PNM Resources, Inc.

PNM

US69349H1077

Electric Utilities

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PUBLIC SERVICE CO OF NEW MEXICO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

February 28, 2023 at 08:11 am EST

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. This report uses the term
"Company" when discussing matters of common applicability to PNMR, PNM, and
TNMP. The MD&A for PNM and TNMP is presented as permitted by Form 10-K General
Instruction I (2) as amended by the FAST Act. For additional information related
to the earliest of the two years presented please refer to the Company's 2021
Annual Report on Form 10-K. A reference to a "Note" in this Item 7 refers to the
accompanying Notes to Consolidated Financial Statements included in Part II,
Item 8, 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
815,000 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.

Recent Developments

Merger

On October 20, 2020, PNMR, Avangrid and Merger Sub entered into the Merger
Agreement pursuant to which Merger Sub will merge with and into PNMR, with PNMR
surviving the Merger as a wholly-owned subsidiary of Avangrid. Pursuant to the
Merger Agreement, each issued and outstanding share of PNMR common stock at the
Effective Time will be converted into the right to receive $50.30 in cash. The
proposed Merger has been unanimously approved by the Boards of Directors of
PNMR, Avangrid and Merger Sub and approved by PNMR shareholders at the Special
Meeting of Shareholders held on February 12, 2021.

The Merger Agreement provided that it may be terminated by each of PNMR and
Avangrid under certain circumstances, including if the Effective Time shall not
have occurred by the January 20, 2022 End Date. On December 8, 2021, the NMPRC
issued an order rejecting the stipulation agreement relating to the Merger. In
light of the NMPRC ruling, on January 3, 2022, PNMR, Avangrid and Merger Sub
entered into an Amendment to the Merger Agreement pursuant to which PNMR and
Avangrid agreed to extend the End Date to April 20, 2023. The Merger is subject
to certain regulatory approvals, including from the NMPRC. For further
discussion regarding the Merger see Note 22.

Retirement of SJGS



After nearly half a century of reliable service and several years of planning
towards its retirement, the last unit of the coal-fired SJGS has been removed
from service, as PNM achieves significant progress towards its ESG goals for
reducing carbon emissions from its generation portfolio. The four-unit,
coal-fired SJGS, whose first unit was brought online in 1973, was reduced to two
units at the end of 2017 with the retirement of Units 2 and 3. Unit 1 was
retired in June 2022, and Unit 4 was retired in September 2022. Coal-fired
generation now comprises less than 10% of resource portfolio capacity for PNM.
Carbon-free generation comprises 55% of the Company's 2.7-gigawatt capacity
serving New Mexico customers, with additional renewable resources under
development for implementation in the coming years. The Company previously
published emissions goals for 2025 including a 60% reduction of carbon emissions
from owned generation facilities based on 2005 levels. The retirement of SJGS
achieves this interim goal and places the Company in position to reach its
industry-leading goal of completely eliminating carbon emissions from its
generation portfolio by 2040.

2024 Rate Change



In December 2022, PNM filed the 2024 Rate Change with the NMPRC. The application
proposes an increase of $63.8 million in base non-fuel revenues. The requested
increase is based on a calendar year 2024 FTY and reflects an ROE of 10.25%. The
requested change primarily reflects investments in transmission and distribution
infrastructure, largely offset by cost reductions resulting from PNM's
transition to lower-cost, clean generation resources including the retirement of
the SJGS and expiration of leased capacity from PVNGS. The request also includes
updated depreciation rates for natural gas plants to align with the Company's
2040 carbon-free portfolio goal. See Note 17.


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Grid Modernization Application



On October 3, 2022, in compliance with New Mexico Grid Modernization Statute,
PNM filed its Grid Modernization Application with the NMPRC. The projects
included in the Grid Modernization Application improve customers' ability to
customize their use of energy and ensure that customers, including low-income
customers, are a top priority and will benefit from the electricity grid
consistent with the Grid Modernization Statute. PNM's proposal to modernize its
electricity grid through infrastructure and technology improvements also
increases the efficiency, reliability, resilience, and security of PNM's
electric system. PNM's application seeks approval of grid modernization
investments of approximately $344 million for the first six years of a broader
11-year strategy. PNM's application requested NMPRC approval by July 1, 2023 for
PNM's grid modernization plan in addition to approval of PNM's proposed Grid
Modernization Rider by September 1, 2023. The proposed Grid Modernization Rider
would recover capital costs, operating expenses, and taxes associated with the
investments included in the Grid Modernization Application. See Note 17.

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, periodic
cost of service filings, and various rate riders. The rates PNM and TNMP charge
customers are subject to traditional rate regulation by the NMPRC, FERC, and the
PUCT. Additional information about rate filings is provided in Note 17.

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.

The Energy Transition Act ("ETA")



On June 14, 2019, Senate Bill 489, known as the ETA, became effective. The ETA
requires utilities operating in New Mexico to have renewable portfolios equal to
40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by 2045. The
ETA also allows 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.

The ETA has and will have a significant impact on PNM's future generation
portfolio, including PNM's retirement of SJGS in 2022 and the planned Four
Corners exit in 2024 (subject to regulatory approval). PNM cannot predict the
full impact of the ETA on potential future generating resource abandonment and
replacement filings with the NMPRC.

State Regulation



SJGS Abandonment Application - As discussed in Note 17, in July 2019, PNM filed
the SJGS Abandonment Application with the NMPRC. 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.

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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. 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.

On April 1, 2020, the NMPRC issued an order which authorized PNM to abandon SJGS
by June 30, 2022, to issue Securitized Bonds of up to $361 million, and to
establish the Energy Transition Charge. The NMPRC's order required 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, PNM was 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 July 29, 2020, the NMPRC issued
an order approving replacement resource selection criteria identified in the ETA
that include PPAs for 650 MW of solar and 300 MW of battery storage.

On February 28, 2022, WRA and CCAE filed a joint motion for order to show cause
and enforce financing order and supporting brief, which requests that the NMPRC
order PNM to show cause why its rates should not be reduced at the time SJGS is
abandoned, and to otherwise enforce the NMPRC's April 1, 2020 final order. On
June 17, 2022, the hearing examiners issued a recommended decision requesting
the NMPRC issue an order that would require PNM to:

•Revise its rates to remove all of the costs of SJGS Unit 1 by issuing rate
credits of $21.1 million on an annual basis, to customers by July 1, 2022
•Revise its rates again, to remove all costs of SJGS Unit 1, Unit 4, and common
facilities by increasing the rate credits to $98.3 million on an annual basis,
by October 1, 2022
•Transfer payments due and owing to the Indian Affairs Fund, Economic
Development Assistance Fund, and the Displaced Workers Assistance Fund within 30
days of the abandonment of SJGS Unit 1
•Include (in its next rate case application) an explanation and defense of the
prudence in the timing of the issuance of Securitized Bonds beyond the
abandonment dates and what actions were taken to protect customers from interest
rate increases occurring as well as the continued marketability of the
Securitized Bonds

On June 29, 2022, the NMPRC issued its final order adopting and approving the
recommended decision in its entirety with certain additions. The additions to
the final order include requirements for PNM file a report no later than October
15, 2022, that contains a record of all of its costs incurred in the show cause
proceeding so that the prudence of those costs will be known and be subject to
review in PNM's future rate case and that the prudency review shall include a
compliance filing to enable a review of the prudence of PNM's decision to delay
issuance of the Securitized Bonds beyond the dates of the SJGS abandonment. On
June 30, 2022, PNM filed a Notice of Appeal and an Emergency Motion for Partial
Interim Stay of the NMPRC's Final Order with the NM Supreme Court ("PNM's NM
Supreme Court Emergency Motion"). On July 1, 2022, the NMPRC filed a motion at
the NM Supreme Court claiming that the ordering paragraph in the June 29, 2022
final order only required PNM to file an advice notice by July 1, 2022, but not
to implement a credit until 30 days afterwards. Subsequently, on July 25, 2022,
PNM filed another emergency motion seeking an immediate and ongoing stay from
the NM Supreme Court for the pendency of the appeal. On July 28, 2022, PNM made
payments totaling $19.8 million to the Indian Affairs Fund, Economic Development
Assistance Fund, and the Displaced Workers Assistance Fund. PNM began issuing
rate credits effective July 31, 2022. On September 2, 2022, the NM Supreme Court
issued an order granting PNM's July 25, 2022 motion for partial stay, and as a
result PNM suspended issuing rate credits. On October 14, 2022, PNM made its
required compliance filing under the NMPRC's June 29, 2022, final order. On
November 1, 2022, the NM Supreme Court issued an order continuing the partial
stay of the rate credits during the pendency of the appeal. See Notes 16 and 17.

Four Corners Abandonment Application - In early 2021, PNM filed the Four Corners
Abandonment Application, which sought NMPRC approval to exit PNM's 13% share of
Four Corners as of December 31, 2024, and issuance of approximately $300 million
of Securitized Bonds as provided by the ETA. PNM's filing provided background on
the NMPRC's consideration of the prudence of PNM's investment in Four Corners
and explained how the proposed sale and abandonment provides a net public
benefit. On December 15, 2021, the NMPRC issued a final order denying approval
of the Four Corners Abandonment Application and the corresponding request for
issuance of securitized financing. On December 22, 2021, PNM filed a notice of
appeal with the NM Supreme Court of the NMPRC decision to deny the application.
See additional discussion of the ETA and PNM's Four Corners Abandonment
Application in Notes 16 and 17.

PNM enhanced its plan to exit Four Corners and emphasized its ESG strategy to
reduce carbon emissions on March 12, 2021 with an announcement for additional
plans allowing for seasonal operations at Four Corners beginning in the fall of
2023, subject to the necessary approvals, including PNM's Four Corners
Abandonment Application at the NMPRC. The solution for seasonal operations
ensures the plant will be available to serve each owners' customer needs during
times of peak energy use
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while minimizing operations during periods of low demand. This approach would
result in an estimated annual 20 to 25 percent reduction in carbon emissions at
the plant and retains jobs and royalty payments for the Navajo Nation.

PVNGS Leased Interest Abandonment Application - On April 2, 2021, PNM filed the
PVNGS Leased Interest Abandonment Application. In the application PNM requested
NMPRC authorization to decertify and abandon its Leased Interest and to create
regulatory assets for the associated remaining undepreciated investments with
consideration of cost recovery of the undepreciated investments in a future rate
case. PNM also sought NMPRC approval to sell and transfer the PNM-owned assets
and nuclear fuel supply associated with the Leased Interest to SRP, which will
be acquiring the Leased Interest from the lessors upon termination of the
existing leases. In addition, PNM sought NMPRC approval for a 150 MW solar PPA
combined with a 40 MW battery storage agreement, and a stand-alone 100 MW
battery storage agreement to replace the Leased Interest. To ensure system
reliability and load needs are met in 2023, when a majority of the leases
expire, PNM also requested NMPRC approval for a 300 MW solar PPA combined with a
150 MW battery storage agreement.

On August 25, 2021, the NMPRC issued an order confirming PNM requires no further
NMPRC authority to abandon the PVNGS Leased Interest and to sell and transfer
the PNM-owned assets and nuclear fuel supply associated with the Leased Interest
to SRP. The order bifurcated the issue of approval of the two PPAs and three
battery storage agreements into a separate docket so it may proceed
expeditiously and deferred a ruling on the other issues. On November 1, 2022,
ABCWUA, Bernalillo County, CCAE, NEE, NM AREA, the NMAG, WRA, and Staff filed a
Joint Motion for Accounting Order to require PNM to track in a regulatory
liability, all costs associated with the PVNGS Leased Interests that will be
abandoned in January 2023 and January 2024 that are still being collected in
rates, which PNM opposes. On November 18, 2022, the NMPRC issued its order on
Joint Motion for Accounting Order requiring PNM to establish a regulatory
liability to track and account for, upon termination of the PVNGS leases, all
costs currently borne by ratepayers associated with those leases during pendency
of the 2024 Rate Change, subject to a determination of ratemaking treatment. In
addition, PNM may establish a regulatory asset account to record undepreciated
investment for improvements to the Unit 1 and Unit 2 Leased Interests upon
termination of the leases, and to record cost differences in the proceeds from
SRP for the sale of the PVNGS Leased Assets and the actual book value for which
recovery of these costs will be determined in the 2024 Rate Change. The NMPRC
order also states that in its general rate case PNM must address unresolved
issues including whether PNM's decision to renew the five leases and the
repurchase of 64.1 MW in PVNGS Unit 2 capacity exposed ratepayers to additional
financial liability beyond that to which they would otherwise would have been
exposed, and whether PNM should be denied recovery of future decommissioning
expenses as a remedy for imprudence. PNM is unable to predict the outcome of
this matter.

On February 16, 2022, the NMPRC approved the two PPAs and three battery storage
agreements. On June 16, 2022, PNM notified the NMPRC that none of the developers
of the two PPAs and three battery storage agreements have moved forward under
the terms of the agreements approved by the NMPRC, and none of the replacement
resource projects would be operational in 2023. PNM entered into amendments to
the 300 MW solar PPA combined with a 150 MW battery storage agreement and
proposed those amendments to the NMPRC for approval in a filing with the NMPRC
on June 24, 2022. PNM determined the terms offered by the 150 MW solar PPA
combined with a 40 MW battery storage agreement and the stand-alone 100 MW
battery storage agreement were not satisfactory in comparison with other
potential projects that might be utilized instead, and PNM did not support the
proposed amendments to those agreements in the June 24, 2022 filing. No party
filed objections and the amendments to the 300 MW solar PPA combined with 150 MW
battery storage agreement and the decision not to proceed with the other
agreements, were deemed approved. On September 2, 2022, PNM entered into
amendments to the 150 MW battery storage agreement to increase the capacity to
300 MW and proposed those amendments to the NMPRC for approval. No party filed
objections and the 300 MW solar battery storage agreement were deemed approved.
PNM anticipates these facilities will be in service in 2024. PNM continues to
pursue additional resources to replace the PVNGS leases that were abandoned in
January 2023 and will be abandoned in 2024. For additional information on PNM's
Leased Interest and the associated abandonment application see Note 8 and Note
17.

Summer Peak Resource Adequacy - Throughout 2021 and 2022, PNM provided notices
of delays and status updates to the NMPRC for the approved SJGS replacement
resource projects. All four project developers notified PNM that completion of
the projects will be delayed and no longer available for the 2022 summer peak
and some may also not be available for the 2023 summer peak. The delays in the
SJGS replacement resources, coupled with the abandonment of SJGS Units 1 and 4,
presented a risk that PNM would have insufficient operational resources to meet
the 2022 summer peak to reliably serve its customers. PNM entered into three
agreements to purchase power from third parties to minimize potential impacts to
customers and on February 17, 2022, PNM provided a notice and request with the
NMPRC that PNM had obtained agreement from the SJGS owners and WSJ LLC to extend
operation of Unit 4 until September 30, 2022. SJGS Unit 4 provided 327 MW of
capacity and, along with the three agreements to purchase power, improved PNM's
projected system reserve margin to meet the 2022 summer peak. On February 23,
2022, the NMPRC issued an order finding that PNM did not require NMPRC approval
to extend operation of SJGS Unit 4 for an additional three-month period. On
March 24, 2022, FERC accepted the amended San Juan Project Participation
Agreement, effectively extending the operations of SJGS Unit 4 through September
30, 2022. While PNM experienced a new system peak retail load of 2,139 MW on
July 19, 2022, PNM's generation resources performed sufficiently with no
significant challenges to resource adequacy during the 2022 summer peak season.

