Income Taxes

PNMR

PNMR’s income taxes (benefit) from continuing operations consist of the following components:



	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Current federal income tax	$	1,319		$	(52,184	)	$	(81,963	)
Current state income tax	(4,208		)	(15,528		)	(3,770		)
Deferred federal income tax	119,280			28,364			112,707
Deferred state income tax	7,462			9,522			4,393
Amortization of accumulated investment tax credits	(2,318		)	(2,429		)	(2,549		)
Total income taxes (benefit)	$	121,535		$	(32,255	)	$	28,818

PNMR’s provision for income taxes from continuing operations differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:



	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Federal income tax at statutory rates	$	109,364		$	(22,183	)	$	33,163
First Choice goodwill	15,055			—			—
Investment tax credits	(2,318		)	(2,429		)	(2,549		)
Flow-through of depreciation items	3,659			3,995			3,777
Earnings attributable to non-controlling interest in Valencia	(4,917		)	(4,747		)	(4,162		)
State income tax	3,395			(6,312		)	344
Other	(2,703		)	(579		)	(1,755		)
Total income taxes (benefit)	$	121,535		$	(32,255	)	$	28,818
Effective tax rate	38.9		%	50.89		%	30.41		%

The components of PNMR’s net accumulated deferred income tax liability were:



	December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Net operating loss	$	86,985		$	72,950
Pension	50,515			58,267
Regulatory liabilities related to income taxes	49,413			17,037
Optim Energy	—			46,508
Other	109,875			96,379
Total deferred tax assets	296,788			291,141
Deferred tax liabilities:
Depreciation and plant related	(697,528		)	(579,505		)
Investment tax credit	(15,771		)	(18,089		)
Regulatory assets related to income taxes	(56,312		)	(53,287		)
Stranded costs	(28,439		)	(33,287		)
Other	(168,688		)	(164,282		)
Total deferred tax liabilities	(966,738		)	(848,450		)
Net accumulated deferred income tax liabilities	(669,950		)	(557,309		)
Current accumulated deferred income tax (asset) liability	9,080			(886		)
Non-current accumulated deferred income tax liability	$	(660,870	)	$	(558,195	)

The following table reconciles the change in PNMR’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:



	Year Ended
	December 31, 2011
	(In thousands)
Net change in deferred income tax liability per above table	$	112,641
Change in tax effects of income tax related regulatory assets and liabilities	29,427
Tax effect of mark-to-market adjustments	(356		)
Tax effect of excess pension liability	(508		)
Adjustment for uncertain income tax positions	(16,555		)
Other	(225		)
Deferred income taxes	$	124,424

PNM

PNM’s income taxes (benefit) from continuing operations consist of the following components:



	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Current federal income tax	$	(46,364	)	$	(77,691	)	$	(64,342	)
Current state income tax	(6,776		)	438			(13,621		)
Deferred federal income tax	78,673			109,170			77,264
Deferred state income tax	14,212			6,939			16,974
Amortization of accumulated investment tax credits	(2,318		)	(2,429		)	(2,549		)
Total income taxes	$	37,427		$	36,427		$	13,726

PNM’s provision for income taxes from continuing operations differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:



	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Federal income tax at statutory rates	$	37,088		$	37,551		$	15,969
Investment tax credits	(2,318		)	(2,429		)	(2,549		)
Flow-through of depreciation items	3,656			3,994			3,776
Earnings attributable to non-controlling interest in Valencia	(4,917		)	(4,747		)	(4,162		)
State income tax	4,797			4,747			1,933
Other	(879		)	(2,689		)	(1,241		)
Total income taxes	$	37,427		$	36,427		$	13,726
Effective tax rate	35.32		%	33.95		%	30.08		%

The components of PNM’s net accumulated deferred income tax liability were:



	December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Net operating loss	$	72,615		$	66,320
Pension	54,270			61,055
Regulatory liabilities related to income taxes	43,578			10,779
Other	47,263			52,161
Total deferred tax assets	217,726			190,315
Deferred tax liabilities:
Depreciation and plant related	(570,278		)	(476,533		)
Investment tax credit	(15,771		)	(18,089		)
Regulatory assets related to income taxes	(45,331		)	(42,070		)
Other	(123,098		)	(128,152		)
Total deferred tax liabilities	(754,478		)	(664,844		)
Net accumulated deferred income tax liabilities	(536,752		)	(474,529		)
Current accumulated deferred income tax liability	16,562			9,783
Non-current accumulated deferred income tax liability	$	(520,190	)	$	(464,746	)

The following table reconciles the change in PNM’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:



	Year Ended
	December 31, 2011
	(In thousands)

Net change in deferred income tax liability per above table	$	62,223
Change in tax effects of income tax related regulatory assets and liabilities	29,539
Tax effect of mark-to-market adjustments	367
Tax effect of excess pension liability	(360		)
Adjustment for uncertain income tax positions	(1,196		)
Other	(6		)
Deferred income taxes	$	90,567

