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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

Name of Registrant, State of Incorporation, Address Of Principal Executive Offices, Telephone Number, Commission File No., IRS Employer Identification No. |  |  |  |

PNM Resources, Inc.
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
Telephone Number - (505) 241-2700
Commission File No. - 001-32462
IRS Employer Identification No. - 85-0468296
Public Service Company of New Mexico
(A New Mexico Corporation)
414 Silver Ave. SW
Albuquerque, New Mexico 87102-3289
Telephone Number - (505) 241-2700
Commission File No. - 001-06986
IRS Employer Identification No. - 85-0019030
Texas-New Mexico Power Company
(A Texas Corporation)
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
Telephone Number - (972) 420-4189
Commission File No. - 002-97230
IRS Employer Identification No. - 75-0204070

Securities registered pursuant to Section 12(b) of the Act:

Registrant | Title of each class | Trading Symbol(s) | Name of exchange on which registered
PNM Resources, Inc. | Common Stock, no par value | PNM | New York Stock Exchange

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

| PNM Resources, Inc. (“PNMR”) | Yes | ☑ | No | ☐
| Public Service Company of New Mexico (“PNM”) | Yes | ☑ | No | ☐
| Texas-New Mexico Power Company (“TNMP”) | Yes | ☐ | No | ☑

(NOTE: As a voluntary filer, not subject to the filing requirements, TNMP filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

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Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

| PNMR | Yes | ☑ | No | ☐
| PNM | Yes | ☑ | No | ☐
| TNMP | Yes | ☑ | No | ☐

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer |  |  |  | Accelerated filer |  |  |  | Non-accelerated filer |  |  |  | Smaller reporting company |  |  |  | Emerging growth company |  |
PNMR |  | ☑ |  |  |  | ☐ |  |  |  | ☐ |  |  |  | ☐ |  |  |  | ☐ |
| Large accelerated filer |  |  |  | Accelerated filer |  |  |  | Non-accelerated filer |  |  |  | Smaller reporting company |  |  |  | Emerging growth company |  |
PNM |  | ☐ |  |  |  | ☐ |  |  |  | ☑ |  |  |  | ☐ |  |  |  | ☐ |
| Large accelerated filer |  |  |  | Accelerated filer |  |  |  | Non-accelerated filer |  |  |  | Smaller reporting company |  |  |  | Emerging growth company |  |
TNMP |  | ☐ |  |  |  | ☐ |  |  |  | ☑ |  |  |  | ☐ |  |  |  | ☐ |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of May 1, 2020, 79,653,624 shares of common stock, no par value per share, of PNMR were outstanding.
The total number of shares of common stock of PNM, no par value per share, outstanding as of May 1, 2020 was 39,117,799 all held by PNMR (and none held by non-affiliates).
The total number of shares of common stock of TNMP, $10 par value per share, outstanding as of May 1, 2020 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).
PNM AND TNMP MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H) (1) (a) AND (b) OF FORM 10-Q AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION (H) (2).
This combined Form 10-Q is separately filed by PNMR, PNM, and TNMP. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNMR, PNM, or TNMP, as a registrant, the portions of this Form 10-Q that relate to each other registrant are not incorporated by reference therein.
2

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
INDEX

| Page No.
GLOSSARY | 4
PART I. FINANCIAL INFORMATION |
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) |
PNM RESOURCES, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Earnings (Loss) | 8
Condensed Consolidated Statements of Comprehensive Income (Loss) | 9
Condensed Consolidated Statements of Cash Flows | 10
Condensed Consolidated Balance Sheets | 12
Condensed Consolidated Statements of Changes in Equity | 14
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES |
Condensed Consolidated Statements of Earnings (Loss) | 15
Condensed Consolidated Statements of Comprehensive Income (Loss) | 16
Condensed Consolidated Statements of Cash Flows | 17
Condensed Consolidated Balance Sheets | 19
Condensed Consolidated Statements of Changes in Equity | 21
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES |
Condensed Consolidated Statements of Earnings | 22
Condensed Consolidated Statements of Cash Flows | 23
Condensed Consolidated Balance Sheets | 24
Condensed Consolidated Statements of Changes in Common Stockholder’s Equity | 26
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 76
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 106
ITEM 4. CONTROLS AND PROCEDURES | 108
PART II. OTHER INFORMATION |
ITEM 1. LEGAL PROCEEDINGS | 109
ITEM 1A. RISK FACTORS | 109
ITEM 5. OTHER INFORMATION | 110
ITEM 6. EXHIBITS | 110
SIGNATURE | 112

3

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GLOSSARY

Definitions: |  |
2017 IRP |  | PNM’s 2017 IRP
ABCWUA |  | Albuquerque Bernalillo County Water Utility Authority
AEP OnSite Partners |  | AEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
Afton |  | Afton Generating Station
AFUDC |  | Allowance for Funds Used During Construction
AMI |  | Advanced Metering Infrastructure
AMS |  | Advanced Meter System
AOCI |  | Accumulated Other Comprehensive Income
APS |  | Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
ASU |  | Accounting Standards Update
August 2016 RD |  | Recommended Decision in PNM’s NM 2015 Rate Case issued by the Hearing Examiner on August 4, 2016
BART |  | Best Available Retrofit Technology
BDT |  | Balanced Draft Technology
Board |  | Board of Directors of PNMR
BSER |  | Best System of Emissions Reduction Technology
CAA |  | Clean Air Act
CARES Act |  | Coronavirus Aid, Relief, and Economic Security Act
Casa Mesa Wind |  | Casa Mesa Wind Energy Center
CCN |  | Certificate of Convenience and Necessity
CCR |  | Coal Combustion Residuals
CFRE |  | Citizens for Fair Rates and the Environment
CIAC |  | Contributions in Aid of Construction
CO2 |  | Carbon Dioxide
CSA |  | Coal Supply Agreement
CTC |  | Competition Transition Charge
DC Circuit |  | United States Court of Appeals for the District of Columbia Circuit
DOE |  | United States Department of Energy
DOI |  | United States Department of Interior
EGU |  | Electric Generating Unit
EIM |  | California Independent System Operator Western Energy Imbalance Market
EIS |  | Environmental Impact Study
EPA |  | United States Environmental Protection Agency
ERCOT |  | Electric Reliability Council of Texas
ESA |  | Endangered Species Act
ETA |  | The New Mexico Energy Transition Act
Exchange Act |  | Securities Exchange Act of 1934
Farmington |  | The City of Farmington, New Mexico
FASB |  | Financial Accounting Standards Board
FERC |  | Federal Energy Regulatory Commission
Four Corners |  | Four Corners Power Plant
FPPAC |  | Fuel and Purchased Power Adjustment Clause
FTY |  | Future Test Year
GAAP |  | Generally Accepted Accounting Principles in the United States of America
GHG |  | Greenhouse Gas Emissions
GWh |  | Gigawatt hours
IRC |  | Internal Revenue Code
IRP |  | Integrated Resource Plan
IRS |  | Internal Revenue Service
kV |  | Kilovolt
KW |  | Kilowatt
KWh |  | Kilowatt Hour
La Luz |  | La Luz Generating Station
LIBOR |  | London Interbank Offered Rate

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Lightning Dock Geothermal |  | Lightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
Lordsburg |  | Lordsburg Generating Station
Los Alamos |  | The Incorporated County of Los Alamos, New Mexico
Luna |  | Luna Energy Facility
MD&A |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTU |  | Million British Thermal Units
Moody’s |  | Moody’s Investor Services, Inc.
MW |  | Megawatts
MWh |  | Megawatt Hour
NAAQS |  | National Ambient Air Quality Standards
Navajo Acts |  | Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT |  | Nuclear Decommissioning Trusts for PVNGS
NEE |  | New Energy Economy
NEPA |  | National Environmental Policy Act
NERC |  | North American Electric Reliability Corporation
New Mexico Wind |  | New Mexico Wind Energy Center
NM 2015 Rate Case |  | Request for a General Increase in Electric Rates Filed by PNM on August 27, 2015
NM 2016 Rate Case |  | Request for a General Increase in Electric Rates Filed by PNM on December 7, 2016
NM AREA |  | New Mexico Affordable Reliable Energy Alliance, formerly New Mexico Industrial Energy Consumers Inc.
NM Capital |  | NM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR, now known as New Mexico PPA Corporation
NM District Court |  | United States District Court for the District of New Mexico
NM Supreme Court |  | New Mexico Supreme Court
NMED |  | New Mexico Environment Department
NMMMD |  | The Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
NMPRC |  | New Mexico Public Regulation Commission
NMRD |  | NM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
NOx |  | Nitrogen Oxides
NOPR |  | Notice of Proposed Rulemaking
NPDES |  | National Pollutant Discharge Elimination System
NRC |  | United States Nuclear Regulatory Commission
NSPS |  | New Source Performance Standards
NSR |  | New Source Review
NTEC |  | Navajo Transitional Energy Company, LLC, an entity owned by the Navajo Nation
OCI |  | Other Comprehensive Income
OPEB |  | Other Post-Employment Benefits
OSM |  | United States Office of Surface Mining Reclamation and Enforcement
PCRBs |  | Pollution Control Revenue Bonds
PNM |  | Public Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit Facility |  | PNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Term Loan |  | PNM’s $200.0 Million Unsecured Term Loan
PNM 2019 $40.0 Million Term Loan |  | PNM's $40.0 Million Unsecured Term Loan
PNM 2019 $250.0 Million Term Loan |  | PNM’s $250.0 Million Unsecured Term Loan, which was repaid on April 15, 2020
PNM 2020 Note Purchase Agreement |  | PNM's Agreement for the sale of PNM 2020 SUNs
PNM 2020 SUNs |  | PNM's $200.0 million Senior Unsecured Notes issued on April 30, 2020
PNM 2020 Term Loan |  | PNM’s $250.0 million Unsecured Term Loan issued on April 15, 2020, of which $100.0 million was repaid on April 30, 2020

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PNM Revolving Credit Facility |  | PNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMR |  | PNM Resources, Inc. and Subsidiaries
PNMR 2018 One-Year Term Loan |  | PNMR’s $150.0 Million One-Year Unsecured Term Loan
PNMR 2018 SUNS |  | PNMR’s $300.0 Million Senior Unsecured Notes issued on March 9, 2018
PNMR 2018 Two-Year Term Loan |  | PNMR’s $50.0 Million Two-Year Unsecured Term Loan
PNMR 2019 Term Loan |  | PNMR's $150.0 Million Two-Year Unsecured Term Loan
PNMR 2020 Forward Equity Sale Agreements |  | PNMR's Block Equity Sale of 6.2 million Shares of PNMR Common Stock with Forward Equity Sales Agreements
PNMR Development |  | PNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit Facility |  | PNMR Development’s $40.0 Million Unsecured Revolving Credit Facility
PNMR Development Term Loan |  | PNMR Development’s $90.0 Million Unsecured Term Loan
PNMR Revolving Credit Facility |  | PNMR’s $300.0 Million Unsecured Revolving Credit Facility
PPA |  | Power Purchase Agreement
PSD |  | Prevention of Significant Deterioration
PUCT |  | Public Utility Commission of Texas
PV |  | Photovoltaic
PVNGS |  | Palo Verde Nuclear Generating Station
RCRA |  | Resource Conservation and Recovery Act
RCT |  | Reasonable Cost Threshold
REA |  | New Mexico’s Renewable Energy Act, as amended by the ETA
REC |  | Renewable Energy Certificates
Red Mesa Wind |  | Red Mesa Wind Energy Center
REP |  | Retail Electricity Provider
Rio Bravo |  | Rio Bravo Generating Station
RMC |  | Risk Management Committee
ROE |  | Return on Equity
RPS |  | Renewable Energy Portfolio Standard
S&P |  | Standard and Poor’s Ratings Services
SEC |  | United States Securities and Exchange Commission
SIP |  | State Implementation Plan
SJCC |  | San Juan Coal Company
SJGS |  | San Juan Generating Station
SJGS Abandonment Application |  | PNM’s July 1, 2019 consolidated application seeking NMPRC approval to retire PNM’s share of SJGS in 2022, for related replacement generating resources, and for the issuance of securitized bonds under the ETA
SJGS CSA |  | San Juan Generating Station Coal Supply Agreement
SJGS RA |  | San Juan Project Restructuring Agreement
SNCR |  | Selective Non-Catalytic Reduction
SO2 |  | Sulfur Dioxide
Tax Act |  | Federal tax reform legislation enacted on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act
TECA |  | Texas Electric Choice Act
Tenth Circuit |  | United States Court of Appeals for the Tenth Circuit
TNMP |  | Texas-New Mexico Power Company and Subsidiaries
TNMP 2018 Rate Case |  | TNMP’s General Rate Case Application Filed May 30, 2018
TNMP 2019 Bonds |  | TNMP’s First Mortgage Bonds issued under the TNMP 2019 Bond Purchase Agreement
TNMP 2020 Bond Purchase Agreement |  | An agreement under which TNMP agreed to issue an aggregate of $185.0 Million of First Mortgage Bonds in 2020
TNMP 2020 Bonds |  | TNMP's First Mortgage Bonds issued under the TNMP 2020 Bond Purchase Agreement

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TNMP Revolving Credit Facility |  | TNMP’s $75.0 Million Secured Revolving Credit Facility
Tri-State |  | Tri-State Generation and Transmission Association, Inc.
Tucson |  | Tucson Electric Power Company
UAMPS |  | Utah Associated Municipal Power Systems
U.S |  | The United States of America
US Supreme Court |  | United States Supreme Court
Valencia |  | Valencia Energy Facility
VIE |  | Variable Interest Entity
Western Spirit Line |  | A 165-mile 345-kV transmission line that PNM has agreed to purchase, subject to certain conditions being met prior to closing
Westmoreland |  | Westmoreland Coal Company
WSJ |  | Westmoreland San Juan, LLC, formerly an indirect wholly-owned subsidiary of Westmoreland, and former owner of SJCC
WSJ LLC |  | Westmoreland San Juan Mining, LLC, a subsidiary of Westmoreland Mining Holdings, LLC, and current owner of SJCC

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)

|  |  |  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands, except per share amounts) |  |
Electric Operating Revenues: |  |  |  |  |  |  |
Contracts with customers |  |  |  |  | $ | 322,983 |  |  | $ | 315,698 |
Alternative revenue programs |  |  |  |  | 426 |  |  | 636 |
Other electric operating revenue |  |  |  |  | 10,213 |  |  | 33,311 |
Total electric operating revenues |  |  |  |  | 333,622 |  |  | 349,645 |
Operating Expenses: |  |  |  |  |  |  |  |  |
Cost of energy |  |  |  |  | 98,710 |  |  | 121,626 |
Administrative and general |  |  |  |  | 46,032 |  |  | 52,336 |
Energy production costs |  |  |  |  | 33,618 |  |  | 35,072 |
Regulatory disallowances and restructuring costs |  |  |  |  | — |  |  | 1,345 |
Depreciation and amortization |  |  |  |  | 68,973 |  |  | 65,356 |
Transmission and distribution costs |  |  |  |  | 17,286 |  |  | 16,678 |
Taxes other than income taxes |  |  |  |  | 21,265 |  |  | 20,509 |
Total operating expenses |  |  |  |  | 285,884 |  |  | 312,922 |
Operating income |  |  |  |  | 47,738 |  |  | 36,723 |
Other Income and Deductions: |  |  |  |  |  |  |
Interest income |  |  |  |  | 3,423 |  |  | 3,588 |
Gains (losses) on investment securities |  |  |  |  | (32,849) |  |  | 14,014 |
Other income |  |  |  |  | 2,316 |  |  | 3,446 |
Other (deductions) |  |  |  |  | (3,473) |  |  | (3,252) |
Net other income and deductions |  |  |  |  | (30,583) |  |  | 17,796 |
Interest Charges |  |  |  |  | 30,434 |  |  | 31,634 |
Earnings (Loss) before Income Taxes |  |  |  |  | (13,279) |  |  | 22,885 |
Income Taxes (Benefits) |  |  |  |  | (1,880) |  |  | 1,223 |
Net Earnings (Loss) |  |  |  |  | (11,399) |  |  | 21,662 |
(Earnings) Attributable to Valencia Non-controlling Interest |  |  |  |  | (3,729) |  |  | (2,830) |
Preferred Stock Dividend Requirements of Subsidiary |  |  |  |  | (132) |  |  | (132) |
Net Earnings (Loss) Attributable to PNMR |  |  |  |  | $ | (15,260) |  |  | $ | 18,700 |
Net Earnings (Loss) Attributable to PNMR per Common Share: |  |  |  |  |  |  |
Basic |  |  |  |  | $ | (0.19) |  |  | $ | 0.23 |
Diluted |  |  |  |  | $ | (0.19) |  |  | $ | 0.23 |
Dividends Declared per Common Share |  |  |  |  | $ | 0.3075 |  |  | $ | 0.2900 |

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

|  |  |  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Net Earnings (Loss) |  |  |  |  | $ | (11,399) |  |  | $ | 21,662 |
Other Comprehensive Income: |  |  |  |  |  |  |
Unrealized Gains on Available-for-Sale Debt Securities: |  |  |  |  |  |  |
Net change in unrealized holding gains arising during the period, net of income tax (expense) benefit of $1,088 and $(1,798) |  |  |  |  | (3,195) |  |  | 5,280 |
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $301 and $172 |  |  |  |  | (884) |  |  | (504) |
Pension Liability Adjustment: |  |  |  |  |  |  |
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(527) and $(470) |  |  |  |  | 1,548 |  |  | 1,381 |
Fair Value Adjustment for Cash Flow Hedges: |  |  |  |  |  |  |
Change in fair market value, net of income tax benefit of $507 and $311 |  |  |  |  | (1,491) |  |  | (914) |
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $10 and $(68) |  |  |  |  | (28) |  |  | 202 |
Total Other Comprehensive Income (Loss) |  |  |  |  | (4,050) |  |  | 5,445 |
Comprehensive Income (Loss) |  |  |  |  | (15,449) |  |  | 27,107 |
Comprehensive (Income) Attributable to Valencia Non-controlling Interest |  |  |  |  | (3,729) |  |  | (2,830) |
Preferred Stock Dividend Requirements of Subsidiary |  |  |  |  | (132) |  |  | (132) |
Comprehensive Income (Loss) Attributable to PNMR |  |  |  |  | $ | (19,310) |  |  | $ | 24,145 |

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| Three Months Ended March 31, |  |
| 2020 |  | 2019
| (In thousands) |  |
Cash Flows From Operating Activities: |  |  |
Net earnings (loss) | $ | (11,399) |  |  | $ | 21,662 |
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities: |  |  |
Depreciation and amortization | 77,535 |  |  | 73,946 |
Deferred income tax expense (benefit) | (1,826) |  |  | 1,122 |
(Gains) losses on investment securities | 32,849 |  |  | (14,014) |
Stock based compensation expense | 3,801 |  |  | 3,257 |
Regulatory disallowances and restructuring costs | — |  |  | 1,345 |
Allowance for equity funds used during construction | (1,195) |  |  | (2,049) |
Other, net | 776 |  |  | 444 |
Changes in certain assets and liabilities: |  |  |
Accounts receivable and unbilled revenues | 14,027 |  |  | 15,842 |
Materials, supplies, and fuel stock | 3,806 |  |  | 3,826 |
Other current assets | 105 |  |  | (1,778) |
Other assets | 7,429 |  |  | 13,463 |
Accounts payable | (1,224) |  |  | (7,642) |
Accrued interest and taxes | (10,830) |  |  | 6,443 |
Other current liabilities | (3,570) |  |  | 2,060 |
Other liabilities | (16,485) |  |  | (13,243) |
Net cash flows from operating activities | 93,799 |  |  | 104,684 |
Cash Flows From Investing Activities: |  |  |
Additions to utility plant and non-utility plant | (140,208) |  |  | (141,986) |
Proceeds from sales of investment securities | 149,355 |  |  | 74,460 |
Purchases of investment securities | (152,108) |  |  | (77,363) |
Investments in NMRD | (10,000) |  |  | (7,000) |
Other, net | 122 |  |  | (13) |
Net cash flows from investing activities | (152,839) |  |  | (151,902) |

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| Three Months Ended March 31, |  |
| 2020 |  | 2019
| (In thousands) |  |
Cash Flows From Financing Activities: |  |  |
Revolving credit facilities borrowings (repayments), net | 115,500 |  |  | (12,100) |
Long-term borrowings | — |  |  | 475,000 |
Repayment of long-term debt | — |  |  | (200,000) |
Proceeds from stock option exercise | 24 |  |  | 930 |
Awards of common stock | (11,498) |  |  | (8,936) |
Dividends paid | (24,625) |  |  | (23,232) |
Valencia’s transactions with its owner | (6,434) |  |  | (4,263) |
Transmission interconnection and security deposit arrangements | 370 |  |  | — |
Refunds paid under transmission interconnection arrangements | (1,744) |  |  | — |
Debt issuance costs and other, net | (137) |  |  | (2,215) |
Net cash flows from financing activities | 71,456 |  |  | 225,184 |
Change in Cash, Restricted Cash, and Equivalents | 12,416 |  |  | 177,966 |
Cash, Restricted Cash, and Equivalents at Beginning of Period | 3,833 |  |  | 2,122 |
Cash, Restricted Cash, and Equivalents at End of Period | $ | 16,249 |  |  | $ | 180,088 |
Supplemental Cash Flow Disclosures: |  |  |
Interest paid, net of amounts capitalized | $ | 26,658 |  |  | $ | 20,518 |
Income taxes paid (refunded), net | $ | (131) |  |  | $ | (235) |
Supplemental schedule of noncash investing activities: |  |  |
(Increase) decrease in accrued plant additions | $ | 6,699 |  |  | $ | 26,636 |

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| March 31, 2020 |  | December 31, 2019
| (In thousands) |  |
ASSETS |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 16,249 |  |  | $ | 3,833 |
Accounts receivable, net of allowance for credit losses of $1,414 and $1,163 | 83,089 |  |  | 85,889 |
Unbilled revenues | 45,379 |  |  | 57,416 |
Other receivables | 13,954 |  |  | 12,165 |
Materials, supplies, and fuel stock | 74,124 |  |  | 77,929 |
Regulatory assets | 7,355 |  |  | 7,373 |
Income taxes receivable | 4,856 |  |  | 4,933 |
Other current assets | 42,956 |  |  | 44,472 |
Total current assets | 287,962 |  |  | 294,010 |
Other Property and Investments: |  |  |
Investment securities | 353,268 |  |  | 388,832 |
Equity investment in NMRD | 75,203 |  |  | 65,159 |
Other investments | 234 |  |  | 356 |
Non-utility property, net | 16,177 |  |  | 12,459 |
Total other property and investments | 444,882 |  |  | 466,806 |
Utility Plant: |  |  |
Plant in service, held for future use, and to be abandoned | 7,957,079 |  |  | 7,918,601 |
Less accumulated depreciation and amortization | 2,755,566 |  |  | 2,713,503 |
| 5,201,513 |  |  | 5,205,098 |
Construction work in progress | 240,002 |  |  | 161,106 |
Nuclear fuel, net of accumulated amortization of $48,278 and $42,354 | 102,768 |  |  | 99,805 |
Net utility plant | 5,544,283 |  |  | 5,466,009 |
Deferred Charges and Other Assets: |  |  |
Regulatory assets | 590,330 |  |  | 556,930 |
Goodwill | 278,297 |  |  | 278,297 |
Operating lease right-of-use assets, net of accumulated amortization | 124,717 |  |  | 131,212 |
Other deferred charges | 104,648 |  |  | 105,510 |
Total deferred charges and other assets | 1,097,992 |  |  | 1,071,949 |
| $ | 7,375,119 |  |  | $ | 7,298,774 |

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| March 31, 2020 |  | December 31, 2019
| (In thousands, except share information) |  |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current Liabilities: |  |  |
Short-term debt | $ | 300,600 |  |  | $ | 185,100 |
Current installments of long-term debt | 539,555 |  |  | 490,268 |
Accounts payable | 95,194 |  |  | 103,118 |
Customer deposits | 10,470 |  |  | 10,585 |
Accrued interest and taxes | 65,908 |  |  | 76,815 |
Regulatory liabilities | 2,916 |  |  | 505 |
Operating lease liabilities | 29,693 |  |  | 29,068 |
Dividends declared | 24,625 |  |  | 24,625 |
Other current liabilities | 45,959 |  |  | 47,397 |
Total current liabilities | 1,114,920 |  |  | 967,481 |
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs | 2,468,720 |  |  | 2,517,449 |
Deferred Credits and Other Liabilities: |  |  |
Accumulated deferred income taxes | 630,844 |  |  | 626,058 |
Regulatory liabilities | 867,803 |  |  | 866,243 |
Asset retirement obligations | 184,951 |  |  | 181,962 |
Accrued pension liability and postretirement benefit cost | 91,146 |  |  | 95,037 |
Operating lease liabilities | 95,573 |  |  | 105,512 |
Other deferred credits | 222,064 |  |  | 185,753 |
Total deferred credits and other liabilities | 2,092,381 |  |  | 2,060,565 |
Total liabilities | 5,676,021 |  |  | 5,545,495 |
Commitments and Contingencies (Note 11) |  |  |
Cumulative Preferred Stock of Subsidiary |  |  |
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares) | 11,529 |  |  | 11,529 |
Equity: |  |  |
PNMR common stockholders’ equity: |  |  |
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares) | 1,142,879 |  |  | 1,150,552 |
Accumulated other comprehensive income (loss), net of income taxes | (103,427) |  |  | (99,377) |
Retained earnings | 587,770 |  |  | 627,523 |
Total PNMR common stockholders’ equity | 1,627,222 |  |  | 1,678,698 |
Non-controlling interest in Valencia | 60,347 |  |  | 63,052 |
Total equity | 1,687,569 |  |  | 1,741,750 |
| $ | 7,375,119 |  |  | $ | 7,298,774 |

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

|  |  | Attributable to PNMR |  |  |  |  |  |  |  | Non- controlling Interest in Valencia |  |
|  |  | Common Stock |  | AOCI |  | Retained Earnings |  | Total PNMR Common Stockholders’ Equity |  |  |  | Total Equity
|  |  | (In thousands) |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2019 |  |  | $ | 1,150,552 |  |  | $ | (99,377) |  |  | $ | 627,523 |  |  | $ | 1,678,698 |  |  | $ | 63,052 |  |  | $ | 1,741,750 |
Net earnings (loss) before subsidiary preferred stock dividends |  |  | — |  |  | — |  |  | (15,128) |  |  | (15,128) |  |  | 3,729 |  |  | (11,399) |
Total other comprehensive income (loss) |  |  | — |  |  | (4,050) |  |  | — |  |  | (4,050) |  |  | — |  |  | (4,050) |
Subsidiary preferred stock dividends |  |  | — |  |  | — |  |  | (132) |  |  | (132) |  |  | — |  |  | (132) |
Dividends declared on common stock |  |  | — |  |  | — |  |  | (24,493) |  |  | (24,493) |  |  | — |  |  | (24,493) |
Proceeds from stock option exercise |  |  | 24 |  |  | — |  |  | — |  |  | 24 |  |  | — |  |  | 24 |
Awards of common stock |  |  | (11,498) |  |  | — |  |  | — |  |  | (11,498) |  |  | — |  |  | (11,498) |
Stock based compensation expense |  |  | 3,801 |  |  | — |  |  | — |  |  | 3,801 |  |  | — |  |  | 3,801 |
Valencia’s transactions with its owner |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (6,434) |  |  | (6,434) |
Balance at March 31, 2020 |  |  | $ | 1,142,879 |  |  | $ | (103,427) |  |  | $ | 587,770 |  |  | $ | 1,627,222 |  |  | $ | 60,347 |  |  | $ | 1,687,569 |

Balance at December 31, 2018 |  |  | $ | 1,153,113 |  |  | $ | (108,684) |  |  | $ | 643,953 |  |  | $ | 1,688,382 |  |  | $ | 64,212 |  |  | $ | 1,752,594 |
Net earnings before subsidiary preferred stock dividends |  |  | — |  |  | — |  |  | 18,832 |  |  | 18,832 |  |  | 2,830 |  |  | 21,662 |
Total other comprehensive income |  |  | — |  |  | 5,445 |  |  | — |  |  | 5,445 |  |  | — |  |  | 5,445 |
Subsidiary preferred stock dividends |  |  | — |  |  | — |  |  | (132) |  |  | (132) |  |  | — |  |  | (132) |
Dividends declared on common stock |  |  | — |  |  | — |  |  | (23,099) |  |  | (23,099) |  |  | — |  |  | (23,099) |
Proceeds from stock option exercise |  |  | 930 |  |  | — |  |  | — |  |  | 930 |  |  | — |  |  | 930 |
Awards of common stock |  |  | (8,936) |  |  | — |  |  | — |  |  | (8,936) |  |  | — |  |  | (8,936) |
Stock based compensation expense |  |  | 3,257 |  |  | — |  |  | — |  |  | 3,257 |  |  | — |  |  | 3,257 |
Valencia’s transactions with its owner |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4,263) |  |  | (4,263) |
Balance at March 31, 2019 |  |  | $ | 1,148,364 |  |  | $ | (103,239) |  |  | $ | 639,554 |  |  | $ | 1,684,679 |  |  | $ | 62,779 |  |  | $ | 1,747,458 |

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)

|  |  |  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Electric Operating Revenues: |  |  |  |  |  |  |
Contracts with customers |  |  |  |  | $ | 235,759 |  |  | $ | 235,941 |
Alternative revenue programs |  |  |  |  | 2,161 |  |  | 66 |
Other electric operating revenue |  |  |  |  | 10,213 |  |  | 33,311 |
Total electric operating revenues |  |  |  |  | 248,133 |  |  | 269,318 |
Operating Expenses: |  |  |  |  |  |  |
Cost of energy |  |  |  |  | 74,524 |  |  | 99,339 |
Administrative and general |  |  |  |  | 41,668 |  |  | 47,402 |
Energy production costs |  |  |  |  | 33,618 |  |  | 35,072 |
Regulatory disallowances and restructuring costs |  |  |  |  | — |  |  | 1,345 |
Depreciation and amortization |  |  |  |  | 41,449 |  |  | 39,224 |
Transmission and distribution costs |  |  |  |  | 10,915 |  |  | 10,633 |
Taxes other than income taxes |  |  |  |  | 12,354 |  |  | 12,010 |
Total operating expenses |  |  |  |  | 214,528 |  |  | 245,025 |
Operating income |  |  |  |  | 33,605 |  |  | 24,293 |
Other Income and Deductions: |  |  |  |  |  |  |
Interest income |  |  |  |  | 3,496 |  |  | 3,656 |
Gains (losses) on investment securities |  |  |  |  | (32,849) |  |  | 14,014 |
Other income |  |  |  |  | 1,509 |  |  | 2,632 |
Other (deductions) |  |  |  |  | (2,687) |  |  | (2,288) |
Net other income and deductions |  |  |  |  | (30,531) |  |  | 18,014 |
Interest Charges |  |  |  |  | 17,629 |  |  | 18,360 |
Earnings (Loss) before Income Taxes |  |  |  |  | (14,555) |  |  | 23,947 |
Income Taxes (Benefits) |  |  |  |  | (2,359) |  |  | 1,973 |
Net Earnings (Loss) |  |  |  |  | (12,196) |  |  | 21,974 |
(Earnings) Attributable to Valencia Non-controlling Interest |  |  |  |  | (3,729) |  |  | (2,830) |
Net Earnings (Loss) Attributable to PNM |  |  |  |  | (15,925) |  |  | 19,144 |
Preferred Stock Dividends Requirements |  |  |  |  | (132) |  |  | (132) |
Net Earnings (Loss) Available for PNM Common Stock |  |  |  |  | $ | (16,057) |  |  | $ | 19,012 |

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
15

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

|  |  |  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Net Earnings (Loss) |  |  |  |  | $ | (12,196) |  |  | $ | 21,974 |
Other Comprehensive Income: |  |  |  |  |  |  |
Unrealized Gains on Available-for-Sale Debt Securities: |  |  |  |  |  |  |
Net change in unrealized holding gains arising during the period, net of income tax (expense) benefit of $1,088 and $(1,798) |  |  |  |  | (3,195) |  |  | 5,280 |
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $301 and $172 |  |  |  |  | (884) |  |  | (504) |
Pension Liability Adjustment: |  |  |  |  |  |  |
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(527), and $(470) |  |  |  |  | 1,548 |  |  | 1,381 |
Total Other Comprehensive Income (Loss) |  |  |  |  | (2,531) |  |  | 6,157 |
Comprehensive Income (Loss) |  |  |  |  | (14,727) |  |  | 28,131 |
Comprehensive (Income) Attributable to Valencia Non-controlling Interest |  |  |  |  | (3,729) |  |  | (2,830) |
Comprehensive Income (Loss) Attributable to PNM |  |  |  |  | $ | (18,456) |  |  | $ | 25,301 |

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| Three Months Ended March 31, |  |
| 2020 |  | 2019
| (In thousands) |  |
Cash Flows From Operating Activities: |  |  |
Net earnings (loss) | $ | (12,196) |  |  | $ | 21,974 |
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities: |  |  |
Depreciation and amortization | 49,422 |  |  | 47,218 |
Deferred income tax expense (benefit) | (2,141) |  |  | 2,063 |
(Gains) losses on investment securities | 32,849 |  |  | (14,014) |
Regulatory disallowances and restructuring costs | — |  |  | 1,345 |
Allowance for equity funds used during construction | (1,044) |  |  | (1,807) |
Other, net | 811 |  |  | 432 |
Changes in certain assets and liabilities: |  |  |
Accounts receivable and unbilled revenues | 11,927 |  |  | 15,212 |
Materials, supplies, and fuel stock | 4,340 |  |  | 3,671 |
Other current assets | (393) |  |  | (4,098) |
Other assets | 4,612 |  |  | 10,399 |
Accounts payable | (260) |  |  | (8,257) |
Accrued interest and taxes | 5,917 |  |  | 14,764 |
Other current liabilities | 746 |  |  | 32,683 |
Other liabilities | (12,588) |  |  | (13,524) |
Net cash flows from operating activities | 82,002 |  |  | 108,061 |
Cash Flows From Investing Activities: |  |  |
Utility plant additions | (70,586) |  |  | (75,876) |
Proceeds from sales of investment securities | 149,355 |  |  | 74,460 |
Purchases of investment securities | (152,108) |  |  | (77,363) |
Other, net | 122 |  |  | (48) |
Net cash flows from investing activities | (73,217) |  |  | (78,827) |

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| Three Months Ended March 31, |  |
| 2020 |  | 2019
| (In thousands) |  |
Cash Flows From Financing Activities: |  |  |
Revolving credit facilities borrowings (repayments), net | 2,000 |  |  | (42,400) |
Short-term borrowings (repayments) – affiliate, net | — |  |  | (19,800) |
Long-term borrowings | — |  |  | 250,000 |
Repayment of long-term debt | — |  |  | (200,000) |
Dividends paid | (132) |  |  | (132) |
Valencia’s transactions with its owner | (6,434) |  |  | (4,263) |
Transmission interconnection and security deposit arrangements | 370 |  |  | — |
Refunds paid under transmission interconnection arrangements | (1,744) |  |  | — |
Debt issuance costs and other, net | (81) |  |  | (635) |
Net cash flows from financing activities | (6,021) |  |  | (17,230) |
Change in Cash, Restricted Cash, and Equivalents | 2,764 |  |  | 12,004 |
Cash, Restricted Cash, and Equivalents at Beginning of Period | 1,001 |  |  | 85 |
Cash, Restricted Cash, and Equivalents at End of Period | $ | 3,765 |  |  | $ | 12,089 |
Supplemental Cash Flow Disclosures: |  |  |
Interest paid, net of amounts capitalized | $ | 9,397 |  |  | $ | 9,070 |
Income taxes paid (refunded), net | $ | — |  |  | $ | — |
Supplemental schedule of noncash investing activities: |  |  |
(Increase) decrease in accrued plant additions | $ | (2,366) |  |  | $ | 11,407 |

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| March 31, 2020 |  | December 31, 2019
| (In thousands) |  |
ASSETS |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 3,765 |  |  | $ | 1,001 |
Accounts receivable, net of allowance for credit losses of $1,414 and $1,163 | 58,360 |  |  | 60,447 |
Unbilled revenues | 35,951 |  |  | 46,602 |
Other receivables | 13,001 |  |  | 11,039 |
Affiliate receivables | 8,819 |  |  | 8,825 |
Materials, supplies, and fuel stock | 67,886 |  |  | 72,225 |
Regulatory assets | 7,331 |  |  | 7,373 |
Income taxes receivable | 15,340 |  |  | 15,122 |
Other current assets | 35,302 |  |  | 36,561 |
Total current assets | 245,755 |  |  | 259,195 |
Other Property and Investments: |  |  |
Investment securities | 353,268 |  |  | 388,832 |
Other investments | 56 |  |  | 178 |
Non-utility property, net | 5,687 |  |  | 4,470 |
Total other property and investments | 359,011 |  |  | 393,480 |
Utility Plant: |  |  |
Plant in service, held for future use, and to be abandoned | 5,767,449 |  |  | 5,753,267 |
Less accumulated depreciation and amortization | 2,103,398 |  |  | 2,076,291 |
| 3,664,051 |  |  | 3,676,976 |
Construction work in progress | 152,488 |  |  | 108,787 |
Nuclear fuel, net of accumulated amortization of $48,278 and $42,354 | 102,768 |  |  | 99,805 |
Net utility plant | 3,919,307 |  |  | 3,885,568 |
Deferred Charges and Other Assets: |  |  |
Regulatory assets | 474,152 |  |  | 435,467 |
Goodwill | 51,632 |  |  | 51,632 |
Operating lease right-of-use assets, net of accumulated amortization | 114,829 |  |  | 120,585 |
Other deferred charges | 95,842 |  |  | 97,064 |
Total deferred charges and other assets | 736,455 |  |  | 704,748 |
| $ | 5,260,528 |  |  | $ | 5,242,991 |

