for postponement of certain compliance dates, which have not yet passed for the Effluent Limitations Guidelines rule, consistent with the EPA’s decision to grant reconsideration of that rule. The 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.


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.


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EPA reissued an NPDES permit for Four Corners on June 12, 2018. EPA had determined that the guidelines in the 2015 rule arewere not applicable to this permit because the effective dates of the 2015 effluent guidelines rule were extended.extended but later withdrew the Four Corners NPDES permit in order to examine issues raised by several environmental groups. EPA issued an updated NPDES permit on September 30, 2019. Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques during the next NPDES permit renewal for Four Corners, which will be in 2023. See Cooling Water Intake Structures above. PNM is unable to predict the outcome of these matters or a range of the potential costs of compliance.
Santa Fe Generating Station
PNM and the NMED are parties to agreements under which PNM has installed a remediation system to treat water from a City of Santa Fe municipal supply well and an extraction well and monitoring wells to address gasoline contamination in the groundwater at the site of PNM’s former Santa Fe Generating Station and service center. 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 believesand NMED collected additional samples that showed elevated concentrations of nitrate and volatile organic compounds in some of the observed groundwater contaminationmonitoring 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, butsources. 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 operatecontinue 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. Work under the plan commenced in August 2019.
The City of Santa Fe has stopped operating its well at the site, which is needed for PNM’s groundwater remediation facilitiessystem 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 that additional 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.
Coal Combustion Residuals Waste Disposal
CCRs consisting of fly ash, bottom ash, and gypsum generated from coal combustion and emission control equipment at SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCR impoundments or landfills. The CityNMMMD currently regulates mine reclamation activities at the San Juan mine, including placement of Santa FeCCRs in the surface mine pits, with federal oversight by the OSM. APS disposes of CCRs in ponds and dry storage areas at Four Corners.  Ash management at Four Corners is regulated by EPA and the New Mexico State Engineer’s Office.

EPA’s final coal ash rule, which became effective on October 19, 2015, included a non-hazardous waste determination for coal ash. The rule was promulgated under Subtitle D of RCRA and sets minimum criteria for existing and new CCR landfills and surface 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 and contains a number of provisions related to the CCR rules. Among other things, the WIIN Act allows, but does not require, states to develop and submit CCR permit programs for EPA approval, provides flexibility for states to incorporate EPA’s final rule for CCRs or develop other criteria that are at least as protective as EPA’s final rule, and requires EPA to approve state permit programs within 180 days of submission by the state. Because states are not required to implement their own CCR permit programs, EPA will implement the permit program in states that choose not to implement a program, subject to Congressional funding. Until permit programs are in effect, EPA has indicated that sinceauthority to directly enforce the Cityself-implementing CCR rule. For facilities located within the boundaries of Native American reservations, such as the Navajo Nation where Four Corners is located, EPA is required to develop a federal permit program regardless of appropriated funds. There is no longer needstimeline for establishing either state or federal permitting programs. Since the water from the well, the City would preferCCR rule was promulgated in 2015, it has undergone multiple revisions and may be subject to discontinue its operation and maintain it onlyfurther change as a backup water source. However, for PNM’s groundwater remediation system to operate,result of EPA’s ongoing review, implementation of the water wellWIIN act, and the impact of various court decisions in litigation.

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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 monitoring activities conducted under the CAF to NMED on October 3, 2016. PNM completed all CAF-related work associated with the monitoring plan and received NMED’s approval. PNM’s contractor prepared a scope of work, which PNM and NMED approved, for the installation of additional monitoring wells and additional sampling of certain existing monitoring wells at the site. These activities were completed in June 2018. PNM’s contractor has commenced the next phase of work which includes the installation of up to 38 additional monitoring wells. Work is expected to be completed in early 2019. Qualified costs of this work are eligible for payment through the CAF.

PNM is unable to predict the outcome of these matters.
Coal Combustion Byproducts Waste Disposal
CCBs consisting of fly ash, bottom ash, and gypsum generated from coal combustion at SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCB impoundments or landfills. The NMMMD currently regulates placement of ash in the San Juan mine with federal oversight by the OSM. APS disposes of CCBs 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.

EPA’s final coal ash rule, which became effective on October 19, 2015, included a non-hazardous waste determination for coal ash. The rule sets minimum criteria for existing and new CCB 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 of RCRA, it does not require regulated facilities to obtain permits, does not require the states to adopt and implement the rules, and is not within EPA’s enforcement jurisdiction. Instead, the rule’s compliance mechanism is for a state or citizen group to bring a RCRA citizen suit in federal district court against any facility that is alleged to be in non-compliance with the requirements.


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 Act contains a number of provisions requiring EPA to modify the self-implementing provisions of the current CCB rules under Subtitle D. Among other things, the WIIN Act provides

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for the establishment of state and EPA permit programs for CCBs, provides flexibility for states to incorporate the EPA final rule for CCBs 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 federal permit program. Subject to Congressional appropriated funding, EPA will implement the permit program in states that choose not to implement a program. Until permit programs are in effect, EPA has authority to directly enforce the self-implementing CCB 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 line for establishing either state or federal permitting programs. APS recently filed a comment letter with EPA seeking clarification as to when and how EPA would be initiating permit proceedings for facilities on tribal reservations, including Four Corners. PNM is unable to predict when EPA will be issuing permits for Four Corners.

On September 13, 2017, EPA agreed to evaluate whether to revise the 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.

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. On March 15, 2018, EPA proposed its Phase I Remand Rule that includes potential revisions to provide site-specific, risk-based tailoring of groundwater monitoring, corrective action and location restriction requirements of the CCB rule. On June 12, 2018, EPA sent a final CCB revision “fast-track” rule to OMB that addresses some of the provisions from the proposed rule released in March 2018. EPA published the final rule on July 30, 2018. According to EPA, the July 30, 2018, EPA published a rule which constitutes “Phase One, Part One” of its ongoing reconsideration and revision of the April 15, 201717, 2015 coal ash rule. The final rule includes two types of revisions. The first revision extends the deadline to allow EGUs with unlined impoundments or that fail to meet the uppermost aquifer requirement to continue to receive coal ash until October 31, 2020. The second revision authorizes a “Participating State Director” or EPA, in lieu of a professional engineer, to approve suspension of groundwater monitoring and to issue certifications related to the location restrictions, design criteria, groundwater monitoring, remedy selection and implementation. The revisions also modify groundwater protection standards for certain constituents, which include cobalt, molybdenum, lithium, and lead without a maximum contamination level. EPA indicatedintends to issue multiple proposed rulemakings with a final rule in December 2019 that provisionswill include the following: (1) deadlines for unlined surface impoundments to cease receiving waste; (2) a “Phase Two” rule to address amendments to the national minimum criteria; and (3) rulemaking for alternative demonstration for unlined surface impoundments with a request for comment on inclusion of legacy units. On August 14, 2019, the “Phase Two” proposed rule was published in the March 2018Federal Register with comments due on October 15, 2019. This rule that are not addressed inproposes revisions to reporting and accessibility to public information, the July 2018definition of CCR piles and the definition of beneficial use. A final rule will be addressedis expected in December 2019. PNM cannot predict the outcome of EPA’s rule making activity or the outcome of any related litigation, and whether or how such a subsequent rulemaking.ruling would affect operations at Four Corners.

On August 21, 2018, the DC Circuit Court of Appeals issued its decision in the CCB litigation. The court denied EPA’s request to hold the case in abeyance; remanded the industry group’s challenges to the regulation of certain on-site CCB piles; denied relief for the remaining industry group’s claims, including the challenge to EPA’s authority to regulate inactive surface impoundments; and found for the environmental groups on their challenges to the ability of unlined impoundments to continue operating, the classification of certain unlined impoundments as “lined” units, and EPA’s failure to regulate legacy ponds. It remains unclear how the DC Circuit Court of Appeals decision will impact Four Corners as EPA has not yet taken regulatory action on remand to revise its CCB regulations.


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 CCBCCR regulation, including mine placement of CCBs,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 CCBCCR 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 CCBCCR 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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As indicated above, CCBsCCRs at Four Corners are currently disposed of in ash ponds and dry storage areas. The CCBCCR rule requires ongoing, phased groundwater monitoring. By October 17, 2017, utilitiesUtilities that own or operate CCBCCR disposal units, such as those at Four Corners must have collectedwere required to collect sufficient groundwater sampling data to initiate a detection monitoring program.  To the extent that certain threshold constituents are identified through this initial detection monitoring at levels above the CCB rule’s standards, the rule required the initiation of an assessment monitoring program by April 15, 2018.  If this assessment monitoring program reveals concentrations of certain constituents above the CCB rule standards that trigger remedial obligations, a corrective measures evaluation must be completed by April 2019. Four Corners recently completed anthe analysis that determined several offor its CCBCCR disposal units, which identified several units that will need corrective action or will need to cease operations and initiate closure by October 2020. Four Corners anticipates it will complete its evaluation of these matters by early 2019. At this time, PNM does not anticipate its share of the cost to complete these corrective actions or to close the CCBCCR disposal units at Four Corners will have a significant impact on its operations, financial position, or cash flows.
 
Other Commitments and Contingencies
Coal Supply
SJGS
The coal requirements for SJGS are supplied by SJCC. SJCC holds certain federal, state, and private coal leases. In addition to coal delivered to meet the current needs of SJGS, PNM has prepaid SJCC for certain coal mined but not yet delivered to the plant site. At September 30, 20182019 and December 31, 2017,2018, prepayments for coal, (including amounts purchased from the exiting SJGS participants discussed below), which are included in other current assets, amounted to $26.3 million.$26.3 million. Additional information concerning the coal supply for SJGS is contained in Note 16 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.
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. On July 1, 2015, PNM and Westmoreland entered into a new coal supply agreement (the “SJGS CSA”), pursuant to which Westmoreland, isthrough its indirect 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 6, 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 stocksale of SJCC.

The SJGS CSA became effective asthe assets 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 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, the SJGS CSA provides that PNM must give written notice of that intent by July 1, 2018 and the parties must agree to the terms of the extension by January 1, 2019. In addition, the SJPPA obligates each SJGS participant to provide notice to the other participants whether they wish to extend the terms of the SJPPA and the SJGS CSA beyond June 30, 2022. Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022. Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. PNM gave preliminary notice to the other participants that, based on updated coal pricing and other relevant information, PNM does not wish to extend the terms of the SJPPA or the SJGS CSA beyond June 30, 2022. PNM is continuing to analyze the permanent retirement of SJGS in 2022, including plant decommissioning and related coal mine reclamation. The final determination of PNM’s exit from SJGS is subject to NMPRC approval in a formal abandonment proceeding (Note 12). Due to Farmington’s stated interest in continuing SJGS operations beyond 2022, PNM and Westmoreland agreed to extend the July 1, 2018 notice deadline to December 1, 2018.

On March 17, 2018, a coal silo used to supply fuel to SJGS Unit 1 collapsed resulting in an outage. Repairs necessary to return Unit 1 to service were completed by July 5, 2018. See Note 12. PNM notified Westmoreland that this event constituted adelivered.

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“force majeure” under
PNM had the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In 2018, PNM, Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022 and Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. On November 30, 2018, PNM provided notice to Westmoreland that PNM would be unabledoes not intend to satisfy its minimum obligations to purchase coal for Unit 1 as a result of the event. On October 5, 2018, PNM and SJCC reached a settlement under which the minimum obligation to purchase coal for SJGS during the 2018 contract year was reduced by 111,668 tons and resolving the issues related to the event. The benefit of this reduction will be returned to customers through the FPPAC.

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 overextend the term of the SJGS CSA. Coal costs underCSA or to negotiate a new coal supply agreement for SJGS, which will result in the SJGS CSA are significantly less than under the previous arrangement with SJCC. Since substantially allcurrent agreement expiring on its own terms on June 30, 2022. See additional discussion above of PNM’s coal costs are passed through the FPPAC, the benefit of the reduced costs is passed through to PNM’s customers.

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 subsidiary of Westmoreland, to finance WSJ’s purchase of the stock of SJCC (including an insignificant affiliate) under the Stock Purchase Agreement. NM Capital provided the $125.0 million financing to WSJ by first entering into a $125.0 million term loan agreement (the “BTMU Term Loan Agreement”) with BTMU, as lender and administrative agent. The BTMU Term Loan Agreement became effective as of February 1, 2016, had a maturity date of February 1, 2021, and bore 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, guaranteed NM Capital’s obligations to BTMU.

The Westmoreland Loan was a $125.0 million loan agreement among NM Capital, as lender, WSJ, as borrower, and SJCCDecember 2018 Compliance Filing and its affiliate, as guarantors. The Westmoreland Loan became effective as of February 1, 2016 and had a maturity date of February 1, 2021. The interest rate on the Westmoreland Loan escalated over time and was 9.25% plus LIBOR for the period from February 1, 2017 through January 31, 2018 and 12.25% plus LIBOR beginning February 1, 2018. WSJ paid principal and interest quarterly to NM CapitalSJGS Abandonment Application in accordance with an amortization schedule. In addition, the Westmoreland Loan required 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 was fully repaid. The Westmoreland Loan was secured by the assets of and the equity interests in SJCC and its affiliate. The Westmoreland Loan also included customary representations and warranties, covenants, and events of default. There were no prepayment penalties. See Note 6.12.

On May 22, 2018, the full principal outstanding under the Westmoreland Loan of $50.1 million was repaid. NM Capital used a portion of the proceeds to repay all remaining principal of $43.0 million owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated.


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

See NEE Complaint above, for information concerning Westmoreland’s October 9, 2018 Chapter 11 bankruptcy filing.


Four Corners
APS purchases all of Four Corners’ coal requirements from NTEC, an entity owned by the Navajo Nation, under a coal supply contract (the “Four Corners CSA”) that expires in 2031. The coal comes from reserves located within the Navajo Nation. NTEC has contracted with Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, for management and operation of the mine. The contract provides for pricing adjustments over its term based on economic indices. The average coal price per ton under the contract was approximately 51% higher in the twelve months ended June 30, 2017 than in the twelve months ended June 30, 2016. In the twelve months ended June 30, 2018, the average coal price per delivered ton increased approximately 6.9% over the 2017 prices. As discussed below, the Four Corners CSA has been amended. PNM’s share of the coal costs is being recovered through the FPPAC.

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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 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.  On September 20, 2017, NTEC amended its demand for arbitration removing the request for a declaratory judgment. On June 29, 2018, a settlement was reached for the disputed shortfall during the period July 7, 2016 through February 28, 2018. PNM’s share of the settlement payment made to NTEC by the Four Corners owners was $4.9 million. PNM’s share of the shortfall for the guaranteed minimum purchase of coal for the period March 1, 2018 through June 30, 2018 was $1.4 million. The arbitration was dismissed on July 9, 2018. Substantially all of the amount that PNM is required to pay under this settlement agreement will be collected through the FPPAC.

Contemporaneous with the execution of the settlement agreement, the Four Corners owners and NTEC amended the Four Corners CSA. The amendments reduce required take-or-pay volumes and the base price of coal. The amendments do not extend the termSee additional discussion of the Four Corners CSA beyond its current July 6, 2031 expiration date.in Note 17 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K.
Coal Mine Reclamation
As indicated under Coal Combustion ByproductsResiduals Waste Disposal above, SJGS currently disposes of CCBsCCRs in the surface mine pits adjacent to the plant and Four Corners disposes of CCBsCCRs in ash ponds and dry storage areas. As discussed in Note 16 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K, in conjunction with the shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, the SJGS participants requested that the coal mine reclamation study for SJGS be updated periodically. In 2015, PNM updated the SJGS reclamation cost estimate to reflect the terms of a new reclamation services agreement with Westmoreland and changes related to 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, design plan changes, updated regulatory expectations, and common mine reclamation practices would significantly increase reclamation costs. As a result, in December 2015 PNM recorded its $16.5 million share of this increase as regulatory disallowances and restructuring costs in the Consolidated Statements of Earnings. In the third quarter of 2016, PNM, on behalf of the SJGS owners, coordinated a more detailed coal mine reclamation cost study reflecting the terms of the new reclamation services agreement with Westmoreland. The study indicated an additional increase in the reclamation cost estimate. PNM recorded its $4.5 million share of the increase as of September 30, 2016 as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. The SJGS RA required PNM to complete an update to the reclamation cost estimate after the December 31, 2017 shutdown of SJGS Units 2 and 3. This reclamation cost estimate was completed in October 2018 and assumed continuation of mining operations through 2053. The 2018 study indicated a decrease in reclamation costs primarily driven by lower inflationary factors used to determine the estimated future cost of reclamation activities. PNM recorded its $2.5 million share of this decrease as of September 30, 2018 which is reflected inas regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings.
The current estimate
In December 2018, PNM again remeasured its liability for decommissioningcoal mine reclamation for the mine servingthat serves SJGS to reflect that reclamation activities may occur beginning in 2022, rather than in 2053 as previously anticipated. This estimate resulted in an increase in overall reclamation costs 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 for both the underground and surface mines that serve SJGS. PNM recovers from retail customers reclamation costs associated with the underground mine. However, the NMPRC has capped the amount that can be collected from retail customers for final reclamation of the surface mines at $100.0 million. As a result, PNM recorded $9.4 million of the increase in the liability at December 31, 2018 related to the underground mine in regulatory assets on the Condensed Consolidated Balance Sheets and recorded the remaining $29.8 million associated with the surface mine as regulatory disallowances and restructuring costs on the Condensed 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 recovery for the cost of reclamation activities is not approved by the NMPRC in connection with the NMPRC approvals indicated above.
A draft coal mine reclamation study for the mine that serves Four Corners reflects thewas issued in July 2019. The study reflected operation of the mine through 2031, the term of the Four Corners CSA.
Based on the 2018 estimates and The draft study resulted in a net decrease in PNM’s ownership share of SJGS, PNM’s remaining payments as of September 30, 2018 for mine reclamation, in future dollars, are estimated to be $87.5 million for the surface mines at both SJGS and Four Corners and $101.2 million for the underground mine at SJGS. At September 30, 2018 and December 31, 2017, liabilities, in current dollars, of $39.5 million and $41.4 million for surface mine reclamation and $14.3 million and $14.7 million for underground mine reclamation were recorded in other deferred credits.
As discussed in Note 12, PNM filed its 2017 IRP on July 3, 2017. The conclusions contained in the 2017 IRP indicate 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 not a final determination 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. In the event of the abandonment of those facilities, PNM would be required to remeasure its liability for coal mine reclamation to reflect that reclamation activities would occur sooner than currently anticipated. The

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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remeasurement would likely result in a significant increase in PNM’s liability for SJGSof the coal mine reclamation due toobligation as of June 30, 2019 of $0.3 million, which was primarily driven by lower overhead costs offset by an increase driven by a reduction in the amountdiscount rate used by PNM to measure the liability. In September 2019, the study was finalized and included the same assumptions used in the draft study with limited modifications. PNM updated its liability using the final study and to reflect discount rates as of fill dirt requiredSeptember 30, 2019, which had decreased since PNM’s prior measurement. These updates resulted in an increase to remediatePNM’s share of the coal mine reclamation obligation for the mine areas, thereby increasingthat serves Four Corners of $1.1 million and $0.8 million during the overall reclamation costs. PNM would be exposed to loss if recoverythree and nine months ended September 30, 2019, which is reflected in cost of the additional costs is not approved by the NMPRC in connection with the NMPRC approvals indicated above. The amount of the increaseenergy in the liability would dependCondensed Consolidated Statements of Earnings.
Based on the timing of those approvalsmost recent estimates and other regulatory actions, as well estimates made at that time of the costs to perform the future reclamation activities, including the then current inflation and discount rates. In the event of an early retirementPNM’s ownership share of SJGS, PNM’s estimates its liabilityremaining payments as of September 30, 2019 for SJGS mine reclamation, would increase by approximately $30in future dollars, are estimated to be $93.6 million for the surface minemines at both SJGS and $10Four Corners and $40.0 million for the underground mine as ofat SJGS. At September 30, 2018. PNM would record a regulatory asset2019 and December 31, 2018, liabilities, in current dollars, of $70.6 million and $70.1 million for amounts recoverable from ratepayers under existing or future orders of the NMPRCsurface mine reclamation and amounts not recoverable would be expensed. PNM cannot predict what actions the NMPRC might take.$24.8 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. As discussed in Note 16 of the Notes to the Consolidated Financial Statements on Form 10-K, as part of the restructuring of SJGS ownership (see SJGS Ownership Restructuring Matters above), the SJGS owners negotiated the terms of an amended agreement to fund post-term reclamation obligations under the CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable reclamation trust, and periodically deposit funds into the reclamation trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. PNM funded $5.8$10.0 million in 2017.December 2018. Based on PNM’s reclamation trust fund balance at September 30, 2018,2019, the current funding curves indicate PNM’s required contributions to its reclamation trust fund would be $6.4 million in 2018, $8.7$5.5 million in 2019, and $9.2$10.2 million in 2020.2020, and $10.9 million in 2021.
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 to the escrow account in each of 20172018 and 20182019 and anticipates providing additional funding of $2.3$1.9 million in 2019.
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. RegulatoryThe impacts of changes in New Mexico state law as a result of the enactment of the ETA and regulatory determinations made by the NMPRC may also affect the impact on PNM.PNM’s financial position, results of operations, and cash flows. See additional discussion above regarding PNM’s December 2018 Compliance Filing and its SJGS Abandonment Application in Note 12. PNM is currently unable to determine the outcome of these matters or the range of possible impacts.


Continuous Highwall Mining Royalty Rate


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


SJCC utilized the CHM technique from 2000 to 2003, and with the approval of the Farmington, New Mexico Field Office of BLM to reclassify the final highwall as underground reserves, applied the 8.0% underground mining royalty rate to coal mined using CHM and sold to SJGS.  In March 2001, SJCC learned that the DOI Minerals Management Service (“MMS”) disagreed with the application of the underground royalty rate to CHM.  In August 2006, SJCC and MMS entered into an agreement tolling the statute of limitations on any administrative action to recover unpaid royalties until BLM issued a final, non-appealable determination as to the proper rate for CHM-mined coal.  The proposed BLM rulemaking has the potential to terminate the tolling provision of the settlement agreement. Underpaid royalties of approximately $5 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.



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




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 $13.213.9 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 $12.713.5 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 $38.941.6 million, with a maximum annual payment limitation of $5.86.2 million, to be adjusted periodically for inflation.


The PVNGS participants maintain insurance for damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.752.8 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.
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 endorsed 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. 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 NM District Court to adjudicate all water rights in the San Juan River Stream System, including water used at Four Corners and SJGS. PNM was made a defendant in the litigation in 1976. In March 2009, then President Obama signed legislation confirming a 2005 settlement with the Navajo Nation. Under the terms of the settlement agreement, the Navajo Nation’s water rights would be settled and finally determined by entry by the court of two proposed adjudication decrees.  The court issued an order in August 2013 finding that no evidentiary hearing was warranted in the

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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 entered its appearance in the appellate case.case and supported the settlement agreement in the NM District Court. On April 3, 2018, the New Mexico Court of Appeals issued an order affirming the decision of the NM District Court. Several parties filed motions requesting a rehearing with the New Mexico Court of Appeals seeking clarification of the order, which were denied. The State of New Mexico and various other appellants filed a Writwrit of Certioraricertiorari with the NM Supreme Court. The NM Supreme Court granted the State of New Mexico’s petition and denied the other parties’ requests,requests. The issues regarding the Navajo Nation settlement have been briefed and setare awaiting a due date for petitioner’s brief of October 29, 2018.decision by the NM Supreme Court. Adjudication of non-Indian water rights is ongoing.
PNM is participating in this proceeding since PNM’s water rights in the San Juan Basin may be affected by the rights recognized in the settlement agreement and adjudicated to the Navajo Nation, which comprise a significant portion of water available from sources on the San Juan River and in the San Juan Basin and which have priority in times of shortages. PNM is unable to predict the ultimate outcome of this matter or estimate the amount or range of potential loss and cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. Final resolution of the case cannot be expected for several years. An agreement reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.
Rights-of-Way Matter


On January 28, 2014, the County Commission of Bernalillo County, New Mexico passed an ordinance requiring utilities to enter into a use agreement and pay a yet-to-be-determined fee as a condition to installing, maintaining, and operating facilities on county rights-of-way. The fee is purported to compensate the county for costs of administering and maintaining the rights-of-way, as well as for capital improvements. On February 27, 2014, PNM and other utilities filed a Complaint for Declaratory and Injunctive Relief in the United States District Court for the District of New Mexico challengingAfter extensive challenges to the validity of the ordinance. The court denied the utilities’ motion for judgment. The court further granted the County’s motion to dismiss the state law claims. The utilities filed an amended complaint reflecting the two federal claims remaining before the federal court. The utilities also filed a complaint in Bernalillo County, New Mexico District Court reflecting the state law 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, the utilities filed an Application for Interlocutory Appeal from the state court, which was denied. On March 28, 2017,ordinance, the utilities filed a Writwrit of Certiorari certiorari with the NM Supreme Court, which was denied. The matter is proceeding in NM District Court.denied. The utilities and Bernalillo County had reached a standstill agreement whereby the county 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 county or the utilities of their intention to terminate the agreement. After court-ordered settlement discussions, PNM and Bernalillo County executed a franchise fee agreement with a term of 15 years. Under the agreement, PNM will pay franchise fees to the county at an amount similar to those paid by PNM in other jurisdictions. PNM will recover the cost of the franchise fees as a direct pass-through to customers located in Bernalillo County. The NMagreement is subject to approval by the New Mexico Second District Court set a mediation date of January 23, 2019. If the challenges to the ordinance are unsuccessful,in Bernalillo County. PNM believes any fees paid pursuant to the ordinance would be considered franchise fees and would be recoverable from customers. PNM is unable tocannot predict the outcome of this matter or its impact on PNM’s operations.matter.
Navajo Nation Allottee Matters


In September 2012, 43 landowners filed a notice of appeal with the Bureau of Indian Affairs (“BIA”) appealing a March 2011 decision of the BIA Regional Director regarding renewal of a right-of-way for a PNM transmission line. The landowners claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes Act of 1887, were allotted ownership in land carved out of the Navajo Nation and allege that PNM is a rights-of-way grantee with rights-of-way across the allotted lands and are either in trespass or have paid insufficient fees for the grant of rights-of-way or both.  The allottees generally allege that they were not paid fair market value for the right-of-way, that they were denied the opportunity to make a showing as to their view of fair market value, and thus denied due process. The allottees filed a motion to dismiss their appeal with prejudice, which was granted in April 2014. Subsequent to the dismissal, PNM received a letter from counsel on behalf of what appears to be a subset of the 43 landowner allottees involved in the appeal, notifying PNM that the specified allottees were revoking their consents for renewal of right of way on six specific allotments.  On January 22, 2015, PNM received a letter from the BIA Regional Director identifying ten10 allotments with rights-of-way indicatingrenewals that certainwere 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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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in the NM District Court regarding the approximately 15.49 acres of land at issue. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. On December 1, 2015, the court ruled that PNM could not condemn two2 of the five5 allotments at issue based on the Navajo Nation’s fractional interest in the land. PNM filed a motion for reconsideration of this ruling, which was denied. On March 31, 2016, the Tenth Circuit granted PNM’s petition to appeal the December 1, 2015 ruling. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. Both matters have been consolidated. Oral argument before the Tenth Circuit

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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was heard on January 17, 2017. On May 26, 2017, the Tenth Circuit affirmed the district court. On July 8, 2017, PNM filed a Motion for Reconsideration en banc with the Tenth Circuit, which was denied. The NM District Court stayed the case based on the Navajo Nation’s acquisition of interests in two2 additional allotments and the unresolved ownership of the fifth allotment due to the owner’s death. On November 20, 2017, PNM filed its Petitionpetition for Writwrit of Certioraricertiorari with the US Supreme Court. On April 30, 2018, the US Supreme Court, declined to hear PNM’s Petition for Writ of Certiorari.which was denied. The underlying litigation continues in the NM District Court.
On March 27, 2019, several individual allottees filed a motion for partial summary judgment on the issue of trespass. The Court held a hearing on the motion on June 18, 2019 and took the motion under advisement. Mediation on the matter was held on October 7, 2019 and the continuation of mediation is scheduled for November 11, 2019. 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”) 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 originally issued notifications of audit results indicating additional tax due of $5.0 million, plus penalties and interest. The primary issue in dispute is 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 September 2018, the Comptroller issued an updated settlement offer that significantly reduced the additional tax due under the audits. Based on the terms of the settlement offer, PNMR increased its liability for amounts due under First Choice’s sales and use tax filings as of September 30, 2018 by an insignificant amount. In October 2018, PNMR settled the sales and use tax audit for a total of $0.9 million, which resolved the matter.

