XML 32 R15.htm IDEA: XBRL DOCUMENT
v3.20.2

Fair Value of Derivative and Other Financial Instruments | 9 Months Ended
--- | ---
Sep. 30, 2020
Fair Value of Derivative and Other Financial Instruments [Abstract] |
Fair Value of Derivative and Other Financial Instruments | 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 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 the 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 nine months ended September 30, 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. 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
| September 30, 2020 |  | December 31, 2019
| (In thousands)
Other current assets | $ | 1,097 |  |  | $ | 1,089 |
Other deferred charges | 729 |  |  | 1,507 |
| 1,826 |  |  | 2,596 |
Other current liabilities | (1,097) |  |  | (1,089) |
Other deferred credits | (729) |  |  | (1,507) |
| (1,826) |  |  | (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 September 30, 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 September 30, 2020 and December 31, 2019, PNM had no amounts recognized for the legal right to reclaim cash collateral. However, at both September 30, 2020 and December 31, 2019, amounts posted as cash collateral under margin arrangements were $0.5 million. At both September 30, 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 September 30, 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 and nine months ended September 30, 2020 and 2019 were less than $0.1 million. Commodity derivatives had no impact on OCI for the periods presented. PNM has no open energy or gas commodity volume positions at September 30, 2020 or December 31, 2019. 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 September 30, 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 September 30, 2020 and December 31, 2019, the fair value of investment securities included $352.0 million and $336.0 million for the NDT and $56.6 million and $52.8 million for the mine reclamation trusts. 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 |  | Nine Months Ended
| September 30, |  | September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Equity securities: |  |  |  |  |  |  |
Net gains from equity securities sold | $ | 90 |  |  | $ | 514 |  |  | $ | 4,131 |  |  | $ | 4,675 |
Net gains from equity securities still held | 8,545 |  |  | 1,011 |  |  | 2,991 |  |  | 10,916 |
Total net gains on equity securities | 8,635 |  |  | 1,525 |  |  | 7,122 |  |  | 15,591 |
Available-for-sale debt securities: |  |  |  |  |  |  |
Net gains (losses) on debt securities | 5,766 |  |  | 161 |  |  | (3,950) |  |  | 4,708 |
Net gains on investment securities | $ | 14,401 |  |  | $ | 1,686 |  |  | $ | 3,172 |  |  | $ | 20,299 |
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 $4.2 million and $(4.5) million for the three and nine months ended September 30, 2020 and $0.2 million and $2.8 million for the three and nine months ended September 30, 2019.
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Proceeds from sales | $ | 134,567 |  |  | $ | 141,371 |  |  | $ | 489,218 |  |  | $ | 375,382 |
Gross realized gains | $ | 12,998 |  |  | $ | 6,510 |  |  | $ | 30,085 |  |  | $ | 21,605 |
Gross realized (losses) | $ | (11,374) |  |  | $ | (6,026) |  |  | $ | (25,411) |  |  | $ | (14,998) |
At September 30, 2020, the available-for-sale debt securities held by PNM, had the following final maturities:
| Fair Value
| (In thousands)
Within 1 year | $ | 29,941 |  |  |  |  |
After 1 year through 5 years | 85,926 |  |  |  |  |
After 5 years through 10 years | 85,507 |  |  |  |  |
After 10 years through 15 years | 15,533 |  |  |  |  |
After 15 years through 20 years | 8,861 |  |  |  |  |
After 20 years | 41,289 |  |  |  |  |
| $ | 267,057 |  |  |  |  |
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 values 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 September 30, 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. 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)
September 30, 2020 |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 8,493 |  |  | $ | 8,493 |  |  | $ | — |  |  |  |  |
Equity securities: |  |  |  |  |  |  |  |  |
Corporate stocks, common | 71,490 |  |  | 71,490 |  |  | — |  |  |  |  |
Corporate stocks, preferred | 9,940 |  |  | 3,718 |  |  | 6,222 |  |  |  |  |
Mutual funds and other | 51,571 |  |  | 51,571 |  |  | — |  |  |  |  |
Available-for-sale debt securities: |  |  |  |  |  |  |  |  |
U.S. government | 55,439 |  |  | 30,483 |  |  | 24,956 |  |  |  |  | $ | 1,159 |
International government | 14,330 |  |  | — |  |  | 14,330 |  |  |  |  | 1,586 |
Municipals | 49,064 |  |  | — |  |  | 49,064 |  |  |  |  | 2,468 |
Corporate and other | 148,224 |  |  | 10 |  |  | 148,214 |  |  |  |  | 16,679 |
| $ | 408,551 |  |  | $ | 165,765 |  |  | $ | 242,786 |  |  |  |  | $ | 21,892 |
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 |  |  |  |  |  |
September 30, 2020 | (In thousands)
PNMR | $ | 3,289,349 |  |  | $ | 3,333,741 |  |  |  |  |  |  |
PNM | $ | 1,845,987 |  |  | $ | 1,740,129 |  |  |  |  |  |  |
TNMP | $ | 853,706 |  |  | $ | 1,000,248 |  |  |  |  |  |  |
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.

X
- Definition Fair Value of Derivative and Other Financial Instruments [Abstract] + References No definition available. + Details
Name: | pnm_FairValueOfDerivativeAndOtherFinancialInstrumentsAbstract
Namespace Prefix: | pnm_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivatives and fair value of assets and liabilities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativesAndFairValueTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration