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MarketScreener Homepage  >  Equities  >  Nyse  >  PNM Resources, Inc.    PNM

PNM RESOURCES, INC.

(PNM)
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PNM RESOURCES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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07/31/2020 | 04:10pm EDT
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations for PNMR is presented on a combined basis, including
certain information applicable to PNM and TNMP. The MD&A for PNM and TNMP is
presented as permitted by Form 10-Q General Instruction H(2). This report uses
the term "Company" when discussing matters of common applicability to PNMR, PNM,
and TNMP. A reference to a "Note" in this Item 2 refers to the accompanying
Notes to Condensed Consolidated Financial Statements (Unaudited) included in
Item 1, unless otherwise specified. Certain of the tables below may not appear
visually accurate due to rounding.

                                 MD&A FOR PNMR

                               EXECUTIVE SUMMARY
Overview and Strategy

PNMR is a holding company with two regulated utilities serving approximately
794,000 residential, commercial, and industrial customers and end-users of
electricity in New Mexico and Texas. PNMR's electric utilities are PNM and TNMP.
PNMR strives to create a clean and bright energy future for customers,
communities, and shareholders. PNMR's strategy and decision-making are focused
on safely providing reliable, affordable, and environmentally responsible power
built on a foundation of Environmental, Social and Governance (ESG) principles.
Financial and Business Objectives
PNMR is focused on achieving three key financial objectives:

•Earning authorized returns on regulated businesses •Delivering at or above industry-average earnings and dividend growth •Maintaining investment grade credit ratings

In conjunction with these objectives, PNM and TNMP are dedicated to:


•Maintaining strong employee safety, plant performance, and system reliability
•Delivering a superior customer experience
•Demonstrating environmental stewardship in business operations, including
transitioning to an emissions-free generating portfolio by 2040
•Supporting the communities in their service territories

Earning Authorized Returns on Regulated Businesses


PNMR's success in accomplishing its financial objectives is highly dependent on
two key factors: fair and timely regulatory treatment for its utilities and the
utilities' strong operating performance. The Company has multiple strategies to
achieve favorable regulatory treatment, all of which have as their foundation a
focus on the basics: safety, operational excellence, and customer satisfaction,
while engaging stakeholders to build productive relationships. Both PNM and TNMP
seek cost recovery for their investments through general rate cases, interim
cost of service filings, and various rate riders.

Fair and timely rate treatment from regulators is crucial to PNM and TNMP in
earning their allowed returns and critical for PNMR to achieve its financial
objectives. PNMR believes that earning allowed returns is viewed positively by
credit rating agencies and that improvements in the Company's ratings could
lower costs to utility customers.

Additional information about rate filings is provided in Note 17 of the Notes to
Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and in
Note 12.

State Regulation

The rates PNM and TNMP charge retail customers are subject to traditional rate regulation by the NMPRC, FERC, and the PUCT.


New Mexico 2015 Rate Case - On September 28, 2016, the NMPRC issued an order
that authorized PNM to implement an increase in base non-fuel rates of $61.2
million for New Mexico retail customers, effective for bills sent after
September 30,
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2016. This order was on PNM's application for a general increase in retail
electric rates (the "NM 2015 Rate Case") filed in August 2015. The NMPRC's order
included a determination that PNM was imprudent in purchasing certain leased
capacity in PVNGS Unit 2, extending other PVNGS leased capacity, and installing
BDT environmental controls equipment on SJGS. PNM appealed the NMPRC's
imprudence findings to the NM Supreme Court. Specifically, PNM appealed the
NMPRC's determination that PNM was imprudent in certain matters in the case,
including the disallowance of the full purchase price of 64.1 MW of capacity in
PVNGS Unit 2, the undepreciated costs of capitalized improvements made during
the period the 64.1 MW of capacity was leased by PNM, the costs of converting
SJGS Units 1 and 4 to BDT, and future contributions for PVNGS decommissioning
attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under
the extended leases.

In May 2019, the NM Supreme Court issued its decision on the matters that had
been appealed in the NM 2015 Rate Case. The NM Supreme Court upheld all of the
decisions in the NMPRC's order except for their decision to permanently disallow
recovery of future decommissioning costs related to the purchased and extended
leases because PNM was deprived of its rights to due process of law and remanded
the case to the NMPRC for further proceedings. In January 2020, the NMPRC issued
its order in response to the NM Supreme Court's remand that reaffirmed its
September 2016 order except for the decision to permanently disallow recovery of
certain future decommissioning costs related to PVNGS Units 1 and 2. The NMPRC
indicated that PNM's ability to recover these costs will be addressed in a
future proceeding and closed the NM 2015 Rate Case docket.

As a result of the NM Supreme Court's ruling, PNM recorded a pre-tax impairment
of $149.3 million as of June 30, 2019 which is reflected as regulatory
disallowances and restructuring costs in the Condensed Consolidated Statements
of Earnings. This amount reflects capital costs not previously impaired during
the pendency of the appeal related to PNM's purchase of 64.1 MW, in PVNGS Unit
1, undepreciated capital improvements made during the period such interests had
been leased, and investments in BDT environmental controls equipment on SJGS
Units 1 and 4. The impairment was offset by tax impacts of $45.7 million which
are reflected as income taxes on the Condensed Consolidated Statements of
Earnings.

New Mexico 2016 Rate Case - In January 2018, the NMPRC approved a settlement
agreement that authorized PNM to implement an increase in base non-fuel rates of
$10.3 million, which includes a reduction to reflect the impact of the decrease
in the federal corporate income tax rate and updates to PNM's cost of debt
(aggregating $47.6 million annually). This order was on PNM's application for a
general increase in retail electric rates filed in December 2016 (the "NM 2016
Rate Case"). The key terms of the order include:

•A ROE of 9.575%
•A requirement to return to customers over a three-year period the benefit of
the reduction in the New Mexico corporate income tax rate to the extent
attributable to PNM's retail operations (Note 14)
•A disallowance of PNM's ability to collect an equity return on certain
investments aggregating $148.1 million at Four Corners, but allowing recovery of
a debt-only return
•An agreement to not implement non-fuel base rate changes, other than changes
related to PNM's rate riders, with an effective date prior to January 1, 2020
•A requirement to consider the prudency of PNM's decision to continue its
participation in Four Corners in PNM's next general rate case filing

PNM implemented 50% of the approved increase for service rendered beginning February 1, 2018 and implemented the rest of the increase for service rendered beginning January 1, 2019. This matter is now concluded.


2020 Decoupling Petition - On May 28, 2020, PNM filed a petition for approval of
a rate adjustment mechanism that would decouple the rates of its residential and
small power rate classes. Decoupling is a rate design principle that severs the
link between the recovery of fixed costs of the utility through volumetric
charges. If approved, customer bills will not be impacted until January 1, 2022.
PNM cannot predict the outcome of this matter.

TNMP 2018 Rate Case - On December 20, 2018, the PUCT approved a settlement
stipulation allowing TNMP to increase annual base rates by $10.0 million based
on a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of
55% debt and 45% equity. In addition, the approved settlement stipulation allows
TNMP to refund the regulatory liability recorded at December 31, 2017 related to
federal tax reform to customers and reflects the reduction in the federal
corporate income tax rate to 21%. New rates under the TNMP 2018 Rate Case became
effective January 1, 2019.

Advanced Metering - TNMP completed its mass deployment of advanced meters across its service territory in 2016 and has installed more than 242,000 advanced meters. Beginning in 2019 the majority of costs associated with TNMP's AMS program are being recovered through base rates.

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In February 2016, PNM filed an application with the NMPRC requesting approval of
a project to replace its existing customer metering equipment with Advanced
Metering Infrastructure ("AMI"), which was denied. As ordered by the NMPRC,
PNM's 2020 filing for energy efficiency programs to be offered in 2021, 2022,
and 2023 includes a proposal for an AMI pilot project.

Rate Riders and Interim Rate Relief - The PUCT has approved mechanisms that
allow TNMP to recover capital invested in transmission and distribution projects
without having to file a general rate case. The NMPRC has approved PNM
recovering fuel costs through the FPPAC, as well as rate riders for renewable
energy and energy efficiency. These mechanisms allow for more timely recovery of
investments.

On April 6, 2020, TNMP filed its first application for a periodic distribution
rate adjustment (the "2020 DCOS"). TNMP's 2020 DCOS application requests an
increase in annual distribution revenues of $14.7 million and that new rates go
into effect beginning in September 2020. On June 26, 2020, TNMP reached a
unanimous settlement agreement with parties that would authorize TNMP to collect
a $14.3 million annual distribution revenue requirement beginning in September
2020. The case is pending review by the PUCT. See Note 12.

