ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations for TXNM 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 TXNM, 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 2023 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 TXNM
EXECUTIVE SUMMARY
Overview
TXNM, formerly PNMR, is a holding company with two regulated electric utilities, PNM and TNMP, serving approximately 834,000 residential, commercial, and industrial customers New Mexico and Texas. PNMR was incorporated in the State of New Mexico in 2000 before it amended its Articles of Incorporation and changed its name to TXNM in 2024. Its common stock trades on the New York Stock Exchange under the symbol TXNM.
Recent Developments
System Resiliency Plan (“SRP”)
In 2023, the Texas Legislature enacted HB 2555, permitting an electric utility to seek approval of, and cost recovery for, a system resiliency plan. On August 28, 2024, TNMP filed its first SRP with the PUCT designed to benefit customers through enhanced resiliency of its distribution system, as intended under HB 2555. The SRP includes approximately $600 million of capital investments and approximately $151 million of other related costs over three years. Investments in the SRP are prioritized based on customer benefit, physical protection of infrastructure, foundational investments in operational and cybersecurity technologies and wildfire risk reduction and are focused on lower-performing areas in the context of reliability. The SRP is subject to PUCT approval over 180 days as stated in Texas legislation.
On December 11, 2024, TNMP filed an unopposed settlement with the PUCT. The settlement includes $565.8 million of capital investments over 2025 through 2027, reflecting 94% of TNMP’s proposed plan investments. The settlement also encompasses $128.2 million of operations and maintenance expenses associated with several programs, including vegetation management and wildfire mitigation.
2025 Rate Request
On June 14, 2024, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposes an increase of $174.3 million in retail revenues which is comprised of a $92.2 million increase in base rates and a $82.1 million increase in revenues collected under PNM’s FPPAC and reflects an ROE of 10.45%. The proposed base rate changes would be implemented in two phases, with the first phase effective July 1, 2025 and the second phase effective January 1, 2026. The requested changes reflect recovery of needed investments across distribution, transmission, and generation facilities to ensure safe reliable delivery of electricity, increased operations and maintenance expenses to meet operational needs including wildfire risk mitigation, necessary costs to service customers associated with ESAs previously approved by the NMPRC, and adjustments to Four Corners depreciation rates to recover remaining plant investments through July 2031, the expected abandonment date of the facility.
On November 26, 2024, PNM filed its unopposed comprehensive stipulation with the NMPRC. Key components include an increase of $105.0 million in retail revenues with the first phase effective July 1, 2025, and the second phase effective April 1, 2026, reflecting an ROE of 9.45%.
Vision, Values and Business Objectives
TXNM’s vision is to create a clean and bright energy future while fulfilling its purpose to work together with customers and communities to meet their energy needs. TXNM’s core values of Safety, Caring and Integrity are the foundation for the Company’s business objectives focused on safety excellence and customer satisfaction, including reliability. To reach these objectives, the Company is committed to:
•Preparing our workforce with the knowledge and skills to thrive in a customer-focused world
•Purposefully delivering an intentional customer experience that exceeds our evolving customer and stakeholder expectations
•Enabling an environmentally sustainable future and deploying technologically advanced solutions that empower and benefit customers
•Demonstrating the relationship between customer excellence and our dedicated focus on financial strength
Meeting the business objectives above will drive key financial results:
•Earning authorized returns on regulated businesses
•Delivering at or above industry-average long-term earnings growth, with a dividend payout ratio between 50 and 60 percent of earnings
•Maintaining investment grade credit ratings
Business Focus
To achieve its business objectives, focus is directed in key areas: Safe, Reliable and Affordable Power; Utility Plant Investments; Superior Customer Experience; Environmentally Responsible Power; and Stakeholder 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 TXNM’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. TXNM 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”.
TXNM 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.
TXNM 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.
