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

FORM 10-Q

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

For the quarterly period ended June 30, 2020

2021

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

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

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


Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each classTrading Symbol(s)Name of exchange on which registered
PNM Resources, Inc.Common Stock, no par valuePNMNew York 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”)YesNo
Public Service Company of New Mexico (“PNM”)YesNo
Texas-New Mexico Power Company (“TNMP”)YesNo

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





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

No
TNMPYesNo

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

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

Accelerated
filer
Non-accelerated filerSmaller reporting companyEmerging growth company
PNM
Large accelerated
filer
Accelerated
filer
Non-accelerated filerSmaller reporting companyEmerging growth company
TNMP

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

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

As of July 24, 2020, 79,653,62423, 2021, 85,834,874 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 July 24, 202023, 2021 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 July 24, 202023, 2021 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).

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

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


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

INDEX

Page No.
Condensed Consolidated Statements of Comprehensive Income (Loss)

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GLOSSARY
Definitions:  
2017 IRPPNM’s 2017 IRP
2020 IRPPNM’s 2020 IRP
DCOSTNMP’s applications for a distribution cost recovery factor
ABCWUAAlbuquerque Bernalillo County Water Utility Authority
ACE RuleAffordable Clean Energy Rule
AEP OnSite PartnersAEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
Afton  Afton Generating Station
AFUDCAllowance for Funds Used During Construction
ALJAdministrative Law Judge
AMIAdvanced Metering Infrastructure
AMSAdvanced Meter System
AOCI  Accumulated Other Comprehensive Income
APS  Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
AROAsset Retirement Obligation
ASUARPAccounting Standards UpdateAlternative Revenue Program
August 2016 RDAvangridRecommended Decision in PNM’s NM 2015 Rate Case issued by the Hearing Examiner on August 4, 2016Avangrid, Inc., a New York corporation
BART  Best Available Retrofit Technology
BDTBalanced Draft Technology
Board  Board of Directors of PNMR
BSERBest Systemsystem of Emissions Reduction Technologyemission reduction technology
BTU
British Thermal Unit
CAAClean Air Act
Carbon Pollution StandardsCarbon Pollution Standards established by the EPA on August 3, 2015
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CCAECoalition for Clean Affordable Energy
CCNCertificate of Convenience and Necessity
CCRCoal Combustion Residuals
CFIUSCommittee on Foreign Investment in the United States
CFRECitizens for Fair Rates and the Environment
CIACContributions in Aid of Construction
Clean Power PlanClean Power Plan established by the EPA on August 3,2015 and published on October 23, 2015
CO2
  Carbon Dioxide
COVID-19Novel coronavirus global pandemic
CSACoal Supply Agreement
CTC  Competition Transition Charge
DC CircuitUnited States Court of Appeals for the District of Columbia Circuit
DOE  United States Department of Energy
DOI  United States Department of Interior
Effective TimeThe time the Merger is consummated
EGUElectric Generating Unit
EIMCalifornia Independent System Operator Western Energy Imbalance Market
Energy Transition Charge
Rate rider established to collect non-bypassable customer charges for repayment of the Securitized Bonds
EPA  United States Environmental Protection Agency
ERCOT  Electric Reliability Council of Texas
ESAESGEndangered Species Act
ESGEnvironmental, Social, and Governance principles
ETAThe New Mexico Energy Transition Act
EUEAThe New Mexico Efficient Use of Energy Act
Exchange ActSecurities Exchange Act of 1934
FarmingtonFCCThe City of Farmington, New Mexico
FASBFinancial Accounting Standards BoardFederal Communications Commission
FERC  Federal Energy Regulatory Commission
Four Corners  Four Corners Power Plant
Four Corners Abandonment ApplicationPNM’s January 8, 2021 application for approval for the abandonment of Four Corners and issuance of a securitized financing order
Four Corners CSAFour Corners’ coal supply contract with NTEC
Four Corners Purchase and Sale AgreementPNM’s pending sale of its 13% ownership interest in Four Corners to NTEC
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FPPAC  Fuel and Purchased Power Adjustment Clause
FTCFederal Trade Commission
FTYFuture Test Year
GAAP  Generally Accepted Accounting Principles in the United States of America
GHG  Greenhouse Gas Emissions
GWh  Gigawatt hours
HSRHart-Scott Rodino Antitrust Improvement Act of 1976
IberdrolaIberdrola, S.A., a corporation organized under the laws of the Kingdom of Spain, and 81.5% owner of Avangrid
IRCInternal Revenue Code
IRPIntegrated Resource Plan
IRS  Internal Revenue Service
ISFSIIndependent Spent Fuel Storage Installation
Joint ApplicantsPNM, PNMR, Merger Sub, Avangrid and Iberdrola, S.A.
kVKilovolt
KW  Kilowatt
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KWh  Kilowatt Hour
La LuzJoya Wind ILa Luz Generating StationJoya Wind Facility generating 166 MW of output that became operational in February 2021
La Joya Wind IILa Joya Wind Facility generating 140 MW of output that became operational in June 2021
Leased InterestLeased capacity in PVNGS Unit 1 and Unit 2
LIBOR  London Interbank Offered Rate
Lightning Dock GeothermalLightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
LordsburgLordsburg Generating Station
Los AlamosThe Incorporated County of Los Alamos, New Mexico
LunaLuna Energy Facility
MD&A  Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTUMergerThe merger of Merger Sub with and into PNMR pursuant to the Merger Agreement, with PNMR surviving the Merger as a direct, wholly-owned subsidiary of Avangrid
Merger AgreementMillion British Thermal UnitsThe Agreement and Plan of Merger, dated October 20, 2020, between PNMR, Avangrid and Merger Sub
Merger SubNM Green Holdings, Inc., a New Mexico corporation and wholly-owned subsidiary of Avangrid which will merge with and into PNMR at the effective time of the Merger (defined below)
Moody’s  Moody’s Investor Services, Inc.
MW  MegawattsMegawatt
MWh  Megawatt Hour
NAAQSNational Ambient Air Quality Standards
Navajo Acts  Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT  Nuclear Decommissioning Trusts for PVNGS
NEENew Energy Economy
NEPANational Environmental Policy Act
New Mexico WindNew Mexico Wind Energy Center
NM 2015 Rate CaseRequest for a General Increase in Electric Rates Filed by PNM on August 27, 2015
NM 2016 Rate CaseRequest for a General Increase in Electric Rates Filed by PNM on December 7, 2016
NM AREANew Mexico Affordable Reliable Energy Alliance, formerly New Mexico Industrial Energy Consumers Inc.
NM CapitalNM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR, now known as
New Mexico PPA Corporation
NM District CourtUnited States District Court for the District of New Mexico
NM Supreme CourtNew Mexico Supreme Court
NMAGNew Mexico Attorney General
NMED  New Mexico Environment Department
NMMMDThe Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
NMPRC  New Mexico Public Regulation Commission
NMRDNM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
NOx  Nitrogen Oxides
NOPRNotice of Proposed Rulemaking
NPDESNational Pollutant Discharge Elimination System
NRC  United States Nuclear Regulatory Commission
NSPSNew Source Performance Standards
NSR  New Source Review
NTEC  Navajo Transitional Energy Company, LLC, an entity owned by the Navajo Nation
OATTOpen Access Transmission Tariff
OCI  Other Comprehensive Income
OPEB  Other Post-Employment Benefits
OSMUnited States Office of Surface Mining Reclamation and Enforcement
PCRBsPollution Control Revenue Bonds
PNMPublic Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit FacilityPNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Term LoanPNM’s $200.0 Million Unsecured Term Loan
PNM 2019 $40.0 Million Term LoanPNM's $40.0 Million Unsecured Term Loan
PNM 2019 $250.0 Million Term LoanPNM’s $250.0 Million Unsecured Term Loan, which was repaid on April 15, 2020
PNM 2020 Fixed Rate PCRBsPNM's $302.5 million PCRBs remarketed on July 22, 2020
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OSMUnited States Office of Surface Mining Reclamation and Enforcement
Paris AgreementA legally binding international treaty on climate change adopted on December 12, 2015
PCRBsPollution Control Revenue Bonds
PMParticulate Matter
PNMPublic Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit FacilityPNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2019 $40.0 Million Term LoanPNM’s $40.0 Million Unsecured Term Loan
PNM 2020 Fixed Rate PCRBsPNM's $302.5 Million PCRBs purchased on July 22, 2020
PNM 2020 Note Purchase AgreementPNM's Agreement for the sale of PNMPNM's 2020 SUNs
PNM 2020 SUNsPNM's $200.0 millionMillion Senior Unsecured Notes issued on April 30, 2020
PNM 2020 Term LoanPNM’s $250.0 million Unsecured Term Loan issued on April 15, 2020, of which $100.0 million was repaid on April 30, 2020
PNM 2021 Note Purchase AgreementPNM's Agreement for the sale of PNM's 2021 SUNs
PNM 2021 SUNsPNM’s $160.0 Million Senior Unsecured Notes issued on July 14, 2021
PNM 2021 Term LoanPNM’s $75.0 Million 18-month Unsecured Term Loan that mature on December 18, 2022
PNM Floating Rate PCRBsPNM's $100.3 million PCRBs remarketed on July 1, 2020
PNM PlansPNM's qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs
PNM Revolving Credit FacilityPNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMR  PNM Resources, Inc. and Subsidiaries
PNMR 2018 SUNSSUNPNMR’s $300.0 Million Senior Unsecured Notes issued on March 9, 2018
PNMR 2018 Two-Year Term LoanPNMR’s $50.0 Million Two-Year Unsecured Term Loan
PNMR 2019 Term LoanPNMR'sPNMR’s $150.0 Million Two-Year Unsecured Term Loan
PNMR 2020 Forward Equity Sale AgreementsPNMR'sPNMR’s Block Equity Sale of 6.2 million Shares of PNMR Common Stock with Forward Equity Sales AgreementsAgreement
PNMR 2020 Term LoanPNMR’s $150.0 million Unsecured Term Loan that matures on January 31, 2022
PNMR 2020 Delayed-Draw Term LoanPNMR’s $300.0 million Unsecured Delayed-Draw Term Loan that matures on January 31, 2022
PNMR 2021 Delayed-Draw Term LoanPNMR's $1.0 Billion Unsecured Delayed-Draw Term Loan that matures on May 18, 2023
PNMR DevelopmentPNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit FacilityPNMR Development’s $40.0 Millionmillion Unsecured Revolving Credit Facility
PNMR Development Term LoanPNMR Development’s $90.0$65.0 Million Unsecured Term Loan that matures on January 31, 2022
PNMR Revolving Credit FacilityPNMR’s $300.0 Million Unsecured Revolving Credit Facility
PPA  Power Purchase Agreement
PSD  Prevention of Significant Deterioration
PUCT  Public Utility Commission of Texas
PV  Photovoltaic
PVNGS  Palo Verde Nuclear Generating Station
RCRAPVNGS Leased Interest Abandonment ApplicationResource ConservationApplication with the NMPRC requesting approval for the decertification and Recovery Actabandonment of 114MW of leased PVNGS capacity
RCT  Reasonable Cost Threshold
REANew Mexico’s Renewable Energy Act as amended by the ETAof 2004
RECRECsRenewable Energy Certificates
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Red Mesa WindRed Mesa Wind Energy Center
REP  Retail Electricity Provider
Rio BravoRio Bravo Generating Station
RMC  Risk Management Committee
ROEReturn on Equity
RPS  Renewable Energy Portfolio Standard
S&P  Standard and Poor’s Ratings Services
SEC  United States Securities and Exchange Commission
Securitized BondsEnergy transition bonds
SIP  State Implementation Plan
SJCC  San Juan Coal Company
SJGS  San Juan Generating Station
SJGS Abandonment ApplicationPNM’s July 1, 2019 NMPRC consolidated application forseeking NMPRC approval to retire PNM’s share of SJGS in 2022, for related replacement generating resources, and for the issuance of securitized bonds under the ETA
SJGS CSASan Juan Generating Station Coal Supply Agreement
SNCRSJGS RASelective Non-Catalytic ReductionSan Juan Project Restructuring Agreement
SO2
  Sulfur Dioxide
SRPSalt River Project
StaffNMPRC Staff
SUNsSenior Unsecured Notes
Tax ActFederal tax reform legislation enacted on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act
TECA  Texas Electric Choice Act
Tenth CircuitUnited States Court of Appeals for the Tenth Circuit
TEPTransportation Electrification Program
TNMP  Texas-New Mexico Power Company and Subsidiaries
TNMP 2018 Rate CaseTNMP’s General Rate Case Application Filed May 30, 2018
TNMP 2019 BondsTNMP’s First Mortgage Bonds issued under the TNMP 2019 Bond Purchase Agreement
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TNMP 2020 Bond Purchase AgreementAn agreement under which TNMP agreed to issue an aggregate of $185.0 Million of First Mortgage Bonds in 2020
TNMP 2020 BondsTNMP's First Mortgage Bonds issued on April 24, 2020 under the TNMP 2020 Bond Purchase Agreement
TNMP 2020 Bond Purchase AgreementTNMP's Agreement for the sale of TNMP's 2020 First Mortgage Bonds
TNMP 2021 BondsTNMP's First Mortgage Bonds to be issued under the TNMP 2021 Bond Purchase Agreement
TNMP 2021 Bond Purchase AgreementTNMP's Agreement for the sale of TNMP's 2021 First Mortgage Bonds
TNMP FMBsTNMP's aggregate $750.0 million of outstanding 2014 to 2020 First Mortgage Bonds
TNMP PlansTNMP's qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs
TNMP Revolving Credit Facility  TNMP’s $75.0 Million Secured Revolving Credit Facility
TNPTSAsTNP Enterprises, Inc. and SubsidiariesTransmission Service Agreements
Tri-StateTri-State Generation and Transmission Association, Inc.
TucsonTucson Electric Power Company
UAMPSUtah Associated Municipal Power Systems
U.SU.S.The UnitedUnites States of America
US Supreme CourtUnited States Supreme Court
Valencia  Valencia Energy Facility
VIEVariable Interest Entity
WACC  Weighted Average Cost of Capital
Western Spirit LineA 165-mile153-mile 345-kV transmission line that PNM has agreed to purchase, subject to certain conditions being met prior to closing
WestmorelandWestmoreland Coal Company
WFB LOC FacilityLetter of credit arrangements with Wells Fargo Bank, N.A., entered into in August 2020
WRAWestern Resource Advocates
WSJWestmoreland San Juan, LLC, formerly an indirect wholly-owned subsidiary of Westmoreland, and former owner of SJCC
WSJ LLCWestmoreland San Juan, Mining, LLC, a subsidiary of Westmoreland Mining Holdings, LLC, and current owner of SJCC

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands, except per share amounts)
Electric Operating Revenues:
Contracts with customers$343,075  $314,917  $666,057  $630,614  
Alternative revenue programs4,466  5,844  4,892  6,480  
Other electric operating revenue10,108  9,467  20,322  42,778  
Total electric operating revenues357,649  330,228  691,271  679,872  
Operating Expenses:
Cost of energy93,863  83,782  192,573  205,408  
Administrative and general50,453  42,833  96,485  95,170  
Energy production costs33,345  42,905  66,963  77,977  
Regulatory disallowances and restructuring costs—  149,254  —  150,599  
Depreciation and amortization70,022  66,065  138,995  131,421  
Transmission and distribution costs18,034  19,195  35,320  35,872  
Taxes other than income taxes20,782  19,809  42,047  40,317  
Total operating expenses286,499  423,843  572,383  736,764  
Operating income (loss)71,150  (93,615) 118,888  (56,892) 
Other Income and Deductions:
Interest income3,071  3,460  6,494  7,048  
Gains (losses) on investment securities21,620  4,599  (11,229) 18,613  
Other income4,390  3,350  6,706  6,795  
Other (deductions)(3,307) (3,117) (6,780) (6,369) 
Net other income and deductions25,774  8,292  (4,809) 26,087  
Interest Charges31,088  29,791  61,522  61,425  
Earnings (Loss) before Income Taxes65,836  (115,114) 52,557  (92,230) 
Income Taxes (Benefits)4,275  (42,831) 2,395  (41,608) 
Net Earnings (Loss)61,561  (72,283) 50,162  (50,622) 
(Earnings) Attributable to Valencia Non-controlling Interest(3,940) (3,499) (7,669) (6,328) 
Preferred Stock Dividend Requirements of Subsidiary(132) (132) (264) (264) 
Net Earnings (Loss) Attributable to PNMR$57,489  $(75,914) $42,229  $(57,214) 
Net Earnings (Loss) Attributable to PNMR per Common Share:
Basic$0.72  $(0.95) $0.53  $(0.72) 
Diluted$0.72  $(0.95) $0.53  $(0.72) 
Dividends Declared per Common Share$0.308  $0.290  $0.615  $0.580  

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands, except per share amounts)
Electric Operating Revenues:
Contracts with customers$368,893 $343,075 $715,478 $666,057 
Alternative revenue programs7,236 4,466 6,327 4,892 
Other electric operating revenue50,411 10,108 69,442 20,322 
Total electric operating revenues426,540 357,649 791,247 691,271 
Operating Expenses:
Cost of energy152,676 93,863 268,072 192,573 
Administrative and general52,473 50,453 111,938 96,485 
Energy production costs37,439 33,345 74,335 66,963 
Depreciation and amortization70,727 70,022 140,601 138,995 
Transmission and distribution costs18,853 18,034 36,170 35,320 
Taxes other than income taxes20,169 20,782 42,762 42,047 
Total operating expenses352,337 286,499 673,878 572,383 
Operating income74,203 71,150 117,369 118,888 
Other Income and Deductions:
Interest income3,578 3,071 7,137 6,494 
Gains (losses) on investment securities13,192 21,620 14,160 (11,229)
Other income4,654 4,390 8,906 6,706 
Other (deductions)(5,448)(3,307)(8,738)(6,780)
Net other income and deductions15,976 25,774 21,465 (4,809)
Interest Charges24,119 31,088 50,003 61,522 
Earnings before Income Taxes66,060 65,836 88,831 52,557 
Income Taxes8,299 4,275 9,865 2,395 
Net Earnings57,761 61,561 78,966 50,162 
(Earnings) Attributable to Valencia Non-controlling Interest(3,920)(3,940)(7,414)(7,669)
Preferred Stock Dividend Requirements of Subsidiary(132)(132)(264)(264)
Net Earnings Attributable to PNMR$53,709 $57,489 $71,288 $42,229 
Net Earnings Attributable to PNMR per Common Share:
Basic$0.62 $0.72 $0.83 $0.53 
Diluted$0.62 $0.72 $0.83 $0.53 
Dividends Declared per Common Share$0.3275 $0.3080 $0.6550 $0.6150 

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


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

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Net Earnings (Loss)$61,561  $(72,283) $50,162  $(50,622) 
Other Comprehensive Income:
Unrealized Gains on Available-for-Sale Debt Securities:
Net change in unrealized holding gains arising during the period, net of income tax (expense) of $(3,556), $(2,250), $(2,468), and $(4,048)10,444  6,610  7,249  11,890  
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $476, $1,251, $777, and $1,423(1,398) (3,674) (2,282) (4,178) 
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(527), $(470), $(1,054), and $(940)1,548  1,381  3,096  2,762  
Fair Value Adjustment for Cash Flow Hedges:
Change in fair market value, net of income tax (expense) benefit of $(203), $494, $304, $805597  (1,450) (894) (2,364) 
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $117, $(65), $127, and $(133)(345) 190  (373) 392  
Total Other Comprehensive Income10,846  3,057  6,796  8,502  
Comprehensive Income (Loss)72,407  (69,226) 56,958  (42,120) 
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,940) (3,499) (7,669) (6,328) 
Preferred Stock Dividend Requirements of Subsidiary(132) (132) (264) (264) 
Comprehensive Income (Loss) Attributable to PNMR$68,335  $(72,857) $49,025  $(48,712) 
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)
Net Earnings$57,761 $61,561 $78,966 $50,162 
Other Comprehensive Income:
Unrealized Gains on Available-for-Sale Debt Securities:
Net change in unrealized holding gains arising during the period, net of income tax (expense) of $(928), $(3,556), $(83), and $(2,468)2,727 10,444 246 7,249 
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $511, $476, $1,430, and $777(1,503)(1,398)(4,202)(2,282)
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(530), $(527), $(1,060), and $(1,054)1,557 1,548 3,114 3,096 
Fair Value Adjustment for Cash Flow Hedges:
Change in fair market value, net of income tax (expense) benefit of $(141), $(203), $(458), and $304416 597 1,346 (894)
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $71, $117, $229, and $127(208)(345)(674)(373)
Total Other Comprehensive Income (Loss)2,989 10,846 (170)6,796 
Comprehensive Income60,750 72,407 78,796 56,958 
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,920)(3,940)(7,414)(7,669)
Preferred Stock Dividend Requirements of Subsidiary(132)(132)(264)(264)
Comprehensive Income Attributable to PNMR$56,698 $68,335 $71,118 $49,025 

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

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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
(In thousands)(In thousands)
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net earnings (loss)$50,162  $(50,622) 
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Net earningsNet earnings$78,966 $50,162 
Adjustments to reconcile net earnings to net cash flows from operating activities:Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortizationDepreciation and amortization155,799  148,090  Depreciation and amortization158,204 155,799 
Deferred income tax expense (benefit)2,087  (41,930) 
Deferred income tax expenseDeferred income tax expense9,362 2,087 
(Gains) losses on investment securities(Gains) losses on investment securities11,229  (18,613) (Gains) losses on investment securities(14,160)11,229 
Stock based compensation expenseStock based compensation expense5,230  4,526  Stock based compensation expense5,712 5,230 
Regulatory disallowances and restructuring costs—  150,599  
Allowance for equity funds used during constructionAllowance for equity funds used during construction(3,475) (4,158) Allowance for equity funds used during construction(5,525)(3,475)
Other, netOther, net2,998  1,247  Other, net3,403 2,998 
Changes in certain assets and liabilities:Changes in certain assets and liabilities:Changes in certain assets and liabilities:
Accounts receivable and unbilled revenuesAccounts receivable and unbilled revenues(25,121) 4,205  Accounts receivable and unbilled revenues(31,424)(25,121)
Materials, supplies, and fuel stockMaterials, supplies, and fuel stock8,253  (2,656) Materials, supplies, and fuel stock4,451 8,253 
Other current assetsOther current assets(18,475) (6,020) Other current assets(23,483)(18,475)
Other assetsOther assets12,935  21,858  Other assets12,410 12,935 
Accounts payableAccounts payable(5,919) (812) Accounts payable990 (5,919)
Accrued interest and taxesAccrued interest and taxes(15,568) (6,180) Accrued interest and taxes(8,929)(15,568)
Other current liabilitiesOther current liabilities7,687  (6,381) Other current liabilities8,772 7,687 
Other liabilitiesOther liabilities(22,040) (21,288) Other liabilities(24,186)(22,040)
Net cash flows from operating activitiesNet cash flows from operating activities165,782  171,865  Net cash flows from operating activities174,563 165,782 
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Additions to utility plant and non-utility plantAdditions to utility plant and non-utility plant(343,807) (293,076) Additions to utility plant and non-utility plant(335,033)(343,807)
Proceeds from sales of investment securitiesProceeds from sales of investment securities354,651  234,011  Proceeds from sales of investment securities363,291 354,651 
Purchases of investment securitiesPurchases of investment securities(359,840) (239,609) Purchases of investment securities(367,325)(359,840)
Investments in NMRDInvestments in NMRD(18,250) (13,250) Investments in NMRD(18,250)
Distributions from NMRDDistributions from NMRD572 
Other, netOther, net19  (187) Other, net93 19 
Net cash flows from investing activities(367,227) (312,111) 
Net cash flows used in investing activitiesNet cash flows used in investing activities(338,402)(367,227)

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
10

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

Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
(In thousands)(In thousands)
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Short-term borrowings (repayments), net$494  $—  
Revolving credit facilities borrowings (repayments), net66,955  106,500  
Short-term borrowings, netShort-term borrowings, net$$494 
Revolving credit facilities borrowings, netRevolving credit facilities borrowings, net59,500 66,955 
Long-term borrowingsLong-term borrowings660,345  475,000  Long-term borrowings1,145,000 660,345 
Repayment of long-term debtRepayment of long-term debt(450,345) (372,302) Repayment of long-term debt(1,005,000)(450,345)
Proceeds from stock option exerciseProceeds from stock option exercise24  943  Proceeds from stock option exercise24 
Awards of common stockAwards of common stock(11,984) (9,892) Awards of common stock(9,953)(11,984)
Dividends paidDividends paid(49,251) (46,463) Dividends paid(56,486)(49,251)
Valencia’s transactions with its ownerValencia’s transactions with its owner(10,794) (7,948) Valencia’s transactions with its owner(9,256)(10,794)
Transmission interconnection and security deposit arrangementsTransmission interconnection and security deposit arrangements3,364  —  Transmission interconnection and security deposit arrangements15,875 3,364 
Refunds paid under transmission interconnection arrangementsRefunds paid under transmission interconnection arrangements(3,816) (1,661) Refunds paid under transmission interconnection arrangements(4,163)(3,816)
Debt issuance costs and other, netDebt issuance costs and other, net(4,557) (1,827) Debt issuance costs and other, net(1,149)(4,557)
Net cash flows from financing activitiesNet cash flows from financing activities200,435  142,350  Net cash flows from financing activities134,368 200,435 
Change in Cash, Restricted Cash, and EquivalentsChange in Cash, Restricted Cash, and Equivalents(1,010) 2,104  Change in Cash, Restricted Cash, and Equivalents(29,471)(1,010)
Cash, Restricted Cash, and Equivalents at Beginning of PeriodCash, Restricted Cash, and Equivalents at Beginning of Period3,833  2,122  Cash, Restricted Cash, and Equivalents at Beginning of Period47,928 3,833 
Cash, Restricted Cash, and Equivalents at End of PeriodCash, Restricted Cash, and Equivalents at End of Period$2,823  $4,226  Cash, Restricted Cash, and Equivalents at End of Period$18,457 $2,823 
Supplemental Cash Flow Disclosures:Supplemental Cash Flow Disclosures:Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalizedInterest paid, net of amounts capitalized$57,600  $61,539  Interest paid, net of amounts capitalized$49,127 $57,600 
Income taxes paid (refunded), netIncome taxes paid (refunded), net$(131) $(2,768) Income taxes paid (refunded), net$892 $(131)
Supplemental schedule of noncash investing activities:Supplemental schedule of noncash investing activities:Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions$21,265  $30,451  
Decrease in accrued plant additionsDecrease in accrued plant additions$42,057 $21,265 

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

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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2020
December 31,
2019
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$2,823  $3,833  
Accounts receivable, net of allowance for credit losses of $1,911 and $1,16396,209  85,889  
Unbilled revenues70,480  57,416  
Other receivables10,349  12,165  
Materials, supplies, and fuel stock69,676  77,929  
Regulatory assets21,574  7,373  
Income taxes receivable4,494  4,933  
Other current assets51,279  44,472  
Total current assets326,884  294,010  
Other Property and Investments:
Investment securities389,452  388,832  
Equity investment in NMRD84,037  65,159  
Other investments336  356  
Non-utility property, net19,679  12,459  
Total other property and investments493,504  466,806  
Utility Plant:
Plant in service, held for future use, and to be abandoned8,030,505  7,918,601  
Less accumulated depreciation and amortization2,773,434  2,713,503  
5,257,071  5,205,098  
Construction work in progress309,513  161,106  
Nuclear fuel, net of accumulated amortization of $41,140 and $42,354101,994  99,805  
Net utility plant5,668,578  5,466,009  
Deferred Charges and Other Assets:
Regulatory assets582,586  556,930  
Goodwill278,297  278,297  
Operating lease right-of-use assets, net of accumulated amortization118,140  131,212  
Other deferred charges106,478  105,510  
Total deferred charges and other assets1,085,501  1,071,949  
$7,574,467  $7,298,774  
June 30,
2021
December 31,
2020
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$18,457 $47,928 
Accounts receivable, net of allowance for credit losses of $10,731 and $8,333123,540 113,410 
Unbilled revenues69,229 55,504 
Other receivables19,977 23,797 
Materials, supplies, and fuel stock61,966 66,417 
Regulatory assets32,525 202 
Income taxes receivable6,061 5,672 
Other current assets60,138 64,549 
Total current assets391,893 377,479 
Other Property and Investments:
Investment securities453,007 440,115 
Equity investment in NMRD88,504 90,655 
Other investments190 284 
Non-utility property, net24,170 24,075 
Total other property and investments565,871 555,129 
Utility Plant:
Plant in service, held for future use, and to be abandoned8,650,041 8,480,799 
Less accumulated depreciation and amortization2,907,778 2,835,170 
5,742,263 5,645,629 
Construction work in progress293,050 218,719 
Nuclear fuel, net of accumulated amortization of $41,688 and $41,36799,118 100,801 
Net utility plant6,134,431 5,965,149 
Deferred Charges and Other Assets:
Regulatory assets549,286 557,790 
Goodwill278,297 278,297 
Operating lease right-of-use assets, net of accumulated amortization92,498 105,133 
Other deferred charges108,193 100,877 
Total deferred charges and other assets1,028,274 1,042,097 
$8,120,469 $7,939,854 

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

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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2020
December 31,
2019
(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt$252,549  $185,100  
Current installments of long-term debt779,372  490,268  
Accounts payable75,933  103,118  
Customer deposits10,004  10,585  
Accrued interest and taxes60,807  76,815  
Regulatory liabilities3,659  505  
Operating lease liabilities26,744  29,068  
Dividends declared132  24,625  
Other current liabilities56,574  47,397  
Total current liabilities1,265,774  967,481  
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs2,437,246  2,517,449  
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes647,883  626,058  
Regulatory liabilities867,953  866,243  
Asset retirement obligations181,805  181,962  
Accrued pension liability and postretirement benefit cost87,248  95,037  
Operating lease liabilities91,320  105,512  
Other deferred credits227,282  185,753  
Total deferred credits and other liabilities2,103,491  2,060,565  
Total liabilities5,806,511  5,545,495  
Commitments and Contingencies (Note 11)
Cumulative Preferred Stock of Subsidiary
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529  11,529  
Equity:
PNMR common stockholders’ equity:
Common stock (0 par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)1,143,822  1,150,552  
Accumulated other comprehensive income (loss), net of income taxes(92,581) (99,377) 
Retained earnings645,259  627,523  
Total PNMR common stockholders’ equity1,696,500  1,678,698  
Non-controlling interest in Valencia59,927  63,052  
Total equity1,756,427  1,741,750  
$7,574,467  $7,298,774  
June 30,
2021
December 31,
2020
(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt$91,500 $32,000 
Current installments of long-term debt250,051 575,518 
Accounts payable128,249 169,317 
Customer deposits4,752 6,606 
Accrued interest and taxes59,667 68,206 
Regulatory liabilities2,802 7,471 
Operating lease liabilities26,472 27,460 
Dividends declared132 28,243 
Other current liabilities72,842 62,841 
Total current liabilities636,467 977,662 
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs3,186,052 2,719,632 
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes718,843 694,512 
Regulatory liabilities852,655 850,228 
Asset retirement obligations188,007 183,421 
Accrued pension liability and postretirement benefit cost50,584 58,101 
Operating lease liabilities66,135 81,065 
Other deferred credits264,799 255,230 
Total deferred credits and other liabilities2,141,023 2,122,557 
Total liabilities5,963,542 5,819,851 
Commitments and Contingencies (Note 11)00
Cumulative Preferred Stock of Subsidiary
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529 11,529 
Equity:
PNMR common stockholders’ equity:
Common stock (0 par value; 120,000,000 shares authorized; issued and outstanding 85,834,874 shares)1,425,700 1,429,941 
Accumulated other comprehensive income (loss), net of income taxes(79,353)(79,183)
Retained earnings741,884 698,707 
Total PNMR common stockholders’ equity2,088,231 2,049,465 
Non-controlling interest in Valencia57,167 59,009 
Total equity2,145,398 2,108,474 
$8,120,469 $7,939,854 

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

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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Attributable to PNMRNon-
controlling
Interest
in Valencia
Common
Stock
AOCIRetained
Earnings
Total PNMR Common Stockholders’ EquityTotal
Equity
(In thousands)
Balance at March 31, 2020$1,142,879  $(103,427) $587,770  $1,627,222  $60,347  $1,687,569  
Net earnings before subsidiary preferred stock dividends—  —  57,621  57,621  3,940  61,561  
Total other comprehensive income—  10,846  —  10,846  —  10,846  
Subsidiary preferred stock dividends—  —  (132) (132) —  (132) 
Awards of common stock(486) —  —  (486) —  (486) 
Stock based compensation expense1,429  —  —  1,429  —  1,429  
Valencia’s transactions with its owner—  —  —  —  (4,360) (4,360) 
Balance at June 30, 2020$1,143,822  $(92,581) $645,259  $1,696,500  $59,927  $1,756,427  
Balance at December 31, 2019$1,150,552  $(99,377) $627,523  $1,678,698  $63,052  $1,741,750  
Net earnings before subsidiary preferred stock dividends—  —  42,493  42,493  7,669  50,162  
Total other comprehensive income—  6,796  —  6,796  —  6,796  
Subsidiary preferred stock dividends—  —  (264) (264) —  (264) 
Dividends declared on common stock—  —  (24,493) (24,493) —  (24,493) 
Proceeds from stock option exercise24  —  —  24  —  24  
Awards of common stock(11,984) —  —  (11,984) —  (11,984) 
Stock based compensation expense5,230  —  —  5,230  —  5,230  
Valencia’s transactions with its owner—  —  —  —  (10,794) (10,794) 
Balance at June 30, 2020$1,143,822  $(92,581) $645,259  $1,696,500  $59,927  $1,756,427  
Attributable to PNMRNon-
controlling
Interest
in Valencia
Common
Stock
AOCIRetained
Earnings
Total PNMR Common Stockholders’ EquityTotal
Equity
(In thousands)
Balance at March 31, 2021$1,425,133 $(82,342)$688,175 $2,030,966 $57,260 $2,088,226 
Net earnings before subsidiary preferred stock dividends— — 53,841 53,841 3,920 57,761 
Total other comprehensive income— 2,989 — 2,989 — 2,989 
Subsidiary preferred stock dividends— — (132)(132)— (132)
Awards of common stock(926)— — (926)— (926)
Stock based compensation expense1,493 — — 1,493 — 1,493 
Valencia’s transactions with its owner— — — — (4,013)(4,013)
Balance at June 30, 2021$1,425,700 $(79,353)$741,884 $2,088,231 $57,167 $2,145,398 
Balance at December 31, 2020$1,429,941 $(79,183)$698,707 $2,049,465 $59,009 $2,108,474 
Net earnings before subsidiary preferred stock dividends— — 71,552 71,552 7,414 78,966 
Total other comprehensive income (loss)— (170)— (170)— (170)
Subsidiary preferred stock dividends— — (264)(264)— (264)
Dividends declared on common stock— — (28,111)(28,111)— (28,111)
Awards of common stock(9,953)— — (9,953)— (9,953)
Stock based compensation expense5,712 — — 5,712 — 5,712 
Valencia’s transactions with its owner— — — — (9,256)(9,256)
Balance at June 30, 2021$1,425,700 $(79,353)$741,884 $2,088,231 $57,167 $2,145,398 


Balance at March 31, 2019$1,148,364  $(103,239) $639,554  $1,684,679  $62,779  $1,747,458  
Net earnings (loss) before subsidiary preferred stock dividends—  —  (75,782) (75,782) 3,499  (72,283) 
Balance at March 31, 2020Balance at March 31, 2020$1,142,879 $(103,427)$587,770 $1,627,222 $60,347 $1,687,569 
Net earnings before subsidiary preferred stock dividendsNet earnings before subsidiary preferred stock dividends— — 57,621 57,621 3,940 61,561 
Total other comprehensive incomeTotal other comprehensive income—  3,057  —  3,057  —  3,057  Total other comprehensive income— 10,846 — 10,846 — 10,846 
Subsidiary preferred stock dividendsSubsidiary preferred stock dividends— — (132)(132)— (132)
Dividends declared on common stock—  —  (132) (132) —  (132) 
Proceeds from stock option exercise13  —  —  13  —  13  
Awards of common stockAwards of common stock(956) —  —  (956) —  (956) Awards of common stock(486)— — (486)— (486)
Stock based compensation expenseStock based compensation expense1,269  —  —  1,269  —  1,269  Stock based compensation expense1,429 — — 1,429 — 1,429 
Valencia’s transactions with its ownerValencia’s transactions with its owner—  —  —  —  (3,686) (3,686) Valencia’s transactions with its owner— — — — (4,360)(4,360)
Balance at June 30, 2019$1,148,690  $(100,182) $563,640  $1,612,148  $62,592  $1,674,740  
Balance at June 30, 2020Balance at June 30, 2020$1,143,822 $(92,581)$645,259 $1,696,500 $59,927 $1,756,427 
Balance at December 31, 2018$1,153,113  $(108,684) $643,953  $1,688,382  $64,212  $1,752,594  
Net earnings (loss) before subsidiary preferred stock dividends—  —  (56,950) (56,950) 6,328  (50,622) 
Balance at December 31, 2019Balance at December 31, 2019$1,150,552 $(99,377)$627,523 $1,678,698 $63,052 $1,741,750 
Net earnings before subsidiary preferred stock dividendsNet earnings before subsidiary preferred stock dividends— — 42,493 42,493 7,669 50,162 
Total other comprehensive incomeTotal other comprehensive income—  8,502  —  8,502  —  8,502  Total other comprehensive income— 6,796 — 6,796 — 6,796 
Subsidiary preferred stock dividendsSubsidiary preferred stock dividends—  —  (264) (264) —  (264) Subsidiary preferred stock dividends— — (264)(264)— (264)
Dividends declared on common stockDividends declared on common stock—  —  (23,099) (23,099) —  (23,099) Dividends declared on common stock— — (24,493)(24,493)— (24,493)
Proceeds from stock option exerciseProceeds from stock option exercise943  —  —  943  —  943  Proceeds from stock option exercise24 — — 24 — 24 
Awards of common stockAwards of common stock(9,892) —  —  (9,892) —  (9,892) Awards of common stock(11,984)— — (11,984)— (11,984)
Stock based compensation expenseStock based compensation expense4,526  —  —  4,526  —  4,526  Stock based compensation expense5,230 — — 5,230 — 5,230 
Valencia’s transactions with its ownerValencia’s transactions with its owner—  —  —  —  (7,948) (7,948) Valencia’s transactions with its owner— — — — (10,794)(10,794)
Balance at June 30, 2019$1,148,690  $(100,182) $563,640  $1,612,148  $62,592  $1,674,740  
Balance at June 30, 2020Balance at June 30, 2020$1,143,822 $(92,581)$645,259 $1,696,500 $59,927 $1,756,427 

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
14

Table of Contents

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

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(In thousands)(In thousands)
Electric Operating Revenues:
Electric Operating Revenues:
Electric Operating Revenues:
Contracts with customersContracts with customers$248,151  $228,061  $483,909  $464,002  Contracts with customers$271,652 $248,151 $522,858 $483,909 
Alternative revenue programsAlternative revenue programs2,529  691  4,690  756  Alternative revenue programs1,886 2,529 2,862 4,690 
Other electric operating revenueOther electric operating revenue10,108  9,467  20,322  42,778  Other electric operating revenue50,411 10,108 69,442 20,322 
Total electric operating revenuesTotal electric operating revenues260,788  238,219  508,921  507,536  Total electric operating revenues323,949 260,788 595,162 508,921 
Operating Expenses:Operating Expenses:Operating Expenses:
Cost of energyCost of energy67,884  58,866  142,408  158,204  Cost of energy123,768 67,884 212,654 142,408 
Administrative and generalAdministrative and general45,051  40,237  86,719  87,639  Administrative and general46,136 45,051 93,270 86,719 
Energy production costsEnergy production costs33,345  42,905  66,963  77,977  Energy production costs37,439 33,345 74,335 66,963 
Regulatory disallowances and restructuring costs—  149,254  —  150,599  
Depreciation and amortizationDepreciation and amortization41,763  39,811  83,212  79,036  Depreciation and amortization42,489 41,763 84,438 83,212 
Transmission and distribution costsTransmission and distribution costs11,275  11,838  22,190  22,471  Transmission and distribution costs11,403 11,275 22,062 22,190 
Taxes other than income taxesTaxes other than income taxes11,886  11,285  24,241  23,295  Taxes other than income taxes10,947 11,886 23,586 24,241 
Total operating expensesTotal operating expenses211,204  354,196  425,733  599,221  Total operating expenses272,182 211,204 510,345 425,733 
Operating income (loss)49,584  (115,977) 83,188  (91,685) 
Operating incomeOperating income51,767 49,584 84,817 83,188 
Other Income and Deductions:Other Income and Deductions:Other Income and Deductions:
Interest incomeInterest income3,147  3,530  6,643  7,187  Interest income3,417 3,147 7,012 6,643 
Gains (losses) on investment securitiesGains (losses) on investment securities21,620  4,599  (11,229) 18,613  Gains (losses) on investment securities13,192 21,620 14,160 (11,229)
Other incomeOther income1,758  1,920  3,267  4,552  Other income2,584 1,758 5,292 3,267 
Other (deductions)Other (deductions)(2,424) (2,340) (5,110) (4,629) Other (deductions)(4,673)(2,424)(7,105)(5,110)
Net other income and deductionsNet other income and deductions24,101  7,709  (6,429) 25,723  Net other income and deductions14,520 24,101 19,359 (6,429)
Interest ChargesInterest Charges19,178  18,526  36,807  36,886  Interest Charges13,039 19,178 25,932 36,807 
Earnings (Loss) before Income Taxes54,507  (126,794) 39,952  (102,848) 
Income Taxes (Benefits)4,895  (43,481) 2,536  (41,508) 
Net Earnings (Loss)49,612  (83,313) 37,416  (61,340) 
Earnings before Income TaxesEarnings before Income Taxes53,248 54,507 78,244 39,952 
Income TaxesIncome Taxes7,844 4,895 10,678 2,536 
Net EarningsNet Earnings45,404 49,612 67,566 37,416 
(Earnings) Attributable to Valencia Non-controlling Interest(Earnings) Attributable to Valencia Non-controlling Interest(3,940) (3,499) (7,669) (6,328) (Earnings) Attributable to Valencia Non-controlling Interest(3,920)(3,940)(7,414)(7,669)
Net Earnings (Loss) Attributable to PNM45,672  (86,812) 29,747  (67,668) 
Net Earnings Attributable to PNMNet Earnings Attributable to PNM41,484 45,672 60,152 29,747 
Preferred Stock Dividends RequirementsPreferred Stock Dividends Requirements(132) (132) (264) (264) Preferred Stock Dividends Requirements(132)(132)(264)(264)
Net Earnings (Loss) Available for PNM Common Stock$45,540  $(86,944) $29,483  $(67,932) 
Net Earnings Available for PNM Common StockNet Earnings Available for PNM Common Stock$41,352 $45,540 $59,888 $29,483 

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Net Earnings (Loss)$49,612  $(83,313) $37,416  $(61,340) 
Other Comprehensive Income:
Unrealized Gains on Available-for-Sale Debt Securities:
Net change in unrealized holding gains arising during the period, net of income tax (expense) of $(3,556), $(2,250), $(2,468), and $(4,048)10,444  6,610  7,249  11,890  
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $476, $1,251, $777, and $1,423(1,398) (3,674) (2,282) (4,178) 
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(527), $(470), $(1,054), and $(940)1,548  1,381  3,096  2,762  
Total Other Comprehensive Income10,594  4,317  8,063  10,474  
Comprehensive Income (Loss)60,206  (78,996) 45,479  (50,866) 
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,940) (3,499) (7,669) (6,328) 
Comprehensive Income (Loss) Attributable to PNM$56,266  $(82,495) $37,810  $(57,194) 
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)
Net Earnings$45,404 $49,612 $67,566 $37,416 
Other Comprehensive Income:
Unrealized Gains on Available-for-Sale Debt Securities:
Net change in unrealized holding gains arising during the period, net of income tax (expense) of $(928), $(3,556), $(83), and $(2,468)2,727 10,444 246 7,249 
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $511, $476, $1,430 and $777(1,503)(1,398)(4,202)(2,282)
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(530), $(527), $(1,060) and $(1,054)1,557 1,548 3,114 3,096 
Total Other Comprehensive Income (Loss)2,781 10,594 (842)8,063 
Comprehensive Income48,185 60,206 66,724 45,479 
Comprehensive (Income) Attributable to Valencia Non-controlling Interest(3,920)(3,940)(7,414)(7,669)
Comprehensive Income Attributable to PNM$44,265 $56,266 $59,310 $37,810 

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
(In thousands)(In thousands)
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net earnings (loss)$37,416  $(61,340) 
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
Net earningsNet earnings$67,566 $37,416 
Adjustments to reconcile net earnings to net cash flows from operating activities:Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortizationDepreciation and amortization98,841  94,467  Depreciation and amortization100,445 98,841 
Deferred income tax expense (benefit)2,861  (41,292) 
Deferred income tax expenseDeferred income tax expense10,820 2,861 
(Gains) losses on investment securities(Gains) losses on investment securities11,229  (18,613) (Gains) losses on investment securities(14,160)11,229 
Regulatory disallowances and restructuring costs—  150,599  
Allowance for equity funds used during constructionAllowance for equity funds used during construction(2,399) (3,456) Allowance for equity funds used during construction(4,282)(2,399)
Other, netOther, net3,605  1,173  Other, net1,799 3,605 
Changes in certain assets and liabilities:Changes in certain assets and liabilities:Changes in certain assets and liabilities:
Accounts receivable and unbilled revenuesAccounts receivable and unbilled revenues(19,898) 8,778  Accounts receivable and unbilled revenues(28,252)(19,898)
Materials, supplies, and fuel stockMaterials, supplies, and fuel stock8,773  (2,423) Materials, supplies, and fuel stock4,954 8,773 
Other current assetsOther current assets(11,790) (1,509) Other current assets(19,951)(11,790)
Other assetsOther assets9,436  18,132  Other assets10,997 9,436 
Accounts payableAccounts payable(727) (4,049) Accounts payable4,765 (727)
Accrued interest and taxesAccrued interest and taxes(9,504) 3,615  Accrued interest and taxes330 (9,504)
Other current liabilitiesOther current liabilities7,790  24,019  Other current liabilities13,377 7,790 
Other liabilitiesOther liabilities(20,190) (22,483) Other liabilities(22,824)(20,190)
Net cash flows from operating activitiesNet cash flows from operating activities115,443  145,618  Net cash flows from operating activities125,584 115,443 
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Utility plant additionsUtility plant additions(183,276) (157,874) Utility plant additions(161,391)(183,276)
Proceeds from sales of investment securitiesProceeds from sales of investment securities354,651  234,011  Proceeds from sales of investment securities363,291 354,651 
Purchases of investment securitiesPurchases of investment securities(359,840) (239,609) Purchases of investment securities(367,325)(359,840)
Other, netOther, net19   Other, net94 19 
Net cash flows from investing activities(188,446) (163,471) 
Net cash flows used in investing activitiesNet cash flows used in investing activities(165,331)(188,446)

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

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

Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
(In thousands)(In thousands)
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Revolving credit facilities borrowings (repayments), netRevolving credit facilities borrowings (repayments), net$29,055  $(200) Revolving credit facilities borrowings (repayments), net$(10,000)$29,055 
Short-term borrowings (repayments) – affiliate, net—  (19,800) 
Long-term borrowingsLong-term borrowings550,345  250,000  Long-term borrowings75,000 550,345 
Repayment of long-term debtRepayment of long-term debt(450,345) (200,000) Repayment of long-term debt(40,000)(450,345)
Dividends paidDividends paid(40,918) (264) Dividends paid(264)(40,918)
Valencia’s transactions with its ownerValencia’s transactions with its owner(10,794) (7,948) Valencia’s transactions with its owner(9,256)(10,794)
Transmission interconnection and security deposit arrangementsTransmission interconnection and security deposit arrangements1,962  —  Transmission interconnection and security deposit arrangements12,275 1,962 
Refunds paid under transmission interconnection arrangementsRefunds paid under transmission interconnection arrangements(3,816) (1,661) Refunds paid under transmission interconnection arrangements(1,861)(3,816)
Debt issuance costs and other, netDebt issuance costs and other, net(2,541) (120) Debt issuance costs and other, net(321)(2,541)
Net cash flows from financing activitiesNet cash flows from financing activities72,948  20,007  Net cash flows from financing activities25,573 72,948 
Change in Cash, Restricted Cash, and EquivalentsChange in Cash, Restricted Cash, and Equivalents(55) 2,154  Change in Cash, Restricted Cash, and Equivalents(14,174)(55)
Cash, Restricted Cash, and Equivalents at Beginning of PeriodCash, Restricted Cash, and Equivalents at Beginning of Period1,001  85  Cash, Restricted Cash, and Equivalents at Beginning of Period31,446 1,001 
Cash, Restricted Cash, and Equivalents at End of PeriodCash, Restricted Cash, and Equivalents at End of Period$946  $2,239  Cash, Restricted Cash, and Equivalents at End of Period$17,272 $946 
Supplemental Cash Flow Disclosures:Supplemental Cash Flow Disclosures:Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalizedInterest paid, net of amounts capitalized$34,371  $34,308  Interest paid, net of amounts capitalized$23,942 $34,371 
Income taxes paid (refunded), netIncome taxes paid (refunded), net$—  $(3,383) Income taxes paid (refunded), net$$
Supplemental schedule of noncash investing activities:Supplemental schedule of noncash investing activities:Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions$13,601  $13,213  
Decrease in accrued plant additionsDecrease in accrued plant additions$33,639 $13,601 

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2020
December 31,
2019
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$946  $1,001  
Accounts receivable, net of allowance for credit losses of $1,911 and $1,16366,618  60,447  
Unbilled revenues58,592  46,602  
Other receivables9,459  11,039  
Affiliate receivables8,941  8,825  
Materials, supplies, and fuel stock63,452  72,225  
Regulatory assets17,722  7,373  
Income taxes receivable15,448  15,122  
Other current assets40,114  36,561  
Total current assets281,292  259,195  
Other Property and Investments:
Investment securities389,452  388,832  
Other investments158  178  
Non-utility property, net7,587  4,470  
Total other property and investments397,197  393,480  
Utility Plant:
Plant in service, held for future use, and to be abandoned5,807,772  5,753,267  
Less accumulated depreciation and amortization2,112,706  2,076,291  
3,695,066  3,676,976  
Construction work in progress175,076  108,787  
Nuclear fuel, net of accumulated amortization of $41,140 and $42,354101,994  99,805  
Net utility plant3,972,136  3,885,568  
Deferred Charges and Other Assets:
Regulatory assets471,696  435,467  
Goodwill51,632  51,632  
Operating lease right-of-use assets, net of accumulated amortization109,042  120,585  
Other deferred charges94,427  97,064  
Total deferred charges and other assets726,797  704,748  
$5,377,422  $5,242,991  
June 30,
2021
December 31,
2020
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$17,272 $31,446 
Accounts receivable, net of allowance for credit losses of $10,731 and $8,33395,184 88,239 
Unbilled revenues57,462 43,724 
Other receivables13,609 21,814 
Affiliate receivables8,941 8,819 
Materials, supplies, and fuel stock55,518 60,472 
Regulatory assets27,210 
Income taxes receivable15,848 15,706 
Other current assets53,261 51,908 
Total current assets344,305 322,128 
Other Property and Investments:
Investment securities453,007 440,115 
Other investments26 120 
Non-utility property, net9,808 9,505 
Total other property and investments462,841 449,740 
Utility Plant:
Plant in service, held for future use, and to be abandoned6,096,941 6,022,753 
Less accumulated depreciation and amortization2,203,768 2,158,915 
3,893,173 3,863,838 
Construction work in progress170,717 148,962 
Nuclear fuel, net of accumulated amortization of $41,688 and $41,36799,118 100,801 
Net utility plant4,163,008 4,113,601 
Deferred Charges and Other Assets:
Regulatory assets454,151 457,953 
Goodwill51,632 51,632 
Operating lease right-of-use assets, net of accumulated amortization85,738 97,461 
Other deferred charges94,840 88,518 
Total deferred charges and other assets686,361 695,564 
$5,656,515 $5,581,033 

