false--12-31--12-31--12-31Q32019false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pnm:PublicServiceCompanyOfNewMexicoMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-01-01 2019-09-30 0001108426 2019-10-25 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-10-25 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-10-25 0001108426 us-gaap:AlternativeEnergyMember 2018-01-01 2018-09-30 0001108426 2018-01-01 2018-09-30 0001108426 2018-07-01 2018-09-30 0001108426 2019-07-01 2019-09-30 0001108426 us-gaap:ElectricityMember 2019-01-01 2019-09-30 0001108426 us-gaap:AlternativeEnergyMember 2019-07-01 2019-09-30 0001108426 us-gaap:AlternativeEnergyMember 2018-07-01 2018-09-30 0001108426 us-gaap:AlternativeEnergyMember 2019-01-01 2019-09-30 0001108426 us-gaap:ElectricityGenerationMember 2018-01-01 2018-09-30 0001108426 us-gaap:ElectricityMember 2019-07-01 2019-09-30 0001108426 us-gaap:ElectricityGenerationMember 2019-07-01 2019-09-30 0001108426 pnm:OtherElectricMember 2019-01-01 2019-09-30 0001108426 us-gaap:ElectricityGenerationMember 2019-01-01 2019-09-30 0001108426 us-gaap:ElectricityMember 2018-01-01 2018-09-30 0001108426 us-gaap:ElectricityMember 2018-07-01 2018-09-30 0001108426 us-gaap:ElectricityGenerationMember 2018-07-01 2018-09-30 0001108426 pnm:OtherElectricMember 2018-07-01 2018-09-30 0001108426 pnm:OtherElectricMember 2018-01-01 2018-09-30 0001108426 pnm:OtherElectricMember 2019-07-01 2019-09-30 0001108426 2018-12-31 0001108426 2019-09-30 0001108426 2018-09-30 0001108426 2017-12-31 0001108426 us-gaap:NoncontrollingInterestMember 2019-06-30 0001108426 2019-06-30 0001108426 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0001108426 us-gaap:CommonStockMember 2019-09-30 0001108426 us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0001108426 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001108426 us-gaap:ParentMember 2019-07-01 2019-09-30 0001108426 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0001108426 us-gaap:CommonStockMember 2019-06-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001108426 us-gaap:RetainedEarningsMember 2019-09-30 0001108426 us-gaap:CommonStockMember 2018-12-31 0001108426 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0001108426 us-gaap:ParentMember 2018-12-31 0001108426 us-gaap:ParentMember 2019-01-01 2019-09-30 0001108426 us-gaap:ParentMember 2019-09-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001108426 us-gaap:ParentMember 2019-06-30 0001108426 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-09-30 0001108426 us-gaap:RetainedEarningsMember 2018-12-31 0001108426 us-gaap:NoncontrollingInterestMember 2018-12-31 0001108426 us-gaap:RetainedEarningsMember 2019-06-30 0001108426 us-gaap:NoncontrollingInterestMember 2019-09-30 0001108426 us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0001108426 us-gaap:ParentMember 2018-07-01 2018-09-30 0001108426 us-gaap:RetainedEarningsMember 2018-06-30 0001108426 us-gaap:ParentMember 2018-01-01 2018-09-30 0001108426 us-gaap:RetainedEarningsMember 2018-01-01 0001108426 us-gaap:ParentMember 2017-12-31 0001108426 us-gaap:NoncontrollingInterestMember 2018-07-01 2018-09-30 0001108426 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-09-30 0001108426 us-gaap:CommonStockMember 2018-06-30 0001108426 us-gaap:RetainedEarningsMember 2017-12-31 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 0001108426 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001108426 us-gaap:NoncontrollingInterestMember 2017-12-31 0001108426 us-gaap:CommonStockMember 2018-09-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0001108426 us-gaap:ParentMember 2018-09-30 0001108426 us-gaap:CommonStockMember 2017-12-31 0001108426 us-gaap:CommonStockMember 2018-01-01 2018-09-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001108426 us-gaap:CommonStockMember 2018-01-01 0001108426 us-gaap:NoncontrollingInterestMember 2018-06-30 0001108426 us-gaap:CommonStockMember 2018-07-01 2018-09-30 0001108426 2018-06-30 0001108426 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001108426 us-gaap:RetainedEarningsMember 2018-09-30 0001108426 us-gaap:ParentMember 2018-06-30 0001108426 us-gaap:NoncontrollingInterestMember 2018-01-01 0001108426 2018-01-01 0001108426 us-gaap:NoncontrollingInterestMember 2018-09-30 0001108426 us-gaap:ParentMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityGenerationMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityGenerationMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:OtherElectricMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityGenerationMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityGenerationMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AlternativeEnergyMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:OtherElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AlternativeEnergyMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:OtherElectricMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ElectricityMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AlternativeEnergyMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AlternativeEnergyMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:OtherElectricMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2018-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommonStockMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommonStockMember 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommonStockMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2018-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2018-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommonStockMember 2018-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommonStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2019-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2019-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommonStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2019-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommonStockMember 2019-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:NoncontrollingInterestMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:ParentMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:ElectricityMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AlternativeEnergyMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AlternativeEnergyMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:ElectricityMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:ElectricityMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:ElectricityMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AlternativeEnergyMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AlternativeEnergyMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2017-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CommonStockMember 2019-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2019-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CommonStockMember 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CommonStockMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CommonStockMember 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CommonStockMember 2017-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2018-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CommonStockMember 2018-06-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RetainedEarningsMember 2017-12-31 0001108426 pnm:NMRDMember 2018-01-01 2018-09-30 0001108426 pnm:NMRDMember 2018-07-01 2018-09-30 0001108426 pnm:NMRDMember 2019-01-01 2019-09-30 0001108426 pnm:NMRDMember 2019-07-01 2019-09-30 0001108426 pnm:PNMRDevelopmentandAEPOnSiteMember pnm:NMRDMember 2018-01-01 2018-09-30 0001108426 pnm:NMRDMember 2019-09-30 0001108426 2019-09-01 2019-09-30 0001108426 2018-07-01 2018-07-31 0001108426 2019-07-01 2019-07-31 0001108426 pnm:PNMRDevelopmentMember pnm:NMRDMember 2019-09-30 0001108426 pnm:PNMRDevelopmentandAEPOnSiteMember pnm:NMRDMember 2019-01-01 2019-09-30 0001108426 2018-09-01 2018-09-30 0001108426 pnm:NMRDMember 2018-12-31 0001108426 pnm:NMRDMember 2019-09-30 0001108426 pnm:AEPOnSitePartnersMember pnm:NMRDMember 2019-09-30 0001108426 us-gaap:ElectricityMember pnm:TexasNewMexicoPowerCompanyMember 2019-07-01 2019-09-30 0001108426 us-gaap:CorporateAndOtherMember 2019-07-01 2019-09-30 0001108426 us-gaap:ElectricityMember pnm:PublicServiceCompanyOfNewMexicoMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-07-01 2019-09-30 0001108426 us-gaap:CorporateAndOtherMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-01-01 2019-09-30 0001108426 us-gaap:CorporateAndOtherMember 2019-01-01 2019-09-30 0001108426 us-gaap:ElectricityMember pnm:TexasNewMexicoPowerCompanyMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-09-30 0001108426 us-gaap:ElectricityMember us-gaap:CorporateAndOtherMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-09-30 0001108426 us-gaap:ElectricityMember us-gaap:CorporateAndOtherMember 2019-01-01 2019-09-30 0001108426 us-gaap:ElectricityMember pnm:PublicServiceCompanyOfNewMexicoMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-01-01 2018-09-30 0001108426 us-gaap:CorporateAndOtherMember 2018-07-01 2018-09-30 0001108426 us-gaap:ElectricityMember us-gaap:CorporateAndOtherMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-01-01 2018-09-30 0001108426 us-gaap:ElectricityMember pnm:PublicServiceCompanyOfNewMexicoMember 2018-07-01 2018-09-30 0001108426 us-gaap:ElectricityMember pnm:TexasNewMexicoPowerCompanyMember 2018-07-01 2018-09-30 0001108426 us-gaap:CorporateAndOtherMember 2018-01-01 2018-09-30 0001108426 us-gaap:ElectricityMember us-gaap:CorporateAndOtherMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-09-30 0001108426 us-gaap:CorporateAndOtherMember 2018-09-30 0001108426 us-gaap:ElectricityMember pnm:PublicServiceCompanyOfNewMexicoMember 2018-01-01 2018-09-30 0001108426 us-gaap:ElectricityMember pnm:TexasNewMexicoPowerCompanyMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-09-30 0001108426 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-12-31 0001108426 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2017-12-31 0001108426 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2017-12-31 0001108426 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-09-30 0001108426 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-01-01 2019-09-30 0001108426 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-09-30 0001108426 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IndustrialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:OtherElectricMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ResidentialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ElectricTransmissionRevenueMember 2018-07-01 2018-09-30 0001108426 pnm:ResidentialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:EconomyEnergyServiceElectricMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:IndustrialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:EconomyEnergyServiceElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PublicAuthorityElectricMember 2018-01-01 2018-09-30 0001108426 pnm:ElectricTransmissionRevenueMember 2018-07-01 2018-09-30 0001108426 pnm:PublicAuthorityElectricMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:EconomyEnergyServiceElectricMember 2018-01-01 2018-09-30 0001108426 pnm:CommercialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PublicAuthorityElectricMember 2018-07-01 2018-09-30 0001108426 pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2018-01-01 2018-09-30 0001108426 pnm:ElectricTransmissionRevenueMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:CommercialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:IndustrialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IndustrialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:CommercialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:CommercialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PublicAuthorityElectricMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ElectricTransmissionRevenueMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ResidentialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:OtherElectricMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ElectricTransmissionRevenueMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2018-07-01 2018-09-30 0001108426 pnm:ResidentialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicAuthorityElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CommercialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:EconomyEnergyServiceElectricMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ResidentialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:IndustrialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ElectricTransmissionRevenueMember 2018-07-01 2018-09-30 0001108426 pnm:IndustrialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ResidentialElectricMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CommercialElectricMember 2018-01-01 2018-09-30 0001108426 pnm:EconomyEnergyServiceElectricMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:EconomyEnergyServiceElectricMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PublicAuthorityElectricMember 2018-07-01 2018-09-30 0001108426 pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ElectricTransmissionRevenueMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IndustrialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:EconomyEnergyServiceElectricMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:EconomyEnergyServiceElectricMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ElectricTransmissionRevenueMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ResidentialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:IndustrialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:OtherElectricMember 2019-07-01 2019-09-30 0001108426 pnm:CommercialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:ElectricTransmissionRevenueMember 2019-07-01 2019-09-30 0001108426 pnm:EconomyEnergyServiceElectricMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:OtherElectricMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:IndustrialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ResidentialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ResidentialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PublicAuthorityElectricMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PublicAuthorityElectricMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CommercialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PublicAuthorityElectricMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:CommercialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:IndustrialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PublicAuthorityElectricMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CommercialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ElectricTransmissionRevenueMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2019-07-01 2019-09-30 0001108426 pnm:EconomyEnergyServiceElectricMember 2019-07-01 2019-09-30 0001108426 pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IndustrialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:EconomyEnergyServiceElectricMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:CommercialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:IndustrialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:MiscellaneousRevenueFromContractsWithCustomersMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:EconomyEnergyServiceElectricMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ElectricTransmissionRevenueMember 2019-01-01 2019-09-30 0001108426 pnm:ElectricTransmissionRevenueMember 2019-01-01 2019-09-30 0001108426 pnm:PublicAuthorityElectricMember 2019-07-01 2019-09-30 0001108426 pnm:ResidentialElectricMember 2019-01-01 2019-09-30 0001108426 pnm:PublicAuthorityElectricMember 2019-01-01 2019-09-30 0001108426 pnm:ResidentialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:CommercialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:ResidentialElectricMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ContractsWithCustomersMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:ContractsWithCustomersMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-01-01 2019-09-30 0001108426 pnm:NMCapitalMember pnm:SanJuanGeneratingStationMember pnm:CoalSupplyMember 2016-02-01 2016-02-01 0001108426 pnm:NMCapitalMember pnm:SanJuanGeneratingStationMember pnm:CoalSupplyMember 2016-01-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PurchasedThroughMay302028Member us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherCreditDerivativesMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:NuclearDecommissioningTrustMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherCreditDerivativesMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:MineReclamationTrustMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:NuclearDecommissioningTrustMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:TriStateMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:MineReclamationTrustMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:FuelAndPurchasedPowerAdjustmentClauseMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-09-30 0001108426 us-gaap:AccountingStandardsUpdate201601Member us-gaap:RetainedEarningsMember 2018-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:FuelAndPurchasedPowerAdjustmentClauseMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:DomesticValueMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:DomesticGrowthMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:MultinationalMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember pnm:EquitySecuritiesOtherFundsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:PreferredStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CashAndCashEquivalentsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USTreasuryAndGovernmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:MunicipalBondsMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:OtherDebtSecuritiesMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember pnm:ForeignGovernmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommonStockMember 2018-12-31 0001108426 us-gaap:MutualFundMember us-gaap:FairValueInputsLevel3Member 2018-12-31 0001108426 us-gaap:MutualFundMember us-gaap:FairValueInputsLevel3Member 2018-09-30 0001108426 us-gaap:MutualFundMember us-gaap:FairValueInputsLevel3Member 2018-01-01 2018-09-30 0001108426 us-gaap:MutualFundMember us-gaap:FairValueInputsLevel3Member 2019-01-01 2019-09-30 0001108426 us-gaap:MutualFundMember us-gaap:FairValueInputsLevel3Member 2019-09-30 0001108426 us-gaap:MutualFundMember us-gaap:FairValueInputsLevel3Member 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueHedgingMember us-gaap:LongMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueHedgingMember us-gaap:LongMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueHedgingMember us-gaap:ShortMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:FairValueHedgingMember us-gaap:ShortMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:FairValueInputsLevel2Member 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-09-30 0001108426 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0001108426 us-gaap:FairValueInputsLevel3Member 2018-12-31 0001108426 us-gaap:FairValueInputsLevel1Member 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:FairValueInputsLevel1Member 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel3Member 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:FairValueInputsLevel3Member 2018-12-31 0001108426 us-gaap:FairValueInputsLevel1Member 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:FairValueInputsLevel3Member 2019-09-30 0001108426 us-gaap:FairValueInputsLevel2Member 2019-09-30 0001108426 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel1Member 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:FairValueInputsLevel1Member 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001108426 us-gaap:FairValueInputsLevel3Member 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-09-30 0001108426 us-gaap:FairValueInputsLevel2Member 2018-12-31 0001108426 pnm:PnmrAndPnmMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:CommodityContractMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2018-07-01 2018-09-30 0001108426 2018-01-01 2018-12-31 0001108426 us-gaap:RestrictedStockMember 2018-01-01 2018-09-30 0001108426 us-gaap:RestrictedStockMember 2019-01-01 2019-09-30 0001108426 srt:ManagementMember us-gaap:PerformanceSharesMember 2018-12-31 0001108426 pnm:RestrictedStockAndPerformanceSharesMember 2019-09-30 0001108426 pnm:AchievesASpecificPerformanceTargetByTheEndOf2019AndRemainsAnEmployeeMember pnm:ChairmanPresidentAndChiefExecutiveOfficerMember us-gaap:CommonStockMember 2015-03-31 0001108426 pnm:PerformanceEquityPlanMember 2019-01-01 2019-09-30 0001108426 srt:ManagementMember us-gaap:PerformanceSharesMember 2019-09-30 0001108426 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-09-30 0001108426 pnm:AchievesASpecificPerformanceTargetByTheEndOf2017AndSheRemainsAnEmployeeMember pnm:ChairmanPresidentAndChiefExecutiveOfficerMember us-gaap:CommonStockMember 2015-03-31 0001108426 pnm:RestrictedStockAndPerformanceSharesMember 2019-01-01 2019-09-30 0001108426 2011-01-01 2019-09-30 0001108426 us-gaap:EmployeeStockOptionMember 2019-09-30 0001108426 pnm:MarketBasedSharesMember 2018-01-01 2018-09-30 0001108426 pnm:MarketBasedSharesMember 2019-01-01 2019-09-30 0001108426 pnm:RestrictedStockAndPerformanceSharesMember 2018-01-01 2018-09-30 0001108426 us-gaap:RestrictedStockMember 2018-12-31 0001108426 us-gaap:RestrictedStockMember 2019-09-30 0001108426 srt:ManagementMember us-gaap:PerformanceSharesMember 2019-01-01 2019-09-30 0001108426 pnm:PNMRDevelopmentMember pnm:DepositRelatedToPotentialTransmissionInterconnectionsMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PNMRDevelopmentTermLoanMember pnm:JPMorganChaseBankN.A.andU.S.BankNationalAssociationMember us-gaap:NotesPayableToBanksMember 2019-09-30 0001108426 srt:ParentCompanyMember pnm:PNMRDevelopmentRevolvingCreditFacilityMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:FirstMortgageBondsDue2019Series2009Aat9point50percentMember us-gaap:RevolvingCreditFacilityMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RevolvingCreditFacilityMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TNMP2018TermLoanAgreementMember pnm:JPMorganChaseBankN.A.andU.S.BankNationalAssociationMember us-gaap:NotesPayableToBanksMember 2017-07-20 0001108426 srt:ParentCompanyMember us-gaap:SubsequentEventMember 2019-10-25 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:SubsequentEventMember 2019-10-25 0001108426 pnm:PNM2019TermLoanMember 2019-09-30 0001108426 pnm:PNMRDevelopmentTermLoanMember 2019-09-30 0001108426 pnm:PNMRDevelopmentMember us-gaap:SubsequentEventMember 2019-10-25 0001108426 pnm:PnmrMember pnm:Letterorcredit30milJPMorganMember us-gaap:LetterOfCreditMember 2016-10-21 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:SubsequentEventMember 2019-10-25 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TNMP2018TermLoanAgreementMember 2019-09-30 0001108426 pnm:VariableRateShortTermDebtMember pnm:InterestRateContractThreeMember 2017-12-31 0001108426 2019-07-21 0001108426 srt:ParentCompanyMember pnm:PNMR2018OneYearTermLoanMember 2019-09-30 0001108426 pnm:VariableRateShortTermDebtMember 2017-12-31 0001108426 pnm:TNMPRevolvingCreditFacilityMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:LocalLinesOfCreditMember us-gaap:SubsequentEventMember 2019-10-25 0001108426 2019-07-22 0001108426 us-gaap:RevolvingCreditFacilityMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PNM2019TermLoanMember 2019-01-18 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TNMP2019BondPurchaseAgreementMember us-gaap:MortgagesMember 2019-02-26 0001108426 pnm:PNMR2016TwoYearTermLoanMember 2019-09-30 0001108426 pnm:PNMRDevelopmentMember 2019-09-30 0001108426 pnm:InterestRateContractThreeMember us-gaap:CashFlowHedgingMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001108426 2019-02-22 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:LocalLinesOfCreditMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PNMRDevelopmentTermLoanMember us-gaap:MortgagesMember 2019-09-30 0001108426 us-gaap:SubsequentEventMember 2019-10-25 0001108426 us-gaap:LineOfCreditMember 2018-01-01 2018-09-30 0001108426 pnm:VariableRateShortTermDebtMember pnm:InterestRateContractTwoMember 2017-12-31 0001108426 pnm:VariableRateShortTermDebtMember pnm:InterestRateContractOneMember 2017-12-31 0001108426 pnm:PNMRDevelopmentMember pnm:DepositRelatedToPotentialTransmissionInterconnectionsMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TNMP2019BondPurchaseAgreementMember us-gaap:MortgagesMember 2019-03-29 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TNMP2018TermLoanAgreementMember us-gaap:MortgagesMember 2018-07-25 0001108426 srt:ParentCompanyMember pnm:PNMRRevolvingCreditFacilityMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember srt:MaximumMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PNM2019TermLoanMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RevolvingCreditFacilityMember 2019-09-30 0001108426 pnm:PNMRDevelopmentMember pnm:DepositRelatedToPotentialTransmissionInterconnectionsMember 2018-04-09 2018-04-09 0001108426 pnm:PNMR2018OneYearTermLoanMember 2019-09-30 0001108426 pnm:PNMRDevelopmentMember pnm:DepositRelatedToPotentialTransmissionInterconnectionsMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:FirstMortgageBonds3.60PercentDue2029Member us-gaap:MortgagesMember 2019-07-01 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TNMP2019BondPurchaseAgreementMember us-gaap:MortgagesMember 2019-01-18 2019-01-18 0001108426 2019-02-21 0001108426 pnm:PNMRDevelopmentMember pnm:DepositRelatedToPotentialTransmissionInterconnectionsMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:FirstMortgageBondsDue2019Series2009Aat9point50percentMember us-gaap:UnsecuredDebtMember 2019-04-01 2019-04-01 0001108426 us-gaap:InterestRateContractMember 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SanJuanGeneratingStationMember 2019-07-01 2019-07-01 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:FirstMortgageBondsDue2019Series2009Aat9point50percentMember us-gaap:UnsecuredDebtMember 2019-04-01 0001108426 pnm:PNMRDevelopmentMember pnm:DepositRelatedToPotentialTransmissionInterconnectionsMember 2019-07-01 2019-09-30 0001108426 pnm:PNMRDevelopmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PNM2019TermLoanMember pnm:JPMorganChaseBankN.A.andU.S.BankNationalAssociationMember us-gaap:NotesPayableToBanksMember 2017-07-20 0001108426 pnm:InterestRateContractThreeMember us-gaap:CashFlowHedgingMember us-gaap:FairValueInputsLevel2Member 2019-09-30 0001108426 us-gaap:LineOfCreditMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:LocalLinesOfCreditMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:RevolvingCreditFacilityMember 2018-12-31 0001108426 pnm:PNMR2018OneYearTermLoanMember 2018-12-31 0001108426 pnm:PNMRDevelopmentRevolvingCreditFacilityMember 2019-09-30 0001108426 us-gaap:RevolvingCreditFacilityMember 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:RevolvingCreditFacilityMember 2018-12-31 0001108426 pnm:PNMRDevelopmentRevolvingCreditFacilityMember 2018-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:FirstMortgageBonds3.79PercentDue2034Member us-gaap:MortgagesMember 2019-03-29 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TNMP2019BondPurchaseAgreementMember us-gaap:MortgagesMember 2019-07-01 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:FirstMortgageBonds3.92PercentDue2039Member us-gaap:MortgagesMember 2019-03-29 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:FirstMortgageBonds4.06PercentDue2044Member us-gaap:MortgagesMember 2019-03-29 0001108426 pnm:PNMR2018OneYearTermLoanMember 2019-01-01 2019-09-30 0001108426 pnm:VariableRateShortTermDebtMember 2017-01-01 2017-12-31 0001108426 pnm:PNMR2016TwoYearTermLoanMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:PensionPlansDefinedBenefitMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPensionPlansDefinedBenefitMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:PensionPlansDefinedBenefitMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:PensionPlansDefinedBenefitMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPensionPlansDefinedBenefitMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-07-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:PensionPlansDefinedBenefitMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:PensionPlansDefinedBenefitMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:PensionPlansDefinedBenefitMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPensionPlansDefinedBenefitMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:PensionPlansDefinedBenefitMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPensionPlansDefinedBenefitMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:PensionPlansDefinedBenefitMember 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:PensionPlansDefinedBenefitMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember srt:MaximumMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:PensionPlansDefinedBenefitMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember srt:MaximumMember us-gaap:OtherPensionPlansDefinedBenefitMember 2018-07-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember srt:MaximumMember us-gaap:OtherPensionPlansDefinedBenefitMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember srt:MaximumMember us-gaap:OtherPensionPlansDefinedBenefitMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember srt:MaximumMember pnm:SanJuanGeneratingStationAndFourCornersMember 2015-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NationalAmbientAirQualityStandardsMember pnm:SanJuanGeneratingStationMember 2015-05-14 0001108426 pnm:SanJuanGeneratingStationMember pnm:ContinuousHighwallMiningMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NavajoNationAllotteeMattersMember 2015-01-22 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:OtherDeferredCreditsMember pnm:PaloVerdeNuclearGeneratingStationMember pnm:NuclearSpentFuelAndWasteDisposalMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember srt:MaximumMember pnm:PaloVerdeNuclearGeneratingStationMember us-gaap:NuclearPlantMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:MineReclamationTrustMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:WEGvOSMLawsuitMember 2013-02-28 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationMember us-gaap:NuclearPlantMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationMember us-gaap:NuclearPlantMember 2019-09-30 0001108426 us-gaap:PendingLitigationMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NavajoNationAllotteeMattersMember 2015-07-13 0001108426 pnm:SanJuanGeneratingStationMember pnm:ContinuousHighwallMiningMember 2013-08-31 0001108426 pnm:EnergyTransitionActMember pnm:RequiredPercentageby2045Member pnm:ElectricGenerationPortfolioStandardMember 2019-03-22 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NavajoNationAllotteeMattersMember 2015-12-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:FourCornersCSAMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CleanAirActSncrMember pnm:SanJuanGeneratingStationMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:UndergroundMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CleanAirActSncrMember pnm:SanJuanGeneratingStationUnit4Member 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationMember 2010-04-30 0001108426 pnm:EnergyTransitionActMember pnm:RequiredPercentageby2030Member pnm:ElectricGenerationPortfolioStandardMember 2019-03-22 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SurfaceMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2019-09-30 0001108426 pnm:NMCapitalMember pnm:SanJuanGeneratingStationMember pnm:CoalSupplyMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CleanAirActSncrMember pnm:SanJuanGeneratingStationUnit4Member 2019-09-30 0001108426 pnm:EnergyTransitionActMember pnm:RequiredPercentageby2040Member pnm:ElectricGenerationPortfolioStandardMember 2019-03-22 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IncreaseinCoalMineDecommissioningLiabilityMember 2019-01-01 2019-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember srt:MaximumMember pnm:SanJuanGeneratingStationAndFourCornersMember 2019-02-25 0001108426 pnm:EnergyTransitionActMember pnm:RequiredPercentageby2025Member pnm:ElectricGenerationPortfolioStandardMember 2019-03-22 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:UndergroundMember pnm:IncreaseinCoalMineDecommissioningLiabilityMember 2018-01-01 2018-12-31 0001108426 pnm:EnergyTransitionActMember pnm:RequiredPercentageBy2020Member pnm:ElectricGenerationPortfolioStandardMember 2019-03-22 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:OtherDeferredCreditsMember pnm:PaloVerdeNuclearGeneratingStationMember pnm:NuclearSpentFuelAndWasteDisposalMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IndustryWideRetrospectiveAssessmentProgramMember pnm:PaloVerdeNuclearGeneratingStationMember us-gaap:NuclearPlantMember 2019-09-30 0001108426 pnm:CleanAirActRelatedToRegionalHazeMember 1999-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SurfaceMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IncreaseinCoalMineDecommissioningLiabilityMember pnm:FourCornersMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SurfaceMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2018-12-31 0001108426 pnm:CleanPowerPlanMember 2016-02-09 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NavajoNationAllotteeMattersMember 2012-09-01 2012-09-30 0001108426 pnm:CleanAirActRelatedToRegionalHazeMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:UndergroundMember pnm:SanJuanGeneratingStationMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SurfaceMember pnm:SanJuanGeneratingStationMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IncreaseinCoalMineDecommissioningLiabilityMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2018-09-30 0001108426 pnm:PNMRDevelopmentMember pnm:CleanAirActSncrMember pnm:SanJuanGeneratingStationUnit4Member 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:LossOnLongTermPurchaseCommitmentMember pnm:SanJuanGeneratingStationMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:UndergroundandSurfaceMember pnm:IncreaseinCoalMineDecommissioningLiabilityMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:UndergroundMember us-gaap:LossOnLongTermPurchaseCommitmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationMember pnm:NuclearSpentFuelAndWasteDisposalMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationMember 2010-04-01 2010-04-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember srt:MaximumMember pnm:SanJuanGeneratingStationAndFourCornersMember 2015-10-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IncreaseinCoalMineDecommissioningLiabilityMember pnm:FourCornersMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:CommercialProvidersMember pnm:PaloVerdeNuclearGeneratingStationMember us-gaap:NuclearPlantMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SurfaceMember pnm:IncreaseinCoalMineDecommissioningLiabilityMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:WEGvOSMLawsuitMember pnm:SanJuanGeneratingStationMember 2013-02-28 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SanJuanGeneratingStationMember pnm:CoalSupplyMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SantaFegeneratingstationMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SanJuanGeneratingStationMember pnm:CoalSupplyMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NMPRCMember 2017-06-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2017-07-03 2017-07-03 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-05-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RequiredPercentageBy2011Member pnm:RenewablePortfolioStandardMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewableEnergyRiderMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:A2018TNMPRateCaseMember 2018-05-30 2018-05-30 0001108426 pnm:CasaMesaWindMember pnm:FacebookDataCenterMember 2018-03-21 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2016-08-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:A2018TNMPRateCaseMember 2019-08-01 2019-08-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2016-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2016-01-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewableEnergyRiderMember 2018-07-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewablePortfolioStandardMember srt:MaximumMember 2019-09-30 0001108426 pnm:Route66SolarEnergyCenterMember pnm:FacebookDataCenterMember 2018-08-24 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NMPRCMember 2016-05-04 2016-05-04 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:SanJuanGeneratingStationMember 2019-07-01 0001108426 2018-01-31 2018-01-31 0001108426 pnm:FacebookDataCenterMember 2018-08-24 2018-08-24 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:A2018TNMPRateCaseMember 2018-12-20 2018-12-20 0001108426 pnm:KVTransmissionLineMember pnm:LaJoyaWindMember 2019-06-03 0001108426 pnm:NMPRCMember 2016-12-07 2016-12-07 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember 2015-08-27 2015-08-27 0001108426 pnm:FourCornersMember 2018-01-10 2018-01-10 0001108426 pnm:NMPRCMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:IntegratedResourcePlan2011Member 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NewMexico2015RateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2019-05-16 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NMPRCMember 2018-01-10 2018-01-10 0001108426 pnm:KVTransmissionLineMember 2018-08-10 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2016-09-28 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember 2016-09-28 2016-09-28 0001108426 pnm:WesternSpiritLineMember 2019-05-01 0001108426 pnm:Route66SolarEnergyCenterMember pnm:FacebookDataCenterMember 2018-03-21 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewableEnergyRiderMember 2019-07-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2019-01-01 2019-03-31 0001108426 pnm:FacebookDataCenterMember 2018-08-10 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2016-09-28 2016-09-28 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2016-08-01 2016-08-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewablePortfolioStandard2014Member pnm:RedMesaWindMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2019-05-16 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NewMexico2015RateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2019-05-16 2019-05-16 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-03-01 0001108426 pnm:FacebookDataCenterMember 2017-10-01 2017-12-31 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-01-01 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NewMexico2015RateCaseMember 2019-04-01 2019-06-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NewMexicoWindMember pnm:NMPRCMember 2017-06-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:LightningDockGeothermalMember pnm:NMPRCMember 2017-06-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewablePortfolioStandardMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TransmissionCostOfServiceRatesMember 2019-07-23 2019-07-23 0001108426 pnm:KVTransmissionLineMember pnm:LaJoyaWindMember 2018-08-10 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2018-01-01 2018-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RequiredPercentageBy2020Member pnm:RenewablePortfolioStandardMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:A2015ElectricRateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2018-07-01 2018-09-30 0001108426 pnm:AvangridRenewablesLLCMember pnm:FacebookDataCenterMember 2018-03-21 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:EnergyImbalanceMarketMember 2018-08-22 0001108426 pnm:Route66SolarEnergyCenterMember pnm:FacebookDataCenterMember 2018-08-24 2018-08-24 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:LeaseholdsAndLeaseholdImprovementsMember pnm:NewMexico2015RateCaseMember pnm:PaloVerdeNuclearGeneratingStationUnits1And4Member 2019-05-16 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NMPRCMember 2018-01-01 2018-12-31 0001108426 pnm:KVTransmissionLineMember pnm:LaJoyaWindMember us-gaap:SubsequentEventMember 2019-10-02 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NewMexico2015RateCaseMember 2019-05-16 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:A2018TNMPRateCaseMember 2017-01-01 2017-12-31 0001108426 pnm:FourCornersMember 2018-01-10 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2017-01-01 2017-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NMPRCMember 2017-10-17 0001108426 pnm:PNMRDevelopmentMember 2017-09-05 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RequiredPercentageBy2015Member pnm:RenewablePortfolioStandardMember 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:A2018TNMPRateCaseMember us-gaap:SubsequentEventMember 2019-10-01 2019-10-31 0001108426 2018-05-30 2018-05-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewablePortfolioStandard2014Member pnm:NewMexicoWindMember 2019-01-01 2019-09-30 0001108426 pnm:KVTransmissionLineMember 2019-06-03 2019-06-03 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:RenewableEnergyRiderMember 2018-01-01 2018-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PUCTMember 2017-09-13 2017-09-13 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:TransmissionCostOfServiceRatesMember 2017-03-14 2017-03-14 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PUCTMember 2019-03-21 2019-03-21 0001108426 pnm:TexasNewMexicoPowerCompanyMember pnm:PUCTMember 2018-03-27 2018-03-27 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NMPRCMember 2017-05-23 2017-05-23 0001108426 pnm:TexasNewMexicoPowerCompanyMember us-gaap:EquipmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnits1And4Member 2015-01-15 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NavajoNationMember 2018-04-01 2018-04-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NavajoNationMember 2019-01-01 2019-09-30 0001108426 us-gaap:EquipmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnits1And4Member 2019-01-01 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2016-01-16 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember us-gaap:EquipmentMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationMember 2019-09-30 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationMember 2018-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:PaloVerdeNuclearGeneratingStationUnit2Member 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2019-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2019-01-01 0001108426 2019-01-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember srt:ScenarioForecastMember 2019-01-01 2019-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NewMexico2015RateCaseMember 2019-09-30 0001108426 srt:ScenarioForecastMember 2019-01-01 2019-12-31 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember pnm:NewMexico2015RateCaseMember 2019-01-01 2019-09-30 0001108426 pnm:PnmrMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember srt:ScenarioForecastMember 2019-01-01 2019-12-31 0001108426 pnm:NMPRCMember 2017-05-23 2017-05-23 0001108426 pnm:InterestChargesMember pnm:PnmrToTnmpMember 2019-01-01 2019-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMToNMRDMember 2018-01-01 2018-09-30 0001108426 pnm:RenewableEnergyPurchasesMember pnm:PNMToNMRDMember 2019-01-01 2019-09-30 0001108426 pnm:InterestChargesMember pnm:PNMtoPNMRMember 2018-01-01 2018-09-30 0001108426 pnm:InterestChargesMember pnm:PnmrToTnmpMember 2018-07-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToPnmMember 2018-07-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToPnmMember 2019-07-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmToTnmpMember 2019-07-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmToTnmpMember 2018-01-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PNMRToNMRDMember 2018-01-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:TnmpToPnmrMember 2019-01-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PNMRToNMRDMember 2019-07-01 2019-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:TnmpToPnmrMember 2018-07-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:TnmpToPnmrMember 2018-07-01 2018-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:PnmrToPnmMember 2018-01-01 2018-09-30 0001108426 pnm:InterestChargesMember pnm:PnmrToPnmMember 2019-07-01 2019-09-30 0001108426 pnm:InterestChargesMember pnm:PnmrToTnmpMember 2018-01-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToTnmpMember 2018-01-01 2018-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMtoPNMRMember 2019-07-01 2019-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:TnmpToPnmrMember 2018-01-01 2018-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:PnmrToPnmMember 2019-07-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmToTnmpMember 2019-01-01 2019-09-30 0001108426 pnm:InterestChargesMember pnm:PNMtoPNMRMember 2019-07-01 2019-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMToNMRDMember 2019-01-01 2019-09-30 0001108426 pnm:RenewableEnergyPurchasesMember pnm:PNMToNMRDMember 2019-07-01 2019-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMtoPNMRMember 2019-01-01 2019-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMToNMRDMember 2018-07-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToTnmpMember 2019-07-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToPnmMember 2019-01-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToTnmpMember 2018-07-01 2018-09-30 0001108426 pnm:RenewableEnergyPurchasesMember pnm:PNMToNMRDMember 2018-01-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PNMRToNMRDMember 2018-07-01 2018-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:PnmrToPnmMember 2019-01-01 2019-09-30 0001108426 pnm:RenewableEnergyPurchasesMember pnm:PNMToNMRDMember 2018-07-01 2018-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMtoPNMRMember 2018-01-01 2018-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:PnmrToPnmMember 2018-07-01 2018-09-30 0001108426 pnm:InterestChargesMember pnm:PnmrToTnmpMember 2019-07-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToPnmMember 2018-01-01 2018-09-30 0001108426 pnm:InterestChargesMember pnm:PNMtoPNMRMember 2018-07-01 2018-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMtoPNMRMember 2018-07-01 2018-09-30 0001108426 pnm:InterestChargesMember pnm:PNMtoPNMRMember 2019-01-01 2019-09-30 0001108426 pnm:InterestChargesMember pnm:PnmrToPnmMember 2018-07-01 2018-09-30 0001108426 pnm:InterconnectionBillingsMember pnm:PNMToNMRDMember 2019-07-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:TnmpToPnmrMember 2018-01-01 2018-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:TnmpToPnmrMember 2019-01-01 2019-09-30 0001108426 pnm:InterestChargesMember pnm:PnmrToPnmMember 2019-01-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmToTnmpMember 2018-07-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PNMRToNMRDMember 2019-01-01 2019-09-30 0001108426 pnm:ServiceBillingsMember pnm:TnmpToPnmrMember 2019-07-01 2019-09-30 0001108426 pnm:IncomeTaxSharingPaymentsMember pnm:TnmpToPnmrMember 2019-07-01 2019-09-30 0001108426 pnm:InterestChargesMember pnm:PnmrToPnmMember 2018-01-01 2018-09-30 0001108426 pnm:ServiceBillingsMember pnm:PnmrToTnmpMember 2019-01-01 2019-09-30 0001108426 pnm:TexasNewMexicoPowerCompanyMember 2018-04-01 0001108426 pnm:PublicServiceCompanyOfNewMexicoMember 2018-04-01 iso4217:USD iso4217:USD xbrli:shares xbrli:shares utreg:MW xbrli:pure pnm:segment utreg:MWh pnm:utility utreg:MMBTU pnm:derivative pnm:claim pnm:Allotment_Parcel utreg:acre pnm:landowner utreg:lb utreg:MMBTU pnm:city pnm:option utreg:T pnm:parts_per_billion utreg:GWh pnm:kv pnm:Facility pnm:lease pnm:state pnm:mine pnm:generating_unit pnm:scenario pnm:power_purchase_agreement

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 September 30, 2019

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

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

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



Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of each class
Trading Symbol(s)
Name of exchange on which registered
PNM Resources, Inc.
Common Stock, no par value
PNM
New 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”)
Yes
☑
No
☐
 
Public Service Company of New Mexico (“PNM”)
Yes
☑
No
☐
 
Texas-New Mexico Power Company (“TNMP”)
Yes
☐
No
☑

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







Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
PNMR
Yes
☑
No
☐
 
PNM
Yes
☑

No
☐
 
TNMP
Yes
☑
No
☐

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

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


 
Accelerated
filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
PNM
 
☐
 
 
 
☐
 
 
 
☑
 
 
 
☐
 
 
 
☐
 
 
Large accelerated
filer
 
Accelerated
filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging 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 October 25, 2019, 79,653,624 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of common stock of PNM, no par value per share, outstanding as of October 25, 2019 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of common stock of TNMP, $10 par value per share, outstanding as of October 25, 2019 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).

