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.

PNMR SEGMENT INFORMATION



	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



	PNM			TNMP			Corporate and Other			PNMR Consolidated
	(In thousands)
Three Months Ended September 30, 2017
Electric operating revenues	$	327,254		$	92,646		$	—		$	419,900
Cost of energy	82,367			21,381			—			103,748
Utility margin	244,887			71,265			—			316,152
Other operating expenses	92,733			25,367			(5,391		)	112,709
Depreciation and amortization	36,764			16,424			5,633			58,821
Operating income (loss)	115,390			29,474			(242		)	144,622
Interest income	1,782			—			1,800			3,582
Other income (deductions)	4,204			1,228			(460		)	4,972
Interest charges	(20,451		)	(7,704		)	(3,951		)	(32,106		)
Segment earnings (loss) before income taxes	100,925			22,998			(2,853		)	121,070
Income taxes (benefit)	35,642			8,271			(1,170		)	42,743
Segment earnings (loss)	65,283			14,727			(1,683		)	78,327
Valencia non-controlling interest	(4,456		)	—			—			(4,456		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	60,695		$	14,727		$	(1,683	)	$	73,739

Nine Months Ended September 30, 2017
Electric operating revenues	$	854,909		$	257,489		$	—		$	1,112,398
Cost of energy	246,635			64,183			—			310,818
Utility margin	608,274			193,306			—			801,580
Other operating expenses	281,886			72,188			(15,286		)	338,788
Depreciation and amortization	109,228			47,392			16,209			172,829
Operating income (loss)	217,160			73,726			(923		)	289,963
Interest income	6,457			—			5,891			12,348
Other income (deductions)	13,510			2,392			(918		)	14,984
Interest charges	(62,393		)	(22,619		)	(11,125		)	(96,137		)
Segment earnings (loss) before income taxes	174,734			53,499			(7,075		)	221,158
Income taxes (benefit)	58,865			18,964			(2,675		)	75,154
Segment earnings (loss)	115,869			34,535			(4,400		)	146,004
Valencia non-controlling interest	(11,452		)	—			—			(11,452		)
Subsidiary preferred stock dividends	(396		)	—			—			(396		)
Segment earnings (loss) attributable to PNMR	$	104,021		$	34,535		$	(4,400	)	$	134,156

At September 30, 2017:
Total Assets	$	5,023,816		$	1,465,219		$	208,219		$	6,697,254
Goodwill	$	51,632		$	226,665		$	—		$	278,297

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