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

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2020
December 31,
2019
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt$87,055  $58,000  
Current installments of long-term debt189,921  350,268  
Accounts payable52,418  66,746  
Affiliate payables15,708  12,524  
Customer deposits10,004  10,585  
Accrued interest and taxes34,439  43,617  
Regulatory liabilities2,741  371  
Operating lease liabilities24,039  25,927  
Dividends declared132  132  
Other current liabilities31,051  25,066  
Total current liabilities447,508  593,236  
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs1,656,684  1,397,752  
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes540,434  521,990  
Regulatory liabilities676,454  683,398  
Asset retirement obligations180,888  181,081  
Accrued pension liability and postretirement benefit cost80,715  87,838  
Operating lease liabilities85,028  97,992  
Other deferred credits191,984  155,744  
Total deferred credits and liabilities1,755,503  1,728,043  
Total liabilities3,859,695  3,719,031  
Commitments and Contingencies (Note 11)
Cumulative Preferred Stock
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529  11,529  
Equity:
PNM common stockholder’s equity:
Common stock (0 par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)1,264,918  1,264,918  
Accumulated other comprehensive income (loss), net of income taxes(90,992) (99,055) 
Retained earnings272,345  283,516  
Total PNM common stockholder’s equity1,446,271  1,449,379  
Non-controlling interest in Valencia59,927  63,052  
Total equity1,506,198  1,512,431  
$5,377,422  $5,242,991  
June 30,
2021
December 31,
2020
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt$$10,000 
Current installments of long-term debt250,051 345,570 
Accounts payable92,176 121,050 
Affiliate payables16,746 14,058 
Customer deposits4,752 6,606 
Accrued interest and taxes33,103 32,630 
Regulatory liabilities2,489 5,419 
Operating lease liabilities24,250 25,130 
Dividends declared132 132 
Other current liabilities45,716 33,737 
Total current liabilities469,415 594,332 
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs1,482,718 1,351,050 
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes600,270 579,150 
Regulatory liabilities663,245 664,873 
Asset retirement obligations187,274 182,718 
Accrued pension liability and postretirement benefit cost49,492 56,273 
Operating lease liabilities61,834 75,941 
Other deferred credits209,782 201,415 
Total deferred credits and liabilities1,771,897 1,760,370 
Total liabilities3,724,030 3,705,752 
Commitments and Contingencies (Note 11)00
Cumulative Preferred Stock
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)11,529 11,529 
Equity:
PNM common stockholder’s equity:
Common stock (0 par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)1,494,918 1,494,918 
Accumulated other comprehensive income (loss), net of income taxes(79,353)(78,511)
Retained earnings448,224 388,336 
Total PNM common stockholder’s equity1,863,789 1,804,743 
Non-controlling interest in Valencia57,167 59,009 
Total equity1,920,956 1,863,752 
$5,656,515 $5,581,033 

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
Attributable to PNM
Total PNM
Common
Stockholder’s
Equity
Non-
controlling
 Interest in Valencia
Common
Stock
AOCIRetained
Earnings
Total
Equity
(In thousands)
Balance at March 31, 2021$1,494,918 $(82,134)$406,872 $1,819,656 $57,260 $1,876,916 
Net earnings— — 41,484 41,484 3,920 45,404 
Total other comprehensive income— 2,781 — 2,781 — 2,781 
Dividends declared on preferred stock— — (132)(132)— (132)
Valencia’s transactions with its owner— — — — (4,013)(4,013)
Balance at June 30, 2021$1,494,918 $(79,353)$448,224 $1,863,789 $57,167 $1,920,956 
Balance at December 31, 2020$1,494,918 $(78,511)$388,336 $1,804,743 $59,009 $1,863,752 
Net earnings— — 60,152 60,152 7,414 67,566 
Total other comprehensive income (loss)— (842)— (842)— (842)
Dividends declared on preferred stock— — (264)(264)— (264)
Valencia’s transactions with its owner— — — — (9,256)(9,256)
Balance at June 30, 2021$1,494,918 $(79,353)$448,224 $1,863,789 $57,167 $1,920,956 
Attributable to PNM
Total PNM
Common
Stockholder’s
Equity
Non-
controlling
Interest in Valencia
Common
Stock
AOCIRetained
Earnings
Total
Equity
(In thousands)
Balance at March 31, 2020$1,264,918  $(101,586) $226,805  $1,390,137  $60,347  $1,450,484  
Net earnings—  —  45,672  45,672  3,940  49,612  
Total other comprehensive income—  10,594  —  10,594  —  10,594  
Dividends declared on preferred stock—  —  (132) (132) —  (132) 
Valencia’s transactions with its owner—  —  —  —  (4,360) (4,360) 
Balance at June 30, 2020$1,264,918  $(90,992) $272,345  $1,446,271  $59,927  $1,506,198  
Balance at December 31, 2019$1,264,918  $(99,055) $283,516  $1,449,379  $63,052  $1,512,431  
Net earnings—  —  29,747  29,747  7,669  37,416  
Total other comprehensive income—  8,063  —  8,063  —  8,063  
Dividends declared on preferred stock—  —  (264) (264) —  (264) 
Dividends declared on common stock—  —  (40,654) (40,654) —  (40,654) 
Valencia’s transactions with its owner—  —  —  —  (10,794) (10,794) 
Balance at June 30, 2020$1,264,918  $(90,992) $272,345  $1,446,271  $59,927  $1,506,198  

Balance at March 31, 2019$1,264,918  $(104,265) $261,875  $1,422,528  $62,779  $1,485,307  
Net earnings (loss)—  —  (86,812) (86,812) 3,499  (83,313) 
Balance at March 31, 2020Balance at March 31, 2020$1,264,918 $(101,586)$226,805 $1,390,137 $60,347 $1,450,484 
Net earningsNet earnings— — 45,672 45,672 3,940 49,612 
Total other comprehensive incomeTotal other comprehensive income—  4,317  —  4,317  —  4,317  Total other comprehensive income— 10,594 — 10,594 — 10,594 
Dividends declared on preferred stockDividends declared on preferred stock—  —  (132) (132) —  (132) Dividends declared on preferred stock— — (132)(132)— (132)
Valencia’s transactions with its ownerValencia’s transactions with its owner—  —  —  —  (3,686) (3,686) Valencia’s transactions with its owner— — — — (4,360)(4,360)
Balance at June 30, 2019$1,264,918  $(99,948) $174,931  $1,339,901  $62,592  $1,402,493  
Balance at June 30, 2020Balance at June 30, 2020$1,264,918 $(90,992)$272,345 $1,446,271 $59,927 $1,506,198 
Balance at December 31, 2018$1,264,918  $(110,422) $242,863  $1,397,359  $64,212  $1,461,571  
Net earnings (loss)—  —  (67,668) (67,668) 6,328  (61,340) 
Balance at December 31, 2019Balance at December 31, 2019$1,264,918 $(99,055)$283,516 $1,449,379 $63,052 $1,512,431 
Net earningsNet earnings— — 29,747 29,747 7,669 37,416 
Total other comprehensive incomeTotal other comprehensive income—  10,474  —  10,474  —  10,474  Total other comprehensive income— 8,063 — 8,063 — 8,063 
Dividends declared on preferred stockDividends declared on preferred stock—  —  (264) (264) —  (264) Dividends declared on preferred stock— — (264)(264)— (264)
Dividends declared on common stockDividends declared on common stock— — (40,654)(40,654)— (40,654)
Valencia’s transactions with its ownerValencia’s transactions with its owner—  —  —  —  (7,948) (7,948) Valencia’s transactions with its owner— — — — (10,794)(10,794)
Balance at June 30, 2019$1,264,918  $(99,948) $174,931  $1,339,901  $62,592  $1,402,493  
Balance at June 30, 2020Balance at June 30, 2020$1,264,918 $(90,992)$272,345 $1,446,271 $59,927 $1,506,198 


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
21

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(In thousands)(In thousands)
Electric Operating Revenues:
Electric Operating Revenues:
Electric Operating Revenues:
Contracts with customersContracts with customers$94,924  $86,856  $182,148  $166,612  Contracts with customers$97,241 $94,924 $192,620 $182,148 
Alternative revenue programsAlternative revenue programs1,937  5,153  202  5,724  Alternative revenue programs5,350 1,937 3,465 202 
Total electric operating revenuesTotal electric operating revenues96,861  92,009  182,350  172,336  Total electric operating revenues102,591 96,861 196,085 182,350 
Operating Expenses:Operating Expenses:Operating Expenses:
Cost of energyCost of energy25,979  24,916  50,165  47,204  Cost of energy28,908 25,979 55,418 50,165 
Administrative and generalAdministrative and general10,757  9,097  21,530  20,655  Administrative and general11,022 10,757 23,252 21,530 
Depreciation and amortizationDepreciation and amortization22,368  20,502  44,204  40,716  Depreciation and amortization22,475 22,368 44,665 44,204 
Transmission and distribution costsTransmission and distribution costs6,759  7,357  13,130  13,401  Transmission and distribution costs7,450 6,759 14,108 13,130 
Taxes other than income taxesTaxes other than income taxes7,823  7,559  15,801  15,197  Taxes other than income taxes8,032 7,823 16,913 15,801 
Total operating expensesTotal operating expenses73,686  69,431  144,830  137,173  Total operating expenses77,887 73,686 154,356 144,830 
Operating incomeOperating income23,175  22,578  37,520  35,163  Operating income24,704 23,175 41,729 37,520 
Other Income and Deductions:Other Income and Deductions:Other Income and Deductions:
Other incomeOther income2,029  1,191  2,699  1,940  Other income1,323 2,029 2,709 2,699 
Other (deductions)Other (deductions)(66) (460) (175) (623) Other (deductions)(278)(66)(602)(175)
Net other income and deductionsNet other income and deductions1,963  731  2,524  1,317  Net other income and deductions1,045 1,963 2,107 2,524 
Interest ChargesInterest Charges7,361  6,560  14,533  15,361  Interest Charges8,277 7,361 16,752 14,533 
Earnings before Income TaxesEarnings before Income Taxes17,777  16,749  25,511  21,119  Earnings before Income Taxes17,472 17,777 27,084 25,511 
Income TaxesIncome Taxes1,603  1,482  2,245  1,754  Income Taxes1,822 1,603 2,699 2,245 
Net EarningsNet Earnings$16,174  $15,267  $23,266  $19,365  Net Earnings$15,650 $16,174 $24,385 $23,266 

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


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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
(In thousands)(In thousands)
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net earningsNet earnings$23,266  $19,365  Net earnings$24,385 $23,266 
Adjustments to reconcile net earnings to net cash flows from operating activities:Adjustments to reconcile net earnings to net cash flows from operating activities:Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortizationDepreciation and amortization44,767  41,379  Depreciation and amortization45,123 44,767 
Deferred income tax expense (benefit)Deferred income tax expense (benefit)(4,882) (8,004) Deferred income tax expense (benefit)(2,427)(4,882)
Other, netOther, net(1,054) (680) Other, net(1,220)(1,054)
Changes in certain assets and liabilities:Changes in certain assets and liabilities:Changes in certain assets and liabilities:
Accounts receivable and unbilled revenuesAccounts receivable and unbilled revenues(5,223) (4,573) Accounts receivable and unbilled revenues(3,172)(5,223)
Materials and suppliesMaterials and supplies(520) (233) Materials and supplies(503)(520)
Other current assetsOther current assets(4,329) (7,155) Other current assets(4,627)(4,329)
Other assetsOther assets4,359  3,544  Other assets2,680 4,359 
Accounts payableAccounts payable(2,108) 2,442  Accounts payable(2,590)(2,108)
Accrued interest and taxesAccrued interest and taxes893  1,175  Accrued interest and taxes(1,921)893 
Other current liabilitiesOther current liabilities4,059  3,130  Other current liabilities3,216 4,059 
Other liabilitiesOther liabilities(1,079) (1,234) Other liabilities(2,934)(1,079)
Net cash flows from operating activitiesNet cash flows from operating activities58,149  49,156  Net cash flows from operating activities56,010 58,149 
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Utility plant additionsUtility plant additions(148,000) (124,376) Utility plant additions(161,984)(148,000)
Net cash flows from investing activities(148,000) (124,376) 
Net cash flows used in investing activitiesNet cash flows used in investing activities(161,984)(148,000)
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Short-term borrowings (repayments), net494  —  
Short-term borrowings, netShort-term borrowings, net494 
Revolving credit facilities borrowings (repayments), netRevolving credit facilities borrowings (repayments), net(2,400) 37,500  Revolving credit facilities borrowings (repayments), net38,200 (2,400)
Short-term borrowings (repayments) – affiliate, net—  1,500  
Long-term borrowingsLong-term borrowings110,000  225,000  Long-term borrowings110,000 
Repayment of long-term debt—  (172,302) 
Equity contribution from parentEquity contribution from parent52,000 
Transmission interconnection arrangementsTransmission interconnection arrangements1,402  —  Transmission interconnection arrangements3,600 1,402 
Refunds paid under transmission interconnection arrangementsRefunds paid under transmission interconnection arrangements(2,302)
Dividends paidDividends paid(18,439) (14,811) Dividends paid(18,439)
Debt issuance costs and other, netDebt issuance costs and other, net(1,975) (1,667) Debt issuance costs and other, net(156)(1,975)
Net cash flows from financing activitiesNet cash flows from financing activities89,082  75,220  Net cash flows from financing activities91,342 89,082 
Change in Cash and Cash EquivalentsChange in Cash and Cash Equivalents(769) —  Change in Cash and Cash Equivalents(14,632)(769)
Cash and Cash Equivalents at Beginning of PeriodCash and Cash Equivalents at Beginning of Period1,000  —  Cash and Cash Equivalents at Beginning of Period14,800 1,000 
Cash and Cash Equivalents at End of PeriodCash and Cash Equivalents at End of Period$231  $—  Cash and Cash Equivalents at End of Period$168 $231 
Supplemental Cash Flow Disclosures:Supplemental Cash Flow Disclosures:Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalizedInterest paid, net of amounts capitalized$13,465  $16,342  Interest paid, net of amounts capitalized$16,016 $13,465 
Income taxes paid (refunded), netIncome taxes paid (refunded), net$(131) $615  Income taxes paid (refunded), net$892 $(131)
Supplemental schedule of noncash investing activities:Supplemental schedule of noncash investing activities:Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions$1,816  $12,182  
Decrease in accrued plant additionsDecrease in accrued plant additions$3,800 $1,816 

The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2020
December 31,
2019
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$231  $1,000  
Accounts receivable29,591  25,442  
Unbilled revenues11,888  10,814  
Other receivables2,512  2,713  
Materials and supplies6,224  5,704  
Regulatory assets3,852  —  
Other current assets2,135  1,280  
Total current assets56,433  46,953  
Other Property and Investments:
Other investments178  178  
Non-utility property, net10,814  6,684  
Total other property and investments10,992  6,862  
Utility Plant:
Plant in service and plant held for future use1,971,908  1,919,256  
Less accumulated depreciation and amortization530,230  516,795  
1,441,678  1,402,461  
Construction work in progress124,383  42,554  
Net utility plant1,566,061  1,445,015  
Deferred Charges and Other Assets:
Regulatory assets110,890  121,463  
Goodwill226,665  226,665  
Operating lease right-of-use assets, net of accumulated amortization8,535  9,954  
Other deferred charges6,145  3,527  
Total deferred charges and other assets352,235  361,609  
$1,985,721  $1,860,439  
June 30,
2021
December 31,
2020
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents$168 $14,800 
Accounts receivable28,356 25,171 
Unbilled revenues11,767 11,780 
Other receivables2,666 3,703 
Materials and supplies6,448 5,945 
Regulatory assets5,315 202 
Other current assets2,481 1,738 
Total current assets57,201 63,339 
Other Property and Investments:
Other investments164 164 
Non-utility property, net13,107 13,298 
Total other property and investments13,271 13,462 
Utility Plant:
Plant in service and plant held for future use2,287,475 2,193,270 
Less accumulated depreciation and amortization556,956 537,707 
1,730,519 1,655,563 
Construction work in progress111,059 61,359 
Net utility plant1,841,578 1,716,922 
Deferred Charges and Other Assets:
Regulatory assets95,135 99,837 
Goodwill226,665 226,665 
Operating lease right-of-use assets, net of accumulated amortization6,366 7,206 
Other deferred charges5,085 5,149 
Total deferred charges and other assets333,251 338,857 
$2,245,301 $2,132,580 

The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
2020
December 31,
2019
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt$13,094  $15,000  
Accounts payable16,674  20,598  
Affiliate payables7,020  5,419  
Accrued interest and taxes42,961  42,068  
Regulatory liabilities918  134  
 Operating lease liabilities2,428  2,753  
Other current liabilities5,823  3,565  
Total current liabilities88,918  89,537  
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs780,561  670,691  
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes139,855  140,151  
Regulatory liabilities191,499  182,845  
Asset retirement obligations917  881  
Accrued pension liability and postretirement benefit cost6,533  7,199  
Operating lease liabilities5,897  7,039  
Other deferred credits12,087  7,469  
Total deferred credits and other liabilities356,788  345,584  
Total liabilities1,226,267  1,105,812  
Commitments and Contingencies (Note 11)
Common Stockholder’s Equity:
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)64  64  
Paid-in-capital614,166  614,166  
Retained earnings145,224  140,397  
Total common stockholder’s equity759,454  754,627  
$1,985,721  $1,860,439  
June 30,
2021
December 31,
2020
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt$38,200 $
Accounts payable27,231 33,620 
Affiliate payables7,486 5,883 
Accrued interest and taxes39,616 41,538 
Regulatory liabilities313 2,052 
 Operating lease liabilities2,130 2,193 
Other current liabilities7,052 4,486 
Total current liabilities122,028 89,772 
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs853,606 853,673 
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes147,382 145,369 
Regulatory liabilities189,410 185,355 
Asset retirement obligations733 703 
Accrued pension liability and postretirement benefit cost1,092 1,828 
Operating lease liabilities3,998 4,779 
Other deferred credits24,989 25,423 
Total deferred credits and other liabilities367,604 363,457 
Total liabilities1,343,238 1,306,902 
Commitments and Contingencies (Note 11)00
Common Stockholder’s Equity:
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)64 64 
Paid-in-capital737,166 685,166 
Retained earnings164,833 140,448 
Total common stockholder’s equity902,063 825,678 
$2,245,301 $2,132,580 

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

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
(Unaudited)
Common StockPaid-in CapitalRetained EarningsTotal Common Stockholder’s Equity
(In thousands)
Balance at March 31, 2020$64  $614,166  $136,142  $750,372  
Net earnings—  —  16,174  16,174  
Dividends declared on common stock—  —  (7,092) (7,092) 
Balance at June 30, 2020$64  $614,166  $145,224  $759,454  
Balance at December 31, 2019$64  $614,166  $140,397  $754,627  
Net earnings—  —  23,266  23,266  
Dividends declared on common stock—  —  (18,439) (18,439) 
Balance at June 30, 2020$64  $614,166  $145,224  $759,454  
Common StockPaid-in CapitalRetained EarningsTotal Common Stockholder’s Equity
(In thousands)
Balance at March 31, 2021$64 $685,166 $149,183 $834,413 
Net earnings— — 15,650 15,650 
Equity contribution from parent— 52,000 — 52,000 
Balance at June 30, 2021$64 $737,166 $164,833 $902,063 
Balance at December 31, 2020$64 $685,166 $140,448 $825,678 
Net earnings— — 24,385 24,385 
Equity contribution from parent— 52,000 — 52,000 
Balance at June 30, 2021$64 $737,166 $164,833 $902,063 

Balance at March 31, 2019$64  $534,166  $133,248  $667,478  
Balance at March 31, 2020Balance at March 31, 2020$64 $614,166 $136,142 $750,372 
Net earningsNet earnings—  —  15,267  15,267  Net earnings— — 16,174 16,174 
Dividends declared on common stockDividends declared on common stock—  —  (4,098) (4,098) Dividends declared on common stock— — (7,092)(7,092)
Balance at June 30, 2019$64  $534,166  $144,417  $678,647  
Balance at June 30, 2020Balance at June 30, 2020$64 $614,166 $145,224 $759,454 
Balance at December 31, 2018$64  $534,166  $139,863  $674,093  
Balance at December 31, 2019Balance at December 31, 2019$64 $614,166 $140,397 $754,627 
Net earningsNet earnings—  —  19,365  19,365  Net earnings— — 23,266 23,266 
Dividends declared on common stockDividends declared on common stock—  —  (14,811) (14,811) Dividends declared on common stock— — (18,439)(18,439)
Balance at June 30, 2019$64  $534,166  $144,417  $678,647  
Balance at June 30, 2020Balance at June 30, 2020$64 $614,166 $145,224 $759,454 


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO 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 June 30, 20202021 and December 31, 2019,2020, and the consolidated results of operations and comprehensive income for the three and six months ended June 30, 20202021 and 2019,2020 and cash flows for the six months ended June 30, 20202021 and 2019.2020. 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 20192020 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 20202021 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 20192020 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.accordingly.

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. 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 0 such payment defaults under any of the agreements for the jointly-owned plants.

PNMR shared services’Services Company expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments. These services are billed at cost and are reflected as general and administrative expenses in the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include interest and income tax sharing payments, as well as equity transactions, and interconnection billings. 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 considered to be for the second quarter of $0.3275 per share in July 2021 and $0.3075 per share in July 2020, and $0.2900 per share in July 2019, which are reflected as being in the second quarter within "Dividends Declared per Common Share" on the PNMR Condensed Consolidated Statements of Earnings.

Neither PNM nor TNMP declared or paid any cash dividends in the three and six months ended June 30, 2021. PNM paid cash dividends on its common stock to PNMR of $40.7 million in the three and six months ended June 30, 2020 that were
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PNM paid cash dividends on its common stock to PNMR of $40.7 million in the three and six months ended June 30, 2020 that were declared in the three months ended March 31, 2020. PNM did 0t pay cash dividends on its common stock to PNMR in the three and sixth months ended June 30, 2019. TNMP declared and paid cash dividends on its common stock to PNMR of $7.1 million and $18.4 million in the three and six months ended June 30, 2020 and paid $4.1 million and $14.8 million in the three and six months ended June 30, 2019.2020.

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

In August 2018, the FASB issued ASU 2018-14 to improve benefit plan sponsors’ disclosures for defined benefit pension and other post-employment benefit plans. ASU 2018-14 removes the requirement to disclose the amounts in other comprehensive income expected to be recognized as benefit cost over the next fiscal year and the requirement to disclose the impact of a one-percentage-point change in the assumed health care cost trend rate; clarifies the disclosure requirements for plans with assets that are less than their projected benefit, or accumulated benefit obligation; and requires significant gains and losses affecting benefit obligations during the period be disclosed. ASU 2018-14 is effective for the Company on December 31, 2020, although early adoption is permitted, and requires retrospective application. As discussed in Note 11 of the Notes to the Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and in Note 10, PNM and TNMP maintain qualified defined benefit, other postretirement benefit plans providing medical and dental benefits, and executive retirement programs. The Company is in the process of evaluating the requirements of ASU 2018-14 but does not anticipate these changes will have a significant impact on the Company’s defined benefit and other postretirement benefit plan disclosures.

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

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

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

Corporate and Other

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


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

PNMR SEGMENT INFORMATION
PNMTNMPCorporate
and Other
PNMR Consolidated
(In thousands)
Three Months Ended June 30, 2020
Electric operating revenues$260,788  $96,861  $—  $357,649  
Cost of energy67,884  25,979  —  93,863  
Utility margin192,904  70,882  —  263,786  
Other operating expenses101,557  25,339  (4,282) 122,614  
Depreciation and amortization41,763  22,368  5,891  70,022  
Operating income (loss)49,584  23,175  (1,609) 71,150  
Interest income3,147  —  (76) 3,071  
Other income (deductions)20,954  1,963  (214) 22,703  
Interest charges(19,178) (7,361) (4,549) (31,088) 
Segment earnings (loss) before income taxes54,507  17,777  (6,448) 65,836  
Income taxes (benefit)4,895  1,603  (2,223) 4,275  
Segment earnings (loss)49,612  16,174  (4,225) 61,561  
Valencia non-controlling interest(3,940) —  —  (3,940) 
Subsidiary preferred stock dividends(132) —  —  (132) 
Segment earnings (loss) attributable to PNMR$45,540  $16,174  $(4,225) $57,489  
Six Months Ended June 30, 2020
Electric operating revenues$508,921  $182,350  $—  $691,271  
Cost of energy142,408  50,165  —  192,573  
Utility margin366,513  132,185  —  498,698  
Other operating expenses200,113  50,461  (9,759) 240,815  
Depreciation and amortization83,212  44,204  11,579  138,995  
Operating income (loss)83,188  37,520  (1,820) 118,888  
Interest income6,643  —  (149) 6,494  
Other income (deductions)(13,072) 2,524  (755) (11,303) 
Interest charges(36,807) (14,533) (10,182) (61,522) 
Segment earnings (loss) before income taxes39,952  25,511  (12,906) 52,557  
Income taxes (benefit)2,536  2,245  (2,386) 2,395  
Segment earnings (loss)37,416  23,266  (10,520) 50,162  
Valencia non-controlling interest(7,669) —  —  (7,669) 
Subsidiary preferred stock dividends(264) —  —  (264) 
Segment earnings (loss) attributable to PNMR$29,483  $23,266  $(10,520) $42,229  
At June 30, 2020:
Total Assets$5,377,422  $1,985,721  $211,324  $7,574,467  
Goodwill$51,632  $226,665  $—  $278,297  

PNMTNMPCorporate
and Other
PNMR Consolidated
(In thousands)
Three Months Ended June 30, 2021
Electric operating revenues$323,949 $102,591 $$426,540 
Cost of energy123,768 28,908 152,676 
Utility margin200,181 73,683 273,864 
Other operating expenses105,925 26,504 (3,495)128,934 
Depreciation and amortization42,489 22,475 5,763 70,727 
Operating income (loss)51,767 24,704 (2,268)74,203 
Interest income3,417 161 3,578 
Other income11,103 1,045 250 12,398 
Interest charges(13,039)(8,277)(2,803)(24,119)
Segment earnings (loss) before income taxes53,248 17,472 (4,660)66,060 
Income taxes (benefit)7,844 1,822 (1,367)8,299 
Segment earnings (loss)45,404 15,650 (3,293)57,761 
Valencia non-controlling interest(3,920)(3,920)
Subsidiary preferred stock dividends(132)(132)
Segment earnings (loss) attributable to PNMR$41,352 $15,650 $(3,293)$53,709 
Six Months Ended June 30, 2021
Electric operating revenues$595,162 $196,085 $$791,247 
Cost of energy212,654 55,418 268,072 
Utility margin382,508 140,667 523,175 
Other operating expenses213,253 54,273 (2,321)265,205 
Depreciation and amortization84,438 44,665 11,498 140,601 
Operating income (loss)84,817 41,729 (9,177)117,369 
Interest income7,012 125 7,137 
Other income (deductions)12,347 2,107 (126)14,328 
Interest charges(25,932)(16,752)(7,319)(50,003)
Segment earnings (loss) before income taxes78,244 27,084 (16,497)88,831 
Income taxes (benefit)10,678 2,699 (3,512)9,865 
Segment earnings (loss)67,566 24,385 (12,985)78,966 
Valencia non-controlling interest(7,414)(7,414)
Subsidiary preferred stock dividends(264)(264)
Segment earnings (loss) attributable to PNMR$59,888 $24,385 $(12,985)$71,288 
At June 30, 2021:
Total Assets$5,656,515 $2,245,301 $218,653 $8,120,469 
Goodwill$51,632 $226,665 $$278,297 
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PNMTNMPCorporate
and Other
PNMR ConsolidatedPNMTNMPCorporate
and Other
PNMR Consolidated
(In thousands)(In thousands)
Three Months Ended June 30, 2019
Three Months Ended June 30, 2020Three Months Ended June 30, 2020
Electric operating revenuesElectric operating revenues$238,219  $92,009  $—  $330,228  Electric operating revenues$260,788 $96,861 $$357,649 
Cost of energyCost of energy58,866  24,916  —  83,782  Cost of energy67,884 25,979 93,863 
Utility marginUtility margin179,353  67,093  —  246,446  Utility margin192,904 70,882 263,786 
Other operating expensesOther operating expenses255,519  24,013  (5,536) 273,996  Other operating expenses101,557 25,339 (4,282)122,614 
Depreciation and amortizationDepreciation and amortization39,811  20,502  5,752  66,065  Depreciation and amortization41,763 22,368 5,891 70,022 
Operating income (loss)Operating income (loss)(115,977) 22,578  (216) (93,615) Operating income (loss)49,584 23,175 (1,609)71,150 
Interest incomeInterest income3,530  —  (70) 3,460  Interest income3,147 (76)3,071 
Other income (deductions)Other income (deductions)4,179  731  (78) 4,832  Other income (deductions)20,954 1,963 (214)22,703 
Interest chargesInterest charges(18,526) (6,560) (4,705) (29,791) Interest charges(19,178)(7,361)(4,549)(31,088)
Segment earnings (loss) before income taxesSegment earnings (loss) before income taxes(126,794) 16,749  (5,069) (115,114) Segment earnings (loss) before income taxes54,507 17,777 (6,448)65,836 
Income taxes (benefit)Income taxes (benefit)(43,481) 1,482  (832) (42,831) Income taxes (benefit)4,895 1,603 (2,223)4,275 
Segment earnings (loss)Segment earnings (loss)(83,313) 15,267  (4,237) (72,283) Segment earnings (loss)49,612 16,174 (4,225)61,561 
Valencia non-controlling interestValencia non-controlling interest(3,499) —  —  (3,499) Valencia non-controlling interest(3,940)(3,940)
Subsidiary preferred stock dividendsSubsidiary preferred stock dividends(132) —  —  (132) Subsidiary preferred stock dividends(132)(132)
Segment earnings (loss) attributable to PNMRSegment earnings (loss) attributable to PNMR$(86,944) $15,267  $(4,237) $(75,914) Segment earnings (loss) attributable to PNMR$45,540 $16,174 $(4,225)$57,489 
Three Months Ended June 30, 2019
Six Months Ended June 30, 2020Six Months Ended June 30, 2020
Electric operating revenuesElectric operating revenues$507,536  $172,336  $—  $679,872  Electric operating revenues$508,921 $182,350 $$691,271 
Cost of energyCost of energy158,204  47,204  —  205,408  Cost of energy142,408 50,165 192,573 
Utility marginUtility margin349,332  125,132  —  474,464  Utility margin366,513 132,185 498,698 
Other operating expensesOther operating expenses361,981  49,253  (11,299) 399,935  Other operating expenses200,113 50,461 (9,759)240,815 
Depreciation and amortizationDepreciation and amortization79,036  40,716  11,669  131,421  Depreciation and amortization83,212 44,204 11,579 138,995 
Operating income (loss)Operating income (loss)(91,685) 35,163  (370) (56,892) Operating income (loss)83,188 37,520 (1,820)118,888 
Interest incomeInterest income7,187  —  (139) 7,048  Interest income6,643 (149)6,494 
Other income (deductions)Other income (deductions)18,536  1,317  (814) 19,039  Other income (deductions)(13,072)2,524 (755)(11,303)
Interest chargesInterest charges(36,886) (15,361) (9,178) (61,425) Interest charges(36,807)(14,533)(10,182)(61,522)
Segment earnings (loss) before income taxesSegment earnings (loss) before income taxes(102,848) 21,119  (10,501) (92,230) Segment earnings (loss) before income taxes39,952 25,511 (12,906)52,557 
Income taxes (benefit)Income taxes (benefit)(41,508) 1,754  (1,854) (41,608) Income taxes (benefit)2,536 2,245 (2,386)2,395 
Segment earnings (loss)Segment earnings (loss)(61,340) 19,365  (8,647) (50,622) Segment earnings (loss)37,416 23,266 (10,520)50,162 
Valencia non-controlling interestValencia non-controlling interest(6,328) —  —  (6,328) Valencia non-controlling interest(7,669)(7,669)
Subsidiary preferred stock dividendsSubsidiary preferred stock dividends(264) —  —  (264) Subsidiary preferred stock dividends(264)(264)
Segment earnings (loss) attributable to PNMRSegment earnings (loss) attributable to PNMR$(67,932) $19,365  $(8,647) $(57,214) Segment earnings (loss) attributable to PNMR$29,483 $23,266 $(10,520)$42,229 
At June 30, 2019:
At June 30, 2020:At June 30, 2020:
Total AssetsTotal Assets$5,105,090  $1,768,831  $174,746  $7,048,667  Total Assets$5,377,422 $1,985,721 $211,324 $7,574,467 
GoodwillGoodwill$51,632  $226,665  $—  $278,297  Goodwill$51,632 $226,665 $$278,297 

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


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

(3)   Accumulated Other Comprehensive Income (Loss)

Information regarding accumulated other comprehensive income (loss) for the six months ended June 30, 20202021 and 20192020 is as follows:
Accumulated Other Comprehensive Income (Loss)
PNMCorporate and OtherPNMR Consolidated
Unrealized
Gains on
Available-for-Sale Debt
Securities
Pension
Liability
Adjustment
Fair Value
Adjustment
for Cash
Flow Hedges
TotalTotal
(In thousands)
Balance at December 31, 2019$10,638  $(109,693) $(99,055) $(322) $(99,377) 
Amounts reclassified from AOCI (pre-tax)(3,059) 4,150  1,091  (500) 591  
Income tax impact of amounts reclassified777  (1,054) (277) 127  (150) 
Other OCI changes (pre-tax)9,717  —  9,717  (1,198) 8,519  
Income tax impact of other OCI changes(2,468) —  (2,468) 304  (2,164) 
Net after-tax change4,967  3,096  8,063  (1,267) 6,796  
Balance at June 30, 2020$15,605  $(106,597) $(90,992) $(1,589) $(92,581) 

Accumulated Other Comprehensive Income (Loss)
PNMCorporate and OtherPNMR Consolidated
Unrealized
Gains on
Available-for-Sale Debt
Securities
Pension
Liability
Adjustment
Fair Value
Adjustment
for Cash
Flow Hedges
TotalTotal
Fair Value
Adjustment
for Cash
Flow Hedges
(In thousands)
Balance at December 31, 2018$1,939  $(112,361) $(110,422) $1,738  $(108,684) 
Balance at December 31, 2020Balance at December 31, 2020$20,403 $(98,914)$(78,511)$(672)$(79,183)
Amounts reclassified from AOCI (pre-tax) Amounts reclassified from AOCI (pre-tax)(5,601) 3,702  (1,899) 525  (1,374) Amounts reclassified from AOCI (pre-tax)(5,632)4,174 (1,458)(903)(2,361)
Income tax impact of amounts reclassifiedIncome tax impact of amounts reclassified1,423  (940) 483  (133) 350  Income tax impact of amounts reclassified1,430 (1,060)370 229 599 
Other OCI changes (pre-tax) Other OCI changes (pre-tax)15,938  —  15,938  (3,169) 12,769  Other OCI changes (pre-tax)329 329 1,804 2,133 
Income tax impact of other OCI changesIncome tax impact of other OCI changes(4,048) —  (4,048) 805  (3,243) Income tax impact of other OCI changes(83)(83)(458)(541)
Net after-tax changeNet after-tax change7,712  2,762  10,474  (1,972) 8,502  Net after-tax change(3,956)3,114 (842)672 (170)
Balance at June 30, 2019$9,651  $(109,599) $(99,948) $(234) $(100,182) 
Balance at June 30, 2021Balance at June 30, 2021$16,447 $(95,800)$(79,353)$$(79,353)
Balance at December 31, 2019$10,638 $(109,693)$(99,055)$(322)$(99,377)
 Amounts reclassified from AOCI (pre-tax)(3,059)4,150 1,091 (500)591 
Income tax impact of amounts reclassified777 (1,054)(277)127 (150)
 Other OCI changes (pre-tax)9,717 9,717 (1,198)8,519 
Income tax impact of other OCI changes(2,468)(2,468)304 (2,164)
Net after-tax change4,967 3,096 8,063 (1,267)6,796 
Balance at June 30, 2020$15,605 $(106,597)$(90,992)$(1,589)$(92,581)

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


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

(4)    Earnings Per Share

In accordance with GAAP, dualDual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. PNMR’s potentially dilutive shares consist of restricted stock and PNMR common stock issuable in 2020 under the PNMR 2020 Forward Equity Sale Agreements, which are calculated under the treasury stock method. See Note 9. 7 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

Information regarding the computation of earnings per share is as follows:

Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
(In thousands, except per share amounts)
Net Earnings (Loss) Attributable to PNMR$57,489  $(75,914) $42,229  $(57,214) 
Average Number of Common Shares:
Outstanding during period79,654  79,654  79,654  79,654  
    Vested awards of restricted stock
186  263  202  251  
Average Shares – Basic79,840  79,917  79,856  79,905  
Dilutive Effect of Common Stock Equivalents:
PNMR 2020 Forward Equity Sale Agreements—  —  86  —  
Restricted stock36  —  37  —  
Average Shares – Diluted(1)
79,876  79,917  79,979  79,905  
Net Earnings (Loss) Per Share of Common Stock:
Basic$0.72  $(0.95) $0.53  $(0.72) 
Diluted$0.72  $(0.95) $0.53  $(0.72) 
(1) No potentially dilutive restricted stock have been included in the computation of Average Shares – Diluted for the three and six months ended June 30, 2019 since the effect would be anti-dilutive.
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(In thousands, except per share amounts)
Net Earnings Attributable to PNMR$53,709 $57,489 $71,288 $42,229 
Average Number of Common Shares:
Outstanding during period85,835 79,654 85,835 79,654 
    Vested awards of restricted stock
231 186 227 202 
Average Shares – Basic86,066 79,840 86,062 79,856 
Dilutive Effect of Common Stock Equivalents:
PNMR 2020 Forward Equity Sale Agreements86 
Restricted stock41 36 40 37 
Average Shares – Diluted86,107 79,876 86,102 79,979 
Net Earnings Per Share of Common Stock:
Basic$0.62 $0.72 $0.83 $0.53 
Diluted$0.62 $0.72 $0.83 $0.53 

(5)   Electric Operating Revenues

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

Additional information concerning electric operating revenue is contained in Note 4 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable consists primarily of trade receivables from customers. In the normal course of business, credit is extended to customers on a short-term basis. The Company estimates the allowance for credit losses on trade receivables based on historical experience and estimated default rates. Accounts receivable balances are reviewed monthly, and adjustments to the allowance for credit losses are made as necessary and amounts that are deemed uncollectible are written off. On January 1, 2020, the Company adopted Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. As a result of the adoption ofeconomic conditions resulting from the new standard,COVID-19 pandemic, PNM updated its allowance for accounts receivable balances and recorded incremental credit losses of $0.8 million and $2.4 million in the three and six months ended June 30, 2021 and $0.4 million and $0.7 million in the three and six months ended June 30, 2020. The NMPRC issued an order authorizing all public utilities to create a regulatory asset to defer incremental costs related to COVID-19, including increases in uncollectible accounts. See additional discussion of ASU 2016-13regarding regulatory treatment in Note 7.12.

In February 2021, Texas experienced a severe winter storm delivering the coldest temperatures in 100 years for many parts of the state. As a result, the ERCOT market was not able to deliver sufficient generation load to the grid resulting in significant, statewide outages as ERCOT directed transmission operators to curtail thousands of firm load megawatts. TNMP complied with ERCOT directives to curtail delivery of electricity in its service territory and did not experience significant outages on its system outside of the ERCOT directed curtailments. During the weather event, generators experienced an extreme spike in market driven fuel prices and in turn charged REPs excessive market driven power prices which eventually get passed to end users on their electricity bill. Given the uncertainty of the collectability of end users bills by REPs, ERCOT also
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

increased the collateral required by REPs in order to do business within ERCOT's Balancing Authority. TNMP has deferred bad debt expense (credit losses) from defaulting REPs to a regulatory asset totaling $1.0 million at June 30, 2021 and will seek recovery in a general rate case.

Disaggregation of Revenues

A disaggregation of revenues from contracts with customers by the type of customer is presented in the table below. The table also reflects alternative revenue program revenues ("ARP") and other revenues.
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
Three Months Ended June 30, 2020(In thousands)
Three Months Ended June 30, 2021Three Months Ended June 30, 2021(In thousands)
Electric Operating Revenues:Electric Operating Revenues:Electric Operating Revenues:
Contracts with customers:Contracts with customers:Contracts with customers:
Retail electric revenueRetail electric revenueRetail electric revenue
ResidentialResidential$109,090  $37,302  $146,392  Residential$108,090 $34,667 $142,757 
CommercialCommercial93,364  28,106  121,470  Commercial108,085 29,469 137,554 
IndustrialIndustrial20,373  6,857  27,230  Industrial22,837 7,046 29,883 
Public authorityPublic authority4,907  1,419  6,326  Public authority5,337 1,465 6,802 
Economy energy serviceEconomy energy service3,278  —  3,278  Economy energy service6,753 6,753 
TransmissionTransmission14,097  20,238  34,335  Transmission16,957 23,653 40,610 
MiscellaneousMiscellaneous3,042  1,002  4,044  Miscellaneous3,593 941 4,534��
Total revenues from contracts with customersTotal revenues from contracts with customers248,151  94,924  343,075  Total revenues from contracts with customers271,652 97,241 368,893 
Alternative revenue programsAlternative revenue programs2,529  1,937  4,466  Alternative revenue programs1,886 5,350 7,236 
Other electric operating revenuesOther electric operating revenues10,108  —  10,108  Other electric operating revenues50,411 50,411 
Total Electric Operating RevenuesTotal Electric Operating Revenues$260,788  $96,861  $357,649  Total Electric Operating Revenues$323,949 $102,591 $426,540 
Six Months Ended June 30, 2020
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
Electric Operating Revenues:Electric Operating Revenues:Electric Operating Revenues:
Contracts with customers:Contracts with customers:Contracts with customers:
Retail electric revenueRetail electric revenueRetail electric revenue
ResidentialResidential$211,899  $69,200  $281,099  Residential$222,759 $69,760 $292,519 
CommercialCommercial179,713  56,791  236,504  Commercial190,019 58,898 248,917 
IndustrialIndustrial39,838  13,390  53,228  Industrial41,737 14,340 56,077 
Public authorityPublic authority9,254  2,842  12,096  Public authority9,924 2,948 12,872 
Economy energy serviceEconomy energy service8,531  —  8,531  Economy energy service17,334 17,334 
TransmissionTransmission28,264  38,250  66,514  Transmission34,460 44,774 79,234 
MiscellaneousMiscellaneous6,410  1,675  8,085  Miscellaneous6,625 1,900 8,525 
Total revenues from contracts with customersTotal revenues from contracts with customers483,909  182,148  666,057  Total revenues from contracts with customers522,858 192,620 715,478 
Alternative revenue programsAlternative revenue programs4,690  202  4,892  Alternative revenue programs2,862 3,465 6,327 
Other electric operating revenuesOther electric operating revenues20,322  —  20,322  Other electric operating revenues69,442 69,442 
Total Electric Operating RevenuesTotal Electric Operating Revenues$508,921  $182,350  $691,271  Total Electric Operating Revenues$595,162 $196,085 $791,247 

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


PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
Three Months Ended June 30, 2019(In thousands)
Three Months Ended June 30, 2020Three Months Ended June 30, 2020(In thousands)
Electric Operating Revenues:Electric Operating Revenues:Electric Operating Revenues:
Contracts with customers:Contracts with customers:Contracts with customers:
Retail electric revenueRetail electric revenueRetail electric revenue
ResidentialResidential$86,328  $33,640  $119,968  Residential$109,090 $37,302 $146,392 
CommercialCommercial98,968  28,058  127,026  Commercial93,364 28,106 121,470 
IndustrialIndustrial15,329  5,295  20,624  Industrial20,373 6,857 27,230 
Public authorityPublic authority4,596  1,391  5,987  Public authority4,907 1,419 6,326 
Economy energy serviceEconomy energy service6,024  —  6,024  Economy energy service3,278 3,278 
TransmissionTransmission14,342  17,585  31,927  Transmission14,097 20,238 34,335 
MiscellaneousMiscellaneous2,474  887  3,361  Miscellaneous3,042 1,002 4,044 
Total revenues from contracts with customersTotal revenues from contracts with customers228,061  86,856  314,917  Total revenues from contracts with customers248,151 94,924 343,075 
Alternative revenue programsAlternative revenue programs691  5,153  5,844  Alternative revenue programs2,529 1,937 4,466 
Other electric operating revenuesOther electric operating revenues9,467  —  9,467  Other electric operating revenues10,108 10,108 
Total Electric Operating RevenuesTotal Electric Operating Revenues$238,219  $92,009  $330,228  Total Electric Operating Revenues$260,788 $96,861 $357,649 
Three Months Ended June 30, 2019
Six Months Ended June 30, 2020Six Months Ended June 30, 2020
Electric Operating Revenues:Electric Operating Revenues:Electric Operating Revenues:
Contracts with customers:Contracts with customers:Contracts with customers:
Retail electric revenueRetail electric revenueRetail electric revenue
ResidentialResidential$193,629  $64,072  $257,701  Residential$211,899 $69,200 $281,099 
CommercialCommercial184,201  55,487  239,688  Commercial179,713 56,791 236,504 
IndustrialIndustrial30,076  10,911  40,987  Industrial39,838 13,390 53,228 
Public authorityPublic authority9,307  2,764  12,071  Public authority9,254 2,842 12,096 
Economy energy serviceEconomy energy service12,946  —  12,946  Economy energy service8,531 8,531 
TransmissionTransmission27,727  31,589  59,316  Transmission28,264 38,250 66,514 
MiscellaneousMiscellaneous6,116  1,789  7,905  Miscellaneous6,410 1,675 8,085 
Total revenues from contracts with customersTotal revenues from contracts with customers464,002  166,612  630,614  Total revenues from contracts with customers483,909 182,148 666,057 
Alternative revenue programsAlternative revenue programs756  5,724  6,480  Alternative revenue programs4,690 202 4,892 
Other electric operating revenuesOther electric operating revenues42,778  —  42,778  Other electric operating revenues20,322 20,322 
Total Electric Operating RevenuesTotal Electric Operating Revenues$507,536  $172,336  $679,872  Total Electric Operating Revenues$508,921 $182,350 $691,271 

Contract Balances

Performance obligations related to contracts with customers are typically satisfied when the energy is delivered and the customer or end-user utilizes the energy. Accounts receivable from customers represent amounts billed, including amounts under ARPs. For PNM, accounts receivable reflected on the Condensed Consolidated Balance Sheets, net of allowance for credit losses, includes $65.2$89.2 million at June 30, 20202021 and $59.3$86.2 million at December 31, 20192020 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 hashad 0 contract assets as of June 30, 20202021 or December 31, 2019.2020. 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, 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 pay PNM and TNMP in advance for the joint-use of their utility poles. These revenues are recognized over the period of time specified in the joint-use contract, typically for one calendar year. Deferred revenues on these arrangements are recorded as contract liabilities. PNMR's, PNM's, and TNMP's contract liabilities and related revenues
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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)

recognized over the period of time specified in the joint-use contract, typically for one calendar year. Deferred revenues on these arrangements are recorded as contract liabilities. PNMR's, PNM's, and TNMP's contract liabilities and related revenues are insignificant for all periods presented. The Company has no other arrangements with remaining performance obligations to which a portion of the transaction price would be required to be allocated.

(6)     Variable Interest Entities

GAAP determines howHow an enterprise evaluates and accounts for its involvement with variable interest entities, focusingfocuses 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 alsoThis evaluation requires continual reassessment of the primary beneficiary of a VIE. Additional information concerning PNM’s VIEs is contained in Note 10 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.

Valencia

PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 158155 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 six months ended June 30, 2021, PNM paid $5.0 million and $10.0 million for fixed charges and $0.6 million and $0.8 million for variable charges. For the three and six months ended June 30, 2020, PNM paid $5.0 million and $10.0 million for fixed charges and $0.5 million and $0.9 million for variable charges. For the three and six months ended June 30, 2019, PNM paid $5.0 million and $9.9 million for fixed charges and $0.2 million and $0.3 million for variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy its obligations and creditors of Valencia do not have any recourse against PNM’s assets. During the term of the PPA, PNM has the option, under certain conditions, to purchase and own up to 50% of the plant or the VIE. The PPA specifies that the purchase price would be the greater of 50% of book value reduced by related indebtedness or 50% of fair market value.

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

Summarized financial information for Valencia is as follows:
Results of Operations
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Operating revenues$5,495  $5,177  $10,848  $10,129  
Operating expenses1,555  1,678  3,179  3,801  
Earnings attributable to non-controlling interest$3,940  $3,499  $7,669  $6,328  

Results of Operations
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)
Operating revenues$5,579 $5,495 $10,706 $10,848 
Operating expenses1,659 1,555 3,292 3,179 
Earnings attributable to non-controlling interest$3,920 $3,940 $7,414 $7,669 

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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)

Financial PositionFinancial Position
June 30,December 31,June 30,December 31,
2020201920212020
(In thousands)(In thousands)
Current assetsCurrent assets$3,393  $5,094  Current assets$3,633 $3,911 
Net property, plant, and equipmentNet property, plant, and equipment57,163  58,581  Net property, plant, and equipment54,325 55,744 
Total assetsTotal assets60,556  63,675  Total assets57,958 59,655 
Current liabilitiesCurrent liabilities629  623  Current liabilities791 646 
Owners’ equity – non-controlling interestOwners’ equity – non-controlling interest$59,927  $63,052  Owners’ equity – non-controlling interest$57,167 $59,009 

Westmoreland San Juan Mining, LLC

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

PNMR issued $30.3 million in letters of credit to facilitate the issuance of reclamation bonds required in order for SJCC to mine coal to be supplied to SJGS. As discussed above, WSJ LLC assumed the rights and obligations of SJCC, including obligations to PNMR for the letters of credit. The letters of credit support results in PNMR having a variable interest in WSJ LLC since PNMR is subject to possible loss in the event performance by PNMR is required under the letters of credit support. PNMR considers the possibility of loss under the letters of credit support to be remote since the purpose of posting the bonds is to provide assurance that WSJ LLC performs the required reclamation of the mine site in accordance with applicable regulations and all reclamation costs are reimbursable under the SJGS CSA. Also, much of the mine reclamation activities will not be performed until after the expiration of the SJGS CSA. In addition, each of the SJGS participants has established and actively fund trusts to meet future reclamation obligations.
WSJ LLC is considered a VIE.  PNMR’s analysis of its arrangements with WSJ LLC concluded that WSJ LLC has the ability to direct its mining operations, which is the factor that most significantly impacts the economic performance of WSJ LLC.  Other than PNM being able to ensure that coal is supplied in adequate quantities and of sufficient quality to provide the fuel necessary to operate SJGS in a normal manner, the mining operations are solely under the control of WSJ LLC, including developing mining plans, hiring of personnel, and incurring operating and maintenance expenses. Neither PNMR nor PNM has any ability to direct or influence the mining operation.  PNM’s involvement through the SJGS CSA is a protective right rather than a participating right and WSJ LLC has the power to direct the activities that most significantly impact the economic performance of WSJ LLC.  The SJGS CSA requires WSJ LLC to deliver coal required to fuel SJGS in exchange for payment of a set price per ton, which is escalated over time for inflation.  If WSJ LLC is able to mine more efficiently than anticipated, its economic performance will be improved.  Conversely, if WSJ LLC cannot mine as efficiently as anticipated, its economic performance will be negatively impacted.  Accordingly, PNMR believes WSJ LLC is the primary beneficiary and, therefore, WSJ LLC is not consolidated by either PNMR or PNM. The amounts outstanding under the letters of credit support constitute PNMR’s maximum exposure to loss from the VIE at June 30, 2020.2021.