PNMR’s discussions with the Comptroller regarding the miscellaneous gross receipts tax audit are ongoing and PNMR is seeking additional documentation in support of its position. 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.


(12)Regulatory and Rate Matters


The Company is involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 11. Additional information concerning regulatory and rate matters is contained in Note 17 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.
PNM


New Mexico General Rate Cases


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


On August 27, 2015, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposed a revenue increase of $123.5 million, including base non-fuel revenues of $121.7 million. PNM’s application was based on a future test year (“FTY”)FTY period beginning October 1, 2015 and proposed a ROE of 10.5%. The primary drivers of PNM’s identified revenue deficiency were the cost of infrastructure investments, including depreciation expense based on an updated depreciation study, and a decline in energy sales as a result of PNM’s successful energy efficiency programs and other economic factors. The application included several proposed changes in rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation. Specific rate design proposalscausation and included higher customer and demand charges,a request for a revenue decoupling pilot program applicable tofor residential and small commercial customers, a re-allocation of revenue among

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
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PNM’s customer classes, a new economic development rate, and continuation of PNM’s renewable energy rider.customers. PNM requested that the proposed new rates become effective beginning in July 2016. A public hearing on the proposed new rates was held in April 2016. Subsequent to this hearing, 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 13). A subsequent public hearing was held in June 2016.transactions. See Note 13. After the June hearing,additional hearings, 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 thePNM’s SJGS CSA (Note 11).CSA. See Note 11.  PNM’s filing indicated that recovery for fuel related costs would be reduced by approximately $42.9 million reflecting the current SJGS CSA, which also reduced the request for base non-fuel related revenues by $0.2 million to $121.5 million.


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

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

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


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


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



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


Recovery 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. In addition, PNM’s statement indicated it is appealing the following specific elements ofcase, including the NMPRC’s order:

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

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

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


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

In accordance with GAAP, PNM periodically updated its estimate of September 30, 2016, PNM estimated it would take a minimumthe amount of 15 months from the date PNM filed its appealtime necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. During such time, the rates specified in the order would remain in effect.As a result of those evaluations, through March 31, 2019, PNM concluded that a rangehad recorded accumulated pre-tax impairments of probable loss resulted from the NMPRC order in the NM 2015 Rate Case; that the minimum amount of loss was 15 months of

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


its 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 would not be recovered during that 15-month appeal period. In addition, PNM recorded a pre-tax regulatory disallowance for $4.5 million of costs recorded as regulatory assets and deferred charges (which the order disallowed and which PNM did not challenge in its appeal) since PNM could no longer assert that those assets were probable of being recovered through the ratemaking process.

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 has been recorded related to the issues subject to the cross-appeals.appeal in the amount of $19.7 million, which includes pre-tax losses of $1.3 million recorded during the three months ended March 31, 2019, and $0.9 million and $2.7 million recorded during the three and nine months ended September 30, 2018.


SinceOn May 16, 2019, the NM Supreme Court did not issue aissued its 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 inmatters that case, PNM reevaluated the accounting consequences of the orderhad been appealed in the NM 2015 Rate Case. At December 31, 2017, PNM estimated the most likely period for theThe NM Supreme Court to issue a decision inrejected the case and for the NMPRC to take action on any remanded issues was seven months. As a result, PNM recorded an additional pre-tax loss of $3.1 million at December 31, 2017, representing seven months of capital cost recovery that the order disallowed and would not be recovered through July 31, 2018.

In June 2018, PNM again reevaluated the estimated time frame it would take for the resolution of this matter. As of June 30, 2018, PNM estimated it would take an additional five months for the NM Supreme Court to issue a decision and for any remanded issues to be addressedmatters appealed by the NMPRC. Accordingly, PNM recorded an additional pre-tax losscross-appellants and affirmed the NMPRC’s disallowance of $1.8 million at June 30, 2018, representing additional capital cost recovery that the order disallowed and would not be recovered through October 31, 2018.

In September 2018, PNM again reevaluated the estimated time frame it would take for resolutiona portion of the matter. PNM continues to believe 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. Based on the proceedings to date in the appeal process and other actions by the NM Supreme Court, PNM estimates it will take an additional four months from September 30, 2018 for the NM Supreme Court to issue a decision and for any remanded issues to be addressed by the NMPRC. Accordingly, PNM recorded an additional pre-tax losspurchase price of $0.9 million at September 30, 2018, representing capital costs that the order disallowed and will not be recovered through January 31, 2019. Further losses will be recorded if the currently estimated time frame for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues is extended.

PNM continues to believe that the disallowed investments, which are the subject of PNM’s appeal, were prudent and that PNM is entitled to full recovery of those investments through the ratemaking process. Although PNM believes it is reasonably possible that its appeals will be successful, it cannot predict what decision the NM Supreme Court will reach or what further actions the NMPRC will take on any issues remanded to it by the court. If PNM’s appeal is unsuccessful, PNM would record further pre-tax losses related to the capitalized costs for any unsuccessful issues. The impacts of not recovering future contributions for decommissioning would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The amounts of any such losses to be recorded would depend on the ultimate outcome of the appeal and NMPRC process, as well as the actual amounts reflected on PNM books at the time of the resolution. However, based on the book values recorded by PNM as of September 30, 2018, 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 $73.9 million, after considering the losses recorded to date
The undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity in PVNGS Unit 2 purchased by PNM in January 20162; the undepreciated costs of capital improvements made during the time that the 64.1 MW capacity was being leased by PNM; and the net book value of these improvements was $38.3 million, after considering the losses recorded to date
The remaining costs to convertinstall BDT at SJGS Units 1 and 4 to BDT; the net book value of these assets was $50.3 million, after considering the losses recorded to date

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



Although PNM does not believe4. The NM Supreme Court’s decision also ruled that the likelihood of the cross-appeals being successful is probable, it is unableNMPRC’s decision 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 costpermanently disallow recovery of those items, PNM would write-off all offuture decommissioning costs related to the costs to acquire the assets previously leased under three leases, aggregating 64.1 MW of PVNGS Unit 2 capacity, totaling $147.5 million (which amount includes $73.9 million that isand the subject114.6 MW of PNM’s appeal discussed above) at September 30, 2018, after consideringPVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the losses recordedcase to date.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. 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 chargedNMPRC has taken no action with respect 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.

this matter since oral argument was presented. PNM is unable to predict the outcome of this matter.


As a result of the NM Supreme Court’s ruling, PNM recorded a pre-tax impairment of $149.3 million as of June 30, 2019 which is reflected as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. The impairment reflects capital costs not previously impaired during the pendency of the appeal and includes $72.6 million for a portion of the purchase price for 64.1 MW in PVNGS Unit 2, $39.3 million of undepreciated capitalized improvements made during the period the 64.1 MW was being leased by PNM, and $37.4 million for BDT on SJGS Units 1 and 4. The impairment was offset by tax impacts of $45.7 million, which are reflected as income taxes on the Condensed Consolidated Statements of Earnings.

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

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


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 11)
◦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 allocations9.575%
Proposed changesReturning 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

The NMPRC scheduledcustomers over a public hearing to begin on June 5, 2017, ordered that a settlement conference 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 whichthree-year period 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. NEE was the sole party opposing the revised stipulation. The termsbenefit of the revised stipulation, which required NMPRC approvalreduction in orderthe New Mexico corporate income tax rate to take effect, included:the extent attributable to PNM’s retail operations (Note 14)

A revenue increase totaling $62.3Disallowing PNM’s ability to collect an equity return on certain investments aggregating $148.1 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, but allowing recovery with a debt-only return
An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
An agreementA requirement 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

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


Returning to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate (Note 14) to the extent attributable to PNM’s retail operations
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
Disallowing PNM’s ability to collect a debt or equity return on its $90.1 million investment in SCRs at Four Corners and on $58.0 million of projected capital improvements during the period July 1, 2016 through December 31, 2018
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. Substantive changes from the Certification of Stipulation included requiring the impacts of changes related to the reduction in the federal corporate income tax rate be implemented effective January 1, 2018 rather than January 1, 2019 and deferring further consideration regardingconsider the prudency of PNM’s decision to continue its participation in Four Corners toin a future proceeding.proceeding


On December 28, 2017, PNM filed a Motion for Rehearing and Request for Oral ArgumentaskingIn accordance with 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, 2018.

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:

Requiring the impacts of changes related to the reduction in the federal corporate income tax rate and PNM’s cost of debt (aggregating an estimated $47.6 million) 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 rate case
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 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 sent, beginning February 1, 2018 and of the second phase for services rendered beginning 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 acceptance of the Revised Order, as amended. 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 beginning February 1, 2018 and will implementimplemented the rest of the increase for service rendered beginning January 1, 2019.


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


GAAP required 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. On March 7, 2018, NEE filed its statement of issues with the NM Supreme Court requesting, among other things, that the NMPRC be required to identify PNM’s decision to continue its participation in Four Corners as imprudent and to deny any recovery related to PNM’s $148.1 million investments in that facility. NEE’s Brief in Chief was filed on July 16, 2018 and PNM’s Answer Brief was filed on October 12, 2018. Several parties to the case have intervened in the appeal as intervenor-appellees in support of the NMPRC’s final decisions in the Revised Order. Although PNM does not believe it is probable that NEE’s appeal will be successful, it is unable to predict what decision the NM Supreme Court will reach. If the NM Supreme Court were to remand the case to the NMPRC and the NMPRC identified PNM’s continued involvement in Four Corners as imprudent with no recovery of the $148.1 million of investments in Four Corners, PNM would be required to record additional losses for the remaining amount of those investments (after considering the $27.9 million disallowance recorded in 2017). In addition, PNM’s future investments in Four Corners, which could be required under the participation agreement governing that facility, could also be subject to disallowance. PNM cannot predict the outcome of this matter.


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 related to 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 and recovered. Initial comments were filed in July 2017 and several public workshops havepositions. To date, no agreement has been held.reached. 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
ThePrior 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 11, 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 Riderbelow.


Included in PNM’s approved procurement plans are the following renewable energy resources:
157 MW of PNM-owned solar-PV facilities, including 50 MW of PNM-owned solar-PV facilities approved by the NMPRC in PNM’s 2018 renewable energy procurement plan that willare expected to be constructedplaced in 2018 andcommercial operation by the end of 2019
A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of 204 MW, and a PPA through 2035 for the output of Red Mesa Wind, having an aggregate capacity of 102 MW
A PPA through 2042 for the output of the Lightning Dock Geothermal facility; the geothermal facility began providing power to PNM in January 2014; the current capacity of the facility is 4 MW

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




A PPA through 2042 for the output of the Lightning Dock Geothermal facility; with a current capacity of 15 MW
Solar distributed generation, aggregating 95.9121.2 MW at September 30, 2018,2019, 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. 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 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; approval to procure 50 MW of new solar facilities to be constructed beginning in 2018, and continuation of customer REC purchase programs and other purchases of RECs to ensure annual compliance with the RPS. PNM’s proposed procurement costs 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. A public hearing on the application was held in September 2017. On October 17, 2017, the Hearing Examiner issued a recommended decision that PNM’s 2018 renewable energy procurement plan be approved by the NMPRC, except for the re-powering of Lightning Dock Geothermal and PNM’s request to procure 50 MW of new solar facilities. The Hearing Examiner recommended that the PPA for the output of energy from Lightning Dock Geothermal be terminated effective January 1, 2018. The Hearing Examiner also recommended that PNM be required to issue another all-renewables RFP allowing developers to utilize PNM-owned sites to construct facilities, the output from which facilities would be sold to PNM through PPAs. PNM filed exceptions contesting the Hearing Examiner’s proposals. On November 15, 2017, the NMPRC issued an order approving PNM’s plan and rejecting the Hearing Examiner’s recommendations. On November 29, 2017, 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 solar facilities. On December 18, 2017, PNM filed a motion to intervene, which was granted. NMIEC filed a motion for a partial stay of the NMPRC order, which was denied. Briefing on NMIEC’s appeal of the fuel allocation methodology is complete. On June 20, 2018, NEE filed its Brief in Chief withJuly 5, 2019, the NM Supreme Court stating, among other things, that PNM’s process favored ownership ofapproved a motion filed by NM AREA to dismiss its appeal. On August 8, 2019, the 50 MW solar facilities compared to PPAs. PNM and the NMPRC each filed Answer Briefs on September 4, 2018 stating there is substantial evidence in the case record to supportNM Supreme Court issued an opinion affirming the NMPRC’s decision,approval of PNM’s 2018 renewable energy procurement plan and that PNM’s RFP process was reasonable, complied with RPS requirements, and consistent with industry standards.denying NEE’s Reply Brief was filed on October 15, 2018. PNM cannot predict the outcome of this matter.cross appeal. This matter is now concluded.


On June 1, 2018, PNM filed its 2019 renewable energy procurement plan. The plan meetsmet RPS and diversity requirements for 2019 and 2020 using resources already approved by the NMPRC and did not propose any significant new procurements. PNM projects that the plan will be within the RCT in 2019 and will slightly exceed the current RCT in 2020. 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 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 corrected 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 newly enacted ETA. The Hearing Examiner assignedissued a response requiring PNM to address why its application should not be dismissed, or alternatively, proposing an extended procedural schedule. PNM’s response proposed the caseapplication not be dismissed, that a corrected public notice be issued, and that the procedural schedule be extended by 60 days. On July 30, 2019, the Hearing 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 requiring PNM to provide supplemental briefing supporting the applicability 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 the authority to approve PNM’s requested variance. PNM filed its brief on September 24, 2019, supporting the applicability of 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 NMPRC staffby the Hearing Examiner. Other parties have taken positions in the case ranging from applying the ETA and intervenorsapproving the 140 MW PPA to file testimony by September 6, 2018.not applying the ETA and denying the PPA. Public hearings were held on October 24 and 25, 2019. PNM cannot predict the outcome of this matter or the potential impact on its financial position, results of operations, or cash flows.

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hearings were held on the case in September and October 2018. On October 29, 2018, PNM and NMPRC staff filed a joint proposed recommended decision requesting the NMPRC accept PNM’s 2019 renewable energy procurement plan filing. The joint proposed recommended decision includes a requirement for PNM to periodically, or for certain events, inform the NMPRC of matters related to PNM’s PPA with Lightning Dock Geothermal. PNM cannot predict the outcome of this matter.
Renewable Energy Rider
The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per KWh basis. In PNM’s NM 2015 Rate Case, the NMPRC authorized continuation of the renewable rider. In its 20182019 renewable energy procurement plan case, which was approved by the NMPRC on November 28, 2018, PNM proposed to collect $43.5$49.6 million for the year. The 20182019 renewable energy procurement plan became effective on January 1, 2018.2019. PNM recorded revenues from the rider of $11.9 million and $37.4 million in the three and nine months ended September 30, 2019 and $8.7 million and $30.4 million in the three and nine months ended September 30, 2018 and $9.4 million and $33.6 million in the three and nine months ended September 30, 2017.2018. In its 20192020 renewable energy procurement plan, case, PNM proposedproposes to collect $49.6 million.$58.9 million for 2020.
Under the renewable rider, if PNM’s earned rate of return on jurisdictional equity in a calendar year, adjusted for weather and other items not representative of normal operations, exceeds the NMPRC-approved rate by 0.5%, PNM is required to refund the excess to customers during May through December of the following year. PNM’s annual compliance filings with the NMPRC show that its rate of return on jurisdictional equityPNM did not exceed such limitation in 2018 and does not expect to exceed the limitation through 2017.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.

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 ten 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 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. On April 13, 2018, PNM filed its reconciliation of 2017 program costs and incentives, which indicated the incentive earned in 2017 is $2.3 million. The reconciliation filing and related incentive were approved 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 is 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 would earn an incentive of $1.9 million based on targeted savings of 69 GWh. A public hearing was held in September 2017. On November 8, 2017, the Hearing Examiner issued a Certification of Stipulation recommending 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 accepted the certification with certain exceptions concerning the measurement and verification of the approved load management programs.

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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.
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 Advanced Metering Infrastructure pilot project.


Petition for Energy Efficiency Disincentive


As discussed above, PNM’s December 2016 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. The Hearing Examiner issuedDuring the 2019 New Mexico legislative session, the Efficient Use of Energy Act was amended to, among other things, include a procedural order that includeddecoupling mechanism for disincentives, preclude a public hearingreduction to begina utility’s ROE based on October 30, 2018.approval of disincentive or incentive mechanisms, and to establish savings targets for the period 2021 through 2025. On September 17, 2018,May 6, 2019, PNM submitted a request to the Hearing Examiner extended the deadlineNMPRC to file response testimony until November 19, 2018 and vacated the hearing schedule. The remaining procedural schedule isdismiss this matter. PNM will propose a mechanism to be reestablished ataddress disincentives in a future date. PNM cannot predict the outcome of 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, thegeneral rate case filing. The NMPRC approved PNM’s continuation application.request to dismiss the matter on June 12, 2019, concluding this matter.


Integrated Resource Plans
NMPRC rules require that investor owned utilities file an IRP every three years. The IRP is required to cover a 20-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 rule because to do so could affect the then pending proceeding on PNM’s application to abandon SJGS Units 2 and 3 and for CCNs for certain replacement resources (Note 11) 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 states that the NMPRC will issue a Notice of Proposed Dismissal in the 2014 IRP docket. 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

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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.


2017 IRP


PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP addresses the 20-year planning period from 2017 through 2036 and includes an action plan describing PNM’s plan to implement the 2017 IRP in the four-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 11 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:included, among other things, that retiring PNM’s

Retiring PNM’s PNM RESOURCES, INC. AND SUBSIDIARIES
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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 13.
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 Independent System Operator Western Energy Imbalance Market
PNM should analyze its current Reeves Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage


Protests to 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. 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 the applicable statute and NMPRC rules. On February 22, 2018, PNM provided certain underlying informationJanuary 18, 2019, the Board of the County of Commissioners for San Juan County, New Mexico, the City of Farmington, New Mexico, and clarified how costs, transmission constraints, energy storage, and public input were consideredother parties filed a Notice of Appeal with the NM Supreme Court regarding the NMPRC’s final order in developing thePNM’s 2017 IRP. Hearings were heldOn 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 June 2018.PNM’s filing, which was deemed denied. On October 26, 2018,February 19, 2019, NEE filed a motion with the Hearing Examiner issued a recommended decision recommendingNM 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 accepthas 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, as compliantwhich was deemed denied. This matter is now concluded.

As discussed below, on July 1, 2019, PNM submitted its SJGS Abandonment Application with the applicable statuteNMPRC requesting approval to retire SJGS in 2022, for replacement resources, and NMPRC rules.

for the 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. The SJGS Abandonment Application and 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 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. PNM will continue to seek input from interested parties as a part of this process and plans to file the 2020 IRP with the NMPRC by July 2020. PNM cannot predict the ultimate outcome of this matter.
SJGS Abandonment Application

On July 1, 2019, PNM filed a Consolidated Application for the 2017 IRP processAbandonment 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 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 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. Each of these alternative replacement resource scenarios is expected to result in increased costs to customers and lower expected system reliability when compared to PNM’s recommended replacement resource scenario. On September 20, 2019 and October 1, 2019, PNM filed errata

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notices and testimony, which did not change PNM’s proposed replacement resource portfolio. The SJGS Abandonment Application includes a request to issue approximately $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. PNM’s request for the issuance of Securitized Bonds includes approximately $283 million of forecasted undepreciated investments in SJGS at June 30, 2020, an estimated $28.6 million for plant decommissioning and coal mine reclamation costs, approximately $9.6 million in upfront financing costs, and approximately $20.0 million for job training and severance costs for affected employees. Proceeds from the Securitization Bonds would also be used to fund approximately $19.8 million for economic development in the four corners area.

As discussed in Note 11, 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, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. 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 will 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.

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. The denial of these petitions by the NM Supreme Court means that the NMPRC will approve subsequent filings that would encompass actions to implementaddress the conclusionsapplicability of the 2017 IRP.ETA to PNM’s application. PNM believes the ETA applies to all aspects of the SJGS Abandonment Application and will pursue all available legal remedies to ensure the NMPRC issues a final order consistent with the law.

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.


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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, the NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding. On September 30, 2019, PNM filed its response in opposition stating that PNM had previously refuted NEE’s arguments and that there is no need for a hearing examiner to be assigned to this matter. The NMPRC has not taken action on the joint petition for investigation. PNM cannot predict the outcome of this matter.

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.

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(Unaudited)




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, authorization 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 proposesproposed the regulatory asset be adjusted to provide for full recovery of such costs, including carrying charges, until the effective date of new rates in PNM’s next general rate case. PNM’s application also proposesproposed the benefits of participating in the EIM be credited to retail customers through PNM’s existing FPPAC.FPPAC and that PNM would seek recovery of its costs in a future proceeding. On August 28,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 6, 2019, the NMPRC issued an order granting rehearing and vacating the December 19, 2018 order. On March 18, 2019, the Hearing Examiner issued an 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 request for an expedited procedural schedule and that set a public hearing for December 12, 2018. Ifnext general rate case filing, which was approved by the NMPRC. PNM and other parties filed a joint motion requesting the NMPRC clarify that the quarterly benefits reports prepared by CAISO be used to determine the benefits of participating in the EIM, as well as to support the prudence of costs incurred to join the EIM. On April 24, 2019, the NMPRC issued an order granting the joint motion for clarification and indicating the CAISO quarterly benefits reports may be used in a future rate case. PNM anticipates it will begin participating in the EIM by mid-2021. PNM cannot predict the outcome of this matter.in April 2021.

San Juan Generating Station Units 2 and 3 Retirement
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. On March 5, 2018, the NM Supreme Court rendered a decision affirming the NMPRC’s ruling, thereby denying NEE’s appeal. A request for rehearing of the NM Supreme Court’s decision was not filed by the statutory deadline. This matter is now concluded. Additional information concerning the NMPRC filing and related proceedings is set forth in Note 11.
San Juan Generating Station Unit 1 Outage
On March 17, 2018, a coal silo used to supply fuel to SJGS Unit 1 collapsed resulting in an outage. PNM initiated a review of the cause of the outage and promptly contacted the staff of the NMPRC to inform them of the event. To minimize the operational and financial impacts of this event, PNM accelerated the fall 2018 planned outage to be performed while the unit was out of service for this event. Repairs necessary to return Unit 1 to service were completed by July 5, 2018. PNM anticipates the damages to the facility will be reimbursed under an existing property insurance policy that covers SJGS, subject to a deductible of $2.0 million.  PNM’s exposure to the cost of repairs is $1.0 million, reflecting PNM’s 50% ownership interest in SJGS Unit 1.
On April 12, 2018, NEE filed a petition (jointly with certain other organizations) requesting that the NMPRC order an investigation into the SJGS Unit 1 event.  The petition requested that the NMPRC order PNM to respond to the petition, that proceedings be set on this matter, and that PNM be required to provide a narrative explanation, cost/benefit analysis, and alternatives assessment used to determine that Unit 1 should be repaired rather than utilizing alternative resources.  On April 25, 2018, the NMPRC issued an order requiring PNM to provide a factual statement of the nature and cause of the event, as well as the anticipated need for and schedule of repairs required. PNM was also required to address the necessity and appropriateness of the request for a cost/benefit analysis, alternatives assessment, and request for further proceedings. On May 8, 2018, PNM filed its response to the NMPRC order indicating that PNM used best practices when inspecting the SJGS coal silos during planned outages, that the damage to SJGS Unit 1 was repairable and could be made in a timely manner, that all but a limited amount of cost of the repairs are reimbursable under an existing insurance policy, and that further proceedings on the matter were unnecessary. In addition, PNM’s response indicated that if the unit was not repaired, customers would be exposed to significant contractual liabilities under the agreements governing the ownership of SJGS and would incur significant costs associated with the procurement of replacement power. On May 31, 2018, the NMPRC staff preliminarily recommended that the NMPRC not allow PNM to recover any costs associated with the SJGS Unit 1 coal silo repairs, including the cost of preventing similar failures on other SJGS coal silos, and that PNM reimburse customers for the loss of off-system sales during the time SJGS Unit 1 was in outage. The NMPRC staff also recommended, among other things, that further proceedings on the matter be deemed unnecessary provided PNM agree to hold customers harmless for such costs. On October 9, 2018, PNM filed a motion with the NMPRC requesting the inquiry docket be closed and stating the NMPRC staff’s proposal that PNM be required to absorb all losses related to the event, including the loss of off-system sales, is unwarranted and would result in piecemeal ratemaking. PNM cannot predict the outcome of this event.

