Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 [X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

Commission File
 
Name of Registrants, State of Incorporation,
 
I.R.S. Employer
 Number
 
 Address and Telephone Number
 
 Identification No.
001-32462
 
PNM Resources, Inc.
 
85-0468296
 
 
(A New Mexico Corporation)
 
 
 
 
414 Silver Ave. SW
 
 
 
 
Albuquerque, New Mexico 87102-3289
 
 
 
 
(505) 241-2700
 
 
 
 
 
 
 
001-06986
 
Public Service Company of New Mexico
 
85-0019030
 
 
(A New Mexico Corporation)
 
 
 
 
414 Silver Ave. SW
 
 
 
 
Albuquerque, New Mexico 87102-3289
 
 
 
 
(505) 241-2700
 
 
 
 
 
 
 
002-97230
 
Texas-New Mexico Power Company
 
75-0204070
 
 
(A Texas Corporation)
 
 
 
 
577 N. Garden Ridge Blvd.
 
 
 
 
Lewisville, Texas 75067
 
 
 
 
(972) 420-4189
 
 

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
 
PNM Resources, Inc. (“PNMR”)
YES
ü
NO
 
 
Public Service Company of New Mexico (“PNM”)
YES
ü
NO
 
 
Texas-New Mexico Power Company (“TNMP”)
YES
 
NO
ü

(NOTE: As a voluntary filer, not subject to the filing requirements, TNMP filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 
PNMR
YES
ü
NO
 
 
PNM
YES
ü
NO
 
 
TNMP
YES
ü
NO
 




Table of Contents

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated
filer
 
Accelerated
filer
 
Non-accelerated
filer (Do not check if a smaller reporting company)
 
Smaller reporting company
 
Emerging growth company
PNMR
 
ü
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
PNM
 
   
 
 
 
   
 
 
 
ü
 
 
 
   
 
 
 
 
 
TNMP
 
   
 
 
 
   
 
 
 
ü
 
 
 
   
 
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES     NO ü

As of April 23, 2018, 79,653,624 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of common stock of PNM outstanding as of April 23, 2018 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of common stock of TNMP outstanding as of April 23, 2018 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).

PNM AND TNMP MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H) (1) (a) AND (b) OF FORM 10-Q AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION (H) (2).

This combined Form 10-Q is separately filed by PNMR, PNM, and TNMP.  Information contained herein relating to any individual registrant is filed by such registrant on its own behalf.  Each registrant makes no representation as to information relating to the other registrants.  When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNMR, PNM, or TNMP, as a registrant, the portions of this Form 10-Q that relate to each other registrant are not incorporated by reference therein.



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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

INDEX

 
Page No.
 
 
 
 
 
 


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Table of Contents

GLOSSARY
 
Definitions:
  
 
2014 IRP
 
PNM’s 2014 IRP
2017 IRP
 
PNM’s 2017 IRP
ABCWUA
 
Albuquerque Bernalillo County Water Utility Authority
AEP OnSite Partners
 
AEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
Afton
  
Afton Generating Station
AFUDC
 
Allowance for Funds Used During Construction
AMI
 
Advanced Metering Infrastructure
AMS
 
Advanced Meter System
AOCI
  
Accumulated Other Comprehensive Income
APS
  
Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
ARP
 
Alternative Revenue Program
ASU
 
Accounting Standards Update
August 2016 RD
 
Recommended Decision in PNM’s NM 2015 Rate Case issued by the Hearing Examiner on August 4, 2016
BART
  
Best Available Retrofit Technology
BDT
 
Balanced Draft Technology
BHP
  
BHP Billiton, Ltd
Board
  
Board of Directors of PNMR
BTMU
 
MUFG Bank Ltd., formerly The Bank of Tokyo-Mitsubishi UFJ, Ltd.
BTMU Term Loan Agreement
 
NM Capital’s $125.0 Million Unsecured Term Loan
BTU
  
British Thermal Unit
CAA
 
Clean Air Act
CCB
  
Coal Combustion Byproducts
CCN
 
Certificate of Convenience and Necessity
CO2
  
Carbon Dioxide
CSA
 
Coal Supply Agreement
CTC
  
Competition Transition Charge
DC Circuit
 
United States Court of Appeals for the District of Columbia Circuit
DOE
  
United States Department of Energy
DOI
  
United States Department of Interior
EGU
 
Electric Generating Unit
EIS
 
Environmental Impact Study
EPA
  
United States Environmental Protection Agency
ERCOT
  
Electric Reliability Council of Texas
ESA
 
Endangered Species Act
Exchange Act
 
Securities Exchange Act of 1934
FASB
  
Financial Accounting Standards Board
FERC
  
Federal Energy Regulatory Commission
FIP
  
Federal Implementation Plan
Four Corners
  
Four Corners Power Plant
FPPAC
  
Fuel and Purchased Power Adjustment Clause
FTY
 
Future Test Year
GAAP
  
Generally Accepted Accounting Principles in the United States of America
GHG
  
Greenhouse Gas Emissions
GWh
  
Gigawatt hours
IRP
 
Integrated Resource Plan
IRS
  
Internal Revenue Service
ISFSI
 
Independent Spent Fuel Storage Installation
KW
  
Kilowatt
KWh
  
Kilowatt Hour
La Luz
  
La Luz Generating Station

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LIBOR
  
London Interbank Offered Rate
Lightning Dock Geothermal
 
Lightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
Lordsburg
  
Lordsburg Generating Station
Luna
  
Luna Energy Facility
MD&A
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTU
  
Million BTUs
Moody’s
  
Moody’s Investor Services, Inc.
MW
  
Megawatt
MWh
  
Megawatt Hour
NAAQS
 
National Ambient Air Quality Standards
Navajo Acts
  
Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT
  
Nuclear Decommissioning Trusts for PVNGS
NEC
 
Navopache Electric Cooperative, Inc.
NEE
 
New Energy Economy
NEPA
 
National Environmental Policy Act
NERC
  
North American Electric Reliability Corporation
New Mexico Wind
 
New Mexico Wind Energy Center
NM 2015 Rate Case
 
Request for a General Increase in Electric Rates Filed by PNM on August 27, 2015
NM 2016 Rate Case
 
