Fair value is defined under GAAP as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. Valuations of derivative assets and liabilities take into account nonperformance risk, including the effect of counterparties’ and the Company’s credit risk. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.

The primary objective for the use of commodity derivative instruments, including energy contracts, options, swaps, and futures, is to manage price risk associated with forecasted purchases of energy and fuel used to generate electricity, as well as managing anticipated generation capacity in excess of forecasted demand from existing customers. PNM’s energy related derivative contracts manage commodity risk. PNM is required to meet the demand and energy needs of its customers. PNM is exposed to market risk for the needs of its customers not covered under a FPPAC.

PNM was exposed to market risk for its share of PVNGS Unit 3 through December 31, 2017, at which time PVNGS Unit 3 became a jurisdictional resource to serve New Mexico retail customers. Beginning January 1, 2018, PNM is exposed to market risk for its 65 MW interest in SJGS Unit 4, which is held as merchant plant as ordered by the NMPRC (Note 16). PNM has entered into agreements to sell power from 36 MW of that capacity to a third party at a fixed price for the period January 1, 2018 through May 31, 2022, subject to certain conditions. Under these agreements, PNM is obligated to deliver 36 MW of power only when SJGS Unit 4 is operating. These agreements are not considered derivatives because there is no notional amount due to the unit-contingent nature of the transactions.

PNM and Tri-State have a hazard sharing agreement that expires in May 2022. Under this agreement, each party sells the other party 100 MW of capacity and energy from a designated generation resource on a unit contingent basis, subject to certain performance guarantees. Both the purchases and sales are made at the same market index price. This agreement serves to reduce the magnitude of each party’s single largest generating hazard and assists in enhancing the reliability and efficiency of their respective operations. PNM passes the sales and purchases through to customers under PNM’s FPPAC. See Note 17.

PNM’s operations are managed primarily through a net asset-backed strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM could be exposed to market risk if its generation capabilities were to be disrupted or if its load requirements were to be greater than anticipated. If all or a portion of load requirements were required to be covered as a result of such unexpected situations, commitments would have to be met through market purchases. TNMP does not enter into energy related derivative contracts.

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing positions in the energy markets, primarily on a short-term basis. PNM routinely enters into various derivative instruments such as forward contracts, option agreements, and price basis swap agreements to economically hedge price and volume risk on power commitments and fuel requirements and to minimize the effect of market fluctuations. PNM monitors the market risk of its commodity contracts in accordance with approved risk and credit policies.

Under derivative accounting and related rules for energy contracts, PNM accounts for its various instruments for the purchase and sale of energy, which meet the definition of a derivative, based on PNM’s intent. During the years ended December 31, 2019, 2018, and 2017, PNM was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flows hedges. The derivative contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. PNM has no trading transactions.

Certain of PNM’s commodity derivative instruments in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. PNM does not offset fair value and cash collateral for derivative instruments under master netting arrangements and the above table reflects the gross amounts of fair value assets and liabilities for commodity derivatives. Included in the above table are equal amounts of assets and liabilities aggregating $2.6 million at December 31, 2019 and $3.6 million at December 31, 2018 resulting from PNM’s hazard sharing arrangements with Tri-State (Note 17). The hazard sharing arrangements are net-settled upon delivery. Other amounts that could be offset under master netting agreements were immaterial.

At December 31, 2019 and 2018, PNM had no amounts recognized for the legal right to reclaim cash collateral. However, at December 31, 2019 and 2018, amounts posted as cash collateral under margin arrangements were $0.5 million and $1.0 million. At December 31, 2019 and 2018, obligations to return cash collateral were $0.9 million and $1.0 million. Cash collateral amounts are included in other current assets and other current liabilities on the Consolidated Balance Sheets.

PNM has contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. In connection with managing its commodity risks, PNM enters into master agreements with certain counterparties. If PNM is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral if PNM’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that PNM will perform; and others have no provision for collateral. At December 31, 2019 and 2018, PNM had no such contracts in a net liability position.

The carrying amounts reflected on the Consolidated Balance Sheets approximate fair value for cash, receivables, and payables due to the short period of maturity. Investment securities are carried at fair value. Investment securities consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS and trusts for PNM’s share of final reclamation costs related to the coal mines serving SJGS and Four Corners. See Note 16. At December 31, 2019 and 2018, the fair value of investment securities included $336.0 million and $287.1 million for the NDT and $52.8 million and $41.1 million for the coal mine reclamation trusts.

Prior to 2018, PNM classified all debt and equity investments held in the NDT and coal mine reclamation trusts as available-for-sale securities. Unrealized losses on these securities were recorded immediately through earnings and unrealized gains were recorded in AOCI until the securities were sold. On January 1, 2018, PNM recorded an after-tax cumulative effect adjustment of $11.2 million to reclassify unrealized holding gains on equity securities held in the NDT and coal mine reclamation trusts from AOCI to retained earnings on the Consolidated Balance Sheets. After January 1, 2018, all gains and losses resulting from sales and changes in the fair value of equity securities are recognized in earnings. Under ASU 2016-01, the Company’s accounting for available-for-sale debt securities remains essentially unchanged. See Note 1 for investment accounting policies and discussion of New Accounting Pronouncements regarding ASU 2016-13.