FERC Regulation


Rates PNM charges wholesale transmission customers are subject to traditional
rate regulation by FERC. Rates charged to wholesale electric transmission
customers are based on a formula rate mechanism pursuant to which rates for
wholesale transmission service are calculated annually in accordance with an
approved formula. The formula includes updating cost of service components,
including investment in plant and operating expenses, based on information
contained in PNM's annual financial report filed with FERC, as well as including
projected transmission capital projects to be placed into service in the
following year. The projections included are subject to true-up. Certain items,
including changes to return on equity and depreciation rates, require a separate
filing to be made with FERC before being included in the formula rate.

In May 2019, PNM filed an application with FERC requesting approval to purchase
a new 165-mile long 345-kV transmission line and related facilities (the
"Western Spirit Line"). Under related agreements, PNM will provide transmission
service to approximately 800 MW of new wind generation to be located in eastern
New Mexico beginning in 2021 using an incremental rate. All necessary regulatory
approvals for PNM to purchase and provide transmission service from the Western
Spirit Line have been obtained.

PNM has no full-requirements wholesale generation customers.
Delivering At or Above Industry-Average Earnings and Dividend Growth
PNMR's financial objective to deliver at or above industry-average earnings and
dividend growth enables investors to realize the value of their investment in
the Company's business. PNMR's current target is 5% to 6% earnings and dividend
growth for the period 2020 through 2023. Earnings growth is based on ongoing
earnings, which is a non-GAAP financial measure that excludes from GAAP earnings
certain non-recurring, infrequent, and other items that are not indicative of
fundamental changes in the earnings capacity of the Company's operations. PNMR
uses ongoing earnings to evaluate the operations of the Company and to establish
goals, including those used for certain aspects of incentive compensation, for
management and employees.
PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing
earnings. PNMR expects to provide at or above industry-average dividend growth
in the near-term and to manage the payout ratio to meet its long-term target.
The Board will continue to evaluate the dividend on an annual basis, considering
sustainability and growth, capital planning, and industry standards. The Board
approved the following increases in the indicated annual common stock dividend:
                         Approval Date        Percent Increase

                       December 2017                 9%
                       December 2018                 9%
                       December 2019                 6%



Maintaining Investment Grade Credit Ratings
The Company is committed to maintaining investment grade credit ratings in order
to reduce the cost of debt financing and to help ensure access to credit
markets, when required. See the subheading Liquidity included in the full
discussion of Liquidity and Capital Resources below for the specific credit
ratings for PNMR, PNM, and TNMP. On April 6, 2020, S&P downgraded the ratings
for PNMR, PNM, and TNMP one notch and affirmed TNMP's first mortgage bond
rating. All of the
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credit ratings issued by both Moody's and S&P on the Company's debt continue to
be investment grade.

Business Focus

To achieve its business objectives, focus is directed in key areas: Safe,
Reliable and Affordable Power; Utility Plant and Strategic Investments;
Environmentally Responsible Power; and Customer, Stakeholders, and Community
Engagement. The Company works closely with its stakeholders to ensure that
resource plans and infrastructure investments benefit from robust public
dialogue and balance the diverse needs of our communities. Equally important is
the focus of PNMR's utilities on customer satisfaction and community engagement.

Safe, Reliable, and Affordable Power


PNMR and its utilities are aware of the important roles they play in enhancing
economic vitality in their service territories. Management believes that
maintaining strong and modern electric infrastructure is critical to ensuring
reliability and supporting economic growth. When contemplating expanding or
relocating their operations, businesses consider energy affordability and
reliability to be important factors. PNM and TNMP strive to balance service
affordability with infrastructure investment to maintain a high level of
electric reliability and to deliver a safe and superior customer experience.
Investing in PNM's and TNMP's infrastructure is critical to ensuring reliability
and meeting future energy needs. Both utilities have long-established records of
providing customers with safe and reliable electric service.

In March 2020, the World Health Organization declared COVID-19 a global pandemic
and President Trump declared the COVID-19 pandemic a national emergency in the
U.S.The Company continues to closely monitor developments and has taken and
continues to take steps to mitigate the potential risks related to the COVID-19
pandemic. The Company has assessed and updated its existing business continuity
plans in response to the impacts of the pandemic through crisis team meetings
and working with other utilities and operators. It has identified its critical
workforce, staged backups and limited access to control rooms and critical
assets. The Company has worked to protect the safety of its employees using a
number of measures, including minimizing exposure to other employees and the
public and mandating work-from-home and flexible arrangements for all applicable
job functions. The Company is also working with its suppliers to understand the
potential impacts to its supply chain and remains focused on the integrity of
its information systems and other technology systems used to run its business.
However, the Company cannot predict the extent or duration of the ongoing
COVID-19 pandemic, its effects on the global, national or local economy, or on
the Company's financial position, results of operations, and cash flows. The
Company will continue to monitor developments related to COVID-19 and will
remain focused on protecting the health and safety of its customers, employees,
contractors, and other stakeholders, and on its objective to provide safe,
reliable, affordable and environmentally responsible power. As discussed in Note
12, both PNM and TNMP have suspended disconnecting certain customers for past
due bills and waived late fees during the pandemic and have been provided
regulatory mechanisms to recover these and other costs resulting from COVID-19.
See additional discussion below regarding the Company's customer, community, and
stakeholder engagement in response to COVID-19 and in Item 1A. Risk Factors. On
March 26, 2020, the PUCT issued an order establishing an electricity relief
program for electric utilities, REPs, and customers impacted by COVID-19. The
program allows providers to implement a rider to collect unpaid residential
retail customer bills and to ensure these customers continue to have electric
service. In a separate order, the PUCT authorized electric utilities to
establish a regulatory asset for costs related to COVID-19 which includes but is
not limited to costs related to unpaid accounts. On June 24, 2020, the NMPRC
authorized the creation of a regulatory asset to defer incremental costs related
to COVID-19, including increases to bad debt expense and the creation of a
regulatory liability for all offsetting cost savings resulting from COVID-19.
The NMPRC Order allows the Company to request recovery in future ratemaking
proceedings and imposes additional reporting requirements related to COVID-19 on
changes to customer usage, increased costs and savings recorded to regulatory
assets and liabilities and impacts to delinquent accounts.

Utility Plant and Strategic Investments


Utility Plant Investments - During the 2017 to 2019 period, PNM and TNMP
together invested $1.5 billion in utility plant, including substations, power
plants, nuclear fuel, and transmission and distribution systems. During 2018 and
2019, PNM constructed an additional 50 MW of PNM-owned solar-PV facilities,
which were approved by the NMPRC in PNM's 2018 renewable energy procurement
plan. On May 1, 2019, PNM executed an agreement to purchase the Western Spirit
Line, which has been approved by FERC and the NMPRC. Under the agreement,
subject to certain conditions being met prior to closing, PNM will purchase the
Western Spirit Line upon its expected commercial operation date in 2021 at a net
cost of approximately $285 million, including customer reimbursements.

New Mexico's clean energy future depends on a reliable, resilient, secure grid
to deliver an evolving mix of energy resources to customers. PNM has launched
the Wired for the Future capital program, which emphasizes new investments in
its transmission and distribution infrastructure with three primary objectives:
delivering clean energy, enhancing customer
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satisfaction and increasing grid resilience. Projects are aimed at advancing the
infrastructure beyond its original architecture to a more flexible and redundant
system accommodating growing amounts of intermittent and distributed generation
resources and integrating evolving technologies that provide long-term customer
value. See the subheading Capital Requirements included in the full discussion
of Liquidity and Capital Resources below for additional discussion of the
Company's projected capital requirements.

Strategic Investments - In 2017, PNMR Development and AEP OnSite Partners
created NMRD to pursue the acquisition, development, and ownership of renewable
energy generation projects, primarily in the state of New Mexico. Abundant
renewable resources, large tracts of affordable land, and strong government and
community support make New Mexico a favorable location for renewable generation.
New Mexico ranks 3rd in the nation for energy potential from solar power
according to the Nebraska Department of Energy & Energy Sun Index and ranks 3rd
in the nation for land-based wind capacity according to the U.S. Office of
Energy Efficiency and Renewable Energy. PNMR Development and AEP OnSite Partners
each have a 50% ownership interest in NMRD. Through NMRD, PNMR anticipates being
able to provide additional renewable generation solutions to customers within
and surrounding its regulated jurisdictions through partnering with a subsidiary
of one of the United States' largest electric utilities. As of June 30, 2020,
NMRD's renewable energy capacity in operation was 85.1 MW, which includes 80 MW
of solar-PV facilities to supply energy to the Facebook data center located
within PNM's service territory, 1.9 MW to supply energy to Columbus Electric
Cooperative located in southwest New Mexico, 2.0 MW to supply energy to the
Central New Mexico Electric Cooperative, and 1.2 MW of solar-PV facilities to
supply energy to the City of Rio Rancho, New Mexico. The NMPRC has approved
PNM's request to enter into an additional 25-year PPA to purchase renewable
energy and RECs from an aggregate of approximately 50 MW of capacity from
solar-PV facilities to be constructed by NMRD to supply power to the Facebook
data center. These facilities began commercial operation on July 1, 2020. NMRD
actively explores opportunities for additional renewable projects, including
large-scale projects to serve future data centers and other customer needs.