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| March 31, 2020 |  | December 31, 2019
| (In thousands, except share information) |  |
LIABILITIES AND STOCKHOLDER’S EQUITY |  |  |
Current Liabilities: |  |  |
Short-term debt | $ | 60,000 |  |  | $ | 58,000 |
Current installments of long-term debt | 100,308 |  |  | 350,268 |
Accounts payable | 68,852 |  |  | 66,746 |
Affiliate payables | 10,202 |  |  | 12,524 |
Customer deposits | 10,470 |  |  | 10,585 |
Accrued interest and taxes | 49,753 |  |  | 43,617 |
Regulatory liabilities | 2,451 |  |  | 371 |
Operating lease liabilities | 26,727 |  |  | 25,927 |
Dividends declared | 40,785 |  |  | 132 |
Other current liabilities | 26,776 |  |  | 25,066 |
Total current liabilities | 396,324 |  |  | 593,236 |
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs | 1,648,093 |  |  | 1,397,752 |
Deferred Credits and Other Liabilities: |  |  |
Accumulated deferred income taxes | 525,590 |  |  | 521,990 |
Regulatory liabilities | 679,743 |  |  | 683,398 |
Asset retirement obligations | 184,052 |  |  | 181,081 |
Accrued pension liability and postretirement benefit cost | 84,293 |  |  | 87,838 |
Operating lease liabilities | 88,686 |  |  | 97,992 |
Other deferred credits | 191,734 |  |  | 155,744 |
Total deferred credits and liabilities | 1,754,098 |  |  | 1,728,043 |
Total liabilities | 3,798,515 |  |  | 3,719,031 |
Commitments and Contingencies (Note 11) |  |  |
Cumulative Preferred Stock |  |  |
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares) | 11,529 |  |  | 11,529 |
Equity: |  |  |
PNM common stockholder’s equity: |  |  |
Common stock (no par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares) | 1,264,918 |  |  | 1,264,918 |
Accumulated other comprehensive income (loss), net of income taxes | (101,586) |  |  | (99,055) |
Retained earnings | 226,805 |  |  | 283,516 |
Total PNM common stockholder’s equity | 1,390,137 |  |  | 1,449,379 |
Non-controlling interest in Valencia | 60,347 |  |  | 63,052 |
Total equity | 1,450,484 |  |  | 1,512,431 |
| $ | 5,260,528 |  |  | $ | 5,242,991 |

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

| Attributable to PNM |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  | Total PNM Common Stockholder’s Equity |  | Non- controlling Interest in Valencia |  |
| Common Stock |  | AOCI |  | Retained Earnings |  |  |  |  |  | Total Equity
| (In thousands) |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2019 | $ | 1,264,918 |  |  | $ | (99,055) |  |  | $ | 283,516 |  |  | $ | 1,449,379 |  |  | $ | 63,052 |  |  | $ | 1,512,431 |
Net earnings (loss) | — |  |  | — |  |  | (15,925) |  |  | (15,925) |  |  | 3,729 |  |  | (12,196) |
Total other comprehensive income (loss) | — |  |  | (2,531) |  |  | — |  |  | (2,531) |  |  | — |  |  | (2,531) |
Dividends declared on preferred stock | — |  |  | — |  |  | (132) |  |  | (132) |  |  | — |  |  | (132) |
Dividends declared on common stock | — |  |  | — |  |  | (40,654) |  |  | (40,654) |  |  | — |  |  | (40,654) |
Valencia’s transactions with its owner | — |  |  | — |  |  | — |  |  | — |  |  | (6,434) |  |  | (6,434) |
Balance at March 31, 2020 | $ | 1,264,918 |  |  | $ | (101,586) |  |  | $ | 226,805 |  |  | $ | 1,390,137 |  |  | $ | 60,347 |  |  | $ | 1,450,484 |

Balance at December 31, 2018 | $ | 1,264,918 |  |  | $ | (110,422) |  |  | $ | 242,863 |  |  | $ | 1,397,359 |  |  | $ | 64,212 |  |  | $ | 1,461,571 |
Net earnings | — |  |  | — |  |  | 19,144 |  |  | 19,144 |  |  | 2,830 |  |  | 21,974 |
Total other comprehensive income | — |  |  | 6,157 |  |  | — |  |  | 6,157 |  |  | — |  |  | 6,157 |
Dividends declared on preferred stock | — |  |  | — |  |  | (132) |  |  | (132) |  |  | — |  |  | (132) |
Valencia’s transactions with its owner | — |  |  | — |  |  | — |  |  | — |  |  | (4,263) |  |  | (4,263) |
Balance at March 31, 2019 | $ | 1,264,918 |  |  | $ | (104,265) |  |  | $ | 261,875 |  |  | $ | 1,422,528 |  |  | $ | 62,779 |  |  | $ | 1,485,307 |

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

|  |  |  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Electric Operating Revenues: |  |  |  |  |  |  |
Contracts with customers |  |  |  |  | $ | 87,224 |  |  | $ | 79,757 |
Alternative revenue programs |  |  |  |  | (1,735) |  |  | 570 |
Total electric operating revenues |  |  |  |  | 85,489 |  |  | 80,327 |
Operating Expenses: |  |  |  |  |  |  |
Cost of energy |  |  |  |  | 24,186 |  |  | 22,287 |
Administrative and general |  |  |  |  | 10,773 |  |  | 11,558 |
Depreciation and amortization |  |  |  |  | 21,836 |  |  | 20,214 |
Transmission and distribution costs |  |  |  |  | 6,371 |  |  | 6,045 |
Taxes other than income taxes |  |  |  |  | 7,978 |  |  | 7,638 |
Total operating expenses |  |  |  |  | 71,144 |  |  | 67,742 |
Operating income |  |  |  |  | 14,345 |  |  | 12,585 |
Other Income and Deductions: |  |  |  |  |  |  |
Other income |  |  |  |  | 670 |  |  | 748 |
Other (deductions) |  |  |  |  | (109) |  |  | (163) |
Net other income and deductions |  |  |  |  | 561 |  |  | 585 |
Interest Charges |  |  |  |  | 7,172 |  |  | 8,800 |
Earnings before Income Taxes |  |  |  |  | 7,734 |  |  | 4,370 |
Income Taxes |  |  |  |  | 642 |  |  | 272 |
Net Earnings |  |  |  |  | $ | 7,092 |  |  | $ | 4,098 |

The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| Three Months Ended March 31, |  |
| 2020 |  | 2019
| (In thousands) |  |
Cash Flows From Operating Activities: |  |  |
Net earnings | $ | 7,092 |  |  | $ | 4,098 |
Adjustments to reconcile net earnings to net cash flows from operating activities: |  |  |
Depreciation and amortization | 22,117 |  |  | 20,514 |
Deferred income tax expense (benefit) | (2,090) |  |  | (4,343) |
Other, net | (141) |  |  | (231) |
Changes in certain assets and liabilities: |  |  |
Accounts receivable and unbilled revenues | 2,099 |  |  | 630 |
Materials and supplies | (534) |  |  | 155 |
Other current assets | 939 |  |  | 581 |
Other assets | 2,310 |  |  | 2,712 |
Accounts payable | (1,828) |  |  | 1,075 |
Accrued interest and taxes | (11,376) |  |  | (990) |
Other current liabilities | (2,681) |  |  | 3,190 |
Other liabilities | (700) |  |  | (1,536) |
Net cash flows from operating activities | 15,207 |  |  | 25,855 |
Cash Flows From Investing Activities: |  |  |
Utility plant additions | (60,419) |  |  | (58,624) |
Net cash flows from investing activities | (60,419) |  |  | (58,624) |
Cash Flows From Financing Activities: |  |  |
Revolving credit facilities borrowings (repayments), net | 55,000 |  |  | (17,500) |
Short-term borrowings (repayments) – affiliate, net | — |  |  | (100) |
Long-term borrowings | — |  |  | 225,000 |
Dividends paid | — |  |  | (10,713) |
Debt issuance costs and other, net | (53) |  |  | (1,561) |
Net cash flows from financing activities | 54,947 |  |  | 195,126 |
Change in Cash and Cash Equivalents | 9,735 |  |  | 162,357 |
Cash and Cash Equivalents at Beginning of Period | 1,000 |  |  | — |
Cash and Cash Equivalents at End of Period | $ | 10,735 |  |  | $ | 162,357 |
Supplemental Cash Flow Disclosures: |  |  |
Interest paid, net of amounts capitalized | $ | 9,452 |  |  | $ | 3,829 |
Income taxes paid (refunded), net | $ | (131) |  |  | $ | (235) |
Supplemental schedule of noncash investing activities: |  |  |
(Increase) decrease in accrued plant additions | $ | 2,839 |  |  | $ | 10,646 |

The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| March 31, 2020 |  | December 31, 2019
| (In thousands) |  |
ASSETS |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 10,735 |  |  | $ | 1,000 |
Accounts receivable | 24,729 |  |  | 25,442 |
Unbilled revenues | 9,428 |  |  | 10,814 |
Other receivables | 2,553 |  |  | 2,713 |
Affiliate receivables | 846 |  |  | — |
Materials and supplies | 6,238 |  |  | 5,704 |
Regulatory assets | 24 |  |  | — |
Other current assets | 564 |  |  | 1,280 |
Total current assets | 55,117 |  |  | 46,953 |
Other Property and Investments: |  |  |
Other investments | 178 |  |  | 178 |
Non-utility property, net | 9,196 |  |  | 6,684 |
Total other property and investments | 9,374 |  |  | 6,862 |
Utility Plant: |  |  |
Plant in service and plant held for future use | 1,939,935 |  |  | 1,919,256 |
Less accumulated depreciation and amortization | 526,060 |  |  | 516,795 |
| 1,413,875 |  |  | 1,402,461 |
Construction work in progress | 78,390 |  |  | 42,554 |
Net utility plant | 1,492,265 |  |  | 1,445,015 |
Deferred Charges and Other Assets: |  |  |
Regulatory assets | 116,178 |  |  | 121,463 |
Goodwill | 226,665 |  |  | 226,665 |
Operating lease right-of-use assets, net of accumulated amortization | 9,271 |  |  | 9,954 |
Other deferred charges | 4,400 |  |  | 3,527 |
Total deferred charges and other assets | 356,514 |  |  | 361,609 |
| $ | 1,913,270 |  |  | $ | 1,860,439 |

The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
24

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

| March 31, 2020 |  | December 31, 2019
| (In thousands, except share information) |  |
LIABILITIES AND STOCKHOLDER’S EQUITY |  |  |
Current Liabilities: |  |  |
Short-term debt | $ | 70,000 |  |  | $ | 15,000 |
Accounts payable | 15,931 |  |  | 20,598 |
Affiliate payables | 3,013 |  |  | 5,419 |
Accrued interest and taxes | 30,692 |  |  | 42,068 |
Dividends declared | 11,347 |  |  | — |
Regulatory liabilities | 465 |  |  | 134 |
Operating lease liabilities | 2,624 |  |  | 2,753 |
Other current liabilities | 6,903 |  |  | 3,565 |
Total current liabilities | 140,975 |  |  | 89,537 |
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs | 670,626 |  |  | 670,691 |
Deferred Credits and Other Liabilities: |  |  |
Accumulated deferred income taxes | 139,449 |  |  | 140,151 |
Regulatory liabilities | 188,060 |  |  | 182,845 |
Asset retirement obligations | 899 |  |  | 881 |
Accrued pension liability and postretirement benefit cost | 6,853 |  |  | 7,199 |
Operating lease liabilities | 6,459 |  |  | 7,039 |
Other deferred credits | 9,577 |  |  | 7,469 |
Total deferred credits and other liabilities | 351,297 |  |  | 345,584 |
Total liabilities | 1,162,898 |  |  | 1,105,812 |
Commitments and Contingencies (Note 11) |  |  |
Common Stockholder’s Equity: |  |  |
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares) | 64 |  |  | 64 |
Paid-in-capital | 614,166 |  |  | 614,166 |
Retained earnings | 136,142 |  |  | 140,397 |
Total common stockholder’s equity | 750,372 |  |  | 754,627 |
| $ | 1,913,270 |  |  | $ | 1,860,439 |

The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
(Unaudited)

| Common Stock |  | Paid-in Capital |  |  |  | Retained Earnings |  | Total Common Stockholder’s Equity
| (In thousands) |  |  |  |  |  |  |  |
Balance at December 31, 2019 | $ | 64 |  |  | $ | 614,166 |  |  |  |  | $ | 140,397 |  |  | $ | 754,627 |
Net earnings | — |  |  | — |  |  |  |  | 7,092 |  |  | 7,092 |
Dividends declared on common stock | — |  |  | — |  |  |  |  | (11,347) |  |  | (11,347) |
Balance at March 31, 2020 | $ | 64 |  |  | $ | 614,166 |  |  |  |  | $ | 136,142 |  |  | $ | 750,372 |

Balance at December 31, 2018 | $ | 64 |  |  | $ | 534,166 |  |  |  |  | $ | 139,863 |  |  | $ | 674,093 |
Net earnings | — |  |  | — |  |  |  |  | 4,098 |  |  | 4,098 |
Dividends declared on common stock | — |  |  | — |  |  |  |  | (10,713) |  |  | (10,713) |
Balance at March 31, 2019 | $ | 64 |  |  | $ | 534,166 |  |  |  |  | $ | 133,248 |  |  | $ | 667,478 |

The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Significant Accounting Policies and Responsibility for Financial Statements
Financial Statement Preparation
In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at March 31, 2020 and December 31, 2019, and the consolidated results of operations, comprehensive income, and cash flows for the three months ended March 31, 2020 and 2019. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.
The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the 2019 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2020 financial statement presentation.
These Condensed Consolidated Financial Statements are unaudited. Certain information and note disclosures normally included in the annual audited Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s, and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 2019 Annual Reports on Form 10-K.
GAAP defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Based on their nature, magnitude, and timing, certain subsequent events may be required to be reflected at the balance sheet date and/or required to be disclosed in the financial statements. The Company has evaluated subsequent events as required by GAAP.
Principles of Consolidation
The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNM also consolidates Valencia. See Note 6. PNM owns undivided interests in several jointly-owned power plants and records its pro-rata share of the assets, liabilities, and expenses for those plants. The agreements for the jointly-owned plants provide that if an owner were to default on its payment obligations, the non-defaulting owners would be responsible for their proportionate share of the obligations of the defaulting owner. In exchange, the non-defaulting owners would be entitled to their proportionate share of the generating capacity of the defaulting owner. There have been no such payment defaults under any of the agreements for the jointly-owned plants.
PNMR shared services’ expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments. These services are billed at cost and are reflected as general and administrative expenses in the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include interest and income tax sharing payments, as well as equity transactions, and interconnection billings. See Note 15. All intercompany transactions and balances have been eliminated.
Dividends on Common Stock
Dividends on PNMR’s common stock are declared by the Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. The Board declared dividends on common stock of $0.29 per share in February 2019 and $0.3075 per share in February 2020, which are reflected as "Dividends Declared per Common Share" on the PNMR Condensed Consolidated Statements of Earnings.
PNM declared cash dividends on its common stock to PNMR of $40.7 million in the three months ended March 31, 2020 that were subsequently paid on April 6, 2020. TNMP declared cash dividends on common stock to PNMR of $11.3
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
million in the three months ended March 31, 2020 that were subsequently paid on April 1, 2020. TNMP declared and paid cash dividends on its common stock to PNMR of $10.7 million in the three months ended March 31, 2019.
New Accounting Pronouncements
Information concerning recently issued accounting pronouncements that have not been adopted by the Company is presented below. The Company does not expect difficulty in adopting these standards by their required effective dates.
Accounting Standards Update 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans (Topic 715) Disclosure Framework: Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14 to improve benefit plan sponsors’ disclosures for defined benefit pension and other post-employment benefit plans. ASU 2018-14 removes the requirement to disclose the amounts in other comprehensive income expected to be recognized as benefit cost over the next fiscal year and the requirement to disclose the impact of a one-percentage-point change in the assumed health care cost trend rate; clarifies the disclosure requirements for plans with assets that are less than their projected benefit, or accumulated benefit obligation; and requires significant gains and losses affecting benefit obligations during the period be disclosed. ASU 2018-14 is effective for the Company on December 31, 2020, although early adoption is permitted, and requires retrospective application. As discussed in Note 11 of the Notes to the Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and in Note 10, PNM and TNMP maintain qualified defined benefit, other postretirement benefit plans providing medical and dental benefits, and executive retirement programs. The Company is in the process of evaluating the requirements of ASU 2018-14 but does not anticipate these changes will have a significant impact on the Company’s defined benefit and other postretirement benefit plan disclosures.
Accounting Standards Update 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12 as part of its initiative to reduce complexity in accounting standards. The amendments in ASU 2019-12 simplify accounting for income taxes by removing several accounting exceptions to accounting for income taxes. ASU 2019-12 also eliminates or simplifies other income tax accounting requirements, including a requirement that entities recognize franchise tax (or similar tax) that is partially based on income as an income-based tax. ASU 2019-12 is effective for the Company beginning on January 1, 2021 and allows for early adoption. ASU 2019-12 is to be applied prospectively or retrospectively in the period of adoption depending on the type of amendment. The Company is in the process of analyzing the impacts of this new standard.
(2) 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.
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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, 2020 |  |  |  |  |  |  |  |  |
Electric operating revenues | $ | 248,133 |  |  | $ | 85,489 |  |  |  |  | $ | — |  |  | $ | 333,622 |
Cost of energy | 74,524 |  |  | 24,186 |  |  |  |  | — |  |  | 98,710 |
Utility margin | 173,609 |  |  | 61,303 |  |  |  |  | — |  |  | 234,912 |
Other operating expenses | 98,555 |  |  | 25,122 |  |  |  |  | (5,476) |  |  | 118,201 |
Depreciation and amortization | 41,449 |  |  | 21,836 |  |  |  |  | 5,688 |  |  | 68,973 |
Operating income (loss) | 33,605 |  |  | 14,345 |  |  |  |  | (212) |  |  | 47,738 |
Interest income | 3,496 |  |  | — |  |  |  |  | (73) |  |  | 3,423 |
Other income (deductions) | (34,027) |  |  | 561 |  |  |  |  | (540) |  |  | (34,006) |
Interest charges | (17,629) |  |  | (7,172) |  |  |  |  | (5,633) |  |  | (30,434) |
Segment earnings (loss) before income taxes | (14,555) |  |  | 7,734 |  |  |  |  | (6,458) |  |  | (13,279) |
Income taxes (benefit) | (2,359) |  |  | 642 |  |  |  |  | (163) |  |  | (1,880) |
Segment earnings (loss) | (12,196) |  |  | 7,092 |  |  |  |  | (6,295) |  |  | (11,399) |
Valencia non-controlling interest | (3,729) |  |  | — |  |  |  |  | — |  |  | (3,729) |
Subsidiary preferred stock dividends | (132) |  |  | — |  |  |  |  | — |  |  | (132) |
Segment earnings (loss) attributable to PNMR | $ | (16,057) |  |  | $ | 7,092 |  |  |  |  | $ | (6,295) |  |  | $ | (15,260) |
At March 31, 2020: |  |  |  |  |  |  |  |  |
Total Assets | $ | 5,260,528 |  |  | $ | 1,913,270 |  |  |  |  | $ | 201,321 |  |  | $ | 7,375,119 |
Goodwill | $ | 51,632 |  |  | $ | 226,665 |  |  |  |  | $ | — |  |  | $ | 278,297 |

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

| 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 |  |  | — |  |  |  |  | (68) |  |  | 3,588 |
Other income (deductions) | 14,358 |  |  | 585 |  |  |  |  | (735) |  |  | 14,208 |
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 |

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.
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Accumulated Other Comprehensive Income (Loss)
Information regarding accumulated other comprehensive income (loss) for the three months ended March 31, 2020 and 2019 is as follows:

| Accumulated Other Comprehensive Income (Loss) |  |  |  |  |  |  |  |  |  |
| PNM |  |  |  |  |  |  |  | PNMR |  |
| Unrealized |  |  |  |  |  |  |  | Fair Value |  |
| Gains on |  |  |  |  |  |  |  | Adjustment |  |
| Available-for- |  | Pension |  |  |  |  |  | for Cash |  |
| Sale Debt |  | Liability |  |  |  |  |  | Flow |  |
| Securities |  | Adjustment |  | Total |  |  |  | Hedges |  | Total
| (In thousands) |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2019 | $ | 10,638 |  |  | $ | (109,693) |  |  | $ | (99,055) |  |  |  |  | $ | (322) |  |  | $ | (99,377) |
Amounts reclassified from AOCI (pre-tax) | (1,185) |  |  | 2,075 |  |  | 890 |  |  |  |  | (38) |  |  | 852 |
Income tax impact of amounts reclassified | 301 |  |  | (527) |  |  | (226) |  |  |  |  | 10 |  |  | (216) |
Other OCI changes (pre-tax) | (4,283) |  |  | — |  |  | (4,283) |  |  |  |  | (1,998) |  |  | (6,281) |
Income tax impact of other OCI changes | 1,088 |  |  | — |  |  | 1,088 |  |  |  |  | 507 |  |  | 1,595 |
Net after-tax change | (4,079) |  |  | 1,548 |  |  | (2,531) |  |  |  |  | (1,519) |  |  | (4,050) |
Balance at March 31, 2020 | $ | 6,559 |  |  | $ | (108,145) |  |  | $ | (101,586) |  |  |  |  | $ | (1,841) |  |  | $ | (103,427) |

Balance at December 31, 2018 | $ | 1,939 |  |  | $ | (112,361) |  |  | $ | (110,422) |  |  |  |  | $ | 1,738 |  |  | $ | (108,684) |
Amounts reclassified from AOCI (pre-tax) | (676) |  |  | 1,851 |  |  | 1,175 |  |  |  |  | 270 |  |  | 1,445 |
Income tax impact of amounts reclassified | 172 |  |  | (470) |  |  | (298) |  |  |  |  | (68) |  |  | (366) |
Other OCI changes (pre-tax) | 7,078 |  |  | — |  |  | 7,078 |  |  |  |  | (1,225) |  |  | 5,853 |
Income tax impact of other OCI changes | (1,798) |  |  | — |  |  | (1,798) |  |  |  |  | 311 |  |  | (1,487) |
Net after-tax change | 4,776 |  |  | 1,381 |  |  | 6,157 |  |  |  |  | (712) |  |  | 5,445 |
Balance at March 31, 2019 | $ | 6,715 |  |  | $ | (110,980) |  |  | $ | (104,265) |  |  |  |  | $ | 1,026 |  |  | $ | (103,239) |

The Condensed Consolidated Statements of Earnings include pre-tax amounts reclassified from AOCI related to Unrealized Gains on Available-for-Sale Debt Securities in gains (losses) on investment securities, related to Pension Liability Adjustment in other (deductions), and related to Fair Value Adjustment for Cash Flow Hedges in interest charges. The income tax impacts of all amounts reclassified from AOCI are included in income taxes in the Condensed Consolidated Statements of Earnings.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) Earnings Per Share
In accordance with GAAP, dual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. PNMR’s potentially dilutive shares consist of restricted stock and PNMR common stock issuable under the PNMR 2020 Forward Equity Sale Agreements, which are calculated under the treasury stock method. See Notes 8 and 9. Information regarding the computation of earnings per share is as follows:

|  |  |  |  | Three Months Ended |  |
|  |  |  |  | March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands, except per share amounts) |  |
Net Earnings (Loss) Attributable to PNMR |  |  |  |  | $ | (15,260) |  |  | $ | 18,700 |
Average Number of Common Shares: |  |  |  |  |  |  |
Outstanding during period |  |  |  |  | 79,654 |  |  | 79,654 |
Vested awards of restricted stock |  |  |  |  | 217 |  |  | 239 |
Average Shares – Basic |  |  |  |  | 79,871 |  |  | 79,893 |
Dilutive Effect of Common Stock Equivalents: |  |  |  |  |  |  |
Restricted stock |  |  |  |  | — |  |  | 78 |
Average Shares – Diluted(1) |  |  |  |  | 79,871 |  |  | 79,971 |
Net Earnings (Loss) Per Share of Common Stock: |  |  |  |  |  |  |
Basic |  |  |  |  | $ | (0.19) |  |  | $ | 0.23 |
Diluted |  |  |  |  | $ | (0.19) |  |  | $ | 0.23 |

(1) No potentially dilutive restricted stock or PNMR common stock under the PNMR 2020 Forward Equity Sale Agreements have been included in the computation of Average Shares – Diluted for the three months ended March 31, 2020 since the effect would be anti-dilutive.
(5) Electric Operating Revenues
PNMR is an investor-owned holding company with two regulated utilities providing electricity and electric services in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Additional information concerning electric operating revenue is contained in Note 4 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable consists primarily of trade receivables from customers. In the normal course of business, credit is extended to customers on a short-term basis. The Company estimates the allowance for credit losses on trade receivables based on historical experience and estimated default rates. Accounts receivable balances are reviewed monthly and adjustments to the allowance for credit losses are made as necessary and amounts that are deemed uncollectible are written off. On January 1, 2020, the Company adopted Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. As a result of the adoption of the new standard, PNM updated its allowance for accounts receivable balances and recorded incremental credit losses of $0.3 million in the three months ended March 31, 2020. See additional discussion of ASU 2016-13 in Note 7.
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Disaggregation of Revenues
A disaggregation of revenues from contracts with customers by the type of customer is presented in the table below. The table also reflects alternative revenue program revenues ("ARP") and other revenues.

|  | PNM |  | TNMP |  | PNMR Consolidated
Three Months Ended March 31, 2020 |  | (In thousands) |  |  |  |
Electric Operating Revenues: |  |  |  |  |  |
Contracts with customers: |  |  |  |  |  |
Retail electric revenue |  |  |  |  |  |
Residential |  | $ | 102,809 |  |  | $ | 31,898 |  |  | $ | 134,707 |
Commercial |  | 86,349 |  |  | 28,685 |  |  | 115,034 |
Industrial |  | 19,466 |  |  | 6,533 |  |  | 25,999 |
Public authority |  | 4,347 |  |  | 1,423 |  |  | 5,770 |
Economy energy service |  | 5,253 |  |  | — |  |  | 5,253 |
Transmission |  | 14,167 |  |  | 18,012 |  |  | 32,179 |
Miscellaneous |  | 3,368 |  |  | 673 |  |  | 4,041 |
Total revenues from contracts with customers |  | 235,759 |  |  | 87,224 |  |  | 322,983 |
Alternative revenue programs |  | 2,161 |  |  | (1,735) |  |  | 426 |
Other electric operating revenues |  | 10,213 |  |  | — |  |  | 10,213 |
Total Electric Operating Revenues |  | $ | 248,133 |  |  | $ | 85,489 |  |  | $ | 333,622 |

Three Months Ended March 31, 2019 |  |  |  |  |  |
Electric Operating Revenues: |  |  |  |  |  |
Contracts with customers: |  |  |  |  |  |
Retail electric revenue |  |  |  |  |  |
Residential |  | $ | 107,302 |  |  | $ | 30,432 |  |  | $ | 137,734 |
Commercial |  | 85,233 |  |  | 27,429 |  |  | 112,662 |
Industrial |  | 14,747 |  |  | 5,616 |  |  | 20,363 |
Public authority |  | 4,711 |  |  | 1,374 |  |  | 6,085 |
Economy energy service |  | 6,922 |  |  | — |  |  | 6,922 |
Transmission |  | 13,385 |  |  | 14,003 |  |  | 27,388 |
Miscellaneous |  | 3,641 |  |  | 903 |  |  | 4,544 |
Total revenues from contracts with customers |  | 235,941 |  |  | 79,757 |  |  | 315,698 |
Alternative revenue programs |  | 66 |  |  | 570 |  |  | 636 |
Other electric operating revenues |  | 33,311 |  |  | — |  |  | 33,311 |
Total Electric Operating Revenues |  | $ | 269,318 |  |  | $ | 80,327 |  |  | $ | 349,645 |

Contract Balances
Performance obligations related to contracts with customers are typically satisfied when the energy is delivered and the customer or end-user utilizes the energy. Accounts receivable from customers represent amounts billed, including amounts under ARPs. For PNM, accounts receivable reflected on the Condensed Consolidated Balance Sheets, net of allowance for credit losses, includes $56.7 million at March 31, 2020 and $59.3 million at December 31, 2019 resulting from contracts with customers. All of TNMP’s accounts receivable results from contracts with customers.
Contract assets are an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance). The Company has no contract assets as of March 31, 2020 or December 31, 2019. Contract liabilities arise when consideration is received in advance from a customer before satisfying the performance obligations. Therefore, revenue
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
is deferred and not recognized until the obligation is satisfied. Under its OATT, PNM accepts upfront consideration for capacity reservations requested by transmission customers, which requires PNM to defer the customer’s transmission capacity rights for a specific period of time. PNM recognizes the revenue of these capacity reservations over the period it defers the customer's capacity rights. Other utilities pay PNM and TNMP in advance for the joint-use of their utility poles. These revenues are recognized over the period of time specified in the joint-use contract, typically for one calendar year. Deferred revenues on these arrangements are recorded as contract liabilities. PNMR's, PNM's, and TNMP's contract liabilities and related revenues are insignificant for all periods presented. The Company has no other arrangements with remaining performance obligations to which a portion of the transaction price would be required to be allocated.
(6) Variable Interest Entities
GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity (“VIE”). GAAP also requires continual reassessment of the primary beneficiary of a VIE. Additional information concerning PNM’s VIEs is contained in Note 10 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
Valencia
PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 158 MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed operation and maintenance and capacity charges in addition to variable operation and maintenance charges under this PPA. For the three months ended March 31, 2020 and 2019, PNM paid $5.0 million and $4.9 million for fixed charges and $0.4 million and less than $0.1 million for variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy its obligations and creditors of Valencia do not have any recourse against PNM’s assets. During the term of the PPA, PNM has the option, under certain conditions, to purchase and own up to 50% of the plant or the VIE. The PPA specifies that the purchase price would be the greater of 50% of book value reduced by related indebtedness or 50% of fair market value.
PNM sources fuel for the plant, controls when the facility operates through its dispatch, and receives the entire output of the plant, which factors directly and significantly impact the economic performance of Valencia. Therefore, PNM has concluded that the third-party entity that owns Valencia is a VIE and that PNM is the primary beneficiary of the entity under GAAP since PNM has the power to direct the activities that most significantly impact the economic performance of Valencia and will absorb the majority of the variability in the cash flows of the plant. As the primary beneficiary, PNM consolidates Valencia in its financial statements. Accordingly, the assets, liabilities, operating expenses, and cash flows of Valencia are included in the Condensed Consolidated Financial Statements of PNM although PNM has no legal ownership interest or voting control of the VIE. The assets and liabilities of Valencia set forth below are immaterial to PNM and, therefore, not shown separately on the Condensed Consolidated Balance Sheets. The owner’s equity and net income of Valencia are considered attributable to non-controlling interest.
Summarized financial information for Valencia is as follows:

|  |  |  |  | Results of Operations |  |
|  |  |  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Operating revenues |  |  |  |  | $ | 5,353 |  |  | $ | 4,952 |
Operating expenses |  |  |  |  | 1,624 |  |  | 2,122 |
Earnings attributable to non-controlling interest |  |  |  |  | $ | 3,729 |  |  | $ | 2,830 |

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

| Financial Position |  |
| March 31, |  | December 31,
| 2020 |  | 2019
| (In thousands) |  |
Current assets | $ | 3,297 |  |  | $ | 5,094 |
Net property, plant, and equipment | 57,871 |  |  | 58,581 |
Total assets | 61,168 |  |  | 63,675 |
Current liabilities | 821 |  |  | 623 |
Owners’ equity – non-controlling interest | $ | 60,347 |  |  | $ | 63,052 |

Westmoreland San Juan Mining, LLC
As discussed in the subheading Coal Supply in Note 11, PNM purchases coal for SJGS under the SJGS CSA. On October 9, 2018, Westmoreland filed a Current Report on Form 8-K with the SEC announcing it had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. On March 15, 2019, Westmoreland emerged from Chapter 11 bankruptcy as a privately held company owned and operated by a group of its former creditors. Under the reorganization, the assets of SJCC were sold to Westmoreland San Juan Mining, LLC (“WSJ LLC”), a subsidiary of Westmoreland Mining Holdings, LLC. As successor entity to SJCC, WSJ LLC assumed all rights and obligations of WSJ including obligations to PNM under the SJGS CSA and to PNMR under letter of credit support agreements.
PNMR issued $30.3 million in letters of credit to facilitate the issuance of reclamation bonds required in order for SJCC to mine coal to be supplied to SJGS. As discussed above, WSJ LLC assumed the rights and obligations of SJCC, including obligations to PNMR for the letters of credit. The letters of credit support results in PNMR having a variable interest in WSJ LLC since PNMR is subject to possible loss in the event performance by PNMR is required under the letters of credit support. PNMR considers the possibility of loss under the letters of credit support to be remote since the purpose of posting the bonds is to provide assurance that WSJ LLC performs the required reclamation of the mine site in accordance with applicable regulations and all reclamation costs are reimbursable under the SJGS CSA. Also, much of the mine reclamation activities will not be performed until after the expiration of the SJGS CSA. In addition, each of the SJGS participants has established and actively fund trusts to meet future reclamation obligations.
WSJ LLC is considered to be a VIE. PNMR’s analysis of its arrangements with WSJ LLC concluded that WSJ LLC has the ability to direct its mining operations, which is the factor that most significantly impacts the economic performance of WSJ LLC. Other than PNM being able to ensure that coal is supplied in adequate quantities and of sufficient quality to provide the fuel necessary to operate SJGS in a normal manner, the mining operations are solely under the control of WSJ LLC, including developing mining plans, hiring of personnel, and incurring operating and maintenance expenses. Neither PNMR nor PNM has any ability to direct or influence the mining operation. PNM’s involvement through the SJGS CSA is a protective right rather than a participating right and WSJ LLC has the power to direct the activities that most significantly impact the economic performance of WSJ LLC. The SJGS CSA requires WSJ LLC to deliver coal required to fuel SJGS in exchange for payment of a set price per ton, which is escalated over time for inflation. If WSJ LLC is able to mine more efficiently than anticipated, its economic performance will be improved. Conversely, if WSJ LLC cannot mine as efficiently as anticipated, its economic performance will be negatively impacted. Accordingly, PNMR believes WSJ LLC is the primary beneficiary and, therefore, WSJ LLC is not consolidated by either PNMR or PNM. The amounts outstanding under the letters of credit support constitute PNMR’s maximum exposure to loss from the VIE at March 31, 2020.
(7) Fair Value of Derivative and Other Financial Instruments
Additional information concerning energy related derivative contracts and other financial instruments is contained in Note 9 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
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
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Energy Related Derivative Contracts
Overview
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.
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. 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.
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.
Commodity Risk
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.
Accounting for Derivatives
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 three months ended March 31, 2020 and the year ended December 31, 2019, 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.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Commodity Derivatives
PNM’s commodity derivative instruments that are recorded at fair value, all of which are accounted for as economic hedges and considered Level 2 fair value measurements, are presented in the following line items on the Condensed Consolidated Balance Sheets:

| Economic Hedges |  |
| March 31, 2020 |  | December 31, 2019
| (In thousands) |  |
Other current assets | $ | 1,095 |  |  | $ | 1,089 |
Other deferred charges | 1,275 |  |  | 1,507 |
| 2,370 |  |  | 2,596 |
Other current liabilities | (1,095) |  |  | (1,089) |
Other deferred credits | (1,275) |  |  | (1,507) |
| (2,370) |  |  | (2,596) |
Net | $ | — |  |  | $ | — |

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. All of the assets and liabilities in the table above at March 31, 2020 and December 31, 2019 result from PNM’s hazard sharing arrangements with Tri-State. The hazard sharing arrangements are net-settled upon delivery.
At March 31, 2020 and December 31, 2019, PNM had no amounts recognized for the legal right to reclaim cash collateral. However, at March 31, 2020 and December 31, 2019, amounts posted as cash collateral under margin arrangements were $0.5 million. At March 31, 2020 and December 31, 2019, obligations to return cash collateral were $0.9 million. Cash collateral amounts are included in other current assets and other current liabilities on the Condensed Consolidated Balance Sheets.
PNM has a NMPRC-approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. There were no amounts hedged under this plan as of March 31, 2020 or December 31, 2019.
The effects of mark-to-market commodity derivative instruments on PNM’s revenues and cost of energy during the three months ended March 31, 2020 and 2019 were less than $0.1 million. Commodity derivatives had no impact on OCI for the periods presented.
PNM's energy and gas commodity volume positions at March 31, 2020 and December 31, 2019 net to zero.
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 March 31, 2020 and December 31, 2019, PNM had no such contracts in a net liability position.
Non-Derivative Financial Instruments
The carrying amounts reflected on the Condensed 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 11. At March 31, 2020 and December 31, 2019, the fair value of investment securities included $299.9 million and $336.0 million for the NDT and $53.4 million and $52.8 million for the mine reclamation trusts.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In June 2016, the FASB issued Accounting Standards Update 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the way entities recognize impairments of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. The majority of the amendments made by the new standard are required to be applied using a modified retrospective approach. The amendments in ASU 2016-13 also require entities to separately measure and realize an impairment for credit losses on available-for-sale debt securities for which carrying value exceeds fair value, unless such securities have been determined to be other than temporarily impaired and the entire decrease in value has been realized as an impairment. The amendments relating to available-for-sale debt securities are required to be applied prospectively on the date of adoption. PNM records a realized loss as an impairment for any available-for-sale debt security that has a fair value that is less than its carrying value. As a result, the Company has no available-for-sale debt securities for which carrying value exceeds fair value and there are no impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings. The Company adopted ASU 2016-13 on January 1, 2020, its required effective date. Adoption of the standard did not result in the Company recording a cumulative effect adjustment or impact the Company's accounting for its available-for-sale debt securities. All gains and losses resulting from sales and changes in the fair value of equity securities are recognized immediately in earnings.
Gains and losses recognized on the Condensed Consolidated Statements of Earnings related to investment securities in the NDT and reclamation trusts are presented in the following table:

|  |  |  |  | Three Months Ended |  |
|  |  |  |  | March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Equity securities: |  |  |  |  |  |  |
Net gains (losses) from equity securities sold |  |  |  |  | $ | (1,315) |  |  | $ | 1,387 |
Net gains (losses) from equity securities still held |  |  |  |  | (18,931) |  |  | 9,602 |
Total net gains (losses) on equity securities |  |  |  |  | (20,246) |  |  | 10,989 |
Available-for-sale debt securities: |  |  |  |  |  |  |
Net gains (losses) on debt securities |  |  |  |  | (12,603) |  |  | 3,025 |
Net gains (losses) on investment securities |  |  |  |  | $ | (32,849) |  |  | $ | 14,014 |

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 $(12.7) million and $3.4 million for the three months ended March 31, 2020 and 2019.

|  |  |  |  | Three Months Ended |  |
|  |  |  |  | March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Proceeds from sales |  |  |  |  | $ | 149,355 |  |  | $ | 74,460 |
Gross realized gains |  |  |  |  | $ | 5,825 |  |  | $ | 4,189 |
Gross realized (losses) |  |  |  |  | $ | (7,035) |  |  | $ | (3,170) |

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At March 31, 2020, the available-for-sale debt securities held by PNM, had the following final maturities:

| Fair Value |  |  |  |
| (In thousands) |  |  |  |
Within 1 year | $ | 22,001 |  |  |  |  |
After 1 year through 5 years | 71,816 |  |  |  |  |
After 5 years through 10 years | 75,923 |  |  |  |  |
After 10 years through 15 years | 12,345 |  |  |  |  |
After 15 years through 20 years | 12,220 |  |  |  |  |
After 20 years | 39,047 |  |  |  |  |
| $ | 233,352 |  |  |  |  |

Fair Value Disclosures
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.
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. 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, when applicable, 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 Company has no Level 3 investments as of March 31, 2020 and December 31, 2019. Management of the Company independently verifies the information provided by pricing services.
In August 2018, the FASB issued Accounting Standards Update 2018-13 – Fair Value Measurements (Topic 820) Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurements, to improve fair value disclosures. ASU 2018-13 eliminates certain disclosure requirements related to transfers between Levels 1 and 2 of the fair value hierarchy and the requirement to disclose the valuation process for Level 3 fair value measurements. ASU 2018-13 also amends certain disclosure requirements for investments measured at net asset value and requires new disclosures for Level 3 investments, including a new requirement to disclose changes in unrealized gains or losses recorded in OCI related to Level 3 fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020, its required effective date. The Company applied the requirements of the new standard using retrospective application, except for the new disclosures related to Level 3 investments, which are to be applied prospectively. Adoption of the standard did not have a material impact on the Company's disclosures.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Items recorded at fair value by PNM on the Condensed Consolidated Balance Sheets are presented below by level of the fair value hierarchy along with gross unrealized gains on investments in available-for-sale debt securities:

|  |  | GAAP Fair Value Hierarchy |  |  |  |  |  |
| Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  |  |  | Unrealized Gains
| (In thousands) |  |  |  |  |  |  |  |
March 31, 2020 |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 17,252 |  |  | $ | 17,252 |  |  | $ | — |  |  |  |  |
Equity securities: |  |  |  |  |  |  |  |  |
Corporate stocks, common | 49,838 |  |  | 49,838 |  |  | — |  |  |  |  |
Corporate stocks, preferred | 7,974 |  |  | 2,365 |  |  | 5,609 |  |  |  |  |
Mutual funds and other | 44,852 |  |  | 44,852 |  |  | — |  |  |  |  |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |
U.S. government | 46,450 |  |  | 30,630 |  |  | 15,820 |  |  |  |  | $ | 2,636 |
International government | 12,802 |  |  | — |  |  | 12,802 |  |  |  |  | 236 |
Municipals | 45,115 |  |  | — |  |  | 45,115 |  |  |  |  | 1,518 |
Corporate and other | 128,985 |  |  | 403 |  |  | 128,582 |  |  |  |  | 4,420 |
| $ | 353,268 |  |  | $ | 145,340 |  |  | $ | 207,928 |  |  |  |  | $ | 8,810 |
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 |

The carrying amounts and fair values of long-term debt, all of which are considered Level 2 fair value measurements and are not recorded at fair value on the Condensed Consolidated Balance Sheets, are presented below:

| Carrying Amount |  | Fair Value |  |  |  |  |  |
March 31, 2020 | (In thousands) |  |  |  |  |  |  |  |
PNMR | $ | 3,008,275 |  |  | $ | 3,060,098 |  |  |  |  |  |  |
PNM | $ | 1,748,401 |  |  | $ | 1,763,727 |  |  |  |  |  |  |
TNMP | $ | 670,626 |  |  | $ | 727,222 |  |  |  |  |  |  |
December 31, 2019 |  |  |  |  |  |  |  |  |
PNMR | $ | 3,007,717 |  |  | $ | 3,142,704 |  |  |  |  |  |  |
PNM | $ | 1,748,020 |  |  | $ | 1,795,149 |  |  |  |  |  |  |
TNMP | $ | 670,691 |  |  | $ | 753,317 |  |  |  |  |  |  |

The carrying amount and fair value of the Company’s other investments presented on the Condensed Consolidated Balance Sheets are not material and not shown in the above table.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) Stock-Based Compensation
PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. The Company has not awarded stock options since 2010 and all employee stock options expired or were exercised in February 2020. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 12 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
Restricted stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, the awards vest ratably over three years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in certain stock awards. The vesting period for awards of restricted stock to non-employee members of the Board is one-year.
The stock-based compensation expense related to restricted stock awards without performance or market conditions to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized to compensation expense over the shorter of the requisite vesting period or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized ratably over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At March 31, 2020, PNMR had unrecognized expense related to stock awards of $6.5 million, which is expected to be recognized over an average of 2.1 years.
PNMR receives a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the options are sold over the exercise prices of the options, and a tax deduction for the value of restricted stock at the vesting date. GAAP requires that all excess tax benefits and deficiencies be recorded to tax expense and classified as operating cash flows when used to reduce income taxes payable. See Note 14.
The grant date fair value for restricted stock and stock awards with Company internal performance targets is determined based on the market price of PNMR common stock on the date of the agreements reduced by the present value of future dividends that will not be received prior to vesting. The grant date fair value is applied to the total number of shares that are anticipated to vest, although the number of performance shares that ultimately vest cannot be determined until after the performance periods end. The grant date fair value of stock awards with market targets is determined using Monte Carlo simulation models, which provide grant date fair values that include an expectation of the number of shares to vest at the end of the measurement period.
The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:

|  | Three Months Ended March 31, |  |
Restricted Shares and Performance Based Shares |  | 2020 |  | 2019
Expected quarterly dividends per share |  | $ | 0.3075 |  |  | $ | 0.2900 |
Risk-free interest rate |  | 0.72 | % |  | 2.50 | %
Market-Based Shares |  |  |  |
Dividend yield |  | 2.51 | % |  | 2.59 | %
Expected volatility |  | 19.41 | % |  | 19.55 | %
Risk-free interest rate |  | 0.72 | % |  | 2.51 | %

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes activity in restricted stock awards, including performance-based and market-based shares, and stock options, for the three months ended March 31, 2020:

| Restricted Stock |  |  |  | Stock Options |  |
| Shares |  | Weighted- Average Grant Date Fair Value |  | Shares |  | Weighted- Average Exercise Price
Outstanding at December 31, 2019 | 161,542 |  |  | $ | 38.21 |  |  | 2,000 |  |  | $ | 12.22 |
Granted | 217,913 |  |  | 36.88 |  |  | — |  |  | — |
Exercised | (225,925) |  |  | 34.28 |  |  | (2,000) |  |  | 12.22 |
Outstanding at March 31, 2020 | 153,530 |  |  | $ | 42.10 |  |  | — |  |  | $ | — |

PNMR’s current stock-based compensation program provides for performance and market targets through 2022. Included in the above table are 122,277 previously awarded shares that were earned for the 2017-2019 performance measurement period and ratified by the Board in February 2020 (based upon achieving market and performance targets at near "maximum" levels). Excluded from the table above are 150,543, 142,080 and 142,047 shares for the three-year performance periods ending in 2020, 2021 and 2022 that will be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.
In 2015, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive a total of 53,859 shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2017 and 2019 and she remained an employee of the Company. The retention award was made under the PEP and was approved by the Board on February 26, 2015. Under the agreement, she was to receive 17,953 of the total shares if PNMR achieved specific performance targets at the end of 2017. The specified performance target was achieved at the end of 2017 and the Board ratified her receiving 17,953 shares in February 2018. The second portion of the agreement of 35,906 shares was achieved at the end of 2019 and the Board ratified her receiving the shares in February 2020 and such shares are included in the above table.
The following table provides additional information concerning restricted stock activity, including performance-based and market-based shares, and stock options:

|  | Three Months Ended March 31, |  |
Restricted Stock |  | 2020 |  | 2019
Weighted-average grant date fair value |  | $ | 36.88 |  |  | $ | 36.48 |
Total fair value of restricted shares that vested (in thousands) |  | $ | 11,269 |  |  | $ | 5,314 |
Stock Options |  |  |  |
Total intrinsic value of options exercised (in thousands) |  | $ | 84 |  |  | $ | 2,582 |

(9) Financing
The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures. Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities or refinance other debt. Each of the Company’s revolving credit facilities and term loans contain a single financial covenant that requires the maintenance of a debt-to-capitalization ratio. For the PNMR and PNMR Development agreements this ratio must be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. PNM must obtain NMPRC approval for any financing transaction having
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. Additional information concerning financing activities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
Financing Activities
In October 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank N.A. (the "JPM LOC Facility") under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation bonds, which SJCC was required to post in connection with permits relating to the operation of the San Juan mine. On March 15, 2019, WSJ LLC acquired the assets of SJCC following the bankruptcy of Westmoreland. WSJ LLC assumed all obligations of SJCC, including under the letter of credit support arrangements. See Note 10.
On January 7, 2020, PNMR entered into forward sale agreements with each of Citibank N.A., and Bank of America N.A., as forward purchasers and an underwriting agreement with Citigroup Global Markets Inc., and BofA Securities, Inc. as representatives of the underwriters named therein, relating to an aggregate of approximately 6.2 million shares of PNMR common stock (including 0.8 million shares of PNMR common stock pursuant to the underwriters’ option to purchase additional shares) with each of Citibank N.A., and Bank of America N.A., as forward purchasers (the “PNMR 2020 Forward Equity Sale Agreements”). On January 8, 2020, the underwriters exercised in full their option to purchase the additional 0.8 million shares of PNMR common stock and PNMR entered into separate forward sales agreements with respect to the additional shares. The initial forward sale price of $47.21 per share is subject to adjustments based on a net interest rate factor and by expected future dividends paid on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates.
PNMR expects to physically settle all shares under the PNMR 2020 Forward Equity Sale Agreements by delivering newly issued shares to the forward purchasers on or before January 7, 2021 in exchange for cash at the then applicable forward sales price. PNMR also has the option to net settle the agreement in cash or shares of PNMR common stock. Under a net cash settlement, under which no PNMR common stock would be issued, PNMR would receive net proceeds for a decrease in the market value of PNMR's common stock relative to the then applicable forward sales price per share, or would owe cash in the event of an increase in the market value of PNMR common stock. Under a net share settlement, PNMR would not receive any cash proceeds and may be required to deliver a sufficient number of shares of PNMR common stock to satisfy its obligation to the forward purchasers. The number of shares to be delivered to the forward purchasers would be based on the increase in the PNMR's common stock price relative to the then applicable forward sales price per share. The forward sale agreements meet the derivative scope exception requirements for contracts involving an entity’s own equity. Until settlement of the forward sale agreements, PNMR’s EPS dilution resulting from the agreements, if any, will be determined using the treasury stock method, which will result in dilution during periods when the average market price of PNMR stock during the reporting period is higher than the applicable forward sales price as of the end of that period. See Note 4.
On April 24, 2020, TNMP entered into the TNMP 2020 Bond Purchase Agreement with institutional investors for the sale of $185.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the "TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $110.0 million of TNMP 2020 Bonds on April 24, 2020 and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. TNMP will issue the remaining $75.0 million of TNMP 2020 Bonds on or before July 15, 2020 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit facility and for other corporate purposes. The issuance of the remaining TNMP 2020 Bonds is subject to the satisfaction of customary conditions, and the TNMP 2020 Bonds are subject to continuing compliance with the representations, warranties and covenants of the TNMP 2020 Bond Purchase Agreement. The terms of the TNMP 2020 Bond Purchase Agreement include customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP will have the right to redeem any or all of the TNMP 2020 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Information concerning the funding dates, maturities and interest rates on the TNMP 2020 Bonds issued in April 2020 and to be issued on or before July 15, 2020 is as follows:

Funding Date |  | Maturity Date |  | Principal Amount |  | Interest Rate
|  |  |  | (In millions) |  |
April 24, 2020 |  | April 24, 2030 |  | $ | 85.0 |  |  | 2.73 | %
April 24, 2020 |  | April 24, 2050 |  | 25.0 |  |  | 3.36 | %
|  |  |  | 110.0 |  |  |
July 15, 2020 |  | July 15, 2035 |  | 25.0 |  |  | 2.93 | %
July 15, 2020 |  | July 15, 2050 |  | 50.0 |  |  | 3.36 | %
|  |  |  | $ | 185.0 |  |  |

On April 15, 2020, PNM entered into a $250.0 million term loan agreement (the "PNM 2020 Term Loan"), between PNM, the lenders party thereto, and U.S. Bank, as administrative agent. Proceeds from the PNM 2020 Term Loan were used to prepay the PNM 2019 $250.0 million Term Loan due July 2020, without penalty. The PNM 2020 Term Loan bears interest at a variable rate, which was 2.70% at May 1, 2020, and matures on June 15, 2021. In accordance with GAAP, borrowings under the PNM 2019 $250.0 million Term Loan are reflected as long-term in the Condensed Consolidated Balance Sheets at March 31, 2020 since PNM demonstrated its intent and ability to refinance this agreement on a long-term basis. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan.
On April 30, 2020, PNM entered into an agreement (the "PNM 2020 Note Purchase Agreement") with institutional investors for the sale of $200.0 million aggregate principal amount of senior unsecured notes offered in private placement transactions. Under the agreement, PNM issued $150.0 million aggregate principal amount of its 3.21% senior unsecured notes, Series A, due April 30, 2030, and $50.0 million of its aggregate principal amount of its 3.57% senior unsecured notes, Series B, due April 29, 2039 (the "PNM 2020 SUNs"). The PNM 2020 SUNs were issued on April 30, 2020. PNM used $100.0 million of proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes. The PNM 2020 SUNs agreement includes customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2020 SUNs at par. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium.
At March 31, 2020, variable interest rates were 1.79% on the $50.0 million PNMR 2018 Two-Year Term Loan that matures in December 2020, 1.75% on the PNMR 2019 Term Loan that matures in June 2021, 1.59% on the PNM 2019 $250.0 million Term Loan, which was repaid on April 15, 2020, 1.26% on the PNM 2019 $40.0 million Term Loan that matures in June 2020, and 1.79% on the $90.0 million PNMR Development Term Loan that matures in November 2020.
On April 1, 2020, the NMPRC approved PNM’s request to issue approximately $361 million of Securitized Bonds upon the retirement of SJGS in 2022. The NMPRC's approval of the issuance of these Securitized Bonds is currently being appealed to the NM Supreme Court. See SJGS Abandonment Application in Note 12.
Short-term Debt and Liquidity
Currently, the PNMR Revolving Credit Facility has a financing capacity of $300.0 million and the PNM Revolving Credit Facility has a financing capacity of $400.0 million. Both facilities currently expire on October 31, 2023 and contain options to be extended through October 2024, subject to approval by a majority of the lenders. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires on December 12, 2022. The TNMP Revolving Credit Facility is a $75.0 million revolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds and matures on September 23, 2022. PNMR Development has a $40.0 million revolving credit facility that expires on February 23,
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2021. PNMR Development has the option to further increase the capacity of this facility to $50.0 million upon 15-days advance notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates.
Short-term debt outstanding consists of:

|  | March 31, |  | December 31,
Short-term Debt |  | 2020 |  | 2019
|  | (In thousands) |  |
PNM: |  |  |  |
PNM Revolving Credit Facility |  | $ | 30,000 |  |  | $ | 48,000 |
PNM 2017 New Mexico Credit Facility |  | 30,000 |  |  | 10,000 |
|  | 60,000 |  |  | 58,000 |
TNMP Revolving Credit Facility |  | 70,000 |  |  | 15,000 |
PNMR Revolving Credit Facility |  | 170,600 |  |  | 112,100 |
|  | $ | 300,600 |  |  | $ | 185,100 |

At March 31, 2020, the weighted average interest rate was 2.15% for the PNMR Revolving Credit Facility, 2.35% for the PNM Revolving Credit Facility, 2.12% for the PNM 2017 New Mexico Credit Facility, and 1.74% for the TNMP Revolving Credit Facility. There were no borrowings outstanding under the PNMR Development Revolving Credit Facility at March 31, 2020.
In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $4.7 million, $2.5 million, and $0.1 million at March 31, 2020 that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of March 31, 2020, and December 31, 2019, each of PNM, TNMP, and PNMR Development had zero intercompany borrowings from PNMR.
In 2017, PNMR entered into three separate four-year hedging agreements whereby it effectively established fixed interest rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR for three separate tranches, each of $50.0 million, of its variable rate debt. These hedge agreements are accounted for as cash flow hedges and had fair values of $2.5 million and $0.4 million at March 31, 2020 and December 31, 2019 that are included in other current liabilities on the Condensed Consolidated Balance Sheets. As discussed in Note 3, changes in the fair value of the cash flow hedges are deferred in AOCI and amounts reclassified to the Condensed Consolidated Statement of Earnings are recorded in interest charges. The fair values were determined using Level 2 inputs under GAAP, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement.
At May 1, 2020, PNMR, PNM, TNMP, and PNMR Development had availability of $162.6 million, $382.5 million, $74.9 million, and $40.0 million under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit, and PNM also had $10.0 million of availability under the PNM 2017 New Mexico Credit Facility. Total availability at May 1, 2020, on a consolidated basis, was $670.0 million for PNMR. As of May 1, 2020, PNM, TNMP, and PNMR Development had no borrowings from PNMR under their intercompany loan agreements. At May 1, 2020, PNMR, PNM, and TNMP had invested cash of $0.9 million, $1.9 million, and $21.9 million.
The Company’s debt arrangements have various maturities and expiration dates. PNM has $100.3 million of long-term debt that must be repriced by June 2020. In addition, the $90.0 million PNMR Development Term Loan matures in November 2020, the $50.0 million PNMR 2018 Two-Year Term Loan matures in December 2020, and the $300.0 million PNMR 2018 SUNs mature on March 9, 2021. Additional information on debt maturities is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(10) Pension and Other Postretirement Benefit Plans
PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. The periodic costs or income of the PNM Plans and TNMP Plans are included in regulated rates to the extent attributable to regulated operations. In accordance with GAAP, the Company presents the service cost component of its net periodic benefit costs in administrative and general expenses and the non-service costs components in other income (deductions), net of amounts capitalized or deferred to regulatory assets and liabilities, on the Condensed Consolidated Statements of Earnings. PNM and TNMP receive a regulated return on the amounts funded for pension and OPEB plans in excess of accumulated periodic cost or income to the extent included in retail rates (a “prepaid pension asset”).
Additional information concerning pension and OPEB plans is contained in Note 11 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K. Annual net periodic benefit cost for the plans is actuarially determined using the methods and assumptions set forth in that note and is recognized ratably throughout the year.
PNM Plans
The following table presents the components of the PNM Plans’ net periodic benefit cost:

| Three Months Ended March 31, |  |  |  |  |  |  |  |  |  |
| Pension Plan |  |  |  | OPEB Plan |  |  |  | Executive Retirement Program |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands) |  |  |  |  |  |  |  |  |  |
Components of Net Periodic Benefit Cost |  |  |  |  |  |  |  |  |  |  |
Service cost | $ | — |  |  | $ | — |  |  | $ | 10 |  |  | $ | 13 |  |  | $ | — |  |  | $ | — |
Interest cost | 4,985 |  |  | 6,294 |  |  | 613 |  |  | 829 |  |  | 122 |  |  | 162 |
Expected return on plan assets | (7,363) |  |  | (8,527) |  |  | (1,387) |  |  | (1,318) |  |  | — |  |  | — |
Amortization of net (gain) loss | 4,465 |  |  | 3,880 |  |  | 87 |  |  | 169 |  |  | 101 |  |  | 79 |
Amortization of prior service cost | (138) |  |  | (241) |  |  | — |  |  | (99) |  |  | — |  |  | — |
Net Periodic Benefit Cost (Income) | $ | 1,949 |  |  | $ | 1,406 |  |  | $ | (677) |  |  | $ | (406) |  |  | $ | 223 |  |  | $ | 241 |

PNM did not make any contributions to its pension plan trust in the three months ended March 31, 2020 and 2019 and does not anticipate making any contributions to the pension plan in 2020 or 2021, but expects to contribute $4.6 million in 2022 and $19.1 million in 2023, and $19.0 million in 2024 based on current law, funding requirements, and estimates of portfolio performance. Funding assumptions were developed using discount rates of 3.4% to 3.5%. Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rate. PNM may make additional contributions at its discretion. PNM made no cash contributions to the OPEB trust in the three months ended March 31, 2020 and 2019, however, a portion of the disbursements attributable to the OPEB trust are paid by PNM and are therefore considered to be contributions to the OPEB plan. Payments by PNM on behalf of the PNM OPEB plan were $1.1 million and $0.8 million in the three months ended March 31, 2020 and 2019 and are expected to total $3.7 million in 2020 and $13.5 million for 2021-2024. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were $0.3 million and $0.4 million in the three months ended March 31, 2020 and 2019 and are expected to total $1.5 million during 2020 and $5.4 million for 2021-2024.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TNMP Plans
The following table presents the components of the TNMP Plans’ net periodic benefit cost:

| Three Months Ended March 31, |  |  |  |  |  |  |  |  |  |
| Pension Plan |  |  |  | OPEB Plan |  |  |  | Executive Retirement Program |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands) |  |  |  |  |  |  |  |  |  |
Components of Net Periodic Benefit Cost |  |  |  |  |  |  |  |  |  |  |
Service cost | $ | — |  |  | $ | — |  |  | $ | 12 |  |  | $ | 13 |  |  | $ | — |  |  | $ | — |
Interest cost | 544 |  |  | 672 |  |  | 93 |  |  | 113 |  |  | 6 |  |  | 8 |
Expected return on plan assets | (821) |  |  | (967) |  |  | (134) |  |  | (129) |  |  | — |  |  | — |
Amortization of net (gain) loss | 315 |  |  | 235 |  |  | (81) |  |  | (110) |  |  | 6 |  |  | 4 |
Net Periodic Benefit Cost (Income) | $ | 38 |  |  | $ | (60) |  |  | $ | (110) |  |  | $ | (113) |  |  | $ | 12 |  |  | $ | 12 |

TNMP did not make any contributions to its pension plan trust in the three months ended March 31, 2020 and 2019 and does not anticipate making any contributions to the pension plan in 2020 - 2022, but expects to contribute $1.1 million in 2023 and $2.8 million in 2024, based on current law, funding requirements, and estimates of portfolio performance. Funding assumptions were developed using discount rates of 3.4% to 3.5%. Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made no contributions to the OPEB trust in the three months ended March 31, 2020 and 2019 and does not expect to make contributions to the OPEB trust during the period 2020-2024. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were zero and less than $0.1 million in the three months ended March 31, 2020 and 2019 and are expected to total $0.1 million during 2020 and $0.3 million in 2021-2024.
(11) Commitments and Contingencies
Overview
There are various claims and lawsuits pending against the Company. In addition, the Company is subject to federal, state, and local environmental laws and regulations and periodically participates in the investigation and remediation of various sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. Also, the Company is involved in various legal and regulatory proceedings in the normal course of its business. See Note 12. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.
With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. The Company assesses legal and regulatory matters based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of any damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, or other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. Except as otherwise disclosed, the Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.
Additional information concerning commitments and contingencies is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Commitments and Contingencies Related to the Environment
Nuclear Spent Fuel and Waste Disposal
Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE that require the DOE to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance of these requirements. In November 1997, the DC Circuit issued a decision preventing the DOE from excusing its own delay but refused to order the DOE to begin accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other PVNGS owners, including PNM), filed damages actions against the DOE in the Court of Federal Claims. The lawsuits filed by APS alleged that damages were incurred due to DOE’s continuing failure to remove spent nuclear fuel and high-level waste from PVNGS. In August 2014, APS and the DOE entered into a settlement agreement that establishes a process for the payment of claims for costs incurred through December 31, 2019. Under the settlement agreement, APS must submit claims annually for payment of allowable costs. PNM records estimated claims on a quarterly basis. The benefit from the claims is passed through to customers under the FPPAC to the extent applicable to NMPRC regulated operations. The DOE is reviewing a possible three year extension of the settlement agreement. PNM cannot predict the timing of the DOE's decision on the extension.
PNM estimates that it will incur approximately $57.7 million (in 2016 dollars) for its share of the costs related to the on-site interim storage of spent nuclear fuel at PVNGS during the term of the operating licenses. PNM accrues these costs as a component of fuel expense as the nuclear fuel is consumed. At March 31, 2020 and December 31, 2019, PNM had a liability for interim storage costs of $12.8 million and $12.7 million, which is included in other deferred credits.
PVNGS has sufficient capacity at its on-site Independent Spent Fuel Storage Installation (“ISFSI”) to store all of the nuclear fuel that will be irradiated during the initial operating license period, which ends in December 2027. Additionally, PVNGS has sufficient capacity at its on-site ISFSI to store a portion of the fuel that will be irradiated during the period of extended operation, which ends in November 2047. If uncertainties regarding the U.S. government’s obligation to accept and store spent fuel are not favorably resolved, APS will evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the period of extended operation.
The Clean Air Act
Regional Haze
In 1999, EPA developed a regional haze program and regional haze rules under the CAA. The rule directs each of the 50 states to address regional haze. Pursuant to the CAA, states have the primary role to regulate visibility requirements by promulgating SIPs. States are required to establish goals for improving visibility in national parks and wilderness areas (also known as Class I areas) and to develop long-term strategies for reducing emissions of air pollutants that cause visibility impairment in their own states and for preventing degradation in other states. States must establish a series of interim goals to ensure continued progress by adopting a new SIP every ten years. In the first SIP planning period, states were required to conduct BART determinations for certain covered facilities, including utility boilers, built between 1962 and 1977 that have the potential to emit more than 250 tons per year of visibility impairing pollution. If it was demonstrated that the emissions from these sources caused or contributed to visibility impairment in any Class I area, then BART must have been installed by the beginning of 2018. For all future SIP planning periods, states must evaluate whether additional emissions reduction measures may be needed to continue making reasonable progress toward natural visibility conditions.
On January 10, 2017, EPA published in the Federal Register revisions to the regional haze rule. EPA also provided a companion draft guidance document for public comment. The new rule delayed the due date for the next cycle of SIPs from 2019 to 2021, altered the planning process that states must employ in determining whether to impose “reasonable progress” emission reduction measures, and gave new authority to federal land managers to seek additional emission reduction measures outside of the states’ planning process. Finally, the rule made several procedural changes to the regional haze program, including changes to the schedule and process for states to file 5-year progress reports. EPA’s new rule was challenged by numerous parties. On January 19, 2018, EPA filed a motion to hold the case in abeyance in light of several letters issued by
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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
EPA on January 17, 2018 to grant various petitions for reconsideration of the 2017 rule revisions. EPA’s decision to revisit the 2017 rule is not a determination on the merits of the issues raised in the petitions.
On December 20, 2018, EPA released a new guidance document on tracking visibility progress for the second planning period. EPA is allowing states discretion to develop SIPs that may differ from EPA’s guidance as long as they are consistent with the CAA and other applicable regulations. On August 20, 2019, EPA finalized the draft guidance that was released in 2016 as a companion to the regional haze rule revisions. The final guidance differs from the draft in several ways. For example, the final guidance recognizes that sources already subject to BART may not need to be re-evaluated under the full four-factor analysis whereas the draft guidance encouraged states to evaluate all sources regardless of whether they were previously subject to BART. In addition, the final guidance recognizes that states may consider both visibility benefits and the cost of different control options when applying the four-factor analysis whereas the draft guidance recommended states require any control measures identified to be reasonable after considering the four-factor analysis alone. SIPs for the second compliance period are due in July 2021. NMED is currently preparing its SIP for the second compliance period and has notified PNM that it will not require a regional haze four-factor analysis for SJGS since PNM will retire its share of SJGS in 2022. PNM cannot predict the outcome of these matters with respect to Four Corners.
Four Corners
Four Corners Federal Agency Lawsuit – On April 20, 2016, several environmental groups filed a lawsuit against OSM and other federal agencies in the U.S. District Court for the District of Arizona in connection with their issuance of the approvals that extended the life of Four Corners and the adjacent mine. The lawsuit alleges that these federal agencies violated both the ESA and NEPA in providing the federal approvals necessary to extend operations at Four Corners and the adjacent mine past July 6, 2016. The court granted an APS motion to intervene in the litigation. NTEC, the current owner of the mine providing coal to Four Corners, filed a motion to intervene for the limited purpose of seeking dismissal of the lawsuit based on NTEC’s tribal sovereign immunity. The court granted NTEC’s motion and dismissed the case with prejudice, terminating the proceedings. In November 2017, the environmental group plaintiffs filed a Notice of Appeal of the dismissal in the U.S. Court of Appeals for the Ninth Circuit, and the court granted their subsequent motion to expedite the appeal. The Ninth Circuit issued a decision affirming the District Court’s dismissal of the case. In September 2019, the environmental groups filed a motion for reconsideration, which was denied in December 2019. On March 24, 2020, the environmental groups filed a petition for writ of certiorari in the U.S. Supreme Court seeking review of the Ninth Circuit's decision. PNM cannot predict the outcome of this matter.
Carbon Dioxide Emissions
On August 3, 2015, EPA established standards to limit CO2 emissions from power plants. EPA took three separate but related actions in which it: (1) established the Carbon Pollution Standards for new, modified, and reconstructed power plants; (2) established the Clean Power Plan to set standards for carbon emission reductions from existing power plants; and (3) released a proposed federal plan associated with the final Clean Power Plan. The Clean Power Plan was published on October 23, 2015.
Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. On January 21, 2016, the DC Circuit denied petitions to stay the Clean Power Plan, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016. The decision meant that the Clean Power Plan was not in effect and neither states nor sources were obliged to comply with its requirements. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a ten judge en banc panel. However, before the DC Circuit could issue an opinion, the Trump Administration asked that the case be held in abeyance while the rule was being re-evaluated, which was granted. In addition, the DC Circuit issued a similar order in connection with a motion filed by EPA to hold cases challenging the NSPS in abeyance. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss cases challenging the Clean Power Plan as moot due to EPA's issuance of the Affordable Clean Energy rule, which repealed the Clean Power Plan.
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On March 28, 2017, President Trump issued an Executive Order on Energy Independence. The order put forth two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean. The order directed the EPA Administrator to review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Clean Power Plan, (2) the New Source Performance Standards (“NSPS”) for GHG from new, reconstructed, or modified electric generating units, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. In response to the Executive Order, EPA filed a petition with the DC Circuit requesting the cases challenging the Clean Power Plan be held in abeyance until after the conclusion of EPA’s review and any subsequent rulemaking, which was granted. In addition, the DC Circuit issued a similar order in connection with a motion filed by EPA to hold cases challenging the NSPS in abeyance. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss the cases challenging the Clean Power Plan as moot due to EPA’s issuance of the Affordable Clean Energy rule.
EPA’s efforts to replace the Clean Power Plan with the Affordable Clean Energy rule began on October 10, 2017, when EPA issued a NOPR proposing to repeal the Clean Power Plan and filed its status report with the court requesting the case be held in abeyance until the completion of the rulemaking on the proposed repeal. The NOPR proposed a legal interpretation concluding that the Clean Power Plan exceeded EPA’s statutory authority. On August 31, 2018, EPA published a proposed rule, known as the Affordable Clean Energy rule, to replace the Clean Power Plan. On June 19, 2019, EPA released the final version of the Affordable Clean Energy rule. EPA takes three actions in the final rule: (1) repealing of the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d), which, among other things, extends the deadline for state plans and the timing for EPA's approval process. The final rule is very similar to the August 2018 proposed rule. EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after PNM retires its share of SJGS in 2022.
Since the Navajo Nation does not have primacy over its air quality program, EPA would be the regulatory authority responsible for implementing the Affordable Clean Energy rule on the Navajo Nation. PNM is unable to predict the potential financial or operational impacts on Four Corners.
While corresponding NSR reform regulations were proposed as part of the proposed Affordable Clean Energy rule, the final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from a project are to be considered in determining whether the proposed project will result in an increase in air emissions.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule published in October 2015 for new, reconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on the revised BSER as the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon capture and sequestration. As a result, the proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. A final rule is expected in 2020.
PNM’s review of the GHG emission reductions standards under the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties
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and may be impacted by further litigation. PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.
National Ambient Air Quality Standards (“NAAQS”)
The CAA requires EPA to set NAAQS for pollutants reasonably anticipated to endanger public health or welfare. EPA has set NAAQS for certain pollutants, including NOx, SO2, ozone, and particulate matter. In 2010, EPA updated the primary NOx and SO2 NAAQS to include a 1-hour standard while retaining the annual standards for NOx and SO2 and the 24-hour SO2 standard. EPA also updated the final particulate matter standard in 2012 and updated the ozone standard in 2015.
NOx Standard – On April 18, 2018, EPA published the final rule to retain the current primary health-based NOx standards of which NO2 is the constituent of greatest concern and is the indicator for the primary NAAQS. EPA concluded that the current 1-hour and annual primary NO2 standards are requisite to protect public health with an adequate margin of safety. The rule became effective on May 18, 2018.
SO2 Standard – On May 13, 2014, EPA released the draft data requirements rule for the 1-hour SO2 NAAQS, which directs state and tribal air agencies to characterize current air quality in areas with large SO2 sources to identify maximum 1-hour SO2 concentrations. This characterization requires areas be designated as attainment, nonattainment, or unclassifiable for compliance with the 1-hour SO2 NAAQS.
On August 11, 2015, EPA released the Data Requirements Rule for SO2, telling states how to model or monitor to determine attainment or nonattainment with the new 1-hour SO2 NAAQS. On June 3, 2016, NMED notified PNM that air quality modeling results indicated that SJGS was in compliance with the standard. In January 2017, NMED submitted its formal modeling report regarding attainment status to EPA. The modeling indicated that no area in New Mexico exceeds the 1-hour SO2 standard. NMED submitted the first annual report for SJGS as required by the Data Requirements Rule in June 2018. That report recommended that no further modeling was warranted due to decreased SO2 emissions. NMED submitted the second annual modeling report to EPA in July 2019. That report retained the recommendation that no further modeling is needed at this time and is subject to EPA review.
On February 25, 2019, EPA announced its final decision to retain without changes the primary health-based NAAQS for SOx. Specifically, EPA will retain the current 1-hour standard for SO2, which is 75 parts per billion, based on the 3-year average of the 99th percentile of daily maximum 1-hour SO2 concentrations. SO2 is the most prevalent SOx compound and is used as the indicator for the primary SOx NAAQS.
On May 14, 2015, PNM received an amendment to its NSR air permit for SJGS, which reflects the revised state implementation plan for regional haze BART and required the installation of SNCRs. The revised permit also required the reduction of SO2 emissions to 0.10 pound per MMBTU on SJGS Units 1 and 4 and the installation of BDT equipment modifications for the purpose of reducing fugitive emissions, including NOx, SO2, and particulate matter. These reductions help SJGS meet the NAAQS for these constituents. The BDT equipment modifications were installed at the same time as the SNCRs, in order to most efficiently and cost effectively conduct construction activities at SJGS. See a discussion of the regulatory treatment of BDT in Note 12.
Ozone Standard – On October 1, 2015, EPA finalized the new ozone NAAQS and lowered both the primary and secondary 8-hour standard from 75 to 70 parts per billion. With ozone standards becoming more stringent, fossil-fueled generation units will come under increasing pressure to reduce emissions of NOx and volatile organic compounds since these are the pollutants that form ground-level ozone.
On November 10, 2015, EPA proposed a rule revising its Exceptional Events Rule, which outlines the requirements for excluding air quality data (including ozone data) from regulatory decisions if the data is affected by events outside an area’s control. The proposed rule is important in light of the more stringent ozone NAAQS final rule since western states like New Mexico and Arizona are subject to elevated background ozone transport from natural local sources, such as wildfires and stratospheric inversions, and transported via winds from distant sources in other regions or countries. EPA finalized the rule on October 3, 2016 and released related guidance in 2018 and 2019 to help implement its new exceptional events policy.
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During 2017 and 2018, EPA released rules establishing area designations for ozone. In those rules, San Juan County, New Mexico, where SJGS and Four Corners are located, is designated as attainment/unclassifiable and only a small area in Doña Ana County, New Mexico is designated as marginal non-attainment. The final rule also establishes the timing of attainment dates for each non-attainment area classification, which are marginal, moderate, serious, severe, or extreme. The rule became effective May 8, 2018. Attainment plans for nonattainment areas are due in August 2021.
NMED has responsibility for bringing the small area in Doña Ana County designated as marginal/non-attainment for ozone into compliance and will look at all sources of NOx and volatile organic compounds. On November 22, 2019, EPA issued findings that several states, including New Mexico, had failed to submit SIPs for the 8-hour ozone NAAQS. In response, in December 2019, NMED published the Public Review Draft of the New Mexico 2013 NAAQS Good Neighbor SIP that outlines the strategies and emissions control measures that are expected to improve air quality in the area by May 8, 2021. These strategies and measures would aim to reduce the amount of NOx and volatile organic compounds emitted to the atmosphere and will rely upon current or upcoming federal rules, new or revised state rules, and other programs. Comments or requests for a public hearing were required by January 21, 2020.
PNM does not believe there will be material impacts to its facilities as a result of NMED’s non-attainment designation of the small area within Doña Ana County. Until EPA approves attainment designations for the Navajo Nation and releases a proposal to implement the revised ozone NAAQS, PNM is unable to predict what impact the adoption of these standards may have on Four Corners. PNM cannot predict the outcome of this matter.
PM Standard – On January 30, 2020, EPA published in the Federal Register a notice announcing the availability of its final Policy Assessment for the Review of the National Ambient Air Quality Standards for Particulate Matter (the "Final PA"). The final assessment was prepared as part of the review of the primary and secondary PM NAAQS. In the assessment, EPA recommend lowering the primary annual PM2.5 standard to between 8 µg/m3 and 10 µg/m3. However, EPA signed a proposed rule on April 14, 2020 to retain the current standards for PM due to uncertainties in the data relied upon in the Final PA. Once the proposed rule is published in the Federal Register, EPA will accept comments for 60 days and anticipates issuing a final rulemaking in late 2020. PNM cannot predict the outcome of this matter or whether it will have a material impact on its financial position, results of operations, or cash flows.
Navajo Nation Environmental Issues
Four Corners is located on the Navajo Nation and is held under easements granted by the federal government, as well as agreements with the Navajo Nation which grant each of the owners the right to operate on the site. The Navajo Acts purport to give the Navajo Nation Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation challenging the applicability of the Navajo Acts to Four Corners. In May 2005, APS and the Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation’s authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement, APS sought, and the court granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts. PNM cannot currently predict the outcome of these matters or the range of their potential impacts.
Cooling Water Intake Structures
In 2014, EPA issued a rule establishing national standards for certain cooling water intake structures at existing power plants and other facilities under the Clean Water Act to protect fish and other aquatic organisms by minimizing impingement mortality (the capture of aquatic wildlife on intake structures or against screens) and entrainment mortality (the capture of fish or shellfish in water flow entering and passing through intake structures).
To minimize impingement mortality, the rule provides operators of facilities, such as SJGS and Four Corners, seven options for meeting Best Technology Available (“BTA”) standards for reducing impingement. SJGS has a closed-cycle recirculating cooling system, which is a listed BTA and may also qualify for the “de minimis rate of impingement” based on the
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design of the intake structure. The permitting authority must establish the BTA for entrainment on a site-specific basis, taking into consideration an array of factors, including endangered species and social costs and benefits. Affected sources must submit source water baseline characterization data to the permitting authority to assist in the determination. Compliance deadlines under the rule are tied to permit renewal and will be subject to a schedule of compliance established by the permitting authority.
The rule is not clear as to how it applies and what the compliance timelines are for facilities like SJGS that have a cooling water intake structure and only a multi-sector general stormwater permit. However, EPA has indicated that it is contemplating a December 31, 2023 compliance deadline. PNM is working with EPA regarding this issue and does not expect material changes as a result of any requirements that may be imposed upon SJGS, particularly given the NMPRC's April 1, 2020 approval for PNM to retire its share of SJGS by June 2022.
On May 23, 2018, several environmental groups sued EPA Region IX in the U.S. Court of Appeals for the Ninth Circuit Court over EPA’s failure to timely reissue the Four Corners NPDES permit. The petitioners asked the court to issue a writ of mandamus compelling EPA Region IX to take final action on the pending NPDES permit by a reasonable date. EPA subsequently reissued the NPDES permit on June 12, 2018. The permit did not contain conditions related to the cooling water intake structure rule as EPA determined that the facility has achieved BTA for both impingement and entrainment by operating a closed-cycle recirculation system. On July 16, 2018, several environmental groups filed a petition for review with EPA’s Environmental Appeals Board concerning the reissued permit. The environmental groups alleged that the permit was reissued in contravention of several requirements under the Clean Water Act and did not contain required provisions concerning certain revised effluent limitation guidelines, existing-source regulations governing cooling-water intake structures, and effluent limits for surface seepage and subsurface discharges from coal-ash disposal facilities. On December 19, 2018, EPA withdrew the Four Corners NPDES permit in order to examine issues raised by the environmental groups. Withdrawal of the permit moots the appeal pending before the Environmental Appeals Board. EPA’s Environmental Appeals Board thereafter dismissed the environmental groups’ appeal. EPA issued an updated NPDES permit on September 30, 2019. The permit has been stayed pending an appeal filed by several environmental groups on November 1, 2019 to EPA's Environmental Appeals Board. PNM cannot predict the outcome of this matter or whether it will have a material impact on PNM’s financial position, results of operations or cash flows.
Effluent Limitation Guidelines
On June 7, 2013, EPA published proposed revised wastewater effluent limitation guidelines establishing technology-based wastewater discharge limitations for fossil fuel-fired electric power plants. EPA’s proposal offered numerous options that target metals and other pollutants in wastewater streams originating from fly ash and bottom ash handling activities, scrubber activities, and non-chemical metal cleaning waste operations. All proposed alternatives establish a “zero discharge” effluent limit for all pollutants in fly ash transport water. Requirements governing bottom ash transport water differ depending on which alternative EPA ultimately chooses and could range from effluent limits based on Best Available Technology Economically Achievable to “zero discharge” effluent limits.
EPA signed the final Steam Electric Effluent Guidelines rule on September 30, 2015. The final rule, which became effective on January 4, 2016, phases in the new, more stringent requirements in the form of effluent limits for arsenic, mercury, selenium, and nitrogen for wastewater discharged from wet scrubber systems and zero discharge of pollutants in ash transport water that must be incorporated into plants’ NPDES permits. Each plant must comply between 2018 and 2023 depending on when it needs a new or revised NPDES permit.
The Effluent Limitations Guidelines rule was challenged in the U.S. Court of Appeals for the Fifth Circuit by numerous parties. On April 12, 2017, EPA signed a notice indicating its intent to reconsider portions of the rule, and on August 22, 2017, the Fifth Circuit issued an order severing the issues under reconsideration and holding the case in abeyance as to those issues. However, the court allowed challenges to other portions of the rule to proceed. On April 12, 2019, the Fifth Circuit granted those challenges and issued an opinion vacating several portions of the rule, specifically those related to legacy wastewater and leachate, for which the court deemed the standards selected by EPA arbitrary and capricious.
On September 18, 2017, EPA published a final rule for postponement of certain compliance dates. The rule postponed the earliest date on which compliance with the effluent limitation guidelines for these waste streams would be required from
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November 1, 2018 until November 1, 2020. Although the new deadlines were challenged in court, the Fifth Circuit rejected those challenges on August 28, 2019. On November 22, 2019, EPA published a proposed rule revising the original Effluent Limitation Guidelines while maintaining the compliance dates. Comments were due January 21, 2020.
Because SJGS is zero discharge for wastewater and is not required to hold a NPDES permit, it is expected that minimal to no requirements will be imposed. Reeves Station, a PNM-owned gas-fired generating station, discharges cooling tower blowdown to a publicly owned treatment plant and holds an NPDES permit. It is expected that minimal to no requirements will be imposed at Reeves Station.
EPA reissued an NPDES permit for Four Corners on June 12, 2018. Since that time, the NPDES permit at Four Corners has been subject to various challenges by environmental groups. See Cooling Water Intake Structures above for additional discussion of Four Corners' current NPDES permit. Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques during the next NPDES permit renewal in 2023. PNM is unable to predict the outcome of these matters or a range of the potential costs of compliance.
Santa Fe Generating Station
PNM and NMED are parties to agreements under which PNM has installed a remediation system to treat water from a City of Santa Fe municipal supply well and an extraction well to address gasoline contamination in the groundwater at the site of PNM’s former Santa Fe Generating Station and service center. A 2008 NMED site inspection report states that neither the source nor extent of contamination at the site has been determined and that the source may not be the former Santa Fe Generating Station. During 2013 and 2014, PNM and NMED collected additional samples that showed elevated concentrations of nitrate and volatile organic compounds in some of the monitoring wells at the site. In addition, one monitoring well contained free-phase hydrocarbon products. PNM collected a sample of the product for “fingerprint” analysis. The results of this analysis indicated the product was a mixture of older and newer fuels. The presence of newer fuels in the sample suggests the hydrocarbon product likely originated from off-site sources. In December 2015, PNM and NMED entered into a memorandum of understanding to address changing groundwater conditions at the site under which PNM agreed to continue hydrocarbon investigation under the supervision of NMED. Qualified costs are eligible for payment through the New Mexico Corrective Action Fund (“CAF”), which is administered by the NMED Petroleum Storage Tank Bureau. In March 2019, PNM received notice from NMED that an abatement plan for the site is required to address concentrations of previously identified compounds, unrelated to those discussed above, found in the groundwater. NMED approved PNM’s abatement plan proposal, which covers field work and reporting.
Field work related to the investigation under both the CAF and abatement plan requirements was completed in October 2019. Activities and findings associated with the field work will be presented in two separate reports, which were released to stakeholders in early 2020. The reports’ conclusions support PNM’s contention that off-site sources have impacted, and are continuing to impact, the local groundwater in the vicinity of the former Santa Fe Generating Station.
The City of Santa Fe has stopped operating its well at the site, which is needed for PNM’s groundwater remediation system to operate. As a result, PNM has stopped performing remediation activities at the site. However, PNM’s monitoring and other abatement activities at the site are ongoing and will continue until the groundwater meets applicable federal and state standards or until the NMED determines remediation is not required, whichever is earlier. PNM is not able to assess the duration of this project or estimate the impact on its obligations if PNM is required to resume groundwater remediation activities at the site. PNM is unable to predict the outcome of these matters.
Coal Combustion Residuals Waste Disposal
CCRs consisting of fly ash, bottom ash, and gypsum generated from coal combustion and emission control equipment at SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCR impoundments or landfills. The NMMMD currently regulates mine reclamation activities at the San Juan mine, including placement of CCRs in the surface mine pits, with federal oversight by the OSM. APS disposes of CCRs in ponds and dry storage areas at Four Corners. Ash management at Four Corners is regulated by EPA and the New Mexico State Engineer’s Office.
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EPA’s final coal ash rule, which became effective on October 19, 2015, included a non-hazardous waste determination for coal ash. The rule was promulgated under Subtitle D of RCRA and sets minimum criteria for existing and new CCR landfills and surface impoundments. On December 16, 2016, the Water Infrastructure Improvements for the Nation Act (the “WIIN Act”) was signed into law to address critical water infrastructure needs in the U.S. and contains a number of provisions related to the CCR rules. Among other things, the WIIN Act allows, but does not require, states to develop and submit CCR permit programs for EPA approval, provides flexibility for states to incorporate EPA’s final rule for CCRs or develop other criteria that are at least as protective as EPA’s final rule, and requires EPA to approve state permit programs within 180 days of submission by the state. Because states are not required to implement their own CCR permit programs, EPA will implement the permit program in states that choose not to implement a program, subject to Congressional funding. Until permit programs are in effect, EPA has authority to directly enforce the CCR rule. For facilities located within the boundaries of Native American reservations, such as the Navajo Nation where Four Corners is located, EPA is required to develop a federal permit program regardless of appropriated funds. There is no timeline for establishing either state or federal permitting programs.
On July 30, 2018, EPA published a rule that constitutes “Phase One, Part One” of its ongoing reconsideration and revision of the April 17, 2015 coal ash rule. The final rule includes two types of revisions. The first revision extended the deadline to allow EGUs with unlined impoundments or that fail to meet the uppermost aquifer requirement to continue to receive coal ash until October 31, 2020. The rule also authorized a “Participating State Director” or EPA to approve suspension of groundwater monitoring and to issue certifications related to the location restrictions, design criteria, groundwater monitoring, remedy selection and implementation. The revisions also modify groundwater protection standards for certain constituents, which include cobalt, molybdenum, lithium, and lead without a maximum contamination level. EPA intends to issue multiple proposed rulemakings with a final rule expected in 2020 that will include the following: (1) deadlines for unlined surface impoundments to cease receiving waste; (2) a “Phase Two” rule to address amendments to the national minimum criteria; and (3) rulemaking for alternative demonstration for unlined surface impoundments with a request for comment on inclusion of legacy units. On August 14, 2019, the “Phase Two” proposed rule was published in the Federal Register with comments due on October 15, 2019. This rule proposes revisions to reporting and accessibility to public information, the definition of CCR piles, the definition of beneficial use, and the requirements for management of CCR piles. A final rule is expected in mid to late 2020. On November 4, 2019, EPA proposed a change to the CCR rule that, subject to EPA authorization for each facility, would allow facilities that have committed to cease burning coal in the near-term to qualify for alternative closure. CCR disposal units at such plants could continue operating even though they would otherwise have been subject to forced closure. On December 2, 2019, EPA published the proposed Part A CCR rule requiring a new date of August 31, 2020 for companies to initiate closure of unlined CCR impoundments and changing the classification of compacted soil-lined or clay-lined surface impoundments from “lined” to “unlined”. On February 20, 2020, EPA published a proposed rule establishing a federal permitting program for the handling of CCR within the boundaries of Native American reservations and in states without their own federally authorized state programs. Permits for units within the boundaries of Native American reservations would be due 18 months after the effective date of the rule. Comments are due on May 20, 2020. The final rule is expected in mid to late 2020. PNM cannot predict the outcome of EPA’s rule making activity or the outcome of any related litigation, and whether or how such a ruling would affect operations at Four Corners.
The CCR rule does not cover mine placement of coal ash. OSM is expected to publish a proposed rule covering mine placement in the future and will likely be influenced by EPA’s rule and the determination by EPA that CCRs are non-hazardous. PNM cannot predict the outcome of OSM’s proposed rulemaking regarding CCR regulation, including mine placement of CCRs, or whether OSM’s actions will have a material impact on PNM’s operations, financial position, or cash flows. Based upon the requirements of the final rule, PNM conducted a CCR assessment at SJGS and made minor modifications at the plant to ensure that there are no facilities that would be considered impoundments or landfills under the rule. PNM would seek recovery from its ratepayers of all CCR costs for retail jurisdictional assets that are ultimately incurred. PNM does not expect the rule to have a material impact on operations, financial position, or cash flows.
As indicated above, CCRs at Four Corners are currently disposed of in ash ponds and dry storage areas. The CCR rule requires ongoing, phased groundwater monitoring. Utilities that own or operate CCR disposal units, such as those at Four Corners were required to collect sufficient groundwater sampling data to initiate a detection monitoring program. Four Corners completed the analysis for its CCR disposal units, which identified several units that will need corrective action or will need to cease operations and initiate closure by October 31, 2020 under current regulations. As part of this assessment, Four Corners
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will continue to gather additional groundwater data and perform remedial evaluations. At this time, PNM does not anticipate its share of the cost to complete these corrective actions, to close the CCR disposal units, or to gather and perform remedial evaluations on groundwater at Four Corners will have a significant impact on its operations, financial position, or cash flows.
Other Commitments and Contingencies
Coal Supply
SJGS
The coal requirements for SJGS are supplied by WSJ LLC. WSJ LLC holds certain federal, state, and private coal leases. In addition to coal delivered to meet the current needs of SJGS, PNM has prepaid the current San Juan mine owner and operator, WSJ LLC, for certain coal mined but not yet delivered to the plant site. At both March 31, 2020 and December 31, 2019, prepayments for coal, which are included in other current assets, amounted to $26.3 million. Additional information concerning the coal supply for SJGS is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
In conjunction with the activities undertaken to comply with the CAA for SJGS, PNM and the other owners of SJGS evaluated alternatives for the supply of coal to SJGS. On July 1, 2015, PNM and Westmoreland entered into a new coal supply agreement (the “SJGS CSA”), pursuant to which Westmoreland, through its indirectly wholly-owned subsidiary SJCC, agreed to supply all of the coal requirements of SJGS through June 30, 2022. PNM and Westmoreland also entered into agreements under which CCR disposal and mine reclamation services for SJGS would be provided. As discussed in Note 6, with the closing of the sale of the assets of SJCC on March 15, 2019, WSJ LLC assumed the rights and obligations of SJCC under the SJGS CSA and the agreements for CCR disposal and mine reclamation services. Pricing under the SJGS CSA is primarily fixed, with adjustments to reflect changes in general inflation. The pricing structure takes into account that WSJ LLC has been paid for coal mined but not delivered.
PNM had the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In 2018, PNM, Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022 and Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. On November 30, 2018, PNM provided notice to Westmoreland that PNM does not intend to extend the term of the SJGS CSA or to negotiate a new coal supply agreement for SJGS, which will result in the current agreement expiring on its own terms on June 30, 2022. See additional discussion of PNM’s SJGS Abandonment Application in Note 12.
In connection with certain mining permits relating to the operation of the San Juan mine, the San Juan mine owner was required to post reclamation bonds of $118.7 million with the NMMMD. In order to facilitate the posting of reclamation bonds by sureties on behalf of the San Juan mine owner, PNMR entered into letter of credit arrangements with a bank under which letters of credit aggregating $30.3 million have been issued. As discussed in Note 6, on March 15, 2019, the assets owned by SJCC were sold to WSJ LLC, a subsidiary of Westmoreland Mining Holdings, LLC. Under the sale agreement, WSJ LLC assumed the rights and obligations of SJCC, including obligations to PNMR under the outstanding letters of credit.
Four Corners
APS purchases all of Four Corners’ coal requirements from NTEC, an entity owned by the Navajo Nation, under a coal supply contract (the “Four Corners CSA”) that expires in 2031. The coal comes from reserves located within the Navajo Nation. NTEC has contracted with Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, for management and operation of the mine. The contract provides for pricing adjustments over its term based on economic indices. PNM's share of the coal costs is being recovered through the FPPAC. See additional discussion of the Four Corners CSA in Note 17 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
Coal Mine Reclamation
As indicated under Coal Combustion Residuals Waste Disposal above, SJGS currently disposes of CCRs in the surface mine pits adjacent to the plant and Four Corners disposes of CCRs in ponds and dry storage areas. As discussed in Note 16 of
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(Unaudited)
the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, in conjunction with the proposed shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, periodic updates to the coal mine reclamation study were requested by the SJGS participants. These updates have generally increased PNM's share of the estimated cost of mine reclamation and have included adjustments to reflect the December 2017 shutdown of SJGS Units 2 and 3, the terms of the reclamation services agreement with WSJ LLC, and changes to reflect the requirements of the 2015 San Juan mine permit plan.
In December 2018, PNM remeasured its liability for coal mine reclamation for the mine that serves SJGS to reflect that reclamation activities may occur beginning in 2022, rather than in 2053 as previously anticipated. This estimate resulted in an increase in overall reclamation costs of $39.2 million due to an increase in the amount of fill dirt required to remediate the mine areas and the timing of activities necessary to reclaim the mine that serves SJGS. The increase includes costs for both the underground and surface mines that serve SJGS. PNM recovers from retail customers reclamation costs associated with the underground mine. However, the NMPRC has capped the amount that can be collected from retail customers for final reclamation of the surface mines at $100.0 million. As a result, PNM recorded $9.4 million of the increase in the liability related to the underground mine in regulatory assets on the Condensed Consolidated Balance Sheets and received recovery for such costs in its SJGS Abandonment Application. See Note 12. PNM’s estimate of the costs necessary to reclaim the mine that serves SJGS is subject to many assumptions, including the timing of reclamation, generally accepted practices at the time reclamation activities occur, and then current inflation and discount rates. PNM cannot predict the ultimate cost to reclaim the mine that serves SJGS and would seek to recover all costs related to reclaiming the underground mine from its customers but could be exposed to additional loss related to surface mine reclamation.
A draft coal mine reclamation study for the mine that serves Four Corners was issued in July 2019. The study reflected operation of the mine through 2031, the term of the Four Corners CSA. In June 2019, the draft study resulted in a net decrease in PNM’s share of the coal mine reclamation obligation of $0.3 million, which was primarily driven by lower overhead costs offset by an increase driven by a reduction in the discount rate used by PNM to measure the liability. In September 2019, the study was finalized and included the same assumptions used in the draft study with limited modifications. PNM updated its liability using the final study and to reflect the appropriate discount rates, which had decreased since PNM’s prior measurement. These updates resulted in an increase to PNM’s share of the coal mine reclamation obligation for the mine that serves Four Corners of $1.1 million during the three months ended September 30, 2019.
Based on the most recent estimates and PNM’s ownership share of SJGS, PNM’s remaining payments as of March 31, 2020 for mine reclamation, in future dollars, are estimated to be $91.6 million for the surface mines at both SJGS and Four Corners and $40.0 million for the underground mine at SJGS. At March 31, 2020 and December 31, 2019, liabilities, in current dollars, of $70.1 million and $70.3 million for surface mine reclamation and $25.8 million and $25.3 million for underground mine reclamation were recorded in other deferred credits.
Under the terms of the SJGS CSA, PNM and the other SJGS owners are obligated to compensate WSJ LLC for all reclamation costs associated with the supply of coal from the San Juan mine. The SJGS owners entered into a reclamation trust funds agreement to provide funding to compensate WSJ LLC for post-term reclamation obligations. As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, as part of the restructuring of SJGS ownership the SJGS owners negotiated the terms of an amended agreement to fund post-term reclamation obligations under the CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable reclamation trust, and periodically deposit funds into the reclamation trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. PNM funded $5.5 million in December 2019. Based on PNM’s reclamation trust fund balance at March 31, 2020, the current funding curves indicate PNM’s required contributions to its reclamation trust fund would be $10.0 million in 2020, $10.9 million in 2021, and $11.7 million in 2022.
Under the Four Corners CSA, which became effective on July 7, 2016, PNM is required to fund its ownership share of estimated final reclamation costs in annual installments into an irrevocable escrow account solely dedicated to the final reclamation cost of the surface mine at Four Corners. PNM contributed $2.3 million in July 2019 and anticipates providing additional funding of $1.9 million in each of the years from 2020 through 2024.
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(Unaudited)
If future estimates increase the liability for surface mine reclamation, the excess would be expensed at that time. The impacts of changes in New Mexico state law as a result of the enactment of the ETA and regulatory determinations made by the NMPRC may also affect PNM’s financial position, results of operations, and cash flows. See additional discussion regarding PNM’s SJGS Abandonment Application in Note 12. PNM is currently unable to determine the outcome of these matters or the range of possible impacts.
Continuous Highwall Mining Royalty Rate
In August 2013, the DOI Bureau of Land Management (“BLM”) issued a proposed rulemaking that would retroactively apply the surface mining royalty rate of 12.5% to continuous highwall mining (“CHM”). Comments regarding the rulemaking were due on October 11, 2013 and PNM submitted comments in opposition to the proposed rule. There is no legal deadline for adoption of the final rule.
SJCC, as former owner and operator of San Juan mine, utilized the CHM technique from 2000 to 2003, and with the approval of the Farmington, New Mexico Field Office of BLM to reclassify the final highwall as underground reserves, applied the 8.0% underground mining royalty rate to coal mined using CHM and sold to SJGS. In March 2001, SJCC learned that the DOI Minerals Management Service (“MMS”) disagreed with the application of the underground royalty rate to CHM. In August 2006, SJCC and MMS entered into an agreement tolling the statute of limitations on any administrative action to recover unpaid royalties until BLM issued a final, non-appealable determination as to the proper rate for CHM-mined coal. The proposed BLM rulemaking has the potential to terminate the tolling provision of the settlement agreement. Underpaid royalties of approximately $5 million for SJGS would become due if the proposed BLM rule is adopted as proposed. PNM’s share of any amount that is ultimately paid would be approximately 46.3%, none of which would be passed through PNM’s FPPAC. PNM is unable to predict the outcome of this matter.
PVNGS Liability and Insurance Matters
Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both commercial sources and an industry-wide retrospective payment plan. In accordance with this act, the PVNGS participants are insured against public liability exposure for a nuclear incident up to $13.9 billion per occurrence. PVNGS maintains the maximum available nuclear liability insurance in the amount of $450 million, which is provided by American Nuclear Insurers. The remaining $13.5 billion is provided through a mandatory industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, PNM could be assessed retrospective premium adjustments. Based on PNM’s 10.2% interest in each of the three PVNGS units, PNM’s maximum potential retrospective premium assessment per incident for all three units is $42.1 million, with a maximum annual payment limitation of $6.2 million, to be adjusted periodically for inflation.
The PVNGS participants maintain insurance for damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.8 billion, a substantial portion of which must first be applied to stabilization and decontamination. These coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). The primary policy offered by NEIL contains a sublimit of $2.25 billion for non-nuclear property damage. If NEIL’s losses in any policy year exceed accumulated funds, PNM is subject to retrospective premium adjustments of $5.4 million for each retrospective premium assessment declared by NEIL’s Board of Directors due to losses. The insurance coverages discussed in this and the previous paragraph are subject to certain policy conditions, sublimits, and exclusions.
Water Supply
Because of New Mexico’s arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. Although PNM does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast long-term weather patterns. Public policy, local, state and federal regulations, and litigation regarding water could also impact PNM operations. To help mitigate these risks, PNM has secured permanent groundwater rights for the existing plants at Reeves Station, Rio Bravo, Afton, Luna, Lordsburg, and La Luz. Water availability is not an issue for these plants at this time. However, prolonged drought, ESA activities, and a federal lawsuit by
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(Unaudited)
the State of Texas (suing the State of New Mexico over water deliveries) could pose a threat of reduced water availability for these plants.
For SJGS and Four Corners, PNM and APS have negotiated an agreement with senior water rights holders (tribes, municipalities, and agricultural interests) in the San Juan basin to mutually share the impacts of water shortages through 2021.
In April 2010, APS signed an agreement on behalf of the PVNGS participants with five cities to provide cooling water essential to power production at PVNGS for 40 years.
PVNGS Water Supply Litigation
In 1986, an action commenced regarding the rights of APS and the other PVNGS participants to the use of groundwater and effluent at PVNGS. APS filed claims that dispute the court’s jurisdiction over PVNGS’ groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In 1999, the Arizona Supreme Court issued a decision finding that certain groundwater rights may be available to the federal government and Native American tribes. In addition, the Arizona Supreme Court issued a decision in 2000 affirming the lower court’s criteria for resolving groundwater claims. Litigation on these issues has continued in the trial court. No trial dates have been set in these matters. PNM does not expect that this litigation will have a material impact on its results of operation, financial position, or cash flows.
San Juan River Adjudication
In 1975, the State of New Mexico filed an action in NM District Court to adjudicate all water rights in the San Juan River Stream System, including water used at Four Corners and SJGS. PNM was made a defendant in the litigation in 1976. In March 2009, then President Obama signed legislation confirming a 2005 settlement with the Navajo Nation. Under the terms of the settlement agreement, the Navajo Nation’s water rights would be settled and finally determined by entry by the court of two proposed adjudication decrees. The court issued an order in August 2013 finding that no evidentiary hearing was warranted in the Navajo Nation proceeding and, on November 1, 2013, issued a Partial Final Judgment and Decree of the Water Rights of the Navajo Nation approving the proposed settlement with the Navajo Nation. A number of parties subsequently appealed to the New Mexico Court of Appeals. PNM entered its appearance in the appellate case and supported the settlement agreement in the NM District Court. On April 3, 2018, the New Mexico Court of Appeals issued an order affirming the decision of the NM District Court. Several parties filed motions requesting a rehearing with the New Mexico Court of Appeals seeking clarification of the order, which were denied. The State of New Mexico and various other appellants filed a writ of certiorari with the NM Supreme Court. The NM Supreme Court granted the State of New Mexico’s petition and denied the other parties’ requests. The issues regarding the Navajo Nation settlement have been briefed and are awaiting a decision by the NM Supreme Court. Adjudication of non-Indian water rights is ongoing.
PNM is participating in this proceeding since PNM’s water rights in the San Juan Basin may be affected by the rights recognized in the settlement agreement and adjudicated to the Navajo Nation, which comprise a significant portion of water available from sources on the San Juan River and in the San Juan Basin and which have priority in times of shortages. PNM is unable to predict the ultimate outcome of this matter or estimate the amount or range of potential loss and cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. Final resolution of the case cannot be expected for several years. An agreement reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.
Rights-of-Way Matter
On January 28, 2014, the County Commission of Bernalillo County, New Mexico passed an ordinance requiring utilities to enter into a use agreement and pay a yet-to-be-determined fee as a condition to installing, maintaining, and operating facilities on county rights-of-way. The fee is purported to compensate the county for costs of administering and maintaining the rights-of-way, as well as for capital improvements. After extensive challenges to the validity of the ordinance, the utilities filed a writ of certiorari with the NM Supreme Court, which was denied. The utilities and Bernalillo County had reached a standstill agreement whereby the county would not take any enforcement action against the utilities pursuant to the ordinance during the
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(Unaudited)
pendency of then pending litigation, but not including any period for appeal of a judgment, or upon 30 days written notice by either the county or the utilities of their intention to terminate the agreement. After court-ordered settlement discussions, PNM and Bernalillo County executed a franchise fee agreement with a term of 15 years. Under the agreement, PNM will pay franchise fees to the county at an amount similar to those paid by PNM in other jurisdictions. PNM will recover the cost of the franchise fees as a direct pass-through to customers located in Bernalillo County. The agreement is subject to approval by the New Mexico Second District Court in Bernalillo County. PNM cannot predict the outcome of this matter.
Navajo Nation Allottee Matters
In September 2012, 43 landowners filed a notice of appeal with the Bureau of Indian Affairs (“BIA”) appealing a March 2011 decision of the BIA Regional Director regarding renewal of a right-of-way for a PNM transmission line. The landowners claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes Act of 1887, were allotted ownership in land carved out of the Navajo Nation and allege that PNM is a rights-of-way grantee with rights-of-way across the allotted lands and are either in trespass or have paid insufficient fees for the grant of rights-of-way or both. The allottees generally allege that they were not paid fair market value for the right-of-way, that they were denied the opportunity to make a showing as to their view of fair market value, and thus denied due process. The allottees filed a motion to dismiss their appeal with prejudice, which was granted in April 2014. Subsequent to the dismissal, PNM received a letter from counsel on behalf of what appears to be a subset of the 43 landowner allottees involved in the appeal, notifying PNM that the specified allottees were revoking their consents for renewal of right of way on six specific allotments. On January 22, 2015, PNM received a letter from the BIA Regional Director identifying ten allotments with rights-of-way renewals that were previously contested. The letter indicated that the renewals were not approved by the BIA because the previous consent obtained by PNM was later revoked, prior to BIA approval, by the majority owners of the allotments. It is the BIA Regional Director’s position that PNM must re-obtain consent from these landowners. On July 13, 2015, PNM filed a condemnation action in the NM District Court regarding the approximately 15.49 acres of land at issue. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. On December 1, 2015, the court ruled that PNM could not condemn two of the five allotments at issue based on the Navajo Nation’s fractional interest in the land. PNM filed a motion for reconsideration of this ruling, which was denied. On March 31, 2016, the Tenth Circuit granted PNM’s petition to appeal the December 1, 2015 ruling. Both matters have been consolidated. Oral argument before the Tenth Circuit was heard on January 17, 2017. On May 26, 2017, the Tenth Circuit affirmed the district court. On July 8, 2017, PNM filed a Motion for Reconsideration en banc with the Tenth Circuit, which was denied. The NM District Court stayed the case based on the Navajo Nation’s acquisition of interests in two additional allotments and the unresolved ownership of the fifth allotment due to the owner’s death. On November 20, 2017, PNM filed its petition for writ of certiorari with the US Supreme Court, which was denied. The underlying litigation continues in the NM District Court. On March 27, 2019, several individual allottees filed a motion for partial summary judgment on the issue of trespass. The Court held a hearing on the motion on June 18, 2019 and took the motion under advisement. Mediation on the matter is ongoing and parties are continuing to discuss a potential settlement. PNM cannot predict the outcome of these matters.
(12) Regulatory and Rate Matters
The Company is involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 11. Additional information concerning regulatory and rate matters is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
PNM
New Mexico General Rate Cases
New Mexico 2015 General Rate Case (“NM 2015 Rate Case”)
On August 27, 2015, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposed a revenue increase of $123.5 million, including base non-fuel revenues of $121.7 million, and proposed that new rates become effective beginning in July 2016. The NMPRC ordered PNM to file additional testimony regarding
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(Unaudited)
PNM’s interests in PVNGS, including the 64.1 MW of PVNGS Unit 2 that PNM repurchased in January 2016 pursuant to the terms of the initial sales-leaseback transactions.
In August 2016, the Hearing Examiner in the case issued a recommended decision (the “August 2016 RD”). The August 2016 RD, among other things, recommended that the NMPRC find PNM was imprudent in the actions taken to purchase the previously leased 64.1 MW of capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing the BDT equipment on SJGS Units 1 and 4. As a result, the August 2016 RD recommended the NMPRC disallow recovery of the entire $163.3 million purchase price for the January 15, 2016 purchases of the assets underlying three leases aggregating 64.1 MW of PVNGS Unit 2, the undepreciated capital improvements made during the period the 64.1 MW of purchased capacity was leased, rent expense aggregating $18.1 million annually for leases aggregating 114.6 MW of capacity that were extended through January 2023 and 2024 (Note 13), and recovery of the costs of converting SJGS Units 1 and 4 to BDT.
On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in non-fuel rates of $61.2 million, effective for bills sent to customers after September 30, 2016. The order generally approved the August 2016 RD, but with certain significant modifications. The modifications to the August 2016 RD included:
•Inclusion of the January 2016 purchase of the assets underlying three leases of capacity, aggregating 64.1 MW, of PVNGS Unit 2 at an initial rate base value of $83.7 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which aggregated $43.8 million when the order was issued
•Recovery of annual rent expenses associated with the 114.6 MW of capacity under the extended leases
•Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity purchased in January 2016 and the 114.6 MW of capacity under the extended leases
On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. Specifically, PNM appealed the NMPRC’s determination that PNM was imprudent in certain matters in the case, including the NMPRC’s disallowance of the full purchase price of the 64.1 MW of capacity in PVNGS Unit 2, the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM, the cost of converting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to the 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases. NEE, NM AREA, and ABCWUA filed notices of cross-appeal to PNM’s appeal. The issues appealed by the various cross-appellants included, among other things, the NMPRC allowing PNM to recover any of the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and the purchase price for the 64.1 MW in PVNGS Unit 2, the costs incurred under the Four Corners CSA, and the inclusion of the “prepaid pension asset” in rate base.
During the pendency of the appeal, PNM evaluated the consequences of the order in the NM 2015 Rate Case and the related appeals to the NM Supreme Court as required under GAAP. These evaluations indicated that it was reasonably possible that PNM would be successful on the issues it was appealing but would not be provided capital costs recovery until the NMPRC acted on a decision of the NM Supreme Court. PNM also evaluated the accounting consequences of the issues being appealed by the cross-appellants and concluded that the issues raised in the cross-appeals did not have substantial merit.
In accordance with GAAP, PNM periodically updated its estimate of the amount of time necessary for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. As a result of those evaluations, through March 31, 2019, PNM had recorded accumulated pre-tax impairments of its capital investments subject to the appeal in the amount of $19.7 million.
On May 16, 2019, the NM Supreme Court issued its decision on the matters that had been appealed in the NM 2015 Rate Case. The NM Supreme Court rejected the matters appealed by the cross-appellants and affirmed the NMPRC’s disallowance of a portion of the purchase price of the 64.1 MW of capacity in PVNGS Unit 2; the undepreciated costs of capital improvements made during the time the 64.1 MW capacity was leased by PNM; and the costs to install BDT at SJGS Units 1 and 4. The NM Supreme Court also ruled that the NMPRC’s decision to permanently disallow recovery of future decommissioning costs related to the 64.1 MW of PVNGS Unit 2 and the 114.6 MW of PVNGS Units 1 and 2 deprived PNM of its rights to due process of law and remanded the case to the NMPRC for further proceedings consistent with the court’s
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(Unaudited)
findings. On January 8, 2020, the NMPRC issued its order on remand, which reaffirmed its September 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.
As a result of the NM Supreme Court’s ruling, as of June 30, 2019, PNM recorded pre-tax impairments of $150.6 million, which included $1.3 million recorded in the three months ended March 31, 2019, and is reflected as regulatory disallowances and restructuring costs on the Condensed Consolidated Statements of Earnings. The impairment includes $73.2 million for a portion of the purchase price for 64.1 MW in PVNGS Unit 2, $39.7 million of undepreciated capitalized improvements made during the period the 64.1 MW was being leased by PNM, and $37.7 million for BDT on SJGS Units 1 and 4. The impairment was offset by tax impacts of $45.7 million.
New Mexico 2016 General Rate Case (“NM 2016 Rate Case”)
On December 7, 2016, PNM filed an application with the NMPRC for a general increase in retail electric rates. PNM did not include any of the costs disallowed in the NM 2015 Rate Case that were at issue in its then pending appeal to the NM Supreme Court. PNM’s original application used a FTY beginning January 1, 2018 and requested an increase in base non-fuel revenues of $99.2 million based on a ROE of 10.125%. The primary drivers of PNM’s revenue deficiency included implementation of modifications to PNM’s resource portfolio, which were approved by the NMPRC in December 2015 as part of the SJGS regional haze compliance plan, infrastructure investments, including environmental upgrades at Four Corners, declines in forecasted energy sales due to successful energy efficiency programs and other economic factors, and updates to FERC/retail jurisdictional allocations.
After extensive settlement negotiations and public proceedings, the NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 10, 2018 (the “Revised Order”). The key terms of the Revised Order include:
•An increase in base non-fuel revenues totaling $10.3 million, which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM’s cost of debt (aggregating an estimated $47.6 million annually)
•A ROE of 9.575%
•Returning to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate to the extent attributable to PNM’s retail operations (Note 14)
•Disallowing PNM’s ability to collect an equity return on certain investments aggregating $148.1 million at Four Corners, but allowing recovery with a debt-only return
•An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
•A requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners in PNM's next general rate case filing
In accordance with the settlement agreement and the NMPRC’s final order, PNM implemented 50% of the approved increase for service rendered beginning February 1, 2018 and implemented the rest of the increase for service rendered beginning January 1, 2019.
Renewable Portfolio Standard
As discussed in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, the ETA was enacted in June 2019. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also removes diversity requirements and certain customer caps and exemptions relating to the application of the RPS under the REA.
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(Unaudited)
The REA provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures that utilities recover costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. The ETA sets a RCT of $60 per MWh using an average annual levelized resource cost basis. PNM makes renewable procurements consistent with the NMPRC approved plans. PNM recovers certain renewable procurement costs from customers through a rate rider. See Renewable Energy Rider below.
Included in PNM’s approved procurement plans are the following renewable energy resources:
•157 MW of PNM-owned solar-PV facilities
•A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of 204 MW, and a PPA through 2035 for the output of Red Mesa Wind, having an aggregate capacity of 102 MW
•A PPA through 2040 for 140 MW of output from La Joya Wind, which is expected to be operational by December 31, 2020
•A PPA through 2042 for the output of the Lightning Dock Geothermal facility with a current capacity of 15 MW
•Solar distributed generation, aggregating 133.0 MW at March 31, 2020, owned by customers or third parties from whom PNM purchases any net excess output and RECs
Renewable Energy Rider
The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per KWh basis. In its 2019 renewable energy procurement plan case, which was approved by the NMPRC on November 28, 2018, PNM proposed to collect $49.6 million for the year. The 2019 renewable energy procurement plan became effective on January 1, 2019. PNM recorded revenues from the rider of $15.1 million and $12.7 million in the three months ended March 31, 2020 and 2019. In its 2020 renewable energy procurement plan case, PNM proposed to collect $58.9 million through a revised rate rider beginning in 2020. In addition, PNM proposed that its FPPAC be reset from a July 1 through June 30 fiscal year to a calendar year. The NMPRC approved PNM's 2020 renewable energy procurement plan on January 29, 2020. The revised rate rider became effective on February 1, 2020.
Under the renewable rider, if PNM’s earned rate of return on jurisdictional equity in a calendar year, adjusted for items not representative of normal operations, exceeds the NMPRC-approved rate by 0.5%, PNM is required to refund the excess to customers during May through December of the following year. PNM did not exceed such limitation in 2019.
Energy Efficiency and Load Management
Program Costs and Incentives/Disincentives
The New Mexico Efficient Use of Energy Act (“EUEA”) requires public utilities to achieve specified levels of energy savings and to obtain NMPRC approval to implement energy efficiency and load management programs. The EUEA requires the NMPRC to remove utility disincentives to implementing energy efficiency and load management programs and to provide incentives for such programs. The NMPRC has adopted a rule to implement this act. PNM’s costs to implement approved programs and incentives are recovered through a rate rider. During the 2019 New Mexico legislative session, the EUEA was amended to, among other things, include a decoupling mechanism for disincentives, preclude a reduction to a utility’s ROE based on approval of disincentive or incentive mechanisms, establish energy savings targets for the period 2021 through 2025, and require that annual program funding be 3% to 5% of an electric utility's annual customer bills excluding gross receipt taxes, franchise and right-of-way access fees, provided that a customer's annual cost not exceed seventy-five thousand dollars.
In 2019, PNM submitted a filing to address incentives to be earned in 2020. PNM’s proposed incentive mechanism is similar to that approved for 2018 and 2019 with minor modifications to reflect input from interested parties. The proposed incentive mechanism includes a base incentive of 7.1% of program costs, or approximately $1.8 million, based on savings of 59 GWh in 2020 with a sliding scale that provides for additional incentive if savings exceed 68 GWh. No hearings were considered necessary and PNM’s 2020 energy efficiency rider reflecting the 2020 incentive became effective beginning December 30, 2019.
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(Unaudited)
On April 15, 2020, PNM filed an application for energy efficiency and load management programs to be offered in 2021, 2022, and 2023. The proposed program portfolio consists of twelve programs with a total annual budget of $31.4 million in 2021, $31.0 million in 2022, and $29.6 million in 2023. The application also seeks approval of an annual base incentive of 7.1% of the portfolio budget if PNM achieves energy savings of at least 80 GWh in a year. The proposed incentive would increase if PNM is able to achieve savings greater than 80 GWh in a year. The application also proposes an advanced metering infrastructure (“AMI”) pilot program, which includes the installation of 5,000 AMI meters at a cost of $2.9 million. PNM is proposing the pilot program to comply with an NMPRC order denying PNM’s February 2016 application to replace its existing customer metering equipment with AMI. PNM cannot predict the outcome of this matter.
Integrated Resource Plans
NMPRC rules require that investor owned utilities file an IRP every three years. The IRP is required to cover a 20-year planning period and contain an action plan covering the first four years of that period.
2017 IRP
PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP addresses the 20-year planning period from 2017 through 2036 and includes an action plan describing PNM’s plan to implement the 2017 IRP in the four-year period following its filing. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP included, among other things, that retiring PNM’s share of SJGS in 2022 and existing ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. See additional discussion of PNM’s leased capacity in PVNGS below and in Note 13. PNM's 2017 IRP was subject to extensive hearings and legal challenges and was accepted as compliant with the applicable statute and rules by the NMPRC on December 19, 2018, with further consideration being denied.
As discussed below, on July 1, 2019, PNM submitted its SJGS Abandonment Application with the NMPRC requesting approval to retire SJGS in 2022, for replacement resources, and for issuance of Securitized Bonds under the ETA. Many of the assumptions and findings included in PNM’s July 1, 2019 filing were consistent with those identified in PNM’s 2017 IRP. The SJGS Abandonment Application and the 2017 IRP are not final determinations of PNM’s future generation portfolio. PNM will also be required to obtain NMPRC approval of an exit from Four Corners, which PNM will seek at an appropriate time in the future. Likewise, NMPRC approval of new generation resources through CCNs, PPAs, or other applicable filings will be required.
2020 IRP
In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. PNM will continue to seek input from interested parties as a part of this process. NMPRC rules require PNM to file its 2020 IRP in July 2020. On March 16, 2020, PNM filed a motion to extend the deadline to file its 2020 IRP to six months after the NMPRC issues a final order approving a replacement resource portfolio and closes the docket in the bifurcated SJGS Abandonment Application and replacement resource proceedings. On April 8, 2020, the NMPRC approved PNM's motion to extend the deadline to file its 2020 IRP as requested.
SJGS Abandonment Application
As discussed in Note 16 of the Notes to the Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, on March 22, 2019, the Governor signed into New Mexico state law Senate Bill 489, known as the Energy Transition Act (“ETA”). The ETA became effective as of June 14, 2019 and sets a statewide standard that requires investor-owned electric utilities to have specified percentages of their electric-generating portfolios be from renewable and zero-carbon generating resources. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and
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(Unaudited)
requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also provides for a transition from fossil-fuel generation resources to renewable and other carbon-free resources through certain provisions relating to the abandonment of coal-fired generating facilities. These provisions include the use of “energy transition bonds,” which are designed to be highly rated bonds that can be issued to finance certain costs of abandoning coal-fired facilities that are retired prior to January 1, 2023 for facilities operated by a “qualifying utility,” or prior to January 1, 2032 for facilities that are not operated by the qualifying utility.
On July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment Application”). The SJGS Abandonment Application seeks NMPRC approval to retire PNM’s share of SJGS after the existing coal supply and participation agreements end in June 2022, for approval of replacement resources, and for the issuance of “energy transition bonds,” as provided by the ETA. PNM’s application proposes several replacement resource scenarios including PNM’s recommended replacement scenario, which would provide cost savings to customers compared to continued operation of SJGS, preserves system reliability, and is consistent with PNM’s plan to have an emissions-free generation portfolio by 2040. This plan would provide PNM authority to construct and own a 280 MW natural gas-fired peaking plant to be located on the existing SJGS facility site, and 70 MW of battery storage facilities. In addition, PNM’s recommended replacement resource scenario would allow PNM to execute PPAs to procure renewable energy from a total of 350 MW of solar-PV generating facilities and for energy from a total of 60 MW of battery storage facilities. PNM’s application included three other replacement resource scenarios that would place a greater amount of resources in the San Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. When compared to PNM's recommended replacement resource scenario, the three alternative resource scenarios are expected to result in increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities are expected to not provide adequate system reliability. The SJGS Abandonment Application also includes a request to issue approximately $361 million of energy transition bonds (the “Securitized Bonds”). PNM’s request for the issuance of Securitized Bonds includes approximately $283 million of forecasted undepreciated investments in SJGS at June 30, 2020, an estimated $28.6 million for plant decommissioning and coal mine reclamation costs, approximately $9.6 million in upfront financing costs, and approximately $20.0 million for job training and severance costs for affected employees. Proceeds from the Securitization Bonds would also be used to fund approximately $19.8 million for economic development in the four corners area.
On July 10, 2019, the NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related financing, and the other addressing replacement resources. The NMPRC indicated that PNM’s July 1, 2019 filing is responsive to the January 30, 2019 order but did not definitively indicate if the abandonment and financing proceedings will be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months.
After several requests for clarification and legal challenges and following oral argument on January 29, 2020, the NM Supreme Court issued a ruling requiring the NMPRC to apply the ETA to all aspects of PNM’s SJGS Abandonment Application, indicating any previous NMPRC orders inconsistent with the ruling should be vacated, and denying parties’ request for stay. Hearings on the abandonment and securitized financing proceedings were held in December 2019 and hearings on replacement resources were held in January 2020.
On February 21, 2020, the Hearing Examiners issued two recommended decisions recommending approval of PNM’s proposed abandonment of SJGS, subject to approval of replacement resources, and approval of PNM’s proposed financing order to issue Securitized Bonds. The Hearing Examiners recommended that PNM be authorized to abandon SJGS by June 30, 2022, and to record regulatory assets for certain other abandonment costs that are not specifically addressed under the provisions of the ETA. The Hearing Examiners also recommended PNM be authorized to issue Securitized Bonds of up to $361 million and establish a rate rider to collect non-bypassable customer charges for repayment of the bonds and be subject to bi-annual adjustments (the “Energy Transition Charge”). The Hearing Examiners recommended an interim rate rider adjustment upon the start date of the Energy Transition Charge to provide immediate credits to customers for the full value of PNM’s revenue requirement related to SJGS until those reductions are reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that PNM will pay prior to the issuance of the Securitized Bonds, including costs associated with the bond issuances as well as for severances, job training,
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(Unaudited)
economic development, and workforce training. On April 1, 2020, the NMPRC unanimously approved the Hearing Examiners' recommended decisions regarding the abandonment of SJGS and the related securitized financing under the ETA. On April 10, 2020, CFRE and NEE filed a notice of appeal with the NM Supreme Court of the NMPRC's approval of PNM's request to issue securitized financing under the ETA. Pursuant to NM Supreme Court rules, CFRE and NEE must file their statement of issues by May 10, 2020.
On March 27, 2020, the Hearing Examiners issued a partial recommended decision on PNM’s request for approval of replacement resources recommending that the NMPRC bifurcate consideration of PNM’s requested replacement resources. The Hearing Examiners recommend that the NMPRC approve two of PNM’s requested replacement resources, including the 300 MW solar PPA combined with a 40 MW battery storage agreement and the 50 MW solar PPA combined with a 20 MW battery storage agreement. The Hearing Examiners recommended that the two solar and battery procurements be approved first because they are the most cost-effective resources proposed in the case, are supported by the majority of parties, and the economics of the projects will be in jeopardy if approval is delayed past April 30, 2020. The Hearing Examiners recommended that PNM be permitted to recover the energy costs of these PPAs through its FPPAC, and that PNM should recover the demand cost of the energy storage agreements in base rates in a future general rate case. The Hearing Examiners indicated they will issue a separate order addressing the remainder of PNM’s requested replacement resource approvals. On April 29, 2020, the NMPRC issued an order declining to bifurcate a determination on replacement resources and deferring final consideration until the issuance of a comprehensive recommended decision addressing the entire portfolio of replacement resources. The NMPRC is required to issue an order on the SJGS replacement resources by September 2020.
PNM evaluated the consequences of the NMPRC's April 1, 2020 orders approving the abandonment of SJGS and the related issuance of Securitized Bonds under GAAP. This evaluation indicated that it is probable that PNM will be required to fund severances for PNM employees at the facility upon its retirement in 2022 and for PNMR shared services employees providing administrative and other support services to SJGS. In addition, the evaluation indicated that it is probable PNM will be obligated to fund severances and other costs for the WSJ LLC employees and to fund certain state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. PNM believes these obligations can be reasonably estimated as of March 31, 2020 and, pursuant to the NMPRC's April 1, 2020 orders and the requirements of the ETA, are recoverable from New Mexico retail customers. As a result, as of March 31, 2020, PNMR and PNM recorded obligations of $9.4 million and $8.1 million for estimated severances, $8.9 million for obligations to fund severances and other costs of WSJ LLC employees, and to fund $19.8 million to state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. The total amount recorded for these estimates of $38.1 million and $36.8 million is reflected in other deferred credits and as a corresponding deferred regulatory asset on PNMR's and PNM's Condensed Consolidated Balance Sheets as of March 31, 2020. These estimates may be adjusted in future periods as the Company refines its expectations. In addition, as discussed above these costs may be challenged by parties pursuant to the notices of appeal filed with the NM Supreme Court on April 10, 2020.
The financial impact of an early retirement of SJGS and the NMPRC approval process are influenced by many factors outside of PNM’s control, including the economic impact of the SJGS abandonment on the area surrounding the plant and the related mine, as well as the overall political and economic conditions of New Mexico. See additional discussion of the ETA and SJGS Abandonment Application in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K. PNM cannot predict the outcome of these matters.
Joint Petition to Investigate PNM’s Option to Purchase Assets Underlying Certain Leases in PVNGS
On April 22, 2019, NEE and other parties, which consist primarily of environmental not-for-profit organizations, filed a joint petition for expedited investigation with the NMPRC. The joint petition requested the NMPRC open an investigation regarding PNM’s option to purchase the assets underlying the PVNGS Unit 1 and 2 leases that will expire in January 2023 and 2024. Various parties filed to participate in the request. On May 8, 2019, the NMPRC issued an order requiring a response from both PNM and NMPRC staff. PNM filed responses indicating, among other things, that the joint petition should be denied, and that PNM has not yet made a decision to purchase or return the assets underlying the leases that expire in January 2023 and 2024. On September 16, 2019, NEE and the other parties filed a motion reiterating their initial petition and seeking the appointment of a hearing examiner to preside over the requested proceeding. On September 30, 2019, PNM filed its response in opposition stating that PNM had previously refuted NEE’s arguments and that there is no need for a hearing examiner to be assigned to this matter. The NMPRC subsequently issued an order denying the petition for investigation. On January 3, 2020, PNM filed notice with the NMPRC of 60-day waivers of the deadline to provide notice to purchase or return
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(Unaudited)
the assets underlying the PVNGS Unit 1 leases. On April 10, 2020, PNM filed additional notices of waivers. The deadline for PNM to provide irrevocable notice of its intent to purchase or return the PVNGS Unit 1 lease interests is now June 15, 2020. PNM has committed to provide the NMPRC with timely updates on any decisions related to these interests and will file any necessary requests for approval associated with its decision.
PNM Solar Direct
On May 31, 2019, PNM filed an application with the NMPRC for approval of a program under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program. PNM proposed to recover costs of the program directly from subscribing customers through a rate rider. Under the rider, PNM would procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. PNM had fully subscribed the entire output of the 50 MW facilities at the time of the filing. Hearings on the application concluded on January 9, 2020. On March 11, 2020, the hearing examiner issued a recommended decision recommending approval of PNM's application. The hearing examiner's recommended decision was approved by the NMPRC on March 25, 2020. These facilities are expected to begin commercial operations on March 31, 2021. This matter is now concluded.
COVID-19 Regulatory Matters
In March 2020, PNM and other utilities voluntarily implemented a temporary suspension of disconnections and late payment fees for non-payment of utility bills in response to the impacts of COVID-19. On March 18, 2020, the NMPRC conducted an emergency open meeting for the purpose of adopting emergency amendments to its rules governing service to residential customers. The NMPRC’s emergency order is applicable during the duration of the Governor of New Mexico's emergency executive order and allows for the closure of payment centers, prohibits the discontinuance of a residential customer’s service for non-payment, and suspends the expiration of medical certificates for certain customers. On April 27, 2020, PNM, El Paso Electric Company, New Mexico Gas Company, and Southwestern Public Service Company filed a joint motion with the NMPRC requesting authorization to track costs resulting from each utility's response to the COVID-19 outbreak. The utilities propose these incremental costs and uncollected customer accounts receivable resulting from COVID-19 during the period March 11, 2020 through December 31, 2020 be recorded as a regulatory asset. If approved by the NMPRC, the utilities would seek recovery of the regulatory asset in a future rate case. PNM cannot predict the outcome of this matter.
TNMP
TNMP 2018 Rate Case
On May 30, 2018, TNMP filed a general rate proceeding with the PUCT (the “TNMP 2018 Rate Case”) requesting an annual increase to base rates of $25.9 million based on a ROE of 10.5%, a cost of debt of 7.2%, and a capital structure comprised of 50% debt and 50% equity. As part of the application, TNMP proposed to return the regulatory liability related to federal tax reform to customers and to reduce the federal corporate income tax rate to 21%. On December 20, 2018, the PUCT approved an unopposed settlement agreement in the case. The PUCT’s final order results in a $10.0 million annual increase to base rates. The key elements of the approved settlement include a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. As stated by the settlement agreement, the PUCT’s final order excludes certain items from rate base that were requested in TNMP’s original filing, including approximately $10.6 million of transmission investments that TNMP included in its January 2019 transmission cost of service filing, which was approved by the PUCT in March 2019. In addition, the PUCT’s final order requires TNMP to reflect the lower federal income tax rate of 21% in rates and refund approximately $37.8 million of the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers over a period of five years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2017; approves TNMP’s request to integrate revenues historically recorded under TNMP’s AMS rider, as well as other unrecovered AMS investments, into base rates; approves TNMP’s request for new depreciation rates; and approves a new rider to recover Hurricane Harvey restoration costs, net of amounts to be refunded to customers resulting from the reduction in the federal income tax rate in 2018. See Note 14. The new rider is being charged to customers over a period of approximately three years beginning on the effective date of new base rates. New rates under the TNMP 2018 Rate Case were effective beginning on January 1, 2019.
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(Unaudited)
Recovery of TNMP Rate Case Costs
Recovery of the cost of TNMP’s rate case was moved into separate proceedings to begin after the conclusion of TNMP 2018 Rate Case. TNMP sought recovery of costs incurred through August 2019 in the amount of $3.8 million and proposed these costs be collected from customers over a three-year period. In October 2019, TNMP and other parties to the proceedings filed an unopposed settlement stipulation that reduced TNMP’s cost recovery to $3.3 million and provide for recovery over a period not to exceed three-years beginning on March 1, 2020. On January 16, 2020, the PUCT approved the settlement. As a result of the PUCT's order, TNMP recorded a pre-tax write-off of $0.5 million in December 2019.
Transmission Cost of Service Rates
TNMP can update its transmission cost of service (“TCOS”) rates twice per year to reflect changes in its invested capital although updates are not allowed while a general rate case is in process. Updated rates reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities.
The following sets forth TNMP’s recent interim transmission cost rate increases:

Effective Date |  | Approved Increase in Rate Base |  | Annual Increase in Revenue
|  | (In millions) |  |
March 21, 2019 |  | $ | 111.8 |  |  | $ | 14.3 |
September 19, 2019 |  | 21.9 |  |  | 3.3 |
March 27, 2020 |  | 59.2 |  |  | 7.8 |

Periodic Distribution Rate Adjustment
PUCT rules permit interim rate adjustments to reflect changes in investments in distribution assets. Distribution utilities may file for a periodic rate adjustment between April 1 and April 8 of each year as long as the electric utility is not earning more than its authorized rate of return using weather-normalized data.
On April 6, 2020, TNMP filed its first application for a distribution cost recovery factor (the "2020 DCOS"). The 2020 DCOS application requests an increase in TNMP's annual distribution revenue requirement of $14.7 million based on net capital incremental distribution investments of $149.2 million. TNMP requested a procedural schedule that would result in rates being effective in September 2020. TNMP cannot predict the outcome of this matter.
Energy Efficiency
TNMP recovers the costs of its energy efficiency programs through an energy efficiency cost recovery factor (“EECRF”), which includes projected program costs, under and over collected costs from prior years, rate case expenses, and performance bonuses (if programs exceed mandated savings goals). TNMP’s 2018 EECRF filing requested an adjustment of $5.6 million, including a performance bonus of $0.8 million, and became effective on March 1, 2019. On May 30, 2019, TNMP filed its request to adjust the EECRF to reflect changes in costs for 2020. On August 30, 2019, a unanimous settlement stipulation was filed with the PUCT that would allow TNMP to recover its requested $5.9 million of program costs in 2020, which includes a performance bonus of $0.8 million based on TNMP’s energy efficiency achievements in the 2018 plan year. The PUCT approved the settlement on December 13, 2019 to become effective March 1, 2020.
COVID-19 Electricity Relief Program
On March 26, 2020, the PUCT issued an order establishing an electricity relief program for electric utilities, REPs, and customers impacted by COVID-19. The program allows providers to implement a rider to collect unpaid residential retail customer bills and to ensure these customers continue to have electric service. In addition, the program provides transmission and distribution providers access to zero-interest loans from ERCOT. Collectively, ERCOT’s loans may not exceed $15 million. The program has a term of six months unless extended by the PUCT. In a separate order, the PUCT authorized electric utilities to establish a regulatory asset for costs related to COVID-19. These costs may include but are not limited to costs related to unpaid accounts.
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(Unaudited)
TNMP filed its rider on March 30, 2020. The rider was effective immediately and establishes a charge of $0.33 per MWh in accordance with the PUCT's order. On April 14, 2020, TNMP executed an interest-free loan agreement to borrow $0.5 million from ERCOT. The loan must be repaid upon completion of the electricity relief program.
(13) Lease Commitments
The Company leases office buildings, vehicles, and other equipment. In addition, PNM leases interests in PVNGS Units 1 and 2 and certain rights-of-way agreements are classified as leases. All of the Company's leases with terms in excess of one year are recorded on the balance sheet by recording a present value lease liability and a corresponding right-of-use asset. Operating lease expense is recognized within operating expenses according to the use of the asset on a straight-line basis. Financing lease costs, which are comprised primarily of fleet and office equipment leases commencing after January 1, 2019, are recognized by amortizing the right-of-use asset on a straight-line basis and by recording interest expense on the lease liability. Financing lease right-of-use assets amortization is reflected in depreciation and amortization and interest on financing lease liabilities is reflected as interest charges on the Company’s Condensed Consolidated Statements of Earnings.
See additional discussion of the Company's leasing activities in Note 8 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K.
PVNGS
PNM leases interests in Units 1 and 2 of PVNGS. 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. Following procedures set forth in the PVNGS leases, PNM notified four of the lessors under the Unit 1 leases and one lessor under the Unit 2 lease that it would elect to renew those leases on the expiration date of the original leases. 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 lease payments during the renewal periods aggregate $16.5 million for PVNGS Unit 1 and $1.6 million for Unit 2.
The terms of each of the extended leases do not provide for additional renewal options beyond their currently scheduled expiration dates. PNM has the option to purchase the assets underlying each of the extended leases at their fair market value or to return the lease interests to the lessors on the expiration dates. Under the terms of the extended leases, PNM had until January 15, 2020 for the Unit 1 leases and has until January 15, 2021 for the Unit 2 lease to provide notices to the lessors of PNM’s intent to exercise the purchase options or to return the leased assets to the lessors. On January 3, 2020, PNM filed notice with the NMPRC of 60-day waivers of the deadline to provide notice to purchase or return the assets underlying the PVNGS Unit 1 leases. On March 3, 2020, and April 10, 2020, PNM filed additional notices of waivers of the deadlines. The deadline for PNM to provide irrevocable notice of its intent to purchase or return the assets underlying the PVNGS Unit 1 lease interests is now June 15, 2020. The waivers did not impact the PVNGS Unit 1 leases’ current January 15, 2023 expiration dates. PNM’s elections are independent for each lease and are irrevocable. In the proceeding addressing PNM’s 2017 IRP, PNM agreed to promptly notify the NMPRC of a decision to extend the Unit 1 or 2 leases, or to exercise its option to purchase the leased assets at fair market value upon the expiration of leases. See Note 12. If PNM elects to exercise its purchase option under any of the leases, the leases provide an appraisal process to determine fair market value. If PNM elects to return the assets underlying the extended leases, PNM will retain certain obligations related to PVNGS, including costs to decommission the facility. PNM is depreciating its capital improvements related to the extended leases using NMPRC approved rates through the end of the NRC license period for each unit, which expire in June 2045 for Unit 1 and in June 2046 for Unit 2. Any transfer of the assets underlying the leases will be required to comply with NRC licensing requirements. For example, the NRC could limit the transfer of ownership should PNM decide to return the assets underlying all or a portion of its current leased interests in PVNGS. In the event PNM decides to return these interests to the lessors, and a qualified buyer cannot be identified, PNM may be required to retain all of a portion of its existing leased capacity in PVNGS or be exposed to other claims for damages by the lessors. Whether PNM retains or returns the assets underlying the extended leases, PNM will seek to recover its undepreciated investments, and any amounts paid to purchase the assets, as well as any other obligations related to PVNGS from NM retail customers.
PNM is exposed to loss under the PVNGS lease arrangements upon the occurrence of certain events that PNM does not consider 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 lessors, and take title to the leased interests. If such an event had occurred as of March 31, 2020, amounts due to the lessors under the circumstances described above would be up to $154.5 million, payable on July 15, 2020 in addition to the scheduled lease payments due on that date.
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(Unaudited)
Land Easements and Rights-of-Ways
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. 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. PNM’s April 2020 payment for the amount due under the Navajo Nation right-of-way lease was $7.1 million, which included amounts due under the Consumer Price Index adjustment. Changes in the Consumer Price Index subsequent to January 1, 2019 are considered variable lease payments.
PNM has other prepaid rights-of-way agreements that are not accounted for as leases or recognized as a component of plant in service. PNM reflects the unamortized balance of these prepayments in other deferred charges on the Condensed Consolidated Balance Sheets and recognizes amortization expense associated with these agreements in the Condensed Consolidated Statement of Earnings over their term. As of March 31, 2020 and December 31, 2019, the unamortized balance of these rights-of-ways was $59.5 million and $60.2 million. During the three months ended March 31, 2020 and 2019, PNM recognized amortization expense associated with these agreements of $0.9 million and $0.9 million.
Fleet Vehicles and Equipment
Fleet vehicle and equipment leases commencing on or after January 1, 2019 are classified as financing leases. Fleet vehicle and equipment leases existing as of December 31, 2018 are classified as operating leases. The Company’s fleet vehicle and equipment lease agreements include non-lease components for insignificant administrative and other costs that are billed over the life of the agreement. At March 31, 2020, residual value guarantees on fleet vehicle and equipment leases are $0.7 million, $1.3 million, and $2.0 million for PNM, TNMP, and PNMR.
Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets is presented below:

| March 31, 2020 |  |  |  |  |  | December 31, 2019 |  |  |  |
| PNM |  | TNMP |  | PNMR Consolidated |  | PNM |  | TNMP |  | PNMR Consolidated
| (In thousands) |  |  |  |  |  |  |  |  |  |
Operating leases: |  |  |  |  |  |  |  |  |  |  |
Operating lease assets, net of amortization | $ | 114,829 |  |  | $ | 9,271 |  |  | $ | 124,717 |  |  | $ | 120,585 |  |  | $ | 9,954 |  |  | $ | 131,212 |
Current portion of operating lease liabilities | 26,727 |  |  | 2,624 |  |  | 29,693 |  |  | 25,927 |  |  | 2,753 |  |  | 29,068 |
Long-term portion of operating lease liabilities | 88,686 |  |  | 6,459 |  |  | 95,573 |  |  | 97,992 |  |  | 7,039 |  |  | 105,512 |

As discussed above, the Company classifies its fleet vehicle and equipment leases and its office equipment leases commencing on or after January 1, 2019 as financing leases. Information related to the Company’s financing leases recorded on the Condensed Consolidated Balance Sheets is presented below:

| March 31, 2020 |  |  |  |  |  | December 31, 2019 |  |  |  |
| PNM |  | TNMP |  | PNMR Consolidated |  | PNM |  | TNMP |  | PNMR Consolidated
| (In thousands) |  |  |  |  |  |  |  |  |  |
Financing leases: |  |  |  |  |  |  |  |  |  |  |
Non-utility property | $ | 6,320 |  |  | $ | 7,712 |  |  | $ | 14,299 |  |  | $ | 4,857 |  |  | $ | 4,910 |  |  | $ | 10,028 |
Accumulated depreciation | (729) |  |  | (756) |  |  | (1,527) |  |  | (482) |  |  | (466) |  |  | (973) |
Non-utility property, net | 5,591 |  |  | 6,956 |  |  | 12,772 |  |  | 4,375 |  |  | 4,444 |  |  | 9,055 |
Other current liabilities | 975 |  |  | 1,255 |  |  | 2,298 |  |  | 722 |  |  | 850 |  |  | 1,637 |
Other deferred credits | 4,316 |  |  | 5,706 |  |  | 10,182 |  |  | 3,333 |  |  | 3,597 |  |  | 7,102 |

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities as of March 31, 2020 is presented below:

| PNM |  | TNMP |  | PNMR Consolidated
Weighted average remaining lease term (years): |  |  |  |  |
Operating leases | 6.55 |  | 3.98 |  | 6.35
Financing leases | 5.53 |  | 5.68 |  | 5.57
Weighted average discount rate: |  |  |  |  |
Operating leases | 3.92 | % |  | 3.97 | % |  | 3.92 | %
Financing leases | 3.57 | % |  | 3.52 | % |  | 3.52 | %

Information for the components of lease expense is as follows:

| Three Months Ended March 31, 2020 |  |  |  |  |  |  |  |  |  |
| PNM |  | TNMP |  | PNMR Consolidated |  |  |  |  |  |
| (In thousands) |  |  |  |  |  |  |  |  |  |
Operating lease cost: | $ | 6,893 |  |  | $ | 774 |  |  | $ | 7,735 |  |  |  |  |  |  |
Less: amounts capitalized | (291) |  |  | (634) |  |  | (925) |  |  |  |  |  |  |
Total operating lease expense | 6,602 |  |  | 140 |  |  | 6,810 |  |  |  |  |  |  |
Financing lease cost: |  |  |  |  |  |  |  |  |  |  |
Amortization of right-of-use assets | 247 |  |  | 289 |  |  | 553 |  |  |  |  |  |  |
Interest on lease liabilities | 45 |  |  | 56 |  |  | 103 |  |  |  |  |  |  |
Less: amounts capitalized | (175) |  |  | (283) |  |  | (458) |  |  |  |  |  |  |
Total financing lease expense | 117 |  |  | 62 |  |  | 198 |  |  |  |  |  |  |
Variable lease expense | 32 |  |  | — |  |  | 32 |  |  |  |  |  |  |
Short-term lease expense | 85 |  |  | 1 |  |  | 86 |  |  |  |  |  |  |
Total lease expense for the period | $ | 6,836 |  |  | $ | 203 |  |  | $ | 7,126 |  |  |  |  |  |  |

| Three Months Ended March 31, 2019 |  |  |  |  |  |  |  |  |  |
| PNM |  | TNMP |  | PNMR Consolidated |  |  |  |  |  |
| (In thousands) |  |  |  |  |  |  |  |  |  |
Operating lease cost: | $ | 7,583 |  |  | $ | 898 |  |  |  | $ | 8,620 |  |  |  |  |  |  |
Less: amounts capitalized | (352) |  |  | (657) |  |  |  | (1,009) |  |  |  |  |  |  |
Total operating lease expense | 7,231 |  |  | 241 |  |  |  | 7,611 |  |  |  |  |  |  |
Financing lease cost: |  |  |  |  |  |  |  |  |  |  |
Amortization of right-of-use assets | 104 |  |  | 98 |  |  |  | 203 |  |  |  |  |  |  |
Interest on lease liabilities | 16 |  |  | 17 |  |  |  | 32 |  |  |  |  |  |  |
Less: amounts capitalized | (38) |  |  | (40) |  |  |  | (78) |  |  |  |  |  |  |
Total financing lease expense | 82 |  |  | 75 |  |  |  | 157 |  |  |  |  |  |  |
Variable lease expense | — |  |  | — |  |  |  | — |  |  |  |  |  |  |
Short-term lease expense | 74 |  |  | 3 |  |  |  | 94 |  |  |  |  |  |  |
Total lease expense for the period | $ | 7,387 |  |  | $ | 319 |  |  |  | $ | 7,862 |  |  |  |  |  |  |

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental cash flow information related to the Company’s leases is as follows:

| Three Months Ended March 31, |  |  |  |  |  | Three Months Ended March 31, |  |  |  |
| 2020 |  |  |  |  |  | 2019 |  |  |  |
| PNM |  | TNMP |  | PNMR Consolidated |  | PNM |  | TNMP |  | PNMR Consolidated
| (In thousands) |  |  |  |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |  |  |  |  |
Operating cash flows from operating leases | $ | 9,351 |  |  | $ | 166 |  |  | $ | 9,658 |  |  | $ | 9,452 |  |  |  | $ | 284 |  |  |  | $ | 9,891 |
Operating cash flows from financing leases | 16 |  |  | 9 |  |  | 27 |  |  | 16 |  |  |  | 17 |  |  |  | 32 |
Finance cash flows from financing leases | 80 |  |  | 51 |  |  | 147 |  |  | 25 |  |  |  | 33 |  |  |  | 58 |
Non-cash information related to right-of-use assets obtained in exchange for lease obligations: |  |  |  |  |  |  |  |  |  |  |
Operating leases | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 143,816 |  |  |  | $ | 12,942 |  |  |  | $ | 157,440 |
Financing leases | 1,463 |  |  | 2,802 |  |  | 4,272 |  |  | 1,635 |  |  |  | 1,268 |  |  |  | 2,904 |

Excluded from the operating and financing cash paid for leases above are $0.3 million and $0.2 million at PNM, $0.6 million and $0.3 million at TNMP, and $0.9 million and $0.5 million at PNMR. These capitalized costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019.
Future expected lease payments are shown below:

| As of March 31, 2020 |  |  |  |  |  |  |  |  |  |
| PNM |  |  |  | TNMP |  |  |  | PNMR Consolidated |  |
| Financing |  | Operating |  | Financing |  | Operating |  | Financing |  | Operating
| (In thousands) |  |  |  |  |  |  |  |  |  |
Remainder of 2020 | $ | 861 |  |  | $ | 17,386 |  |  | $ | 1,111 |  |  | $ | 2,279 |  |  | $ | 2,027 |  |  | $ | 20,076 |
2021 | 1,117 |  |  | 26,576 |  |  | 1,441 |  |  | 2,448 |  |  | 2,631 |  |  | 29,316 |
2022 | 1,082 |  |  | 26,266 |  |  | 1,396 |  |  | 1,996 |  |  | 2,551 |  |  | 28,473 |
2023 | 1,038 |  |  | 17,735 |  |  | 1,269 |  |  | 1,508 |  |  | 2,345 |  |  | 19,423 |
2024 | 712 |  |  | 7,908 |  |  | 1,074 |  |  | 877 |  |  | 1,786 |  |  | 8,833 |
Later years | 1,008 |  |  | 34,466 |  |  | 1,367 |  |  | 765 |  |  | 2,375 |  |  | 35,488 |
Total minimum lease payments | 5,818 |  |  | 130,337 |  |  | 7,658 |  |  | 9,873 |  |  | 13,715 |  |  | 141,609 |
Less: Imputed interest | 527 |  |  | 14,924 |  |  | 697 |  |  | 790 |  |  | 1,235 |  |  | 16,343 |
Lease liabilities as of March 31, 2020 | $ | 5,291 |  |  | $ | 115,413 |  |  | $ | 6,961 |  |  | $ | 9,083 |  |  | $ | 12,480 |  |  | $ | 125,266 |

The above tables include $9.9 million, $15.1 million, and $25.0 million for PNM, TNMP, and PNMR at March 31, 2020 for expected future payments on fleet vehicle and equipment leases that could be avoided if the leased assets were returned and the lessor is able to recover estimated market value for the equipment from third parties. The Company’s contractual commitments for leases that have not yet commenced are insignificant.
(14) Income Taxes
In December 2017, comprehensive changes in United States federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made many significant modifications to the tax laws, including reducing the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also eliminated federal bonus depreciation for utilities, limited interest deductibility for non-utility businesses and limited the deductibility of officer compensation. During 2019, the IRS issued proposed regulations related to certain officer compensation and proposed regulations on interest deductibility that provide a 10% “de minimis” exception that allows entities with
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
predominantly regulated activities to fully deduct interest expenses. In addition, the IRS issued proposed regulations interpreting Tax Act amendments to depreciation provisions of the IRC that allow the Company to claim a bonus depreciation deduction on certain construction projects placed in service subsequent to the third quarter of 2017. See additional discussion of the impacts of the Tax Act in Note 18 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted. Among other things, the CARES Act includes tax provisions that generally loosen restrictions on NOL utilization and business interest deductions, and accelerate refunds of previously generated alternative minimum tax credits. In addition, the CARES Act includes a temporary provision allowing businesses to defer payments to the government for some payroll taxes. The CARES Act provisions related to NOL utilization and business interest deductions are not applicable for the Company, but the Company is evaluating its ability to accelerate refunds of previously generated alternative minimum tax credits and is deferring payments of certain payroll taxes.
Beginning February 2018, PNM’s NM 2016 Rate Case reflects the reduction in the federal corporate income tax rate, including amortization of excess deferred federal and state income taxes. In accordance with the order in that case, PNM is returning the protected portion of excess deferred federal income taxes to customers over the average remaining life of plant in service as of December 31, 2017, the unprotected portion of excess deferred federal income taxes to customers over a period of approximately twenty-three years, and excess deferred state income taxes to customers over a period of three years. The approved settlement in the TNMP 2018 Rate Case includes a reduction in customer rates to reflect the impacts of the Tax Act beginning on January 1, 2019. PNMR, PNM, and TNMP will amortize federal and state excess deferred income taxes of $30.3 million, $21.2 million, and $9.1 million in 2020. See additional discussion of PNM’s NM 2016 Rate Case and TNMP’s 2018 Rate Case in Note 12.
As required under GAAP, the Company makes an estimate of its anticipated effective tax rate for the year as of the end of each quarterly period within its fiscal year. In interim periods, income tax expense is calculated by applying the anticipated annual effective tax rate to year-to-date earnings before income taxes. GAAP also provides that certain unusual or infrequently occurring items, including excess tax benefits related to stock awards, be excluded from the estimated annual effective tax rate calculation. At March 31, 2020, PNMR, PNM, and TNMP estimated their effective income tax rates for the year ended December 31, 2020 would be 8.63%, 11.28%, and 9.79%. The primary difference between the statutory income tax rates and the effective tax rates is the effect of the reduction in income tax expense resulting from the amortization of excess deferred federal and state income taxes ordered by the NMPRC in PNM’s NM 2016 Rate Case and the amortization of excess deferred federal income taxes as ordered by the PUCT in TNMP’s 2018 Rate Case. During the three months ended March 31, 2020, income tax expense calculated by applying the expected annual effective income tax rate to earnings before income taxes was further reduced by excess tax benefits related to stock awards of $0.4 million for PNMR, of which $0.3 million was allocated to PNM and $0.1 million was allocated to TNMP.
(15) Related Party Transactions
PNMR, PNM, TNMP, and NMRD are considered related parties as defined under GAAP, as is PNMR Services Company, a wholly-owned subsidiary of PNMR that provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. These services are billed at cost on a monthly basis to the business units. In addition, PNMR provides construction and operations and maintenance services to NMRD, a 50% owned subsidiary of PNMR Development. PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced. PNM also provides interconnection services to PNMR Development and NMRD. See Note 16 for additional discussion of NMRD.
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below summarizes the nature and amount of related party transactions of PNMR, PNM, TNMP, and NMRD:

| Three Months Ended |  |  |  |  |  |
| March 31, |  |  |  |  |  |
| 2020 |  | 2019 |  |  |  |
| (In thousands) |  |  |  |  |  |
Services billings: |  |  |  |  |  |  |
PNMR to PNM | $ | 22,123 |  |  | $ | 26,826 |  |  |  |  |
PNMR to TNMP | 8,727 |  |  | 10,058 |  |  |  |  |
PNM to TNMP | 76 |  |  | 75 |  |  |  |  |
TNMP to PNMR | 35 |  |  | 35 |  |  |  |  |
PNMR to NMRD | 76 |  |  | 41 |  |  |  |  |
Renewable energy purchases: |  |  |  |  |  |  |
PNM from NMRD | 1,519 |  |  | 625 |  |  |  |  |
Interconnection billings: |  |  |  |  |  |  |
PNM to NMRD | 220 |  |  | — |  |  |  |  |
PNM to PNMR | — |  |  | — |  |  |  |  |
Interest billings: |  |  |  |  |  |  |
PNMR to PNM | — |  |  | 933 |  |  |  |  |
PNM to PNMR | 81 |  |  | 72 |  |  |  |  |
PNMR to TNMP | 1 |  |  | 32 |  |  |  |  |
Income tax sharing payments: |  |  |  |  |  |  |
PNMR to PNM | — |  |  | — |  |  |  |  |
TNMP to PNMR | — |  |  | — |  |  |  |  |