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PNM faces similar concerns in the summer of 2023 as a result of continued delays
in the SJGS replacement resources as well as delays in replacement resources for
the PVNGS leased capacity that expires in January 2023. As discussed above, PNM
has made a number of compliance filings with the NMPRC on the status of the
PVNGS leased capacity interest replacement resources. On January 30, 2023, PNM
informed the NMPRC that it had provided written notice to one of the SJGS
replacement resource developers for 100 MW solar PPA and a 30 MW battery storage
agreement of an event of seller default and of early termination and as a result
the project would not proceed. In the second half of 2022, PNM entered into
agreements totaling 270 MW of firm power purchases for June through September
2023 and the purchase of 40 MW of firm power at PVNGS for all twelve months of
2023, providing PNM with a projected system reserve margin with a range of 10.3%
to 6.0% for the 2023 summer peak period. PNM continues to evaluate other
potential firm power agreements with various providers, as well as all potential
short-term resource options to address these resource adequacy concerns. PNM is
unable to predict the outcome of this matter. See Note 17.

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. On October 2, 2020, PNM requested an order to vacate the public hearing
and stay the proceeding until the NMPRC decides whether to entertain a petition
to issue a declaratory order resolving the issues raised in the motions to
dismiss. On October 7, 2020, the hearing examiner approved PNM's request to stay
the proceeding and vacate the public hearing and on October 30, 2020 PNM filed a
petition for declaratory order asking the NMPRC to issue an order finding that
full revenue decoupling is authorized by the EUEA. On March 17, 2021, the NMPRC
issued an order granting PNM's petition for declaratory order, commencing a
proceeding to address petitions. On January 14, 2022, the hearing examiner
issued a recommended decision recommending, among other things, that the NMPRC
find that the EUEA does not mandate the NMPRC to authorize or approve a full
decoupling mechanism, defining full decoupling as limited to energy efficiency
and load management measures and programs. On April 27, 2022, the NMPRC issued
an order adopting the recommended decision in its entirety. On May 24, 2022, PNM
filed a notice of appeal with the NM Supreme Court. See Note 17. PNM cannot
predict the outcome of this matter.

PNM Solar Direct - In 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
proposed to recover costs of the program directly from subscribing customers
through a rate rider. Under the rider, PNM would procure renewable energy from
50 MW of solar-PV facilities under a 15-year PPA. PNM had fully subscribed the
entire output of the 50 MW facilities at the time of the filing. In March 2020,
the hearing examiner issued a recommended decision recommending approval of
PNM's application that was subsequently approved by the NMPRC. These facilities
began commercial operations in the second quarter of 2022.

The Community Solar Act - The Community Solar Act establishes a program that
allows for the development of community solar facilities and provides customers
of a qualifying utility with the option of accessing solar energy produced by a
community solar facility in accordance with the Community Solar Act. The NMPRC
is charged with administering the Community Solar Act program, establishing a
total maximum capacity of 200 MW community solar facilities (applicable until
November 2024) and allocating proportionally to the New Mexico electric
investor-owned utilities and participating cooperatives. As required under the
Community Solar Act, on March 30, 2022, the NMPRC issued an order that adopted a
rule on the administration of the Community Solar Act program. See Note 17.

Advanced Metering - Currently, TNMP has approximately 262,000 advanced meters
across its service territory. Beginning in 2019, the majority of costs
associated with TNMP's AMS program are being recovered through base rates. On
July 14, 2021, TNMP filed a request with the PUCT to consider and approve its
final reconciliation of the costs spent on the deployment of AMS from April 1,
2018 through December 31, 2018 of $9.0 million, and approve appropriate carrying
charges until full collection. The PUCT approved substantially all costs on
February 10, 2022. On October 2, 2020, TNMP filed an application with the PUCT
for authorization to implement necessary technological upgrades of approximately
$46 million to its AMS program by the first quarter of 2023, which the PUCT
approved on January 14, 2021. TNMP will seek recovery of the investment
associated with the upgrade in a future general rate proceeding or DCOS filing.
PNM's Grid Modernization Application includes proposals for installation and
deployment of advanced metering infrastructure investments. See Note 17.

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 PUCT also approved rate riders
that allow TNMP to recover amounts related to energy efficiency and third-party
transmission costs. The NMPRC has approved PNM recovering fuel costs through the
FPPAC, as well as rate riders for renewable energy, energy efficiency, and the
TEP. These mechanisms allow for more timely recovery of investments.

FERC Regulation



Rates PNM charges wholesale transmission customers are subject to traditional
rate regulation by FERC. Rates charged to wholesale electric transmission
customers, other than customers on the Western Spirit Line described below, 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
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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.

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. 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. 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
                        February 2022                    6.1  %
                        December 2022                    5.8  %

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. On February 10, 2022, Moody's downgraded TNMP's issuer
rating from A3 to Baa1 and changed the outlook from negative to stable. 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. All of
the 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



Safety is the first priority of our business and a core value of the Company.
PNMR utilizes a Safety Management System to provide clear direction, objectives
and targets for managing safety performance and minimizing risks and empowers
employees to "Be the Reason Everyone Goes Home Safe".

PNMR measures reliability and benchmark performance of PNM and TNMP against
other utilities using industry-standard metrics, including System Average
Interruption Duration Index ("SAIDI") and System Average Interruption Frequency
Index ("SAIFI"). PNM's and TNMP's investment plans include projects designed to
support reliability and reduce the amount of time customers are without 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.

The Company continues to monitor developments related to the COVID-19 pandemic
and implement safety measures as appropriate. The Company is also working with
its suppliers to manage the 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
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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 17, both PNM and TNMP
suspended disconnecting certain customers for past due bills, 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.

EIM



On April 1, 2021, PNM joined and began participating in the EIM. The EIM is a
real-time wholesale energy trading market operated by the CAISO that enables
participating electric utilities to buy and sell energy. The EIM aggregates the
variability of electricity generation and load for multiple balancing authority
areas and utility jurisdictions. In addition, the EIM facilitates greater
integration of renewable resources through the aggregation of flexible resources
by capturing diversity benefits from the expanding geographic footprint and the
expanded potential uses for those resources. PNM completed a cost-benefit
analysis, which indicated participation in the EIM would provide substantial
benefits to retail customers. In 2018, PNM filed an application with the NMPRC
requesting, among other things, to recover initial capital investments and
authorization to establish a regulatory asset to recover other expenses that
would be incurred in order to join the EIM. The NMPRC approved the establishment
of a regulatory asset but deferred certain rate making issues, including but not
limited to issues related to implementation and ongoing EIM costs and savings,
the prudence and reasonableness of costs to be included in the regulatory asset,
and the period over which costs would be charged to customers until PNM's next
general rate case filing. PNM has experienced an aggregate of $47.1 million in
cost savings to customers through participation in the EIM, which includes $34.6
million occurring in the year ended December 31, 2022. PNM passes the cost
savings through to customers under PNM's FPPAC.

Utility Plant and Strategic Investments



Utility Plant Investments - During the 2021 and 2022 periods, PNM and TNMP
together invested $1.8 billion in utility plant, including substations, power
plants, nuclear fuel, and transmission and distribution systems. 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 a capital
initiative, which emphasizes new investments in its transmission and
distribution infrastructure with three primary objectives: delivering clean
energy, enhancing customer 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. In addition, projects included in the Grid
Modernization Application improve customers' ability to customize their use of
energy and modernize PNM's electric grid through infrastructure and technology
improvements. 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 is frequently characterized by its high potential for solar and wind
capacity. 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 December 31, 2022, NMRD's
renewable energy capacity in operation was 135.1 MW, which includes 130 MW of
solar-PV facilities to supply energy to the Meta 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. In addition, PNM's February
8, 2021 application with the NMPRC for approval to service the Meta data center
includes construction of a 50 MW solar facility owned by NMRD, which is expected
to be operational in 2023.

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. On September 14, 2022 and
November 2, 2022, the NMPRC adopted revisions to the IRP Rule. The revisions
revamp and modernize the planning process to accommodate increased stakeholder
involvement. On December 2, 2022, PNM filed an appeal with the NM Supreme Court
of the NMPRC's final order which adopted revisions to the IRP Rule. See
additional discussion of the NMPRC adopted revision to the IRP Rule in Note 17.

In the second quarter of 2022, PNM initiated its 2023 IRP process which will
cover the 20-year planning period from 2023 through 2043. Consistent with
historical practice, PNM is receiving public input from interested parties as
part of this
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process. PNM expects to issue a draft of its IRP by March 2023 and to submit its final 2023 IRP to the NMPRC in the second half of 2023.

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 and other information that collectively demonstrates
the Company's commitment to ESG principles. This information highlights plans
for PNM to be coal-free by 2024 (subject to regulatory approval) and to achieve
an emissions-free generating portfolio by 2040.

In February 2022 PNM named its first Chief Sustainability Officer. The Chief
Sustainability Officer is responsible for developing and implementing the
Company's business strategy and positions on environmental and sustainability
policy issues and is charged with establishing organization-wide policies,
strategies, goals, objectives and programs that advance sustainability and
ensure compliance with regulations. The role serves as the Company's primary
contact with various regulatory and stakeholder agencies on environmental
matters. In addition, the role leads environmental justice work, incorporating
impacts to tribal, worker and affected communities and advancing ESG reporting.

PNM's grid modernization plan is a major step forward to providing reliable,
affordable and sustainable energy. As part of that plan, PNM will promote energy
equity where technology like smart meters and distribution upgrades will be
provided to low-income areas first in order to allow customers to gain insights
into their energy usage in order to improve affordability and create fairer
access to energy.

On September 21, 2020, PNM announced an agreement to partner with Sandia
National Laboratories in research and development projects focused on energy
resiliency, clean energy, and national security. The partnership demonstrates
PNMR's commitment to ESG principles and its support of projects that further its
emissions-free generation goals and plans for a reliable, resilient, and secure
grid to deliver New Mexico's clean energy future. PNM also recently joined the
Electric Power Research Institute ("EPRI") Climate READi (REsilience and
ADaptation) Initiative, a three-year initiative to develop a comprehensive and
consistent approach to physical climate risk and facilitate the analysis and
application of appropriate climate data among all stakeholders to enhance the
planning, design and operation of a resilient power system. In addition, PNM
submitted a Time-of-Day pilot proposal in the 2024 Rate Change filing with the
objective of incentivizing customers, through price signals, to use energy
during the day when renewable generation is abundant.

The Infrastructure Investment and Jobs Act, also commonly known as the
Bipartisan Infrastructure Law ("BIL"), was signed into law on November 15, 2021.
This act represents a "once-in-a-generation" investment designed to modernize
and upgrade America's infrastructure. The BIL includes historic investments to
upgrade the transmission and distribution systems to improve reliability and
resilience, and to facilitate the deployment of more affordable and cleaner
energy across the country. In addition to the recent filing of PNM's Grid
Modernization Application with the NMPRC, the Company is currently monitoring
the release of grant opportunities by the U.S. Department of Energy and the
State Energy, Minerals and Natural Resources Department, and has applied for
funding to supplement the investment in the Grid Modernization Application.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022
(the "IRA") into law. The IRA will provide significant benefits for PNMR and its
customers by extending and enhancing clean energy incentives such as the
investment tax credit and production tax credit. As the Company continues its
transition away from carbon emitting sources, these credits will reduce the cost
of renewable investments. In addition, the IRA includes a new production tax
credit for existing nuclear facilities that is expected to create an added
benefit for PNM's ownership in the carbon-free PVNGS. Other IRA provisions will
encourage transportation electrification with new electric vehicle credits and
added incentives in vehicle charging infrastructure.

Electric Vehicles



PNMR is building upon its ESG goal of 100% emissions-free generation by 2040
with plans for additional emissions reductions through the electrification of
its vehicle fleet. Growing the number of electric vehicles within the Company's
fleet will benefit the environment and lower fuel costs furthering the
commitment to ESG principles. Under the commitment, existing fleet vehicles will
be replaced as they are retired with an increasing percentage of electric
vehicles. The goals call for 25% of all light duty fleet purchases to be
electric by 2025 and 50% to be electric by 2030.

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To demonstrate PNMR's commitment to increase the electrification of vehicles in
its service territory, PNM filed a TEP with the NMPRC on December 18, 2020. The
TEP supports customer adoption of electric vehicles by focusing on addressing
the barriers to electric vehicle adoption and encourage use. PNM's program
budget will be dedicated to low and moderate income customers by providing
rebates to both residential and non-residential customers towards the purchase
of chargers and/or behind-the-meter infrastructure. On November 10, 2021, the
NMPRC issued a final order approving PNM's TEP. In addition, in 2022 PNM
implemented a residential EV pilot rate program to provide customers who own
electric vehicles additional benefits.

In December 2021, PNM announced that it will be joining the National Electric
Highway Coalition, which plans to build fast-charging ports along major U.S.
travel corridors. The coalition, with approximately 50 investor-owned electric
companies is committed to providing EV fast charging ports that will allow the
public to drive EVs with confidence throughout the country's major roadways by
the end of 2023.

Other Environmental Matters

Four Corners may be required to comply with environmental rules that affect
coal-fired generating units, including regional haze rules and the ETA. On June
19, 2019, EPA repealed the Clean Power Plan, promulgated the ACE Rule, and
revised the implementing regulations for all emission guidelines issued under
the CAA Section 111(d). On January 19, 2021, the DC Circuit issued an opinion
vacating and remanding the ACE Rule, holding that it was based on a
misconstruction of Section 111(d) of the CAA, but stayed its mandate for vacatur
of the repeal of the Clean Power Plan to ensure that the now-outdated rule would
not become effective. The U.S. Supreme Court granted four petitions for
certiorari seeking review of the DC Circuit's decision, and ruled that EPA
overstepped its authority under the Clean Power Plan by requiring generation
shifting. Relying upon the Major Question Doctrine, the US Supreme Court found
no clear statement in the CAA that would authorize EPA to force the power sector
to shift from coal-fired power plants to gas-fired power plants and renewable
energy resources. The ruling will have an impact on EPA's current drafting of a
new rule to replace the ACE Rule, which is expected in April 2023.

Renewable Energy



PNM's renewable procurements include utility-owned solar capacity, as well as
solar, wind, and geothermal energy purchased under PPAs. As of December 31,
2022, PNM has 158 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 239.1 MW at December 31, 2022. 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 200 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 II that became operational in June 2021. Under the
Solar Direct program discussed above, PNM procures renewable energy from 50 MW
of solar-PV facilities under a 15-year PPA. The NMPRC approved the portfolio to
replace the retirement of SJGS resulting in PNM executing solar PPAs of 550 MW
combined with 270 MW of battery storage agreements. In addition, the PVNGS
Leased Interest Abandonment Application approved by the NMPRC includes a 300 MW
solar PPA combined with a 300 MW battery storage agreement. 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. See additional discussion of the ETA and PNM's
Abandonment Applications in Notes 16 and 17.