(7)    Fair Value of Derivative and Other Financial Instruments

Additional information concerning energy related derivative contracts and other financial instruments is contained in Note 9 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.

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

modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. Valuations of derivative assets and liabilities take into account nonperformance risk, including the effect of counterparties’ and the Company’s credit risk. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 the FPPAC.

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

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

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.

Unusually cold weather in February 2021 resulted in higher than expected natural gas and purchased power costs. PNM mitigated the impacts from the cold weather by securing gas supplies in advance, engaging in market purchases when lower prices were available, and adjusting plant operation of its gas units to minimize reliance on higher-priced gas supplies. PNM estimates the impact of the cold weather conditions in the first quarter of 2021 resulted in approximately $20 million of additional natural gas costs and approximately $8 million in additional purchased power costs. These fuel increases are being passed through to customers under the FPPAC over the remainder of 2021.

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 six months ended June 30, 20202021 and the year ended December 31, 2019,2020, PNM was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flows hedges. The derivative contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. PNM has no trading transactions.

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

Commodity Derivatives

PNM’s commodity derivative instruments that are recorded at fair value, all of which are accounted for as economic hedges and considered Level 2 fair value measurements, are presented in the following line items on the Condensed Consolidated Balance Sheets:
Economic HedgesEconomic Hedges
June 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
(In thousands)(In thousands)
Other current assetsOther current assets$1,096  $1,089  Other current assets$1,008 $1,096 
Other deferred chargesOther deferred charges1,004  1,507  Other deferred charges455 
2,100  2,596  1,008 1,551 
Other current liabilitiesOther current liabilities(1,096) (1,089) Other current liabilities(1,008)(1,096)
Other deferred creditsOther deferred credits(1,004) (1,507) Other deferred credits(455)
(2,100) (2,596) (1,008)(1,551)
NetNet$—  $—  Net$$

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. All of the assets and liabilities in the table above at June 30, 20202021 and December 31, 20192020 result from PNM’s hazard sharing arrangements with Tri-State. The hazard sharing arrangements are net-settled upon delivery.

At June 30, 20202021 and December 31, 2019,2020, PNM had 0 amounts recognized for the legal right to reclaim cash collateral. However, at both June 30, 20202021 and December 31, 2019,2020, amounts posted as cash collateral under margin arrangements were $0.5 million.million, which is included in other current assets on the Condensed Consolidated Balance Sheets. At both June 30, 20202021 and December 31, 2019,2020, obligations to return cash collateral were $0.9 million. Cash collateral amounts aremillion, which is included in other current assets and other current liabilitiesdeferred credits 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 0 amounts hedged under this plan as of June 30, 20202021 or December 31, 2019.2020.
The effects of mark-to-market commodity derivative instruments on PNM’s revenues and cost of energy during the three and six months ended June 30, 20202021 and 20192020 were less than $0.1 million. Commodity derivatives had no impact on OCI for the periods presented.

PNM has 0 open energy or gas commodity volume positions at June 30, 20202021 or December 31, 2019.2020.

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 June 30, 20202021 and December 31, 2019,2020, PNM had 0 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. See Note 11. At June 30, 20202021 and December 31, 2019,2020, the fair value of investment securities included $335.5$391.9 million and $336.0$379.2 million for the NDT and $53.9$61.2 million and $52.8$60.9 million for the mine reclamation trusts.

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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)


In June 2016, the FASB issued Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the way entities recognize impairments of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. The majority of the amendments made by the new standard are required to be applied using a modified retrospective approach. The amendments in ASU 2016-13 also require entities to separately measure and realize an impairment for credit losses on available-for-sale debt securities for which carrying value exceeds fair value, unless such securities have been determined to be other than temporarily impaired and the entire decrease in value has been realized as an impairment. The amendments relating to available-for-sale debt securities are required to be applied prospectively on the date of adoption. PNM records a realized loss as an impairment for any available-for-sale debt security that has a fair value that is less than its carrying value. As a result, the Company hasAt June 30, 2021 and December 31, 2020, PNM had 0 available-for-sale debt securities for which carrying value exceeds fair value and there are 0 impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings. The Company adopted ASU 2016-13 on January 1, 2020, its required effective date. Adoption of the standard did not result in the Company recording a cumulative effect adjustment or impact the Company's accounting for its available-for-sale debt securities. All gains and losses resulting from sales and changes in the fair value of equity securities are recognized immediately in earnings.

Gains and losses recognized on the Condensed Consolidated Statements of Earnings related to investment securities in the NDT and reclamation trusts are presented in the following table:
Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
(In thousands)
Equity securities:
Net gains (losses) from equity securities sold$5,356  $2,774  $4,041  $4,161  
Net gains (losses) from equity securities still held13,377  303  (5,554) 9,905  
Total net gains (losses) on equity securities18,733  3,077  (1,513) 14,066  
Available-for-sale debt securities:
Net gains (losses) on debt securities2,887  1,522  (9,716) 4,547  
Net gains (losses) on investment securities$21,620  $4,599  $(11,229) $18,613  

Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(In thousands)
Equity securities:
Net gains from equity securities sold$4,218 $5,356 $6,240 $4,041 
Net gains (losses) from equity securities still held8,707 13,377 5,541 (5,554)
Total net gains (losses) on equity securities12,925 18,733 11,781 (1,513)
Available-for-sale debt securities:
Net gains (losses) on debt securities267 2,887 2,379 (9,716)
Net gains (losses) on investment securities$13,192 $21,620 $14,160 $(11,229)

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 $1.7 million and $0.6 million for the three and six months ended June 30, 2021 and $4.0 million and $(8.7) million for the three and six months ended June 30, 2020 and $(0.8) million and $2.6 million for the three and six months ended June 30, 2019.2020.
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(In thousands)
Proceeds from sales$239,696 $205,296 $363,291 $354,651 
Gross realized gains$10,611 $11,262 $19,304 $17,087 
Gross realized (losses)$(7,805)$(7,002)$(11,249)$(14,037)

Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
(In thousands)
Proceeds from sales$205,296  $159,551  $354,651  $234,011  
Gross realized gains$11,262  $10,906  $17,087  $15,095  
Gross realized (losses)$(7,002) $(5,802) $(14,037) $(8,972) 


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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)

At June 30, 2020,2021, the available-for-sale debt securities held by PNM, had the following final maturities:
Fair Value
(In thousands)
Within 1 year$22,40230,148 
After 1 year through 5 years83,54969,772 
After 5 years through 10 years82,53996,981 
After 10 years through 15 years14,19219,469 
After 15 years through 20 years10,79113,145 
After 20 years40,01037,327 
$253,483266,842 

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 describesThere are 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.

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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)

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 values 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. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. The valuation of Level 3 investments, when applicable, requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The Company has no Level 3 investments as of June 30, 20202021 and December 31, 2019.2020. Management of the Company independently verifies the information provided by pricing services.

In August 2018, the FASB issued Accounting Standards Update 2018-13 – Fair Value Measurements (Topic 820) Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurements, to improveItems recorded at fair value disclosures. ASU 2018-13 eliminates certain disclosure requirements related to transfers between Levels 1 and 2by PNM on the Condensed Consolidated Balance Sheets are presented below by level 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 inalong with gross unrealized gains or losses recordedon investments in OCI related to Level 3 fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020, its required effective date. The Company applied the requirements of the new standard using retrospective application, except for the new disclosures related to Level 3 investments, which are to be applied prospectively. Adoption of the standard did not have a material impact on the Company's disclosures.available-for-sale debt securities:

GAAP Fair Value Hierarchy
TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Unrealized Gains
(In thousands)
June 30, 2021
Cash and cash equivalents$10,336 $10,336 $
Equity securities:
Corporate stocks, common97,939 97,939 
Corporate stocks, preferred9,491 3,320 6,171 
Mutual funds and other68,399 68,345 54 
Available-for-sale debt securities:
     U.S. government53,168 22,616 30,552 $291 
     International government16,769 16,769 2,261 
     Municipals46,914 46,914 2,224 
     Corporate and other149,991 149,984 17,308 
          $453,007 $202,563 $250,444 $22,084 
December 31, 2020
Cash and cash equivalents$6,107 $6,107 $
Equity securities:
Corporate stocks, common85,271 85,271 0
Corporate stocks, preferred9,910 3,608 6,302 0
Mutual funds and other58,817 58,762 55 0
Available-for-sale debt securities:
     U.S. government55,839 29,579 26,260 $950 
     International government16,032 16,032 2,537 
     Municipals50,139 50,139 2,779 
     Corporate and other158,000 157,997 21,121 
          $440,115 $183,330 $256,785 $27,387 


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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)

Items recorded at fair value by PNM on the Condensed Consolidated Balance Sheets are presented below by level of the fair value hierarchy along with gross unrealized gains on investments in available-for-sale debt securities:
GAAP Fair Value Hierarchy
TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Unrealized Gains
(In thousands)
June 30, 2020
Cash and cash equivalents$11,496  $11,496  $—  
Equity securities:
Corporate stocks, common65,664  65,664  —  
Corporate stocks, preferred8,498  2,770  5,728  
Mutual funds and other50,311  50,311  —  
Available-for-sale debt securities:
     U.S. government47,190  29,315  17,875  $1,497  
     International government13,734  —  13,734  1,630  
     Municipals47,392  —  47,392  2,179  
     Corporate and other145,167  464  144,703  15,616  
          $389,452  $160,020  $229,432  $20,922  
December 31, 2019
Cash and cash equivalents$15,606  $15,606  $—  
Equity securities:
Corporate stocks, common64,527  64,527  —  
Corporate stocks, preferred9,033  2,212  6,821  
Mutual funds and other49,848  49,786  62  
Available-for-sale debt securities:
     U.S. government48,439  31,389  17,050  $535  
     International government15,292  —  15,292  1,193  
     Municipals46,642  —  46,642  1,768  
     Corporate and other139,445  187  139,258  10,801  
          $388,832  $163,707  $225,125  $14,297  

The carrying amounts and fair values of long-term debt, all of which are considered Level 2 fair value measurements and are not recorded at fair value on the Condensed Consolidated Balance Sheets, are presented below:
Carrying AmountFair Value
June 30, 2020(In thousands)
PNMR$3,216,618  $3,343,648  
PNM$1,846,605  $1,951,768  
TNMP$780,561  $797,604  
December 31, 2019
PNMR$3,007,717  $3,142,704  
PNM$1,748,020  $1,795,149  
TNMP$670,691  $753,317  

Carrying AmountFair Value
June 30, 2021(In thousands)
PNMR$3,436,103 $3,454,118 
PNM$1,732,769 $1,627,109 
TNMP$853,606 $977,008 
December 31, 2020
PNMR$3,295,150 $3,355,761 
PNM$1,696,620 $1,602,547 
TNMP$853,673 $1,006,722 

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.
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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)


(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 0t awarded stock options since 2010 and all employee stock options expired or were exercised as of February 2020. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 12 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.

Restricted stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, the awards 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. The vesting period for awards of restricted stock to non-employee members of the Board is one-year.one-year.

The stock-based compensation expense related to restricted stock awards without performance or market conditions to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized over the shorter of the requisite vesting period or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized ratably over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At June 30, 2020,2021, PNMR had unrecognized expense related to stock awards of $6.1$6.4 million, which is expected to be recognized over an average of 1.8 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 allAll excess tax benefits and deficiencies beare recorded to tax expense and classified as operating cash flows when used to reduce income taxes payable. See Note 14.

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

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

Six Months Ended June 30,
Restricted Shares and Performance Based Shares20202019
Expected quarterly dividends per share$0.3075  $0.2900  
Risk-free interest rate0.72 %2.47 %
Market-Based Shares
Dividend yield2.51 %2.59 %
Expected volatility19.41  19.55  
Risk-free interest rate0.72  2.51  
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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)


The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:
Six Months Ended June 30,
Restricted Shares and Performance Based Shares20212020
Expected quarterly dividends per share$0.3275 $0.3075 
Risk-free interest rate0.32 %0.72 %
Market-Based Shares
Dividend yield2.76 %2.51 %
Expected volatility33.69 %19.41 %
Risk-free interest rate0.29 %0.72 %

The following table summarizes activity in restricted stock awards, including performance-based and market-based shares and stock options, for the six months ended June 30, 2020:2021:
Restricted Stock
SharesWeighted-
Average
Grant Date Fair Value
Outstanding at December 31, 2020168,061 $40.77 
Granted213,515 44.08 
Exercised(207,913)39.78 
Forfeited(1,741)43.72 
Outstanding at June 30, 2021171,922 $43.72 

Restricted StockStock Options
SharesWeighted-
Average
Grant Date Fair Value
SharesWeighted-
Average
Exercise Price
Outstanding at December 31, 2019161,542  $38.21  2,000  $12.22  
Granted246,029  36.73  —  —  
Exercised(238,054) 34.86  (2,000) 12.22  
Forfeited(1,456) 41.32  —  —  
Outstanding at June 30, 2020168,061  $40.77  —  $—  

PNMR’s current stock-based compensation program provides for performance and market targets through 2022.2023. Included in the above table are 122,277124,941 previously awarded shares that were earned for the 2017-20192018-2020 performance measurement period and ratified by the Board in February 20202021 (based upon achieving market and performance targets at near "maximum" levels). Excluded from the table above are 150,543, 142,080, 142,047 and 142,047152,414 shares for the three-yearthree-year performance periods ending in 2020, 2021, 2022 and 20222023 that will be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.

In 2015, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive a total of 53,859 shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2017 and 2019 and she remained an employee of the Company. The retention award was made under the PEP and was approved by the Board on February 26, 2015. Under the agreement, she was to receive 17,953 of the total shares if PNMR achieved specific performance targets at the end of 2017. The specified performance target was achieved at the end of 2017 and the Board ratified her receiving 17,953 shares in February 2018. The second portion of the agreement of 35,906 shares was achieved at the end of 2019. The Board ratified her receiving the shares in February 2020 and such shares are included in the above table.
The following table provides additional information concerning restricted stock activity, including performance-based and market-based shares, and stock options:
Six Months Ended June 30,Six Months Ended June 30,
Restricted StockRestricted Stock20202019Restricted Stock20212020
Weighted-average grant date fair valueWeighted-average grant date fair value$36.73  $37.92  Weighted-average grant date fair value$44.08 $36.73 
Total fair value of restricted shares that vested (in thousands)Total fair value of restricted shares that vested (in thousands)$11,740  $6,227  Total fair value of restricted shares that vested (in thousands)$9,890 $11,740 
Stock OptionsStock OptionsStock Options
Total intrinsic value of options exercised (in thousands)Total intrinsic value of options exercised (in thousands)$84  $2,617  Total intrinsic value of options exercised (in thousands)$$84 

(9)   Financing

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

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 informational financing filing and short-term financing plan with the NMPRC. Additional information concerning financing activities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.

Financing Activities

In October 2016, PNMROn July 14, 2021, TNMP entered into letteran agreement (the "TNMP 2021 Bond Purchase Agreement") with institutional investors for the sale of credit arrangements$65.0 million aggregate principal amount of 1 series of TNMP first mortgage bonds (the "TNMP 2021 Bonds") offered in private placement transactions. On August 16, 2021, TNMP will issue all $65.0 million of the TNMP 2021 Bonds at 2.44% with JPMorgan Chase Bank N.A. (the "JPM LOC Facility") under which lettersa maturity of credit aggregating $30.3 million were issuedAugust 15, 2035 and will use the proceeds to facilitaterepay existing debt and for other corporate purposes. The issuance of the postingTNMP 2021 Bonds is subject to the satisfaction of reclamation bonds, which SJCC wascustomary conditions, including continuing compliance with the representations, warranties and covenants of the TNMP 2021 Bond Purchase Agreement. The TNMP 2021 Bonds will be subject to continuing compliance with the representations, warranties and covenants to be set forth in the supplemental indenture governing the TNMP 2021 Bonds. The terms of the supplemental indenture governing the TNMP 2021 Bonds will include the customary covenants discussed above. In the event of a change of control, TNMP will be required to postoffer to prepay the TNMP 2021 Bonds at par. However, the definition of change of control in connection with permits relating to the operationsupplemental indenture governing the TNMP 2021 Bonds will not be triggered by the close of the San Juan mine. On March 15, 2019, WSJ LLC acquiredMerger thus TNMP will not be required to offer to prepay the assets of SJCCTNMP 2021 Bonds at par following the bankruptcyclosing of Westmoreland. WSJ LLC assumedthe Merger. TNMP has the right to redeem any or all obligations of SJCC, including under the letterTNMP 2021 Bonds prior to their respective maturities, subject to payment of credit support arrangements. See Note 11. In May 2020, JPMorgan Chase Bank N.A. gave notice that it would not extend the letters of credit, which expire on October 21, 2020. The Company is currently pursuing a replacement agreement.customary make-whole premium.

On January 7, 2020, PNMRJuly 14, 2021, PNM entered into forwardan agreement (the "PNM 2021 Note Purchase Agreement") with institutional investors for the sale and issuance of $160.0 million aggregate principal amount of 2 series of Senior Unsecured Notes (the "PNM 2021 SUNs") offered in private placement transactions. The PNM 2021 SUNs were issued on July 14, 2021. PNM issued $80.0 million of the PNM 2021 SUNs at 2.59%, due July 15, 2033, and another $80.0 million at 3.14%, due July 15, 2041. Proceeds from the PNM 2021 SUNs were used to repay the total amount of $160.0 million of PNM's 5.35% SUNs, at par, earlier than their scheduled maturity of October 1, 2021 without penalty. The PNM 2021 Note Purchase Agreement includes the customary covenants discussed above. In the event of a change of control, PNM will be required to offer to prepay the PNM 2021 SUNs at par. Although there are customary change of control provisions in the PNM debt agreements, the change of control provisions in these agreements, including the PNM 2021 Note Purchase Agreement, are not triggered by the close of the Merger. PNM has the right to redeem any or all of the PNM 2021 SUNs prior to their maturities, subject to payment of a customary make-whole premium. As PNM has demonstrated the intent and ability to refinance the $160.0 million PNM 5.35% SUNs with each of Citibank N.A.,a long-term commitment, they have been classified as long-term debt on the Condensed Consolidated Balance Sheets at June 30, 2021.

On June 18, 2021, PNM entered into a $75.0 million term loan (the "PNM 2021 Term Loan") between PNM and Bank of America, N.A., as forward purchaserslender. The PNM 2021 Term Loan was used to repay the PNM 2019 $40.0 million Term Loan and an underwriting agreement with Citigroup Global Markets Inc.,for other corporate purposes. The PNM 2021 Term Loan bears interest at a variable rate, which was 0.91% at June 30, 2021 and BofA Securities, Inc. as representatives of the underwriters named therein, relating to an aggregate of approximately 6.2 million shares of PNMR common stock (including 0.8 million shares of PNMR common stock pursuant to the underwriters’ option to purchase additional shares) with each of Citibank N.A., and Bank of America N.A., as forward purchasers (the “PNMR 2020 Forward Equity Sale Agreements”). matures on December 18, 2022.

On January 8, 2020, the underwriters exercised in full their option to purchase the additional 0.8 million shares of PNMR common stock andMay 18, 2021, PNMR entered into separate forward sales agreements with respecta $1.0 billion delayed-draw term loan agreement (the “PNMR 2021 Delayed-Draw Term Loan”), among PNMR, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent. Initially PNMR drew $850.0 million to repay and terminate existing indebtedness including the additional shares. The initial forward sale price of $47.21 per share is subject to adjustments based$150.0 million PNMR 2019 Term Loan, the $300.0 million PNMR 2020 Delayed-Draw Term Loan, the $150.0 million PNMR 2020 Term Loan, $92.1 million in borrowings under the PNMR Revolving Credit Facility, the $65.0 million PNMR Development Term Loan, and $40.0 million in borrowings under the PNMR Development Revolving Credit Facility, which was then terminated. Draws on the PNMR 2021 Delayed-Draw Term Loan bear interest at a net interestvariable rate, factorwhich was 0.93% at June 30, 2021, and by expected future dividends paidmature on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates.May 18, 2023.

The PNMR expects2021 Delayed-Draw Term Loan provides that substantially concurrently with the consummation of the transactions set forth in the Merger Agreement, PNMR will assign to physically settleAvangrid all sharesof its rights, duties, obligations and liabilities under the PNMR 2020 Forward Equity Sale Agreements by delivering newly issued shares2021 Delayed-Draw Term Loan and Avangrid will assume from PNMR, as its direct and primary obligation, the payment and performance of all of the duties, liabilities and obligations of PNMR under the PNMR 2021 Delayed-Draw Term Loan pursuant to an amendment and restatement of the PNMR 2021 Delayed-Draw Term Loan in the form of an amended and restated credit agreement attached to the forward purchasers on or before January 7,PNMR 2021 in exchange for cash at the then applicable forward sales price. PNMR also has the option to net settle the agreement in cash or shares of PNMR common stock. Under a net cash settlement, under which no PNMR common stock would be issued, PNMR would receive net proceeds for a decrease in the market value of PNMR's common stock relative to the then applicable forward sales price per share, or would owe cash in the event of an increase in the market value of PNMR common stock. Under a net share settlement, PNMR would not receive any cash proceeds and may be required to deliver a sufficient number of shares of PNMR common stock to satisfy its obligation to the forward purchasers. The number of shares to be delivered to the forward purchasers would be based on the increase in the PNMR's common stock price relative to the then applicable forward sales price per share. The forward sale agreements meet the derivative scope exception requirements for contracts involving an entity’s own equity. Until settlement of the forward sale agreements, PNMR’s EPS dilution resulting from the agreements, if any, will be determined using the treasury stock method, which will result in dilution during periods when the average market price of PNMR stock during the reporting period is higher than the applicable forward sales price as of the end of that period. See Note 4.Delayed-Draw Term Loan.

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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)

On April 24, 2020, TNMP entered into the TNMPan agreement (the "TNMP 2020 Bond Purchase AgreementAgreement") with institutional investors for the sale of $185.0 million aggregate principal amount of 4 series of TNMP first mortgage bonds (the "TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $110.0 million of TNMP 2020 Bonds on April 24, 2020 and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. TNMP issued the remaining $75.0 million of TNMP 2020 Bonds on July 15, 2020 and used the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit facility and for other corporate purposes. The TNMP 2020 Bonds are subject to continuing compliance with the representations, warranties and covenants ofset forth in the indenture governing the TNMP 2020 Bond Purchase Agreement.Bonds. The terms of the supplemental indenture governing the TNMP 2020 Bond Purchase AgreementBonds include the customary covenants discussed above. In the event of a change of control, including a covenant that requires TNMP to maintain a debt-to-capitalization ratiothe close of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision.the Merger, TNMP will havebe required to offer to prepay the TNMP 2020 Bonds at par. TNMP has the right to redeem any or all of the TNMP 2020 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium.

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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)

Information concerning the funding dates, maturities and interest rates on the TNMP 2020 Bonds issued in April and July 2020 are as follows:

Funding DateMaturity DatePrincipal AmountInterest Rate
(In millions)
April 24, 2020April 24, 2030$85.0  2.73 %
April 24, 2020April 24, 205025.0  3.36  
110.0  
July 15, 2020July 15, 203525.0  2.93  
July 15, 2020July 15, 205050.0  3.36  
$185.0  
can be found in Note 7 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

On April 15, 2020, PNM entered into a $250.0 million term loan agreement (the "PNM 2020 Term Loan"), between PNM, the lenders party thereto, and U.S. Bank, as administrative agent. Proceeds from the PNM 2020 Term Loan were used to prepay the PNM 2019 $250.0 million Term Loan due July 2020, without penalty. The PNM 2020 Term Loan bears interest at a variable rate, which was 2.70% at June 30, 2020, and matures on June 15, 2021. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan. On December 21, 2020, PNM prepaid without penalty the remaining $150.0 million balance of the PNM 2020 Term Loan.

On April 30, 2020, PNM entered into an agreement (the "PNM 2020 Note Purchase Agreement") with institutional investors for the sale of $200.0 million aggregate principal amount of senior unsecured notes offered in private placement transactions. Under the agreement, on April 30, 2020, PNM issued $150.0 million aggregate principal amount of its 3.21% senior unsecured notes, Series A, due April 30, 2030, and $50.0 million of its aggregate principal amount of its 3.57% senior unsecured notes, Series B, due April 29, 2039 (the "PNM 2020 SUNs"). The PNM 2020 SUNs were issued on April 30, 2020. PNM used $100.0 million of proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes. The PNM 2020 SUNs agreementNote Purchase Agreement includes the customary covenants including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%,discussed above. Although there are 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 provisions in the PNM will be required to offer to prepaydebt agreements, including the PNM 2020 SUNs at par.Note Purchase Agreement, the change of control provisions in these agreements are not triggered by the close of the Merger. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium. Information concerning the funding dates, maturities, and interest rates on the PNM 2020 SUNs issued in April 2020 can be found in Note 7 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

At December 31, 2019, PNM had $40.0 million of outstanding PCRBs, which havehad a final maturity of June 1, 2040 and two2 series of outstanding PCRBs of $39.3 million and $21.0 million, which havehad a final maturity of June 1, 2043. These PCRBs, aggregating $100.3 million, were subject to mandatory tender on June 1, 2020. On June 1, 2020, PNM purchased these PCRBs utilizing borrowings under the PNM Revolving Credit Facility and converted the PCRBs to the weekly mode. PNM held these PCRBs (without legally canceling them) until July 1, 2020, when they were remarketed in the weekly mode (the "PNM Floating Rate PCRBs") and PNM used the remarketing proceeds to repay the revolver borrowings. PNM Floating Rate PCRBs in the weekly mode bear interest at rates that are reset weekly, giving investors the option to return the PCRBs for remarketing to new investors upon 7 days' notice. At July 24, 2020,June 30, 2021, this rate was 0.47%0.08%. A corresponding portion of the borrowing capacity under the PNM Revolving Credit Facility will beis reserved to support the investors' option to return the PNM Floating Rate PCRBs upon 7 days' notice. In accordance with GAAP, as PNM can demonstrate the intent and ability to keep the PNM Floating Rate PCRBs outstanding through at least the October 31, 2023 maturity of the PNM Revolving Credit Facility, the borrowings under the PNM Revolving Credit Facility used to purchase the PNM Floating Rate PCRBs, aggregating $100.3 million, are reflected as long-term debt in the Condensed Consolidated Balance Sheets at June 30, 2020. Additionally, the PNM Floating Rate PCRBs, supported by the borrowing capacity under the PNM Revolving Credit Facility, will continue to be reflected as long-term debt.

At June 30, 2020 and December 31, 2019, PNM had PCRBs outstanding of $36.0 million at 6.25% issued by the Maricopa County, Arizona Pollution Control Corporation as well as $255.0 million at 5.90% and $11.5 million at 6.25% issued by the City of Farmington, New Mexico. The $36.0 million PCRBs became callable at 101% of par on January 1, 2020 and the remaining $266.5 million PCRBs became callable at par on June 1, 2020. On June 22, 2020, PNM provided notice to the bondholders that it was calling the PCRBs aggregating $302.5 million. On July 22, 2020, PNM purchased the PCRBs in lieu of redemption and remarketed them to new investors (the "PNM 2020 Fixed Rate PCRBs"). Information concerning the funding dates, mandatory tender dates, and interest rates on the PNM 2020 Fixed Rate PCRBs can be found in Note 7 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

In August 2020, PNMR entered into letter of credit arrangements with Wells Fargo Bank, N.A. (the "WFB LOC Facility") under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation bonds
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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)

bondholders that it was callingcurrently held by WSJ LLC (who assumed all the PCRBs aggregating $302.5 million. On July 22, 2020, PNM purchasedobligations of SJCC post-bankruptcy). The reclamation bonds were required to be posted in connection with permits relating to the PCRBs in lieuoperation of redemption and remarketed them to new investors (the "PNM 2020 Fixed Rate PCRBs").the San Juan mine.

Information concerningOn March 9, 2018, PNMR issued $300.0 million aggregate principal amount of 3.25% SUNs (the “PNMR 2018 SUNs”), which were set to mature on March 9, 2021. On December 22, 2020, PNMR entered into the funding dates, mandatory tender dates,$300.0 million PNMR 2020 Delayed-Draw Term Loan that would have matured in January 2022 and interest rates ondrew $80.0 million to refinance existing indebtedness and for other corporate purposes. On March 9, 2021, PNMR utilized the PNMremaining $220.0 million of capacity under the PNMR 2020 Fixed Rate PCRBs are as follows:Delayed-Draw Term Loan to repay an equivalent amount of the PNMR 2018 SUNs. The remaining $80.0 million repayment of the PNMR 2018 SUNs was funded through borrowings under the PNMR Revolving Credit Facility.

Funding DateMandatory Tender DatePrincipal AmountInterest Rate
(In millions)
July 22, 2020June 1, 2022$36.0  1.05 %
July 22, 2020June 1, 202211.5  1.20  
July 22, 2020June 1, 2023130.0  1.10  
July 22, 2020June 1, 2024125.0  1.15  
$302.5  
On October 20, 2020, the execution of the Merger Agreement constituted a “Change of Control” under certain PNMR, TNMP, and PNMR Development debt agreements. Under each of the specified debt agreements, a “Change of Control” constitutes an “Event of Default,” pursuant to which the lender parties thereto have the right to accelerate the indebtedness under the debt agreements. The definition of Change of Control under the PNM debt agreements and PNM note purchase agreements was not triggered by the execution of the Merger Agreement.

On October 26, 2020, PNMR, TNMP and PNMR Development entered into amendment agreements with the lender parties thereto to amend the definition of "Change of Control" such that the entry into the Merger Agreement would not constitute a Change of Control and to waive the Event of Default arising from entry into the Merger Agreement. The amended Change of Control definition under certain TNMP debt agreements will, however, be triggered again upon the closing of the Merger. Prior to the closing of the Merger, the Company intends to coordinate with the lenders and Avangrid to either amend the definition of Change of Control permitting Avangrid ownership of the Company; or to refinance or enter into new debt agreements that would include Avangrid as an owner of the Company. The Change of Control provisions in the PNM debt agreements, PNM note purchase agreements, and TNMP 2021 Bond Purchase Agreement are not triggered by the close of the Merger.

The documents governing TNMP's aggregate $750.0 million of outstanding 2014 to 2020 First Mortgage Bonds ("TNMP FMBs") obligated TNMP to offer, within 30 business days following the signing of the Merger Agreement, to prepay all $750.0 million outstanding TNMP FMBs at 100% of the principal amount, plus accrued and unpaid interest thereon, but without any make-whole amount or other premium. TNMP made such offer to prepay the TNMP FMBs in accordance with the terms of the TNMP FMBs, and none of the holders of the TNMP FMBs accepted TNMP’s offer. The documents governing the 2014 to 2020 TNMP FMBs require TNMP to make another offer, within 30 business days of closing of the Merger, to prepay all $750.0 million outstanding TNMP FMBs at par. TNMP will make such offer to prepay all $750.0 million outstanding TNMP FMBs in accordance with the terms of the TNMP FMBs; however, holders of the TNMP FMBs are not required to tender their TNMP FMBs and may accept or reject such offer to prepay. As discussed above, the supplemental indenture that will govern the TNMP 2021 Bonds will exclude the Merger from the definition of Change of Control.

The TNMP 2021 Bonds are not registered under the Securities Act and may not be offered or sold in the United States absent registration or applicable exemption from registration requirements and applicable state laws. The information in this Quarterly Report on Form 10-Q is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. Similar to the offer to prepay made after signing the Merger Agreement, the post-Merger closing offer to prepay the TNMP FMBs will be made only pursuant to an offer to prepay, which will set forth the terms and conditions of the offer to prepay.

At June 30, 2020,2021, variable interest rates were 0.98%0.93% on the $50.0 million PNMR 2018 Two-Year2021 Delayed-Draw Term Loan that matures in May 2023, 0.91% on the PNM 2021 Term Loan that matures in December 2020, 1.14% on the PNMR 2019 Term Loan that matures in June 2021, 2.70%2022, and 0.08% on the PNM 2020 Term Loan that maturesFloating Rate PCRBs in June 2021, 0.84% on the PNM 2019 $40.0 million Term Loan that matures in June 2021, and 0.98% on the $90.0 million PNMR Development Term Loan that matures in November 2020.weekly mode.

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

Short-term Debt and Liquidity

Currently, the PNMR Revolving Credit Facility has a financing capacity of $300.0 million and the PNM Revolving Credit Facility has a financing capacity of $400.0 million. Both facilities currently expire on October 31, 2023 and contain options to be extended through October 2024, 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 a $75.0 million revolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds andthat matures on September 23, 2022.2022 and contains 2 one-year extension options, subject to approval by a majority of the lenders. PNMR Development hashad a $40.0 million revolving credit facility that expireswas set to expire on February 23, 2021. PNMR Development has the option to further increase the capacity of this facility to $50.0 million upon 15-days advance notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates.


January 31, 2022. As discussed
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(Unaudited)

above, on May 18, 2021, the PNMR Development Revolving Credit Facility was terminated. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates.


Short-term debt outstanding consists of:
June 30,December 31,
Short-term Debt20202019
(In thousands)
PNM:
PNM Revolving Credit Facility(1)
$47,055  $48,000  
PNM 2017 New Mexico Credit Facility40,000  10,000  
87,055  58,000  
TNMP:
TNMP Revolving Credit Facility12,600  15,000  
TNMP Electricity Relief ERCOT loan (Note 12)494  —  
13,094  15,000  
PNMR Revolving Credit Facility152,400  112,100  
$252,549  $185,100  
(1) Outstanding amount as of June 30, 2020 excludes $100.3 million considered long-term debt as discussed above.
June 30,December 31,
Short-term Debt20212020
(In thousands)
PNM 2017 New Mexico Credit Facility$$10,000 
TNMP Revolving Credit Facility38,200 
PNMR:
PNMR Revolving Credit Facility53,300 12,000 
     PNMR Development Revolving Credit Facility10,000 
$91,500 $32,000 

At June 30, 2020,2021, the weighted average interest rate was 1.68%1.59% for the PNMR Revolving Credit Facility 1.43% for the PNM Revolving Credit Facility, 1.44% for the PNM 2017 New Mexico Credit Facility, and 0.91%0.84% for the TNMP Revolving Credit Facility. There were 0 borrowings outstanding under the PNMR DevelopmentPNM Revolving Credit Facility or the PNM 2017 New Mexico Revolving Credit Facility at June 30, 2020.2021.

In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $4.6$3.3 million, $2.2 million, and $0.1 million0 at June 30, 20202021 that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of June 30, 2020,2021 and December 31, 2019, each of2020, neither PNM 0r TNMP andhad any intercompany borrowings from PNMR. PNMR Development had zero0 and $0.3 million in intercompany borrowings from PNMR.PNMR at June 30, 2021 and December 31, 2020. PNMR had 0 intercompany borrowings from PNMR Development at either of June 30, 2021 or December 31, 2020.

In 2017, PNMR entered into 3 separate four-yearfour-year hedging agreements whereby it effectively established fixed interest rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR for 3 separate tranches, each of $50.0 million, of its variable rate debt. TheseOn March 23, 2021 the 1.926% fixed interest rate hedge agreements are accounted for as cash flow hedgesagreement expired according to its terms and had fair values of $2.1 million and $0.4 million at June 30, 2020 and December 31, 2019 that are included in other current liabilities 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.agreements expired on May 23, 2021.

At July 24, 2020,23, 2021, PNMR, PNM, TNMP, and PNMR DevelopmentTNMP had availability of $153.5$258.9 million, $343.9 million, $74.9$397.8 million, and $37.0$18.5 million under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit. PNM also had 0$40.0 million of availability under the PNM 2017 New Mexico Credit Facility. Total availability at July 24, 2020,23, 2021, on a consolidated basis, was $609.3$715.2 million for PNMR. Availability under PNM's Revolving Credit Facility and total availability at PNMR, on a consolidated basis, does not reflect a reduction of $100.3 million that PNM has reserved to provide liquidity support for the PNM Floating Rate PCRBs. As of July 24, 2020,23, 2021, PNM, TNMP, and PNMR Development had no0 borrowings from PNMR under their intercompany loan agreements.agreements and PNMR had 0 borrowings from PNMR Development. At July 24, 2020,23, 2021, PNMR, PNM, and TNMP had invested cash of $0.9 million, 0,$21.7 million, and $63.5 million.0.

The Company’s debt arrangements have various maturities and expiration dates. The $90.0PNM has $146.0 million PNMR Development Term Loan maturesof PCRBs that must be repriced in November 2020, the $50.0October 2021 and an additional $104.5 million PNMR 2018 Two-Year Term Loan matures in December 2020, the $300.0 million PNMR 2018 SUNs mature on March 9, 2021, the $150.0 million PNMR 2019 Term Loan maturesof PCRBs that must be repriced in June 2021, the PNM 2019 $40.0 million Term Loan matures in June 2021, and the PNM 2020 Term Loan that currently has $150.0 million outstanding matures in June 2021.2022. Additional information on debt maturities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



(10)   Pension and Other Postretirement Benefit Plans

PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. The periodic costs or income of the PNM Plans and TNMP Plans are included in regulated rates to the extent attributable to regulated operations. In accordance with GAAP, theThe 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
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(Unaudited)

pension and OPEB plans in excess of accumulated periodic cost or income to the extent included in retail rates (a “prepaid pension asset”).

Additional information concerning pension and OPEB plans is contained in Note 11 of the Notes to Consolidated Financial Statements in the 20192020 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. Differences between TNMP's annual net periodic costs (income) and amounts included in its regulated rates are deferred to regulatory assets or liabilities, for recovery or refund in future rate proceedings.

PNM Plans

The following table presents the components of the PNM Plans’ net periodic benefit cost:
Three Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202020192020201920202019
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$—  $—  $10  $13  $—  $—  
Interest cost4,985  6,294  613  829  122  162  
Expected return on plan assets(7,363) (8,527) (1,387) (1,318) —  —  
Amortization of net (gain) loss4,465  3,880  87  169  101  79  
Amortization of prior service cost(138) (241) —  (99) —  —  
Net Periodic Benefit Cost (Income)$1,949  $1,406  $(677) $(406) $223  $241  
Six Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202020192020201920202019
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$—  $—  $20  $26  $—  $—  
Interest cost9,971  12,587  1,227  1,658  244  324  
Expected return on plan assets(14,726) (17,051) (2,774) (2,636) —  —  
Amortization of net (gain) loss8,930  7,759  174  338  201  158  
Amortization of prior service cost(277) (483) —  (198) —  —  
Net Periodic Benefit Cost (Income)$3,898  $2,812  $(1,353) $(812) $445  $482  

Three Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202120202021202020212020
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$$$$10 $$
Interest cost4,035 4,985 477 613 91 122 
Expected return on plan assets(7,132)(7,363)(1,041)(1,387)
Amortization of net loss4,542 4,465 87 97 101 
Amortization of prior service cost(138)0
Net Periodic Benefit Cost (Income)$1,445 $1,949 $(557)$(677)$188 $223 
Six Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202120202021202020212020
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$$$13 $20 $$
Interest cost8,071 9,971 954 1,227 181 244 
Expected return on plan assets(14,265)(14,726)(2,083)(2,774)
Amortization of net loss9,083 8,930 174 197 201 
Amortization of prior service cost(277)
Net Periodic Benefit Cost (Income)$2,889 $3,898 $(1,116)$(1,353)$378 $445 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PNM did 0t make any contributions to its pension plan trust in the six months ended June 30, 20202021 and 20192020 and does 0t anticipate making any contributions to the pension plan in 20202021 or 2021,2022 but expects to contribute $4.6 million in 2022 and $19.1$10.8 million in 2023, and $19.0$11.5 million in 2024, and $10.6 million in 2025 based on current law, funding requirements, and estimates of portfolio performance. Funding assumptions were developed using a discount ratesrate of 3.4% to 3.5%2.9%. 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 did 0t make any cash contributions to the OPEB trust in the six months ended June 30, 20202021 and 2019,2020, however, a portion of the disbursements attributable to the OPEB trust are paid by PNM and are therefore considered to be contributions to the OPEB plan. Payments by PNM on behalf of the PNM OPEB plan were $1.0$0.8 million and $1.7 million for the three and six months ended June 30, 2021 and $1.1 million and $2.1 million in the three and six months ended June 30, 2020 and $0.7 million and $1.5 million in the three and six months ended June 30, 2019 and2020. These payments are expected to total $3.7$3.3 million in 20202021 and $13.5$13.1 million for 2021-2024.2022-2025. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were $0.3 million and $0.8 million in the three and six months ended June 30, 20202021 and $0.4$0.3 million and $0.7$0.8 million infor the three and six months ended June 30, 20192020 and are expected to total $1.5$1.3 million during 20202021 and $5.4$4.9 million for 2021-2024.2022-2025.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


TNMP Plans

The following table presents the components of the TNMP Plans’ net periodic benefit cost:
Three Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202020192020201920202019
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$—  $—  $12  $13  $—  $—  
Interest cost544  672  93  113    
Expected return on plan assets(821) (967) (135) (129) —  —  
Amortization of net (gain) loss315  235  (80) (110)   
Amortization of prior service cost—  —  —  —  —  —  
Net Periodic Benefit Cost (Income)$38  $(60) $(110) $(113) $12  $12  
Six Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202020192020201920202019
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$—  $—  $23  $26  $—  $—  
Interest cost1,088  1,344  187  226  11  16  
Expected return on plan assets(1,642) (1,934) (268) (258) —  —  
Amortization of net (gain) loss629  470  (162) (220) 12   
Amortization of prior service cost—  —  —  —  —  —  
Net Periodic Benefit Cost (Income)$75  $(120) $(220) $(226) $23  $24  

Three Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202120202021202020212020
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$$$11 $12 $$
Interest cost436 544 77 93 
Expected return on plan assets(796)(821)(101)(135)
Amortization of net (gain) loss312 315 (81)(80)
Amortization of prior service cost
Net Periodic Benefit Cost (Income)$(48)$38 $(94)$(110)$13 $12 
Six Months Ended June 30,
Pension PlanOPEB PlanExecutive Retirement Program
202120202021202020212020
(In thousands)
Components of Net Periodic Benefit Cost
Service cost$$$22 $23 $$
Interest cost871 1,088 154 187 11 
Expected return on plan assets(1,591)(1,642)(203)(268)
Amortization of net (gain) loss624 629 (161)(162)17 12 
Amortization of prior service cost
Net Periodic Benefit Cost (Income)$(96)$75 $(188)$(220)$26 $23 

TNMP did 0t make any contributions to its pension plan trust in the six months ended June 30, 20202021 and 20192020 and does 0t anticipate making any contributions to the pension plan in 2020 - 2022, but expects to contribute $1.1 million in 2023 and $2.8 million in 2024,2021 through 2025 based on current law, funding requirements, and estimates of portfolio performance. Funding assumptions were developed using a discount ratesrate of 3.4% to 3.5%2.9%. 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 did not0t make any contributions to the OPEB trust in the three and six months ended June 30, 20202021 and 20192020 and does 0t expect to make contributions to the OPEB trust during the period 2020-2024. However, a portion of the disbursements attributable to the OPEB trust are paid by TNMP and are therefore considered to be contributions to the OPEB
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

plan.Payments by TNMP on behalf of the TNMP OPEB plan were $0.2 million and $0.3 million in the three and six months ended June 30, 2020 and $0.1 million and $0.2 million in the three and six months ended June 30, 2019.2021-2025. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were 0 in the three and six months ended June 30, 20202021 and 20192020 and are expected to total $0.1 million during 20202021 and $0.3 million in 2021-2024.2022-2025.

(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 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.

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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, theThe 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 20192020 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 that establishes a process for the payment of claims for costs incurred through December 31, 2019. In July 2020, APS accepted the DOE's extension of the settlement agreement for recovery of costs incurred through December 31, 2022. 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. In July 2020, APS accepted the DOE's extension of the settlement agreement for recovery of costs incurred through December 31, 2022.

PNM estimates that it will incur approximately $59.6 million (in 2019 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
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(Unaudited)

component of fuel expense as the nuclear fuel is consumed. At both June 30, 20202021 and December 31, 2019,2020, PNM had a liability for interim storage costs of $13.0 million and $12.7$12.8 million, which is included in other deferred credits.

PVNGS has sufficient capacity at its on-site Independent 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 U.S. government’s obligation to accept and store spent fuel are not favorably resolved, APS will evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the period of extended operation.

The Energy Transition Act

In 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. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 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
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(Unaudited)

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 a 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 energy transition costs (as defined by the ETA). These costs may include plant decommissioning and coal mine reclamation costs provided those costs have not previously been recovered from customers or disallowed by the NMPRC or by a court order. Proceeds from energy transition bonds may also be used to fund severances for employees of the retired facility and related coal mine and to promote economic development, education and job training in areas impacted by the retirement of the coal-fired facilities. Energy transition bonds must be issued under a NMPRC-approved financing order, are secured by “energy transition property,” are non-recourse to the issuing utility, and repaid by a non-bypassable charge paid by all customers of the issuing utility. These customer charges are subject to an adjustment mechanism designed to provide for timely and complete payment of principal and interest due under the energy transition bonds.

The ETA also provides that utilities must obtain NMPRC approval of competitively procured replacement resources that shall be evaluated based on their cost, economic development opportunity, ability to provide jobs with comparable pay and benefits to those lost upon retirement of the facility, and that do not exceed emissions thresholds specified in the ETA. 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. 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.

The ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022 and the planned Four Corners exit in 2024. PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement resource filings with the NMPRC. See additional discussion in Note 12 of PNM’s SJGS and Four Corners Abandonment Applications.

The Clean Air Act

Regional Haze

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

On January 10,In 2017, EPA published in the Federal Register revisions to the regional haze rule.rule in the Federal Register. 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. EPA’s decision to revisit the 2017 rule is not a determination on the merits of the issues raised in the petitions.

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On December 20, 2018, EPA released a new guidance document on tracking visibility progress for the second planning period. EPA is allowing states discretion to develop SIPs that may differ from EPA’s guidance as long as they are consistent with the CAA and other applicable regulations. On August 20, 2019, EPA finalized the draft guidance that was released in 2016 as a companion to the regional haze rule revisions. The finalrevisions, and EPA clarified that 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.a memorandum issued on July 8, 2021. SIPs for the second complianceplanning 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 requirebe required to submit a regional haze four-factor analysis for SJGS since PNM will retire its share of SJGS in 2022. NMED's current timeline indicates the SIP will be submitted between September 2021 and January 2022. PNM cannot predict the outcome of these matters with respect to Four Corners.


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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 U.S. District Court for the District of Arizona in connection with their issuance of the approvals that extended the life of Four Corners and the adjacent mine. The lawsuit alleges that these federal agencies violated both the ESA and NEPA in providing the federal approvals necessary to extend operations at Four Corners and the adjacent mine past July 6, 2016.  The court granted an APS motion to intervene in the litigation. 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. The court granted NTEC’s motion and dismissed the case with prejudice, terminating the proceedings. In November 2017, the environmental group plaintiffs filed a Notice of Appeal of the dismissal in the U.S. Court of Appeals for the Ninth Circuit, and the court granted their subsequent motion to expedite the appeal. The Ninth Circuit issued a decision affirming the District Court’s dismissal of the case. In September 2019, the environmental groups filed a motion for reconsideration, which was denied in December 2019. On March 24, 2020, the environmental groups filed a petition for writ of certiorari in the U.S. Supreme Court seeking review of the Ninth Circuit's decision. The Supreme Court denied the petition on June 29, 2020, making the decision of the Ninth Circuit to affirm the District Courts dismissal of the case final. This matter is now complete.

Carbon Dioxide Emissions

On August 3, 2015, EPA established standards to limit CO2 emissions from power plants. EPA took three separate but related actions in which it: (1) established the Carbon Pollution Standards for new, modified, and reconstructed power plants; (2) established the 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 agenciesChallengers successfully petitioned the US Supreme Court for a stay which was granted on February 9, 2016. The decision meant that the Clean Power Plan was not in effect and neither states nor sources were 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.Plan. However, before the DC Circuit could issue an opinion regarding either the Carbon Pollution Standards or the Clean Power Plan, the Trump Administration asked that the case be held in abeyance while the rule was being re-evaluated, which was granted. In addition, the DC Circuit issued a similar order in connection with a motion filed by

On June 19, 2019, EPA to hold cases challenging the NSPS in abeyance. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss cases challengingrepealed the Clean Power Plan, promulgated the ACE Rule, and revised the implementing regulations for all emission guidelines. EPA set the Best System of Emissions Reduction ("BSER") for existing coal-fired power plants as moot dueheat rate efficiency improvements based on a range of "candidate technologies" that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA's rule directed states to EPA's issuancedetermine which of the Affordable Clean Energy rule, which repealedcandidate technologies to apply to each coal-fired unit and establish standards of performance based on the Clean Power Plan.

On March 28, 2017, President Trump issued an Executive Orderdegree of emission reduction achievable based on Energy Independence. The order put forth two general policies: promote clean and safe developmentthe application of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.  The order directed the EPA Administrator to review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Clean Power Plan, (2) the New Source Performance Standards (“NSPS”) for GHG from new, reconstructed, or modified electric generating units, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. 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 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.BSER. 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.ACE Rule.

However, on January 19, 2021, the DC Circuit issued an opinion in American Lung Association and American Public Health Association v. EPA, et al. regarding challenges to the ACE Rule. The DC Circuit vacated the ACE Rule and remanded the record back to the EPA for further consideration consistent with its opinion, finding that EPA misinterpreted the CAA when it determined that the language of section 111 unambiguously barred consideration of emissions reductions options that were not applied at the source. NaN petitions for writ of certiorari were filed in the U.S. Supreme Court seeking review of the D.C. Circuit’s January opinion vacating EPA’s effortsrepeal and replacement of the Obama Administration’s Clean Power Plan regulations for controlling carbon emissions from existing power plants. The petitioners include 1) West Virginia and 18 other states that had intervened to replacedefend the ACE Rule, 2) North American Coal Corporation, 3) North Dakota (separately from the other states), and 4) Westmoreland Mining Holdings LLC. Several briefs were filed in support of the certiorari petitions. After receiving an extension from the DC Circuit, EPA’s response is due by August 5, 2021.

While the DC Circuit did not uphold the ACE Rule, it did not reinstate the Clean Power Plan. EPA filed a motion seeking a partial stay of the mandate as to the repeal of the Clean Power Plan, to ensure the court’s order will not render effective the now out-of-date Clean Power Plan. On February 22, 2021, the U.S. Court of Appeals for the DC Circuit granted EPA’s motion, indicating that it would withhold issuance of the mandate with respect to the Affordable Clean Energy rule began on October 10, 2017, when EPA issued a NOPR proposing to repeal of the Clean Power Plan and filed its status report withuntil EPA responds to the court requestingcourt’s remand in a new rulemaking action. The litigation over the case beCarbon Pollution Standards remains held in abeyance untilbut could be reactivated by the completionparties upon a determination by the court that the Biden Administration is unlikely to finalize the revisions proposed in 2018 and that reconsideration of the rulemaking onrule has concluded.