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 asked the NMPRC to authorize the recovery of the cost of the project, up to $87.2 million, 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

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


of implementation, the costs of customer education, and severances for affected employees. Hearings in this matter were held in February and March 2017. During the March 2017 hearing, it was disclosed that the proposed meter contractor may not have complied with certain New Mexico contractor licensing requirements. PNM subsequently filed testimony regarding that matter and requested a new procedural schedule that allowed PNM 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. On March 19, 2018, the Hearing Examiner issued a recommended decision finding that PNM had not proven a net public benefit in the case and recommending the NMPRC 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 record did not demonstrate a net public benefit to customers, but that PNM would not take exception to a recommendation to not approve the application. No other parties filed exceptions to the recommended decision by the required deadline. On April 11, 2018, the NMPRC adopted an order accepting the recommended decision and disapproving PNM’s application. The order indicated PNM’s next energy efficiency plan application should include a proposal for an AMI pilot project.


Facebook, Inc. Data Center Project


As discussed in Note 17 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K, in 2016, the NMPRC approved a PNM application for arrangements in connection with services to be provided to Facebook, Inc. for a new data center to bebeing constructed in PNM’s service area. The approvals included:

Two new electric service rates
A PPA under which PNM would purchase renewable energy from PNMR Development
A special service contract to provide electric service
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 to construct. 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 passed through to Facebook under a rate rider. A special service rate is applied to Facebook’s energy consumption in those hours of the month when their consumption exceeds the energy production from the renewable resources. In late 2017, PNM executed its initial procurement for the energy production from 30 MW of solar-PV capacity from NMRD, a 50% equity method of investee PNMR Development. Of the solarthis capacity, 10 MW began commercial operation in each of January 2018, March 2018, and May 2018.


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 energy to Facebook. These PPAs were subject to NMPRC approval and PNM made a filing requesting approval on January 17, 2018. A NMPRC hearing on PNM’s filing was held on March 7, 2018 and the NMPRC approved the PPAs on March 21, 2018.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 by December 31,in November 2018

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

On August 24, 2018, PNM filed an application with the NMPRC requesting approval to enter into two 25-yearNaN PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two2 solar-PV facilities to be owned and operated by NMRD to supply power to Facebook.NMRD. The cost of these PPAs will be passed through to Facebook under PNM’s rider. The NMPRC approved PNM’s application on October 17, 2018. The PPAs also require approval by FERC. Subject to FERC approval, the first 50 MW of these facilities is expected to begin commercial operation in December 2019 and the remaining capacity is expected to begin commercial operation in June 2020.


The 2 PPAs aggregating approximately 100 MW of capacity were subject to FERC approval, which was granted on August 1, 2019.

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 percent, 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 percent of the estimated cost of the project be directly assigned to Facebook, Inc. and presented legal arguments in support of PNM’s originally proposed ratemaking treatment. On April 16, 2019, the NMPRC issued an order approving the Hearing Examiner’s recommended decision, including the requirement that PNM be directly reimbursed by Facebook, Inc. In late April 2019, 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 (“BTA”) 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 BTA 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 BTA 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.

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

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

TNMP

TNMP 2018 Rate Case


On May 30, 2018, TNMP filed a general rate proceeding with the PUCT (the “TNMP 2018 Rate Case”) requesting an annual increase to base rates of $25.9 million based on a requested ROE of 10.5%, a cost of debt of 7.2%, and a capital structure comprised of 50% debt and 50% equity. TNMP’s application included a request included $7.7 million ofto establish new rate riders to recover Hurricane Harvey restoration, rate case, and additional vegetation management costs. The application also included the integration of revenues currentlypreviously recorded under the AMS rider and collection of other unrecovered AMS investments into base rates. In 2017,2018, TNMP recorded revenues of $21.8$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 Note 11 of the Notes to the Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, 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 Rate Case application proposed to refund $14.4 million of this regulatory liability over a period of five years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2017.


On November 2,December 20, 2018, TNMP and other parties to the case filedPUCT approved an unopposed settlement agreement that, if approved byin the PUCT, will resultcase. The PUCT’s final order results in a $10.0 million annual increase to base rates. The key elements of the approved settlement include a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. TheAs stated by the settlement agreement, the PUCT’s final order excludes certain items from rate base that were requested in TNMP’s original filing, including approximately $11.7$10.6 million of transmission investments that TNMP expects will be included in its next TCOS filing. UnderJanuary 2019 transmission cost of service filing, which was approved by the terms ofPUCT in March 2019. In addition, the settlement agreement,PUCT’s final order requires TNMP willto refund approximately $37.8 million of the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers over a period of five years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2017. The settlement agreement also2017; 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 as well as TNMP’s request forrates; and approves a new rider to recover Hurricane Harvey restoration costs. TNMP’s deferred costs, related to Hurricane Harvey restoration efforts arenet of amounts to be offset by a regulatory liability forrefunded to customers resulting from the reduction in the federal income tax rate in 2018. See Note 14. The TNMP 2018 Rate Case also resulted in a reallocation of costs between TNMP’s transmission and retail customers and other rate design changes that reallocate costs between certain demand-based customers and customers billed on a volumetric basis. New rates under the TNMP 2018 Rate Case were effective beginning on January 25,1, 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 $3.7 million and charged toproposed these costs be collected from customers over a five-year period beginning onthree-year period. In October 2019, TNMP and other parties to the effective date of new rates (Note 14). TNMP anticipatesproceedings filed an unopposed settlement stipulation that, if approved by the PUCT, will review the settlement priorwould reduce TNMP’s cost recovery to December 31, 2018 and that rates will become effective in early 2019.$3.3 million. TNMP cannot predict the outcome of this matter.
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 million in deployment costs through a surcharge over a 12-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 TNMP 2018 Rate Case and associated settlement discussed above included a reconciliation of AMS costs and, if approved by the PUCT, will integrate TNMP’s AMS recovery into base rates beginning on the effective dates of new rates.


Transmission Cost of Service Rates

TNMP can update its transmission cost of service (“TCOS”) rates twice per year to reflect changes in its invested capital although updates are not allowed while a general rate case is in process. Updated rates reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities. The following sets forth TNMP’s recent interim transmission cost rate increases:
Effective Date Approved Increase in Rate Base Annual Increase in Revenue
  (In millions)
September 8, 2016 $9.5
 $1.8
March 14, 2017 30.2
 4.8
September 13, 2017 27.5
 4.7
March 27, 2018 32.0
 0.6


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




Periodic Distribution Rate AdjustmentThe 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

PUCT rules permit interim rate adjustments
On July 23, 2019, TNMP filed an application to further update its transmission rates 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. TNMP has also committed that it would not file a request for an increase in rates to reflect changes in investments in distribution assets until after the effective datetotal rate base of final order in the TNMP 2018 Rate Case.$21.9 million, which would increase revenues by $3.3 million annually. The PUCT approved this application on September 19, 2019.


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 state 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 (Note 14).order. In compliance with the PUCT order, during the three and nine months ended September 30, 2018, TNMP reduced revenues by $1.5 million and $4.2 million and recorded these as a regulatory liability to reflect the impact of the reduction in the federal corporate income tax rate beginning January 25, 2018. The settlement agreement for TNMP’s 2018 Rate CaseAs discussed above, includes a requirement that TNMP continue to record this regulatory liability until the effective datetotal amount owed for the year ended 2018 of new base rates, which amount is to be$5.4 million was offset against TNMP’s Hurricane Harvey restoration costs and recovered fromis being refunded to customers underas a component of a new rate rider over a period of five years.approximately three years 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 and over collected costs from prior years, rate case expenses, and performance bonuses (if programs exceed mandated savings goals). TNMP’s 2018 EECRF filing requested an adjustment of $5.6 million, including a performance bonus of $0.8 million, and became effective on March 1, 2019. On May 30, 2018,2019, TNMP filed its request to adjust the EECRF to reflect changes in costs for 2019. The total amount2020. On August 30, 2019, a unanimous settlement stipulation was filed with the PUCT that would allow TNMP to recover its requested was $5.7$5.9 million of program costs in 2020, which includedincludes a performance bonus of $0.9$0.8 million based on TNMP’s energy efficiency achievements in the 20172018 plan year. On June 21, 2018, the PUCT issued a declaratory order announcing the PUCT’s interpretation of the bonus calculation in its rule. The order does not affect cost recovery but reduces the bonus calculation as filed by utilities in their current EECRF proceedings. Accordingly, in June of 2018, TNMP reduced its estimated performance bonus for the 2017 plan year to $0.8 million. On August 6, 2018, TNMP and other parties to the case reached a unanimous settlement stipulation to provide $5.6 million of EECRF recovery, which includes a performance bonus of $0.8 million. On October 12, 2018, theis pending PUCT approved the settlement stipulation with rates to become effective on March 1, 2019.approval.


(13)Lease Commitments


The Company enters into various lease agreements to meet its business needs and to satisfy the needs of its customers. Historically, the Company’s leases were classified as operating leases which included leases for generating capacity from PVNGS Units 1 and 2, certain rights-of-way agreements for transmission lines and facilities, vehicle and equipment leases necessary to construct and maintain the Company’s assets and building and office buildings, vehicles,equipment leases. In February 2016, the FASB issued ASU 2016-02 – Leases (Topic 842) to provide guidance on the recognition, measurement, presentation, and disclosure of leases. Among other equipment.things, ASU 2016-02 requires that all leases be recorded on the balance sheets by recognizing a present value liability for future cash 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 Condensed Consolidated Balance Sheets

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


but does not have a material impact on the Condensed Consolidated Statements of Earnings or the Condensed Consolidated Statements of Cash Flows.

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

PVNGS

PNM leases interests in Units 1 and 2 of PVNGS and certain right-of-way agreements are classified as leases. All of the Company’s leases are currently accounted for as operating leases. See New Accounting Pronouncements in Note 1. Additional information concerning the Company’s lease commitments is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, including PNM’s actions with regard to renewal and purchase options under the PVNGS leases.

PVNGS. The PVNGS leases were entered into in 1985 and 1986 and initially were scheduled to expire on January 15, 2015 for the four4 Unit 1 leases and January 15, 2016 for the four4 Unit 2 leases. The fourFollowing procedures set forth in the PVNGS leases, PNM notified 4 of the lessors under the Unit 1 leases have been extended to expire on January 15, 2023 and one of1 lessor under the Unit 2 leases has been extendedlease that it would elect to expire on January 15, 2024. For the other three PVNGS Unit 2 leases, PNM exercised its fair market value options to purchase the assets underlyingrenew those leases on the expiration date of the original leases. OnThe 4 Unit 1 leases now expire on January 15, 2016, PNM paid $78.12023 and the 1 Unit 2 lease now expires on January 15, 2024. The annual lease payments during the renewal periods aggregate $16.5 million to the lessor under one lease for 31.25 MWPVNGS Unit 1 and $1.6 million for Unit 2.

The terms of each of the entitlement from PVNGS Unit 2 and $85.2 millionextended leases do not provide for additional renewal options beyond their currently scheduled expiration dates. PNM has the option to purchase the assets underlying each of the extended leases at their fair market value or to return the lease interests to the lessors underon the other two leases for 32.76 MWexpiration dates. Under the terms of the entitlement fromextended leases, PNM has until January 15, 2020 for the Unit 1 leases and 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. PNM’s elections are independent for each lease and are irrevocable. In the proceeding addressing PNM’s 2017 IRP (Note 12), PNM agreed to promptly notify the NMPRC of a decision to extend the Unit 1 or 2 leases, or to exercise its option to purchase the leased assets at fair market value upon the expiration of leases. 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 to purchase the assets, as well as any other obligations related to PVNGS from NM retail customers. Any transfer of the assets underlying the leases will be required to comply with NRC licensing requirements.

See Note 12 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’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 lessors and take title to the leased interests. If such an event had occurred as of September 30, 2019, amounts due to the lessors under the 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.


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



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 Condensed Consolidated Balance Sheets and recognizes amortization expense associated with these agreements in the Condensed Consolidated Statement of Earnings over their term. As of September 30, 2019 and December 31, 2018, the unamortized balance of these rights-of-ways was $60.9 million and $63.0 million. During the three and nine months ended September 30, 2019 and 2018, PNM recognized amortization expense associated with these agreements of $0.9 million and $2.8 million.

Fleet Vehicles and Equipment

As of December 31, 2018, all of the Company’s leases of fleet vehicles and equipment are classified as operating leases. Historically, the Company has utilized substantially all of the economic value of its fleet and equipment leases by the end of the lease term. The Company generally has the contractual ability to return its fleet vehicle and equipment leases to the lessor after one year provided the lessor can recover remaining amounts owed under the agreement from third-parties or through make-whole provisions in the contract but does not typically exercise this right. As a result, 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 September 30, 2019, residual value guarantees on fleet vehicle and equipment leases are $0.6 million, $1.1 million, and $1.7 million for PNM, TNMP, and PNMR.

Other

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

Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets, including amounts recognized upon adoption of ASU 2016-02, is presented below:
 September 30, 2019 January 1, 2019
 PNM TNMP PNMR Consolidated PNM TNMP PNMR Consolidated
 (In thousands)
Operating leases:           
Operating lease assets, net of amortization$126,313
 $10,649
 $137,637
 $143,816
 $12,942
 $157,440
Current portion of operating lease liabilities24,940
 2,862
 28,204
 21,589
 3,132
 25,189
Long-term portion of operating lease liabilities98,394
 7,655
 106,621
 124,891
 9,787
 135,174



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


As discussed above, the Company classifies its fleet vehicle and take titleequipment leases and its office equipment leases commencing on or after January 1, 2019 as financing leases. Information related to the leased interests. If such an event had occurredCompany’s financing leases recorded on the Condensed Consolidated Balance Sheets is presented below:
 September 30, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Financing leases:     
Non-utility property$4,029
 $3,678
 $7,785
Accumulated depreciation(286) (264) (556)
Non-utility property, net$3,743
 $3,414
 $7,229
      
Other current liabilities$610
 $622
 $1,252
Other deferred credits2,789
 2,794
 5,637


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:
 September 30, 2019
 PNM TNMP PNMR Consolidated
Weighted average remaining lease term (years):     
Operating leases6.75
 4.33
 6.55
Financing leases5.79
 5.65
 5.70
      
Weighted average discount rate:     
Operating leases3.89% 3.92% 3.89%
Financing leases3.77% 3.90% 3.82%


Information for the components of lease expense is as follows:
 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
 PNM TNMP PNMR Consolidated PNM TNMP PNMR Consolidated
 (In thousands)
Operating lease cost:$6,873
 $726
 $7,725
 $21,260
 $2,439
 $24,051
Less: amounts capitalized(319) (630) (949) (1,015) (1,949) (2,964)
Total operating lease expense$6,554
 $96
 $6,776
 $20,245
 $490
 $21,087
Financing lease cost:           
Amortization of right-of-use assets143
 125
 274
 286
 264
 556
Interest on lease liabilities26
 27
 54
 56
 61
 117
Less: amounts capitalized(81) (114) (195) (158) (233) (391)
Total financing lease expense88
 38
 133
 184
 92
 282
            
Variable lease expense32
 —
 32
 64
 —
 64
Short-term lease expense63
 5
 68
 212
 10
 263
Total lease expense for the period$6,737
 $139
 $7,009
 $20,705
 $592
 $21,696


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



Supplemental cash flow information related to the Company’s leases is as follows:
 Nine Months Ended September 30, 2019
 PNM TNMP PNMR Consolidated
 (In thousands)
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows from operating leases$26,092
 $757
 $27,225
Operating cash flows from financing leases28
 17
 45
Finance cash flows from financing leases113
 72
 189
      
Non-cash information related to right-of-use assets obtained in exchange for lease obligations:     
Operating leases$143,816
 $12,942
 $157,816
Financing leases3,645
 3,678
 7,402


Excluded from the operating and financing cash paid for leases above are $1.0 million and $0.2 million at PNM, $1.9 million and $0.2 million at TNMP, and $3.0 million and $0.4 million at PNMR. These capitalized costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019.

Future expected lease payments as of September 30, 2019 and December 31, 2018 amounts due to the lessors under the circumstances described above would be up to $163.8 million, payable on January 15, 2019 in addition to the scheduled lease payments due on January 15, 2019.are shown below:
 As of September 30, 2019
 PNM TNMP PNMR Consolidated
 Financing Operating Financing Operating Financing Operating
 (In thousands)
Remainder of 2019$184
 $604
 $188
 $823
 $378
 $1,574
2020721
 27,028
 736
 3,078
 1,479
 30,662
2021697
 26,576
 712
 2,448
 1,431
 29,316
2022674
 26,266
 687
 1,996
 1,383
 28,473
2023641
 17,735
 590
 1,508
 1,238
 19,423
Later years885
 42,374
 878
 1,642
 1,762
 44,321
Total minimum lease payments3,802
 140,583
 3,791
 11,495
 7,671
 153,769
Less: Imputed interest403
 17,249
 375
 978
 782
 18,944
Lease liabilities as of September 30, 2019$3,399
 $123,334
 $3,416
 $10,517
 $6,889
 $134,825

 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



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


The above tables include $9.3 million, $12.8 million, and $22.1 million for PNM, TNMP, and PNMR at September 30, 2019 and $7.5 million, $11.0 million, and $18.5 million for PNM, TNMP, and PNMR at December 31, 2018 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.

(14)Income Taxes


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 makesmade 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 eliminateseliminated federal bonus depreciation for utilities, effective September 28, 2017 and, effective January 1, 2018, limitslimited interest deductibility for non-utility businesses and limitslimited the deductibility of certain officer compensation.

Although most of the provisions of the Tax Act are 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 corporate 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 12) reflects that assumption by including an amortization of the estimated benefit of the reduction in existing deferred federal corporate income taxes as a reduction to customer rates over a twenty-one year period beginning in 2018. On January 25, 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. During the three and nine months ended September 30, 2018, TNMP reduced revenue and recorded a regulatory liability of $1.5 million and $4.2 million in accordance with the PUCT’s order. The TNMP 2018 Rate Case filed on May 30, 2018, and related settlement agreement include a reduction in customer rates to reflect the impacts of the Tax Act, including amortization of the regulatory liability related to the 2017 re-measurement of deferred tax liabilities and to reduce the federal corporate income tax rate to 21% (Note 12).

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 made reasonable estimates of the effects of the Tax Act and reflected the impacts in the Consolidated Financial Statements included in the 2017 Annual Reports on Form 10-K. 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 United States 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. Through September 30, 2018, no significant adjustments to the impacts reflected in the 2017 Consolidated Financial Statements included in the 2017 Annual Reports on Form 10-K have been identified. In August 2018, the IRS issued newadditional guidance clarifying therelated to certain officer compensation, as well as proposed regulations on interest deductibility of executive compensation under Section 162(m) of the Internal Revenue Code as amended by the Tax Act.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 Internal Revenue Code which wouldthat allow the Company to claim a bonus depreciation deduction on certain construction projects placed in service duringsubsequent to the fourththird quarter of 2017. The Company is currently evaluatingSee additional discussion of the IRS’s new guidance and proposed regulations and anticipates it will record adjustments, if any, priorimpacts of the Tax Act in Note 18 of the Notes to December 31, 2018.

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 wasConsolidated Financial Statements 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, based2018 Annual Reports on the assumption that PNM would be required to return the benefit to customers over time.Form 10-K.

Beginning February 2018, PNM’s NM 2016 Rate Case (Note 12) reflects the benefit ofreduction in the lower New Mexicofederal corporate income tax rate, being returnedincluding 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 three-year period beginning February 1, 2018. In addition,of approximately twenty-three years, and excess deferred state income taxes to customers over a period of three years. The approved settlement in the portion of the adjustment that was not related to PNM’s regulated activities was recorded asTNMP 2018 Rate Case includes 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

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


resulted in refinements of the impacts of this change in taxcustomer rates being recorded periodically through December 31, 2017, at which timeto reflect the impacts of the rate reduction were fully phased-in. In the three months ended March 31, 2017, PNM’s regulatory liability was reduced by $4.8Tax Act beginning on January 1, 2019. PNMR, PNM, and TNMP will amortize federal and state excess deferred income taxes of $30.3 million, which increased deferred tax liabilities. Deferred tax assets not related to PNM’s regulatory activities were reduced by $0.1$21.4 million, and $8.9 million in the three months ended March 31, 2017, increasing income tax expense by less than $0.1 million for PNM2019. See additional discussion of PNM’s NM 2016 Rate Case and $0.1 million for the Corporate and Other segment.TNMP’s 2018 Rate Case in Note 12.


As required under GAAP, the Company makes an estimate of its anticipated effective tax rate for the year as of the end of each quarterly period within its fiscal year. In interim periods, income tax expense is calculated by applying the anticipated annual effective tax rate to year-to-date earnings before income taxes, which includes the earnings attributable to the Valencia non-controlling interest.taxes. GAAP also provides that certain unusual or infrequently occurring items, including excess tax benefits related to stock awards, be excluded from the estimated annual effective tax rate calculation. As discussed in Note 12, 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 nine months ending September 30, 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 Condensed Consolidated Statements of Earnings for the nine months ended September 30, 2019. At September 30, 2018,2019, PNMR, PNM, and TNMP estimated their effective income tax rates for the year ended December 31, 20182019 would be 12.35%8.43%, 9.51%10.75%, and 22.78%8.43%. These rates reflectThe primary difference between the reduced federal corporatestatutory income tax raterates and the effective tax rates is the effect of 21%, which rates are adjusted to reflect permanent differences between earnings determined in accordance with GAAP and taxable income, as well as state income taxes. The primary permanent difference is the reduction in income tax expense resulting from the amortization of excess deferred federal and state income taxes ordered by the NMPRC in PNM’s NM 2016 Rate Case and the amortization of excess deferred federal income taxes as ordered by the PUCT in TNMP’s 2018 Rate Case. During the three and nine months ended September 30, 2018,2019, income tax expense calculated by applying the expected annual effective income tax rate to earnings before income taxes was further reduced by excess tax benefits related to stock awards of zeroless than $0.1 million and $1.4$0.8 million for PNMR, zeroof which less than $0.1 million and $1.0$0.6 million forwas allocated to PNM and less than $0.1 million and $0.4$0.2 million forwas allocated to TNMP.


(15)Related Party Transactions


PNMR, PNM, TNMP, and NMRD are considered related parties as defined under GAAP, as is PNMR Services Company, a wholly-owned subsidiary of PNMR that provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. These services are billed at cost on a monthly basis to the business units. In addition, PNMR provides construction and operations and maintenance services to NMRD, a 50% owned subsidiary of PNMR Development (Note 1), andDevelopment. See Note 1. PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced. See Note 12. PNM also provides interconnection services to PNMR Development (Note 9) and NMRD. See Note 9.

The table below summarizes the nature and amount of related party transactions of PNMR, PNM, TNMP, and NMRD:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
 (In thousands)
Services billings:       
PNMR to PNM$22,972
 $23,451
 $69,122
 $71,044
PNMR to TNMP8,074
 7,828
 24,497
 23,771
PNM to TNMP104
 115
 281
 302
TNMP to PNMR35
 35
 105
 106
TNMP to PNM—
 8
 —
 154
PNMR to NMRD32
 —
 162
 —
Renewable energy purchases:       
PNM from NMRD969
 —
 2,343
 —
Interconnection billings:       
PNM to NMRD47
 —
 2,099
 —
PNM to PNMR—
 —
 68,200
 —
Interest billings:       
PNMR to PNM844
 3
 1,653
 14
PNM to PNMR75
 71
 211
 163
PNMR to TNMP65
 66
 87
 126
Income tax sharing payments:       
PNMR to PNM—
 —
 —
 —
TNMP to PNMR—
 —
 —
 —



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




The table below summarizes the nature and amount of related party transactions of PNMR, PNM, TNMP, and NMRD:
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
 (In thousands)
Services billings:       
PNMR to PNM$22,853
 $22,972
 $72,604
 $69,122
PNMR to TNMP8,639
 8,074
 27,082
 24,497
PNM to TNMP97
 104
 286
 281
TNMP to PNMR35
 35
 106
 105
PNMR to NMRD68
 32
 163
 162
Renewable energy purchases:       
PNM from NMRD757
 969
 2,331
 2,343
Interconnection billings:       
PNM to NMRD—
 47
 —
 2,099
PNM to PNMR—
 —
 —
 68,200
Interest billings:       
PNMR to PNM1,004
 844
 2,909
 1,653
PNM to PNMR75
 75
 224
 211
PNMR to TNMP—
 65
 42
 87
Income tax sharing payments:       
PNMR to PNM—
 —
 —
 —
TNMP to PNMR—
 —
 —
 —


(16)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. Additional information concerning the Company’s goodwill is contained in Note 1819 of Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K.