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 Meta 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 constructed by NMRD to supply power to Meta, Inc. 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 Meta data
center. These PPAs include the purchase of power and RECs from two wind projects
totaling 216 MW and a 50 MW solar-PV project which began commercial operations
in June 2022. In addition, the NMPRC issued an order that will allow PNM to
service the Meta data center for an additional 190 MW of solar PPA combined with
50 MW of battery storage and a 50 MW solar 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 2022, incremental energy saved as a result of


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new participation in PNM's portfolio of energy efficiency programs was 104 GWh.
This is equivalent to the annual consumption of approximately 14,935 homes in
PNM's service territory. PNM's load management and annual energy efficiency
programs also help lower peak demand requirements. In 2022, TNMP's incremental
energy saved as a result of new participation in TNMP's energy efficiency
programs is estimated to be approximately 15 GWh. This is equivalent to the
annual consumption of approximately 2,082 homes in TNMP's service territory. For
information on PNM's and TNMP's energy efficiency filing with the NMPRC and PUCT
see Note 17.

Water Conservation and Solid Waste Reduction

PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 45% more efficient than in 2005). Continued growth in PNM's fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of 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.  As the Company
moves forward with its mission to achieve 100% carbonfree generation by 2040,
it expects that more significant water savings will be gained. Shutting down
SJGS in 2022 and exiting Four Corners in 2024 (subject to regulatory approval)
will allow the Company to reach our goals for reduced freshwater use 80% by 2035
and 90% by 2040 from 2005 levels. 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 2022, 15 of the Company's 22 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. In the third quarter of 2022, PNM made payments
of $19.8 million to promote economic development in areas impacted by the
retirement of SJGS. 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 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. In 2022,
PNM and the electric utility industry as a whole, have experienced a decline in
customer satisfaction as measured by J.D. Power. However, PNM remains focused on
continuously improving its customers' experience at every touchpoint and placing
greater focus on customer assistance through economic uncertainty.

The Company utilizes a number of communications channels and strategic content
to serve and engage its many stakeholders. PNM's website 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 also leverages 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 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. In both 2021 and 2022, TNMP
provided 30-person teams in support of other utilities that experienced
significant damage to their transmission and distribution system as a result of
Hurricane Ida and Hurricane Ian. TNMP has been honored by the Edison Electric
Institute eight times since 2012 for its assistance to out-of-state utilities
affected by hurricanes. TNMP has also been honored three times since 2008 for
hurricane response in its own territory.

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 the Company's commitment to ESG principles is the
Company's tradition of supporting the communities it serves in New Mexico and
Texas. This support extends beyond corporate giving and financial donations from
the PNM Resources Foundation to also include collaborations on community
projects, customer low-income assistance programs, and employee volunteerism.

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During the three years ending December 31, 2022, corporate giving contributed
$10.9 million to civic, educational, environmental, low income, and economic
development organizations. In 2023, corporate giving will maintain this
strategic focus and continue to highlight corporate citizenship through active
involvement with sponsorships demonstrating PNM's commitment to the community.
In addition, emergency relief funds in 2022 supported non-profits providing
response to the fires in northern and southern New Mexico. Also in December
2022, PNM made substantial donations totaling $150,000 to food banks across the
state of New Mexico including tribal communities.

PNMR recognizes its responsibility to support programs and organizations that
enrich the quality of life across its service territories and seeks
opportunities to further demonstrate its commitment in these areas as needs
arise. 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. While its
service territory does not include the Navajo Nation, PNM's operations include
generating facilities and employees in this region. 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. PNM has invested in paid
summer college engineering internship programs for American Indian students
available in the greater Albuquerque area, established the PNM Pueblo Education
Scholarship Endowment to invest in higher education for Native American Indian
students, and supported the Coalition to Stop Violence Against Native Women. 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.
PNM has partnered with New Mexico universities to enhance intern programs and
developed a business coalition model to drive economic development through
intern partnerships. PNM has also partnered with key local organizations to
initiate funding for programs focused on diversity, equity and inclusion.

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 residential customer disconnections from April 2020 through
August 2021 and the 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, 3,488 families in need received emergency
assistance through the PNM Good Neighbor Fund during 2022. Additionally, PNM has
worked closely with the New Mexico Department of Finance and Administration to
implement strategies ensuring customers receive rent benefits, including utility
bill assistance, from the Emergency Rental Assistance Program ("ERAP"). As a
result of these efforts, the ERAP has paid over $8.5 million in customer arrears
since the launch of the program in March 2021.

Additionally, as a part of corporate giving, on October 1, 2020, PNM introduced
$2.0 million in funding for the COVID Customer Relief Programs which support
income-qualified residential customers and small business customers who have
been impacted by the financial challenges created by COVID-19 and have past due
electric bills. Qualified customers that pay a portion of their past-due balance
can receive assistance toward their remaining balance.

Employee volunteers are the lifeblood of a healthy corporate culture. Community
giving through volunteers' time and effort is at the heart of employee
engagement. In 2022, the Company held large-scale volunteer events, working
alongside nonprofits, schools, and vulnerable communities throughout New Mexico
and Texas. Over 450 employees in both states participated in the "Day of
Service", a workday event encouraging employee volunteerism. Throughout the
year, employees volunteer and give their time generously through their small
group and independent volunteer activities and board participation. Volunteers
strengthened community resilience by giving 9,171 volunteer hours to support the
health, safety, and well-being of diverse communities.

In addition to the extensive engagement both PNM and TNMP have with nonprofit
organizations in their communities, the PNM Resources Foundation provides nearly
$1.2 million in grant funding each year across New Mexico and Texas. These
grants help nonprofits innovate or sustain programs to grow and develop their
mission, develop and implement environmental programs, and provide educational
opportunities. Beginning in 2020 and ending in 2022, the PNM Resources
Foundation funded grants with a three-year focus on decreasing homelessness,
increasing access to affordable housing, reducing carbon emissions, and
increasing community safety. The PNM Resources Foundation continued to expand
its matching donation and increased the annual amount of matching donations
available to each of its employees. PNM Resources Foundation awarded additional
grants to non-profits providing relief for the fires in northern and southern
New Mexico in the first half of 2022. The PNM Resources Foundation also approved
an increase to the amount awarded to employees, through the employee crisis
management fund, who have been affected by the wildfires. In December 2021, the
PNM Resources Foundation was nominated for the Albuquerque Business First 2022
Philanthropy Award. In 2023, the Foundation will celebrate its 40th year of
serving community needs highlighting education, inclusion, the environment and
community vitality.


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Economic Factors



PNM - In 2022, PNM experienced a decrease in weather normalized residential load
of 0.7%, more than offset by an increase in weather normalized commercial load
of 2.4% compared to 2021. In addition, PNM experienced an increase in industrial
load of 6.5% compared to 2021.

TNMP - In 2022, TNMP experienced an increase in volumetric weather normalized
retail load of 2.4% compared to 2021. Weather normalized demand-based load,
excluding retail transmission consumers, increased 17.3% in 2022 compared to
2021.
The Company is closely monitoring the supply chain impacts of COVID-19, impacts
on the capital markets of other macroeconomic conditions, including actions by
the Federal Reserve to address inflationary concerns or other market conditions,
and geopolitical activity. The Company has not experienced, nor does it expect
significant negative impacts to resource adequacy at PNM or customer usage at
PNM and TNMP resulting from these supply chain and economic impacts. However, if
current conditions worsen, the Company may be required to implement additional
measures such as reducing or delaying operating and maintenance expenses and
planned capital expenditures.

Results of Operations

Net earnings attributable to PNMR were $169.5 million, or $1.97 per diluted
share in the year ended December 31, 2022 compared to $195.8 million, or $2.27
per diluted share in 2021. Among other things, earnings in the year ended
December 31, 2022 benefited from higher transmission margin at PNM and TNMP,
higher weather normalized retail load at PNM, higher volumetric and demand-based
load at TNMP, warmer weather at PNM and TNMP, higher distribution rates at TNMP,
higher unregulated margin at PNM, AMS carrying charges at TNMP, and lower costs
related to the Merger at Corporate and Other. These increases were more than
offset by decreased performance in PNM's NDT and coal mine reclamation
investment securities, FERC ordered time-value refunds, increased operational
and maintenance expense, including higher plant maintenance costs at PNM, higher
employee related and outside service expense at PNM and TNMP, higher vegetation
management expense at TNMP, increased depreciation and property taxes at PNM and
TNMP due to increased plant in service, and higher interest charges at PNM, TNMP
and Corporate and Other. Additional information on factors impacting results of
operations for each segment is discussed below under Results of Operations.

Liquidity and Capital Resources



Currently, PNMR and PNM have revolving credit facilities with capacities of
$300.0 million and $400.0 million that expire in October 2025. Starting in
November 2024 the revolving credit facilities will adjust to $285.0 million for
PNMR and $380 million at PNM until October 2025, with a one-year extension
options that, if exercised, would extend the maturity to October 2026, subject
to approval by a majority of the lenders. Both facilities provide for short-term
borrowings and letters of credit. In addition, PNM has a $40.0 million revolving
credit facility with banks having a significant presence in New Mexico that
expires in May 2026, and TNMP has a $100.0 million revolving credit facility,
which expires in September 2025 with a one-year extension option that, if
exercised, would extend the maturity to September 2026, subject to approval by a
majority of the lenders. Total availability for PNMR on a consolidated basis was
$522.4 million at February 17, 2023. 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.

PNMR projects that its consolidated capital requirements, consisting of
construction expenditures and dividends, will total $5.2 billion for 2023-2027.
These construction expenditures include expenditures for PNM's capital
initiatives that include investments in transmission and distribution
infrastructure to deliver clean energy, enhance customer satisfaction, and
increase grid resilience. Construction expenditures also include investments
proposed in PNM's Grid Modernization Application.

As discussed in Note 7, in November 2022, PNMR entered into a distribution
agreement, pursuant to which the Company may sell, from time to time, up to an
aggregate sales price of $200.0 million of its common stock, no par value,
through sales agents under the PNMR 2022 ATM Program. Actual sales will depend
on a variety of factors to be determined by the Company, including market
conditions, the trading price of PNMR's common stock, capital needs and
determinations by the Company of the appropriate sources of funding for the
Company.

To fund capital spending requirements to meet growth that balances earnings
goals, credit metrics and liquidity needs, the Company entered into a number of
other financing arrangements in 2022. For further discussion on these financing
arrangements see Liquidity and Capital Resources discussion below as well as
Note 7.

After considering the effects of these financings and the Company's short-term
liquidity position as of February 17, 2023, the Company has consolidated
maturities of long-term and short-term debt aggregating $499.5 million in the
period from January 1, 2023 through February 28, 2024. 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 2023-2027 period. The Company currently believes that its internal cash
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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. As of December 31, 2022 and
February 17, 2023, the Company was in compliance with its debt covenants.

                             RESULTS OF OPERATIONS

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

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



                                                      Year Ended December 31,                            Change
                                                      2022                   2021                       2022/2021
                                                 (In millions, except per share amounts)
Net earnings attributable to PNMR             $           169.5          $    195.8                 $        (26.3)
Average diluted common and common equivalent
shares                                                     86.2                86.1                            0.1
Net earnings attributable to PNMR per diluted
share                                         $            1.97          $     2.27                 $        (0.30)



The components of the changes in net earnings attributable to PNMR by segment
are:

                                                   Change
                                                 2022/2021
                                               (In millions)
                       PNM                    $        (52.1)
                       TNMP                             28.4

                       Corporate and Other              (2.5)
                        Net change            $        (26.3)

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



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

Non-GAAP Financial Measures



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 and is considered a non-GAAP measure. PNM does not intend for utility
margin to represent any financial measure as defined by GAAP however, the
calculation of utility margin, as presented, most closely compares to gross
margin as defined by GAAP. Reconciliations between utility margin and gross
margin are presented below.

                                                Year Ended December 31,              Change
                                                   2022                2021        2022/2021
                                                             (In millions)

   Gross margin                           $      516.4               $ 466.1      $     50.3
   Energy production costs                       147.3                 143.9               3.4
   Transmission and distribution costs            58.3                  49.8               8.5
   Depreciation and amortization                 180.8                 170.4              10.4
   Utility margin                         $      902.8               $ 830.2      $     72.6




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The following table summarizes the operating results for PNM:


                                                 Year Ended December 31,                   Change
                                                   2022               2021               2022/2021
                                                         (In millions)
   Electric operating revenues             $     1,766.8           $ 1,362.0            $    404.8
   Cost of energy                                  864.0               531.8                 332.2
   Utility margin                                  902.8               830.2                  72.6
   Operating expenses                              460.5               438.4                  22.1
   Depreciation and amortization                   180.8               170.4                  10.4
   Operating income                                261.5               221.5                  40.0
   Other income (deductions)                       (62.2)               28.4                 (90.6)
   Interest charges                                (61.1)              (51.4)                 (9.7)
   Segment earnings before income taxes            138.2               198.6                 (60.4)
   Income (taxes)                                  (19.2)              (27.0)                  7.8
   Valencia non-controlling interest               (15.1)              (15.5)                  0.4
   Preferred stock dividend requirements            (0.5)               (0.5)                    -
   Segment earnings                        $       103.4           $   155.5            $    (52.1)

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



                                                                    Year Ended December 31,                                    Percent Change
                                                            2022                                 2021                            2022/2021
                                                                 (Gigawatt hours, except customers)
Residential                                                3,368.0                                3,339.5                                    0.9  %
Commercial                                                 3,605.0                                3,500.4                                    3.0
Industrial                                                 1,770.0                                1,592.3                                   11.2
Public authority                                             219.9                                  226.1                                   (2.7)
Economy service (1)                                          554.2                                  504.7                                    9.8

Other sales for resale (2)                                 7,413.3                                5,447.9                                   36.1
                                                          16,930.4                               14,610.9                                   15.9  %
Average retail customer (thousands)                          543.6                                  540.0                                    0.7  %


(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.
(2)Increase in other sales for resale is the result of participation in the EIM
beginning in April 2021. See Note 4.