While corresponding NSR reform regulations were proposed as part of the proposed repeal.ACE Rule, the final rule did not include such reform measures. Unrelated to the ACE Rule, EPA issued a proposed rule on August 1, 2019, to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The NOPRfinal rule on NSR Project Emissions Accounting became effective on December 24, 2020, clarifying that both emissions increases and decreases resulting from a project are to be considered in determining whether the proposed a legal interpretation concluding thatproject will result in an increase in air emissions. However, the Clean Power Plan exceeded EPA’s statutory authority. On August 31, 2018, EPA published a proposedrule may be reconsidered by the Biden Administration.
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rule, known as
On January 27, 2021, President Biden signed an extensive Executive Order aimed at addressing climate change concerns domestically and internationally. The order is intended to build on the Affordable Clean Energy rule, to replaceinitial climate-related actions the Clean Power Plan. On June 19, 2019, EPA released the final version of the Affordable Clean Energy rule. EPA takes three actions in the final rule: (1) repealing of the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d), which, among other things, extends the deadline for state plans and the timing for EPA's approval process. The final rule is very similar to the August 2018 proposed rule. EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements basedBiden Administration took on January 20, 2021. It addresses a wide range of “candidate technologies” that can be applied inside the fence-line. Rather than settingissues, including establishing climate change concerns as an essential element of U.S. foreign and security policy, identifying a specific numerical standard of performance, EPA’s rule directs statesprocess to determine which of the candidate technologies to apply to each coal-fired unitU.S. Intended Nationally Determined Contribution ("INDC") under the Paris Agreement, and establish standards of performance basedestablishing a Special Presidential Envoy for Climate that will sit on the degree of emission reduction achievable based onNational Security Council. On April 22, 2021, at the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after PNM retires its share of SJGS in 2022.

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 unable to predict the potential financial or operational impacts on Four Corners.

While corresponding NSR reform regulations were proposedEarth Day Summit, as part of the proposed Affordable Clean Energy rule,U.S.’s re-entry into the final rule did notParis Agreement, President Biden unveiled the goal to cut U.S. emissions by 50% - 52% from 2005 levels by 2030, nearly double the GHG emissions reduction target set by the Obama Administration. The 2030 goal joins President Biden’s other climate goals which 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 tocarbon pollution-free power sector by 2035 and a proposed project at an existing source of emissions. The proposed rule clarifies that bothnet-zero 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.economy by no later than 2050.
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. A final rule is expected in 2020.
PNM’s review of the GHG emission reductions standards that may occur as a result of legislation or regulation under the Affordable Clean Energy ruleBiden Administration and in response to the revised proposed Carbon Pollution Standards rulecourt's ruling on the ACE Rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.

National Ambient Air Quality Standards (“NAAQS”)

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

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

SO2 Standard – On May 13, 2014, EPA released the draft data requirements rule for the 1-hour SO2 NAAQS, which directs state and tribal air agencies to characterize current air quality in areas with large SO2 sources to identify maximum 1-
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hour1-hour SO2 concentrations. This characterization requires areas be designated as attainment, nonattainment, or unclassifiable for compliance with the 1-hour SO2 NAAQS. 

On August 11, 2015, EPA released the Data Requirements Rule for SO2, telling states how to model or monitor to determine attainment or nonattainment with the new 1-hour SO2 NAAQS.  On June 3, 2016, NMED notified PNM that air quality modeling results indicated that SJGS was in compliance with the standard. In January 2017, NMED submitted its formal modeling report regarding attainment status to EPA. The modeling indicated that no area in New Mexico exceeds the 1-hour SO2 standard.  NMED submitted the first annual report for SJGS as required by the Data Requirements Rule in June 2018. That report recommended that no further modeling was warranted due to decreased SO2 emissions. NMED submitted the second and third annual modeling report to EPA in July 2019 and July 2020. Those reports retained the recommendation that no further modeling is needed at this time and is subject to EPA review.

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

On May 14, 2015, PNM received an amendmentMarch 26, 2021, EPA published in the Federal Register the initial air quality designations for all remaining areas not yet designated under the 2010 SO2 Primary NAAQS. This is EPA’s fourth and final set of actions to its NSR air permit for SJGS, which reflectsdesignate areas of the revised state implementation plan for regional haze BART and required the installation of SNCRs. The revised permit also required the reduction of SO2 emissions to 0.10 pound per MMBTU on SJGS Units 1 and 4 and the installation of BDT equipment modificationsU.S. for the purpose2010 SO2 NAAQS. All areas of reducing fugitive emissions, including NOx, SO2, and particulate matter. These reductions help SJGS meetNew Mexico have been designated attainment/unclassifiable through four rounds of designations by the NAAQS for these constituents. The BDT equipment modifications were installed at the same time as the SNCRs, in order to most efficiently and cost effectively conduct construction activities at SJGS. See a discussion of the regulatory treatment of BDT in Note 12.EPA.

Ozone Standard – On October 1, 2015, EPA finalized the new ozone NAAQS and lowered both the primary and secondary 8-hour standard from 75 to 70 parts per billion. With ozone standards becoming more stringent, fossil-fueled generation units will come under increasing pressure to reduce emissions of NOx and volatile organic compounds since these are the pollutants that form ground-level ozone. On July 13, 2020, EPA proposed to retain the existing ozone NAAQS based on a review of the full body of currently available scientific evidence and exposure/risk information, butinformation. EPA finalized its decision to retain the ozone NAAQS in a notice published on December 31, 2020 making it immediately effective. The Center for Biological Diversity filed a lawsuit on February 25, 2021, challenging the decision to retain the existing ozone standard, and the Biden Administration has included the decision in its list of actions that proposal has not yet been published in the Federal Register, and EPA is unlikely to finalize the proposal until after the next presidential election.may be reconsidered.

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

During 2017 and 2018, EPA released rules establishing area designations for ozone. In those rules, San Juan County, New Mexico, where SJGS and Four Corners are located, is designated as attainment/unclassifiable and only a small area in Doña Ana County, New Mexico is designated as marginal non-attainment. Although Afton is located in Doña Ana County, it is not located within the small area designated as nonattainmentnon-attainment for the 2015 ozone standard.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 nonattainmentnon-attainment areas are due in August 2021.

NMED has responsibility for bringing the small area in Doña Ana County designated as marginal/non-attainment for ozone into compliance and will look at all sources of NOx and volatile organic compounds. On November 22, 2019, EPA issued findings that several states, including New Mexico, had failed to submit SIPs for the 8-hour ozone NAAQS. In response, in December 2019, NMED published the Public Review Draft of the New Mexico 2013 NAAQS Good Neighbor SIP that outlines the strategies and emissions control measures that are expected to improve air quality in the area by May 8, 2021. These strategies and measures would aim to reduce the amount of NOx and volatile organic compounds emitted to the
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atmosphere and will rely upon current or upcoming federal rules, new or revised state rules, and other programs. Comments or requests for a public hearing were required by January 21, 2020.

NMED Air Quality Bureau has completed a draft retrospective demonstration showing that this area would be in attainment of the NAAQS but for international emissions. This demonstration allows the area to maintain a marginal non-attainment status and eliminates the need for additional planning requirements and emission reductions. NMED sought public comment on the draft document through May 14, 2021.

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

PM Standard – On January 30, 2020, EPA published in the Federal Register a notice announcing the availability of its final Policy Assessment for the Review of the National Ambient Air Quality StandardsNAAQS for Particulate Matter (the "Final PA"). The final assessment was prepared as part of the review of the primary and secondary PM NAAQS.In the assessment, EPA recommendrecommended lowering the primary annual PM2.5 standard to between 8 µg/m3 and 10 µg/m3. However, on April 30, 2020, EPA published a proposed rule to retain the current standards for PM due to uncertainties in the data relied upon in the Final PA. EPA accepted comments on the proposed rule through June 29, 2020. On December 7, 2020, EPA announced it will retain, without revision, the existing primary (health-based) and secondary (welfare-based) NAAQS for PM, and EPA published a notice of that final action on December 18, 2020, making it immediately effective. On January 14, 2021, several states and New York City filed a petition for review in the DC Circuit, challenging EPA’s final rule retaining the current primary and secondary PM NAAQS. On February 9, 2021, a similar lawsuit was filed by the Center for Biological Diversity in the DC Circuit. On June 10, 2021, EPA announced that it will reconsider the previous administration’s December 2020 decision to retain the current primary and secondary PM NAAQS. EPA stated that available scientific evidence and technical information indicate that the current standards may not be adequate to protect public health and welfare, as required by the Clean Air Act. EPA anticipates issuing a proposed rule in summer 2022 and a final rulemakingrule 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.spring 2023.

Navajo Nation Environmental Issues

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


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Cooling Water Intake Structures

In 2014, EPA issued a rule establishing 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).

To minimize impingement mortality, the rule provides operators of facilities, such as SJGS and Four Corners, 7 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. The permitting authority must establish the BTA for entrainment on a site-specific basis, taking into consideration an array of factors, including endangered species and social costs and benefits. Affected sources must submit source water baseline characterization data to the permitting authority to assist in the determination. Compliance deadlines under the rule are tied to permit renewal and will be subject to a schedule of compliance established by the permitting authority.

The rule is not clear as to how it applies and what the compliance timelines are for facilities like SJGS that have a cooling water intake structure and only a multi-sector general stormwater permit. However, EPA has indicated that it is contemplating a December 31, 2023 compliance deadline. PNM is working with EPA regarding this issue and does not expect material changes as a result of any requirements that may be imposed upon SJGS, particularly given the NMPRC's April 1, 2020 approval for PNM to retire its share of SJGS by June 2022.

On May 23, 2018, several environmental groups sued EPA Region IX in the U.S.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
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mandamus compelling EPA Region IX to take final action on the pending NPDES permit by a reasonable date. EPA subsequently reissued the NPDES permit on June 12, 2018. The permit did not contain conditions related to the cooling water intake structure rule as EPA determined that the facility has achieved BTA for both impingement and entrainment by operating a closed-cycle recirculation system. On July 16, 2018, several environmental groups filed a petition for review with EPA’s Environmental Appeals Board ("EAB") concerning the reissued permit. The environmental groups alleged that the permit was reissued in contravention of several requirements under the Clean Water Act and did not contain required provisions concerning certain revised effluent limitation guidelines, existing-source regulations governing cooling-water intake structures, and effluent limits for surface seepage and subsurface discharges from coal-ash disposal facilities. On December 19, 2018, EPA withdrew the Four Corners NPDES permit in order to examine issues raised by the environmental groups. Withdrawal of the permit moots the appeal pending before the Environmental Appeals Board. EPA’s Environmental Appeals BoardEAB. EAB thereafter dismissed the environmental groups’ appeal. EPA issued an updated NPDES permit on September 30, 2019. The permit has beenwas once again appealed to the EAB and was stayed pending an appeal filed by several environmental groups on November 1, 2019 to EPA's Environmental Appeals Board.before the effective date. Oral argument was heard on this appeal has been scheduled for September 3, 2020. The EAB issued an order denying the petition for review on September 30, 2020. The denial was based on the EAB's determination that the petitioners had failed to demonstrate that review of the permit was warranted on any of the grounds presented in the petition. Thereafter, the Regional Administrator of the EPA signed a Notice of Final Permit Decision, and the NPDES permit was issued on November 9, 2020. The permit became effective December 1, 2020 and will expire on November 30, 2025. On January 22, 2021, the environmental groups filed a petition for review of the EAB's decision with the U.S. Court of Appeals for the Ninth Circuit. The September 2019 permit remains in effect pending this appeal. PNM cannot predict the outcomewhether there will be further appeals of this matter or whether itthe outcome of any such appeal 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 Limitation Guidelines rule on September 30, 2015. The final rule, which became effective on January 4, 2016, phasesphased 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. EachThe 2015 rule required each plant mustto comply between 2018 and 2023 depending on when it needs a new or revised NPDES permit.

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

On September 18, 2017, EPA published a final rule for postponement of certain compliance dates. The rule postponed the earliest date on which compliance with the effluent limitation guidelines for these waste streams would be required from November 1, 2018 until November 1, 2020. Although the new deadlines were challenged in court, the Fifth Circuit rejected those challenges on August 28, 2019. On November 22, 2019, EPA published a proposed rule revising the original Effluent Limitation Guidelines while maintaining the compliance dates. Comments were due January 21, 2020. On October 13, 2020, EPA published in the Federal Register the final Steam Electric Effluent Limitation Guidelines and standards for the Steam Electric Power Generating Point Source Category, revising the final 2015 guidelines for both flue gas desulfurization wastewater and bottom ash transport water. The rule will require compliance with new limits as soon as possible on or after October 13, 2021, (beginning one year after the publication date) but no later than December 31, 2025.

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

EPA reissued an NPDES permit for Four Corners on June 12, 2018. Since that time, the NPDES permit at Four Corners has been subject to various challenges by environmental groups. See Cooling"Cooling Water Intake StructuresStructures" above for additional discussion of Four Corners' current NPDES permit. Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques during the next
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NPDES permit renewal in 2023. PNM is unable to predict the outcome of these matters or a range of the potential costs of compliance.

Santa Fe Generating Station

PNM and 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 to address gasoline contamination in the groundwater at the site of PNM’s former Santa Fe Generating Station and service center. A 2008 NMED site inspection report states that neither the source nor extent of contamination at the site has been determined and that the source may not be the former Santa Fe Generating Station. During 2013 and 2014, PNM and NMED collected additional samples that showed elevated concentrations of nitrate and volatile organic compounds in some of the monitoring wells at the site. In addition, one monitoring well contained free-phase hydrocarbon products. PNM collected a sample of the product for “fingerprint” analysis. The results of this analysis indicated the product was a mixture of older and newer fuels. The presence of newer fuels in the sample suggests the hydrocarbon product likely originated from off-site sources. In December 2015, PNM and NMED entered into a memorandum of understanding to address changing groundwater conditions at the site under which PNM agreed to continue hydrocarbon investigation under the supervision of NMED. Qualified costs are eligible for payment through the New Mexico Corrective Action Fund (“CAF”), which is administered by the NMED Petroleum Storage Tank Bureau. In March 2019, PNM received notice from NMED that an abatement plan for the site is required to address concentrations of previously identified compounds, unrelated to those discussed above, found in the groundwater. NMED approved PNM’s abatement plan proposal, which covers field work and reporting.

Field work related to the investigation under both the CAF and abatement plan requirements was completed in October 2019. Activities and findings associated with the field work were presented in two separate reports and released to stakeholders in early 2020. The reports’ conclusions supportSubsequent field work was completed in July 2020 and two reports were released supporting PNM’s contention that off-site sources have impacted, and are continuing to impact, the local groundwater in the vicinity of the former Santa Fe Generating Station.

PNM submitted work plans to NMED in January 2021 for review and approval. PNM is prepared to commence work shortly after receiving NMED approval.

The City of Santa Fe has stopped operating its well at the site, which is needed for PNM’s groundwater remediation system to operate. As a result, PNM has stopped performing remediation activities at the site. However, PNM’s monitoring and other abatement activities at the site are ongoing and will continue until the groundwater meets applicable federal and state standards or until the NMED determines remediation is not required, whichever is earlier. PNM is not able to assess the duration of this project or estimate the impact on its obligations if PNM is required to resume groundwater remediation activities at the site. PNM is unable to predict the outcome of these matters.


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Coal Combustion Residuals Waste Disposal

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

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 RCRAash 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 U.S. 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 authority to directly enforce the 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 timeline for establishing either state or federal permitting programs.
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On July 30, 2018, EPA published a rule that constitutes “Phase One, Part One” of its ongoing reconsideration and revision of the April 17, 2015 coal ash rule. The final rule includes two types of revisions. The first revision extended the deadline to allow EGUs with unlined impoundments or that fail to meet the uppermost aquifer requirement to continue to receive coal ash until October 31, 2020. The rule also authorized a “Participating State Director” or EPA to approve suspension of groundwater monitoring and to issue certifications related to the location restrictions, design criteria, groundwater monitoring, remedy selection and implementation. The revisions also modify groundwater protection standards for certain constituents, which include cobalt, molybdenum, lithium, and lead without a maximum contamination level. EPA intends to issue multiple proposed rulemakings with a final rule expected in 2020 that will include the following: (1) deadlines for unlined surface impoundments to cease receiving waste; (2) a “Phase Two” rule to address amendments to the national minimum criteria; and (3) rulemaking for alternative demonstration for unlined surface impoundments with a request for comment on inclusion of legacy units.

On August 14, 2019, EPA published the “Phase Two” proposed rule was published in the Federal Register with comments due on October 15, 2019. This rule proposes revisions to reporting and accessibility to public information, the definition of CCR piles, the definition of beneficial use, and the requirements for management of CCR piles. A final rule is expectedOn March 12, 2021, EPA published notice in mid to late 2020. On November 4, 2019, EPA proposed a changethe Federal Register that it was reopening the comment period on its prior notice that announced the availability of new information and data pertaining to the CCR rule that, subject toPhase Two proposed rule. EPA authorizationextended the comment period for each facility, would allow facilities that have committed to cease burning coal in the near-term to qualify for alternative closure. CCR disposal units at such plants could continue operating even though they would otherwise have been subject to forced closure. an additional 60 days, until May 11, 2021.

On December 2, 2019, EPA published the proposed Part A CCR rule requiring a new date of August 31, 2020 for companies to initiate closure of unlined CCR impoundments and changing the classification of compacted soil-lined or clay-lined surface impoundments from “lined” to “unlined”. EPA’s final Part A CCR rule was issued on August 28, 2020 and became effective on September 28, 2020. This rule finalizes the classification of soil-lined and clay-lined surface impoundments as unlined, triggering closure or retrofit requirements for those impoundments and gave operators until April 11, 2021 to cease receipt of waste at these units and begin the closure process. On March 3, 2020, EPA issued a proposed rule, Part B, addressing demonstrations for clay liners and regulations addressing beneficial use for closure of surface impoundments. On October 16, 2020, EPA released a prepublication draft copy of the final Part B rule. This rule did not include beneficial use of CCR for closure, which EPA explains will be addressed in subsequent rulemaking action. EPA intends to issue several other rulemakings covering legacy ponds and finalizing parts of previously proposed rules. These proposed rules and final rules are expected in 2022.

On February 20, 2020, EPA published a proposed rule establishing a federal permitting program for the handling of CCR within the boundaries of Native American reservations and in states without their own federally authorized state programs. Permits for units within the boundaries of Native American reservations would be due 18 months after the effective date of the rule. The deadline to provide comments was extended to July 19,August 7, 2020. The final rule is expected in 2020.January 2022. PNM cannot predict the outcome of EPA’s rule making activity or the outcome of any related litigation, and whether or how such a ruling would affect operations at Four Corners.

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

As indicated above, CCRs at Four Corners are currently disposed of in ash ponds and dry storage areas. The CCR rule requires ongoing, phased groundwater monitoring. Utilities that own or operate CCR disposal units, such as those at Four Corners, as indicated above, were required to collect sufficient groundwater sampling data to initiate a detection monitoring program.  Four Corners completed the analysis for its CCR disposal units, which identified several units that will need corrective action or will need to cease operations and initiate closure by October 31, 2020 under current regulations.April 11, 2021. As part of this assessment, Four Corners will continue to gather additional groundwater data and perform remedial evaluations. At this time, PNM does not anticipate its share of the cost to complete these corrective actions, to close the CCR disposal units, or to gather and perform remedial evaluations on groundwater at Four Corners will have a 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 WSJ LLC. WSJ LLC holds certain federal, state, and private coal leases. In addition to coal delivered to meet the current needs of SJGS, PNM has prepaid the current San Juan mine owner and operator, WSJ LLC, for certain coal mined but not yet delivered to the plant site. At both June 30, 20202021 and December 31,
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2019, 2020, prepayments for coal, which are included in other current assets, amounted to $23.4 million and $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 20192020 Annual Reports on Form 10-K.

In conjunction with the activities undertaken to comply with the CAA for SJGS, PNM and the other owners of SJGS evaluated alternatives for the supply of coal to SJGS. On July 1, 2015, PNM and Westmoreland entered into a new coal supply agreement (the “SJGS CSA”), pursuant to which Westmoreland, through its indirectly wholly-owned subsidiary SJCC, agreed to supply all of the coal requirements of SJGS through June 30, 2022. PNM and Westmoreland also entered into agreements under which CCR disposal and mine reclamation services for SJGS would be provided. As discussed in Note 6, with the closing of the sale of the assets of SJCC on March 15, 2019, WSJ LLC assumed the rights and obligations of SJCC under the SJGS CSA and the agreements for CCR disposal and mine reclamation services.

Pricing under the SJGS CSA is primarily fixed, with adjustments to reflect changes in general inflation. The pricing structure takes into account that WSJ LLC has been paid for coal mined but not delivered.

PNM had the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In 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, PNMhas provided notice to Westmoreland that PNM does not intend to extend the term of the SJGS CSA or to negotiate a new coal supply agreement for SJGS, which will result in the current agreement expiring on its own terms on June 30, 2022. See additional discussion of PNM’s SJGS Abandonment Application in Note 12.

The SJGS RA sets forth terms under which PNM acquired the coal inventory, including coal mined but not delivered, of the exiting SJGS participants as of January 1, 2016, and supplied coal to the SJGS exiting participants for the period from January 1, 2016 through December 31, 2017, and is supplying coal to the SJGS remaining participants over the term of the SJGS CSA. Coal costs under the SJGS CSA are significantly less than under the previous arrangement with SJCC. Since substantially all of PNM’s coal costs are passed through the FPPAC, the benefit of the reduced costs is passed through to PNM’s customers.

In connection with certain mining permits relating to the operation of the San Juan mine, the San Juan mine owner was required to post reclamation bonds of $118.7 million with the NMMMD. In order to facilitate the posting of reclamation bonds by sureties on behalf of the San Juan mine owner, PNMR entered into letter of credit arrangements with a bankthe WFB LOC Facility under which letters of credit aggregating $30.3 million have been issued. In May 2020, JPMorgan Chase Bank N.A. gave notice that it would not extend the letters of credit, which expire on October 21, 2020. PNMR is currently pursuing a replacement agreement. As discussed in Note 6, on March 15, 2019, the assets owned by SJCC were sold to WSJ LLC, a subsidiary of Westmoreland Mining Holdings, LLC. Under the sale agreement, WSJ LLC assumed the rights and obligations of SJCC including obligations to PNMR under the outstanding letters of credit.

Four Corners

APS purchases all of Four Corners’ coal requirements from NTEC, an entity owned by the Navajo Nation, under a coal supply contract (the “Fourthe Four Corners CSA”)CSA that expires in 2031. The coal comes from reserves located within the Navajo Nation. NTEC has contracted with Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, for management and operation of the mine. The contract provides for pricing adjustments over its term based on economic indices. PNM's share of the coal costs is being recovered through the FPPAC. In connection with the exit of Four Corners, PNM would make payments of $75.0 million to NTEC for
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relief from its obligations under the coal supply agreements for Four Corners after December 31, 2024. PNM is not proposing to recover the $75.0 million from ratepayers and, if approved as filed, would not be recovered through the FPPAC. See Note 12 for additional information on PNM's Four Corners Abandonment Application. See additional discussion of the Four Corners CSA in Note 17 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.

NTEC has contracted with Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, for management and operation of the mine. Under the CSA, NTEC has the right after a specified period to request approval from the Four Corners owners to replace Bisti Fuels Company as mine manager with NTEC’s internal resources and perform all or some mine management functions. APS granted approval on behalf of the owners on June 16, 2021, subject to certain credit assurance requirements. On June 17, 2021, NTEC notified The North American Coal Corporation that the contract mining agreement between Bisti Fuels Company and NTEC will be terminated effective September 30, 2021.

Coal Mine Reclamation

As indicated under Coal Combustion Residuals Waste Disposal above, SJGS currently disposes of CCRs in the surface mine pits adjacent to the plant and Four Corners disposes of CCRs in ponds and dry storage areas. As discussed in Note 16 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K, in conjunction with the proposed shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, periodic updates to the coal mine reclamation study were requested by the SJGS participants. These updates have generally increased PNM's share of the estimated cost of mine reclamation and have included adjustments to reflect the December 2017 shutdown of SJGS Units 2 and 3, the terms of the reclamation services agreement with WSJ LLC, and changes to reflect the requirements of the 2015 San Juan mine permit plan.

In December 2018, PNM remeasured its liability for coallate 2020, a mine reclamation cost study was completed for the mine that serves SJGS to reflect that reclamation activities may occur beginningand in 2022, rather than in 2053 as previously anticipated. This estimateDecember 2020, PNM remeasured its liability, which resulted in an increase in the overall reclamation costs of $39.2$3.6 million, due primarily 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. The increase includes costs for both the
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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.higher inflationary factors. As a result, PNM recorded $9.4a less than $0.1 million of the increasedecrease in the liability at December 31, 2020 related to the underground mine inand a decrease to the regulatory assets on the Condensed Consolidated Balance Sheets and received recovery for suchrecorded a $3.6 million increase in the liability associated with the surface mine as regulatory disallowances and restructuring costs in its SJGS Abandonment Application. See Note 12.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. PNM cannot predict the ultimate cost to reclaim the mine that serves SJGS and would seek to recover all costs related to reclaiming the underground mine from its customers but could be exposed to additional loss related to surface mine reclamation.

A draft coal mine reclamation study for the mine that serves Four Corners was issued in July 2019. The study reflected operation of the mine through 2031, the term of the Four Corners CSA. In June 2019, the draftThe study resulted in a net decreaseincrease in PNM’s share of the coal mine reclamation obligation of $0.3$0.8 million, which was primarily driven by lower overhead costs offset by an increase driven by a reduction in the discount rate used by PNM to measure the liability. In September 2019,liability during the year ended December 31, 2019. As discussed in Note 12, PNM remains responsible for its share of costs associated with mine reclamation under the Four Corners Purchase and Sale Agreement with NTEC. NTEC and PNM will complete a reclamation study was finalized and included the same assumptions used in the draft study with limited modifications. PNM updated its liability using2024 providing the final mine reclamation cost estimate on the date of ownership transfer. PNM will make its final reclamation payment to NTEC based on the reclamation study in 2024 and to reflectwill have no further obligations regarding the appropriate discount rates, which had decreased since PNM’s prior measurement. These updates resulted in an increase tomine reclamation after 2024. PNM determined that events and circumstances regarding Four Corners, including the Four Corners Purchase and Sale Agreement with NTEC and the Four Corners Abandonment Application, indicated that it is more likely than not that PNM’s share of theFour Corners coal mine reclamation obligation for the mine that serveswould be settled in 2024, rather than 2031. As of December 31, 2020, PNM remeasured its Four Corners coal mine reclamation liability and recorded a decrease to the liability of $1.1$2.5 million duringon the three months ended September 30, 2019.Condensed Consolidated Balance Sheet and a decrease to regulatory disallowances and restructuring costs on the Condensed Consolidated Statement of Earnings.

Based on the most recent estimates, and PNM’s ownership share of SJGS, PNM’s remaining payments as of June 30, 20202021, for mine reclamation, in future dollars, are estimated to be $90.6$76.8 million for the surface mines at both SJGS and Four Corners and $40.0$35.1 million for the underground mine at SJGS. At June 30, 20202021 and December 31, 2019,2020, liabilities, in current dollars, of $69.9$69.3 million and $70.3$71.7 million for surface mine reclamation and $26.4$27.1 million and $25.3$26.1 million for underground mine reclamation were recorded in other deferred credits.

Under the terms of the SJGS CSA, PNM and the other SJGS owners are obligated to compensate WSJ LLC for all reclamation costs associated with the supply of coal from the San Juan mine. The SJGS owners entered into a reclamation trust funds agreement to provide funding to compensate WSJ LLC for post-term reclamation obligations. As discussed in Note 16 of
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the Notes to the Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K, as part of the restructuring of SJGS ownership, the SJGS owners negotiated the terms of an amended agreement to fund post-term reclamation obligations under the CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable reclamation trust, and periodically deposit funds into the reclamation trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. PNM funded $5.5$3.2 million in December 2019. Based2020 and, based on PNM’s reclamation trust fund balance at June 30, 2020,2021, the current funding curves indicate PNM’s required contributions to its reclamation trust fund would be $8.8 million in 2020, $10.9$4.6 million in 2021, and $11.7$6.2 million in 2022.2022, and 0 in 2023.

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 annual installments into an irrevocable escrow account solely dedicated to the final reclamation cost of the surface mine at Four Corners. PNM contributed $2.1$2.0 million in July 20192020 and anticipates providing additional funding of $1.9$2.1 million in each of the years from 20202021 through 2024. As discussed above, under the terms of the Four Corners Purchase and Sale Agreement with NTEC, PNM will make its final reclamation payment to NTEC based on the reclamation study in 2024 and will have no further obligations regarding the mine reclamation.

If future estimates increase the liability for surface mine reclamation, the excess would be expensed at that time. The impacts of changes in New Mexico state law as a result of the enactment of the ETA and regulatory determinations made by the NMPRC may also affect PNM’s financial position, results of operations, and cash flows. See additional discussion regarding PNM’s 2018 Compliance Filing and its SJGS and Four Corners Abandonment ApplicationApplications 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
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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, as former owner and operator of San Juan mine, utilized the CHM technique from 2000 to 2003, and with the approval of the Farmington, New Mexico Field Office of BLM to reclassify the final highwall as underground reserves, applied the 8.0% underground mining royalty rate to coal mined using CHM and sold to SJGS.  In March 2001, SJCC learned that the DOI Minerals Management Service (“MMS”) disagreed with the application of the underground royalty rate to CHM.  In August 2006, SJCC and MMS entered into an agreement tolling the statute of limitations on any administrative action to recover unpaid royalties until BLM issued a final, non-appealable determination as to the proper rate for CHM-mined coal.  The proposed BLM rulemaking has the potential to terminate the tolling provision of the settlement agreement. Underpaid royalties of approximately $5 million for SJGS would become due if the proposed BLM rule is adopted as proposed.  PNM’s share of any amount that is ultimately paid would be approximately 46.3%, none of which would be passed through PNM’s FPPAC. PNM is unable to predict the outcome of this matter.

PVNGS Liability and Insurance Matters

Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both commercial sources and an industry-wide retrospective payment plan. In accordance with this act, the PVNGS participants are insured against public liability exposure for a nuclear incident up to $13.9$13.5 billion per occurrence. PVNGS maintains the maximum available nuclear liability insurance in the amount of $450 million, which is provided by American Nuclear Insurers. The remaining $13.5$13.1 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 3 PVNGS units, as of June 30, 2021, PNM’s maximum potential retrospective premium assessment per incident for all 3 units is $42.1 million, with a maximum annual payment limitation of $6.2 million, to be adjusted periodically for inflation.

The PVNGS participants maintain insurance for damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.8 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,
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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.
PVNGS Decommissioning Liability
PNM is responsible for all decommissioning obligations related to its entire interest in PVNGS, including portions under lease both during and after termination of the leases. PNM records its share of the PVNGS decommissioning obligation as an ARO on its Condensed Consolidated Balances Sheet. Studies on the decommissioning costs of PVNGS are performed periodically and revisions to the ARO liability are recorded. In May 2020, a new decommissioning cost study was completed, which required PNM to remeasure its PVNGS decommissioning ARO. The new study resulted in a decrease to PNM’s share of the nuclear decommissioning obligation of $6.4 million as of June 30, 2020. Additional information concerning the Company's PVNGS ARO is contained in Note 15 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
Water Supply
Because of New Mexico’s arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. Although PNM does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast long-term weather patterns. Public policy, local, state and federal regulations, and litigation regarding water could also impact PNM operations. To help mitigate these risks, PNM has secured permanent groundwater rights for the existing plants at Reeves Station, Rio Bravo, Afton, Luna, Lordsburg, and La Luz. Water availability is not an issue for these plants at this time. However, prolonged drought, ESA activities, and a federal lawsuit by
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the State of Texas (suing the State of New Mexico over water deliveries) could pose a threat of reduced water availability for these plants.
For SJGS and Four Corners, PNM and APS have negotiated an agreement with senior water rights holders (tribes, municipalities, and agricultural interests) in the San Juan basin to mutually share the impacts of water shortages through 2021.
In April 2010, APS signed an agreement on behalf of the PVNGS participants with 5 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 Native 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 Navajo Nation proceeding and, on November 1, 2013, issued a Partial Final Judgment and Decree of the Water Rights of the Navajo Nation approving the proposed settlement with the Navajo Nation. A number of parties subsequently appealed to the New Mexico Court of Appeals. PNM entered its appearance in the appellate case and supported the settlement agreement in the NM District Court. On April 3, 2018, the New Mexico Court of Appeals issued an order affirming the decision of the NM District Court. Several parties filed motions requesting a rehearing with the New Mexico Court of Appeals seeking clarification of the order, which were denied. The State of New Mexico and various other appellants filed a writ of certiorari with the NM Supreme Court. The NM Supreme Court granted the State of New Mexico’s petition and denied the other parties’ requests. The issues regarding the Navajo Nation settlement have been briefed and are awaiting a decision by the NM Supreme Court. Adjudication of non-Indian water rights 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. After extensive challenges to the validity of the ordinance, the utilities filed a writ of certiorari with the NM Supreme Court, which was 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
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pendency of then 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 agreement is subject to approval by the New Mexico Second District Court in Bernalillo County. PNM cannot predict the outcome of this 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 10 allotments with rights-of-way renewals that were previously contested. The letter indicated that the renewals were not approved by the BIA because the previous consent obtained by PNM was later revoked, prior to BIA approval, by the majority owners of the allotments. It is the BIA Regional Director’s position that PNM must re-obtain consent from these landowners. On July 13, 2015, PNM filed a condemnation action in the NM District Court regarding the approximately 15.49 acres of land at issue. On September 18, 2015, the allottees filed a separate complaint
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against PNM for federal trespass. On December 1, 2015, the court ruled that PNM could not condemn 2 of the 5 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. Both matters have been consolidated. Oral argument before the Tenth Circuit was heard on January 17, 2017. On May 26, 2017, the Tenth Circuit affirmed the district court. On July 8, 2017, PNM filed a Motion for Reconsideration en banc with the Tenth Circuit, which was denied. The NM District Court stayed the case based on the Navajo Nation’s acquisition of interests in 2 additional allotments and the unresolved ownership of the fifth allotment due to the owner’s death. On November 20, 2017, PNM filed its petition for writ of certiorari with the US Supreme Court, 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 is ongoing andThe parties have reached an agreement in principal. The parties are continuing to discuss a potential settlement.negotiating the specific terms of the settlement documents. PNM cannot predictyet determine the outcome of these matters.

Merger-Related Litigation

NaN purported shareholders of PNMR filed lawsuits against PNMR and the members of the Board challenging the proposed Merger with Avangrid. The lawsuits all challenged the adequacy of the disclosures in the definitive proxy statement filed by PNMR with the SEC on January 5, 2021, and sought, among other things, to enjoin the Merger or, if the Merger has been consummated, to rescind the Merger or an award of damages, and an award of attorneys’ and experts’ fees and expenses. NaN of the lawsuits were filed in the United States District Court for the Southern District of New York and 1 was filed in the United States District Court for the Eastern District of New York. The lawsuits pending in the Southern District of New York were consolidated in the case captioned In re PNM Resources, Inc. Shareholder Litigation, Consolidated Civil Action No. 1:20-CV-10874. The 5 plaintiffs in the consolidated action in the Southern District of New York filed notices of voluntary dismissal, and, on April 9, 2021, the Court ordered the Clerk of Court to close the consolidated action and all member cases. All five cases filed in the Southern District of New York have been closed. The case pending in the Eastern District of New York, captioned Durlacher v. PNM Resources, Inc., et al., Case No. 1:21-cv-0024, was not served on the defendants and the plaintiff filed a notice of voluntary dismissal on February 15, 2021. These matters are now concluded.

(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 20192020 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, and proposed that new rates become effective beginning in July 2016. The NMPRC ordered PNM to file additional testimony regarding
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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.

In August 2016, the Hearing Examiner in the case issued a recommended decision (the “August 2016 RD”).  The August 2016 RD, among other things, 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. As a result, the August 2016 RD recommended 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 converting SJGS Units 1 and 4 to BDT.   

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

Inclusion of the January 2016 purchase of the assets underlying 3 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
Recovery of annual rent expenses associated with the 114.6 MW of capacity under the extended leases
Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity purchased in January 2016 and the 114.6 MW of capacity under the extended leases

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

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

In accordance with GAAP, PNM periodically updated its estimate of the amount of time necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. As a result of those evaluations, through March 31, 2019, PNM had recorded accumulated pre-tax impairments of its capital investments subject to the appeal in the amount of $19.7 million.

On May 16, 2019, the NM Supreme Court issued its decision on the matters that had been appealed in the NM 2015 Rate Case. The NM Supreme Court rejected the matters appealed by the cross-appellants and affirmed the NMPRC’s disallowance of a portion of the purchase price of the 64.1 MW of capacity in PVNGS Unit 2; the undepreciated costs of capital improvements made during the time the 64.1 MW capacity was leased by PNM; and the costs to install BDT at SJGS Units 1 and 4. The NM Supreme Court also ruled that the NMPRC’s decision to permanently disallow recovery of future decommissioning costs related to the 64.1 MW of PVNGS Unit 2 and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s
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findings. On January 8, 2020, the NMPRC issued its order on remand, which reaffirmed its September 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.

As a result of the NM Supreme Court’s ruling, as of June 30, 2019, PNM recorded pre-tax impairments of $150.6 million, which included $1.3 million recorded in the three months ended March 31, 2019, and is reflected as regulatory disallowances and restructuring costs on the Condensed Consolidated Statements of Earnings. The impairment includes $73.2 million for a portion of the purchase price for 64.1 MW in PVNGS Unit 2, $39.7 million of undepreciated capitalized improvements made during the period the 64.1 MW was being leased by PNM, and $37.7 million for BDT on SJGS Units 1 and 4. The impairment was offset by tax impacts of $45.7 million.

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 were at issue in its then pending appeal to the NM Supreme Court. PNM’s original application used a FTY beginning January 1, 2018 and requested an increase in base non-fuel revenues of $99.2 million based on a ROE of 10.125%. The primary drivers of PNM’s revenue deficiency included implementation of modifications to PNM’s resource portfolio, which were approved by the NMPRC in December 2015 as part of the SJGS regional haze compliance plan, infrastructure investments, including environmental upgrades at Four Corners, declines in forecasted energy sales due to successful energy efficiency programs and other economic factors, and updates to FERC/retail jurisdictional allocations.

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

An increase in base non-fuel revenues totaling $10.3 million, which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM’s cost of debt (aggregating an estimated $47.6 million annually)
A ROE of 9.575%
Returning to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate to the extent attributable to PNM’s retail operations (Note 14)
Disallowing PNM’s ability to collect an equity return on certain investments aggregating $148.1 million 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
A requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners in PNM's next general rate case filing

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

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

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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. The ETA sets a RCT of $60 per MWh using an average annual levelized resource cost basis. PNM makes renewable procurements consistent with the NMPRC approved plans. PNMplans and recovers certain renewable procurement costs from customers through a rate rider. See Renewable Energy Rider below.

Included in PNM’s approved procurement plans are the following renewable energy resources:

157158 MW of PNM-owned solar-PV facilities
A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of 204200 MW, and a PPA through 2035 for the output of Red Mesa Wind, having an aggregate capacity of 102 MW
A PPA through 2040 for 140 MW of output from La Joya Wind which is expected to be operational by December 31, 2020II
A PPA through 2042 for the output of the Lightning Dock Geothermal facility with a current capacity of 1511 MW
Solar distributed generation, aggregating 138.6180.2 MW at June 30, 2020,2021, owned by customers or third parties from whom PNM purchases any net excess output and RECs

Renewable Energy Rider

The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per
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KWh basis. In its 2019 renewable energy procurement plan case, which was approved by the NMPRC on November 28, 2018, PNM proposed to collect $49.6 million for the year. The 2019 renewable energy procurement plan became effective on January 1, 2019. In its 2020 renewable energy procurement plan, case,which became effective on January 1, 2021, PNM proposed to collect $58.9$67.8 million through a revised rate rider beginning in 2020. In addition, PNM proposed that its FPPAC be reset from a July 1 through June 30 fiscal year to a calendarfor the year. The NMPRC approved recovery of $65.5 million through the rider, reflecting the rejection of PNM's 2020 renewable energy procurement plan on January 29, 2020, andrequest to recover the revised rate rider became effective on February 1, 2020.$2.3 million Sky Blue regulatory asset in 2021. PNM recorded revenues from the rider of $15.5 million and $31.4 million in the three and six months ended June 30, 2021, and $15.2 million and $30.3 million in the three and six months ended June 30, 2020 and $12.8 million and $25.5 million in the three and six months ended June 30, 2019.2020. On June 1, 2020,2021 PNM filed its renewable energy procurement plan for 20212022 which proposes to collect $67.8$66.9 million including $2.3 million related to PNM's voluntary Sky Blue renewable energy program.for the year. PNM is not proposing any new procurements in the plan but is proposing to retire a small number of RECs in 2022 from resources that have not been previously approved as part of the RPS plan. The NMPRC assigned this matter to a hearing examiner who scheduled a hearing forto begin on September 24, 2020. PNM cannot predict the outcome of this matter.30, 2021.

Under the renewable rider, if PNM’s earned rate of return on jurisdictional equity in a calendar year, adjusted for items not representative of normal operations, exceeds the NMPRC-approved rate by 0.5%, PNM is required to refund the excess to customers during May through December of the following year. PNM did not exceed such limitation in 2019.2020.

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. PNM’s costs to implement approved programs and incentives are recovered through a rate rider. During the 2019 New Mexico legislative session, the EUEA was amended to, among other things, include a decoupling mechanism for disincentives, preclude a reduction to a utility’s ROE based on approval of disincentive or incentive mechanisms, establish energy savings targets for the period 2021 through 2025, and require that annual program funding be 3% to 5% of an electric utility's annual customer bills excluding gross receipt taxes, franchise and right-of-way access fees, provided that a customer's annual cost not exceed seventy-five thousand dollars.

In 2019, PNM submitted a filing to address incentives to be earned in 2020. PNM’s proposed incentive mechanism iswas similar to that approved for 2018 and 2019 with minor modifications to reflect input from interested parties. The proposed incentive mechanism includes a base incentive of 7.1% of program costs, or approximately $1.8 million, based on savings of 59 GWh in 2020 with a sliding scale that provides for additional incentive if savings exceed 68 GWh. On May 28, 2020, PNM
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began collecting $0.5 million of additional incentive resulting from PNM's 2019 energy efficiency reconciliation. No hearings were considered necessary and PNM’s 2020 energy efficiency rider reflecting the 2020 incentive became effective beginning December 30, 2019. On April 15, 2021 PNM filed its 2020 Energy Efficiency Annual Report which reconciles the actual 2020 profit incentive collections with the profit incentive authorized by the NMPRC resulting in an additional $0.8 million incentive to be collected during the remainder of 2021. The additional incentive was authorized for 2020 because annual energy savings for the year exceeded 87 GWh, and was the maximum level of profit incentive allowed under the approved mechanism. PNM began collecting the additional incentive effective May 27, 2021.

On April 15, 2020, PNM filed an application for energy efficiency and load management programs to be offered in 2021, 2022, and 2023. The proposed program portfolio consists of twelve programs with a total annual budget of $31.4 million in 2021, $31.0 million in 2022, and $29.6 million in 2023. The application also seekssought approval of an annual base incentive of 7.1% of the portfolio budget if PNM achieveswere to achieve energy savings of at least 80 GWh in a year. The proposed incentive would increase if PNM is able to achieve savings greater than 80 GWh in a year. The application also proposesproposed an advanced metering infrastructure (“AMI”) pilot program, which includesincluded the installation of 5,000 AMI meters at a cost of $2.9 million. PNM is proposingproposed the pilot program to comply with an NMPRC order denying PNM’s February 2016 application to replace its existing customer metering equipment with AMI. PNM did not recommend the AMI pilot program due to the limited benefits that are cost-effective under a pilot structure. On September 17, 2020, the hearing examiner in the case issued a recommended decision recommending that PNM's proposed energy efficiency and load management program be approved, with the exception of the proposed AMI pilot program. On October 28, 2020, the NMPRC issued an order adopting the recommended decision in its entirety.

2020 Decoupling Petition

As discussed above, the legislature amended the EUEA to, among other things, include a decoupling mechanism for disincentives. On May 28, 2020, PNM filed a petition for approval of a rate adjustment mechanism that would decouple the rates of its residential and small power rate classes. Decoupling is a rate design principle that severs the link between the recovery of fixed costs of the utility through volumetric charges. PNM proposed to record the difference between the annual revenue per customer derived from the cost of service approved in the NM 2015 Rate Case and the annual revenue per
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customer actually recovered from the rate classes beginning on January 1, 2021. If approved, on January 1, 2022, PNM would begin to collect the difference from customers if the revenue per customer from the NM 2015 Rate Case exceeds the actual revenue recovered in 2021, or return the difference to customers if the actual revenue per customer recovered in 2021 exceeds the revenue per customer from the NM 2015 Rate Case. On July 13, 2020, NEE, ABCWUA, the City of Albuquerque, and Bernalillo County filed motions to dismiss the petition on the grounds that approving PNM’s proposed rate adjustment mechanism outside of a general rate case would result in retroactive ratemaking and piecemeal ratemaking. The motions to dismiss also allege that PNM’s proposed rate adjustment mechanism is inconsistent with the EUEA. Responses to the motions to dismiss were filed on August 7, 2020. On September 16, 2020, ABCWUA, Bernalillo County, CCAE, the City of Albuquerque, NEE, NMAG, NMPRC assigned this matterStaff ("Staff") and WRA filed testimony. CCAE and WRA support PNM's petition, but recommend that the rate adjustment mechanism not take effect until new rates are approved in PNM's next general rate case. The other parties filing testimony oppose PNM's petition. On October 2, 2020, PNM requested an order to vacate the public hearing, scheduled to begin October 13, 2020, and staying the proceeding until the NMPRC decides whether to entertain a petition to issue a declaratory order resolving the issues raised in the motions to dismiss. On October 7, 2020, the hearing examiner approved PNM's request to stay the proceeding and vacate the public hearing and required PNM to file a petition for declaratory order by October 30, 2020. On October 30, 2020, PNM filed a petition for declaratory order asking the NMPRC to issue an order finding that full revenue decoupling is authorized by the EUEA. On November 4, 2020, ABCWUA and Bernalillo County jointly filed a competing petition asking the NMPRC to issue a declaratory order on the EUEA’s requirements related to disincentives. On November 24, 2020, the NMAG requested that the NMPRC deny both petitions for declaratory orders and instead address disincentives under the EUEA in a rulemaking. On March 17, 2021, the NMPRC issued an order granting the petitions for declaratory order, commencing a declaratory order proceeding to address the petitions, denying the NMAG’s request to initiate a rulemaking, and appointing a hearing examiner who scheduled a hearing for August 31, 2020.to preside over the declaratory order proceeding. Initial briefs were filed on June 7, 2021 and response briefs were filed on June 28, 2021. Oral arguments were made on July 15, 2021. PNM cannot predict the outcome of this matter.

Integrated Resource Plans

NMPRC rules require that investor ownedinvestor-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.
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. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP included, among other things, that retiring PNM’s share of SJGS in 2022 and existing ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. See additional discussion of PNM’s leased capacity in PVNGS below and in Note 13. PNM's 2017 IRP was subject to extensive hearings and legal challenges and was accepted as compliant with the applicable statute and rules by the NMPRC on December 19, 2018, with further consideration being denied.

As discussed below, on July 1, 2019, PNM submitted its SJGS Abandonment Application with the NMPRC requesting approval to retire SJGS in 2022, for replacement resources, and for issuance of Securitized Bonds 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 are not final determinations of PNM’s future generation portfolio. PNM will also be required to obtain NMPRC approval of an exit from Four Corners, which PNM will seek at an appropriate time in the future. Likewise, NMPRC approval of new generation resources through CCNs, PPAs, or other applicable filings will be required.

2020 IRP

In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. PNM will continue to seek input from interested parties as a part of this process. NMPRC rules requirerequired PNM to file its 2020 IRP in July 2020. On March 16, 2020, PNM filed a motion to extend the deadline to file its 2020 IRP to six months after the NMPRC issues a final order approving a replacement resource portfolio and closes the docket in the bifurcated SJGS Abandonment Application and replacement resource proceedings. On April 8, 2020, the NMPRC approved PNM's motion to extend the deadline to file its 2020 IRP as requested. On JulyJanuary 29, 2021, PNM filed its 2020 IRP addressing the NMPRC20-year planning period from 2020 through 2040. The plan focuses on a carbon-free electricity portfolio by 2040 that would eliminate coal at the end of 2024. This includes replacing the power from San Juan with a mix of approved carbon-free resources and the plan to exit Four Corners at the end of 2024. The plan highlights the need for additional investments in a diverse set of resources, including renewables to supply carbon-free power, energy storage to balance supply and demand, and efficiency and other demand-side resources to mitigate load growth. On May 24, 2021, the hearing examiner issued a finalprocedural schedule and required PNM, upon request, to provide modeling data and assumptions to parties within two weeks. Additionally, PNM is required upon request, to run modeling or provide reasonable access to PNM virtual machines at PNM's expense. The order set an alternative modeling deadline of August 30, 2021 and Staff's recommendation on November 1, 2021.
Abandonment Applications made under the ETA

As discussed in Note 11, the ETA 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. The ETA also provides for a replacement resource portfolio intransition from fossil-fuel generation resources to renewable and other carbon-free resources through certain provisions relating to the SJGS proceedings.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.


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SJGS Abandonment Application

As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, on March 22, 2019, the Governor signed into New Mexico state law Senate Bill 489, known as the Energy Transition Act (“ETA”). The 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 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.

On July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment Application”). The SJGS Abandonment Application sought NMPRC approval to retire PNM’s share of SJGS after the existing coal supply and participation agreements end in June 2022, for approval of replacement resources, and for the issuance of “energy transition bonds,” as provided by the ETA. PNM’s application proposed several replacement resource scenarios including PNM’s recommended replacement scenario, which would have provided cost savings to customers compared to continued operation of SJGS, preserved system reliability, and is consistent with PNM’s plan to have an emissions-free generation portfolio by 2040. This plan would have provided 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 have allowed 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 have placed a greater amount of resources in the San Juan area, or resulted in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. When compared to PNM's recommended replacement resource scenario, the three alternative resource scenarios were expected to result in increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities were expected to not provide adequate system reliability. The SJGS Abandonment Application also included a request to issue approximately $361 million of energy transition bonds (the “Securitized Bonds”). PNM’s request for the issuance of Securitized Bonds included approximately $283 million of forecasted undepreciated investments in SJGS at June 30, 2020,2022, 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.

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 financingAfter multiple filings, proceedings, would be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months.

After several requests for clarification and legal challenges, and following oral argument on January 29, 2020, the NM Supreme Court issued a ruling requiring the NMPRC to apply the ETA to all aspects of PNM’s SJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with the ruling should be vacated, and denying parties’ request for stay. The NM Supreme Court issued a subsequent opinion, on July 23, 2020, more fully explaining the legal rationale for the January 29, 2020 ruling. ruling. Hearings on the abandonment and securitized financing proceedings were held in December 2019 and hearings on replacement resources were held in January 2020.