PNM participates in the EIM, 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. The NMPRC approved collection of PNM’s regulatory asset to recover the initial capital investments and implementation and ongoing costs necessary to participate in the EIM in the 2024 Rate Change final order. PNM passes the cost savings through to customers under PNM’s FPPAC. PNM also plans to join the EDAM, which is a voluntary day-ahead regional market that expands on CAISO’s EIM market, as early as 2027.
PNM joined the WRAP in April 2023 to bolster PNM’s preparations for times of critical need. WRAP is a first-of-its-kind program in the West that adds a region-wide coordination between power providers for assessing and addressing resource adequacy. This step helps ensure regional resource availability is visible and coordinated in the event PNM customers are critically impacted by a resource emergency. WRAP is currently in the non-binding phases of the program, which is expected to continue through the summer of 2027.
On May 1, 2024, PNM filed its updated WMP and its PSPS Plan with the NMPRC. The plans enhance Company wildfire prevention efforts and identify conditions for preventive shutoffs. PNM’s WMP addresses the increasing severity and frequency of extreme weather events and increasing wildfire risk and is focused on situational awareness, field personnel safety practices and operational wildfire mitigation strategies to prevent the accidental ignition of wildfires. PNM’s PSPS Plan is designed to proactively de-energize electrical facilities in identified areas of extreme wildfire risk under certain conditions to reduce the potential of those electrical facilities becoming a wildfire ignition source or contributing to the spread of wildfires.
On June 6, 2024, TNMP filed its WMP with the PUCT in response to recent wildfire events impacting the electric utility industry and the customers it serves. TNMP’s WMP establishes a wildfire risk awareness and mitigation strategy that becomes part of a fire safe culture across the Company. The WMP increases grid awareness and serves as a blueprint to help reduce the risk of the accidental ignition of wildfires. The WMP also provides new strategies, technologies, and operating guidelines to enhance grid resiliency and public safety.
Utility Plant Investments
During the 2023 and 2024 periods, PNM and TNMP together invested $2.3 billion in utility plant, including transmission and distribution systems, substations, power plants, and nuclear fuel. Investment plans emphasize new investments in transmission and distribution infrastructure to support growing demand with grid reliability and resilience and to deliver clean energy. The Company has been improving the diversification of its rate base among regulatory jurisdictions, moving TNMP and FERC transmission rate base to over half of the consolidated rate base.
Investments at TNMP support the continued high growth across each region of its service territory. Economic growth across Texas continues to push the demands on TNMP’s system to new levels, including a new system peak in December 2024. Additionally, the Texas legislature in 2023 passed a series of bills aimed at encouraging investments to enhance grid reliability and resilience. The PUCT has developed, and continues to develop, rules associated with the new legislation. TNMP will submit filings for investments and recovery in accordance with these new rules in addition to the existing rate recovery mechanisms.
PNM has also experienced growing demand, including a new system peak recorded in 2023. PNM investments 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. New Mexico’s clean energy future depends on a reliable, resilient, secure grid to deliver an evolving mix of energy resources to customers. In addition, projects included in the approved Grid Modernization Application improve customers’ ability to customize their use of energy and modernize PNM’s electric grid through infrastructure and technology improvements. Under New Mexico legislation for grid modernization, the approved investments will be recovered under a rate rider.
At PNM, an increase in transmission investments also supports growing transmission demands across the system and are recovered through an annual FERC formula rate mechanism based on a usage-based system allocation.
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.
Superior Customer Experience
The Company strives to deliver a superior customer experience. 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 2024, TNMP made significant strides in improving customer satisfaction related to power outages by providing a more user-friendly experience on TNMP’s outage map information system, making it easier for customers to access real-time outage information. In addition, TNMP introduced a new system that allows customers to receive outage alerts through multiple communication channels to enhance transparency and to ensure customers stay informed during outages. In September 2024, TNMP sent employees to assist in restoring power to those communities impacted by Hurricane Helene and in January 2025 TNMP was announced as an Edison Electric Institute (“EEI”), an association representing all US investor-owned electric companies, Emergency Response Award recipient. The Emergency Response Awards recognize recovery and assistance efforts of electric companies following service disruptions caused by extreme weather or other natural events.