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 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 or 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

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


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 a goodwill impairment is determined by eliminating the second step of the quantitative impairment analysis.

For its annual evaluations performed as of April 1, 2017, PNMR performed qualitative analyses for both the PNM and TNMP reporting units. The qualitative analysis was performed by considering changes in the Company’s expectations of future financial performance since the April 1, 2016 quantitative analysis. This analysis considered Company specific events such as the potential impacts of legal and regulatory matters discussed in Note 11 and Note 12, including the then estimated impacts of the proposed revised stipulation in PNM’s 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. This evaluation 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 anticipated general rate case filing. The qualitative analysis also considered market and macroeconomic factors including changes in growth rates, 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 value of its reporting units. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2017 carrying values of PNM or TNMP exceeded their fair values.


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



For its annual evaluations performed as of April 1, 2018, PNMR performed a quantitative analysis for the PNM reporting unit and a qualitative analysis for the TNMP reporting unit. For the quantitative analyses, a discounted cash flow methodology was primarily used to estimate the fair value of the PNM 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 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. 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% andas well as by considering the results of the April 1, 2017 qualitative analysis. The 2018 analysis considered events specific to TNMP such as the potential impacts of legal and regulatory matters discussed in Note 12, including potential adverse outcomes in the TNMP 2018 Rate Case, which was filed in May 2018.11 and Note 12. Both the PNM quantitative analysis and the TNMP qualitative analysis considered market and macroeconomic factors including changes in growth rates, 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 value of its reporting units. Based on an evaluation of these and other factors, the Company determined it iswas not more likely than not that the April 1, 2018 carrying values of PNM or TNMP exceed their fair values.


As indicated above, theFor its annual evaluations performed as of April 1, 2019, PNMR performed qualitative analyses for both the PNM and TNMP reporting units. The qualitative analysis was performed by considering changes in the Company’s expectations of future financial performance since the April 1, 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 11 and Note 12, 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. The qualitative analysis also considered market and macroeconomic factors including changes in growth rates, 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 value of its reporting units. 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.

PNMR periodically updates its quantitative analysis for both PNM and TNMP. The use of a quantitative approach in a given period in not necessarily an indication that a potential impairment has been identified under a qualitative approach. The annual evaluations performed as of April 1, 2019 and 2018 did not indicate impairments of the goodwill of any of PNMR’s reporting units. Since the April 1, 20182019 annual evaluation, there have been no indications that the fair values of the reporting units with recorded goodwill have decreased below their carrying values.

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


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


MD&A FOR PNMR


EXECUTIVE SUMMARY
Overview and Strategy


PNMR is a holding company with two regulated utilities serving approximately 780,000787,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:


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


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


Maintaining strong employee safety, plant performance, and system reliability
Delivering a superior customer experience
•
Demonstrating environmental stewardship in business operations, including reducing CO2 emissions
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 and various rate riders.


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


Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K and in Note 12.


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 an increase in base non-fuel revenues of $121.5 million based on a future test year (“FTY”) beginning October 1, 2015. The primary drivers of the revenue deficiency were infrastructure investments and declines in forecasted energy sales due to successful energy efficiency programs and other economic factors.

The NMPRC’sOn 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, include:included:


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 13) at an initial rate base value of $83.7 million, compared to PNM’s request for recovery of the fair market value purchase price of $163.3 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which costs totaled $43.8 million when the order was issued
Disallowance of 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 13)
Disallowance of recovery of the costs associated with converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS (Note 12); PNM’s share of the costs of installing the BDT equipment was $52.3 million, $40.0 million of which PNM requested be included in rate base in the NM 2015 Rate Case


On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. Specifically, 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. PNM’s appeal includes the following specific 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.


The NM Supreme Court has orally stated thatDuring the court’s intent would be to request that PNM reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits. Oral argument at the NM Supreme Court was held on October 30, 2017. Although appeals of regulatory actionspendency of the NMPRC have a priority at the NM Supreme Court under New Mexico law, there is no required time frame for the court to act on the appeals.

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 currently estimates it will take a minimumperiodically updated its estimate of four months from September 30, 2018the 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,As a result of these evaluations, through March 31, 2019, PNM recorded accumulated pre-tax impairments of its capital investments subject to the rates specifiedappeal in the order remain in effect. PNM recorded pre-tax regulatory disallowances through September 30, 2018 aggregating $17.1 million, representing capital cost recovery for the period October 1, 2016 through January 31,amount of $19.7 million.

On May 16, 2019, on its investments that the order disallowed, and amounts recorded as regulatory assets and deferred charges that the order disallowed, and which PNM did not challenge in its appeal. Additional losses will be recorded if

the estimated time frame for the NM Supreme Court to renderissued 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, and affirmed the NMPRC’s disallowance of a decision and forportion of the NMPRC to take action on any remanded issues is further extended.

PNM continues to believe that the disallowed investments, which are the subjectpurchase price of PNM’s appeal, were prudently incurred and that PNM is entitled to full recovery of those investments through the ratemaking process. If PNM’s appeal is unsuccessful, PNM would record additional pre-tax losses related to any unsuccessful issues. The September 30, 2018 book values of PNM’s investments that the order disallowed, after considering the losses recorded through September 30, 2018, were $73.9 million for the 64.1 MW of purchased capacity in PVNGS Unit 2, $38.3 million for the PVNGS Unit 2 disallowedundepreciated costs of capital improvements and $50.3 million formade during the BDT equipment.

PNM does not believetime that the likelihood of64.1 MW capacity was leased by PNM, and the cross-appeals being successful is probable. However, if thecosts to install BDT at SJGS Units 1 and 4. The NM Supreme Court wereruled that the NMPRC’s decision to overturn all of the issues subject to the cross-appeals and, upon remand, the NMPRC did not provide any costpermanently disallow recovery of those items, PNM would write-off all offuture decommissioning costs related to the costs to acquire the assets previously leased under three leases aggregating 64.1 MW of PVNGS Unit 2 capacity, totaling $147.5and 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. The NMPRC has taken no action with respect to this matter since oral argument was presented. PNM cannot predict the outcome of this matter.

As a result of the NM Supreme Court’s ruling, PNM recorded a pre-tax impairment of $149.3 million at Septemberas of June 30, 2018 (which amount includes $73.9 million that2019 which is reflected as regulatory disallowances and restructuring costs in the subjectCondensed Consolidated Statements of PNM’sEarnings. The

impairment reflects capital costs not previously impaired during the pendency of the appeal discussed above) after considering the losses recorded through September 30, 2018. 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 outcomesCondensed Consolidated 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 January 16, 2018, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $10.3 million. PNM implemented 50% of the approved increase for service rendered, rather than bills sent, beginning February 1, 2018 and will implement the rest of the increase for service rendered beginning January 1, 2019. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2016 Rate Case”) filed in December 2016. PNM’s December 2016 application requested an increase in base non-fuel revenues of $99.2 million based on a FTY beginning January 1, 2018 and did not include a request to recover any of the costs disallowed in the NM 2015 Rate Case that are at issue in PNM’s pending appeal to the NM Supreme Court.2018. The primary drivers of thePNM’s revenue deficiency in PNM’s application were:

Implementationincluded implementation of the modifications into PNM’s resource portfolio, which were previously approved by the NMPRC in December 2015 as part of the SJGS regional haze compliance plan, (see below and Note 11)
Infrastructureinfrastructure investments, including environmental upgrades at Four Corners,
Declines declines in forecasted energy sales due to successful energy efficiency programs and other economic factors,
Updates in the and updates to FERC/retail jurisdictional allocationsallocations.


After extensive settlement negotiations and public proceedings, the NMPRC ordered settlement discussions were held, PNM and thirteen intervenors entered intoissued a comprehensive stipulation in May 2017, which was subsequently revised to address issues raised by the Hearing Examiners in the case. NEE was the sole party opposing the revised stipulation.Revised Order Partially Adopting Certification of Stipulation dated January 10, 2018 (the “Revised Order”). The key terms of the revised stipulation included:Revised Order include:


A revenue increase totaling $62.3$10.3 million, withwhich 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 initial increase of $32.3estimated $47.6 million beginning January 1, 2018 and the remaining increase beginning January 1, 2019annually)
A ROE of 9.575%, compared to the 10.125% requested by PNM
Full recoveryReturning 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 investment in SCRsretail operations (Note 14)
Disallowing PNM’s ability to collect an equity return on certain investments aggregating $148.1 million at Four Corners, withbut 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
An agreementA decision to adjustdefer future consideration regarding the January 2019 increase for certain changes in federal corporate tax laws and to true-up PNM’s costprudency 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
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 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 to a future proceeding

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.
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 imprudent, not allow PNM to collectwell as other unrecovered AMS costs, into base rates; establish a debt or equity return on $148.1 million of investments in SCRs and other projects at Four Corners, and to temporarily disallow recovery of $36.8 of PNM’s projected capital improvements at SJGS.

Extensive proceedings before the NMPRC were conducted in December 2017 and January 2018 as described in Note 12. Ultimately, the NMPRC’s January 16, 2018 order approved the Certification of Stipulation with certain changes, which included allowing PNMnew rider to recover its $148.1 millionHurricane Harvey restoration costs, net of investments in SCR and other projects at Four Corners withamounts owed to customers as a debt-only return (but maintaining the recommended disallowanceresult 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 in 2018; and PNM’s cost of debt (aggregating an estimated $47.6 million) 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 $4.4 million.

GAAP required PNMupdate depreciation rates. In addition, the approved settlement stipulation allows TNMP to recognize a loss reflecting that it will earn a debt-only return on $148.1 million of investmentsrefund 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 2016 Rate Case. On March 7, 2018, NEE filed its statement of issues with the NM Supreme Court requesting, among other things, that the NMPRC be requiredfederal corporate income tax rate to identify PNM’s decision to continue its participation in Four Corners as imprudent and to deny any recovery related to PNM’s $148.1 million of investments in Four Corners. NEE’s Brief in Chief was filed on July 16, 2018 and PNM’s Answer Brief was filed on October 12, 2018. Several parties to the case are participating in the appeal as intervenor-appellees in support of the NMPRC’s final decisions in the case. Although PNM does not believe it is probable that NEE’s appeal will be successful, it is unable to predict what decision the NM Supreme Court will reach. If the NM Supreme Court were to remand the case to the NMPRC and the NMPRC identified PNM’s continued involvement in Four Corners as imprudent with no recovery of the $148.1 million of investments in Four Corners, PNM would be required to record additional losses for the remaining amount of those investments (after considering the $27.9 million regulatory disallowance recorded in 2017)21%. In addition, PNM’s future investments in Four Corners, which could be requiredNew rates under the participation agreement governing that facility, could also be subject to disallowance. PNM cannot predict the outcome of this matter.
TNMP 2018 Rate Case – Onbecame effective January 1, 2019.

TNMP’s original application, which was filed with the PUCT on May 30, 2018, TNMP filed a general rate proceeding with the PUCT (the “TNMP 2018 Rate Case”), which requested an annual increase to base rates of $25.9 million based on a ROE of 10.5%, a cost of debt of 7.2%, and a capital structure comprised of 50% debt and 50% equity. TNMP’s request included $7.7 million of new rate riders to recover Hurricane Harvey restoration, rate case, and additional vegetation management costs. The application also included a request for increased depreciation rates and the integration of revenues currently recorded under the AMS rider, as well as collection of other unrecovered AMS investments, into base rates. In 2017, TNMP recorded revenues of $21.8 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 its federal corporate income tax rate to 21%. On November 2, 2018, TNMP and other parties to the case filed an unopposed settlement agreement that, if approved by the PUCT, will result in a $10.0 million annual increase to base rates. The key elements of the settlement include a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. The settlement excludes from rate base certain investments that were requested in TNMP’s original filing, including amounts that TNMP expects will be included in its next TCOS filing. The settlement also adjusts how TNMP will return the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers. The settlement agreement also approved TNMP’s request for updated depreciation rates, as well as a new rider to recover Hurricane Harvey restoration costs. As discussed below, the new rider for Hurricane Harvey restoration costs is to be offset by 2018 tax savings resulting from the reduction in the federal corporate income tax rate. TNMP anticipates the PUCT will review the settlement prior to December 31, 2018 and that new rates will be effective in early 2019. TNMP cannot predict the outcome of this matter.


San Juan Generating Station Unit 1 Outage – On March 17, 2018, a coal silo used to supply fuel to SJGS Unit 1 collapsed resulting in an outage. PNM initiated a review of the cause of the outage and promptly contacted the staff of the NMPRC to inform them of the event. To minimize the operational and financial impacts of this event, PNM accelerated the fall 2018 planned outage on Unit 1 to be performed while the unit was out of service for this event. Repairs necessary to return Unit 1 to service were completed by July 5, 2018. PNM anticipates the damages to the facility related to the coal silo collapse are reimbursable under an existing property insurance policy that covers SJGS, subject to a deductible of $2.0 million.  PNM’s exposure to the cost of repairs is $1.0 million, reflecting PNM’s 50% ownership interest in SJGS Unit 1.
On April 12, 2018, NEE filed a petition (jointly with certain other organizations) requesting that the NMPRC order an investigation into the SJGS Unit 1 event.  The petition requested that the NMPRC order PNM to respond to the petition, that proceedings be set on this matter, and that PNM be required to provide a narrative explanation, cost/benefit analysis, and alternatives

assessment used to determine that Unit 1 should be repaired rather than utilizing alternative resources.  Pursuant to an NMPRC order, PNM filed a response on May 8, 2018 indicating that it used best practices when inspecting the SJGS coal silos during planned outages, that the damage to SJGS Unit 1 was repairable and could be made in a timely manner, that all but a limited amount of cost of the repairs are reimbursable under an existing insurance policy, and that further proceedings on the matter were unnecessary. In addition, PNM’s response indicated that if the unit was not repaired, customers would be exposed to significant contractual liabilities under the agreements governing the ownership of SJGS and would incur significant additional costs associated with the procurement of replacement power. On May 31, 2018, the NMPRC staff preliminarily recommended that the NMPRC not allow PNM to recover any costs associated with the SJGS Unit 1 coal silo repairs, including the cost of preventing similar failures on other SJGS coal silos, and that PNM reimburse customers for the loss of off-system sales during the time SJGS Unit 1 was in outage. The NMPRC staff also recommended, among other things, that further proceedings on the matter be deemed unnecessary provided PNM agree to hold customers harmless for such costs. On October 9, 2018, PNM filed a motion with the NMPRC requesting the inquiry docket be closed and stating the NMPRC staff’s proposal that PNM be required to absorb all losses related to the event, including the loss of off-system sales, is unwarranted and would result in piecemeal ratemaking. PNM cannot predict the outcome of this matter.

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 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 asked, which was denied. As ordered by the NMPRC, to authorize the recovery, in future ratemaking proceedings, of the cost of the project, as well as to approve the recovery of the remaining undepreciated investment in existing metering equipment, the costs of customer education, and severance for any affected employees. On March 19, 2018, the Hearing Examiner issued a recommended decision finding that PNM had not proven a net public benefit in the case and recommending the NMPRC 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 record did not demonstrate a net public benefit to customers, but that PNM would not take exception to a recommendation to not approve the application. On April 11, 2018, the NMPRC adopted an order accepting the recommended decision and disapproving PNM’s application. The order also indicated PNM’s next energy efficiency plan filing 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. 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. As discussed above, the unopposed settlement agreement in the TNMP 2018 Rate Case would authorize TNMP to integrate revenues currently recorded under the AMS rider into base rates and to establish a new rate rider to collect Hurricane Harvey restoration costs. Amounts collected under the new rider would be offset by 2018 savings resulting from the reduction in the federal corporate income tax rate and be collected from customers over a five-year period beginning on the effective date of new rates. 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 and improve PNM’s ability to earn its authorized return.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, authorization 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 proposesproposed recovery of the costs incurred to join the EIM would be recovered 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 AugustDecember 2018, the NMPRC issued an order grantingapproving the establishment of a regulatory asset to recover PNM’s request forcost of joining the EIM, which 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 expedited procedural schedule andorder clarifying that set a public hearing for December 12, 2018. If approved by the NMPRC,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 by mid-2021. PNM cannot predict the outcome of this matter.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.


On May 10, 2019, PNM filed an application with FERC requesting approval to transmit energy generated from new wind generation facilities using 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 12.

The low natural gas price environment has 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.  Consequently, PNM decided to stop pursuing wholesale generation contracts and currently 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 20182019 through 2022. PNMR’s earnings and dividend target for the year ending December 2022 includes assumptions about potential capital expenditures that would be incremental to construction expenditures discussed below in Liquidity and Capital Resources - Capital Requirements.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 2015 10%
December 2016 10%
December 2017 9%
December 20189%


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 January 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative. In June 2018, Moody’s changed the outlook for PNMR and PNM from positive to stable and maintained the stable outlook for TNMP.


Business and Strategic Focus


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


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 20152016 to 20172018 period, PNM and TNMP together invested $1,552.0$1,501.7 million in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. PNM completed the 40 MW natural gas-fired La Luz peaking generating station located near Belen, New Mexico in December 2015. PNM also completed installation of SNCR and BDT equipment on SJGS Units 1 and 4 in early 2016 and the addition of 40 MW of PNM-owned solar-PV facilities in 2015. In addition, on January 15, 2016, PNM completed the $163.3 million acquisition of 64.1 MW of capacity in PVNGS Unit 2 that had previously been leased to PNM. During 2018 and 2019, PNM will construct an additional 50 MW of PNM-owned PVsolar-PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. The 50In late 2018, PNM became the first utility to install a new type of protective relay on its high-voltage transmission lines, which help to ensure the reliability of PNM’s electrical system. On May 1, 2019, PNM executed an agreement to purchase the Western Spirit Line, which has been approved by FERC and the NMPRC. Under the agreement, PNM will, subject to certain conditions being met prior to closing, 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 PV facilities are expectedgas-fired generation facility to be completedlocated at the existing SJGS site, 70 MW of battery storage facilities, and other transmission upgrades to replace PNM’s capacity in stages throughout 2019 at a cost not to exceed $73.0 million.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 NM Renewable Development, LLC (“NMRD”)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 has the 2nd highest technical potential of the 48 contiguous states for utility scaleutility-scale solar photovoltaicsPV 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 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 September 30, 2019, NMRD’s current renewable energy capacity in operation is 34.3was 35.1 MW, which includes 30 MW of solar-PV facilities required to supply energy to the Facebook data center located within PNM’s service territory, 1.81.9 MW to supply energy to Columbus Electric Cooperative located in southwest New Mexico, and 2.52.0 MW to supply energy to the Central New Mexico Electric Cooperative.Cooperative, and 1.2 MW of solar-PV facilities to supply energy to the City of Rio Rancho, New Mexico. 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. Subject to FERC approval,the Facebook data center. The first 50 MW of these facilities are is

expected beto begin commercial operation in November 2019 and the remaining capacity is expected to begin commercial operation by June 2020.See Note 12. NMRD actively explores opportunities for additional renewable projects, including large-scale projects to serve future data centers and other customer needs.


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 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 energy demand with a combination of additional renewable energy resources, energy efficiency, and natural gas-fired facilities.


PNM filed its 2017 IRP on July 3, 2017. Under the NMPRC’s order concerning SJGS’ compliance with the BART requirements of the CAA discussed in Note 11, PNM is required to make a filing in 2018 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 findings of the 2017 IRP include:


Retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreements would provide long-term cost savings for PNM’s customers
PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also provide long-term cost savings for customers

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


Several parties filed protests to the 2017 IRP. The issues addressed in the protests include PNM’s future interest in SJGS, Four Corners, and PVNGS and the timing of future procurement of renewable resources. The 2017 IRP is not a final determination 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, NMPRC approval of new generation resources through CCN filings would be required. Hearings were held in June 2018. On October 26,In December 2018, the Hearing ExaminerNMPRC issued a recommended decision recommending that the NMPRC acceptan order accepting PNM’s 2017 IRP as compliant with the applicable statute and NMPRC rules. PNM cannot predict the ultimate outcomeIn January 2019, several parties, including The Board of the County of Commissioners for San Juan County, New Mexico, the City of Farmington, New Mexico, appealed the NMPRC’s final order to the NM Supreme Court. In addition, NEE submitted a motion requesting the NMPRC reconsider its acceptance of PNM’s 2017 IRP process or whetherfiling alleging informational inadequacy and deficiencies in PNM’s filing, which was deemed denied. In February 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. The NM Supreme Court denied NEE’s motion to remand the case and, subsequent to a motion by parties, dismissed the appeal. In September 2019, NEE filed a second motion requesting the NMPRC reconsider its acceptance of PNM 2017 IRP, which was deemed denied. See additional discussion of PNM’s 2017 IRP and PNM’s July 1, 2019 SJGS Abandonment Application below and in Note 12.

In the third quarter of 2019, PNM initiated its 2020 IRP process which will approve subsequent filings that would encompass actionscover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM will seek public input from interested parties as part of this process. PNM expects to implementissue a draft of its IRP by March 2020 and to submit its final 2020 IRP to the conclusions of the 2017 IRP.NMPRC by July 2020.
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 transforming PNM’s generation resources to a cleaner energy portfolio by reducing CO2 emissions
Developing strategies to provide reliable and affordable power while transitioning to a 100% emissions-free generating portfolio by 2040
Preparing PNM’s system to meet New Mexico’s increasing renewable energy resourcesrequirements as cost-effectively as possible
Increasing energy efficiency participation


PNMR’s Sustainability Portal provides key environmental and sustainability information related to PNM’s and TNMP’s operations and is available at http://www.pnmresources.com/about-us/sustainability-portal.aspx. The portal also contains a Climate Change Report, which outlines plans for PNM to be coal-free by 2031 (subject to regulatory approval). This would enable PNM and to reduce GHG emissions from its fossil-fueled plantshave an emissions-free generating portfolio by 71% in 2025 and by 80% in 2035 compared to 2005 baseline levels.2040.

SJGSThe Energy Transition Act (“ETA”)


Regional Haze Rule Compliance Plan – In DecemberOn 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, PNM received NMPRC approvaland 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 planrecovery of undepreciated investments and decommissioning costs related to complyqualifying 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 11 and 12.

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 EPA regional haze rule at NMPRC.

SJGS

SJGS that minimizes the cost impact to customers while still achieving broad environmental benefits. Under the approved plan, the installation of SNCRs 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 significantly reducing water usage. Additional information is containedAbandonment Application – As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K, and in Note 11.

ThePNM submitted the December 2015 order also provided, among other things, that:

PNM was granted a CCN2018 Compliance Filing to acquire an additional 132 MW in SJGS Unit 4 effective January 1, 2018
PNM was granted a CCN for 134 MW of PVNGS Unit 3 as a jurisdictional resource to serve New Mexico customers beginning January 1, 2018
PNM was authorized to acquire 65 MW of SJGS Unit 4 as merchant utility plant
No later thanthe 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 before entering into a binding coal supply agreementrequiring PNM to submit an application for the abandonment of PNM’s share of SJGS PNM will make a NMPRC filing to determine the extent that SJGS should continue serving PNM’s customers’ needs after mid-2022


NEE filed a notice of appeal within 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 NMPRC’s December 2015 order.matter. On March 5, 2018,June 26, 2019, the NM Supreme Court issued its opinion affirminglifted the NMPRC’sstay and denied PNM’s petition without discussion. See additional discussion of PNM’s December 2015 order, thereby denying NEE’s appeal. This matter is now concluded.2018 Compliance Filing in Note 11.


SJGS Ownership RestructuringOn July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Other Matters –In connection with the plan to comply with EPA regional haze rules at SJGS, someReplacement 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 addressedRelated Securitized Financing Pursuant to 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 Agreement (“SJGS RA”ETA (the “SJGS Abandonment Application”) sets forth the agreement among the SJGS owners regarding ownership restructuring 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.. The SJGS RA became effective contemporaneously with the effectiveness of the new SJGS CSA on January 31, 2016. See Note 11.

Although the SJGS RA results in an agreement among the SJGS participants enabling compliance with 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 participantsAbandonment Application seeks NMPRC approval to continue participation in the plant. PNM’s 2017 IRP (Note 12), 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 (Note 11) 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.

The 2017 IRP is not a final determination of PNM’s future generation portfolio.  Retiringretire PNM’s share of SJGS would require PNM to make a formal abandonment filing with the NMPRC.  The final determination of PNM’s exit from SJGS would be subject to NMPRC reviewin mid-2022, and approval.  PNM would also be required to obtain NMPRCfor approval of replacement power resources through formal CCN filings.and the issuance of approximately $361 million of energy transition bonds as provided by the ETA. The December 2015application 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. Each of these alternative replacement resource scenarios is expected to result in increased costs to customers and result in lower system reliability when compared to PNM’s recommended replacement resource scenario.

On July 10, 2019, the NMPRC issued an order discussed above authorized PNMrequiring 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 acquire 132 MWthe January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings will be evaluated under the requirements of SJGS Unit 4 as a New Mexico jurisdictional resource and 65 MW of SJGS Unit 4 as merchant plant. Thatthe ETA. The NMPRC’s July 10, 2019 order also provides that, if SJGS Unit 4 is abandoned with undepreciated investment on PNM’s books, PNMextended 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 requesting the NMPRC clarify whether it intends to evaluate the abandonment and financing proceeding under the requirements of the ETA and, in the event the ETA would not be allowedapplied, to recoverprovide parties an opportunity to present oral arguments on the undepreciated investmentmatter. The NMPRC chair responded to this motion by indicating the Hearing Examiners assigned to the proceeding would address the issue of law applicable to the proceeding. The Hearing Examiners subsequently issued procedural orders setting public hearings on SJGS abandonment and related financing

proceedings to begin in December 2019, and on PNM’s proposed 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 case, that parties file responses to PNM’s legal briefs by October 18, 2019, and permitting parties to file testimony on the merits of their claims regarding 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 with the NMPRC indicating that the procedural order will not provide parties adequate time to determine the applicability of the ETA and requesting the NMPRC state their intent to review the proceedings under the requirements of the ETA or under prior law, which was denied. 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.

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 132 MW interest. PNM is currently depreciating all its investments inJune 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 through 2053,abandonment and financing proceedings, declare the expected life approvedETA 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. The denial of these petitions by the NMPRC.NM Supreme Court means that the NMPRC will address the applicability of the ETA to PNM’s undepreciated investmentapplication. PNM believes the ETA applies to all aspects of the SJGS Abandonment Application and will pursue all available legal remedies to ensure the NMPRC issues a final order consistent with the law. See additional discussion of the SJGS Abandonment Application in SJGS at September 30, 2018 was $405.5 million, which includes interests in the 132 MW and the 65 MW of $20.3 million and $10.1 million.  In the eventNote 12.

The financial impact of an early retirement of SJGS PNM would be exposed to loss of its undepreciated investments in the facility and other costs, including costs associated with coal mine reclamation, if recovery of these items is not approved by the NMPRC. The financial impact of early retirement 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 inof New Mexico. Because of the uncertainty in obtaining the required approvals, PNM is unable tocannot predict the outcome of this matter.

As discussed in Note 11, PNM has the option to extend the SJGS CSA, which currently expires on June 30, 2022, subject to negotiation of the term of the extension and compensation to the miner. In order to extend, the SJGS CSA provides that PNM must give written notice of that intent by July 1, 2018 and the parties must agree to the terms of the extension by January 1, 2019. In addition, the SJPPA obligates each SJGS participant to provide notice to the other participants whether they wish to extend the SJPPA and SJGS CSA beyond June 30, 2022. Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022. Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. PNM gave preliminary notice to the other participants that, based on updated coal pricing and other relevant information, PNM does not wish to extend the terms of the agreements beyond June 30, 2022. PNM is continuing to analyze the permanent retirement of SJGS in 2022 and the final determination of PNM’s exit from SJGS is subject to NMPRC approval in a formal abandonment proceeding (Note 12). Due to Farmington’s stated interest in continuing SJGS operations beyond 2022, PNM and Westmoreland agreed to extend the July 1, 2018 notice deadline to December 1, 2018.
Other SJGS Environmental Matters –In addition to the regional haze rule and the ETA, SJGS isand Four Corners may be required to comply with other rules currently being developed or implemented that affect coal-fired generating units, 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.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.  The order rescinds various actions

undertaken by the previous administration and directsdirected the EPA Administrator to review and if appropriate suspend, revise, or rescind the Clean Power Plan, as well as other environmental regulations. On October 10, 2017,June 19, 2019, EPA issued a proposal toreleased the final Affordable Clean Energy rule. EPA is taking three separate actions in the final rule: (1) finalizes the repeal of the Clean Power Plan based on a legal interpretation of the CAA under which the Clean Power Plan exceeds EPA’s statutory authority. EPA published the proposed repeal rule on October 16, 2017 and accepted public comments through April 26, 2018. In addition, EPA published an advance 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. On August 31, 2018, EPA published a proposed rule, informally known asPlan; (2) finalizes the Affordable Clean Energy rule, to replacerule; and (3) revises the implementing regulations for all emission guidelines issued under Clean Power Plan. The Affordable Clean Energy rule proposes GHG reductions be achieved through heat-rate improvement technologies identified asAir Act Section 111(d) which, among other things, extends the timing of state plans. EPA set the Best System of EmissionEmissions Reduction (“BSER”). Under for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the proposedfence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states wouldto determine and propose to EPA which of the candidate technologies to apply to each coal-fired EGUunit and establish standards of performance based on the degree of emission reduction achievable throughbased on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the selected BSER (Note 11)plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval). The Company is reviewing the rule with respect to impacts to Four Corners. See Note 11.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution 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 estimatesdoes not expect SJGS or Four Corners will be subject to the Carbon Pollution Standards rule that implementationEPA has proposed to revise.

PNM’s review of the BART plan at SJGS, along with potentially exiting ownership in the remaining units at SJGS (as well as Four Corners), as discussed above, should provide significant steps for New Mexico to meet its ultimate compliance with Section 111(d)GHG emission reductions standards under the Clean Power Plan, the proposed Affordable Clean Energy rule or other replacement 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 is unable tocannot predict the impact of these mattersstandards may have on its generation portfolio.operations or a range of the potential costs of compliance, if any.

Major environmental upgrades on each of the units at SJGS have significantly reduced emissions of NOx, SO2, particulate matter, and mercury. Because of environmental upgrades completed in 2009, SJGS has a mercury removal efficiency of 98% and mercury emissions are well below the mercury limit imposed by EPA in the 20112012 Mercury and Air Toxics Standards. Major environmental upgrades on each of the units at SJGS have significantly reduced emissions of NOx, SO2, particulate matter, and mercury. Between 2006 and 2017,2018, SJGS has reduced emissions of NOx by 41%77%, SO2 by 70%92%, particulate matter by 61%88%, and mercury by 98%99%. In addition, the installation of SCRs at Four Corners significantly reduces emissions from the facility.
Renewable Energy
PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As discussed above,of September 30, 2019, PNM is also considering the use of additional energy storage capacity in the event of an early retirement of SJGS. As of December 31, 2017, PNM had 107has 137 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 95.9121.2 MW at September 30, 2018.2019. 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. 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 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 20172018 renewable energy procurement plan meets RPS and diversity requirements for 20172018 and 2018 using existing resources and does not propose any significant new procurements. PNM’s 2018 renewable energy procurement plan requested approval to procure an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-poweringincludes additional procurements of New Mexico Wind; approval to procure an additional 55 GWh in 2019wind, geothermal, 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. On November 15, 2017, the NMPRC issued an order approvingsolar-PV capacity. PNM’s plan. 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 50 MW of new solar facilities indicating, among other things, that PNM’s RFP process favored ownership of the 50 MW facilities compared to PPAs. PNM and other parties have been granted approval to intervene in the case. On February 27, 2018, the court issued an order denying a motion by NMIEC for a partial stay. PNM and the NMPRC each filed Answer Briefs to the NM Supreme Court on September 4, 2018 stating, among other things, that there is substantial evidence in the case record to support the NMPRC’s decision, and that PNM’s RFP process was reasonable, complied with RPS requirements, and consistent with industry standards. NEE’s Reply Brief was filed on October 15, 2018. On June 1, 2018, PNM filed its 2019 renewable energy procurement plan which meets RPS and diversity requirements for 2019 and 2020 using resources already approved by the NMPRC and does not proposeinclude any significant new procurements. Hearings on PNM’s 20192020 renewable energy procurement plan were held in September and October 2018. On October 29, 2018, PNM andrequests NMPRC staff filed a joint proposed recommended decision requesting the NMPRC accept PNM’s 2019approval to procure 140 MW of renewable energy procurementand RECs from La Joya Wind beginning in 2021.

plan filing provided PNM agree to certain requirements. See Note 12. PNM cannot predict the outcome of these matters.


As discussed in Strategic Investments above, PNM is currently purchasing the output of 30 MW of solar capacity from NMRD that is used to serve thea Facebook data center. 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 data center. These PPAs include the purchase of the power and RECs from a 50 MW wind project, to be operational by 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. The NMPRC approved these PPAs on March 21, 2018. 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. These PPAs also require approval by FERC. Subject to FERC approval,The first 50 MW of these facilities areis expected to beginbe placed in commercial operation in November 2019 and the remaining capacity is expected to be placed in commercial operation by June 2020 (Note 12).2020. See Note 12.
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. 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 plays a significant role in helping to keep customers’ electricity costs low while meeting their energy needs and is one of the Company’s approaches to supporting environmentally responsible power. PNM’s and TNMP’s energy efficiency and load management portfolios continue to achieve robust results. In 2017,2018, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs was approximately 7472 GWh. This is equivalent to the annual consumption of approximately 11,00010,300 homes in PNM’s service territory. PNM’s load management and annual energy efficiency programs also help lower peak demand requirements. In 2017,2018, TNMP’s incremental energy saved as a result of new participation

in TNMP’s energy efficiency programs was approximately 2117 GWh. This is equivalent to the annual consumption of approximately 2,3001,500 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. In April 2018, TNMP received the “Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program.
Water Conservation and Solid Waste Reduction
PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 20% 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, as water consumption at that plant has been reduced by approximately 50%. Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy.
In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2017, 182018, 19 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 building productive relationships with stakeholders, including customers, community partners, regulators, intervenors, legislators, and shareholders. PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including billing and paymentcustomer service options, strategic customer engagement, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers.
The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM’s website, www.pnm.com, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. The Company’s website is also a resource for information about PNM’s operations and community outreach efforts, including plans for building a sustainable energy future for New Mexico and to transition to an emissions-free generating portfolio by 2040. PNM has also leveraged social media in communications with customers on various topics such as education, outage alerts, safety, customer service, and PNM’s community partnerships in philanthropic projects. In May 2017, a chat function was added to PNM’s website

to allow customers options when communicating with customer service representatives and an online management system was launched to expedite applications for solar interconnections. The website continues to be a resource for the facts about PNM’s operations and community support efforts, including plans for building a sustainable energy future for New Mexico. In September 2016, 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 presented under fourthe additional headings: Environment, Generation Portfolio, Social, Economic, and Governance.
With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. In August 2017, Hurricane Harvey made landfall in the gulf coast region and TNMP employees worked 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 electricity consumers to ensure that these stakeholders are updated on companyCompany investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs.


PNMR has a long tradition of supporting the communities it serves in New Mexico and Texas. The Company demonstrates its core value of caring through the PNM Resources Foundation, corporate giving, 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 innovate or sustain programs to grow and develop business, help create community spaces for public use,develop and implement environmental programs, and provide educational opportunities supporting economic development.opportunities. PNMR also provides employee matching and volunteer grants for various purposes. In 2017, “A New Century

Over the past six years, the Company has contributed a total of Service” grants, which celebrate PNM’s 100th anniversary, funded 62 community projectsmore than $7.0 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. In early 2018, the PNM Resources Foundation awarded five grants of $0.2 million each, to be paid over two years, to a number of not-for-profit organizations to support their efforts in areas such as assisting businesses, supporting education,its service territories and other economic development efforts. Recipients included the New Mexico State University College of Engineering, to support education for professional surveyors and for other economic and development educational opportunities.

PNM provides funds to support nonprofits in New Mexico focused in the areas of economic development, education, and the environment.communities. One of PNM’s most important outreach programs is tailored for low-income customers. In 2017,2018, PNM hosted 4450 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 million of assistance with electric bills to 3,8043,811 families in 20172018 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 8002018, PNM and TNMP employees and retirees contributed approximately 10,80011,500 volunteer hours serving their local communities. Company volunteers also actively participate on nonprofit boards, in educational, economic, and environmental forums, as well as safety seminars. PNMR employees are, in large part, responsible for the success of the Company’s customer, stakeholder, and community outreach.
Economic Factors
PNM –In the three and nine months ended September 30, 20182019, PNM experienced an increase in weather-normalized retail load of 1.1% and 0.4%0.3% compared to 2017, reflecting New Mexico’s overall economy, along2018. PNM’s retail load increased in the industrial class, which was offset by decreases in the residential and commercial classes. In the nine months ended September 30, 2019, PNM’s weather normalized retail load was flat compared to 2018, which was driven by increased load in the residential and industrial classes offset by decreases in the commercial class. PNM’s retail load benefited from warmer weather conditions in the third quarter of 2019 compared to 2018. Economic conditions in Albuquerque continue to have a positive trend in 2019 with PNM’s successful energy efficiency programsmore announcements of businesses moving to the state or expanding and increases in distributed generation. Theboth the private and public sectors adding jobs. Following the announcement of Netflix, Inc. coming to New Mexico economy appearslast year, NBCUniversal announced in June 2019 a 10-year venture in Albuquerque, New Mexico. In addition, Sandia National Laboratories announced in May 2019 that it plans to be strengthening as there ishire 1,900 employees by year-end, and another of PNM’s customers announced that it plans to add over 300 jobs in central New Mexico. PNM continues to see steady customer growth in personal incomeits service territories and the state’s finances are stronger. Employment growth in AlbuquerqueState of New Mexico continues to riseexperience steady job growth.
TNMP –In the three and is coming closernine months ended September 30, 2019, TNMP experienced a decrease in volumetric weather-normalized retail load of 2.9% and 2.0% compared to the national average as the state continues efforts to spur economic growth2018. Demand-based load, excluding retail transmission customers, increased 5.4% and attract jobs. PNM’s customer growth of 0.9% and 0.8%4.3% in the three and nine months ended September 30, 2018 reflects these factors, including some of the previously announced successful economic development efforts.

TNMP –In the three and nine months ended September 30, 2018, TNMP experienced an increase in volumetric weather normalized retail load of 4.1% and 3.2%2019 compared to 2017. Most of TNMP’s industrial and larger commercial customers are billed based on their peak demand. Demand-based load, excluding retail transmission customers, increased 7.0% and 6.4% in the three and nine months ended September 30, 2018 compared to 2017. Economic and business growth in Texas continues to outpace the rest of the country.2018. TNMP continues to see strong demandexperience increases in itsnew service territories, particularly with new transmission interconnection requests, inalthough the West Texas region where oil and gas production continues to grow and in the Gulf Coast area for load additions related to petroleum refineries.timing of some interconnections that were expected this year have been delayed.
Results of Operations
Net earnings (loss) attributable to PNMR were $140.7$45.6 million, or $1.76$0.57 per diluted share in the nine months ended September 30, 20182019 compared to $134.2$140.7 million, or $1.67$1.76 per diluted share in 2017.2018. Among other things, earnings in the nine months ended September 30, 20182019 benefited from additional revenues due to theretail rate increaseincreases approved in thePNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case, higher demand-based revenues at PNM,TNMP, higher revenuesincome from new transmission customersinvestment securities held in the NDT and FERC formula transmission rates at PNM,coal mine reclamation trusts, and lower interest expense at PNM, rate increases and increased load at TNMP, warmer weather at PNM and TNMP in the summer of 2018 and colder weather at TNMP in early 2018, and reduced income tax expense due to the reduced federal corporate income tax rate and the amortization of excess deferred income taxes ordered by the NMPRC.PNM. These increases were more than offset by reduced revenuesmild weather conditions at PNM, due to powerregulatory disallowances resulting from PVNGS Unit 3 not being sold into the wholesale market,NM Supreme Court’s May 2019 opinion in PNM’s appeal of the NMPRC’s decisions in the NM 2015 Rate Case, lower transmission cost of service revenues as a result of a reallocation of costs in TNMP’s 2018 Rate Case, higher plant maintenance costsemployee related expenses at PNM increased operating expense due to the additional 197 MW of ownership in SJGS Unit 4 (offset by reduced expenses from the shutdown of SJGS Units 2 and 3),TNMP, increased depreciation and property taxes due to increased plant in service at PNM and TNMP, as well as increased depreciation rates resulting from TNMP’s 2018 Rate Case, and lower gainsinterest income on the sales of investment securitiesWestmoreland Loan at PNM.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 thatwith capacities of $300.0 million and $400.0 million and currently expire in October 2022. In July 2018, the PNMR Revolving Credit Facility was amended to2023. Both facilities provide for two one-year extension options,short-term borrowings and letters of credit and can be extended through October 2024, subject to approval by a majority of the lenders. In October 2018, the PNM Revolving Credit Facility was amended to add two one-year extension options, subject to approval by a majority of the lenders. As a result, PNMR and PNM have the opportunity to extend the facilities through October 2024. The PNMR and PNM facilities have capacities of $300.0 million and $400.0 million through October 2020 and $290.0 million and $360.0 million beginning November 2020. Both facilities provide for short-term borrowings and letters of credit. In addition, PNM has a $40.0 million revolving credit facility which expires in December 2022, with banks having a significant presence in New Mexico, which expires in December 2022, and TNMP has a $75.0 million revolving credit facility, which expires in September 2022. On February 26, 2018, PNMR Development entered intohas a $24.5 million 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 matures onexpires in February 25, 2019.2020.

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 $653.7$714.1 million at October 30, 2018.25, 2019. 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 $2,984.5$4,381.3 million for 2018-2022,2019-2023, including amounts expended through September 30, 2018.2019. The construction expenditures include estimated amounts for environmental upgrades at Four Corners, 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, and an anticipated expansion of PNM’s transmission system.system, including the planned purchase of the Western Spirit Line, and proposed replacement generation resources included in PNM’s SJGS Abandonment Application.


In July 2017,On January 18, 2019, PNM entered into the $250.0 million PNM 2017 Senior Unsecured Note Agreement, under2019 Term Loan, which $350.0 million of the PNM 2018 SUNs were issued in May 2018bears interest at a variable rate and the remaining $100.0 million were issued inmust be repaid on or before July 2018. The proceeds17, 2020. Proceeds from these issuancesthis issuance were used to repay $450.0 million of SUNs on their maturity dates. In March 2018, PNMR issued $300.0 million of 3.25% PNMR 2018 SUNs, which will mature on March 9, 2021. Proceeds from the issuance of the PNMR 2018 SUNs were used to repay a $150.0 million term loan andPNM 2017 Term Loan, short-term borrowings under the PNMRPNM Revolving Credit Facility.Facility, and for general corporate purposes. On June 28, 2018,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 $60.0$225.0 million of TNMP 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 which will matureat their maturity on June 28, 2028April 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 reducerepay borrowings under the TNMP Revolving Credit Facility. On July 25, 2018, TNMP entered into the $20.0 million TNMP 2018 Term Loan Agreement that is due on July 25, 2020 and used the proceeds to reduce short-term borrowingsFacility and for general corporate purposes. See discussion of PNM’s SJGS Abandonment Application in Note 12, 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 thosethese financings, PNMRthe Company has consolidated maturities of long-term and other repayments of short-term and long-term debt aggregating $572.3$535.3 million in the period from November 1, 2019 through October 1, 2018 through September 30, 2019. Furthermore, the $24.531, 2020, and an additional $440.0 million PNMR Development revolving credit facility expires in February 2019.that 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 2018-20222019-2023 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. The Company is in compliance with its debt covenants.


RESULTS OF OPERATIONS


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


A summary of net earnings attributable to PNMR is as follows:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change2019 2018 Change 2019 2018 Change
(In millions, except per share amounts)(In millions, except per share amounts)
Net earnings attributable to PNMR$87.5
 $73.7
 $13.8
 $140.7
 $134.2
 $6.5
$102.8
 $87.5
 $15.3
 $45.6
 $140.7
 $(95.1)
Average diluted common and common equivalent shares80.0
 80.2
 (0.2) 80.0
 80.1
 (0.1)80.0
 80.0
 —
 80.0
 80.0
 —
Net earnings attributable to PNMR per diluted share$1.09
 $0.92
 $0.17
 $1.76
 $1.67
 $0.09
$1.28
 $1.09
 $0.19
 $0.57
 $1.76
 $(1.19)


The components of the change in net earnings attributable to PNMR are:
Three Months Ended Nine Months EndedThree Months Ended Nine Months Ended
September 30, 2018 September 30, 2018September 30, 2019 September 30, 2019
(In millions)(In millions)
PNM$16.7
 $7.6
$3.3
 $(98.8)
TNMP1.4
 6.4
9.0
 3.6
Corporate and Other(4.3) (7.4)3.0
 0.1
Net change$13.8
 $6.5
$15.3
 $(95.1)


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


Segment Information


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



PNM


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


The following table summarizes the operating results for PNM:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change2019 2018 Change 2019 2018 Change
(In millions)(In millions)
Electric operating revenues$331.4
 $327.3
 $4.1
 $832.1
 $854.9
 $(22.8)$331.1
 $331.4
 $(0.3) $838.6
 $832.1
 $6.5
Cost of energy92.4
 82.4
 10.0
 229.5
 246.6
 (17.1)84.9
 92.4
 (7.5) 243.1
 229.5
 13.6
Utility margin239.0
 244.9
 (5.9) 602.6
 608.3
 (5.7)246.2
 239.0
 7.2
 595.5
 602.6
 (7.1)
Operating expenses98.0
 92.7
 5.3
 305.6
 281.9
 23.7
97.2
 98.0
 (0.8) 459.2
 305.6
 153.6
Depreciation and amortization38.5
 36.8
 1.7
 113.3
 109.2
 4.1
40.5
 38.5
 2.0
 119.6
 113.3
 6.3
Operating income102.5
 115.4
 (12.9) 183.7
 217.2
 (33.5)108.5
 102.5
 6.0
 16.8
 183.7
 (166.9)
Other income (deductions)6.0
 6.0
 —
 9.9
 20.0
 (10.0)4.3
 6.0
 (1.7) 30.0
 9.9
 20.1
Interest charges(18.1) (20.5) 2.4
 (58.9) (62.4) 3.5
(18.5) (18.1) (0.4) (55.4) (58.9) 3.5
Segment earnings before income taxes90.4
 100.9
 (10.5) 134.7
 174.7
 (40.0)
Income (taxes)(9.0) (35.6) 26.6
 (11.0) (58.9) 47.9
Segment earnings (loss) before income taxes94.2
 90.4
 3.8
 (8.6) 134.7
 (143.3)
Income (taxes) benefit(9.5) (9.0) (0.5) 32.0
 (11.0) 43.0
Valencia non-controlling interest(3.9) (4.5) 0.6
 (11.7) (11.5) (0.2)(3.9) (3.9) —
 (10.2) (11.7) 1.5
Preferred stock dividend requirements(0.1) (0.1) —
 (0.4) (0.4) —
(0.1) (0.1) —
 (0.4) (0.4) —
Segment earnings$77.4
 $60.7
 $16.7
 $111.6
 $104.0
 $7.6
$80.7
 $77.4
 $3.3
 $12.8
 $111.6
 $(98.8)



The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:
Three Months Ended September 30, 
Nine Months Ended
September 30,
Three Months Ended September 30, Nine Months Ended September 30,
    Percentage     Percentage    Percentage     Percentage
2018 2017 Change 2018 2017 Change2019 2018 Change 2019 2018 Change
(Gigawatt hours, except customers)(Gigawatt hours, except customers)
Residential996.4
 978.5
 1.8 % 2,495.5
 2,439.0
 2.3 %1,023.9
 996.4
 2.8 % 2,480.1
 2,495.5
 (0.6)%
Commercial1,065.5
 1,058.6
 0.7
 2,917.0
 2,883.4
 1.2
1,079.7
 1,065.5
 1.3
 2,841.6
 2,917.0
 (2.6)
Industrial229.9
 218.4
 5.3
 645.7
 640.5
 0.8
313.8
 229.9
 36.5
 830.1
 645.7
 28.6
Public authority73.6
 73.2
 0.5
 185.1
 189.1
 (2.1)69.1
 73.6
 (6.1) 172.8
 185.1
 (6.6)
Economy energy service (1)
160.4
 174.8
 (8.2) 503.4
 542.8
 (7.3)169.5
 160.4
 5.7
 490.3
 503.4
 (2.6)
Firm-requirements wholesale (2)
—
 22.1
 (100.0) —
 65.5
 (100.0)
Other sales for resale (3)
644.8
 821.7
 (21.5) 1,805.0
 2,731.7
 (33.9)
Other sales for resale856.2
 644.8
 32.8
 2,215.3
 1,805.0
 22.7
3,170.6
 3,347.3
 (5.3)% 8,551.7
 9,492.0
 (9.9)%3,512.2
 3,170.6
 10.8 % 9,030.2
 8,551.7
 5.6 %
Average retail customers (thousands)526.9
 522.3
 0.9 % 525.8
 521.6
 0.8 %530.6
 526.9
 0.7 % 529.7
 525.8
 0.8 %


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


(2) Decrease in 2018 reflects the loss of NEC as a wholesale generation customer.

(3) Decrease in 2018 reflects that PVNGS Unit 3 is included as a New Mexico jurisdictional resource beginning January 1, 2018 rather than as merchant plant in 2017, partially offset by sales from PNM’s 65 MW merchant interest in SJGS Unit 4 (Note 11).