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On February 21, 2020, the Hearing Examinershearing examiners issued two recommended decisions recommending approval of PNM’s proposed abandonment of SJGS, subject to approval of replacement resources, and approval of PNM’s proposed financing order to issue Securitized Bonds.  The Hearing Examinershearing examiners recommended that PNM be authorized to abandon SJGS by June 30, 2022, and to record regulatory assets for certain other abandonment costs that are not specifically addressed under the provisions of the ETA to preserve its ability to recover the costs in a future general rate case. The Hearing Examinerhearing examiner recommended that this authority only extend to the deferral of the costs and it not be an approval of any ratemaking treatment. The Hearing Examinershearing examiners also recommended PNM be authorized to issue Securitized Bonds of up to $361 million and establish a rate rider to collect non-bypassable customer charges for repayment of the bonds and be subject to bi-annual adjustments (the “Energyan Energy Transition Charge”).Charge. The Hearing Examinershearing examiners recommended an interim rate rider adjustment upon the start date of the Energy Transition Charge to provide immediate credits to customers for the full value of PNM’s revenue requirement related to SJGS until those reductions are reflected in base rates. In addition, the Hearing Examinershearing examiners recommended PNM be granted authority to establish regulatory assets to recover costs that PNM will pay prior to the issuance of the Securitized Bonds, including costs associated with the bond issuances as well as for severances, job training, economic development, and workforce training. On April 1, 2020, the NMPRC unanimously approved the Hearing Examiners'hearing examiners' recommended decisions regarding the abandonment of SJGS and the related securitized financing under the ETA.

On April 10, 2020, CFRE and NEE filed a notice of appeal with the NM Supreme Court of the NMPRC's approval of PNM's request to issue securitized financing under the ETA. The NM Supreme Court granted motions to intervene filed by PNM, WRA, CCAE, and the Sierra Club. On May 8, 2020, CFRE and NEE filed a joint statement of issues with the NM Supreme Court which asserts that the NMPRC improperly applied the ETA and that the ETA violates the New Mexico Constitution. On June 19, 2020, WRA filed a motion to dismiss CFRE and NEE’s constitutional challenges to the ETA on the ground that the New Mexico Constitution provides that only New Mexico district courts have original jurisdiction over the claims. On July 24, 2020, the NM Supreme Court issued an order denying WRA’s motion to dismiss and requiring briefs in chief to be filed bydismiss. On August 17, 2020,. the appellants filed a Brief in Chief and on October 5, 2020, PNM, WRA, CCAE and Sierra Club filed Answer Briefs. PNM cannot predict the outcome of this matter.

PNM evaluated the consequences of the NMPRC's April 1, 2020 orders approving the abandonment of SJGS and the related issuance of Securitized Bonds under GAAP.Bonds. This evaluation indicated that it is probable that PNM will be required to fund severances for PNM employees at the facility upon its retirement in 2022 and for PNMR shared services employees providing administrative and other support services to SJGS. In addition, the evaluation indicated that it is probable PNM will be obligated to fund severances and other costs for the WSJ LLC employees and to fund certain state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. PNM believes these obligations can be reasonably estimated as of March 31, 2020 and, pursuant to the NMPRC's April 1, 2020 orders and the requirements of the ETA, are recoverable from New Mexico retail customers. As a result, in March 2020, PNMR and PNM recorded obligations of $9.4 million and $8.1 million for estimated severances, $8.9 million for obligations to fund severances and other costs of WSJ LLC employees, and to fund $19.8 million to state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. The total amount recorded for these estimates of $38.1 million and $36.8 million is reflected in other deferred credits and as a corresponding deferred regulatory asset on PNMR's and PNM's Condensed Consolidated Balance Sheets as of June 30,at December 31, 2020. These estimates may be adjusted in future periods as the Company refines its expectations. In addition, as discussed above these costs may be challenged by parties pursuant to the notices of appeal filed with the NM Supreme Court on April 10, 2020.

On March 27, 2020, the Hearing Examiners issued a partial recommended decision on PNM’s request for approval of replacement resources recommending that the NMPRC bifurcate consideration of PNM’s requested replacement resources. The Hearing Examiners recommended that the NMPRC approve two of PNM’s requested replacement resources, including the 300 MW solar PPA combined with a 40 MW battery storage agreement and the 50 MW solar PPA combined with a 20 MW battery storage agreement. The Hearing Examiners recommended that the two solar and battery procurements be approved first because they are the most cost-effective resources proposed in the case, are supported by the majority of parties, and the economics of the projects will be in jeopardy if approval is delayed past April 30, 2020. The Hearing Examiners recommended that PNM be permitted to recover the energy costs of these PPAs through its FPPAC, and that PNM should recover the demand cost of the energy storage agreements in base rates in a future general rate case. On April 29, 2020, the NMPRC issued an order declining to bifurcate a determination on replacement resources and deferring final consideration until the issuance of a comprehensive recommended decision addressing the entire portfolio of replacement resources.

On June 24, 2020, the Hearing Examiners issued a second recommended decision on PNM's request for approval of replacement resources that addressed the entire portfolio of replacement resources and superseded their March 27, 2020 partial recommended decision. The Hearing Examiners concluded that the ultimate selection of a portfolio of replacement resources
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Company refines its expectations. In addition, as discussed above these costs may be challenged by parties pursuant to the notices of appeal filed with the NM Supreme Court on April 10, 2020.

On June 24, 2020, the hearing examiners issued a recommended decision on PNM's request for approval of replacement resources that addressed the entire portfolio of replacement resources, which superseded a previous partial recommended decision issued on March 27, 2020. The hearing examiners concluded that the ultimate selection of a portfolio of replacement resources involves policy considerations that are the province of the NMPRC and stated that they did not intend to make that decision for the NMPRC. The Hearing Examiners recommended that the NMPRC take one of two approaches to select replacement resources. The first approach emphasized resource selection criteria identified in the ETA which include the location of replacement resources over resource selection criteria traditionally applied by the NMPRC including price and reliability. This approach recommended approval of a replacement resource portfolio that includes a 300 MW solar PPA combined with a 150 MW battery storage agreement, a 50 MW solar PPA combined with a 20 MW battery storage agreement, a 200 MW solar PPA combined with a 100 MW battery storage agreement, a 100 MW solar PPA combined with a 30 MW battery storage agreement, and approximately 24 MW of demand response. The second approach emphasized the NMPRC’s traditional resource selection criteria including price and reliability, which included a mix of solar PPAs combined with battery storage agreements and a 200 MW PNM-owned natural gas facility. The Hearing Examiners recommended that the NMPRC require PNM to file, within 30 days, any new proposed PPAs and battery storage agreements required to implement the replacement resource portfolio approved by the NMPRC in a new docket for expedited consideration. The Hearing Examiners also recommended that PNM be permitted to recover the energy costs of these PPAs through its FPPAC, and that PNM should recover the demand cost of the battery storage agreements in base rates in a future general rate case. On July 29, 2020, the NMPRC issued an order approving resource selection criteria identified in the Hearing Examiners' first recommended approach, concluding that this approach satisfies threshold reliability considerationsETA and would include PPAs for replacement resources.650 MW of solar and 300 MW of battery storage. The order also granted in part PNM’s request for an extension of time for PNM to file the application to implement the replacement resource portfolio. PNM hashad 60 days from the date of the order to file an application in a separate casedocket seeking approval of the proposed final, executed contracts, for any replacement resources that are not currently in evidence that have been approved by the NMPRC.

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

Joint Petition to Investigate PNM’s Option to Purchase Assets Underlying Certain Leases in PVNGS

On April 22, 2019, NEE and other parties, which consist primarily of environmental not-for-profit organizations, filed a joint petition for expedited investigation with the NMPRC. The joint petition requested the NMPRC open an investigation regarding PNM’s option to purchase the assets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. Various parties filed to participate in the request. On May 8, 2019, the NMPRC issued an order requiring a response from both PNM and NMPRC staff. PNM filed responses indicating, among other things, that the joint petition should be denied, and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. On September 16, 2019, NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding. On September 30, 2019,28, 2020, PNM filed its response in opposition stating that PNM had previously refuted NEE’s arguments and that there is no need for a hearing examiner to be assigned to this matter. The NMPRC subsequently issued an order denying the petition for investigation. On January 3, 2020, PNM filed notice with the NMPRC of 60-day waivers of the deadline to provide notice to purchase or return the assets underlying the PVNGS Unit 1 leases. On April 10, 2020, PNM filed additional notices of waivers indicating the deadline for PNM to provide irrevocable notice of its intent to purchase or return the PVNGS Unit 1 lease interests was June 15, 2020. On June 11, 2020, PNM provided notices to the lessors and the NMPRC that PNM will return the leased assets under both its PVNGS Unit 1 and Unit 2 leases upon expiration of the leases in January 2023 and 2024. PNM issued an RFP for replacement power resources on June 25, 2020. PNM intends to file for the abandonment approval of replacement resources for of its share of PVNGS leased capacity with the NMPRC in early 2021. PNM cannot predict the outcome of this matter.

PNM Solar Direct

On May 31, 2019, PNM filed an application with the NMPRC for approval of a program underthe final executed contracts for the replacement resources. In addition, PNM provided updated costs estimates of $8.1 million for the SJGS replacement resources, based on the NMPRC authorization to create regulatory assets granted in the abandonment order, which qualified governmental and large commercial customers could participateit plans to seek recovery of in a voluntary renewable energy procurement program. PNM proposed to recover costs of the program directly from subscribing customers through afuture general rate rider. Under the rider, PNM would procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. PNM had fully subscribed the entire output of the 50 MW facilities at the time of the filing. Hearings on the application concluded on January 9, 2020.case. On March 11,November 13, 2020, the hearing examiner issued a recommended decision recommending approval of a 200 MW solar PPA combined with a 100 MW battery storage agreement and the 100 MW solar PPA combined with a 30 MW battery storage agreement. On December 2, 2020, the NMPRC issued an order adopting the recommended decision in its entirety. On May 24, 2021, PNM filed a notice that informed the NMPRC that a solar PPA for 100 MW with battery storage of 30 MW, which was approved as a replacement resources for SJGS, will not be completed in time to serve PNM’s load during the 2022 summer peak season. On July 22, 2021, PNM filed notice to the NMPRC that as a result of supply chain delays, 2 additional approved replacement resource projects will not be fully completed in time to serve load during the 2022 summer peak season. Specifically, a 200 MW solar PPA with battery storage of 100 MW will have only 50 MW of available capacity in June 2022 and then ramp up through the summer and fall, and a 300 MW solar PPA with battery storage of 150 MW will initially have only 150 MW of solar and 150 MW of battery storage available in June 2022 and is planned to ramp up to full capacity in September 2022. PNM's existing resources, including available reserves, may be insufficient for 2022 summer peak load reliability considering these delays. PNM is currently evaluating alternative sources of power to ensure customer demand during the 2022 summer peak load period is met.

Additional information concerning the SJGS Abandonment Application is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

Four Corners Abandonment Application

On November 1, 2020, PNM entered into the Four Corners Purchase and Sale Agreement with NTEC, pursuant to which PNM agreed to sell its 13% ownership interest (other than certain transmission assets) in Four Corners to NTEC. The sale is contingent upon NMPRC approval and expected to close by the end of 2024. In connection with the sale, PNM would make payments of $75.0 million to NTEC for relief from its obligations under the coal supply agreement for Four Corners after December 31, 2024. Pursuant to the Four Corners Purchase and Sale Agreement, PNM will retain its current plant decommissioning and coal mine reclamation obligations, subject to the final mine reclamation study and payment at the end of 2024. PNM will have no obligation for reclamation after 2024. PNM made an initial payment to NTEC of $15.0 million in November 2020, subject to refund with interest upon termination of the Four Corners Purchase and Sale Agreement prior to closing. Under the terms of the Four Corners Purchase and Sale Agreement, upon receipt of the NMPRC approval, PNM would make a final payment of $60.0 million. The initial $15.0 million payment was recorded in other current assets on the Consolidated Balance Sheet as of December 31, 2020.

On January 8, 2021, PNM filed the Four Corners Abandonment Application, which seeks NMPRC approval to exit PNM’s share of Four Corners as of December 31, 2024, and to issue approximately $300 million of energy transition bonds as provided by the ETA. PNM’s request for the issuance of Securitized Bonds included approximately $272 million of forecasted undepreciated investments in Four Corners at December 31, 2024, an estimated $4.6 million for plant decommissioning costs, estimated $7.3 million in upfront financing costs, and estimated $16.5 million in economic development. PNM intends to submit a separate application for NMPRC approval of a replacement resource portfolio following NMPRC action on this application. The hearingThis deferral is authorized by the ETA and will provide for adequate time to complete a competitive bid process to develop and finalize a replacement resource portfolio from feasible replacement resources for NMPRC consideration.

On January 26, 2021, Sierra Club filed a motion in the Four Corners Abandonment Application requesting that the NMPRC order PNM to file supplemental testimony addressing the prudence of Four Corners investments or alternatively that
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the NMPRC dismiss the Four Corners Abandonment Application and permit PNM to refile after the prudence issue is resolved. In addition, on January 28, 2021, NEE and CFRE filed a motion requesting that the NMPRC dismiss the application, stating that approval of the abandonment would be contrary to the provision of the REA that prevents the sale of carbon dioxide emitting electricity-generating resources as a means of complying with the RPS, and that the Four Corners Abandonment Application does not demonstrate that the sale of 200 MW to NTEC will not result in a net detriment to public interest. On February 26, 2021, the hearing examiner issued an order on the sufficiency of the Four Corners Application finding that the application was deficient on its face and failed to adequately support whether or not the sale and transfer of PNM’s interest in Four Corners to NTEC is in the public interest. However, given the NMPRC’s preference to address Four Corners issues in the case, as well as PNM’s concession on filing an amended application, the hearing examiner did not recommend that the case be dismissed. The order required PNM to file an amended application by March 15, 2021; established that the nine-month period for review of the amended application shall start on the date of PNM’s filing of the amended application and run through December 15, 2021; required PNM to file supplemental testimony addressing the prudence of its investment in Four Corners; required PNM to more explicitly address the statutory standards for approval of the proposed transfer to NTEC; and required PNM to file a motion to withdraw the January 8, 2021 Four Corners Application. On March 15, 2021, PNM filed an amended application and supplemental testimony for the approval of the abandonment and transfer of Four Corners and issuance of a financing order pursuant to the ETA and a motion to withdraw the January 8, 2021 Four Corners Application. The amended application and supplemental testimony provided additional information to support PNM's request to abandon its interest in Four Corners and transfer that interest to NTEC, and also provided additional detail explaining how the proposed sale and abandonment provides a net public benefit. On March 19, 2021, the hearing examiner issued a procedural order requiring Staff and intervenors to file testimony on or before July 12, 2021, requiring any rebuttal testimony be filed on or before August 2, 2021, and scheduling a hearing to begin on August 31, 2021.

On May 17, 2021 NEE and CFRE ("Joint Movants") again filed motions to dismiss the case, providing reasons which include; PNM's failure to disclose the reason for the divestiture in the plant is the Merger; the application is deficient because PNM has failed to produce the seasonal operation agreement with the other Four Corners owners; and reiterated their prior view that PNM's amended application is contrary to the REA. Also on May 17, 2021, CCAE filed a motion to dismiss the case stating that PNM's application is devoid of any discussion of the assumption of liabilities by NTEC pertaining to PNM's share of Four Corners. On May 18, 2021, San Juan Citizens Alliance/Dine Care and the Native American Voters Alliance Education Project ("NAVAEP") filed a joinder supporting CCAE's motion. On June 1, 2021, PNM filed responses to the Joint Movants' and CCAE motions to dismiss and filed a motion to strike portions of the Joint Movants' and CCAE's motions to dismiss. PNM's motion states that the Joint Movants and CCAE rely upon materials beyond the pleadings in the case and within the record in other proceedings to support their motions.

On October 30, 2020, NEE filed a formal complaint with the NMPRC seeking an investigation into the reasonableness and lawfulness of PNM’s continued reliance on “climate-altering and uneconomic coal” at Four Corners. NEE explained that they withdrew their Supreme Court appeal of the NM 2016 Rate Case under the notion that PNM would be filing a rate case in 2019 and they would be able to challenge the Four Corners expenditures in that case. NEE explained that because PNM has delayed its rate case several times, Four Corners has remained “imprudently” in rates. NEE asked that PNM be required to demonstrate that PNM’s investment in Four Corners was prudent. NEE stated if the NMPRC deems PNM’s investment as imprudent, ratepayers will be held harmless and all costs including carrying charges, effective October 30, 2020, and going forward, be denied. On February 10, 2021, the NMPRC denied NEE’s complaint and stated that issues related to Four Corners prudence should be addressed in the Four Corners Abandonment Application. On February 22, 2021, NEE filed a Motion for Reconsideration of the NMPRC’s February 10, 2021 order, which was denied on March 10, 2021. On April 9, 2021, NEE filed a Notice of Appeal with the NM Supreme Court regarding their formal complaint on Four Corners. On July 6, 2021, NEE filed a motion to withdraw its Notice of Appeal with the NM Supreme Court.

The financial impact of an early exit of Four Corners and the NMPRC approval process are influenced by many factors outside of PNM’s control, including the overall political and economic conditions of New Mexico. See additional discussion of the ETA in Note 11. PNM cannot predict the outcome of these matters.

PVNGS Leased Interest Abandonment Application

On April 2, 2021, PNM filed an application with the NMPRC requesting approval for the decertification and abandonment of 114 MW of leased PVNGS capacity, sale and transfer of related assets, and approval to procure new resources ("PVNGS Leased Interest Abandonment Application"). As discussed in Note 13, PNM currently controls leased capacity in PVNGS Unit 1 and Unit 2 under 5 separate leases ("Leased Interest") that were approved and certificated by the predecessor agency to the NMPRC in the 1980s. NaN of the 5 leases for 104 MW of Leased Interest terminate on January 15, 2023, while the remaining lease for 10 MW of Leased Interest terminates on January 15, 2024. Associated with the Leased Interest
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are certain PNM-owned assets and nuclear fuel that are necessary for the ongoing operation and maintenance of the Leased Interest and integration of the Leased Interest generation to the transmission network. PNM has determined that there will be net benefits to its customers to return the Leased Interest to the lessors in conformity with the leases, sell and transfer the related PNM-owned assets, and to replace these Leased Interest with new resources. In the application PNM is requesting NMPRC authorization to decertify and abandon its Leased Interest and to create regulatory assets for the associated remaining undepreciated investments with consideration of cost recovery of the undepreciated investments in a future rate case. PNM is also seeking NMPRC approval to sell and transfer the PNM-owned assets and nuclear fuel supply associated with the Leased Interest to SRP, which will be acquiring the Leased Interest from the lessors upon termination of the existing leases. In addition, PNM is seeking NMPRC approval for a 150 MW solar PPA combined with a 40 MW battery storage agreement, and a stand-alone 100 MW battery storage agreement to replace the Leased Interest. To ensure system reliability and load needs are met in 2023, when a majority of the leases expire, PNM is also requesting NMPRC approval for a 300 MW solar PPA combined with a 150 MW battery storage agreement. PNM's application sought a six-month regulatory time frame. On April 21, 2021, the NMPRC issued an order assigning a hearing examiner and stated PNM's request to abandon the Leased Interest does not have any statutory or rule time limitation and the six-month limit in which the NMPRC must issue an order regarding the request for approvals of the solar PPAs and battery storage agreements does not begin until after the NMPRC acts on the abandonment request. On June 14, 2021 and June 25, 2021 PNM filed supplemental testimony responding to questions provided by the hearing examiner. On June 28, 2021, NEE and CCAE jointly filed a motion to dismiss a portion of the application claiming that since PNM's request to abandon the Leased Interest was filed after PNM had already provided irrevocable notice it would not acquire the Leased Interest, abandonment is no longer required. On July 28, 2021, the hearing examiner issued a recommended decision on NEE's and CCAE's joint motion to dismiss, recommending dismissal of PNM's requests for approval to abandon and decertify the Leased Interest; dismissal of PNM's request for approval to sell and transfer the related assets; and dismissal of PNM's request to create regulatory assets for the associated remaining undepreciated investments, but does not preclude PNM seeking recovery of the costs in a general rate case in which the test year period includes the time period in which PNM incurs such costs. The hearing examiner's recommended decision was approvedfurther provides that PNM's request for replacement and system reliability resources should remain within the scope of this case. The hearings examiner's recommended decision is pending NMPRC approval.

In addition to approval by the NMPRC, on March 25, 2020. These facilities are expected to begin commercial operations on March 31, 2021. This matter is now concluded.PNM and SRP require NRC approval for the transfer of the associated possessory licenses at the end of the term of each of the respective leases. PNM cannot predict the outcome of this matter.

Facebook, Inc. Data Center Project

PNM has a special service contract to provide service to Facebook, Inc. for a data center being constructed in PNM’s service area. Facebook’s service requirements include the acquisition by PNM of a sufficient amount of new renewable energy resources and RECs to match the energy and capacity requirements of the data center. The cost of renewable energy procured is passed through to Facebook under a rate rider. A special service rate is applied to Facebook’s energy consumption in those hours of the month when their consumption exceeds the energy production from the renewable resources. As of June 30, 2021, PNM is procuring energy from 130 MW of solar-PV capacity from NMRD, a 50% equity method investee of PNMR Development. See additional discussion of NMRD in Note 16.

PNM has NMPRC approval for several PPAs to purchase renewable energy and RECs to supply renewable energy to the data center. Details related to these PPAs can be found in Note 17 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

On February 8, 2021, PNM filed an application with the NMPRC for approval to service the data center for an additional 190 MW of solar PPA combined with 100 MW of battery storage and a 50 MW solar PPA expected to be operational in 2023. In its application, PNM filed a Motion for Expedited Consideration seeking an expedited schedule for this proceeding that would provide a Final Order by June 1, 2021, in order to facilitate timely completion of the renewable resources to meet the expected completion date of the data center expansion. On February 17, 2021, the NMPRC approved an order with a schedule targeting a final order by June 1, 2021. On April 14, 2021, Staff filed testimony recommending that the NMPRC either extend the targeted date for issuance of a final order to provide more time to review PNM’s application or, in the alternative, issue an order approving the two proposed PPAs and denying the 100 MW of battery storage. PNM filed rebuttal to Staff’s testimony on April 21, 2021. On April 28, 2021, the NMPRC issued an order finding that it requires additional time to review and that a hearing will be held with a hearing examiner presiding. On June 16, 2021 a hearing was held by the NMPRC with closing statements filed on June 21, 2021. On June 23, 2021, the NMPRC issued an Order for Continuance, stating concerns with the proposed addendum to the special service contract and its methodology for calculating a credit to Facebook for the capacity supplied by the 100 MW battery storage agreement. To address these concerns the Order required PNM and Facebook to renegotiate the addendum to the special service contract and the battery storage agreement. Additionally, the NMPRC
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designated a mediator to the facilitate the negotiations. PNM was ordered to file a renegotiated modification to its application by July 14, 2021 with responses from other parties due July 21, 2021. On July 6, 2021, PNM filed a Motion for Rehearing stating that the NMPRC's June 23, 2021 Order for Continuance contains substantive issues including misstatement of facts presented during the hearing on PNM’s application, which must be amended or withdrawn on rehearing. PNM’s motion also points out procedural issues with the order, including requiring mediation with Facebook who is not a party to the case while not including Staff, who is the only party to disagree with PNM’s application; and requiring PNM and Facebook to agree to modifications of the special service contract with which they are not in agreement, are not part of the application and has not been vetted at hearing. On July 7, 2021 the NMPRC designated mediator issued a report cancelling the schedule mediation because PNM and Facebook are not willing to participate. On July 14, 2021, the NMPRC issued an order granting PNM's Motion for Rehearing and scheduling a further public hearing for July 23, 2021.The NMPRC vacated the public hearing in response to Facebook’s inability to provide a witness to testify at the hearing. On July 28, 2021, the NMPRC issued a final order reversing the order granting a rehearing; approved the solar PPAs for 190 MW and 50 MW; approved only 50 MW of the requested 100 MW battery storage; and rejecting the proposed addendum to the special service contract and its methodology for calculating a credit to Facebook for the capacity supplied by the battery storage. The order allows PNM to reapply for the 50 MW of battery storage. PNM cannot predict the outcome of this matter.

COVID-19 Regulatory Matters

In March 2020, PNM and other utilities voluntarily implemented a temporary suspension of disconnections and late payment fees for non-payment of utility bills in response to the impacts of the novel coronavirus global pandemic (“COVID-19”). On March 18, 2020, the NMPRC conducted an emergency open meeting for the purpose of adopting emergency amendments to its rules governing service to residential customers. The NMPRC’s emergency order is applicable during the duration of the Governor of New Mexico's emergency executive order and allows for the closure of payment centers, prohibits the discontinuance of a residential customer’s service for non-payment, and suspends the expiration of medical certificates for certain customers. On April 27, 2020, PNM, El Paso Electric Company, New Mexico Gas Company, and Southwestern Public Service Company filed a joint motion with the NMPRC requesting authorization to track costs resulting from each utility's response to the COVID-19 outbreak. The utilities propose these incremental costs and uncollected customer accounts receivable resulting from COVID-19 during the period March 11, 2020 through December 31, 2020, be recorded as a regulatory asset. On June 24, 2020, the NMPRC issued an order authorizing all public utilities regulated by the NMPRC to create a regulatory asset to defer incremental costs related to COVID-19, including increases to bad debt expense incurred during the period beginning March 11, 2020 through the termination of the Governor of New Mexico’s emergency executive order. The NMPRC order requires public utilities creating regulatory assets to pursue all federal, state, or other subsidies available, to record a regulatory liability for all offsetting cost savings resulting from the COVID-19 pandemic, and allows PNM to request recovery in future ratemaking proceedings. As a result, PNM had deferred incremental costs related to COVID-19 of $1.3$12.2 million as aand $8.8 million in regulatory assetassets on the Condensed Consolidated Balance Sheet at June 30, 2021 and December 31, 2020. In addition, PNM had costs savings related to COVID-19 of $0.9 million in regulatory liabilities on the Condensed Consolidated Balance Sheet at June 30, 2021 and December 31, 2020. The NMPRC’s order also imposed additional quarterly reporting requirements on public utilities creating regulatory assets that include changes in customer usage and increased costs and savings recorded to regulatory assets and liabilities.

2020 Decoupling PetitionOn February 3, 2021, the NMPRC issued an order finding that the temporary mandatory moratorium on disconnections of residential utility customers shall be in effect from the date of the order for 100 days, which ended May 14, 2021. At the end of the moratorium, the 90-day transition period began, which continued the temporary moratorium on disconnections to provide the utilities additional time to assist residential customers with arrearages to enter into installment agreements. On July 14, 2021, the NMPRC issued an order clarifying previous orders that the mandatory requirements of the NMPRC's previous order prohibiting residential disconnects should be voluntarily complied with by investor-owned utilities until August 12, 2021. All investor-owned utilities may begin disconnections at the end of the transition period.

Transportation Electrification Program

On May 28,December 18, 2020, in compliance with New Mexico Statute, PNM filed a petitionits PNM 2022-2023 Transportation Electrification Program (“TEP”) for approval with the NMPRC. PNM’s requested TEP includes a budget of approximately $8.4 million with flexibility of 25%. As proposed, up to 25% of the program budget will be dedicated to low and moderate income customers and is based on a model with no company ownership of charging facilities. PNM’s proposed TEP provides incentives through rebates to both residential and non-residential customers towards the purchase of chargers and/or behind-the-meter infrastructure. PNM’s TEP includes a request for a modified rate to add an electric vehicle pilot with a time-of-use option, a new non-residential electric vehicle time-of-use rate pilot without demand charges and implementation of a rate adjustment mechanism that would decouplenew rider
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to collect the rates of its residential and small power rate classes. Decoupling is a rate design principle that severs the link between the recovery of fixedactual costs of the utility through volumetric charges. PNM proposesTEP. PNM’s application requested NMPRC approval by the end of August 2021 and authority to recordfile a new TEP by the difference betweenend of June 2023. Response and rebuttal testimonies were filed on May 3, 2021 and May 13, 2021, respectively, and hearings were held the annual revenue per customer derived from the costweek of service approved in the NM 2015 Rate CaseMay 24, 2021. Post-hearing briefs were filed on June 21, 2021, and the annual revenue per customer actually recovered from the rate classes beginning on January 1,response briefs were filed June 28, 2021. If approved, on January 1, 2022, PNM would begin to collect the difference from customers if the revenue per customer from the NM 2015 Rate Case exceeds the actual revenue recovered in 2021, or return the difference to customers if the actual revenue per customer recovered in 2021 exceeds the revenue per customer from the NM 2015 Rate Case. The NMPRC assigned this matter to a hearing examiner, who scheduled a hearing on PNM's petition for October 13, 2020. On July 13, 2020, NEE, ABCWUA, the City of Albuquerque, and Bernalillo County filed motions to dismiss the petition on the grounds that approving PNM’s proposed rate adjustment mechanism outside of a general rate case would result in retroactive ratemaking and piecemeal ratemaking. The motions to dismiss also allege that PNM’s proposed rate adjustment mechanism is inconsistent with the EUEA. Responses to the motions to dismiss are due by August 7, 2020. PNM cannot predict the outcome of this matter.

Audit of PNM’s ComplianceUnexecuted Transmission Service Agreements (TSAs) with OATT and Financial ReportingLeeward Renewable Energy

On December 8, 2017,March 12, 2021, PNM filed four unexecuted TSAs with FERC informed PNM it was commencing an audittotaling 145 MW with Leeward Energy. The unexecuted TSAs provide long-term firm, point-to-point transmission service on PNM’s transmission system. The unexecuted TSAs are based on the pro-forma transmission service agreements with certain non-conforming provisions under Attachment A of PNM’s complianceOATT and include PNM’s OATT rate. PNM is filing the unexecuted TSAs at the request of Leeward because the parties have been unable to reach an agreement on the terms and conditions for transmission service. In particular, Leeward believes the rate under the unexecuted TSAs should be an incremental rate while PNM believes the appropriate rate is its OATT rate.

On April 2, 2021, Leeward Energy and Pattern Energy separately protested PNM’s March 12, 2021 filing of four unexecuted TSAs with several requirements, including complianceLeeward Energy. The parties are requesting that FERC direct PNM to apply the same rate to the unexecuted TSAs as the incremental rate assessed to the Western Spirit transmission facilities, inclusive of Leeward’s network upgrades and requested service, or, in the alternative, initiate hearing and settlement judge procedures to address the unjust and unreasonable application of the FERC’s “higher of” policy. On April 19, 2021, PNM filed a motion for leave to answer and contested the arguments made by Leeward Energy and Pattern Energy. In its response, PNM stated that it disagrees with FERC’s Uniform Systemthe parties' pricing scheme because doing so would not recognize all the transmission facilities necessary to provide Leeward service, does not hold PNM's other transmission customers harmless, and is inconsistent with FERC pricing policy and precedent. PNM further explains that the proposal to include its FERC approved embedded rate in the unexecuted TSAs is just and reasonable and should be accepted by FERC. On May 11, 2021, FERC issued an order accepting PNM's four unexecuted TSAs. In the order, FERC stated that it agreed with PNM's pricing scheme and agreed that PNM's proposal to use the OATT rate will ensure that the benefit of AccountsLeeward's addition to the system will be spread among other existing system users, rather than simply transferred to Pattern. On June 10, 2021, Pattern and Leeward both filed a request for rehearing of the FERC Order. PNM cannot predict the outcome of this matter.

The Community Solar Act

On June 18, 2021, Senate Bill 84, known as the Community Solar Act, became effective. The Community Solar Act establishes a program that allows for the annual reporting periods ending December 31, 2015 through December 31, 2019.development of community solar facilities and provides customers of a qualifying utility with the option of accessing solar energy produced by a community solar facility in accordance with the Community Solar Act. The NMPRC is charged with administering the Community Solar Act program, establishing a total maximum capacity of 200 MW community solar (applicable until November 2024) facilities and allocating proportionally to the New Mexico electric investor-owned utilities and participating cooperatives. As required under the Community Solar Act, the NMPRC opened a docket on May 12, 2021 to adopt rules to establish a community solar program no later than April 1, 2022. On June 15, 2021, the NMPRC issued an order which required utilities provide a notice to all future applicants and to any likely applicants that, until the effective date of the NMPRC's rules in this area the NMPRC's existing interconnection rules and manual remain in place until amended or replaced by the NMPRC, and further, that a place in a utility's applicant queue for interconnection does not and will not provide any advantage for selection as a community solar project. PNM has provided the required notices. PNM cannot predict the full impact of the Community Solar Act or the outcome of the NMPRC's rulemaking.

San Juan Generating Station Unit 1 Outage

On June 30, 2021, a cooling tower used for SJGS Unit 1 failed resulting in a unit outage. SJGS Unit 1 was brought back online on July 25, 2021. 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 July 7, 2020, FERC audit staff14, 2021, the NMPRC issued their final audit reportan order opening a formal docket and provided their findings and recommendations. The severity ofinquiry into the findings and recommendations was low as no overall market or customer harm was found. One finding disallowed inclusion of certain costs in the computation of AFUDC and required PNM to reduce previously capitalized AFUDC. As a result, PNM recorded $1.9 million pre-tax increase to interest charges for debt AFUDC and a decrease of less than $0.1 million to other income for equity AFUDC in the three and six months ended June 30, 2020. In addition, FERC also recommended PNM revise its procedures to record upfront and quarterly commitment fees, previously recorded as interest expense, to administrative and general expense. PNM has agreed to the findings and recommendations for corrective action in the report and is required to submit its implementation plan to comply with the recommendations within 30 days.cooling tower incident.


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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 ROE of 10.5%, a cost of debt of 7.2%, and a capital structure comprised of 50% debt and 50% equity. As part of the application, TNMP proposed to return the regulatory liability related to federal tax reform to customers and to reduce the federal corporate income tax rate to 21%. On December 20, 2018, the PUCT approved an unopposed settlement agreement in the case. The PUCT’s final order results in a $10.0 million annual increase to base rates. The key elements of the approved settlement include a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. As stated by the settlement agreement, the PUCT’s final order excludes certain items from rate base that were requested in TNMP’s original filing, including approximately $10.6 million of transmission investments that TNMP included in its January 2019 transmission cost of service filing, which was approved by the PUCT in March 2019. In addition, the PUCT’s final order requires TNMP to reflect the lower federal income tax rate of 21% in rates and refund approximately $37.8 million of the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers over a period of five years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2017; approves TNMP’s request to integrate revenues historically recorded under TNMP’s AMS rider, as well as other unrecovered AMS investments, into base rates; approves TNMP’s request for new depreciation rates; and approves a new rider to recover Hurricane Harvey restoration costs, net of amounts to be refunded to customers resulting from the reduction in the federal income tax rate in 2018. See Note 14. The new rider is being charged to customers over a period of approximately three years beginning on the effective date of new base rates. New rates under the TNMP 2018 Rate Case were effective beginning on January 1, 2019.

Recovery of TNMP Rate Case Costs

Recovery of the cost of TNMP’s rate case was moved into a separate proceeding to begin after the conclusion of the TNMP 2018 Rate Case.Case discussed in the 2020 Annual Reports on Form 10-K. TNMP sought recovery of costs incurred through August 2019 in the amount of $3.8 million and proposed these costs be collected from customers over a three-yearthree-year period. In October 2019, TNMP and other parties to the proceedings filed an unopposed settlement stipulation that reduced TNMP’s cost recovery to $3.3 million and provide for recovery over a period not to exceed three-years beginning on March 1, 2020. On January 16, 2020, the PUCT approved the settlement. As a result of the PUCT's order, TNMP recorded a pre-tax write-off of $0.5 million in December 2019.

Transmission Cost of Service Rates

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

The following sets forth TNMP’s recent interim transmission cost rate increases:
Effective DateApproved Increase in Rate BaseAnnual Increase in Revenue
(In millions)
March 21, 2019$111.8  $14.3  
September 19, 201921.9  3.3  
March 27, 202059.2  7.8  

Effective DateApproved Increase in Rate BaseAnnual Increase in Revenue
(In millions)
March 27, 2020$59.2 $7.8 
October 7, 202010.8 2.0 
March 12, 2021112.6 14.1 

On July 24, 2020,23, 2021 TNMP filed an application to further update its transmission rates to reflect an increase in total rate base of $10.8$41.2 million, which would increase revenues by $2.0$6.3 million annually. The application is pending before the PUCT.

Periodic Distribution Rate Adjustment

PUCT rules permit interim rate adjustments to reflect changes in investments in distribution assets. Distribution utilities may file for a periodic rate adjustment between April 1 and April 8 of each year as long as the electric utility is not earning more than its authorized rate of return using weather-normalized data.
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On April 6, 2020, TNMP filed its first application for a distribution cost recovery factor (the "2020 DCOS"). The 2020 DCOS application requeststhat requested an increase in TNMP's annual distribution revenue requirement of $14.7 million based on net incremental capital incremental distribution investments of $149.2 million. TNMP requested a procedural schedule that would result in rates being effective in September 2020. On June 26, 2020, the parties filed a unanimous settlement for a $14.3 million annual distribution revenue requirement with rates effective September 1, 2020. On August 13, 2020, the PUCT approved the unanimous settlement. On April 5, 2021, TNMP filed its 2021 DCOS that requests an increase in TNMP annual distribution revenue requirement of $14.0 million based on an increase in rate base of $104.5 million. On July 1, 2021, TNMP reached a unanimous settlement agreement with parties that would authorize TNMP to collect an increase in annual distribution revenues of $13.5 million beginning in September 2021. Subsequently, the ALJ issued an order on June 30, 2020,July 9, 2021 approving interim rates effective September 1, 2020,2021, and remandingremanded the case to the PUCT for approval. The case is pending review by the PUCT.

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 2019 EECRF filing requested recovery of $5.9 million, including a performance bonus of $0.8 million, and became effective on March 1, 2020. TNMP’s 2020 EECRF filing requested recovery of $5.9 million, including a performance bonus of $1.0 million, and became effective on March 1, 2021. On May 29, 2020,27, 2021, TNMP filed its request to adjust the EECRF to reflect changes in costs for 2021.2022. The total amount requested was $5.9$7.2 million, of program costs in 2021, which includes a performance bonus of $1.0$2.3 million based on TNMP’sTNMP's energy efficiency achievements in the 20192020 plan year. A procedural schedule was issued setting a hearing on merits for August 21, 2020. On July 2, 2020, the parties filed a joint motion to abate the procedural schedule in order to pursue settlement and on July 27, 2020,28, 2021, a unanimous stipulation and settlement stipulation was filed with the PUCT to
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recover its requested costs in 2021,2022, including the performance bonus of $1.0$2.3 million. The stipulation and settlement stipulation is pending PUCT approval.

COVID-19 Electricity Relief Program

On March 26, 2020, the PUCT issued an order establishing an electricity relief program for electric utilities, REPs, and customers impacted by COVID-19. The program allowsallowed providers to implement a rider to collect unpaid residential retail customer bills and to ensure these customers continuecontinued to have electric service. In addition, the program providesprovided transmission and distribution providers access to zero-interest loans from ERCOT. Collectively, ERCOT’s loans maycould not exceed $15 million. The program hashad a term of six months unless extended by the PUCT. In a separate order, the PUCT authorized electric utilities to establish a regulatory asset for costs related to COVID-19. These costs may includeincluded but arewere not limited to costs related to unpaid accounts.

TNMP filed its rider on March 30, 2020. The rider was effective immediately and establishesestablished a charge of $0.33 per MWh in accordance with the PUCT's order. As of June 30, 2020,Final collections under the rider exceeded unpaid residential retail customer bills and arewere presented net as a regulatory liability of $0.4$0.1 million on the Condensed Consolidated Balance Sheet.Sheet as of December 31, 2020. Other COVID-19 related costs of $0.3$0.8 million and $0.7 million were also recorded separately as a regulatory asset on the Condensed Consolidated Balance Sheet.Sheet as of June 30, 2021 and December 31, 2020. On April 14, 2020, TNMP executed an interest-free loan agreement to borrow $0.5 million from ERCOT. TheERCOT and on October 30, 2020, the balance of the loan must be repaid upon completionwas repaid.

On August 27, 2020, the PUCT issued an order determining that new enrollments in the program should end on August 31, 2020, and benefits under the program should end on September 30, 2020, to allow eligible customers a minimum of one month of benefits from the program. All requests for reimbursement were made by November 30, 2020. On December 4, 2020, TNMP filed to end collections under the tariff. Final collections under the rider were made on December 11, 2020. On January 14, 2021, TNMP made a final compliance filing for the electricity relief program.

Competition Transition Charge FinalAdvanced Meter System Deployment

TNMP was notified by its largest AMS service provider that its existing communication platform would be decommissioned in February 2022. TNMP evaluated technological alternatives for its AMS and on October 2, 2020, filed an application with the PUCT for authorization to implement necessary upgrades of approximately $46 million by November 2022. On January 14, 2021, the PUCT approved TNMP's application, TNMP will seek recovery of the investment associated with the upgrade in a future general rate proceeding or distribution cost recovery factor filing.

AMS Reconciliation

In connectionOn July 14, 2021, TNMP filed a request with the adoptionPUCT to consider and approve its final reconciliation of Senate Bill 7 by the Texas Legislature in 1999 that deregulated electric utilities operating within ERCOT, TNMP was allowed to recover its stranded costs spent on the deployment of AMS from April 1, 2018 through the CTC including aDecember 31, 2018 and approve appropriate carrying charge. On July 10, 2020, TNMP filed to reconcile and stop the CTC surcharge beginning on September 1, 2020, as TNMP will have fully collected its CTC regulatory asset. On July 23, 2020, the ALJ accepted TNMP's filing effectively stopping the CTC surcharge on September 1, 2020. Additionally, TNMP must make a subsequent compliance filing, by September 14, 2020, to reconcile any under- or over-recoveries that may exist.charges until full collection.

(13)     Lease Commitments

The Company leases office buildings, vehicles, and other equipment. In addition, PNM leases interests in PVNGS Units 1 and 2 and certain rights-of-way agreements are classified as leases. All of the Company's leases with terms in excess of one year are recorded on the balance sheet by recording a present value lease liability and a corresponding right-of-use asset. Operating lease expense is recognized within operating expenses according to the use of the asset on a straight-line basis. Financing lease costs, which are comprised primarily of fleet and office equipment leases commencing after January 1, 2019, are recognized by amortizing the right-of-use asset on a straight-line basis and by recording interest expense on the lease
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liability. Financing lease right-of-use assets amortization is reflected in depreciation and amortization and interest on financing lease liabilities is reflected as interest charges on the Company’s Condensed Consolidated Statements of Earnings.

See additional discussion of the Company's leasing activities in Note 8 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K.

PVNGS

PNM leases interests in Units 1 and 2 of PVNGS. The PVNGS leases were entered into in 1985 and 1986 and initially were scheduled to expire on January 15, 2015 for the 4 Unit 1 leases and January 15, 2016 for the 4 Unit 2 leases.
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Following procedures set forth in the PVNGS leases, PNM notified 4 of the lessors under the Unit 1 leases and 1 lessor under the Unit 2 lease that it would elect to renew those leases on the expiration date of the original leases. The 4 Unit 1 leases now expire on January 15, 2023 and the 1 Unit 2 lease now expires on January 15, 2024. The annual lease payments during the renewal periods aggregate $16.5 million for PVNGS Unit 1 and $1.6 million for Unit 2.

The terms of each of the extended leases do not provide for additional renewal options beyond their currently scheduled expiration dates. PNM had the option to purchase the assets underlying each of the extended leases at their fair market value or to return the lease interests to the lessors on the expiration dates. Under the terms of the extended leases, PNM had until January 15, 2020 for the Unit 1 leases and until January 15, 2021 for the Unit 2 lease to provide notices to the lessors of PNM’s intent to exercise the purchase options or to return the leased assets to the lessors. On January 3, 2020, PNM filed notice with the NMPRC of 60-day waivers of the deadline to provide notice to purchase or return the assets underlying the PVNGS Unit 1 leases. On March 3, 2020, and April 10, 2020, PNM filed additional notices of waivers of the deadlines. The waivers did not impact the PVNGS Unit 1 leases’ current January 15, 2023 expiration dates. PNM’s elections are independent for each lease and are irrevocable. In the proceeding addressing PNM’s 2017 IRP, PNM agreed to promptly notify the NMPRC of a decision to extend the Unit 1 or 2 leases, or to exercise its option to purchase the leased assets at fair market value upon the expiration of leases. See Note 12. On June 11, 2020, PNM provided notice to the lessors and the NMPRC of its intent to return the assets underlying both the PVNGS Unit 1 and Unit 2 leases upon their expiration in January 2023 and 2024. Although PNM elected to return the assets underlying the extended leases, PNM retains 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. AnyOn April 5, 2021, PNM and SRP entered into an Asset Purchase and Sale Agreement, pursuant to which PNM agreed to sell to SRP certain PNM-owned assets and nuclear fuel necessary to the ongoing operation and maintenance of leased capacity in PVNGS Unit 1 and Unit 2, which SRP has agreed to acquire from the lessors upon termination of the existing leases. The proposed transaction between PNM and SRP is subject to receipt by PNM of approval by the NMPRC and PNM and SRP require NRC approval for the transfer of the assets underlyingassociated possessory licenses at the leases will be required to comply with NRC licensing requirements. For example, the NRC could limit the transfer of ownershipend of the assets underlying all or a portionterm of PNM's currently leased interests in PVNGS.each of the respective leases. If a qualified buyer cannot be identified,the proposed transaction is not consummated, PNM may be required to retain all or a portion of its currently leased capacity in PVNGS or be exposed to other claims for damages by the lessors. PNM will seek to recover its undepreciated investments, as well as any other obligations related to PVNGS from NM retail customers. See PVNGS Leased Interest Abandonment Application discussion in Note 12.

PNM is exposed to loss under the PVNGS lease arrangements upon the occurrence of certain events that PNM does not consider 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.Leased Interests. If such an event had occurred as of June 30, 2020,2021, amounts due to the lessors under the circumstances described above would be up to $154.5$146.5 million, payable on July 15, 20202021 in addition to the scheduled lease payments due on that date.

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 20202021 payment for the amount due under the Navajo Nation right-of-way lease was $7.1$7.3 million, which included amounts due under the Consumer Price Index adjustment. Changes in the Consumer Price Index subsequent to January 1, 2019 are considered variable lease payments.

PNM has other prepaid rights-of-way agreements that are not accounted for as leases or recognized as a component of plant in service. PNM reflects the unamortized balance of these prepayments in other deferred charges on the Condensed Consolidated Balance Sheets and recognizes amortization expense associated with these agreements in the Condensed Consolidated Statement of Earnings over their term. As of June 30, 20202021 and December 31, 2019,2020, the unamortized balance of these rights-of-ways was $58.8$54.8 million and $60.2$55.8 million. PNM recognized amortization expense associated with these
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

agreements of $0.9 million and $1.9 million in the three and six months ended June 30, 2020,2021 and $0.9 million and $1.9 million in the three and six months ended June 30, 2019.2020.

Fleet Vehicles and Equipment

Fleet vehicle and equipment leases commencing on or after January 1, 2019 are classified as financing leases. Fleet vehicle and equipment leases existing as of December 31, 2018 are classified as operating leases. The Company’s fleet vehicle and equipment lease agreements include non-lease components for insignificant administrative and other costs that are billed over the life of the agreement. At June 30, 2020,2021, residual value guarantees on fleet vehicle and equipment leases are $0.7$0.9 million, $1.3$1.4 million, and $2.0$2.3 million for PNM, TNMP, and PNMR Consolidated.

Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets is presented below:

June 30, 2020December 31, 2019
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)
Operating leases:
Operating lease assets, net of amortization$109,042  $8,535  $118,140  $120,585  $9,954  $131,212  
Current portion of operating lease liabilities24,039  2,428  26,744  25,927  2,753  29,068  
Long-term portion of operating lease liabilities85,028  5,897  91,320  97,992  7,039  105,512  

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

June 30, 2020December 31, 2019
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)
Financing leases:
Non-utility property$8,561  $9,712  $18,540  $4,857  $4,910  $10,028  
Accumulated depreciation(1,070) (1,137) (2,267) (482) (466) (973) 
Non-utility property, net7,491  8,575  16,273  4,375  4,444  9,055  
Other current liabilities1,512  1,623  3,203  722  850  1,637  
Other deferred credits5,699  6,958  12,800  3,333  3,597  7,102  


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

Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets is presented below:
June 30, 2021December 31, 2020
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)
Operating leases:
Operating lease assets, net of amortization$85,738 $6,366 $92,498 $97,461 $7,206 $105,133 
Current portion of operating lease liabilities24,250 2,130 26,472 25,130 2,193 27,460 
Long-term portion of operating lease liabilities61,834 3,998 66,135 75,941 4,779 81,065 

As discussed above, the Company classifies its fleet vehicle and equipment leases and its office equipment leases commencing on or after January 1, 2019 as financing leases.