In 2024, PNM continues in-person engagements with residential and business customers through customer advisory councils. These engagements have helped PNM to build and improve customer relationships and have provided PNM with valuable customer insights to gauge customer interest levels towards programs and services to be highly customer centric. Additionally, PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including enhanced digital payment 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 2024, PNM and the broader electric utility industry continued to experience ongoing declines in customer satisfaction as measured by J.D. Power. Despite this industry-wide trend, PNM achieved modest improvements in its overall JD Power performance ranking among investor-owned utilities. These gains reflect PNM’s focused efforts to enhance the customer journey by addressing key pain points and delivering a more seamless experience.
PNM continues to focus on addressing energy affordability by promoting participation in utility programs among households with high energy burden to offset high bills. PNM has implemented efforts to increase participation in low-income energy efficiency programs, providing additional aid through the PNM Good Neighbor Fund, partnering with state agencies to make it easier to access funding, improving access to clean energy through expanded outreach and communication, and the implementation of low-income transportation electrification programs. As a result of these communication efforts, 3,665 families in need have received emergency assistance through the PNM Good Neighbor Fund for the year ended December 31, 2024.
Environmentally Responsible Power
TXNM 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% carbon-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
TXNM’s corporate website (www.txnmenergy.com) includes a dedicated section providing key environmental and other information related to PNM’s and TNMP’s operations, including information that collectively demonstrates the Company’s commitment to sustainability. This information highlights plans for PNM to be coal-free no later than 2031 and to achieve a carbon-free generating portfolio by 2040.
PNM has a Chief Sustainability Officer 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 agencies and stakeholder groups on environmental matters. In addition, the role leads environmental justice work that considers environmental and social impacts of PNM programs and projects on affected communities.
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.
PNM has announced an agreement partnering with Sandia National Laboratories in research and development projects focused on energy resiliency, clean energy, and national security. The partnership demonstrates TXNM’s commitment to sustainability and its support of projects that further its carbon-free generation goals and plans for a reliable, resilient, and secure grid to deliver New Mexico’s clean energy future. PNM also 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’s Time-of-Day pilot approved in the 2024 Rate Change final order incentivizes 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 in 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 October 2024, PNM was selected for two grants from the DOE. The first grant supports the design, construction, and operation of a Virtual Power Plant (“VPP”) that will enable PNM to leverage small, intermittent energy resources on its distribution system to enhance grid management. The second grant was in the Advanced Reliability and Resiliency Operations for Wind and Solar (“ARROWS”) program, in which GridBeyond Ltd, as principal grantee, will receive $3.9 million in DOE funding and PNM will provide the in-kind, $3.9 million local match. The program aims to demonstrate the provision of grid services from utility-owned solar and storage assets using GridBeyond Ltd artificial intelligence (“AI”) powered distributed energy resource management system technology. The AI-powered system will be used to forecast, optimize, and control resources such as wind, solar, and batteries on PNM’s power grid in real-time, and enable GridBeyond Ltd and other partners to collect, analyze, and quantify the overall energy savings that PNM is able to provide with these resources.
PNM also participates in various grants including a joint submission with Sandia National Laboratories on a project application to DOE for the Flexible and Innovative Transformer Technologies program, where PNM is anticipating matching expected costs incurred by Sandia National Laboratories of $0.4 million, and a $2.0 million grant awarded to the National Renewable Energy Laboratory through DOE, for a project called Protection of Inverter Dependent Transmission Systems.
The Inflation Reduction Act of 2022 (the “IRA”) provides benefits for TXNM 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 reduce the cost of renewable investments. In addition, the IRA includes a new production tax credit for existing nuclear facilities that may create an added benefit for PNM’s ownership in the carbon-free PVNGS. Other IRA provisions encourage transportation electrification with new electric vehicle credits and added incentives for vehicle charging infrastructure.
Electric Vehicles
TXNM is building upon its goal of 100% carbon-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 sustainability. 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.