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

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



2

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

INDEX

 
Page No.
 
 
 
 
 
 


3

GLOSSARY
Definitions:
  
 
2014 IRP
 
PNM’s 2014 IRP
2017 IRP
 
PNM’s 2017 IRP
ABCWUA
 
Albuquerque Bernalillo County Water Utility Authority
AEP OnSite Partners
 
AEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
Afton
  
Afton Generating Station
AFUDC
 
Allowance for Funds Used During Construction
AMS
 
Advanced Meter System
AOCI
  
Accumulated Other Comprehensive Income
APS
  
Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
ASU
 
Accounting Standards Update
BART
  
Best Available Retrofit Technology
BDT
 
Balanced Draft Technology
Board
  
Board of Directors of PNMR
BSER
 
Best System of Emissions Reduction Technology
BTMU
 
MUFG Bank Ltd., formerly the Bank of Tokyo-Mitsubishi UFJ, Ltd.
BTMU Term Loan
 
NM Capital’s $125.0 Million Unsecured Term Loan
CAA
 
Clean Air Act
Casa Mesa Wind
 
Casa Mesa Wind Energy Center
CCN
 
Certificate of Convenience and Necessity
CCR
 
Coal Combustion Residuals
CIAC
 
Contributions in Aid of Construction
CO2
  
Carbon Dioxide
CSA
 
Coal Supply Agreement
DC Circuit
 
United States Court of Appeals for the District of Columbia Circuit
December 2018 Compliance Filing
 
PNM’s December 31, 2018 filing with the NMPRC regarding SJGS
DOE
  
United States Department of Energy
DOI
  
United States Department of Interior
EGU
 
Electric Generating Unit
EIM
  
California Independent System Operator Western Energy Imbalance Market
EIS
 
Environmental Impact Study
EPA
  
United States Environmental Protection Agency
ESA
 
Endangered Species Act
ETA
 
The New Mexico Energy Transition Act
Exchange Act
 
Securities Exchange Act of 1934
Farmington
 
The City of Farmington, New Mexico
FASB
  
Financial Accounting Standards Board
FERC
  
Federal Energy Regulatory Commission
Four Corners
  
Four Corners Power Plant
FPPAC
  
Fuel and Purchased Power Adjustment Clause
FTY
 
Future Test Year
GAAP
  
Generally Accepted Accounting Principles in the United States of America
GHG
  
Greenhouse Gas Emissions
GWh
  
Gigawatt hours
IRP
 
Integrated Resource Plan
IRS
  
Internal Revenue Service
kV
 
Kilovolt
KW
  
Kilowatt
KWh
  
Kilowatt Hour
La Luz
  
La Luz Generating Station
LIBOR
  
London Interbank Offered Rate
Lightning Dock Geothermal
 
Lightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant

4

Lordsburg
  
Lordsburg Generating Station
Los Alamos
 
The Incorporated County of Los Alamos, New Mexico
Luna
  
Luna Energy Facility
MD&A
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTU
  
Million British Thermal Units
Moody’s
  
Moody’s Investor Services, Inc.
MW
  
Megawatts
MWh
  
Megawatt Hour
NAAQS
 
National Ambient Air Quality Standards
Navajo Acts
  
Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT
  
Nuclear Decommissioning Trusts for PVNGS
NEE
 
New Energy Economy
NEPA
 
National Environmental Policy Act
NERC
  
North American Electric Reliability Corporation
New Mexico Wind
 
New Mexico Wind Energy Center
NM 2015 Rate Case
 
Request for a General Increase in Electric Rates Filed by PNM on August 27, 2015
NM 2016 Rate Case
 
Request for a General Increase in Electric Rates Filed by PNM on December 7, 2016
NM AREA
 
New Mexico Affordable Reliable Energy Alliance, formerly New Mexico Industrial Energy Consumers Inc.
NM Capital
 
NM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR, now known as New Mexico PPA Corporation
NM District Court
 
United States District Court for the District of New Mexico
NM Supreme Court
 
New Mexico Supreme Court
NMED
  
New Mexico Environment Department
NMMMD
 
The Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
NMPRC
  
New Mexico Public Regulation Commission
NMRD
 
NM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
NOx
  
Nitrogen Oxides
NOPR
 
Notice of Proposed Rulemaking
NPDES
 
National Pollutant Discharge Elimination System
NRC
  
United States Nuclear Regulatory Commission
NSR
  
New Source Review
NTEC
  
Navajo Transitional Energy Company, LLC, an entity owned by the Navajo Nation
OCI
  
Other Comprehensive Income
OPEB
  
Other Post-Employment Benefits
OSM
 
United States Office of Surface Mining Reclamation and Enforcement
PNM
  
Public Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit Facility
 
PNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Term Loan
 
PNM’s $200.0 Million Unsecured Term Loan
PNM 2019 Term Loan
 
PNM’s $250.0 Million Unsecured Term Loan
PNM Revolving Credit Facility
 
PNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMR
  
PNM Resources, Inc. and Subsidiaries
PNMR 2018 One-Year Term Loan
 
PNMR’s $150.0 Million One-Year Unsecured Term Loan
PNMR 2018 SUNS
 
PNMR’s $300.0 Million Senior Unsecured Notes issued on March 9, 2018
PNMR 2018 Two-Year Term Loan
 
PNMR’s $50.0 Million Two-Year Unsecured Term Loan
PNMR Development
 
PNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit Facility
 
PNMR Development’s $40.0 Million Unsecured Revolving Credit Facility

5

PNMR Development Term Loan
 
PNMR Development’s $90.0 Million Unsecured Term Loan
PNMR Revolving Credit Facility
 
PNMR’s $300.0 Million Unsecured Revolving Credit Facility
PPA
  
Power Purchase Agreement
PUCT
  
Public Utility Commission of Texas
PV
  
Photovoltaic
PVNGS
  
Palo Verde Nuclear Generating Station
RCRA
  
Resource Conservation and Recovery Act
RCT
  
Reasonable Cost Threshold
REA
 
New Mexico’s Renewable Energy Act, as amended by the ETA
REC
  
Renewable Energy Certificates
Red Mesa Wind
 
Red Mesa Wind Energy Center
REP
  
Retail Electricity Provider
Rio Bravo
 
Rio Bravo Generating Station
ROE
 
Return on Equity
RPS
  
Renewable Energy Portfolio Standard
S&P
  
Standard and Poor’s Ratings Services
SEC
  
United States Securities and Exchange Commission
SIP
  
State Implementation Plan
SJCC
  
San Juan Coal Company
SJGS
  
San Juan Generating Station
SJGS Abandonment Application
 
PNM’s July 1, 2019 consolidated application seeking NMPRC approval to retire PNM’s share of SJGS in 2022, for related replacement generating resources, and for the issuance of securitized bonds under the ETA
SJGS CSA
 
San Juan Generating Station Coal Supply Agreement
SJGS RA
 
San Juan Project Restructuring Agreement
SNCR
 
Selective Non-Catalytic Reduction
SO2
  
Sulfur Dioxide
Tax Act
 
Federal tax reform legislation enacted on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act
TECA
  
Texas Electric Choice Act
Tenth Circuit
 
United States Court of Appeals for the Tenth Circuit
TNMP
  
Texas-New Mexico Power Company and Subsidiaries
TNMP 2018 Rate Case
 
TNMP’s General Rate Case Application Filed May 30, 2018
TNMP 2018 Term Loan
 
TNMP’s $35.0 Million Unsecured Term Loan
TNMP 2019 Bonds
 
TNMP’s First Mortgage Bonds issued under the TNMP 2019 Bond Purchase Agreement
TNMP 2019 Bond Purchase Agreement
 
An agreement under which TNMP issued an aggregate of $305.0 Million of First Mortgage Bonds in 2019
TNMP Revolving Credit Facility
  
TNMP’s $75.0 Million Secured Revolving Credit Facility
Tri-State
  
Tri-State Generation and Transmission Association, Inc.
Tucson
  
Tucson Electric Power Company
UAMPS
  
Utah Associated Municipal Power Systems
US Supreme Court
 
United States Supreme Court
Valencia
  
Valencia Energy Facility
VIE
 
Variable Interest Entity
WEG
 
WildEarth Guardians
Western Spirit Line
 
A 165-mile 345-kV transmission line that PNM has agreed to purchase, subject to certain conditions being met prior to closing
Westmoreland
 
Westmoreland Coal Company
Westmoreland Loan
 
$125.0 Million of funding provided by NM Capital to WSJ
WSJ
 
Westmoreland San Juan, LLC, formerly an indirect wholly-owned subsidiary of Westmoreland, and former owner of SJCC
WSJ LLC

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

6

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands, except per share amounts)
Electric Operating Revenues: 
 
 
 
 
 
 
 
Contracts with customers
$
418,673

 
$
400,023

 
$
1,049,287

 
$
1,042,033

Alternative revenue programs
(6,779
)
 
(8,050
)
 
(300
)
 
(1,466
)
Other electric operating revenue
21,692

 
30,693

 
64,471

 
52,290

Total electric operating revenues
433,586

 
422,666

 
1,113,458

 
1,092,857

Operating Expenses:

 
 
 

 

Cost of energy
108,736

 
113,536

 
314,145

 
293,803

Administrative and general
47,613

 
49,969

 
142,782

 
141,607

Energy production costs
30,877

 
31,350

 
108,853

 
108,588

Regulatory disallowances and restructuring costs
—

 
(1,645
)
 
150,599

 
149

Depreciation and amortization
68,350

 
61,580

 
199,771

 
180,365

Transmission and distribution costs
16,461

 
19,394

 
52,333

 
54,800

Taxes other than income taxes
21,009

 
20,492

 
61,327

 
60,094

Total operating expenses
293,046

 
294,676

 
1,029,810

 
839,406

Operating income
140,540

 
127,990

 
83,648

 
253,451

Other Income and Deductions:
 
 
 
 
 
 
 
Interest income
3,440

 
3,400

 
10,489

 
11,862

Gains on investment securities
1,686

 
2,463

 
20,299

 
1,081

Other income
4,256

 
3,735

 
11,050

 
12,000

Other (deductions)
(3,612
)
 
(2,624
)
 
(9,980
)
 
(9,867
)
Net other income and deductions
5,770

 
6,974

 
31,858

 
15,076

Interest Charges
30,359

 
30,492

 
91,785

 
96,868

Earnings before Income Taxes
115,951

 
104,472

 
23,721

 
171,659

Income Taxes (Benefits)
9,188

 
12,899

 
(32,420
)
 
18,838

Net Earnings
106,763

 
91,573

 
56,141

 
152,821

(Earnings) Attributable to Valencia Non-controlling Interest
(3,860
)
 
(3,920
)
 
(10,188
)
 
(11,706
)
Preferred Stock Dividend Requirements of Subsidiary
(132
)
 
(132
)
 
(396
)
 
(396
)
Net Earnings Attributable to PNMR
$
102,771

 
$
87,521

 
$
45,557

 
$
140,719

Net Earnings Attributable to PNMR per Common Share:
 
 
 
 
 
 
 
Basic
$
1.29

 
$
1.10

 
$
0.57

 
$
1.76

Diluted
$
1.28

 
$
1.09

 
$
0.57

 
$
1.76

Dividends Declared per Common Share
$
0.290

 
$
0.265

 
$
0.870

 
$
0.795


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



7

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Net Earnings
$
106,763

 
$
91,573

 
$
56,141

 
$
152,821

Other Comprehensive Income:
 
 
 
 
 
 
 
Unrealized Gains on Available-for-Sale Securities:
 
 
 
 
 
 
 
Unrealized holding gains arising during the period, net of income tax (expense) of $(1,821), $(356), $(5,869), and $(730)
5,347

 
1,044

 
17,237

 
2,142

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $1,768, $91, $3,191, and $885
(5,194
)
 
(266
)
 
(9,372
)
 
(2,598
)
Pension Liability Adjustment:
 
 
 
 
 
 
 
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(470), $(480), $(1,410), and $(1,442)
1,381

 
1,410

 
4,143

 
4,236

Fair Value Adjustment for Cash Flow Hedges:
 
 
 
 
 
 
 
Change in fair market value, net of income tax (expense) benefit of $126, $(3), $931, and $(618)
(369
)
 
8

 
(2,733
)
 
1,813

Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(46), $(28), $(179), and $(27)
136

 
81

 
528

 
75

Total Other Comprehensive Income
1,301

 
2,277

 
9,803

 
5,668

Comprehensive Income
108,064

 
93,850

 
65,944

 
158,489

Comprehensive (Income) Attributable to Valencia Non-controlling Interest
(3,860
)
 
(3,920
)
 
(10,188
)
 
(11,706
)
Preferred Stock Dividend Requirements of Subsidiary
(132
)
 
(132
)
 
(396
)
 
(396
)
Comprehensive Income Attributable to PNMR
$
104,072

 
$
89,798

 
$
55,360

 
$
146,387


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


8

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In thousands)
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
56,141

 
$
152,821

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
225,182

 
207,406

Deferred income tax expense (benefit)
(33,220
)
 
18,706

(Gains) on investment securities
(20,299
)
 
(1,081
)
Stock based compensation expense
5,424

 
4,551

Regulatory disallowances and restructuring costs
150,599

 
149

Allowance for equity funds used during construction
(6,714
)
 
(7,098
)
Other, net
1,945

 
2,631

Changes in certain assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues
(24,698
)
 
(20,447
)
Materials, supplies, and fuel stock
(5,908
)
 
(8,731
)
Other current assets
(1,851
)
 
(13,657
)
Other assets
33,284

 
2,608

Accounts payable
(5,469
)
 
(32,638
)
Accrued interest and taxes
12,182

 
17,113

Other current liabilities
(2,530
)
 
4,220

Other liabilities
(32,812
)
 
(9,656
)
Net cash flows from operating activities
351,256

 
316,897

 
 
 
 
Cash Flows From Investing Activities:
 
 
 
Additions to utility plant
(444,920
)
 
(365,484
)
Proceeds from sales of investment securities
375,382

 
911,899

Purchases of investment securities
(385,313
)
 
(920,217
)
Principal repayments on Westmoreland Loan
—

 
56,640

Investments in NMRD
(29,250
)
 
(9,000
)
Other, net
(192
)
 
(365
)
Net cash flows from investing activities
(484,293
)
 
(326,527
)

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

9

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

 
Nine Months Ended September 30,
 
2019
 
2018
 
(In thousands)
Cash Flows From Financing Activities:
 
 
 
Revolving credit facilities borrowings (repayments), net
53,700

 
(42,800
)
Long-term borrowings
555,000

 
829,652

Repayment of long-term debt
(372,302
)
 
(650,162
)
Proceeds from stock option exercise
943

 
937

Awards of common stock
(9,897
)
 
(12,505
)
Dividends paid
(69,695
)
 
(63,721
)
Valencia’s transactions with its owner
(10,225
)
 
(12,677
)
Transmission interconnection and security deposit arrangements

8,340

 
—

Refunds paid under transmission interconnection arrangements
(2,246
)
 
(2,246
)
Debt issuance costs and other, net
(2,609
)
 
(5,858
)
Net cash flows from financing activities
151,009

 
40,620

 
 
 
 
Change in Cash, Restricted Cash, and Equivalents
17,972

 
30,990

Cash, Restricted Cash, and Equivalents at Beginning of Period
2,122

 
3,974

Cash, Restricted Cash, and Equivalents at End of Period
$
20,094

 
$
34,964

 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid, net of amounts capitalized
$
85,721

 
$
81,203

Income taxes paid (refunded), net
$
(2,929
)
 
$
842

 
 
 
 
Supplemental schedule of noncash investing activities:
 
 
 
(Increase) decrease in accrued plant additions
$
25,023

 
$
16,177


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


10

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2019
 
December 31,
2018
 
(In thousands)
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
20,094

 
$
2,122

Accounts receivable, net of allowance for uncollectible accounts of $1,191 and $1,406
115,448

 
92,800

Unbilled revenues
57,146

 
57,092

Other receivables
14,058

 
11,369

Materials, supplies, and fuel stock
77,742

 
71,834

Regulatory assets
3,678

 
4,534

Income taxes receivable
4,237

 
7,965

Other current assets
48,761

 
54,808

Total current assets
341,164

 
302,524

Other Property and Investments:
 
 
 
Investment securities
369,017

 
328,242

Equity investment in NMRD
56,084

 
26,564

Other investments
240

 
297

Non-utility property, net
10,633

 
3,404

Total other property and investments
435,974

 
358,507

Utility Plant:
 
 
 
Plant in service, held for future use, and to be abandoned
7,680,996

 
7,548,581

Less accumulated depreciation and amortization
2,688,066

 
2,604,177

 
4,992,930

 
4,944,404

Construction work in progress
258,285

 
194,427

Nuclear fuel, net of accumulated amortization of $48,364 and $42,511
95,916

 
95,798

Net utility plant
5,347,131

 
5,234,629

Deferred Charges and Other Assets:
 
 
 
Regulatory assets
566,314

 
598,930

Goodwill
278,297

 
278,297

Operating lease right-of-use assets, net of accumulated amortization
137,637

 
—

Other deferred charges
94,415

 
92,664

Total deferred charges and other assets
1,076,663

 
969,891

 
$
7,200,932

 
$
6,865,551


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


11

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2019
 
December 31,
2018
 
(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
289,600

 
$
235,900

Current installments of long-term debt
385,227

 
—

Accounts payable
81,679

 
112,170

Customer deposits
10,730

 
10,695

Accrued interest and taxes
73,610

 
65,156

Regulatory liabilities
6,938

 
9,446

Operating lease liabilities
28,204

 
—

Dividends declared
23,231

 
23,231

Other current liabilities
46,510

 
55,855

Total current liabilities
945,729

 
512,453

Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
2,467,002

 
2,670,111

Deferred Credits and Other Liabilities:
 
 
 
Accumulated deferred income taxes
614,011

 
600,719

Regulatory liabilities
871,132

 
891,428

Asset retirement obligations
179,646

 
158,674

Accrued pension liability and postretirement benefit cost
88,335

 
100,375

Operating lease liabilities
106,621

 
—

Other deferred credits
181,839

 
167,668

Total deferred credits and other liabilities
2,041,584

 
1,918,864

Total liabilities
5,454,315

 
5,101,428

Commitments and Contingencies (Note 11)


 


Cumulative Preferred Stock of Subsidiary
 
 
 
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)
11,529

 
11,529

Equity:
 
 
 
PNMR common stockholders’ equity:
 
 
 
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)
1,149,583

 
1,153,113

Accumulated other comprehensive income (loss), net of income taxes
(98,881
)
 
(108,684
)
Retained earnings
620,211

 
643,953

Total PNMR common stockholders’ equity
1,670,913

 
1,688,382

Non-controlling interest in Valencia
64,175

 
64,212

Total equity
1,735,088

 
1,752,594

 
$
7,200,932

 
$
6,865,551

 
 
 
 

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


12

PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
Attributable to PNMR
 
Non-
controlling
Interest
in Valencia
 
 
 
Common
Stock
 
AOCI
 
Retained
Earnings
 
Total PNMR Common Stockholders’ Equity
 
 
Total
Equity
 
(In thousands)
Balance at June 30, 2019
$
1,148,690

 
$
(100,182
)
 
$
563,640

 
$
1,612,148

 
$
62,592

 
$
1,674,740

Net earnings before subsidiary preferred stock dividends
—

 
—

 
102,903

 
102,903

 
3,860

 
106,763

Total other comprehensive income
—

 
1,301

 
—

 
1,301

 
—

 
1,301

Subsidiary preferred stock dividends
—

 
—

 
(132
)
 
(132
)
 
—

 
(132
)
Dividends declared on common stock
—

 
—

 
(46,200
)
 
(46,200
)
 
—

 
(46,200
)
Awards of common stock
(5
)
 
—

 
—

 
(5
)
 
—

 
(5
)
Stock based compensation expense
898

 
—

 
—

 
898

 
—

 
898

Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(2,277
)
 
(2,277
)
Balance at September 30, 2019
$
1,149,583

 
$
(98,881
)
 
$
620,211

 
$
1,670,913

 
$
64,175

 
$
1,735,088

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
1,153,113

 
$
(108,684
)
 
$
643,953

 
$
1,688,382

 
$
64,212

 
$
1,752,594

Net earnings before subsidiary preferred stock dividends
—

 
—

 
45,953

 
45,953

 
10,188

 
56,141

Total other comprehensive income
—

 
9,803

 
—

 
9,803

 
—

 
9,803

Subsidiary preferred stock dividends
—

 
—

 
(396
)
 
(396
)
 
—

 
(396
)
Dividends declared on common stock
—

 
—

 
(69,299
)
 
(69,299
)
 
—

 
(69,299
)
Proceeds from stock option exercise
943

 
—

 
—

 
943

 
—

 
943

Awards of common stock
(9,897
)
 
—

 
—

 
(9,897
)
 
—

 
(9,897
)
Stock based compensation expense
5,424

 
—

 
—

 
5,424

 
—

 
5,424

Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(10,225
)
 
(10,225
)
Balance at September 30, 2019
$
1,149,583

 
$
(98,881
)
 
$
620,211

 
$
1,670,913

 
$
64,175

 
$
1,735,088


Balance at June 30, 2018
$
1,149,646

 
$
(103,757
)
 
$
676,826

 
$
1,722,715

 
$
65,600

 
$
1,788,315

Net earnings before subsidiary preferred stock dividends
—

 
—

 
87,653

 
87,653

 
3,920

 
91,573

Total other comprehensive income
—

 
2,277

 
—

 
2,277

 
—

 
2,277

Subsidiary preferred stock dividends
—

 
—

 
(132
)
 
(132
)
 
—

 
(132
)
Dividends declared on common stock
—

 
—

 
(42,217
)
 
(42,217
)
 
—

 
(42,217
)
Proceeds from stock option exercise
13

 
—

 
—

 
13

 
—

 
13

Awards of common stock
(237
)
 
—

 
—

 
(237
)
 
—

 
(237
)
Stock based compensation expense
1,226

 
—

 
—

 
1,226

 
—

 
1,226

Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(4,296
)
 
(4,296
)
Balance at September 30, 2018
$
1,150,648

 
$
(101,480
)
 
$
722,130

 
$
1,771,298

 
$
65,224

 
$
1,836,522

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017, as originally reported
$
1,157,665

 
$
(95,940
)
 
$
633,528

 
$
1,695,253

 
$
66,195

 
$
1,761,448

Cumulative effect adjustment (Note 7)
—

 
(11,208
)
 
11,208

 
—

 
—

 
—

Balance at January 1, 2018, as adjusted
1,157,665

 
(107,148
)
 
644,736

 
1,695,253

 
66,195

 
1,761,448

Net earnings before subsidiary preferred stock dividends
—

 
—

 
141,115

 
141,115

 
11,706

 
152,821

Total other comprehensive income
—

 
5,668

 
—

 
5,668

 
—

 
5,668

Subsidiary preferred stock dividends
—

 
—

 
(396
)
 
(396
)
 
—

 
(396
)
Dividends declared on common stock
—

 
—

 
(63,325
)
 
(63,325
)
 
—

 
(63,325
)
Proceeds from stock option exercise
937

 
—

 
—

 
937

 
—

 
937

Awards of common stock
(12,505
)
 
—

 
—

 
(12,505
)
 
—

 
(12,505
)
Stock based compensation expense
4,551

 
—

 
—

 
4,551

 
—

 
4,551

Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(12,677
)
 
(12,677
)
Balance at September 30, 2018
$
1,150,648

 
$
(101,480
)
 
$
722,130

 
$
1,771,298

 
$
65,224

 
$
1,836,522


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

13


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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Electric Operating Revenues: 
 
 
 
 
 
 
 
Contracts with customers
$
311,793

 
$
306,019

 
$
775,795

 
$
783,310

Alternative revenue programs
(2,372
)
 
(5,338
)
 
(1,617
)
 
(3,484
)
Other electric operating revenue
21,692

 
30,693

 
64,471

 
52,290

Total electric operating revenues
331,113

 
331,374

 
838,649

 
832,116

Operating Expenses:
 
 
 
 
 
 
 
Cost of energy
84,915

 
92,384

 
243,120

 
229,547

Administrative and general
44,468

 
44,923

 
132,107

 
129,571

Energy production costs
30,877

 
31,350

 
108,853

 
108,588

Regulatory disallowances and restructuring costs
—

 
(1,645
)
 
150,599

 
149

Depreciation and amortization
40,545

 
38,474

 
119,581

 
113,314

Transmission and distribution costs
10,858

 
12,408

 
33,329

 
33,228

Taxes other than income taxes
10,997

 
10,964

 
34,292

 
34,033

Total operating expenses
222,660

 
228,858

 
821,881

 
648,430

Operating income
108,453

 
102,516

 
16,768

 
183,686

Other Income and Deductions:
 
 
 
 
 
 
 
Interest income
3,515

 
3,472

 
10,701

 
9,340

Gains on investment securities
1,686

 
2,463

 
20,299

 
1,081

Other income
2,095

 
2,137

 
6,647

 
6,821

Other (deductions)
(3,011
)
 
(2,085
)
 
(7,639
)
 
(7,314
)
Net other income and deductions
4,285

 
5,987

 
30,008

 
9,928

Interest Charges
18,492

 
18,063

 
55,379

 
58,881

Earnings (Loss) before Income Taxes
94,246

 
90,440

 
(8,603
)
 
134,733

Income Taxes (Benefits)
9,525

 
9,012

 
(31,984
)
 
11,009

Net Earnings
84,721

 
81,428

 
23,381

 
123,724

(Earnings) Attributable to Valencia Non-controlling Interest
(3,860
)
 
(3,920
)
 
(10,188
)
 
(11,706
)
Net Earnings Attributable to PNM
80,861

 
77,508

 
13,193

 
112,018

Preferred Stock Dividends Requirements
(132
)
 
(132
)
 
(396
)
 
(396
)
Net Earnings Available for PNM Common Stock
$
80,729

 
$
77,376

 
$
12,797

 
$
111,622


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


14

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Net Earnings
$
84,721

 
$
81,428

 
$
23,381

 
$
123,724

Other Comprehensive Income:
 
 
 
 
 
 
 
Unrealized Gains on Available-for-Sale Securities:
 
 
 
 
 
 
 
Unrealized holding gains arising during the period, net of income tax (expense) of $(1,821), $(356), $(5,869), and $(730)
5,347

 
1,044

 
17,237

 
2,142

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $1,768, $91, $3,191, and $885
(5,194
)
 
(266
)
 
(9,372
)
 
(2,598
)
Pension Liability Adjustment:
 
 
 
 
 
 
 
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(470), $(480), $(1,410), and $(1,442)
1,381

 
1,410

 
4,143

 
4,236

Total Other Comprehensive Income
1,534

 
2,188

 
12,008

 
3,780

Comprehensive Income
86,255

 
83,616

 
35,389

 
127,504

Comprehensive (Income) Attributable to Valencia Non-controlling Interest
(3,860
)
 
(3,920
)
 
(10,188
)
 
(11,706
)
Comprehensive Income Attributable to PNM
$
82,395

 
$
79,696

 
$
25,201

 
$
115,798


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


15

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In thousands)
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
23,381

 
$
123,724

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
143,175

 
137,224

Deferred income tax expense (benefit)
(31,382
)
 
11,894

(Gains) on investment securities
(20,299
)
 
(1,081
)
Regulatory disallowances and restructuring costs
150,599

 
149

Allowance for equity funds used during construction
(4,904
)
 
(5,473
)
Other, net
1,911

 
2,411

Changes in certain assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues
(11,187
)
 
(14,164
)
Materials, supplies, and fuel stock
(5,275
)
 
(7,308
)
Other current assets
1,076

 
(15,493
)
Other assets
25,884

 
11,829

Accounts payable
(3,090
)
 
(23,990
)
Accrued interest and taxes
20,182

 
13,560

Other current liabilities
24,072

 
(14,838
)
Other liabilities
(35,488
)
 
(12,228
)
Net cash flows from operating activities
278,655

 
206,216

 
 
 
 
Cash Flows From Investing Activities:
 
 
 
Additions to utility plant
(234,773
)
 
(177,550
)
Proceeds from sales of investment securities
375,382

 
911,899

Purchases of investment securities
(385,313
)
 
(920,217
)
Other, net
28

 
141

Net cash flows from investing activities
(244,676
)
 
(185,727
)

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


16

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

 
Nine Months Ended September 30,
 
2019
 
2018
 
(In thousands)
Cash Flows From Financing Activities:
 
 
 
Revolving credit facilities borrowings (repayments), net
(42,400
)
 
(39,800
)
Short-term borrowings (repayments) – affiliate, net
(19,800
)
 
—

Long-term borrowings
250,000

 
450,000

Repayment of long-term debt
(200,000
)
 
(450,025
)
Dividends paid
(396
)
 
(396
)
Valencia’s transactions with its owner
(10,225
)
 
(12,677
)
Transmission interconnection and security deposit arrangements
8,340

 
68,200

Refunds paid under transmission interconnection arrangements
(2,246
)
 
(2,246
)
Debt issuance costs and other, net
(198
)
 
(3,167
)
Net cash flows from financing activities
(16,925
)
 
9,889

 
 
 
 
Change in Cash, Restricted Cash, and Equivalents
17,054

 
30,378

Cash, Restricted Cash, and Equivalents at Beginning of Period
85

 
1,108

Cash, Restricted Cash, and Equivalents at End of Period
$
17,139

 
$
31,486

 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid, net of amounts capitalized
$
42,284

 
$
50,160

Income taxes paid (refunded), net
$
(3,544
)
 
$
—

 
 
 
 
Supplemental schedule of noncash investing activities:
 
 
 
(Increase) decrease in accrued plant additions
$
12,980

 
$
(27
)

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


17

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2019
 
December 31,
2018
 
(In thousands)
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
17,139

 
$
85

Accounts receivable, net of allowance for uncollectible accounts of $1,191 and $1,406
80,250

 
68,603

Unbilled revenues
44,657

 
47,113

Other receivables
13,587

 
10,650

Affiliate receivables
8,883

 
15,871

Materials, supplies, and fuel stock
72,372

 
67,097

Regulatory assets
779

 
4,534

Income taxes receivable
9,907

 
12,850

Other current assets
37,213

 
43,516

Total current assets
284,787

 
270,319

Other Property and Investments:
 
 
 
Investment securities
369,017

 
328,242

Other investments
62

 
91

Non-utility property, net
3,839

 
96

Total other property and investments
372,918

 
328,429

Utility Plant:
 
 
 
Plant in service, held for future use, and to be abandoned
5,626,070

 
5,623,520

Less accumulated depreciation and amortization
2,049,859

 
2,006,266

 
3,576,211

 
3,617,254

Construction work in progress
144,778

 
134,221

Nuclear fuel, net of accumulated amortization of $48,364 and $42,511
95,916

 
95,798

Net utility plant
3,816,905

 
3,847,273

Deferred Charges and Other Assets:
 
 
 
Regulatory assets
444,048

 
460,903

Goodwill
51,632

 
51,632

Operating lease right-of-use assets, net of accumulated amortization
126,313

 
—

Other deferred charges
80,228

 
77,327

Total deferred charges and other assets
702,221

 
589,862

 
$
5,176,831

 
$
5,035,883

 
 
 
 

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


18

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2019
 
December 31,
2018
 
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
—

 
$
42,400

Short-term debt - affiliate
—

 
19,800

Current installments of long-term debt
350,227

 
—

Accounts payable
59,043

 
75,114

Affiliate payables
11,537

 
164

Customer deposits
10,730

 
10,695

Accrued interest and taxes
53,005

 
35,767

Regulatory liabilities
5,620

 
5,975

Operating lease liabilities
24,940

 
—

Dividends declared
132

 
132

Other current liabilities
96,100

 
32,976

Total current liabilities
611,334

 
223,023

Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
1,357,410

 
1,656,490

Deferred Credits and Other Liabilities:
 
 
 
Accumulated deferred income taxes
508,115

 
502,767

Regulatory liabilities
688,109

 
713,971

Asset retirement obligations
178,731

 
157,814

Accrued pension liability and postretirement benefit cost
81,871

 
92,981

Operating lease liabilities
98,394

 
—

Other deferred credits
154,999

 
215,737

Total deferred credits and liabilities
1,710,219

 
1,683,270

Total liabilities
3,678,963

 
3,562,783

Commitments and Contingencies (Note 11)


 


Cumulative Preferred Stock
 
 
 
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)
11,529

 
11,529

Equity:
 
 
 
PNM common stockholder’s equity:
 
 
 
Common stock (no par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)
1,264,918

 
1,264,918

Accumulated other comprehensive income (loss), net of income taxes
(98,414
)
 
(110,422
)
Retained earnings
255,660

 
242,863

Total PNM common stockholder’s equity
1,422,164

 
1,397,359

Non-controlling interest in Valencia
64,175

 
64,212

Total equity
1,486,339

 
1,461,571

 
$
5,176,831

 
$
5,035,883


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

19

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
 
AOCI
 
Retained
Earnings
 
 
 
Total
Equity
 
 
 
 
 
 
 
(In thousands)
Balance at June 30, 2019
$
1,264,918

 
$
(99,948
)
 
$
174,931

 
$
1,339,901

 
$
62,592

 
$
1,402,493

Net earnings
—

 
—

 
80,861

 
80,861

 
3,860

 
84,721

Total other comprehensive income
—

 
1,534

 
—

 
1,534

 
—

 
1,534

Dividends declared on preferred stock
—

 
—

 
(132
)
 
(132
)
 
—

 
(132
)
Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(2,277
)
 