Information related to the Company’s financing leases recorded on the Condensed Consolidated Balance Sheets is presented below:
June 30, 2021December 31, 2020
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)
Financing leases:
Non-utility property$12,890 $14,358 $27,578 $11,453 $13,299 $25,055 
Accumulated depreciation(3,178)(3,491)(6,812)(2,044)(2,241)(4,383)
Non-utility property, net9,712 10,867 20,766 9,409 11,058 20,672 
Other current liabilities2,305 2,612 5,003 1,993 2,397 4,470 
Other deferred credits7,206 8,262 15,573 7,176 8,669 15,972 

Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities as of June 30, 20202021 is presented below:
PNMTNMPPNMR Consolidated
Weighted average remaining lease term (years):
Operating leases5.603.245.45
Financing leases4.444.464.43
Weighted average discount rate:
Operating leases3.95 %3.95 %3.95 %
Financing leases2.66 %2.77 %2.71 %

PNMTNMPPNMR Consolidated
Weighted average remaining lease term (years):
Operating leases6.103.855.93
Financing leases4.945.485.21
Weighted average discount rate:
Operating leases3.90 %4.00 %3.91 %
Financing leases3.12 %3.26 %3.19 %

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

Information for the components of lease expense is as follows:

Three Months Ended June 30, 2020Six Months Ended June 30, 2020Three Months Ended June 30, 2021Six Months Ended June 30, 2021
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR ConsolidatedPNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)(In thousands)
Operating lease cost:Operating lease cost:$6,847  $746  $7,658  $13,740  $1,521  $15,393  Operating lease cost:$6,715 $633 $7,385 $13,450 $1,286 $14,814 
Amounts capitalizedAmounts capitalized(247) (602) (849) (538) (1,237) (1,774) Amounts capitalized(220)(543)(763)(446)(1,102)(1,548)
Total operating lease expenseTotal operating lease expense$6,600  $144  $6,809  $13,202  $284  $13,619  Total operating lease expense6,495 90 6,622 13,004 184 13,266 
Financing lease cost:Financing lease cost:Financing lease cost:
Amortization of right-of-use assetsAmortization of right-of-use assets341  382  741  588  672  1,294  Amortization of right-of-use assets604 637 1,262 1,136 1,251 2,430 
Interest on lease liabilitiesInterest on lease liabilities52  68  121  97  124  224  Interest on lease liabilities65 76 141 127 152 281 
Amounts capitalizedAmounts capitalized(226) (369) (594) (401) (653) (1,053) Amounts capitalized(417)(632)(1,048)(783)(1,258)(2,041)
Total financing lease expenseTotal financing lease expense167  81  268  284  143  465  Total financing lease expense252 81 355 480 145 670 
Variable lease expenseVariable lease expense63  —  63  95  —  95  Variable lease expense106 106 168 168 
Short-term lease expenseShort-term lease expense75   75  160   161  Short-term lease expense125 147 249 280 
Total lease expense for the periodTotal lease expense for the period$6,905  $226  $7,215  $13,741  $428  $14,340  Total lease expense for the period$6,978 $173 $7,230 $13,901 $333 $14,384 

Three Months Ended June 30, 2019Six Months Ended June 30, 2019Three Months Ended June 30, 2020Six Months Ended June 30, 2020
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR ConsolidatedPNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)(In thousands)
Operating lease cost:Operating lease cost:$6,803  $815  $7,692  $14,386  $1,713  $16,312  Operating lease cost:$6,847 $746 $7,658 $13,740 $1,521 $15,393 
Amounts capitalizedAmounts capitalized(344) (662) (1,006) (696) (1,319) (2,015) Amounts capitalized(247)(602)(849)(538)(1,237)(1,774)
Total operating lease expenseTotal operating lease expense$6,459  $153  $6,686  $13,690  $394  $14,297  Total operating lease expense6,600 144 6,809 13,202 284 13,619 
Financing lease cost:Financing lease cost:Financing lease cost:
Amortization of right-of-use assetsAmortization of right-of-use assets77  81  158  143  139  282  Amortization of right-of-use assets341 382 741 588 672 1,294 
Interest on lease liabilitiesInterest on lease liabilities14  17  31  30  34  64  Interest on lease liabilities52 68 121 97 124 224 
Amounts capitalizedAmounts capitalized(41) (38) (79) (82) (75) (157) Amounts capitalized(226)(369)(594)(401)(653)(1,053)
Total financing lease expenseTotal financing lease expense50  60  110  91  98  189  Total financing lease expense167 81 268 284 143 465 
Variable lease expenseVariable lease expense32  —  32  32  —  32  Variable lease expense63 63 95 95 
Short-term lease expenseShort-term lease expense75   101  149   195  Short-term lease expense75 75 160 161 
Total lease expense for the periodTotal lease expense for the period$6,616  $215  $6,929  $13,962  $497  $14,713  Total lease expense for the period$6,905 $226 $7,215 $13,741 $428 $14,340 
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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

Six Months Ended June 30 ,Six Months Ended June 30 ,Six Months EndedSix Months Ended
20202019June 30, 2021June 30, 2020
PNMTNMPPNMR ConsolidatedPNMTNMPPNMR ConsolidatedPNMTNMPPNMR ConsolidatedPNMTNMPPNMR Consolidated
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:(In thousands)
Operating cash flows from operating leasesOperating cash flows from operating leases$16,511  $331  $17,125  $16,704  $529  $17,494  Operating cash flows from operating leases$16,291 $188 $16,572 $16,511 $331 $17,125 
Operating cash flows from financing leasesOperating cash flows from financing leases36  20  59  18  20  38  Operating cash flows from financing leases43 17 63 36 20 59 
Finance cash flows from financing leasesFinance cash flows from financing leases207  120  360  54  76  130  Finance cash flows from financing leases392 156 592 207 120 360 
Non-cash information related to right-of-use assets obtained in exchange for lease obligations:Non-cash information related to right-of-use assets obtained in exchange for lease obligations:Non-cash information related to right-of-use assets obtained in exchange for lease obligations:
Operating leasesOperating leases$—  $—  $—  $143,816  $12,942  $157,440  Operating leases$$317 $317 $$$
Financing leasesFinancing leases3,703  4,802  8,513  2,516  2,305  4,821  Financing leases1,512 1,254 2,793 3,703 4,802 8,513 

Capitalized costs excluded from the operating and financing cash paid for leases above for the three and six months ended June 30, 2021, are $0.6 million and $1.2 million at PNM, $1.2 million and $2.4 million at TNMP, and $1.8 million and $3.6 million at PNMR. For the three and six months ended June 30, 2020, capitalized costs excluded are $0.5 million and $0.4 million at PNM, $1.2 million and $0.7 million at TNMP, and $1.8 million and $1.1 million at PNMR. For the six months ended June 30, 2019, capitalized costs excluded are $0.7 million and $0.1 million at PNM, $1.3 million and $0.1 million at TNMP, and $2.0 million and $0.2 million at PNMR. These capitalized costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20202021 and 2019.2020.

Future expected lease payments are shown below:
As of June 30, 2020
PNMTNMPPNMR Consolidated
FinancingOperatingFinancingOperatingFinancingOperating
(In thousands)
Remainder of 2020$862  $9,979  $944  $1,437  $1,842  $11,686  
20211,688  26,576  1,845  2,448  3,606  29,316  
20221,642  26,266  1,766  1,996  3,480  28,473  
20231,587  17,735  1,617  1,508  3,241  19,423  
2024985  7,908  1,379  877  2,364  8,833  
Later years1,019  34,466  1,791  765  2,811  35,489  
Total minimum lease payments7,783  122,930  9,342  9,031  17,344  133,220  
Less: Imputed interest572  13,863  761  705  1,340  15,167  
Lease liabilities as of June 30, 2020$7,211  $109,067  $8,581  $8,326  $16,004  $118,053  
As of June 30, 2021
PNMTNMPPNMR Consolidated
FinancingOperatingFinancingOperatingFinancingOperating
(In thousands)
Remainder of 2021$1,270 $9,811 $1,448 $1,159 $2,763 $11,099 
20222,493 26,266 2,812 1,972 5,393 28,449 
20232,413 17,735 2,626 1,474 5,091 19,389 
20241,740 7,908 2,146 896 3,897 8,853 
2025994 6,946 1,345 706 2,339 7,690 
Later years1,167 27,521 1,141 76 2,307 27,815 
Total minimum lease payments10,077 96,187 11,518 6,283 21,790 103,295 
Less: Imputed interest566 10,103 644 155 1,214 10,688 
Lease liabilities as of June 30, 2021$9,511 $86,084 $10,874 $6,128 $20,576 $92,607 

The above table includes $10.1$10.9 million, $14.7$14.9 million, and $24.8$25.7 million for PNM, TNMP, and PNMR at June 30, 20202021 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

In December 2017, comprehensive changes in United States federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made many significant modifications to the tax laws, including reducing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also eliminated federal bonus depreciation for utilities, limited interest deductibility for non-utility businesses and limited the
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

deductibility of officer compensation. During 2019,2020, the IRS issued proposedfinal regulations related to certain officer compensation and, proposedin January 2021, issued final regulations on interest deductibility that provide a 10% “de minimis” exception that allows entities with predominantly regulated activities to fully deduct interest expenses. In addition, in 2019, the IRS issued proposed regulations interpreting Tax Act amendments to depreciation provisions of the IRC that allow the Company to claim a bonus depreciation deduction on certain construction projects placed in service subsequent to the third quarter of 2017. See additional discussion of the impacts of the Tax Act in Note 18 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted. Among other things, the CARES Act includes tax provisions that generally loosen restrictions on NOL utilization and business interest deductions, and accelerate refunds of previously generated alternative minimum tax credits. In addition, the CARES Act includes a temporary provision allowing businesses to defer payments to the government for some payroll taxes. In 2020, the Company applied for $5.2 million of accelerated refunds of previously generated alternative minimum tax ("AMT") credits and deferred $7.0 million of payments for certain payroll taxes. The Company received the $5.2 million refund of prior AMT credits in June 2021. The CARES Act provisions related to NOL utilization and business interest deductions are not applicable for the Company however, in June 2020, the Company applied for $5.2 million of accelerated refunds of previously generated alternative minimum tax credits and is deferring payments of certain payroll taxes.Company.

Beginning February 2018, PNM’s NM 2016 Rate Case reflects the reduction in the federal corporate income tax rate, including amortization of excess deferred federal and state income taxes. In accordance with the order in that case, PNM is returning the protected portion of excess deferred federal income taxes to customers over the average remaining life of plant in service as of December 31, 2017, the unprotected portion of excess deferred federal income taxes to customers over a period of approximately twenty-three years, and excess deferred state income taxes to customers over a period of three years. The approved settlement in the TNMP 2018 Rate Case includes a reduction in customer rates to reflect the impacts of the Tax Act beginning on January 1, 2019. PNMR, PNM, and TNMP will amortize federal and state excess deferred income taxes of $30.6$24.5 million, $21.6$15.2 million, and $9.0$9.3 million in 2020.2021. See additional discussion of PNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case in Note 12.17 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

As required under GAAP, theThe 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. GAAP also provides that certainCertain unusual or infrequently occurring items, including excess tax benefits related to stock awards beand taxes on Merger-related costs are excluded from the estimated annual effective tax rate calculation. At June 30, 2020,2021, PNMR, PNM, and TNMP estimated their effective income tax rates for the year ended December 31, 20202021 would be 6.21%13.35%, 8.73%15.81%, and 9.23%10.64%. The primary difference between the statutory income tax rates and the effective tax rates is the effect of the reduction in income tax expense resulting from the amortization of excess deferred federal and state income taxes ordered by the NMPRC in PNM’s NM 2016 Rate Case and the amortization of excess deferred federal income taxes as ordered by the PUCT in TNMP’s 2018 Rate Case.taxes. During the three and six months ended June 30, 2020,2021, 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 0$0.1 million and $0.4$0.8 million for PNMR, of which 0less than $0.1 million and $0.3$0.6 million was allocated to PNM and 0less than $0.1 million and $0.2 million was allocated to TNMP, and by tax benefits on Merger-related costs of $0.3 million and $1.6 million for PNMR, less than $0.1 million and $0.1 million was allocated tofor PNM, and less than $0.1 million and $0.1 million for 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. PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced. PNM also provides interconnection services to PNMR Development and NMRD. See Note 16 for additional discussion of NMRD.



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

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

Three Months EndedSix Months EndedThree Months EndedSix Months Ended
June 30,June 30,June 30,June 30,
20202019202020192021202020212020
(In thousands)(In thousands)
Services billings:Services billings:Services billings:
PNMR to PNMPNMR to PNM$24,521  $22,925  $46,644  $49,751  PNMR to PNM$26,150 $24,521 $52,375 $46,644 
PNMR to TNMPPNMR to TNMP9,703  8,385  18,430  18,443  PNMR to TNMP10,135 9,703 20,500 18,430 
PNM to TNMPPNM to TNMP113  114  189  189  PNM to TNMP94 113 212 189 
TNMP to PNMRTNMP to PNMR35  36  70  71  TNMP to PNMR12 35 24 70 
PNMR to NMRDPNMR to NMRD49  54  125  95  PNMR to NMRD55 49 110 125 
Renewable energy purchases:Renewable energy purchases:Renewable energy purchases:
PNM from NMRDPNM from NMRD2,404  949  3,923  1,574  PNM from NMRD3,504 2,404 6,089 3,923 
Interconnection billings:Interconnection billings:Interconnection billings:
PNM to NMRDPNM to NMRD130  —  350  —  PNM to NMRD130 350 
PNM to PNMRPNM to PNMR—  —  —  —  PNM to PNMR
NMRD to PNMNMRD to PNM1,276 
Interest billings:Interest billings:Interest billings:
PNMR to PNMPNMR to PNM 972   1,905  PNMR to PNM
PNM to PNMRPNM to PNMR77  77  158  149  PNM to PNMR36 77 72 158 
PNMR to TNMPPNMR to TNMP 10   42  PNMR to TNMP
Income tax sharing payments:Income tax sharing payments:Income tax sharing payments:
PNMR to PNMPNMR to PNM—  —  —  —  PNMR to PNM
TNMP to PNMRTNMP to PNMR—  —  —  —  TNMP to PNMR

(16)   Equity Method Investment

As discussed in Note 1 of the Company's 20192020 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 June 30, 2020,2021, NMRD’s renewable energy capacity in operation was 85.1135.1 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 six months ended June 30, 20202021 and 2019,2020, PNMR Development made cash contributions of $18.3 million0 and $13.3$18.3 million to NMRD to be used primarily for its construction activities. In February 2021, NMRD paid PNMR Development a dividend of $3.0 million of which, $2.4 million represented PNMR Development's cumulative equity in earnings of NMRD as of March 31, 2021 and is presented as cash flows from operating activities on the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2021. The portion of the dividend in excess of PNMR Development's cumulative equity in earnings of NMRD amounting to $0.6 million is presented as cash flows from investing activities.

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

Results of Operations
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Operating revenues$2,641  $1,103  $4,308  $1,828  
Operating expenses1,472  655  3,052  1,451  
Net earnings$1,169  $448  $1,256  $377  

Results of Operations
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)
Operating revenues$3,885 $2,641 $6,635 $4,308 
Operating expenses2,416 1,472 4,938 3,052 
Net earnings$1,469 $1,169 $1,697 $1,256 
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Financial PositionFinancial Position
June 30,December 31,June 30,December 31,
2020201920212020
(In thousands)(In thousands)
Current assetsCurrent assets$5,672  $7,187  Current assets$7,781 $8,046 
Net property, plant, and equipmentNet property, plant, and equipment163,629  132,772  Net property, plant, and equipment169,132 172,585 
Non-current assetsNon-current assets1,214  —  Non-current assets1,503 1,900 
Total assetsTotal assets170,515  139,959  Total assets178,416 182,531 
Current liabilitiesCurrent liabilities2,073  9,640  Current liabilities1,022 841 
Non-current liabilitiesNon-current liabilities368  —  Non-current liabilities387 380 
Owners’ equityOwners’ equity$168,074  $130,319  Owners’ equity$177,007 $181,310 

(17)     Goodwill

The excess purchase price over the fair value of the assets acquired and the liabilities assumed by PNMR for its 2005 acquisition of TNP was recorded as goodwill and was pushed down to the businesses acquired. In 2007, the TNMP assets that were included in its New Mexico operations, including goodwill, were transferred to PNM. PNMR’s reporting units that currently have goodwill are PNM and TNMP.

GAAP requires theThe Company to evaluateevaluates 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 inIn 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 events and circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount.

In other circumstances, an entity may perform a quantitative analysis to reach the conclusion regarding impairment with respect to a reporting unit. An entity may choose to perform a quantitative analysis without performing a qualitative analysis and may perform a qualitative analysis for certain reporting units, but a quantitative analysis for others. The first step of the quantitative impairment test requires an entity to compare the fair value of the reporting unit with its carrying value, including goodwill. If, as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, GAAP currently requires the entity 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 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.

PNMR periodically updates its quantitative analysis for both PNM and TNMP. The use of a quantitative approach in a given period is not necessarily an indication that a potential impairment has been identified under a qualitative approach.

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

When PNMR performs a quantitative analysis for PNM or TNMP, a discounted cash flow methodology is primarily used to estimate the fair value of the reporting unit. This analysis requires significant judgments, including estimations of future cash flows, which is dependent on internal forecasts, estimations of long-term growth rates for the business, and
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

determination of appropriate weighted average cost of capital for the reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment.

When PNMR performs a qualitative or quantitative analysis for PNM or TNMP, PNMR considers market and macroeconomic factors including changes in growth rates, changes in the WACC, and changes in discount rates. PNMR also evaluates its stock price relative to historical performance, industry peers, and to major market indices, including an evaluation of PNMR’s market capitalization relative to the carrying value of its reporting units.

For its annual evaluations performed as of April 1, 2019, PNMR performed qualitative analyses for both the PNM and TNMP reporting units. In addition to the typical considerations discussed above, the qualitative analysis considered 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 previous 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. Based on an evaluation of these and other factors, PNMR determined it was not more likely than not that the April 1, 2019 carrying values of PNM or TNMP exceeded their fair values.

For its annual evaluations performed as of April 1, 2020, PNMR performed a qualitative analysis for the PNM reporting unit and a quantitative analysis for the TNMP reporting unit. In addition to the typical considerations discussed above, the qualitative analysis considered changes in PNM’s expectations of future financial performance since the April 1, 2018 quantitative analysis performed for PNM, as well as the previous qualitative analyses through April 1, 2019. 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%. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2020 carrying value of PNM exceeded its fair value. Using the methods and considerations discussed above, the 2020 quantitative analysis indicated the fair value of the TNMP reporting unit, which has goodwill of $226.7 million, exceeded its carrying value by approximately 38%. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2020 carrying value of TNMP exceedexceeded its fair value.

For its annual evaluations performed as of April 1, 2021, PNMR performed a qualitative analysis for both the PNM and TNMP reporting units. In addition to the typical considerations discussed above, the qualitative analysis considered changes in the Company's expectations of future financial performance since the April 1, 2020 qualitative analysis for PNM and the quantitative analysis for TNMP. This analysis considered Company specific events such as the Merger, potential impacts of legal and regulatory matters discussed in Note 11 and Note 12, including potential outcomes in PNM’s Four Corners Abandonment Application, and other potential impacts of changes in PNM’s resource needs based on PNM’s 2020 IRP. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2021 carrying values of PNM and TNMP exceeded their fair value. Since the April 1, 20202021 annual evaluation, there have been no events, including the Merger (Note 18), or indications that the fair values of the reporting units with recorded goodwill have decreased below their carrying values.

(18)     Merger

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

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

The proposed Merger has been unanimously approved by the Boards of Directors of PNMR, Avangrid and Merger Sub and approved by PNMR shareholders at the Special Meeting of Shareholders held on February 12, 2021. On January 20, 2021, the FTC notified PNMR and Avangrid that early termination of the waiting period under the HSR Act in connection with the Merger was granted. CFIUS completed its review of the Merger on February 2, 2021, and has concluded that there are no unresolved national security concerns with respect to the Merger. On March 10, 2021, PNMR and Avangrid received FCC approval of the transfer of operating licenses related to the Merger. If the Merger is not completed within 180 days of March 10, 2021, then extension of FCC approval will be required. On April 20, 2021, FERC issued an order authorizing the Merger. On May 6, 2021, the PUCT issued an order authorizing the Merger, and on May 25, 2021, the NRC approved the Merger. Consummation of the Merger remains subject to the satisfaction or waiver of certain customary closing conditions, including, without limitation, the absence of any material adverse effect on PNMR, the receipt of required regulatory approval from the NMPRC, and the agreements relating to the divestiture of Four Corners being in full force and effect and all applicable regulatory filings associated therewith being made. The agreement related to the divestiture has been entered into and related filings have been made with the NMPRC. The Merger is currently expected to close in the second half of 2021.

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

On April 20, 2021, the Joint Applicants, the NMAG, WRA, the International Brotherhood of Electrical Workers Local 611, Dine, Nava Education Project, the San Juan Citizens Alliance and To Nizhoni Ani, entered into a stipulation and agreement in the Joint Application for approval of Merger pending before the NMPRC. Subsequently, CCAE, Onward Energy, Walmart, Interwest Energy Alliance, M-S-R Power and the Incorporated County of Los Alamos have joined an amended stipulation. On May 28, 2021, the NMPRC held a procedural conference and set August 11 - 20, 2021 as the dates for evidentiary hearings on the amended stipulation.

The Merger Agreement provides for certain customary termination rights including the right of either party to terminate the Merger Agreement if the Merger is not completed on or before January 20, 2022 (subject to a three-month extension by either party if all of the conditions to the closing, other than the conditions related to obtaining regulatory approvals, have been satisfied or waived). The Merger Agreement further provides that, upon termination of the Merger Agreement under certain specified circumstances (including if Avangrid terminates the Merger Agreement due to a change in recommendation of the Board or if PNMR terminates the Merger Agreement to accept a superior proposal (as defined in the Merger Agreement)), PNMR will be required to pay Avangrid a termination fee of $130.0 million. In addition, the Merger Agreement provides that (i) if the Merger Agreement is terminated by either party due to a failure of a regulatory closing condition and such failure is the result of Avangrid’s breach of its regulatory covenants or (ii) Avangrid fails to effect the closing when all closing conditions have been satisfied and it is otherwise obligated to do so under the Merger Agreement, then, in either such case, upon termination of the Merger Agreement, Avangrid will be required to pay PNMR a termination fee of $184.0 million as the sole and exclusive remedy. Upon the termination of the Merger Agreement under certain specified circumstances involving a breach of the Merger Agreement, either PNMR or Avangrid will be required to reimburse the other party’s reasonable and documented out-of-pocket fees and expenses up to $10.0 million (which amount will be credited toward, and offset against, the payment of any applicable termination fee).
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

MD&A FOR PNMR

EXECUTIVE SUMMARY
Overview and Strategy

PNMR is a holding company with two regulated utilities serving approximately 794,000804,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP. PNMR strives to create a clean and bright energy future for customers, communities, and shareholders.PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power built on a foundation of Environmental, Social and Governance (ESG) principles.

Recent Developments

Merger

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

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

The proposed Merger has been unanimously approved by the Boards of Directors of PNMR, Avangrid and Merger Sub and approved by PNMR shareholders at the Special Meeting of Shareholders held on February 12, 2021. On January 20, 2021, the FTC notified PNMR and Avangrid that early termination of the waiting period under the HSR Act in connection with the Merger was granted. CFIUS completed its review of the Merger on February 2, 2021, and has concluded that there are no unresolved national security concerns with respect to the Merger. On March 10, 2021, PNMR and Avangrid received FCC approval of the transfer of operating licenses related to the Merger. If the Merger is not completed within 180 days of March 10, 2021, then extension of FCC approval will be required. On April 20, 2021, FERC issued an order authorizing the Merger. On May 6, 2021 the PUCT issued an order authorizing the Merger and on May 25, 2021 the NRC approved the Merger. Consummation of the Merger remains subject to the satisfaction or waiver of certain customary closing conditions, including, without limitation, the absence of any material adverse effect on PNMR, the receipt of required regulatory approval from the NMPRC, and the agreements relating to the divestiture of Four Corners being in full force and effect and all applicable regulatory filings associated therewith being made. The agreement relating to the divestiture of Four Corners has been entered into and related filings have been made with the NMPRC. The Merger is currently expected to close in the second half of 2021.

On April 20, 2021, the Joint Applicants, the NMAG, WRA, the International Brotherhood of Electrical Workers Local 611, Dine, Nava Education Project, the San Juan Citizens Alliance and To Nizhoni Ani, entered into a stipulation and agreement in the Joint Application for approval of Merger pending before the NMPRC. Subsequently, CCAE, Onward Energy, Walmart, Interwest Energy Alliance, M-S-R Power and the Incorporated County of Los Alamos have joined an amended stipulation. On May 28, 2021, the NMPRC held a procedural conference and set August 11 - 20, 2021 as the dates for evidentiary hearings on the amended stipulation.

EIM

On April 1, 2021, PNM joined and began participating in the EIM. The EIM is a real-time wholesale energy trading market operated by the California Independent System Operator (CAISO) 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
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flexible resources by capturing diversity benefits from the expanding geographic footprint and the expanded potential uses for those resources. PNM completed a cost-benefit analysis, which indicated participation in the EIM would provide substantial benefits to retail customers. In 2018, PNM filed an application with the NMPRC requesting, among other things, to recover initial capital investments and authorization to establish a regulatory asset to recover other expenses that would be incurred in order to join the EIM. The NMPRC approved the establishment of a regulatory asset but deferred certain rate making issues, including but not limited to issues related to implementation and ongoing EIM costs and savings, the prudence and reasonableness of costs to be included in the regulatory asset, and the period over which costs would be charged to customers until PNM’s next general rate case filing.

Texas Winter Storm

In mid-February 2021, Texas experienced a severe winter storm delivering the coldest temperatures in 100 years for many parts of the state. As a result, the ERCOT market was not able to deliver sufficient generation load to the grid resulting in significant, statewide outages as ERCOT directed transmission operators to curtail thousands of firm load megawatts. TNMP complied with ERCOT directives to curtail the delivery of electricity in its service territory and did not experience significant outages on its system outside of the ERCOT directed curtailments. TNMP has deferred bad debt expense from defaulting REPs to a regulatory asset totaling $1.0 million at June 30, 2021, and will seek recovery in a general rate case. At this time, the Company does not expect significant financial impacts related to this event.

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

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

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

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

Earning Authorized Returns on Regulated Businesses

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

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

Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K and in Note 12.10-K.

State Regulation

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

New Mexico 2015 Rate Case – On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $61.2 million for New Mexico retail customers, effective for bills sent after September 30,
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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. The NMPRC's order included a determination that PNM was imprudent in purchasing certain leased capacity in PVNGS Unit 2, extending other PVNGS leased capacity, and installing BDT environmental controls equipment on SJGS. PNM appealed the NMPRC's imprudence findings to the NM Supreme Court. Specifically, PNM appealed the NMPRC’s determination that PNM was imprudent in certain matters in the case, including the disallowance of the full purchase price of 64.1 MW of capacity in PVNGS Unit 2, the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM, the costs of converting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases.

In May 2019, the NM Supreme Court issued its decision on the matters that had been appealed in the NM 2015 Rate Case. The NM Supreme Court upheld all of the decisions in the NMPRC's order except for their decision to permanently disallow recovery of future decommissioning costs related to the purchased and extended leases because PNM was deprived of its rights to due process of law and remanded the case to the NMPRC for further proceedings. In January 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand that reaffirmed its September 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.

As a result of the NM Supreme Court’s ruling, PNM recorded a pre-tax impairment of $149.3 million as of June 30, 2019 which is reflected as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. This amount reflects capital costs not previously impaired during the pendency of the appeal related to PNM's purchase of 64.1 MW, in PVNGS Unit 1, undepreciated capital improvements made during the period such interests had been leased, and investments in BDT environmental controls equipment on SJGS Units 1 and 4. The 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 Rate Case – In January 2018, the NMPRC approved a settlement agreement that authorized PNM to implement an increase in base non-fuel rates of $10.3 million, which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM’s cost of debt (aggregating $47.6 million annually). This order was on PNM's application for a general increase in retail electric rates filed in December 2016 (the "NM 2016 Rate Case").

The key terms of the order include:

A ROE of 9.575%
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A requirement to return to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate to the extent attributable to PNM’s retail operations (Note 14)
A disallowance of PNM’s ability to collect an equity return on certain investments aggregating $148.1 million at Four Corners, but allowing recovery of a debt-only return
An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
A requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners in PNM's next general rate case filing

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

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

2020 Decoupling Petition - On May 28, 2020, PNM filed a petition for approval of a rate adjustment mechanism that would decouple the rates of its residential and small power rate classes. Decoupling is a rate design principle that severs the link between the recovery of fixed costs of the utility through volumetric charges. If approved, customer bills willwould not be impacted until January 1, 2022. On October 2, 2020, PNM requested an order to vacate the public hearing and stay the proceeding until the NMPRC decides whether to entertain a petition to issue a declaratory order resolving the issues raised in the motions to dismiss. On October 7, 2020, the hearing examiner approved PNM's request to stay the proceeding and vacate the public hearing and on October 30, 2020 PNM filed a petition for declaratory order asking the NMPRC to issue an order finding that full revenue decoupling is authorized by the EUEA. On March 17, 2021, the NMPRC issued an order granting PNM's petition for declaratory order which commences a proceeding to address petitions. Oral arguments were made on July 15, 2021. See Note 12. PNM cannot predict the outcome of this matter.

TNMP 2018 Rate Case –PVNGS Leased Interest Abandonment Application - On December 20, 2018,April 2, 2021, PNM filed the PUCT approvedPVNGS Leased Interest Abandonment Application. In the application PNM is requesting NMPRC authorization to decertify and abandon its Leased Interest and to create regulatory assets for the associated remaining undepreciated investments with consideration of cost recovery of the undepreciated investments in a settlement stipulation allowing TNMPfuture rate case. PNM is also seeking NMPRC approval to increase annual base rates by $10.0 million based onsell and transfer the PNM-owned assets and nuclear fuel supply associated with the Leased Interest to SRP, which will be acquiring the Leased Interest from the lessors upon termination of the existing leases. In addition, PNM is seeking NMPRC approval for a ROE of 9.65%,150 MW solar PPA combined with a cost of debt of 6.44%,40 MW battery storage agreement, and a capital structure comprisedstand-alone 100 MW battery storage agreement to replace the Leased Interest. To ensure system reliability and load needs are met in 2023, when a majority of 55% debtthe leases expire, PNM is also requesting NMPRC approval for a 300 MW solar PPA combined with a 150 MW battery storage agreement. For additional information on PNM's Leased Interest and 45% equity. In addition, the approved settlement stipulation allows TNMP to refund the regulatory liability recorded at December 31, 2017 related to federal tax reform to customersassociated abandonment application see Note 12 and reflects the reduction in the federal corporate income tax rate to 21%. New rates under the TNMP 2018 Rate Case became effective January 1, 2019.Note 13.

Advanced Metering Currently, TNMP completed its mass deployment ofhas more than 262,000 advanced meters across its service territory in 2016 and has installed more than 242,000 advanced meters.territory. Beginning in 2019, the majority of costs associated with TNMP’s AMS program are being recovered through base rates.
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Table On July 14, 2021, TNMP filed a request with the PUCT to consider and approve its final reconciliation of Contentsthe costs spent on the deployment of AMS from April 1, 2018 through December 31, 2018, and approve appropriate carrying charges until full collection. On October 2, 2020, TNMP filed an application with the PUCT for authorization to implement necessary technological upgrades of approximately $46 million to its AMS program by November 2022. On January 14, 2021, the PUCT approved TNMP's application. TNMP will seek recovery of the investment associated with the upgrade in a future general rate proceeding or distribution cost recovery factor filing.

In February 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”), which was denied. As ordered by the NMPRC, PNM’s 2020 filing for energy efficiency programs to be offered in 2021, 2022, and 2023 includesincluded a proposal for an AMI pilot project.project, although PNM did not recommend the proposal due to the limited benefits that are cost-effective under a pilot structure. On September 17, 2020, the hearing examiner in the energy efficiency case issued a recommended decision recommending that PNM's proposed 2021 energy efficiency and load management program be approved, with the exception of the proposed AMI pilot program. On October 28, 2020, the NMPRC approved the recommended decision.

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

On April 6, 2020,5, 2021, TNMP filed its first application for a periodic distribution rate adjustment (the "2020 DCOS"). TNMP's 20202021 DCOS application requeststhat requested an increase in annual distribution revenues of $14.7 million and$14.0 million. TNMP requested a procedural schedule that newwould result in rates go into effect beginningbeing effective in September 2020.2021. On June 26, 2020,July 1, 2021, TNMP reached a unanimous settlement agreement with parties that would authorize TNMP to collect a $14.3 millionan increase in annual distribution revenue requirementrevenues of $13.5 million beginning in September 2020. The case is pending review by the PUCT.2021. See Note 12.

FERC Regulation

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

In May 2019, PNM filed an application with FERC requesting approval to purchase a new 165-mile153-mile long 345-kV transmission line and related facilities (the “Western Spirit Line”). Under related agreements, PNM will provide transmission service to approximately 800 MW of new wind generation to be located in eastern New Mexico beginning in 2021 using an incremental rate. All necessary regulatory approvals for PNM to purchase and provide transmission service from the Western Spirit Line have been obtained.

On March 12, 2021, PNM has no full-requirements wholesale generation customers.filed four unexecuted TSAs with FERC totaling 145 MW with Leeward Energy. The unexecuted TSAs provide long-term firm, point-to-point transmission service on PNM’s transmission system. The unexecuted TSAs are based on the pro-forma transmission service agreements with certain non-conforming provisions under Attachment A of PNM’s OATT and include PNM’s OATT rate. PNM filed the unexecuted TSAs at the request of Leeward because the parties were unable to reach an agreement on the terms and conditions for transmission service. On May 11, 2021 FERC issued an order accepting PNM's four unexecuted TSAs based on PNM's proposed pricing scheme included in its OATT rate. On June 10, 2021, Pattern and Leeward both filed a request for rehearing of the FERC Order. See Note 12.

Delivering At or Above Industry-Average Earnings and Dividend Growth

PNMR’s financial objective to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 2020 through 2023. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.

PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target.near-term. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards.

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

The Board approved the following increases in the indicated annual common stock dividend:

Approval DatePercent Increase
December 20179%
December 20189%
December 20196%6.0%
December 20206.5%

Maintaining Investment Grade Credit Ratings

The Company is committed to maintaining investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. On April 6, 2020, S&P downgraded the ratings for PNMR, PNM, and TNMP one notch and affirmed TNMP's first mortgage bond rating. All of the credit ratings
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credit ratings issued by both Moody’s and S&P on the Company’s debt continue to be investment grade.

Business Focus

To achieve its business objectives, focus is directed in key areas: Safe, Reliable and Affordable Power; Utility Plant and Strategic Investments; Environmentally Responsible Power; and Customer, Stakeholders, and Community Engagement. The Company works closely with its stakeholders to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities. Equally important is the focus of PNMR’s utilities on customer satisfaction and community engagement.

Safe, Reliable, and Affordable Power

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

PNMR measures reliability and benchmark performance of PNM and TNMP against other utilities using industry-standard metrics, including System Average Interruption Duration Index ("SAIDI") and System Average Interruption Frequency Index ("SAIFI"). PNM's and TNMP's investment plans include projects designed to support reliability and reduce the amount of time customers are without power.

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

In March 2020, the World Health Organization declared COVID-19 a global pandemic and President Trump declared the COVID-19 pandemic a national emergency in the U.S. The Company continues to closely monitor developments and has taken and continues to take steps to mitigate the potential risks related to the COVID-19 pandemic. The Company has assessed and updated its existing business continuity plans in response to the impacts of the pandemic through crisis team meetings and working with other utilities and operators. It has identified its critical workforce, staged backups and limited access to control rooms and critical assets. The Company has worked to protect the safety of its employees using a number of measures, including minimizing exposure to other employees and the public and mandatingsupporting work-from-home and flexible arrangements for all applicable job functions. The Company is also working with its suppliers to understandmanage the potential impacts to its supply chain and remains focused on the integrity of its information systems and other technology systems used to run its business. However, the Company cannot predict the extent or duration of the ongoing COVID-19 pandemic, its effects on the global, national or local economy, or on the Company's financial position, results of operations, and cash flows. The Company will continue to monitor developments related to COVID-19 and will remain focused on protecting the health and safety of its customers, employees, contractors, and other stakeholders, and on its objective to provide safe, reliable, affordable and environmentally responsible power. As discussed in Note 12, both PNM and TNMP have suspended disconnecting certain customers for past due bills, and waived late fees during the pandemic, and have been provided regulatory mechanisms to recover these and other costs resulting from COVID-19. See additional discussion below regarding the Company's customer, community, and stakeholder engagement in response to COVID-19 and in Item 1A. Risk Factors. On March 26, 2020, the PUCT issued an order establishing an electricity relief program for electric utilities, REPs, and customers impacted by COVID-19. The program allows providers to implement a rider to collect unpaid residential retail customer bills and to ensure these customers continue to have electric service. In a separate order, the PUCT authorized electric utilities to establish a regulatory asset for costs related to COVID-19 which includes but is not limited to costs related to unpaid accounts. On June 24, 2020, the NMPRC authorized the creation of a regulatory asset to defer incremental costs related to COVID-19, including increases to bad debt expense and the creation of a regulatory liability for all offsetting cost savings resulting from COVID-19. The NMPRC Order allows the Company to request recovery in future ratemaking proceedings and imposes additional reporting requirements related to COVID-19 on changes to customer usage, increased costs and savings recorded to regulatory assets and liabilities and impacts to delinquent accounts.

Utility Plant and Strategic Investments

Utility Plant Investments – During the 2017 to 2019 period,and 2020 periods, PNM and TNMP together invested $1.5$1.3 billion in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. During 2018 and 2019, PNM constructed an additional 50 MW of PNM-owned solar-PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. On May 1, 2019, PNM executed an agreement to purchase the Western Spirit Line, which has been approved by FERC and the NMPRC. Under the agreement, subject to certain conditions being met prior to closing, PNM will purchase the Western Spirit Line upon its expected commercial operation date in 2021 at a net cost of approximately $285 million, including customer reimbursements.

New Mexico’s clean energy future depends on a reliable, resilient, secure grid to deliver an evolving mix of energy resources to customers. PNM has launched the Wired for the Future capital program,initiative, which emphasizes new investments in its transmission and distribution infrastructure with three primary objectives: delivering clean energy, enhancing customer
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satisfaction and increasing grid resilience. Projects are aimed at advancing the infrastructure beyond its original architecture to a more flexible and redundant system accommodating growing amounts of intermittent and distributed generation resources and integrating evolving technologies that provide long-term customer value. See the subheading Capital Requirements included in the full discussion of Liquidity and Capital Resources below for additional discussion of the Company’s projected capital requirements.

Strategic Investments – In 2017, PNMR Development and AEP OnSite Partners created NMRD to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. Abundant renewable resources, large tracts of affordable land, and strong government and community support make New Mexico a favorable location for renewable generation. New Mexico ranks 3rdthird in the nationNation for energy potential from solar power according to the Nebraska Department of Energy & Energy Sun Index and ranks 3rdthird in the nationNation for land-based wind
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capacity according to the U.S. Office of Energy Efficiency and Renewable Energy. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. Through NMRD, PNMR anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the United States’ largest electric utilities. As of June 30, 2020,2021, NMRD’s renewable energy capacity in operation was 85.1135.1 MW, which includes 80130 MW of solar-PV facilities to supply energy to the Facebook data center located within PNM’s service territory, 1.9 MW to supply energy to Columbus Electric Cooperative located in southwest New Mexico, 2.0 MW to supply energy to the Central New Mexico Electric Cooperative, and 1.2 MW of solar-PV facilities to supply energy to the City of Rio Rancho, New Mexico. TheIn addition, PNM's February 8, 2021 application with the NMPRC has approved PNM’s requestfor approval to enter into an additional 25-year PPA to purchase renewable energy and RECs from an aggregate of approximately 50 MW of capacity from solar-PV facilities to be constructed by NMRD to supply power toservice the Facebook data center. These facilities began commercial operation on July 1, 2020.center includes construction of a 50 MW solar facility owned by NMRD, which is expected to be operational in 2023. 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 2017 IRP on July 3, 2017. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP included, among other things, that retiring PNM’s share of SJGS in 2022 and exiting ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. On June 11, 2020, PNM provided notice to the lessors and the NMPRC that PNM will return the leased assets for both PVNGS Unit 1 and 2 upon expiration of the leases in January 2023 and 2024. PNM issued an RFP for replacement power resources on June 25, 2020 and intends to file for abandonment and approval of replacement resources with the NMPRC in early 2021. See additional discussion regarding PNM’s leased capacity in PVNGS in Note 13 as well as PNM’s 2017 IRP and the SJGS Abandonment Application in Note 12.

In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. NMPRC rules requirerequired PNM to file its 2020 IRP in July 2020. In April 2020, the NMPRC approved PNM's request to extend the deadline to file its 2020 IRP until six months after the NMPRC issues a final order approving replacement resources in PNM'sPNM’s SJGS Abandonment Application. On January 29, 2021, PNM will continuefiled its 2020 IRP. The plan focuses on a carbon-free electricity portfolio by 2040 that would eliminate coal at the end of 2024. This includes replacing the power from San Juan with a mix of approved carbon-free resources and the plan to seek input from interested parties asexit Four Corners at the end of 2024. The plan highlights the need for additional investments in a partdiverse set of this process. PNM cannot predict the outcome of this matter.resources, including renewables to supply carbon-free power, energy storage to balance supply and demand, and efficiency and other demand-side resources to mitigate load growth.

Environmentally Responsible Power
PNMR has a long-standing record of environmental stewardship. PNM’s environmental focus is in three key areas:

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

PNMR’s corporate website (www.pnmresources.com) includes a dedicated section providing key environmental and other sustainability information related to PNM’s and TNMP’s operations demonstratingand other information that collectively demonstrates the Company’s commitment to ESG
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principles. This information highlights plans for PNM to be coal-free by 20312024 (subject to regulatory approval) and to haveachieve an emissions-free generating portfolio by 2040.

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

The Energy Transition Act (“ETA”)

On June 14, 2019, Senate Bill 489, known as the ETA, became effective. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities to qualified investors. See additional discussion of the ETA in Note 11 and in Note 16 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K and below in PNM’s SJGS Abandonment Application.10-K.

PNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022.2022 and the planned Four Corners exit in 2024. PNM cannot predict the full impact of the ETA on potential future generating resource abandonment and replacement filings with the NMPRC.

SJGS

SJGS Abandonment Application – As discussed in Note 12, on July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment
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Application”). The SJGS Abandonment Application sought NMPRC approval to retire PNM’s share of SJGS in mid-2022, and for approval of replacement resources and the issuance of approximately $361 million of energy transition bondsSecuritized Bonds as provided by the ETA. The application included several replacement resource scenarios including PNM’s recommended replacement scenario, which is consistent with PNM’s goal of having a 100% emissions-free generating portfolio by 2040 and would have provided cost savings to customers while preserving system reliability. The application included three other replacement resource scenarios that would have placed a greater amount of resources in the San Juan area, or resulted in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. When compared to PNM's recommended replacement resource scenario, the three alternative resource scenarios were expected to result in increased costs to customers and the two alternative resource scenarios that resulted in no new fossil-fueled generating facilities were expected to not provide adequate system reliability.

The NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related financing and the other addressing replacement resources but did not definitively indicate if the abandonment and financing proceedings would be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. After several requests for clarification and legal challenges, in January 2020, the NM Supreme Court ruled the NMPRC is required to apply the ETA to all aspects of PNM’s SJGS Abandonment Application, and that any previous NMPRC orders inconsistent with their ruling should be vacated. The NM Supreme Court issued a subsequent opinion, on July 23, 2020, more fully explaining the legal rationale for the January 2020 ruling. Hearings on the abandonment and securitized financing proceedings were held in December 2019 and hearings on replacement resources were held in January 2020.

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

On March 27, 2020, the Hearing Examiners issued a partial recommended decision related to PNM's requested replacement resources. The Hearing Examiners recommended the NMPRC approve PNM's requested PPA replacement resources related to 350 MW of solar-PV facilities and 60 MW of battery storage facilities. On April 1, 2020, the NMPRC
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unanimously approved the Hearing Examiners'hearing examiners' recommended decisions regarding the abandonment of SJGS and the Securitized Bonds. On April 29, 2020, the NMPRC issued an order declining to bifurcate a determination on replacement resources and deferring final consideration until the issuance of a comprehensive recommended decision addressing the entire portfolio of replacement resources.

On June 24, 2020, the Hearing Examinershearing examiners issued a second recommended decision on PNM's request for approval of replacement resources that addressed the entire portfolio of replacement resources. The Hearing Examiners recommended thatOn July 29, 2020, the NMPRC take one of two approaches to select replacement resources. The first approach emphasizedissued an order approving resource selection criteria identified in the ETA and wouldthat include PPA's for 650 MW of solar and 300 MW of battery storage. The second approach emphasized the NMPRC’s traditional resource selection criteria including price and reliability, which included a mix of solar PPAs combined with battery storage agreements and a 200 MW PNM-owned natural gas facility. On July 29, 2020 the NMPRC issued an order approving the Hearing Examiners' first recommended approach, concluding that this approach satisfies threshold reliability considerations for replacement resources. PNM has 60 days from the date of the order to file an application in a separate case seeking approval of the proposed final, executed contracts, for any replacement resources that are not currently in evidence that have been approved by the NMPRC.

Pursuant to the NMPRC's April 1, 2020 order approving the abandonment of SJGS and the related issuance of Securitized Bonds, PNMR recorded obligations totaling $38.1 million for estimated severances and other costs resulting from the planned retirement of SJGS in 2022, and for expected funding to state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. This obligation is reflected in other deferred credits and as a corresponding deferred regulatory asset on PNMR's Condensed Consolidated Balance Sheets as of June 30, 2020. These estimates may be adjusted in future periods as the Company refines its expectations. See additional discussion of PNM's SJGSthe ETA and PNM’s San Juan Abandonment Application in Notes 11 and 12.

Four Corners Abandonment Application - On January 8, 2021, PNM filed the related challengesFour Corners Abandonment Application, which seeks NMPRC approval to exit PNM’s 13% share of Four Corners as of December 31, 2024, and issuance of approximately $300 million of energy transition bonds as provided by the ETA. As ordered by the hearing examiner in the case, PNM filed an amended application and testimony on March 15, 2021. The amended application provided additional information to support PNM's request, provided background on the NMPRC's consideration of the prudence of PNM's investment in Four Corners in the NM 2016 Rate Case and explained how the proposed sale and abandonment provides a net public benefit. If approved, PNM would exit its 200 MW ownership interest in Four Corners seven years earlier than planned and accelerate its exit of coal to 2024. See additional discussion of the ETA and PNM’s Four Corners Abandonment Application in Notes 11 and 12.

PNM enhanced its plan to exit Four Corners and emphasized its ESG strategy to reduce carbon emissions on March 12, 2021 with an announcement for additional plans for seasonal operations at Four Corners beginning in the fall of 2023. The solution for seasonal operations ensures the plant will be available to serve each owners' customer needs during times of peak energy use while minimizing operations during periods of low demand. This approach results in an estimated annual 20 to 25 percent reduction in carbon emissions at the plant and retains jobs and royalty payments for the Navajo Nation.

The Community Solar Act

On June 18, 2021, Senate Bill 84, known as the Community Solar Act, became effective. The Community Solar Act establishes a program that allows for the development of community solar facilities and provides customers of a qualifying utility with the NM Supreme Courtoption of accessing solar energy produced by a community solar facility in accordance with the Community Solar Act. The NMPRC is charged with administering the Community Solar Act program, establishing a total maximum capacity of 200 MW community solar (applicable until November 2024) facilities and allocating proportionally to the New Mexico electric investor owned utilities and participating cooperatives. As required under the Community Solar Act, the NMPRC opened a docket on May 12, 2021, to adopt rules to establish a community solar program no later than April 1, 2022. See Note 12.

Other Environmental Matters In addition to the regional haze rule and the ETA, SJGS and Four Corners may be required to comply with otherenvironmental rules that affect coal-fired generating units. In March 2017, President Trump issued an Executive Order on Energy Independence.  The order sets out two general policies: promote cleanunits, including regional haze rules and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.the ETA.  On June 19, 2019, EPA released the final Affordable Clean Energy rule. EPA is taking three separate actions in the final rule: (1) repealingrepealed the Clean Power Plan; (2) promulgatingPlan, promulgated the Affordable Clean Energy rule;ACE Rule, and (3) revisingrevised the implementing regulations for all emission guidelines issued under Clean Air Actthe CAA Section 111(d) which, among other things, extends the deadline for state plans and the timing of EPA's approval process.. EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022However, on January 19, 2021, the DC Circuit issued an opinion vacating and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The rule is not expected to impact SJGS since EPA’s final approvalremanding
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the rule, with respectholding that it was based on a misconstruction of Section 111(d) of the Clean Air Act. In addition, on January 27, 2021, President Biden signed an executive order requiring a review of environmental regulations issued under the Trump Administration, which will include a review of the ACE rule. The Biden Administration has made clear that it will seek greater authority in regulating greenhouse gas emissions to 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 does not expect SJGS or Four Corners will be subject to the Carbon Pollution Standards rule that EPA has proposed to revise.address climate change.

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.

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

To demonstrate PNMR’s commitment to increase the electrification of vehicles in its service territory, PNM filed a Transportation Electrification Program (“TEP”) with the NMPRC on December 18, 2020. The TEP supports customer adoption of electric vehicles by focusing on addressing the barriers to electric vehicle adoption and encourage use. PNM’s proposed program budget will be dedicated to low and moderate income customers by providing rebates to both residential and non-residential customers towards the purchase of chargers and/or behind-the-meter infrastructure. See Note 12.

Renewable Energy

PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as solar, wind and geothermal energy purchased under PPAs. As of June 30, 2020,2021, PNM has 157158 MW of utility-owned solar capacity in operation. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 138.6180.2 MW at June 30, 2020.2021. PNM also owns the 500 KW PNM Prosperity Energy Storage Project. The project was one of the first combinations of battery storage and solar-PV energy in the nation and involved extensive research and development of advanced grid concepts. The facility also was the nation’s first solar storage facility fully integrated into a utility’s power grid. PNM also purchases the output from New Mexico Wind, a 204200 MW wind facility, and the output of Red Mesa Wind, an existing 102 MW wind energy center. PNM's 2020 renewable energy procurement plan was approved by the NMPRC in January 2020 and includes a PPA to procure 140 MW of renewable energy and RECs from La Joya Wind beginningII that began in June 2021.
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The NMPRC's approved portfolio to replace the planned retirement of SJGS will result in PNM executing solar PPAs of 650 MW combined with 300 MW of battery storage facilities. The majority of these renewable resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, including those set by the recently enacted ETA, without exceeding cost requirements.

As discussed in Strategic Investments above, PNM is currently purchasing the output of 130 MW of solar capacity from NMRD that is used to serve the Facebook data center which includes two 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook, Inc. The first 50 MW of these facilities began commercial operations in November 2019 and the second 50 MW facility began commercial operationoperations in July 2020. Additionally, PNM has entered into three separate 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable power to the Facebook data center. These PPAs include the purchase of power and RECs from a 50 MW wind project, which was placed in commercial operation in November 2018, a 166 MW wind project to bewhich became operational in December 2020,February 2021, and a 50 MW solar-PV project to be operational in December 2021.

On May 31, 2019,February 8, 2021, PNM filed an application with the NMPRC for approval to service the Facebook data center for an additional 190 MW of solar PPA combined with 100 MW of battery storage and a 50 MW solar PPA expected to be operational in 2023. See Note 12.

In March 2020, the NMPRC approved the PNM Solar Direct program under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program ("PNM Solar Direct").program. The costs of the program would be recovered directly from subscribing customers through a rate rider, including the costs to procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. These facilities are expected to be placed in commercial operation by March 31,in October 2021. In March 2020, the NMPRC approved PNM's application, including the rate rider and PPA.

PNM will continue to procure renewable resources while balancing the impact to customers’ electricity costs in order to meet New Mexico’s escalating RPS and carbon-free resource requirements.

Energy Efficiency

Energy efficiency plays a significant role in helping to keep customers’ electricity costs low while meeting their energy needs and is one of the Company’s approaches to supporting environmentally responsible power. PNM’s and TNMP’s energy efficiency and load management portfolios continue to achieve robust results. In 2019,2020, incremental energy saved as a result of
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new participation in PNM’s portfolio of energy efficiency programs is estimated to be approximately 65 GWh.exceeded 87 GWh, which was the maximum level of profit incentive allowed under the NMPRC approved program. This is equivalent to the annual consumption of approximately 9,50012,155 homes in PNM’s service territory. PNM’s load management and annual energy efficiency programs also help lower peak demand requirements. In 2019,2020, TNMP’s incremental energy saved as a result of new participation in TNMP’s energy efficiency programs is estimated to be approximately 1617 GWh. This is equivalent to the annual consumption of approximately 1,2852,011 homes in TNMP’s service territory. In April 2018, TNMP receivedTNMP’s High-Performance Homes residential new construction energy efficiency program was honored for the “Partner6th year in a row by ENERGY STAR. This recognition includes the program’s 4th straight Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program. As discussed above, in April 2020, PNM filed an application forSustained Excellence Award. For information on PNM's and TNMP's energy efficiency filing with the NMPRC and load management programs to be offered in 2021, 2022, and 2023. The proposed program also requests an AMI pilot program. PNM cannot predict the outcome of this matter.PUCT see Note 12.

Water Conservation and Solid Waste Reduction

PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 35% more efficient than in 2007). Continued growth in PNM’s fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction. Water usage has continued to decline as PNM has substituted less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018, as water consumption at that plant has been reduced by approximately 50%. As the Company moves forward with its mission to achieve 100% carbon-free generation by 2040, it expects that more significant water savings will be gained. PNM has set a goal to reduce freshwater use 80% by 2035 and 90% by 2040 from 2005 levels. Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy.