Operating results - 2022 compared to 2021

The following table summarizes the significant changes to gross margin:



                                                             Year Ended December 31, 2022
                                                                        Change
Gross margin:                                                        (In millions)



            Utility margin (see below)                      $                        72.6
            Depreciation and amortization (see below)                               (10.4)
            Higher plant maintenance costs at gas fired
            plants and PVNGS, partially offset by lower
            costs at Four Corners and the retirement of
            SJGS                                                                     (2.0)
            Higher employee related and outside service
            expenses, excluding administrative costs                                 (6.6)
            Higher transmission line maintenance and
            rights-of-way expense including for the
            Western Spirit Line                                                      (3.9)
            Other                                                                     0.6
            Net Change                                      $                        50.3




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The following table summarizes the significant changes to utility margin:



                                                             Year Ended December 31, 2022
                                                                        Change
Utility margin:                                                      (In millions)

            Retail customer usage/load - Weather
            normalized retail KWh sales increased 2.4%
            for commercial customers and 6.5% for
            industrial customers, which was partially
            offset by decreased sales to residential
            customers of 0.7%                               $                         4.1
            Weather - Cooler winter weather and warmer
            summer weather in 2022; heating degree days
            were 20.8% higher and cooling degree days
            were 3.3% higher in 2022                                                  7.1

            Transmission - Increase primarily due to
            higher revenues from the addition of new
            customers including on the Western Spirit
            Line, higher formula transmission rates, and
            higher volumes                                                           65.2

            Unregulated margin - Increased revenues
            driven by a higher price and lower cost of
            energy associated with 65MW of SJGS Unit 4                                8.5
            Rate credits - NMPRC ordered rate credits,
            removing all costs of SJGS Unit 1 from rates
            (See Note 17)                                                            (1.2)
            FERC ordered time-value refunds (See Note
            17)                                                                      (8.1)
            Other                                                                    (3.0)
            Net Change                                      $                        72.6



The following tables summarize the primary drivers for operating expenses,
depreciation and amortization, other income (deductions), interest charges, and
income taxes:

                                                             Year Ended December 31, 2022
                                                                        Change
Operating expenses:                                                  (In millions)



               Higher plant maintenance costs at gas
               fired plants and PVNGS, partially offset
               by lower costs at Four Corners and the
               retirement of SJGS                           $                         2.0

               Higher property taxes due to increases in
               utility plant in service including the
               Western Spirit Line partially offset by
               favorable settlement of property values                                2.1
               Higher employee related and outside
               service expenses                                                      18.3
               Higher transmission line maintenance and
               rights-of-way expense including for the
               Western Spirit Line                                                    3.9
               2021 non-retail credit loss                                           (1.0)
               2021 regulatory disallowance resulting
               from the PVNGS Leased Interest
               Abandonment Application (Note 17)                                     (1.3)
               Higher regulatory disallowance due to
               change in estimated write-offs associated
               with SJGS BART determination and
               ownership restructuring                                                0.9
               Decreased costs associated with the
               accelerated recovery of SNCRs on SJGS
               Units 1 and 4                                                         (2.5)
               Other                                                                 (0.3)
               Net Change                                   $                        22.1

Depreciation and amortization:



                   Increased utility plant in service including the Western
                   Spirit Line                                                    $ 13.7

                   Lower depreciation due to the retirement of SJGS                 (3.9)
                   Other                                                             0.6

                   Net Change                                                     $ 10.4


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                                                              Year Ended December 31, 2022
                                                                         Change
Other income (deductions):                                           (In millions)

                  Decreased performance on investment
                  securities in the NDT and coal mine
                  reclamation trusts                         $                      (95.2)
                  Lower non-service pension costs                                     1.5
                  Lower trust expenses partially offset
                  by lower interest income related to
                  investment securities in the NDT and
                  coal mine reclamation trusts                                        1.0
                  Lower charitable contributions in 2022                              1.7
                  Carrying charges on payments under the
                  ETA for SJGS made in advance of the
                  Energy Transition Bonds (Note 17)                                   0.7
                  Other                                                              (0.3)
                  Net Change                                 $                      (90.6)


 Interest charges:

             Refinancing of $160.0 million of SUNs in July 2021                      2.3
             Issuance of $150.0 million of SUNs in December 2021                    (3.8)
             Higher interest on term loans                                          (3.6)
             Interest on transmission customer deposits including the

Western


             Spirit Transmission Line                                               (4.3)
             Other                                                                  (0.3)
             Net Change                                                           $ (9.7)


Income (taxes):

            Lower segment earnings before income taxes                            $ 15.2
            Higher non-deductible compensation                                      (1.4)

            Lower amortization of federal excess deferred income taxes

(Note


            18)                                                                     (0.7)

            Adjustments for the closure of SJGS                                     (3.5)
            Other                                                                   (1.8)
            Net Change                                                            $  7.8



TNMP

Non-GAAP Financial Measures

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 and is
considered a non-GAAP measure. TNMP does not intend for utility margin to
represent any financial measure as defined by GAAP however, the calculation of
utility margin, as presented, most closely compares to gross margin as defined
by GAAP. Reconciliations between utility margin and gross margin are presented
below.

                                                Year Ended December 31,              Change
                                                   2022                2021        2022/2021
                                                             (In millions)

   Gross margin                           $      224.1               $ 182.9      $     41.2

   Transmission and distribution costs            36.4                  31.5               4.9
   Depreciation and amortization                  98.3                  90.4               7.9
   Utility margin                         $      358.8               $ 304.8      $     54.0




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The following table summarizes the operating results for TNMP:



                                                Year Ended December 31,                    Change
                                                   2022                2021              2022/2021
                                                        (In millions)
   Electric operating revenues            $      482.7               $


417.9            $     64.8
   Cost of energy                                123.9                 113.1                  10.8
   Utility margin                                358.8                 304.8                  54.0
   Operating expenses                            124.5                 114.2                  10.3
   Depreciation and amortization                  98.3                  90.4                   7.9
   Operating income                              136.0                 100.1                  35.9
   Other income (deductions)                       8.7                   5.4                   3.3
   Interest charges                              (37.2)                (33.7)                 (3.5)
   Segment earnings before income taxes          107.4                  71.8                  35.6
   Income (taxes)                                (15.2)                 (7.9)                 (7.3)
   Segment earnings                       $       92.3               $  63.9            $     28.4

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



                                                                 Year Ended December 31,                               Percentage Change
                                                          2022                             2021                            2022/2021
Volumetric load (1) (GWh)
Residential                                                3,309.3                           3,018.3                                 9.6  %
Commercial and other                                          49.1                              39.9                                23.1  %
Total volumetric load                                      3,358.4                           3,058.2                                 9.8  %
Demand-based load (2) (MW)                                24,543.1                          21,176.9                                15.9  %
Average retail consumers (thousands) (3)                     267.9                             263.5                                 1.7  %


(1)Volumetric load consumers are billed on KWh usage.
(2)Demand-based load includes consumers billed on a monthly KW peak and retail
transmission customers that are primarily billed under rate riders.
(3)TNMP provides transmission and distribution services to REPs that provide
electric service to 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.

Operating results - 2022 compared to 2021

The following table summarizes the significant changes to gross margin:



                                                             Year Ended December 31, 2022
                                                                        Change
Gross margin:                                                        (In millions)



            Utility Margin (see below)                      $                        54.0
            Depreciation and amortization (see below)                                (7.9)
            Higher employee related, outside services
            expenses, and vegetation management
            expenses, excluding administrative costs                                 (4.6)
            Other                                                                    (0.3)
            Net Change                                      $                        41.2




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The following table summarizes the significant changes to utility margin:



                                                             Year Ended December 31, 2022
                                                                        Change
Utility margin:                                                      (In millions)



            Transmission rate relief/load - Transmission
            cost of service rate increases in March
            2021, September 2021, March 2022, and
            September 2022                                  $                        19.6
            Distribution rate relief - Distribution cost
            of service rate increases in September 2021
            and September 2022                                                       13.5
            Volumetric-based consumer usage/load -
            Weather normalized KWh sales increased 2.4%;
            the average number of volumetric consumers
            increased 2.7%                                                            1.0
            Demand based consumer usage/load - Weather
            normalized demand-based MW sales for large
            commercial and industrial consumers
            excluding retail transmission customers
            increased 17.3% primarily due to new
            cryptocurrency loads                                                     10.7
            Weather - Cooler winter weather and warmer
            summer weather in 2022; heating degree days
            were 30.1% higher and cooling degree days
            were 7.7% higher in 2022                                                  7.6
            Rate riders and other - Impacts of rate
            riders, including the transmission cost
            recovery factor, energy efficiency rider,
            and rate case expense rider which are
            partially offset in operating expense and
            depreciation and amortization                                             1.6

            Net Change                                      $                        54.0



The following tables summarize the primary drivers for operating expenses,
depreciation and amortization, other income (deductions), interest charges, and
income taxes:
                                                            Year Ended December 31, 2022
                                                                       Change
Operating expenses:                                                 (In millions)

               Higher employee related, outside service
               expenses and vegetation management
               expenses                                    $                         7.6
               Higher property tax due to increased
               utility plant in service                                              2.8
               Higher capitalization of administrative
               and general and other expenses due to
               higher construction expenditures                                     (1.2)

               Higher energy efficiency expense and
               rate case amortization which are offset
               in utility margin                                                     0.5
               Other                                                                 0.6
               Net Change                                  $                        10.3

Depreciation and amortization:



                  Increased utility plant in service                                $ 8.2
                  Decreased amortization related to rate riders offset in
                  utility margin and other                                           (0.3)

                  Net Change                                                        $ 7.9


       Other income (deductions):

                         AMS Reconciliation carrying charges (Note 17)      $ 1.5
                         Higher equity AFUDC                                  1.2
                         Higher CIAC                                          0.6

                         Net Change                                         $ 3.3


     Interest charges:

                 Issuance of $65.0 million first mortgage bonds in 2021      $ (1.0)
                 Issuance of $65.0 million first mortgage bonds in 2022        (1.7)

                 Issuance of $95.0 million first mortgage bonds in 2022        (1.5)
                 Other                                                          0.7
                 Net Change                                                  $ (3.5)


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                                                            Year Ended December 31, 2022
                                                                       Change
 Income (taxes):                                                    (In millions)



             Higher segment earnings before income
             taxes                                         $                        (7.5)

             Other                                                                   0.2
             Net Change                                    $                        (7.3)



Corporate and Other

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



                                                          Year Ended December 31,                        Change
                                                         2022                  2021                     2022/2021
                                                                  (In millions)
Total revenues                                      $          -          $         -                $          -
Cost of energy                                                 -                    -                           -
Utility margin                                                 -                    -                           -
Operating expenses                                         (22.0)                (9.8)                      (12.2)
Depreciation and amortization                               25.7                 23.3                         2.4
Operating income (loss)                                     (3.7)               (13.5)                        9.8

Other income (deductions)                                   (1.0)                (0.7)                       (0.3)
Interest charges                                           (29.6)               (11.8)                      (17.8)
Segment earnings (loss) before income taxes                (34.3)               (25.9)                       (8.4)
Income (taxes) benefit                                       8.2                  2.3                         5.9
Segment earnings (loss)                             $      (26.1)         $     (23.6)               $       (2.5)



Corporate and Other operating expenses shown above are net of amounts allocated
to PNM and TNMP under shared services agreements. The amounts allocated include
certain expenses shown as depreciation and amortization and other income
(deductions) in the table above. The change in operating expenses includes a
decrease of $10.5 million in costs related to the Merger that were not allocated
to PNM or TNMP. Substantially all depreciation and amortization expense is
offset in operating expenses as a result of allocation of these costs to other
business segments.

Operating results - 2022 compared to 2021

The following tables summarize the primary drivers for other income (deductions), interest charges, and income taxes:



                                                                 Year Ended December 31,
                                                                          2022
                                                                         Change
 Other income (deductions):                                           (In millions)

                   Increase in donations and other
                   contributions                               $                    (0.2)

                   Other                                                            (0.1)
                   Net Change                                  $                    (0.3)


           Interest charges:

                       Higher interest on term loans                   $ (19.0)
                       Repayment of PNMR 2018 SUNs in March 2021           2.0
                       Higher interest on short term borrowings           (0.8)

                       Net Change                                      $ (17.8)


           Income (taxes) benefits:

                          Higher segment loss before income taxes        $ 2.1

                          Lower state income tax effective rate            2.6

                          Lower non-deductible merger related costs        0.9
                          Other                                            0.3
                          Net Change                                     $ 5.9


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                        LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows

The information concerning PNMR's cash flows is summarized as follows:



                                                 Year Ended December 31,                    Change
                                                    2022                2021              2022/2021
                                                         (In millions)
 Net cash flows from:
 Operating activities                      $      567.3               $ 547.9            $     19.4
 Investing activities                            (950.3)               (952.3)                  2.0
 Financing activities                             386.0                 357.6                  28.4
 Net change in cash and cash equivalents   $        3.0               $ (46.8)           $     49.8

Cash Flows from Operating Activities



Changes in PNMR's cash flow from operating activities result from net earnings,
adjusted for items impacting earnings that do not provide or use cash. See
Results of Operations above. Certain changes in assets and liabilities resulting
from normal operations, including the effects of the seasonal nature of the
Company's operations, also impact operating cash flows.

Cash Flows from Investing Activities



The changes in PNMR's cash flows from investing activities relate primarily to
changes in utility plant additions. Cash flows from investing activities also
include activity related to the purchase of the Western Spirit Line and NMRD.
Major components of PNMR's cash inflows and (outflows) from investing activities
are shown below:

                                                           Year Ended December 31,                       Change
                                                           2022                 2021                    2022/2021
    Cash (Outflows) for Utility Plant Additions                    (In millions)
PNM:
Generation                                           $       (62.8)         $    (53.3)               $     (9.5)

Transmission and distribution                               (349.4)             (527.4)                    178.0
Nuclear fuel                                                 (21.3)              (21.5)                      0.2
                                                            (433.5)             (602.2)                    168.7
TNMP:
Transmission                                                (188.2)             (128.2)                    (60.0)
Distribution                                                (261.3)             (183.7)                    (77.6)
                                                            (449.5)             (311.9)                   (137.6)
Corporate and Other:
Computer hardware and software                               (29.6)              (20.9)                     (8.7)
                                                     $      (912.6)         $   (935.0)               $     22.4

Other Cash Flows from Investing Activities Proceeds from sales of investment securities $ 526.4 $ 459.9

$     66.5
Purchases of investment securities                          (564.9)             (477.7)                    (87.2)

Distributions from NMRD                                          -                 0.6                      (0.6)
Other, net                                                     0.8                (0.1)                      0.9
                                                     $       (37.7)         $    (17.3)               $    (20.4)

Net cash flows from investing activities             $      (950.3)         $   (952.3)               $      2.0

Cash Flow from Financing Activities

The changes in PNMR's cash flows from financing activities include:



•Short-term borrowings increased $169.3 million in 2022 compared to an increase
of $30.7 million in 2021, resulting in a net increase in cash flows from
financing activities of $138.6 million in 2022
•In 2022, PNMR had net amounts paid under transmission interconnection
arrangements of $10.8 million compared to net amounts received of $70.4 million
in 2021
•In 2020, PNM purchased PCRBs totaling $100.3 million that were subject to
mandatory tender on June 1, 2020, utilizing borrowings under the PNM Revolving
Credit Facility. On July 1, 2020, these bonds were remarketed to investors in
the weekly mode. On October 1, 2021, PNM converted these bonds to a fixed rate
and remarketed them to new investors.
•In 2020, PNMR executed a $300.0 million delayed-draw term loan (the "PNMR 2020
Delayed-Draw Term Loan") and drew $80.0 million under its terms. In 2021, PNMR
borrowed the remaining $220.0 million and repaid $300.0 million SUNs
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•In 2021, PNMR borrowed $900.0 million under the PNMR 2021 Delayed-Draw Term
Loan and repaid the $150.0 million PNMR 2019 Term Loan, the $300.0 million PNMR
2020 Delayed-Draw Term Loan, the $150.0 million PNMR 2020 Term Loan, $92.1
million in borrowings under the PNMR Revolving Credit Facility, $40.0 million in
borrowings under the PNMR Development Revolving Credit Facility, and the $65.0
million PNMR Development Term Loan. In 2022, PNMR borrowed the remaining $100.0
million available under the PNMR 2021 Delayed-Draw Term Loan
•In 2021, PNM entered into a $75.0 million term loan and used the funds to repay
the PNM 2019 $40.0 million Term Loan and for other corporate purposes
•In 2021, PNM issued $160.0 million of PNM 2021 SUNs and used the proceeds to
repay $160.0 million of PNM's 5.35% SUNs that were due October 2021
•In 2021, PNM remarketed $146.0 million of outstanding PCRBs to new investors
•In 2021, PNM issued $150.0 million aggregate principal amount of PNM September
2021 SUNs and used the proceeds to partially fund the purchase of the Western
Spirit Line
•In 2021, TNMP issued $65.0 million aggregate principal amount of TNMP 2021
Bonds and used the proceeds to repay existing debt and for other corporate
purposes
•In 2022, TNMP issued $160.0 million aggregate principal amount of TNMP 2022
Bonds and used the proceeds to repay borrowings under the TNMP Revolving Credit
Facility and for other corporate purposes
•In 2022, PNM purchased two series of PCRBs totaling $31.5 million that were
subject to maturity with available capacity under the PNM New Mexico Credit
Facility
•In 2022, PNM entered into the 2022 Delayed Draw Term Loan and drew all $225.0
million using the proceeds to prepay the $75.0 million PNM 2021 Term Loan and
for other corporate purposes

Financing Activities



See Note 7 for additional information concerning the Company's financing
activities. PNM must obtain NMPRC approval for any financing transaction having
a maturity of more than 18 months. In addition, PNM files its annual
informational financing filing and short-term financing plan with the NMPRC. The
Company's ability to access the credit and capital markets at a reasonable cost
is largely dependent upon its:

•Ability to earn a fair return on equity
•Results of operations
•Ability to obtain required regulatory approvals
•Conditions in the financial markets
•Credit ratings

The Company is continuing to closely monitor developments and is taking steps to
mitigate supply chain risks related to COVID-19 and other impacts on the capital
markets of other macroeconomic conditions, including actions by the Federal
Reserve to address inflationary concerns or other market conditions, and
geopolitical activity. The Company currently believes it has adequate liquidity
but cannot predict the extent or duration of the COVID-19 outbreak, the effects
of any of these macroeconomic conditions on the global, national, or local
economy, including the Company's ability to access capital in the financial
markets, or on the Company's financial position, results of operations, and cash
flows.

Each of the Company's revolving credit facilities and term loans contain a
single financial covenant that requires the maintenance of a
debt-to-capitalization ratio. For the PNMR agreements, this ratio must be
maintained at less than or equal to 70%, and for the PNM and TNMP agreements,
this ratio must be maintained at less than or equal to 65%. The Company's
revolving credit facilities, term loans, and other debt agreements generally
also contain customary covenants, events of default, cross-default provisions,
and change-of-control provisions. The Company is in compliance with its debt
covenants.

As discussed in Note 7, in November 2022, PNMR entered into a distribution
agreement, pursuant to which the Company may sell, from time to time, up to an
aggregate sales price of $200.0 million of its common stock, no par value,
through sales agents under the PNMR 2022 ATM Program. Actual sales will depend
on a variety of factors to be determined by the Company, including market
conditions, the trading price of PNMR's common stock, capital needs and
determinations by the Company of the appropriate sources of funding for the
Company.

On August 5, 2022, PNM entered into a $225.0 million delayed-draw term loan
agreement (the "PNM 2022 Delayed-Draw Term Loan"). PNM initially drew $180.0
million to repay the $75.0 million PNM 2021 Term Loan ahead of its December 2022
maturity and for other corporate purposes. On September 30, 2022, PNM drew the
remaining $45.0 million and used the proceeds for general corporate purposes.
Draws on the PNM 2022 Delayed-Draw Term Loan bear interest at a variable rate,
which was 5.09% at December 31, 2022 and must be repaid on or before February 5,
2024.

Throughout 2022, PNMR entered into a series of hedging agreements totaling
$850.0 million, to hedge an equal amount of its variable rate debt, whereby it
effectively established fixed interest rates, plus a customary spread over SOFR,
through December 2023, which is subject to change if there is a change in PNMR's
credit rating. See Note 7 for additional information concerning these hedging
agreements.
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On April 27, 2022, TNMP entered into an agreement (the "TNMP 2022 Bond Purchase
Agreement") with institutional investors for the sale of $160.0 million
aggregate principal amount of two series of TNMP first mortgage bonds (the "TNMP
2022 Bonds") offered in private placement transactions. TNMP issued the first
series of $65.0 million of the TNMP 2022 Bonds on May 12, 2022, at a 4.13%
interest rate, due May 12, 2052, and the second series of $95.0 million of the
TNMP 2022 Bonds on July 28, 2022, at a 3.81% interest rate, due July 28, 2032.
The proceeds were used to repay borrowings under the TNMP Revolving Credit
Facility and for other corporate purposes.

At December 31, 2021, PNM had $104.5 million PCRBs outstanding with a mandatory
remarketing date of June 1, 2022, consisting of $36.0 million at 1.05% with a
final maturity of January 2038; $37.0 million at 2.125% with a final maturity of
June 2040; $11.5 million at 1.20% with a final maturity of June 2040; and $20.0
million at 2.45% with a final maturity of September 2042. On June 1, 2022, PNM
remarketed to new investors the $36.0 million and $37.0 million series in the
tax-exempt market at 3.00% with a mandatory put date of June 1, 2024. PNM
purchased and redeemed the remaining two series of PCRBs, totaling $31.5
million, on June 1, 2022.

On May 18, 2021, PNMR entered into a $1.0 billion delayed-draw term loan
agreement (the "PNMR 2021 Delayed-Draw Term Loan"). In 2021, PNMR drew
$900.0 million to repay and terminate existing indebtedness as discussed in Note
7. On January 24, 2022, PNMR drew the remaining $100.0 million available under
the PNMR 2021 Delayed-Draw Term Loan. On May 20, 2022, PNMR amended and restated
the PNMR 2021 Delayed-Draw Term Loan, extending its maturity to May 18, 2025.
The PNMR 2021 Delayed-Draw Term Loan provides for assignment of the term loan to
Avangrid upon completion of the Merger. Draws on the PNMR 2021 Delayed-Draw Term
Loan bear interest at a variable rate, which was 5.37% at December 31, 2022.

Capital Requirements

PNMR's total capital requirements consist of construction expenditures, cash dividend requirements for PNMR common stock and PNM preferred stock. Key activities in PNMR's current construction program include:

•Investments in transmission and distribution infrastructure •Upgrading generation resources and delivering clean energy •Purchasing nuclear fuel

Projected capital requirements for 2023-2027 are:


                                                2023         2024-2027

Total


                                                           (In millions)

Construction expenditures $ 1,027.2 $ 3,574.9 $ 4,602.1

Dividends on PNMR common stock 126.2 504.7

630.9


          Dividends on PNM preferred stock         0.5            2.1

2.6

Total capital requirements $ 1,153.9 $ 4,081.7 $ 5,235.6





The construction expenditure estimates are under continuing review and subject
to ongoing adjustment, as well as to Board review and approval. The construction
expenditures above include expenditures for PNM's capital initiative that
includes investments in transmission and distribution infrastructure to deliver
clean energy, enhance customer satisfaction, and increase grid resilience. Not
included in the table above are incremental expenditures for new customer growth
in New Mexico and Texas, and other transmission and renewable energy expansion
in New Mexico. The ability of PNMR to pay dividends on its common stock is
dependent upon the ability of PNM and TNMP to be able to pay dividends to PNMR.
See Note 6 for a discussion of regulatory and contractual restrictions on the
payment of dividends by PNM and TNMP.

During the year ended December 31, 2022, PNMR met its capital requirements and
construction expenditures through cash generated from operations, as well as its
liquidity arrangements and the borrowings discussed in Financing Activities
above.

In addition to the capital requirements for construction expenditures and
dividends, the Company has long-term debt and term loans that must be paid or
refinanced at maturity. PNM has $55.0 million of SUNs that mature in May 2023
and $130.0 million of PCRBs that have a mandatory put in June 2023. See Note 7
for additional information about the Company's long-term debt and equity
arrangements. The Company may also enter into new arrangements similar to the
existing agreements, borrow under the revolving credit facilities, or issue new
long-term debt or equity in the public or private capital markets, or a
combination of these sources. The Company has from time to time refinanced or
repurchased portions of its outstanding debt before scheduled maturity.
Depending on market conditions, the Company may refinance other debt issuances
or make additional debt repurchases in the future.


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Other Material Cash Requirements



In addition to the cash requirements for construction requirements and long-term
debt discussed above, the Company has other material cash requirements related
to long-term contractual obligations including minimum lease payments (Note 8),
coal contracts, coal mine reclamation, nuclear decommissioning, SJGS plant
decommissioning (Note 16), and pension and retiree medical contributions (Note
11).

Interest on long-term debt

Interest accrues on long-term debt agreements, at fixed rates, with the passage
of time and is typically paid semi-annually in accordance with the terms of the
debt agreement. Provided that long-term debt agreements are not prepaid or
refinanced before their expected maturities, payments of interest are expected
to total $91.0 million in 2023, $168.2 million in 2024 and 2025, $135.4 million
in 2026 and 2027, and $568.7 million in 2028 and thereafter.

Transmission service arrangements



PNM owns transmission lines that are interconnected with other utilities in
Arizona and Texas. PNM has executed long-term contracts with these other
utilities to receive service for the transmission of energy owned by PNM
utilizing the third-party transmission facilities. PNM generally receives
transmission services, which are regulated by FERC, from a third-party through
the other utilities' OATT or a specific contract. PNM has reserved firm capacity
on a long-term basis and is committed under the terms of the contracts. These
contracted obligations total $15.7 million in 2023, $21.8 million in 2024 and
2025, $13.4 million in 2026 and 2027, and $2.5 million in 2028 and thereafter.

Technology outsourcing

The Company has other technology services under long-term contracts. The obligations under these contracts total $5.4 million in 2023 and $3.4 million in 2024 and 2025.



Liquidity

PNMR's liquidity arrangements include the $300.0 million PNMR Revolving Credit
Facility, the $400.0 million PNM Revolving Credit Facility, and the $100.0
million TNMP Revolving Credit Facility. Both PNMR and PNM have exercised a
one-year extension option on their respective credit facilities extending
maturity through October 2025 with another one-year extension option available
that, if exercised, would extend the maturity through October 2026, subject to
approval by a majority of the lenders; provided that, effective November 1,
2024, the amount of the PNMR Revolving Credit Facility will adjust to $285.0
million and the amount of the PNM Revolving Credit Facility will adjust to
$380.0 million because one lender in each facility failed to agree to the
one-year extension to October 2025. PNM also has the $40.0 million PNM New
Mexico Credit Facility through May 20, 2026. TNMP has exercised a one-year
extension option on its $100.0 million credit facility, extending the maturity
to September 23, 2025, with another one-year extension option that, if
exercised, would extend the maturity to September 23, 2026, subject to approval
by a majority of the lenders. Variable interest rates under the PNMR, PNM, and
TNMP revolving credit facilities are based on SOFR. The Company believes the
terms and conditions of these facilities are consistent with those of other
investment grade revolving credit facilities in the utility industry. The
Company expects that it will be able to extend or replace these credit
facilities under similar terms and conditions prior to their expirations.

The revolving credit facilities and the PNM New Mexico Credit Facility provide
short-term borrowing capacity. The revolving credit facilities also allow
letters of credit to be issued. Letters of credit reduce the available capacity
under the facilities. The Company utilizes these credit facilities and cash
flows from operations to provide funds for both construction and operational
expenditures. The Company's business is seasonal with more revenues and cash
flows from operations being generated in the summer months. In general, the
Company relies on the credit facilities to be the initial funding source for
construction expenditures. Accordingly, borrowings under the facilities may
increase over time. Depending on market and other conditions, the Company will
periodically sell long-term debt and use the proceeds to reduce the borrowings
under the credit facilities.
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Information regarding the range of borrowings for each facility is as follows:

                                              Three Months Ended                               Year Ended December 31
                                              December 31, 2022                          2022                             2021
       Range of Borrowings                  Low               High               Low              High            Low            High
                                                                                 (In millions)
PNM:
PNM Revolving Credit Facility           $       -          $  145.9          $    -            $ 145.9          $   -          $ 40.0
PNM New Mexico Credit Facility                  -              40.0               -               40.0              -            10.0

TNMP Revolving Credit Facility                0.4              36.7               -              100.0              -            70.0
PNMR Revolving Credit Facility                9.4             100.2               -              100.2              -           134.5
PNMR Development Revolving Credit
Facility                                        -                 -               -                  -              -            40.0


At December 31, 2022, the average interest rates were 5.90% for the PNMR
Revolving Credit Facility, 5.67% for the PNM Revolving Credit Facility, 5.68%
for the PNM New Mexico Credit Facility, and 5.29% for the TNMP Revolving Credit
Facility.

The Company currently believes that its capital requirements for at least the
next twelve months can be met through internal cash generation, existing,
extended, or new credit arrangements, and access to public and private capital
markets. The Company anticipates that it will be necessary to obtain additional
long-term financing to fund its capital requirements and to balance its capital
structure during the 2023 - 2027 period. This could include new debt and/or
equity issuances. To cover the difference in the amounts and timing of internal
cash generation and cash requirements, the Company intends to use short-term
borrowings under its current and future liquidity arrangements or other
short-term loans. However, if market conditions worsen, the Company may not be
able to access the capital markets or renew credit facilities when they expire.
Should that occur, the Company would seek to improve cash flows by reducing
capital expenditures and exploring other available alternatives.

  Currently, all of the credit ratings issued by both Moody's and S&P on the
Company's debt are investment grade. On February 10, 2022, Moody's downgraded
TNMP's issuer rating from A3 to Baa1 and changed the outlook from negative to
stable. As of December 31, 2022, Moody's outlook is stable for all entities
PNMR, PNM, and TNMP and S&P outlook is positive for all entities. Investors are
cautioned that a security rating is not a recommendation to buy, sell, or hold
securities, that each rating is subject to revision or withdrawal at any time by
the rating organization, and that each rating should be evaluated independently
of any other rating.

