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 March 31, 2019
Electric operating revenues	$	269,318		$	80,327		$	—		$	349,645
Cost of energy	99,339			22,287			—			121,626
Utility margin	169,979			58,040			—			228,019
Other operating expenses	106,462			25,241			(5,763		)	125,940
Depreciation and amortization	39,224			20,214			5,918			65,356
Operating income (loss)	24,293			12,585			(155		)	36,723
Interest income	3,656			31			(68		)	3,619
Other income (deductions)	14,358			554			(735		)	14,177
Interest charges	(18,360		)	(8,800		)	(4,474		)	(31,634		)
Segment earnings (loss) before income taxes	23,947			4,370			(5,432		)	22,885
Income taxes (benefit)	1,973			272			(1,022		)	1,223
Segment earnings (loss)	21,974			4,098			(4,410		)	21,662
Valencia non-controlling interest	(2,830		)	—			—			(2,830		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	19,012		$	4,098		$	(4,410	)	$	18,700

At March 31, 2019:
Total Assets	$	5,202,039		$	1,871,780		$	176,939		$	7,250,758
Goodwill	$	51,632		$	226,665		$	—		$	278,297



	PNM			TNMP			Corporate and Other			PNMR Consolidated
	(In thousands)
Three Months Ended March 31, 2018
Electric operating revenues	$	236,232		$	81,646		$	—		$	317,878
Cost of energy	70,802			21,754			—			92,556
Utility margin	165,430			59,892			—			225,322
Other operating expenses	100,511			24,973			(5,016		)	120,468
Depreciation and amortization	36,627			16,387			5,708			58,722
Operating income (loss)	28,292			18,532			(692		)	46,132
Interest income	2,487			—			1,637			4,124
Other income (deductions)	1,217			1,085			79			2,381
Interest charges	(20,830		)	(7,729		)	(4,496		)	(33,055		)
Segment earnings (loss) before income taxes	11,166			11,888			(3,472		)	19,582
Income taxes (benefit)	(348		)	2,475			(1,344		)	783
Segment earnings (loss)	11,514			9,413			(2,128		)	18,799
Valencia non-controlling interest	(3,677		)	—			—			(3,677		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	7,705		$	9,413		$	(2,128	)	$	14,990

At March 31, 2018:
Total Assets	$	4,925,741		$	1,526,434		$	224,218		$	6,676,393
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.