(2,277
)
Balance at September 30, 2019
$
1,264,918

 
$
(98,414
)
 
$
255,660

 
$
1,422,164

 
$
64,175

 
$
1,486,339

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
1,264,918

 
$
(110,422
)
 
$
242,863

 
$
1,397,359

 
$
64,212

 
$
1,461,571

Net earnings
—

 
—

 
13,193

 
13,193

 
10,188

 
23,381

Total other comprehensive income
—

 
12,008

 
—

 
12,008

 
—

 
12,008

Dividends declared on preferred stock
—

 
—

 
(396
)
 
(396
)
 
—

 
(396
)
Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(10,225
)
 
(10,225
)
Balance at September 30, 2019
$
1,264,918

 
$
(98,414
)
 
$
255,660

 
$
1,422,164

 
$
64,175

 
$
1,486,339


Balance at June 30, 2018
$
1,264,918

 
$
(106,709
)
 
$
299,803

 
$
1,458,012

 
$
65,600

 
$
1,523,612

Net earnings
—

 
—

 
77,508

 
77,508

 
3,920

 
81,428

Total other comprehensive income
—

 
2,188

 
—

 
2,188

 
—

 
2,188

Dividends declared on preferred stock
—

 
—

 
(132
)
 
(132
)
 
—

 
(132
)
Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(4,296
)
 
(4,296
)
Balance at September 30, 2018
$
1,264,918

 
$
(104,521
)
 
$
377,179

 
$
1,537,576

 
$
65,224

 
$
1,602,800

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017, as originally reported
$
1,264,918

 
$
(97,093
)
 
$
254,349

 
$
1,422,174

 
$
66,195

 
$
1,488,369

Cumulative effect adjustment (Note 7)
—

 
(11,208
)
 
11,208

 
—

 
—

 
—

Balance at January 1, 2018, as adjusted
1,264,918

 
(108,301
)
 
265,557

 
1,422,174

 
66,195

 
1,488,369

Net earnings
—

 
—

 
112,018

 
112,018

 
11,706

 
123,724

Total other comprehensive income
—

 
3,780

 
—

 
3,780

 
—

 
3,780

Dividends declared on preferred stock
—

 
—

 
(396
)
 
(396
)
 
—

 
(396
)
Valencia’s transactions with its owner
—

 
—

 
—

 
—

 
(12,677
)
 
(12,677
)
Balance at September 30, 2018
$
1,264,918

 
$
(104,521
)
 
$
377,179

 
$
1,537,576

 
$
65,224

 
$
1,602,800



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

20


TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Electric Operating Revenues: 
 
 
 
 
 
 
 
Contracts with customers
$
106,880

 
$
94,004

 
$
273,492

 
$
258,723

Alternative revenue programs
(4,407
)
 
(2,712
)
 
1,317

 
2,018

Total Electric Operating Revenues 
102,473

 
91,292

 
274,809

 
260,741

Operating Expenses:
 
 
 
 
 
 
 
Cost of energy
23,821

 
21,152

 
71,025

 
64,256

Administrative and general
9,418

 
9,781

 
30,073

 
29,342

Depreciation and amortization
22,005

 
17,176

 
62,722

 
49,676

Transmission and distribution costs
5,603

 
6,986

 
19,004

 
21,572

Taxes other than income taxes
9,030

 
8,373

 
24,226

 
22,710

Total operating expenses
69,877

 
63,468

 
207,050

 
187,556

Operating income
32,596

 
27,824

 
67,759

 
73,185

Other Income and Deductions:
 
 
 
 
 
 
 
Other income
2,012

 
1,300

 
3,952

 
4,276

Other (deductions)
(246
)
 
(149
)
 
(869
)
 
(1,209
)
Net other income and deductions
1,766

 
1,151

 
3,083

 
3,067

Interest Charges
7,047

 
8,241

 
22,408

 
23,771

Earnings before Income Taxes
27,315

 
20,734

 
48,434

 
52,481

Income Taxes
2,228

 
4,634

 
3,982

 
11,602

Net Earnings
$
25,087

 
$
16,100

 
$
44,452

 
$
40,879


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



21

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In thousands)
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
44,452

 
$
40,879

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
63,654

 
51,076

Deferred income tax expense (benefit)
(12,286
)
 
(3,259
)
Allowance for equity funds used during construction
(1,810
)
 
(1,624
)
Other, net
33

 
184

Changes in certain assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues
(13,512
)
 
(6,283
)
Materials and supplies
(633
)
 
(1,423
)
Other current assets
(3,870
)
 
759

Other assets
6,444

 
(9,169
)
Accounts payable
848

 
(4,277
)
Accrued interest and taxes
12,000

 
18,389

Other current liabilities
1,684

 
6,092

Other liabilities
(289
)
 
2,613

Net cash flows from operating activities
96,715

 
93,957

Cash Flows From Investing Activities:
 
 
 
Additions to utility plant
(195,054
)
 
(170,785
)
Net cash flows from investing activities
(195,054
)
 
(170,785
)
Cash Flow From Financing Activities:
 
 
 
Revolving credit facilities borrowings (repayments), net
(2,500
)
 
17,500

Short-term borrowings (repayments) – affiliate, net
700

 
4,100

Long-term borrowings
305,000

 
80,000

Repayment of long-term debt
(172,302
)
 
—

Dividends paid
(30,178
)
 
(25,804
)
Debt issuance costs and other, net
(2,381
)
 
(668
)
Net cash flows from financing activities
98,339

 
75,128

 
 
 
 
Change in Cash and Cash Equivalents
—

 
(1,700
)
Cash and Cash Equivalents at Beginning of Period
—

 
1,700

Cash and Cash Equivalents at End of Period
$
—

 
$
—

 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid, net of amounts capitalized
$
24,238

 
$
16,338

Income taxes paid (refunded), net
$
615

 
$
842

 
 
 
 
Supplemental schedule of noncash investing activities:
 
 
 
(Increase) decrease in accrued plant additions
$
7,799

 
$
12,822


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



22

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2019
 
December 31,
2018
 
(In thousands)
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
—

 
$
—

Accounts receivable
35,198

 
24,196

Unbilled revenues
12,489

 
9,979

Other receivables
1,981

 
1,721

Affiliate receivables
—

 
164

Materials and supplies
5,370

 
4,737

Regulatory assets
2,899

 
—

Other current assets
1,825

 
1,114

Total current assets
59,762

 
41,911

Other Property and Investments:
 
 
 
Other investments
178

 
206

Non-utility property, net
5,653

 
2,240

Total other property and investments
5,831

 
2,446

Utility Plant:
 
 
 
Plant in service and plant held for future use
1,809,374

 
1,686,119

Less accumulated depreciation and amortization
513,141

 
487,734

 
1,296,233

 
1,198,385

Construction work in progress
103,923

 
51,459

Net utility plant
1,400,156

 
1,249,844

Deferred Charges and Other Assets:
 
 
 
Regulatory assets
122,266

 
138,027

Goodwill
226,665

 
226,665

Operating lease right-of-use assets, net of accumulated amortization
10,649

 
—

Other deferred charges
6,737

 
6,284

Total deferred charges and other assets
366,317

 
370,976

 
$
1,832,066

 
$
1,665,177


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

23

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
September 30,
2019
 
December 31,
2018
 
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
15,000

 
$
17,500

Short-term debt – affiliate
800

 
100

Current installments of long-term debt
35,000

 
—

Accounts payable
16,853

 
23,804

Affiliate payables
4,641

 
1,210

Accrued interest and taxes
53,881

 
41,882

Regulatory liabilities
1,318

 
3,471

 Operating lease liabilities
2,862

 
—

Other current liabilities
3,952

 
2,861

Total current liabilities
134,307

 
90,828

Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
670,756

 
575,398

Deferred Credits and Other Liabilities:
 
 
 
Accumulated deferred income taxes
133,910

 
136,238

Regulatory liabilities
183,023

 
177,458

Asset retirement obligations
915

 
860

Accrued pension liability and postretirement benefit cost
6,464

 
7,394

Operating lease liabilities
7,655

 
—

Other deferred credits
6,669

 
2,908

Total deferred credits and other liabilities
338,636

 
324,858

Total liabilities
1,143,699

 
991,084

Commitments and Contingencies (Note 11)


 


Common Stockholder’s Equity:
 
 
 
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)
64

 
64

Paid-in-capital
534,166

 
534,166

Retained earnings
154,137

 
139,863

Total common stockholder’s equity
688,367

 
674,093

 
$
1,832,066

 
$
1,665,177


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


24

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 Stock
 
Paid-in Capital
 
Retained Earnings
 
Total Common Stockholder’s Equity
 
(In thousands)
Balance at June 30, 2019
$
64

 
$
534,166

 
$
144,417

 
$
678,647

Net earnings
—

 
—

 
25,087

 
25,087

Dividends declared on common stock
—

 
—

 
(15,367
)
 
(15,367
)
Balance at September 30, 2019
$
64

 
$
534,166

 
$
154,137

 
$
688,367

 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
64

 
$
534,166

 
$
139,863

 
$
674,093

Net earnings
—

 
—

 
44,452

 
44,452

Dividends declared on common stock
—

 
—

 
(30,178
)
 
(30,178
)
Balance at September 30, 2019
$
64

 
$
534,166

 
$
154,137

 
$
688,367


Balance at June 30, 2018
$
64

 
$
504,166

 
$
144,518

 
$
648,748

Net earnings
—

 
—

 
16,100

 
16,100

Dividends declared on common stock
—

 
—

 
(15,368
)
 
(15,368
)
Balance at September 30, 2018
$
64

 
$
504,166

 
$
145,250

 
$
649,480

 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
64

 
$
504,166

 
$
130,175

 
$
634,405

Net earnings
—

 
—

 
40,879

 
40,879

Dividends declared on common stock
—

 
—

 
(25,804
)
 
(25,804
)
Balance at September 30, 2018
$
64

 
$
504,166

 
$
145,250

 
$
649,480



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



25

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



(1)
Significant Accounting Policies and Responsibility for Financial Statements

Financial Statement Preparation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at September 30, 2019 and December 31, 2018, and the consolidated results of operations and comprehensive income for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine months ended September 30, 2019 and 2018. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the 2018 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2019 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 2018 Annual Reports on Form 10-K.

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

Principles of Consolidation

The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNM also consolidates Valencia. 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 no such payment defaults under any of the agreements for the jointly-owned plants.

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

Dividends on Common Stock

Dividends on PNMR’s common stock are declared by the Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. This has historically resulted in dividends attributable to the second quarter of each year being declared through actions of the Board during the third quarter of the year. The Board declared dividends on common stock considered to be for the second quarter of $0.290 per share in July 2019 and $0.265 per share in July 2018, which are reflected as being in the second quarter within “Dividends Declared per Common Share” on the PNMR Condensed Consolidated Statements of Earnings. The Board declared dividends on common stock for the third quarter of $0.290 per share

26

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


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

TNMP declared and paid cash dividends on common stock to PNMR of $15.4 million and $30.2 million in the three and nine months ended September 30, 2019 and $15.4 million and $25.8 million in the three and nine months ended September 30, 2018.

Investment in NM Renewable Development, LLC

As discussed in Note 1 of the 2018 Annual Reports on Form 10-K, PNMR Development and AEP OnSite Partners created NMRD in September 2017 to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. As of September 30, 2019, NMRD’s renewable energy capacity in operation was 35.1 MW. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. The investment in NMRD is accounted for using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.

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

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 September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Operating revenues
$
892

 
$
1,007

 
$
2,720

 
$
2,516

Operating expenses
730

 
472

 
2,181

 
1,478

Net earnings
$
162

 
$
535

 
$
539

 
$
1,038

 
Financial Position

 
September 30,
 
December 31,
 
2019
 
2018
 
(In thousands)
Current assets
$
2,243

 
$
2,581

Net property, plant, and equipment
111,056

 
50,784

Total assets
113,299

 
53,365

Current liabilities
1,132

 
237

Owners’ equity
$
112,167

 
$
53,128



New Accounting Pronouncements

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

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

In June 2016, the FASB issued ASU 2016-13, which changes the way entities recognize impairment of many financial assets, including accounts receivable and investments in certain debt securities, by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. In November 2018, the FASB clarified that receivables arising from operating leases are not within the scope of Topic 326 for assets measured at amortized costs. Instead, impairments of receivables arising from operating leases should be accounted for in accordance with Topic 842. In May 2019, the FASB issued

27

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)


transition relief by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. The Company’s trade receivables and PNMR’s guarantees of certain PNMR Development debt arrangements are within the scope of ASU 2016-13. The Company is in the process of analyzing the impacts of the new standard but does not anticipate a significant impact on its reserves for trade receivables or on PNMR’s guarantees of certain PNMR Development debt arrangements. ASU 2016-13 also requires entities to separately measure and realize an impairment for credit losses on available-for-sale debt securities for which carrying value exceeds fair value, unless such securities have been determined to be other than temporarily impaired and the entire decrease in value has been realized as an impairment. As discussed in Note 1 of the 2018 Annual Reports on Form 10-K, PNM records a realized loss as an impairment for any available-for-sale debt security that has a fair value that is less than carrying value at the end of each quarter. As a result, the Company does not anticipate the new standard will impact its accounting for available-for-sale debt securities. The Company will adopt ASU 2016-13 as of January 1, 2020, its required effective date.

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

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

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

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

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

In August 2018, the FASB issued ASU 2018-14 to improve benefit plan sponsors’ disclosures for defined benefit pension and other post-employment benefit plans. ASU 2018-14 removes the requirement to disclose the amounts in other comprehensive income expected to be recognized as benefit cost over the next fiscal year and the requirement to disclose the impact of a one-percentage-point change in the assumed health care cost trend rate; clarifies the disclosure requirements for plans with assets that are less than their projected benefit, or accumulated benefit obligation; and requires significant gains and losses affecting benefit obligations during the period be disclosed. ASU 2018-14 is effective for the Company on December 31, 2020, although early adoption is permitted, and requires retrospective application. As discussed in Note 11 of the Notes to the Consolidated Financial

28

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


Statements in the 2018 Annual Reports on Form 10-K and in Note 10, PNM and TNMP maintain qualified defined benefit, other postretirement benefit plans providing medical and dental benefits, and executive retirement programs. The Company is evaluating the requirements of ASU 2018-14 but does not anticipate these changes will have a significant impact on the Company’s defined benefit and other postretirement benefit plan disclosures.

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

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

Accounting Standards Update 2018-18 – Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606

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

(2)
Segment Information

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

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

TNMP

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

Corporate and Other

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

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


29

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
 
PNM
 
TNMP
 
Corporate
and Other
 
PNMR Consolidated
 
(In thousands)
Three Months Ended September 30, 2019
 
Electric operating revenues
$
331,113

 
$
102,473

 
$
—

 
$
433,586

Cost of energy
84,915

 
23,821

 
—

 
108,736

Utility margin
246,198

 
78,652

 
—

 
324,850

Other operating expenses
97,200

 
24,051

 
(5,291
)
 
115,960

Depreciation and amortization
40,545

 
22,005

 
5,800

 
68,350

Operating income (loss)
108,453

 
32,596

 
(509
)
 
140,540

Interest income
3,515

 
—

 
(75
)
 
3,440

Other income (deductions)
770

 
1,766

 
(206
)
 
2,330

Interest charges
(18,492
)
 
(7,047
)
 
(4,820
)
 
(30,359
)
Segment earnings (loss) before income taxes
94,246

 
27,315

 
(5,610
)
 
115,951

Income taxes (benefit)
9,525

 
2,228

 
(2,565
)
 
9,188

Segment earnings (loss)
84,721

 
25,087

 
(3,045
)
 
106,763

Valencia non-controlling interest
(3,860
)
 
—

 
—

 
(3,860
)
Subsidiary preferred stock dividends
(132
)
 
—

 
—

 
(132
)
Segment earnings (loss) attributable to PNMR
$
80,729

 
$
25,087

 
$
(3,045
)
 
$
102,771

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
Electric operating revenues
$
838,649

 
$
274,809

 
$
—

 
$
1,113,458

Cost of energy
243,120

 
71,025

 
—

 
314,145

Utility margin
595,529

 
203,784

 
—

 
799,313

Other operating expenses
459,180

 
73,303

 
(16,589
)
 
515,894

Depreciation and amortization
119,581

 
62,722

 
17,468

 
199,771

Operating income (loss)
16,768

 
67,759

 
(879
)
 
83,648

Interest income
10,701

 
—

 
(212
)
 
10,489

Other income (deductions)
19,307

 
3,083

 
(1,021
)
 
21,369

Interest charges
(55,379
)
 
(22,408
)
 
(13,998
)
 
(91,785
)
Segment earnings (loss) before income taxes
(8,603
)
 
48,434

 
(16,110
)
 
23,721

Income taxes (benefit)
(31,984
)
 
3,982

 
(4,418
)
 
(32,420
)
Segment earnings (loss)
23,381

 
44,452

 
(11,692
)
 
56,141

Valencia non-controlling interest
(10,188
)
 
—

 
—

 
(10,188
)
Subsidiary preferred stock dividends
(396
)
 
—

 
—

 
(396
)
Segment earnings (loss) attributable to PNMR
$
12,797

 
$
44,452

 
$
(11,692
)
 
$
45,557

 
 
 
 
 
 
 
 
At September 30, 2019:
 
 
 
 
 
 
 
Total Assets
$
5,176,831

 
$
1,832,066

 
$
192,035

 
$
7,200,932

Goodwill
$
51,632

 
$
226,665

 
$
—

 
$
278,297


30

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


 
PNM
 
TNMP
 
Corporate
and Other
 
PNMR Consolidated
 
(In thousands)
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
Electric operating revenues
$
331,374

 
$
91,292

 
$
—

 
$
422,666

Cost of energy
92,384

 
21,152

 
—

 
113,536

Utility margin
238,990

 
70,140

 
—

 
309,130

Other operating expenses
98,000

 
25,140

 
(3,580
)
 
119,560

Depreciation and amortization
38,474

 
17,176

 
5,930

 
61,580

Operating income (loss)
102,516

 
27,824

 
(2,350
)
 
127,990

Interest income
3,472

 
—

 
(72
)
 
3,400

Other income (deductions)
2,515

 
1,151

 
(92
)
 
3,574

Interest charges
(18,063
)
 
(8,241
)
 
(4,188
)
 
(30,492
)
Segment earnings (loss) before income taxes
90,440

 
20,734

 
(6,702
)
 
104,472

Income taxes (benefit)
9,012

 
4,634

 
(747
)
 
12,899

Segment earnings (loss)
81,428

 
16,100

 
(5,955
)
 
91,573

Valencia non-controlling interest
(3,920
)
 
—

 
—

 
(3,920
)
Subsidiary preferred stock dividends
(132
)
 
—

 
—

 
(132
)
Segment earnings (loss) attributable to PNMR
$
77,376

 
$
16,100

 
$
(5,955
)
 
$
87,521

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
Electric operating revenues
$
832,116

 
$
260,741

 
$
—

 
$
1,092,857

Cost of energy
229,547

 
64,256

 
—

 
293,803

Utility margin
602,569

 
196,485

 
—

 
799,054

Other operating expenses
305,569

 
73,624

 
(13,955
)
 
365,238

Depreciation and amortization
113,314

 
49,676

 
17,375

 
180,365

Operating income (loss)
183,686

 
73,185

 
(3,420
)
 
253,451

Interest income
9,340

 
—

 
2,522

 
11,862

Other income (deductions)
588

 
3,067

 
(441
)
 
3,214

Interest charges
(58,881
)
 
(23,771
)
 
(14,216
)
 
(96,868
)
Segment earnings (loss) before income taxes
134,733

 
52,481

 
(15,555
)
 
171,659

Income taxes (benefit)
11,009

 
11,602

 
(3,773
)
 
18,838

Segment earnings (loss)
123,724

 
40,879

 
(11,782
)
 
152,821

Valencia non-controlling interest
(11,706
)
 
—

 
—

 
(11,706
)
Subsidiary preferred stock dividends
(396
)
 
—

 
—

 
(396
)
Segment earnings (loss) attributable to PNMR
$
111,622

 
$
40,879

 
$
(11,782
)
 
$
140,719

 
 
 
 
 
 
 
 
At September 30, 2018:
 
 
 
 
 
 
 
Total Assets
$
5,042,761

 
$
1,628,842

 
$
177,392

 
$
6,848,995

Goodwill
$
51,632

 
$
226,665

 
$
—

 
$
278,297



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.


31

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


(3)
Accumulated Other Comprehensive Income (Loss)

Information regarding accumulated other comprehensive income (loss) for the nine months ended September 30, 2019 and 2018 is as follows:
 
Accumulated Other Comprehensive Income (Loss)
 
PNM
 
PNMR
 
Unrealized
 
 
 
 
 
Fair Value
 
 
 
Gains on
 
 
 
 
 
Adjustment
 
 
 
Available-for-
 
Pension
 
 
 
for Cash
 
 
 
Sale
 
Liability
 
 
 
Flow
 
 
 
Securities
 
Adjustment
 
Total
 
Hedges
 
Total
 
(In thousands)
Balance at December 31, 2018
$
1,939

 
$
(112,361
)
 
$
(110,422
)
 
$
1,738

 
$
(108,684
)
Amounts reclassified from AOCI (pre-tax)
(12,563
)
 
5,553

 
(7,010
)
 
707

 
(6,303
)
Income tax impact of amounts reclassified
3,191

 
(1,410
)
 
1,781

 
(179
)
 
1,602

Other OCI changes (pre-tax)
23,106

 
—

 
23,106

 
(3,664
)
 
19,442

Income tax impact of other OCI changes
(5,869
)
 
—

 
(5,869
)
 
931

 
(4,938
)
Net after-tax change
7,865

 
4,143

 
12,008

 
(2,205
)
 
9,803

Balance at September 30, 2019
$
9,804

 
$
(108,218
)
 
$
(98,414
)
 
$
(467
)
 
$
(98,881
)
Balance at December 31, 2017, as originally reported
$
13,169

 
$
(110,262
)
 
$
(97,093
)
 
$
1,153

 
$
(95,940
)
Cumulative effect adjustment (Note 7)
(11,208
)
 
—

 
(11,208
)
 
—

 
(11,208
)
Balance at January 1, 2018, as adjusted
1,961

 
(110,262
)
 
(108,301
)
 
1,153

 
(107,148
)
 Amounts reclassified from AOCI (pre-tax)
(3,483
)
 
5,678

 
2,195

 
102

 
2,297

Income tax impact of amounts reclassified
885

 
(1,442
)
 
(557
)
 
(27
)
 
(584
)
 Other OCI changes (pre-tax)
2,872

 
—

 
2,872

 
2,431

 
5,303

Income tax impact of other OCI changes
(730
)
 
—

 
(730
)
 
(618
)
 
(1,348
)
Net after-tax change
(456
)
 
4,236

 
3,780

 
1,888

 
5,668

Balance at September 30, 2018
$
1,505

 
$
(106,026
)
 
$
(104,521
)
 
$
3,041

 
$
(101,480
)


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

32

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


(4)
Earnings Per Share

In accordance with GAAP, dual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. PNMR’s potentially dilutive shares consist of stock options and restricted stock. See Note 8. Information regarding the computation of earnings per share is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands, except per share amounts)
Net Earnings Attributable to PNMR
$
102,771

 
$
87,521

 
$
45,557

 
$
140,719

Average Number of Common Shares:
 
 
 
 
 
 
 
Outstanding during period
79,654

 
79,654

 
79,654

 
79,654

    Vested awards of restricted stock
294

 
215

 
265

 
210

Average Shares – Basic
79,948

 
79,869

 
79,919

 
79,864

Dilutive Effect of Common Stock Equivalents:
 
 
 
 
 
 
 
Stock options and restricted stock
53

 
111

 
61

 
126

Average Shares – Diluted
80,001

 
79,980

 
79,980

 
79,990

Net Earnings Per Share of Common Stock:
 
 
 
 
 
 
 
Basic
$
1.29

 
$
1.10

 
$
0.57

 
$
1.76

Diluted
$
1.28

 
$
1.09

 
$
0.57

 
$
1.76



(5)
Electric Operating Revenues

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

Additional information concerning electric operating revenue is contained in Note 4 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K.

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.
 
 
PNM
 
TNMP
 
PNMR Consolidated
Three Months Ended September 30, 2019
 
(In thousands)
Electric Operating Revenues:
 
 
 
 
 
 
Contracts with customers:
 
 
 
 
 
 
Retail electric revenue
 
 
 
 
 
 
Residential
 
$
137,741

 
$
50,718

 
$
188,459

Commercial
 
121,702

 
31,042

 
152,744

Industrial
 
20,946

 
5,415

 
26,361

Public authority
 
6,140

 
1,440

 
7,580

Economy energy service
 
5,731

 
—

 
5,731

Transmission
 
16,068

 
17,384

 
33,452

Miscellaneous
 
3,465

 
881

 
4,346

Total revenues from contracts with customers
 
311,793

 
106,880

 
418,673

Alternative revenue programs
 
(2,372
)
 
(4,407
)
 
(6,779
)
Other electric operating revenues
 
21,692

 
—

 
21,692

Total Electric Operating Revenues
 
$
331,113

 
$
102,473

 
$
433,586

 
 
 
 
 
 
 


33

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


 
 
PNM
 
TNMP
 
PNMR Consolidated
Nine Months Ended September 30, 2019
 
(In thousands)
Electric Operating Revenues:
 
 
 
 
 
 
Contracts with customers:
 
 
 
 
 
 
Retail electric revenue
 
 
 
 
 
 
Residential
 
$
331,371

 
$
114,791

 
$
446,162

Commercial
 
305,903

 
86,529

 
392,432

Industrial
 
51,022

 
16,326

 
67,348

Public authority
 
15,447

 
4,204

 
19,651

Economy energy service
 
18,677

 
—

 
18,677

Transmission
 
43,794

 
48,972

 
92,766

Miscellaneous
 
9,581

 
2,670

 
12,251

Total revenues from contracts with customers
 
775,795

 
273,492

 
1,049,287

Alternative revenue programs
 
(1,617
)
 
1,317

 
(300
)
Other electric operating revenues
 
64,471

 
—

 
64,471

Total Electric Operating Revenues
 
$
838,649

 
$
274,809

 
$
1,113,458


Three Months Ended September 30, 2018
 
 
Electric Operating Revenues:
 
 
 
 
 
 
Contracts with customers:
 
 
 
 
 
 
Retail electric revenue
 
 
 
 
 
 
Residential
 
$
138,091

 
$
40,227

 
$
178,318

Commercial
 
121,755

 
28,850

 
150,605

Industrial
 
17,919

 
4,402

 
22,321

Public authority
 
6,872

 
1,390

 
8,262

Economy energy service
 
6,158

 
—

 
6,158

Transmission
 
13,538

 
16,743

 
30,281

Miscellaneous
 
1,686

 
2,392

 
4,078

Total revenues from contracts with customers
 
306,019

 
94,004

 
400,023

Alternative revenue programs
 
(5,338
)
 
(2,712
)
 
(8,050
)
Other electric operating revenues
 
30,693

 
—

 
30,693

Total Electric Operating Revenues
 
$
331,374

 
$
91,292

 
$
422,666

 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
Electric Operating Revenues:
 
 
 
 
 
 
Contracts with customers:
 
 
 
 
 
 
Retail electric revenue
 
 
 
 
 
 
Residential
 
$
334,767

 
$
100,808

 
$
435,575

Commercial
 
315,256

 
84,084

 
399,340

Industrial
 
45,976

 
12,891

 
58,867

Public authority
 
16,726

 
4,205

 
20,931

Economy energy service
 
19,825

 
—

 
19,825

Transmission
 
40,128

 
49,995

 
90,123

Miscellaneous
 
10,632

 
6,740

 
17,372

Total revenues from contracts with customers
 
783,310

 
258,723

 
1,042,033

Alternative revenue programs
 
(3,484
)
 
2,018

 
(1,466
)
Other electric operating revenues
 
52,290

 
—

 
52,290

Total Electric Operating Revenues
 
$
832,116

 
$
260,741

 
$
1,092,857




34

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)


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 to the customer or end-user, including amounts under ARPs. For PNM, accounts receivable reflected on the Condensed Consolidated Balance Sheets, net of allowance for uncollectible accounts, includes $76.7 million at September 30, 2019 and $61.7 million at December 31, 2018 resulting from contracts with customers. All of TNMP’s accounts receivable results from contracts with customers.

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

Changes during the period in the balances of contract liabilities, which are included in other current liabilities on the Condensed Consolidated Balance Sheets, are as follows:
 
 
PNM
 
TNMP
 
PNMR Consolidated
 
 
(In thousands)
Balance at December 31, 2018
 
$
349

 
$
—

 
$
349

Consideration received in advance of service to be provided
 
4,384

 
1,518

 
5,902

Deferred revenue earned
 
(3,369
)
 
(1,147
)
 
(4,516
)
Balance at September 30, 2019
 
$
1,364

 
$
371

 
$
1,735


(6)
Variable Interest Entities

GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity (“VIE”). GAAP also requires continual reassessment of the primary beneficiary of a VIE. Additional information concerning PNM’s VIEs is contained in Note 10 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K.

Valencia

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

35

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


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

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Operating revenues
$
5,409

 
$
5,368

 
$
15,538

 
$
16,047

Operating expenses
1,549

 
1,448

 
5,350

 
4,341

Earnings attributable to non-controlling interest
$
3,860

 
$
3,920

 
$
10,188

 
$
11,706

 
Financial Position

 
September 30,
 
December 31,
 
2019
 
2018
 
(In thousands)
Current assets
$
5,789

 
$
2,684

Net property, plant, and equipment
59,292

 
62,066

Total assets
65,081

 
64,750

Current liabilities
906

 
538

Owners’ equity – non-controlling interest
$
64,175

 
$
64,212



Westmoreland San Juan Mining, LLC

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

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

PNMR issued $30.3 million in letters of credit to facilitate the issuance of reclamation bonds required in order for SJCC to mine coal to be supplied to SJGS. As discussed above, WSJ LLC assumed the rights and obligations of SJCC, including obligations to PNMR for the letters of credit. The letters of credit support results in PNMR being considered to have 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

36

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


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 have established and fund trusts to meet future reclamation obligations.
 
WSJ LLC is considered to be a VIE.  PNMR’s analysis of its arrangements with WSJ LLC concluded that WSJ LLC has the ability to direct its mining operations, which is the factor that most significantly impacts the economic performance of WSJ LLC.  Other than PNM being able to ensure that coal is supplied in adequate quantities and of sufficient quality to provide the fuel necessary to operate SJGS in a normal manner, the mining operations are solely under the control of WSJ LLC, including developing mining plans, hiring of personnel, and incurring operating and maintenance expenses. Neither PNMR nor PNM has any ability to direct or influence the mining operation.  PNM’s involvement through the SJGS CSA, which was assumed by WSJ LLC pursuant to the March 15, 2019 purchase of the assets owned by SJCC by WSJ LLC, is a protective right rather than a participating right and WSJ LLC has the power to direct the activities that most significantly impact the economic performance of WSJ LLC.  The SJGS CSA requires WSJ LLC to deliver coal required to fuel SJGS in exchange for payment of a set price per ton, which is escalated over time for inflation.  If WSJ LLC is able to mine more efficiently than anticipated, its economic performance will be improved.  Conversely, if WSJ LLC cannot mine as efficiently as anticipated, its economic performance will be negatively impacted.  Accordingly, PNMR believes WSJ LLC is the primary beneficiary and, therefore, WSJ LLC is not consolidated by either PNMR or PNM. The amounts outstanding under the letter of credit support constitute PNMR’s maximum exposure to loss from the VIE at September 30, 2019.

(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 2018 Annual Reports on Form 10-K.

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

Energy Related Derivative Contracts
Overview

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

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 entered into agreements to sell power from 36 MW of that capacity to a third party at a fixed price for the period January 1, 2018 through June 30, 2022, subject to certain conditions. Under these agreements, PNM is obligated to deliver 36 MW of power only when SJGS Unit 4 is operating.  These agreements are not considered derivatives because there is no notional amount due to the unit-contingent nature of the transactions.

PNM and Tri-State have a hazard sharing agreement, which expires on May 31, 2022. Under this agreement, each party sells the other party 100 MW of capacity and energy from a designated generation resource on a unit contingent basis, subject to certain performance guarantees.  Both the purchases and sales are made at the same market index price.  This agreement serves

37

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


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

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

Commodity Risk

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

Accounting for Derivatives

Under derivative accounting and related rules for energy contracts, PNM accounts for its various instruments for the purchase and sale of energy, which meet the definition of a derivative, based on PNM’s intent. During the nine months ended September 30, 2019 and the year ended December 31, 2018, PNM was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flows hedges. The derivative contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. PNM has no trading transactions.

Commodity Derivatives

PNM’s commodity derivative instruments that are recorded at fair value, all of which are accounted for as economic hedges, are presented in the following line items on the Condensed Consolidated Balance Sheets:
 
Economic Hedges
 
September 30,
2019
 
December 31,
2018
 
(In thousands)
Other current assets
$
1,157

 
$
1,083

Other deferred charges
1,770

 
2,511

 
2,927

 
3,594

Other current liabilities
(1,097
)
 
(1,177
)
Other deferred credits
(1,770
)
 
(2,511
)
 
(2,867
)
 
(3,688
)
Net
$
60

 
$
(94
)
Certain of PNM’s commodity derivative instruments in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. PNM does not offset fair value and cash collateral for derivative instruments under master netting arrangements and the above table reflects the gross amounts of fair value assets and liabilities for commodity derivatives. Included in the above table are equal amounts of assets and liabilities aggregating $2.9 million at September 30, 2019 and $3.6 million at December 31, 2018 resulting from PNM’s hazard sharing arrangements with Tri-State. The hazard sharing arrangements are net-settled upon delivery. Other amounts that could be offset under master netting agreements were immaterial.


38

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


At September 30, 2019 and December 31, 2018, PNM had no amounts recognized for the legal right to reclaim cash collateral. However, at September 30, 2019 and December 31, 2018, amounts posted as cash collateral under margin arrangements were $0.5 million and $1.0 million. At September 30, 2019 and December 31, 2018, obligations to return cash collateral were $0.9 million and $1.0 million. Cash collateral amounts are included in other current assets and other current liabilities on the Condensed Consolidated Balance Sheets.

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

Commodity contract volume positions are presented in MMBTU for gas related contracts and in MWh for power related contracts. The table below presents PNM’s net buy (sell) volume positions:
 
 
Economic Hedges
 
 
MMBTU
 
MWh
September 30, 2019
 
100,000

 
(11,200
)
December 31, 2018
 
100,000

 
—

PNM has contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. In connection with managing its commodity risks, PNM enters into master agreements with certain counterparties. If PNM is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral if PNM’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that PNM will perform; and others have no provision for collateral. At September 30, 2019 and December 31, 2018, PNM had no 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 September 30, 2019 and December 31, 2018, the fair value of investment securities included $322.2 million and $287.1 million for the NDT and $46.8 million and $41.1 million for the mine reclamation trusts.

As discussed in Note 9 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, on January 1, 2018 the Company adopted Accounting Standards Update 2016-01 – Financial Instruments (Subtopic 825-10). Accordingly, on January 1, 2018 PNM recorded an after-tax cumulative effect adjustment of $11.2 million to reclassify unrealized holding gains on equity securities held in the NDT and coal mine reclamation trusts from AOCI to retained earnings on the Condensed Consolidated Balance Sheets. After January 1, 2018, all gains and losses resulting from sales and changes in the fair value of equity securities are recognized in earnings. Under ASU 2016-01, the accounting for available-for-sale debt securities remains essentially unchanged. See discussion of New Accounting Pronouncements in Note 1 regarding ASU 2016-13.