In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2019, 162020, 18 of the Company’s 23 facilities met the solid waste diversion goal of a 65% diversion rate. The Company expects to continue to do well in this area in the future.

Customer, Stakeholder, and Community Engagement

Another key element of the Company’s commitment to ESG principles is fostering relationships with its customers, stakeholders and communities. The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has demonstrated a commitment to building productive relationships with stakeholders, including customers, community partners, regulators, intervenors, legislators, and shareholders. PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including enhanced customer service engagement options, strategic customer outreach, and improved communications. These efforts are
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supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers. As a result, PNM has seen significant gains in customer satisfaction in recent years in both the JD Power Electric Utility Residential Customer Satisfaction StudySM and its own proprietary relationship surveys. In September 2020, J.D, Power also ranked PNM as one of the top performers in the industry for improved impression of the Company based on PNM's response to the COVID-19 pandemic.

The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM’s website www.pnm.com, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. The Company’s website is also a resource for information about PNM’s operations and community outreach efforts, including plans for building a sustainable energy future for New Mexico and to transition to an emissions-free generating portfolio by 2040. PNM has also leveraged social media in communications with customers on various topics such as education, outage alerts, safety, customer service, and PNM’s community partnerships in philanthropic projects. As discussed above, PNMR's corporate website, www.pnmresources.com, includes a dedicated section providing additional information regarding the Company’s commitment to ESG principles and other sustainability efforts.

With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. Last summer, TNMP provided a 33-person team for two weeks in support of another utility that experienced significant damage to their transmission and distribution system as a result of Hurricane Laura.

Local relationships and one-on-one communications remain two of the most valuable ways both PNM and TNMP connect with their stakeholders. Both companies maintain long-standing relationships with governmental representatives and key electricity consumers to ensure that these stakeholders are updated on Company investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs.

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

In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, the PNM Resources Foundation provides more than $1 million in grant funding each year across New Mexico and Texas. These grants help nonprofits innovate or sustain programs to grow and develop business, develop and implement environmental programs, and provide educational opportunities. Beginning in 2020, the PNM Resources Foundation is funding grants with a three-year focus on decreasing homelessness, increasing access to affordable housing, reducing carbon emissions, and community safety with an emphasis on COVID-19 programs in 2020. As part of this emphasis, $0.2 million has been awarded to nonprofits in New Mexico and Texas to assist with work being done on the front lines of the pandemic for community safety, with a focus on helping senior citizens and people currently experiencing homelessness during the shelter-in-place directives. Also in 2020, the PNM Resources Foundation expanded its matching donation program to offer 2-to-1 matching on donations made to social justice nonprofits and increasing the annual amount of matching donations available to each of its employees.

During the three years ending December 2019,31, 2020, corporate giving contributed approximately $6.2$7.7 million to civic, educational, environmental, low income, and economic development organizations. PNMR recognizes its responsibility to support programs and organizations that enrich the quality of life for the people inacross its service territories and communities and seeks opportunities to further demonstrate its commitment in these areas as needs arise.In 2020, PNM has partnered with key local organizations to initiate funding for programs focused on diversity, equity and inclusion. In response to COVID-19 community needs, PNMR donated to an Emergency Action Fund in partnership with key local agencies to benefit approximately ninety nonprofits and small businesses facing challenges due to lack of technology, shifting service needs, and cancelled fundraising events. Additionally, employee teams have supported first responders and other front-line workers through the delivery of food and other supplies often procured from local businesses struggling during stay-at-home orders. PNM also donated to the Pueblo Relief Fund and delivered personal protective supplies to pueblo areas and tribal nations throughout New Mexico. While its service territory does not include the Navajo Nation, PNM’s operations include generating facilities and employees in this region that has been disproportionately affected by the pandemic. In response, employee teams focused efforts to this region and also provided available supplies of personal protective equipment. PNM has also collaborated with the Navajo Tribal Utility Authority Wireless (NTUAW)("NTUAW") to set up wireless “hot spots” throughout the Navajo Nation in areas without internet access to assist first responders and support continued education opportunities amidst school closures. These actions supplement PNM’s continued support for the Navajo Nation. The PNM Navajo Nation Workforce Training Scholarship Program provides support for Navajo tribal members and encourages the pursuit of education and training in existing and emerging jobs in the communities in which they live. In 2019, PNM invested an additional $500,000 into this scholarship program to further assist in the development and education of the Navajo Nation workforce. PNM has invested in paid summer college engineering internship programs for American Indian students available in the greater Albuquerque area. PNM also continues to partner in the Light up Navajo project, piloted in 2019 and modeled after mutual aid to connect homes without electricity to the power grid.
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In 2020, PNM also partnered with key local organizations to initiate funding for programs focused on diversity, equity, and inclusion.

Another important outreach program is tailored for low-income customers and includes the PNM Good Neighbor Fund to provide customer assistance with their electric utility bills. COVID-19 has increased the needs of these customers along with customers who may not otherwise need to seek assistance. In addition to the suspension of customer disconnections and expansion of customer payment plans, PNM responded with increased communications through media outlets and customer outreach to connect customers with nonprofit community service providers offering financial assistance, food, clothing, medical programs, and services for seniors. As a result of these communication efforts, approximately 1,0003,487 families in need have received emergency assistance through the PNM Good Neighbor Fund during 2020.

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

Volunteerism is also an important facet of employee culture, keeping our communities safer, stronger, smarter and more vibrant. In 2019,2020, PNM and TNMP employees and retirees contributed over 13,3006,200 virtual and in-person volunteer hours serving local communities by supporting at least 250 organizations. Volunteers also participate in a company-wide annual Day of Service at nonprofits across New Mexico and Texas along with participation on a variety of nonprofit boards and independent volunteer activities throughout the year.

In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, the PNM Resources Foundation provides more than $1 million in grant funding each year across New Mexico and Texas. These grants help nonprofits innovate or sustain programs to grow and develop business, develop and implement environmental programs, and provide educational opportunities. Beginning in 2020, the PNM Resources Foundation is funding grants with a three-year focus on decreasing homelessness, increasing access to affordable housing, reducing carbon emissions, and community safety with an emphasis on COVID-19 programs. As part of this emphasis, $0.5 million has been awarded to nonprofits in New Mexico to assist with work being done on the front lines of the pandemic for community safety, with a focus on helping senior citizens and people currently experiencing homelessness during the shelter-in-place directives. In 2020, the PNM Resources Foundation expanded its matching donation program to offer 2-to-1 matching on employee donations made to social justice nonprofits and increased the annual amount of matching donations available to each of its employees. PNM Resources Foundation awarded $0.3 million of additional grants to non-profits supporting TNMP communities following the winter storm in February 2021.

Economic Factors

PNM In the three and six months ended June 30, 2020,2021, PNM experienced an increase of 1.9% and a decrease of 0.1% in weather-normalizedweather normalized retail load of 1.7% and 0.3% compared to 2019. PNM experienced decreased sales to commercial customers partially offset by an increase in the usage2020, reflecting signs of residential customers when compared to 2019 as a result ofrecovery from New Mexico state restrictions related to COVID-19 and did not experience significant impacts to its other customer classes.COVID-19.

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TNMP In the three and six months ended June 30, 2020,2021, TNMP experienced an increasea decrease in volumetric weather-normalizedweather normalized retail load of 2.9% and 1.5%0.2% compared to 2019. Weather-normalized2020. Weather normalized demand-based load, excluding retail transmission customers decreased 2.8%increased 4.3% and 2.1% in the three months ended June 30, 2020 and was flat for the six months ended June 30, 20202021 compared to 2019.2020. TNMP has experienced increased volumetric usage related to residential consumersdemand based load offset by decreases in its demand based commercial consumer classvolumetric weather normalized retail load as a result of impactsTexas recovers from state restriction related to COVID-19.

TheAlthough the Company has begun to experience signs of recovery from state restrictions related to COVID-19, it is unable to determine the duration or final impacts from COVID-19 as discussed in more detail in Item 1A.1A Risk Factors.Factors of the 2020 Annual Report on Form 10-K. The Company expects that some of thehas not experienced, nor does it expect significant negative impacts to customer usage at PNM and TNMP will be offset by reduced operations and maintenance expenses resulting from the Company's efforts to maintain social distancing and that these costs could be further reduced if the economic impacts of COVID-19 persist into the summer.COVID-19. However, if current economic conditions extend through the summer and beyond,worsen, the Company may be required to implement additional measures such as further reducing or delaying operating and maintenance expenses and planned capital expenditures.

Results of Operations

Net earnings (loss) attributable to PNMR were $42.2$71.3 million, or $0.53$0.83 per diluted share in the six months ended June 30, 20202021 compared to ($57.2)$42.2 million, or ($0.72)$0.53 per diluted share, in 2019.2020. Among other things, earnings in the six months ended June 30, 20202021, benefited from regulatory disallowance recorded in 2019 resulting from the NM Supreme Court's opinion in PNM's appeal of the NMPRC's decisions in the NM 2015 Rate Case, warmerhigher weather normalized retail load at PNM, higher demand based load at TNMP, colder weather at PNM higher earnings on PNM's renewable rate rider,and TNMP, higher transmission rates at PNM and TNMP, higher distribution rates at TNMP, lower plant maintenance costssurface mine reclamation expense and lower accretion expense at PNM, lower interest expense at PNM, improved performance on PNM's NDT investment securities and higher equity AFUDC at PNM and lower employee related and outside service expenses at PNM.TNMP. These increases were partially offset by higher operational and maintenance expense, including higher plant maintenance and administrative costs at PNM, higher employee related, outside service and vegetation management expense at PNM and TNMP, increased depreciation at PNM and TNMP and higher property taxes at TNMP due to increased plant in service, and higher interest charges at PNM and TNMP, and losses on PNM's PVNGS and coal mine reclamation investment securities.TNMP. Additional information on factors impacting results of operations for each segment is discussed below under Results of Operations.

Liquidity and Capital Resources

PNMR and PNM have revolving credit facilities with capacities of $300.0 million and $400.0 million that currently expire in October 2023. Both facilities provide for short-term borrowings and letters of credit and can be extended through October 2024, subject to approval by a majority of the lenders. In addition, PNM has a $40.0 million revolving credit facility with banks having a significant presence in New Mexico whichthat expires in December 2022, and TNMP has a $75.0 million revolving credit facility, which expires in September 2022. PNMR Development has a revolving credit facility with a capacity of $40.0 million, with the option to further increase the capacity up to $50.0 million upon 15-days advance notice, that expires in February 2021. The PNMR Development Revolving Credit Facility bears interest at a variable rate2022 and contains terms similartwo one-year extension options, subject to approval by a majority of the PNMR Revolving Credit Facility.lenders. Total availability for PNMR on a consolidated basis was $609.3$715.2 million at July 24, 2020.23, 2021. Total availability at PNMR, on a consolidated basis, does not reflect a reduction of $100.3 million that PNM has reserved to provide liquidity support for the PNM Floating Rate PCRBs. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries.
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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 $4.5$4.6 billion for 20202021 - 2024,2025, including amounts expended through June 30, 2020.2021. The construction expenditures include estimated amounts for an anticipated expansion of PNM’s transmission system, including the planned purchase of the Western Spirit Line, and expenditures for PNM’s Wired for the Future capital program.

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

To fund capital spending requirements to meet growth that balances earnings goals, credits metrics and liquidity needs, the Company has entered into a number of othernew financing arrangements in 2020, including the TNMP 2020 Bond Purchase Agreements, the PNM 2020 Term Loan and the PNM 2020 Note Purchase Agreement. For further discussion on these2021. A complete listing of current financing arrangements see Liquidityis contained in Note 9 and Capital Resources discussion below as well as Note 9.7 of the Notes to Consolidated Financial Statements in the 2020 Annual Reports on Form 10-K.

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

After considering the effects of these financings and the Company's short-term liquidity position as of July 24, 2020,23, 2021, the Company has consolidated maturities of long-term and short-term debt aggregating approximately $1,019.2$344.7 million through July 2021.2022. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2020-20242021-2025 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. The Company is in compliance with its debt covenants.
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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 June 30, Six Months Ended June 30,
 2020 2019 Change 2020 2019 Change
 (In millions, except per share amounts)
Net earnings (loss) attributable to PNMR$57.5   $(75.9)  $133.4   $42.2   $(57.2)  $99.4  
Average diluted common and common equivalent shares(1)
79.9   79.9   —   80.0   79.9   0.1  
Net earnings attributable to PNMR per diluted share$0.72   $(0.95)  $1.67   $0.53   $(0.72)  $1.25  

(1) Excludes anti-dilutive shares for the three and six months ending June 30, 2019.
 Three Months Ended June 30, Six Months Ended June 30,
 2021 2020 Change 2021 2020 Change
 (In millions, except per share amounts)
Net earnings attributable to PNMR$53.7  $57.5  $(3.8) $71.3  $42.2  $29.1 
Average diluted common and common equivalent shares86.1  79.9  6.2  86.1  80.0  6.1 
Net earnings attributable to PNMR per diluted share$0.62  $0.72  $(0.09) $0.83  $0.53  $0.30 

The components of the change in net earnings attributable to PNMR are:
Three Months EndedSix Months Ended
June 30, 2020June 30, 2020
(In millions)
PNM$132.4  $97.4  
TNMP0.9  3.9  
Corporate and Other—  (1.9) 
Net change$133.4  $99.4  

Three Months EndedSix Months Ended
June 30, 2021June 30, 2021
(In millions)
PNM$(4.1)$30.4 
TNMP(0.5)1.1 
Corporate and Other0.9 (2.5)
Net change$(3.8)$29.1 

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


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The following table summarizes the operating results for PNM:

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019Change20202019Change20212020Change20212020Change
(In millions)(In millions)
Electric operating revenuesElectric operating revenues$260.8  $238.2  $22.6  $508.9  $507.5  $1.4  Electric operating revenues$323.9 $260.8 $63.1 $595.2 $508.9 $86.3 
Cost of energyCost of energy67.9  58.9  9.0  142.4  158.2  (15.8) Cost of energy123.8 67.9 55.9 212.7 142.4 70.3 
Utility margin Utility margin192.9  179.4  13.5  366.5  349.3  17.2   Utility margin200.2 192.9 7.3 382.5 366.5 16.0 
Operating expensesOperating expenses101.6  255.5  (153.9) 200.1  362.0  (161.9) Operating expenses105.9 101.6 4.3 213.3 200.1 13.2 
Depreciation and amortizationDepreciation and amortization41.8  39.8  2.0  83.2  79.0  4.2  Depreciation and amortization42.5 41.8 0.7 84.4 83.2 1.2 
Operating income Operating income49.6  (116.0) 165.6  83.2  (91.7) 174.9   Operating income51.8 49.6 2.2 84.8 83.2 1.6 
Other income (deductions)Other income (deductions)24.1  7.7  16.4  (6.4) 25.7  (32.2) Other income (deductions)14.5 24.1 (9.6)19.4 (6.4)25.8 
Interest chargesInterest charges(19.2) (18.5) (0.7) (36.8) (36.9) 0.1  Interest charges(13.0)(19.2)6.2 (25.9)(36.8)10.9 
Segment earnings (loss) before income taxes54.5  (126.8) 181.3  40.0  (102.8) 142.8  
Income (taxes) benefit(4.9) 43.5  (48.4) (2.5) 41.5  (44.0) 
Segment earnings before income taxes Segment earnings before income taxes53.2 54.5 (1.3)78.2 40.0 38.2 
Income (taxes)Income (taxes)(7.8)(4.9)(2.9)(10.7)(2.5)(8.1)
Valencia non-controlling interestValencia non-controlling interest(3.9) (3.5) (0.4) (7.7) (6.3) (1.4) Valencia non-controlling interest(3.9)(3.9)— (7.4)(7.7)0.3 
Preferred stock dividend requirementsPreferred stock dividend requirements(0.1) (0.1) —  (0.3) (0.3) —  Preferred stock dividend requirements(0.1)(0.1)— (0.3)(0.3)— 
Segment earningsSegment earnings$45.5  $(86.9) $132.4  $29.5  $(67.9) $97.4  Segment earnings$41.4 $45.5 $(4.1)$59.9 $29.5 $30.4 

The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
PercentagePercentagePercentagePercentage
20202019Change20202019Change20212020Change20212020Change
(Gigawatt hours, except customers)(Gigawatt hours, except customers)
ResidentialResidential809.0  660.6  22.5 %1,577.3  1,456.2  8.3 %Residential754.0 809.0 (6.8)%1,582.2 1,577.3 0.3 %
CommercialCommercial813.5  933.7  (12.9) 1,652.2  1,761.9  (6.2) Commercial901.2 813.5 10.8 1,653.7 1,652.2 0.1 
IndustrialIndustrial337.3  266.2  26.7  671.6  516.3  30.1  Industrial396.0 337.3 17.4 776.0 671.6 15.5 
Public authorityPublic authority59.7  54.2  10.1  108.2  103.8  4.2  Public authority57.3 59.7 (4.0)104.7 108.2 (3.2)
Economy energy service (1)
Economy energy service (1)
94.7  163.9  (42.2) 261.2  320.8  (18.6) 
Economy energy service (1)
113.1 94.7 19.4 242.1 261.2 (7.3)
Other sales for resaleOther sales for resale654.9  484.4  35.2  1,260.1  1,359.1  (7.3) Other sales for resale1,619.5 654.9 147.3 2,365.8 1,260.1 87.7 
2,769.1  2,563.0  8.0 %5,530.6  5,518.1  0.2 %3,841.1 2,769.1 38.7 %6,724.5 5,530.6 21.6 %
Average retail customers (thousands)Average retail customers (thousands)534.4  529.6  0.9 %533.7  529.3  0.8 %Average retail customers (thousands)540.0 534.4 1.0 %539.4 533.7 1.1 %

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


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Operating ResultsThree Months Ended June 30, 20202021 compared to 20192020

The following table summarizes the significant changes to utility margin:
Three Months
Ended
June 30, 20202021
Change
Utility margin:(In millions)
Retail customer usage/load Weather normalized KWh sales decreased 1.7%, due to decreased sales toincreased 11.5% for commercial customers partially offset by increaseddecreased sales to residential customers of 6.6%
$(2.0)1.8 
Weather WarmerMilder weather in 2020;2021; cooling degree days were 76.6% higher8.0% lower in 20202021
8.4 (0.6)
Transmission Higher revenues under formula transmission rates, the addition of a new customer, and higher volumes
2.03.5 
Rate riders Includes renewable energy, fuel clause, and energy efficiency riders which are offset in operating expense
5.60.6 
Coal mine reclamation Lower expense on surface mine reclamation in 2021 and the 2020 remeasurement of PNM’s obligation for Four Corners and SJGS coal mine reclamation (Note 11)
1.9 
Other(0.5)0.1 
Net Change$13.57.3 

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
June 30, 20202021
Change
Operating expenses:(In millions)
LowerHigher plant maintenance and administrative costs at SJGS,gas fired plants and PVNGS, and gas-fired plants, partially offset by higherlower costs at SJGS and Four Corners$(8.3)1.4 
Regulatory disallowance resulting from the NM Supreme Court's May 2019 decision in PNM's appeal of the NM 2015 Rate Case (Note 12)(149.3)
HigherLower property taxes due to a favorable settlement of property values, partially offset by increases in utility plant in service0.6 (1.0)
Higher employee related, outside services, and outside servicevegetation management expenses1.12.5 
Reclassification of upfrontHigher energy efficiency and quarterly commitment fees,renewable rider expenses, partially offset in interest chargesutility margin0.61.3 
Other1.40.1 
Net Change$(153.9)4.3 

Depreciation and amortization:
Increased utility plant in service$1.8 
Lower accretion expense for PVNGS plant decommissioning ARO resulting from 2020 study(1.1)
Increased utility plant in service, including solar facilities under the renewable riderNet Change$1.5 0.7 
Other0.5 
Net Change$2.0 

Other income (deductions):
Decreased performance on investment securities in the NDT partially offset by increased performance in the coal mine reclamation trusts$(7.9)
Higher gains on investment securities in the NDT and coal mine reclamation trustsequity AFUDC$0.8 17.0 
Lower equity AFUDC(0.3)
Lower interest income and trust expenses related to investment securities in the NDT and coal mine reclamation trusts(0.3)
Higher trust expenses, partially offset by higher interest income related to investment securities in the NDT and coal mine reclamation trusts(1.8)
Higher charitable donations in 2021(0.4)
Other(0.3)
Net Change$16.4 (9.6)

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Three Months
Ended
June 30, 20202021
Change
Interest charges:(In millions)
Lower interest on term loans$1.2 
Higher debt AFUDC resulting from FERC audit in 20201.9 
Issuance of $200.0 million of SUNs in April 2020(0.6)
Lower interest on PCRBs remarketed in 20203.9 
Other(0.2)
Net Change$6.2 
Income (taxes) benefits:
Lower segment earnings before income taxes$0.3 
Changes in the anticipated effective tax rate, including amortization of excess deferred income taxes (Note 14)(4.0)
Other0.8 
Net Change$(2.9)

Operating ResultsSix Months Ended June 30, 2021compared to 2020

The following table summarizes the significant changes to utility margin:
Six Months
Ended
June 30, 2021
Change
Utility margin:(In millions)
Retail customer usage/load Weather normalized KWh sales increased 0.8% for commercial customers and increased 0.2% for residential customers
$1.7 
Weather Colder weather in the first quarter was partially offset by milder weather in the second quarter
0.9 
Leap Year Decrease in revenue due to additional day in 2020
(1.8)
Transmission Higher revenues under formula transmission rates, the addition of a new customer, and higher volumes
6.2 
Rate riders Includes renewable energy, fuel clause, and energy efficiency riders which are partially offset in operating expense
4.9 
Coal mine decommissioning - Lower expense on surface mine reclamation in 2021 and 2020 remeasurement of PNM's obligation for Four Corners and SJGS coal mine reclamation (Note 11)
3.7 
Other0.4 
Net Change$16.0 

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Six Months
Ended
June 30, 2021
Change
Operating expenses:(In millions)
Higher plant maintenance and administrative costs at SJGS, Four Corners, and gas-fired plants, partially offset by lower costs at PVNGS$4.1 
Lower property taxes due to a favorable settlement of property values, partially offset by increases in utility plant in service(0.6)
Lower interest on term loansHigher employee related, outside services, and vegetation management expenses$6.5 0.7 
Interest on deposit by PNMR Development for transmission interconnections in 2019, which isHigher energy efficiency and renewable rider expenses offset in Corporate and Otherutility margin1.02.5 
Issuance of $200.0 million of SUNs in April 2020
Other(1.1)0.7 
Net Change$13.2 
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Six Months
Ended
June 30, 2021
Lower debt AFUDC resulting from FERC audit (Note 12)(1.9)Change
Depreciation and amortization:(In millions)
Reclassification of upfront and quarterly commitment fees, offset
Increased utility plant in operating expensesservice0.6 $3.4 
Lower accretion expense for PVNGS plant decommissioning ARO resulting from 2020 study(2.2)
Net Change$(0.7)1.2 

Income (taxes) benefits:Other income (deductions):
Higher segment earnings before income taxesIncreased performance on investment securities in the NDT partially offset by decreased performance in the coal mine reclamation trusts$(45.9)25.9 
Changes in the anticipated effective tax rate, including amortization of excess deferred income taxes (Note 14)5.1 
Reversal of excess deferred income taxes resulting from regulatory disallowances in the NM 2015 Rate Case (Note 12)(7.5)
OtherHigher equity AFUDC(0.1)1.9 
Net Change$(48.4)

Operating ResultsSix Months Ended June 30, 2020compared to 2019

The following table summarizes the significant changes to utility margin:
Six Months
Ended
June 30, 2020
Change
Utility margin:(In millions)
Retail customer usage/load Weather normalized KWh sales decreased 0.3% due to decreased sales to commercial customers partially offset by increased sales to residential customers
$(1.4)
Weather Warmer weather in 2020; cooling degree days were 76.3% higher in 2020
6.2 
Leap Year Increase in revenue due an additional day in 2020
1.8 
Transmission Increase primarily due to higher revenues under formula transmission rates and the addition of new customers
2.8 
Rate riders Includes renewable energy, fuel clause and energy efficiency riders
9.2 
Other(1.4)
Net Change$17.2 


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The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Six Months
Ended
June 30, 2020
Change
Operating expenses:(In millions)
Lower plant maintenance and administrative costs at SJGS, PVNGS, and gas-fired plants, partially offset by higher costs at Four Corners$(9.4)
Regulatory disallowance resulting fromHigher trust expenses partially offset by higher interest income related to investment securities in the NM Supreme Court’s May 2019 decision in PNM’s appeal of the NM 2015 Rate Case (Note 12)NDT and coal mine reclamation trusts(150.6)(1.7)
Higher property taxes due to increasescharitable donations in utility plant in service20210.8 (0.4)
Lower employee related and outside service expenses(3.4)
Reclassification of upfront and quarterly commitment fees, offset in interest charges0.6 
Other0.1 
Net Change$(161.9)25.8 

Depreciation and amortization:Interest charges:
Increased utility plant in service, including solar facilities under the renewable riderLower interest on term loans$3.52.8 
OtherIssuance of $200.0 million of SUNs in April 20200.7 (2.3)
Higher debt AFUDC resulting from FERC audit in 20201.9 
Lower interest on PCRBs remarketed in 20208.2 
Other0.3 
Net Change$4.2 10.9 

Other income (deductions):
Lower gains on investment securities in the NDT and coal mine reclamation trusts$(29.8)
Lower equity AFUDC(1.1)
Lower interest income and trust expenses related to investment securities in the NDT and coal mine reclamation trusts(0.4)
Other(0.9)
Net Change$(32.2)

Interest charges:
Lower interest on term loans$0.9 
Interest on deposit by PNMR Development for potential transmission interconnections in 2019, which is offset in Corporate and Other1.9 
Issuance of $200.0 million of SUNs in April 2020(1.1)
Lower debt AFUDC resulting from FERC audit (Note 12)(1.9)
Reclassification of upfront and quarterly commitment fees, offset in operating expenses0.6 
Other(0.3)
Net Change$0.1 

Income (taxes) benefits:
Higher segment earnings before income taxes$(35.9)(9.8)
Changes in the anticipated effective tax rate, including amortization of excess deferred income taxes (Note 14)(0.6)0.5 
Reversal of excess deferred income taxes resulting from regulatory disallowances in the NM 2015 Rate Case (Note 12)Other(7.5)1.2 
Net Change$(44.0)(8.1)



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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.


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The following table summarizes the operating results for TNMP:
Three Months Ended June 30,Six Months Ended June 30,
20202019Change20202019Change
(In millions)
Electric operating revenues$96.9  $92.0  $4.9  $182.4  $172.3  $10.1  
Cost of energy26.0  24.9  1.1  50.2  47.2  3.0  
Utility margin70.9  67.1  3.8  132.2  125.1  7.1  
Operating expenses25.3  24.0  1.3  50.5  49.3  1.2  
Depreciation and amortization22.4  20.5  1.9  44.2  40.7  3.5  
Operating income23.2  22.6  0.6  37.5  35.2  2.3  
Other income (deductions)2.0  0.7  1.3  2.5  1.3  1.2  
Interest charges(7.4) (6.6) (0.8) (14.5) (15.4) 0.9  
Segment earnings before income taxes17.8  16.7  1.1  25.5  21.1  4.4  
Income (taxes)(1.6) (1.5) (0.1) (2.2) (1.8) (0.4) 
Segment earnings$16.2  $15.3  $0.9  $23.3  $19.4  $3.9  

Three Months Ended June 30,Six Months Ended June 30,
20212020Change20212020Change
(In millions)
Electric operating revenues$102.6 $96.9 $5.7 $196.1 $182.4 $13.7 
Cost of energy28.9 26.0 2.9 55.4 50.2 5.2 
Utility margin73.7 70.9 2.8 140.7 132.2 8.5 
Operating expenses26.5 25.3 1.2 54.3 50.5 3.8 
Depreciation and amortization22.5 22.4 0.1 44.7 44.2 0.5 
Operating income24.7 23.2 1.5 41.7 37.5 4.2 
Other income (deductions)1.0 2.0 (1.0)2.1 2.5 (0.4)
Interest charges(8.3)(7.4)(0.9)(16.8)(14.5)(2.3)
Segment earnings before income taxes17.5 17.8 (0.3)27.1 25.5 1.6 
Income (taxes)(1.8)(1.6)(0.2)(2.7)(2.2)(0.5)
Segment earnings$15.7 $16.2 $(0.5)$24.4 $23.3 $1.1 

The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
PercentagePercentagePercentagePercentage
20202019Change20202019Change20212020Change20212020Change
Volumetric load (1) (GWh)
Volumetric load (1) (GWh)
789.1  744.0  6.1 %1,395.7  1,370.5  1.8 %
Volumetric load (1) (GWh)
739.5 789.1 (6.3)%1,415.5 1,395.7 1.4 %
Demand-based load (2) (MW)
Demand-based load (2) (MW)
4,902.1  4,587.5  6.9 %9,786.0  9,309.5  5.1 %
Demand-based load (2) (MW)
5,309.7 4,902.1 8.3 %10,426.5 9,786.0 6.5 %
Average retail consumers (thousands) (3)
Average retail consumers (thousands) (3)
258.3  255.0  1.3 %257.7  254.4  1.3 %
Average retail consumers (thousands) (3)
263.2 258.3 1.9 %262.4 257.7 1.8 %

(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.


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Operating ResultsThree Months Ended June 30, 20202021 compared to 20192020

The following table summarizes the significant changes to utility margin:
Three Months
Ended
June 30, 20202021
Change
Utility margin:(In millions)
Transmission rate relief/load – Transmission cost of service rate increases in September 2019,October 2020 and March 20202021 partially offset by lower wholesale transmission demand-based sales
$2.63.4 
Distribution rate relief – Distribution cost of service rate established in September 2020
3.4 
Volumetric-based customerconsumer usage/load Weather normalized KWh sales increaseddecreased 2.9%,; the average number of retailvolumetric consumers increased 1.3%2.2%
0.5 (0.6)
Demand-based customerconsumer usage/loadLowerWeather normalized demand-based revenuesMW sales for large commercial and industrial customers; weather normalized billed demandconsumers excluding retail transmission customers decreased 2.8%consumers increased 4.3%
(0.7)0.6 
Weather WarmerMilder weather in 2020;2021; cooling degree days were 6.7% higher8.1% lower in 20202021
0.9 (0.7)
Rate Riders – Impacts of rate riders, including the CTC surcharge which ended in August 2020, energy efficiency rider, rate case expense rider, and transmission cost recovery factor, which are partially offset in operating expense and depreciation and amortization
0.5 (3.1)
Other
(0.2)
Net Change$3.82.8 
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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
June 30, 20202021
Change
Operating expenses:(In millions)
Higher employee related, outside services, and vegetation management expenses$1.6 
Higher employee related expenses$1.2 
Higher capitalization of administrative and general and other expenses due to higher construction expenditures(0.4)
Higher property taxes due to increased utility plant in service0.3 
Higher capitalization of administrative and general and other expenses due to higher construction expenditures(0.7)
Lower energy efficiency costs and amortization of rate expenses offset in utility margin(0.1)
Other0.20.1 
Net Change$1.3 1.2 

Depreciation and amortization:
Increased utility plant in service$1.62.5 
OtherDecreased amortization of CTC offset in utility margin0.3 (2.4)
Net Change$1.9 0.1 

Other income (deductions):
Lower equity AFUDC$(0.2)
Lower CIAC(0.7)
Higher equity AFUDCOther$(0.1)0.5 
Higher CIAC0.7 
Other0.1 
Net Change$1.3 (1.0)

Interest charges:
RepaymentIssuance of $35.0$185.0 million term loanfirst mortgage bonds in December 20192020$0.3 (0.8)
Issuance of $80.0 million first mortgage bonds in July 2019(0.7)
Issuance of $110.0 million first mortgage bonds in April 2020(0.6)
Other0.2 (0.1)
Net Change$(0.8)

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Three Months
Ended
June 30, 2020
Change
Income (taxes) benefits:(In millions)
Higher
Net Change$(0.9)
Income (taxes) benefits:
Lower segment earnings before income taxes$(0.2)0.1 
OtherAmortization of excess deferred federal income taxes (Note 14)0.1 (0.3)
Net Change$(0.1)(0.2)


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Operating ResultsSix Months Ended June 30, 20202021 compared to 20192020

The following table summarizes the significant changes to utility margin:
Six Months
Ended
June 30, 20202021
Change
Utility margin:(In millions)
Transmission rate relief/load Transmission cost of service rate increases in March 2019, September 2019,2020, October 2020, and March 2021 partially offset by lower wholesale transmission demand-based sales
$6.5 
Distribution rate relief Distribution cost of service rate established in September 2020
6.66.7 
Volumetric-based customerconsumer usage/load Weather normalized KWh sales increased 1.5%decreased 0.2% in addition to the leap-year impact; the average number of retailvolumetric consumers increased 1.3%2.1%
0.5 (0.3)
Demand-based customerconsumer usage/load - Demand-based revenues Weather normalized demand-based MW sales for large commercial and industrial customersconsumers excluding retail transmission customers is flatconsumers increased 2.1%
0.4 
Weather MilderColder weather in the first quarter was partially offset by warmermilder weather in the second quarter
(0.1)1.0 
Rate Riders and other – Impacts of rate riders, including the CTC surcharge which ended in August 2020, energy efficiency rider, rate case expense rider, and transmission cost recovery factor, which are partially offset in operating expense and depreciation and amortization
0.3 (5.8)
Other(0.2)
Net Change$7.18.5 

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
Six Months
Ended
June 30, 20202021
Change
Operating expenses:(In millions)
Higher employee related, outside services, and vegetation management expenses$3.6 
Higher employee related expensesproperty taxes due to increased utility plant in service$1.0 0.3 
Higher capitalization of administrative and general and other expenses due to higher construction expenditures(0.2)(1.3)
Higher property taxes due to increasedenergy efficiency costs and amortization of rate expenses offset in utility plant in servicemargin0.70.2 
Other0.40.3 
Net Change$1.2 3.8 

Depreciation and amortization:
Increased utility plant in service$3.35.0 
OtherDecreased amortization of CTC offset in utility margin0.2 (4.6)
Other0.1 
Net Change$3.50.5 

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Six Months
Ended
June 30, 2020
Change
Other income (deductions):(In millions)
Higher equity AFUDC$0.4 
Higher CIAC0.7 
Other0.1 
Net Change$1.2 

Other income (deductions):
Higher equity AFUDC$0.2 
Lower CIAC(0.5)
Other(0.1)
Net Change$(0.4)
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Six Months
Ended
June 30, 2021
Change
Interest charges:(In millions)
Repayment of $172.3 million 9.50% first mortgage bonds in April 2019$4.3 
Issuance of $225.0$185.0 million first mortgage bonds in March 2019(2.2)
Issuance of $80.0 million first mortgage bonds in July 2019(1.5)
Repayment of $35.0 million term loan in December 20190.6 
Issuance of $110.0 million first mortgage bonds in April 2020(0.6)$(2.3)
Other0.3 
Net Change$0.9 (2.3)

Income (taxes) benefits:
Higher segment earnings before income taxes$(0.9)(0.3)
Amortization of excess deferred federal income taxes (Note 14)0.5 
Amortization of excess federal deferred income taxes (Note 14)(0.2)
Net Change$(0.4)(0.5)

Corporate and Other

The table below summarizes the operating results for Corporate and Other:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019Change20202019Change20212020Change20212020Change
(In millions)(In millions)
Electric operating revenuesElectric operating revenues$—  $—  $—  $—  $—  $—  Electric operating revenues$— $— $— $— $— $— 
Cost of energyCost of energy—  —  —  —  —  —  Cost of energy— — — — — — 
Utility margin Utility margin—  —  —  —  —  —   Utility margin— — — — — — 
Operating expensesOperating expenses(4.3) (5.5) 1.2  (9.8) (11.3) 1.5  Operating expenses(3.5)(4.3)0.8 (2.3)(9.8)7.5 
Depreciation and amortizationDepreciation and amortization5.9  5.8  0.1  11.6  11.7  (0.1) Depreciation and amortization5.8 5.9 (0.1)11.5 11.6 (0.1)
Operating income (loss) Operating income (loss)(1.6) (0.2) (1.4) (1.8) (0.4) (1.4)  Operating income (loss)(2.3)(1.6)(0.7)(9.2)(1.8)(7.4)
Other income (deductions)Other income (deductions)(0.3) (0.1) (0.2) (0.9) (1.0) 0.1  Other income (deductions)0.4 (0.3)0.7 — (0.9)0.9 
Interest chargesInterest charges(4.5) (4.7) 0.2  (10.2) (9.2) (1.0) Interest charges(2.8)(4.5)1.7 (7.3)(10.2)2.9 
Segment earnings (loss) before income taxesSegment earnings (loss) before income taxes(6.4) (5.1) (1.3) (12.9) (10.5) (2.4) Segment earnings (loss) before income taxes(4.7)(6.4)1.7 (16.5)(12.9)(3.6)
Income (taxes) benefitIncome (taxes) benefit2.2  0.8  1.4  2.4  1.9  0.5  Income (taxes) benefit1.4 2.2 (0.8)3.5 2.4 1.1 
Segment earnings (loss)Segment earnings (loss)$(4.2) $(4.2) $—  $(10.5) $(8.6) $(1.9) Segment earnings (loss)$(3.3)$(4.2)$0.9 $(13.0)$(10.5)$(2.5)

Corporate and Other operating expenses shown above are net of amounts allocated to PNM and TNMP under shared services agreements. The changesamounts allocated include certain expenses shown as depreciation and amortization and other income (deductions) in the table above. The change in operating expense for the three months and six months ended June 30, 20202021 include an increase forof $0.5 million and $7.1 million of costs related to the reclassification of $0.4 million in upfront and quarterly commitment fees, previously recorded as interest charges, and an increase of $1.0 million in legal and consulting costsMerger that were not allocated to PNM or TNMP. Substantially all depreciation and amortization expense and other income (deductions) are offset in operating expenses as a result of allocation of these costs to other business segments.


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Operating ResultsThree Months Ended June 30, 20202021 compared to 20192020
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
Three Months
Ended
June 30, 20202021
Change
Other income (deductions):(In millions)
Higher equity method investment income from NMRD$0.2 
Higher equity method investment income from NMRDDecrease in donations and other contributions$0.4 
Increase in donations and other contributionsOther(0.5)0.1 
Other(0.1)
Net Change$(0.2)0.7 

Interest charges:
Lower interest on short-term borrowings$0.1 
Lower interest on term loansRepayment of PNMR 2018 SUNs$2.6 1.4 
Higher short-term borrowingsinterest on term loans(0.7)(1.0)
Reclassification of upfront and quarterly commitment fees, offset in operating expense0.4 
Net Change$Elimination1.7 
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Three Months
Ended
June 30, 2021
Change
Income (taxes) benefits:(In millions)
Impact of intercompany interestdifference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods$(0.2)
Lower segment loss before income taxes(1.0)(0.5)
Non-deductible merger related costs(0.2)
Other0.1 
Net Change$0.2 (0.8)

Operating ResultsSix Months Ended June 30, 2021 compared to 2020
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
Six Months
Ended
June 30, 2021
Change
Other income (deductions):(In millions)
Higher equity method investment income from NMRD$0.2 
Decrease in donations and other contributions0.6 
Other0.1 
Net Change$0.9 
Income (taxes) benefits:Interest charges:
Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periodsHigher interest on term loans$1.1 (1.5)
Higher segment loss before income taxes0.3 
Net ChangeLower interest on short-term borrowings$1.1 1.4 

Operating ResultsSix Months Ended June 30, 2020 compared to 2019
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
Six Months
Ended
June 30, 2020
Change
Other income (deductions):(In millions)
Higher equity method investment income from NMRD$0.4 
Increase in donations and other contributions(0.6)
Other0.3 
Net Change$0.1 

Repayment of PNMR 2018 SUN
Interest charges:3.3 
Lower interest on term loans$1.9 
Higher short-term borrowings(1.4)
Reclassification of upfront and quarterly commitment fees, offset in operating expenses0.4 
Elimination of intercompany interestNet Change(1.9)$2.9 
Net Change$(1.0)

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Six Months
Ended
June 30, 2020
Change
Income (taxes) benefits:(In millions)
Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods$1.0 
Higher segment loss before income taxes0.60.9 
Non-deductible merger related costs(0.7)
Other(0.1)
Net Change$0.51.1 


LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows

The changes in PNMR’s cash flows for the six months ended June 30, 20202021 compared to June 30, 20192020 are summarized as follows:
Six Months Ended June 30,Six Months Ended June 30,
20202019Change20212020Change
(In millions)(In millions)
Net cash flows from:
Net cash flows from (used in):Net cash flows from (used in):(In millions)
Operating activities Operating activities$165.8  $171.9  $(6.1)  Operating activities
Investing activities Investing activities(367.2) (312.1) (55.1)  Investing activities(338.4)(367.2)28.8 
Financing activities Financing activities200.4  142.4  58.0   Financing activities134.4 200.4 (66.0)
Net change in cash and cash equivalentsNet change in cash and cash equivalents$(1.0) $2.1  $(3.1) Net change in cash and cash equivalents$(29.5)$(1.0)$(28.5)


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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 fromused in investing activities relate primarily to changes in utility plant additions. Cash flows from investing activities include purchases and sales of investment securities in the NDT and coal mine reclamation trusts as well as activity related to NMRD.
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Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:

Six Months Ended June 30,Six Months Ended June 30,
20202019Change20212020Change
Cash (Outflows) for Utility Plant AdditionsCash (Outflows) for Utility Plant Additions(In millions)Cash (Outflows) for Utility Plant Additions(In millions)
PNM:PNM:PNM:
GenerationGeneration$(33.5) $(36.3) $2.8  Generation$(43.4)$(33.5)$(9.9)
Renewables—  (31.7) 31.7  
Transmission and distributionTransmission and distribution(136.2) (78.2) (58.0) Transmission and distribution(108.2)(136.2)28.0 
Nuclear fuelNuclear fuel(13.6) (11.7) (1.9) Nuclear fuel(9.8)(13.6)3.8 
(183.3) (157.9) (25.4) (161.4)(183.3)21.9 
TNMP:TNMP:TNMP:
TransmissionTransmission(81.3) (47.1) (34.2) Transmission(76.8)(81.3)4.5 
DistributionDistribution(66.7) (77.3) 10.6  Distribution(85.2)(66.7)(18.5)
(148.0) (124.4) (23.6) (162.0)(148.0)(14.0)
Corporate and Other:Corporate and Other:Corporate and Other:
Computer hardware and softwareComputer hardware and software(12.5) (10.8) (1.7) Computer hardware and software(11.6)(12.5)0.9 
Total cash (outflows) for additions to utility plantTotal cash (outflows) for additions to utility plant$(343.8) $(293.1) $(50.7) Total cash (outflows) for additions to utility plant$(335.0)$(343.8)$8.8 
Other Cash Flows from Investing ActivitiesOther Cash Flows from Investing ActivitiesOther Cash Flows from Investing Activities
Proceeds from sales of investment securitiesProceeds from sales of investment securities$354.6  $234.0  $120.6  Proceeds from sales of investment securities$363.3 $354.6 $8.7 
Purchases of investment securitiesPurchases of investment securities(359.8) (239.6) (120.2) Purchases of investment securities(367.3)(359.8)(7.5)
Investments in NMRDInvestments in NMRD(18.2) (13.3) (4.9) Investments in NMRD— (18.2)18.2 
Distributions from NMRDDistributions from NMRD0.6 — 0.6 
Other, netOther, net—  (0.1) 0.1  Other, net— — — 
Total cash (outflows) from investing activitiesTotal cash (outflows) from investing activities$(367.2) $(312.1) $(55.1) Total cash (outflows) from investing activities$(338.4)$(367.2)$28.8 

Cash FlowFlows from Financing Activities

The changes in PNMR’s cash flows from financing activities include:

Short-term borrowings increased $67.4$59.5 million in 20202021 compared to an increase of $106.5$67.4 million in 2019,2020, resulting in a net decrease in cash flows from financing activities of $39.1$7.9 million
In 2020, PNM2021, PNMR borrowed $250.0the remaining $220.0 million under the PNM2020 Delayed-Draw Term Loan and repaid $300.0 million SUNs
In 2021, PNMR borrowed $850.0 million under the PNMR 2021 Delayed-Draw Term Loan and repaid the $150.0 million PNMR 2019 Term Loan, the $300.0 million PNMR 2020 Delayed-Draw Term Loan, the $150.0 million PNMR 2020 Term Loan, $92.1 million in borrowings under the PNMR Revolving Credit Facility, $40.0 million in borrowings under the PNMR Development Revolving Credit Facility, and used the proceeds to prepay the PNM 2019 $250.0$65.0 million PNMR Development Term Loan
In 2020,2021, PNM issued $200.0entered into a $75.0 million of PNM 2020 SUNsterm loan and used $100.0 million of proceedsthe funds to repay $100.0 million of the PNM 20202019 $40.0 million Term Loan. The remaining $100.0 million of the PNM 2020 SUNs was used to repay borrowings on the PNM Revolving Credit FacilityLoan and for other corporate purposes
In 2020, TNMP issued $110.0 million of TNMP 2020 Bonds and used the proceeds to reduce short-term debt and for other corporate purposes.
In 2020, PNM purchased and held three series of PCRBs totaling $100.3 million that were subject to mandatory tender on June 1, 2020. PNM purchased these bonds utilizing borrowings under the PNM Revolving Credit Facility and held the bonds until July 1, 2020, on which date they were remarketed in weekly mode, whereby interest rates will reset weekly
In 2019, PNM borrowed $250.0 million under the PNM 2019 Term Loan and used the proceeds to repay the $200.0 million PNM 2017 Term Loan
In 2019, TNMP issued $225.0 million of TNMP 2019 Bonds and use the proceeds to repay the $172.3 million 9.50% First Mortgage Bonds

Financing Activities

See Note 7 of the Notes to Consolidated Financial Statements in the 20192020 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 informational financing filing and short-term financing plan with the NMPRC.
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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

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

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

On October 21, 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank, N.A. (the “JPM LOC Facility”) under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation bonds, which WSJ LLC is required to post in connection with permits relating to the operation of the San Juan mine. See Note 11. In May 2020, JPMorgan Chase Bank N.A. gave notice that it would not extend the letters of credit, which expire on October 21, 2020. The Company is currently pursuing a replacement agreement.

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

In April 2020, PNM entered into the $250.0 million PNM 2020 Term Loan and used the proceeds to prepay the PNM 2019 $250.0 million Term Loan, without penalty. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan.

On April 24, 2020,July 14, 2021, TNMP entered into the TNMP 20202021 Bond Purchase Agreement with institutional investors for the sale of $185.0$65.0 million aggregate principal amount of four series ofthe TNMP first mortgage bonds (the "TNMP 2020 Bonds")2021 Bonds offered in private placement transactions. On August 16, 2021, TNMP issued $110.0will issue all $65.0 million of the TNMP 20202021 Bonds on April 24, 2020at 2.44% with a maturity of August 15, 2035 and usedwill use the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. TNMP issued the remaining $75.0 million of TNMP 2020 Bonds on July 15, 2020 and used the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facilityexisting debt and for other corporate purposes. The issuance of the TNMP 20202021 Bonds areis subject to the satisfaction of customary conditions, including continuing compliance with the representations, warranties and covenants of the TNMP 20202021 Bond Purchase Agreement. The TNMP 2021 Bonds will be subject to continuing compliance with the representations, warranties and covenants to be set forth in the supplemental indenture governing the TNMP 2021 Bonds. The terms of the supplemental indenture governing the TNMP 2020 Bond Purchase Agreement2021 Bonds will include the customary covenants includingdiscussed above. In the event of a covenant that requires TNMP to maintain a debt-to-capitalization ratiochange of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision.control, TNMP will havebe required to offer to prepay the TNMP 2021 Bonds at par. However, the definition of change of control in the supplemental indenture governing the TNMP 2021 Bonds will not be triggered by the closing of the Merger thus TNMP will not be required to offer to prepay the TNMP 2021 Bonds at par following the close of the Merger. TNMP has the right to redeem any or all of the TNMP 20202021 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium.

On April 30, 2020,July 14, 2021, PNM issued $200.0entered into the PNM 2021 Note Purchase Agreement with institutional investors for the sale and issuance of $160.0 million aggregate principal amount of the PNM 20202021 SUNs offered in private placement transactions. The PNM used $100.0 million of proceeds from the2021 SUNs were issued on July 14, 2021. PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0issued $80.0 million of the PNM 20202021 SUNs wasat 2.59%, due July 15, 2033, and another $80.0 million at 3.14%, due July 15, 2041. Proceeds from the PNM 2021 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes.total amount of $160.0 million of PNM's 5.35% SUNs, at par, earlier than their scheduled maturity of October 1, 2021 without penalty. The PNM 20202021 Note Purchase Agreement includes the 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.discussed above. In the event of a change of control, PNM will be required to offer to prepay the PNM 20202021 SUNs at par. Although there are customary change of control provisions in the PNM debt agreements, the change of control provisions in these agreements, including the PNM 2021 Note Purchase Agreement, are not triggered by the close of the Merger. PNM has the right to redeem any or all of the PNM 20202021 SUNs prior to their maturities, subject to payment of a customary make-whole premium.

At December 31,On June 18, 2021, PNM entered into the PNM 2021 Term Loan between PNM and Bank of America, N.A., as lender for $75.0 million. The PNM 2021 Term Loan was used to repay the PNM 2019 PNM had $40.0 million of outstanding PCRBs,Term Loan and for other corporate purposes. The PNM 2021 Term Loan bears interest at a variable rate, which have a final maturity ofwas 0.91% at June 1, 204030, 2021 and two series of outstanding PCRBs of $39.3matures on December 18, 2022.

On May 18, 2021, PNMR entered into the PNMR 2021 Delayed-Draw Term Loan, among PNMR, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent. Initially PNMR drew $850.0 million to repay and $21.0terminate existing indebtedness including the $150.0 million which have a final maturity of June 1, 2043. These PCRBs, aggregating $100.3PNMR 2019 Term Loan, the $300.0 million were subject to mandatory tender on June 1, 2020. On June 1,PNMR 2020 PNM purchased these PCRBs utilizingDelayed-Draw Term Loan, the $150.0 million PNMR 2020 Term Loan, $92.1 million in borrowings under the PNMPNMR Revolving Credit Facility, the $65.0 million PNMR Development Term Loan, and converted$40.0 million in borrowings under the PCRBs toPNMR Development Revolving Credit Facility, which was then terminated. Draws on the weekly mode. PNM held these PCRBs (without legally canceling them) until July 1, 2020, when they were remarketed in the weekly mode and PNM used the remarketing proceeds to repay the revolver borrowings. PNM Floating Rate PCRBs in the weekly modePNMR 2021 Delayed-Draw Term Loan bear interest at rates that are reset weekly, giving investors the option to return the bonds for remarketing to new investors upon 7 days' notice. A corresponding portion of the borrowing capacity under the PNM Revolving Credit Facility will be reserved to support the investors' option to return the PNM Floating Rate PCRBs upon 7 days' notice.a variable rate, which was 0.93% at June 30, 2021, and mature on May 18, 2023.