Integrated Resource Plan


NMPRC rules require that investor-owned utilities file an IRP every three years.
The IRP is required to cover a 20-year planning period and contain an action
plan covering the first four years of that period.

PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP analyzed several scenarios
utilizing assumptions that PNM continues service from its SJGS capacity beyond
mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the
2017 IRP included, among other things, that retiring PNM's share of SJGS in 2022
and exiting ownership in Four Corners in 2031 would provide long-term cost
savings for PNM's customers and that the best mix of new resources to replace
the retired coal generation would include solar energy and flexible natural
gas-fired peaking capacity as well as energy storage, if the economics support
it, and wind energy provided additional transmission capacity becomes available.
The 2017 IRP also indicated that PNM should retain the currently leased capacity
in PVNGS. On June 11, 2020, PNM provided notice to the lessors and the NMPRC
that PNM will return the leased assets for both PVNGS Unit 1 and 2 upon
expiration of the leases in January 2023 and 2024. PNM issued an RFP for
replacement power resources on June 25, 2020 and intends to file for abandonment
and approval of replacement resources with the NMPRC in early 2021. See
additional discussion regarding PNM's leased capacity in PVNGS in Note 13 as
well as PNM's 2017 IRP and the SJGS Abandonment Application in Note 12.

In the third quarter of 2019, PNM initiated its 2020 IRP process which will
cover the 20-year planning period from 2019 through 2039. Consistent with
historical practice, PNM has provided notice to various interested parties and
has hosted a series of public advisory presentations. NMPRC rules require PNM to
file its 2020 IRP in July 2020. In April 2020, the NMPRC approved PNM's request
to extend the deadline to file its 2020 IRP until six months after the NMPRC
issues a final order approving replacement resources in PNM's SJGS Abandonment
Application. PNM will continue to seek input from interested parties as a part
of this process. PNM cannot predict the outcome of this matter.

Environmentally Responsible Power PNMR has a long-standing record of environmental stewardship. PNM's environmental focus is in three key areas:

•Developing strategies to provide reliable and affordable power while transitioning to a 100% emissions-free generating portfolio by 2040 •Preparing PNM's system to meet New Mexico's increasing renewable energy requirements as cost-effectively as possible •Increasing energy efficiency participation

PNMR's corporate website (www.pnmresources.com) includes a dedicated section providing key environmental and other sustainability information related to PNM's and TNMP's operations demonstrating the Company's commitment to ESG

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principles. This information highlights plans for PNM to be coal-free by 2031
(subject to regulatory approval) and to have an emissions-free generating
portfolio by 2040.

The Energy Transition Act ("ETA")


On June 14, 2019, Senate Bill 489, known as the ETA, became effective. Prior to
the enactment of the ETA, the REA established a mandatory RPS requiring
utilities to acquire a renewable energy portfolio equal to 10% of retail
electric sales by 2011, 15% by 2015, and 20% by 2020. The ETA amends the REA and
requires utilities operating in New Mexico to have renewable portfolios equal to
20% by 2020, 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy
by 2045. The ETA also amends sections of the REA to allow for the recovery of
undepreciated investments and decommissioning costs related to qualifying EGUs
that the NMPRC has required be removed from retail jurisdictional rates,
provided replacement resources to be included in retail rates have lower or
zero-carbon emissions. The ETA provides for a transition from fossil-fueled
generating resources to renewable and other carbon-free resources by allowing
utilities to issue securitized bonds, or "energy transition bonds," related to
the retirement of certain coal-fired generating facilities to qualified
investors. See additional discussion of the ETA in Note 16 of the Notes to
Consolidated Financial Statements in the 2019 Annual Reports on Form 10-K and
below in PNM's SJGS Abandonment Application.

PNM expects the ETA will have a significant impact on PNM's future generation portfolio, including PNM's planned retirement of SJGS in 2022. PNM cannot predict the full impact of the ETA on potential future generating resource abandonment and replacement filings with the NMPRC.

SJGS


SJGS Abandonment Application - As discussed in Note 12, on July 1, 2019, PNM
filed a Consolidated Application for the Abandonment and Replacement of SJGS and
Related Securitized Financing Pursuant to the ETA (the "SJGS Abandonment
Application"). The SJGS Abandonment Application sought NMPRC approval to retire
PNM's share of SJGS in mid-2022, and for approval of replacement resources and
the issuance of approximately $361 million of energy transition bonds as
provided by the ETA. The application included several replacement resource
scenarios including PNM's recommended replacement scenario, which is consistent
with PNM's goal of having a 100% emissions-free generating portfolio by 2040 and
would have provided cost savings to customers while preserving system
reliability. The application included three other replacement resource scenarios
that would have placed a greater amount of resources in the San Juan area, or
resulted in no new fossil-fueled generating facilities, or no battery storage
facilities being added to PNM's portfolio. When compared to PNM's recommended
replacement resource scenario, the three alternative resource scenarios were
expected to result in increased costs to customers and the two alternative
resource scenarios that resulted in no new fossil-fueled generating facilities
were expected to not provide adequate system reliability.

The NMPRC issued an order requiring the SJGS Abandonment Application be
considered in two proceedings: one addressing SJGS abandonment and related
financing and the other addressing replacement resources but did not
definitively indicate if the abandonment and financing proceedings would be
evaluated under the requirements of the ETA. The NMPRC's July 10, 2019 order
also extended the deadline to issue the abandonment and financing order to nine
months and to issue the replacement resources order to 15 months. After several
requests for clarification and legal challenges, in January 2020, the NM Supreme
Court ruled the NMPRC is required to apply the ETA to all aspects of PNM's SJGS
Abandonment Application, and that any previous NMPRC orders inconsistent with
their ruling should be vacated. The NM Supreme Court issued a subsequent
opinion, on July 23, 2020, more fully explaining the legal rationale for the
January 2020 ruling. Hearings on the abandonment and securitized financing
proceedings were held in December 2019 and hearings on replacement resources
were held in January 2020.

In February 2020, the Hearing Examiners issued two recommended decisions
recommending approval of PNM's proposed abandonment of SJGS, subject to approval
of the separate replacement resources proceeding, and approval of PNM's proposed
financing order to issue Securitized Bonds.  The Hearing Examiners recommended,
among other things, that PNM be authorized to abandon SJGS by June 30, 2022, to
issue Securitized Bonds of up to $361 million, and to establish a rate rider to
collect non-bypassable customer charges for repayment of the bonds (the "Energy
Transition Charge"). The Hearing Examiners recommended an interim rate rider
adjustment upon the start date of the Energy Transition Charge to provide
immediate credits to customers for the full value of PNM's revenue requirement
related to SJGS until those reductions are reflected in base rates. In addition,
the Hearing Examiners recommended PNM be granted authority to establish
regulatory assets to recover costs that PNM will pay prior to the issuance of
the Securitized Bonds, including costs associated with the bond issuances as
well as for severances, job training, and economic development funds.

On March 27, 2020, the Hearing Examiners issued a partial recommended decision
related to PNM's requested replacement resources. The Hearing Examiners
recommended the NMPRC approve PNM's requested PPA replacement resources related
to 350 MW of solar-PV facilities and 60 MW of battery storage facilities. On
April 1, 2020, the NMPRC
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unanimously approved the Hearing Examiners' recommended decisions regarding the
abandonment of SJGS and the Securitized Bonds. On April 29, 2020, the NMPRC
issued an order declining to bifurcate a determination on replacement resources
and deferring final consideration until the issuance of a comprehensive
recommended decision addressing the entire portfolio of replacement resources.
On June 24, 2020, the Hearing Examiners issued a second recommended decision on
PNM's request for approval of replacement resources that addressed the entire
portfolio of replacement resources. The Hearing Examiners recommended that the
NMPRC take one of two approaches to select replacement resources. The first
approach emphasized resource selection criteria identified in the ETA and would
include PPA's for 650 MW of solar and 300 MW of battery storage. The second
approach emphasized the NMPRC's traditional resource selection criteria
including price and reliability, which included a mix of solar PPAs combined
with battery storage agreements and a 200 MW PNM-owned natural gas facility. On
July 29, 2020 the NMPRC issued an order approving the Hearing Examiners' first
recommended approach, concluding that this approach satisfies threshold
reliability considerations for replacement resources. PNM has 60 days from the
date of the order to file an application in a separate case seeking approval of
the proposed final, executed contracts, for any replacement resources that are
not currently in evidence that have been approved by the NMPRC.