	Year ended December 31,
	2019		2018
	(In thousands)
Equity securities:
Net gains from equity securities sold	$	5,698	$	4,864
Net gains (losses) from equity securities still held	18,319		(10,523		)
Total net gains (losses) on equity securities	24,017		(5,659		)
Available-for-sale debt securities:
Net gains (losses) on debt securities	5,572		(11,517		)
Net gains (losses) on investment securities	$	29,589	$	(17,176	)

The proceeds and gross realized gains and losses on the disposition of securities held in the NDT and coal mine reclamation trusts are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. Gross realized losses shown below exclude the (increase)/decrease in realized impairment losses of $3.0 million, $(9.4) million, and $3.3 million for the years ended December 31, 2019, 2018 and 2017.

The Company determines the fair values of its derivative and other financial instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company records any transfers between fair value hierarchy levels as of the end of each calendar quarter. There were no transfers between levels during the year ended December 31, 2018. See New Accounting Pronouncements in Note 1.

For investment securities, Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For Level 2 fair values, the pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value. Level 3 investments at December 31, 2018 were comprised of corporate term loans. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. The valuation of Level 3 investments requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The significant unobservable inputs include the trading multiples of public companies that are considered comparable to the company being valued, company specific issues, estimates of liquidation value, current operating performance and future expectations of performance, changes in market outlook and the financing environment, capitalization rates, discount rates, and cash flows. The Company has no Level 3 investments as of December 31, 2019. Management of the Company independently verifies the information provided by pricing services.



				GAAP Fair Value Hierarchy
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Unrealized Gains
	(In thousands)
December 31, 2019
Cash and cash equivalents	$	15,606		$	15,606	$	—		$	—
Equity securities:
Corporate stocks, common	64,527			64,527		—			—
Corporate stocks, preferred	9,033			2,212		6,821			—
Mutual funds and other	49,848			49,786		62			—
Available-for-sale debt securities:
U.S. government	48,439			31,389		17,050			—		$	535
International government	15,292			—		15,292			—		1,193
Municipals	46,642			—		46,642			—		1,768
Corporate and other	139,445			187		139,258			—		10,801
	$	388,832		$	163,707	$	225,125		$	—	$	14,297

Commodity derivative assets	$	2,596		$	—	$	2,596		$	—
Commodity derivative liabilities	(2,596		)	—		(2,596		)	—
Net	$	—		$	—	$	—		$	—



December 31, 2018
Cash and cash equivalents	$	11,472		$	11,472	$	—		$	—
Equity securities:
Corporate stocks, common	32,997			32,997		—			—
Corporate stocks, preferred	7,258			1,654		5,604			—
Mutual funds and other	70,777			70,777		—			—
Available-for-sale debt securities:
U.S. government	29,503			18,662		10,841			—		$	1,098
International government	8,435			—		8,435			—		90
Municipals	53,642			—		53,642			—		489
Corporate and other	114,158			588		111,414			2,156		923
	$	328,242		$	136,150	$	189,936		$	2,156	$	2,600

Commodity derivative assets	$	3,594		$	—	$	3,594		$	—
Commodity derivative liabilities	(3,688		)	—		(3,688		)	—
Net	$	(94	)	$	—	$	(94	)	$	—



	Corporate debt
	(In thousands)
Balance at December 31, 2017	$	—
Actual return on assets sold during the period	(38		)
Actual return on assets still held at period end	(107		)
Purchases	5,539
Sales	(3,238		)
Balance at December 31, 2018	2,156
Actual return on assets sold during the period	(84		)
Actual return on assets still held at period end	56
Purchases	3,110
Sales	(5,238		)
Balance at December 31, 2019	$	—



					GAAP Fair Value Hierarchy
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2019	(In thousands)
PNMR	$	3,007,717	$	3,142,704	$	—	$	3,142,074	$	—
PNM	$	1,748,020	$	1,795,149	$	—	$	1,795,149	$	—
TNMP	$	670,691	$	753,317	$	—	$	753,317	$	—

December 31, 2018
PNMR	$	2,670,111	$	2,703,810	$	—	$	2,703,810	$	—
PNM	$	1,656,490	$	1,668,736	$	—	$	1,668,736	$	—
TNMP	$	575,398	$	597,236	$	—	$	597,236	$	—

As discussed in Note 11, PNM and TNMP have trusts that hold investment assets for their pension and other postretirement benefit plans. The fair value of the assets held by the trusts impacts the determination of the funded status of each plan but the assets are not reflected on the Company’s Consolidated Balance Sheets. Both the PNM Pension Plan and the TNMP Pension Plan hold units of participation in the PNM Resources, Inc. Master Trust (the “PNMR Master Trust”), which was established for the investment of assets of the pension plans. The Company’s investment allocation targets in 2019 consist of 30% equities, 20% alternative investments (both of which are considered return generating), and 50% fixed income.

