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Lease Commitments

3 Months Ended

Mar. 31, 2025

The Company leases office buildings, vehicles, energy storage facilities, and other equipment. In addition, 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 2024 Annual Reports on Form 10-K.

PVNGS

In 1985 and 1986, PNM entered into leases for its interest in PVNGS Unit 1 and 2. The leases initially were scheduled to expire in January 2015 for four Unit 1 leases and January 2016 for 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 expired in January 2023 and the one Unit 2 lease expired in January 2024. PNM has no further lease payments related to PVNGS Unit 1 or 2.

On April 5, 2021, PNM and Salt River Project entered into an Asset Purchase and Sale Agreement, pursuant to which PNM agreed to sell to Salt River Project certain PNM-owned assets and nuclear fuel necessary to the ongoing operation and maintenance of leased capacity in PVNGS Unit 1 and Unit 2. In January 2023, the Unit 1 leases expired, and PNM closed on the associated sale to Salt River Project. In January 2024, the Unit 2 leases expired, and PNM closed on the associated sale to Salt River Project, receiving payments totaling $3.4 million, of which $2.8 million was recorded as a reduction to Net utility plant on the Condensed Consolidated Balance Sheets and was presented as cash flows from investing activities on the Condensed Consolidated Statement of Cash Flows. In addition, $0.6 million was recorded as a reduction to Materials, supplies and fuel stock on the Condensed Consolidated Balance Sheets and was presented as cash flows from operating activities on the Condensed Consolidated Statement of Cash Flows.

Land Easements and Rights-of-Way

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 2025 payment for the amount due under the Navajo Nation right-of-way lease was $8.8 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, 2025 and December 31, 2024, the unamortized balance of these rights-of-ways was $70.8 million and $67.1 million. PNM recognized amortization expense associated with these agreements of $1.1 million and $1.1 million in the three months ended March 31, 2025 and 2024.

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, 2025, residual value guarantees on fleet vehicle and equipment leases are $0.7 million, $0.8 million, and $1.5 million for PNM, TNMP, and TXNM Consolidated.

Energy Storage Agreements

The Company has ESAs with fixed payments over the life of the agreements, that are accounted for as operating leases, for which Company records the initial lease liabilities and corresponding right-of-use assets. The Company also has ESAs with monthly payments that vary, depending on the available capacity of the energy storage facility, that are also accounted for as operating leases, However due to the variable nature of the consideration, these agreements do not require a lease liability or a right-of-use asset to be recorded upon inception. Expenses for this type of lease are reflected in variable lease expense in the tables below. In addition, the Company has elected to separate lease components from non-lease components for ESAs and accordingly, does not include non-lease components in the measurement of the lease liability or right-of-use asset. The non-lease components, which are not included in the measurement of the lease liability or the corresponding right-of-use asset, comprise 25.5% of the value of the agreements.

Information related to the Company’s operating leases recorded on the Condensed Consolidated Balance Sheets is presented below:


	March 31, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Operating leases:
Operating lease assets, net of amortization	$	268,291	$	581	$	269,399	$	271,433	$	923	$	272,894
Current portion of operating lease liabilities	13,958		527		14,523		13,542		713		14,293
Long-term portion of operating lease liabilities	252,963		34		253,493		254,702		167		255,376

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, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Financing leases:
Non-utility property	$	24,877	$	23,938	$	50,153	$	24,548	$	24,420	$	50,144
Accumulated depreciation	(11,165)		(13,331)		(24,762)		(10,997)		(13,411)		(24,604)
Non-utility property, net	13,712		10,607		25,391		13,551		11,009		25,540

Other current liabilities	$	4,487	$	4,498	$	9,307	$	4,311	$	4,527	$	9,126
Other deferred credits	9,249		6,132		16,153		9,262		6,504		16,470

Information concerning the weighted average remaining lease terms and the weighted average discount rates used to determine the Company’s lease liabilities is presented below:


	March 31, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
Weighted average remaining lease term (years):
Operating leases	17.25		0.75		17.20		17.52		1.10		17.45
Financing leases	3.39		2.72		3.11		3.51		2.80		3.20

Weighted average discount rate:
Operating leases	5.68	%	4.43	%	5.23	%	5.68	%	4.41	%	5.68	%
Financing leases	5.19	%	5.31	%	5.68	%	5.08	%	5.19	%	5.12	%

Information for the components of lease expense is as follows:


	Three Months Ended March 31, 2025
		PNM		TNMP		TXNM
		(In thousands)
Operating lease cost:
Energy storage leases		$	5,083	$	—	$	5,083
Other operating leases		1,863		154		2,036
Amounts capitalized		(11)		(130)		(141)
Total operating lease expense		6,935		24		6,978
Financing lease cost:
Amortization of right-of-use assets		1,201		1,294		2,588
Interest on lease liabilities		180		144		339
Amounts capitalized		(880)		(1,195)		(2,074)
Total financing lease expense		501		243		853

Variable lease expense		6,556		—		6,556
Short-term lease expense		191		4		225
Total lease expense for the period		$	14,183	$	271	$	14,612


	Three Months Ended March 31, 2024
		PNM		TNMP		TXNM
		(In thousands)
Operating lease cost:
Energy storage leases		$	2,947	$	—	$	2,947
Other operating leases		2,059		270		2,329
Amounts capitalized		(35)		(232)		(267)
Total operating lease expense		4,971		38		5,009
Financing lease cost:
Amortization of right-of-use assets		1,218		1,316		2,542
Interest on lease liabilities		144		152		297
Amounts capitalized		(841)		(1,182)		(2,023)
Total financing lease expense		521		286		816

Variable lease expense		360		—		360
Short-term lease expense		204		6		216
Total lease expense for the period		$	6,056	$	330	$	6,401

Supplemental cash flow information related to the Company’s leases is as follows:


	Three Months Ended						Three Months Ended
	March 31, 2025						March 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,116	$	13	$	5,145	$	3,826	$	14	$	3,840
Operating cash flows from financing leases	62		25		102		44		29		74
Finance cash flows from financing leases	436		217		741		464		256		728

Non-cash information related to right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	49	$	4	$	52	$	27	$	63	$	90
Financing leases	1,368		891		2,449		263		1,040		1,398

Capitalized lease costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024.

Future expected lease payments are shown below:


	As of March 31, 2025
	PNM						TNMP				TXNM
			Operating										Operating
	Financing		Energy Storage		Other		Financing		Operating		Financing		Energy Storage		Other
	(In thousands)
Remainder of 2025	$	3,879	$	15,250	$	7,060	$	3,854	$	547	$	8,009	$	15,250	$	7,657
2026	4,672		20,333		7,045		3,867		14		8,905		20,333		7,128
2027	3,372		20,333		7,049		2,395		14		6,111		20,333		7,134
2028	1,969		20,333		7,052		982		11		3,114		20,333		7,135
2029	672		20,333		7,039		318		—		1,024		20,333		7,114
Later years	230		287,100		3,660		4		—		234		287,100		4,012
Total minimum lease payments	14,794		383,682		38,905		11,420		586		27,397		383,682		40,180
Less: Imputed interest	1,058		151,525		4,141		790		25		1,937		151,525		4,321
Lease liabilities	$	13,736	$	232,157	$	34,764	$	10,630	$	561	$	25,460	$	232,157	$	35,859

The above table includes $13.2 million, $10.2 million, and $23.6 million for PNM, TNMP, and TXNM at March 31, 2025 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.

At March 31, 2025, the Company has various lease arrangements that have been executed but have not yet commenced, which are primarily related to ESAs. The Company currently expects lease commencement dates in 2025 and 2029, with lease terms expiring in 2045 and 2044, and will recognize lease assets and liabilities upon lease commencement. The expected total fixed consideration to be paid for these arrangements, which includes non-lease payments, is approximately $226.3 million over the 20-year terms of the agreements.

Lease Commitments