(16) Equity Method Investment
As discussed in Note 1 of the Company's 2019 Annual Reports on Form 10-K, PNMR Development and AEP OnSite Partners created NMRD in September 2017 to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. As of March 31, 2020, NMRD’s renewable energy capacity in operation was 85.1 MW. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. The investment in NMRD is accounted for using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.
In the three months ended March 31, 2020 and 2019, PNMR Development made cash contributions of $10.0 million and $7.0 million to NMRD to be used primarily for its construction activities.
PNMR presents its share of net earnings from NMRD in other income on the Condensed Consolidated Statements of Earnings. Summarized financial information for NMRD is as follows:

|  |  |  |  | Results of Operations |  |
|  |  |  |  | Three Months Ended March 31, |  |
|  |  |  |  | 2020 |  | 2019
|  |  |  |  | (In thousands) |  |
Operating revenues |  |  |  |  | $ | 1,667 |  |  | $ | 725 |
Operating expenses |  |  |  |  | 1,580 |  |  | 796 |
Net earnings (loss) |  |  |  |  | $ | 87 |  |  | $ | (71) |

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

| Financial Position |  |
| March 31, |  | December 31,
| 2020 |  | 2019
| (In thousands) |  |
Current assets | $ | 12,848 |  |  | $ | 7,187 |
Net property, plant, and equipment | 137,763 |  |  | 132,772 |
Non-current assets | 1,548 |  |  | — |
Total assets | 152,159 |  |  | 139,959 |
Current liabilities | 1,392 |  |  | 9,640 |
Non-current liabilities | 362 |  |  | — |
Owners’ equity | $ | 150,405 |  |  | $ | 130,319 |

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations for PNMR is presented on a combined basis, including certain information applicable to PNM and TNMP. The MD&A for PNM and TNMP is presented as permitted by Form 10-Q General Instruction H(2). This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. A reference to a “Note” in this Item 2 refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1, unless otherwise specified. Certain of the tables below may not appear visually accurate due to rounding.
MD&A FOR PNMR
EXECUTIVE SUMMARY
Overview and Strategy
PNMR is a holding company with two regulated utilities serving approximately 791,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:
•Earning authorized returns on regulated businesses
•Delivering at or above industry-average earnings and dividend growth
•Maintaining investment grade credit ratings
In conjunction with these goals, PNM and TNMP are dedicated to:
•Maintaining strong employee safety, plant performance, and system reliability
•Delivering a superior customer experience
•Demonstrating environmental stewardship in business operations, including transitioning to an emissions-free generating portfolio by 2040
•Supporting the communities in their service territories
Earning Authorized Returns on Regulated Businesses
PNMR’s success in accomplishing its strategic goals is highly dependent on two key factors: fair and timely regulatory treatment for its utilities and the utilities’ strong operating performance. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: safety, operational excellence, and customer satisfaction, while engaging stakeholders to build productive relationships. Both PNM and TNMP seek cost recovery for their investments through general rate cases, interim cost of service filings, and various rate riders.
Fair and timely rate treatment from regulators is crucial to PNM and TNMP in earning their allowed returns and critical for PNMR to achieve its strategic goals. PNMR believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the Company’s ratings could lower costs to utility customers.
Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and in Note 12.
State Regulation
The rates PNM and TNMP charge retail customers are subject to traditional rate regulation by the NMPRC, FERC, and the PUCT.
New Mexico 2015 Rate Case – On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $61.2 million for New Mexico retail customers, effective for bills sent after September 30, 2016. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2015 Rate Case”) filed in August 2015. The NMPRC's order included a determination that PNM was imprudent in purchasing certain leased capacity in PVNGS Unit 2, extending other PVNGS leased capacity, and installing BDT environmental controls equipment on SJGS.
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PNM appealed the NMPRC's imprudence findings to the NM Supreme Court. Specifically, PNM appealed the NMPRC’s determination that PNM was imprudent in certain matters in the case, including the disallowance of the full purchase price of 64.1 MW of capacity in PVNGS Unit 2, the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM, the costs of converting SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases.
In May 2019, the NM Supreme Court issued its decision on the matters that had been appealed in the NM 2015 Rate Case. The NM Supreme Court upheld all of the decisions in the NMPRC's order except for their decision to permanently disallow recovery of future decommissioning costs related to the purchased and extended leases because PNM was deprived of its rights to due process of law and remanded the case to the NMPRC for further proceedings. In January 2020, the NMPRC issued its order in response to the NM Supreme Court’s remand that reaffirmed its September 2016 order except for the decision to permanently disallow recovery of certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC indicated that PNM’s ability to recover these costs will be addressed in a future proceeding and closed the NM 2015 Rate Case docket.
As a result of the NM Supreme Court’s ruling, PNM recorded a pre-tax impairment of $149.3 million as of June 30, 2019 which is reflected as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. This amount reflects capital costs not previously impaired during the pendency of the appeal related to PNM's purchase of 64.1 MW, in PVNGS Unit 1, undepreciated capital improvements made during the period such interests had been leased, and investments in BDT environmental controls equipment on SJGS Units 1 and 4. The impairment was offset by tax impacts of $45.7 million which are reflected as income taxes on the Condensed Consolidated Statements of Earnings.
New Mexico 2016 Rate Case – In January 2018, the NMPRC approved a settlement agreement that authorized PNM to implement an increase in base non-fuel rates of $10.3 million, which includes a reduction to reflect the impact of the decrease in the federal corporate income tax rate and updates to PNM’s cost of debt (aggregating $47.6 million annually). This order was on PNM's application for a general increase in retail electric rates filed in December 2016 (the "NM 2016 Rate Case"). The key terms of the order include:
•A ROE of 9.575%
•A requirement to return to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate to the extent attributable to PNM’s retail operations (Note 14)
•A disallowance of PNM’s ability to collect an equity return on certain investments aggregating $148.1 million at Four Corners, but allowing recovery of a debt-only return
•An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
•A requirement to consider the prudency of PNM’s decision to continue its participation in Four Corners in PNM's next general rate case filing
PNM implemented 50% of the approved increase for service rendered beginning February 1, 2018 and implemented the rest of the increase for service rendered beginning January 1, 2019. This matter is now concluded.
TNMP 2018 Rate Case – On December 20, 2018, the PUCT approved a settlement stipulation allowing TNMP to increase annual base rates by $10.0 million based on a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. In addition, the approved settlement stipulation allows TNMP to refund the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and reflects the reduction in the federal corporate income tax rate to 21%. New rates under the TNMP 2018 Rate Case became effective January 1, 2019.
Advanced Metering – TNMP completed its mass deployment of advanced meters across its service territory in 2016 and has installed more than 242,000 advanced meters. Beginning in 2019 the majority of costs associated with TNMP’s AMS program are being recovered through base rates.
In February 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”), which was denied. As ordered by the NMPRC, PNM’s 2020 filing for energy efficiency programs to be offered in 2021, 2022, and 2023 includes a proposal for an AMI pilot project.
Rate Riders and Interim Rate Relief – The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case. The NMPRC has approved PNM recovering fuel costs through the FPPAC, as well as rate riders for renewable energy and energy efficiency. These mechanisms
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allow for more timely recovery of investments.
On April 6, 2020, TNMP filed its first application for a periodic distribution rate adjustment (the "2020 DCOS"). TNMP's 2020 DCOS application requests an increase in annual distribution revenues of $14.7 million and that new rates go into effect beginning in September 2020. See Note 12. TNMP cannot predict the outcome of this matter.
FERC Regulation
Rates PNM charges wholesale transmission customers and wholesale generation customers are subject to traditional rate regulation by FERC. Rates charged to wholesale electric transmission customers are based on a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula. The formula includes updating cost of service components, including investment in plant and operating expenses, based on information contained in PNM’s annual financial report filed with FERC, as well as including projected transmission capital projects to be placed into service in the following year. The projections included are subject to true-up. Certain items, including changes to return on equity and depreciation rates, require a separate filing to be made with FERC before being included in the formula rate.
In May 2019, PNM filed an application with FERC requesting approval to purchase a new 165-mile long 345-kV transmission line and related facilities (the “Western Spirit Line”). Under related agreements, PNM will provide transmission service to approximately 800 MW of new wind generation to be located in eastern New Mexico beginning in 2021 using an incremental rate. All necessary regulatory approvals for PNM to purchase and provide transmission service from the Western Spirit Line have been obtained.
PNM has no full-requirements wholesale generation customers.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR’s strategic goal to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 2020 through 2023. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.
PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:

Approval Date |  | Percent Increase
December 2017 |  | 9%
December 2018 |  | 9%
December 2019 |  | 6%

Maintaining Investment Grade Credit Ratings
The Company is committed to maintaining investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. On April 6, 2020, S&P downgraded the ratings for PNMR, PNM, and TNMP one notch and affirmed TNMP's first mortgage bond rating. All of the credit ratings issued by both Moody’s and S&P on the Company’s debt continue to be investment grade.
Business and Strategic Focus
PNMR strives to create enduring value for customers, communities, and shareholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power. The Company works closely with its stakeholders to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities. Equally important is the focus of PNMR’s utilities on customer satisfaction and community engagement.
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Safe, Reliable, and Affordable Power
PNMR and its utilities are aware of the important roles they play in enhancing economic vitality in their service territories. Management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth. When contemplating expanding or relocating their operations, businesses consider energy affordability and reliability to be important factors. PNM and TNMP strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a safe and superior customer experience. Investing in PNM’s and TNMP’s infrastructure is critical to ensuring reliability and meeting future energy needs. Both utilities have long-established records of providing customers with safe and reliable electric service.
In early 2020, the novel coronavirus ("COVID-19"), resulted in President Trump declaring a pandemic in the U.S. The Company is closely monitoring developments and is taking steps to mitigate the potential risks related to the COVID-19 pandemic. The Company has assessed and updated its existing business continuity plans in response to the impacts of the pandemic through crisis team meetings and working with other utilities and operators. It has identified its critical workforce, staged backups and limited access to control rooms and critical assets. The Company has worked to protect the safety of its employees using a number of measures, including minimizing exposure to other employees and the public and mandating work-from-home and flexible arrangements for all applicable job functions. The Company is also working with its suppliers to understand the potential impacts to its supply chain and remains focused on the integrity of its information systems and other technology systems used to run its business. However, the Company cannot predict the extent or duration of the outbreak, its effects on the global, national or local economy, or on the Company's financial position, results of operations, and cash flows. The Company will continue to monitor developments related to COVID-19 and will remain focused on protecting the health and safety of its customers, employees, contractors, and other stakeholders, and on its objective to provide safe, reliable, affordable and environmentally responsible power. As discussed in Note 12, both PNM and TNMP have suspended disconnecting certain customers for past due bills and waived late fees during the pandemic and are seeking or have been provided regulatory mechanisms to recover these and other costs resulting from COVID-19. See additional discussion below regarding the Company's customer, community, and stakeholder engagement in response to COVID-19 and in Item 1A. Risk Factors.
Utility Plant and Strategic Investments
Utility Plant Investments – During the 2017 to 2019 period, PNM and TNMP together invested $1.5 billion in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. During 2018 and 2019, PNM constructed an additional 50 MW of PNM-owned solar-PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. On May 1, 2019, PNM executed an agreement to purchase the Western Spirit Line, which has been approved by FERC and the NMPRC. Under the agreement, subject to certain conditions being met prior to closing, PNM will purchase the Western Spirit Line upon its expected commercial operation date in 2021 at a net cost of approximately $285 million, including customer reimbursements. PNM’s SJGS Abandonment Application requests NMPRC approval of a replacement resource scenario that would result in PNM investing approximately $298 million to construct and own a new 280 MW gas-fired generation facility to be located at the existing SJGS site, 70 MW of battery storage facilities, and other transmission upgrades to replace PNM’s capacity in SJGS. See the subheading Capital Requirements included in the full discussion of Liquidity and Capital Resources below for additional discussion of the Company’s projected capital requirements.
Strategic Investments – In 2017, PNMR Development and AEP OnSite Partners created NMRD to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. Abundant renewable resources, large tracts of affordable land, and strong government and community support make New Mexico a favorable location for renewable generation. New Mexico ranks 3rd in the nation for energy potential from solar power according to the Nebraska Department of Energy & Energy Sun Index and ranks 3rd in the nation for land-based wind capacity according to the U.S. Office of Energy Efficiency and Renewable Energy. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. Through NMRD, PNMR anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the United States’ largest electric utilities. As of March 31, 2020, NMRD’s renewable energy capacity in operation was 85.1 MW, which includes 80 MW of solar-PV facilities to supply energy to the Facebook data center located within PNM’s service territory, 1.9 MW to supply energy to Columbus Electric Cooperative located in southwest New Mexico, 2.0 MW to supply energy to the Central New Mexico Electric Cooperative, and 1.2 MW of solar-PV facilities to supply energy to the City of Rio Rancho, New Mexico. The NMPRC has approved PNM’s request to enter into an additional 25-year PPA to purchase renewable energy and RECs from an aggregate of approximately 50 MW of capacity from solar-PV facilities to be constructed by NMRD to supply power to the Facebook data center. These facilities are expected to begin commercial operation by June 2020. NMRD actively explores opportunities for additional renewable projects, including large-scale projects to serve future data centers and other customer needs.
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Integrated Resource Plan
NMPRC rules require that investor-owned utilities file an IRP every three years. The IRP is required to cover a 20-year planning period and contain an action plan covering the first four years of that period.
PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP included, among other things, that retiring PNM’s share of SJGS in 2022 and exiting ownership in Four Corners in 2031 would provide long-term cost savings for PNM’s customers and that the best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity as well as energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available. The 2017 IRP also indicated that PNM should retain the currently leased capacity in PVNGS. See additional discussion regarding PNM’s leased capacity in PVNGS in Note 13, including PNM's June 15, 2020 deadline to provide irrevocable notice of its intent to purchase or return the assets underlying the extended PVNGS Units 1 and 2 leases, as well as PNM’s 2017 IRP and the SJGS Abandonment Application in Note 12.
In the third quarter of 2019, PNM initiated its 2020 IRP process which will cover the 20-year planning period from 2019 through 2039. Consistent with historical practice, PNM has provided notice to various interested parties and has hosted a series of public advisory presentations. NMPRC rules require PNM to file its 2020 IRP in July 2020. In March 2020, PNM filed a request to extend the deadline to file its 2020 IRP until six months after the NMPRC issues a final order approving replacement resources PNM's SJGS Abandonment Application. In April 2020, the NMPRC approved PNM's request for extension. PNM will continue to seek input from interested parties as a part of this process. PNM cannot predict the outcome of this matter.
Environmentally Responsible Power
PNMR has a long-standing record of environmental stewardship. PNM’s environmental focus is in three key areas:
•Developing strategies to provide reliable and affordable power while transitioning to a 100% emissions-free generating portfolio by 2040
•Preparing PNM’s system to meet New Mexico’s increasing renewable energy requirements as cost-effectively as possible
•Increasing energy efficiency participation
PNMR’s Sustainability Portal provides key environmental and sustainability information related to PNM’s and TNMP’s operations and is available at http://www.pnmresources.com/about-us/sustainability-portal.aspx. The portal also contains a Climate Change Report, which outlines plans for PNM to be coal-free by 2031 (subject to regulatory approval) and to have an emissions-free generating portfolio by 2040.
The Energy Transition Act (“ETA”)
On June 14, 2019, Senate Bill 489, known as the ETA, became effective. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA provides for a transition from fossil-fueled generating resources to renewable and other carbon-free resources by allowing utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of certain coal-fired generating facilities to qualified investors. See additional discussion of the ETA in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and below in PNM’s SJGS Abandonment Application.
PNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022. PNM cannot predict the full impact of the ETA or the outcome of its pending and potential future generating resource abandonment and replacement filings with the NMPRC.
SJGS
SJGS Abandonment Application – As discussed in Note 12, on July 1, 2019, PNM filed a Consolidated Application for the Abandonment and Replacement of SJGS and Related Securitized Financing Pursuant to the ETA (the “SJGS Abandonment
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Application”). The SJGS Abandonment Application seeks NMPRC approval to retire PNM’s share of SJGS in mid-2022, and for approval of replacement resources and the issuance of approximately $361 million of energy transition bonds as provided by the ETA. The application includes several replacement resource scenarios including PNM’s recommended replacement scenario, which is consistent with PNM’s goal of having a 100% emissions-free generating portfolio by 2040 and would provide cost savings to customers while preserving system reliability. The application includes three other replacement resource scenarios that would place a greater amount of resources in the San Juan area, or result in no new fossil-fueled generating facilities, or no battery storage facilities being added to PNM’s portfolio. When compared to PNM's recommended replacement resource scenario, the three alternative resource scenarios are expected to result in increased costs to customers and the two alternative resource scenarios that result in no new fossil-fueled generating facilities are expected to not provide adequate system reliability.
The NMPRC issued an order requiring the SJGS Abandonment Application be considered in two proceedings: one addressing SJGS abandonment and related financing and the other addressing replacement resources but did not definitively indicate if the abandonment and financing proceedings would be evaluated under the requirements of the ETA. The NMPRC’s July 10, 2019 order also extended the deadline to issue the abandonment and financing order to nine months and to issue the replacement resources order to 15 months. After several requests for clarification and legal challenges, in January 2020, the NM Supreme Court ruled the NMPRC is required to apply the ETA to all aspects of PNM’s SJGS Abandonment Application, and that any previous NMPRC orders inconsistent with their ruling should be vacated. Hearings on the abandonment and securitized financing proceedings were held in December 2019 and hearings on replacement resources were held in January 2020.
In February 2020, the Hearing Examiners issued two recommended decisions recommending approval of PNM’s proposed abandonment of SJGS, subject to approval of the separate replacement resources proceeding, and approval of PNM’s proposed financing order to issue Securitized Bonds. The Hearing Examiners recommended, among other things, that PNM be authorized to abandon SJGS by June 30, 2022, to issue Securitized Bonds of up to $361 million, and to establish a rate rider to collect non-bypassable customer charges for repayment of the bonds (the “Energy Transition Charge”). The Hearing Examiners recommended an interim rate rider adjustment upon the start date of the Energy Transition Charge to provide immediate credits to customers for the full value of PNM’s revenue requirement related to SJGS until those reductions are reflected in base rates. In addition, the Hearing Examiners recommended PNM be granted authority to establish regulatory assets to recover costs that PNM will pay prior to the issuance of the Securitized Bonds, including costs associated with the bond issuances as well as for severances, job training, and economic development funds.
On February 21, 2020, the Hearing Examiners recommended the NMPRC approve PNM's proposed abandonment of SJGS, subject to approval of the replacement resources and financing orders to issue Securitized Bonds. On March 27, 2020, the Hearing Examiners issued a partial recommended decision related to PNM's requested replacement resources. The Hearing Examiners recommended the NMPRC approve PNM's requested PPA replacement resources related to 350 MW of solar-PV facilities and 60 MW of battery storage facilities. On April 1, 2020, the NMPRC unanimously approved the Hearing Examiners' recommended decisions regarding the abandonment of SJGS and the Securitized Bonds. On April 29, 2020, the NMPRC issued an order declining to bifurcate a determination on replacement resources and deferring final consideration until the issuance of a comprehensive recommended decision addressing the entire portfolio of replacement resources. The NMPRC is required to issue an order on the SJGS replacement resources by September 2020. PNM cannot predict the outcome of its request for NMPRC approval of replacement resources.
Pursuant to the NMPRC's April 1, 2020 order approving the abandonment of SJGS and the related issuance of Securitized Bonds, PNMR recorded obligations totaling $38.1 million for estimated severances and other costs resulting from the planned retirement of SJGS in 2022, and for expected funding to state agencies for economic development and workforce training upon the issuance of the Securitized Bonds. This obligation is reflected in other deferred credits and as a corresponding deferred regulatory asset on PNMR's Condensed Consolidated Balance Sheets as of March 31, 2020. These estimates may be adjusted in future periods as the Company refines its expectations. See additional discussion of PNM's SJGS Abandonment Application and the related challenges filed with the NM Supreme Court in Note 12.
Other Environmental Matters – In addition to the regional haze rule and the ETA, SJGS and Four Corners may be required to comply with other rules that affect coal-fired generating units. In March 2017, President Trump issued an Executive Order on Energy Independence. The order sets out two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean. On June 19, 2019, EPA released the final Affordable Clean Energy rule. EPA is taking three separate actions in the final rule: (1) repealing the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under Clean Air Act Section 111(d) which, among other things, extends the deadline for state plans and the timing of EPA's approval process. EPA set the Best System of Emissions Reduction (“BSER”) for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of
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the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval). The Company is reviewing the rule with respect to impacts to Four Corners. See Note 11.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule issued in October 2015 for certain fossil-fueled power plants. The proposal would revise the emissions standards for new, reconstructed, or modified coal-fired EGUs to make them less stringent. PNM does not expect SJGS or Four Corners will be subject to the Carbon Pollution Standards rule that EPA has proposed to revise.
PNM’s review of the GHG emission reductions standards under the Affordable Clean Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing. The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. As discussed above, SJGS may also be required to comply with additional CO2 emissions restrictions issued by the New Mexico Environmental Improvement Board pursuant to the recently enacted ETA. PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.
Renewable Energy
PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As of March 31, 2020, PNM has 157 MW of utility-owned solar capacity in operation. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 133.0 MW at March 31, 2020. PNM also owns the 500 KW PNM Prosperity Energy Storage Project. The project was one of the first combinations of battery storage and solar-PV energy in the nation and involved extensive research and development of advanced grid concepts. The facility also was the nation’s first solar storage facility fully integrated into a utility’s power grid. PNM also purchases the output from New Mexico Wind, a 204 MW wind facility, and the output of Red Mesa Wind, an existing 102 MW wind energy center. PNM's 2020 renewable energy procurement plan was approved by the NMPRC in January 2020 and includes a PPA to procure 140 MW of renewable energy and RECs from La Joya Wind beginning in 2021. The majority of these renewable resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, including those set by the recently enacted ETA, without exceeding cost requirements. If approved by the NMPRC, PNM’s recommended resource scenario to replace the planned retirement of SJGS would result in PNM executing PPAs to purchase renewable energy and RECs from a total of 350 MW of solar-PV facilities and to procure energy from and construct a total of 130 MW of battery storage facilities.
As discussed in Strategic Investments above, PNM is currently purchasing the output of 80 MW of solar capacity from NMRD that is used to serve the Facebook data center. PNM has entered into three separate 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable power to the Facebook data center. These PPAs include the purchase of power and RECs from a 50 MW wind project, which was placed in commercial operation in November 2018, a 166 MW wind project to be operational in November 2020, and a 50 MW solar-PV project to be operational in December 2021. In August 2018, the NMPRC approved PNM’s request to enter into two additional 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook, Inc. The first 50 MW of these facilities began commercial operations in November 2019 and the remaining capacity is expected to begin commercial operation by June 2020.
On May 31, 2019, PNM filed an application with the NMPRC for approval of a program under which qualified governmental and large commercial customers could participate in a voluntary renewable energy procurement program ("PNM Solar Direct"). The costs of the program would be recovered directly from subscribing customers through a rate rider, including the costs to procure renewable energy from 50 MW of solar-PV facilities under a 15-year PPA. These facilities are expected to be placed in commercial operation by March 31, 2021. In March 2020, the NMPRC approved PNM's application, including the rate rider and PPA.
PNM will continue to procure renewable resources while balancing the impact to customers’ electricity costs in order to meet New Mexico’s escalating RPS and carbon-free resource requirements.
Energy Efficiency
Energy efficiency plays a significant role in helping to keep customers’ electricity costs low while meeting their energy needs and is one of the Company’s approaches to supporting environmentally responsible power. PNM’s and TNMP’s energy efficiency and load management portfolios continue to achieve robust results. In 2019, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs is estimated to be approximately 65 GWh. This is equivalent to the annual consumption of approximately 9,500 homes in PNM’s service territory. PNM’s load management and
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annual energy efficiency programs also help lower peak demand requirements. In 2019, TNMP’s incremental energy saved as a result of new participation in TNMP’s energy efficiency programs is estimated to be approximately 16 GWh. This is equivalent to the annual consumption of approximately 1,285 homes in TNMP’s service territory. In April 2018, TNMP received the “Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program. As discussed above, in April 2020, PNM filed an application for energy efficiency and load management programs to be offered in 2021, 2022, and 2023. The proposed program also requests an AMI pilot program. PNM cannot predict the outcome of this matter.
Water Conservation and Solid Waste Reduction
PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 35% more efficient than in 2007). Continued growth in PNM’s fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction. Water usage has continued to decline as PNM has substituted less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018, as water consumption at that plant has been reduced by approximately 50%. Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy.
In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2019, 16 of the Company’s 23 facilities met the solid waste diversion goal of a 65% diversion rate. The Company expects to continue to do well in this area in the future.
Customer, Stakeholder, and Community Engagement
The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has demonstrated a commitment to building productive relationships with stakeholders, including customers, community partners, regulators, intervenors, legislators, and shareholders. PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including enhanced customer service engagement options, strategic customer outreach, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers.
The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM’s website www.pnm.com, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. The Company’s website is also a resource for information about PNM’s operations and community outreach efforts, including plans for building a sustainable energy future for New Mexico and to transition to an emissions-free generating portfolio by 2040. PNM has also leveraged social media in communications with customers on various topics such as education, outage alerts, safety, customer service, and PNM’s community partnerships in philanthropic projects. As discussed above, PNMR also has a dedicated Sustainability Portal on its corporate website, www.pnmresources.com, to provide additional information regarding the Company’s environmental and other sustainability efforts.
With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted.
Local relationships and one-on-one communications remain two of the most valuable ways both PNM and TNMP connect with their stakeholders. Both companies maintain long-standing relationships with governmental representatives and key electricity consumers to ensure that these stakeholders are updated on Company investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs.
PNMR has a long tradition of supporting the communities it serves in New Mexico and Texas. The Company demonstrates its core value of caring through the PNM Resources Foundation, corporate giving, employee volunteerism, and PNM’s low-income assistance programs. In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, the PNM Resources Foundation provides more than $1 million in grant funding each year across New Mexico and Texas. These grants help nonprofits innovate or sustain programs to grow and develop business, develop and implement environmental programs, and provide educational opportunities. Beginning in 2020, the PNM Resources Foundation will fund grants with a three-year focus on decreasing homelessness, increasing access to affordable housing, reducing carbon emissions, and community safety with an emphasis on COVID-19 programs in 2020.
During the three years ending December 2019, the Company has contributed approximately $6.2 million to civic, educational, environmental, low income, and economic development organizations. PNMR is proud to support programs and organizations that enrich the quality of life for the people in its service territories and communities. One of PNM’s most
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important outreach programs is tailored for low-income customers. In 2019, PNM hosted 46 community events throughout its service territory to connect low-income customers with nonprofit community service providers offering support and help with such needs as water and gas utility bills, food, clothing, medical programs, and services for seniors. Additionally, through its Good Neighbor Fund, PNM provided $0.4 million of assistance with electric bills to 3,734 families in 2019 and offered financial literacy training to further support customers. In response to the recent COVID-19 crisis, in early 2020 the PNM Resources Foundation awarded $0.4 million to nonprofits in New Mexico and Texas to assist with work being done on the front lines of the pandemic, with a focus on helping people currently experiencing homelessness during the shelter-in-place directives and seniors.
Volunteerism is an important facet of the PNMR culture. The mission of the PNMR Corporate Volunteer Group is to help make the communities PNMR serves safer, stronger, smarter, and more vibrant. In 2019, PNM and TNMP employees and retirees contributed over 13,300 volunteer hours serving their local communities by supporting at least 250 organizations. Company volunteers participate in an annual Day of Service at nonprofits across New Mexico and Texas. Employees and retirees also participate on a variety of nonprofit boards and independent volunteer activities throughout the year. PNMR employees want to make the Company the best place to work by connecting and growing with others to realize their objectives. By doing this the Company hopes to increase customer satisfaction. To assist with COVID-19 efforts, PNMR donated to the Emergency Action Fund in partnership with Albuquerque Community Foundation and United Way of Central New Mexico to benefit approximately twenty nonprofits and small businesses facing challenges due to cancelled fundraising events. In addition, PNM and TNMP Community Crews have assisted in efforts to safely deliver food and other supplies to assist teachers and others providing continued education at home, especially to those without access to computers and the internet.
Economic Factors
PNM – In the three months ended March 31, 2020, PNM experienced an increase in weather-normalized retail load of 1.1% compared to 2019. PNM did not experience significant impacts in customer usage during the first quarter of 2020 as a result of COVID-19. PNM expects to see increased residential customer usage offset by a decrease in the commercial customer class when compared to 2019 as a result of New Mexico state restrictions related to COVID-19 and does not currently expect significant impacts to its other customer classes.
TNMP – In the three months ended March 31, 2020, TNMP experienced a decrease in volumetric weather-normalized retail load of 0.2% compared to 2019. Weather-normalized demand-based load, excluding retail transmission customers, increased 2.7% in the three months ended March 31, 2020 compared to 2019. TNMP expects to see increased volumetric usage related to residential consumers offset by decreases in its demand based commercial consumer class as a result of impacts related to COVID-19.
The Company is unable to determine the duration or final impacts from COVID-19 as discussed in more detail in Item 1A. Risk Factors. The Company expects that some of the negative impacts to customer usage at PNM and TNMP will be offset by reduced operations and maintenance expenses resulting from the Company's efforts to maintain social distancing and that these costs could be further reduced if the economic impacts of COVID-19 persist into the summer. However, if current economic conditions extend through the summer and beyond, the Company may be required to implement additional measures such as further reducing or delaying operating and maintenance expenses and planned capital expenditures.
Results of Operations
Net earnings (loss) attributable to PNMR were $(15.3) million, or $(0.19) per diluted share in the three months ended March 31, 2020 compared to $18.7 million, or $0.23 per diluted share in 2019. Among other things, earnings in the three months ended March 31, 2020 benefited from higher earnings on PNM's renewable rate rider, higher customer usage at PNM, including the leap-year impact, higher transmission rates and demand-based usage at TNMP, lower operational and maintenance expenses, including lower employee related expense at PNM and TNMP, and lower plant maintenance costs at PNM, and lower interest charges at TNMP. These increases were more than offset by milder weather conditions at PNM and TNMP, increased depreciation and property taxes due to increased plant in service at PNM and TNMP, and losses on PNM's PVNGS and coal mine reclamation investment securities. Additional information on factors impacting results of operations for each segment is discussed below under Results of Operations.
Liquidity and Capital Resources
PNMR and PNM have revolving credit facilities with capacities of $300.0 million and $400.0 million that currently expire in October 2023. Both facilities provide for short-term borrowings and letters of credit and can be extended through October 2024, subject to approval by a majority of the lenders. In addition, PNM has a $40.0 million revolving credit facility with banks having a significant presence in New Mexico, which expires in December 2022, and TNMP has a $75.0 million revolving credit facility, which expires in September 2022. PNMR Development has a revolving credit facility with a capacity of $40.0 million, with the option to further increase the capacity up to $50.0 million upon 15-days advance notice, that expires in February 2021. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. Total availability for PNMR on a consolidated basis was $670.0 million at
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May 1, 2020. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries.
PNMR projects that its consolidated capital requirements, consisting of construction expenditures, capital contributions for PNMR Development’s 50% ownership interest in NMRD, and dividends, will total $4.4 billion for 2020 - 2024, including amounts expended through March 31, 2020. The construction expenditures include estimated amounts for an anticipated expansion of PNM’s transmission system, including the planned purchase of the Western Spirit Line, and proposed replacement generation resources included in PNM’s SJGS Abandonment Application.
In January 2020, PNMR entered into agreements to sell approximately 6.2 million shares of PNMR common stock under forward purchase arrangements (the “PNMR 2020 Forward Equity Sale Agreements”). Under the PNMR 2020 Forward Equity Sale Agreements, PNMR has the option to physically deliver, cash settle, or net share settle all or a portion of PNMR common stock on or before a date that is 12 months from their effective dates. PNMR did not initially receive any proceeds upon execution of these agreements. The initial forward sales price of $47.21 per share is subject to adjustments based on net interest rate factor and by expected future dividends on PNMR’s common stock. PNMR expects to physically settle all shares under the agreements on or before January 7, 2021. See Note 9.
On April 15, 2020, PNM entered into the PNM 2020 Term Loan and used the proceeds to prepay the PNM 2019 $250.0 million Term Loan, without penalty. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan.
On April 24, 2020, TNMP entered into the TNMP 2020 Bond Purchase Agreement with institutional investors for the sale of $185.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the "TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $110.0 million of TNMP 2020 Bonds on April 24, 2020 and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. TNMP will issue the remaining $75.0 million of TNMP 2020 Bonds on or before July 15, 2020 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes.
On April 30, 2020, PNM issued $200.0 million aggregate principal amount of PNM 2020 SUNs offered in private placement transactions. PNM used $100.0 million of proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes.
See discussion of the NMPRC's April 1, 2020 approval of PNM's request to issue approximately $361 million of Securitized Bonds upon the retirement of SJGS in 2022, and the related appeal of that order to the NM Supreme Court in Note 12.
After considering the effects of these financings and the Company's short-term liquidity position as of May 1, 2020, the Company has consolidated maturities of long-term and short-term debt aggregating approximately $718 million through May 31, 2021. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2020-2024 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. The Company is in compliance with its debt covenants.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Disclosure Regarding Forward Looking Statements and to Part II, Item 1A. Risk Factors.
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A summary of net earnings attributable to PNMR is as follows:

|  |  |  |  |  |  | Three Months Ended March 31, |  |  |  |
|  |  |  |  |  |  | 2020 |  | 2019 |  | Change
|  |  |  |  |  |  | (In millions, except per share amounts) |  |  |  |
Net earnings (loss) attributable to PNMR |  |  |  |  |  |  | $ | (15.3) |  |  |  | $ | 18.7 |  |  |  | $ | (34.0) |
Average diluted common and common equivalent shares(1) |  |  |  |  |  |  | 79.9 |  |  |  | 80.0 |  |  |  | (0.1) |
Net earnings attributable to PNMR per diluted share |  |  |  |  |  |  | $ | (0.19) |  |  |  | $ | 0.23 |  |  |  | $ | (0.42) |

(1) Excludes anti-dilutive shares for the three months ending March 31, 2020.
The components of the change in net earnings attributable to PNMR are:

|  |  | Three Months Ended
|  |  | March 31, 2020
|  |  | (In millions)
PNM |  |  | $ | (35.1) |
TNMP |  |  | 3.0 |
Corporate and Other |  |  | (1.9) |
Net change |  |  | $ | (34.0) |

Information regarding the factors impacting PNMR’s operating results by segment are set forth below.
Segment Information
The following discussion is based on the segment methodology that PNMR’s management uses for making operating decisions and assessing performance of its various business activities. See Note 2 for more information on PNMR’s operating segments.
PNM
PNM defines utility margin as electric operating revenues less cost of energy, which consists primarily of fuel and purchase power costs. PNM believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since substantially all fuel and purchase power costs are offset in revenues as those costs are passed through to customers under PNM’s FPPAC. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.
The following table summarizes the operating results for PNM:

|  |  |  |  |  |  | Three Months Ended March 31, |  |  |  |
|  |  |  |  |  |  | 2020 |  | 2019 |  | Change
|  |  |  |  |  |  | (In millions) |  |  |  |
Electric operating revenues |  |  |  |  |  |  | $ | 248.1 |  |  | $ | 269.3 |  |  | $ | (21.2) |
Cost of energy |  |  |  |  |  |  | 74.5 |  |  | 99.3 |  |  | (24.8) |
Utility margin |  |  |  |  |  |  | 173.6 |  |  | 170.0 |  |  | 3.6 |
Operating expenses |  |  |  |  |  |  | 98.6 |  |  | 106.5 |  |  | (7.9) |
Depreciation and amortization |  |  |  |  |  |  | 41.4 |  |  | 39.2 |  |  | 2.2 |
Operating income |  |  |  |  |  |  | 33.6 |  |  | 24.3 |  |  | 9.3 |
Other income (deductions) |  |  |  |  |  |  | (30.5) |  |  | 18.0 |  |  | (48.5) |
Interest charges |  |  |  |  |  |  | (17.6) |  |  | (18.4) |  |  | 0.8 |
Segment earnings (loss) before income taxes |  |  |  |  |  |  | (14.6) |  |  | 23.9 |  |  | (38.5) |
Income (taxes) benefit |  |  |  |  |  |  | 2.4 |  |  | (2.0) |  |  | 4.3 |
Valencia non-controlling interest |  |  |  |  |  |  | (3.7) |  |  | (2.8) |  |  | (0.9) |
Preferred stock dividend requirements |  |  |  |  |  |  | (0.1) |  |  | (0.1) |  |  | — |
Segment earnings |  |  |  |  |  |  | $ | (16.1) |  |  | $ | 19.0 |  |  | $ | (35.1) |

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The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:

|  |  |  |  |  |  | Three Months Ended March 31, |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Percentage
|  |  |  |  |  |  | 2020 |  | 2019 |  | Change
|  |  |  |  |  |  | (Gigawatt hours, except customers) |  |  |  |
Residential |  |  |  |  |  |  | 768.2 |  |  | 795.5 |  |  | (3.4) | %
Commercial |  |  |  |  |  |  | 838.7 |  |  | 828.2 |  |  | 1.3 |
Industrial |  |  |  |  |  |  | 334.3 |  |  | 250.0 |  |  | 33.7 |
Public authority |  |  |  |  |  |  | 48.5 |  |  | 49.6 |  |  | (2.2) |
Economy energy service (1) |  |  |  |  |  |  | 166.5 |  |  | 156.9 |  |  | 6.1 |
Other sales for resale |  |  |  |  |  |  | 605.2 |  |  | 874.7 |  |  | (30.8) |
|  |  |  |  |  |  | 2,761.4 |  |  | 2,954.9 |  |  | (6.5) | %
Average retail customers (thousands) |  |  |  |  |  |  | 533.0 |  |  | 529.1 |  |  | 0.8 | %

(1) PNM purchases energy for a large customer on the customer’s behalf and delivers the energy to the customer’s location through PNM’s transmission system. PNM charges the customer for the cost of the energy as a direct pass through to the customer with only a minor impact in utility margin resulting from providing ancillary services.
Operating Results – Three Months Ended March 31, 2020 compared to 2019
The following table summarizes the significant changes to utility margin:

|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Utility margin: |  |  | (In millions) |  |  |  |  |  |
| Retail customer usage/load – Weather normalized KWh sales increased 1.1%, due to increased sales to industrial customers |  | $ | 0.6 |  |  |  |  |  |  |
| Weather – Colder weather in 2019; heating degree days were 10.8% lower in 2020 |  | (2.2) |  |  |  |  |  |  |
| Leap Year – Increase in revenue due to additional day in 2020 |  | 1.8 |  |  |  |  |  |  |
| Transmission – Increase primarily due to the addition of new customers |  | 0.8 |  |  |  |  |  |  |
| Rate riders – Includes energy efficiency and the renewable energy rider, which is partially offset in depreciation and amortization below |  | 2.1 |  |  |  |  |  |  |
| Other |  | 0.5 |  |  |  |  |  |  |
| Net Change |  | $ | 3.6 |  |  |  |  |  |  |

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:

|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Operating expenses: |  |  | (In millions) |  |  |  |  |  |
| Lower plant maintenance costs at SJGS, PVNGS, and gas-fired plants, partially offset by higher costs at Four Corners |  | $ | (1.6) |  |  |  |  |  |  |
| Regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 12) |  | (1.3) |  |  |  |  |  |  |
| Lower employee related, and outside service expenses |  | (4.5) |  |  |  |  |  |  |
| Other |  | (0.5) |  |  |  |  |  |  |
| Net Change |  | $ | (7.9) |  |  |  |  |  |  |

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|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Depreciation and amortization: |  |  | (In millions) |  |  |  |  |  |
| Increased utility plant in service, including solar facilities under the renewable rider |  | $ | 2.0 |  |  |  |  |  |  |
| Other |  | 0.2 |  |  |  |  |  |  |
| Net Change |  | $ | 2.2 |  |  |  |  |  |  |

Other income (deductions): |  |  |  |  |  |  |  |  |
| Lower gains on investment securities in the NDT and coal mine reclamation trusts |  | $ | (46.9) |  |  |  |  |  |  |
| Lower equity AFUDC |  | (0.8) |  |  |  |  |  |  |
| Lower interest income related to investment securities in the NDT and coal mine reclamation trusts |  | (0.1) |  |  |  |  |  |  |
| Higher pension and OPEB non-service cost expense |  | (0.7) |  |  |  |  |  |  |
| Net Change |  | $ | (48.5) |  |  |  |  |  |  |

Interest charges: |  |  |  |  |  |  |  |  |
| Lower interest on term loan agreements |  | $ | 0.2 |  |  |  |  |  |  |
| Interest on deposit by PNMR Development for transmission interconnections, which is offset in Corporate and Other |  | 0.9 |  |  |  |  |  |  |
| Other |  | (0.3) |  |  |  |  |  |  |
| Net Change |  | $ | 0.8 |  |  |  |  |  |  |

Income (taxes) benefits: |  |  |  |  |  |  |  |  |
| Lower segment earnings before income taxes |  | $ | 10.0 |  |  |  |  |  |  |
| Changes in the anticipated effective tax rate, including amortization of excess deferred income taxes (Note 14) |  | (5.8) |  |  |  |  |  |  |
| Other |  | 0.1 |  |  |  |  |  |  |
| Net Change |  | $ | 4.3 |  |  |  |  |  |  |

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TNMP
TNMP defines utility margin as electric operating revenues less cost of energy, which consists of costs charged by third-party transmission providers. TNMP believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since all third-party transmission costs are passed on to consumers through a transmission cost recovery factor. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.
The following table summarizes the operating results for TNMP:

|  |  |  |  |  |  | Three Months Ended March 31, |  |  |  |
|  |  |  |  |  |  | 2020 |  | 2019 |  | Change
|  |  |  |  |  |  | (In millions) |  |  |  |
Electric operating revenues |  |  |  |  |  |  | $ | 85.5 |  |  | $ | 80.3 |  |  | $ | 5.2 |
Cost of energy |  |  |  |  |  |  | 24.2 |  |  | 22.3 |  |  | 1.9 |
Utility margin |  |  |  |  |  |  | 61.3 |  |  | 58.0 |  |  | 3.3 |
Operating expenses |  |  |  |  |  |  | 25.1 |  |  | 25.2 |  |  | (0.1) |
Depreciation and amortization |  |  |  |  |  |  | 21.8 |  |  | 20.2 |  |  | 1.6 |
Operating income |  |  |  |  |  |  | 14.3 |  |  | 12.6 |  |  | 1.7 |
Other income (deductions) |  |  |  |  |  |  | 0.6 |  |  | 0.6 |  |  | — |
Interest charges |  |  |  |  |  |  | (7.2) |  |  | (8.8) |  |  | 1.6 |
Segment earnings before income taxes |  |  |  |  |  |  | 7.7 |  |  | 4.4 |  |  | 3.3 |
Income (taxes) |  |  |  |  |  |  | (0.6) |  |  | (0.3) |  |  | (0.3) |
Segment earnings |  |  |  |  |  |  | $ | 7.1 |  |  | $ | 4.1 |  |  | $ | 3.0 |

The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:

|  |  |  |  |  |  | Three Months Ended March 31, |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Percentage
|  |  |  |  |  |  | 2020 |  | 2019 |  | Change
Volumetric load (1) (GWh) |  |  |  |  |  |  |  |  |  |  |
Residential |  |  |  |  |  |  | 598.7 |  |  | 618.7 |  |  | (3.2) | %
Commercial and other |  |  |  |  |  |  | 8.0 |  |  | 7.9 |  |  | 1.3 | %
Total volumetric load |  |  |  |  |  |  | 606.7 |  |  | 626.6 |  |  | (3.2) | %
Demand-based load (2) (MW) |  |  |  |  |  |  | 4,896.5 |  |  | 4,721.9 |  |  | 3.7 | %
Average retail consumers (thousands) (3) |  |  |  |  |  |  | 257.1 |  |  | 253.8 |  |  | 1.3 | %

(1) Volumetric load consumers are billed on KWh usage.
(2) Demand-based load includes consumers billed on monthly KW peak and also includes retail transmission customers that are primarily billed under TNMP’s rate riders.
(3) TNMP provides transmission and distribution services to REPs that provide electric service to their customers in TNMP’s service territories. The number of consumers above represents the customers of these REPs. Under TECA, consumers in Texas have the ability to choose any REP to provide energy.
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Operating Results – Three Months Ended March 31, 2020 compared to 2019
The following table summarizes the significant changes to utility margin:

|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Utility margin: |  |  | (In millions) |  |  |  |  |  |
| Rate relief – Transmission cost of service rate increases in March 2019, September 2019, and March 2020 |  | $ | 4.0 |  |  |  |  |  |  |
| Retail customer usage/load – Weather normalized KWh sales decreased 0.2%, offset by an increase of 1.3% in the average number of retail consumers and the leap-year impact |  | — |  |  |  |  |  |  |
| Demand-based customer usage/load – Higher demand-based revenues for large commercial and industrial customers; weather normalized billed demand excluding retail transmission customers increased 2.7% |  | 0.7 |  |  |  |  |  |  |
| Weather – Milder weather in 2020; heating degree days were 23.4% lower in 2020 |  | (1.0) |  |  |  |  |  |  |
| Rate Riders – Impacts of rate riders, including the CTC surcharge, energy efficiency rider, rate case expense rider, and transmission cost recovery factor |  | (0.2) |  |  |  |  |  |  |
| Other |  | (0.2) |  |  |  |  |  |  |
| Net Change |  | $ | 3.3 |  |  |  |  |  |  |

The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:

|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Operating expenses: |  |  | (In millions) |  |  |  |  |  |
| Lower employee related expenses |  | $ | (0.9) |  |  |  |  |  |  |
| Higher vegetation management expenses |  | 0.2 |  |  |  |  |  |  |
| Lower capitalization of administrative and general and other expenses due to lower construction expenditures |  | 0.1 |  |  |  |  |  |  |
| Higher property taxes due to increased utility plant in service |  | 0.5 |  |  |  |  |  |  |
| Net Change |  | $ | (0.1) |  |  |  |  |  |  |

Depreciation and amortization: |  |  |  |  |  |  |  |  |
| Increased utility plant in service |  | $ | 1.7 |  |  |  |  |  |  |
| Net Change |  | $ | 1.7 |  |  |  |  |  |  |

Other income (deductions): |  |  |  |  |  |  |  |  |
| Lower equity AFUDC |  | $ | (0.1) |  |  |  |  |  |  |
| Other |  | 0.1 |  |  |  |  |  |  |
| Net Change |  | $ | — |  |  |  |  |  |  |

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|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Interest charges: |  |  | (In millions) |  |  |  |  |  |
| Repayment of $172.3 million 9.50% first mortgage bonds in April 2019 |  | $ | 4.3 |  |  |  |  |  |  |
| Issuance of $225.0 million first mortgage bonds in March 2019 |  | (2.2) |  |  |  |  |  |  |
| Issuance of $80.0 million first mortgage bonds in July 2019 |  | (0.7) |  |  |  |  |  |  |
| Repayment of $35.0 million term loan in December 2019 |  | 0.3 |  |  |  |  |  |  |
| Lower debt AFUDC |  | (0.1) |  |  |  |  |  |  |
| Net Change |  | $ | 1.6 |  |  |  |  |  |  |

Income (taxes) benefits: |  |  |  |  |  |  |  |  |
| Higher segment earnings before income taxes |  | $ | (0.6) |  |  |  |  |  |  |
| Other |  | 0.3 |  |  |  |  |  |  |
| Net Change |  | $ | (0.3) |  |  |  |  |  |  |

Corporate and Other
The table below summarizes the operating results for Corporate and Other:

|  |  |  |  |  |  | Three Months Ended March 31, |  |  |  |
|  |  |  |  |  |  | 2020 |  | 2019 |  | Change
|  |  |  |  |  |  | (In millions) |  |  |  |
Electric operating revenues |  |  |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Cost of energy |  |  |  |  |  |  | — |  |  | — |  |  | — |
Utility margin |  |  |  |  |  |  | — |  |  | — |  |  | — |
Operating expenses |  |  |  |  |  |  | (5.5) |  |  | (5.8) |  |  | 0.3 |
Depreciation and amortization |  |  |  |  |  |  | 5.7 |  |  | 5.9 |  |  | (0.2) |
Operating income (loss) |  |  |  |  |  |  | (0.2) |  |  | (0.2) |  |  | — |
Other income (deductions) |  |  |  |  |  |  | (0.6) |  |  | (0.8) |  |  | 0.2 |
Interest charges |  |  |  |  |  |  | (5.6) |  |  | (4.5) |  |  | (1.1) |
Segment earnings (loss) before income taxes |  |  |  |  |  |  | (6.5) |  |  | (5.4) |  |  | (1.1) |
Income (taxes) benefit |  |  |  |  |  |  | 0.2 |  |  | 1.0 |  |  | (0.8) |
Segment earnings (loss) |  |  |  |  |  |  | $ | (6.3) |  |  | $ | (4.4) |  |  | $ | (1.9) |

Corporate and Other operating expenses shown above are net of amounts allocated to PNM and TNMP under shared services agreements. Substantially all depreciation and amortization expense and other income (deductions) are offset in operating expenses as a result of allocation of these costs to other business segments.
Operating Results – Three Months Ended March 31, 2020 compared to 2019
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:

|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Other income (deductions): |  |  | (In millions) |  |  |  |  |  |
| Higher equity method investment income from NMRD |  | $ | 0.1 |  |  |  |  |  |  |
| Other |  | 0.1 |  |  |  |  |  |  |
| Net Change |  | $ | 0.2 |  |  |  |  |  |  |

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|  |  | Three Months Ended March 31, 2020 |  |  |  |  |  |
|  |  | Change |  |  |  |  |  |
Interest charges: |  |  | (In millions) |  |  |  |  |  |
| Lower interest on term loans |  | $ | 0.5 |  |  |  |  |  |  |
| Higher short-term borrowings |  | (0.7) |  |  |  |  |  |  |
| Elimination of intercompany interest |  | (0.9) |  |  |  |  |  |  |
| Net Change |  | $ | (1.1) |  |  |  |  |  |  |

Income (taxes) benefits: |  |  |  |  |  |  |  |  |
| Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods |  | $ | (1.3) |  |  |  |  |  |  |
| Higher segment loss before income taxes |  | 0.3 |  |  |  |  |  |  |
| Other |  | 0.2 |  |  |  |  |  |  |
| Net Change |  | $ | (0.8) |  |  |  |  |  |  |

LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows
The changes in PNMR’s cash flows for the three months ended March 31, 2020 compared to March 31, 2019 are summarized as follows:

| Three Months Ended March 31, |  |  |  |
| 2020 |  | 2019 |  | Change
| (In millions) |  |  |  |
Net cash flows from: |  |  |  |  |
Operating activities | $ | 93.8 |  |  | $ | 104.7 |  |  | $ | (10.9) |
Investing activities | (152.8) |  |  | (151.9) |  |  | (0.9) |
Financing activities | 71.5 |  |  | 225.2 |  |  | (153.7) |
Net change in cash and cash equivalents | $ | 12.4 |  |  | $ | 178.0 |  |  | $ | (165.6) |

Cash Flows from Operating Activities
Changes in PNMR’s cash flow from operating activities result from net earnings, adjusted for items impacting earnings that do not provide or use cash. See Results of Operations above. Certain changes in assets and liabilities resulting from normal operations, including the effects of the seasonal nature of the Company’s operations, also impact operating cash flows.
Cash Flows from Investing Activities
The changes in PNMR’s cash flows from investing activities relate primarily to changes in utility plant additions. Cash flows from investing activities include purchases and sales of investment securities in the NDT and coal mine reclamation trusts as well as activity related to NMRD. Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:
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| Three Months Ended March 31, |  |  |  |
| 2020 |  | 2019 |  | Change
Cash (Outflows) for Utility Plant Additions | (In millions) |  |  |  |
PNM: |  |  |  |  |
Generation | $ | (11.5) |  |  | $ | (22.1) |  |  | $ | 10.6 |
Renewables | — |  |  | (18.5) |  |  | 18.5 |
Transmission and distribution | (50.2) |  |  | (29.2) |  |  | (21.0) |
Nuclear fuel | (8.9) |  |  | (6.1) |  |  | (2.8) |
| (70.6) |  |  | (75.9) |  |  | 5.3 |
TNMP: |  |  |  |  |
Transmission | (16.3) |  |  | (27.5) |  |  | 11.2 |
Distribution | (44.1) |  |  | (31.1) |  |  | (13.0) |
| (60.4) |  |  | (58.6) |  |  | (1.8) |
Corporate and Other: |  |  |  |  |
Computer hardware and software | (9.2) |  |  | (7.4) |  |  | (1.8) |
Total cash (outflows) for additions to utility plant | $ | (140.2) |  |  | $ | (141.9) |  |  | $ | 1.7 |
Other Cash Flows from Investing Activities |  |  |  |  |
Proceeds from sales of investment securities | $ | 149.4 |  |  | $ | 74.5 |  |  | $ | 74.9 |
Purchases of investment securities | (152.1) |  |  | (77.4) |  |  | (74.7) |
Investments in NMRD | (10.0) |  |  | (7.0) |  |  | (3.0) |
Other, net | 0.1 |  |  | (0.1) |  |  | 0.2 |
Total cash (outflows) from investing activities | $ | (152.8) |  |  | $ | (151.9) |  |  | $ | (0.9) |

Cash Flow from Financing Activities
The changes in PNMR’s cash flows from financing activities include:
•Short-term borrowings increased $115.5 million in 2020 compared to a decrease of $12.1 million in 2019, resulting in a net increase in cash flows from financing activities of $127.6 million
•In 2019, PNM borrowed $250.0 million under the PNM 2019 Term Loan and used the proceeds to repay the $200.0 million PNM 2017 Term Loan
•In 2019, TNMP issued $225.0 million of TNMP 2019 Bonds
Financing Activities
See Note 7 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and Note 9 for additional information concerning the Company’s financing activities. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. The Company’s ability to access the credit and capital markets at a reasonable cost is largely dependent upon its:
•Ability to earn a fair return on equity
•Results of operations
•Ability to obtain required regulatory approvals
•Conditions in the financial markets
•Credit ratings
The Company is closely monitoring developments and is taking steps to mitigate the potential risks related to COVID-19. The Company currently believes it has adequate liquidity but cannot predict the extent or duration of the outbreak, its effects on the global, national or local economy, including the Company's ability to access capital in the financial markets, or on the Company's financial position, results of operations, and cash flows.
Each of the Company’s revolving credit facilities and term loans contain a single financial covenant that requires the maintenance of a debt-to-capitalization ratio. For the PNMR and PNMR Development agreements, this ratio must be maintained at less than or equal to 70%, and for the PNM and TNMP agreements this ratio must be maintained at less than or equal to 65%. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. The Company is in compliance with its debt covenants.
On October 21, 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank, N.A. (the “JPM LOC Facility”) under which letters of credit aggregating $30.3 million were issued to facilitate the posting of reclamation
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bonds, which WSJ LLC is required to post in connection with permits relating to the operation of the San Juan mine. See Notes 10 and 11.
As discussed in Note 9, in January 2020, PNMR entered into forward sale agreements to sell approximately 6.2 million shares of PNMR common stock. The initial forward sale price of $47.21 per share is subject to adjustments based on a net interest rate factor and by expected future dividends paid on PNMR common stock as specified in the forward sale agreements. PNMR did not initially receive any proceeds upon the execution of these agreements and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement on or before the date that is 12 months from their effective dates. PNMR expects to physically settle all shares under the agreements on or before January 7, 2021.
In April 2020, PNM entered into the $250.0 million PNM 2020 Term Loan and used the proceeds to prepay the PNM 2019 $250.0 million Term Loan, without penalty. As discussed below, on April 30, 2020, PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the PNM 2020 Term Loan.
On April 24, 2020, TNMP entered into the TNMP 2020 Bond Purchase Agreement with institutional investors for the sale of $185.0 million aggregate principal amount of four series of TNMP first mortgage bonds (the "TNMP 2020 Bonds") offered in private placement transactions. TNMP issued $110.0 million of TNMP 2020 Bonds on April 24, 2020 and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. TNMP will issue the remaining $75.0 million of TNMP 2020 Bonds on or before July 15, 2020 and will use the proceeds from that issuance to repay borrowings under the TNMP Revolving Credit Facility and for other corporate purposes. The issuance of the remaining TNMP 2020 Bonds is subject to the satisfaction of customary conditions, and the TNMP 2020 Bonds are subject to continuing compliance with the representations, warranties and covenants of the TNMP 2020 Bond Purchase Agreement. The terms of the TNMP 2020 Bond Purchase Agreement include customary covenants, including a covenant that requires TNMP to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, a cross-default provision, and a change-of-control provision. TNMP will have the right to redeem any or all of the TNMP 2020 Bonds prior to their respective maturities, subject to payment of a customary make-whole premium.
On April 30, 2020, PNM issued $200.0 million aggregate principal amount of PNM 2020 SUNs offered in private placement transactions. PNM used $100.0 million of proceeds from the PNM 2020 SUNs to repay an equal amount of the PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs was used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes. The PNM 2020 Note Purchase Agreement includes customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2020 SUNs at par. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium.
See discussion of the NMPRC's April 1, 2020 approval of PNM’s request to issue up to $361 million of Securitized Bonds in the SJGS Abandonment Application, and the related appeal to the NM Supreme Court in Note 12.
In 2017, PNMR entered into three separate four-year hedging agreements whereby it effectively established fixed interest rates on three separate tranches, each of $50.0 million, of its variable rate debt. The hedging agreements effectively fix interest rates on the aggregate $150.0 million of short-term debt at rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR, and are subject to changes if there is a change in PNMR’s credit rating.
Capital Requirements
PNMR’s total capital requirements consist of construction expenditures, cash dividend requirements for PNMR common stock and PNM preferred stock, and capital contributions for PNMR Development’s 50% ownership interest in NMRD. Key activities in PNMR’s current construction program include:
•Upgrading and replacing generation resources and for renewable energy resources
•Expanding the electric transmission and distribution systems
•Purchasing nuclear fuel
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Projected capital requirements, including amounts expended through March 31, 2020, are:

| 2020 |  | 2021-2024 |  | Total
| (In millions) |  |  |  |
Construction expenditures | $ | 826.4 |  |  | $ | 3,004.6 |  |  | $ | 3,831.0 |
Capital contributions to NMRD | 27.0 |  |  | — |  |  | 27.0 |
Dividends on PNMR common stock | 98.0 |  |  | 422.3 |  |  | 520.3 |
Dividends on PNM preferred stock | 0.5 |  |  | 2.1 |  |  | 2.6 |
Total capital requirements | $ | 951.9 |  |  | $ | 3,429.0 |  |  | $ | 4,380.9 |

The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The construction expenditures above include $91.8 million in 2020-2021 for anticipated expansions of PNM’s transmission system and a net investment of approximately $285 million resulting from PNM’s agreement to purchase the Western Spirit Line, subject to certain conditions being met prior to closing. Also included in the table above are approximately $298 million in 2020-2022 for PNM's recommended SJGS replacement resource scenario included in the SJGS Abandonment Application as discussed in Note 12. Not included in the table above are potential incremental expenditures for new customer growth in New Mexico and Texas, and other transmission and renewable energy expansion in New Mexico. The ability of PNMR to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to pay dividends to PNMR. Note 6 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K describes regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.
During the three months ended March 31, 2020, PNMR met its capital requirements and construction expenditures through cash generated from operations, as well as its liquidity arrangements and the borrowings discussed in Financing Activities above.
In addition to the capital requirements for construction expenditures and dividends, the Company has long-term debt and term loans that must be paid or refinanced at maturity. PNM has $100.3 million of long-term debt that must be repriced by June 2020. In addition, the $90.0 million PNMR Development Term Loan matures in November 2020, the $50.0 million PNMR 2018 Two-Year Term Loan matures in December 2020, and the $300.0 million PNMR 2018 SUNs mature on March 9, 2021. Note 7 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K contains additional information about the maturities of long-term debt. The Company anticipates that funds to repay long-term debt maturities and term loans will come from entering into new arrangements similar to the existing agreements, borrowing under the revolving credit facilities, issuance of new long-term debt or equity in the public or private capital markets, or a combination of these sources. The Company has from time to time refinanced or repurchased portions of its outstanding debt before scheduled maturity. PNM has $36.0 million of PCRBs that became callable at par on January 1, 2020 and an additional $266.5 million of PCRBs that will become callable at par on June 1, 2020. Depending on market conditions, the Company may refinance these debt issuances or make additional debt repurchases in the future.
Liquidity
PNMR’s liquidity arrangements include the PNMR Revolving Credit Facility, the PNM Revolving Credit Facility, and the TNMP Revolving Credit Facility. The PNMR and PNM facilities currently expire in October 2023 but can be extended through October 2024, subject to approval by a majority of the lenders. The $75.0 million TNMP Revolving Credit Facility matures in September 2022. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility that expires in December 2022. PNMR Development has a $40.0 million revolving credit facility that expires on February 23, 2021. PNMR Development has the option to further increase the capacity of this facility to $50.0 million upon 15-days advanced notice. The PNMR Development Revolving Credit Facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and for other activities. See Note 16. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.
The revolving credit facilities and the PNM 2017 New Mexico Credit Facility provide short-term borrowing capacity. The revolving credit facilities also allow letters of credit to be issued. Letters of credit reduce the available capacity under the facilities. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. The Company’s business is seasonal with more revenues and cash flows from operations being generated in the summer months. In general, the Company relies on the credit facilities to be the initial funding source for
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construction expenditures. Accordingly, borrowings under the facilities may increase over time. Depending on market and other conditions, the Company will periodically sell long-term debt and use the proceeds to reduce the borrowings under the credit facilities.
Information regarding the range of borrowings for each facility is as follows:

|  | Three Months Ended March 31, 2020 |  |  |  |  |  |
Range of Borrowings |  | Low |  | High |  |  |  |
|  | (In millions) |  |  |  |  |  |
PNM: |  |  |  |  |  |  |  |
PNM Revolving Credit Facility |  | $ | 30.0 |  |  | $ | 63.2 |  |  |  |  |
PNM 2017 New Mexico Credit Facility |  | 10.0 |  |  | 30.0 |  |  |  |  |
TNMP Revolving Credit Facility |  | 16.6 |  |  | 70.0 |  |  |  |  |
PNMR Revolving Credit Facility |  | 110.5 |  |  | 188.6 |  |  |  |  |

At March 31, 2020, the average interest rates were 2.15% for the PNMR Revolving Credit Facility, 2.35% for the PNM Revolving Credit Facility, 2.12% for the PNM 2017 New Mexico Credit Facility, and 1.74% for the TNMP Revolving Credit Facility. There were no borrowings outstanding under the PNMR Development Revolving Credit Facility at March 31, 2020.
The Company currently believes that its capital requirements for at least the next twelve months can be met through internal cash generation, existing, extended, or new credit arrangements, and access to public and private capital markets. As discussed above and in Note 9, in January 2020, PNMR entered into the PNMR 2020 Equity Forward Sale Agreements for 6.2 million shares of PNMR common stock. In April 2020, PNM executed the $250.0 million PNM 2020 Term Loan and used the proceeds to pay off the PNM 2019 $250.0 Million Term Loan, and issued $200.0 million of PNM 2020 SUNs and used a portion of the proceeds to repay $100.0 million under the PNM 2020 Term Loan without penalty. In addition, in April 2020, TNMP entered into the TNMP 2020 Bond Purchase Agreement, under which TNMP agreed to issue a total of $185.0 million of first mortgage bonds. Under that agreement, TNMP issued $110.0 million of first mortgage bonds on April 24, 2020 and will issue the remaining $75.0 million on or before July 15, 2020. The Company anticipates that it will be necessary to obtain additional long-term financing to fund its capital requirements and to balance its capital structure during the 2020-2024 period, including interim financing to fund construction of replacement resources prior to the issuance of the energy transition bonds included in PNM’s SJGS Abandonment Application. See Note 12. This could include new debt and/or equity issuances, including instruments such as mandatory convertible securities beginning in 2021. To cover the difference in the amounts and timing of internal cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements or other short-term loans. However, if difficult market conditions persist or worsen, the Company may not be able to access the capital markets or renew credit facilities when they expire or the cost of these facilities and debt issuances may increase. Should that occur, the Company would seek to improve cash flows by reducing capital expenditures and exploring other available alternatives.
As of May 1, 2020, ratings on the Company’s securities were as follows:

| PNMR |  | PNM |  | TNMP
S&P |  |  |  |  |
Issuer rating | BBB |  | BBB |  | BBB+
Senior secured debt | * |  | * |  | A
Senior unsecured debt | BBB- |  | BBB |  | *
Preferred stock | * |  | BB+ |  | *
Moody’s |  |  |  |  |
Issuer rating | Baa3 |  | Baa2 |  | A3
Senior secured debt | * |  | * |  | A1
Senior unsecured debt | Baa3 |  | Baa2 |  | *
* Not applicable |  |  |  |  |

Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. On June 29, 2018, Moody’s changed the ratings outlook for PNMR and PNM from positive to stable, maintained the stable outlook for TNMP, and affirmed the long-term credit ratings of each entity. In August 2019, Moody’s affirmed the credit rating and stable outlook for PNMR, PNM and TNMP. On April 6, 2020, S&P reduced the issuer credit ratings for PNMR, PNM, and
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TNMP by one notch, reduced the senior unsecured debt ratings for PNMR and PNM by one notch, affirmed TNMP's senior secured debt rating, and issued a stable outlook for each entity. In addition, S&P reduced PNM's preferred stock rating to BB+. Investors are cautioned that a security rating is not a recommendation to buy, sell, or hold securities, that each rating is subject to revision or withdrawal at any time by the rating organization, and that each rating should be evaluated independently of any other rating.
A summary of liquidity arrangements as of May 1, 2020 is as follows:

| PNM |  | TNMP |  | PNMR Separate |  | PNMR Development |  | PNMR Consolidated
| (In millions) |  |  |  |  |  |  |  |
Financing capacity: |  |  |  |  |  |  |  |  |
Revolving credit facility | $ | 400.0 |  |  | $ | 75.0 |  |  | $ | 300.0 |  |  | $ | 40.0 |  |  | $ | 815.0 |
PNM 2017 New Mexico Credit Facility | 40.0 |  |  | — |  |  | — |  |  | — |  |  | 40.0 |
Total financing capacity | $ | 440.0 |  |  | $ | 75.0 |  |  | $ | 300.0 |  |  | $ | 40.0 |  |  | $ | 855.0 |
Amounts outstanding as of May 1, 2020: |  |  |  |  |  |  |  |  |
Revolving credit facility | $ | 15.0 |  |  | $ | — |  |  | $ | 132.7 |  |  | $ | — |  |  | $ | 147.7 |
PNM 2017 New Mexico Credit Facility | 30.0 |  |  | — |  |  | — |  |  | — |  |  | 30.0 |
Letters of credit | 2.5 |  |  | 0.1 |  |  | 4.7 |  |  | — |  |  | 7.3 |
Total short-term debt and letters of credit | 47.5 |  |  | 0.1 |  |  | 137.4 |  |  | — |  |  | 185.0 |
Remaining availability as of May 1, 2020 | $ | 392.5 |  |  | $ | 74.9 |  |  | $ | 162.6 |  |  | $ | 40.0 |  |  | $ | 670.0 |
Invested cash as of May 1, 2020 | $ | 1.9 |  |  | $ | 21.9 |  |  | $ | 0.9 |  |  | $ | — |  |  | $ | 24.7 |

In addition to the above, PNMR has $30.3 million of letters of credit outstanding under the JPM LOC Facility. The above table excludes intercompany debt. As of May 1, 2020, neither PNM, TNMP, nor PNMR Development had any intercompany borrowings from PNMR. The remaining availability under the revolving credit facilities at any point in time varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures.
PNMR has an automatic shelf registration that provides for the issuance of various types of debt and equity securities that expires in March 2021. PNM has a shelf registration statement for up to $475.0 million of senior unsecured notes that expires on May 17, 2020.
Off-Balance Sheet Arrangements
PNMR has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Commitments and Contractual Obligations
PNMR, PNM, and TNMP have contractual obligations for long-term debt, leases, construction expenditures, purchase obligations, and certain other long-term obligations. See MD&A – Commitments and Contractual Obligations in the 2019 Annual Reports on Form 10-K.
Contingent Provisions of Certain Obligations
As discussed in the 2019 Annual Reports on Form 10-K, PNMR, PNM, and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. In the unlikely event that the contingent requirements were to be triggered, PNMR, PNM, or TNMP could be required to provide security, immediately pay outstanding obligations, or be prevented from drawing on unused capacity under certain credit agreements. The contingent provisions also include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations in the event of a downgrade in credit ratings. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions. As discussed above, in April 2020, S&P downgraded PNMR's and PNM's senior unsecured debt ratings which triggered pricing changes in the PNMR and PNM Revolving Credit Facilities. No other conditions have occurred that would result in any of the above contingent provisions being implemented.
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Capital Structure
The capitalization tables below include the current maturities of long-term debt, but do not include short-term debt and do not include lease obligations as debt.

| March 31, 2020 |  | December 31, 2019
PNMR |  |  |
PNMR common equity | 35.0 | % |  | 35.8 | %
Preferred stock of subsidiary | 0.2 |  |  | 0.2 |
Long-term debt | 64.8 |  |  | 64.0 |
Total capitalization | 100.0 | % |  | 100.0 | %
PNM |  |  |
PNM common equity | 44.1 | % |  | 45.2 | %
Preferred stock | 0.4 |  |  | 0.4 |
Long-term debt | 55.5 |  |  | 54.4 |
Total capitalization | 100.0 | % |  | 100.0 | %
TNMP |  |  |
Common equity | 52.8 | % |  | 52.9 | %
Long-term debt | 47.2 |  |  | 47.1 |
Total capitalization | 100.0 | % |  | 100.0 | %