Request for a General Increase in Electric Rates Filed by PNM on December 7, 2016
NM Capital
 
NM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR
NM District Court
 
United States District Court for the District of New Mexico
NM Supreme Court
 
New Mexico Supreme Court
NMAG
  
New Mexico Attorney General
NMED
  
New Mexico Environment Department
NMIEC
  
New Mexico Industrial Energy Consumers Inc.
NMMMD
 
The Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
NMPRC
  
New Mexico Public Regulation Commission
NMRD
 
NM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
NOx
  
Nitrogen Oxides
NOPR
 
Notice of Proposed Rulemaking
NPDES
 
National Pollutant Discharge Elimination System
NRC
  
United States Nuclear Regulatory Commission
NSPS
  
New Source Performance Standards
NSR
  
New Source Review
NTEC
  
Navajo Transitional Energy Company, LLC, an entity owned by the Navajo Nation
OCI
  
Other Comprehensive Income
OPEB
  
Other Post-Employment Benefits
OSM
 
United States Office of Surface Mining Reclamation and Enforcement
PNM
  
Public Service Company of New Mexico and Subsidiaries
PNM 2017 New Mexico Credit Facility
 
PNM’s $40.0 Million Unsecured Revolving Credit Facility
PNM 2017 Senior Unsecured Note Agreement
 
PNM’s Agreement for the sale of Senior Unsecured Notes, aggregating $450.0 million
PNM 2017 Term Loan Agreement
 
PNM’s $200.0 Million Unsecured Term Loan
PNM 2018 SUNs
 
PNM’s Senior Unsecured Notes to be issued under the PNM 2017 Senior Unsecured Note Agreement
PNM Revolving Credit Facility
 
PNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMR
  
PNM Resources, Inc. and Subsidiaries

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PNMR 2015 Term
Loan Agreement
 
PNMR’s $150.0 Million Three-Year Unsecured Term Loan
PNMR 2016 One-Year Term Loan
 
PNMR’s $100.0 Million One-Year Unsecured Term Loan
PNMR 2016 Two-Year Term Loan
 
PNMR’s $100.0 Million Two-Year Unsecured Term Loan
PNMR 2018 SUNs
 
PNMR’s $300.0 Million Aggregate Principal Amount of Senior Unsecured Notes due 2021
PNMR Development
 
PNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
PNMR Development Revolving Credit Facility
 
PNMR Development’s $24.5 Million Unsecured Revolving Credit Facility
PNMR Revolving Credit Facility
 
PNMR’s $300.0 Million Unsecured Revolving Credit Facility
PPA
  
Power Purchase Agreement
PSD
  
Prevention of Significant Deterioration
PUCT
  
Public Utility Commission of Texas
PV
  
Photovoltaic
PVNGS
  
Palo Verde Nuclear Generating Station
RCRA
  
Resource Conservation and Recovery Act
RCT
  
Reasonable Cost Threshold
REA
 
New Mexico’s Renewable Energy Act of 2004
REC
  
Renewable Energy Certificates
Red Mesa Wind
 
Red Mesa Wind Energy Center
REP
  
Retail Electricity Provider
RFP
 
Request For Proposal
Rio Bravo
 
Rio Bravo Generating Station
RMC
  
Risk Management Committee
ROE
 
Return on Equity
RPS
  
Renewable Energy Portfolio Standard
S&P
  
Standard and Poor’s Ratings Services
SCR
 
Selective Catalytic Reduction
SEC
  
United States Securities and Exchange Commission
SIP
  
State Implementation Plan
SJCC
  
San Juan Coal Company
SJGS
  
San Juan Generating Station
SJGS CSA
 
San Juan Generating Station Coal Supply Agreement
SJGS RA
 
San Juan Project Restructuring Agreement
SJPPA
 
San Juan Project Participation Agreement
SNCR
 
Selective Non-Catalytic Reduction
SO2
  
Sulfur Dioxide
TECA
  
Texas Electric Choice Act
Tenth Circuit
 
United States Court of Appeals for the Tenth Circuit
TNMP
  
Texas-New Mexico Power Company and Subsidiaries
TNMP Revolving Credit Facility
  
TNMP’s $75.0 Million Secured Revolving Credit Facility
Tri-State
  
Tri-State Generation and Transmission Association, Inc.
US Supreme Court
 
United States Supreme Court
Valencia
  
Valencia Energy Facility
VaR
  
Value at Risk
VIE
 
Variable Interest Entity
WACC
  
Weighted Average Cost of Capital
WEG
 
WildEarth Guardians
Westmoreland
 
Westmoreland Coal Company
Westmoreland Loan
 
$125.0 Million of funding provided by NM Capital to WSJ
WSJ
 
Westmoreland San Juan, LLC, an indirect wholly-owned subsidiary of Westmoreland

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands, except per share amounts)
Electric Operating Revenues: 
 
 
 
Contracts with customers
$
303,351

 
$
297,191

Alternative revenue programs
924

 
4,579

Other electric operating revenue
13,603

 
28,408

Total electric operating revenues
317,878

 
330,178

Operating Expenses:

 

Cost of energy
92,556

 
102,804

Administrative and general
48,283

 
45,394

Energy production costs
35,350

 
31,787

Depreciation and amortization
58,722

 
56,383

Transmission and distribution costs
16,955

 
16,477

Taxes other than income taxes
19,880

 
19,235

Total operating expenses
271,746

 
272,080

Operating income
46,132

 
58,098

Other Income and Deductions:
 
 
 
Interest income
4,124

 
4,881

Gains on investment securities
288

 
6,661

Other income
3,469

 
4,902

Other (deductions)
(1,376
)
 
(5,621
)
Net other income and deductions
6,505

 
10,823

Interest Charges
33,055

 
31,700

Earnings before Income Taxes
19,582

 
37,221

Income Taxes
783

 
10,775

Net Earnings
18,799

 
26,446

(Earnings) Attributable to Valencia Non-controlling Interest
(3,677
)
 
(3,452
)
Preferred Stock Dividend Requirements of Subsidiary
(132
)
 
(132
)
Net Earnings Attributable to PNMR
$
14,990

 
$
22,862

Net Earnings Attributable to PNMR per Common Share:
 
 
 
Basic
$
0.19

 
$
0.29

Diluted
$
0.19

 
$
0.29

Dividends Declared per Common Share
$
0.2650

 
$
0.2425


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.



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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Net Earnings
$
18,799

 
$
26,446

Other Comprehensive Income:
 
 
 
Unrealized Gains on Available-for-Sale Securities:
 
 
 
Unrealized holding gains arising during the period, net of income tax (expense) of $(283) and $(3,030)
832

 
4,736

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $668 and $1,078
(1,961
)
 
(1,685
)
Pension Liability Adjustment:
 
 
 
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(480) and $(631)
1,411

 
987

Fair Value Adjustment for Cash Flow Hedges:
 
 
 
Change in fair market value, net of income tax (expense) benefit of $(472) and $72
1,386

 
(113
)
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $13 and $(44)
(40
)
 
68

Total Other Comprehensive Income
1,628

 
3,993

Comprehensive Income
20,427

 
30,439

Comprehensive (Income) Attributable to Valencia Non-controlling Interest
(3,677
)
 
(3,452
)
Preferred Stock Dividend Requirements of Subsidiary
(132
)
 
(132
)
Comprehensive Income Attributable to PNMR
$
16,618

 
$
26,855


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
18,799

 
$
26,446

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
67,748

 
65,888

Deferred income tax expense
767

 
10,787

Net unrealized (gains) on commodity derivatives
(28
)
 
(1,345
)
(Gains) on investment securities
(288
)
 
(6,661
)
Stock based compensation expense
2,894

 
2,687

Allowance for equity funds used during construction
(2,487
)
 
(1,632
)
Other, net
757

 
704

Changes in certain assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues
18,215

 
20,553

Materials, supplies, and fuel stock
(2,976
)
 
1,836

Other current assets
2,345

 
11,441

Other assets
(443
)
 
2,753

Accounts payable
(26,953
)
 
(3,852
)
Accrued interest and taxes
13,370

 
12,542

Other current liabilities
(9,397
)
 
(10,009
)
Other liabilities
(3,397
)
 
(534
)
Net cash flows from operating activities
78,926

 
131,604

 
 
 
 
Cash Flows From Investing Activities:
 
 
 
Additions to utility and non-utility plant
(117,691
)
 
(114,830
)
Proceeds from sales of investment securities
626,729

 
266,388

Purchases of investment securities
(628,999
)
 
(267,891
)
Principal repayments on Westmoreland Loan
5,649

 
9,590

Investments in NMRD
(5,000
)
 

Other, net
128

 
128

Net cash flows from investing activities
(119,184
)
 
(106,615
)

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Cash Flows From Financing Activities:
 
 
 
Revolving credit facilities borrowings (repayments), net
(66,700
)
 
16,000

Long-term borrowings
299,652

 

Repayment of long-term debt
(155,026
)
 
(9,444
)
Proceeds from stock option exercise
802

 
1,112

Awards of common stock
(10,845
)
 
(11,032
)
Dividends paid
(21,240
)
 
(19,448
)
Valencia’s transactions with its owner
(4,472
)
 
(4,028
)
Other, net
(2,104
)
 
(388
)
Net cash flows from financing activities
40,067

 
(27,228
)
 
 
 
 
Change in Cash, Restricted Cash, and Equivalents
(191
)
 
(2,239
)
Cash, Restricted Cash, and Equivalents at Beginning of Period
3,974

 
5,522

Cash, Restricted Cash, and Equivalents at End of Period
$
3,783

 
$
3,283

 
 
 
 
Restricted Cash Included in Other Current Assets on Condensed Consolidated Balance Sheets:
 
 
 
At beginning of period
$

 
$
1,000

At end of period
$

 
$
1,000

 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid, net of amounts capitalized
$
15,305

 
$
14,951

Income taxes paid (refunded), net
$
(8
)
 
$
(125
)
 
 
 
 
Supplemental schedule of noncash investing activities:
 
 
 
(Increase) decrease in accrued plant additions
$
16,003

 
$
10,367


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2018
 
December 31,
2017
 
(In thousands)
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
3,783

 
$
3,974

Accounts receivable, net of allowance for uncollectible accounts of $1,118 and $1,081
84,156

 
90,473

Unbilled revenues
41,400

 
54,055

Other receivables
17,891

 
17,582

Current portion of Westmoreland Loan
4,837

 
3,576

Materials, supplies, and fuel stock
69,478

 
66,502

Regulatory assets
1,423

 
2,933

Commodity derivative instruments
1,087

 
1,088

Income taxes receivable
6,855

 
6,879

Other current assets
46,389

 
47,358

Total current assets
277,299

 
294,420

Other Property and Investments:
 
 
 
Long-term portion of Westmoreland Loan
46,154

 
53,064

Investment securities
324,003

 
323,524

Equity investment in NMRD
21,541

 
16,510

Other investments
375

 
503

Non-utility property
3,404

 
3,404

Total other property and investments
395,477

 
397,005

Utility Plant:
 
 
 
Plant in service and held for future use
7,284,727

 
7,238,285

Less accumulated depreciation and amortization
2,627,329

 
2,592,692

 
4,657,398

 
4,645,593

Construction work in progress
284,870

 
245,933

Nuclear fuel, net of accumulated amortization of $49,905 and $43,524
89,262

 
88,701

Net utility plant
5,031,530

 
4,980,227

Deferred Charges and Other Assets:
 
 
 