39

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



Gains and losses recognized on the Condensed Consolidated Statements of Earnings related to investment securities in the NDT and reclamation trusts are presented in the following table:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Equity securities:
 
 
 
 
 
 
 
Net gains from equity securities sold
$
514

 
$
113

 
$
4,675

 
$
5,443

Net gains from equity securities still held
1,011

 
2,943

 
10,916

 
2,636

Total net gains on equity securities
1,525

 
3,056

 
15,591

 
8,079

Available-for-sale debt securities:
 
 
 
 
 
 
 
Net gains (losses) on debt securities
161

 
(593
)
 
4,708

 
(6,998
)
Net gains on investment securities
$
1,686

 
$
2,463

 
$
20,299

 
$
1,081



The proceeds and gross realized gains and losses on the disposition of securities held in the NDT and coal mine reclamation trusts are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. Gross realized losses shown below exclude the (increase)/decrease in realized impairment losses of $0.2 million and $2.8 million for the three and nine months ended September 30, 2019 and $(0.8) million and $(4.6) million for the three and nine months ended September 30, 2018.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Proceeds from sales
$
141,371

 
$
117,801

 
$
375,382

 
$
911,899

Gross realized gains
$
6,510

 
$
3,460

 
$
21,605

 
$
17,030

Gross realized (losses)
$
(6,026
)
 
$
(3,149
)
 
$
(14,998
)
 
$
(14,018
)


The Company has no available-for-sale debt securities for which carrying value exceeds fair value. There are no impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings.
At September 30, 2019, the available-for-sale debt securities held by PNM, had the following final maturities:
 
Fair Value
 
(In thousands)
Within 1 year
$
28,015

After 1 year through 5 years
79,195

After 5 years through 10 years
65,492

After 10 years through 15 years
13,960

After 15 years through 20 years
9,598

After 20 years
39,894

 
$
236,154



Fair Value Disclosures

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

40

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


transfers between fair value hierarchy levels as of the end of each calendar quarter. There were no transfers between levels during the nine months ended September 30, 2019 or the year ended December 31, 2018.

For investment securities, Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For Level 2 fair values, the pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value. Level 3 investments are comprised of corporate term loans. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. The valuation of Level 3 investments requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The significant unobservable inputs include the trading multiples of public companies that are considered comparable to the company being valued, company specific issues, estimates of liquidation value, current operating performance and future expectations of performance, changes in market outlook and the financing environment, capitalization rates, discount rates, and cash flows. Management of the Company independently verifies the information provided by pricing services.

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
 
 
 
Total
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Unrealized Gains
 
(In thousands)
September 30, 2019
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,455

 
$
1,455

 
$
—

 
$
—

 
 
Equity securities:
 
 
 
 
 
 
 
 
 
Corporate stocks, common
58,820

 
58,820

 
—

 
—

 
 
Corporate stocks, preferred
8,877

 
2,014

 
6,863

 
—

 
 
Mutual funds and other
63,711

 
63,694

 
17

 
—

 
 
Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
     U.S. Government
40,959

 
15,458

 
25,501

 
—

 
$
832

     International Government
12,975

 
—

 
12,975

 
—

 
819

     Municipals
44,706

 
—

 
44,706

 
—

 
1,896

     Corporate and other
137,514

 
946

 
133,772

 
2,796

 
9,591

          
$
369,017

 
$
142,387

 
$
223,834

 
$
2,796

 
$
13,138

 
 
 
 
 
 
 
 
 
 
Commodity derivative assets
$
2,927

 
$
—

 
$
2,927

 
$
—

 
 
Commodity derivative liabilities
(2,867
)
 
—

 
(2,867
)
 
—

 
 
          Net
$
60

 
$
—

 
$
60

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 


41

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


 
Total
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Unrealized Gains
 
(In thousands)
December 31, 2018
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
11,472

 
$
11,472

 
$
—

 
$
—

 
 
Equity securities:

 
 
 
 
 
 
 
 
Corporate stocks, common
32,997

 
32,997

 
—

 
—

 

Corporate stocks, preferred
7,258

 
1,654

 
5,604

 
—

 

Mutual funds and other
70,777

 
70,777

 
—

 
—

 

Available-for-sale debt securities:
 
 
 
 
 
 
 
 
 
     U.S. Government
29,503

 
18,662

 
10,841

 
—

 
$
1,098

     International Government
8,435

 
—

 
8,435

 
—

 
90

     Municipals
53,642

 
—

 
53,642

 
—

 
489

     Corporate and other
114,158

 
588

 
111,414

 
2,156

 
923

          
$
328,242

 
$
136,150

 
$
189,936

 
$
2,156

 
$
2,600

 
 
 
 
 
 
 
 
 
 
Commodity derivative assets
$
3,594

 
$
—

 
$
3,594

 
$
—

 
 
Commodity derivative liabilities
(3,688
)
 
—

 
(3,688
)
 
—

 
 
          Net
$
(94
)
 
$
—

 
$
(94
)
 
$
—

 
 


A reconciliation of the changes in Level 3 fair value measurements is as follows:
 
Corporate Debt
 
(In thousands)
Balance at December 31, 2018
$
2,156

Actual return on assets sold during the period
(54
)
Actual return on assets still held at period end
41

Purchases
2,090

Sales
(1,437
)
Balance at September 30, 2019
$
2,796

 
 
Balance at December 31, 2017
$
—

Actual return on assets sold during the period
(6
)
Actual return on assets still held at period end
16

Purchases
5,234

Sales
(2,190
)
Balance at September 30, 2018
$
3,054




42

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 carrying amounts and fair values of long-term debt, which is not recorded at fair value on the Condensed Consolidated Balance Sheets, are presented below:
 
 
 
 
 
GAAP Fair Value Hierarchy
 
Carrying Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
September 30, 2019
(In thousands)
PNMR
$
2,852,229

 
$
3,030,720

 
$
—

 
$
3,030,720

 
$
—

PNM
$
1,707,637

 
$
1,787,761

 
$
—

 
$
1,787,761

 
$
—

TNMP
$
705,756

 
$
799,425

 
$
—

 
$
799,425

 
$
—

 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
PNMR
$
2,670,111

 
$
2,703,810

 
$
—

 
$
2,703,810

 
$
—

PNM
$
1,656,490

 
$
1,668,736

 
$
—

 
$
1,668,736

 
$
—

TNMP
$
575,398

 
$
597,236

 
$
—

 
$
597,236

 
$
—



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

(8)
Stock-Based Compensation

PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. The Company has not issued stock options since 2010 and all employee stock options expire in February 2020. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 12 of the Notes to Consolidated Financial Statements in the 2018 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, awards to employees vest ratably over three years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in certain stock awards. Awards of restricted stock to non-employee members of the Board are expensed over a one-year vesting period.

The stock-based compensation expense related to restricted stock awards without performance or market conditions to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized to compensation expense over the shorter of the requisite vesting period or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At September 30, 2019, PNMR had unrecognized expense related to stock awards of $4.7 million, which is expected to be recognized over an average of 1.59 years.

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

The grant date fair value for restricted stock and stock awards with Company internal performance targets is determined based on the market price of PNMR common stock on the date of the agreements reduced by the present value of future dividends, which will not be received prior to vesting, applied to the total number of shares that are anticipated to vest. The number of performance shares that ultimately vest cannot be determined until after the performance period ends. The grant date fair value

43

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


of stock awards with market targets is determined using Monte Carlo simulation models, which provide grant date fair values that include an expectation of the number of shares to vest at the end of the measurement period.

The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:
 
 
Nine Months Ended September 30,
Restricted Shares and Performance Based Shares
 
2019
 
2018
Expected quarterly dividends per share
 
$
0.290

 
$
0.265

Risk-free interest rate
 
2.47
%
 
2.38
%
 
 
 
 
 
Market-Based Shares
 
 
 
 
Dividend yield
 
2.59
%
 
2.96
%
Expected volatility
 
19.55
%
 
19.12
%
Risk-free interest rate
 
2.51
%
 
2.36
%

The following table summarizes activity in restricted stock awards, including performance-based and market-based shares, and stock options, for the nine months ended September 30, 2019:
 
Restricted Stock
 
Stock Options
 
Shares
 
Weighted-
Average
Grant Date Fair Value
 
Shares
 
Weighted-
Average
Exercise Price
Outstanding at December 31, 2018
166,651

 
$
32.93

 
81,000

 
$
11.94

Granted
134,573

 
37.92

 
—

 
—

Exercised
(137,601
)
 
31.44

 
(79,000
)
 
11.93

Forfeited
(1,681
)
 
39.61

 
—

 
—

Expired
—

 
—

 
—

 
—

Outstanding at September 30, 2019
161,942

 
$
38.21

 
2,000

 
$
12.22



PNMR’s stock-based compensation program provides for performance and market targets through 2021. In February 2019, the Board approved amendments to exclude certain impacts of the Tax Act on performance metrics for the performance periods ending in 2018 and 2019. These amendments did not impact the Company’s calculation of grant date fair values under the plans. However, at the time these amendments were made, the achievement levels for the performance period ending in 2018 increased from below “threshold” to below “target” level and anticipated achievement for the performance period ending in 2019 from below “target” to the “maximum” level. Included as granted and exercised in the table above are 47,279 previously awarded shares that were earned for the 2016 through 2018 performance measurement period and ratified by the Board in February 2019 (based upon achieving market targets at below “threshold” levels, weighted at 40%, and performance targets at above “target” levels, together weighted at 60%). Excluded from the table above are maximums of 130,302, 146,941, and 135,678 shares for the three-year performance periods ending in 2019, 2020, and 2021 that would be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.

In March 2015, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive 53,859 shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2019 and she remains an employee of the Company. Under the agreement, she was to receive 17,953 of the total shares if PNMR achieved specific performance targets at the end of 2017. The specified performance target was achieved at the end of 2017 and the Board ratified her receiving 17,953 shares in February 2018. The retention award was made under the PEP and was approved by the Board on February 26, 2015. The above table does not include the restricted stock shares that remain unvested under this retention award agreement.     

44

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


At September 30, 2019, the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was $0.1 million with a weighted-average remaining contract life of 0.4 years. At September 30, 2019, no outstanding stock options had an exercise price greater than the closing price of PNMR common stock on that date.

The following table provides additional information concerning restricted stock activity, including performance-based and market-based shares, and stock options:
 
 
Nine Months Ended September 30,
Restricted Stock
 
2019
 
2018
Weighted-average grant date fair value
 
$
37.92

 
$
29.65

Total fair value of restricted shares that vested (in thousands)
 
$
6,227

 
$
8,493

 
 
 
 
 
Stock Options
 
 
 
 
Total intrinsic value of options exercised (in thousands)
 
$
2,617

 
$
3,016



(9)
Financing

The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures. Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities or refinance other debt. Each of the Company’s revolving credit facilities and term loans contain a single financial covenant that requires the maintenance of a debt-to-capitalization ratio. For the PNMR and PNMR Development agreements this ratio must be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. Additional information concerning financing activities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K.

Financing Activities

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

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

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

45

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



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

Information concerning the funding dates, maturities and interest rates on the TNMP 2019 Bonds is as follows:
Funding Date
 
Maturity Date
 
Principal Amount
 
Interest Rate
 
 
 
 
(In millions)
 
 
March 29, 2019
 
March 29, 2034
 
$
75.0

 
3.79
%
March 29, 2019
 
March 29, 2039
 
75.0
 
3.92
%
March 29, 2019
 
March 29, 2044
 
75.0
 
4.06
%
 
 
 
 
225.0

 
 
July 1, 2019
 
July 1, 2029
 
80.0

 
3.60
%
 
 
 
 
$
305.0

 
 


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

See discussion of PNM’s SJGS Abandonment Application in Note 12, which includes a request to issue approximately $361 million of energy transition bonds, as provided by the ETA, upon the proposed retirement of SJGS in 2022.

Short-term Debt and Liquidity

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 in October 2023 but 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 and matures on September 23, 2022.

On February 22, 2019, PNMR Development amended its $24.5 million revolving credit facility to increase the capacity to $25.0 million. On July 22, 2019, the PNMR Development Revolving Credit Facility was amended to increase the capacity to $40.0 million with the option to further increase the capacity to $50.0 million upon 15-days advance notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate, contains terms similar to the PNMR Revolving Credit Facility, and expires on February 24, 2020. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities.


46

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)


Short-term debt outstanding consisted of:
 
 
September 30,
 
December 31,
Short-term Debt
 
2019
 
2018
 
 
(In thousands)
PNM:
 
 
 
 
PNM Revolving Credit Facility
 
$
—

 
$
32,400

PNM 2017 New Mexico Credit Facility
 
—

 
10,000

 
 
—

 
42,400

TNMP Revolving Credit Facility
 
15,000

 
17,500

PNMR:
 
 
 
 
PNMR Revolving Credit Facility
 
85,700

 
20,000

PNMR 2018 One-Year Term Loan
 
150,000

 
150,000

     PNMR Development Revolving Credit Facility
 
38,900

 
6,000

 
 
$
289,600

 
$
235,900



At September 30, 2019, the weighted average interest rate was 3.29% for the PNMR Revolving Credit Facility, 2.81% for the PNMR 2018 One-Year Term Loan, 2.77% for the TNMP Revolving Credit Facility, and 3.05% for the PNMR Development Revolving Credit Facility.

In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $4.7 million, $2.5 million, and $0.1 million at September 30, 2019 that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of September 30, 2019, and December 31, 2018, TNMP had $0.8 million and $0.1 million of intercompany borrowings from PNMR, PNM had zero and $19.8 million of intercompany borrowings from PNMR, and PNMR Development had $0.1 million and $0.5 million of intercompany borrowings from PNMR.

In 2017, PNMR entered into three separate four-year hedging agreements whereby it effectively established fixed interest rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR for three separate tranches, each of $50.0 million, of its variable rate debt. These hedge agreements are accounted for as cash flow hedges and had fair values of $0.6 million at September 30, 2019 that are included in other current liabilities on the Condensed Consolidated Balance Sheets. At December 31, 2018, the hedge agreements had fair values aggregating $1.0 million that are included in other current assets on the Condensed Consolidated Balance Sheets. As discussed in Note 3, changes in the fair value of the cash flow hedges are deferred in AOCI and amounts reclassified to the Condensed Consolidated Statement of Earnings are recorded in interest charges. The fair values were determined using Level 2 inputs under GAAP, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement. On January 1, 2019, the Company adopted Accounting Standards Update 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. Adoption of the updated standard did not have a significant impact on these cash flow hedges.

At October 25, 2019, PNMR, PNM, TNMP, and PNMR Development had availability of $215.9 million, $397.5 million, $59.6 million, and $1.1 million under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit, and PNM had $40.0 million of availability under the PNM 2017 New Mexico Credit Facility. Total availability at October 25, 2019, on a consolidated basis, was $714.1 million for PNMR. As of October 25, 2019, PNM and TNMP had no borrowings from PNMR under their intercompany loan agreements. As of October 25, 2019, PNMR Development had $0.1 million of intercompany borrowings from PNMR. At October 25, 2019, PNMR, PNM, and TNMP had invested cash of $0.9 million, $20.5 million, and zero.

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

47

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)


(10)
Pension and Other Postretirement Benefit Plans

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

Additional information concerning pension and OPEB plans is contained in Note 11 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K. Annual net periodic benefit cost for the plans is actuarially determined using the methods and assumptions set forth in that note and is recognized ratably throughout the year.

PNM Plans

The following table presents the components of the PNM Plans’ net periodic benefit cost:
 
Three Months Ended September 30,
 
Pension Plan
 
OPEB Plan
 
Executive Retirement Program
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
13

 
$
21

 
$
—

 
$
—

Interest cost
6,294

 
6,068

 
829

 
860

 
163

 
155

Expected return on plan assets
(8,527
)
 
(8,672
)
 
(1,320
)
 
(1,353
)
 
—

 
—

Amortization of net (gain) loss
3,880

 
4,087

 
169

 
588

 
79

 
90

Amortization of prior service cost
(241
)
 
(241
)
 
(99
)
 
(416
)
 
—

 
—

Net Periodic Benefit Cost (Income)
$
1,406

 
$
1,242

 
$
(408
)
 
$
(300
)
 
$
242

 
$
245

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
Pension Plan
 
OPEB Plan
 
Executive Retirement Program
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
39

 
$
62

 
$
—

 
$
—

Interest cost
18,881

 
18,203

 
2,487

 
2,579

 
487

 
467

Expected return on plan assets
(25,577
)
 
(26,014
)
 
(3,956
)
 
(4,061
)
 
—

 
—

Amortization of net (gain) loss
11,639

 
12,261

 
507

 
1,765

 
237

 
269

Amortization of prior service cost
(724
)
 
(724
)
 
(297
)
 
(1,248
)
 
—

 
—

Net Periodic Benefit Cost (Income)
$
4,219

 
$
3,726

 
$
(1,220
)
 
$
(903
)
 
$
724

 
$
736


PNM did not make any contributions to its pension plan trust in the nine months ended September 30, 2019 and 2018 and does not anticipate making any contributions to the pension plan in 2019-2021, but expects to contribute $23.0 million in 2022 and $27.4 million in 2023, based on current law, funding requirements, and estimates of portfolio performance. The funding assumptions were developed using a discount rate of 3.5%. Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rate. PNM may make additional contributions at its discretion. Disbursements attributable to the OPEB trust, a portion of which are funded by PNM and considered to be contributions to the

48

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


OPEB plan, were $0.9 million and $2.4 million in the three and nine months ended September 30, 2019. PNM made no cash contributions to the OPEB trust in the three and nine months ended September 30, 2018, however, PNM funded disbursements attributable to a portion of the OPEB trust of $0.9 million and $1.5 million. Although PNM does not expect to make any cash contributions to the OPEB trust in 2019-2023, disbursements attributable to the OPEB plan that are expected to be funded by PNM are estimated to be $3.7 million in 2019 and $13.7 million for 2020-2023. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were $0.4 million and $1.1 million in the three and nine months ended September 30, 2019 and $0.4 million and $1.3 million in the three and nine months ended September 30, 2018 and are expected to total $1.5 million during 2019 and $5.6 million for 2020-2023.

TNMP Plans

The following table presents the components of the TNMP Plans’ net periodic benefit cost:
 
Three Months Ended September 30,
 
Pension Plan
 
OPEB Plan
 
Executive Retirement Program
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
12

 
$
33

 
$
—

 
$
—

Interest cost
672

 
656

 
113

 
119

 
7

 
7

Expected return on plan assets
(967
)
 
(991
)
 
(129
)
 
(135
)
 
—

 
—

Amortization of net (gain) loss
235

 
272

 
(111
)
 
(56
)
 
4

 
4

Amortization of prior service cost
—

 
—

 
—

 
—

 
—

 
—

Net Periodic Benefit Cost (Income)
$
(60
)
 
$
(63
)
 
$
(115
)
 
$
(39
)
 
$
11

 
$
11

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
Pension Plan
 
OPEB Plan
 
Executive Retirement Program
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
39

 
$
100

 
$
—

 
$
—

Interest cost
2,015

 
1,968

 
338

 
358

 
24

 
22

Expected return on plan assets
(2,901
)
 
(2,972
)
 
(387
)
 
(406
)
 
—

 
—

Amortization of net (gain) loss
706

 
816

 
(332
)
 
(170
)
 
11

 
11

Amortization of prior service cost
—

 
—

 
—

 
—

 
—

 
—

Net Periodic Benefit Cost (Income)
$
(180
)
 
$
(188
)
 
$
(342
)
 
$
(118
)
 
$
35

 
$
33



TNMP did not make any contributions to its pension plan trust in the nine months ended September 30, 2019 and 2018 and does not anticipate making any contributions in 2019-2021, but expects to contribute $1.0 million in 2022 and $3.7 million in 2023, based on current law, funding requirements, and estimates of portfolio performance. The funding assumptions were developed using a discount rate of 3.5%. Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made no contributions to the OPEB trust in the three and nine months ended September 30, 2019 and zero and $0.3 million in the three and nine months ended September 30, 2018. TNMP does not expect to make contributions to the OPEB trust during the period 2019-2023. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were less than $0.1 million in the three and nine months ended September 30, 2019 and 2018 and are expected to total $0.1 million during 2019 and $0.3 million in 2020-2023.


49

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


(11)
Commitments and Contingencies

Overview
There are various claims and lawsuits pending against the Company. In addition, the Company is subject to federal, state, and local environmental laws and regulations and periodically participates in the investigation and remediation of various sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. Also, the Company is involved in various legal and regulatory proceedings in the normal course of its business. See Note 12. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.
With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. The Company assesses legal and regulatory matters based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of any damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, or other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. Except as otherwise disclosed, the Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.
Additional information concerning commitments and contingencies is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2018 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. Under the settlement agreement, APS must submit claims annually for payment of allowable costs. PNM records estimated claims on a quarterly basis. The benefit from the claims is passed through to customers under the FPPAC to the extent applicable to NMPRC regulated operations.

PNM estimates that it will incur approximately $57.7 million (in 2016 dollars) for its share of the costs related to the on-site interim storage of spent nuclear fuel at PVNGS during the term of the operating licenses. PNM accrues these costs as a component of fuel expense as the nuclear fuel is consumed. At September 30, 2019 and December 31, 2018, PNM had a liability for interim storage costs of $12.6 million and $12.4 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 United States government’s obligation to accept and store spent fuel

50

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


are not favorably resolved, APS will evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the period of extended operation.

The Energy Transition Act

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

The ETA provides for a transition from fossil-fuel generation resources to renewable and other carbon-free resources through certain provisions relating to the abandonment of coal-fired generating facilities. These provisions include the use of “energy transition bonds,” which are designed to be highly rated bonds that can be issued to finance certain costs of abandoning coal-fired facilities that are retired prior to January 1, 2023 for facilities operated by a “qualifying utility,” or prior to January 1, 2032 for facilities that are not operated by the qualifying utility. The amount of energy transition bonds that can be issued to recover abandonment costs is limited to the lesser of $375.0 million or 150% of the undepreciated investment of the facility as of the abandonment date. Proceeds provided by energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include plant decommissioning and coal mine reclamation costs provided those costs have not previously been recovered from customers or disallowed by the NMPRC or by a court order. See Note 12 for a discussion of the NM Supreme Court’s decision to affirm the NMPRC’s disallowance of certain costs, including the cost of BDT at SJGS, in PNM’s NM 2015 Rate Case. Proceeds from energy transition bonds may also be used to fund severances for employees of the retired facility and related coal mine and to promote economic development, education and job training in areas impacted by the retirement of the coal-fired facilities. Energy transition bonds must be issued under a NMPRC approved financing order, are secured by “energy transition property,” are non-recourse to the issuing utility, and must be repaid by a non-bypassable charge paid by all customers of the issuing utility. These customer charges are subject to an adjustment mechanism designed to provide for timely and complete payment of principal and interest due under the energy transition bonds.

The ETA also provides that utilities must obtain NMPRC approval of competitively procured replacement resources that shall be evaluated based on their cost, economic development opportunity, and ability to provide jobs with comparable pay and benefits to those lost upon retirement of the facility. In determining whether to approve replacement resources, the NMPRC must give preference to resources with the least environmental impacts, those with higher ratios of capital costs to fuel costs, and those located in the school district of the abandoned facility able to reduce the cost of reclamation and use for lands previously mined within the county of the EGU to be abandoned. The ETA also provides for the procurement of energy storage facilities and gives utilities discretion to maintain, control, and operate these systems to ensure reliable and efficient service.

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


51

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


The Clean Air Act

Regional Haze

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

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

On December 20, 2018, EPA released a new guidance document on tracking visibility progress for the second planning period. EPA is allowing states discretion to develop SIPs that may differ from EPA’s guidance as long as they are consistent with the CAA and other applicable regulations. On August 20, 2019, EPA finalized the draft guidance that was released in 2017 as a companion to the regional haze rule revisions. The final guidance differs from the draft in several ways. For example, the final guidance recognizes that sources already subject to BART may not need to be re-evaluated under the full four-factor analysis whereas the draft guidance encouraged states to evaluate all sources regardless of whether they were previously subject to BART. In addition, the final guidance recognizes that states may consider both visibility benefits and the cost of different control options when applying the four-factor analysis whereas the draft guidance recommended states require any control measures identified to be reasonable after considering the four-factor analysis alone. SIPs for the second compliance period are due in July 2021. NMED is currently preparing its SIP for the second compliance period and has notified PNM that it will not require a regional haze four-factor analysis for SJGS provided PNM is still planning to retire its share of SJGS in 2022. PNM is continuing to evaluate the potential impacts of these matters.

SJGS

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

52

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



PNM submitted the December 2018 Compliance Filing to the NMPRC on December 31, 2018 indicating that, consistent with the conclusions reached in PNM’s 2017 IRP, PNM’s customers would benefit from the retirement of PNM’s share of SJGS after the current SJGS CSA expires in mid-2022. The December 2018 Compliance Filing also indicated that, pursuant to the terms of the agreements governing SJGS, all of the SJGS owners except for Farmington provided written notice that they do not intend to extend the SJGS operating agreements beyond their June 30, 2022 expiration dates, and that PNM has provided written notice to SJCC that PNM does not intend to extend the SJGS CSA beyond June 30, 2022. On January 30, 2019, the NMPRC issued an order initiating a proceeding and requiring PNM to submit an application for the abandonment of PNM’s share of SJGS by March 1, 2019. PNM filed a motion requesting the NMPRC vacate the January 30, 2019 order, which was deemed denied. On February 27, 2019, PNM filed a petition with the NM Supreme Court stating that the requirements of the January 30, 2019 order exceed the NMPRC’s authority by, among other things, mandating PNM to make a filing that is legally voluntary, and that the order is contrary to NMPRC precedent which requires abandonment applications to also include identified replacement resources and other information that would not be available to PNM by March 1, 2019. On March 1, 2019, the NM Supreme Court granted a temporary stay of the NMPRC’s order. Various parties intervened in the petition. On June 26, 2019, the NM Supreme Court lifted the stay, denied PNM’s petition without discussion, and vacated oral arguments that had been scheduled for July 9, 2019. On July 1, 2019, PNM filed its SJGS Abandonment Application. See Note 12.

GAAP requires that long-lived assets be tested for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. As of December 31, 2018, PNM evaluated the events surrounding its future participation in SJGS and determined that it is more likely than not that PNM’s share of SJGS will be retired in 2022. As a result, PNM performed an impairment analysis that assumed SJGS would not continue to operate through 2053, as previously approved by the NMPRC. PNM’s impairment analysis indicated that, pursuant to the NMPRC’s December 2015 order, PNM’s undepreciated 132 MW interest in SJGS Unit 4 at June 30, 2022 will not be recovered from customers; that the estimated future cash flows expected to result from the operation of SJGS Unit 4 through June 30, 2022 are not sufficient to provide for recovery of PNM’s 65 MW merchant interest in the facility; and that it is unlikely PNM will be able to sell or transfer its interests in SJGS to third parties at amounts sufficient to provide for their recovery. As a result, as of December 31, 2018, PNM recorded a pre-tax impairment of its investment in SJGS of approximately $35.0 million, which is reflected as regulatory disallowances and restructuring costs on the Consolidated Statements of Earnings in the 2018 Annual Reports on Form 10-K. This amount includes the entire $11.9 million carrying value of PNM’s 65 MW interest in SJGS Unit 4 as of December 31, 2018 and $23.1 million of estimated undepreciated investments in PNM’s 132 MW jurisdictional interest as of June 30, 2022 that will not be recovered from customers. As of September 30, 2019, and December 31, 2018, the net book value of PNM’s investments in SJGS after considering the impairments discussed above is $345.5 million and $373.6 million. See additional discussion below regarding the increase in PNM’s estimated liability for coal mine reclamation.

NEE Complaint – On March 31, 2016, NEE filed a complaint with the NMPRC alleging that PNM failed to comply with its discovery obligation in the case authorizing the shutdown of SJGS Units 2 and 3 and requesting the NMPRC investigate whether financing provided by NM Capital to the former owner of SJCC (the “Westmoreland Loan”) could adversely affect PNM’s ability to provide electric service to its retail customers. On January 31, 2018, NEE filed a motion asking the NMPRC to investigate whether PNM’s relationship with the former owner of SJCC could be harmful to PNM’s customers. On May 23, 2018, PNM filed its response to the NMPRC staff’s comments noting that the Westmoreland Loan was paid in full on May 22, 2018. On October 11, 2018, PNM notified the NMPRC that the former owner of SJCC, Westmoreland, had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. As discussed in Note 6, on March 15, 2019, Westmoreland announced that it had emerged from Chapter 11 bankruptcy as a privately held company owned and operated by a group of its former creditors. Under the reorganization, all the assets of SJCC were sold to WSJ LLC. As successor entity to SJCC, WSJ LLC assumed all rights and obligations of Westmoreland including obligations to PNM under the SJGS CSA. The NMPRC has taken no further action on NEE’s complaints. PNM is not able to predict the potential outcome of this matter but does not anticipate the NMPRC will take any further action.

Four Corners

Four Corners Federal Agency Lawsuit – On April 20, 2016, several environmental groups filed a lawsuit against OSM and other federal agencies in the United States District Court for the District of Arizona in connection with their issuance of the approvals that extended the life of Four Corners and the adjacent mine. The lawsuit alleges that these federal agencies violated

53

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)


both the ESA and NEPA in providing the federal approvals necessary to extend operations at Four Corners and the adjacent mine past July 6, 2016.  The court granted an APS motion to intervene in the litigation. On September 15, 2016, NTEC, the current owner of the mine providing coal to Four Corners, filed a motion to intervene for the limited purpose of seeking dismissal of the lawsuit based on NTEC’s tribal sovereign immunity. On September 11, 2017, the court granted NTEC’s motion and dismissed the case with prejudice, terminating the proceedings. The environmental group plaintiffs filed a Notice of Appeal of the dismissal in the United States Court of Appeals for the Ninth Circuit on November 9, 2017, and the court granted their subsequent motion to expedite the appeal. Oral arguments for the appeal were held on March 7, 2019. On July 29, 2019, the Ninth Circuit issued a decision affirming the District Court’s dismissal of the case. On September 12, 2019, the environmental groups filed a motion for reconsideration. PNM cannot predict the outcome of this matter.

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 agencies 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. However, before the DC Circuit could issue an opinion, the Trump Administration asked that the case be held in abeyance while the rule was being re-evaluated, which was granted.

On March 28, 2017, President Trump issued an Executive Order on Energy Independence. The order put forth two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.  The order 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. 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.

EPA’s efforts to replace the Clean Power Plan with the Affordable Clean Energy rule began on October 10, 2017, when EPA issued a NOPR proposing to repeal the Clean Power Plan and filed its status report with the court requesting the case be held in abeyance until the completion of the rulemaking on the proposed repeal. The NOPR proposed a legal interpretation concluding that the Clean Power Plan exceeded EPA’s statutory authority. On August 31, 2018, EPA published a proposed rule, informally known as the Affordable Clean Energy rule, to replace the Clean Power Plan. On June 19, 2019, EPA released the final version of the Affordable Clean Energy rule. EPA takes three actions in the final rule: (1) finalizes the repeal of the Clean Power Plan; (2) finalizes the Affordable Clean Energy rule; and (3) revises the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d), which among other things, extends the timing of state plans. The final rule is very similar to the August 2018 proposed rule. EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a

54

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)


federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).

Since the Navajo Nation does not have primacy over its air quality program, EPA would be the regulatory authority responsible for implementing the Affordable Clean Energy rule on the Navajo Nation. PNM is currently reviewing the requirements of the Affordable Clean Energy rule and is unable to predict the potential financial or operational impacts on Four Corners.

While corresponding NSR reform regulations were proposed as part of the proposed Affordable Clean Energy rule, the final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy Rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from a project are to be considered in determining whether the proposed project will result in an increase in air emissions.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule published in October 2015 for new, reconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on the revised BSER as the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon capture and sequestration. As a result, the proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. Comments on the proposal were due on March 18, 2019 and a final rule is expected in late 2019.
PNM’s review of the GHG emission reductions standards under the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. As discussed above, SJGS may also be required to comply with additional CO2 emissions restrictions issued by the New Mexico Environmental Improvement Board pursuant to the recently enacted ETA. PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.

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

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

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


55

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 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 annual modeling report to EPA in July 2019. That report retained the recommendation that no further modeling is needed at this time and is subject to EPA review.

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

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

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

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

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 Dona Ana County, New Mexico is designated as marginal non-attainment. The final rule also establishes the timing of attainment dates for each non-attainment area classification, which are marginal, moderate, serious, severe, or extreme. The rule became effective May 8, 2018. Attainment plans for nonattainment areas are due in August 2021.

NMED has responsibility for bringing the small area in Dona County designated as marginal/non-attainment for ozone into compliance and will look at all sources of NOx and volatile organic compounds. NMED is working on the State Implementation Plan revision that outlines the strategies and emissions control measures that are expected to improve air quality in the area by May 8, 2021. These strategies and measures would aim to reduce the amount of NOx and volatile organic compounds emitted to the atmosphere and will rely upon current or upcoming federal rules, new or revised state rules, and other programs.

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

PM Standard – On September 11, 2019, EPA published its policy assessment for review of the NAAQS for particle pollution (“PM”). The draft assessment considers lowering the existing primary standard for PM2.5 from 12 micrograms per cubic meter to a level above 8 micrograms per cubic meter. Comments on the draft assessment are due November 12, 2019. EPA anticipates

56

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)


issuing a final rulemaking in late 2020. PNM cannot predict the outcome of this matter or whether it will have a material impact on its financial position, results of operations, or cash flows.

WEG v. OSM NEPA Lawsuit

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

Of the fifteen claims for relief in the WEG Petition, two concerned SJCC’s San Juan mine. WEG’s allegations concerning the San Juan mine arose from OSM administrative actions in 2008. SJCC intervened in this matter. In 2016, OSM filed a Motion for Voluntary Remand to allow the agency to conduct a new environmental analysis and the court entered an order remanding the matter to OSM for the completion of an EIS by August 31, 2019. The court ruled that mining operations could continue in the interim and administratively closed the litigation. If OSM had not completed the EIS within the time frame provided, the court had authority to order immediate vacatur of the mining plan absent a further court order based on good cause shown. The final EIS, which allows for continued mining beyond 2022 at quantities similar to those currently being provided, was approved on August 26, 2019. PNM cannot predict if the revised final EIS will be subject to additional legal challenge.

Navajo Nation Environmental Issues
Four Corners is located on the Navajo Nation and is held under easements granted by the federal government, as well as agreements with the Navajo Nation which grant each of the owners the right to operate on the site. The Navajo Acts purport to give the Navajo Nation Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation challenging the applicability of the Navajo Acts to Four Corners. In May 2005, APS and the Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation’s authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement, APS sought, and the court granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts. PNM cannot currently predict the outcome of these matters or the range of their potential impacts.
Cooling Water Intake Structures
In 2014, EPA 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, seven 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

57

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)


December 31, 2023 compliance deadline. PNM is working with EPA regarding this issue but does not expect material changes as a result of any requirements that may be imposed upon SJGS.
On May 23, 2018, several environmental groups sued EPA Region IX in the United States Court of Appeals for the Ninth Circuit Court over EPA’s failure to timely reissue the Four Corners NPDES permit. The petitioners asked the court to issue a writ of mandamus compelling EPA Region IX to take final action on the pending NPDES permit by a reasonable date. EPA subsequently reissued the NPDES permit on June 12, 2018. The permit did not contain conditions related to the cooling water intake structure rule as EPA determined that the facility has achieved BTA for both impingement and entrainment by operating a closed-cycle recirculation system and no additional conditions are necessary. On July 16, 2018, several environmental groups filed a petition for review with EPA’s Environmental Appeals Board concerning the reissued permit. The environmental groups alleged that the permit was reissued in contravention of several requirements under the Clean Water Act and did not contain required provisions concerning certain revised effluent limitation guidelines, existing-source regulations governing cooling-water intake structures, and effluent limits for surface seepage and subsurface discharges from coal-ash disposal facilities. On December 19, 2018, EPA withdrew the Four Corners NPDES permit in order to examine issues raised by the environmental groups. Withdrawal of the permit moots the appeal pending before the Environmental Appeals Board. EPA’s Environmental Appeals Board thereafter dismissed the environmental groups’ appeal. EPA issued an updated NPDES permit on September 30, 2019. PNM cannot predict the outcome of this matter or whether it will have a material impact on PNM’s financial position, results of operations or cash flows.

Effluent Limitation Guidelines

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

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

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

On September 18, 2017, EPA published a final rule for postponement of certain compliance dates, which have not yet passed for the Effluent Limitations Guidelines rule. 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.

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.


58

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)


EPA reissued an NPDES permit for Four Corners on June 12, 2018. EPA had determined that the guidelines in the 2015 rule were not applicable to this permit because the effective dates of the 2015 effluent guidelines rule were extended but later withdrew the Four Corners NPDES permit in order to examine issues raised by several environmental groups. EPA issued an updated NPDES permit on September 30, 2019. Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques during the next NPDES permit renewal 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. Work under the plan commenced in August 2019.
The City of Santa Fe has stopped operating its well at the site, which is needed for PNM’s groundwater remediation 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.
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 RCRA and sets minimum criteria for existing and new CCR landfills and surface impoundments. On December 16, 2016, the Water Infrastructure Improvements for the Nation Act (the “WIIN Act”) was signed into law to address critical water infrastructure needs in the United States and contains a number of provisions related to the CCR rules. Among other things, the WIIN Act allows, but does not require, states to develop and submit CCR permit programs for EPA approval, provides flexibility for states to incorporate EPA’s final rule for CCRs or develop other criteria that are at least as protective as EPA’s final rule, and requires EPA to approve state permit programs within 180 days of submission by the state. Because states are not required to implement their own CCR permit programs, EPA will implement the permit program in states that choose not to implement a program, subject to Congressional funding. Until permit programs are in effect, EPA has authority to directly enforce the self-implementing CCR rule. For facilities located within the boundaries of Native American reservations, such as the Navajo Nation where Four Corners is located, EPA is required to develop a federal permit program regardless of appropriated funds. There is no timeline for establishing either state or federal permitting programs. Since the CCR rule was promulgated in 2015, it has undergone multiple revisions and may be subject to further change as a result of EPA’s ongoing review, implementation of the WIIN act, and the impact of various court decisions in litigation.

59

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 July 30, 2018, EPA published a rule which 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 extends the deadline to allow EGUs with unlined impoundments or that fail to meet the uppermost aquifer requirement to continue to receive coal ash until October 31, 2020. The second revision authorizes a “Participating State Director” or EPA, in lieu of a professional engineer, to approve suspension of groundwater monitoring and to issue certifications related to the location restrictions, design criteria, groundwater monitoring, remedy selection and implementation. The revisions also modify groundwater protection standards for certain constituents, which include cobalt, molybdenum, lithium, and lead without a maximum contamination level. EPA intends to issue multiple proposed rulemakings with a final rule in December 2019 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, 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 and the definition of beneficial use. A final rule is expected in December 2019. PNM cannot predict the outcome of EPA’s rule making activity or the outcome of any related litigation, and whether or how such a ruling would affect operations at Four Corners.

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

As indicated above, CCRs at Four Corners are currently disposed of in ash ponds and dry storage areas. The CCR rule requires ongoing, phased groundwater monitoring. Utilities that own or operate CCR disposal units, such as those at Four Corners were required to collect sufficient groundwater sampling data to initiate a detection monitoring program.  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 2020. At this time, PNM does not anticipate its share of the cost to complete these corrective actions or to close the CCR disposal units at Four Corners will have a significant impact on its operations, financial position, or cash flows.
 
Other Commitments and Contingencies
Coal Supply
SJGS
The coal requirements for SJGS are supplied by SJCC. SJCC holds certain federal, state, and private coal leases. In addition to coal delivered to meet the current needs of SJGS, PNM has prepaid SJCC for certain coal mined but not yet delivered to the plant site. At September 30, 2019 and December 31, 2018, prepayments for coal, which are included in other current assets, amounted to $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 2018 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 indirect wholly-owned subsidiary SJCC, agreed to supply all of the coal requirements of SJGS through June 30, 2022. PNM and Westmoreland also entered into agreements under which 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.

60

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 had the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In 2018, PNM, Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022 and Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. On November 30, 2018, PNM provided notice to Westmoreland that PNM 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 above of PNM’s December 2018 Compliance Filing and its SJGS Abandonment Application in Note 12.

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

Four Corners
APS purchases all of Four Corners’ coal requirements from NTEC, an entity owned by the Navajo Nation, under a coal supply contract (the “Four Corners CSA”) that expires in 2031. The coal comes from reserves located within the Navajo Nation. NTEC has contracted with Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, for management and operation of the mine. The contract provides for pricing adjustments over its term based on economic indices. See additional discussion of the Four Corners CSA in Note 17 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K.
Coal Mine Reclamation
As indicated under Coal Combustion 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 2018 Annual Reports on Form 10-K, in conjunction with the shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, the SJGS participants requested that the coal mine reclamation study for SJGS be updated periodically. The SJGS RA required PNM to complete an update to the reclamation cost estimate after the December 31, 2017 shutdown of SJGS Units 2 and 3. This reclamation cost estimate was completed in October 2018 and assumed continuation of mining operations through 2053. The 2018 study indicated a decrease in reclamation costs primarily driven by lower inflationary factors used to determine the estimated future cost of reclamation activities. PNM recorded its $2.5 million share of this decrease as of September 30, 2018 as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings.

In December 2018, PNM again remeasured its liability for coal mine reclamation for the mine that serves SJGS to reflect that reclamation activities may occur beginning in 2022, rather than in 2053 as previously anticipated. This estimate resulted in an increase in overall reclamation costs due to an increase in the amount of fill dirt required to remediate the mine areas and the timing of activities necessary to reclaim the mine that serves SJGS. This remeasurement increased PNM’s liability for coal mine reclamation as of December 31, 2018 by $39.2 million for both the underground and surface mines that serve SJGS. PNM recovers from retail customers reclamation costs associated with the underground mine. However, the NMPRC has capped the amount that can be collected from retail customers for final reclamation of the surface mines at $100.0 million. As a result, PNM recorded $9.4 million of the increase in the liability at December 31, 2018 related to the underground mine in regulatory assets on the Condensed Consolidated Balance Sheets and recorded the remaining $29.8 million associated with the surface mine as regulatory disallowances and restructuring costs on the Condensed Consolidated Statements of Earnings. PNM’s estimate of the costs necessary to reclaim the mine that serves SJGS is subject to many assumptions, including the timing of reclamation, generally accepted practices at the time reclamation activities occur, and then current inflation and discount rates. In addition, PNM may be exposed to additional loss if recovery for the cost of reclamation activities is not approved by the NMPRC in connection with the NMPRC approvals indicated above.
A draft coal mine reclamation study for the mine that serves Four Corners was issued in July 2019. The study reflected operation of the mine through 2031, the term of the Four Corners CSA. The draft study resulted in a net decrease in PNM’s share

61

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


of the coal mine reclamation obligation as of June 30, 2019 of $0.3 million, which was primarily driven by lower overhead costs offset by an increase driven by a reduction in the discount rate used by PNM to measure the liability. In September 2019, the study was finalized and included the same assumptions used in the draft study with limited modifications. PNM updated its liability using the final study and to reflect discount rates as of September 30, 2019, which had decreased since PNM’s prior measurement. These updates resulted in an increase to PNM’s share of the coal mine reclamation obligation for the mine that serves Four Corners of $1.1 million and $0.8 million during the three and nine months ended September 30, 2019, which is reflected in cost of energy in the Condensed Consolidated Statements of Earnings.
Based on the most recent estimates and PNM’s ownership share of SJGS, PNM’s remaining payments as of September 30, 2019 for mine reclamation, in future dollars, are estimated to be $93.6 million for the surface mines at both SJGS and Four Corners and $40.0 million for the underground mine at SJGS. At September 30, 2019 and December 31, 2018, liabilities, in current dollars, of $70.6 million and $70.1 million for surface mine reclamation and $24.8 million and $23.2 million for underground mine reclamation were recorded in other deferred credits.

Under the terms of the SJGS CSA, PNM and the other SJGS owners are obligated to compensate WSJ LLC for all reclamation costs associated with the supply of coal from the San Juan mine. The SJGS owners entered into a reclamation trust funds agreement to provide funding to compensate WSJ LLC for post-term reclamation obligations. As discussed in Note 16 of the Notes to the Consolidated Financial Statements on Form 10-K, as part of the restructuring of SJGS ownership the SJGS owners negotiated the terms of an amended agreement to fund post-term reclamation obligations under the CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable reclamation trust, and periodically deposit funds into the reclamation trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. PNM funded $10.0 million in December 2018. Based on PNM’s reclamation trust fund balance at September 30, 2019, the current funding curves indicate PNM’s required contributions to its reclamation trust fund would be $5.5 million in 2019, $10.2 million in 2020, and $10.9 million in 2021.
Under the Four Corners CSA, which became effective on July 7, 2016, PNM is required to fund its ownership share of estimated final reclamation costs in annual installments into an irrevocable escrow account solely dedicated to the final reclamation cost of the surface mine at Four Corners. PNM contributed $2.3 million in each of 2018 and 2019 and anticipates providing additional funding of $1.9 million in each of the years from 2020 through 2024.
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 above regarding PNM’s December 2018 Compliance Filing and its SJGS Abandonment Application in Note 12. PNM is currently unable to determine the outcome of these matters or the range of possible impacts.

Continuous Highwall Mining Royalty Rate

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

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


62

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


PVNGS 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 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 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 three PVNGS units, PNM’s maximum potential retrospective premium assessment per incident for all three units is $41.6 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, PNM is subject to retrospective premium adjustments of $5.4 million for each retrospective premium assessment declared by NEIL’s Board of Directors due to losses. The insurance coverages discussed in this and the previous paragraph are subject to certain policy conditions, sublimits, and exclusions.
Water Supply
Because of New Mexico’s arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. Although PNM does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast long-term weather patterns. Public policy, local, state and federal regulations, and litigation regarding water could also impact PNM operations. To help mitigate these risks, PNM has secured permanent groundwater rights for the existing plants at Reeves Station, Rio Bravo, Afton, Luna, Lordsburg, and La Luz. Water availability is not an issue for these plants at this time. However, prolonged drought, ESA activities, and a federal lawsuit by the State of Texas (suing the State of New Mexico over water deliveries) could pose a threat of reduced water availability for these plants.
For SJGS and Four Corners, PNM and APS have negotiated an agreement with the more senior water rights holders (tribes, municipalities, and agricultural interests) in the San Juan basin to mutually share the impacts of water shortages with tribes and other water users in the San Juan basin. The agreement to share shortages in 2018 through 2021 has been endorsed by the parties and is being reviewed by the New Mexico Office of the State Engineer.
In April 2010, APS signed an agreement on behalf of the PVNGS participants with five 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

63

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)


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 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 ten allotments with rights-of-way renewals that were previously contested. The letter indicated that the renewals were not approved by the BIA because the previous consent obtained by PNM was later revoked, prior to BIA approval, by the majority owners of the allotments. It is the BIA Regional Director’s position that PNM must re-obtain consent from these landowners. On July 13, 2015, PNM filed a condemnation action in the NM District Court regarding the approximately 15.49 acres of land at issue. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. On December 1, 2015, the court ruled that PNM could not condemn two of the five 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

64

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)


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 two 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 was held on October 7, 2019 and the continuation of mediation is scheduled for November 11, 2019. PNM cannot predict the outcome of these matters.

(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 2018 Annual Reports on Form 10-K.
PNM

New Mexico General Rate Cases

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

On August 27, 2015, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposed a revenue increase of $123.5 million, including base non-fuel revenues of $121.7 million. PNM’s application was based on a FTY period beginning October 1, 2015 and proposed a ROE of 10.5%. The primary drivers of PNM’s identified revenue deficiency were the cost of infrastructure investments, including depreciation expense based on an updated depreciation study, and a decline in energy sales as a result of PNM’s successful energy efficiency programs and other economic factors. The application included several proposed changes in rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation and included a request for a revenue decoupling pilot program for residential and small commercial customers. PNM requested that the proposed new rates become effective beginning in July 2016. A public hearing on the proposed new rates was held in April 2016. Subsequent to this hearing, the NMPRC ordered PNM to file additional testimony regarding PNM’s interests in PVNGS, including the 64.1 MW of PVNGS Unit 2 that PNM repurchased in January 2016 pursuant to the terms of the initial sales-leaseback transactions. See Note 13. After additional hearings, PNM and other parties were ordered to file supplemental briefs and to provide final recommended revenue requirements that incorporated fuel savings that PNM implemented effective January 1, 2016 from PNM’s SJGS CSA. See Note 11.  PNM’s filing indicated that recovery for fuel related costs would be reduced by approximately $42.9 million reflecting the current SJGS CSA, which also reduced the request for base non-fuel related revenues by $0.2 million to $121.5 million.

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 three 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 three 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

65

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)


•
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, which includes pre-tax losses of $1.3 million recorded during the three months ended March 31, 2019, and $0.9 million and $2.7 million recorded during the three and nine months ended September 30, 2018.

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 that the 64.1 MW capacity was leased by PNM; and the costs to install BDT at SJGS Units 1 and 4. The NM Supreme Court’s decision also ruled that the NMPRC’s decision to permanently disallow recovery of future decommissioning costs related to the 64.1 MW of PVNGS Unit 2 and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the Court’s findings. On July 17, 2019, the NMPRC heard oral argument from parties in the case on how to best proceed with the NM Supreme Court’s remand. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming the NMPRC’s final order with a single modification to address recovery of future PVNGS decommissioning costs in a future case. The NMPRC has taken no action with respect to this matter since oral argument was presented. PNM is unable to predict the outcome of this matter.

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

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

On December 7, 2016, PNM filed an application with the NMPRC for a general increase in retail electric rates. PNM did not include any of the costs disallowed in the NM 2015 Rate Case that 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

66

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


haze compliance plan, infrastructure investments, including environmental upgrades at Four Corners, declines in forecasted energy sales due to successful energy efficiency programs and other economic factors, and updates to FERC/retail jurisdictional allocations.

After extensive settlement negotiations and public proceedings, the NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 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 a future proceeding

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

Investigation/Rulemaking Concerning NMPRC Ratemaking Policies

On March 22, 2017, the NMPRC issued an order opening an investigation and rulemaking to simplify and increase “the transparency of NMPRC rate cases by reducing the number of issues litigated in rate cases,” and provide a “more level playing field among intervenors and NMPRC staff on the one hand, and the utilities on the other.” The order posed several questions related to establishing and monitoring utilities’ ROEs, the recoverability of regulatory assets, including rate case costs, and whether parties should have access to software used by utilities to support their positions. To date, no agreement has been reached. PNM is not able to predict the potential outcome of this matter but does not anticipate the NMPRC will take any further action.

Renewable Portfolio Standard
Prior to the enactment of the ETA, the REA established a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. As discussed in Note 11, the ETA was enacted on June 14, 2019. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also removes diversity requirements and certain customer caps and exemptions relating to the application of the RPS under the REA.

The REA provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures that utilities recover costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. 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. PNM recovers certain renewable procurement costs from customers through a rate rider. See Renewable Energy Rider below.

Included in PNM’s approved procurement plans are the following renewable energy resources:
•
157 MW of PNM-owned solar-PV facilities, including 50 MW of PNM-owned solar-PV facilities approved by the NMPRC in PNM’s 2018 renewable energy procurement plan that are expected to be placed in commercial operation by the end of 2019
•
A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of 204 MW, and a PPA through 2035 for the output of Red Mesa Wind, having an aggregate capacity of 102 MW

67

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


•
A PPA through 2042 for the output of the Lightning Dock Geothermal facility; with a current capacity of 15 MW
•
Solar distributed generation, aggregating 121.2 MW at September 30, 2019, owned by customers or third parties from whom PNM purchases any net excess output and RECs
•
Solar and wind RECs as needed to meet the RPS requirements

On June 1, 2017, PNM filed its 2018 renewable energy procurement plan. PNM requested approval to procure an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind; approval to procure an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; approval to procure 50 MW of new solar facilities to be constructed beginning in 2018, and continuation of customer REC purchase programs and other purchases of RECs to ensure annual compliance with the RPS. The plan also sought a variance from the “other” diversity category in 2018 due to a revised production forecast of the Lightning Dock Geothermal facility in 2018. A public hearing on the application was held in September 2017. On October 17, 2017, the Hearing Examiner issued a recommended decision that PNM’s 2018 renewable energy procurement plan be approved by the NMPRC, except for the re-powering of Lightning Dock Geothermal and PNM’s request to procure 50 MW of new solar facilities. PNM filed exceptions contesting the Hearing Examiner’s proposals. On November 15, 2017, the NMPRC issued an order approving PNM’s plan and rejecting the Hearing Examiner’s recommendations. On November 29, 2017, NM AREA filed an appeal with the NM Supreme Court objecting to the fuel allocation methodology and requested a partial stay of the NMPRC order, which was denied. NEE subsequently filed a motion to intervene and cross-appeal objecting to the approval of the 50 MW of new solar facilities. On July 5, 2019, the NM Supreme Court approved a motion filed by NM AREA to dismiss its appeal. On August 8, 2019, the NM Supreme Court issued an opinion affirming the NMPRC’s approval of PNM’s 2018 renewable energy procurement plan and denying NEE’s cross appeal. This matter is now concluded.

On June 1, 2018, PNM filed its 2019 renewable energy procurement plan. The plan met RPS and diversity requirements for 2019 and 2020 using resources already approved by the NMPRC and did not propose any significant new procurements. PNM projects that the plan will be within the RCT in 2019 and will slightly exceed the current RCT in 2020. The NMPRC approved PNM’s 2019 renewable energy procurement plan on November 28, 2018.

On June 3, 2019, PNM filed its 2020 renewable energy procurement plan. The plan requests approval of a 20-year PPA to purchase 140 MW of renewable energy and RECs from the La Joya Wind Facility (“La Joya Wind”), which is expected to be operational by December 31, 2020. PNM intends to utilize the BB2 line to deliver power from the PPA. See additional discussion below under Application for a New 345-kV Transmission Line. PNM’s 2020 renewable energy procurement plan requests a variance from the RPS for 2020 and proposes the shortfall be met with excess RECs that will be available under the La Joya Wind PPA in 2021. PNM also submitted proposed adjustments to the current FPPAC methodology for non-renewable fuel allocations to reflect the ETA’s removal of certain customer cost caps associated with the RPS and requested that the fuel clause year be reset to correspond to the January 1 reset date under the renewable energy rider. On July 17, 2019, PNM filed a corrected reconciliation of 2019 and estimated 2020 customer bill impacts that demonstrated the effect of removing certain customer caps and exemptions under the requirements of the newly enacted ETA. The Hearing Examiner issued a response requiring PNM to address why its application should not be dismissed, or alternatively, proposing an extended procedural schedule. PNM’s response proposed the application not be dismissed, that a corrected public notice be issued, and that the procedural schedule be extended by 60 days. On July 30, 2019, the Hearing Examiner issued a revised procedural order that extended the statutory review period through January 29, 2020. On September 17, 2019, the Hearing Examiner issued an order requiring PNM to provide supplemental briefing supporting the applicability of the ETA to PNM’s 2020 renewable energy procurement plan and, in the event the ETA should not apply, support PNM’s position that the NMPRC has the authority to approve PNM’s requested variance. PNM filed its brief on September 24, 2019, supporting the applicability of the ETA and the NMPRC’s authority to grant the requested variance. On October 4, 2019, the Hearing Examiner issued an order requiring PNM to provide RPS calculations using rules and regulations existing before the ETA. PNM filed its rebuttal testimony on October 15, 2019, which included the calculations required by the Hearing Examiner. Other parties have taken positions in the case ranging from applying the ETA and approving the 140 MW PPA to not applying the ETA and denying the PPA. Public hearings were held on October 24 and 25, 2019. PNM cannot predict the outcome of this matter or the potential impact on its financial position, results of operations, or cash flows.

68

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)


Renewable Energy Rider
The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per KWh basis. In its 2019 renewable energy procurement plan case, which was approved by the NMPRC on November 28, 2018, PNM proposed to collect $49.6 million for the year. The 2019 renewable energy procurement plan became effective on January 1, 2019. PNM recorded revenues from the rider of $11.9 million and $37.4 million in the three and nine months ended September 30, 2019 and $8.7 million and $30.4 million in the three and nine months ended September 30, 2018. In its 2020 renewable energy procurement plan, PNM proposes to collect $58.9 million for 2020.
Under the renewable rider, if PNM’s earned rate of return on jurisdictional equity in a calendar year, adjusted for items not representative of normal operations, exceeds the NMPRC-approved rate by 0.5%, PNM is required to refund the excess to customers during May through December of the following year. PNM did not exceed such limitation in 2018 and does not expect to exceed the limitation in 2019.

Energy Efficiency and Load Management

Petition for Energy Efficiency Disincentive

PNM’s application in the NM 2016 Rate Case had requested a “lost contribution to fixed cost” mechanism to address the disincentives associated with PNM’s energy efficiency programs. In the revised stipulation to that case, PNM agreed to withdraw its proposal for such a mechanism and to address energy efficiency disincentives in a future docket. On March 2, 2018, PNM filed a petition proposing a “lost contribution to fixed cost mechanism” with substantially the same terms as those proposed in the NM 2016 Rate Case application. During the 2019 New Mexico legislative session, the Efficient Use of Energy Act was amended to, among other things, include a decoupling mechanism for disincentives, preclude a reduction to a utility’s ROE based on approval of disincentive or incentive mechanisms, and to establish savings targets for the period 2021 through 2025. On May 6, 2019, PNM submitted a request to the NMPRC to dismiss this matter. PNM will propose a mechanism to address disincentives in a future general rate case filing. The NMPRC approved PNM’s request to dismiss the matter on June 12, 2019, concluding this matter.

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

2017 IRP

PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP addresses the 20-year planning period from 2017 through 2036 and includes an action plan describing PNM’s plan to implement the 2017 IRP in the four-year period following its filing. 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

69

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)


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.

Protests to the 2017 IRP were filed by several parties. The issues addressed in the protests included the future of PNM’s interests in SJGS, Four Corners, and PVNGS and the timing of future procurement of renewable resources. On December 19, 2018, after public hearings and consideration of the Hearing Examiner’s recommendations, the NMPRC issued a final order accepting PNM’s 2017 IRP as compliant with applicable statute and NMPRC rules. On January 18, 2019, the Board of the County of Commissioners for San Juan County, New Mexico, the City of Farmington, New Mexico, and other parties filed a Notice of Appeal with the NM Supreme Court regarding the NMPRC’s final order in PNM’s 2017 IRP. On January 18, 2019, NEE submitted a motion requesting the NMPRC reconsider its acceptance of PNM’s 2017 IRP and alleging informational inadequacy and deficiencies in PNM’s filing, which was deemed denied. On February 19, 2019, NEE filed a motion with the NM Supreme Court to intervene in the appeal and to seek remand of the matter to the NMPRC. On March 11, 2019, PNM filed its response with the NM Supreme Court stating that the NMPRC has already considered and, by operation of law, denied NEE’s motion for reconsideration. On May 10, 2019, the appellants, excluding NEE, filed a motion with the NM Supreme Court to dismiss their appeal, which was supported by PNM. On May 31, 2019, the NM Supreme Court denied NEE’s request to remand the proceeding to the NMPRC and ordered NEE to respond to the motion to dismiss the appeal. On June 4, 2019, NEE responded that it did not oppose the appellants’ request to dismiss their appeal. On July 26, 2019, the NM Supreme Court granted the parties’ motions to dismiss the appeal. On September 19, 2019, NEE filed a second motion requesting the NMPRC reconsider its acceptance of PNM’s 2017 IRP, which was deemed denied. This matter is now concluded.

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 the issuance of securitized financing under the ETA. Many of the assumptions and findings included in PNM’s July 1, 2019 filing were consistent with those identified in PNM’s 2017 IRP. The SJGS Abandonment Application and the 2017 IRP are not a 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 and plans to file the 2020 IRP with the NMPRC by July 2020. PNM cannot predict the outcome of this matter.
 
SJGS Abandonment Application

On July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment Application”). The SJGS Abandonment Application seeks NMPRC approval to retire PNM’s share of SJGS after the existing coal supply and participation agreements end in June 2022, for approval of replacement resources, and for the issuance of “energy transition bonds,” as provided by the ETA. PNM’s application proposes several replacement resource scenarios including PNM’s recommended replacement scenario, which would provide cost savings to customers compared to continued operation of SJGS, preserves system reliability, and is consistent with PNM’s plan to have an emissions-free generation portfolio by 2040. This plan would provide PNM authority to construct and own a 280 MW natural gas-fired peaking plant, to be located on the existing SJGS facility site, and 70 MW of battery storage facilities. In addition, PNM’s recommended replacement resource scenario would allow PNM to execute PPAs to procure renewable energy from a total of 350 MW of solar-PV generating facilities and for energy from a total of 60 MW of battery storage facilities. PNM’s application included three other replacement resource scenarios that would place a greater amount of resources in the San Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. Each of these alternative replacement resource scenarios is expected to result in increased costs to customers and lower expected system reliability when compared to PNM’s recommended replacement resource scenario. On September 20, 2019 and October 1, 2019, PNM filed errata

70

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)


notices and testimony, which did not change PNM’s proposed replacement resource portfolio. The SJGS Abandonment Application includes a request to issue approximately $361 million of energy transition bonds (the “Securitized Bonds”). The amount of Securitized Bonds to be issued will be dependent upon several factors including NMPRC approval. PNM’s request for the issuance of Securitized Bonds includes approximately $283 million of forecasted undepreciated investments in SJGS at June 30, 2020, an estimated $28.6 million for plant decommissioning and coal mine reclamation costs, approximately $9.6 million in upfront financing costs, and approximately $20.0 million for job training and severance costs for affected employees. Proceeds from the Securitization Bonds would also be used to fund approximately $19.8 million for economic development in the four corners area.

As discussed in Note 11, the NM Supreme Court granted a request by PNM to stay a January 30, 2019 NMPRC order requiring PNM to file an abandonment application for SJGS by March 1, 2019. On June 26, 2019, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. On July 10, 2019, the NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related financing, and the other addressing replacement resources. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings will be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. On July 22, 2019, Western Resource Advocates filed a motion for clarification, reconsideration, and request for oral argument with the NMPRC. The motion requested the NMPRC clarify whether it intends to evaluate the abandonment and financing proceeding under the requirements of the ETA and, in the event the abandonment and financing proceeding will not be evaluated under the ETA, to reconsider its decision and provide parties an opportunity to present oral argument on the matter. The NMPRC chair responded on July 24, 2019, indicating that the Hearing Examiners assigned to the proceeding would address the issue of law applicable to the approvals sought by PNM in the scheduling orders. On July 25, 2019, the Hearing Examiners issued procedural orders that set public hearings on SJGS abandonment and related financing to begin on December 10, 2019, on PNM’s proposed PPA replacement resources to begin on December 2, 2019, and on PNM-owned replacement resources to begin on March 2, 2020.  These procedural orders were subsequently amended to allow public hearings for both the PPA and PNM-owned replacement resources to begin in January 2020. The procedural orders also required PNM to file legal brief by August 23, 2019 regarding the extent to which the state constitution might prevent the ETA from applying to the issues in each proceeding, that parties file responses to PNM’s legal briefs by October 18, 2019, and that parties may file testimony on the merits of their claims regarding the SJGS abandonment and replacement resources if the ETA is ultimately determined to not apply to PNM’s application. On July 29, 2019, Western Resource Advocates filed a motion for interlocutory appeal of the July 24, 2019 order indicating that the procedural order will not provide parties adequate time to determine the applicability of the ETA and requesting an expedited decision from the NMPRC stating their intent to review the proceedings under the requirements of the ETA or under prior law. On August 21, 2019, the NMPRC denied the motion for interlocutory appeal. On August 23, 2019, PNM filed legal briefing in support of the applicability of the ETA to all aspects of the consolidated application. On October 18, 2019, various parties filed legal briefings with a range of positions that support or oppose the applicability of the ETA, as well as testimony regarding the SJGS abandonment and financing proceedings.

On August 26, 2019, NEE and other advocacy groups filed an emergency petition for a writ of mandamus requesting the NM Supreme Court stay the SJGS abandonment and financing proceedings, declare the ETA inapplicable to such proceedings and declare certain provisions of the ETA unconstitutional because they limit the regulatory oversight responsibilities of the NMPRC. The petition was dismissed for failure to comply with the appellate rules and an amended petition was filed on September 18, 2019. On August 30, 2019, PNM and other parties filed a petition for a writ of mandamus requesting the NM Supreme Court clarify that the reason underlying its June 2019 decision denying the stay was due to the passage of the ETA and to clarify that the ETA applies to any application filed after the stay had been lifted. In early October 2019, the NM Supreme Court denied both PNM’s and NEE’s petitions for writ of mandamus without discussion. The denial of these petitions by the NM Supreme Court means that the NMPRC will address the applicability of the ETA to PNM’s application. PNM believes the ETA applies to all aspects of the SJGS Abandonment Application and will pursue all available legal remedies to ensure the NMPRC issues a final order consistent with the law.

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


71

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)


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

On April 22, 2019, NEE and other parties, which consist primarily of environmental not-for-profit organizations, filed a joint petition for expedited investigation with the NMPRC. The joint petition requested the NMPRC open an investigation regarding PNM’s option to purchase the assets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. Various parties filed to participate in the request. On May 8, 2019, the NMPRC issued an order requiring a response from both PNM and NMPRC staff. PNM filed responses indicating, among other things, that the joint petition should be denied, and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. On September 16, 2019, the NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding. On September 30, 2019, PNM filed its response in opposition stating that PNM had previously refuted NEE’s arguments and that there is no need for a hearing examiner to be assigned to this matter. The NMPRC has not taken action on the joint petition for investigation. PNM cannot predict the outcome of this matter.

Cost Recovery Related to Joining the EIM

The California Independent System Operator (“CAISO”) developed the Western Energy Imbalance Market (“EIM”) as a real-time wholesale energy trading market that enables participating electric utilities to buy and sell energy. The EIM aggregates the variability of electricity generation and load for multiple balancing authority areas and utility jurisdictions. In addition, the EIM facilitates greater integration of renewable resources through the aggregation of flexible resources by capturing diversity benefits from the expanded geographic footprint and the expanded potential uses for those resources.

In 2018, PNM completed a cost-benefit analysis of participating in the EIM. PNM’s analysis indicated participation in the EIM would provide substantial benefits to retail customers. On August 22, 2018, PNM filed an application with the NMPRC requesting, among other things, to recover an estimated $20.9 million of initial capital investments and authorization to establish a regulatory asset to recover an estimated $7.4 million of other expenses that would be incurred in order to join the EIM. PNM’s application proposed the regulatory asset be adjusted to provide for full recovery of such costs, including carrying charges, until the effective date of new rates in PNM’s next general rate case. PNM’s application also proposed the benefits of participating in the EIM be credited to retail customers through PNM’s existing FPPAC and that PNM would seek recovery of its costs in a future proceeding. On December 19, 2018, the NMPRC issued an order approving the establishment of a regulatory asset to recover PNM’s cost of joining the EIM, which was subsequently challenged by several parties. On February 6, 2019, the NMPRC issued an order granting rehearing and vacating the December 19, 2018 order. On March 18, 2019, the Hearing Examiner issued an updated recommended decision recommending approval of the establishment of a regulatory asset but deferring certain rate making issues, including but not limited to issues related to implementation and ongoing EIM costs and savings, the prudence and reasonableness of costs to be included in the regulatory asset, and the period over which costs would be charged to customers until PNM’s next general rate case filing, which was approved by the NMPRC. PNM and other parties filed a joint motion requesting the NMPRC clarify that the quarterly benefits reports prepared by CAISO be used to determine the benefits of participating in the EIM, as well as to support the prudence of costs incurred to join the EIM. On April 24, 2019, the NMPRC issued an order granting the joint motion for clarification and indicating the CAISO quarterly benefits reports may be used in a future rate case. PNM anticipates it will begin participating in the EIM in April 2021.

Facebook, Inc. Data Center Project

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

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

•
Casa Mesa Wind, LLC, a subsidiary of NextEra Energy Resources, LLC, which is located near House, New Mexico, has a total capacity of 50 MW, and became operational in November 2018

72

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


•
A 166 MW portion of the La Joya Wind Project, owned by Avangrid Renewables, LLC, which is expected to be located near Estancia, New Mexico and be operational in November 2020
•
Route 66 Solar Energy Center, LLC, a subsidiary of NextEra Energy Resources, LLC, which is expected to be located west of Albuquerque, New Mexico, have a total capacity of 50 MW, and be operational in December 2021
•
Two PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be owned and operated by NMRD. The first 50 MW of these facilities is expected to begin commercial operation in December 2019 and the remaining capacity is expected to begin commercial operation in June 2020.

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

Application for a New 345-kV Transmission Line

On August 10, 2018, PNM filed an application seeking NMPRC approval of a CCN to construct and operate a 345-kV transmission line and associated facilities (the “BB2 Line”), and to determine the rate making treatment to apply to the BB2 line and related rights-of-way. In the application, PNM states that the BB2 line would run adjacent to one of PNM’s existing transmission lines and is necessary to serve additional renewable generating resources to be located in eastern New Mexico. PNM’s use of the BB2 line would benefit all customers and would include delivery of approximately 166 MW of renewable energy and RECs under a PPA, which had previously been approved by the NMPRC, from La Joya Wind and 140 MW from La Joya Wind that PNM included in PNM’s 2020 renewable energy procurement plan. PNM’s application requested that the NMPRC apply standard ratemaking treatment to the estimated $85 million cost of the project resulting in a jurisdictional allocation of costs to all of PNM’s transmission and retail customers. NMPRC staff supported PNM’s proposed ratemaking treatment of the BB2 project and indicated that the capacity and energy of the La Joya Wind PPA and related network upgrades to PNM’s transmission system would benefit all of PNM’s customers. On March 11, 2019, the Hearing Examiner assigned to the application issued a recommended decision recommending approval of the CCN and related rights-of-way but recommending the NMPRC deny PNM’s request to allocate a portion of cost of the BB2 Line to retail customers. The Hearing Examiner’s recommendation indicated the costs not recovered from retail customers be directly reimbursed to PNM by Facebook, Inc. As a result, Facebook, Inc. would be responsible for approximately 46 percent, or $39.0 million, of the estimated cost of the project. On March 20, 2019, PNM filed exceptions to the recommended decision and requested oral argument. In its filing, PNM refuted the proposed finding that the BB2 Line is not part of PNM’s overall transmission system, opposed the recommendation that approximately 46 percent of the estimated cost of the project be directly assigned to Facebook, Inc. and presented legal arguments in support of PNM’s originally proposed ratemaking treatment. On April 16, 2019, the NMPRC issued an order approving the Hearing Examiner’s recommended decision, including the requirement that PNM be directly reimbursed by Facebook, Inc. In late April 2019, PNM and other parties submitted filings with the NMPRC requesting rehearing and seeking reconsideration of the NMPRC’s decision to deny standard ratemaking treatment of the cost of the BB2 Line and associated facilities, which were denied. On May 21, 2019, PNM filed a motion requesting the NMPRC reopen the proceeding to admit new evidence of the benefits of the BB2 Line to retail customers and to modify the final order. On June 12, 2019, the NMPRC issued an updated final order but denied PNM’s motion to reopen the proceedings. The updated final order grants the CCN but defers rate making treatment to a future rate case. This matter is now concluded.

Western Spirit Line

On May 1, 2019, PNM, the New Mexico Renewable Energy Transmission Authority (“RETA”), a New Mexico state authority, and Western Spirit Transmission LLC (“Western Spirit”), an affiliate of Pattern Energy Group, Inc., entered into agreements for the construction of a transmission line to transmit power generated from wind facilities to be owned by Pattern Wind New Mexico, LLC (“Pattern Wind”), an affiliate of Western Spirit and Pattern Development. As a part of the arrangement, the parties executed a Build Transfer Agreement (“BTA”) that would allow PNM to purchase the approximately 165-mile 345-kV transmission line and associated facilities (the “Western Spirit Line”). The Western Spirit Line will be developed and constructed by RETA and Western Spirit LLC and sold to PNM upon its commercial operation date. The BTA contains a number of customary representations and warranties and indemnification provisions as well as closing conditions, including regulatory and third-party approvals, and if necessary, anti-trust review under the Hart-Scott-Rodino Act. The BTA also includes termination provisions that can be exercised under certain circumstances, including failure of the developer to achieve project milestones or to achieve commercial operation by specified dates, and failure of an affiliate of Pattern Wind to provide adequate credit support prior to closing. PNM estimates the net cost of the project to be approximately $285 million, including an estimated $75 million that Pattern Wind has chosen to self-fund under the agreement.

On May 10, 2019, PNM filed an application with the NMPRC requesting that the NMPRC determine that it is not unlawful or inconsistent with the public interest for PNM to purchase the Western Spirit Line and requesting the NMPRC rule by November 6, 2019. Hearings were held on August 13, 2019. On September 11, 2019, the Hearing Examiner assigned to the application

73

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)


issued a recommended decision that would allow PNM to purchase the Western Spirit Line, and indicating that PNM’s proposal satisfies the NMPRC’s acquisition standards and that no CCN is required until such time that PNM seeks recovery for costs associated with the line from retail rate payers. On October 2, 2019, the NMPRC approved the recommended decision with limited modifications.

PNM also has entered into Transmission Service Agreements and other ancillary agreements (“TSAs”) with Pattern Wind for firm transmission service. The TSAs use an incremental rate based on the construction and other ongoing costs of the Western Spirit Line, including adjustments for construction costs that Pattern Wind has chosen to self-fund under the agreement. FERC approved PNM’s TSAs with Pattern Wind effective July 9, 2019. On August 8, 2019, FERC approved PNM’s request to purchase the Western Spirit Line.