TNMP

TNMP’s income taxes from continuing operations consist of the following components:



	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Current federal income tax	$	(3,578	)	$	3,532		$	(25,237	)
Current state income tax	1,981			1,766			1,584
Deferred federal income tax	15,507			4,775			31,664
Deferred state income tax	(29		)	(29		)	(26		)
Total income taxes	$	13,881		$	10,044		$	7,985

TNMP’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the periods shown. The differences are attributable to the following factors:



	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Federal income tax at statutory rates	$	12,648		$	9,109		$	7,053
State income tax	1,288			1,148			1,032
Other	(55		)	(213		)	(100		)
Total income taxes	$	13,881		$	10,044		$	7,985
Effective tax rate	38.41		%	38.59		%	39.63		%

The components of TNMP’s net accumulated deferred income tax liability at December 31, were:



	December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Regulatory liabilities related to income taxes	$	5,835		$	6,259
Other	16,043			16,638
Total deferred tax assets	21,878			22,897
Deferred tax liabilities:
Depreciation and plant related	(125,270		)	(103,456		)
Stranded costs	(28,439		)	(33,287		)
Regulatory assets related to income taxes	(10,981		)	(11,217		)
Other	(14,113		)	(15,182		)
Total deferred tax liabilities	(178,803		)	(163,142		)
Net accumulated deferred income tax liabilities	(156,925		)	(140,245		)
Current accumulated deferred income tax (asset)	(2,272		)	(1,876		)
Non-current accumulated deferred income tax liability	$	(159,197	)	$	(142,121	)

The following table reconciles the change in TNMP’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:



	Year Ended
	December 31, 2011
	(In thousands)
Net change in deferred income tax liability per above table	$	16,680
Change in tax effects of income tax related regulatory assets and liabilities	(112		)
Tax effect of excess pension liability	(148		)
Adjustments for uncertain income tax positions	(87		)
Other	(855		)
Deferred income taxes	$	15,478

GAAP requires that the Company recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. A reconciliation of unrecognized tax benefits (expenses) is as follows:



	PNMR			PNM			TNMP
	(In thousands)
Balance at December 31, 2008	$	16,388		$	69		$	541
Additions based on tax positions related to 2009	6,633			(287		)	6,255
Reductions for tax positions of prior years	(430		)	—			—
Settlements	—			—			—
Balance at December 31, 2009	22,591			(218		)	6,796
Additions based on tax positions related to 2010	13,514			12,136			992
Reductions for tax positions of prior years	—			—			—
Settlements	—			—			—
Balance at December 31, 2010	36,105			11,918			7,788
Additions based on tax positions related to 2011	(790		)	(717		)	(74		)
Reductions for tax positions of prior years	(15,735		)	(449		)	(13		)
Settlements	—			—			—
Balance at December 31, 2011	$	19,580		$	10,752		$	7,701

Included in the balance at December 31, 2011 are $3.8 million and $0.5 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate for PNMR and PNM. None of TNMP’s unrecognized tax benefits at December 31, 2011 would affect the effective tax rate if recognized. The Company believes that it is reasonably possible that approximately $16.8 million of PNMR’s unrecognized tax expenses, $8.7 million of PNM’s unrecognized tax expenses, and $7.5 million of TNMP’s unrecognized tax benefits will be reduced or settled in 2012 as a result of the conclusion of income tax examinations.

Estimated interest income related to refunds the Company expects to receive is included in Other Income and estimated interest expense and penalties related to potential cash settlements are included in Interest Expense in the Consolidated Statements of Earnings (Loss). Interest income (expense) related to income taxes is as follows:



	PNMR		PNM		TNMP
	(In thousands)
2011	$	467	$	401	$	2
2010	$	397	$	465	$	(8	)
2009	$	6,418	$	7,746	$	(6	)

Accumulated accrued interest receivable (payable) related to income taxes is as follows:



	PNMR			PNM			TNMP
	(In thousands)
December 31, 2011:
Accumulated accrued interest receivable	$	3,552		$	3,552		$	—
Accumulated accrued interest payable	$	(1,107	)	$	(23	)	$	(113	)
December 31, 2010:
Accumulated accrued interest receivable	$	4,001		$	4,001		$	—
Accumulated accrued interest payable	$	(1,174	)	$	(23	)	$	(115	)

The Company files a federal consolidated and several consolidated and separate state income tax returns. The tax years prior to 2003 are closed to examination by either federal or state taxing authorities. Tax year 2003 is open for examination only for certain items. Tax year 2004 is closed to examination by federal and state taxing authorities. Other tax years are open to examination by federal and state taxing authorities. At December 31, 2011, the Company has $139.9 million of federal net operating loss carryforwards that expire in 2030 and $24.3 million of federal tax credit carryforwards that expire beginning in 2023. State net operating losses expire beginning in 2015 and vary from federal due to differences between state and federal tax law.