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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Federal Income Tax Reform

In 2017, comprehensive changes in U.S. 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 2020, the IRS issued final regulations related to certain officer compensation and, in January 2021, issued final regulations on interest deductibility that provide a 10% “de minimis” exception that allows entities with predominantly regulated activities to fully deduct interest expenses. In addition, in 2020, the IRS finalized regulations interpreting Tax Act amendments to depreciation provisions of the Internal Revenue Code (“IRC”) that allowed the Company to claim a bonus depreciation deduction on certain construction projects placed in service subsequent to the third quarter of 2017.

As a result of the change in the federal income tax rate, the Company re-measured and adjusted its deferred tax assets and liabilities as of December 31, 2017. The portion of that adjustment not related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax assets and an increase in income tax expense. The portion related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax liabilities and an increase in regulatory liabilities.

Beginning February 2018, PNM’s NM 2016 Rate Case reflected 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 and the unprotected portion of excess deferred federal income taxes to customers over a period of approximately twenty-three years. In the 2024 Rate Change, PNM has proposed returning the unamortized unprotected portion of excess deferred federal income taxes to customers over a five-year period, beginning when rates from the case go into effect. Excess deferred state income taxes were returned to customers over a three-year period, which concluded in the first quarter of 2021. 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 amortized federal and state excess deferred income taxes of $23.6 million, $14.4 million, and $9.2 million in 2022.

PNMR
PNMR’s income taxes consist of the following components:
 Year Ended December 31,
 202220212020
 (In thousands)
Current federal income tax$— $— $— 
Current state income tax1,597 1,835 231 
Deferred federal income tax18,413 20,679 17,574 
Deferred state income tax7,302 11,315 3,721 
Amortization of accumulated investment tax credits(1,182)(1,247)(890)
Total income taxes$26,130 $32,582 $20,636 
PNMR’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
 Year Ended December 31,
 202220212020
 (In thousands)
Federal income tax at statutory rates$44,375 $51,330 $43,670 
Amortization of accumulated investment tax credits(1,182)(1,247)(890)
Amortization of excess deferred income tax(23,599)(24,484)(30,723)
Flow-through of depreciation items2,795 798 1,368 
(Earnings) attributable to non-controlling interest in Valencia(3,176)(3,253)(2,943)
State income tax, net of federal (benefit)6,826 9,660 6,961 
Allowance for equity funds used during construction(2,898)(2,776)(2,363)
Regulatory recovery of prior year impairments of state net operating loss carryforward, including amortization
— — 1,367 
Allocation of tax (benefit) related to stock compensation awards91 (788)(392)
Non-deductible compensation1,125 899 2,630 
Transaction costs74 848 — 
Other1,699 1,595 1,951 
Total income taxes$26,130 $32,582 $20,636 
Effective tax rate12.37 %13.33 %9.92 %

The components of PNMR’s net accumulated deferred income tax liability were:
 December 31,
 20222021
 (In thousands)
Deferred tax assets:
Net operating loss$85,382 $32,441 
Regulatory liabilities related to income taxes98,371 120,651 
Federal tax credit carryforwards122,557 122,436 
Regulatory disallowances28,037 38,835 
Other33,849 34,812 
Total deferred tax assets368,196 349,175 
Deferred tax liabilities:
Depreciation and plant related(801,022)(787,295)
Investment tax credit(96,227)(97,409)
Regulatory assets related to income taxes(77,013)(78,211)
Pension(40,651)(40,828)
Regulatory asset for shutdown of SJGS Units 2 and 3(24,048)(25,643)
Regulatory asset SJGS investment(69,828)— 
Other(82,238)(84,639)
Total deferred tax liabilities(1,191,027)(1,114,025)
Net accumulated deferred income tax liabilities$(822,831)$(764,850)
The following table reconciles the change in PNMR’s net accumulated deferred income tax liability to the deferred income tax included in the Consolidated Statement of Earnings:
 Year Ended
December 31, 2022
 (In thousands)
Net change in deferred income tax liability per above table$57,981 
Change in tax effects of income tax related regulatory assets and liabilities(7,546)
Amortization of excess deferred income tax(23,599)
Tax effect of mark-to-market adjustments(1,359)
Tax effect of excess pension liability(645)
Adjustment for uncertain income tax positions1,439 
Reclassification of unrecognized tax benefits(1,439)
Other(299)
Deferred income tax$24,533 
 
PNM
PNM’s income taxes (benefit) consist of the following components:
 Year Ended December 31,
 202220212020
 (In thousands)
Current federal income tax (benefit)$(13,533)$— $— 
Current state income tax (benefit)3,244 (128)(585)
Deferred federal income tax25,298 18,774 20,125 
Deferred state income tax4,361 8,583 2,560 
Amortization of accumulated investment tax credits(172)(237)(243)
Total income taxes$19,198 $26,992 $21,857 