Operating Results – Three months endedMonths Ended September 30, 20182019 compared to 20172018


The following table summarizes the significant changes to utility margin:
   Three Months Ended
September 30, 2018
   Change
Utility margin: (In millions)
    
 
Rate relief – Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 (Note 12)
 $1.5
 
Retail Customer usage/load – Weather normalized KWh sales increased 1.1% due to increased sales to residential, commercial, industrial, and other customers
 2.0
 
Weather – Warmer weather in 2018; cooling degree days were 2.1% higher
 0.9
 
Transmission – The addition of new customers and higher revenues under formula transmission rates
 1.4
 
Wholesale contracts – Loss of NEC as a wholesale generation customer
 (0.6)
 
Unregulated margin – Primarily related to loss of PVNGS Unit 3 wholesale power sales
 (8.3)
 
Third party transmission cost – Transmission of power from PVNGS Unit 3 to serve New Mexico retail customers
 (2.0)
 
Rate riders – Includes renewable energy and energy efficiency riders, which are partially offset in operating expenses, depreciation and amortization, and interest charges
 (0.6)
 
Net unrealized economic hedges – Primarily related to 2017 hedges of PVNGS Unit 3 power sales and sales to NEC
 (0.1)
 Other (0.1)
 Net Change $(5.9)
   Three Months Ended September 30, 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 12)
 $1.7
 
Retail customer usage/load – Weather normalized KWh sales increased 0.3%, primarily due to increased sales to industrial customers, offset by decreased sales to residential and commercial customers
 (0.3)
 
Weather – Warmer weather in 2019; cooling degree days were 14.3% higher
 5.7
 
Transmission – Increase primarily due to the addition of new customers
 1.4
 
Rate riders – Includes renewable energy, fuel clause and energy efficiency
 1.4
 
Coal mine decommissioning – Decrease primarily due to remeasurement of PNM’s obligation for Four Corners coal mine reclamation (Note 11)
 (1.5)
 Other (1.2)
 Net Change $7.2


The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
   Three Months Ended
September 30, 2018
   Change
Operating expenses: (In millions)
   
 Higher plant maintenance and other costs at SJGS and gas-fired plants, partially offset by decreased costs at Four Corners $2.7
 Increased costs associated with additional 132 MW of SJGS Unit 4 and accelerated recovery of SNCRs on SJGS Units 1 and 4 3.9
 Increased costs associated with 65 MW of SJGS Unit 4 held as merchant plant beginning January 1, 2018 (Note 11) 1.5
 2018 regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 12) 0.9
 Higher property taxes due to increases in utility plant in service and higher assessed values 0.6
 Higher bad debt expense 0.2
 Higher employee related, outside service, and vegetation management expenses 1.3
 Lower capitalized administrative and general expenses due to lower construction spending in 2018 0.9
 Cost savings realized from the retirement of SJGS Units 2 and 3 (4.7)
 
2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring (Note 11)

 (2.5)
 Other 0.5
 Net Change $5.3

   Three Months Ended September 30, 2019
   Change
Operating expenses: (In millions)
   
 Lower plant maintenance costs at SJGS, PVNGS, and gas-fired plants, partially offset by higher plant maintenance costs at Four Corners $(1.3)
 Higher capitalized administrative and general expenses due to higher construction spending in 2019 (0.4)
 2018 regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s 2015 Rate Case (Note 12) (0.9)
 2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring of SJGS (Note 11) 2.5
 Lower property and casualty expense due to favorable claims experience (0.4)
 Other (0.3)
 Net Change $(0.8)
   Three Months Ended
September 30, 2018
   Change
Depreciation and amortization: (In millions)
   
 Increased utility plant in service $2.3
 Lower depreciation resulting from the retirement of SJGS Units 2 and 3, partially offset by amortization of the associated regulatory asset (Note 11) (1.0)
 Other 0.4
 Net Change $1.7
Depreciation and amortization:  
   
 Increased utility plant in service, including solar facilities under the renewable rider $1.4
 Other 0.6
 Net Change $2.0
Other income (deductions):  
   
 Lower gains on investment securities in the NDT and coal mine reclamation trusts, including the impact of a new accounting pronouncement (Note 7) $(2.9)
 Lower equity AFUDC (1.0)
 Lower non-service components of pension and OPEB expense 1.0
 Higher interest income and lower trust expenses related to investment securities in the NDT and coal mine reclamation trusts 2.4
 Other 0.5
 Net Change $—
Other income (deductions):  
   
 Lower gains on investment securities in the NDT and coal mine reclamation trusts $(0.8)
 Higher trust expenses related to investment securities in the NDT and coal mine reclamation trusts (0.7)
 Other (0.2)
 Net Change $(1.7)
Interest charges:  
   
 Lower interest on $350.0 million of SUNs refinanced in May 2018 $3.9
 Lower interest on $100.0 million of SUNs refinanced in August 2018 0.5
 Lower debt AFUDC (0.5)
 Higher interest on term loan agreements (0.5)
 Interest on deposit by PNMR Development for potential transmission interconnections (0.8)
 Other (0.2)
 Net Change $2.4
Interest charges:  
   
 Lower interest on $100.0 million of SUNs refinanced in August 2018 $0.3
 Higher interest on term loan agreements (0.4)
 Interest on deposit by PNMR Development for potential transmission interconnections, which is offset in Corporate and Other (0.2)
 Other (0.1)
 Net Change $(0.4)
Income taxes:  
   
 Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes $15.5
 Amortization of excess deferred income taxes, as ordered by the NMPRC in PNM’s NM 2016 Rate Case 12.7
 Increase due to lower excess tax benefits related to stock compensation awards (Note 8) (0.2)
 Higher effective tax rate resulting from lower equity AFUDC (0.4)
 Other (1.0)
 Net Change $26.6
Income (taxes) benefits:  
   
 Higher segment earnings before income taxes $(1.0)
 Amortization of excess deferred income taxes (Note 14) 0.4
 Other 0.1
 Net Change $(0.5)



Operating Results – Nine months endedMonths Ended September 30, 2018 2019compared to 20172018


The following table summarizes the significant changes to utility margin:
   Nine Months Ended
September 30, 2018
   Change
Utility margin: (In millions)
    
 
Rate relief – Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 (Note 12)
 $3.5
 
Retail Customer usage/load – Weather normalized KWh sales increased 0.4% due to increased sales to commercial and industrial customers
 1.9
 
Weather – Warmer weather in 2018; cooling degree days were 13.4% higher and heating degree days were 10.5% higher
 6.7
 
Transmission – The addition of new customers and higher revenues under formula transmission rates
 8.2
 
Wholesale contracts – Loss of NEC as a wholesale generation customer
 (1.7)
 
Unregulated margin – Primarily related to loss of PVNGS Unit 3 wholesale power sales
 (19.7)
 
Third party transmission cost – Transmission of power from PVNGS Unit 3 to serve New Mexico retail customers
 (5.6)
 
Rate riders – Includes renewable energy and energy efficiency riders, which are partially offset in operating expenses, depreciation and amortization, and interest charges
 0.2
 
Net unrealized economic hedges – Primarily related to 2017 hedges of PVNGS Unit 3 power sales and sales to NEC
 0.9
 Other (0.1)
 Net Change $(5.7)
   Nine Months Ended September 30, 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 12)
 $4.8
 
Retail customer usage/load – Weather normalized KWh sales were flat due to decreased sales to commercial customers, partially offset by increased sales to residential and industrial customers
 (1.3)
 
Weather – Milder weather in 2019; cooling degree days were 12.9% lower
 (5.5)
 
Transmission – Increase primarily due to the addition of new customers, partially offset by lower revenues under formula transmission rates
 0.8
 
Rate riders – Includes renewable energy, fuel clause and energy efficiency riders
 (2.6)
 
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 11)
 (2.2)
 Other (1.1)
 Net Change $(7.1)


The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
   Nine Months Ended
September 30, 2018
   Change
Operating expenses: (In millions)
   
 Higher plant maintenance and other costs at SJGS, Four Corners, and gas-fired plants $17.5
 Increased costs associated with additional 132 MW of SJGS Unit 4 and accelerated recovery of SNCRs on SJGS Units 1 and 4 10.9
 Increased costs associated with 65 MW of SJGS Unit 4 held as merchant plant beginning January 1, 2018 (Note 11) 4.2
 2018 regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 12) 2.7
 Higher property taxes due to increases in utility plant in service and higher assessed values 2.2
 Higher employee related, outside service, and vegetation management expenses 1.8
 Higher bad debt expense 0.8
 Lower capitalized administrative and general expenses due to lower construction spending in 2018 1.6
 Cost savings realized from the retirement of SJGS Units 2 and 3 (13.9)
 2017 training costs associated with new software implementation (1.1)
 2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring (Note 11) (2.5)
 Other (0.5)
 Net Change $23.7
   Nine Months Ended September 30, 2019
   Change
Operating expenses: (In millions)
   
 Lower plant maintenance costs at Four Corners and PVNGS, partially offset by higher plant maintenance costs at SJGS and gas-fired plants $(0.5)
 Higher capitalized administrative and general expenses due to higher construction spending in 2019 (1.1)
 Accelerated recovery of SNCR technology on SJGS Units 1 and 4 0.3
 Regulatory disallowance resulting from the NM Supreme Court’s May 2019 decision in PNM’s appeal of the NM 2015 Rate Case (Note 12) 147.9
 2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring (Note 11) 2.5
 Higher employee related, outside service, and vegetation management expenses 5.7
 Other (1.2)
 Net Change $153.6
Depreciation and amortization:  
   
 Increased utility plant in service, including solar facilities under the renewable rider $4.5
 Higher depreciation resulting from amortization of stranded costs associated with the retirement of SJGS Units 2 and 3 0.5
 Other 1.3
 Net Change $6.3

   Nine Months Ended
September 30, 2018
   Change
Depreciation and amortization: (In millions)
   
 Increased utility plant in service $6.6
 Lower depreciation resulting from the retirement of SJGS Units 2 and 3, partially offset by amortization of the associated regulatory asset (Note 11) (3.6)
 Other 1.1
 Net Change $4.1
   Nine Months Ended September 30, 2019
   Change
Other income (deductions): (In millions)
   
 Higher gains on investment securities in the NDT and coal mine reclamation trusts $19.2
 Lower equity AFUDC (0.6)
 Higher interest income and lower trust expenses related to investment securities in the NDT and coal mine reclamation trusts 1.8
 Other (0.3)
 Net Change $20.1
Other income (deductions):  
   
 Lower gains on investment securities in the NDT and coal mine reclamation trusts, including the impact of a new accounting pronouncement (Note 7) $(16.6)
 Lower equity AFUDC (0.4)
 2017 interest income from third-party transmission service provider due to FERC ruling (1.0)
 Lower non-service components of pension and OPEB expense 3.3
 Higher interest income and lower trust expenses related to investment securities in the NDT and coal mine reclamation trusts 3.8
 Other 0.9
 Net Change $(10.0)
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
 Lower debt AFUDC (0.9)
 Higher interest on term loan agreements (1.8)
 Interest on deposit by PNMR Development for potential transmission interconnections, which is offset in Corporate and Other (Note 9) (1.4)
 Other (0.1)
 Net Change $3.5
Interest charges:  
   
 Lower interest on $350.0 million of SUNs refinanced in May 2018 $5.7
 Lower interest on $100.0 million of SUNs refinanced in August 2018 0.5
 Lower interest on $57.0 million of PCRBs refinanced in June 2017 0.5
 Higher interest on term loan agreements (1.7)
 Interest on deposit by PNMR Development for potential transmission interconnections (1.5)
 Net Change $3.5
Income (taxes) benefits:  
   
 Lower segment earnings before income taxes $36.0
 Amortization of excess deferred income taxes due to lower segment earnings before income taxes, excluding discrete items (Note 14) 0.3
 Reversal of excess deferred income taxes resulting from regulatory disallowances in the NM 2015 Rate Case (Note 12) 7.5
 Increase due to lower excess tax benefits related to stock compensation awards (Note 8) (0.5)
 Other (0.3)
 Net Change $43.0
Income taxes:  
   
 Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes $32.1
 Amortization of excess deferred income taxes, as ordered by the NMPRC in PNM’s NM 2016 Rate Case 18.5
 Increase due to lower excess tax benefits related to stock compensation awards (Note 8) (0.7)
 Higher effective tax rate resulting from lower equity AFUDC (1.1)
 Other (0.9)
 Net Change $47.9



TNMP


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


The following table summarizes the operating results for TNMP:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change2019 2018 Change 2019 2018 Change
(In millions)(In millions)
Electric operating revenues$91.3
 $92.6
 $(1.3) $260.7
 $257.5
 $3.2
$102.5
 $91.3
 $11.2
 $274.8
 $260.7
 $14.1
Cost of energy21.2
 21.4
 (0.2) 64.3
 64.2
 0.1
23.8
 21.2
 2.6
 71.0
 64.3
 6.7
Utility margin70.1
 71.3
 (1.2) 196.5
 193.3
 3.2
78.7
 70.1
 8.6
 203.8
 196.5
 7.3
Operating expenses25.1
 25.4
 (0.3) 73.6
 72.2
 1.4
24.1
 25.1
 (1.0) 73.3
 73.6
 (0.3)
Depreciation and amortization17.2
 16.4
 0.8
 49.7
 47.4
 2.3
22.0
 17.2
 4.8
 62.7
 49.7
 13.0
Operating income27.8
 29.5
 (1.7) 73.2
 73.7
 (0.5)32.6
 27.8
 4.8
 67.8
 73.2
 (5.4)
Other income (deductions)1.2
 1.2
 —
 3.1
 2.4
 0.7
1.8
 1.2
 0.6
 3.1
 3.1
 —
Interest charges(8.2) (7.7) (0.5) (23.8) (22.6) (1.2)(7.0) (8.2) 1.2
 (22.4) (23.8) 1.4
Segment earnings before income taxes20.7
 23.0
 (2.3) 52.5
 53.5
 (1.0)27.3
 20.7
 6.6
 48.4
 52.5
 (4.1)
Income (taxes)(4.6) (8.3) 3.7
 (11.6) (19.0) 7.4
(2.2) (4.6) 2.4
 (4.0) (11.6) 7.6
Segment earnings$16.1
 $14.7
 $1.4
 $40.9
 $34.5
 $6.4
$25.1
 $16.1
 $9.0
 $44.5
 $40.9
 $3.6


The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
Three Months Ended September 30, 
Nine Months Ended
September 30,
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
    Percentage     Percentage    Percentage     Percentage
2018 2017 Change 2018 2017 Change2019 2018 Change 2019 2018 Change
Volumetric load (1) (GWh)
  
Residential1,005.0
 983.8
 2.2% 2,452.0
 2,295.2
 6.8 %1,051.0
 1,005.0
 4.6 % 2,406.1
 2,452.0
 (1.9)%
Commercial and other8.3
 8.3
 —
 24.3
 26.0
 (6.5)8.2
 8.3
 (1.2) 23.6
 24.3
 (2.9)
Total volumetric load1,013.3
 992.1
 2.2% 2,476.3
 2,321.2
 6.7 %1,059.2
 1,013.3
 4.5 % 2,429.7
 2,476.3
 (1.9)%
Demand-based load (2) (MW)
4,887.8
 4,443.6
 10.0% 13,540.8
 12,359.8
 9.6 %5,003.2
 4,887.8
 2.4 % 14,312.7
 13,540.8
 5.7 %
Average retail consumers (thousands) (3)
252.2
 249.0
 1.3% 251.1
 247.9
 1.3 %255.7
 252.2
 1.4 % 254.8
 251.1
 1.5 %


(1) Volumetric load consumers are billed on KWh usage.

(2) Demand-based load includes consumers billed on monthly KW peak and also includes retail transmission customers that are primarily billed under TNMP’s rate riders.

(3) TNMP provides transmission and distribution services to REPs that provide electric service to their customers in TNMP’s service territories. The number of consumers above represents the customers of these REPs. Under TECA, consumers in Texas have the ability to choose any REP to provide energy.



Operating Results – Three months endedMonths Ended September 30, 20182019 compared to 20172018


The following table summarizes the significant changes to utility margin:
   Three Months Ended
September 30, 2018
   Change
Utility margin: (In millions)
    
 
Rate relief – Transmission cost of service rate increases in September 2017 and March 2018
 $0.9
 
Retail customer usage/load – Weather normalized KWh sales increased 4.1%; the average number of retail consumers increased 1.3%
 0.8
 
Demand based customer usage/load – Higher demand-based revenues for large commercial and industrial retail consumers; billed demand, excluding retail transmission customers, increased 7.0%
 1.2
 
Weather – Milder weather in 2018; cooling degree days were 0.8% lower in 2018
 (0.4)
 
Rate Riders – Impacts of rate riders, including the AMS surcharge, CTC surcharge, energy efficiency rider, and transmission cost recovery factor
 (2.4)
 
Revenue subject to refund – Amounts deferred as a regulatory liability for the impact of the reduction in the federal corporate income tax rate (Note 12)
 (1.5)
 Other 0.2
 Net Change $(1.2)
   Three Months Ended September 30, 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 12)
 $4.1
 
Transmission rate relief – Increase in transmission cost of service rates primarily resulting from current year filings, net of changes resulting from the TNMP 2018 Rate Case (Note 12)
 0.6
 
Retail customer usage/load – Weather normalized KWh sales decreased 2.9%; the average number of retail consumers increased 1.4%
 (0.7)
 
Demand-based customer usage/load – Higher demand-based revenues for large commercial and industrial customers; billed demand excluding retail transmission customers increased 5.4%
 0.9
 
Weather – Warmer weather in 2019; cooling degree days were 9.8% higher in 2019
 1.8
 
Rate Riders – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, and transmission cost recovery factor
 1.9
 Net Change $8.6

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
   Three Months Ended September 30, 2019
   Change
Operating expenses: (In millions)
   
 Higher employee related expenses $0.2
 Lower vegetation management expenses (0.5)
 Higher capitalization of administrative and general and other expenses due to higher construction expenditures (1.0)
 Higher property taxes due to increased utility plant in service 0.2
 Other 0.1
 Net Change $(1.0)
Depreciation and amortization:  
   
 Increased utility plant in service $1.8
 Higher depreciation rates approved in the TNMP 2018 Rate Case 2.5
 Amortization of AMS and Hurricane Harvey regulatory assets approved in the TNMP 2018 Rate Case 0.6
 Other (0.1)
 Net Change $4.8

   Three Months Ended September 30, 2019
   Change
Other income (deductions): (In millions)
   
 Higher equity AFUDC $0.2
 Higher CIAC 0.3
 Other 0.1
 Net Change $0.6
Interest charges:  
   
 Repayment of $172.3 million 9.50% first mortgage bonds in April 2019 $4.1
 Issuance of $225.0 million first mortgage bonds in March 2019 (2.0)
 Issuance of $80.0 million first mortgage bonds in July 2019 (0.7)
 Issuance of $20.0 million term loan in July 2018 and $15.0 million in December 2018 (0.2)
 Net Change $1.2
Income (taxes) benefits:  
   
 Higher segment earnings before income taxes $(1.4)
 Amortization of excess deferred federal income taxes (Note 14) 4.2
 Other (0.4)
 Net Change $2.4

Operating Results – Nine Months Ended September 30, 2019 compared to 2018

The following table summarizes the significant changes to utility margin:
   Nine Months Ended September 30, 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 12)
 $6.5
 
Transmission rate relief – Decrease in transmission cost of service rates primarily resulting from the TNMP 2018 Rate Case offset by current year filings
 (1.0)
 
Retail customer usage/load – Weather normalized KWh sales decreased 2.0%; the average number of retail consumers increased 1.5%
 (1.2)
 
Demand-based customer usage/load - Higher demand-based revenues for large commercial and industrial customers; billed demand excluding retail transmission customers increased 4.3%
 2.4
 
Weather – Milder weather through the first two quarters in 2019 was offset by warmer weather in the third quarter
 (0.2)
 
Rate Riders – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, and transmission cost recovery factor
 0.8
 Net Change $7.3


The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
   Three Months Ended
September 30, 2018
   Change
Operating expenses: (In millions)
   
 Higher employee related expenses $0.5
 Higher capitalization of administrative and general expenses due to higher construction expenditures (1.9)
 Higher property taxes due to increased utility plant in service 0.4
 Higher allocated corporate depreciation, primarily related to computer software 0.2
 Higher costs associated with rate riders, primarily AMS 0.3
 Higher property and casualty expense, primarily due to unfavorable claims experience 0.3
 Other (0.1)
 Net Change $(0.3)
   Nine Months Ended September 30, 2019
   Change
Operating expenses: (In millions)
   
 Higher employee related expenses $1.6
 Higher capitalization of administrative and general and other expenses due to higher construction expenditures (2.1)
 Higher property taxes due to increased utility plant in service 0.7
 Lower vegetation management expenses (0.9)
 Other 0.4
 Net Change $(0.3)
Depreciation and amortization:  
   
 Increased utility plant in service $1.0
 Reduced CTC amortization and AMS depreciation (0.2)
 Net Change $0.8

Depreciation and amortization:  
   
 Increased utility plant in service $4.2
 Higher depreciation rates approved in the TNMP 2018 Rate Case 7.0
 Higher amortization of AMS and Hurricane Harvey regulatory assets approved in the TNMP 2018 Rate Case (Note 12) 1.6
 Other 0.2
 Net Change $13.0
   Three Months Ended
September 30, 2018
   Change
Other income (deductions): (In millions)
   
 Higher equity AFUDC $0.7
 Lower contributions in aid of construction (0.5)
 Other (0.2)
 Net Change $—
Other income (deductions):  
   
 Higher equity AFUDC $0.2
 Lower CIAC (0.2)
 Net Change $—
Interest charges:  
   
 Increase due to issuance of $60.0 million of long-term debt in June 2018 $(0.6)
 Increase due to issuance of $60.0 million of long-term debt in August 2017 (0.3)
 Increase due to issuance of $20.0 million term loan in July 2018 (0.2)
 Higher debt AFUDC 0.4
 Other 0.2
 Net Change $(0.5)
Interest charges:  
   
 Repayment of $172.3 million 9.50% first mortgage bonds in April 2019 $8.1
 Issuance of $225.0 million first mortgage bonds in March 2019 (4.1)
 Issuance of $80.0 million first mortgage bonds in July 2019 (0.7)
 Issuance of $60.0 million first mortgage bonds in June 2018 (1.2)
 Issuance of $20.0 million term loan in July 2018 and $15.0 million in December 2018 (0.7)
 Net Change $1.4
Income taxes:  
   
 Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes $3.8
 Increase due to lower excess tax benefits related to stock compensation awards (Note 8) (0.1)
 Net Change $3.7
Income (taxes) benefits:  
   
 Lower segment earnings before income taxes $0.8
 Amortization of excess deferred federal income taxes (Note 14) 7.4
 Other (0.6)
 Net Change $7.6

Operating Results – Nine months ended September 30, 2018 compared to 2017

The following table summarizes the significant changes to utility margin:
   Nine Months Ended
September 30, 2018
   Change
Utility margin: (In millions)
    
 
Rate relief – Transmission cost of service rate increases in March 2017, September 2017, and March 2018
 $3.6
 
Retail customer usage/load – Weather normalized KWh sales increased 3.2%; the average number of retail consumers increased 1.3%
 1.4
 
Demand based customer usage/load – Higher demand-based revenues for large commercial and industrial retail consumers; billed demand, excluding retail transmission customers, increased 6.4%
 3.0
 
Weather – Milder weather in 2017 than 2018; heating degree days were 82.1% higher in 2018
 1.8
 
Rate riders – Impacts of rate riders, including the AMS surcharge, CTC surcharge, energy efficiency rider, and transmission cost recovery factor
 (2.4)
 
Revenue subject to refund – Amounts deferred as a regulatory liability for the impact of the reduction in the federal corporate income tax rate (Note 12)
 (4.3)
 Other 0.1
 Net Change $3.2


The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
   Nine Months Ended
September 30, 2018
   Change
Operating expenses: (In millions)
   
 Higher employee related expenses $0.9
 Higher outside consulting costs, including vegetation management 0.9
 Training costs associated with new software implementation in 2017 (0.4)
 Higher costs associated with rate riders, primarily AMS 0.6
 Higher property taxes due to increased utility plant in service 1.1
 Higher property and casualty expense, primarily due to unfavorable claims experience 0.7
 Higher allocated corporate depreciation, primarily related to computer software 0.6
 Higher capitalization of administration and general expense due to higher construction expenditures (3.3)
 Other 0.3
 Net Change $1.4
Depreciation and amortization:  
   
 Increased utility plant in service $2.9
 Reduced CTC amortization and AMS depreciation (0.6)
 Net Change $2.3
Other income (deductions):  
   
 Higher equity AFUDC $1.3
 Lower contributions in aid of construction (0.4)
 Other (0.2)
 Net Change $0.7
Interest charges:  
   
 Increase due to issuance of $60.0 million of long-term debt in August 2017 $(1.3)
 Increase due to issuance of $60.0 million of long-term debt in June 2018 (0.6)
 Increase due to issuance of $20.0 million term loan in July 2018 (0.2)
 Higher debt AFUDC 0.9
 Net Change $(1.2)
Income taxes:  
   
 Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes $7.7
 Increase due to lower excess tax benefits related to stock compensation awards (Note 8) (0.3)
 Net Change $7.4



Corporate and Other


The table below summarizes the operating results for Corporate and Other:
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change2019 2018 Change 2019 2018 Change
(In millions)(In millions)
Electric operating revenues$—
 $—
 $—
 $—
 $—
 $—
$—
 $—
 $—
 $—
 $—
 $—
Cost of energy—
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
Utility margin—
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
Operating expenses(3.6) (5.4) 1.8
 (14.0) (15.3) 1.3
(5.3) (3.6) (1.7) (16.6) (14.0) (2.6)
Depreciation and amortization5.9
 5.6
 0.3
 17.4
 16.2
 1.2
5.8
 5.9
 (0.1) 17.5
 17.4
 0.1
Operating income (loss)(2.4) (0.2) (2.2) (3.4) (0.9) (2.5)(0.5) (2.4) 1.9
 (0.9) (3.4) 2.5
Other income (deductions)(0.2) 1.3
 (1.5) 2.1
 5.0
 (2.9)(0.3) (0.2) (0.1) (1.2) 2.1
 (3.3)
Interest charges(4.2) (4.0) (0.2) (14.2) (11.1) (3.1)(4.8) (4.2) (0.6) (14.0) (14.2) 0.2
Segment earnings (loss) before income taxes(6.7) (2.9) (3.8) (15.6) (7.1) (8.5)(5.6) (6.7) 1.1
 (16.1) (15.6) (0.5)
Income (taxes) benefit0.7
 1.2
 (0.5) 3.8
 2.7
 1.1
2.6
 0.7
 1.9
 4.4
 3.8
 0.6
Segment earnings (loss)$(6.0) $(1.7) $(4.3) $(11.8) $(4.4) $(7.4)$(3.0) $(6.0) $3.0
 $(11.7) $(11.8) $0.1


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. Operating expenses for the three and nine months ended September 30, 2018 includesinclude approximately $1.5 million in legal and consulting costs that were not allocated to PNM or TNMP. The change in depreciation expense primarily relates to additions to computer software. Substantially all depreciation and amortization expense isand other income (deductions) are offset in operating expenses as a result of allocation of these costs to other business segments.