Regulatory assets
595,398

 
600,672

Goodwill
278,297

 
278,297

Commodity derivative instruments
3,277

 
3,556

Other deferred charges
95,115

 
91,926

Total deferred charges and other assets
972,087

 
974,451

 
$
6,676,393

 
$
6,646,103


The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2018
 
December 31,
2017
 
(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
238,700

 
$
305,400

Current installments of long-term debt
309,565

 
256,895

Accounts payable
78,427

 
121,383

Customer deposits
11,045

 
11,028

Accrued interest and taxes
75,703

 
62,357

Regulatory liabilities
3,159

 
2,309

Commodity derivative instruments
1,328

 
1,182

Dividends declared
21,240

 
21,240

Other current liabilities
43,586

 
53,850

Total current liabilities
782,753

 
835,644

Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
2,271,984

 
2,180,750

Deferred Credits and Other Liabilities:
 
 
 
Accumulated deferred income taxes
554,022

 
547,210

Regulatory liabilities
934,053

 
933,578

Asset retirement obligations
149,453

 
146,679

Accrued pension liability and postretirement benefit cost
88,840

 
94,003

Commodity derivative instruments
3,277

 
3,556

Other deferred credits
131,468

 
131,706

Total deferred credits and other liabilities
1,861,113

 
1,856,732

Total liabilities
4,915,850

 
4,873,126

Commitments and Contingencies (See Note 11)


 


Cumulative Preferred Stock of Subsidiary
 
 
 
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)
11,529

 
11,529

Equity:
 
 
 
PNMR common stockholders' equity:
 
 
 
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)
1,150,516

 
1,157,665

Accumulated other comprehensive income (loss), net of income taxes
(105,520
)
 
(95,940
)
Retained earnings
638,618

 
633,528

Total PNMR common stockholders’ equity
1,683,614

 
1,695,253

Non-controlling interest in Valencia
65,400

 
66,195

Total equity
1,749,014

 
1,761,448

 
$
6,676,393

 
$
6,646,103

 
 
 
 

The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.


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PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)

 
Attributable to PNMR
 
Non-
controlling
Interest
in Valencia
 
 
 
Common
Stock
 
AOCI
 
Retained
Earnings
 
Total PNMR Common Stockholders’ Equity
 
 
Total
Equity
 
(In thousands)
Balance at December 31, 2017, as originally reported
$
1,157,665

 
$
(95,940
)
 
$
633,528

 
$
1,695,253

 
$
66,195

 
$
1,761,448

Cumulative effect adjustment (Note 7)

 
(11,208
)
 
11,208

 

 

 

Balance at January 1, 2018, as adjusted
1,157,665

 
(107,148
)
 
644,736

 
1,695,253

 
66,195

 
1,761,448

Net earnings before subsidiary preferred stock dividends

 

 
15,122

 
15,122

 
3,677

 
18,799

Total other comprehensive income

 
1,628

 

 
1,628

 

 
1,628

Subsidiary preferred stock dividends

 

 
(132
)
 
(132
)
 

 
(132
)
Dividends declared on common stock

 

 
(21,108
)
 
(21,108
)
 

 
(21,108
)
Proceeds from stock option exercise
802

 

 

 
802

 

 
802

Awards of common stock
(10,845
)
 

 

 
(10,845
)
 

 
(10,845
)
Stock based compensation expense
2,894

 

 

 
2,894

 

 
2,894

Valencia’s transactions with its owner

 

 

 

 
(4,472
)
 
(4,472
)
Balance at March 31, 2018
$
1,150,516

 
$
(105,520
)
 
$
638,618

 
$
1,683,614

 
$
65,400

 
$
1,749,014



The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.



13

Table of Contents


PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Electric Operating Revenues: 
 
 
 
Contracts with customers
$
222,564

 
$
222,063

Alternative revenue programs
65

 
1,087

Other electric operating revenue
13,603

 
28,408

Total electric operating revenues
236,232

 
251,558

Operating Expenses:
 
 
 
Cost of energy
70,802

 
81,317

Administrative and general
43,726

 
40,909

Energy production costs
35,350

 
31,787

Depreciation and amortization
36,627

 
36,016

Transmission and distribution costs
9,827

 
9,919

Taxes other than income taxes
11,608

 
11,141

Total operating expenses
207,940

 
211,089

Operating income
28,292

 
40,469

Other Income and Deductions:
 
 
 
Interest income
2,487

 
2,816

Gains on investment securities
288

 
6,661

Other income
2,391

 
3,843

Other (deductions)
(1,462
)
 
(4,959
)
Net other income and deductions
3,704

 
8,361

Interest Charges
20,830

 
21,012

Earnings before Income Taxes
11,166

 
27,818

Income Taxes (Benefit)
(348
)
 
7,708

Net Earnings
11,514

 
20,110

(Earnings) Attributable to Valencia Non-controlling Interest
(3,677
)
 
(3,452
)
Net Earnings Attributable to PNM
7,837

 
16,658

Preferred Stock Dividends Requirements
(132
)
 
(132
)
Net Earnings Available for PNM Common Stock
$
7,705

 
$
16,526


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.


14

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Net Earnings
$
11,514

 
$
20,110

Other Comprehensive Income:
 
 
 
Unrealized Gains on Available-for-Sale Securities:
 
 
 
Unrealized holding gains arising during the period, net of income tax (expense) of $(283) and $(3,030)
832

 
4,736

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $668 and $1,078
(1,961
)
 
(1,685
)
Pension Liability Adjustment:
 
 
 
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(480) and $(631)
1,411

 
987

Total Other Comprehensive Income
282

 
4,038

Comprehensive Income
11,796

 
24,148

Comprehensive (Income) Attributable to Valencia Non-controlling Interest
(3,677
)
 
(3,452
)
Comprehensive Income Attributable to PNM
$
8,119

 
$
20,696


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.