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. TNMP’s application included a request to establish new rate riders to recover Hurricane Harvey restoration, rate case, and additional vegetation management costs. The application also included the integration of revenues previously recorded under the AMS rider and collection of other unrecovered AMS investments into base rates. In 2018, TNMP recorded revenues of $20.2 million under the AMS rider. The TNMP 2018 Rate Case application also proposed to return the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and to reduce the federal corporate income tax rate to 21%.

On December 20, 2018, the PUCT approved an unopposed settlement agreement in the case. The PUCT’s final order results in a $10.0 million annual increase to base rates. The key elements of the approved settlement include a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. As stated by the settlement agreement, the PUCT’s final order excludes certain items from rate base that were requested in TNMP’s original filing, including approximately $10.6 million of transmission investments that TNMP included in its January 2019 transmission cost of service filing, which was approved by the PUCT in March 2019. In addition, the PUCT’s final order requires TNMP to 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 TNMP 2018 Rate Case also resulted in a reallocation of costs between TNMP’s transmission and retail customers and other rate design changes that reallocate costs between certain demand-based customers and customers billed on a volumetric basis. New rates under the TNMP 2018 Rate Case were effective beginning January 1, 2019.

Recovery of TNMP Rate Case Costs

Recovery of the cost of TNMP’s rate case was moved into separate proceedings to begin after the conclusion of TNMP 2018 Rate Case. TNMP sought recovery of costs incurred through August 2019 in the amount of $3.7 million and proposed these costs be collected from customers over a three-year period. In October 2019, TNMP and other parties to the proceedings filed an unopposed settlement stipulation that, if approved by the PUCT, would reduce TNMP’s cost recovery to $3.3 million. TNMP cannot predict the outcome of this matter.

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.

74

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


The following sets forth TNMP’s recent interim transmission cost rate increases:
Effective Date
 
Approved Increase in Rate Base
 
Annual Increase in Revenue
 
 
(In millions)
March 14, 2017
 
$
30.2

 
$
4.8

September 13, 2017
 
27.5

 
4.7

March 27, 2018
 
32.0

 
0.6

March 21, 2019
 
111.8

 
14.3



On July 23, 2019, TNMP filed an application to further update its transmission rates to reflect an increase in total rate base of $21.9 million, which would increase revenues by $3.3 million annually. The PUCT approved this application on September 19, 2019.

Order Related to Changes in Federal Income Tax Rates

On January 25, 2018, the PUCT issued an accounting order that addresses the change in the federal corporate income tax rates on investor-owned utilities in the state of Texas. The order required investor-owned utilities to record a regulatory liability equal to the reduction in accumulated federal deferred income tax balances at the end of 2017 due to the change in the federal corporate income tax rate.

In addition, the order required that a regulatory liability be recorded to reflect the difference between revenues collected under existing rates and those that would have been collected had those rates been set reflecting federal income tax reform beginning on the date of the order. In compliance with the PUCT order, during the three and nine months ended September 30, 2018, TNMP reduced revenues by $1.5 million and $4.2 million to reflect the impact of the reduction in the federal corporate income tax rate beginning January 25, 2018. As discussed above, the total amount owed for the year ended 2018 of $5.4 million was offset against TNMP’s Hurricane Harvey restoration costs and is being refunded to customers as a component of a new rate rider over a period of approximately three years beginning on January 1, 2019.

Energy Efficiency

TNMP recovers the costs of its energy efficiency programs through an energy efficiency cost recovery factor (“EECRF”), which includes projected program costs, under and over collected costs from prior years, rate case expenses, and performance bonuses (if programs exceed mandated savings goals). TNMP’s 2018 EECRF filing requested an adjustment of $5.6 million, including a performance bonus of $0.8 million, and became effective on March 1, 2019. On May 30, 2019, TNMP filed its request to adjust the EECRF to reflect changes in costs for 2020. On August 30, 2019, a unanimous settlement stipulation was filed with the PUCT that would allow TNMP to recover its requested $5.9 million of program costs in 2020, which includes a performance bonus of $0.8 million based on TNMP’s energy efficiency achievements in the 2018 plan year. The settlement stipulation is pending PUCT approval.

(13)
Lease Commitments

The Company enters into various lease agreements to meet its business needs and to satisfy the needs of its customers. Historically, the Company’s leases were classified as operating leases which included leases for generating capacity from PVNGS Units 1 and 2, certain rights-of-way agreements for transmission lines and facilities, vehicle and equipment leases necessary to construct and maintain the Company’s assets and building and office equipment leases. In February 2016, the FASB issued ASU 2016-02 – Leases (Topic 842) to provide guidance on the recognition, measurement, presentation, and disclosure of leases. Among other things, ASU 2016-02 requires that all leases be recorded on the balance sheets by recognizing a present value liability for future cash flows of the lease agreement and a corresponding right-of-use asset. The Company adopted Topic 842 on January 1, 2019, its required effective date. The Company elected to use many of the practical expedients available upon adoption of the standard. As a result, the Company will continue to classify its leases existing as of December 31, 2018 as operating leases until they expire or are modified. In addition, the Company elected the practical expedient to not reevaluate the accounting for land easements and rights-of-way agreements existing at December 31, 2018. The Company also elected the use of the practical expedient to apply the requirements of the new standard on its effective date and has not restated prior periods to conform to the new guidance. Adoption of the lease standard has a material impact on the Company’s Condensed Consolidated Balance Sheets

75

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


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

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

PVNGS

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

The terms of each of the extended leases do not provide for additional renewal options beyond their currently scheduled expiration dates. PNM has the option to purchase the assets underlying each of the extended leases at their fair market value or to return the lease interests to the lessors on the expiration dates. Under the terms of the extended leases, PNM has until January 15, 2020 for the Unit 1 leases and January 15, 2021 for the Unit 2 lease to provide notices to the lessors of PNM’s intent to exercise the purchase options or to return the leased assets to the lessors. PNM’s elections are independent for each lease and are irrevocable. In the proceeding addressing PNM’s 2017 IRP (Note 12), PNM agreed to promptly notify the NMPRC of a decision to extend the Unit 1 or 2 leases, or to exercise its option to purchase the leased assets at fair market value upon the expiration of leases. If PNM elects to exercise its purchase option under any of the leases, the leases provide an appraisal process to determine fair market value. If PNM elects to return the assets underlying the extended leases, PNM will retain certain obligations related to PVNGS, including costs to decommission the facility. PNM is depreciating its capital improvements related to the extended leases using NMPRC approved rates through the end of the NRC license period for each unit, which expire in June 2045 for Unit 1 and in June 2046 for Unit 2. Whether PNM retains or returns the assets underlying the extended leases, PNM will seek to recover its undepreciated investments, and any amounts paid to purchase the assets, as well as any other obligations related to PVNGS from NM retail customers. Any transfer of the assets underlying the leases will be required to comply with NRC licensing requirements.

See Note 12 for information concerning the NMPRC’s treatment of PNM’s purchase of assets underlying 64.1 MW and extension of 114.6 MW of leased capacity in PVNGS Unit 2, the NM Supreme Court’s decision regarding PNM’s appeal of certain matters in the NM 2015 Rate Case, as well as information concerning a joint petition to investigate PNM’s option to purchase additional assets underlying the extended leased capacity in PVNGS.

Covenants in PNM’s PVNGS Units 1 and 2 lease agreements limit PNM’s ability, without consent of the owner participants in the lease transactions, (i) to enter into any merger or consolidation, or (ii) except in connection with normal dividend policy, to convey, transfer, lease or dividend more than 5% of its assets in any single transaction or series of related transactions. PNM is exposed to losses under the PVNGS lease arrangements upon the occurrence of certain events that PNM does not consider to be reasonably likely to occur. Under certain circumstances (for example, the NRC issuing specified violation orders with respect to PVNGS or the occurrence of specified nuclear events), PNM would be required to make specified payments to the lessors and take title to the leased interests. If such an event had occurred as of September 30, 2019, amounts due to the lessors under the circumstances described above would be up to $157.6 million, payable on January 15, 2020 in addition to the scheduled lease payments due on January 15, 2020. In such event, PNM would record the acquired assets at the lower of their fair value or the amount paid.


76

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


Land Easements and Rights-of-Ways

Many of PNM’s electric transmission and distribution facilities are located on lands that require the grant of rights-of-way from governmental entities, Native American tribes, or private parties. PNM has completed several renewals of rights-of-way, the largest of which is a renewal with the Navajo Nation. PNM is obligated to pay the Navajo Nation annual payments of $6.0 million, subject to adjustment each year based on the Consumer Price Index, through 2029. PNM’s April 2018 payment for the amount due under the Navajo Nation right-of-way lease was $6.9 million, which included amounts due under the Consumer Price Index adjustment, and was used to determine PNM’s operating lease liability as of January 1, 2019. Changes in the Consumer Price Index subsequent to January 1, 2019 are considered variable lease payments.

PNM has other prepaid rights-of-way agreements that are not accounted for as leases or recognized as a component of plant in service. PNM reflects the unamortized balance of these prepayments in other deferred charges on the Condensed Consolidated Balance Sheets and recognizes amortization expense associated with these agreements in the Condensed Consolidated Statement of Earnings over their term. As of September 30, 2019 and December 31, 2018, the unamortized balance of these rights-of-ways was $60.9 million and $63.0 million. During the three and nine months ended September 30, 2019 and 2018, PNM recognized amortization expense associated with these agreements of $0.9 million and $2.8 million.

Fleet Vehicles and Equipment

As of December 31, 2018, all of the Company’s leases of fleet vehicles and equipment are classified as operating leases. Historically, the Company has utilized substantially all of the economic value of its fleet and equipment leases by the end of the lease term. The Company generally has the contractual ability to return its fleet vehicle and equipment leases to the lessor after one year provided the lessor can recover remaining amounts owed under the agreement from third-parties or through make-whole provisions in the contract but does not typically exercise this right. As a result, fleet vehicle and equipment leases commencing on or after January 1, 2019 are classified as financing leases. The Company’s fleet vehicle and equipment lease agreements include non-lease components for insignificant administrative and other costs that are billed over the life of the agreement. The Company has elected to combine these fees with the lease components of the agreement. Certain of the Company’s fleet vehicle and equipment leases contain residual value guarantees. At September 30, 2019, residual value guarantees on fleet vehicle and equipment leases are $0.6 million, $1.1 million, and $1.7 million for PNM, TNMP, and PNMR.

Other

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

Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets, including amounts recognized upon adoption of ASU 2016-02, is presented below:
 
September 30, 2019
 
January 1, 2019
 
PNM
 
TNMP
 
PNMR Consolidated
 
PNM
 
TNMP
 
PNMR Consolidated
 
(In thousands)
Operating leases:
 
 
 
 
 
 
 
 
 
 
 
Operating lease assets, net of amortization
$
126,313

 
$
10,649

 
$
137,637

 
$
143,816

 
$
12,942

 
$
157,440

Current portion of operating lease liabilities
24,940

 
2,862

 
28,204

 
21,589

 
3,132

 
25,189

Long-term portion of operating lease liabilities
98,394

 
7,655

 
106,621

 
124,891

 
9,787

 
135,174




77

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


As discussed above, the Company classifies its fleet vehicle and 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:
 
September 30, 2019
 
PNM
 
TNMP
 
PNMR Consolidated
 
(In thousands)
Financing leases:
 
 
 
 
 
Non-utility property
$
4,029

 
$
3,678

 
$
7,785

Accumulated depreciation
(286
)
 
(264
)
 
(556
)
Non-utility property, net
$
3,743

 
$
3,414

 
$
7,229

 
 
 
 
 
 
Other current liabilities
$
610

 
$
622

 
$
1,252

Other deferred credits
2,789

 
2,794

 
5,637



Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities is presented below:
 
September 30, 2019
 
PNM
 
TNMP
 
PNMR Consolidated
Weighted average remaining lease term (years):
 
 
 
 
 
Operating leases
6.75

 
4.33

 
6.55

Financing leases
5.79

 
5.65

 
5.70

 
 
 
 
 
 
Weighted average discount rate:
 
 
 
 
 
Operating leases
3.89
%
 
3.92
%
 
3.89
%
Financing leases
3.77
%
 
3.90
%
 
3.82
%


Information for the components of lease expense is as follows:
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
 
PNM
 
TNMP
 
PNMR Consolidated
 
PNM
 
TNMP
 
PNMR Consolidated
 
(In thousands)
Operating lease cost:
$
6,873

 
$
726

 
$
7,725

 
$
21,260

 
$
2,439

 
$
24,051

Less: amounts capitalized
(319
)
 
(630
)
 
(949
)
 
(1,015
)
 
(1,949
)
 
(2,964
)
Total operating lease expense
$
6,554

 
$
96

 
$
6,776

 
$
20,245

 
$
490

 
$
21,087

Financing lease cost:
 
 
 
 
 
 
 
 
 
 
 
Amortization of right-of-use assets
143

 
125

 
274

 
286

 
264

 
556

Interest on lease liabilities
26

 
27

 
54

 
56

 
61

 
117

Less: amounts capitalized
(81
)
 
(114
)
 
(195
)
 
(158
)
 
(233
)
 
(391
)
Total financing lease expense
88

 
38

 
133

 
184

 
92

 
282

 
 
 
 
 
 
 
 
 
 
 
 
Variable lease expense
32

 
—

 
32

 
64

 
—

 
64

Short-term lease expense
63

 
5

 
68

 
212

 
10

 
263

Total lease expense for the period
$
6,737

 
$
139

 
$
7,009

 
$
20,705

 
$
592

 
$
21,696



78

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



Supplemental cash flow information related to the Company’s leases is as follows:
 
Nine Months Ended September 30, 2019
 
PNM
 
TNMP
 
PNMR Consolidated
 
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
 
Operating cash flows from operating leases
$
26,092

 
$
757

 
$
27,225

Operating cash flows from financing leases
28

 
17

 
45

Finance cash flows from financing leases
113

 
72

 
189

 
 
 
 
 
 
Non-cash information related to right-of-use assets obtained in exchange for lease obligations:
 
 
 
 
 
Operating leases
$
143,816

 
$
12,942

 
$
157,816

Financing leases
3,645

 
3,678

 
7,402



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

Future expected lease payments as of September 30, 2019 and December 31, 2018 are shown below:
 
As of September 30, 2019
 
PNM
 
TNMP
 
PNMR Consolidated
 
Financing
 
Operating
 
Financing
 
Operating
 
Financing
 
Operating
 
(In thousands)
Remainder of 2019
$
184

 
$
604

 
$
188

 
$
823

 
$
378

 
$
1,574

2020
721

 
27,028

 
736

 
3,078

 
1,479

 
30,662

2021
697

 
26,576

 
712

 
2,448

 
1,431

 
29,316

2022
674

 
26,266

 
687

 
1,996

 
1,383

 
28,473

2023
641

 
17,735

 
590

 
1,508

 
1,238

 
19,423

Later years
885

 
42,374

 
878

 
1,642

 
1,762

 
44,321

Total minimum lease payments
3,802

 
140,583

 
3,791

 
11,495

 
7,671

 
153,769

Less: Imputed interest
403

 
17,249

 
375

 
978

 
782

 
18,944

Lease liabilities as of September 30, 2019
$
3,399

 
$
123,334

 
$
3,416

 
$
10,517

 
$
6,889

 
$
134,825


 
Operating leases
 
As of December 31, 2018
 
PNM
 
TNMP
 
PNMR Consolidated
 
(In thousands)
2019
$
27,691

 
$
3,664

 
$
31,772

2020
27,000

 
3,102

 
30,404

2021
26,462

 
2,324

 
29,012

2022
26,217

 
1,795

 
28,175

2023
17,447

 
1,279

 
18,868

Later years
42,329

 
1,150

 
43,489

Total minimum lease payments
$
167,146

 
$
13,314

 
$
181,720




79

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


The above tables include $9.3 million, $12.8 million, and $22.1 million for PNM, TNMP, and PNMR at September 30, 2019 and $7.5 million, $11.0 million, and $18.5 million for PNM, TNMP, and PNMR at December 31, 2018 for expected future payments on fleet vehicle and equipment leases that could be avoided if the leased assets were returned and the lessor is able to recover estimated market value for the equipment from third parties. The Company’s contractual commitments for leases that have not yet commenced are insignificant.

(14)
Income Taxes

On December 22, 2017, comprehensive changes in United States federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made many significant modifications to the tax laws, including reducing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also eliminated federal bonus depreciation for utilities, limited interest deductibility for non-utility businesses and limited the deductibility of officer compensation. During 2018, the IRS issued additional guidance related to certain officer compensation, as well as proposed regulations on interest deductibility that provide a 10% “de minimis” exception that allows entities with predominantly regulated activities to fully deduct interest expenses. In addition, the IRS issued proposed regulations interpreting Tax Act amendments to depreciation provisions of the Internal Revenue Code 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 2018 Annual Reports on Form 10-K.

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 $30.3 million, $21.4 million, and $8.9 million in 2019. See additional discussion of PNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case in Note 12.

As required under GAAP, the Company makes an estimate of its anticipated effective tax rate for the year as of the end of each quarterly period within its fiscal year. In interim periods, income tax expense is calculated by applying the anticipated annual effective tax rate to year-to-date earnings before income taxes. GAAP also provides that certain unusual or infrequently occurring items, including excess tax benefits related to stock awards, be excluded from the estimated annual effective tax rate calculation. As discussed in Note 12, the NM Supreme Court issued a decision in May 2019 on the appeal of the NM 2015 Rate Case resulting in pre-tax impairments of $150.6 million in the nine months ending September 30, 2019. The impairments were recognized as discrete items within regulatory disallowances and restructuring costs resulting in tax benefits of $45.7 million, which is reflected in income taxes on the Company’s Condensed Consolidated Statements of Earnings for the nine months ended September 30, 2019. At September 30, 2019, PNMR, PNM, and TNMP estimated their effective income tax rates for the year ended December 31, 2019 would be 8.43%, 10.75%, and 8.43%. 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. During the three and nine months ended September 30, 2019, income tax expense calculated by applying the expected annual effective income tax rate to earnings before income taxes was further reduced by excess tax benefits related to stock awards of less than $0.1 million and $0.8 million for PNMR, of which less than $0.1 million and $0.6 million was allocated to PNM and less than $0.1 million and $0.2 million was allocated to TNMP.

(15)
Related Party Transactions

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


80

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


The table below summarizes the nature and amount of related party transactions of PNMR, PNM, TNMP, and NMRD:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Services billings:
 
 
 
 
 
 
 
PNMR to PNM
$
22,853

 
$
22,972

 
$
72,604

 
$
69,122

PNMR to TNMP
8,639

 
8,074

 
27,082

 
24,497

PNM to TNMP
97

 
104

 
286

 
281

TNMP to PNMR
35

 
35

 
106

 
105

PNMR to NMRD
68

 
32

 
163

 
162

Renewable energy purchases:
 
 
 
 
 
 
 
PNM from NMRD
757

 
969

 
2,331

 
2,343

Interconnection billings:
 
 
 
 
 
 
 
PNM to NMRD
—

 
47

 
—

 
2,099

PNM to PNMR
—

 
—

 
—

 
68,200

Interest billings:
 
 
 
 
 
 
 
PNMR to PNM
1,004

 
844

 
2,909

 
1,653

PNM to PNMR
75

 
75

 
224

 
211

PNMR to TNMP
—

 
65

 
42

 
87

Income tax sharing payments:
 
 
 
 
 
 
 
PNMR to PNM
—

 
—

 
—

 
—

TNMP to PNMR
—

 
—

 
—

 
—



(16)
Goodwill

The excess purchase price over the fair value of the assets acquired and the liabilities assumed by PNMR for its 2005 acquisition of TNP was recorded as goodwill and was pushed down to the businesses acquired. In 2007, the TNMP assets that were included in its New Mexico operations, including goodwill, were transferred to PNM. PNMR’s reporting units that currently have goodwill are PNM and TNMP. Additional information concerning the Company’s goodwill is contained in Note 19 of Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K.

GAAP requires the Company to evaluate its goodwill for impairment annually at the reporting unit level or more frequently if circumstances indicate that the goodwill may be impaired. Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit.

GAAP provides that in certain circumstances an entity may perform a qualitative analysis to conclude that the goodwill of a reporting unit is not impaired. Under a qualitative assessment an entity considers macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events affecting a reporting unit, as well as whether a sustained decrease (both absolute and relative to its peers) in share price has occurred. An entity considers the extent to which each of the adverse events and circumstances identified could affect the comparison of a reporting unit’s fair value with its carrying amount. An entity places more weight on the events and circumstances that most affect a reporting unit’s fair value or the carrying amount of its net assets. An entity also considers positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity evaluates, on the basis of the weight of evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative analysis is not required if, after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount.

In other circumstances, an entity may perform a quantitative analysis to reach the conclusion regarding impairment with respect to a reporting unit. An entity may choose to perform a quantitative analysis without performing a qualitative analysis and may perform a qualitative analysis for certain reporting units, but a quantitative analysis for others. The first step of the quantitative

81

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


impairment test requires an entity to compare the fair value of the reporting unit with its carrying value, including goodwill. If as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, GAAP currently requires the entity to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise would require the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. As further discussed under New Accounting Pronouncements in Note 1, a new accounting pronouncement changes how a goodwill impairment is determined by eliminating the second step of the quantitative impairment analysis.

For its annual evaluations performed as of April 1, 2018, PNMR performed a quantitative analysis for the PNM reporting unit and a qualitative analysis for the TNMP reporting unit. For the quantitative analyses, a discounted cash flow methodology was primarily used to estimate the fair value of the PNM reporting unit. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of long-term growth rates for the business, and determination of appropriate weighted average cost of capital for the reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment. The April 1, 2018 quantitative evaluations indicated the fair value of the PNM reporting unit, which has goodwill of $51.6 million, exceeded its carrying value by approximately 19%. The 2018 qualitative analysis for the TNMP reporting unit was performed by considering changes in expectations of future financial performance since the April 1, 2016 quantitative analysis that indicated the fair value of the TNMP reporting unit, which has goodwill of $226.7 million, exceeded its carrying value by approximately 32% as well as by considering the results of the April 1, 2017 qualitative analysis. The 2018 analysis considered events specific to TNMP such as the potential impacts of legal and regulatory matters discussed in Note 11 and Note 12. Both the PNM quantitative analysis and the TNMP qualitative analysis considered market and macroeconomic factors including changes in growth rates, changes in the WACC, and changes in discount rates. The Company also evaluated its stock price relative to historical performance, industry peers, and to major market indices, including an evaluation of the Company’s market capitalization relative to the carrying value of its reporting units. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2018 carrying values of PNM or TNMP exceed their fair values.

For its annual evaluations performed as of April 1, 2019, PNMR performed qualitative analyses for both the PNM and TNMP reporting units. The qualitative analysis was performed by considering changes in the Company’s expectations of future financial performance since the April 1, 2018 quantitative analysis performed for PNM, as well as the quantitative analysis performed for TNMP at April 1, 2016 and the qualitative analyses through April 1, 2018. This analysis considered Company specific events such as the potential impacts of legal and regulatory matters discussed in Note 11 and Note 12, including potential outcomes in PNM’s SJGS Abandonment Application, the impacts of the NM Supreme Court’s decision in the appeal of the NM 2015 Rate Case, and other potential impacts of changes in PNM’s resource needs based on PNM’s 2017 IRP. The qualitative analysis also considered market and macroeconomic factors including changes in growth rates, changes in the WACC, and changes in discount rates. The Company also evaluated its stock price relative to historical performance, industry peers, and to major market indices, including an evaluation of the Company’s market capitalization relative to the carrying value of its reporting units. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2019 carrying values of PNM or TNMP exceeded their fair values.

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

82

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 787,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:

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

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

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

Earning Authorized Returns on Regulated Businesses

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

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

Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K and in Note 12.

State Regulation

New Mexico 2015 Rate Case – On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $61.2 million for New Mexico retail customers, effective for bills sent after September 30, 2016. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2015 Rate Case”) filed in August 2015. PNM’s application requested an increase in base non-fuel revenues of $121.5 million based on a future test year (“FTY”) beginning October 1, 2015.

83


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

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

On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. Specifically, PNM appealed the NMPRC’s determination that PNM was imprudent in certain matters in the case, including the disallowance of the full purchase price of the 64.1 MW of capacity in PVNGS Unit 2, the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM, the costs of converting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases. NEE, NM AREA, and ABCWUA filed notices of cross-appeal to PNM’s appeal. The issues appealed by the various cross-appellants included, among other things, the NMPRC allowing PNM to recover any of the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2, as well as the costs incurred under the Four Corners CSA and the inclusion of the “prepaid pension asset” in rate base.

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

In accordance with GAAP, PNM periodically updated its estimate of the amount of time necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. As a result of these evaluations, through March 31, 2019, PNM 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 all but one of the matters appealed by PNM, 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 that 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 ruled that the NMPRC’s decision to permanently disallow recovery of future decommissioning costs related to the 64.1 MW of PVNGS Unit 2 and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s findings. On July 17, 2019, the NMPRC heard oral argument from parties in the case. At oral argument, parties presented various positions ranging from re-litigating the value of PVNGS resources determined by the NMPRC and affirmed by the NM Supreme Court to re-affirming the NMPRC’s final order with a single modification to address recovery of PVNGS decommissioning costs in a future case. The NMPRC has taken no action with respect to this matter since oral argument was presented. PNM cannot predict the outcome of this matter.

As a result of the NM Supreme Court’s ruling, PNM recorded a pre-tax impairment of $149.3 million as of June 30, 2019 which is reflected as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. The

84

impairment reflects capital costs not previously impaired during the pendency of the appeal and was offset by tax impacts of $45.7 million which are reflected as income taxes on the Condensed Consolidated Statements of Earnings.

New Mexico 2016 Rate Case – On January 16, 2018, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $10.3 million. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2016 Rate Case”) filed in December 2016. PNM’s December 2016 application requested an increase in base non-fuel revenues of $99.2 million based on a FTY beginning January 1, 2018. The primary drivers of PNM’s revenue deficiency included implementation of modifications to PNM’s resource portfolio, which were approved by the NMPRC in December 2015 as part of the SJGS regional haze compliance plan, infrastructure investments, including environmental upgrades at Four Corners, declines in forecasted energy sales due to successful energy efficiency programs and other economic factors, and updates to FERC/retail jurisdictional allocations.

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

•
A revenue increase totaling $10.3 million, which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM’s cost of debt (aggregating an estimated $47.6 million annually)
•
A ROE of 9.575% compared to the 10.125% requested by PNM
•
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 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 decision to defer future consideration regarding the prudency of PNM’s decision to continue its participation in Four Corners to a future proceeding

PNM implemented 50% of the approved increase for service rendered beginning February 1, 2018 and implemented the rest of the increase for service rendered beginning January 1, 2019.
 
TNMP 2018 Rate Case – On December 20, 2018, the PUCT approved a settlement stipulation allowing TNMP to increase annual base rates by $10.0 million based on a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. Under the approved settlement stipulation TNMP was granted authority to integrate revenues previously recorded under the AMS rider, as well as other unrecovered AMS costs, into base rates; establish a new rider to recover Hurricane Harvey restoration costs, net of amounts owed to customers as a result of the reduction in the federal corporate income tax rate in 2018; and to update depreciation rates. In addition, the approved settlement stipulation allows TNMP to refund the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and reflects the reduction in the federal corporate income tax rate to 21%. New rates under the TNMP 2018 Rate Case became effective January 1, 2019.

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

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

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

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

Cost Recovery Related to Joining the EIM – In 2018, PNM completed a cost-benefit analysis that indicated PNM’s participation in the California Independent System Operator (“CAISO”) Western Energy Imbalance Market (“EIM”) would provide

85

substantial benefits to retail customers. In August 2018, PNM filed an application with the NMPRC requesting, among other things, to recover the cost of initial capital investments and authorization to establish a regulatory asset to recover other expenses that would be incurred in order to join the EIM. PNM’s application proposed recovery of the costs incurred to join the EIM beginning on the effective date of new rates in PNM’s next general rate case and that the benefits of participating in the EIM be credited to retail customers through PNM’s existing FPPAC. In December 2018, the NMPRC issued an order approving the establishment of a regulatory asset to recover PNM’s cost of joining the EIM, which was subsequently vacated based on challenges by certain parties. In March 2019, the NMPRC issued a revised order approving the Hearing Examiner’s recommendation to defer certain rate making issues, including but not limited to implementation and ongoing EIM costs and savings, the prudence and reasonableness of costs included in a regulatory asset, and the period over which costs would be charged to customers until PNM’s next general rate case filing. In April 2019, the NMPRC issued an order clarifying that the CAISO quarterly benefits reports may be used to support the benefits of participating in the EIM. PNM anticipates it will begin participating in the EIM in April 2021.

FERC Regulation

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

On May 10, 2019, PNM filed an application with FERC requesting approval to transmit energy generated from new wind generation facilities using a new 165-mile long 345-kV transmission line and related facilities (the “Western Spirit Line”). Under related agreements, which are subject to certain conditions being met prior to closing, the Western Spirit Line will be purchased by PNM to serve approximately 800 MW of wind generation to be located in eastern New Mexico beginning in 2021. FERC approved PNM’s request to provide transmission to the facilities using an incremental rate based on construction and other ongoing costs for the line, including adjustments for construction costs funded by the customer, effective July 9, 2019 and approved PNM’s request to purchase the Western Spirit Line on August 8, 2019. The NMPRC approved PNM’s planned purchase of the Western Spirit Line on October 2, 2019. See Note 12.

The low natural gas price environment resulted in market prices for power being substantially lower than what PNM is able to offer wholesale generation customers under the cost of service model that FERC requires PNM to use.  Consequently, PNM decided to stop pursuing wholesale generation contracts and currently has no full-requirements wholesale generation customers.
Delivering at or Above Industry-Average Earnings and Dividend Growth
PNMR’s strategic goal to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 2019 through 2023. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.
PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:
Approval Date
 
Percent Increase
December 2015
 
10
%
December 2016
 
10
%
December 2017
 
9
%
December 2018
 
9
%


86

Maintaining Solid Investment Grade Credit Ratings
The Company is committed to maintaining solid investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade.

Business and Strategic Focus

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

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

Utility Plant and Strategic Investments

Utility Plant Investments – During the 2016 to 2018 period, PNM and TNMP together invested $1,501.7 million in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. During 2018 and 2019, PNM will construct an additional 50 MW of PNM-owned solar-PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. In late 2018, PNM became the first utility to install a new type of protective relay on its high-voltage transmission lines, which help to ensure the reliability of PNM’s electrical system. On May 1, 2019, PNM executed an agreement to purchase the Western Spirit Line, which has been approved by FERC and the NMPRC. Under the agreement, PNM will, subject to certain conditions being met prior to closing, purchase the Western Spirit Line upon its expected commercial operation date in 2021 at a net cost of approximately $285 million, including customer reimbursements. PNM’s SJGS Abandonment Application requests NMPRC approval of a replacement resource scenario that would result in PNM investing approximately $298 million to construct and own a new 280 MW gas-fired generation facility to be located at the existing SJGS site, 70 MW of battery storage facilities, and other transmission upgrades to replace PNM’s capacity in SJGS. See the subheading Capital Requirements included in the full discussion of Liquidity and Capital Resources below for additional discussion of the Company’s projected capital requirements.

Strategic Investments – In 2017, PNMR Development and AEP OnSite Partners created NMRD to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. Abundant renewable resources, large tracts of affordable land, and strong government and community support make New Mexico a favorable location for renewable generation. New Mexico has the 2nd highest technical potential of the 48 contiguous states for utility-scale solar PV as noted in 2015 by the National Renewable Energy Laboratory, while New Mexico is 6th for technical potential for land-based wind. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. Through NMRD, PNMR anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the United States’ largest electric utilities. The formation of this joint venture provides a more efficient use of PNMR’s capital to support new renewable investment opportunities while maintaining the necessary capital to support investments required by regulated jurisdictions. As of September 30, 2019, NMRD’s renewable energy capacity in operation was 35.1 MW, which includes 30 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. In August 2018, the NMPRC approved PNM’s request to enter into 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 the Facebook data center. The first 50 MW of these facilities is

87

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

Integrated Resource Plan

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

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

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

In December 2018, the NMPRC issued an order accepting PNM’s 2017 IRP as compliant with applicable statute and NMPRC rules. In January 2019, several parties, including The Board of the County of Commissioners for San Juan County, New Mexico, the City of Farmington, New Mexico, appealed the NMPRC’s final order to the NM Supreme Court. In addition, NEE submitted a motion requesting the NMPRC reconsider its acceptance of PNM’s 2017 IRP filing alleging informational inadequacy and deficiencies in PNM’s filing, which was deemed denied. In February 2019, NEE filed a motion with the NM Supreme Court to intervene in the appeal and to seek remand of the matter to the NMPRC. The NM Supreme Court denied NEE’s motion to remand the case and, subsequent to a motion by parties, dismissed the appeal. In September 2019, NEE filed a second motion requesting the NMPRC reconsider its acceptance of PNM 2017 IRP, which was deemed denied. See additional discussion of PNM’s 2017 IRP and PNM’s July 1, 2019 SJGS Abandonment Application below and in Note 12.

In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM will seek public input from interested parties as part of this process. PNM expects to issue a draft of its IRP by March 2020 and to submit its final 2020 IRP to the NMPRC by July 2020.
Environmentally Responsible Power
PNMR has a long-standing record of environmental stewardship. PNM’s environmental focus is in three key areas:

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

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

88


The Energy Transition Act (“ETA”)

On June 14, 2019, Senate Bill 489, known as the ETA, became effective. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used to provide utility service to customers and for other costs as defined by the ETA. These costs may include coal mine and plant decommissioning that have not yet been charged to customers. Proceeds from energy transition bonds may also be used to fund severances to employees of the retired facility and related coal mine, and to promote economic development, education and job training in areas impacted by the retirement of the coal-fired facilities. The ETA requires the NMPRC to prioritize replacement resources in a manner intended to mitigate the economic impact to communities affected by these plant retirements. See additional discussion of the ETA and PNM’s SJGS Abandonment Application below and in Notes 11 and 12.

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

SJGS

SJGS Abandonment Application – As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, PNM submitted the December 2018 Compliance Filing to the NMPRC on December 31, 2018 indicating that, consistent with the conclusions reached in PNM’s 2017 IRP, PNM’s customers would benefit from the retirement of PNM’s share of SJGS (subject to future NMPRC approval) after the current SJGS CSA expires in mid-2022. In January 2019, the NMPRC issued an order initiating a proceeding and requiring PNM to submit an application for the abandonment of PNM’s share of SJGS in 2022 and for replacement resources by March 1, 2019. The NMPRC’s January 2019 order was subsequently stayed by the NM Supreme Court pending review of PNM’s petition in the matter. On June 26, 2019, the NM Supreme Court lifted the stay and denied PNM’s petition without discussion. See additional discussion of PNM’s December 2018 Compliance Filing in Note 11.

On July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment Application”). The SJGS Abandonment Application seeks NMPRC approval to retire PNM’s share of SJGS in mid-2022, and for approval of replacement resources and the issuance of approximately $361 million of energy transition bonds as provided by the ETA. The application includes several replacement resource scenarios including PNM’s recommended replacement scenario, which is consistent with PNM’s goal of having a 100% emissions-free generating portfolio by 2040 and would provide cost savings to customers while preserving system reliability. The application includes three other replacement resource scenarios that would place a greater amount of resources in the San Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. Each of these alternative replacement resource scenarios is expected to result in increased costs to customers and result in lower system reliability when compared to PNM’s recommended replacement resource scenario.

On July 10, 2019, the NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related financing and the other addressing replacement resources. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings will be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. On July 22, 2019, Western Resource Advocates filed a motion requesting the NMPRC clarify whether it intends to evaluate the abandonment and financing proceeding under the requirements of the ETA and, in the event the ETA would not be applied, to provide parties an opportunity to present oral arguments on the matter. The NMPRC chair responded to this motion by indicating the Hearing Examiners assigned to the proceeding would address the issue of law applicable to the proceeding. The Hearing Examiners subsequently issued procedural orders setting public hearings on SJGS abandonment and related financing

89

proceedings to begin in December 2019, and on PNM’s proposed replacement resources to begin in January 2020.  The procedural orders also required PNM to file legal brief by August 23, 2019 regarding the extent to which the state constitution might prevent the ETA from applying to the issues in each case, that parties file responses to PNM’s legal briefs by October 18, 2019, and permitting parties to file testimony on the merits of their claims regarding SJGS abandonment and replacement resources if the ETA is ultimately determined to not apply to PNM’s application. On July 29, 2019, Western Resource Advocates filed a motion for interlocutory appeal with the NMPRC indicating that the procedural order will not provide parties adequate time to determine the applicability of the ETA and requesting the NMPRC state their intent to review the proceedings under the requirements of the ETA or under prior law, which was denied. On August 23, 2019, PNM filed legal briefing in support of the applicability of the ETA to all aspects of the consolidated application. On October 18, 2019, various parties filed legal briefings with a range of positions that support or oppose the applicability of the ETA, as well as testimony regarding the SJGS abandonment and financing proceedings.