To demonstrate TXNM’s commitment to increase the electrification of vehicles in its service territory, PNM implemented its first TEP in 2022 and received approval of its 2024-2026 TEP in 2024. PNM has launched new transportation electrification offerings that supports customer adoption of electric vehicles by addressing barriers to adoption. PNM’s TEP program budget provides financial support to residential and non-residential customers towards the purchase of EV chargers and/or site make-ready costs, as well as customer education and outreach on EV-specific electricity rates to encourage charging during off-peak periods. More than 25% of the program budget is dedicated to low- and moderate-income customers to plan for an equitable transition to an electrified transportation sector.
PNM participates in 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. To support this initiative, PNM’s TEP program includes the installation of a charging network along major roadways in New Mexico.
Renewable Energy and Energy Storage
PNM’s utility-owned solar and energy storage capacity, as well as solar, energy storage, wind, and geothermal procurements in service as of December 31, 2024, have a total net generation capacity of 2,779 MW. In addition to PNM’s owned and third-party contracted solar facilities, PNM also has a customer distributed solar generation program that represented 308.5 MW at December 31, 2024. The NMPRC has approved plans for PNM to procure energy and RECs from additional resources to serve retail customers and a data center located in PNM’s service territory. PNM’s approved resource plans have a generation capacity of 910 MW and are expected to be in service by summer of 2026. This includes approximately 310 MW of capacity under the Community Solar Act which will allow PNM to provide customers the option of accessing solar energy. In addition, PNM has filed an application with the NMPRC seeking approval of resources to be available for the 2028 summer peak, which are necessary for PNM to meet forecasted peak load requirements to serve its customers and to continue progress towards a carbon-free generating portfolio. For additional discussion of the ETA, the 2026 Resource Application, and the 2028 Resource Application see Notes 16 and 17.
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 2024, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs is estimated to be 86 GWh. This is equivalent to the annual consumption of approximately 11,891 homes in PNM’s service territory. PNM’s load management and annual energy efficiency programs also help lower peak demand requirements. In 2024, TNMP’s incremental energy saved as a result of new participation in TNMP’s energy efficiency programs is estimated to be approximately 16 GWh. This is equivalent to the annual consumption of approximately 2,211 homes’ electricity use in TNMP’s service territory using a national average avoided emissions rate. TNMP’s high-performance homes residential new construction energy efficiency program has earned the Energy Star Partner of the Year award for 8 years, including 6 years receiving the Sustained Excellence Award, recognizing long-term commitment to fighting climate change and protecting public health through energy efficiency. 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% carbon-free generation by 2040, it expects that more significant water savings will be gained. Shutting down SJGS in 2022 and Four Corners in 2031 will allow the Company to reach our goals for reduced freshwater use at 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 2024, 21 of the Company’s 22 facilities met or exceeded the solid waste diversion goal of a 65% diversion rate. The Company expects to continue to do well in this area in the future.
Stakeholder and Community Engagement
The Company is committed to fostering relationships with its customers, stakeholders, and communities. 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. 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.
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. TNMP’s website provides information on customized energy efficiency programs and TNMP rates, in addition to other community outreach information. 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 a carbon-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, TXNM’s corporate website includes a dedicated section providing additional information regarding the Company’s commitment to sustainability.
TXNM has a long tradition of supporting the communities that it serves in New Mexico and Texas and is committed to fostering positive relationships with stakeholders. During the three years ended December 31, 2024, corporate giving contributed $9.0 million to civic, educational, environmental, tribal communities, low income, and economic development organizations. Additionally, the PNM Resources Foundation (the “Foundation”) has provided an annual average of $1.3 million in grant funding over the past three years across New Mexico and Texas. Throughout 2024, the Foundation has focused on grants for nontraditional pathways to education and grants for the environment. These grants help nonprofits innovate or sustain programs to grow and develop their mission, develop and implement environmental programs, and provide educational opportunities. The Foundation continues to expand its matching and volunteer grant programs and the annual amount of matching donations available to each of its employees. The Foundation has also approved an increase to the amount awarded to employees, through the employee crisis management fund, who have been affected by the wildfires, floods and hurricanes. In response to the South Fork and Salt wildfires that have caused devastation in the Ruidoso and Mescalero Apache Tribe communities, PNM and the Foundation have donated to the Ruidoso Fire Emergency Action Fund, hosted by the Community Foundation of Southern New Mexico and to the Mescalero Apache Tribe Tribal Relief Fund. PNM is also collaborating with community foundations to help support the effort and direct funds where they are most needed. To support our team members impacted by Hurricane Beryl, the Foundation has increased the employee crisis fund, which is available to help our employees with financial support for catastrophic emergencies and basic living needs during times of crises.