As of February 17, 2023, ratings on the Company's securities were as follows:

                                                PNMR      PNM       TNMP
                       S&P
                       Issuer rating            BBB       BBB       BBB+
                       Senior secured debt       *         *         A
                       Senior unsecured debt    BBB-      BBB        *

                       Preferred stock           *        BB+        *
                       Moody's
                       Issuer rating            Baa3      Baa2      Baa1
                       Senior secured debt       *         *         A2
                       Senior unsecured debt    Baa3      Baa2       *

                       * Not applicable


Investors are cautioned that a security rating is not a recommendation to buy,
sell, or hold securities, that each rating is subject to revision or withdrawal
at any time by the rating organization, and that each rating should be evaluated
independently of any other rating.
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A summary of liquidity arrangements as of February 17, 2023, is as follows:



                                                                                   PNMR                       PNMR
                                                PNM              TNMP            Separate                 Consolidated
                                                                  (In millions)
Financing capacity:
Revolving Credit Facility                    $ 400.0          $ 100.0          $   300.0                $       800.0
PNM New Mexico Credit Facility                  40.0                -                  -                         40.0

Total financing capacity                     $ 440.0          $ 100.0          $   300.0                $       840.0
Amounts outstanding as of February 17, 2023:
Revolving Credit Facility                    $ 142.3          $  97.1          $    50.1                $       289.5
PNM New Mexico Credit Facility                  25.0                -                  -                         25.0

Letters of credit                                  -                -                3.1                          3.1
Total short-term debt and letters of credit    167.3             97.1               53.2                        317.6
Remaining availability as of February 17,
2023                                         $ 272.7          $   2.9          $   246.8                $       522.4

Invested cash as of February 17, 2023 $ - $ -

$     0.9                $         0.9


In addition to the above, PNMR has $30.3 million of letters of credit
outstanding under the WFB LOC Facility. The above table excludes intercompany
debt. As of February 17, 2023, PNM and TNMP had no intercompany borrowings from
PNMR. PNMR Development had $0.2 million intercompany borrowings from PNMR and
PNMR had no intercompany borrowing from PNMR Development. The remaining
availability under the revolving credit facilities at any point in time varies
based on a number of factors, including the timing of collections of accounts
receivables and payments for construction and operating expenditures.

PNMR has an automatic shelf registration that provides for the issuance of various types of debt and equity securities that expires in March 2025. PNM has a shelf registration statement for up to $650.0 million of senior unsecured notes that expires in May 2023.

Off-Balance Sheet Arrangements



PNMR has no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on its financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.

Contingent Provisions of Certain Obligations



PNMR, PNM, and TNMP have a number of debt obligations and other contractual
commitments that contain contingent provisions. Some of these, if triggered,
could affect the liquidity of the Company. In the unlikely event that the
contingent requirements were to be triggered, PNMR, PNM, or TNMP could be
required to provide security, immediately pay outstanding obligations, or be
prevented from drawing on unused capacity under certain credit agreements. The
most significant consequences resulting from these contingent requirements are
detailed in the discussion below.

The PNMR Revolving Credit Facility, PNM Revolving Credit Facility, PNM New
Mexico Credit Facility, and the TNMP Revolving Credit Facility contain "ratings
triggers," for pricing purposes only. If PNMR, PNM, or TNMP is downgraded or
upgraded by the ratings agencies, the result would be an increase or decrease in
interest cost. The PNMR facility requires that PNMR is to maintain a
debt-to-capitalization ratio of less than or equal to 70%. The
debt-to-capitalization ratio requirement remains at less than or equal to 65%
for the PNM and TNMP facilities. If these ratios were exceeded, the entity could
be required to repay all borrowings under its facility, be prevented from
borrowing on the unused capacity under the facility, and be required to provide
collateral for all outstanding letters of credit issued under the facility.

If a contingent requirement were to be triggered under the PNM facilities
resulting in an acceleration of the repayment of outstanding loans, a
cross-default provision in the remaining PVNGS lease could occur if the
accelerated amount is not paid. If a cross-default provision is triggered, the
PVNGS lessor has the ability to accelerate its rights under the lease, including
acceleration of all future lease payments. The Company's revolving credit
facilities and term loan agreements also include cross-default provisions (Note
8).

PNM's standard purchase agreement for the procurement of natural gas for its
fuel needs contains a contingent requirement that could require PNM to provide
collateral for its gas purchase obligations if the seller were to reasonably
believe that PNM was unable to fulfill its payment obligations under the
agreement.

The master agreement for the sale of electricity in the WSPP contains a
contingent requirement that could require PNM to provide collateral if the
credit ratings on its debt falls below investment grade. The WSPP agreement also
contains a contingent requirement, commonly called a "material adverse change"
provision, which could require PNM to provide collateral if a material adverse
change in its financial condition or operations were to occur. Additionally, PNM
utilizes standard derivative contracts to financially hedge and trade energy.
These agreements contain contingent requirements that
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require PNM to provide security if the credit rating on its debt falls below
investment grade. The Company believes its financing arrangements are sufficient
to meet the requirements of the contingent provisions. No conditions have
occurred that would result in any of the above contingent provisions being
implemented.

Capital Structure

The capitalization tables below include the current maturities of long-term debt, but do not include short-term debt and do not include operating lease obligations as debt.


                                                       December 31,
                PNMR                                2022           2021
                PNMR common equity                    34.9  %      36.9  %
                Preferred stock of subsidiary          0.2          0.2
                Long-term debt                        64.9         62.9
                Total capitalization                 100.0  %     100.0  %
                PNM
                PNM common equity                     48.7  %      50.9  %
                Preferred stock                        0.3          0.3
                Long-term debt                        51.0         48.8
                Total capitalization                 100.0  %     100.0  %
                TNMP
                Common equity                         50.6  %      50.6  %
                Long-term debt                        49.4         49.4
                Total capitalization                 100.0  %     100.0  %



                        OTHER ISSUES FACING THE COMPANY
Climate Change Issues

Background

For the past several years, management has identified multiple risks and
opportunities related to climate change, including potential environmental
regulation, technological innovation, and availability of fuel and water for
operations, as among the most significant risks facing the Company. Accordingly,
these risks are overseen by the Board in order to facilitate more integrated
risk and strategy oversight and planning. Board oversight includes understanding
the various challenges and opportunities presented by these risks, including the
financial consequences that might result from enacted and potential federal
and/or state regulation of GHG; plans to mitigate these risks; and the impacts
these risks may have on the Company's strategy. In addition, the Board approves
certain procurements of environmental equipment, grid modernization
technologies, and replacement resources.

Management is also responsible for assessing significant risks, developing and
executing appropriate responses, and reporting to the Board on the status of
risk activities. For example, management periodically updates the Board on the
implementation of corporate environmental policy, and the Company's
environmental management systems, including the promotion of energy efficiency
programs, and the use of renewable resources.  The Board is also informed of the
Company's practices and procedures to assess the impacts of operations on the
environment. The Board considers issues associated with climate change, the
Company's GHG exposures, and the financial consequences that might result from
enacted and potential federal and/or state regulation of GHG. Management has
published, with Board oversight, a Climate Change Report available at
http://www.pnmresources.com/about-us/sustainability-portal.aspx, that details
the Company's efforts to transition to an emissions-free generating portfolio by
2040.

As part of management's continuing effort to monitor climate-related risks and
assess opportunities, the Company has advanced its understanding of climate
change by participating in the "2 Degree Scenario" planning by participating in
the Electric Power Research Institute ("EPRI") Understanding Climate Scenarios &
Goal Setting Activities program. The program focused on characterizing and
analyzing the relationship of individual electric utility company's carbon
emissions and global temperature goals. Activities include analyzing the
scientific understanding of global emissions pathways that are consistent with
limiting global warming and providing insight to assist companies in developing
approaches to climate scenario planning. As PNM expands its sustainability
efforts, EPRI's environmental and climate analysis programs have also been
useful in gaining a better understanding of energy and environmental policy and
regulations, advanced clean energy technologies, decarbonization trends and
climate impacts. In 2022, PNM joined EPRI's Climate READi program which is a
strategic initiative convening a global collaborative of electric utilities,
thought leaders, scientific researchers and other key stakeholders to strengthen
the power sector's collective approach to managing climate risk to the power
system. The program is a three-year initiative, through work across three
concurrent workstreams, and PNM will benefit from the development of a
first-of-its-kind comprehensive framework for managing physical climate risk and
investment prioritization.

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The Company cannot anticipate or predict the potential long-term effects of climate change or climate change related regulation on its results of operations, financial position, or cash flows.

Greenhouse Gas Emissions Exposures



In 2021, GHG associated with PNM's interests in its fossil-fueled generating
plants included approximately 5.5 million metric tons of CO2, which comprises
the vast majority of PNM's GHG.

As of December 31, 2022, approximately 45% of PNM's generating capacity,
including resources owned, leased, and under PPAs, all of which is located
within the U.S., consisted of coal or gas-fired generation that produces GHG and
reflects the retirement of SJGS. These events caused the Company's output of GHG
to decrease when compared to 2017. Many factors affect the amount of GHG
emitted, including total electricity sales, plant performance, economic
dispatch, and the availability of renewable resources. For example, wind
generation performance from PNM's largest single renewable energy resource, New
Mexico Wind, varies each year as a result of highly seasonal wind patterns and
annual wind resource variability. Similarly, if PVNGS experienced prolonged
outages or if PNM's entitlement from PVNGS were reduced, PNM might be required
to utilize other power supply resources such as gas-fired generation, which
could increase GHG.

PNM has several programs underway to reduce or offset GHG from its generation
resource portfolio, thereby reducing its exposure to climate change regulation.
As described in Note 16, PNM received approval for the December 31, 2017
shutdown of SJGS Units 2 and 3 as part of its strategy to address the regional
haze requirements of the CAA. The shutdown of SJGS Units 2 and 3 resulted in a
reduction of GHG for the entire station of approximately 54% for 2018,
reflecting a reduction of 32% of GHG from the Company's owned interests in SJGS,
below 2005 levels. In 2020, PNM received authorization for a June 2022
abandonment of SJGS Units 1 and 4. On February 17, 2022, PNM notified the NMPRC
that PNM had acquired permission of the SJGS owners and coal mine to temporarily
extend operation of SJGS Unit 4 until September 30, 2022. On June 30, 2022, SJGS
Unit 1 shut down operation and on September 30, 2022, SJGS Unit 4 ceased
operation. In addition, PNM has filed the Four Corners Abandonment Application
with the NMPRC for approval to sell its ownership interest in Four Corners by
the end of 2024, although the NMPRC denied PNM's abandonment of Four Corners on
December 15, 2021. On December 22, 2021, PNM filed a Notice of Appeal with the
NM Supreme Court. On January 21, 2022, PNM filed its Statement of Issues
regarding the appeal and on March 24, 2022, PNM filed its Brief in Chief. See
additional discussion of the SJGS and Four Corners Abandonment in Note 17.
Retiring PNM's share of SJGS resulted in a GHG reduction from 2021 levels of 67%
and exiting participation in Four Corners would result in a total reduction of
approximately 88% of PNM's GHG emissions based upon 2021 GHG emissions from
generation.

At December 31, 2022, PNM owns 158 MW of solar facilities in commercial
operation. In addition, PNM purchases renewable power under long-term PPAs to
serve New Mexico retail customers, including a data center located in PNM's
service territory. At December 31, 2022, renewable energy procured under these
agreements from wind, solar-PV, and geothermal facilities aggregated to 658 MW,
230 MW, and 11 MW. These agreements currently have expiration dates beginning in
January 2035 and extending through May 2047. The NMPRC has approved PNM's
request to enter into additional PPAs for renewable energy for an additional
1,090 MW of energy from solar-PV facilities combined with 620 MW of battery
storage agreements with an anticipated 350 MW expected to come online in 2023.
The entire portfolio of replacement resources approved by the NMPRC in PNM's
SJGS Abandonment Application includes replacement of SJGS capacity with the
procurement of 550 MW of solar PPAs combined with 270 MW of battery storage
agreements. The PVNGS Leased Interest Abandonment Application approved by the
NMPRC for replacement of 114 MW of PVNGS capacity and to ensure system
reliability and load needs are met includes procurement of 300 MW of solar PPAs
combined with 300 MW of battery storage agreements. In addition, the NMPRC
issued an order that will allow PNM to service a data center for an additional
190 MW of solar PPA combined with 50 MW of battery storage and a 50 MW solar PPA
expected to be operational in 2023. Approval of these renewable energy and
battery resources should further reduce any exposure to GHG emissions risk.
These estimates are subject to change due to underlying variables, including
changes in PNM's generation portfolio, supplier's ability to meet contractual
in-service dates and complex relationships between several factors. See
additional discussion of these resources in Notes 16 and 17.

PNM also has a customer distributed solar generation program that represented
239.1 MW at December 31, 2022. PNM's distributed solar programs will generate an
estimated 478.2 GWh of emission-free solar energy available this year to offset
PNM's annual production from fossil-fueled electricity generation. PNM has
offered its customers a comprehensive portfolio of energy efficiency and load
management programs since 2007. PNM's cumulative savings from these programs was
approximately 5,924 GWh of electricity through 2021. Over the next 20 years, PNM
projects energy efficiency and load management programs will provide the
equivalent of approximately 9,500 GWh of electricity savings, which will avoid
at least 1.0 million metric tons of CO2 based upon projected emissions from
PNM's system-wide resources. These estimates are subject to change because of
the uncertainty of many of the underlying variables, including changes in PNM's
generation portfolio, demand for electricity, energy efficiency, and complex
relationships between those variables.

Because of PNM's dependence on fossil-fueled generation, legislation or
regulation that imposes a limit or cost on GHG could impact the cost at which
electricity is produced. While PNM expects to recover any such costs through
rates, the timing and outcome of proceedings for cost recovery are uncertain. In
addition, to the extent that any additional costs are
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recovered through rates, customers may reduce their usage, relocate facilities
to other areas with lower energy costs, or take other actions that ultimately
could adversely impact PNM.

Other Climate Change Risks

PNM's generating stations are located in the arid southwest. Access to water for
cooling for some of these facilities is critical to continued operations.
Forecasts for the impacts of climate change on water supply in the southwest
range from reduced precipitation to changes in the timing of precipitation. In
either case, PNM's generating facilities requiring water for cooling will need
to mitigate the impacts of climate change through adaptive measures. Current
measures employed by PNM generating stations such as air cooling, use of grey
water, improved reservoir operations, and shortage sharing arrangements with
other water users will continue to be important to sustain operations.

PNM's service areas occasionally experience periodic high winds and severe
thunderstorms. TNMP has operations in the Gulf Coast area of Texas, which
experiences periodic hurricanes and other extreme weather conditions. In
addition to potentially causing physical damage to Company-owned facilities,
which disrupts the ability to transmit and/or distribute energy, weather and
other events of nature can temporarily reduce customers' usage and demand for
energy. In addition, other events influenced by climate change, such as
wildfires, could disrupt Company operations or result in third-party claims
against the Company. PNM has enhanced its wildfire prevention efforts and
maintains a wildfire mitigation plan; however, PNM remains at risk for wildfires
outside of its control and the resulting damages in its service areas.

EPA Regulation



In April 2007, the US Supreme Court held that EPA has the authority to regulate
GHG under the CAA. This decision heightened the importance of this issue for the
energy industry.  In December 2009, EPA released its endangerment finding for
GHG from new motor vehicles, stating that the atmospheric concentrations of six
key greenhouse gases (CO2, methane, nitrous oxides, hydrofluorocarbons,
perfluorocarbons, and sulfur hexafluoride) endanger the public health and
welfare of current and future generations. In May 2010, EPA released the final
Prevention of Significant Deterioration ("PSD") and Title V Greenhouse Gas
Tailoring Rule to address GHG from stationary sources under the CAA permitting
programs. The purpose of the rule was to "tailor" the applicability of two
programs, the PSD construction permit and Title V operating permit programs, to
avoid impacting millions of small GHG emitters. On June 23, 2014, the US Supreme
Court found EPA lacked authority to "tailor" the CAA's unambiguous numerical
thresholds of 100 or 250 tons per year, and thus held EPA may not require a
source to obtain a PSD permit solely on the basis of its potential GHG. However,
the court upheld EPA's authority to apply the PSD program for GHG to "anyway"
sources - those sources that are required to comply with the PSD program for
other non-GHG pollutants.