Pursuant to the NMPRC's April 1, 2020 order approving the abandonment of SJGS
and the related issuance of Securitized Bonds, PNMR recorded obligations
totaling $38.1 million for estimated severances and other costs resulting from
the planned retirement of SJGS in 2022, and for expected funding to state
agencies for economic development and workforce training upon the issuance of
the Securitized Bonds. This obligation is reflected in other deferred credits
and as a corresponding deferred regulatory asset on PNMR's Condensed
Consolidated Balance Sheets as of June 30, 2020. These estimates may be adjusted
in future periods as the Company refines its expectations. See additional
discussion of PNM's SJGS Abandonment Application and the related challenges
filed with the NM Supreme Court in Note 12.

Other Environmental Matters - In addition to the regional haze rule and the ETA,
SJGS and Four Corners may be required to comply with other rules that affect
coal-fired generating units. In March 2017, President Trump issued an Executive
Order on Energy Independence.  The order sets out two general policies: promote
clean and safe development of energy resources, while avoiding regulatory
burdens, and ensure electricity is affordable, reliable, safe, secure, and
clean.  On June 19, 2019, EPA released the final Affordable Clean Energy rule.
EPA is taking three separate actions in the final rule: (1) repealing the Clean
Power Plan; (2) promulgating the Affordable Clean Energy rule; and (3) revising
the implementing regulations for all emission guidelines issued under Clean Air
Act Section 111(d) which, among other things, extends the deadline for state
plans and the timing of EPA's approval process. EPA set the Best System of
Emissions Reduction ("BSER") for existing coal-fired power plants as heat rate
efficiency improvements based on a range of "candidate technologies" that can be
applied inside the fence-line. Rather than setting a specific numerical standard
of performance, EPA's rule directs states to determine which of the candidate
technologies to apply to each coal-fired unit and establish standards of
performance based on the degree of emission reduction achievable based on the
application of BSER. The final rule requires states to submit a plan to EPA by
July 8, 2022 and then EPA has one year to approve the plan. If states do not
submit a plan or their submitted plan is not acceptable, EPA will have two years
to develop a federal plan. The rule is not expected to impact SJGS since EPA's
final approval of a state SIP would occur after the planned shutdown of SJGS in
2022 (subject to NMPRC approval). The Company is reviewing the rule with respect
to impacts to Four Corners. See Note 11.

On December 20, 2018, EPA published in the Federal Register a proposed rule that
would revise the Carbon Pollution Standards rule issued in October 2015 for
certain fossil-fueled power plants. The proposal would revise the emissions
standards for new, reconstructed, or modified coal-fired EGUs to make them less
stringent. PNM does not expect SJGS or Four Corners will be subject to the
Carbon Pollution Standards rule that EPA has proposed to revise.

PNM's review of the GHG emission reductions standards under the Affordable Clean
Energy rule and the revised proposed Carbon Pollution Standards rule is ongoing.
The Affordable Clean Energy rule has been challenged by several parties and may
be impacted by further litigation. As discussed above, SJGS may also be required
to comply with additional CO2 emissions restrictions issued by the New Mexico
Environmental Improvement Board pursuant to the recently enacted ETA. PNM cannot
predict the impact these standards may have on its operations or a range of the
potential costs of compliance, if any.
Renewable Energy

PNM's renewable procurement strategy includes utility-owned solar capacity, as
well as solar, wind and geothermal energy purchased under PPAs. As of June 30,
2020, PNM has 157 MW of utility-owned solar capacity in operation. In addition,
PNM purchases power from a customer-owned distributed solar generation program
that had an installed capacity of 138.6 MW at June 30, 2020. PNM also owns the
500 KW PNM Prosperity Energy Storage Project. The project was one of the first
combinations of battery storage and solar-PV energy in the nation and involved
extensive research and development of advanced grid concepts. The facility also
was the nation's first solar storage facility fully integrated into a utility's
power grid. PNM also purchases the output from New Mexico Wind, a 204 MW wind
facility, and the output of Red Mesa Wind, an existing 102 MW wind energy
center. PNM's 2020 renewable energy procurement plan was approved by the NMPRC
in January 2020 and includes a PPA to procure 140 MW of renewable energy and
RECs from La Joya Wind beginning in 2021.
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The NMPRC's approved portfolio to replace the planned retirement of SJGS will
result in PNM executing solar PPAs of 650 MW combined with 300 MW of battery
storage facilities. The majority of these renewable resources are key means for
PNM to meet the RPS and related regulations that require PNM to achieve
prescribed levels of energy sales from renewable sources, including those set by
the recently enacted ETA, without exceeding cost requirements.

As discussed in Strategic Investments above, PNM is currently purchasing the
output of 130 MW of solar capacity from NMRD that is used to serve the Facebook
data center which includes two 25-year PPAs to purchase renewable energy and
RECs from an aggregate of approximately 100 MW of capacity from two solar-PV
facilities to be constructed by NMRD to supply power to Facebook, Inc. The first
50 MW of these facilities began commercial operations in November 2019 and the
second 50 MW facility began commercial operation in July 2020. Additionally, PNM
has entered into three separate 25-year PPAs to purchase renewable energy and
RECs to be used by PNM to supply additional renewable power to the Facebook data
center. These PPAs include the purchase of power and RECs from a 50 MW wind
project, which was placed in commercial operation in November 2018, a 166 MW
wind project to be operational in December 2020, and a 50 MW solar-PV project to
be operational in December 2021.

On May 31, 2019, PNM filed an application with the NMPRC for approval of a
program under which qualified governmental and large commercial customers could
participate in a voluntary renewable energy procurement program ("PNM Solar
Direct"). The costs of the program would be recovered directly from subscribing
customers through a rate rider, including the costs to procure renewable energy
from 50 MW of solar-PV facilities under a 15-year PPA. These facilities are
expected to be placed in commercial operation by March 31, 2021. In March 2020,
the NMPRC approved PNM's application, including the rate rider and PPA.

PNM will continue to procure renewable resources while balancing the impact to
customers' electricity costs in order to meet New Mexico's escalating RPS and
carbon-free resource requirements.

Energy Efficiency


Energy efficiency plays a significant role in helping to keep customers'
electricity costs low while meeting their energy needs and is one of the
Company's approaches to supporting environmentally responsible power. PNM's and
TNMP's energy efficiency and load management portfolios continue to achieve
robust results. In 2019, incremental energy saved as a result of new
participation in PNM's portfolio of energy efficiency programs is estimated to
be approximately 65 GWh. This is equivalent to the annual consumption of
approximately 9,500 homes in PNM's service territory. PNM's load management and
annual energy efficiency programs also help lower peak demand requirements. In
2019, TNMP's incremental energy saved as a result of new participation in TNMP's
energy efficiency programs is estimated to be approximately 16 GWh. This is
equivalent to the annual consumption of approximately 1,285 homes in TNMP's
service territory. In April 2018, TNMP received the "Partner of the Year Energy
Efficiency Delivery Award" for its High-Performance Homes Program. As discussed
above, in April 2020, PNM filed an application for energy efficiency and load
management programs to be offered in 2021, 2022, and 2023. The proposed program
also requests an AMI pilot program. PNM cannot predict the outcome of this
matter.

Water Conservation and Solid Waste Reduction


PNM continues its efforts to reduce the amount of fresh water used to make
electricity (about 35% more efficient than in 2007). Continued growth in PNM's
fleet of solar and wind energy sources, energy efficiency programs, and
innovative uses of gray water and air-cooling technology have contributed to
this reduction. Water usage has continued to decline as PNM has substituted less
fresh-water-intensive generation resources to replace SJGS Units 2 and 3
starting in 2018, as water consumption at that plant has been reduced by
approximately 50%. Focusing on responsible stewardship of New Mexico's scarce
water resources improves PNM's water-resilience in the face of persistent
drought and ever-increasing demands for water to spur the growth of New Mexico's
economy.

In addition to the above areas of focus, the Company is working to reduce the
amount of solid waste going to landfills through increased recycling and
reduction of waste. In 2019, 16 of the Company's 23 facilities met the solid
waste diversion goal of a 65% diversion rate. The Company expects to continue to
do well in this area in the future.