GAAP provides a practical expedient that allows the net asset value per share to be used as fair value for investments in certain entities that do not have readily determinable fair values and are considered to be investment companies. Fair values for alternative investments held by the PNMR Master Trust are valued using this practical expedient. Under GAAP, investments for which fair value is measured using that practical expedient are not required to be categorized within the fair value hierarchy. Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For level 2 fair values, the pricing provider predominately uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value as of year-end. Level 3 investments at December 31, 2018 were comprised of corporate term loans. Fair value prices for Level 2 corporate term loans predominately use the market approach which uses bid side market values based upon hierarchy information for specific securities or securities with similar characteristics. Alternative investments include private equity funds, hedge funds,

and real estate funds. The private equity funds are not voluntarily redeemable. These investments are realized through periodic distributions occurring over a 10 to 15 years term after the initial investment. The real estate funds and hedge funds may be voluntarily redeemed but are subject to redemption provisions that may result in the funds not being redeemable in the near term. Audited financial statements are received for each fund and are reviewed by the Company annually.

The valuation of Level 3 investments and alternative investments requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The significant unobservable inputs include the trading multiples of public companies that are considered comparable to the company being valued, company specific issues, estimates of liquidation value, current operating performance and future expectations of performance, changes in market outlook and the financing environment, capitalization rates, discount rates, and cash flows. Neither the employee benefit plans nor the PNMR Master Trust have any Level 3 investments as of December 31, 2019.



			GAAP Fair Value Hierarchy
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2019			(In thousands)
PNM Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	445,984	$	152,158	$	293,826	$	—
Uncategorized investments	86,675
Total Master Trust Investments	$	532,659

TNMP Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	49,353	$	17,335	$	32,018	$	—
Uncategorized investments	9,974
Total Master Trust Investments	$	59,327

PNM OPEB Plan
Cash and cash equivalents	$	1,022	$	1,022	$	—	$	—
Equity securities:
Mutual funds	85,727		39,361		46,366		—
	$	86,749	$	40,383	$	46,366	$	—
TNMP OPEB Plan
Cash and cash equivalents	$	275	$	275	$	—	$	—
Equity securities:
Mutual funds	10,635		4,075		6,560		—
	$	10,910	$	4,350	$	6,560	$	—



			GAAP Fair Value Hierarchy
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2018	(In thousands)
PNM Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	412,790	$	139,673	$	272,829	$	288
Uncategorized investments	76,874
Total Master Trust Investments	$	489,664

TNMP Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	45,283	$	15,149	$	30,101	$	33
Uncategorized investments	9,378
Total Master Trust Investments	$	54,661

PNM OPEB Plan
Cash and cash equivalents	$	190	$	190	$	—	$	—
Equity securities:
Mutual funds	69,513		32,325		37,188		—
	$	69,703	$	32,515	$	37,188	$	—
TNMP OPEB Plan
Cash and cash equivalents	$	66	$	66	$	—	$	—
Equity securities:
Mutual funds	8,725		3,723		5,002		—
	$	8,791	$	3,789	$	5,002	$	—



			GAAP Fair Value Hierarchy
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2019	(In thousands)
PNMR Master Trust
Cash and cash equivalents	$	19,982	$	19,982		$	—	$	—
Equity securities:
Corporate stocks, common	68,497		68,497			—		—
Corporate stocks, preferred	825		—			825		—
Mutual funds and other	172,326		—			172,326		—
Fixed income securities:
U.S. government	90,970		81,014			9,956		—
International government	5,411		—			5,411		—
Municipals	6,980		—			6,980		—
Corporate and other	130,346		—			130,346		—
Total investments categorized within fair value hierarchy	495,337		$	169,493		$	325,844	$	—
Uncategorized investments:
Private equity funds	15,827
Hedge funds	47,618
Real estate funds	33,204
	$	591,986
December 31, 2018
PNMR Master Trust
Cash and cash equivalents	$	20,120	$	20,120		$	—	$	—
Equity securities:
Corporate stocks, common	54,270		54,270			—		—
Corporate stocks, preferred	874		—			874		—
Mutual funds and other	143,517		—			143,517		—
Fixed income securities:
U.S. government	84,459		80,482			3,977		—
International government	5,721		—			5,721		—
Municipals	9,558		—			9,558		—
Corporate and other	139,554		(50		)	139,283		321
Total investments categorized within fair value hierarchy	458,073		$	154,822		$	302,930	$	321
Uncategorized investments:
Private equity funds	18,021
Hedge funds	45,589
Real estate funds	22,642
	$	544,325



	Fixed Income - Corporate
PNMR Master Trust	PNM Pension			TNMP Pension			Total Master Trust
	(In thousands)
Balance at December 31, 2017	$	191		$	21		$	212
Actual return on assets sold during the period	(7		)	(1		)	(8		)
Actual return on assets still held at period end	(1		)	—			(1		)
Purchases	192			23			215
Sales	(87		)	(10		)	(97		)
Balance at December 31, 2018	288			33			321
Actual return on assets sold during the period	(48		)	(5		)	(53		)
Actual return on assets still held at period end	—			—			—
Purchases	133			15			148
Sales	(373		)	(43		)	(416		)
Balance at December 31, 2019	$	—		$	—		$	—