On June 25, 2013, then President Obama announced his Climate Action Plan, which
outlined how his administration planned to cut GHG in the U.S., prepare the
country for the impacts of climate change, and lead international efforts to
combat and prepare for global warming. The plan proposed actions that would lead
to the reduction of GHG by 17% below 2005 levels by 2020.

On August 3, 2015, EPA responded to the Climate Action Plan by issuing (1) the
Carbon Pollution Standards for new, modified, and reconstructed power plants
(under Section 111(b)); and (2) the Clean Power Plan for existing power plants
(under Section 111(d)).

EPA's Carbon Pollution Standards for new sources (those constructed after
January 8, 2014) established separate standards for gas and coal-fired units
deemed achievable through the application of what EPA determined to be the BSER
demonstrated for each type of unit efficient natural gas combined cycle
technology for gas units, and partial carbon capture and sequestration for coal
units. The Clean Power Plan established numeric "emission standards" for
existing electric generating units based on emission reduction opportunities
that EPA deemed achievable using technical assumptions for three "building
blocks": efficiency improvements at coal-fired EGUs, displacement of affected
EGUs with renewable energy, and displacement of coal-fired generation with
natural gas-fired generation.

Multiple states, utilities, and trade groups filed petitions for review in the
DC Circuit to challenge both the Carbon Pollution Standards for new sources and
the Clean Power Plan for existing sources in separate cases, and the challengers
successfully petitioned the US Supreme Court for a stay of the Clean Power Plan.
However, before the DC Circuit could issue an opinion regarding either the
Carbon Pollution Standards or the Clean Power Plan, President Trump took office
and his administration asked the court to hold both cases in abeyance while the
rules were re-evaluated, which the court granted.

On June 19, 2019, EPA repealed the Clean Power Plan, promulgated the ACE Rule,
and revised the implementing regulations for all emission guidelines issued
under CAA Section 111(d). EPA set the BSER for existing coal-fired power plants
as heat rate efficiency improvements based on a range of "candidate
technologies" to be applied inside the fence-line of an individual facility. The
ACE Rule was also challenged and, on January 19, 2021, the DC Circuit issued an
opinion in American Lung Association and American Public Health Association v.
EPA, et al. finding that EPA misinterpreted the CAA when it determined that the
language of section 111 unambiguously barred consideration of emissions
reductions options that were not applied at the source. As a result, the court
vacated the ACE Rule and remanded the record to EPA for further
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consideration consistent with the court's opinion. While the D.C. Circuit
rejected the ACE Rule, it did not reinstate the Clean Power Plan. EPA filed a
motion seeking a partial stay of the mandate as to the repeal of the Clean Power
Plan, to ensure the court's order will not render effective the now out-of-date
Clean Power Plan. On February 22, 2021, the DC Circuit granted EPA's motion,
indicating that it would withhold issuance of the mandate with respect to the
repeal of the Clean Power Plan until EPA responds to the court's remand in a new
rulemaking action. EPA has indicated it is developing a proposed rule under CAA
Section 111(d) to establish guidelines for CO2 emissions from existing EGUs. EPA
anticipates issuing a proposed rule for this action in Spring 2023, and
promulgating a final rule by Summer 2024. On October 29, 2021, the US Supreme
Court granted four petitions for certiorari seeking review of the DC Circuit's
decision vacating the ACE Rule and the repeal of the Clean Power Plan. Oral
arguments in the US Supreme Court were held on February 28, 2022 and on June 30,
2022, the US Supreme Court ruled in the case. The Court held 6 to 3 that the
"generation shifting" approach in the Clean Power Plan exceeded the powers
granted to EPA by Congress, though the Court did not address the related issue
of whether Section 111 of the CAA only authorizes EPA to require measures that
can be implemented entirely within the fence line at an individual source. Of
broader significance in administrative law, the Court also expressly invoked the
major question doctrine as a basis for rejecting EPA's statutory interpretation.
The basic principle of the major question doctrine is that, if an agency seeks
to decide an issue of "vast economic or political significance," its action must
be supported by clear statutory authorization. In cases where there is no
authority, courts need not defer to the agency's statutory interpretation. The
decision sets legal precedent for future rulemakings by EPA and other federal
regulatory agencies whereby the agency's authority may be limited based upon
similar reasoning.

The litigation over the Carbon Pollution Standards remains held in abeyance, but
could be reactivated by the parties upon a determination by the court that the
Biden Administration is unlikely to finalize the revisions proposed in 2018 and
that reconsideration of the rule has concluded.

On January 20, 2021, President Biden signed an executive order "Protecting
Public Health and the Environment and Restoring Science to Tackle the Climate
Crisis," which instructs agency heads to review all Trump Administration actions
for inconsistency with the Biden Administration's policy "to listen to the
science; to improve public health and protect our environment; to ensure access
to clean air and water; to limit exposure to dangerous chemicals and pesticides;
to hold polluters accountable, including those who disproportionately harm
communities of color and low-income communities; to reduce greenhouse gas
emissions; to bolster resilience to the impacts of climate change; to restore
and expand our national treasures and monuments; and to prioritize both
environmental justice and the creation of the well-paying union jobs necessary
to deliver on these goals." Agency heads were directed to consider suspending,
revising or rescinding any action that is inconsistent with the stated policy.
Within 30 days of the executive order, agency heads submitted to the United
States Office of Management and Budget ("OMB") a preliminary list of those
actions being considered for suspension, revision or rescission that would be
completed by December 31, 2021, and would be subject to OMB review. Within 90
days of the executive order, agency heads submitted to OMB an updated list of
such actions that would be completed by December 31, 2025. EPA is reconsidering
the ACE Rule pursuant to this executive order.

Federal Legislation

President Biden has indicated that climate change is a top priority for his
administration. On April 22, 2021, at the Earth Day Summit, as part of the
U.S.'s re-entry into the Paris Agreement, President Biden unveiled the goal to
cut U.S. emissions by 50% - 52% from 2005 levels by 2030, nearly double the GHG
emissions reduction target set by the Obama Administration. The 2030 goal joins
President Biden's other climate goals which include a carbon pollution-free
power sector by 2035 and a net-zero emissions economy by no later than 2050.

On August 16, 2022, President Biden signed the IRA providing nearly $370 billion
in climate action over the next decade. The legislation is aimed at reducing
carbon emissions by investing in a variety of efforts, including tax credits for
renewables, battery storage, carbon capture, and electric vehicle sales.

State and Regional Activity



Pursuant to New Mexico law, each utility must submit an IRP to the NMPRC every
three years to evaluate renewable energy, energy efficiency, load management,
distributed generation, and conventional supply-side resources on a consistent
and comparable basis. The IRP is required to take into consideration risk and
uncertainty of fuel supply, price volatility, and costs of anticipated
environmental regulations when evaluating resource options to meet supply needs
of the utility's customers. The NMPRC requires that New Mexico utilities factor
a standardized cost of carbon emissions into their IRPs using prices ranging
between $8 and $40 per metric ton of CO2 emitted and escalating these costs by
2.5% per year. Under the NMPRC order, each utility must analyze these
standardized prices as projected operating costs. Reflecting the evolving nature
of this issue, the NMPRC order states that these prices may be changed in the
future to account for additional information or changed circumstances. Although
these prices may not reflect the costs that ultimately will be incurred, PNM is
required to use these prices for purposes of its IRP. In its 2020 filing for
Four Corners Abandonment, PNM analyzed resource portfolio plans for scenarios
that assumed Four Corners will operate through 2031 and for scenarios that
assumed PNM will exit Four Corners at the end of 2024. The key findings of the
analysis include that exiting Four Corners in 2024 (subject to regulatory
approval) would provide long-term economic benefits to PNM's customers. See Note
17.
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The ETA was signed into New Mexico state law and became effective on June 14,
2019. The ETA, among other things, requires that investor-owned utilities obtain
specified percentages of their energy from renewable and carbon-free resources.
The ETA requires utilities operating in New Mexico to have renewable portfolios
equal to 40% by 2025, 50% by 2030, 80% by 2040, and 100% zero-carbon energy by
2045. Under the ETA provisions, PNM will also be required to meet a generation
emission standard of no more than 400 lbs. of CO2 per MWh beginning in 2023 and
not more than 200 lbs. per MWh beginning in 2032. PNM takes this requirement
into account in its resource planning, and it is expected that the standards
will be met with the approved resource retirements and replacements. The ETA
provides for a transition from fossil-fuel generating resources to renewable and
other carbon-free resources by allowing investor-owned utilities to issue
securitized bonds, or "energy transition bonds," related to the retirement of
coal-fired generating facilities to qualified investors. Proceeds provided by
energy transition bonds must be used only for purposes related to providing
utility service to customers and to pay energy transition costs (as defined by
the ETA). These costs may include plant decommissioning and coal mine
reclamation costs, and other costs that have not yet been charged to customers
or disallowed by the NMPRC or by a court order. Proceeds from energy transition
bonds may also be used to fund severances for employees of the retired facility
and related coal mine and to promote economic development, education and job
training in areas impacted by the retirement of coal-fired facilities. Energy
transition bonds must be issued under a NMPRC approved financing order, are
secured by "energy transition property", are non-recourse to the issuing
utility, and are repaid by a non-bypassable charge paid by all customers of the
issuing utility. See additional discussion of the ETA in Note 16.

The ETA has a significant impact on PNM's future generation portfolio. In
compliance with the ETA, on June 15, 2022, the NMED announced a new rulemaking,
Carbon Dioxide Emission Standards for Electric Generating Facilities, to develop
carbon emission standards for new and existing electric coal-fired generating
facilities. An informal comment period for the draft proposal ran from June 15,
2022 through June 29, 2022. On July 1, 2022, NMED requested the Environmental
Improvement Board to docket the matter and set a schedule for pre-filed
technical testimony which was filed on September 14, 2022, pre-filed rebuttal
testimony which was filed on October 12, 2022, and a public hearing that was
held on October 26 and 27, 2022. On October 28, 2022, the rule was passed which
adopts new carbon emission standards for new and existing coal-fired power
plants.

In February 2020, the hearing examiners assigned to the SJGS abandonment and
financing proceedings issued recommended decisions recommending approval of
PNM's abandonment application and for the issuance of Securitized Bonds
consistent with the requirements of the ETA. On April 1, 2020, the NMPRC
approved the hearing examiners' recommendation to approve PNM's application to
retire its share of SJGS in 2022 and for the issuance of Securitized Bonds. PNM
has also requested approval of energy transition bonds for the Four Corners
Abandonment costs of that transition away from coal-fired generation. On
December 15, 2021, the NMPRC denied approval of the Four Corners Abandonment
Application and the corresponding request for issuance of securitized financing.
On December 22, 2021, PNM filed a notice of appeal with the NM Supreme Court of
the NMPRC decision to deny the application. PNM cannot predict the full impact
of the ETA or the outcome of the NM Supreme Court decision with respect to the
abandonment of Four Corners. See additional discussion of PNM's SJGS and Four
Corners Abandonment Applications in Note 17.

International Accords

The United Nations Framework Convention on Climate Change ("UNFCCC") is an
international environmental treaty that was negotiated at the 1992 United
Nations Conference on Environment and Development (informally known as the Earth
Summit) and entered into force in March 1994. The objective of the treaty is to
"stabilize greenhouse gas concentrations in the atmosphere at a level that would
prevent dangerous anthropogenic interference with the climate system." Parties
to the UNFCCC, including the U.S., have been meeting annually in Conferences of
the Parties ("COP") to assess progress in meeting the objectives of the UNFCCC.

On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The
aim of the Paris Agreement is to limit global temperature rise to two degrees
Celsius above pre-industrial levels. The agreement, which was agreed to by
approximately 200 parties, requires that countries submit INDCs. INDCs reflect
national targets and actions that arise out of national policies and elements
relating to oversight, guidance and coordination of actions to reduce emissions
by all countries. In November 2014, then President Obama announced the United
States' commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005
levels by the year 2025. The U.S. INDC was part of an overall effort by the
former administration to have the U.S. achieve economy-wide reductions of around
80% by 2050. The former administration's GHG reduction target for the electric
utility industry was a key element of its INDC and was based on EPA's GHG
regulations for new, existing, and modified and reconstructed sources at that
time. Thresholds for the number of countries necessary to ratify or accede to
the Paris Agreement and total global GHG percentage were achieved on October 5,
2016 and the Paris Agreement entered into force on November 4, 2016. On June 1,
2017, President Trump announced that the U.S. would withdraw from the Paris
Agreement. As a result of the President's notice to the United Nations, the U.S.
officially withdrew from the Paris Agreement on November 4, 2020. On January 20,
2021, President Biden signed an instrument that will allow the United States to
rejoin the Paris Agreement on Climate Change. The instrument was deposited with
the United Nations on January 21, 2021, and the United States officially became
a party to the Agreement on February 19, 2021.

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PNM has calculated GHG reductions that would result from scenarios that assume
PNM's retirement of its share of the SJGS in 2022 and would exit from Four
Corners in either 2024 or 2031 and PNM has set a goal to have a 100%
emissions-free generating portfolio by 2040. While the Company has not conducted
an independent 2 Degree Scenario analysis, our commitment to becoming 100%
emissions-free by 2040 produces a carbon emissions reduction pathway that tracks
within the ranges of climate scenario pathways that are consistent with limiting
the global warming average to less than 2 degrees Celsius. In addition, as an
investor-owned utility operating in the state of New Mexico, PNM is required to
comply with the ETA, which requires utilities' generating portfolio be 100%
carbon-free by 2045. The requirements of the ETA and the Company's goal compare
favorably to the U.S. NDC of 50% to 52% carbon emissions reduction by 2030 and
the Biden Administration's goal of net-zero carbon emissions economy-wide by
2050. On April 1, 2020, the NMPRC approved PNM's application to retire its share
of SJGS in 2022. PNM filed for abandonment of Four Corners on January 8, 2021.
See Note 17.

PNM will continue to monitor the United States' participation in the Paris Agreement and other parties' involvement in these types of international accords, but the potential impact that such accords may have on the Company cannot be determined at this time.

Assessment of Legislative/Regulatory Impacts



The Company has assessed, and continues to assess, the impacts of climate change
legislation and regulation on its business.  This assessment is ongoing and
future changes arising out of the legislative or regulatory process could impact
the assessment significantly.  PNM's assessment includes assumptions regarding
specific GHG limits; the timing of implementation of these limits; the
possibility of a market-based trading program, including the associated costs
and the availability of emission credits or allowances; the development of
emission reduction and/or renewable energy technologies; and provisions for cost
containment. Moreover, the assessment assumes various market reactions such as
the price of coal and gas and regional plant economics.  These assumptions are,
at best, preliminary and speculative. However, based upon these assumptions, the
enactment of climate change legislation or regulation could, among other things,
result in significant compliance costs, including large capital expenditures by
PNM, and could jeopardize the Company's reputation as well as the economic
viability of certain generating facilities. See Notes 16 and 17.  While PNM
currently expects the retirement of SJGS in 2022 will provide savings to
customers, the ultimate consequences of increased stakeholder scrutiny related
to climate change and environmental regulation could lead to increased costs to
customers and affect results of operations, cash flows, and financial condition
if the incurred costs are not fully recovered through regulated rates. Higher
rates could also contribute to reduced usage of electricity.  PNM's assessment
process is evolving and is too speculative at this time for a meaningful
prediction of the long-term financial impact.