Customer, Stakeholder, and Community Engagement


Another key element of the Company's commitment to ESG principles is fostering
relationships with its customers, stakeholders and communities. The Company
strives to deliver a superior customer experience. Through outreach,
collaboration, and various community-oriented programs, the Company has
demonstrated a commitment to building productive relationships with
stakeholders, including customers, community partners, regulators, intervenors,
legislators, and shareholders. PNM continues to focus its efforts to enhance the
customer experience through customer service improvements, including enhanced
customer service engagement options, strategic customer outreach, and improved
communications. These efforts are
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supported by market research to understand the varying needs of customers,
identifying and establishing valued services and programs, and proactively
communicating and engaging with customers. As a result, PNM has seen significant
gains in customer satisfaction in recent years in both the JD Power Electric
Utility Residential Customer Satisfaction StudySM and its own proprietary
relationship surveys.

The Company has leveraged a number of communications channels and strategic
content to better serve and engage its many stakeholders. PNM's website
www.pnm.com, provides the details of major regulatory filings, including general
rate requests, as well as the background on PNM's efforts to maintain
reliability, keep prices affordable, and protect the environment. The Company's
website is also a resource for information about PNM's operations and community
outreach efforts, including plans for building a sustainable energy future for
New Mexico and to transition to an emissions-free generating portfolio by 2040.
PNM has also leveraged social media in communications with customers on various
topics such as education, outage alerts, safety, customer service, and PNM's
community partnerships in philanthropic projects. As discussed above, PNMR's
corporate website, www.pnmresources.com, includes a dedicated section providing
additional information regarding the Company's commitment to ESG principles and
other sustainability efforts.

With reliability being the primary role of a transmission and distribution service provider in Texas' deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted.


Local relationships and one-on-one communications remain two of the most
valuable ways both PNM and TNMP connect with their stakeholders. Both companies
maintain long-standing relationships with governmental representatives and key
electricity consumers to ensure that these stakeholders are updated on Company
investments and initiatives. Key electricity consumers also have dedicated
Company contacts that support their important service needs.

Another demonstration of ESG principles is the Company's tradition of supporting
the communities it serves in New Mexico and Texas. This support extends beyond
financial donations from the PNM Resources Foundation and corporate giving to
also include collaborations on community projects, customer low-income
assistance programs, and employee volunteerism. In response to COVID-19,
additional efforts were made in each of these areas and exhibit the Company's
core value of caring for its customers and communities.

In addition to the extensive engagement both PNM and TNMP have with nonprofit
organizations in their communities, the PNM Resources Foundation provides more
than $1 million in grant funding each year across New Mexico and Texas. These
grants help nonprofits innovate or sustain programs to grow and develop
business, develop and implement environmental programs, and provide educational
opportunities. Beginning in 2020, the PNM Resources Foundation is funding grants
with a three-year focus on decreasing homelessness, increasing access to
affordable housing, reducing carbon emissions, and community safety with an
emphasis on COVID-19 programs in 2020. As part of this emphasis, $0.2 million
has been awarded to nonprofits in New Mexico and Texas to assist with work being
done on the front lines of the pandemic for community safety, with a focus on
helping senior citizens and people currently experiencing homelessness during
the shelter-in-place directives. Also in 2020, the PNM Resources Foundation
expanded its matching donation program to offer 2-to-1 matching on donations
made to social justice nonprofits and increasing the annual amount of matching
donations available to each of its employees.

During the three years ending December 2019, corporate giving contributed
approximately $6.2 million to civic, educational, environmental, low income, and
economic development organizations. PNMR recognizes its responsibility to
support programs and organizations that enrich the quality of life for the
people in its service territories and communities and seeks opportunities to
further demonstrate its commitment in these areas as needs arise. In 2020, PNM
has partnered with key local organizations to initiate funding for programs
focused on diversity, equity and inclusion. In response to COVID-19 community
needs, PNMR donated to an Emergency Action Fund in partnership with key local
agencies to benefit approximately ninety nonprofits and small businesses facing
challenges due to lack of technology, shifting service needs, and cancelled
fundraising events. Additionally, employee teams have supported first responders
and other front-line workers through the delivery of food and other supplies
often procured from local businesses struggling during stay-at-home orders.
While its service territory does not include the Navajo Nation, PNM's operations
include generating facilities and employees in this region that has been
disproportionately affected by the pandemic. In response, employee teams focused
efforts to this region and also provided available supplies of personal
protective equipment. PNM has also collaborated with the Navajo Tribal Utility
Authority Wireless (NTUAW) to set up wireless "hot spots" throughout the Navajo
Nation in areas without internet access to assist first responders and support
continued education opportunities amidst school closures. These actions
supplement PNM's continued support for the Navajo Nation. The PNM Navajo Nation
Workforce Training Scholarship Program provides support for Navajo tribal
members and encourages the pursuit of education and training in existing and
emerging jobs in the communities in which they live. In 2019, PNM invested an
additional $500,000 into this scholarship program to further assist in the
development and education of the Navajo Nation workforce. PNM also continues to
partner in the Light up Navajo project, piloted in 2019 and modeled after mutual
aid to connect homes without electricity to the power grid.
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Another important outreach program is tailored for low-income customers and
includes the PNM Good Neighbor Fund to provide customer assistance with their
electric utility bills. COVID-19 has increased the needs of these customers
along with customers who may not otherwise need to seek assistance. In addition
to the suspension of customer disconnections and expansion of customer payment
plans, PNM responded with increased communications through media outlets and
customer outreach to connect customers with nonprofit community service
providers offering financial assistance, food, clothing, medical programs, and
services for seniors. As a result of these communication efforts, approximately
1,000 families in need have received emergency assistance through the PNM Good
Neighbor Fund during the second quarter of this year.

Volunteerism is also an important facet of employee culture keeping our
communities safer, stronger, smarter and more vibrant. In 2019, PNM and TNMP
employees and retirees contributed over 13,300 volunteer hours serving local
communities by supporting at least 250 organizations. Volunteers also
participate in a company-wide annual Day of Service at nonprofits across New
Mexico and Texas along with participation on a variety of nonprofit boards and
independent volunteer activities throughout the year.

Economic Factors


PNM - In the three and six months ended June 30, 2020, PNM experienced a
decrease in weather-normalized retail load of 1.7% and 0.3% compared to 2019.
PNM experienced decreased sales to commercial customers partially offset by an
increase in the usage of residential customers when compared to 2019 as a result
of New Mexico state restrictions related to COVID-19 and did not experience
significant impacts to its other customer classes.

TNMP - In the three and six months ended June 30, 2020, TNMP experienced an
increase in volumetric weather-normalized retail load of 2.9% and 1.5% compared
to 2019. Weather-normalized demand-based load, excluding retail transmission
customers, decreased 2.8% in the three months ended June 30, 2020 and was flat
for the six months ended June 30, 2020 compared to 2019. TNMP has experienced
increased volumetric usage related to residential consumers offset by decreases
in its demand based commercial consumer class as a result of impacts related to
COVID-19.

The Company is unable to determine the duration or final impacts from COVID-19
as discussed in more detail in Item 1A. Risk Factors. The Company expects that
some of the negative impacts to customer usage at PNM and TNMP will be offset by
reduced operations and maintenance expenses resulting from the Company's efforts
to maintain social distancing and that these costs could be further reduced if
the economic impacts of COVID-19 persist into the summer. However, if current
economic conditions extend through the summer and beyond, the Company may be
required to implement additional measures such as further reducing or delaying
operating and maintenance expenses and planned capital expenditures.

Results of Operations
Net earnings (loss) attributable to PNMR were $42.2 million, or $0.53 per
diluted share in the six months ended June 30, 2020 compared to ($57.2) million,
or ($0.72) per diluted share, in 2019. Among other things, earnings in the six
months ended June 30, 2020 benefited from regulatory disallowance recorded in
2019 resulting from the NM Supreme Court's opinion in PNM's appeal of the
NMPRC's decisions in the NM 2015 Rate Case, warmer weather at PNM, higher
earnings on PNM's renewable rate rider, higher transmission rates at PNM and
TNMP, lower plant maintenance costs at PNM and lower employee related and
outside service expenses at PNM. These increases were partially offset by
increased depreciation and property taxes due to increased plant in service at
PNM and TNMP, and losses on PNM's PVNGS and coal mine reclamation investment
securities. Additional information on factors impacting results of operations
for each segment is discussed below under Results of Operations.
Liquidity and Capital Resources

PNMR and PNM have revolving credit facilities with capacities of $300.0 million
and $400.0 million that currently expire in October 2023. Both facilities
provide for short-term borrowings and letters of credit and can be extended
through October 2024, subject to approval by a majority of the lenders. In
addition, PNM has a $40.0 million revolving credit facility with banks having a
significant presence in New Mexico, which expires in December 2022, and TNMP has
a $75.0 million revolving credit facility, which expires in September 2022. PNMR
Development has a revolving credit facility with a capacity of $40.0 million,
with the option to further increase the capacity up to $50.0 million upon
15-days advance notice, that expires in February 2021. The PNMR Development
Revolving Credit Facility bears interest at a variable rate and contains terms
similar to the PNMR Revolving Credit Facility. Total availability for PNMR on a
consolidated basis was $609.3 million at July 24, 2020. Total availability at
PNMR, on a consolidated basis, does not reflect a reduction of $100.3 million
that PNM has reserved to provide liquidity support for the PNM Floating Rate
PCRBs. The Company utilizes these credit facilities and cash flows from
operations to provide funds for both construction and operational expenditures.
PNMR also has intercompany loan agreements with each of its subsidiaries.
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PNMR projects that its consolidated capital requirements, consisting of
construction expenditures, capital contributions for PNMR Development's 50%
ownership interest in NMRD, and dividends, will total $4.5 billion for 2020 -
2024, including amounts expended through June 30, 2020. The construction
expenditures include estimated amounts for an anticipated expansion of PNM's
transmission system, including the planned purchase of the Western Spirit Line,
and expenditures for PNM's Wired for the Future capital program.

