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Income Taxes
 12 Months Ended
Dec. 31, 2023
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.

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 and state corporate income tax rates, including amortization of excess deferred federal and state income taxes. In accordance with the order in that case and amortization requirements of the tax laws, 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 remaining balance of the unprotected portion of excess deferred federal income taxes, which was being returned to customers over a period of approximately twenty-three years, will be returned over a five-year period when new rates go into effect from the 2024 Rate Change. 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 excess deferred income taxes of $23.0 million, $14.3 million, and $8.7 million in 2023.
PNMR
PNMR’s income taxes (benefits) consist of the following components:
 Year Ended December 31,
 202320222021
 (In thousands)
Current federal income tax$— $— $— 
Current state income tax (benefit)
(2,841)1,597 1,835 
Deferred federal income tax (benefit)
(11,503)18,413 20,679 
Deferred state income tax (benefit)
(825)7,302 11,315 
Amortization of accumulated investment tax credits(1,181)(1,182)(1,247)
Total income taxes (benefits)
$(16,350)$26,130 $32,582 


PNMR’s provision for income taxes (benefits) 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,
 202320222021
 (In thousands)
Federal income tax at statutory rates$19,011 $44,375 $51,330 
Amortization of accumulated investment tax credits(1,181)(1,182)(1,247)
Amortization of excess deferred income tax(22,859)(23,599)(24,484)
Flow-through of depreciation items1,281 2,795 798 
(Earnings) attributable to non-controlling interest in Valencia(3,892)(3,176)(3,253)
State income tax (benefit), net of federal (benefit)
(2,239)6,826 9,660 
Allowance for equity funds used during construction(3,145)(2,898)(2,776)
Allocation of tax (benefit) related to stock compensation awards(261)91 (788)
Non-deductible compensation1,659 1,125 899 
Non-deductible merger related costs
(1,959)74 848 
R&D credit
(2,050)(1,320)(1,530)
Other(715)3,019 3,125 
Total income taxes (benefits)
$(16,350)$26,130 $32,582 
Effective tax rate18.06 %12.37 %13.33 %
The components of PNMR’s net accumulated deferred income tax liability were:
 December 31,
 20232022
 (In thousands)
Deferred tax assets:
Net operating loss$16,833 $85,382 
Regulatory liabilities related to income taxes90,461 98,371 
Federal tax credit carryforwards124,510 122,557 
Regulatory disallowances42,330 28,037 
Regulatory liability SJGS retirement credits28,797 — 
Other35,492 33,849 
Total deferred tax assets338,423 368,196 
Deferred tax liabilities:
Depreciation and plant related(738,078)(801,022)
Investment tax credit(95,046)(96,227)
Regulatory assets related to income taxes(80,643)(77,013)
Pension(41,141)(40,651)
Regulatory asset for shutdown of SJGS Units 2 and 3(22,454)(24,048)
Regulatory asset SJGS energy transition property
(86,521)(69,828)
Regulatory asset PVNGS investment
(20,503)— 
PVNGS trusts
(41,767)(26,084)
Other(57,550)(56,154)
Total deferred tax liabilities(1,183,703)(1,191,027)
Net accumulated deferred income tax liabilities$(845,280)$(822,831)

The following table reconciles the change in PNMR’s net accumulated deferred income tax liability to the deferred income tax (benefit) included in the Consolidated Statement of Earnings:
 Year Ended
December 31, 2023
 (In thousands)
Net change in deferred income tax liability per above table$22,449 
Change in tax effects of income tax related regulatory assets and liabilities(11,791)
Amortization of excess deferred income tax(22,859)
Tax effect of mark-to-market adjustments474 
Tax effect of excess pension liability(1,566)
Adjustment for uncertain income tax positions(17)
Reclassification of unrecognized tax benefits17 
Other(216)
Deferred income tax (benefit)
$(13,509)
PNM

PNM’s income taxes (benefits) consist of the following components:
 Year Ended December 31,
 202320222021
 (In thousands)
Current federal income tax (benefit)$9,518 $(13,533)$— 
Current state income tax (benefit)(4,304)3,244 (128)
Deferred federal income tax (benefit)
(22,951)25,298 18,774 
Deferred state income tax1,150 4,361 8,583 
Amortization of accumulated investment tax credits(171)(172)(237)
Total income taxes (benefits)
$(16,758)$19,198 $26,992 

PNM’s provision for income taxes (benefits) 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,
 202320222021
 (In thousands)
Federal income tax at statutory rates$7,972 $29,026 $41,696 
Amortization of accumulated investment tax credits(171)(172)(237)
Amortization of excess deferred income tax(14,252)(14,421)(15,158)
Flow-through of depreciation items1,114 2,641 689 
(Earnings) attributable to non-controlling interest in Valencia(3,892)(3,176)(3,253)
State income tax (benefit), net of federal (benefit)
(2,216)5,694 7,609 
Allowance for equity funds used during construction(2,065)(1,958)(2,080)
Allocation of tax (benefit) related to stock compensation awards(185)65 (563)
Non-deductible compensation1,015 701 547 
Non-deductible merger costs
(33)10 22 
R&D credit
(2,000)(1,300)(1,500)
Other(2,045)2,088 (780)
Total income taxes (benefits)
$(16,758)$19,198 $26,992 
Effective tax rate(44.15)%13.89 %13.59 %
The components of PNM’s net accumulated deferred income tax liability were:
 December 31,
 20232022
 (In thousands)
Deferred tax assets:
Net operating loss$— $54,681 
Regulatory liabilities related to income taxes71,546 76,744 
Federal tax credit carryforwards80,586 84,902 
Regulatory disallowance42,330 28,037 
Regulatory liability SJGS retirement credits
28,797 — 
Other35,993 33,079 
Total deferred tax assets259,252 277,443 
Deferred tax liabilities:
Depreciation and plant related(545,815)(620,814)
Investment tax credit(73,844)(74,015)
Regulatory assets related to income taxes(71,742)(67,912)
Pension(36,483)(36,048)
Regulatory asset for shutdown of SJGS Units 2 and 3(22,454)(24,048)
Regulatory asset SJGS energy transition property(86,521)(69,828)
Regulatory asset PVNGS investment
(20,503)— 
PVNGS Trusts
(41,767)(26,084)
Other(44,160)(40,734)
Total deferred tax liabilities(943,289)(959,483)
Net accumulated deferred income tax liabilities$(684,037)$(682,040)

The following table reconciles the change in PNM’s net accumulated deferred income tax liability to the deferred income tax (benefit) included in the Consolidated Statement of Earnings:
 Year Ended
December 31, 2023
 (In thousands)
Net change in deferred income tax liability per above table$1,997 
Change in tax effects of income tax related regulatory assets and liabilities(9,391)
Amortization of excess deferred income tax(14,252)
Tax effect of mark-to-market adjustments(1,099)
Tax effect of excess pension liability(1,566)
Adjustment for uncertain income tax positions(55)
Reclassification of unrecognized tax benefits2,394 
Deferred income tax (benefit)
$(21,972)
TNMP
TNMP’s income taxes consist of the following components:
 Year Ended December 31,
 202320222021
 (In thousands)
Current federal income tax$11,354 $17,055 $5,770 
Current state income tax3,055 2,662 2,395 
Deferred federal income tax (benefit)2,917 (4,527)(224)
Deferred state income tax (benefit)(29)(29)(29)
Total income taxes$17,297 $15,161 $7,912 
 
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,
 202320222021
 (In thousands)
Federal income tax at statutory rates$23,569 $22,560 $15,076 
Amortization of excess deferred income tax(8,607)(9,177)(9,326)
State income tax, net of federal (benefit)2,414 2,103 1,763 
Allocation of tax (benefit) related to stock compensation awards(77)26 (224)
Non-deductible compensation642 422 351 
Transaction costs3 1 (4)
Other(647)(774)276 
Total income taxes$17,297 $15,161 $7,912 
Effective tax rate15.41 %14.11 %11.02 %

The components of TNMP’s net accumulated deferred income tax liability were:
 December 31,
 20232022
 (In thousands)
Deferred tax assets:
Regulatory liabilities related to income taxes$18,915 $21,627 
Other5,534 5,353 
Total deferred tax assets24,449 26,980 
Deferred tax liabilities:
Depreciation and plant related(179,483)(166,230)
Regulatory assets related to income taxes(8,901)(9,213)
Loss on reacquired debt(5,254)(5,527)
Pension(4,659)(4,603)
AMS(2,613)(3,989)
Other(2,287)(2,055)
Total deferred tax liabilities(203,197)(191,617)
Net accumulated deferred income tax liabilities$(178,748)$(164,637)

The following table reconciles the change in TNMP’s net accumulated deferred income tax liability to the deferred income tax included in the Consolidated Statement of Earnings:
 Year Ended
December 31, 2023
 (In thousands)
Net change in deferred income tax liability per above table$14,111 
Change in tax effects of income tax related regulatory assets and liabilities(2,400)
Amortization of excess deferred income tax(8,607)
Other(216)
Deferred income tax
$2,888 
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, 2020$13,152 $10,230 $119 
Additions based on tax positions related to 2021
305 295 11 
Additions for tax positions of prior years257 246 11 
Balance at December 31, 202113,714 10,771 141 
Additions based on tax positions related to 2022
1,444 1,437 7 
Additions (reductions) for tax positions of prior years
(4)(7)3 
Balance at December 31, 202215,154 12,201 151 
Additions (reductions) based on tax positions related to 2023
(277)(294)17 
Additions for tax positions of prior years
259 239 20 
Balance at December 31, 2023$15,136 $12,146 $188 

Included in the balance of unrecognized tax benefits at December 31, 2023 are $14.6 million, $11.6 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 2024.

PNMR, PNM, and TNMP had no estimated interest income or expense related to income taxes for the years ended December 31, 2023, 2022, and 2021. There was no accumulated accrued interest receivable or payable related to income taxes as of December 31, 2023 and 2022.

The Company files a federal consolidated and several consolidated and separate state income tax returns. The tax years prior to 2020 are closed to examination by either federal or state taxing authorities other than Arizona. The tax years prior to 2019 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, 2023, the Company has $120.2 million of federal net operating loss carryforwards that expire beginning in 2035 and $126.6 million of federal tax credit carryforwards that expire beginning in 2024. State net operating losses expire beginning in 2037 and vary from federal due to differences between state and federal tax law.

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 2021 through 2023 are as follows:
PNMRPNMTNMP
(In thousands)
December 31, 2023:
Federal tax credit carryforwards$839 $(427)$— 
Compensation expense$387 $246 $140 
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 


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, 2023 and 2022 are as follows:
PNMRPNMTNMP
(In thousands)
December 31, 2023:
Federal tax credit carryforwards$2,055 $— $— 
Compensation expense$1,112 $729 $381 
December 31, 2022:
Federal tax credit carryforwards$1,216 $427 $— 
Compensation expense$725 $483 $241