On August 30, 2019, PNM and other parties filed a petition for a writ of mandamus requesting the NM Supreme Court clarify that the reason underlying its June 2019 decision to deny the stay was due to the passage of the ETA and to clarify that the ETA applies to any application filed after the stay had been lifted. On September 18, 2019, NEE and other advocacy groups filed an amended emergency petition for a writ of mandamus requesting the NM Supreme Court stay the SJGS abandonment and financing proceedings, declare the ETA inapplicable to such proceedings and declare certain provisions of the ETA unconstitutional because they limit the regulatory oversight responsibilities of the NMPRC. In early October 2019, the NM Supreme Court denied both PNM’s and NEE’s petitions for writ of mandamus without discussion. The denial of these petitions by the NM Supreme Court means that the NMPRC will address the applicability of the ETA to PNM’s application. PNM believes the ETA applies to all aspects of the SJGS Abandonment Application and will pursue all available legal remedies to ensure the NMPRC issues a final order consistent with the law. See additional discussion of the SJGS Abandonment Application in Note 12.

The financial impact of an early retirement of SJGS and the NMPRC approval process are influenced by many factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment on the area surrounding the plant and the related mine, as well as the overall political and economic conditions of New Mexico. PNM cannot predict the outcome of this matter.
Other Environmental Matters – In addition to the regional haze rule and the ETA, SJGS and Four Corners may be required to comply with other rules that affect coal-fired generating units. On March 28, 2017, President Trump issued an Executive Order on Energy Independence.  The order sets out two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean.  The order rescinds various actions undertaken by the previous administration and directed the EPA Administrator to review and if appropriate suspend, revise, or rescind the Clean Power Plan, as well as other environmental regulations. On June 19, 2019, EPA released the final Affordable Clean Energy rule. EPA is taking three separate actions in the final rule: (1) finalizes the repeal of the Clean Power Plan; (2) finalizes the Affordable Clean Energy rule; and (3) revises the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d) which, among other things, extends the timing of state plans. EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval). The Company is reviewing the rule with respect to impacts to Four Corners. See Note 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.

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.

90

Major environmental upgrades on each of the units at SJGS have significantly reduced emissions of NOx, SO2, particulate matter, and mercury. Because of environmental upgrades completed in 2009, SJGS has a mercury removal efficiency of 98% and mercury emissions are well below the mercury limit imposed by EPA in the 2012 Mercury and Air Toxics Standards. Between 2006 and 2018, SJGS has reduced emissions of NOx by 77%, SO2 by 92%, particulate matter by 88%, and mercury by 99%. In addition, the installation of SCRs at Four Corners significantly reduces emissions from the facility.
Renewable Energy
PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As of September 30, 2019, PNM has 137 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 121.2 MW at September 30, 2019. PNM also owns the 500 KW PNM Prosperity Energy Storage Project, which uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited. The project was one of the first combinations of battery storage and 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 204 MW wind facility, and the output of Red Mesa Wind, an existing 102 MW wind energy center. If approved by the NMPRC, PNM’s recommended resource scenario to replace the planned retirement of SJGS would result in PNM executing PPAs to purchase renewable energy and RECs from a total of 350 MW of solar-PV facilities and to procure energy from and construct a total of 130 MW of battery storage facilities. If approved, PNM would procure power under a PPA from one of the United States’ largest solar facilities and would have the nation’s highest percentage of battery storage capacity integration.
The majority of these renewable resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, including those set by the recently enacted ETA, without exceeding cost requirements. PNM makes renewable procurements consistent with the plans approved by the NMPRC. PNM’s 2018 renewable energy procurement plan meets RPS and diversity requirements for 2018 and 2019 and includes additional procurements of wind, geothermal, and solar-PV capacity. PNM’s 2019 renewable energy procurement plan meets RPS and diversity requirements for 2019 and 2020 and does not include any significant new procurements. PNM’s 2020 renewable energy procurement plan requests NMPRC approval to procure 140 MW of renewable energy and RECs from La Joya Wind beginning in 2021.

As discussed in Strategic Investments above, PNM is currently purchasing the output of 30 MW of solar capacity from NMRD that is used to serve a Facebook data center. PNM entered into three separate 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable power to the Facebook data center. These PPAs include the purchase of the power and RECs from a 50 MW wind project, which was placed in commercial operation in November 2018, a 166 MW wind project to be operational in November 2020, and a 50 MW solar-PV project to be operational in December 2021. In August 2018, the NMPRC approved PNM’s request to enter into two additional 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook. The first 50 MW of these facilities is expected to be placed in commercial operation in November 2019 and the remaining capacity is expected to be placed in commercial operation by June 2020. See Note 12.
On May 31, 2019, PNM filed an application with the NMPRC for approval of a program under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program. PNM proposes to recover costs of the program directly from subscribing customers through a rate rider. If approved by the NMPRC, PNM would procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. PNM had fully subscribed the entire output of the 50 MW facilities at the time of the filing. PNM cannot predict the outcome of this matter.
PNM will continue to procure renewable resources while balancing the impact to customers’ electricity costs in order to meet New Mexico’s escalating RPS and carbon-free resource requirements.
Energy Efficiency
Energy efficiency plays a significant role in helping to keep customers’ electricity costs low while meeting their energy needs and is one of the Company’s approaches to supporting environmentally responsible power. PNM’s and TNMP’s energy efficiency and load management portfolios continue to achieve robust results. In 2018, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs was approximately 72 GWh. This is equivalent to the annual consumption of approximately 10,300 homes in PNM’s service territory. PNM’s load management and annual energy efficiency programs also help lower peak demand requirements. In 2018, TNMP’s incremental energy saved as a result of new participation

91

in TNMP’s energy efficiency programs was approximately 17 GWh. This is equivalent to the annual consumption of approximately 1,500 homes in TNMP’s service territory. In April 2018, TNMP received the “Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program.
Water Conservation and Solid Waste Reduction
PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 20% more efficient than in 2007). Continued growth in PNM’s fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction. Water usage has continued to decline as PNM has substituted less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018, as water consumption at that plant has been reduced by approximately 50%. Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy.
In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2018, 19 of the Company’s 23 facilities met the solid waste diversion goal of a 65% diversion rate. The Company expects to continue to do well in this area in the future.

Customer, Stakeholder, and Community Engagement

The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has demonstrated a 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 customer service options, strategic customer engagement, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers.
The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM’s website, www.pnm.com, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. The Company’s website is also a resource for information about PNM’s operations and community outreach efforts, including plans for building a sustainable energy future for New Mexico and to transition to an emissions-free generating portfolio by 2040. PNM has also leveraged social media in communications with customers on various topics such as education, outage alerts, safety, customer service, and PNM’s community partnerships in philanthropic projects.
PNMR also has a dedicated Sustainability Portal on its corporate website, www.pnmresources.com, to provide additional information regarding the Company’s environmental and other sustainability efforts. The site provides the key corporate governance and sustainability information related to the operations of PNM and TNMP. In January 2018, PNM added a Climate Change Report to this portal. The portal also includes information presented under the additional headings: Environment, Generation Portfolio, Social, Economic, and Governance.
With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. In August 2017, Hurricane Harvey made landfall in the gulf coast region and TNMP employees worked to restore power safely and efficiently for affected customers. In addition, PNMR made donations to support relief and restoration efforts in the gulf coast region. TNMP employees who were impacted by Hurricane Harvey were provided emergency crisis funds supported by the PNM Resources Foundation and other employee donations.
Local relationships and one-on-one communications remain two of the most valuable ways both PNM and TNMP connect with their stakeholders. Both companies maintain long-standing relationships with governmental representatives and key electricity consumers to ensure that these stakeholders are updated on Company investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs.

PNMR has a long tradition of supporting the communities it serves in New Mexico and Texas. The Company demonstrates its core value of caring through the PNM Resources Foundation, corporate giving, employee volunteerism, and PNM’s low-income assistance programs. In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, the PNM Resources Foundation provides more than $1 million in grant funding each year across New Mexico and

92

Texas. These grants help nonprofits innovate or sustain programs to grow and develop business, develop and implement environmental programs, and provide educational opportunities. PNMR also provides employee matching and volunteer grants for various purposes.

Over the past six years, the Company has contributed a total of more than $7.0 million to civic, educational, environmental, low income, and economic development organizations. PNMR is proud to support programs and organizations that enrich the quality of life for the people in its service territories and communities. One of PNM’s most important outreach programs is tailored for low-income customers. In 2018, PNM hosted 50 community events throughout its service territory to connect low-income customers with nonprofit community service providers offering support and help with such needs as water and gas utility bills, food, clothing, medical programs, and services for seniors. Additionally, through its Good Neighbor Fund, PNM provided $0.5 million of assistance with electric bills to 3,811 families in 2018 and offered financial literacy training to further support customers.

Volunteerism is an important facet of the PNMR culture. The mission of the PNMR Corporate Volunteer Group is to help make the communities PNMR serves safer, stronger, smarter, and more vibrant. In 2018, PNM and TNMP employees and retirees contributed approximately 11,500 volunteer hours serving their local communities. Company volunteers also actively participate on nonprofit boards, in educational, economic, and environmental forums, as well as safety seminars. PNMR employees are, in large part, responsible for the success of the Company’s customer, stakeholder, and community outreach.
Economic Factors
PNM – In the three months ended September 30, 2019, PNM experienced an increase in weather-normalized retail load of 0.3% compared to 2018. PNM’s retail load increased in the industrial class, which was offset by decreases in the residential and commercial classes. In the nine months ended September 30, 2019, PNM’s weather normalized retail load was flat compared to 2018, which was driven by increased load in the residential and industrial classes offset by decreases in the commercial class. PNM’s retail load benefited from warmer weather conditions in the third quarter of 2019 compared to 2018. Economic conditions in Albuquerque continue to have a positive trend in 2019 with more announcements of businesses moving to the state or expanding and both the private and public sectors adding jobs. Following the announcement of Netflix, Inc. coming to New Mexico last year, NBCUniversal announced in June 2019 a 10-year venture in Albuquerque, New Mexico. In addition, Sandia National Laboratories announced in May 2019 that it plans to hire 1,900 employees by year-end, and another of PNM’s customers announced that it plans to add over 300 jobs in central New Mexico. PNM continues to see steady customer growth in its service territories and the State of New Mexico continues to experience steady job growth.
TNMP – In the three and nine months ended September 30, 2019, TNMP experienced a decrease in volumetric weather-normalized retail load of 2.9% and 2.0% compared to 2018. Demand-based load, excluding retail transmission customers, increased 5.4% and 4.3% in the three and nine months ended September 30, 2019 compared to 2018. TNMP continues to experience increases in new service requests, although the timing of some interconnections that were expected this year have been delayed.
Results of Operations
Net earnings (loss) attributable to PNMR were $45.6 million, or $0.57 per diluted share in the nine months ended September 30, 2019 compared to $140.7 million, or $1.76 per diluted share in 2018. Among other things, earnings in the nine months ended September 30, 2019 benefited from additional revenues due to retail rate increases approved in PNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case, higher demand-based revenues at TNMP, higher income from investment securities held in the NDT and coal mine reclamation trusts, and lower interest expense at PNM. These increases were more than offset by mild weather conditions at PNM, regulatory disallowances resulting from the NM Supreme Court’s May 2019 opinion in PNM’s appeal of the NMPRC’s decisions in the NM 2015 Rate Case, lower transmission cost of service revenues as a result of a reallocation of costs in TNMP’s 2018 Rate Case, higher employee related expenses at PNM and TNMP, increased depreciation and property taxes due to increased plant in service at PNM and TNMP, as well as increased depreciation rates resulting from TNMP’s 2018 Rate Case, and lower interest income on the Westmoreland Loan at PNMR. 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 and currently expire in October 2023. Both facilities provide for short-term borrowings and letters of credit and can be extended through October 2024, subject to approval by a majority of the lenders. In addition, PNM has a $40.0 million revolving credit facility with banks having a significant presence in New Mexico, which expires in December 2022, and TNMP has a $75.0 million revolving credit facility, which expires in September 2022. 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 2020.

93

The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. Total availability for PNMR on a consolidated basis was $714.1 million at October 25, 2019. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries.

PNMR projects that its consolidated capital requirements, consisting of construction expenditures, capital contributions for PNMR Development’s 50% ownership interest in NMRD, and dividends, will total $4,381.3 million for 2019-2023, including amounts expended through September 30, 2019. The construction expenditures include estimated amounts for 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, an anticipated expansion of PNM’s transmission system, including the planned purchase of the Western Spirit Line, and proposed replacement generation resources included in PNM’s SJGS Abandonment Application.

On January 18, 2019, PNM entered into the $250.0 million PNM 2019 Term Loan, which bears interest at a variable rate and must be repaid on or before July 17, 2020. Proceeds from this issuance were used to repay the PNM 2017 Term Loan, short-term borrowings under the PNM Revolving Credit Facility, and for general corporate purposes. On February 26, 2019, TNMP entered into the TNMP 2019 Bond Purchase Agreement for the sale of $305.0 million aggregate principal amount of TNMP 2019 Bonds. TNMP issued $225.0 million of TNMP 2019 Bonds on March 29, 2019 (at fixed annual interest rates ranging from 3.79% to 4.06% for terms ranging from 15 to 25 years) and used a portion of the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on April 1, 2019. TNMP issued the remaining $80.0 million of TNMP 2019 Bonds on July 1, 2019 (at a fixed annual interest rate of 3.60% for a term of ten years) and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for general corporate purposes. See discussion of PNM’s SJGS Abandonment Application in Note 12, which includes a request to issue approximately $361 million of energy transition bonds upon the proposed retirement of SJGS in 2022.

After considering the effects of these financings, the Company has consolidated maturities of long-term and short-term debt aggregating $535.3 million in the period from November 1, 2019 through October 31, 2020, and an additional $440.0 million that will mature by March 31, 2021. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2019-2023 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. The Company is in compliance with its debt covenants.

RESULTS OF OPERATIONS

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

A summary of net earnings attributable to PNMR is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
(In millions, except per share amounts)
Net earnings attributable to PNMR
$
102.8

 
$
87.5

 
$
15.3

 
$
45.6

 
$
140.7

 
$
(95.1
)
Average diluted common and common equivalent shares
80.0

 
80.0

 
—

 
80.0

 
80.0

 
—

Net earnings attributable to PNMR per diluted share
$
1.28

 
$
1.09

 
$
0.19

 
$
0.57

 
$
1.76

 
$
(1.19
)


94

The components of the change in net earnings attributable to PNMR are:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2019
 
(In millions)
PNM
$
3.3

 
$
(98.8
)
TNMP
9.0

 
3.6

Corporate and Other
3.0

 
0.1

Net change
$
15.3

 
$
(95.1
)

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

Segment Information

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

PNM

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

The following table summarizes the operating results for PNM:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
(In millions)
Electric operating revenues
$
331.1

 
$
331.4

 
$
(0.3
)
 
$
838.6

 
$
832.1

 
$
6.5

Cost of energy
84.9

 
92.4

 
(7.5
)
 
243.1

 
229.5

 
13.6

     Utility margin
246.2

 
239.0

 
7.2

 
595.5

 
602.6

 
(7.1
)
Operating expenses
97.2

 
98.0

 
(0.8
)
 
459.2

 
305.6

 
153.6

Depreciation and amortization
40.5

 
38.5

 
2.0

 
119.6

 
113.3

 
6.3

     Operating income
108.5

 
102.5

 
6.0

 
16.8

 
183.7

 
(166.9
)
Other income (deductions)
4.3

 
6.0

 
(1.7
)
 
30.0

 
9.9

 
20.1

Interest charges
(18.5
)
 
(18.1
)
 
(0.4
)
 
(55.4
)
 
(58.9
)
 
3.5

     Segment earnings (loss) before income taxes
94.2

 
90.4

 
3.8

 
(8.6
)
 
134.7

 
(143.3
)
Income (taxes) benefit
(9.5
)
 
(9.0
)
 
(0.5
)
 
32.0

 
(11.0
)
 
43.0

Valencia non-controlling interest
(3.9
)
 
(3.9
)
 
—

 
(10.2
)
 
(11.7
)
 
1.5

Preferred stock dividend requirements
(0.1
)
 
(0.1
)
 
—

 
(0.4
)
 
(0.4
)
 
—

Segment earnings
$
80.7

 
$
77.4

 
$
3.3

 
$
12.8

 
$
111.6

 
$
(98.8
)


95

The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
 
Percentage
 
 
 
 
 
Percentage
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
(Gigawatt hours, except customers)
Residential
1,023.9

 
996.4

 
2.8
 %
 
2,480.1

 
2,495.5

 
(0.6
)%
Commercial
1,079.7

 
1,065.5

 
1.3

 
2,841.6

 
2,917.0

 
(2.6
)
Industrial
313.8

 
229.9

 
36.5

 
830.1

 
645.7

 
28.6

Public authority
69.1

 
73.6

 
(6.1
)
 
172.8

 
185.1

 
(6.6
)
Economy energy service (1)
169.5

 
160.4

 
5.7

 
490.3

 
503.4

 
(2.6
)
Other sales for resale
856.2

 
644.8

 
32.8

 
2,215.3

 
1,805.0

 
22.7

 
3,512.2

 
3,170.6

 
10.8
 %
 
9,030.2

 
8,551.7

 
5.6
 %
Average retail customers (thousands)
530.6

 
526.9

 
0.7
 %
 
529.7

 
525.8

 
0.8
 %

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

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

The following table summarizes the significant changes to utility margin:
 
 
 
Three Months Ended September 30, 2019
 
 
 
Change
Utility margin:
 
(In millions)
 
 
 
 
 
Rate relief – Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 and January 1, 2019 (Note 12)
 
$
1.7

 
Retail customer usage/load – Weather normalized KWh sales increased 0.3%, primarily due to increased sales to industrial customers, offset by decreased sales to residential and commercial customers
 
(0.3
)
 
Weather – Warmer weather in 2019; cooling degree days were 14.3% higher
 
5.7

 
Transmission – Increase primarily due to the addition of new customers
 
1.4

 
Rate riders – Includes renewable energy, fuel clause and energy efficiency
 
1.4

 
Coal mine decommissioning – Decrease primarily due to remeasurement of PNM’s obligation for Four Corners coal mine reclamation (Note 11)
 
(1.5
)
 
Other
 
(1.2
)
 
Net Change
 
$
7.2



96

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
 
 
 
Three Months Ended September 30, 2019
 
 
 
Change
Operating expenses:
 
(In millions)
 
 
 
 
Lower plant maintenance costs at SJGS, PVNGS, and gas-fired plants, partially offset by higher plant maintenance costs at Four Corners
 
$
(1.3
)
 
Higher capitalized administrative and general expenses due to higher construction spending in 2019
 
(0.4
)
 
2018 regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s 2015 Rate Case (Note 12)
 
(0.9
)
 
2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring of SJGS (Note 11)
 
2.5

 
Lower property and casualty expense due to favorable claims experience
 
(0.4
)
 
Other
 
(0.3
)
 
Net Change
 
$
(0.8
)
Depreciation and amortization:
 
 
 
 
 
 
Increased utility plant in service, including solar facilities under the renewable rider
 
$
1.4

 
Other
 
0.6

 
Net Change
 
$
2.0

Other income (deductions):
 
 
 
 
 
 
Lower gains on investment securities in the NDT and coal mine reclamation trusts
 
$
(0.8
)
 
Higher trust expenses related to investment securities in the NDT and coal mine reclamation trusts
 
(0.7
)
 
Other
 
(0.2
)
 
Net Change
 
$
(1.7
)
Interest charges:
 
 
 
 
 
 
Lower interest on $100.0 million of SUNs refinanced in August 2018
 
$
0.3

 
Higher interest on term loan agreements
 
(0.4
)
 
Interest on deposit by PNMR Development for potential transmission interconnections, which is offset in Corporate and Other
 
(0.2
)
 
Other
 
(0.1
)
 
Net Change
 
$
(0.4
)
Income (taxes) benefits:
 
 
 
 
 
 
Higher segment earnings before income taxes
 
$
(1.0
)
 
Amortization of excess deferred income taxes (Note 14)
 
0.4

 
Other
 
0.1

 
Net Change
 
$
(0.5
)


97

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

The following table summarizes the significant changes to utility margin:
 
 
 
Nine Months Ended September 30, 2019
 
 
 
Change
Utility margin:
 
(In millions)
 
 
 
 
 
Rate relief – Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 and January 1, 2019 (Note 12)
 
$
4.8

 
Retail customer usage/load – Weather normalized KWh sales were flat due to decreased sales to commercial customers, partially offset by increased sales to residential and industrial customers
 
(1.3
)
 
Weather – Milder weather in 2019; cooling degree days were 12.9% lower
 
(5.5
)
 
Transmission – Increase primarily due to the addition of new customers, partially offset by lower revenues under formula transmission rates
 
0.8

 
Rate riders – Includes renewable energy, fuel clause and energy efficiency riders
 
(2.6
)
 
Coal mine decommissioning – Decrease primarily due to remeasurement of PNM’s obligation for Four Corners coal mine reclamation and higher accretion expense on SJGS coal mine reclamation (Note 11)
 
(2.2
)
 
Other
 
(1.1
)
 
Net Change
 
$
(7.1
)

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
 
 
 
Nine Months Ended September 30, 2019
 
 
 
Change
Operating expenses:
 
(In millions)
 
 
 
 
Lower plant maintenance costs at Four Corners and PVNGS, partially offset by higher plant maintenance costs at SJGS and gas-fired plants
 
$
(0.5
)
 
Higher capitalized administrative and general expenses due to higher construction spending in 2019
 
(1.1
)
 
Accelerated recovery of SNCR technology on SJGS Units 1 and 4
 
0.3

 
Regulatory disallowance resulting from the NM Supreme Court’s May 2019 decision in PNM’s appeal of the NM 2015 Rate Case (Note 12)
 
147.9

 
2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring (Note 11)
 
2.5

 
Higher employee related, outside service, and vegetation management expenses
 
5.7

 
Other
 
(1.2
)
 
Net Change
 
$
153.6

Depreciation and amortization:
 
 
 
 
 
 
Increased utility plant in service, including solar facilities under the renewable rider
 
$
4.5

 
Higher depreciation resulting from amortization of stranded costs associated with the retirement of SJGS Units 2 and 3
 
0.5

 
Other
 
1.3

 
Net Change
 
$
6.3


98

 
 
 
Nine Months Ended September 30, 2019
 
 
 
Change
Other income (deductions):
 
(In millions)
 
 
 
 
Higher gains on investment securities in the NDT and coal mine reclamation trusts
 
$
19.2

 
Lower equity AFUDC
 
(0.6
)
 
Higher interest income and lower trust expenses related to investment securities in the NDT and coal mine reclamation trusts
 
1.8

 
Other
 
(0.3
)
 
Net Change
 
$
20.1

Interest charges:
 
 
 
 
 
 
Lower interest on $350.0 million of SUNs refinanced in May 2018
 
$
5.9

 
Lower interest on $100.0 million of SUNs refinanced in August 2018
 
1.8

 
Lower debt AFUDC
 
(0.9
)
 
Higher interest on term loan agreements
 
(1.8
)
 
Interest on deposit by PNMR Development for potential transmission interconnections, which is offset in Corporate and Other (Note 9)
 
(1.4
)
 
Other
 
(0.1
)
 
Net Change
 
$
3.5

Income (taxes) benefits:
 
 
 
 
 
 
Lower segment earnings before income taxes
 
$
36.0

 
Amortization of excess deferred income taxes due to lower segment earnings before income taxes, excluding discrete items (Note 14)
 
0.3

 
Reversal of excess deferred income taxes resulting from regulatory disallowances in the NM 2015 Rate Case (Note 12)
 
7.5

 
Increase due to lower excess tax benefits related to stock compensation awards (Note 8)
 
(0.5
)
 
Other
 
(0.3
)
 
Net Change
 
$
43.0



99

TNMP

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

The following table summarizes the operating results for TNMP:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
(In millions)
Electric operating revenues
$
102.5

 
$
91.3

 
$
11.2

 
$
274.8

 
$
260.7

 
$
14.1

Cost of energy
23.8

 
21.2

 
2.6

 
71.0

 
64.3

 
6.7

Utility margin
78.7

 
70.1

 
8.6

 
203.8

 
196.5

 
7.3

Operating expenses
24.1

 
25.1

 
(1.0
)
 
73.3

 
73.6

 
(0.3
)
Depreciation and amortization
22.0

 
17.2

 
4.8

 
62.7

 
49.7

 
13.0

Operating income
32.6

 
27.8

 
4.8

 
67.8

 
73.2

 
(5.4
)
Other income (deductions)
1.8

 
1.2

 
0.6

 
3.1

 
3.1

 
—

Interest charges
(7.0
)
 
(8.2
)
 
1.2

 
(22.4
)
 
(23.8
)
 
1.4

Segment earnings before income taxes
27.3

 
20.7

 
6.6

 
48.4

 
52.5

 
(4.1
)
Income (taxes)
(2.2
)
 
(4.6
)
 
2.4

 
(4.0
)
 
(11.6
)
 
7.6

Segment earnings
$
25.1

 
$
16.1

 
$
9.0

 
$
44.5

 
$
40.9

 
$
3.6


The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
 
 
Percentage
 
 
 
 
 
Percentage
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Volumetric load (1) (GWh)
 
Residential
1,051.0

 
1,005.0

 
4.6
 %
 
2,406.1

 
2,452.0

 
(1.9
)%
Commercial and other
8.2

 
8.3

 
(1.2
)
 
23.6

 
24.3

 
(2.9
)
Total volumetric load
1,059.2

 
1,013.3

 
4.5
 %
 
2,429.7

 
2,476.3

 
(1.9
)%
Demand-based load (2) (MW)
5,003.2

 
4,887.8

 
2.4
 %
 
14,312.7

 
13,540.8

 
5.7
 %
Average retail consumers (thousands) (3)
255.7

 
252.2

 
1.4
 %
 
254.8

 
251.1

 
1.5
 %

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


100

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

The following table summarizes the significant changes to utility margin:
 
 
 
Three Months Ended September 30, 2019
 
 
 
Change
Utility margin:
 
(In millions)
 
 
 
 
 
Retail rate relief – TNMP 2018 Rate Case retail rate increase effective January 1, 2019, including integration of amounts previously recovered in the AMS rate rider and the effect of rate design changes between customer classes (Note 12)
 
$
4.1

 
Transmission rate relief – Increase in transmission cost of service rates primarily resulting from current year filings, net of changes resulting from the TNMP 2018 Rate Case (Note 12)
 
0.6

 
Retail customer usage/load – Weather normalized KWh sales decreased 2.9%; the average number of retail consumers increased 1.4%
 
(0.7
)
 
Demand-based customer usage/load – Higher demand-based revenues for large commercial and industrial customers; billed demand excluding retail transmission customers increased 5.4%
 
0.9

 
Weather – Warmer weather in 2019; cooling degree days were 9.8% higher in 2019
 
1.8

 
Rate Riders – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, and transmission cost recovery factor
 
1.9

 
Net Change
 
$
8.6


The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
 
 
 
Three Months Ended September 30, 2019
 
 
 
Change
Operating expenses:
 
(In millions)
 
 
 
 
Higher employee related expenses
 
$
0.2

 
Lower vegetation management expenses
 
(0.5
)
 
Higher capitalization of administrative and general and other expenses due to higher construction expenditures
 
(1.0
)
 
Higher property taxes due to increased utility plant in service
 
0.2

 
Other
 
0.1

 
Net Change
 
$
(1.0
)
Depreciation and amortization:
 
 
 
 
 
 
Increased utility plant in service
 
$
1.8

 
Higher depreciation rates approved in the TNMP 2018 Rate Case
 
2.5

 
Amortization of AMS and Hurricane Harvey regulatory assets approved in the TNMP 2018 Rate Case
 
0.6

 
Other
 
(0.1
)
 
Net Change
 
$
4.8


101

 
 
 
Three Months Ended September 30, 2019
 
 
 
Change
Other income (deductions):
 
(In millions)
 
 
 
 
Higher equity AFUDC
 
$
0.2

 
Higher CIAC
 
0.3

 
Other
 
0.1

 
Net Change
 
$
0.6

Interest charges:
 
 
 
 
 
 
Repayment of $172.3 million 9.50% first mortgage bonds in April 2019
 
$
4.1

 
Issuance of $225.0 million first mortgage bonds in March 2019
 
(2.0
)
 
Issuance of $80.0 million first mortgage bonds in July 2019
 
(0.7
)
 
Issuance of $20.0 million term loan in July 2018 and $15.0 million in December 2018
 
(0.2
)
 
Net Change
 
$
1.2

Income (taxes) benefits:
 
 
 
 
 
 
Higher segment earnings before income taxes
 
$
(1.4
)
 
Amortization of excess deferred federal income taxes (Note 14)
 
4.2

 
Other
 
(0.4
)
 
Net Change
 
$
2.4


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

The following table summarizes the significant changes to utility margin:
 
 
 
Nine Months Ended September 30, 2019
 
 
 
Change
Utility margin:
 
(In millions)
 
 
 
 
 
Retail rate relief – TNMP 2018 Rate Case retail rate increase effective January 1, 2019, including integration of amounts previously recovered in the AMS rate rider and the effect of rate design changes between customer classes (Note 12)
 
$
6.5

 
Transmission rate relief – Decrease in transmission cost of service rates primarily resulting from the TNMP 2018 Rate Case offset by current year filings
 
(1.0
)
 
Retail customer usage/load – Weather normalized KWh sales decreased 2.0%; the average number of retail consumers increased 1.5%
 
(1.2
)
 
Demand-based customer usage/load - Higher demand-based revenues for large commercial and industrial customers; billed demand excluding retail transmission customers increased 4.3%
 
2.4

 
Weather – Milder weather through the first two quarters in 2019 was offset by warmer weather in the third quarter
 
(0.2
)
 
Rate Riders – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, and transmission cost recovery factor
 
0.8

 
Net Change
 
$
7.3



102

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
 
 
 
Nine Months Ended September 30, 2019
 
 
 
Change
Operating expenses:
 
(In millions)
 
 
 
 
Higher employee related expenses
 
$
1.6

 
Higher capitalization of administrative and general and other expenses due to higher construction expenditures
 
(2.1
)
 
Higher property taxes due to increased utility plant in service
 
0.7

 
Lower vegetation management expenses
 
(0.9
)
 
Other
 
0.4

 
Net Change
 
$
(0.3
)
Depreciation and amortization:
 
 
 
 
 
 
Increased utility plant in service
 
$
4.2

 
Higher depreciation rates approved in the TNMP 2018 Rate Case
 
7.0

 
Higher amortization of AMS and Hurricane Harvey regulatory assets approved in the TNMP 2018 Rate Case (Note 12)
 
1.6

 
Other
 
0.2

 
Net Change
 
$
13.0

Other income (deductions):
 
 
 
 
 
 
Higher equity AFUDC
 
$
0.2

 
Lower CIAC
 
(0.2
)
 
Net Change
 
$
—

Interest charges:
 
 
 
 
 
 
Repayment of $172.3 million 9.50% first mortgage bonds in April 2019
 
$
8.1

 
Issuance of $225.0 million first mortgage bonds in March 2019
 
(4.1
)
 
Issuance of $80.0 million first mortgage bonds in July 2019
 
(0.7
)
 
Issuance of $60.0 million first mortgage bonds in June 2018
 
(1.2
)
 
Issuance of $20.0 million term loan in July 2018 and $15.0 million in December 2018
 
(0.7
)
 
Net Change
 
$
1.4

Income (taxes) benefits:
 
 
 
 
 
 
Lower segment earnings before income taxes
 
$
0.8

 
Amortization of excess deferred federal income taxes (Note 14)
 
7.4

 
Other
 
(0.6
)
 
Net Change
 
$
7.6



103

Corporate and Other

The table below summarizes the operating results for Corporate and Other:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
(In millions)
Electric operating revenues
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Cost of energy
—

 
—

 
—

 
—

 
—

 
—

   Utility margin
—

 
—

 
—

 
—

 
—

 
—

Operating expenses
(5.3
)
 
(3.6
)
 
(1.7
)
 
(16.6
)
 
(14.0
)
 
(2.6
)
Depreciation and amortization
5.8

 
5.9

 
(0.1
)
 
17.5

 
17.4

 
0.1

   Operating income (loss)
(0.5
)
 
(2.4
)
 
1.9

 
(0.9
)
 
(3.4
)
 
2.5

Other income (deductions)
(0.3
)
 
(0.2
)
 
(0.1
)
 
(1.2
)
 
2.1

 
(3.3
)
Interest charges
(4.8
)
 
(4.2
)
 
(0.6
)
 
(14.0
)
 
(14.2
)
 
0.2

Segment earnings (loss) before income taxes
(5.6
)
 
(6.7
)
 
1.1

 
(16.1
)
 
(15.6
)
 
(0.5
)
Income (taxes) benefit
2.6

 
0.7

 
1.9

 
4.4

 
3.8

 
0.6

Segment earnings (loss)
$
(3.0
)
 
$
(6.0
)
 
$
3.0

 
$
(11.7
)
 
$
(11.8
)
 
$
0.1


Corporate and Other operating expenses shown above are net of amounts allocated to PNM and TNMP under shared services agreements. Operating expenses for the three and nine months ended September 30, 2018 include approximately $1.5 million in legal and consulting costs 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.

Operating Results – Three Months Ended September 30, 2019 compared to 2018
 
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
 
 
 
Three Months Ended September 30, 2019
 
 
 
Change
Other income (deductions):
 
(In millions)
 
 
 
 
Lower equity method investment income from NMRD
 
$
(0.1
)
 
Net Change
 
$
(0.1
)
Interest charges:
 
 
 
 
 
 
Issuance of $90.0 million PNMR Development Term Loan in November 2018
 
$
(0.7
)
 
Issuance of $50.0 million PNMR 2018 Two-Year Term Loan
 
(0.4
)
 
Repayment of $100.0 million PNMR 2016 Two-Year Term Loan
 
0.7

 
Higher short-term borrowings
 
(0.2
)
 
Elimination of intercompany interest
 
0.2

 
Other
 
(0.2
)
 
Net Change
 
$
(0.6
)
Income (taxes) benefits:
 
 
 
 
 
 
Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods
 
$
2.4

 
Lower segment loss before income taxes
 
(0.3
)
 
Other
 
(0.2
)
 
Net Change
 
$
1.9



104

Operating Results – Nine Months Ended September 30, 2019 compared to 2018
 
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
 
 
 
Nine Months Ended September 30, 2019
 
 
 
Change
Other income (deductions):
 
(In millions)
 
 
 
 
Decrease in interest income on the Westmoreland Loan
 
$
(2.7
)
 
Lower equity method investment income from NMRD
 
(0.2
)
 
Increase in donations and other contributions
 
(0.1
)
 
Other
 
(0.3
)
 
Net Change
 
$
(3.3
)
Interest charges:
 
 
 
 
 
 
Issuance of $90.0 million PNMR Development Term Loan in November 2018
 
$
(2.2
)
 
Issuance of $300.0 million PNMR 2018 SUNs in March 2018
 
(1.8
)
 
Repayment of $150.0 million PNMR 2015 Term Loan in March 2018
 
0.8

 
Issuance of $50.0 million PNMR 2018 Two-Year Term Loan
 
(1.2
)
 
Repayment of $100.0 million PNMR 2016 Two-Year Term Loan
 
1.8

 
Lower short-term borrowings
 
0.1

 
Repayment of the BTMU Term Loan in May 2018
 
1.8

 
Elimination of intercompany interest
 
1.4

 
Other
 
(0.5
)
 
Net Change
 
$
0.2

Income (taxes) benefits:
 
 
 
 
 
 
Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods
 
$
0.6

 
Larger segment loss before income taxes
 
0.1

 
Other
 
(0.1
)
 
Net Change
 
$
0.6


LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows

The changes in PNMR’s cash flows for the nine months ended September 30, 2019 compared to September 30, 2018 are summarized as follows:
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
 
(In millions)
Net cash flows from:
 
 
 
 
 
  Operating activities
$
351.3

 
$
316.9

 
$
34.4

  Investing activities
(484.3
)
 
(326.5
)
 
(157.8
)
  Financing activities
151.0

 
40.6

 
110.4

Net change in cash and cash equivalents
$
18.0

 
$
31.0

 
$
(13.0
)
Cash Flows from Operating Activities
Changes in PNMR’s cash flow from operating activities result from net earnings, adjusted for items impacting earnings that do not provide or use cash. See Results of Operations above. Certain changes in assets and liabilities resulting from normal operations, including the effects of the seasonal nature of the Company’s operations, also impact operating cash flows.    