Transmission Issues



At any given time, FERC has various notices of inquiry and rulemaking dockets
related to transmission issues pending. Such actions may lead to changes in FERC
administrative rules or ratemaking policy but have no time frame in which action
must be taken or a docket closed with no further action. Further, such notices
and rulemaking dockets do not apply strictly to PNM but will have industry-wide
effects in that they will apply to all FERC-regulated entities. PNM monitors and
often submits comments taking a position in such notices and rulemaking dockets
or may join in larger group responses. PNM often cannot determine the full
impact of a proposed rule and policy change until the final determination is
made by FERC and PNM is unable to predict the outcome of these matters.

Financial Reform Legislation



The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank
Reform Act"), enacted in July 2010, includes provisions that will require
certain over-the-counter derivatives, or swaps, to be centrally cleared and
executed through an exchange or other approved trading facility. It also
includes provisions related to swap transaction reporting and record keeping and
may impose margin requirements on swaps that are not centrally cleared. The U.S.
Commodity Futures Trading Commission ("CFTC") has published final rules defining
several key terms related to the act and has set compliance dates for various
types of market participants. The Dodd-Frank Reform Act provides exemptions from
certain requirements, including an exception to the mandatory clearing and swap
facility execution requirements for commercial end-users that use swaps to hedge
or mitigate commercial risk.  PNM has elected the end-user exception to the
mandatory clearing requirement. PNM expects to be in compliance with the
Dodd-Frank Reform Act and related rules within the time frames required by the
CFTC. However, as a result of implementing and complying with the Dodd-Frank
Reform Act and related rules, PNM's swap activities could be subject to
increased costs, including from higher margin requirements. At this time, PNM
cannot predict the ultimate impact the Dodd-Frank Reform Act may have on PNM's
financial condition, results of operations, cash flows, or liquidity.

Other Matters

See Notes 16 and 17 for a discussion of commitments and contingencies and rate and regulatory matters.


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                   CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires
management to apply accounting policies and to make estimates and judgments that
best provide the framework to report the results of operations and financial
position for PNMR, PNM, and TNMP. As a result, there exists the likelihood that
materially different amounts would be reported under different conditions or
using different assumptions. Management has identified the following accounting
policies that it deems critical to the portrayal of the financial condition and
results of operations and that involve significant subjectivity. The following
discussion provides information on the processes utilized by management in
making judgments and assumptions as they apply to its critical accounting
policies.

Regulatory Accounting



The Company is subject to the provisions of GAAP for rate-regulated enterprises
and records assets and liabilities resulting from the effects of the ratemaking
process, which would not be recorded under GAAP for non-regulated entities.
Additional information concerning regulatory assets and liabilities is contained
in Note 13.

The Company continually evaluates the probability that regulatory assets and
liabilities will impact future rates and makes various assumptions in those
analyses. The expectations of future rate impacts are generally based on orders
issued by regulatory commissions or historical experience, as well as
discussions with applicable regulatory authorities. If future recovery or refund
ceases to be probable, the Company would be required to write-off the portion
that is not recoverable or refundable in current period earnings.

The Company has made adjustments to regulatory assets and liabilities that
affected its results of operations in the past due to changes in various factors
and conditions impacting future cost recovery. Based on its current evaluation,
the Company believes that future recovery of its regulatory assets is probable.

Impairments



Tangible long-lived assets are evaluated for impairment when events and
circumstances indicate that the assets might be impaired. These potential
impairment indicators include management's assessment of fluctuating market
conditions as a result of planned and scheduled customer purchase commitments;
future market penetration; changing environmental requirements; fluctuating
market prices resulting from factors including changing fuel costs and other
economic conditions; long-term weather patterns; and other market trends. The
amount of impairment recognized, if any, is the difference between the fair
value of the asset and the carrying value of the asset and would reduce both the
asset and current period earnings. Variations in the assessment of potential
impairment or in the assumptions used to calculate an impairment could result in
different outcomes, which could lead to significant effects on the Consolidated
Financial Statements. See Notes 16 and 17.

Goodwill is evaluated for impairment at least annually, or more frequently if
events and circumstances indicate that the goodwill might be impaired.
Impairment testing may be performed based on either a qualitative analysis or
quantitative analysis. Note 19 contains information on the impairment testing
performed by the Company on goodwill. For 2022, the Company utilized a
qualitative analysis for both the PNM and TNMP reporting units. No impairments
were indicated in the Company's annual goodwill testing, which was performed as
of April 1, 2022. Since the annual evaluation, there have been no indications
that the fair values of the reporting units with recorded goodwill have
decreased below the carrying values. The annual testing was based on certain
critical estimates and assumptions. Changes in the estimates or the use of
different assumptions could affect the determination of fair value and the
conclusion of impairment for each reporting unit.

Application of the qualitative goodwill impairment test requires evaluating
various events and circumstances to determine whether it is not more likely than
not that the fair value of a reporting unit is less than its carrying amount. As
a part of the Company's goodwill qualitative testing process for a reporting
unit, various factors that are specific to that reporting unit as well as
industry and macroeconomic factors are evaluated in order to determine whether
these factors are reasonably likely to have a material impact on the fair value
of the reporting unit. Examples of the factors that were considered in the
qualitative testing of the goodwill include the results of the most recent
quantitative impairment test, current and long-term forecasted financial
results, regulatory environment, credit rating, changes in the interest rate
environment, and operating strategy for the reporting unit.

Based on the analysis performed for the PNM and TNMP reporting units in 2022,
the Company concluded that there were no changes that were reasonably likely to
cause the fair value of the reporting units to be less than their carrying value
and determined that there was no impairment of goodwill. Although the Company
believes all relevant factors were considered in the qualitative impairment
analysis to reach the conclusion that goodwill is not impaired, significant
changes in any one of the assumptions could produce a significantly different
result potentially leading to the recording of an impairment that could have
significant impacts on the results of operations and financial position of the
Company.

Decommissioning and Reclamation Costs



PNM is only required to recognize and measure decommissioning liabilities for
tangible long-lived assets for which a legal obligation exists. Accounting for
decommissioning costs for nuclear and fossil-fuel generation involves
significant estimates related to costs to be incurred many years in the future
after plant closure. Decommissioning costs are based on site-specific estimates,
which are updated periodically and involve numerous judgments and assumptions,
including estimates of
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future decommissioning costs at current price levels, inflation rates, and
discount rates. Changes in these estimates could significantly impact PNMR's and
PNM's financial position, results of operations, and cash flows. Nuclear
decommissioning costs are based on estimates of the costs for removing all
radioactive and other structures at PVNGS. AROs, including nuclear
decommissioning costs, are discussed in Note 15. Nuclear decommissioning costs
represent approximately 68% of PNM's ARO liability. A 10% increase in the
estimates of future decommissioning costs at current price levels would have
increased the ARO liability by $10.0 million at December 31, 2022. PNM
recognizes an expense and a corresponding liability for ultimate decommissioning
of PVNGS. See Note 17 for information concerning NMPRC's order to address the
recovery of decommissioning costs in a future proceeding.

In connection with both the SJGS coal agreement and the Four Corners fuel
agreement, the owners and former owners are required to reimburse the mining
companies for the cost of contemporaneous reclamation, as well as the costs for
final reclamation of the coal mines.  The reclamation costs are based on
periodic site-specific studies that estimate the costs to be incurred in the
future and are dependent upon numerous assumptions, including estimates of
future reclamation costs at current price levels, inflation rates, and discount
rates. A 10% increase in the estimates of future reclamation costs at current
price levels would have increased the mine reclamation liability by $10.2
million at December 31, 2022. PNM considers the contemporaneous reclamation
costs part of the cost of its delivered coal costs.  The NMPRC has capped the
amount that can be collected from ratepayers for final reclamation of the
surface mines. If future estimates increase the liability for surface mine
reclamation, the excess would be expensed at that time. See Note 16 for
discussion of reclamation costs.

Pension and Other Postretirement Benefits



The Company maintains qualified defined benefit pension plans, postretirement
benefit plans providing medical and dental benefits, and executive retirement
programs. The net periodic benefit cost or income and the calculation of the
projected benefit obligations are recognized in the Company's financial
statements and depend on expected investment performance, the level of
contributions made to the plans, and employee demographics. These calculations
require the use of a number of actuarial assumptions and estimates. The most
critical of the actuarial assumptions are the expected long-term rate of return,
the discount rate, and projected health care cost trend rates. The Company
reviews and evaluates its actuarial assumptions annually and adjusts them as
necessary. Changes in the pension and OPEB assets and liabilities associated
with these factors are not immediately recognized as net periodic benefit cost
or income in results of operations, but are recognized in future years,
generally, over the remaining life of the plan. However, these factors could
have a significant impact on the financial position of the Company. Note 11
contains additional information about pension and OPEB obligations, including
assumptions utilized in the calculations and impacts of changes in certain of
those assumptions.

Accounting for Contingencies

The financial results of the Company may be affected by judgments and estimates
related to loss contingencies. Contingencies related to litigation and claims,
as well as environmental and regulatory matters, also require the use of
significant judgment and estimation. The Company attempts to take into account
all known factors regarding the future outcome of contingent events and records
an accrual for any contingent loss events that are both probable of occurring
and can be reasonably estimated based upon current available information.
However, the actual outcomes can vary from any amounts accrued which could have
a material effect on the results of operations and financial position of the
Company. See Note 16 and Note 17.

Income Taxes



The Company's income tax expense and related balance sheet amounts involve
significant judgment and use of estimates. Amounts of deferred income tax assets
and liabilities, current and noncurrent accruals, and determination of uncertain
tax positions involve judgment and estimates related to timing and probability
of the recognition of income and deductions by taxing authorities. In addition,
some temporary differences are accorded flow-through treatment by the Company's
regulators and impact the Company's effective tax rate. In assessing the
likelihood of the realization of deferred tax assets, management considers the
estimated amount and character of future taxable income. Significant changes in
these judgments and estimates could have a material impact on the results of
operations and financial position of the Company. Actual income taxes could vary
from estimated amounts due to the future impacts of various items, including
changes in income tax laws, the Company's forecasted financial condition and
results of operations in future periods, and the final review from taxing
authorities. See Note 18.

                                  MD&A FOR PNM
                             RESULTS OF OPERATIONS

PNM operates in only one reportable segment, as presented above in Results of
Operations for PNMR.

                                 MD&A FOR TNMP
                             RESULTS OF OPERATIONS

TNMP operates in only one reportable segment, as presented above in Results of Operations for PNMR.




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Latest news about PNM Resources, Inc.

Barclays Adjusts Price Target on PNM Resources to $43 From $40, Keeps Overweight Rating	Apr. 15	MT
PNM Resources, Inc. Enters into a Twelfth Amendment to and Restatement of Credit Agreement Amending and Restating its $300.0 Million Revolving Credit Agreement	Apr. 01	CI
PNM Resources, Inc. Announces Retirement of Patrick Apodaca as Senior Vice President and General Counsel	Mar. 27	CI
Iberdrola Focuses Investments on Networks, Expects Raised Shareholder Payouts -- Update	Mar. 21	DJ
Spain's Iberdrola set to build on grid power as renewables appeal wanes	Mar. 21	RE
Iberdrola Makes $2.5 Billion Bid to Take Full Ownership of Avangrid -- Update	Mar. 07	DJ
PNM Resources to Affirm 2024 Earnings Outlook	Mar. 04	MT
PNM Resources Keeps Quarterly Dividend at $0.3875 per Share, Payable May 10 to Investors of Record April 26	Mar. 01	MT
PNM Resources, Inc. Declares Regular Quarterly Dividend, Payable May 10, 2024	Mar. 01	CI
Sector Update: Energy Stocks Slump in Late Tuesday Afternoon Trading	Feb. 13	MT
Sector Update: Energy Stocks Decline in Tuesday Afternoon Trading	Feb. 13	MT
PNM Resources to Affirm 2024 Earnings Guidance	Feb. 13	MT
Barclays Initiates PNM Resources at Overweight Rating With $40 Price Target	Feb. 08	MT
Transcript : PNM Resources, Inc., 2023 Earnings Call, Feb 06, 2024	Feb. 06
PNM Resources' Q4 Non-GAAP Earnings Rise; 2024 Guidance Issued	Feb. 06	MT
PNM Resources, Inc. Reports Earnings Results for the Full Year Ended December 31, 2023	Feb. 06	CI
PNM Resources, Inc. Provides Consolidated Earnings Guidance for the Year 2024	Feb. 06	CI
RBC Cuts Price Target on PNM Resources to $43 From $50.30, Keeps Sector Perform Rating	Jan. 05	MT
News Highlights : Top Energy News of the Day	Jan. 05	DJ
North American Morning Briefing : S&P 500 Futures -2-	Jan. 04	DJ
Utilities Gain on Defensive Bias -- Utilities Roundup	Jan. 03	DJ
Mizuho Securities Downgrades PNM Resources to Neutral From Buy, Price Target is $41	Jan. 03	MT
Wells Fargo Upgrades PNM Resources to Overweight From Equalweight, Price Target is $44	Jan. 03	MT
News Highlights : Top Energy News of the Day	Jan. 03	DJ
US Equity Markets Close Lower Tuesday Ahead of Fed Meeting Minutes	Jan. 02	MT

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Company Profile

PNM Resources, Inc. is a holding company, which provides electric service to consumers in Texas-New Mexico Power Companyâs (TNMP). service territories. The Company with its two regulated utilities serving approximately 824,000 residential, commercial, and industrial customers and end users of electricity in New Mexico and Texas. The Companyâs electric utilities are Public Service Company of New Mexico (PNM), and TNMP. PNM is an electric utility, which provides electric generation, transmission, and distribution service to its rate-regulated customers. PNMâs retail electric service territory covers an area of north-central New Mexico, including the cities of Albuquerque, Rio Rancho and Santa Fe, and certain areas of southern New Mexico. Other services provided by PNM include wholesale transmission services to third parties. Other services provided by PNM include wholesale transmission services to third parties. TNMP provides transmission and distribution services in Texas.

Sector

Electric Utilities

Calendar

2024-04-29 - Q1 2024 Earnings Release

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Ratings for PNM Resources, Inc.

Trading Rating

Investor Rating

ESG Refinitiv

B-

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Analysts' Consensus

Sell

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Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

36.12 USD

Average target price

43.43 USD

Spread / Average Target

+20.23%

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PNM RESOURCES, INC.	-12.00%	3.26B
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GE VERNOVA INC.	0.00%	37.34B

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PNM Resources, Inc.

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US69349H1077

Electric Utilities

PUBLIC SERVICE CO OF NEW MEXICO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

EPS Revisions