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Lease Commitments | 12 Months Ended
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Dec. 31, 2017
Leases [Abstract] |
Leases Commitments | Lease Commitments The Company leases office buildings, vehicles, and other equipment under operating leases. In addition, PNM leases interests in Units 1 and 2 of PVNGS and, through April 1, 2015, leased an interest in the EIP transmission line. Many of PNM’s electric transmission and distribution facilities are located on lands that require the grant of rights-of-way from governmental entities, Native American tribes, or private parties. PNM has completed several renewals of rights-of-way, the largest of which is a renewal with the Navajo Nation, and has no significant rights-of-way that will expire within the next five years. PNM is obligated to pay the Navajo Nation annual payments of $6.0 million, subject to adjustment each year based on the Consumer Price Index, through 2029. All of the Company’s leases, as well as the Navajo Nation rights-of-way agreement, are accounted for as operating leases. See New Accounting Pronouncements in Note 1. The PVNGS leases were entered into in 1985 and 1986 and initially were scheduled to expire on January 15, 2015 for the four Unit 1 leases and January 15, 2016 for the four Unit 2 leases. Each of the leases provided PNM with an option to purchase the leased assets at fair market value at the end of the leases, but PNM did not have a fixed price purchase option. In addition, the leases provided PNM with options to renew the leases at fixed rates set forth in each of the leases for two years beyond the termination of the original lease terms. The option periods on certain leases could be further extended for up to an additional six years (the “Maximum Option Period”) if the appraised remaining useful lives and fair value of the leased assets were greater than parameters set forth in the leases. The rental payments during the fixed renewal option periods are 50% of the amounts during the original terms of the leases. Gross annual lease payments aggregated $33.0 million for the Unit 1 leases and $23.7 million for the Unit 2 leases prior to the expiration of their original terms. Following procedures set forth in the PVNGS leases, PNM notified each of the four lessors under the Unit 1 leases and the lessor under the one Unit 2 lease containing the Maximum Option Period provision that it would elect to renew those leases for the Maximum Option Period on the expiration date of the original leases. PNM and each of those lessors entered into amendments to each of the leases setting forth the terms and conditions that would implement the extension of the term of the leases through the agreed upon Maximum Option Period. The four Unit 1 leases now expire on January 15, 2023 and the one Unit 2 lease now expires on January 15, 2024. The annual payments during the renewal periods aggregate $16.5 million for the PVNGS Unit 1 leases and $1.6 million for the Unit 2 lease, which are included in the table of future lease payments shown below. For leases that were extended, the leases provide PNM with the option to purchase the leased assets at fair market value at the end of the extended lease terms. Each extended lease provides that no later than three years prior to the expiration of the lease, PNM is required to give notice to the lessor if it will “retain” the leased assets, through the purchase of the assets at the end of the lease, or “return” the leased assets to the lessor. The election made under each of the leases is irrevocable and independent of the elections made under the other leases. PNM has begun to analyze what action it will take with respect to each lease. If PNM elects to exercise its purchase option under any of the leases, PNM would attempt to negotiate the purchase price with the lessor of the lease. The leases provide an appraisal process to determine fair market value in the event the lessor and lessee cannot agree on a purchase price. For the three PVNGS Unit 2 leases that did not contain the Maximum Option Period provisions, PNM, following procedures set forth in the leases, notified each of the lessors that PNM would elect to purchase the assets underlying those leases on the expiration date of the original leases. PNM and the lessors under these leases entered into agreements that established the purchase price, representing the fair market value, to be paid by PNM for the assets underlying the leases on January 15, 2016. On January 15, 2016, PNM paid $78.1 million to the lessor under one lease for 31.25 MW of the entitlement from PVNGS Unit 2 and $85.2 million to the lessors under the other two leases for 32.76 MW of the entitlement from PVNGS Unit 2. See Note 17 for information concerning the NMPRC’s treatment of the purchased assets and extended leases in PNM’s NM 2015 Rate Case. 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 owner participants, and take title to the leased interests. Exercise of renewal options under the leases required that amounts payable to the owner participants under the circumstances described above would increase to the fair market value as of the renewal date. If such an event had occurred as of December 31, 2017, amounts due to the lessors under the circumstances described above would be up to $169.9 million, payable on January 15, 2018 in addition to the scheduled lease payments due on January 15, 2018. In such event, PNM would record the acquired assets at the lower of their fair value or the amount paid. PNM owned 60% of the EIP and leased the other 40%, under a lease that expired on April 1, 2015. The lease provided PNM the option of purchasing the leased assets at the end of the lease for fair market value, as well as options to renew the lease. On November 1, 2012, PNM and the lessor entered into a definitive agreement for PNM to exercise the option to purchase on April 1, 2015 the leased capacity at fair market value, which the parties agreed would be $7.7 million. PNM closed on the purchase on April 1, 2015 and recorded the purchase of the assets underlying the lease at that date. Operating lease expense, including the PVNGS and EIP leases, was:
| PNMR |  | PNM |  | TNMP
| (In thousands)
2017 | $ | 35,972 |  |  | $ | 31,817 |  |  | $ | 3,570 |
2016 | $ | 37,432 |  |  | $ | 32,843 |  |  | $ | 3,748 |
2015 | $ | 61,088 |  |  | $ | 55,994 |  |  | $ | 3,688 |
Future minimum operating lease payments at December 31, 2017 are shown below:
| PNMR |  | PNM |  | TNMP
| (In thousands)
2018 | $ | 26,802 |  |  | $ | 25,726 |  |  | $ | 791 |
2019 | 25,638 |  |  | 25,241 |  |  | 296 |
2020 | 25,208 |  |  | 25,122 |  |  | — |
2021 | 25,122 |  |  | 25,122 |  |  | — |
2022 | 25,122 |  |  | 25,122 |  |  | — |
Later years | 60,708 |  |  | 60,708 |  |  | — |
Total minimum lease payments | $ | 188,600 |  |  | $ | 187,041 |  |  | $ | 1,087 |

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- Definition The entire disclosure for lessee entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 + Details
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