105

Cash Flows from Investing Activities
The changes in PNMR’s cash flows from investing activities relate primarily to changes in utility plant additions. Cash flows from investing activities also include purchases and sales of investment securities in the NDT and coal mine reclamation trusts, including activity to rebalance the investment portfolio in early 2018. In addition, cash flows from investing activities include activity related to the Westmoreland Loan, which was paid in full in May 2018, and NMRD. Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
Cash (Outflows) for Utility Plant Additions
(In millions)
PNM:
 
 
 
 
 
Generation
$
(50.3
)
 
$
(47.5
)
 
$
(2.8
)
Renewables
(49.6
)
 
—

 
(49.6
)
Transmission and distribution
(117.0
)
 
(100.8
)
 
(16.2
)
Four Corners SCRs
—

 
(7.3
)
 
7.3

Nuclear fuel
(17.9
)
 
(21.9
)
 
4.0

 
(234.8
)
 
(177.5
)
 
(57.3
)
TNMP:
 
 
 
 
 
Transmission
(65.5
)
 
(78.0
)
 
12.5

Distribution
(129.6
)
 
(92.8
)
 
(36.8
)
 
(195.1
)
 
(170.8
)
 
(24.3
)
Corporate and Other:
 
 
 
 
 
Computer hardware and software
(15.0
)
 
(17.2
)
 
2.2

Total cash (outflows) for additions to utility plant
$
(444.9
)
 
$
(365.5
)
 
$
(79.4
)
 
 
 
 
 
 
Other Cash Flows from Investing Activities
 
 
 
 
 
Proceeds from sales of investment securities
$
375.3

 
$
911.9

 
$
(536.6
)
Purchases of investment securities
(385.3
)
 
(920.2
)
 
534.9

Principal payments on the Westmoreland Loan
—

 
56.6

 
(56.6
)
Investments in NMRD
(29.3
)
 
(9.0
)
 
(20.3
)
Other, net
(0.1
)
 
(0.3
)
 
0.2

Total cash (outflows) from investing activities
$
(484.3
)
 
$
(326.5
)
 
$
(157.8
)

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


106

Financing Activities

See Note 7 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K and Note 9 for additional information concerning the Company’s financing activities. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. The Company’s ability to access the credit and capital markets at a reasonable cost is largely dependent upon its:

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

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.

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

On February 26, 2019, TNMP entered into the TNMP 2019 Bond Purchase Agreement with institutional investors for the sale of $305.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the “TNMP 2019 Bonds”) offered in private placement transactions. Under the TNMP 2019 Bond Purchase Agreement, TNMP issued $225.0 million of the TNMP 2019 Bonds on March 29, 2019 (at fixed annual interest rates ranging from 3.79% to 4.06% for terms ranging from 15 to 25 years) and used the proceeds to repay TNMP’s $172.3 million 9.50% first mortgage bonds at their maturity on April 1, 2019, as well as to repay borrowings under the TNMP Revolving Credit Facility and for general corporate purposes. TNMP issued the remaining $80.0 million of the TNMP 2019 Bonds on July 1, 2019 (at a fixed annual interest rate of 3.60% for a term of ten years) and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for general corporate purposes. The terms of the TNMP 2019 Bonds contain customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP will have the right to redeem any or all of the TNMP 2019 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium. In accordance with GAAP, borrowings under the $172.3 million 9.50% TNMP first mortgage bonds are reflected as being long-term in the Condensed Consolidated Balance Sheets at December 31, 2018 since TNMP demonstrated its intent and ability to re-finance the agreement on a long-term basis.

See discussion of PNM’s SJGS Abandonment Application in Note 12, which includes a request to issue approximately $361 million of energy transition bonds, as provided by the ETA, upon the proposed retirement of SJGS in 2022.

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

Capital Requirements

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

•
Upgrading and replacing generation resources and for renewable energy resources
•
Expanding the electric transmission and distribution systems
•
Purchasing nuclear fuel

107


Projected capital requirements, including amounts expended through September 30, 2019, are:
 
2019
 
2020-2023
 
Total
 
(In millions)
Construction expenditures
$
604.7

 
$
3,248.0

 
$
3,852.7

Capital contributions to NMRD
37.0

 
27.0

 
64.0

Dividends on PNMR common stock
92.4

 
369.6

 
462.0

Dividends on PNM preferred stock
0.5

 
2.1

 
2.6

Total capital requirements
$
734.6

 
$
3,646.7

 
$
4,381.3


The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The construction expenditures above include $60.0 million for 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, and approximately $145.3 million in 2019-2021 for anticipated expansions of PNM’s transmission system. Also included in the table above is a net amount of approximately $285 million in 2020-2021 for PNM’s May 1, 2019 agreement to purchase the Western Spirit Line, subject to certain conditions being met prior to closing. Also included in the table above are approximately $298 million in 2020-2022 for proposed replacement generation resources included in PNM’s SJGS Abandonment Application as discussed in Note 12. The ability of PNMR to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to be able to pay dividends to PNMR. Note 5 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K describes regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.

During the nine months ended September 30, 2019, PNMR met its capital requirements and construction expenditures through cash generated from operations, as well as its liquidity arrangements and the borrowings discussed in Financing Activities above.
 
In addition to the capital requirements for construction expenditures and dividends, the Company has long-term debt and term loans that must be paid or refinanced at maturity. The $150.0 million PNMR 2018 One-Year Term Loan will mature in December 2019. PNM has $100.3 million of long-term debt that must be repriced by June 2020 and the $250.0 million PNM 2019 Term Loan matures in July 2020. In addition, the $35.0 million TNMP 2018 Term Loan matures in July 2020, the $90.0 million PNMR Development Term Loan matures in November 2020, the $50.0 million PNMR 2018 Two-Year Term Loan matures in December 2020, and the $300.0 million PNMR 2018 SUNs mature on March 9, 2021. Note 7 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K contains additional information about the maturities of long-term debt. The Company anticipates that funds to repay long-term debt maturities and term loans will come from entering into new arrangements similar to the existing agreements, borrowing under the revolving credit facilities, issuance of new long-term debt or equity in the public or private capital markets, or a combination of these sources. The Company has from time to time refinanced or repurchased portions of its outstanding debt before scheduled maturity. Depending on market conditions, the Company may refinance other debt issuances or make additional debt repurchases in the future.

Liquidity

PNMR’s liquidity arrangements include the PNMR Revolving Credit Facility, the PNM Revolving Credit Facility, and the TNMP Revolving Credit Facility. 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. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires on December 12, 2022. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry.  Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.

On February 22, 2019, PNMR Development amended its revolving credit facility to increase the capacity to $25.0 million. On July 22, 2019, the PNMR Development Revolving Credit Facility was amended to increase the capacity to $40.0 million with the option to further increase the capacity to $50.0 million upon 15-days advance notice. The facility bears interest at a variable rate, contains terms similar to the PNMR Revolving Credit Facility, and expires on February 24, 2020. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. See Note 1.


108

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

Information regarding the range of borrowings for each facility is as follows:
 
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Range of Borrowings
 
Low
 
High
 
Low
 
High
 
 
(In millions)
PNM:
 
 
 
 
 
 
 
 
PNM Revolving Credit Facility
 
$
—

 
$
36.1

 
$
—

 
$
40.0

PNM 2017 New Mexico Credit Facility
 
—

 
25.0

 
—

 
25.0

TNMP Revolving Credit Facility
 
—

 
15.0

 
—

 
55.0

PNMR Revolving Credit Facility
 
66.0

 
97.2

 
20.0

 
97.2

PNMR Development Revolving Credit Facility
 
21.9

 
38.9

 
6.0

 
38.9

At September 30, 2019, the average interest rates were 3.29% for the PNMR Revolving Credit Facility, 2.81% for the PNMR 2018 One-Year Term Loan, 2.77% for the TNMP Revolving Credit Facility, and 3.05% for the PNMR Development Revolving Credit Facility.
The Company currently believes that its capital requirements for at least the next twelve months can be met through internal cash generation, existing, extended, or new credit arrangements, and access to public and private capital markets. The Company anticipates that it will be necessary to obtain additional long-term financing to fund its capital requirements during the 2019-2023 period, including interim financing to fund construction of replacement resources prior to the issuance of the energy transition bonds included in PNM’s SJGS Abandonment Application. See Note 12. This could include new debt and/or equity issuances. The Company anticipates utilizing equity instruments such as mandatory convertible securities or forward block sales to raise equity starting in 2020 to fund capital requirements and balance its capital structure. The Company also expects to issue new debt periodically to fund capital investments. To cover the difference in the amounts and timing of internal cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements. However, if difficult market conditions return, the Company may not be able to access the capital markets or renew credit facilities when they expire. Should that occur, the Company would seek to improve cash flows by reducing capital expenditures and exploring other available alternatives.
Information concerning the credit ratings for PNMR, PNM, and TNMP was set forth under the heading Liquidity in the MD&A contained in the 2018 Annual Reports on Form 10-K. As of October 25, 2019, ratings on the Company’s securities were as follows:
 
PNMR
 
PNM
 
TNMP
S&P
 
 
 
 
 
Corporate rating
BBB+
 
BBB+
 
BBB+
Senior secured debt
*
 
*
 
A
Senior unsecured debt
BBB
 
BBB+
 
*
Preferred stock
*
 
BBB-
 
*
Moody’s
 
 
 
 
 
Issuer rating
Baa3
 
Baa2
 
A3
Senior secured debt
*
 
*
 
A1
Senior unsecured debt
Baa3
 
Baa2
 
*
* Not applicable
 
 
 
 
 

Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. On January 16, 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative while affirming the ratings above for all the entities. On June 29, 2018, Moody’s changed the ratings outlook for PNMR and PNM from positive to stable, maintained the stable outlook for TNMP, and affirmed the long-term credit ratings of each entity. On August 1, 2019, Moody’s

109

affirmed the credit rating and stable outlook for PNM and TNMP. On August 9, 2019, Moody’s affirmed the credit rating and stable outlook for PNMR. Investors are cautioned that a security rating is not a recommendation to buy, sell, or hold securities, that each rating is subject to revision or withdrawal at any time by the rating organization, and that each rating should be evaluated independently of any other rating.

A summary of liquidity arrangements as of October 25, 2019 is as follows:
 
PNM
 
TNMP
 
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 Facility
40.0

 
—

 
—

 
—

 
40.0

Total financing capacity
$
440.0

 
$
75.0

 
$
300.0

 
$
40.0

 
$
855.0

 
 
 
 
 
 
 
 
 
 
Amounts outstanding as of October 25, 2019:
 
 
 
 
 
 
 
 
 
Revolving credit facility
$
—

 
$
15.3

 
$
79.4

 
$
38.9

 
$
133.6

PNM 2017 New Mexico Credit Facility
—

 
—

 
—

 
—

 
—

Letters of credit
2.5

 
0.1

 
4.7

 
—

 
7.3

Total short-term debt and letters of credit
2.5

 
15.4

 
84.1

 
38.9

 
140.9

 
 
 
 
 
 
 
 
 
 
Remaining availability as of October 25, 2019
$
437.5

 
$
59.6

 
$
215.9

 
$
1.1

 
$
714.1

Invested cash as of October 25, 2019
$
20.5

 
$
—

 
$
0.9

 
$
—

 
$
21.4

In addition to the above, PNMR has $30.3 million of letters of credit outstanding under the JPM LOC Facility. The above table excludes intercompany debt. As of October 25, 2019, PNM and TNMP had no intercompany borrowings from PNMR however, PNMR Development had $0.1 million of intercompany borrowings from PNMR. The remaining availability under the revolving credit facilities at any point in time varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures.

PNMR has an automatic shelf registration that provides for the issuance of various types of debt and equity securities that expires in March 2021. PNM has a shelf registration statement for up to $475.0 million of senior unsecured notes that expires in May 2020.
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 2018 Annual Reports on Form 10-K.

Contingent Provisions of Certain Obligations
As discussed in the 2018 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. No conditions have occurred that would result in any of the above contingent provisions being implemented.


110

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.
 
September 30,
2019
 
December 31,
2018
PNMR
 
 
 
PNMR common equity
36.9
%
 
38.6
%
Preferred stock of subsidiary
0.3

 
0.3

Long-term debt
62.8

 
61.1

Total capitalization
100.0
%
 
100.0
%
PNM
 
 
 
PNM common equity
45.3
%
 
45.6
%
Preferred stock
0.4

 
0.4

Long-term debt
54.3

 
54.0

Total capitalization
100.0
%
 
100.0
%
TNMP
 
 
 
Common equity
49.4
%
 
53.9
%
Long-term debt
50.6

 
46.1

Total capitalization
100.0
%
 
100.0
%

OTHER ISSUES FACING THE COMPANY
Climate Change Issues

Background
For the past several years, management has identified multiple risks and opportunities related to climate change, including potential environmental regulation, technological innovation, and availability of fuel and water for operations, as among the most significant risks facing the Company. Accordingly, these risks are overseen by the 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 opportunities, the Company is evaluating different climate change disclosure frameworks, including the framework created by the Task Force on Climate-related Financial Disclosures and the framework created by Edison Electric Institute. The Company is also participating in an Electric Power Research Institute project that is analyzing climate change scenarios and GHG goal setting.

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

111

Greenhouse Gas Emissions Exposures
In 2018, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 5.6 million metric tons of CO2, which comprises the vast majority of PNM’s GHG.

As of December 31, 2018, approximately 66% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the United States, consisted of coal or gas-fired generation that produces GHG. This reflects the retirement of SJGS Units 2 and 3 that occurred in December 2017 and the restructuring of ownership in SJGS Unit 4. These events reduced PNM’s entitlement in SJGS from 783 MW to 562 MW and caused the Company’s output of GHG to decrease when compared to 2017. Many factors affect the amount of GHG emitted, including total electricity sales, plant performance, economic dispatch, and the availability of renewable resources. For example, between 2007 and 2018, production from PNM’s largest single renewable energy resource, New Mexico Wind, has varied from a high of 580 GWh in 2011 to a low of 405 GWh in 2014. Variations are primarily due to how much and how often the wind blows. In addition, if PVNGS experienced prolonged outages or if PNM’s entitlement from PVNGS were reduced, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG.
PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. As described in Note 16 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K, PNM received approval for the December 31, 2017 shutdown of SJGS Units 2 and 3 as part of its strategy to address the regional haze requirements of the CAA. The shutdown of SJGS Units 2 and 3 resulted in a reduction of GHG for the entire station of approximately 54% for 2018, reflecting a reduction of 41% of GHG from the Company’s owned interests in SJGS, below 2005 levels. PNM’s 2017 IRP indicates that retiring PNM’s share of SJGS in 2022 and exiting ownership in Four Corners in 2031 would provide long-term cost savings to its customers. See additional discussion of PNM’s 2017 IRP and the SJGS Abandonment Application in Note 12. If approved by the NMPRC, retiring PNM’s share of SJGS and exiting participation in Four Corners would further reduce PNM’s GHG.
As of December 31, 2018, PNM owns or procures power under PPAs from 508 MW of capacity from renewable generation resources, which include solar-PV, wind, and geothermal facilities. In addition, the NMPRC has granted PNM authority to construct and own 50 MW of solar-PV capacity to serve retail customers beginning in 2020, and to procure an aggregate of 316 MW of renewable energy and RECs from solar-PV and wind facilities to serve a data center located in PNM’s service territory. PNM’s 2020 renewable energy procurement plan, which is pending NMPRC approval, includes a request to procure an additional 140 MW of wind energy to serve retail customers beginning in 2021 and PNM’s SJGS Abandonment Application, which was filed with the NMPRC on July 1, 2019, includes a request to replace SJGS capacity with 350 MW of solar-PV, 130 MW of battery storage facilities, and 280 MW of new gas-fired peaking capacity. If approved, these resources would result in PNM owning, leasing, or procuring through PPAs capacity from renewable resources and battery storage facilities totaling 1,444 MW and capacity from emissions-free resources totaling 1,846 MW. See additional discussion of these resources in Notes 11 and 12.
PNM also has a customer distributed solar generation program that represented 121.2 MW at September 30, 2019. PNM’s distributed solar programs will reduce PNM’s annual production from fossil-fueled electricity generation by about 242.4 GWh. 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 3,832 GWh of electricity through 2018. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 8,756 GWh of electricity, which will avoid at least 4.7 million metric tons of CO2 based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in PNM’s generation portfolio, demand for electricity, energy efficiency, and complex relationships between those variables.
Because of PNM’s dependence on fossil-fueled generation, legislation or regulation that imposes a limit or cost on GHG could impact the cost at which electricity is produced. While PNM expects to recover any such costs through rates, the timing and outcome of proceedings for cost recovery are uncertain. In addition, to the extent that any additional costs are recovered through rates, customers may reduce their usage, relocate facilities to other areas with lower energy costs, or take other actions that ultimately could adversely impact PNM.

Other Climate Change Risks

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

112

need to mitigate the impacts of climate change through adaptive measures. Current measures employed by PNM generating stations such as air cooling, use of grey water, improved reservoir operations, and shortage sharing arrangements with other water users will continue to be important to sustain operations.
    
PNM’s service areas occasionally experience periodic high winds and severe thunderstorms. TNMP has operations in the Gulf Coast area of Texas, which experiences periodic hurricanes and other extreme weather conditions. In addition to potentially causing physical damage to Company-owned facilities, which disrupts the ability to transmit and/or distribute energy, weather and other events of nature can temporarily reduce customers’ usage and demand for energy. In addition, other events influenced by climate change, such as wildfires, could disrupt Company operations or result in third-party claims against the Company.

EPA Regulation

In April 2007, the US Supreme Court held that EPA has the authority to regulate GHG under the CAA.  This decision heightened the importance of this issue for the energy industry.  In December 2009, EPA released its endangerment finding for GHG from new motor vehicles, stating that the atmospheric concentrations of six key greenhouse gases (CO2, methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) endanger the public health and welfare of current and future generations. In May 2010, EPA released the final Prevention of Significant Deterioration (“PSD”) and Title V Greenhouse Gas Tailoring Rule to address GHG from stationary sources under the CAA permitting programs. The purpose of the rule was to “tailor” the applicability of two programs, the PSD construction permit and Title V operating permit programs, to avoid impacting millions of small GHG emitters. On June 23, 2014, the US Supreme Court found EPA lacked authority to “tailor” the CAA’s unambiguous numerical thresholds of 100 or 250 tons per year, and thus held EPA may not require a source to obtain a PSD permit solely on the basis of its potential GHG. However, the court upheld EPA’s authority to apply the PSD program for GHG to “anyway” sources - those sources that have to comply with the PSD program for other non-GHG pollutants.
    
On June 25, 2013, then President Obama announced his Climate Action Plan, which outlined how his administration planned to cut GHG in the United States, prepare the country for the impacts of climate change, and lead international efforts to combat and prepare for global warming. The plan proposed actions that would lead to the reduction of GHG by 17% below 2005 levels by 2020.
    
On August 3, 2015, EPA responded to the Climate Action Plan by issuing three separate but related actions, 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 are based on emission reduction opportunities that EPA deemed achievable using technical assumptions for three “building blocks”: efficiency improvements at coal-fired EGUs, displacement of affected EGUs with renewable energy, and displacement of coal-fired generation with natural gas-fired generation.
    
Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. The DC Circuit refused to stay the rule, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016, 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, President Trump took office and his administration asked the court to hold the case in abeyance while the rule was re-evaluated, which the court granted. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss the cases challenging the Clean Power Plan as moot due to EPA’s issuance of the Affordable Clean Energy rule, which repeals the Clean Power Plan.
    

113

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) finalizes the repeal of the Clean Power Plan; (2) finalizes the Affordable Clean Energy rule; and (3) revises the implementing regulations for all emission guidelines issued under CAA Section 111(d) which, among other things, extends the timing of state plans. EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).
While corresponding NSR reform regulations were proposed as part of the proposed Affordable Clean Energy rule, the final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy Rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from projects are to be considered in determining whether the proposed project will result in an increase in air emissions.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule published in October 2015 for new, reconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on the revised BSER as the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon capture and sequestration. As a result, the proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. The 2018 proposed Carbon Pollution Standards rule could also impact PNM’s generation fleet to the extent any EGUs qualify as new, reconstructed, or modified, although that rule remains under review by EPA and the DC Circuit. Comments on the proposal were due on March 18, 2019 and a final rule is expected in late 2019.
The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. The results of additional judicial review and the outcome of those proceedings cannot be predicted.

Federal Legislation

Prospects for enactment in Congress of legislation imposing a new or enhanced regulatory program to address climate change are unlikely in 2019.  Although the democratic leadership in the U.S. House of Representatives may soon begin to reconsider proposals for legislation aimed at addressing climate change, such legislation is unlikely to pass the republican controlled U.S. Senate or be signed by the President.
State and Regional Activity

Pursuant to New Mexico law, each utility must submit an IRP to the NMPRC every three years to evaluate renewable energy, energy efficiency, load management, distributed generation, and conventional supply-side resources on a consistent and comparable basis.  The IRP is required to take into consideration risk and uncertainty of fuel supply, price volatility, and costs of anticipated environmental regulations when evaluating resource options to meet supply needs of the utility’s customers.  The NMPRC requires that New Mexico utilities factor a standardized cost of carbon emissions into their IRPs using prices ranging

114

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, PNM analyzed resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations by the end of 2022 as discussed in Note 12. The key findings of the 2017 IRP include that exiting SJGS in 2022 would provide long-term economic benefits to PNM’s customers and that PNM exiting its ownership interest in Four Corners in 2031 would also save customers money. The materials presented in the IRP process are available at www.pnm.comirp. See additional discussion of PNM’s 2017 IRP in Note 12.
Senate Bill 489, known as the Energy Transition Act (“ETA”) was signed into New Mexico state law and became effective on June 14, 2019. The ETA, among other things, requires that investor-owned utilities obtain specified percentages of their energy from renewable and carbon-free resources. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA provides for a transition from coal-fired generating resources to carbon-free resources by allowing investor-owned utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include coal mine decommissioning, plant decommissioning, and other costs that have not yet been charged to customers or disallowed by the NMPRC or by a court order. Proceeds provided by energy transition bonds may also be used to pay for severances for employees of the retired coal-fired generating facility and related coal mine, as well as to pay for job training, education, and economic development. Energy transition bonds must be issued under an NMPRC financing order and are paid by a non-bypassable charge paid by all customers of the issuing utility. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement 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 planned retirement of SJGS in 2022. The applicability of the ETA to PNM’s SJGS Abandonment filing has been challenged by several parties and is currently being reviewed by the NMPRC. See additional discussion of PNM’s SJGS Abandonment Application in Note 12. PNM cannot predict the full impact of the ETA or the outcome of its existing and potential future generating resource abandonment filings with the NMPRC.
International Accords

The United Nations Framework Convention on Climate Change (“UNFCCC”) is an international environmental treaty that was negotiated at the 1992 United Nations Conference on Environment and Development (informally known as the Earth Summit) and entered into force in March 1994. The objective of the treaty is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.”  Parties to the UNFCCC, including the United States, have been meeting annually in Conferences of the Parties (“COP”) to assess progress in meeting the objectives of the UNFCCC. 
On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The aim of the Paris Agreement is to limit global temperature rise to two degrees Celsius above pre-industrial levels. The agreement, which was agreed to by approximately 200 parties, requires that countries submit Intended Nationally Determined Contributions (“INDCs”). INDCs reflect national targets and actions that arise out of national policies and elements relating to oversight, guidance and coordination of actions to reduce emissions by all countries. In November 2014, then President Obama announced the United States’ commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005 levels by the year 2025. The United States INDC was part of an overall effort by the former administration to have the United States achieve economy-wide reductions of around 80% by 2050.  The former administration’s GHG reduction target for the electric utility industry 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 United States would withdraw from the Paris Agreement. In his public statement, he indicated that the United States would “begin negotiations to reenter either the Paris Accord or a new transaction on terms that are fair to the United States, its businesses, its

115

workers, its people, its taxpayers.” The United States continues to hold the position that it will withdraw from the Paris Agreement unless it can negotiate better terms. The earliest date that the United States could give formal notification of its withdrawal is November 4, 2020. In the interim, the United States continues to participate in international climate negotiations. It is uncertain if the United States will choose to pursue a transition to a low-carbon economy using a pathway that aligns with the Paris Agreement to keep global temperature rise to below two degrees Celsius (the “2 Degree Scenario”) above pre-industrial levels or in connection with other regulation or legislation. PNM has not conducted a 2 Degree Scenario analysis but is participating in the Electric Power Research Institute program, “Understanding Climate Change Scenarios and Goal-setting Activities”. PNM has also calculated GHG reductions that would result from implementation of the 2017 IRP scenarios that assume PNM would retire its share of the SJGS in 2022 and would exit from Four Corners in 2031 and PNM has set a goal to have a 100% emissions-free generating portfolio by 2040. 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 United States INDC and the former administration’s effort to achieve an 80% reduction in carbon emissions by 2050. As discussed in Note 12, on July 1, 2019, PNM submitted its SJGS Abandonment Application to the NMPRC. PNM will file for abandonment of Four Corners at an appropriate time in the future.
PNM will continue to monitor the United States’ and other parties’ involvement in international accords, but the potential impact that such accords may have on the Company cannot be determined at this time.

Assessment of Legislative/Regulatory Impacts

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

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

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

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

116


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

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

On June 7, 2019, NERC submitted to FERC a notice to withdraw proposed MOD-001-2 and to retire the currently effective versions of the MOD A Standards subject to FERC approval. The retirement of the MOD A standards removes all risk associated with the TTC reductions.

Financial Reform Legislation

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

Other Matters

See Notes 11 and 12 herein and Notes 16 and 17 of the Notes to Consolidated Financial Statements in the 2018 Annual Reports on Form 10-K for a discussion of commitments and contingencies and rate and regulatory matters. See Note 1 for a discussion of accounting pronouncements that have been issued but are not yet effective and have not been adopted by the Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

As of September 30, 2019, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s 2018 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.


117


MD&A FOR TNMP

RESULTS OF OPERATIONS

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

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

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

•
The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, the NM Supreme Court’s decisions in the appeal of that order, the NM 2016 Rate Case and related deferral of the issue of the prudence of PNM’s decision to continue participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments in that plant, any actions resulting from PNM’s SJGS Abandonment Application, which requests NMPRC approval to retire PNM’s share of SJGS in 2022 and for recovery of undepreciated investments and other costs associated with the retirement, the evaluation of that application under the recently enacted ETA, and/or the conclusions reached in PNM’s 2017 IRP (collectively, the “Regulatory Proceedings”) and the impact on service levels for PNM customers if the ultimate outcomes do not provide for the recovery of costs of operating and capital expenditures, as well as other impacts of federal or state regulatory and judicial actions
•
The ability of the Company to successfully forecast and manage its operating and capital expenditures, including aligning expenditures with the revenue levels resulting from the ultimate outcomes of the Regulatory Proceedings and supporting forecasts utilized in future test year rate proceedings
•
Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2 that is under lease at the expiration of the lease terms in 2023 and 2024, or upon the occurrence of certain specific events, as well as the related treatment for ratemaking purposes by the NMPRC
•
Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, the outcome of PNM’s SJGS Abandonment Application, including the impacts of the recently enacted ETA, the results of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s exit from Four Corners in 2031, including regulatory recovery of undepreciated investments and other costs in the event the NMPRC orders generating facilities be retired
•
Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings
•
The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, and other changes in supply and demand
•
The Company’s ability to access the financial markets in order to provide financing to repay or refinance debt as it comes due, as well as for ongoing operations and construction expenditures, including disruptions in the capital or credit markets, actions by ratings agencies, and fluctuations in interest rates, including any negative impacts that could result from the ultimate outcomes of the Regulatory Proceedings
•
The risks associated with completion of generation, transmission, distribution, and other projects
•
The potential unavailability of cash from PNMR’s subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows
•
The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply issues, unplanned outages, extreme weather conditions, wildfires, terrorism, cybersecurity breaches, and other catastrophic events, as well the costs the Company may incur to repair its facilities and/or the liabilities the Company may incur to third parties in connection with such issues
•
State and federal regulation or legislation relating to environmental matters and renewable energy requirements, the resultant costs of compliance, and other impacts on the operations and economic viability of PNM’s generating plants
•
State and federal regulatory, legislative, executive, and judicial decisions and actions on ratemaking, and taxes, including guidance related to the Tax Act, and other matters
•
Risks related to climate change, including potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG, including the impacts of the recently enacted ETA

118

•
Employee workforce factors, including cost control efforts and issues arising out of collective bargaining agreements and labor negotiations with union employees
•
Variability of prices and volatility and liquidity in the wholesale power and natural gas markets
•
Changes in price and availability of fuel and water supplies, including the ability of the mines supplying coal to PNM’s coal-fired generating units and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel
•
Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties
•
The risk that FERC rulemakings or lack of additional capacity during peak hours may negatively impact the operation of PNM’s transmission system
•
The impacts of decreases in the values of marketable securities maintained in trusts to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits, including potential increased volatility resulting from international developments
•
Uncertainty surrounding counterparty performance and credit risk, including the ability of counterparties to supply fuel and perform reclamation activities and impacts to financial support provided to facilitate the coal supply at SJGS
•
The effectiveness of risk management regarding commodity transactions and counterparty risk
•
The outcome of legal proceedings, including the extent of insurance coverage
•
Changes in applicable accounting principles or policies

Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, and TNMP’s 2018 Annual Reports on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.

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

SECURITIES ACT DISCLAIMER

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

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

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

119


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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

To the extent an open position exists, fluctuating commodity prices, interest rates, equity prices, and economic conditions can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results, or financial position.
Commodity Risk
Information concerning accounting for derivatives and the risks associated with commodity contracts is set forth in Note 7, including a summary of the fair values of mark-to-market energy related derivative contracts included in the Condensed Consolidated Balance Sheets. During the nine months ended September 30, 2019 and the year ended December 31, 2018, 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 following table details the changes in the net asset or liability balance sheet position for mark-to-market energy transactions.
 
Nine Months Ended
 
September 30,
 
2019
 
2018
Economic Hedges
(In thousands)
Sources of fair value gain (loss):
 
 
 
Net fair value at beginning of period
$
(94
)
 
$
(94
)
Amount realized on contracts delivered during period
84

 
83

Changes in fair value
—

 
2

Net mark-to-market change recorded in earnings
84

 
85

Net change recorded as regulatory assets and liabilities
70

 
—

          Net fair value at end of period
$
60

 
$
(9
)
All of the fair values as of September 30, 2019 were determined based on prices provided by external sources other than actively quoted market prices. The net mark-to-market amounts will settle in 2019.

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.


120

Credit Risk

The Company is exposed to credit risk from its retail and wholesale customers, as well as the counterparties to derivative instruments. The Company conducts counterparty risk analysis across business segments and uses a credit management process to assess the financial conditions of counterparties. The following table provides information related to credit exposure by the credit worthiness (credit rating) and concentration of credit risk for wholesale counterparties, all of which will mature in less than two years.
Schedule of Credit Risk Exposure
September 30, 2019
Rating (1)
Credit Risk Exposure(2)
 
Number of Counter-parties >10%
 
Net Exposure of Counter-parties >10%
 
(Dollars in thousands)
External ratings:
 
 
 
 
 
Investment grade
$
3,101

 
1
 
$
2,556

Non-investment grade
—

 
—
 
—

Split ratings
—

 
—
 
—

Internal ratings:
 
 
 
 
 
Investment grade
692

 
1
 
419

Non-investment grade
—

 
—
 
—

Total
$
3,793

 
 
 
$
2,975

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

(2) 
The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than the Tri-State hazard sharing agreement), forward sales, and short-term sales. The gross exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements but are not reduced by posted credit collateral. At September 30, 2019, PNMR held $0.9 million of cash collateral to offset its credit exposure.
    
Net credit risk for the Company’s largest counterparty as of September 30, 2019 was $2.6 million.

Other investments have no significant counterparty credit risk.

Interest Rate Risk

The majority of the Company’s long-term debt is fixed-rate debt and does not expose earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of PNMR’s consolidated long-term debt instruments would increase by 2.4%, or $73.2 million if interest rates were to decline by 50 basis points from their levels at September 30, 2019. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if all or a portion of debt instruments were acquired in the open market prior to their maturity. At October 25, 2019, PNMR, PNM, TNMP, and PNMR Development had short-term debt outstanding of $79.4 million, zero, $15.3 million, and $38.9 million under their revolving credit facilities, which allow for a maximum aggregate borrowing capacity of $300.0 million for PNMR, $400.0 million for PNM, $75.0 million for TNMP, and $40.0 million for PNMR Development. PNM had no borrowings under the $40.0 million PNM 2017 New Mexico Credit Facility at October 25, 2019. The revolving credit facilities, the $150.0 million PNMR 2018 One-Year Term Loan, the $50.0 million PNMR 2018 Two-Year Term Loan, the PNM 2017 New Mexico Credit Facility, the $250.0 million PNM 2019 Term Loan, the $35.0 million TNMP 2018 Term Loan, and the $90.0 million PNMR Development Term Loan bear interest at variable rates. On October 25, 2019, interest rates on borrowings averaged 3.20% for the PNMR Revolving Credit Facility, 2.60% for the PNMR 2018 One-Year Term Loan, 2.85% for the PNMR 2018 Two-Year Term Loan, 2.70% for the PNM 2019 Term Loan, 2.70% for the TNMP Revolving Credit Facility, 2.74% for the TNMP 2018 Term Loan, 2.90% for the PNMR Development Revolving Credit Facility, and 2.84% for the PNMR Development Term Loan. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 9, PNMR has entered into hedging arrangements to effectively establish fixed interest rates on $150.0 million of variable rate debt.

The investments held by PNM in trusts for decommissioning and reclamation had an estimated fair value of $369.0 million at September 30, 2019, of which 64.0% were fixed-rate debt securities that subject PNM to risk of loss of fair value with increases in market interest rates. If interest rates were to increase by 50 basis points from their levels at September 30, 2019, the decrease in the fair value of the fixed-rate securities would be 2.1%, or $5.0 million.

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

121

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 September 30, 2019. These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 35.6% of the securities held by the trusts as of September 30, 2019. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $13.1 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

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

Changes in internal controls over financial reporting

There have been no changes in each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

•
PNM – New Mexico General Rate Cases
•
PNM – Renewable Portfolio Standard
•
PNM – Integrated Resource Plans
•
PNM – SJGS Abandonment Application
•
TNMP – Transmission Cost of Service Rates
•
TNMP – Recovery of TNMP Rate Case Costs
•
TNMP – Energy Efficiency

122


ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in PNMR’s, PNM’s, and TNMP’s Annual Reports on Form 10-K for the year ended December 31, 2018.

ITEM 6. EXHIBITS
3.1
PNMR
 
 
 
3.2
PNM
 
 
 
3.3
TNMP
 
 
 
3.4
PNMR
 
 
 
3.5
PNM
 
 
 
3.6
TNMP
 
 
 
4.1
TNMP
 
 
 
10.1
PNMR
 
 
 
31.1
PNMR
 
 
 
31.2
PNMR
 
 
 
31.3
PNM
 
 
 
31.4
PNM
 
 
 
31.5
TNMP
 
 
 
31.6
TNMP
 
 
 
32.1
PNMR
 
 
 
32.2
PNM
 
 
 
32.3
TNMP
 
 
 
101.INS
PNMR, PNM, and TNMP
XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document
 
 
 
101.SCH
PNMR, PNM, and TNMP
Inline XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
PNMR, PNM, and TNMP
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
PNMR, PNM, and TNMP
Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
PNMR, PNM, and TNMP
Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
PNMR, PNM, and TNMP
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
104
PNMR, PNM, and TNMP
Cover Page Inline XBRL File (included in Exhibits 101)

123

SIGNATURE

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

124
Public Service Company o... (PK) (USOTC:PNMXO)
Gráfica de Acción Histórica
De Oct 2024 a Nov 2024 Haga Click aquí para más Gráficas Public Service Company o... (PK).
Public Service Company o... (PK) (USOTC:PNMXO)
Gráfica de Acción Histórica
De Nov 2023 a Nov 2024 Haga Click aquí para más Gráficas Public Service Company o... (PK).