PNM’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
 Year Ended December 31,
 202220212020
 (In thousands)
Federal income tax at statutory rates$29,026 $41,696 $38,193 
Amortization of accumulated investment tax credits(172)(237)(243)
Amortization of excess deferred income tax(14,421)(15,158)(21,609)
Flow-through of depreciation items2,641 689 1,279 
(Earnings) attributable to non-controlling interest in Valencia(3,176)(3,253)(2,943)
State income tax, net of federal (benefit)5,694 7,609 7,111 
Allowance for equity funds used during construction(1,958)(2,080)(1,461)
Regulatory recovery of prior year impairment of state net operating loss carryforward, net of amortization
— — 1,367 
Allocation of tax (benefit) related to stock compensation awards65 (563)(279)
Non-deductible compensation701 547 1,554 
Transaction costs10 22 — 
Other788 (2,280)(1,112)
Total income taxes$19,198 $26,992 $21,857 
Effective tax rate13.89 %13.59 %12.02 %
The components of PNM’s net accumulated deferred income tax liability were:
 December 31,
 20222021
 (In thousands)
Deferred tax assets:
Net operating loss$54,681 $1,854 
Regulatory liabilities related to income taxes76,744 96,161 
Federal tax credit carryforwards84,902 86,811 
Regulatory disallowance28,037 38,835 
Other33,079 36,599 
Total deferred tax assets277,443 260,260 
Deferred tax liabilities:
Depreciation and plant related(620,814)(616,567)
Investment tax credit(74,015)(74,187)
Regulatory assets related to income taxes(67,912)(68,687)
Pension(36,048)(36,283)
Regulatory asset for shutdown of SJGS Units 2 and 3(24,048)(25,643)
Regulatory asset SJGS investment(69,828)— 
Other(66,818)(69,575)
Total deferred tax liabilities(959,483)(890,942)
Net accumulated deferred income tax liabilities$(682,040)$(630,682)

The following table reconciles the change in PNM’s net accumulated deferred income tax liability to the deferred income tax included in the Consolidated Statement of Earnings:
 Year Ended
December 31, 2022
 (In thousands)
Net change in deferred income tax liability per above table$51,358 
Change in tax effects of income tax related regulatory assets and liabilities(4,995)
Amortization of excess deferred income tax(14,421)
Tax effect of mark-to-market adjustments1,462 
Tax effect of excess pension liability(646)
Adjustment for uncertain income tax positions1,430 
Reclassification of unrecognized tax benefits(4,701)
Deferred income tax$29,487 
TNMP
TNMP’s income taxes consist of the following components:
 Year Ended December 31,
 202220212020
 (In thousands)
Current federal income tax$17,055 $5,770 $12,048 
Current state income tax2,662 2,395 2,033 
Deferred federal income tax (benefit)(4,527)(224)(7,744)
Deferred state income tax (benefit)(29)(29)(29)
Total income taxes$15,161 $7,912 $6,308 
 
TNMP’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the periods shown. The differences are attributable to the following factors:
 Year Ended December 31,
 202220212020
 (In thousands)
Federal income tax at statutory rates$22,560 $15,076 $13,628 
Amortization of excess deferred income tax(9,177)(9,326)(9,113)
State income tax, net of federal (benefit)2,103 1,763 1,625 
Allocation of tax (benefit) related to stock compensation awards26 (224)(112)
Non-deductible compensation422 351 1,071 
Transaction costs1 (4)— 
Other(774)276 (791)
Total income taxes$15,161 $7,912 $6,308 
Effective tax rate14.11 %11.02 %9.71 %

The components of TNMP’s net accumulated deferred income tax liability were:
 December 31,
 20222021
 (In thousands)
Deferred tax assets:
Regulatory liabilities related to income taxes$21,627 $24,490 
Other5,353 3,648 
Total deferred tax assets26,980 28,138 
Deferred tax liabilities:
Depreciation and plant related(166,230)(157,649)
Regulatory assets related to income taxes(9,213)(9,525)
Loss on reacquired debt(5,527)(5,799)
Pension(4,603)(4,545)
AMS(3,989)(5,249)
Other(2,055)(2,619)
Total deferred tax liabilities(191,617)(185,386)
Net accumulated deferred income tax liabilities$(164,637)$(157,248)