Operating Results – Three months endedMonths Ended September 30, 20182019 compared to 20172018
 
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
   Three Months Ended
September 30, 2018
   Change
Other income (deductions): (In millions)
   
 Decrease in interest income on the Westmoreland Loan $(1.9)
 Equity in net earnings of NMRD 0.3
 Other 0.1
 Net Change $(1.5)
   Three Months Ended September 30, 2019
   Change
Other income (deductions): (In millions)
   
 Lower equity method investment income from NMRD $(0.1)
 Net Change $(0.1)
Interest charges:  
   
 Issuance of $300.0 million of PNMR 2018 SUNs in March 2018 (Note 9) $(2.2)
 Increase in interest expense on the PNMR 2016 Two-Year Term Loan (0.2)
 Repayment of $150.0 million PNMR 2015 Term Loan Agreement in March 2018 0.8
 Repayment of the BTMU Term Loan Agreement 0.8
 Elimination of intercompany interest (Note 9) 0.8
 Other (0.2)
 Net Change $(0.2)

Interest charges:  
   
 Issuance of $90.0 million PNMR Development Term Loan in November 2018 $(0.7)
 Issuance of $50.0 million PNMR 2018 Two-Year Term Loan (0.4)
 Repayment of $100.0 million PNMR 2016 Two-Year Term Loan 0.7
 Higher short-term borrowings (0.2)
 Elimination of intercompany interest 0.2
 Other (0.2)
 Net Change $(0.6)
   Three Months Ended
September 30, 2018
   Change
Income taxes: (In millions)
   
 Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods $(1.3)
 Decrease due to reduction in corporate income tax rate and larger segment loss before income taxes 0.6
 Other 0.2
 Net Change $(0.5)
Income (taxes) benefits:  
   
 Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods $2.4
 Lower segment loss before income taxes (0.3)
 Other (0.2)
 Net Change $1.9


Operating Results – Nine months endedMonths Ended September 30, 20182019 compared to 20172018
 
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
   Nine Months Ended
September 30, 2018
   Change
Other income (deductions): (In millions)
   
 Decrease in interest income on the Westmoreland Loan $(3.3)
 Donations (0.5)
 Equity in net earnings of NMRD 0.5
 Other 0.4
 Net Change $(2.9)
   Nine Months Ended September 30, 2019
   Change
Other income (deductions): (In millions)
   
 Decrease in interest income on the Westmoreland Loan $(2.7)
 Lower equity method investment income from NMRD (0.2)
 Increase in donations and other contributions (0.1)
 Other (0.3)
 Net Change $(3.3)
Interest charges:  
   
 Issuance of $300.0 million of PNMR 2018 SUNs in March 2018 (Note 9) $(5.5)
 Increase in interest expense on the PNMR 2016 Two-Year Term Loan (0.5)
 Higher short-term borrowings and interest rates (0.4)
 Repayment of $150.0 million PNMR 2015 Term Loan Agreement in March 2018 1.7
 Elimination of intercompany interest (Note 9) 1.5
 Other 0.1
 Net Change $(3.1)
Interest charges:  
   
 Issuance of $90.0 million PNMR Development Term Loan in November 2018 $(2.2)
 Issuance of $300.0 million PNMR 2018 SUNs in March 2018 (1.8)
 Repayment of $150.0 million PNMR 2015 Term Loan in March 2018 0.8
 Issuance of $50.0 million PNMR 2018 Two-Year Term Loan (1.2)
 Repayment of $100.0 million PNMR 2016 Two-Year Term Loan 1.8
 Lower short-term borrowings 0.1
 Repayment of the BTMU Term Loan in May 2018 1.8
 Elimination of intercompany interest 1.4
 Other (0.5)
 Net Change $0.2
Income taxes:  
   
 Decrease due to reduction in corporate income tax rate and larger segment loss before income taxes $1.2
 Impact of phased-in reduction in New Mexico corporate income tax rates 0.1
 Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods (0.3)
 Other 0.1
 Net Change $1.1
Income (taxes) benefits:  
   
 Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods $0.6
 Larger segment loss before income taxes 0.1
 Other (0.1)
 Net Change $0.6



LIQUIDITY AND CAPITAL RESOURCES


Statements of Cash Flows


The changes in PNMR’s cash flows for the nine months ended September 30, 20182019 compared to September 30, 20172018 are summarized as follows:
Nine Months Ended September 30,Nine Months Ended September 30,
2018 2017 Change2019 2018 Change
(In millions)(In millions)
Net cash flows from:          
Operating activities$316.9
 $416.3
 $(99.4)$351.3
 $316.9
 $34.4
Investing activities(326.5) (329.0) 2.5
(484.3) (326.5) (157.8)
Financing activities40.6
 (49.7) 90.3
151.0
 40.6
 110.4
Net change in cash and cash equivalents$31.0
 $37.6
 $(6.6)$18.0
 $31.0
 $(13.0)
Cash Flows from Operating Activities
Changes in PNMR’s cash flow from operating activities result from net earnings, adjusted for items impacting earnings that do not provide or use cash. See Results of Operations above. Certain changes in assets and liabilities resulting from normal operations, including the effects of the seasonal nature of the Company’s operations, also impact operating cash flows.    

Cash Flows from Investing Activities
The changes in PNMR’s cash flows from investing activities relate primarily to changes in utility plant additions. Cash flows from investing activities also include purchases and sales of investment securities in the NDT and coal mine reclamation trusts, including activity to rebalance the investment portfolio.portfolio in early 2018. In addition, cash flows from investing activities include activity related to the Westmoreland Loan, which was paid in full in May 2018, and NMRD. Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:
Nine Months Ended September 30,Nine Months Ended September 30,
2018 2017 Change2019 2018 Change
Cash (Outflows) for Utility Plant Additions(In millions)(In millions)
PNM:          
Generation$(47.5) $(36.6) $(10.9)$(50.3) $(47.5) $(2.8)
Renewables(49.6) —
 (49.6)
Transmission and distribution(100.8) (124.6) 23.8
(117.0) (100.8) (16.2)
Four Corners SCRs(7.3) (24.7) 17.4
—
 (7.3) 7.3
Nuclear fuel(21.9) (20.6) (1.3)(17.9) (21.9) 4.0
(177.5) (206.5) 29.0
(234.8) (177.5) (57.3)
TNMP:          
Transmission(78.0) (54.7) (23.3)(65.5) (78.0) 12.5
Distribution(92.8) (51.1) (41.7)(129.6) (92.8) (36.8)
AMS—
 (1.1) 1.1
(170.8) (106.9) (63.9)(195.1) (170.8) (24.3)
Corporate and Other:          
Computer hardware and software(17.2) (25.3) 8.1
(15.0) (17.2) 2.2
PNMR Development utility plant additions—
 (14.7) 14.7
(17.2) (40.0) 22.8
Total cash (outflows) for additions to utility and non-utility plant$(365.5) $(353.4) $(12.1)
Total cash (outflows) for additions to utility plant$(444.9) $(365.5) $(79.4)
          
Other Cash Flows from Investing Activities          
Proceeds from sales of investment securities$911.9
 $456.6
 $455.3
$375.3
 $911.9
 $(536.6)
Purchases of investment securities(920.2) (461.1) (459.1)(385.3) (920.2) 534.9
Principal payments on the Westmoreland Loan56.6
 28.8
 27.8
—
 56.6
 (56.6)
Investments in NMRD(9.0) —
 (9.0)(29.3) (9.0) (20.3)
Other, net(0.3) 0.1
 (0.4)(0.1) (0.3) 0.2
Total cash (outflows) from investing activities$(326.5) $(329.0) $2.5
$(484.3) $(326.5) $(157.8)



Cash Flow from Financing Activities
The changes in PNMR’s cash flows from financing activities include:
Short-term borrowings decreased $42.8increased $53.7 million in 20182019 compared to a decrease of $20.6$42.8 million in 2017,2018, resulting in a net decreaseincrease in cash flows from financing activities of $22.2$96.5 million
In 2019, PNM borrowed $250.0 million under the PNM 2019 Term Loan and used the proceeds to repay the $200.0 million PNM 2017 Term Loan
In 2019, TNMP issued $305.0 million of TNMP 2019 Bonds and used the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds
In 2018, PNMR issued $300.0 million aggregate principal amount of 3.250% SUNs and used the proceeds to repay the $150.0 million PNMR 2015 Term Loan Agreement and to reduce short-term borrowings
In 2018, PNM issued $350.0 million of SUNs and repaid $350.0 million of 7.95% of SUNs
NM Capital made principal payments on the BTMU Term Loan Agreement of $50.1 million in 2018 compared to $31.3 million in 2017
In 2018, PNM issued $350.0 million of SUNs and repaid $350.0 million of 7.95% of SUNs
In 2018, TNMP issued $60.0 million of 3.85% first mortgage bonds and used the proceeds to reduce short-term debtborrowings and for general corporate purposes
In 2018, TNMP borrowed $20.0 million under the TNMP 2018 Term Loan Agreement and used the proceeds to reduce short-term borrowings and for general corporate purposes
In 2018, PNM issued $100.0 million of SUNs and repaid $100.0 million of 7.50% of SUNs
In 2017, PNM successfully remarketed $57.0 million of outstanding PCRBs

Financing Activities


See Note 67 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K and Note 9 for additional information concerning the Company’s financing activities. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. The Company’s ability to access the credit and capital markets at a reasonable cost is largely dependent upon its:

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


Prior to July 2018, eachEach of the Company’s revolving credit facilities and term loans containedcontain a single financial covenant which requiredthat requires the maintenance of a debt-to-capitalization ratios ofratio. For the PNMR and PNMR Development agreements, this ratio must be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. In July 2018, the PNMR Revolving Credit Facility, the PNMR 2016 One-Year Term Loan (as extended), the PNMR 2016 Two-Year Term Loan, and the PNMR Development Revolving Credit Facility were each amended such that PNMR is now required to maintain a debt-to-capitalization ratio of less than or equal to 70%. The debt-to-capitalization ratio requirement remains at less than or equal to 65% for the PNM and TNMP agreements. The Company’s revolving credit facilities and term loans generally also includecontain customary covenants, events of default, cross-default provisions, and change-of-control provisions. The Company is in compliance with its debt covenants.

As discussed in Note 11, NM Capital, a wholly-owned subsidiary of PNMR, entered into the $125.0 million BTMU Term Loan Agreement with BTMU, as lender and administrative agent. The BTMU Term Loan Agreement had a maturity date of February 1, 2021 and bore interest at a rate based on LIBOR plus a customary spread. PNMR, as parent company of NM Capital, 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 to a ring-fenced, bankruptcy-remote, special-purpose entity subsidiary of Westmoreland to finance Westmoreland’s purchase of SJCC. On May 22, 2018, the full principal outstanding under the Westmoreland Loan of $50.1 million was repaid. NM Capital used a portion of the proceeds to repay all remaining principal of $43.1 million owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated. See Note 6.


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


On July 28, 2017,January 18, 2019, PNM entered into a $250.0 million term loan agreement (the “PNM 2019 Term Loan”) among PNM, the lenders identified therein, and U.S. Bank N.A., as administrative agent. PNM used the proceeds of the PNM 2019 Term Loan to repay the PNM 2017 Senior Unsecured NoteTerm Loan, to reduce short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. The PNM 2019 Term Loan bears interest at a variable rate and must be repaid on or before July 17, 2020.

On February 26, 2019, TNMP entered into the TNMP 2019 Bond Purchase Agreement with institutional investors for the sale of $450.0$305.0 million aggregate principal amount of eightfour series of SUNsTNMP first mortgage bonds (the “PNM 2018 SUNs”“TNMP 2019 Bonds”) offered in private placement transactions. In May 2018, PNMUnder the TNMP 2019 Bond Purchase Agreement, TNMP issued $350.0$225.0 million of the PNM 2018 SUNsTNMP 2019 Bonds on March 29, 2019 (at fixed annual interest rates ranging from 3.15%

3.79% to 4.50%4.06% for terms between 5 and 30ranging from 15 to 25 years) and used the proceeds to repay an equal amount of PNM’s 7.95% SUNs that maturedTNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on May 15, 2018. PNMApril 1, 2019, as well as to repay borrowings under the TNMP Revolving Credit Facility and for general corporate purposes. TNMP issued the remaining $100.0$80.0 million of the PNM 2018 SUNsTNMP 2019 Bonds on July 1, 2019 (at a fixed annual interest ratesrate of 3.78% and 4.60%3.60% for termsa term of 10 and 30ten years) on July 31, 2018 and used the proceeds to repay an equal amount of PNM’s 7.50% SUNs that matured on August 1, 2018.

On March 9, 2018, PNMR issued $300.0 million aggregate principal amount of 3.250% 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 Agreement and to reduce borrowings under the PNMRTNMP Revolving Credit Facility.

On February 26, 2018, PNMR Development entered intoFacility and for general corporate purposes. The terms of the TNMP 2019 Bonds contain customary covenants, including a $24.5 million revolving credit facilitycovenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP will have the right to redeem any or all of the TNMP 2019 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium. In accordance 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 expires 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 DevelopmentGAAP, borrowings under the facility. PNMR Development uses the facility to finance its participation in NMRD and other activities.

On June 28, 2018,$172.3 million 9.50% 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,are reflected as being long-term in the Condensed Consolidated Balance Sheets at December 31, 2018 since TNMP entered intodemonstrated its intent and ability to re-finance the $20.0agreement on a long-term basis.

See discussion of PNM’s SJGS Abandonment Application in Note 12, which includes a request to issue approximately $361 million TNMP 2018 Term Loan Agreement that bears interest at a variable rate and matures on July 25, 2020. TNMP usedof energy transition bonds, as provided by the proceeds from these issuances to repay short-term borrowings and for TNMP’s general corporate purposes.ETA, upon the proposed retirement of SJGS in 2022.

At September 30, 2018, variable interest rates were 3.03% for the $100.0 million PNMR 2016 Two-Year Term Loan, 2.98% for the $200.0 million PNM 2017 Term Loan Agreement, and 2.94% for the $20.0 million TNMP 2018 Term Loan Agreement.


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

Capital Requirements


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


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

Projected capital requirements, including amounts expended through September 30, 2018,2019, are:
2018 2019-2022 Total2019 2020-2023 Total
(In millions)(In millions)
Construction expenditures$514.5
 $1,982.8
 $2,497.3
$604.7
 $3,248.0
 $3,852.7
Capital contributions to NMRD1.8
 60.7
 62.5
37.0
 27.0
 64.0
Dividends on PNMR common stock84.4
 337.7
 422.1
92.4
 369.6
 462.0
Dividends on PNM preferred stock0.5
 2.1
 2.6
0.5
 2.1
 2.6
Total capital requirements$601.2
 $2,383.3
 $2,984.5
$734.6
 $3,646.7
 $4,381.3

The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The construction expenditures above include environmental upgrades of $7.6 million at Four Corners, $71.6$60.0 million for 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, and approximately $165.8$145.3 million in 2018-20202019-2021 for other anticipated expansions of PNM’s transmission system. NotAlso included in the table above is a net amount of approximately $285 million in 2020-2021 for PNM’s May 1, 2019 agreement to purchase the Western Spirit Line, subject to certain conditions being met prior to closing. Also included in the table above are potential incremental expendituresapproximately $298 million in 2020-2022 for new customer growthproposed replacement generation resources included in New Mexico and Texas, transmission and renewable energy expansionPNM’s SJGS Abandonment Application as discussed in New Mexico, or replacement resources related to the potential shutdown of SJGS Units 1 and 4 in 2022. Expenditures for new customer growth, the expansion of PNM’s transmission system and renewable energy facilities, and SJGS replacement resources

are subject to obtaining necessary approvals of the NMPRC. PNM will be required to file CCN applications with the NMPRC to obtain those approvals, as well as to make an abandonment filing for approval to shut down SJGS.Note 12. The ability of PNMR to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to be able to pay dividends to PNMR. Note 5 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K describes regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.

During the nine months ended September 30, 2018,2019, 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 discussed above,for construction expenditures and dividends, the Company has long-term debt and term loans that must be paid or refinanced at maturity. The $100.0$150.0 million PNMR 20162018 One-Year Term Loan (as extended)will mature in December 2019. PNM has $100.3 million of long-term debt that must be repriced by June 2020 and the $250.0 million PNM 2019 Term Loan matures on December 14,in July 2020. In addition, the $35.0 million TNMP 2018 Term Loan matures in July 2020, the $100.0$90.0 million PNMR 2016Development Term Loan matures in November 2020, the $50.0 million PNMR 2018 Two-Year Term Loan matures onin December 21, 2018,2020, and the $200.0 million PNM 2017 Term Loan Agreement matures on January 18, 2019, and $172.3 million of TNMP first mortgage bonds are due in April 2019. Also, the $24.5$300.0 million PNMR Development Revolving Credit Facility expires in February 2019.2018 SUNs mature on March 9, 2021. Note 67 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K contains additional information about the maturities of long-term debt. The Company anticipates that funds to repay these long-term debt maturities and term loans will come from entering into new arrangements similar to the existing agreements, borrowing under theirthe revolving credit facilities, issuance of new long-term debt or equity in the public or private capital markets, or a combination of these sources. The Company has from time to time refinanced or repurchased portions of its outstanding debt before scheduled maturity. 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. In July 2018, theThe PNMR Revolving Credit Facility was amended to provide for two one-year extension options,and PNM facilities currently expire in October 2023 but can be extended through October 2024, subject to approval by a majority of the lenders. In October 2018, the PNM Revolving Credit Facility was amended to add two one-year extension options, subject to approval by a majority of the lenders. As a result, PNMR and PNM have the opportunity to extend these facilities through October 2024. The PNMR and PNM facilities have capacities of $300.0 million and $400.0 million through October 2020 and $290.0 million and $360.0 million beginning in November 2020. The $75.0 million TNMP Revolving Credit Facility matures in September 2022. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility which expires in December 2022. PNMR Development has a $24.5 million revolving credit facility that expires in February 2019.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 22, 2019, PNMR Development amended its 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. The facility bears interest at a variable rate, contains terms similar to the PNMR Revolving Credit Facility, and expires on February 24, 2020. 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 September 30, 2018 Nine Months Ended September 30, 2018 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Range of Borrowings Low High Low High Low High Low High
 (In millions) (In millions)
PNM:                
PNM Revolving Credit Facility $—
 $26.5
 $—
 $64.2
 $—
 $36.1
 $—
 $40.0
PNM 2017 New Mexico Credit Facility —
 10.0
 —
 20.0
 —
 25.0
 —
 25.0
TNMP Revolving Credit Facility —
 13.5
 —
 73.9
 —
 15.0
 —
 55.0
PNMR Revolving Credit Facility 106.0
 136.5
 29.1
 210.0
 66.0
 97.2
 20.0
 97.2
PNMR Development Revolving Credit Facility 24.5
 24.5
 —
 24.5
 21.9
 38.9
 6.0
 38.9
At September 30, 2018,2019, the average interest rate was 3.34%rates were 3.29% for the PNMR Revolving Credit Facility, 3.02%2.81% for the PNMR 20162018 One-Year Term Loan, (as extended), 2.99%2.77% for the TNMP Revolving Credit Facility, and 3.07%3.05% for the PNMR Development Revolving Credit Facility.
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. The Company anticipates that it will be necessary to obtain additional long-term financing to fund its capital requirements during the 2018-2022 period.2019-2023 period, including interim financing to fund construction of replacement resources prior to the issuance of the energy transition bonds included in PNM’s SJGS Abandonment Application. See Note 12. This could include new debt and/or equity issuances. The Company currently anticipates utilizing a three-year at-the-market equity issuance programinstruments such as mandatory convertible securities or forward block sales to raise equity beginningstarting in 2020 to partially fund capital requirements. This at-the-market program should provide a flexible, efficient,requirements and low-cost way to issue equity as needed.balance its capital structure. The Company also expects to issue new debt periodically to fund capital investments. 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. 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.
Information concerning the credit ratings for PNMR, PNM, and TNMP was set forth under the heading Liquidity in the MD&A contained in the 20172018 Annual Reports on Form 10-K. As of October 30, 2018,25, 2019, ratings on the Company’s securities were as follows:
 PNMR PNM TNMP
S&P     
Corporate ratingBBB+ BBB+ BBB+
Senior secured debt* * A
Senior unsecured debtBBB BBB+ *
Preferred stock* BBB- *
Moody’s     
Issuer ratingBaa3 Baa2 A3
Senior secured debt* * A1
Senior unsecured debtBaa3 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. On January 16, 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative while affirming the ratings above for all the entities. On June 29, 2018, Moody’s changed the ratings outlook for PNMR and PNM from positive to stable, maintained the stable outlook for TNMP, and affirmed the long-term credit ratings of each entity. The ultimate outcomes from PNM’s NM 2015 Rate CaseOn August 1, 2019, Moody’s

affirmed the credit rating and NM 2016 Rate Case, includingstable outlook for PNM and TNMP. On August 9, 2019, Moody’s affirmed the pending appeals before the NM Supreme Court,credit rating and the TNMP 2018 Rate Case, as discussed in Note 12, could affect both thestable outlook and credit ratings.for PNMR. 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 assigning rating organization, and that each rating should be evaluated independently of any other rating.



A summary of liquidity arrangements as of October 30, 201825, 2019 is as follows:
PNM TNMP 
PNMR
Separate
 
PNMR
Development
 PNMR ConsolidatedPNM TNMP 
PNMR
Separate
 
PNMR
Development
 PNMR Consolidated
(In millions)(In millions)
Financing capacity:                  
Revolving credit facility$400.0
 $75.0
 $300.0
 $24.5
 $799.5
$400.0
 $75.0
 $300.0
 $40.0
 $815.0
PNM 2017 New Mexico Credit Facility40.0
 —
 —
 —
 40.0
40.0
 —
 —
 —
 40.0
Total financing capacity$440.0
 $75.0
 $300.0
 $24.5
 $839.5
$440.0
 $75.0
 $300.0
 $40.0
 $855.0
                  
Amounts outstanding as of October 30, 2018:         
Amounts outstanding as of October 25, 2019:         
Revolving credit facility$—
 $27.5
 $126.5
 $24.5
 $178.5
$—
 $15.3
 $79.4
 $38.9
 $133.6
PNM New Mexico Credit Facility—
 —
 —
 —
 —
PNM 2017 New Mexico Credit Facility—
 —
 —
 —
 —
Letters of credit2.5
 0.1
 4.7
 —
 7.3
2.5
 0.1
 4.7
 —
 7.3
Total short-term debt and letters of credit2.5
 27.6
 131.2
 24.5
 185.8
2.5
 15.4
 84.1
 38.9
 140.9
                  
Remaining availability as of October 30, 2018$437.5
 $47.4
 $168.8
 $—
 $653.7
Invested cash as of October 30, 2018$55.3
 $—
 $0.9
 $—
 $56.2
Remaining availability as of October 25, 2019$437.5
 $59.6
 $215.9
 $1.1
 $714.1
Invested cash as of October 25, 2019$20.5
 $—
 $0.9
 $—
 $21.4
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 October 30, 2018,25, 2019, PNM and TNMP had no intercompany borrowings from PNMR however, PNMR Development had $0.1 million of zero and $5.4 million.intercompany borrowings from PNMR. The remaining availability under the revolving credit facilities at any point in time varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures.


For offeringsPNMR has an automatic shelf registration that provides for the issuance of various types of debt orand equity securities registered with the SEC, including shares of common stock through the PNM Resources Direct Plan, PNMR has a shelf registration statement expiringthat expires in March 2021. This shelf registration statement has unlimited availability and can be amended to include additional securities, subject to certain restrictions and limitations. PNM has a shelf registration statement for up to $475.0 million of SUNssenior unsecured notes that expires in May 2020.
Off-Balance Sheet Arrangements
PNMR’s
PNMR has no off-balance sheet arrangements include PNM’s operating leases for portionsthat have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of PVNGS Units 1 and 2. These arrangements help ensure PNM the availability of lower-cost generation neededoperations, liquidity, capital expenditures or capital resources that are material to serve customers. See MD&A – Off-Balance Sheet Arrangements and Notes 7 and 9 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, as well as Note 13.investors.
Commitments and Contractual Obligations
PNMR, PNM, and TNMP have contractual obligations for long-term debt, operating leases, construction expenditures, purchase obligations, and certain other long-term obligations. See MD&A – Commitments and Contractual Obligations in the 20172018 Annual Reports on Form 10-K.


Contingent Provisions of Certain Obligations
As discussed in the 20172018 Annual Reports on Form 10-K,PNMR, PNM, and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. In the unlikely event that the contingent requirements were to be triggered, PNMR, PNM, or TNMP could be required to provide security, immediately pay outstanding obligations, or be prevented from drawing on unused capacity under certain credit agreements. The contingent provisions also include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations and interest rate swaps in the event of a downgrade in credit ratings. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions. 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.
September 30,
2018		 December 31,
2017		September 30,
2019		 December 31,
2018
PNMR      
PNMR common equity40.3% 40.9%36.9% 38.6%
Preferred stock of subsidiary0.3% 0.3%0.3
 0.3
Long-term debt59.4% 58.8%62.8
 61.1
Total capitalization100.0% 100.0%100.0% 100.0%
   
PNM      
PNM common equity48.0% 46.0%45.3% 45.6%
Preferred stock0.4% 0.4%0.4
 0.4
Long-term debt51.6% 53.6%54.3
 54.0
Total capitalization100.0% 100.0%100.0% 100.0%
   
TNMP      
Common equity53.7% 56.9%49.4% 53.9%
Long-term debt46.3% 43.1%50.6
 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 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.

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 impacts of operations on the environment. The Board considers issues associated with climate change, the Company’s GHG exposures, and the financial consequences that might result from enacted and potential federal and/or state regulation of GHG. Management has published, with Board oversight, a Climate Change Report available at http://www.pnmresources.com/about-us/sustainability-portal.aspx,, that details PNM’sthe Company’s efforts to transition to a coal-free generation portfolio.an emissions-free generating portfolio by 2040.


As part of management’s continuing effort to monitor climate-related risks and opportunities, the Company is evaluating different transparencyclimate change disclosure frameworks, including the framework created by the Task Force on Climate-related Financial Disclosures and athe framework created by Edison Electric Institute. The Company is also participating in an Electric Power Research Institute project that is evaluating potentialanalyzing climate change policy scenario analysisscenarios and GHG goal setting.