In January 2020, PNMR entered into agreements to sell approximately 6.2 million
shares of PNMR common stock under forward purchase arrangements (the "PNMR 2020
Forward Equity Sale Agreements"). Under the PNMR 2020 Forward Equity Sale
Agreements, PNMR has the option to physically deliver, cash settle, or net share
settle all or a portion of PNMR common stock on or before a date that is 12
months from their effective dates. PNMR did not initially receive any proceeds
upon execution of these agreements. The initial forward sales price of $47.21
per share is subject to adjustments based on net interest rate factor and by
expected future dividends on PNMR's common stock. PNMR expects to physically
settle all shares under the agreements on or before January 7, 2021. See Note 9.

To fund capital spending requirements to meet growth that balances earnings
goals, credits metrics and liquidity needs, the Company has entered into a
number of other financing arrangements in 2020, including the TNMP 2020 Bond
Purchase Agreements, the PNM 2020 Term Loan and the PNM 2020 Note Purchase
Agreement. For further discussion on these financing arrangements see Liquidity
and Capital Resources discussion below as well as Note 9.

See discussion of the NMPRC's April 1, 2020 approval of PNM's request to issue
approximately $361 million of Securitized Bonds upon the retirement of SJGS in
2022, and the related appeal of that order to the NM Supreme Court in Note 12.

After considering the effects of these financings and the Company's short-term
liquidity position as of July 24, 2020, the Company has consolidated maturities
of long-term and short-term debt aggregating approximately $1,019.2 million
through July 2021. In addition to internal cash generation, the Company
anticipates that it will be necessary to obtain additional long-term financing
in the form of debt refinancing, new debt issuances, and/or new equity in order
to fund its capital requirements during the 2020-2024 period. The Company
currently believes that its internal cash generation, existing credit
arrangements, and access to public and private capital markets will provide
sufficient resources to meet the Company's capital requirements for at least the
next twelve months. The Company is in compliance with its debt covenants.


                             RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto. Trends and
contingencies of a material nature are discussed to the extent known. Refer also
to Disclosure Regarding Forward Looking Statements and to Part II, Item 1A. Risk
Factors.

A summary of net earnings attributable to PNMR is as follows:

                                                    Three Months Ended June 30,                                                     Six Months Ended June 30,
                                             2020                 2019            Change            2020             2019               Change
                                                                          (In millions, except per share amounts)
Net earnings (loss) attributable to PNMR $   57.5$ (75.9)

$ 133.4$ 42.2$ (57.2)$ 99.4 Average diluted common and common equivalent shares(1)

                         79.9                 79.9                -             80.0             79.9                 0.1
Net earnings attributable to PNMR per
diluted share                            $   0.72$ (0.95)

$ 1.67$ 0.53$ (0.72)$ 1.25

(1) Excludes anti-dilutive shares for the three and six months ending June 30, 2019.

The components of the change in net earnings attributable to PNMR are:

                                     Three Months Ended      Six Months Ended
                                       June 30, 2020          June 30, 2020
                                                  (In millions)
             PNM                    $           132.4       $          97.4
             TNMP                                 0.9                   3.9

             Corporate and Other                    -                  (1.9)
             Net change             $           133.4       $          99.4


Information regarding the factors impacting PNMR's operating results by segment are set forth below.

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Segment Information


The following discussion is based on the segment methodology that PNMR's
management uses for making operating decisions and assessing performance of its
various business activities. See Note 2 for more information on PNMR's operating
segments.

PNM

PNM defines utility margin as electric operating revenues less cost of energy,
which consists primarily of fuel and purchase power costs. PNM believes that
utility margin provides a more meaningful basis for evaluating operations than
electric operating revenues since substantially all fuel and purchase power
costs are offset in revenues as those costs are passed through to customers
under PNM's FPPAC. Utility margin is not a financial measure required to be
presented under GAAP and is considered a non-GAAP measure.


The following table summarizes the operating results for PNM:

                                                Three Months Ended June 30,                                                    Six Months Ended June 30,
                                          2020               2019            Change            2020             2019              Change
                                                                                   (In millions)
Electric operating revenues           $   260.8$ 238.2$  22.6$ 508.9$ 507.5$     1.4
Cost of energy                             67.9              58.9              9.0            142.4            158.2              (15.8)
   Utility margin                         192.9             179.4             13.5            366.5            349.3               17.2
Operating expenses                        101.6             255.5           (153.9)           200.1            362.0             (161.9)
Depreciation and amortization              41.8              39.8              2.0             83.2             79.0                4.2
   Operating income                        49.6            (116.0)           165.6             83.2            (91.7)             174.9
Other income (deductions)                  24.1               7.7             16.4             (6.4)            25.7              (32.2)
Interest charges                          (19.2)            (18.5)            (0.7)           (36.8)           (36.9)               0.1
   Segment earnings (loss) before
income taxes                               54.5            (126.8)           181.3             40.0           (102.8)             142.8
Income (taxes) benefit                     (4.9)             43.5            (48.4)            (2.5)            41.5              (44.0)
Valencia non-controlling interest          (3.9)             (3.5)            (0.4)            (7.7)            (6.3)              (1.4)
Preferred stock dividend requirements      (0.1)             (0.1)               -             (0.3)            (0.3)                 -
Segment earnings                      $    45.5$ (86.9)$ 132.4$  29.5$ (67.9)$    97.4

The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:

                                                     Three Months Ended June 30,                                                                       Six Months Ended June 30,
                                                                                   Percentage                                                            Percentage
                                        2020                  2019                   Change                   2020                  2019                   Change
                                                                                    (Gigawatt hours, except customers)
Residential                               809.0                 660.6                      22.5  %            1,577.3               1,456.2                      8.3  %
Commercial                                813.5                 933.7                     (12.9)              1,652.2               1,761.9                     (6.2)
Industrial                                337.3                 266.2                      26.7                 671.6                 516.3                     30.1
Public authority                           59.7                  54.2                      10.1                 108.2                 103.8                      4.2
Economy energy service (1)                 94.7                 163.9                     (42.2)                261.2                 320.8                    (18.6)

Other sales for resale                    654.9                 484.4                      35.2               1,260.1               1,359.1                     (7.3)
                                        2,769.1               2,563.0                       8.0  %            5,530.6               5,518.1                      0.2  %
Average retail customers
(thousands)                               534.4                 529.6                       0.9  %              533.7                 529.3                      0.8  %



(1) PNM purchases energy for a large customer on the customer's behalf and
delivers the energy to the customer's location through PNM's transmission
system. PNM charges the customer for the cost of the energy as a direct pass
through to the customer with only a minor impact in utility margin resulting
from providing ancillary services.


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Operating Results - Three Months Ended June 30, 2020 compared to 2019

The following table summarizes the significant changes to utility margin:

                                                                                       Three Months
                                                                                           Ended
                                                                                       June 30, 2020
                                                                                          Change
Utility margin:                                                                                         (In millions)

             Retail customer usage/load - Weather normalized KWh sales
             decreased 1.7%, due to decreased sales to commercial customers
             partially offset by increased sales to residential customers             $       (2.0)
             Weather - Warmer weather in 2020; cooling degree days were 76.6%
             higher in 2020                                                                    8.4

             Transmission - Higher revenues under formula transmission rates                   2.0

             Rate riders - Includes renewable energy, fuel clause, and energy
             efficiency riders                                                                 5.6

             Other                                                                            (0.5)
             Net Change                                                               $       13.5



The following tables summarize the primary drivers for changes in operating
expenses, depreciation and amortization, other income (deductions), interest
charges, and income taxes:
                                                                                      Three Months
                                                                                         Ended
                                                                                     June 30, 2020
                                                                                         Change
Operating expenses:                                                                                    (In millions)

               Lower plant maintenance and administrative costs at SJGS,
               PVNGS, and gas-fired plants, partially offset by higher costs
               at Four Corners                                                      $        (8.3)

               Regulatory disallowance resulting from the NM Supreme Court's
               May 2019 decision in PNM's appeal of the NM 2015 Rate Case
               (Note 12)                                                                   (149.3)
               Higher property taxes due to increases in utility plant in
               service                                                                        0.6
               Higher employee related and outside service expenses                           1.1
               Reclassification of upfront and quarterly commitment fees,
               offset in interest charges                                                     0.6

               Other                                                                          1.4
               Net Change                                                           $      (153.9)

Depreciation and amortization:

                  Increased utility plant in service, including solar facilities
                  under the renewable rider                                               $       1.5
                  Other                                                                           0.5
                  Net Change                                                              $       2.0



Other income (deductions):

                  Higher gains on investment securities in the NDT and coal mine
                  reclamation trusts                                                       $      17.0
                  Lower equity AFUDC                                                              (0.3)

                  Lower interest income and trust expenses related to investment
                  securities in the NDT and coal mine reclamation trusts                          (0.3)

                  Net Change                                                               $      16.4



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                                                                                           Three Months
                                                                                               Ended
                                                                                           June 30, 2020
                                                                                              Change
Interest charges:                                                                                           (In millions)

             Lower interest on term loans                                                 $        0.7
             Interest on deposit by PNMR Development for transmission
             interconnections in 2019, which is offset in Corporate and Other                      1.0

             Issuance of $200.0 million of SUNs in April 2020                                     (1.1)
             Lower debt AFUDC resulting from FERC audit (Note 12)                                 (1.9)
             Reclassification of upfront and quarterly commitment fees, offset in
             operating expenses                                                                    0.6
             Net Change                                                                   $       (0.7)



Income (taxes) benefits:

                Higher segment earnings before income taxes                               $     (45.9)
                Changes in the anticipated effective tax rate, including
                amortization of excess deferred income taxes (Note 14)                            5.1
                Reversal of excess deferred income taxes resulting from regulatory
                disallowances in the NM 2015 Rate Case (Note 12)                                 (7.5)

                Other                                                                            (0.1)
                Net Change                                                                $     (48.4)

Operating Results - Six Months Ended June 30, 2020 compared to 2019

The following table summarizes the significant changes to utility margin:

                                                                                       Six Months
                                                                                          Ended
                                                                                      June 30, 2020
                                                                                         Change
Utility margin:                                                                                        (In millions)

             Retail customer usage/load - Weather normalized KWh sales
             decreased 0.3% due to decreased sales to commercial customers
             partially offset by increased sales to residential customers            $       (1.4)
             Weather - Warmer weather in 2020; cooling degree days were 76.3%
             higher in 2020                                                                   6.2
             Leap Year - Increase in revenue due an additional day in 2020                    1.8
             Transmission - Increase primarily due to higher revenues under
             formula transmission rates and the addition of new customers                     2.8

             Rate riders - Includes renewable energy, fuel clause and energy
             efficiency riders                                                                9.2

             Other                                                                           (1.4)
             Net Change                                                              $       17.2




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The following tables summarize the primary drivers for changes in operating
expenses, depreciation and amortization, other income (deductions), interest
charges, and income taxes:
                                                                                      Six Months
                                                                                        Ended
                                                                                    June 30, 2020
                                                                                        Change
Operating expenses:                                                                                   (In millions)

               Lower plant maintenance and administrative costs at SJGS,
               PVNGS, and gas-fired plants, partially offset by higher costs
               at Four Corners                                                     $        (9.4)

               Regulatory disallowance resulting from the NM Supreme Court's
               May 2019 decision in PNM's appeal of the NM 2015 Rate Case
               (Note 12)                                                                  (150.6)

               Higher property taxes due to increases in utility plant in
               service                                                                       0.8
               Lower employee related and outside service expenses                          (3.4)
               Reclassification of upfront and quarterly commitment fees,
               offset in interest charges                                                    0.6

               Other                                                                         0.1
               Net Change                                                          $      (161.9)

Depreciation and amortization:

                  Increased utility plant in service, including solar facilities
                  under the renewable rider                                              $        3.5

                  Other                                                                           0.7
                  Net Change                                                             $        4.2



Other income (deductions):

                  Lower gains on investment securities in the NDT and coal mine
                  reclamation trusts                                                      $      (29.8)
                  Lower equity AFUDC                                                              (1.1)

                  Lower interest income and trust expenses related to investment
                  securities in the NDT and coal mine reclamation trusts                          (0.4)

                  Other                                                                           (0.9)
                  Net Change                                                              $      (32.2)



Interest charges:

              Lower interest on term loans                                                      $        0.9
              Interest on deposit by PNMR Development for potential transmission
              interconnections in 2019, which is offset in Corporate and Other                           1.9
              Issuance of $200.0 million of SUNs in April 2020                                          (1.1)
              Lower debt AFUDC resulting from FERC audit (Note 12)                                      (1.9)
              Reclassification of upfront and quarterly commitment fees, offset in
              operating expenses                                                                         0.6
              Other                                                                                     (0.3)
              Net Change                                                                        $        0.1



Income (taxes) benefits:

                Higher segment earnings before income taxes                              $      (35.9)
                Changes in the anticipated effective tax rate, including
                amortization of excess deferred income taxes (Note 14)                           (0.6)
                Reversal of excess deferred income taxes resulting from regulatory
                disallowances in the NM 2015 Rate Case (Note 12)                                 (7.5)

                Net Change                                                               $      (44.0)





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TNMP

TNMP defines utility margin as electric operating revenues less cost of energy,
which consists of costs charged by third-party transmission providers. TNMP
believes that utility margin provides a more meaningful basis for evaluating
operations than electric operating revenues since all third-party transmission
costs are passed on to consumers through a transmission cost recovery factor.
Utility margin is not a financial measure required to be presented under GAAP
and is considered a non-GAAP measure.

The following table summarizes the operating results for TNMP:

                                             Three Months Ended June 30,                                                   Six Months Ended June 30,
                                        2020              2019           Change            2020             2019              Change
                                                                                (In millions)
Electric operating revenues         $    96.9$ 92.0$  4.9$ 182.4$ 172.3$    10.1
Cost of energy                           26.0             24.9             1.1             50.2             47.2                3.0
Utility margin                           70.9             67.1             3.8            132.2            125.1                7.1
Operating expenses                       25.3             24.0             1.3             50.5             49.3                1.2
Depreciation and amortization            22.4             20.5             1.9             44.2             40.7                3.5
Operating income                         23.2             22.6             0.6             37.5             35.2                2.3
Other income (deductions)                 2.0              0.7             1.3              2.5              1.3                1.2
Interest charges                         (7.4)            (6.6)           (0.8)           (14.5)           (15.4)               0.9
Segment earnings before income
taxes                                    17.8             16.7             1.1             25.5             21.1                4.4
Income (taxes)                           (1.6)            (1.5)           (0.1)            (2.2)            (1.8)              (0.4)
Segment earnings                    $    16.2$ 15.3$  0.9$  23.3$  19.4$     3.9

The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:

                                                        Three Months Ended                                                                                 Six Months Ended
                                                             June 30,                                                                                          June 30,
                                                                                  Percentage                                                            Percentage
                                       2020                  2019                   Change                   2020                  2019                   Change

Volumetric load (1) (GWh)                789.1                 744.0                       6.1  %            1,395.7               1,370.5                       1.8  %
Demand-based load (2) (MW)             4,902.1               4,587.5                       6.9  %            9,786.0               9,309.5                       5.1  %
Average retail consumers
(thousands) (3)                          258.3                 255.0                       1.3  %              257.7                 254.4                       1.3  %



(1) Volumetric load consumers are billed on KWh usage.
(2) Demand-based load includes consumers billed on monthly KW peak and also
includes retail transmission customers that are primarily billed under TNMP's
rate riders.
(3) TNMP provides transmission and distribution services to REPs that provide
electric service to their customers in TNMP's service territories. The number of
consumers above represents the customers of these REPs. Under TECA, consumers in
Texas have the ability to choose any REP to provide energy.


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Operating Results - Three Months Ended June 30, 2020 compared to 2019

The following table summarizes the significant changes to utility margin:

                                                                                           Three Months
                                                                                               Ended
                                                                                           June 30, 2020
                                                                                              Change
Utility margin:                                                                                             (In millions)

             Transmission rate relief/load - Transmission cost of service rate
             increases in September 2019, and March 2020                                  $        2.6
             Volumetric-based customer usage/load - Weather normalized KWh sales
             increased 2.9%, the average number of retail consumers increased 1.3%                 0.5
             Demand-based customer usage/load - Lower demand-based revenues for
             large commercial and industrial customers; weather normalized billed
             demand excluding retail transmission customers decreased 2.8%                        (0.7)
             Weather - Warmer weather in 2020; cooling degree days were

6.7% higher

             in 2020                                                                               0.9
             Rate Riders - Impacts of rate riders, including the CTC

surcharge,

             energy efficiency rider, rate case expense rider, and

transmission

             cost recovery factor                                                                  0.5

             Net Change                                                                   $        3.8



The following tables summarize the primary drivers for changes in operating
expenses, depreciation and amortization, other income (deductions), interest
charges, and income taxes:
                                                                                        Three Months
                                                                                            Ended
                                                                                        June 30, 2020
                                                                                           Change
Operating expenses:                                                                                      (In millions)

               Higher employee related expenses                                        $        1.2
               Higher capitalization of administrative and general and other
               expenses due to higher construction expenditures                                (0.4)

               Higher property taxes due to increased utility plant in service                  0.3
               Other                                                                            0.2
               Net Change                                                              $        1.3



           Depreciation and amortization:

                             Increased utility plant in service        $ 1.6

                             Other                                       0.3
                             Net Change                                $ 1.9



                    Other income (deductions):

                                      Higher equity AFUDC      $ 0.5
                                      Higher CIAC                0.7
                                      Other                      0.1
                                      Net Change               $ 1.3



 Interest charges:

             Repayment of $35.0 million term loan in December 2019              $  0.3
             Issuance of $80.0 million first mortgage bonds in July 2019          (0.7)
             Issuance of $110.0 million first mortgage bonds in April 2020        (0.6)

             Other                                                                 0.2
             Net Change                                                         $ (0.8)



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                                                                                 Three Months
                                                                                     Ended
                                                                                 June 30, 2020
                                                                                    Change
Income (taxes) benefits:                                                   
                      (In millions)

               Higher segment earnings before income taxes                      $       (0.2)
               Other                                                                     0.1

               Net Change                                                       $       (0.1)

Operating Results - Six Months Ended June 30, 2020 compared to 2019

The following table summarizes the significant changes to utility margin:

                                                                                            Six Months
                                                                                               Ended
                                                                                           June 30, 2020
                                                                                              Change
Utility margin:                                                                                             (In millions)

             Transmission rate relief/load - Transmission cost of service rate
             increases in March 2019, September 2019, and March 2020                               6.6
             Volumetric-based customer usage/load - Weather normalized KWh sales
             increased 1.5% in addition to the leap-year impact; the

average number

             of retail consumers increased 1.3%                                                    0.5
             Demand-based customer usage/load - Demand-based revenues for large
             commercial and industrial customers excluding retail

transmission

             customers is flat                                                                       -
             Weather - Milder weather in the first quarter was offset by warmer
             weather in the second quarter                                                        (0.1)
             Rate Riders - Impacts of rate riders, including the CTC surcharge,
             energy efficiency rider, rate case expense rider, and

transmission

             cost recovery factor                                                                  0.3

             Other                                                                                (0.2)
             Net Change                                                                   $        7.1



The following tables summarize the primary drivers for changes in operating
expenses, depreciation and amortization, other income (deductions), interest
charges, and income taxes:
                                                                                         Six Months
                                                                                            Ended
                                                                                        June 30, 2020
                                                                                           Change
Operating expenses:                                                                                      (In millions)

               Higher employee related expenses                                        $        0.3

               Higher capitalization of administrative and general and other
               expenses due to higher construction expenditures                                (0.2)
               Higher property taxes due to increased utility plant in service                  0.7

               Other                                                                            0.4
               Net Change                                                              $        1.2



           Depreciation and amortization:

                             Increased utility plant in service        $ 3.3

                             Other                                       0.2
                             Net Change                                $ 3.5



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                                                      Six Months
                                                         Ended
                                                     June 30, 2020
                                                        Change
         Other income (deductions):                                   (In
millions)

                           Higher equity AFUDC      $        0.4
                           Higher CIAC                       0.7
                           Other                             0.1
                           Net Change               $        1.2



Interest charges:
              Repayment of $172.3 million 9.50% first mortgage bonds in April 2019        $       4.3
              Issuance of $225.0 million first mortgage bonds in March 2019                      (2.2)
              Issuance of $80.0 million first mortgage bonds in July 2019                        (1.5)
              Repayment of $35.0 million term loan in December 2019                               0.6
              Issuance of $110.0 million first mortgage bonds in April 2020                      (0.6)
              Other                                                                               0.3
              Net Change                                                                  $       0.9



Income (taxes) benefits:

                Higher segment earnings before income taxes                              $      (0.9)
                Amortization of excess deferred federal income taxes (Note 14)                   0.5

                Net Change                                                               $      (0.4)

Corporate and Other

The table below summarizes the operating results for Corporate and Other:

                                               Three Months Ended June 30,                                                   Six Months Ended June 30,
                                           2020              2019           Change            2020            2019              Change
                                                                                  (In millions)
Electric operating revenues           $        -           $    -          $    -          $     -          $    -          $       -
Cost of energy                                 -                -               -                -               -                  -
  Utility margin                               -                -               -                -               -                  -
Operating expenses                          (4.3)            (5.5)            1.2             (9.8)          (11.3)               1.5
Depreciation and amortization                5.9              5.8             0.1             11.6            11.7               (0.1)
  Operating income (loss)                   (1.6)            (0.2)           (1.4)            (1.8)           (0.4)              (1.4)
Other income (deductions)                   (0.3)            (0.1)           (0.2)            (0.9)           (1.0)               0.1
Interest charges                            (4.5)            (4.7)            0.2            (10.2)           (9.2)              (1.0)
Segment earnings (loss) before income
taxes                                       (6.4)            (5.1)           (1.3)           (12.9)          (10.5)              (2.4)
Income (taxes) benefit                       2.2              0.8             1.4              2.4             1.9                0.5
Segment earnings (loss)               $     (4.2)$ (4.2)         $    -          $ (10.5)$ (8.6)$    (1.9)



Corporate and Other operating expenses shown above are net of amounts allocated
to PNM and TNMP under shared services agreements. The changes in operating
expense for the three months and six months ended June 30, 2020 include an
increase for the reclassification of $0.4 million in upfront and quarterly
commitment fees, previously recorded as interest charges, and an increase of
$1.0 million in legal and consulting costs that were not allocated to PNM or
TNMP. Substantially all depreciation and amortization expense and other income
(deductions) are offset in operating expenses as a result of allocation of these
costs to other business segments.


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Operating Results - Three Months Ended June 30, 2020 compared to 2019
The following tables summarize the primary drivers for changes in other income
(deductions), interest charges, and income taxes:
                                                                                       Three Months
                                                                                           Ended
                                                                                       June 30, 2020
                                                                                          Change
Other income (deductions):                                                                              (In millions)

                  Higher equity method investment income from NMRD                    $        0.4

                  Increase in donations and other contributions                               (0.5)

                  Other                                                                       (0.1)
                  Net Change                                                          $       (0.2)



Interest charges:
              Lower interest on term loans                                                       $       1.4
              Higher short-term borrowings                                                              (0.7)
              Reclassification of upfront and quarterly commitment fees, offset in
              operating expense                                                                          0.4

              Elimination of intercompany interest                                                      (1.0)
              Other                                                                                      0.1
              Net Change                                                                         $       0.2



Income (taxes) benefits:

                Impact of difference in effective tax rates used by PNMR and its
                subsidiaries in the calculation of income taxes in interim periods       $       1.1
                Higher segment loss before income taxes                                          0.3

                Net Change                                                               $       1.4

Operating Results - Six Months Ended June 30, 2020 compared to 2019 The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:

                                                                                        Six Months
                                                                                           Ended
                                                                                       June 30, 2020
                                                                                          Change
Other income (deductions):                                                                              (In millions)

                  Higher equity method investment income from NMRD                    $        0.4
                  Increase in donations and other contributions                               (0.6)

                  Other                                                                        0.3
                  Net Change                                                          $        0.1



Interest charges:
              Lower interest on term loans                                                       $       1.9
              Higher short-term borrowings                                                              (1.4)
              Reclassification of upfront and quarterly commitment fees, offset in
              operating expenses                                                                         0.4

              Elimination of intercompany interest                                                      (1.9)

              Net Change                                                                         $      (1.0)



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                                                                                    Six Months
                                                                                       Ended
                                                                                   June 30, 2020
                                                                                      Change
Income (taxes) benefits:                                                   
                        (In millions)

               Impact of difference in effective tax rates used by PNMR and
               its subsidiaries in the calculation of income taxes in
               interim periods                                                    $          -
               Higher segment loss before income taxes                                     0.6
               Other                                                                      (0.1)
               Net Change                                                         $        0.5

© Edgar Online, source Glimpses

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