15

Table of Contents



PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
11,514

 
$
20,110

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
45,165

 
44,691

Deferred income tax expense (benefit)
(253
)
 
7,878

Net unrealized (gains) on commodity derivatives
(28
)
 
(1,345
)
(Gains) on investment securities
(288
)
 
(6,661
)
Allowance for equity funds used during construction
(2,031
)
 
(1,461
)
Other, net
757

 
702

Changes in certain assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues
15,100

 
17,414

Materials, supplies, and fuel stock
(2,247
)
 
2,083

Other current assets
(248
)
 
12,399

Other assets
3,999

 
4,399

Accounts payable
(18,014
)
 
(2,509
)
Accrued interest and taxes
17,984

 
16,954

Other current liabilities
(13,868
)
 
2,946

Other liabilities
(4,381
)
 
(1,325
)
Net cash flows from operating activities
53,161

 
116,275

 
 
 
 
Cash Flows From Investing Activities:
 
 
 
Utility plant additions
(61,720
)
 
(65,781
)
Proceeds from sales of investment securities
626,729

 
266,388

Purchases of investment securities
(628,999
)
 
(267,891
)
Other, net
128

 
128

Net cash flows from investing activities
(63,862
)
 
(67,156
)

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.


16

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Cash Flows From Financing Activities:
 
 
 
Revolving credit facilities borrowings (repayments), net
(39,800
)
 
(44,800
)
Short-term borrowings (repayments) - affiliate, net
54,600

 

Dividends paid
(132
)
 
(132
)
Valencia’s transactions with its owner
(4,472
)
 
(4,028
)
Other, net
(584
)
 
(389
)
Net cash flows from financing activities
9,612

 
(49,349
)
 
 
 
 
Change in Cash, Restricted Cash, and Equivalents
(1,089
)
 
(230
)
Cash, Restricted Cash, and Equivalents at Beginning of Period
1,108

 
1,324

Cash, Restricted Cash, and Equivalents at End of Period
$
19

 
$
1,094

 
 
 
 
Restricted Cash Included in Other Current Assets on Condensed Consolidated Balance Sheets:
 
 
 
At beginning of period
$

 
$
1,000

At end of period
$

 
$
1,000

 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid, net of amounts capitalized
$
9,560

 
$
9,330

Income taxes paid (refunded), net
$

 
$

 
 
 
 
Supplemental schedule of noncash investing activities:
 
 
 
(Increase) decrease in accrued plant additions
$
2,682

 
$
3,449


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.


17

Table of Contents



PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2018
 
December 31,
2017
 
(In thousands)
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
19

 
$
1,108

Accounts receivable, net of allowance for uncollectible accounts of $1,118 and $1,081
61,908

 
67,227

Unbilled revenues
33,331

 
43,869

Other receivables
14,573

 
14,541

Affiliate receivables
8,859

 
9,486

Materials, supplies, and fuel stock
63,105

 
60,859

Regulatory assets
827

 
2,139

Commodity derivative instruments
1,087

 
1,088

Income taxes receivable
3,505

 
3,410

Other current assets
41,607

 
39,904

Total current assets
228,821

 
243,631

Other Property and Investments:
 
 
 
Investment securities
324,003

 
323,524

Other investments
155

 
283

Non-utility property
96

 
96

Total other property and investments
324,254

 
323,903

Utility Plant:
 
 
 
Plant in service and held for future use
5,537,638

 
5,501,070

Less accumulated depreciation and amortization
2,052,380

 
2,029,534

 
3,485,258

 
3,471,536

Construction work in progress
214,139

 
204,079

Nuclear fuel, net of accumulated amortization of $49,905 and $43,524
89,262

 
88,701

Net utility plant
3,788,659

 
3,764,316

Deferred Charges and Other Assets:
 
 
 
Regulatory assets
453,912

 
459,239

Goodwill
51,632

 
51,632

Commodity derivative instruments
3,277

 
3,556

Other deferred charges
75,186

 
75,286

Total deferred charges and other assets
584,007

 
589,713

 
$
4,925,741

 
$
4,921,563

 
 
 
 

The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.


18

Table of Contents



PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2018
 
December 31,
2017
 
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$

 
$
39,800

Short-term debt - affiliate
54,600

 

Current installments of long-term debt
200,006

 
23

Accounts payable
56,398

 
77,094

Affiliate payables
11,543

 
22,875

Customer deposits
11,045

 
11,028

Accrued interest and taxes
52,024

 
33,945

Regulatory liabilities
934

 
784

Commodity derivative instruments
1,328

 
1,182

Dividends declared
132

 
132

Other current liabilities
28,302

 
31,633

Total current liabilities
416,312

 
218,496

Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
1,458,425

 
1,657,887

Deferred Credits and Other Liabilities:
 
 
 
Accumulated deferred income taxes
454,568

 
449,012

Regulatory liabilities
749,319

 
754,441

Asset retirement obligations
148,462

 
145,707

Accrued pension liability and postretirement benefit cost
81,756

 
86,124

Commodity derivative instruments
3,277

 
3,556

Other deferred credits
106,532

 
106,442

Total deferred credits and liabilities
1,543,914

 
1,545,282

Total liabilities
3,418,651

 
3,421,665

Commitments and Contingencies (See Note 11)


 


Cumulative Preferred Stock
 
 
 
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)
11,529

 
11,529

Equity:
 
 
 
PNM common stockholder’s equity:
 
 
 
Common stock (no par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)
1,264,918

 
1,264,918

Accumulated other comprehensive income (loss), net of income taxes
(108,019
)
 
(97,093
)
Retained earnings
273,262

 
254,349

Total PNM common stockholder’s equity
1,430,161

 
1,422,174

Non-controlling interest in Valencia
65,400

 
66,195

Total equity
1,495,561

 
1,488,369

 
$
4,925,741

 
$
4,921,563


The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.