TXNM 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 community needs, TXNM partners with other corporate funders to support nonprofits and small businesses. TXNM also collaborates on community projects, low-income customer assistance programs, and employee volunteerism.
PNM stands out as one of the few investor-owned utilities dedicated to operating a tribal relations office, which is focused on serving and collaborating with 18 of the 23 sovereign nations in New Mexico and the Southwest. PNM created the Navajo Nation Workforce Training Scholarship Program to provide support for Navajo tribal members and to encourage 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 and Endowment to invest in higher education for Native American Indian students, and supported the development of an entrepreneur complex located in Albuquerque and operated by the Indian Pueblo Cultural Center. PNM continues to partner with the Navajo Nation in the Light up Navajo project, piloted in 2019 and modeled as a mutual aid project to connect Navajo homes without electricity to the power grid. PNM is one of 44 utilities across 16 states to participate in improving the quality of life for families by bringing electricity to over 700 homes since inception of the project. PNM has also partnered with New Mexico universities to enhance intern programs and developed a business coalition model to drive economic development through intern partnerships. PNM continues to partner with key nonprofit organizations to initiate funding and action for programs focused on diversity, equity and inclusion.
Employee volunteers are the lifeblood of a healthy corporate culture. Community giving through volunteers’ time and effort is at the heart of employee engagement. Throughout 2024, the Company held large-scale volunteer events, working alongside nonprofits, schools, and vulnerable communities throughout New Mexico and Texas. More than 600 employees in both states participated in the annual “Day of Service”, a workday event encouraging employee volunteerism and serving more than 50 organizations. Throughout the year, employees volunteer their time generously through independent volunteer activities and board participation. Employees strengthen community resilience by giving more than 6,000 volunteer hours each year to support the health, safety, and well-being of diverse communities.
Financial Focus
Earning Authorized Returns on Regulated Businesses
TXNM’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 TXNM to achieve its financial objectives. TXNM 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.
State Regulation and Legislation
TNMP
In the 2023 Texas Legislative session several bills were passed to support utility reliability and resiliency by encouraging and protecting utility infrastructure investments. Amongst the bills passed was DCRF legislation that adds a second filing per year and shortens the regulatory timeframe for the proceedings. Under the new legislation, TNMP filed its SRP in August 2024 and has filed an unopposed settlement with the PUCT. In addition, there is a bill related to temporary mobile generation which are power generating resources that can be positioned to temporarily provide electricity to consumers during an emergency. In December 2024, the PUCT adopted rules to protect consumers by introducing new requirements for utilities that lease and deploy mobile generation facilities. Another bill directs ERCOT to develop reliability plans for the Permian Basin which could result in the need for additional investments in the West Texas service territory. Additionally, the Damaging Critical Infrastructure Bill helps protect TNMP’s investments in response to criminal offenses damaging critical infrastructure facilities. These pieces of legislation demonstrate that Texas continues to encourage utility investment and prioritizes timely rate recovery. TNMP will look to prioritize investments aligned with these measures that improve the quality of service for current and future customers.
The regulatory framework in Texas strongly encourages investments into the grid by providing timely recovery through rate mechanisms outside of general rate cases. 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. TNMP also has approximately 277,000 advanced meters across its service territory, the costs of which are being recovered through base rates.