OTHER ISSUES FACING THE COMPANY
Climate Change Issues
Background
For the past several years, management has identified multiple risks and opportunities related to climate change, including potential environmental regulation, technological innovation, and availability of fuel and water for operations, as among the most significant risks facing the Company. Accordingly, these risks are overseen by the Board in order to facilitate more integrated risk and strategy oversight and planning. Board oversight includes understanding the various challenges and opportunities presented by these risks, including the financial consequences that might result from enacted and potential federal and/or state regulation of GHG; plans to mitigate these risks; and the impacts these risks may have on the Company’s strategy. In addition, the Board approves certain procurements of environmental equipment, grid modernization technologies, and replacement generation resources.
Management is also responsible for assessing significant risks, developing and executing appropriate responses, and reporting to the Board on the status of risk activities. For example, management periodically updates the Board on the implementation of corporate environmental policy, and the Company’s environmental management systems, including the promotion of energy efficiency programs, and the use of renewable resources. The Board is also informed of the Company’s practices and procedures to assess the impacts of operations on the environment. The Board considers issues associated with climate change, the Company’s GHG exposures, and the financial consequences that might result from enacted and potential federal and/or state regulation of GHG. Management has published, with Board oversight, a Climate Change Report available at http://www.pnmresources.com/about-us/sustainability-portal.aspx, that details the Company’s efforts to transition to an emissions-free generating portfolio by 2040.
As part of management’s continuing effort to monitor climate-related risks and assess opportunities, the Company has advanced its understanding of climate change by participating in the “2 Degree Scenario” planning by participating in the Electric Power Research Institute (“EPRI”) Understanding Climate Scenarios & Goal Setting Activities program. The program is focused on characterizing and analyzing the relationship of individual electric utility company’s carbon emissions and global temperature goals. Activities include analyzing the current scientific understanding of global emissions pathways that are consistent with limiting global warming and providing insight to assist companies in developing approaches to climate scenario planning. As PNM expands its sustainability efforts, EPRI’s program has also been useful in gaining a better understanding of the Task Force on Climate-Related Financial Disclosures’ (“TCFD”) recommendations for sustainability reporting. On November 19, 2019, TCFD announced the formation of the TCFD Advisory Group on Climate-Related Guidance. EPRI was
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invited to participate as one of seven members of the group that will provide guidance on implementing scenario analysis at the utility company level and to assist in understanding how climate-related issues affect business strategies.
The Company cannot anticipate or predict the potential long-term effects of climate change or climate change related regulation on its results of operations, financial position, or cash flows.
Greenhouse Gas Emissions Exposures
In 2019, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 5.7 million metric tons of CO2, which comprises the vast majority of PNM’s GHG.
As of December 31, 2019, approximately 63% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the U.S., consisted of coal or gas-fired generation that produces GHG. This reflects the retirement of SJGS Units 2 and 3 that occurred in December 2017 and the restructuring of ownership in SJGS Unit 4. These events reduced PNM’s entitlement in SJGS from 783 MW to 562 MW and caused the Company’s output of GHG to decrease when compared to 2017. Many factors affect the amount of GHG emitted, including total electricity sales, plant performance, economic dispatch, and the availability of renewable resources. For example, between 2007 and 2018, production from PNM’s largest single renewable energy resource, New Mexico Wind, has varied from a high of 580 GWh in 2011 to a low of 405 GWh in 2015. Variations are primarily due to how much and how often the wind blows. In addition, if PVNGS experienced prolonged outages or if PNM’s entitlement from PVNGS were reduced, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG.
PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. As described in Note 16 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K, PNM received approval for the December 31, 2017 shutdown of SJGS Units 2 and 3 as part of its strategy to address the regional haze requirements of the CAA. The shutdown of SJGS Units 2 and 3 resulted in a reduction of GHG for the entire station of approximately 54% for 2018, reflecting a reduction of 32% of GHG from the Company’s owned interests in SJGS, below 2005 levels. PNM’s 2017 IRP indicates that retiring PNM’s share of SJGS in 2022 and exiting ownership in Four Corners in 2031 would provide long-term cost savings to its customers. See additional discussion of PNM’s 2017 IRP and the SJGS Abandonment Application in Note 12. If approved by the NMPRC, retiring PNM’s share of SJGS and exiting participation in Four Corners would further reduce PNM’s GHG.
As of December 31, 2019, PNM owns or procures power under PPAs from 608 MW of capacity from renewable generation resources, which include solar-PV, wind, and geothermal facilities including 50 MW of new solar-PV capacity to serve retail customers and 50 MW of new solar-PV capacity to serve a data center located in PNM's service territory. In addition, the NMPRC has granted PNM authority to procure an aggregate of 316 MW of additional renewable energy and RECs from solar-PV and wind facilities to serve a data center located in PNM’s service territory. PNM’s 2020 renewable energy procurement plan, which was approved by the NMPRC in January 2020, includes a PPA for an additional 140 MW of wind energy to serve retail customers beginning in 2021 and PNM’s SJGS Abandonment Application, which was filed with the NMPRC on July 1, 2019, includes a request to replace SJGS capacity with 350 MW of solar-PV, 130 MW of battery storage facilities, and 280 MW of new gas-fired peaking capacity. If approved, these resources would result in PNM owning, leasing, or procuring through PPAs capacity from renewable resources and battery storage facilities totaling 1,544 MW and capacity from emissions-free resources totaling 1,946 MW.
PNM also has a customer distributed solar generation program that represented 133.0 MW at March 31, 2020. PNM’s distributed solar programs will reduce PNM’s annual production from fossil-fueled electricity generation by about 266.0 GWh. PNM has offered its customers a comprehensive portfolio of energy efficiency and load management programs since 2007. PNM’s cumulative savings from these programs was approximately 4,504 GWh of electricity through 2019. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 8,756 GWh of electricity, which will avoid at least 4.7 million metric tons of CO2 based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in PNM’s generation portfolio, demand for electricity, energy efficiency, and complex relationships between those variables.
Because of PNM’s dependence on fossil-fueled generation, legislation or regulation that imposes a limit or cost on GHG could impact the cost at which electricity is produced. While PNM expects to recover any such costs through rates, the timing and outcome of proceedings for cost recovery are uncertain. In addition, to the extent that any additional costs are recovered through rates, customers may reduce their usage, relocate facilities to other areas with lower energy costs, or take other actions that ultimately could adversely impact PNM.
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Other Climate Change Risks
PNM’s generating stations are located in the arid southwest. Access to water for cooling for some of these facilities is critical to continued operations. Forecasts for the impacts of climate change on water supply in the southwest range from reduced precipitation to changes in the timing of precipitation. In either case, PNM’s generating facilities requiring water for cooling will need to mitigate the impacts of climate change through adaptive measures. Current measures employed by PNM generating stations such as air cooling, use of grey water, improved reservoir operations, and shortage sharing arrangements with other water users will continue to be important to sustain operations.
PNM’s service areas occasionally experience periodic high winds and severe thunderstorms. TNMP has operations in the Gulf Coast area of Texas, which experiences periodic hurricanes and other extreme weather conditions. In addition to potentially causing physical damage to Company-owned facilities, which disrupts the ability to transmit and/or distribute energy, weather and other events of nature can temporarily reduce customers’ usage and demand for energy. In addition, other events influenced by climate change, such as wildfires, could disrupt Company operations or result in third-party claims against the Company.
EPA Regulation
In April 2007, the US Supreme Court held that EPA has the authority to regulate GHG under the CAA. This decision heightened the importance of this issue for the energy industry. In December 2009, EPA released its endangerment finding for GHG from new motor vehicles, stating that the atmospheric concentrations of six key greenhouse gases (CO2, methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) endanger the public health and welfare of current and future generations. In May 2010, EPA released the final Prevention of Significant Deterioration (“PSD”) and Title V Greenhouse Gas Tailoring Rule to address GHG from stationary sources under the CAA permitting programs. The purpose of the rule was to “tailor” the applicability of two programs, the PSD construction permit and Title V operating permit programs, to avoid impacting millions of small GHG emitters. On June 23, 2014, the US Supreme Court found EPA lacked authority to “tailor” the CAA’s unambiguous numerical thresholds of 100 or 250 tons per year, and thus held EPA may not require a source to obtain a PSD permit solely on the basis of its potential GHG. However, the court upheld EPA’s authority to apply the PSD program for GHG to “anyway” sources - those sources that have to comply with the PSD program for other non-GHG pollutants.
On June 25, 2013, then President Obama announced his Climate Action Plan, which outlined how his administration planned to cut GHG in the U.S., prepare the country for the impacts of climate change, and lead international efforts to combat and prepare for global warming. The plan proposed actions that would lead to the reduction of GHG by 17% below 2005 levels by 2020.
On August 3, 2015, EPA responded to the Climate Action Plan by issuing three separate but related actions, which were published in October 2015: (1) the Carbon Pollution Standards for new, modified, and reconstructed power plants (under Section 111(b)); (2) the Clean Power Plan for existing power plants (under Section 111(d)); and (3) a proposed federal plan associated with the Clean Power Plan.
EPA’s Carbon Pollution Standards for new sources (those constructed after January 8, 2014) established separate standards for gas and coal-fired units. The standards reflect the degree of emission limitation achievable through the application of what EPA determined to be the BSER demonstrated for each type of unit. For newly constructed and reconstructed base load natural gas-fired stationary combustion turbines, EPA finalized a standard based on efficient natural gas combined cycle technology. The final standards for coal-fired power plants vary depending on whether the unit is new, modified, or reconstructed, but the new unit standards were based on EPA’s determination that the BSER for new units was partial carbon capture and sequestration. The Clean Power Plan established numeric “emission standards” for existing electric generating units - one for “fossil-steam” units (coal and oil-fired units) and one for natural gas-fired units (combined cycle only). The emission standards were based on emission reduction opportunities that EPA deemed achievable using technical assumptions for three “building blocks”: efficiency improvements at coal-fired EGUs, displacement of affected EGUs with renewable energy, and displacement of coal-fired generation with natural gas-fired generation.
Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. The DC Circuit refused to stay the rule, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016, thus halting implementation of the Clean Power Plan. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a 10-judge en banc panel. However, before the DC Circuit could issue an opinion, President Trump took office and his administration asked the court to hold the case in abeyance while the rule was re-evaluated, which the court granted. In addition, the DC Circuit issued a similar order in connection with a
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motion filed by EPA to hold cases challenging the NSPS in abeyance. On September 17, 2019, the DC Circuit issued an order that granted motions by various petitioners, including industry groups and EPA, to dismiss the cases challenging the Clean Power Plan as moot due to EPA’s issuance of the Affordable Clean Energy rule, which repeals the Clean Power Plan.
On March 28, 2017, President Trump issued an Executive Order titled “Promoting Energy Independence and Economic Growth.” Among its goals are to “promote clean and safe development of our Nation’s vast energy resources, while at the same time avoiding regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation.” The order rescinds several key pieces of the Obama Administration’s climate agenda, including the Climate Action Plan and the Final Guidance on Consideration of Climate Change in NEPA Reviews. It directs agencies to review and suspend, revise or rescind any regulations or agency actions that potentially burden the development or use of domestically produced energy resources. Most notably, the order directed EPA to immediately review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Carbon Pollution Standards for new, reconstructed or modified electric utilities, (2) the Clean Power Plan, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. In response, EPA signed a NOPR to repeal the Clean Power Plan on October 10, 2017. The notice proposed a legal interpretation concluding that the Clean Power Plan exceeded EPA’s statutory authority. On June 19, 2019, EPA released the final version of the Affordable Clean Energy rule. EPA takes three actions in the final rule: (1) repealing the Clean Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising the implementing regulations for all emission guidelines issued under CAA Section 111(d) which, among other things, extends the deadline for state plans and extends the timing of EPA's approval process. EPA set the BSER for existing coal-fired power plants as heat rate efficiency improvements based on a range of “candidate technologies” that can be applied inside the fence-line. Rather than setting a specific numerical standard of performance, EPA’s rule directs states to determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable based on the application of BSER. The final rule requires states to submit a plan to EPA by July 8, 2022 and then EPA has one year to approve the plan. If states do not submit a plan or their submitted plan is not acceptable, EPA will have two years to develop a federal plan. The Affordable Clean Energy rule is not expected to impact SJGS since EPA’s final approval of a state SIP would occur after the planned shutdown of SJGS in 2022 (subject to NMPRC approval).
While corresponding NSR reform regulations were proposed as part of the proposed Affordable Clean Energy rule, the final rule did not include such reform measures. EPA has indicated that it plans to finalize the proposed NSR reform in 2020. Unrelated to the Affordable Clean Energy rule, EPA issued a proposed rule on August 1, 2019 to clarify one aspect of the pre-construction review process for evaluating whether the NSR permitting program would apply to a proposed project at an existing source of emissions. The proposed rule clarifies that both emissions increases and decreases resulting from projects are to be considered in determining whether the proposed project will result in an increase in air emissions.
On December 20, 2018, EPA published in the Federal Register a proposed rule that would revise the Carbon Pollution Standards rule published in October 2015 for new, reconstructed, or modified coal-fired EGUs. The proposed rule would revise the standards for new coal-fired EGUs based on the revised BSER as the most efficient demonstrated steam cycle (e.g., supercritical steam conditions for large units and subcritical steam conditions for small units), instead of partial carbon capture and sequestration. As a result, the proposed rule contains less stringent CO2 emission performance standards for new units. EPA has also proposed revisions to the standards for reconstructed and modified fossil-fueled power plants to align with the proposed standards for new units. EPA is not proposing any changes nor reopening the standards of performance for newly constructed or reconstructed stationary combustion turbines. The 2018 proposed Carbon Pollution Standards rule could also impact PNM’s generation fleet to the extent any EGUs qualify as new, reconstructed, or modified, although that rule remains under review by EPA. Comments on the proposal were due on March 18, 2019 and a final rule is expected in 2020.
The Affordable Clean Energy rule has been challenged by several parties and may be impacted by further litigation. The results of additional judicial review and the outcome of those proceedings cannot be predicted.
Federal Legislation
Prospects for enactment in Congress of legislation imposing a new or enhanced regulatory program to address climate change are highly unlikely in 2020. Although the democratic leadership in the U.S. House of Representatives may soon begin to reconsider proposals for legislation aimed at addressing climate change, such legislation is unlikely to pass the republican controlled U.S. Senate or be signed by the President.
State and Regional Activity
Pursuant to New Mexico law, each utility must submit an IRP to the NMPRC every three years to evaluate renewable energy, energy efficiency, load management, distributed generation, and conventional supply-side resources on a consistent and
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comparable basis. The IRP is required to take into consideration risk and uncertainty of fuel supply, price volatility, and costs of anticipated environmental regulations when evaluating resource options to meet supply needs of the utility’s customers. The NMPRC requires that New Mexico utilities factor a standardized cost of carbon emissions into their IRPs using prices ranging between $8 and $40 per metric ton of CO2 emitted and escalating these costs by 2.5% per year. Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs. Reflecting the evolving nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances. Although these prices may not reflect the costs that ultimately will be incurred, PNM is required to use these prices for purposes of its IRP. In its 2017 IRP, PNM analyzed resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations by the end of 2022 as discussed in Note 12. The key findings of the 2017 IRP include that exiting SJGS in 2022 would provide long-term economic benefits to PNM’s customers and that PNM exiting its ownership interest in Four Corners in 2031 would also save customers money. The materials presented in the IRP process are available at www.pnm.com\irp.
Senate Bill 489, known as the Energy Transition Act (“ETA”) was signed into New Mexico state law and became effective on June 14, 2019. The ETA, among other things, requires that investor-owned utilities obtain specified percentages of their energy from renewable and carbon-free resources. Prior to the enactment of the ETA, the REA established a mandatory RPS requiring utilities to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and requires utilities operating in New Mexico to have renewable portfolios equal to 20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The ETA provides for a transition from coal-fired generating resources to carbon-free resources by allowing investor-owned utilities to issue securitized bonds, or “energy transition bonds,” related to the retirement of coal-fired generating facilities to qualified investors. Proceeds from the energy transition bonds must be used only for purposes related to providing utility service to customers and to pay “financing costs” (as defined by the ETA). These costs may include coal mine decommissioning, plant decommissioning, and other costs that have not yet been charged to customers or disallowed by the NMPRC or by a court order. Proceeds provided by energy transition bonds may also be used to pay for severances for employees of the retired coal-fired generating facility and related coal mine, as well as to pay for job training, education, and economic development. Energy transition bonds must be issued under an NMPRC financing order and are paid by a non-bypassable charge paid by all customers of the issuing utility. The ETA also amends sections of the REA to allow for the recovery of undepreciated investments and decommissioning costs related to qualifying EGUs that the NMPRC has required be removed from retail jurisdictional rates, provided replacement resources to be included in retail rates have lower or zero-carbon emissions. The ETA requires the NMPRC to prioritize replacement resources in a manner intended to mitigate the economic impact to communities affected by these plant retirements. PNM expects the ETA will have a significant impact on PNM’s future generation portfolio, including PNM’s planned retirement of SJGS in 2022. The NMPRC had not definitively indicated its intent to apply the requirements of the ETA to PNM’s SJGS Abandonment Application and several parties to that case questioned whether the ETA violated the New Mexico State constitution. In December 2019, the Governor of the State of New Mexico, the President of the Navajo Nation and other parties filed a writ of mandamus requesting the NM Supreme Court require the NMPRC to apply the ETA to PNM’s application. On January 29, 2020, the NM Supreme Court ruled that the NMPRC is required to apply the ETA to all of PNM’s SJGS Abandonment Application and denied petitions for a stay. In February 2020, the Hearing Examiners assigned to the SJGS abandonment and financing proceedings issued recommended decisions recommending approval of PNM’s abandonment application and for the issuance of Securitized Bonds consistent with the requirements of the ETA. On April 1, 2020, the NMPRC approved the Hearing Examiners' recommendation to approve PNM's application to retire its share of SJGS in 2022 and for the issuances of Securitized Bonds. See additional discussion of PNM’s SJGS Abandonment Application in Note 12. PNM cannot predict the full impact of the ETA or the outcome of its existing and potential future generating resource abandonment filings with the NMPRC.
International Accords
The United Nations Framework Convention on Climate Change (“UNFCCC”) is an international environmental treaty that was negotiated at the 1992 United Nations Conference on Environment and Development (informally known as the Earth Summit) and entered into force in March 1994. The objective of the treaty is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” Parties to the UNFCCC, including the U.S., have been meeting annually in Conferences of the Parties (“COP”) to assess progress in meeting the objectives of the UNFCCC.
On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The aim of the Paris Agreement is to limit global temperature rise to two degrees Celsius above pre-industrial levels. The agreement, which was agreed to by approximately 200 parties, requires that countries submit Intended Nationally Determined Contributions (“INDCs”). INDCs reflect national targets and actions that arise out of national policies and elements relating to oversight, guidance and
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coordination of actions to reduce emissions by all countries. In November 2014, then President Obama announced the United States’ commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005 levels by the year 2025. The U.S. INDC was part of an overall effort by the former administration to have the U.S. achieve economy-wide reductions of around 80% by 2050. The former administration’s GHG reduction target for the electric utility industry was a key element of its INDC and was based on EPA’s GHG regulations for new, existing, and modified and reconstructed sources at that time. Thresholds for the number of countries necessary to ratify or accede to the Paris Agreement and total global GHG percentage were achieved on October 5, 2016 and the Paris Agreement entered into force on November 4, 2016. On June 1, 2017, President Trump announced that the U.S. would withdraw from the Paris Agreement. In his public statement, he indicated that the U.S. would “begin negotiations to reenter either the Paris Accord or a new transaction on terms that are fair to the U.S., its businesses, its workers, its people, its taxpayers.” On November 4, 2019, President Trump announced that the U.S. has officially notified the United Nations that the U.S. will withdraw from the Paris Agreement. The rules of the Paris Agreement impose a one-year waiting period after official notice of withdrawal. As a result of the President’s notice to the United Nations, the U.S. will officially be able to withdraw from the Paris Agreement on November 4, 2020. A future administration would have an opportunity to rejoin the Agreement. It is uncertain if the U.S. will ultimately choose to pursue a transition to a low-carbon economy using a pathway that aligns with the Paris Agreement to keep global temperature rise to below two degrees Celsius (the “2 Degree Scenario”) above pre-industrial levels or in connection with other regulation or legislation. PNM has calculated GHG reductions that would result from implementation of the 2017 IRP scenarios that assume PNM would retire its share of the SJGS in 2022 and would exit from Four Corners in 2031 and PNM has set a goal to have a 100% emissions-free generating portfolio by 2040. While the Company has not conducted an independent 2 Degree Scenario analysis, our commitment to becoming 100% emissions-free by 2040 produces a carbon emissions reduction pathway that tracks within the ranges of climate scenario pathways that are consistent with limiting the global warming average to less than 2 degrees Celsius. In addition, as an investor-owned utility operating in the state of New Mexico, PNM is required to comply with the recently enacted ETA, which requires utilities’ generating portfolio be 100% carbon-free by 2045. The requirements of the ETA and the Company’s goal compare favorably to the 26% - 28% by 2025 U.S. INDC and the former administration’s effort to achieve an 80% reduction in carbon emissions by 2050. As discussed in Note 12, on April 1, 2020, the NMPRC approved PNM's application to retire its share of SJGS in 2022. PNM will file for abandonment of Four Corners at an appropriate time in the future.
PNM will continue to monitor the United States’ and other parties’ involvement in international accords, but the potential impact that such accords may have on the Company cannot be determined at this time.
Assessment of Legislative/Regulatory Impacts
The Company has assessed, and continues to assess, the impacts of climate change legislation and regulation on its business. This assessment is ongoing and future changes arising out of the legislative or regulatory process could impact the assessment significantly. PNM’s assessment includes assumptions regarding specific GHG limits; the timing of implementation of these limits; the possibility of a market-based trading program, including the associated costs and the availability of emission credits or allowances; the development of emission reduction and/or renewable energy technologies; and provisions for cost containment. Moreover, the assessment assumes various market reactions such as the price of coal and gas and regional plant economics. These assumptions are, at best, preliminary and speculative. However, based upon these assumptions, the enactment of climate change legislation or regulation could, among other things, result in significant compliance costs, including large capital expenditures by PNM, and could jeopardize the economic viability of certain generating facilities. See Notes 11 and 12. While PNM currently expects the retirement of SJGS in 2022 will provide savings to customers, the ultimate consequences of climate change and environmental regulation could lead to increased costs to customers and affect results of operations, cash flows, and financial condition if the incurred costs are not fully recovered through regulated rates. Higher rates could also contribute to reduced usage of electricity. PNM’s assessment process is evolving and is too speculative at this time for a meaningful prediction of the long-term financial impact.
Financial Reform Legislation
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Reform Act”), enacted in July 2010, includes provisions that will require certain over-the-counter derivatives, or swaps, to be centrally cleared and executed through an exchange or other approved trading facility. It also includes provisions related to swap transaction reporting and record keeping and may impose margin requirements on swaps that are not centrally cleared. The U.S. Commodity Futures Trading Commission (“CFTC”) has published final rules defining several key terms related to the act and has set compliance dates for various types of market participants. The Dodd-Frank Reform Act provides exemptions from certain requirements, including an exception to the mandatory clearing and swap facility execution requirements for commercial end-users that use swaps to hedge or mitigate commercial risk. PNM has elected the end-user exception to the mandatory clearing requirement. PNM expects to be in compliance with the Dodd-Frank Reform Act and related rules within the time frames required by the CFTC.
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However, as a result of implementing and complying with the Dodd-Frank Reform Act and related rules, PNM’s swap activities could be subject to increased costs, including from higher margin requirements. The Trump Administration has indicated that the provisions of the Dodd-Frank Reform Act will be reviewed and certain regulations may be rolled back, but no formal action has been taken yet. At this time, PNM cannot predict the ultimate impact the Dodd-Frank Reform Act may have on PNM’s financial condition, results of operations, cash flows, or liquidity.
Other Matters
See Notes 11 and 12 herein and Notes 16 and 17 of the Notes to Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K for a discussion of commitments and contingencies and rate and regulatory matters. See Note 1 for a discussion of accounting pronouncements that have been issued but are not yet effective and have not been adopted by the Company.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with GAAP requires Company management to select and apply accounting policies that best provide the framework to report the results of operations and financial position for PNMR, PNM, and TNMP. The selection and application of those policies requires management to make difficult, subjective, and/or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
As of March 31, 2020, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s 2019 Annual Reports on Forms 10-K. The policies disclosed included regulatory accounting, impairments, decommissioning and reclamation costs, pension and other postretirement benefits, accounting for contingencies, and income taxes.
MD&A FOR PNM
RESULTS OF OPERATIONS
PNM operates in only one reportable segment, as presented above in Results of Operations for PNMR.
MD&A FOR TNMP
RESULTS OF OPERATIONS
TNMP operates in only one reportable segment, as presented above in Results of Operations for PNMR.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Statements made in this filing that relate to future events or PNMR’s, PNM’s, or TNMP’s expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. PNMR, PNM, and TNMP assume no obligation to update this information.
Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR’s, PNM’s, and TNMP’s business, financial condition, cash flows, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:
•The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, the NM Supreme Court’s decisions in the appeal of that order, the NM 2016 Rate Case and related deferral of the issue of the prudence of PNM’s decision to continue participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments and other costs associated with that plant, and any actions resulting from the pending appeal of the NMPRC's approval of PNM' request to issue Securitized Bonds and the NMPRC's future actions regarding replacement resources in PNM’s SJGS Abandonment Application (collectively, the “Regulatory Proceedings”) and the impact on service levels for PNM customers if the ultimate outcomes do not provide for the recovery of costs and operating and capital expenditures, as well as other impacts of federal or state regulatory and judicial actions
•The ability of the Company to successfully forecast and manage its operating and capital expenditures, including aligning expenditures with the revenue levels resulting from the ultimate outcomes of the Regulatory Proceedings, or
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resulting from potential mid-term or long-term impacts related to COVID-19, and supporting forecasts utilized in FTY rate proceedings
•Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2 that is under lease at the expiration of the lease terms in 2023 and 2024, including PNM's decisions related to purchasing or returning the assets underlying the leases, or upon the occurrence of certain specific events, as well as the related treatment for ratemaking purposes by the NMPRC
•Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, the results of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s exit from Four Corners in 2031, including regulatory recovery of undepreciated investments and other costs in the event the NMPRC orders generating facilities be retired, and the impacts of the ETA
•Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings
•The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, the impacts of COVID-19 on customer usage, and other changes in supply and demand
•The Company’s ability to access the financial markets in order to provide financing to repay or refinance debt as it comes due, as well as for ongoing operations and construction expenditures, including disruptions in the capital or credit markets, actions by ratings agencies, and fluctuations in interest rates, including any negative impacts that could result from the ultimate outcomes of the Regulatory Proceedings or from the economic impacts of COVID-19
•The risks associated with completion of generation, transmission, distribution, and other projects, including uncertainty related to regulatory approvals and cost recovery, and the ability of counterparties to meet their obligations under certain arrangements, and supply chain or other outside support services that may be disrupted by the impacts of COVID-19
•The potential unavailability of cash from PNMR’s subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows
•The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply issues, unplanned outages, extreme weather conditions, wildfires, terrorism, cybersecurity breaches, and other catastrophic events, including the impacts of COVID-19, as well the costs the Company may incur to repair its facilities and/or the liabilities the Company may incur to third parties in connection with such issues
•State and federal regulation or legislation relating to environmental matters and renewable energy requirements, the resultant costs of compliance, and other impacts on the operations and economic viability of PNM’s generating plants
•State and federal regulatory, legislative, executive, and judicial decisions and actions on ratemaking, and taxes, including guidance related to the Tax Act, and other matters
•Risks related to climate change, including potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG, including the impacts of the recently enacted ETA
•Employee workforce factors, including cost control efforts and issues arising out of collective bargaining agreements and labor negotiations with union employees
•Variability of prices and volatility and liquidity in the wholesale power and natural gas markets
•Changes in price and availability of fuel and water supplies, including the ability of the mines supplying coal to PNM’s coal-fired generating units and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel
•Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties
•The impacts of decreases in the values of marketable securities maintained in trusts to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits, including potential increased volatility resulting from international developments and the impacts of COVID-19, as well as PNM's ability to recover future decommissioning and reclamation costs from customers
•Uncertainty surrounding counterparty performance and credit risk, including the ability of counterparties to supply fuel and perform reclamation activities and impacts to financial support provided to facilitate the coal supply at SJGS
•The effectiveness of risk management regarding commodity transactions and counterparty risk
•The outcome of legal proceedings, including the extent of insurance coverage
•Changes in applicable accounting principles or policies
Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, and TNMP’s 2019 Annual Reports on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.
For information about the risks associated with the use of derivative financial instruments, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”
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SECURITIES ACT DISCLAIMER
Certain securities described or cross-referenced in this report have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be reoffered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. This Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy any securities.
WEBSITES
The PNMR website, www.pnmresources.com, is an important source of Company information. New or updated information for public access is routinely posted. PNMR encourages analysts, investors, and other interested parties to register on the website to automatically receive Company information by e-mail. This information includes news releases, notices of webcasts, and filings with the SEC. Participants will not receive information that was not requested and can unsubscribe at any time.
Our corporate internet addresses are:
•PNMR: www.pnmresources.com
•PNM: www.pnm.com
•TNMP: www.tnmp.com
The PNMR website includes a link to PNMR’s Sustainability Portal, www.pnmresources.com/about-us/sustainability-portal.aspx. This portal provides access to key sustainability information, including a Climate Change Report, related to the operations of PNM and TNMP and reflects PNMR’s commitment to do business in an ethical, open, and transparent manner, and outlines PNM’s plans to exit all coal-fired generation by 2031 (subject to regulatory approval) and to have an emissions-free generating portfolio by 2040.
The contents of these websites are not a part of this Form 10-Q. The SEC filings of PNMR, PNM, and TNMP, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are accessible free of charge on the PNMR website as soon as reasonably practicable after they are filed with, or furnished to, the SEC. Reports filed with the SEC are available on its website, www.sec.gov. These reports are also available in print upon request from PNMR free of charge.
Also available on the Company’s website at http://www.pnmresources.com/corporate-governance.aspx and in print upon request from any shareholder are PNMR’s:
•Corporate Governance Principles
•Code of Ethics (Do the Right Thing – Principles of Business Conduct)
•Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee
•Restated Articles of Incorporation and Bylaws
The Company will post amendments to or waivers from its code of ethics (to the extent applicable to the Company’s executive officers and directors) on its website.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manages the scope of its various forms of market risk through a comprehensive set of policies and procedures with oversight by senior level management through the Risk Management Committee (“RMC”). The Board’s Finance Committee sets the risk limit parameters. The RMC has oversight over the risk control organization. The RMC is assigned responsibility for establishing and enforcing the policies, procedures, and limits and evaluating the risks inherent in proposed transactions on an enterprise-wide basis. The RMC’s responsibilities include:
•Establishing policies regarding risk exposure levels and activities in each of the business segments
•Approving the types of derivatives entered into for hedging
•Reviewing and approving hedging risk activities
•Establishing policies regarding counterparty exposure and limits
•Authorizing and delegating transaction limits
•Reviewing and approving controls and procedures for derivative activities
•Reviewing and approving models and assumptions used to calculate mark-to-market and market risk exposure
•Proposing risk limits to the Board’s Finance Committee for its approval
•Reporting to the Board’s Audit and Finance Committees on these activities
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To the extent an open position exists, fluctuating commodity prices, interest rates, equity prices, and economic conditions can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results, or financial position.
Commodity Risk
Information concerning accounting for derivatives and the risks associated with commodity contracts is set forth in Note 7, including a summary of the fair values of mark-to-market energy related derivative contracts included in the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2020 and the year ended December 31, 2019, the Company had no commodity derivative instruments designated as cash flow hedging instruments.
Commodity contracts that meet the definition of a derivative under GAAP, are recorded at fair value on the Condensed Consolidated Balance Sheets. The impact of commodity derivative mark-to-market energy transactions were not material to the Company's financial position, results of operations, or cash flows as of and for the three months ended March 31, 2020 and 2019.
All of the fair values as of March 31, 2020 were determined based on prices provided by external sources other than actively quoted market prices. The net mark-to-market amounts will settle in 2020.
PNM is exposed to changes in the market prices of electricity and natural gas for the positions in its wholesale portfolio not covered by the FPPAC. The Company manages risks associated with these market fluctuations by utilizing various commodity instruments that may qualify as derivatives, including futures, forwards, options, and swaps. PNM uses such instruments to hedge its exposure to changes in the market prices of electricity and natural gas. PNM also uses such instruments under an NMPRC approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC.
Credit Risk
The Company is exposed to credit risk from its retail and wholesale customers, as well as the counterparties to derivative instruments. The Company conducts counterparty risk analysis across business segments and uses a credit management process to assess the financial conditions of counterparties. The following table provides information related to credit exposure by the credit worthiness (credit rating) and concentration of credit risk for wholesale counterparties, all of which will mature in less than two years.

Schedule of Credit Risk Exposure |  |  |  |  |
March 31, 2020 |  |  |  |  |
Rating (1) | Credit Risk Exposure(2) |  | Number of Counter-parties >10% |  | Net Exposure of Counter-parties >10%
| (Dollars in thousands) |  |  |  |
External ratings: |  |  |  |  |
Investment grade | $ | 1,566 |  |  | 1 |  | $ | 1,002 |
Non-investment grade | — |  |  | — |  | — |
Split ratings | — |  |  | — |  | — |
Internal ratings: |  |  |  |  |
Investment grade | 861 |  |  | 1 |  | 683 |
Non-investment grade | — |  |  | — |  | — |
Total | $ | 2,427 |  |  |  |  | $ | 1,685 |

(1)The rating “Investment Grade” is for counterparties, or a guarantor, with a minimum S&P rating of BBB- or Moody’s rating of Baa3. The category “Internal Ratings – Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.
(2)The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than the Tri-State hazard sharing agreement), forward sales, and short-term sales. The gross exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements but are not reduced by posted credit collateral. At March 31, 2020, PNMR held $0.9 million of cash collateral to offset its credit exposure.
Net credit risk for the Company’s largest counterparty as of March 31, 2020 was $1.0 million.
Other investments have no significant counterparty credit risk.
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Interest Rate Risk
The majority of the Company’s long-term debt is fixed-rate debt and does not expose earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of PNMR’s consolidated long-term debt instruments would increase by 2.1%, or $64.7 million if interest rates were to decline by 50 basis points from their levels at March 31, 2020. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if all or a portion of debt instruments were acquired in the open market prior to their maturity. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 9, PNMR has entered into hedging arrangements to effectively establish fixed interest rates on $150.0 million of variable rate debt. Variable interest rates under these facilities are based on LIBOR but contain provisions which allow for the replacement of LIBOR with other widely accepted interest rates. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.
At May 1, 2020, variable rate debt balances and weighted average interest rates were as follows:

Variable Rate Debt |  | Weighted Average Interest Rate |  | Balance Outstanding |  | Capacity
|  |  |  | (In thousands) |  |
Short-term Debt: |  |  |  |  |  |
PNMR Revolving Credit Facility |  | 2.15 | % |  | $ | 132,700 |  |  | $ | 300,000 |
PNM Revolving Credit Facility |  | 2.27 |  |  | 15,000 |  |  | 400,000 |
PNM 2017 New Mexico Credit Facility |  | 2.10 |  |  | 30,000 |  |  | 40,000 |
TNMP Revolving Credit Facility |  | — |  |  | — |  |  | 75,000 |
PNMR-D Revolving Credit Facility |  | — |  |  | — |  |  | 40,000 |
|  |  |  | $ | 177,700 |  |  | $ | 855,000 |
Long-term Debt: |  |  |  |  |  |
PNMR 2018 Two-Year Term Loan |  | 1.79 | % |  | $ | 50,000 |  |  |
PNMR 2019 Term Loan |  | 1.78 |  |  | 150,000 |  |  |
PNM 2019 $40.0 Million Term Loan |  | 1.37 |  |  | 40,000 |  |  |
PNM 2020 Term Loan |  | 2.70 |  |  | 150,000 |  |  |
PNMR Development Term Loan |  | 1.79 |  |  | 90,000 |  |  |
|  |  |  | $ | 480,000 |  |  |

The investments held by PNM in trusts for decommissioning and reclamation had an estimated fair value of $353.3 million at March 31, 2020, of which 66.1% were fixed-rate debt securities that subject PNM to risk of loss of fair value with increases in market interest rates. If interest rates were to increase by 50 basis points from their levels at March 31, 2020, the decrease in the fair value of the fixed-rate securities would be 2.4%, or $5.6 million.
PNM does not directly recover or return through rates any losses or gains on the securities, including equity investments discussed below, in the trusts for decommissioning and reclamation. However, the overall performance of these trusts does enter into the periodic determinations of expense and funding levels, which are factored into the rate making process to the extent applicable to regulated operations. The NMPRC ruled in the NM 2015 Rate Case that PNM would not be able to include future contributions made by PNM for decommissioning of PVNGS to the extent applicable to certain capacity purchased and leased by PNM in rates charged to retail customers. The NM Supreme Court ruled that the NMPRC’s decision to disallow recovery of such future contributions for decommissioning denied PNM due process and remanded the matter back to the NMPRC for further proceedings. See Note 12. PNM is at risk for shortfalls in funding of obligations due to investment losses, including those from the equity market risks discussed below, to the extent not ultimately recovered through rates charged to customers.
Equity Market Risk
The investments held by PNM in trusts for decommissioning and reclamation include certain equity securities at March 31, 2020. These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 29.1% of the securities held by the trusts as of March 31, 2020. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $10.3 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
As of the end of the period covered by this quarterly report, each of PNMR, PNM, and TNMP conducted an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial
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Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer of each of PNMR, PNM, and TNMP concluded that the disclosure controls and procedures are effective.
Changes in internal controls over financial reporting
There have been no changes in each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Notes 11 and 12 for information related to the following matters, for PNMR, PNM, and TNMP, incorporated in this item by reference.
Note 11
•Navajo Nation Environmental Issues
•Santa Fe Generating Station
•Continuous Highwall Mining Royalty Rate
•PVNGS Water Supply Litigation
•San Juan River Adjudication
•Rights-of-Way Matter
•Navajo Nations Allottee Matters
Note 12
•PNM - New Mexico General Rate Cases
•PNM – Energy Efficiency and Load Management
•PNM – COVID-19 Regulatory Matters
•PNM – Integrated Resource Plans
•PNM – SJGS Abandonment Application
•TNMP – Periodic Distribution Rate Adjustment
ITEM 1A. RISK FACTORS
The outbreak of COVID-19 and its impact on business and economic conditions could negatively affect the Company's business, results of operations, financial condition, cash flows, and the trading value of PNMR's common stock and the Company's debt securities.
The scale and scope of the recent COVID-19 outbreak, the resulting pandemic, and the impact on the economy and financial markets could adversely affect the Company’s business, results of operations, financial condition, cash flows, and access to the capital markets. The Company provides critical electricity and electric service and has implemented business continuity and emergency response plans to continue to provide these services to its customers and to support the Company’s operations. The Company is also working to ensure the health and safety of its employees is not compromised. These measures include precautions with regard to employee and facility hygiene, travel limitations, directing our employees to work remotely whenever possible, and protocols for required work within customer premises to protect our employees, customers and the public. We are also working with our suppliers to understand the potential impacts to our supply chain and have taken steps to ensure the integrity of our information systems.
However, there is no assurance that the continued spread of COVID-19 and efforts to contain the virus will not adversely impact our business, results of operations, financial condition, cash flows, ability to access the capital markets, and the trading value of the Company's common stock and debt securities. The continued spread of COVID-19 and related efforts to contain the virus could adversely impact the Company by:
•reducing usage and/or demand for electricity by our customers in New Mexico and Texas;
•reducing the availability and productivity of our employees;
•increasing costs as a result of our emergency measures, including costs to ensure the security of our information systems and delayed payments from our customers and uncollectable accounts;
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•causing delays and disruptions in the availability of and timely delivery of materials and components used in our operations;
•causing delays and disruptions in the supply chain resulting in disruptions in the commercial operation dates of certain projects;
•causing a deterioration in the credit quality of our counterparties, including power purchase agreement providers, contractors or retail customers, that could result in credit losses;
•causing impairments of goodwill or long-lived assets and adversely impacting the Company’s ability to develop, construct and operate facilities;
•impacting the Company’s ability to meet the requirements of the covenants in our existing credit facilities, including covenants regarding debt to capitalization;
•causing a deterioration in our financial metrics or the business environment that impacts our credit ratings;
•decreasing the value of our investment securities held in trusts for pension and other postretirement benefits, and for nuclear and coal mine decommissioning, which could lead to increased funding requirements;
•impacting our liquidity position and cost of and ability to access funds from financial institutions and capital markets;
•causing other risks to impact us, such as the risks described in the “Risk Factors” section of the Company’s Annual Reports on Form 10-K filed on March 2, 2020; and
•causing other unpredictable events
This continues to be a rapidly evolving situation and the Company cannot predict the extent or duration of the outbreak, the effects of it on the global, national or local economy, including the impacts on the Company’s ability to access capital, or its effects on the Company’s financial position, results of operations, cash flows, ability to access the capital markets, and value of the Company's stock and debt securities.
ITEM 5. OTHER INFORMATION
April 2020 Offering of PNM Senior Unsecured Notes
On April 30, 2020, PNM entered into the PNM 2020 Note Purchase Agreement with institutional investors for the sale of $200.0 million aggregate principal amount of senior unsecured notes in the following series and denominations: (i) $150.0 million aggregate principal amount of its 3.21% Senior Unsecured Notes, Series A, due April 30, 2030 and (ii) $50.0 million aggregate principal amount of its 3.57% Senior Unsecured Notes, Series B, due April 29, 2039 (the "PNM 2020 SUNs"). The PNM 2020 SUNs were issued on April 30, 2020 in a private placement transaction in reliance on an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). Interest on the PNM 2020 SUNs is payable semiannually on April 30 and October 30 of each year, commencing on October 30, 2020.
PNM used $100.0 million of proceeds from the PNM 2020 SUNs to prepay without penalty an equal amount of the $250.0 million PNM 2020 Term Loan. The remaining $100.0 million of the PNM 2020 SUNs were used to repay borrowings on the PNM Revolving Credit Facility and for other corporate purposes
The terms of the PNM 2020 Note Purchase Agreement, which continue to apply so long as any of the PNM 2020 SUNs are outstanding, include customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to 65%, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2020 SUNs at par. PNM has the right to redeem any or all of the PNM 2020 SUNs prior to their maturities, subject to payment of a customary make-whole premium
The above description of the PNM 2020 Note Purchase Agreement and the PNM 2020 SUNs does not purport to be a complete statement of the parties' rights and obligations thereunder.
ITEM 6. EXHIBITS

3.1 |  | PNMR | Articles of Incorporation of PNMR, as amended to date (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed November 21, 2008)
3.2 |  | PNM | Restated Articles of Incorporation of PNM, as amended through May 31, 2002 (incorporated by reference to Exhibit 3.1.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)
3.3 |  | TNMP | Articles of Incorporation of TNMP, as amended through July 7, 2005 (incorporated by reference to Exhibit 3.1.2 to TNMP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)
3.4 |  | PNMR | Bylaws of PNMR, with all amendments to and including October 24, 2017 (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed October 25, 2017)

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3.5 |  | PNM | Bylaws of PNM, with all amendments to and including May 31, 2002 (incorporated by reference to Exhibit 3.1.2 to PNM’s Report on Form 10-Q for the fiscal quarter ended June 30, 2002)
3.6 |  | TNMP | Bylaws of TNMP, with all amendments to and including June 18, 2013 (incorporated by reference to Exhibit 3.6 to TNMP’s Current Report on Form 8-K filed June 20, 2013)
10.1 |  | PNM | Amendment No. 2 to Coal Supply Agreement dated as of January 1, 2020 between Westmoreland San Juan Mining LLC and PNM
10.2 |  | PNM | Amendment No. 3 to Coal Supply Agreement dated as of January 1, 2020 between Westmoreland San Juan Mining LLC and PNM
10.3 |  | PNM | Amendment No. 4 to Coal Supply Agreement dated as of January 1, 2020 between Westmoreland San Juan Mining LLC and PNM
10.4 |  | PNMR | Forward Sale Agreement between PNM Resources, Inc. and Citibank, N.A., dated January 7, 2020 (filed as exhibit 10.1 to PNMR's Current Report on Form 8-K filed January 10, 2020)
10.5 |  | PNMR | Forward Sale Agreement between PNM Resources, Inc. and Bank of America, N.A., dated January 7, 2020 (filed as exhibit 10.2 to PNMR's Current Report on Form 8-K filed January 10, 2020)
10.6 |  | PNMR | Additional Forward Sale Agreement between PNM Resources, Inc. and Citibank, N.A., dated January 8, 2020 (filed as exhibit 10.3 to PNMR's Current Report on Form 8-K filed January 10, 2020)
10.7 |  | PNMR | Additional Forward Sale Agreement between PNM Resources, Inc. and Bank of America, N.A., dated January 8, 2020 (filed as exhibit 10.4 to PNMR's Current Report on Form 8-K filed January 10, 2020)
10.8 |  | PNMR | PNMR 2020 Officer Annual Incentive Plan dated March 30, 2020
10.9 |  | PNMR | PNMR 2020 Long-Term Incentive Plan dated March 30, 2020
10.10 |  | PNMR | PNMR Discretionary Award Agreement between PNMR and Charles Eldred effective February 20, 2020
31.1 | PNMR | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 | PNMR | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3 | PNM | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.4 | PNM | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.5 | TNMP | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.6 | TNMP | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 | PNMR | Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 | PNM | Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.3 | TNMP | Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS | PNMR, PNM, and TNMP | XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document
101.SCH | PNMR, PNM, and TNMP | Inline XBRL Taxonomy Extension Schema Document
101.CAL | PNMR, PNM, and TNMP | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF | PNMR, PNM, and TNMP | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB | PNMR, PNM, and TNMP | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE | PNMR, PNM, and TNMP | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 | PNMR, PNM, and TNMP | Cover Page Inline XBRL File (included in Exhibits 101)

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

|  | PNM RESOURCES, INC. PUBLIC SERVICE COMPANY OF NEW MEXICO TEXAS-NEW MEXICO POWER COMPANY
|  | (Registrants)
Date: | May 1, 2020 | /s/ Henry E. Monroy
|  | Henry E. Monroy
|  | Vice President and Corporate Controller
|  | (Officer duly authorized to sign this report)

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