19

Table of Contents

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
 
Attributable to PNM
 
 
 
 
 
 
 
 
 
Total PNM
Common
Stockholder’s
Equity
 
Non-
controlling
 Interest in Valencia
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
AOCI
 
Retained
Earnings
 
 
 
Total
Equity
 
 
 
 
 
 
 
(In thousands)
Balance at December 31, 2017, as originally reported
$
1,264,918

 
$
(97,093
)
 
$
254,349

 
$
1,422,174

 
$
66,195

 
$
1,488,369

Cumulative effect adjustment (Note 7)

 
(11,208
)
 
11,208

 

 

 

Balance at January 1, 2018, as adjusted
1,264,918

 
(108,301
)
 
265,557

 
1,422,174

 
66,195

 
1,488,369

Net earnings

 

 
7,837

 
7,837

 
3,677

 
11,514

Total other comprehensive income

 
282

 

 
282

 

 
282

Dividends declared on preferred stock

 

 
(132
)
 
(132
)
 

 
(132
)
Valencia’s transactions with its owner

 

 

 

 
(4,472
)
 
(4,472
)
Balance at March 31, 2018
$
1,264,918

 
$
(108,019
)
 
$
273,262

 
$
1,430,161

 
$
65,400

 
$
1,495,561



The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.

20

Table of Contents


TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Electric Operating Revenues: 
 
 
 
Contracts with customers
$
80,787

 
$
75,128

Alternative revenue programs
859

 
3,492

Total Electric Operating Revenues 
81,646

 
78,620

Operating Expenses:
 
 
 
Cost of energy
21,754

 
21,487

Administrative and general
10,709

 
10,403

Depreciation and amortization
16,387

 
15,371

Transmission and distribution costs
7,128

 
6,558

Taxes other than income taxes
7,136

 
6,836

Total operating expenses
63,114

 
60,655

Operating income
18,532

 
17,965

Other Income and Deductions:
 
 
 
Other income
754

 
822

Other (deductions)
331

 
(90
)
Net other income and deductions
1,085

 
732

Interest Charges
7,729

 
7,404

Earnings before Income Taxes
11,888

 
11,293

Income Taxes
2,475

 
3,689

Net Earnings
$
9,413

 
$
7,604


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.



21

Table of Contents


TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
 
(In thousands)
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
9,413

 
$
7,604

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
16,836

 
15,921

Deferred income tax expense (benefit)
(953
)
 
2,746

Other, net
(456
)
 
(168
)
Changes in certain assets and liabilities:
 
 
 
Accounts receivable and unbilled revenues
3,115

 
3,138

Materials and supplies
(729
)
 
(247
)
Other current assets
331

 
(838
)
Other assets
(3,055
)
 
(2,042
)
Accounts payable
(4,400
)
 
(788
)
Accrued interest and taxes
(1,952
)
 
(3,991
)
Other current liabilities
5,874

 
134

Other liabilities
1,456

 
361

Net cash flows from operating activities
25,480

 
21,830

Cash Flows From Investing Activities:
 
 
 
Utility plant additions
(49,956
)
 
(36,345
)
Net cash flows from investing activities
(49,956
)
 
(36,345
)
Cash Flow From Financing Activities:
 
 
 
Revolving credit facilities borrowings (repayments), net
21,200

 
22,000

Short-term borrowings (repayments) – affiliate, net
2,600

 
1,700

Dividends paid
(1,024
)
 
(9,855
)
Net cash flows from financing activities
22,776

 
13,845

 
 
 
 
Change in Cash and Cash Equivalents
(1,700
)
 
(670
)
Cash and Cash Equivalents at Beginning of Period
1,700

 
671
Cash and Cash Equivalents at End of Period
$

 
$
1

 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid, net of amounts capitalized
$
1,830

 
$
2,584

Income taxes paid (refunded), net
$
(8
)
 
$

 
 
 
 
Supplemental schedule of noncash investing activities:
 
 
 
(Increase) decrease in accrued plant additions
$
9,868

 
$
2,235


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.



22

Table of Contents



TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2018
 
December 31,
2017
 
(In thousands)
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$

 
$
1,700

Accounts receivable
22,248

 
23,246

Unbilled revenues
8,069

 
10,186

Other receivables
3,062

 
2,860

Affiliate receivables

 
336

Materials and supplies
6,373

 
5,643

Regulatory assets
596

 
794

Other current assets
796

 
1,131

Total current assets
41,144

 
45,896

Other Property and Investments:
 
 
 
Other investments
220

 
220

Non-utility property
2,240

 
2,240

Total other property and investments
2,460

 
2,460

Utility Plant:
 
 
 
Plant in service and plant held for future use
1,513,724

 
1,504,778

Less accumulated depreciation and amortization
466,976

 
460,858

 
1,046,748

 
1,043,920

Construction work in progress
61,695

 
34,350

Net utility plant
1,108,443

 
1,078,270

Deferred Charges and Other Assets:
 
 
 
Regulatory assets
141,486

 
141,433

Goodwill
226,665

 
226,665

Other deferred charges
6,236

 
6,046

Total deferred charges and other assets
374,387

 
374,144

 
$
1,526,434

 
$
1,500,770


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.

23

Table of Contents



TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2018
 
December 31,
2017
 
(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
Current Liabilities:
 
 
 
Short-term debt
$
21,200

 
$

Short-term debt – affiliate
2,600

 

Accounts payable
15,544

 
29,812

Affiliate payables
4,635

 
667

Accrued interest and taxes
27,666

 
29,619

Regulatory liabilities
2,225

 
1,525

Other current liabilities
3,320

 
2,450

Total current liabilities
77,190

 
64,073

Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
480,716

 
480,620

Deferred Credits and Other Liabilities:
 
 
 
Accumulated deferred income taxes
125,515

 
126,415

Regulatory liabilities
184,734

 
179,137

Asset retirement obligations
809

 
793

Accrued pension liability and postretirement benefit cost
7,084

 
7,879

Other deferred credits
7,592

 
7,448

Total deferred credits and other liabilities
325,734

 
321,672

Total liabilities
883,640

 
866,365

Commitments and Contingencies (See Note 11)


 


Common Stockholder's Equity:
 
 
 
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)
64

 
64

Paid-in-capital
504,166

 
504,166

Retained earnings
138,564

 
130,175

Total common stockholder’s equity
642,794

 
634,405

 
$
1,526,434

 
$
1,500,770


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.


24

Table of Contents

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
(Unaudited)
 
Common Stock
 
Paid-in Capital
 
Retained Earnings
 
Total Common Stockholder’s Equity
 
(In thousands)
Balance at December 31, 2017
$
64

 
$
504,166

 
$
130,175

 
$
634,405

Net earnings

 

 
9,413

 
9,413

Dividends declared on common stock

 

 
(1,024
)
 
(1,024
)
Balance at March 31, 2018
$
64

 
$
504,166

 
$
138,564

 
$
642,794


The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.



25

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



(1)
Significant Accounting Policies and Responsibility for Financial Statements

Financial Statement Preparation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at March 31, 2018 and December 31, 2017 and the consolidated results of operations, comprehensive income, and cash flows for the three months ended March 31, 2018 and 2017. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the 2017 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2018 financial statement presentation.

These Condensed Consolidated Financial Statements are unaudited. Certain information and note disclosures normally included in the annual audited Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s, and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 2017 Annual Reports on Form 10-K.

GAAP defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Based on their nature, magnitude, and timing, certain subsequent events may be required to be reflected at the balance sheet date and/or required to be disclosed in the financial statements. The Company has evaluated subsequent events as required by GAAP.

Principles of Consolidation
The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNM also consolidates Valencia (Note 6). PNM owns undivided interests in several jointly-owned power plants and records its pro-rata share of the assets, liabilities, and expenses for those plants. The agreements for the jointly-owned plants provide that if an owner were to default on its payment obligations, the non-defaulting owners would be responsible for their proportionate share of the obligations of the defaulting owner. In exchange, the non-defaulting owners would be entitled to their proportionate share of the generating capacity of the defaulting owner. There have been no such payment defaults under any of the agreements for the jointly-owned plants.

PNMR shared services’ expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments. These services are billed at cost and are reflected as general and administrative expenses in the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include interest and income tax sharing payments, as well as equity transactions (Note 15). All intercompany transactions and balances have been eliminated.

Dividends on Common Stock

Dividends on PNMR’s common stock are declared by the Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board.

TNMP declared and paid cash dividends on common stock to PNMR of $1.0 million and $9.9 million in the three months ended March 31, 2018 and 2017.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Investment in NM Renewable Development, LLC

As discussed in Note 1 of the 2017 Annual Reports on Form 10-K, in September 2017, PNMR Development and AEP OnSite Partners created NMRD to pursue the acquisition, development, and ownership of renewable energy projects, primarily in the state of New Mexico. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. NMRD’s current renewable energy capacity in operation is 21.8 MW. NMRD also has 10 MW of solar PV facilities under construction that will be completed in mid-2018. PNMR accounts for its investment in NMRD using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.

In February 2018, PNMR Development made cash contributions of $5.0 million to NMRD for its construction activities. For the three months ended March 31, 2018, NMRD had revenues of $0.4 million and net earnings of $0.1 million. At March 31, 2018, NMRD had $3.9 million in cash, $0.4 million in accounts receivable, $43.3 million of property, plant, and equipment and other assets, $4.5 million in accounts payable and accrued expenses, and $43.1 million of owners’ equity.

Cash and Restricted Cash

Additional information concerning the Company’s policy for recording cash and cash equivalents is discussed in Note 1 of the 2017 Annual Reports on Form 10-K. In November 2016, the FASB issued Accounting Standards Update 2016-18 Statement of Cash Flows (Topic 230), which requires that amounts generally described as restricted cash and restricted cash equivalents (“restricted cash”) be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statements of cash flows and adds disclosures necessary to reconcile such amounts to cash and cash equivalents on the balance sheets. ASU 2016-18 does not require that restricted cash be reflected as cash in the statement of financial position and does not provide a definition of what should be considered restricted cash. Upon adoption, ASU 2016-18 requires the use of a retrospective transition method for the statement of cash flows in each period presented. During 2015, PNM received a deposit of $8.2 million from a third party that was restricted for PNM’s construction of transmission interconnection facilities for that party. During 2016, PNM utilized $7.2 million of such third-party deposits to offset construction costs for the interconnection facilities. The remaining $1.0 million was held as restricted cash until the second quarter of 2017, at which time a refund was made to the third party. The balances of this deposit arrangement were included in Other current assets on the balance sheets of PNMR and PNM. Under the terms of the BTMU Term Loan Agreement (Note 9), all cash of NM Capital is restricted and must be used for payments required under that agreement or for taxes and fees. Cash held by NM Capital is included in Cash and cash equivalents on the balance sheets of PNMR and amounted to $1.4 million at December 31, 2016 and $1.5 million at March 31, 2018, but was less than $0.1 million at March 31, 2017 and December 31, 2017.

The Company adopted ASU 2016-18 as of January 1, 2018, its required effective date. In accordance with the standard, PNM made retrospective adjustments to its Condensed Consolidated Statements of Cash Flows for the three months ending March 31, 2017 to increase beginning cash, restricted cash, and equivalents at January 1, 2017 by $1.0 million and ending cash, restricted cash, and equivalents at March 31, 2017 by $1.0 million. No other changes were made to the Condensed Consolidated Financial Statements in connection with the adoption of ASU 2016-18.

New Accounting Pronouncements

Information concerning recently issued accounting pronouncements that have not been adopted by the Company is presented below. The Company does not expect difficulty in adopting these standards by their required effective dates.

Accounting Standards Update 2016-02 Leases (Topic 842)

In February 2016, the FASB issued ASU 2016-02 to provide guidance on the recognition, measurement, presentation, and disclosure of leases. ASU 2016-02 will require that a liability be recorded on the balance sheet for all leases, based on the present value of future lease obligations. A corresponding right-of-use asset will also be recorded. Amortization of the lease obligation and the right-of-use asset for certain leases, primarily those classified as operating leases, will be on a straight-line basis, which is not expected to have a significant impact on the statements of earnings, whereas other leases will be required to be accounted for as financing arrangements similar to the accounting treatment for capital leases under current GAAP. ASU 2016-02 also revises certain disclosure requirements. At adoption, ASU 2016-02 requires that leases be recognized and measured as of the earliest

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


period presented using a modified retrospective approach with all periods presented being restated and presented under the new guidance. The ASU allows entities to apply certain practical expedients to arrangements that exist upon adoption or that expired during the periods presented.
  
As further discussed in Note 7 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, the Company has operating leases of office buildings, vehicles, and equipment. The Company also routinely enters into land easements and right-of-way agreements. PNM also has operating lease interests in PVNGS Units 1 and 2 that will expire in January 2023 and 2024.

The Company, along with others in the utility industry, is continuing to monitor the activities of the FASB and other non-authoritative groups regarding industry specific issues for further clarification. The Company has formed a project team, conducted outreach activities across its lines of business, and made significant progress in identifying arrangements that may be classified as leases under ASU 2016-02 in addition to its existing operating lease arrangements. It is likely the arrangements currently classified as leases will continue to be recognized as leases under ASU 2016-02. It is possible that other contractual arrangements not previously meeting the lease definition may contain elements that qualify as leases and that previously identified operating leases may be classified as financing leases under ASU 2016-02. The Company is in the process of analyzing each of the identified contractual arrangement to determine if it contains lease elements under the new standard and quantifying the potential impacts of identified lease arrangements. The Company is also evaluating the practical expedients, if any, it will elect upon adoption. The Company anticipates this process will continue throughout 2018. The Company will adopt this standard effective as of January 1, 2019, its required effective date.

In January 2018, the FASB issued ASU 2018-01, which clarifies that land easements are to be evaluated under ASU 2016-02, but provides an additional optional practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under the current guidance. The Company has numerous land easements and right-of-way agreements that would fall under this clarification. The only such agreement that has been accounted for as a lease under current guidance is the right-of-way agreement with the Navajo Nation, which is discussed in Note 7 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K. The Company anticipates it will elect to use the practical expedient for its existing and expired land easements upon adoption of ASU 2016-02.

Accounting Standards Update 2016-13 Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, which changes the way entities recognize impairment of many financial assets, including accounts receivable and investments in debt securities, by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. The Company anticipates adopting ASU 2016-13 effective as of January 1, 2020, its required effective date, although early adoption is permitted beginning on January 1, 2019. The Company is in the process of analyzing the impacts of this new standard, but does not anticipate it will have a significant impact on its financial statements.

Accounting Standards Update 2017-04 Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 to simplify the annual goodwill impairment assessment process. Currently, the first step of a quantitative impairment test requires an entity to compare the fair value of each reporting unit containing goodwill with its carrying value (including goodwill). If as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, the entity is required to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise requires the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. ASU 2017-04 eliminates the second step of the impairment analysis. Accordingly, if the first step of a quantitative goodwill impairment analysis performed after adoption of ASU 2017-04 indicates that the fair value of a reporting unit is less than its carrying value, the goodwill of that reporting unit would be impaired to the extent of that difference. The Company anticipates it will adopt ASU 2017-04 for impairment testing after January 1, 2020, its required effective

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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


date, although early adoption is permitted. However, if there is an indication of potential impairment of goodwill as a result of an impairment assessment prior to 2020, the Company will evaluate the impact of ASU 2017-04 and could elect to early adopt this standard.

Accounting Standards Update 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12 to better align hedge accounting with an organization’s risk management activities and to simplify the application of hedge accounting guidance. ASU 2017-12 is effective for the Company on January 1, 2019 although early adoption is permitted beginning on January 1, 2018. As discussed in Note 6 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 9, the Company periodically enters into, and designates as cash flow hedges, interest rate swaps to hedge its exposure to changes in interest rates. In addition, as discussed in Note 8 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 7, the Company enters into various derivative instruments to economically hedge the risk of changes in commodity prices, which are not currently designated as cash flow hedges. The Company is evaluating the requirements of ASU 2017-12, but does not anticipate the changes will have a significant impact on the Company’s accounting treatment for derivative instruments or on its financial statements.

(2)
Segment Information

The following segment presentation is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. A reconciliation of the segment presentation to the GAAP financial statements is provided.

PNM
PNM includes the retail electric utility operations of PNM that are subject to traditional rate regulation by the NMPRC. PNM provides integrated electricity services that include the generation, transmission, and distribution of electricity for retail electric customers in New Mexico. PNM also includes the generation and sale of electricity into the wholesale market, as well as providing transmission services to third parties. The sale of electricity includes the asset optimization of PNM’s jurisdictional capacity, as well as the capacity excluded from retail rates. FERC has jurisdiction over wholesale power and transmission rates.

TNMP
TNMP is an electric utility providing services in Texas under the TECA. TNMP’s operations are subject to traditional rate regulation by the PUCT. TNMP provides transmission and distribution services at regulated rates to various REPs that, in turn, provide retail electric service to consumers within TNMP’s service area. TNMP also provides transmission services at regulated rates to other utilities that interconnect with TNMP’s facilities

Corporate and Other

The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and PNMR Services Company. The activities of PNMR Development, NM Capital, and the equity method investment in NMRD are also included in Corporate and Other.

The following tables present summarized financial information for PNMR by segment. PNM and TNMP each operate in only one segment. Therefore, tabular segment information is not presented for PNM and TNMP.


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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


PNMR SEGMENT INFORMATION
 
PNM
 
TNMP
 
Corporate
and Other
 
Consolidated
 
(In thousands)
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
Electric operating revenues
$
236,232

 
$
81,646

 
$

 
$
317,878

Cost of energy
70,802

 
21,754

 

 
92,556

Utility margin
165,430

 
59,892

 

 
225,322

Other operating expenses
100,511

 
24,973

 
(5,016
)
 
120,468

Depreciation and amortization
36,627

 
16,387

 
5,708

 
58,722

Operating income (loss)
28,292

 
18,532

 
(692
)
 
46,132

Interest income
2,487

 

 
1,637

 
4,124

Other income (deductions)
1,217

 
1,085

 
79

 
2,381

Interest charges
(20,830
)
 
(7,729
)
 
(4,496
)
 
(33,055
)
Segment earnings (loss) before income taxes
11,166

 
11,888

 
(3,472
)
 
19,582

Income taxes (benefit)