PNM
The Energy Transition Act (“ETA”)
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 related to the retirement of certain coal-fired generating facilities to qualified investors. See additional discussion of the ETA in Notes 16 and 17 and the issuance of the ETBC I Securitized Bonds in Note 7.
Grid Modernization Plan
On October 17, 2024, the NMPRC issued a final order approving PNM’s Grid Modernization Plan which will 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 plan to modernize its electricity grid through infrastructure and technology improvements also increases the efficiency, reliability, resilience, and security of PNM’s electric system. The approved plan includes grid modernization investments of approximately $344 million for the first six years of a broader 11-year strategy. The approved Grid Modernization Rider would recover capital costs, operating expenses, and taxes associated with the investments included in the Grid Modernization Plan. See Note 17.
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 three years of that period. On December 15, 2023, PNM filed its 2023 IRP with a continued focus on a carbon-free energy system by 2040. The plan highlights the need for the significant sustained addition of resources over the next two decades, replacing retiring or expiring capacity, meeting concurrent load growth, while reducing the carbon intensity of PNM’s portfolio. On April 4, 2024, the NMPRC accepted PNM’s 2023 IRP.
On December 30, 2024, PNM issued its 2029-2032 RFP for at least 900 MW of new energy resources to come online between 2029 and 2032, with at least 500 MW needed by 2030. The RFP is consistent with the needs identified in PNM’s 2023 IRP, which identified a range of 900 to 2,900 MW of new capacity needed by 2032, depending on the type of resources
selected. The 2029-2032 RFP is anticipated to identify potential replacement resources for PNM’s current natural gas generation capacity as well as PNM’s ownership interest in Four Corners. See Note 17.
2028 Resource Application
On November 22, 2024, PNM filed an application with the NMPRC seeking approval of ESAs, a PPA, and a CCN for system resources in 2028 to be available to meet summer 2028 customer needs.
PNM is requesting approval of:
•Two 150 MW ESAs
•A 167 MW PPA for the Valencia power plant through 2039
•A CCN for a 100 MW solar facility and a 30 MW battery, to be PNM-owned and located in San Juan County. The request provides the opportunity to increase the 30 MW battery by an additional 20 MW
PNM Rate Riders and other
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. See Note 17.
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, are based on a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula. The formula includes updating cost of service components, including investment in plant and operating expenses, based on information contained in PNM’s annual financial report filed with FERC, as well as including projected transmission capital projects to be placed into service in the following year. The projections included are subject to true-up. Certain items, including changes to return on equity and depreciation rates, require a separate filing to be made with FERC before being included in the formula rate.
Delivering At or Above Industry-Average Long-Term Earnings Growth
TXNM’s financial objective to deliver at or above industry-average long-term earnings 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. TXNM 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.
TXNM targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:
| | | | | | | | |
| Approval Date | | Percent Increase |
December 2023 | | 5.4 | % |
December 2024 | | 5.2 | |
Maintaining Investment Grade Credit Ratings
The Company is committed to maintaining investment grade issuer credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. On January 15, 2024, S&P revised TXNM, PNM, and TNMP’s outlook to stable from positive. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for TXNM, PNM, and TNMP. All of the credit ratings issued by both Moody’s and S&P on the Company’s senior debt continue to be investment grade.
Economic Factors
TNMP – In 2024, TNMP experienced an increase in volumetric weather normalized retail load of 1.8% compared to 2023. Weather normalized demand-based load, excluding retail transmission and data center consumers, increased 2.4% in 2024 compared to 2023. Data center load, including distribution and transmission, has increased 13.7% in 2024 compared to 2023.
PNM – In 2024, PNM experienced an increase in weather normalized residential load of 1.5% and its weather normalized commercial load was flat compared to 2023. In addition, PNM experienced an increase in industrial load of 12.5% compared to 2023.
