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Lease Commitments

9 Months Ended

Sep. 30, 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 September 30, 2025 and December 31, 2024, the unamortized balance of these rights-of-ways was $69.7 million and $67.1 million. PNM recognized amortization expense associated with these agreements of $1.1 million and $3.3 million in the three and nine months ended September 30, 2025 and $1.1 million and $3.2 million in the three and nine months ended September 30, 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 September 30, 2025, residual value guarantees on fleet vehicle and equipment leases are $0.7 million, $0.6 million, and $1.3 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 the 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:


	September 30, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Operating leases:
Operating lease assets, net of amortization	$	319,432	$	191	$	320,127	$	271,433	$	923	$	272,894
Current portion of operating lease liabilities	15,164		162		15,366		13,542		713		14,293
Long-term portion of operating lease liabilities	299,662		27		300,165		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:


	September 30, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Financing leases:
Non-utility property	$	27,796	$	31,352	$	60,558	$	24,548	$	24,420	$	50,144
Accumulated depreciation	(12,395)		(14,341)		(27,175)		(10,997)		(13,411)		(24,604)
Non-utility property, net	15,401		17,011		33,383		13,551		11,009		25,540

Other current liabilities	$	5,163	$	6,012	$	11,535	$	4,311	$	4,527	$	9,126
Other deferred credits	10,263		11,028		21,931		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:


	September 30, 2025						December 31, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
Weighted average remaining lease term (years):
Operating leases	17.48		0.73		17.45		17.52		1.10		17.45
Financing leases	3.52		3.34		3.41		3.51		2.80		3.20

Weighted average discount rate:
Operating leases	5.73	%	4.62	%	5.73	%	5.68	%	4.41	%	5.68	%
Financing leases	5.32	%	5.46	%	5.38	%	5.08	%	5.19	%	5.12	%

Information for the components of lease expense is as follows:


	Three Months Ended September 30, 2025						Nine Months Ended September 30, 2025
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Operating lease cost:
Energy storage leases	$	5,493	$	—	$	5,493	$	15,660	$	—	$	15,660
Other operating leases	1,863		105		1,987		5,589		390		6,035
Amounts capitalized	(11)		(81)		(92)		(33)		(317)		(350)
Total operating lease expense	7,345		24		7,388		21,216		73		21,345
Financing lease cost:
Amortization of right-of-use assets	1,255		1,612		2,956		3,686		4,455		8,409
Interest on lease liabilities	189		220		421		553		577		1,171
Amounts capitalized	(941)		(1,527)		(2,468)		(2,719)		(4,177)		(6,897)
Total financing lease expense	503		305		909		1,520		855		2,683

Variable lease expense	6,555		—		6,555		19,690		—		19,690
Short-term lease expense	173		4		182		542		16		605
Total lease expense for the period	$	14,576	$	333	$	15,034	$	42,968	$	944	$	44,323


	Three Months Ended September 30, 2024						Nine Months Ended September 30, 2024
	PNM		TNMP		TXNM		PNM		TNMP		TXNM
	(In thousands)
Operating lease cost:
Energy storage leases	$	2,947	$	—	$	2,947	$	8,840	$	—	$	8,840
Other operating leases	1,888		217		2,124		5,855		723		6,610
Amounts capitalized	(23)		(192)		(216)		(86)		(634)		(720)
Total operating lease expense	4,812		25		4,855		14,609		89		14,730
Financing lease cost:
Amortization of right-of-use assets	1,042		1,235		2,356		3,379		3,866		7,361
Interest on lease liabilities	142		146		300		429		445		891
Amounts capitalized	(748)		(1,133)		(1,882)		(2,345)		(3,476)		(5,822)
Total financing lease expense	436		248		774		1,463		835		2,430

Variable lease expense	433		—		433		1,226		—		1,226
Short-term lease expense	182		7		276		534		19		656
Total lease expense for the period	$	5,863	$	280	$	6,338	$	17,832	$	943	$	19,042

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


	Nine Months Ended						Nine Months Ended
	September 30, 2025						September 30, 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	$	22,633	$	43	$	22,725	$	16,694	$	36	$	16,758
Operating cash flows from financing leases	196		141		379		143		75		235
Finance cash flows from financing leases	1,319		722		2,296		1,305		759		2,174

Non-cash information related to right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	57,920	$	9	$	57,930	$	75	$	100	$	743
Financing leases	5,562		10,521		16,345		1,735		2,661		5,355

Capitalized lease costs are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024. Future expected lease payments are shown below:


	As of September 30, 2025
	PNM						TNMP				TXNM
			Operating										Operating
	Financing		Energy Storage		Other		Financing		Operating		Financing		Energy Storage		Other
	(In thousands)
Remainder of 2025	$	1,533	$	6,313	$	71	$	1,886	$	154	$	3,520	$	6,313	$	242
2026	5,651		25,250		7,045		6,337		16		12,381		25,250		7,130
2027	4,318		25,250		7,049		4,709		14		9,387		25,250		7,134
2028	2,872		25,250		7,052		3,193		11		6,242		25,250		7,135
2029	1,376		25,250		7,039		1,945		—		3,360		25,250		7,114
Later years	978		364,133		3,660		539		—		1,518		364,133		4,012
Total minimum lease payments	16,728		471,446		31,916		18,609		195		36,408		471,446		32,767
Less: Imputed interest	1,302		184,974		3,562		1,569		6		2,942		184,974		3,708
Lease liabilities	$	15,426	$	286,472	$	28,354	$	17,040	$	189	$	33,466	$	286,472	$	29,059

The above table includes $15.2 million, $14.7 million, and $30.2 million for PNM, TNMP, and TXNM at September 30, 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 September 30, 2025, the Company has an ESA that has been executed with a lease component that has not yet commenced. The lease component begins in 2029, expires in 2044, and will be recognized as a lease asset and liability upon the commencement. The expected total fixed consideration to be paid for this arrangement, which includes non-lease payments, is approximately $94.3 million over the 20-year term of the agreement.

Lease Commitments