The following table reconciles the change in TNMP’s net accumulated deferred income tax liability to the deferred income tax (benefit) included in the Consolidated Statement of Earnings:
 Year Ended
December 31, 2022
 (In thousands)
Net change in deferred income tax liability per above table$7,389 
Change in tax effects of income tax related regulatory assets and liabilities(2,552)
Amortization of excess deferred income tax(9,177)
Other(216)
Deferred income tax (benefits)$(4,556)
Other Disclosures

The Company is required to recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. A reconciliation of unrecognized tax benefits is as follows:
PNMRPNMTNMP
 (In thousands)
Balance at December 31, 2019$10,693 $7,776 $114 
Additions based on tax positions related to 20202,286 2,286 — 
Additions for tax positions of prior years173 168 5 
Settlement payments— — — 
Balance at December 31, 202013,152 10,230 119 
Additions based on tax positions related to 2021305 295 11 
Additions for tax positions of prior years257 246 11 
Settlement payments— — — 
Balance at December 31, 202113,714 10,771 141 
Additions based on tax positions related to 20221,444 1,437 7 
Additions (reductions) for tax positions of prior years(4)(7)3 
Settlement payments— — — 
Balance at December 31, 2022$15,154 $12,201 $151 

Included in the balance of unrecognized tax benefits at December 31, 2022 are $13.6 million, $10.6 million, and $0.2 million that, if recognized, would affect the effective tax rate for PNMR, PNM, and TNMP. The Company does not anticipate that any unrecognized tax expenses or unrecognized tax benefits will be reduced or settled in 2023.

PNMR, PNM, and TNMP had no estimated interest income or expense related to income taxes for the years ended December 31, 2022, 2021, and 2020. There was no accumulated accrued interest receivable or payable related to income taxes as of December 31, 2022 and 2021.

The Company files a federal consolidated and several consolidated and separate state income tax returns. The tax years prior to 2019 are closed to examination by either federal or state taxing authorities other than Arizona. The tax years prior to 2018 are closed to examination by Arizona taxing authorities. Other tax years are open to examination by federal and state taxing authorities and net operating loss carryforwards are open to examination for the years in which the carryforwards are utilized. At December 31, 2022, the Company has $382.0 million of federal net operating loss carryforwards that expire beginning in 2034 and $123.8 million of federal tax credit carryforwards that expire beginning in 2023. State net operating losses expire beginning in 2035 and vary from federal due to differences between state and federal tax law. The proposed Merger may impact the Company’s ability to utilize its federal net operating loss and tax credit carryforwards.

In 2008, fifty percent bonus tax depreciation was enacted as a temporary two-year stimulus measure as part of the Economic Stimulus Act of 2008. Bonus tax depreciation in various forms has been extended since that time, including by the Protecting Americans from Tax Hikes Act of 2015. The 2015 act extended and phased-out bonus tax depreciation through 2019. As discussed above, the Tax Act eliminated bonus depreciation for utilities effective September 28, 2017. However, in 2020 the IRS issued regulations interpreting Tax Act amendments to depreciation provisions of the IRC which allowed the Company to claim a bonus depreciation deduction on certain construction projects placed in service after the third quarter of 2017. As a result of the net operating loss carryforwards for income tax purposes created by bonus depreciation, certain tax carryforwards were not expected to be utilized before their expiration. In addition, as a result of Tax Act changes to the deductibility of officer compensation, certain deferred tax benefits related to compensation are not expected to be realized. The Company has impaired the deferred tax assets for tax carryforwards which are not expected to be utilized and for compensation that is not expected to be deductible.

The Company earns investment tax credits for construction or purchase of eligible property. The Company uses the deferral method of accounting for these investment tax credits.
Impairments of tax attributes after reflecting the expiration of carryforwards under applicable tax laws, net of federal tax benefit, for 2020 through 2022 are as follows:
PNMRPNMTNMP
(In thousands)
December 31, 2022:
Federal tax credit carryforwards$187 $427 $— 
Compensation expense$199 $140 $59 
December 31, 2021:
Federal tax credit carryforwards$1,029 $— $— 
Compensation expense$119 $84 $35 
December 31, 2020:
State tax credit carryforwards$(425)$— $— 
Compensation expense$96 $61 $35 

The tax effect of compensation that is not expected to be deductible and impairments of unexpired tax credits are reflected as a valuation allowance against deferred tax assets. The reserve balances, after reflecting expiration of carryforwards under applicable tax laws, at December 31, 2022 and 2021 are as follows:
PNMRPNMTNMP
(In thousands)
December 31, 2022:
Federal tax credit carryforwards$1,216 $427 $— 
Compensation expense$725 $483 $241 
December 31, 2021:
Federal tax credit carryforwards$1,029 $— $— 
Compensation expense$526 $343 $182