Changes in the climate are generally not expected to have material consequences to the Company in the near-term. The Company cannot anticipate or predict the potential long-term effects of climate change or climate change related regulation on its assets and operations.


Greenhouse Gas Emissions (“GHG”) Exposures

In 2017,2018, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 6.95.6 million metric tons of CO2, which comprises the vast majority of PNM’s GHG.


As of January 1,December 31, 2018, approximately 67.9%66% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the United States, 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. Variations are primarily due to how much and how often the wind blows. In addition, if PVNGS experienced prolonged outages or if PNM’s entitlement from PVNGS were reduced, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG.

PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. See Note 12. As described in Note 11,16 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, PNM received approval for the December 31, 2017 shutdown of SJGS Units 2 and 3 as part of its strategy to address the regional haze requirements of the CAA. The shutdown of SJGS Units 2 and 3 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%41% of GHG from the Company’s owned interests. In addition, as discussedinterests in Note 12,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 12. If approved by the NMPRC, retiring PNM’s share of SJGS and exiting participation in Four Corners would further reduce PNM’s GHG.
As of December 31, 2018, PNM owns utility-scale solar generation with a total generation capacity of 107 MW. Since 2003, PNM has purchased the entire output of New Mexico Wind, which has an aggregate capacity of 204 MW, and, since January 2015, has purchased the full output of Red Mesa Wind, which has an aggregate capacity of 102 MW. PNM has a 20-year PPA for the output of Lightning Dock Geothermal, which began providingor procures power to PNM in January 2014. The current capacity of the geothermal facility is 4 MW. On November 15, 2017 the NMPRC approved PNM’s 2018 renewable energy procurement plan. As a result, PNM will acquire an additional 80 GWh in 2019 and 105 GWh in 2020under PPAs 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 50 MW of new solar facilities in 2018 and 2019. Additionally, PNM began purchasing renewable energy from 30 MW of solar-PV facilities owned by NMRD in 2018 and, subject to FERC approval, will purchase an additional 100508 MW of capacity from renewable generation resources, which include solar-PV, wind, and geothermal facilities. In addition, the NMPRC has granted PNM authority to construct and own 50 MW of solar-PV capacity to serve retail customers beginning in 2020, and to procure an aggregate of 316 MW of renewable energy and RECs from solar-PV and wind facilities to be owned by NMRD in 2019 and 2020 to supply power toserve a data center being constructedlocated in PNM’s service territory (Note 11). territory. PNM’s 2020 renewable energy procurement plan, which is pending NMPRC approval, includes a request to procure an additional 140 MW of wind energy to serve retail customers beginning in 2021 and PNM’s SJGS Abandonment Application, which was filed with the NMPRC on July 1, 2019, includes a request to replace SJGS capacity with 350 MW of solar-PV, 130 MW of battery storage facilities, and 280 MW of new gas-fired peaking capacity. If approved, these resources would result in PNM owning, leasing, or procuring through PPAs capacity from renewable resources and battery storage facilities totaling 1,444 MW and capacity from emissions-free resources totaling 1,846 MW. See additional discussion of these resources in Notes 11 and 12.
PNM also has a customer distributed solar generation program that represented 95.9121.2 MW at September 30, 2018.2019. PNM’s distributed solar programs will reduce PNM’s annual production from fossil-fueled electricity generation by about 192242.4 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.2007. PNM’s cumulative annual savings from these programs werewas approximately 6223,832 GWh of electricity in 2017.through 2018. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 8,0008,756 GWh of electricity, which will avoid at least 4.34.7 million metric tons of CO2 based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in PNM’s generation portfolio, demand for electricity, energy efficiency, and complex relationships between those variables.

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


Other Climate Change Risks


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

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


PNM’s service areas occasionally experience periodic high winds forest fires, and severe thunderstorms. TNMP has operations in the Gulf Coast area of Texas, which experiences periodic hurricanes and other extreme weather conditions. In addition to potentially causing physical damage to Company-owned facilities, which disrupts the ability to transmit and/or distribute energy, weather and other events of nature can temporarily reduce customers’ usage and demand for energy. 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.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 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, 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 are based on emission reduction opportunities that EPA deemed achievable using technical assumptions for three “building blocks”: efficiency improvements at coal-fired EGUs, displacement of affected EGUs with renewable energy, and displacement of coal-fired generation with natural gas-fired generation.

Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. The DC Circuit refused to stay the rule, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016. As a result,2016, thus halting implementation of the Clean Power Plan is not in effect and neither states nor sources are obliged to comply with its requirements.Plan. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a 10-judge en banc panel. However, before the DC Circuit could issue an opinion, President Trump took office and his administration asked the court to hold the case in abeyance while the rule iswas re-evaluated, which the court granted. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss the cases challenging the Clean Power Plan as moot due to EPA’s issuance of the Affordable Clean Energy rule, which repeals the Clean Power Plan.

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

revise or rescind any regulations or agency actions that potentially burden the development or use of domestically produced energy resources.

Most notably, the order directsdirected EPA to immediately review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Carbon Pollution Standards for new, reconstructed or modified electric utilities, (2) the Clean Power Plan, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. In response, the EPA signed a NOPR to repeal the Clean Power Plan on October 10, 2017. The notice proposesproposed a legal interpretation concluding that the Clean Power Plan exceedsexceeded EPA’s statutory authority. EPA accepted comments on that proposed interpretation through April 26, 2018. Any final rule will likely be subject to judicial review. On December 18, 2017,June 19, 2019, EPA released an advanced NOPR addressing GHG guidelines for existing electric utility generating units. Comments were due by February 26, 2018. On August 31, 2018, EPA published a proposed rule, which is informally known asthe final version of the Affordable Clean Energy rule, to replacerule. EPA takes three actions in the final rule: (1) finalizes the repeal of the Clean Power Plan. The proposedPlan; (2) finalizes the Affordable Clean Energy rule,rule; and (3) revises the implementing regulations for all emission guidelines issued under CAA Section 111(d) which, among other things, would establish guidelines that replaceextends the “outside-the-fenceline” control measures and specific numerical emission ratestiming of state plans. EPA set the Best System of Emissions Reduction (“BSER”) for existing EGUs withcoal-fired power plants as heat rate efficiency improvements based on a listrange of “candidate technologies” for heat rate improvement measures that EPA has identified as Best Systemcan be applied inside the fence-line. Rather than setting a specific numerical standard of Emission Reduction (“BSER”). States wouldperformance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable once BSER is applied. States will have three years from whenbased on the application of BSER. The final rule is finalizedrequires states to submit a plan to EPA by July 8, 2022 and then EPA will havehas one year to determine if each proposed plan is acceptable.approve the plan. If states do not submit a plan or if their submitted plan is not acceptable, EPA will have two years to develop a federal plan. EPAThe Affordable Clean Energy rule is also proposing revisionsnot expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).
While corresponding NSR program that would provide coal-fired power plants more latitude to make efficiency improvements consistent with BSER without triggering NSR permit requirements. Comments onreform regulations were proposed as part of the proposed Affordable Clean Energy rule, were duethe final rule did not include such reform measures. EPA has indicated that it plans to EPA by October 31, 2018.

PNM is unable to predictfinalize the impactproposed NSR reform in 2020. Unrelated to the CompanyAffordable Clean Energy Rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of thesethe pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed rulemakings. Ifproject at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from projects are to be considered in determining whether the proposed project will result in an increase in air emissions.
On December 20, 2018, EPA published in the Federal Register a future regulation limiting or otherwise reducing GHG from fossil-fueled EGUs is adopted, such regulations could impact PNM’s existing and future fossil-fueled EGUs. The 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 EPA and the DC Circuit. Comments on the proposal were due on March 18, 2019 and a final rule is expected in late 2019.

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 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.  2019.  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 anticipated environmental regulations when evaluating resource options to meet supply needs of the utility’s customers.  The NMPRC requires that New Mexico utilities factor a standardized cost of carbon emissions into their IRPs using prices ranging

between $8 and $40 per metric ton of CO2 emitted and escalating these costs by 2.5% per year.  Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs.  Reflecting the developingevolving nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances.  Although these prices may not reflect the costs that ultimately will be incurred, PNM is required to use these prices for purposes of its IRP.  In its 2017 IRP, PNM analyzed resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations by the end of 2022 as discussed in Note 12. The key findings of the 2017 IRP include that exiting SJGS in 2022 would provide long-term 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 12.

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. The NMAG’s office and Prosperity Works joined inmanner intended to mitigate the petition. The proposed clean energy standard, if adopted, would require utilitieseconomic impact to reduce carbon emissionscommunities affected by four percent per year for the next 20 years. The NMPRC has convened a series of workshops to develop a clean energy standard rule that could be proposed for a future rulemaking proceeding. The major topic areas discussed at the workshops are: jurisdictional and other legal issues; selectionthese plant retirements. See additional discussion of the timeframe forETA in Note 11. PNM expects the emissions baseline year to be used, unspecified power, and electric vehicle credits; and cost responsibilities, benefits, reasonable cost threshold,ETA will have a significant impact on rates, compliance issues,

reliability impacts,PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022. The applicability of the ETA to PNM’s SJGS Abandonment filing has been challenged by several parties and unintended consequences. Workshops were completedis currently being reviewed by the NMPRC. See additional discussion of PNM’s SJGS Abandonment Application in 2018.Note 12. PNM is unable tocannot predict the full impact of the ETA or the outcome of any proposed rule that may result from this process.

its existing and potential future generating resource abandonment filings with the NMPRC.
International Accords


The United Nations Framework Convention on Climate Change (“UNFCCC”) is an international environmental treaty that was negotiated at the 1992 United Nations Conference on Environment and Development (informally known as the Earth Summit) and entered into force in March 1994. The objective of the treaty is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.”  Parties to the UNFCCC, including the United States, 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 (“INDCs”). INDCs reflect national targets and actions that arise out of national policies and elements relating to oversight, guidance and coordination of actions to reduce emissions by all countries. In November 2014, then President Obama announced the United States’ commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005 levels by the year 2025. The United States INDC iswas part of an overall effort by the former administration to have the United States achieve economy-wide reductions of around 80% by 2050.  The former administration’s GHG reduction target for the electric utility industry iswas a key element of its INDC and iswas based on EPA’s final GHG regulations for new, existing, and modified and reconstructed sources. The United States is one of 190 nationssources at that offered INDCs.time. Thresholds for the number of countries necessary to ratify or accede to the Paris Agreement and total global GHG percentage were achieved on October 5, 2016 and the Paris Agreement entered into force on November 4, 2016.  To date, 181 countries have ratified the Paris Agreement and 177 countries have submitted INDCs.  On June 1, 2017, President Trump announced that the United States would withdraw from the Paris Agreement. In his public statement, he indicated that the United States would “begin negotiations to reenter either the Paris Accord or a .... new transaction on terms that are fair to the United States, its businesses, its

workers, its people, its taxpayers.” The United States continues to hold the position that it will withdraw from the Paris Agreement unless it can negotiate better terms. The earliest date that the United States could give formal notification of its withdrawal is November 4, 2020. In the interim, the United States continues to participate in international climate negotiations. It is uncertain if the United States will choose to pursue a transition to a low-carbon economy using a pathway that aligns with the Paris Agreement to keep global temperature rise to below two degrees Celsius (the “2 Degree Scenario”) above pre-industrial levels or in connection with other regulation or legislation. PNM has not conducted a 2 Degree Scenario analysis but is participating in the Electric Power Research Institute program, “Understanding Climate Change Scenarios and Goal-setting Activities”. PNM has also calculated GHG reductions that would result from implementation of the 2017 IRP scenarios that assume PNM would retire its share of the SJGS in 2022 and would exit from Four Corners in 2031. Assuming necessary regulatory approvals are obtained for2031 and PNM has set a goal to have a 100% emissions-free generating portfolio by 2040. In addition, as an early retirementinvestor-owned utility operating in the state of New Mexico, PNM is required to comply with the recently enacted ETA, which requires utilities’ generating portfolio be 100% carbon-free by 2045. The requirements of the SJGSETA and for an exit from Four Corners, PNM estimates GHG emissions from its fossil-fueled plants would be 71% lower in 2025 and 80% lower in 2035 against 2005 baseline levels.  This comparesthe Company’s goal compare favorably to the 26% - 28% by 2025 United States INDC and the former administration’s effort to achieve an 80% reduction in carbon emissions by 2050. As discussed in Note 11, retiring PNM’s share12, on July 1, 2019, PNM submitted its SJGS Abandonment Application to the NMPRC. PNM will file for abandonment of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, which PNM would make at an appropriate timestime in the future.

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


Assessment of Legislative/Regulatory Impacts


The Company has assessed, and continues to assess, the impacts of climate change legislation and regulation on its business.  This assessment is ongoing and future changes arising out of the legislative or regulatory process could impact the assessment significantly.  PNM’s assessment includes assumptions regarding specific GHG limits; the timing of implementation of these limits; the possibility of a market-based trading program, including the associated costs and the availability of emission credits or allowances; the development of emission reduction and/or renewable energy technologies; and provisions for cost containment. Moreover, the assessment assumes various market reactions such as the price of coal and gas and regional plant economics.  These assumptions are, at best, preliminary and speculative. However, based upon these assumptions, the enactment of climate change legislation or regulation could, among other things, result in significant compliance costs, including large capital expenditures by PNM, and could jeopardize the economic viability of certain generating facilities. See Note 11.  In turn, theseNotes 11 and 12.  While PNM currently expects the planned retirement of SJGS in 2022 (subject to NMPRC approval) will provide savings to customers, the ultimate consequences of climate change and environmental regulation could lead to increased costs to customers and affect results of operations, cash flows, and financial condition if the incurred costs are

not fully recovered through regulated rates. Higher rates could also contribute to reduced usage of electricity.  PNM’s assessment process is 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.


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

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 States 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 11 and 12 herein and Notes 16 and 17 of the Notes to Consolidated Financial Statements in the 20172018 Annual Reports on Form 10-K for a discussion of commitments and contingencies and rate and regulatory matters. See Note 1 for a discussion of accounting pronouncements that have been issued but are not yet effective and have not been adopted by the Company.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES


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


As of September 30, 20182019, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s 20172018 Annual Reports on Forms 10-K. The policies disclosed included unbilled revenues, regulatory accounting, impairments, decommissioning and reclamation costs, pension and other postretirement benefits, accounting for contingencies, and income taxes.


MD&A FOR PNM


RESULTS OF OPERATIONS


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




MD&A FOR TNMP


RESULTS OF OPERATIONS


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


DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS


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


The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, 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 in 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, the evaluation of that application under the recently enacted ETA, and/or the conclusions reached in PNM’s 2017 IRP and the TNMP 2018 Rate Case (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 of 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 future test year 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, 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, as well as the 2018 required NMPRCoutcome of PNM’s SJGS Abandonment Application, including the impacts of the recently enacted ETA, the results of PNM’s 2017 IRP filing, to determine the extent to which SJGS should continue servingindicates that PNM’s retail customers beyond mid-2022 and any actions resultingwould benefit from PNM’s 2017 IRP,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 scheduled

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
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 expiration of the lease terms in 2023 and 2024, as well as the related treatment for ratemaking purposes by the NMPRC
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
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, 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 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
Uncertainty surrounding counterparty performance and credit risk, including the ability of counterparties to supply fuel and perform reclamation activities and impacts to financial support provided to facilitate the coal supply at SJGS
The effectiveness of risk management regarding commodity transactions and counterparty risk
The outcome of legal proceedings, including the extent of insurance coverage
Changes in applicable accounting principles or policies


Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, and TNMP’s 20172018 Annual Reports on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.


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


SECURITIES ACT DISCLAIMER


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


WEBSITES
The PNMR website, www.pnmresources.com, is an important source of Company information. New or updated information for public access is routinely posted.  PNMR encourages analysts, investors, and other interested parties to register on the website to automatically receive Company information by e-mail. This information includes news releases, notices of


webcasts, and filings with the SEC. Participants will not receive information that was not requested and can unsubscribe at any time.
Our corporate Internetinternet 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 outlines PNM’s plans (subject to NMPRC approval) to exit all coal-fired generation by 2031, reach 70% emissions-free generation by 2032, and reach 100% emissions-free generation by 2040.


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

Code of Ethics (Do the Right Thing – Principles of Business Conduct)

Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee
Restated Articles of Incorporation and Bylaws
 
The Company will post amendments to or waivers from its code of ethics (to the extent applicable to the Company’s executive officers and directors) on its website.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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


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


To the extent an open position exists, fluctuating commodity prices, interest rates, equity prices, and economic conditions can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results, or financial position.
Commodity Risk
Information concerning accounting for derivatives and the risks associated with commodity contracts is set forth in Note 7, including a summary of the fair values of mark-to-market energy related derivative contracts included in the Condensed Consolidated Balance Sheets. During the nine months ended September 30, 20182019 and the year ended December 31, 2017,2018, 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 Condensed Consolidated Balance Sheets. The following table details the changes in the net asset or liability balance sheet position for mark-to-market energy transactions.
Nine Months EndedNine Months Ended
September 30,September 30,
2018 20172019 2018
Economic Hedges(In thousands)(In thousands)
Sources of fair value gain (loss):      
Net fair value at beginning of period$(94) $2,885
$(94) $(94)
Amount realized on contracts delivered during period83
 (1,266)84
 83
Changes in fair value2
 408
—
 2
Net mark-to-market change recorded in earnings85
 (858)84
 85
Net change recorded as regulatory assets and liabilities—
 (213)70
 —
Net fair value at end of period$(9) $1,814
$60
 $(9)
All of the fair values as of September 30, 20182019 were determined based on prices provided by external sources other than actively quoted market prices. The net mark-to-market amounts will settle in 2018.2019.


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

Prior to 2018, PNM measured the market risk of its wholesale activities not covered by the FPPAC using a Monte Carlo VaR simulation model to report the possible loss in value from price movements. In January 2018, PNM’s interest in PVNGS Unit 3 became a jurisdictional resource to serve New Mexico customers and PNM began selling 36 MW of its 65 MW merchant interest in SJGS Unit 4 to a third party at a fixed price. These events significantly reduced PNM’s exposure to commodity risk and, beginning in February 2018, the Company no longer uses VaR as a risk metric. VaR limits were not exceeded during the year ended December 31, 2017.

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
September 30, 2018
September 30, 2019September 30, 2019
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$1,952
 2 $1,353
$3,101
 1 $2,556
Non-investment grade1
 — —
—
 — —
Split ratings—
 — —
—
 — —
Internal ratings:      
Investment grade1,239
 2 826
692
 1 419
Non-investment grade—
 — —
—
 — —
Total$3,192
 $2,179
$3,793
 $2,975
(1) 
The rating “Investment Grade” is for counterparties, or a guarantor, with a minimum S&P rating of BBB- or Moody’s rating of Baa3. The category “Internal Ratings – Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.


(2) 
The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than the Tri-State hazard sharing agreement), forward sales, and short-term sales. The gross exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements but are not reduced by posted credit collateral. At September 30, 2019, PNMR held $0.9 million of cash collateral to offset its credit exposure.

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 September 30, 2018, PNMR held $1.0 million of cash collateral to offset its credit exposure.
    
Net credit risk for the Company’s largest counterparty as of September 30, 20182019 was $0.8$2.6 million.


Other investments have no significant counterparty credit risk.


Interest Rate Risk


The majority of the Company’s long-term debt is fixed-rate debt and does not expose earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of PNMR’s consolidated long-term debt instruments would increase by 2.2%2.4%, or $58.1$73.2 million if interest rates were to decline by 50 basis points from their levels at September 30, 2018.2019. 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 October 30, 2018,25, 2019, PNMR, PNM, TNMP, and PNMR Development had short-term debt outstanding of $126.5$79.4 million, none, $27.5zero, $15.3 million, and $24.5$38.9 million under their revolving credit facilities, which allow for a maximum aggregate borrowing capacity of $300.0 million for PNMR, $400.0 million for PNM, $75.0 million for TNMP, and $24.5$40.0 million for PNMR Development. PNM had no borrowings under the $40.0 million PNM 2017 New Mexico Credit Facility at October 30, 2018.25, 2019. The revolving credit facilities, the $150.0 million PNMR 2018 One-Year Term Loan, the $50.0 million PNMR 2018 Two-Year Term Loan, the PNM 2017 New Mexico Credit Facility, the $100.0$250.0 million PNMR 2016 One-YearPNM 2019 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 $20.0$35.0 million TNMP 2018 Term Loan, Agreementand the $90.0 million PNMR Development Term Loan bear interest at variable rates. On October 30, 2018,25, 2019, interest rates on borrowings averaged 3.54%3.20% for the PNMR Revolving Credit Facility, 3.09%2.60% for the PNMR 20162018 One-Year Term Loan, Agreement (as extended), 3.20%2.85% for the PNMR 20162018 Two-Year Term Loan, Agreement, 2.98%2.70% for the PNM 20172019 Term Loan, Agreement, 3.03%2.70% for the TNMP Revolving Credit Facility, 2.94%2.74% for the TNMP 2018 Term Loan, Agreement, and 3.28%2.90% for the PNMR Development Revolving Credit Facility.Facility, and 2.84% for the PNMR Development Term Loan. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 9, PNMR has entered into hedging arrangements to effectively establish fixed interest rates on $150.0 million of variable rate debt.


The investments held by PNM in trusts for decommissioning and reclamation had an estimated fair value of $331.7$369.0 million at September 30, 2018,2019, of which 62.1%64.0% 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 September 30, 2018,2019, the decrease in the fair value of the fixed-rate securities would be 2.8%2.1%, or $5.8$5.0 million.


PNM does not directly recover or return through rates any losses or gains on the securities, including equity investments discussed below, in the trusts for decommissioning and reclamation. However, the overall performance of these trusts does enter

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


Equity Market Risk


The investments held by PNM in trusts for decommissioning and reclamation include certain equity securities at September 30, 2018.2019. These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 36.9%35.6% of the securities held by the trusts as of September 30, 2018.2019. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $12.2$13.1 million.


ITEM 4. CONTROLS AND PROCEDURES


Evaluation of disclosure controls and procedures


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




Changes in internal controls over financial reporting


There have been no changes in each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 30, 20182019 that have materially affected, or are reasonably likely to materially affect, each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting.


PART II –II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


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


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


PNM – New Mexico General Rate Cases
PNM – Renewable Portfolio Standard
PNM – Energy Efficiency and Load Management – Petition for Energy Efficiency Disincentives
PNM – Integrated Resource Plans
PNM – San Juan Generating Station Unit 1 Outage
PNM – Cost Recovery Related to Joining the EIM
PNM – Facebook, Inc. Data Center ProjectSJGS Abandonment Application
TNMP – TNMP 2018 Rate CaseTransmission Cost of Service Rates
TNMP – Order Related to Changes in Federal Income Tax RatesRecovery of TNMP Rate Case Costs

TNMP – Energy Efficiency


ITEM 1A. RISK FACTORS


As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in PNMR’s, PNM’s, and TNMP’s Annual Reports on Form 10-K for the year ended December 31, 2017.2018.


ITEM 6. EXHIBITS
3.1PNMR
Articles of Incorporation of PNMR, as amended to date (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed November 21, 2008)
   
3.2PNM
Restated Articles of Incorporation of PNM, as amended through May 31, 2002 (incorporated by reference to Exhibit 3.1.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)
   
3.3TNMP
Articles of Incorporation of TNMP, as amended through July 7, 2005 (incorporated by reference to Exhibit 3.1.2 to TNMP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)
   
3.4PNMR
Bylaws of PNMR, with all amendments to and including October 24, 2017 (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed October 25, 2017)
   
3.5PNM
Bylaws of PNM, with all amendments to and including May 31, 2002 (incorporated by reference to Exhibit 3.1.2 to PNM’s Report on Form 10-Q for the fiscal quarter ended June 30, 2002)
   
3.6TNMP
Bylaws of TNMP, with all amendments to and including June 18, 2013 (incorporated by reference to Exhibit 3.6 to TNMP’s Current Report on Form 8-K filed June 20, 2013)
4.1TNMP
Eleventh Supplemental Indenture dated as of July 1, 2019 between TNMP and MUFG Union Bank, N.A., as Trustee ($80,000,000 of 3.60% First Mortgage Bonds due 2029, Series 2019A)(filed as Exhibit 4.1 to TNMP’s Current Report on Form 8-K filed July 1, 2019)
   
10.1PNMR
Sixth Amendment toForm of Amended and Restatement of CreditRestated Indemnity Agreement dated as offor PNMR Officers and directors approved July 30, 2018 among PNMR, the lenders party thereto, and Wells Fargo Bank, N.A., as administrative agent
10.2PNMR
Second Amendment to Term Loan Agreement dated as of July 30, 2018 among PNMR, the lenders party thereto, and Wells Fargo Bank, N.A., as administrative agent
10.3PNMR
Second Amendment to Term Loan Agreement dated as of July 30, 2018 among PNMR, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent
10.4PNM
Fourth Amendment to and Restatement of Credit Agreement dated October 9, 2018 among PNM, the lenders party thereto, and Wells Fargo Bank, N.A., as administrative agent23, 2019
   
31.1PNMR
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2PNMR
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.3PNM
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.4PNM
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.5TNMP
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.6TNMP
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1PNMR
Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2PNM
Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.3TNMP
Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INSPNMR, PNM, and TNMPXBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document
   
101.SCHPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Schema Document
   
101.CALPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEFPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LABPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Label Linkbase Document
   
101.PREPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Presentation Linkbase Document
104PNMR, PNM, and TNMPCover Page Inline XBRL File (included in Exhibits 101)

SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
  
PNM RESOURCES, INC.
PUBLIC SERVICE COMPANY OF NEW MEXICO
TEXAS-NEW MEXICO POWER COMPANY
  (Registrants)
   
   
Date:November 6, 20181, 2019/s/ Joseph D. Tarry
  Joseph D. Tarry
  Vice President, Controller and Treasurer
  (Officer duly authorized to sign this report)


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