The PNMR 2021 Delayed-Draw Term Loan provides that substantially concurrently with the consummation of the transactions set forth in the Merger Agreement, PNMR will assign to Avangrid all of its rights, duties, obligations and liabilities under the PNMR 2021 Delayed-Draw Term Loan and Avangrid will assume from PNMR, as its direct and primary obligation, the payment and performance of all of the duties, liabilities and obligations of PNMR under the PNMR 2021 Delayed-Draw Term Loan pursuant to an amendment and restatement of the PNMR 2021 Delayed-Draw Term Loan in the form of an amended and restated credit agreement attached to the PNMR 2021 Delayed-Draw Term Loan.
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At June 30, 2020 and
On March 9, 2018, PNMR issued $300.0 million aggregate principal amount of 3.25% SUNs (the “PNMR 2018 SUNs”), which were set to mature on March 9, 2021. On December 31, 2019, PNM had PCRBs outstanding of $36.0 million at 6.25% issued by the Maricopa County, Arizona Pollution Control Corporation as well as $255.0 at 5.90% and $11.5 million at 6.25% issued by the City of Farmington, New Mexico. On June 22, 2020, PNM provided noticePNMR entered into the $300.0 million PNMR 2020 Delayed-Draw Term Loan that would have matured in January 2022 and drew $80.0 million to refinance existing indebtedness and for other corporate purposes. On March 9, 2021, PNMR utilized the bondholders that itremaining $220.0 million of capacity under the PNMR 2020 Delayed-Draw Term Loan to repay an equivalent amount of the PNMR 2018 SUNs. The remaining $80.0 million repayment of the PNMR 2018 SUNs was callingfunded through borrowings under the PCRBs aggregating $302.5 million. On July 22, 2020, PNM purchased the PCRBs in lieu of redemption and remarketed them to new investors (the "PNM 2020 Fixed Rate PCRBs"). For information concerning the funding dates, mandatory tender dates, and interest rates on the PNM 2020 Fixed Rate PCRBs see Note 9.PNMR Revolving Credit Facility.

See discussionIn August 2020, PNMR entered into the WFB LOC Facility aggregating $30.3 million that was issued to facilitate the posting of reclamation bonds currently held by WSJ LLC (who assumed all the obligations of SJCC post-bankruptcy). The reclamation bonds were required to be posted in connection with permits relating to the operation of the NMPRC's April 1,San Juan mine. See Note 11.

On October 20, 2020, approvalthe execution of PNM’s requestthe Merger Agreement constituted a “Change of Control” under certain PNMR, TNMP, and PNMR Development debt agreements. Under each of the specified debt agreements, a “Change of Control” constitutes an “Event of Default,” pursuant to issue upwhich the lender parties thereto had the right to $361accelerate the indebtedness under the debt agreements. The definition of Change of Control under the PNM debt agreements and PNM note purchase agreements was not triggered by the execution of the Merger Agreement.

On October 26, 2020, PNMR, TNMP and PNMR Development entered into amendment agreements with the lender parties thereto to amend the definition of "Change of Control" such that the entry into the Merger Agreement would not constitute a Change of Control and to waive the Event of Default arising from entry into the Merger Agreement. The amended Change of Control definition under certain TNMP debt agreements will, however, be triggered again upon the closing of the merger transaction. Prior to the closing of the Merger, the Company intends to coordinate with the lenders and Avangrid to either amend the definition of Change of Control permitting Avangrid ownership of the Company; or to refinance or enter into new debt agreements that would include Avangrid as owners of the Company. The Change of Control provisions in the PNM debt agreements, PNM note purchase agreements, and TNMP 2021 Bond Purchase Agreement are not triggered by the close of the Merger.

The documents governing TNMP's aggregate $750.0 million of Securitizedoutstanding 2014 to 2020 First Mortgage Bonds ("TNMP FMBs") obligated TNMP to offer, within 30 business days following the signing of the Merger Agreement, to prepay all $750.0 million outstanding TNMP FMBs at 100% of the principal amount, plus accrued and unpaid interest thereon, but without any make-whole amount or other premium. TNMP made such offer to prepay the TNMP FMBs in accordance with the terms of the TNMP FMBs, and none of the holders of the TNMP FMBs accepted TNMP’s offer. The documents governing the 2014 to 2020 TNMP FMBs require TNMP to make another offer, within 30 business days of closing of the Merger, to prepay all $750.0 million outstanding TNMP FMBs at par. TNMP will make such offer to prepay all $750.0 million outstanding TNMP FMBs in accordance with the terms of the TNMP FMBs; however, holders of the TNMP FMBs are not required to tender their TNMP FMBs and may accept or reject such offer to prepay. As discussed above, the supplemental indenture that will govern the TNMP 2021 Bonds will exclude the Merger from the definition of Change of Control.

The TNMP 2021 Bonds are not registered under the Securities Act and may not be offered or sold in the SJGS Abandonment Application,United States absent registration or applicable exemption from registration requirements and the related appealapplicable state laws. The information in this Quarterly Report on Form 10-Q is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities in any jurisdiction pursuant to the NM Supreme Courtproposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in Note 12.any jurisdiction in contravention of applicable law. Similar to the offer to prepay made after signing the Merger Agreement, the post-Merger closing offer to prepay the TNMP FMBs will be made only pursuant to an offer to prepay, which will set forth the terms and conditions of the offer to prepay.

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. On March 23, 2021, the 1.926% fixed interest rate hedge agreement expired according to its terms and the remaining agreements expired on May 23, 2021. See Note 9.

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:

Investments in transmission and distribution infrastructure
Upgrading generation resources and delivering clean energy
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Purchasing nuclear fuel

Projected capital requirements, including amounts expended through June 30, 2020,2021, are:
20202021-2024Total 20212022-2025Total
(In millions) (In millions)
Construction expendituresConstruction expenditures$778.9  $3,139.2  $3,918.1  Construction expenditures$1,045.4 $2,939.8 $3,985.2 
Capital contributions to NMRD27.0  —  27.0  
Dividends on PNMR common stockDividends on PNMR common stock98.0  422.3  520.3  Dividends on PNMR common stock112.4 449.8 562.2 
Dividends on PNM preferred stockDividends on PNM preferred stock0.5  2.1  2.6  Dividends on PNM preferred stock0.5 2.1 2.6 
Total capital requirementsTotal capital requirements$904.4  $3,563.6  $4,468.0  Total capital requirements$1,158.3 $3,391.7 $4,550.0 

The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The construction expenditures above include $116.8 million in 2020-2021 for anticipated expansions of PNM’s transmission system and a net investment of approximately $285$301.2 million in 2021 resulting from PNM’s agreement to purchase the Western Spirit Line, subject to certain conditions being met prior to closing. Also included in the table above are approximately $450 million in expenditures for PNM’s Wired for the Future capital programinitiative that includes investments in transmission and distribution infrastructure to deliver clean energy, enhance customer satisfaction, and increase grid resilience. Not included in the table above are potential future contributions to NMRD and incremental expenditures for new customer growth in New Mexico and Texas, and other transmission and renewable energy expansion in New Mexico. The ability of PNMR to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to pay dividends to PNMR.PNMR and the Merger (See Note 17). Note 6 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K describes regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.

During the six months ended June 30, 2020,2021, PNMR met its capital requirements and construction expenditures through cash generated from operations, as well as its liquidity arrangements and the borrowings discussed in Financing Activities above.
In addition to the capital requirements for construction expenditures and dividends, the Company has long-term debt and term loans that must be paid or refinanced at maturity. The $90.0PNM has $146.0 million PNMR Development Term Loan maturesof PCRBs that must be repriced in November 2020, the $50.0October 2021 and an additional $104.5 million PNMR 2018 Two-Year Term Loan matures in December 2020, the $300.0 million PNMR 2018 SUNs mature in March 2021, the $150.0 million PNMR 2019 Term Loan matures June 2021, the PNM 2019 $40.0 million Term Loan maturesof PCRBs that must be repriced in June 2021, and the PNM 2020 Term Loan matures in June 2021.2022. See Note 7 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K contains9 for additional information about the maturities ofCompany’s long-term debt.debt and equity arrangements. The Company anticipates that funds to repay long-term debt maturities and term loans will come from enteringmay also enter into new arrangements similar to the existing agreements, borrowingborrow under the revolving credit facilities, issuance ofor issue new long-term debt or equity in the public or private capital markets, or a combination of these sources. The
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Company has from time to time refinanced or repurchased portions of its outstanding debt before scheduled maturity. PNM had $36.0 million of PCRBs that became callable at 101% of parDepending on January 1, 2020 and anmarket conditions, the Company may refinance other debt issuances or make additional $266.5 million of PCRBs that became callable at par on June 1, 2020. On July 22, 2020, PNM purchaseddebt repurchases in the bonds in lieu of redemption and remarketed them to new investors.future.

Liquidity

PNMR’s liquidity arrangements include the PNMR Revolving Credit Facility, the PNM Revolving Credit Facility, and the TNMP Revolving Credit Facility. The PNMR and PNM facilities currently expire in October 2023 but can be extended through October 2024, subject to approval by a majority of the lenders. The $75.0 million TNMP Revolving Credit Facility matures in September 2022.2022 and contains two one-year extension options, subject to approval by a majority of the lenders. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires in December 2022. PNMR Development has a $40.0 million revolving credit facility that expires on February 23, 2021. PNMR Development has the option to further increase the capacity of this facility to $50.0 million upon 15-days advanced notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. See Note 16. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry.  Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.

The revolving credit facilities and the PNM 2017 New Mexico Credit Facility provide short-term borrowing capacity. The revolving credit facilities also allow letters of credit to be issued. Letters of credit reduce the available capacity under the facilities. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. The Company’s business is seasonal with more revenues and cash flows from operations being generated in the summer months. In general, the Company relies on the credit facilities to be the initial funding source for 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.


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Information regarding the range of borrowings for each facility is as follows:
Three Months Ended June 30, 2020Six Months Ended June 30, 2020
Range of BorrowingsLowHighLowHigh
(In millions)
PNM:
PNM Revolving Credit Facility$15.0  $147.9  $15.0  $147.9  
PNM 2017 New Mexico Credit Facility20.0  40.0  10.0  40.0  
TNMP Revolving Credit Facility—  74.9  —  74.9  
PNMR Revolving Credit Facility130.0  168.1  110.5  188.6  

Three Months Ended June 30, 2021Six Months Ended June 30, 2021
Range of BorrowingsLowHighLowHigh
(In millions)
PNM:
PNM Revolving Credit Facility$— $37.2 $— $37.2 
PNM 2017 New Mexico Credit Facility— 10.0 — 10.0 
TNMP Revolving Credit Facility16.0 70.0 — 70.0 
PNMR Revolving Credit Facility42.4 134.5 10.2 134.5 
PNMR Development Revolving Credit Facility— 40.0 — 40.0 

At June 30, 2020,2021, the weighted average interest rates were 1.68%1.59% for the PNMR Revolving Credit Facility 1.43% for the PNM Revolving Credit Facility, 1.44% for the PNM 2017 New Mexico Credit Facility, and 0.91%0.84% for the TNMP Revolving Credit Facility. There were no borrowings outstanding under the PNMR DevelopmentPNM Revolving Credit Facility or the PNM 2017 New Mexico Revolving Credit Facility at June 30, 2020.2021.

The Company currently believes that its capital requirements for at least the next twelve months can be met through internal cash generation, existing, extended, or new credit arrangements, and access to public and private capital markets as discussed above and in Note 9. The Company anticipates that it willmay be necessary to obtain additional long-term financing to fund its capital requirements and to balance its capital structure during the 2020-20242021-2025 period. This could include new debt and/or equity issuances, including instruments such as mandatory convertible securities beginning in 2021.issuances. To cover the difference in the amounts and timing of internal cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements or other short-term loans. However, if difficult market conditions persist or worsen, the Company may not be able to access the capital markets or renew credit facilities when they expire or the cost of these facilities and debt issuances may increase. Should that occur, the Company would seek to improve cash flows by reducing capital expenditures and exploring other available alternatives.


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As of July 24, 2020,23, 2021, ratings on the Company’s securities were as follows:

PNMRPNMTNMP
S&P
Issuer ratingBBBBBBBBB+
Senior secured debt**A
Senior unsecured debtBBB-BBB*
Short-term issuer rating*A-2*
Preferred stock*BB+*
Moody’s
Issuer ratingBaa3Baa2A3
Senior secured debt**A1
Senior unsecured debtBaa3Baa2*
Short-term issuer rating*P-2*
* Not applicable

Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. On June 25, 2020, Moody's assigned PNM a short-term issuer rating of P-2. On June 22, 2020, S&P assigned PNM a short-term issuer rating of A-2. On June 29, 2018, Moody’s changed the ratings outlook for PNMR and PNM from positive to stable, maintained the stable outlook for TNMP, and affirmed the long-term credit ratings of each entity. In August 2019, Moody’s affirmed the credit rating and stable outlook for PNMR, PNM and TNMP. On April 6, 2020, S&P reduced the issuer credit ratings for PNMR, PNM, and TNMP by one notch, reduced the senior unsecured debt ratings for PNMR and PNM by one notch, affirmed TNMP's senior secured debt rating, and issued a stable outlook for each entity. In addition, S&P reduced PNM's preferred stock rating to BB+. Investors are cautioned that a security rating is not a recommendation to buy, sell, or hold securities, that each rating is subject to revision or withdrawal at any time by the rating organization, and that each rating should be evaluated independently of any other rating.

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A summary of liquidity arrangements as of July 24, 202023, 2021 is as follows:
PNMTNMP
PNMR
Separate
PNMR
Development
PNMR Consolidated
(In millions)
Financing capacity:
Revolving credit facility$400.0  $75.0  $300.0  $40.0  $815.0  
PNM 2017 New Mexico Credit Facility40.0  —  —  —  40.0  
Total financing capacity$440.0  $75.0  $300.0  $40.0  $855.0  
Amounts outstanding as of July 24, 2020:
Revolving credit facility$53.9  $—  $141.8  $3.0  $198.7  
PNM 2017 New Mexico Credit Facility40.0  —  —  —  40.0  
Letters of credit2.2  0.1  4.7  —  7.0  
Total short-term debt and letters of credit96.1  0.1  146.5  3.0  245.7  
Remaining availability as of July 24, 2020(1)
$343.9  $74.9  $153.5  $37.0  $609.3  
Invested cash as of July 24, 2020$—  $63.5  $0.9  $—  $64.4  

PNMTNMP
PNMR
Separate
PNMR Consolidated
(In millions)
Financing capacity:
Revolving credit facility$400.0 $75.0 $300.0 $775.0 
PNM 2017 New Mexico Credit Facility40.0 — — 40.0 
Total financing capacity$440.0 $75.0 $300.0 $815.0 
Amounts outstanding as of July 23, 2021:
Revolving credit facility$— $56.5 $37.7 $94.2 
PNM 2017 New Mexico Credit Facility— — — — 
Letters of credit2.2 — 3.4 5.6 
Total short-term debt and letters of credit2.2 56.5 41.1 99.8 
Remaining availability as of July 23, 2021(1)
$437.8 $18.5 $258.9 $715.2 
Invested cash as of July 23, 2021$21.7 $— $0.9 $22.6 

(1) Availability for the PNM Revolving Credit Facility does not reflect a reduction of $100.3 million that PNM has reserved to provide liquidity support for the PNM Floating Rate PCRBs.

In addition to the above, PNMR has $30.3 million of letters of credit issued under the JPMWFB LOC Facility. See Note 9. The above table excludes intercompany debt. As of July 24, 2020,23, 2021, neither PNM, TNMP, nor PNMR Development had any intercompany borrowings from PNMR.PNMR and PNMR had no intercompany borrowings from PNMR Development. The remaining availability under the revolving credit facilities at any point in time varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures.

PNMR has an automatic shelf registration that provides for the issuance of various types of debt and equity securities that expires in March 2021. PNM has a shelf registration statement for up to $650.0 million of senior unsecured notes that expires in May 2023.

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Off-Balance Sheet Arrangements

PNMR has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Commitments and Contractual Obligations

PNMR, PNM, and TNMP have contractual obligations for long-term debt, leases, construction expenditures, purchase obligations, and certain other long-term obligations. See MD&A – Commitments and Contractual Obligations in the 20192020 Annual Reports on Form 10-K.See Note 13 for further details regarding the PVNGS leases.

Contingent Provisions of Certain Obligations

As discussed in the 20192020 Annual Reports on Form 10-K,PNMR, PNM, and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. In the unlikely event that the contingent requirements were to be triggered, PNMR, PNM, or TNMP could be required to provide security, immediately pay outstanding obligations, or be prevented from drawing on unused capacity under certain credit agreements. The contingent provisions also include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations in the event of a downgrade in credit ratings. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions. As discussed above, in April 2020, S&P downgraded PNMR's and PNM's senior unsecured debt ratings which triggered pricing changes in the PNMR and PNM Revolving Credit Facilities. No other conditions have occurred that would result in any of the above contingent provisions being implemented.


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Capital Structure

The capitalization tables below include the current maturities of long-term debt, but do not include short-term debt and do not include lease obligations as debt.
June 30,
2020
December 31,
2019
PNMR
PNMR common equity34.5 %35.8 %
Preferred stock of subsidiary0.2  0.2  
Long-term debt65.3  64.0  
Total capitalization100.0 %100.0 %
PNM
PNM common equity43.8 %45.2 %
Preferred stock0.3  0.4  
Long-term debt55.9  54.4  
Total capitalization100.0 %100.0 %
TNMP
Common equity49.3 %52.9 %
Long-term debt50.7  47.1  
Total capitalization100.0 %100.0 %

June 30,
2021
December 31,
2020
PNMR
PNMR common equity37.7 %38.3 %
Preferred stock of subsidiary0.2 0.2 
Long-term debt62.1 61.5 
Total capitalization100.0 %100.0 %
PNM
PNM common equity51.7 %51.4 %
Preferred stock0.3 0.3 
Long-term debt48.0 48.3 
Total capitalization100.0 %100.0 %
TNMP
Common equity51.4 %49.2 %
Long-term debt48.6 50.8 
Total capitalization100.0 %100.0 %

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OTHER ISSUES FACING THE COMPANY
Climate Change Issues

Background

For the past several years, management has identified multiple risks and opportunities related to climate change, including potential environmental regulation, technological innovation, and availability of fuel and water for operations, as among the most significant risks facing the Company. Accordingly, these risks are overseen by the Board in order to facilitate more integrated risk and strategy oversight and planning. Board oversight includes understanding the various challenges and opportunities presented by these risks, including the financial consequences that might result from enacted and potential federal and/or state regulation of GHG; plans to mitigate these risks; and the impacts these risks may have on the Company’s strategy. In addition, the Board approves certain procurements of environmental equipment, grid modernization technologies, and replacement generation resources.

Management is also responsible for assessing significant risks, developing and executing appropriate responses, and reporting to the Board on the status of risk activities. For example, management periodically updates the Board on the implementation of corporate environmental policy, and the Company’s environmental management systems, including the promotion of energy efficiency programs, and the use of renewable resources.  The Board is also informed of the Company’s practices and procedures to assess the impacts of operations on the environment. The Board considers issues associated with climate change, the Company’s GHG exposures, and the financial consequences that might result from enacted and potential federal and/or state regulation of GHG. Management has published, with Board oversight, a Climate Change Report available at http://www.pnmresources.com/about-us/sustainability-portal.aspx, that details the Company’s efforts to transition to an emissions-free generating portfolio by 2040.

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

The Company cannot anticipate or predict the potential long-term effects of climate change or climate change related regulation on its results of operations, financial position, or cash flows.
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Greenhouse Gas Emissions Exposures

In 2019,2020, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 5.65.4 million metric tons of CO2, which comprises the vast majority of PNM’s GHG.

As of December 31, 2019,June 30, 2021, approximately 63%56% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the U.S., consisted of coal or gas-fired generation that produces GHG. This reflects the retirement of SJGS Units 2 and 3 that occurred in December 2017 and the restructuring of ownership in SJGS Unit 4. These events reduced PNM’s entitlement in SJGS from 783 MW to 562 MW and caused the Company’s output of GHG to decrease when compared to 2017. Many factors affect the amount of GHG emitted, including total electricity sales, plant performance, economic dispatch, and the availability of renewable resources. For example, between 2007 and 2018, production from PNM’s largest single renewable energy resource, New Mexico Wind, has varied from a high of 580 GWh in 2011 to a low of 405 GWh in 2015. Variations are primarily due to how much and how often the wind blows. In addition,Similarly, if PVNGS experienced prolonged outages or if PNM’s entitlement from PVNGS were reduced, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG.

PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. As described in Note 16 of the Notes to Consolidated Financial Statements in the 20192020 Annual Reports on Form 10-K, PNM received approval for the December 31, 2017 shutdown of SJGS Units 2 and 3 as
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part of its strategy to address the regional haze requirements of the CAA. The shutdown of SJGS Units 2 and 3 resulted in a reduction of GHG for the entire station of approximately 54% for 2018, reflecting a reduction of 32% of GHG from the Company’s owned interests in SJGS, below 2005 levels. PNM’s 2017 IRP indicates that retiring PNM’s shareIn 2020, PNM received authorization for a June 2022 abandonment of SJGS in 2022Units 1 and exiting4. In addition, PNM has filed a request with the NMPRC for approval to sell its ownership interest in Four Corners in 2031 would provide long-term cost savings to its customers.by the end of 2024. See additional discussion of PNM’s 2017 IRP and the SJGS and Four Corners 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.GHG as those two coal-fired stations represent approximately 84% of PNM's 2019 GHG emissions from generation.

PNM has also filed two other requests with the NMPRC for authorization to procure future additional renewable energy resources. In the PVNGS Leased Interest Abandonment Application PNM requested authorization to procure 450 MW of solar capacity and 290 MW of battery energy storage resources as replacement for the leased PVNGS capacity and to assure system reliability. PNM has also requested authorization to procure an additional 240 MW of solar capacity and 100 MW of battery energy storage to serve the Facebook data center located in PNM’s service territory. Approval of these renewable energy and battery resources should further reduce any exposure to GHG emissions risk Note 12.

As of June 30, 2020,2021, PNM owns or procures power under PPAs from 608957 MW of capacity from renewable generation resources, which includeresources. This is comprised of solar-PV, wind, and geothermal facilities including 50158 MW of PNM-owned solar and 130 MW of solar-PV capacity to serve retail customers and 50 MW of new solar-PV capacity towhich serve a data center located in PNM's service territory. Beginning July 1, 2020, an additional 50This renewable capacity will increase to 1,057 MW of solar-PV capacity, to serve the data center, has begun commercial operations. In addition, the NMPRC has granted PNM authority to procure an aggregate of 266 MW of additional renewable energy and RECs from solar-PV and wind facilities to serve a data center and other large customers located in PNM’s service territory. PNM’s 2020 renewable energy procurement plan, which was approved by the NMPRC in January 2020, also includes a PPA for an additional2021, with 140 MW of wind energynow commercially operational to serve retail customers beginning in 2021.and an anticipated 100 MW of solar-PV scheduled to come online by the end of the year. Finally, the entire portfolio of replacement resources approved by the NMPRC on July 29, 2020, in PNM’s SJGS Abandonment Application, includes replacement of SJGS capacity with procurement of 650 MW of solar PPAs combined with 300 MW of battery storage agreements. These resources will result in PNM owning, leasing, or procuring through PPAs, capacity from renewable resources and battery storage facilities totaling 2,0142,007 MW andplus the capacity from PVNGS resources totaling 402 MW for a total of 2,409 MW from emissions-free resources totaling 2,416 MW.by year-end 2022. These estimates are subject to change due to underlying variables, including changes in PNM's generation portfolio, supplier's ability to meet contractual in-service dates and complex relationships between several factors. See additional discussion of these resources in Notes 11 and 12.

PNM also has a customer distributed solar generation program that represented 138.6180.2 MW at June 30, 2020.2021. PNM’s distributed solar programs will reducegenerate an estimated 360.4 GWh of emission-free solar energy available this year to offset PNM’s annual production from fossil-fueled electricity generation by about 277.2 GWh.generation. PNM has offered its customers a comprehensive portfolio of energy efficiency and load management programs since 2007. PNM’s cumulative savings from these programs was approximately 4,5045,206 GWh of electricity through 2019.2020. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 8,7569,500 GWh of electricity savings, which will avoid at least 4.71.0 million metric tons of CO2 based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in PNM’s generation portfolio, demand for electricity, energy efficiency, and complex relationships between those variables. Moreover, the effects of COVID-19 are still undetermined and will likely impact the energy efficiency savings for 2020. However, PNM is unable to quantify these impacts at this time.

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

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

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

EPA Regulation

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

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

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

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

Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to staysources, and the Clean Power Plan during the litigation. The DC Circuit refused to stay the rule, but 29 states and state agencieschallenges successfully petitioned the US Supreme Court for a stay which was granted on February 9, 2016, thus halting implementation of the Clean Power 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 regarding either the Carbon Pollution Standards or the Clean Power Plan, President Trump took office and his administration asked the court to hold the caseboth cases in abeyance while the rule wasrules were re-evaluated, which the court 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.

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 directed 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, EPA signed a NOPR to repeal the Clean Power Plan on October 10, 2017. The notice proposed a legal interpretation concluding that the Clean Power Plan exceeded EPA’s statutory authority. On June 19, 2019, EPA released the final version of the Affordable Clean Energy rule. EPA takes three actions in the final rule: (1) repealingrepealed the Clean Power Plan; (2) promulgatingPlan, promulgated the Affordable Clean Energy rule;ACE Rule, and (3) revisingrevised the implementing regulations for all emission guidelines issued under CAA Section 111(d) which, among other things, extends the deadline for state plans and extends the timing of EPA's approval process.. EPA set the BSER for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that canto be applied inside the fence-line. Rather
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Rather than setting a specific numerical standard of performance, EPA’s rule directsdirected states to determine which of the candidate technologies to apply to each coal-fired unit and to establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).

While corresponding NSR reform regulations were proposed as part of the proposed Affordable Clean Energy rule,ACE 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,ACE Rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposedfinal rule clarifieson NSR Project Emissions Accounting became effective on December 24, 2020 clarifying that both emissions increases and decreases resulting from projectsa project are to be considered in determining whether the proposed project will result in an increase in air emissions.emissions, but the rule may be reconsidered by the Biden Administration.

On December 20, 2018,January 19, 2021, the DC Circuit issued an opinion in American Lung Association and American Public Health Association v. EPA, publishedet al. regarding challenges to the EPA’s ACE Rule regulating emissions of carbon dioxide from EGUs under section 111(d) of the Clean Air Act. The D.C. Circuit vacated the ACE Rule and remanded the record to EPA for further consideration consistent with the court’s opinion, finding that EPA misinterpreted the Clean Air Act when it determined that the language of section 111 unambiguously barred consideration of emissions reductions options that were not applied at the source. Four petitions for certiorari to the US Supreme Court were filed, followed by several supporting briefs, and EPA's response is due August 5, 2021 .

EPA filed a motion seeking a partial stay of the mandate as to the repeal of the Clean Power Plan, to ensure the court’s order will not render effective the now out-of-date Clean Power Plan. On February 22, 2021, the U.S. Court of Appeals for the D.C. Circuit granted EPA’s motion, indicating that it would withhold issuance of the mandate with respect to the repeal of the Clean Power Plan until EPA responds to the court’s remand in the Federal Register a proposed rule that would revisenew rulemaking action. The litigation over the Carbon Pollution Standards rule publishedremains held in October 2015 for new, reconstructed, or modified coal-fired EGUs. Theabeyance, but could be reactivated by the parties upon a determination by the court that the Biden Administration is unlikely to finalize the revisions proposed rule would revisein 2018 and that reconsideration of 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. Comments on the proposal were due on March 18, 2019 and a final rule is expected in 2020.
The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. The results of additional judicial review and the outcome of those proceedings cannot be predicted.concluded.

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

Federal Legislation

ProspectsPresident Biden has indicated that climate change is a top priority for enactment in Congresshis administration. A number of legislation imposing a new or enhanced regulatory programlegislative proposals to address climate change are highly unlikelyalready being considered in 2020.  Although the democratic leadership in theDemocratic-led U.S. House of Representatives, have begunbut the thin majority held by the Democrats in the Senate may make enactment of new laws to consider proposals for legislation aimed at addressingaddress climate change such legislation is unlikelydifficult. On April 22, 2021, at the Earth Day Summit, as part of the U.S.’s re-entry into the Paris Agreement, President Biden unveiled the goal to passcut U.S. emissions by 50% - 52% from 2005 levels by 2030, nearly double the republican controlled U.S. Senate or be signedGHG emissions reduction target set by the President.Obama Administration. The 2030 goal joins President Biden’s other climate goals which include a carbon pollution-free power sector by 2035 and a net-zero emissions economy by no later than 2050.

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 evolving nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances.  Although these prices may not reflect the costs that ultimately will be incurred, PNM is required to use these prices for purposes of its IRP.  In its 2017 IRP,2020 filing for Four Corners Abandonment, PNM analyzed resource portfolio plans for scenarios that assumed SJGSFour Corners will operate beyond the end of the current coal supply agreement that runs through June 30, 20222031 and for scenarios that assumed SJGSPNM will cease operations by exit Four Corners at
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the end of 2022 as discussed in Note 12.2024. The key findings of the 2017 IRPanalysis include that exiting SJGSFour Corners in 20222024 would provide long-term economic benefits to PNM’s customers and that PNM exiting its ownership interest in Four Corners in 2031 would also save customers money. The materials presented in the IRP process are available at customers. See Note 12.
www.pnm.com\irp.
Senate Bill 489, known as the Energy Transition Act (“ETA”)The ETA was signed into New Mexico state law and became effective on June 14, 2019. The ETA, among other things, requires that investor-owned utilities obtain specified percentages of their energy from renewable and carbon-free resources. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. Under the ETA provisions, PNM will also be required to meet a generation emission standard of no more than 400 lbs. of CO2 per MWh beginning in 2023 and not more than 200 lbs. per MWh beginning in 2032. PNM takes this requirement into account in its resource planning and it is expected that the standards will be met with the proposed resource retirements and replacements. The ETA provides for a
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transition from coal-fired generating resources to carbon-free resources by allowing investor-owned utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing“energy transition costs” (as defined by the ETA). These costs may include coal mine decommissioning, plant decommissioning, and other costs that have not yet been charged to customers or disallowed by the NMPRC or by a court order. Proceeds provided by energy transition bonds may also be used to pay for severances for employees of the retired coal-fired generating facility and related coal mine, as well as to pay for job training, education, and economic development. Energy transition bonds must be issued under ana NMPRC financing order and are paid by a non-bypassable charge paid by all customers of the issuing utility. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA requires the NMPRC to prioritize replacement resources in a manner intended to mitigate the economic impact to communities affected by these plant retirements. See additional discussion of the ETA in Note 11. PNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s plannedscheduled retirement of SJGS in 2022. The NMPRC had not definitively indicated its intent to apply the requirements of the ETA to PNM’s SJGS Abandonment Application and several parties to that case questioned whether the ETA violated the New Mexico State constitution. In December 2019, the Governor of the State of New Mexico, the President of the Navajo Nation and other parties filed a writ of mandamus requesting the NM Supreme Court require the NMPRC to apply the ETA to PNM’s application. On January 29, 2020, the NM Supreme Court ruled that the NMPRC is required to apply the ETA to all of PNM’s SJGS Abandonment Application and denied petitions for a stay. The NM Supreme Court issued a subsequent opinion, on July 23, 2020, more fully explaining the legal rationale for the January 29, 2020 ruling. ruling. In February 2020, the Hearing Examinershearing examiners assigned to the SJGS abandonment and financing proceedings issued recommended decisions recommending approval of PNM’s abandonment application and for the issuance of Securitized Bonds consistent with the requirements of the ETA. On April 1, 2020, the NMPRC approved the Hearing Examiners'hearing examiners' recommendation to approve PNM's application to retire its share of SJGS in 2022 and for the issuancesissuance of Securitized Bonds. See additional discussion of PNM’s SJGS Abandonment Application in Note 12. PNM has also requested approval of energy transition bonds for the Four Corners Abandonment costs of that transition away from coal-fired generation. PNM cannot predict the full impact of the ETA or the outcome of potential future generating resource abandonment filings with the NMPRC.

International Accords

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

On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The aim of the Paris Agreement is to limit global temperature rise to two degrees Celsius above pre-industrial levels. The agreement, which was agreed to by approximately 200 parties, requires that countries submit Intended Nationally Determined Contributions (“INDCs”).INDCs. INDCs reflect national targets and actions that arise out of national policies and elements relating to oversight, guidance and coordination of actions to reduce emissions by all countries. In November 2014, then President Obama announced the United States’ commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005 levels by the year 2025. The U.S. INDC was part of an overall effort by the former administration to have the U.S. achieve economy-wide reductions of around 80% by 2050.  The former administration’s GHG reduction target for the electric utility industry was a key element of its INDC and was based on EPA’s GHG regulations for new, existing, and modified and reconstructed sources at that time. Thresholds for the number of countries necessary to ratify or accede to the Paris Agreement and total global GHG percentage were achieved on October 5, 2016 and the Paris Agreement entered into force on November 4, 2016.  On June 1, 2017, President Trump announced that the U.S. would withdraw from the Paris Agreement. In his public statement, he indicated that the U.S. would “begin negotiations to reenter either the Paris Accord or a new transaction on terms that are fair to the U.S., its businesses, its workers, its people, its taxpayers.” On November 4, 2019, President Trump announced that the U.S. has officially notified the United Nations that the U.S. will withdraw from the Paris Agreement. The rules of the Paris Agreement impose a one-year waiting period after official notice of withdrawal. As a result of the President’s notice to the United Nations, the U.S. will officially be able to withdrawwithdrew from the Paris Agreement on November 4, 2020. A future administration would haveOn January 20, 2021, President Biden signed an opportunity instrument that will allow the United States
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to rejoin the Agreement. It is uncertain if the U.S. will ultimately choose to pursue a transition to a low-carbon economy using a pathway that alignsParis Agreement on Climate Change. The instrument was deposited with the ParisUnited Nations on January 21, 2021, and the United States officially became a party to the 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. on February 19, 2021.

PNM has calculated GHG reductions that would result from implementation of the 2017 IRP scenarios that assume PNM would retirePNM’s scheduled retirement of its share of the SJGS in 2022 and would exit from Four Corners in either 2024 or 2031 and PNM has set a goal to have a 100% emissions-free generating portfolio by 2040. While the Company has not conducted an independent 2 Degree Scenario analysis, our
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commitment to becoming 100% emissions-free by 2040 produces a carbon emissions reduction pathway that tracks within the ranges of climate scenario pathways that are consistent with limiting the global warming average to less than 2 degrees Celsius. In addition, as an investor-owned utility operating in the state of New Mexico, PNM is required to comply with the recently enacted ETA, which requires utilities’ generating portfolio be 100% carbon-free by 2045. The requirements of the ETA and the Company’s goal compare favorably to the 26% - 28% by 2025 U.S. INDC of 50% to 52% carbon emissions reduction by 2030 and the former administration’s effort to achieve an 80% reduction inBiden Administration's goal of net-zero carbon emissions economy-wide by 2050. As discussed in Note 12, onOn April 1, 2020, the NMPRC approved PNM'sPNM’s application to retire its share of SJGS in 2022. PNM will filefiled for abandonment of Four Corners at an appropriate time in the future.on January 8, 2021. See Note 12.

PNM will continue to monitor the United States’ re-entry into the Paris Agreement and other parties’ involvement in these types of international accords, but the potential impact that such accords may have on the Company cannot be determined at this time.

Assessment of Legislative/Regulatory Impacts

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

Transmission Issues

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

Financial Reform Legislation

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


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Other Matters

See Notes 11 and 12 herein and Notes 16 and 17 of the Notes to Consolidated Financial Statements in the 20192020 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
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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 June 30, 2020,2021, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s 20192020 Annual Reports on Forms 10-K. The policies disclosed included regulatory accounting, impairments, decommissioning and reclamation costs, pension and other postretirement benefits, accounting for contingencies, and income taxes.

MD&A FOR PNM

RESULTS OF OPERATIONS

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

MD&A FOR TNMP

RESULTS OF OPERATIONS

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

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

The expected timing and likelihood of completion of the pending Merger, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the pending Merger that could reduce anticipated benefits or cause the parties to abandon the transaction
The occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement
The risk that the parties may not be able to satisfy the conditions to the proposed Merger in a timely manner or at all
The risk that the proposed Merger could have an adverse effect on the ability of PNMR to retain and hire key personnel and maintain relationships with its customers and suppliers, and on its operating results and businesses generally
The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, the NM Supreme Court’s decisions in the appeal of that order, the NM 2016 Rate Case and related deferral of the issue of the prudence of PNM’s decision to continue participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments and other costs associated with that plant, and any actions resulting from the pending appeal of the NMPRC's approval of PNM'PNM's request to issue Securitized Bonds and the NMPRC's approval of replacement resources in PNM’s SJGS Abandonment Application (collectively, the “Regulatory Proceedings”) and the impact on service levels for PNM customers if the ultimate outcomes do not provide for the recovery of costs and operating and capital expenditures, as well as other impacts of federal or state regulatory and judicial actions
The ability of the Company to successfully forecast and manage its operating and capital expenditures, including aligning expenditures with the revenue levels resulting from the ultimate outcomes of the Regulatory Proceedings, or
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resulting from potential mid-term or long-term impacts related to COVID-19, and supporting forecasts utilized in FTY rate proceedings
Uncertainty relating to ourPNM's recent decision to return the currently leased generating capacity in PVNGS Units 1 and 2 at the expiration of their lease terms in 2023 and 2024, including future regulatory requestsoutcomes relating to the ratemaking treatment and replacement resources for the leased assets and the NRC’s actions related to transfer of ownership
Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, the resultsproposed exit of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s exit from Four Corners in 2031, including2024, regulatory recovery of undepreciated investments and other costs in the event the NMPRC orders generating facilities be retired, and the impacts of the ETA
Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings
The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, the impacts of COVID-19 on customer usage, and other changes in supply and demand
The Company’s ability to access the financial markets in order to provide financing to repay or refinance debt as it comes due, as well as for ongoing operations and construction expenditures, including disruptions in the capital or credit markets, actions by ratings agencies, and fluctuations in interest rates, including any negative impacts that could result from the ultimate outcomes of the Regulatory Proceedings, or from the economic impacts of COVID-19 or from the entry into the Merger Agreement
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The risks associated with completion of generation, transmission, distribution, and other projects, including uncertainty related to regulatory approvals and cost recovery, and the ability of counterparties to meet their obligations under certain arrangements (including approved PPAs related to replacement resources for facilities to be retired), and supply chain or other outside support services that may be disrupted by the impacts of COVID-19
The potential unavailability of cash from PNMR’s subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows
The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply issues, unplanned outages, extreme weather conditions, wildfires, terrorism, cybersecurity breaches, and other catastrophic events, including the impacts of COVID-19, as well as the costs the Company may incur to repair its facilities and/or the liabilities the Company may incur to third parties in connection with such issues
State and federal regulation or legislation relating to environmental matters and renewable energy requirements, the resultant costs of compliance, and other impacts on the operations and economic viability of PNM’s generating plants
State and federal regulatory, legislative, executive, and judicial decisions and actions on ratemaking, and taxes, including guidance related to the Tax Act, and other matters
Risks related to climate change, including potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG, including the impacts of the recently enacted ETA
Employee workforce factors, including cost control efforts and issues arising out of collective bargaining agreements and labor negotiations with union employees
Variability of prices and volatility and liquidity in the wholesale power and natural gas markets
Changes in price and availability of fuel and water supplies, including the ability of the mines supplying coal to PNM’s coal-fired generating units and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel
Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties
The impacts of decreases in the values of marketable securities maintained in trusts to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits, including potential increased volatility resulting from international developments and the impacts of COVID-19, as well as PNM's ability to recover future decommissioning and reclamation costs from customers
Uncertainty surrounding counterparty performance and credit risk, including the ability of counterparties to supply fuel and perform reclamation activities and impacts to financial support provided to facilitate the coal supply at SJGS
The effectiveness of risk management regarding commodity transactions and counterparty risk
The outcome of legal proceedings, including the extent of insurance coverage
Changes in applicable accounting principles or policies

Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, and TNMP’s 20192020 Annual Reports on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.

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


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SECURITIES ACT DISCLAIMER

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

WEBSITES
The PNMR website, www.pnmresources.com, is an important source of Company information. New or updated information for public access is routinely posted.  PNMR encourages analysts, investors, and other interested parties to register on the website to automatically receive Company information by e-mail. This information includes news releases, notices of webcasts, and filings with the SEC. Participants will not receive information that was not requested and can unsubscribe at any time.
Our corporate internet addresses are:
PNMR: www.pnmresources.com
PNM: www.pnm.com
TNMP: www.tnmp.com
 
PNMR’s corporate website (www.pnmresources.com) includes a dedicated section providing key environmental and other sustainability information related to PNM’s and TNMP’s operations demonstratingand other information that collectively demonstrates the Company’s commitment to ESG
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principles. This information highlights plans for PNM to be coal-free by 20312024 (subject to regulatory approval) and to have an emissions-free generating portfolio by 2040.

The contents of these websites are not a part of this Form 10-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:https://www.pnmresources.com/corporate-governance.aspxesg-commitment/governance.aspx and in print upon request from any shareholder are PNMR’s:
Corporate Governance Principles
Code of Ethics (Do the Right Thing Principles of Business Conduct)
Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee
Restated Articles of Incorporation and Bylaws
 
The Company will post amendments to or waivers from its code of ethics (to the extent applicable to the Company’s executive officers and directors) on its website.

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
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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 six months ended June 30, 20202021 and the year ended December 31, 2019,2020, the Company had no commodity derivative instruments designated as cash flow hedging instruments.
Commodity contracts that meet the definition of a derivative under GAAP, are recorded at fair value on the Condensed Consolidated Balance Sheets. The impact of commodity derivative mark-to-market energy transactions were not material to the Company's financial position, results of operations, or cash flows as of and for the six months ended June 30, 20202021 and 2019.2020.
PNM is exposed to changes in the market prices of electricity and natural gas for the positions in its wholesale portfolio not covered by the FPPAC. The Company manages risks associated with these market fluctuations by utilizing various commodity instruments that may qualify as derivatives, including futures, forwards, options, and swaps. PNM uses such instruments to hedge its exposure to changes in the market prices of electricity and natural gas. PNM also uses such instruments under an NMPRC approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC.

Unusually cold weather in February 2021 resulted in higher than expected natural gas and purchased power costs. PNM mitigated the impacts from the cold weather by securing gas supplies in advance, engaging in market purchases when lower prices were available, and adjusting plant operation of its gas units to minimize reliance on higher-priced gas supplies. PNM estimates the impact of the cold weather conditions in the first quarter of 2021 resulted in approximately $20 million of additional natural gas costs and approximately $8 million in additional purchased power costs. These fuel increases are being passed through to customers under the FPPAC over the remainder of 2021.

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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
June 30, 2020
Rating (1)
Credit Risk Exposure(2)
Number of Counter-parties >10%Net Exposure of Counter-parties >10%
(Dollars in thousands)
External ratings:
Investment grade$1,244  1$1,037  
Non-investment grade—  —  
Split ratings—  —  
Internal ratings:
Investment grade946  1681  
Non-investment grade—  —  
Total$2,190  $1,718  
Schedule of Credit Risk Exposure
June 30, 2021
Rating (1)
Credit Risk Exposure(2)
Number of Counter-parties >10%Net Exposure of Counter-parties >10%
(Dollars in thousands)
External ratings:
Investment grade$3,967 1$2,456 
Non-investment grade— — 
Split ratings— — 
Internal ratings:
Investment grade1,750 1556 
Non-investment grade— — 
Total$5,717 $3,012 

(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 June 30, 2020,2021, PNMR held $0.9 million of cash collateral to offset its credit exposure.

Net credit risk for the Company’s largest counterparty as of June 30, 20202021 was $1.0$2.5 million.

Other investments have no significant counterparty credit risk.

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Interest Rate Risk

The majority of the Company’s long-term debt is fixed-rate debt and does not expose earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of PNMR’s consolidated long-term debt instruments would increase by 2.5%8.7%, or $83.6$300.5 million if interest rates were to decline by 50 basis points from their levels at June 30, 2020.2021. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if all or a portion of debt instruments were acquired in the open market prior to their maturity. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 9, PNMR has entered into hedging arrangements to effectively establish fixed interest rates on $150.0$100.0 million of variable rate debt. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.


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At July 24, 2020,23, 2021, variable rate debt balances and weighted average interest rates were as follows:

Variable Rate DebtVariable Rate DebtWeighted Average Interest RateBalance OutstandingCapacityVariable Rate DebtWeighted Average Interest RateBalance OutstandingCapacity
(In thousands)(In thousands)
Short-term Debt:Short-term Debt:Short-term Debt:
PNMR Revolving Credit FacilityPNMR Revolving Credit Facility1.68 %$141,800  $300,000  PNMR Revolving Credit Facility1.60 %$37,700 $300,000 
PNM Revolving Credit FacilityPNM Revolving Credit Facility1.43  53,900  400,000  PNM Revolving Credit Facility— — 400,000 
PNM 2017 New Mexico Credit FacilityPNM 2017 New Mexico Credit Facility1.43  40,000  40,000  PNM 2017 New Mexico Credit Facility— — 40,000 
TNMP Revolving Credit FacilityTNMP Revolving Credit Facility—  —  75,000  TNMP Revolving Credit Facility0.85 56,500 75,000 
PNMR-D Revolving Credit Facility1.18  3,000  40,000  
$238,700  $855,000  $94,200 $815,000 
Long-term Debt:Long-term Debt:Long-term Debt:
PNMR 2018 Two-Year Term Loan0.96 %$50,000  
PNMR 2019 Term Loan1.13  150,000  
PNM 2019 $40.0 Million Term Loan0.83  40,000  
PNM 2020 Term Loan2.70  150,000  
PNMR Development Term Loan0.98  90,000  
PNMR 2021 Delayed-Draw Term LoanPNMR 2021 Delayed-Draw Term Loan0.94 %$850,000 
$480,000  
PNM 2021 Term LoanPNM 2021 Term Loan0.91 75,000 
$925,000 

The investments held by PNM in trusts for decommissioning and reclamation had an estimated fair value of $389.5$453.0 million at June 30, 2020,2021, of which 65.1%58.9% 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 June 30, 2020,2021, the decrease in the fair value of the fixed-rate securities would be 2.5%2.2%, or $6.3$5.9 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. The NMPRC ruled in the NM 2015 Rate Case that PNM would not be able to include future contributions made by PNM for decommissioning of PVNGS to the extent applicable to certain capacity purchased and leased by PNM in rates charged to retail customers. The NM Supreme Court ruled that the NMPRC’s decision to disallow recovery of such future contributions for decommissioning denied PNM due process and remanded the matter back to the NMPRC for further proceedings. See Note 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 June 30, 2020.2021. These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 32.0%38.8% of the securities held by the trusts as of June 30, 2020.2021. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $12.4$17.6 million.
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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 June 30, 20202021 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.


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PART 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

Navajo Nation Environmental Issues
Cooling Water Intake Structures
Santa Fe Generating Station
Continuous Highwall Mining Royalty Rate
PVNGS Water Supply Litigation
San Juan River Adjudication
Rights-of-Way Matter
Navajo Nations Allottee Matters
Note 12

PNM - New Mexico General Rate Cases
PNM - Renewable Energy RiderPortfolio Standard
PNM – Energy Efficiency and Load Management
PNM – Integrated Resource Plans
PNM – 2020 Decoupling
PNM – SJGS Abandonment Application
PNM – Four Corners Abandonment Application
PNM – PVNGS Leased Interest Abandonment Application
PNM – COVID-19 Regulatory Matters
PNM – Integrated Resource Plans
PNM – 2020 Decoupling Petition
TNMP – Periodic Distribution Rate Adjustment

ITEM 1A. RISK FACTORS

While we attempt to identify, manage and mitigate risks and uncertainties associatedAs of the date of this report, there have been no material changes with our businessregard to the extent practical, under the circumstances, some level of risk and uncertainty will always be present. Part I, Item 1A. Risk Factors of ourdisclosed in PNMR's, PNM's, and TNMP's Annual ReportReports on Form 10-K for the year ended December 31, 2019, includes a detailed discussion of our risk factors. Those risks and uncertainties have the potential to materially affect our financial condition and results of operations. In addition to the risk factors disclosed in Part I, Item 1A, of our 2019 Annual Report on Form 10-K and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, the following is an additional risk factor that has evolved and become material to our business.2020.

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

The scale and scope of the recent COVID-19 outbreak, the resulting global pandemic, and the impact on the economy and financial markets could adversely affect the Company’s business, results of operations, financial condition, cash flows, and access to the capital markets. The Company provides critical electricity and electric service and has implemented business continuity and emergency response plans to continue to provide these services to its customers and to support the Company’s operations. The Company is also working to ensure the health and safety of its employees is not compromised. These measures include precautions with regard to employee and facility hygiene, travel limitations, directing our employees to work remotely whenever possible, and protocols for required work within customer premises to protect our employees, customers and the public. We are also working with our suppliers to understand the potential impacts to our supply chain and have taken steps to ensure the integrity of our information systems.

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

reducing usage and/or demand for electricity by our customers in New Mexico and Texas;
reducing the availability and productivity of our employees;
increasing costs as a result of our emergency measures, including costs to ensure the security of our information systems and delayed payments from our customers and uncollectable accounts;
causing delays and disruptions in the availability of and timely delivery of materials and components used in our operations;
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causing delays and disruptions in the supply chain resulting in disruptions in the commercial operation dates of certain projects;
causing a deterioration in the credit quality of our counterparties, including power purchase agreement providers, contractors or retail customers, that could result in credit losses;
causing impairments of goodwill or long-lived assets and adversely impacting the Company’s ability to develop, construct and operate facilities;
impacting the Company’s ability to meet the requirements of the covenants in our existing credit facilities, including covenants regarding debt to capitalization;
causing a deterioration in our financial metrics or the business environment that impacts our credit ratings;
decreasing the value of our investment securities held in trusts for pension and other postretirement benefits, and for nuclear and coal mine decommissioning, which could lead to increased funding requirements;
impacting our liquidity position and cost of and ability to access funds from financial institutions and capital markets;
causing other risks to impact us, such as the risks described in the “Risk Factors” section of the Company’s Annual Reports on Form 10-K filed on March 2, 2020; and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and
causing other unpredictable events

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

ITEM 5. OTHER INFORMATION

None
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ITEM 6. EXHIBITS
3.1PNMR
3.2PNM
3.3TNMP
3.4PNMR
3.5PNM
3.6TNMP
4.110.1TNMPPNMR
10.1PNM
10.2PNM
10.3TNMP
31.1PNMR
31.2PNMR
31.3PNM
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31.4PNM
31.5TNMP
31.6TNMP
32.1PNMR
32.2PNM
32.3TNMP
101.INSPNMR, PNM, and TNMPXBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document
101.SCHPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Schema Document
101.CALPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Label Linkbase Document
101.PREPNMR, PNM, and TNMPInline XBRL Taxonomy Extension Presentation Linkbase Document
104PNMR, PNM, and TNMPCover Page Inline XBRL File (included in Exhibits 101)

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

PNM RESOURCES, INC.
PUBLIC SERVICE COMPANY OF NEW MEXICO
TEXAS-NEW MEXICO POWER COMPANY
(Registrants)
Date:July 31, 202030, 2021/s/ Henry E. Monroy
Henry E. Monroy
Vice President and Corporate Controller
(Officer duly authorized to sign this report)

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