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.

PNMR SEGMENT INFORMATION

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.



2018	PNM			TNMP			Corporate and Other			PNMR Consolidated
	(In thousands)
Electric operating revenues	$	1,091,965		$	344,648		$	—		$	1,436,613
Cost of energy	314,036			85,690			—			399,726
Utility margin	777,929			258,958			—			1,036,887
Other operating expenses	481,030			96,272			(17,650		)	559,652
Depreciation and amortization	151,866			66,189			23,133			241,188
Operating income (loss)	145,033			96,497			(5,483		)	236,047
Interest income	13,089			—			2,451			15,540
Other income (deductions)	(17,312		)	4,065			(2,039		)	(15,286		)
Interest charges	(76,458		)	(32,091		)	(18,695		)	(127,244		)
Segment earnings (loss) before income taxes	64,352			68,471			(23,766		)	109,057
Income taxes (benefit)	(5,971		)	16,880			(3,134		)	7,775
Segment earnings (loss)	70,323			51,591			(20,632		)	101,282
Valencia non-controlling interest	(15,112		)	—			—			(15,112		)
Subsidiary preferred stock dividends	(528		)	—			—			(528		)
Segment earnings (loss) attributable to PNMR	$	54,683		$	51,591		$	(20,632	)	$	85,642

At December 31, 2018:
Total Assets	$	5,035,883		$	1,665,177		$	164,491		$	6,865,551
Goodwill	$	51,632		$	226,665		$	—		$	278,297



2017	PNM			TNMP			Corporate and Other			PNMR Consolidated

Electric operating revenues	$	1,104,230		$	340,773		$	—		$	1,445,003
Cost of energy	321,677			85,802			—			407,479
Utility margin	782,553			254,971			—			1,037,524
Other operating expenses	414,457			98,221			(22,135		)	490,543
Depreciation and amortization	147,017			63,146			21,779			231,942
Operating income	221,079			93,604			356			315,039
Interest income	8,454			—			7,462			15,916
Other income (deductions)	22,132			3,551			(3,254		)	22,429
Interest charges	(82,697		)	(30,084		)	(14,844		)	(127,625		)
Segment earnings (loss) before income taxes	168,968			67,071			(10,280		)	225,759
Income taxes	81,555			31,512			17,273			130,340
Segment earnings (loss)	87,413			35,559			(27,553		)	95,419
Valencia non-controlling interest	(15,017		)	—			—			(15,017		)
Subsidiary preferred stock dividends	(528		)	—			—			(528		)
Segment earnings (loss) attributable to PNMR	$	71,868		$	35,559		$	(27,553	)	$	79,874

At December 31, 2017:
Total Assets	$	4,921,563		$	1,500,770		$	223,770		$	6,646,103
Goodwill	$	51,632		$	226,665		$	—		$	278,297



2016	PNM			TNMP			Corporate and Other			PNMR Consolidated

Electric operating revenues	$	1,035,913		$	327,038		$	—		$	1,362,951
Cost of energy	299,714			80,882			—			380,596
Utility margin	736,199			246,156			—			982,355
Other operating expenses	407,922			93,389			(12,791		)	488,520
Depreciation and amortization	133,447			61,126			14,537			209,110
Operating income (loss)	194,830			91,641			(1,746		)	284,725
Interest income	10,173			—			12,120			22,293
Other income (deductions)	15,326			3,202			(1,739		)	16,789
Interest charges	(87,469		)	(29,335		)	(11,829		)	(128,633		)
Segment earnings (loss) before income taxes	132,860			65,508			(3,194		)	195,174
Income taxes (benefit)	40,922			23,836			(1,480		)	63,278
Segment earnings (loss)	91,938			41,672			(1,714		)	131,896
Valencia non-controlling interest	(14,519		)	—			—			(14,519		)
Subsidiary preferred stock dividends	(528		)	—			—			(528		)
Segment earnings (loss) attributable to PNMR	$	76,891		$	41,672		$	(1,714	)	$	116,849

At December 31, 2016:
Total Assets	$	4,867,546		$	1,383,223		$	220,311		$	6,471,080
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.

Major Customers

No individual customer accounted for more than 10% of the electric operating revenues of PNMR or PNM. Three REPs accounted for more than 10% of the electric operating revenues of TNMP, as follows:



	Year Ended December 31,
	2018		2017		2016
REP A	21	%	16	%	16	%
REP B	15	%	11	%	11	%
REP C	12	%	10	%	11	%