The Company is closely monitoring the 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 customer usage at PNM and TNMP resulting from these economic impacts. However, if current economic 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 TXNM were $242.2 million, or $2.67 per diluted share in the year ended December 31, 2024 compared to $87.8 million, or $1.02 per diluted share in 2023. Among other things, earnings in the year ended December 31, 2024 benefited from rate relief approved in PNM’s 2024 Rate Change, higher transmission and distribution rates at TNMP, higher volumetric load at TNMP, higher weather normalized retail load at PNM, and increased performance on PNM’s NDT, coal mine reclamation and SJGS decommissioning investment securities. In addition, rate credits as a result of the SJGS abandonment settlement agreement and regulatory disallowances resulting from the 2024 Rate Change decreased earnings in 2023 compared to 2024. These increases were partially offset by regulatory disallowances related to San Juan and Four Corners Coal mine reclamation remeasurements in 2024, lower demand-based load at TNMP, lower transmission margin at PNM, higher employee related expenses at PNM and TNMP, increased depreciation and amortization approved in PNM’s 2024 Rate Change and increased plant in service at PNM and TNMP, capacity arrangements at PNM, milder weather at TNMP and PNM, 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
As of December 31, 2024, TXNM, PNM, and TNMP had revolving credit facilities with capacities of $300.0 million, $440.0 million, and $200.0 million. Total availability for TXNM on a consolidated basis was $460.7 million at February 14, 2025. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. TXNM also has intercompany loan agreements with each of its subsidiaries. For additional details regarding the Company’s revolving credit facilities, see Note 7.
TXNM projects that its consolidated capital requirements, consisting of construction expenditures and dividends, will total $8.6 billion for 2025 - 2029. These construction expenditures include TNMP’s investments to support continued high growth in system demand across TNMP’s service territories and growing encouragement for infrastructure investments from the Texas legislature to support grid reliability and resilience. PNM’s capital initiatives 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 and TNMP’s SRP.
As discussed in Note 7, in 2024, TXNM entered into a distribution agreement, pursuant to which the Company may sell, from time to time, up to an aggregate sales price of $300.0 million of its common stock, no par value, through sales agents under the TXNM 2024 ATM Program. During 2024, TXNM entered into forward sales agreements with third-party forward purchasers relating to the sale of 3.6 million shares of common stock, under the TXNM 2024 ATM Program. On December 30, 2024, TXNM physically settled 2.5 million shares under the TXNM 2024 ATM Program by issuing shares to the forward purchasers and receiving net proceeds of $99.4 million. Following this settlement, 1.1 million shares of TXNM’s common stock remain subject to future settlement under the TXNM 2024 ATM Program. See Note 7.
To fund capital spending requirements to meet growth that balances earnings goals, credit metrics and liquidity needs, the Company has entered into a number of other financing arrangements. 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 14, 2025, the Company has consolidated maturities of long-term and short-term debt aggregating $1.1 billion in the period from January 1, 2025 through February 28, 2026. 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 2025-2029 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. As of December 31, 2024 and February 14, 2025, 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 TXNM is as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | Change | | |
| 2024 | | 2023 | | | | 2024/2023 | | |
| (In millions, except per share amounts) | | |
Net earnings attributable to TXNM | $ | 242.2 | | | $ | 87.8 | | | | | $ | 154.5 | | | |
Average diluted common and common equivalent shares | 90.6 | | | 86.4 | | | | | 4.2 | | | |
Net earnings attributable to TXNM per diluted share | $ | 2.67 | | | $ | 1.02 | | | | | $ | 1.65 | | | |
The components of the changes in net earnings attributable to TXNM by segment are:
| | | | | | | |
| Change | | |
| 2024/2023 | | |
| (In millions) | | |
TNMP | $ | 8.6 | | | |
PNM | 156.0 | | | |
| | | |
| Corporate and Other | (10.3) | | | |
| Net change | $ | 154.3 | | | |
Information regarding the factors impacting TXNM’s operating results by segment are set forth below.
Segment Information
The following discussion is based on the segment methodology that TXNM’s management uses for making operating decisions and assessing performance of its various business activities. See Note 2 for more information on TXNM’s operating segments.
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 |
| 2024 | | 2023 | | 2024/2023 |
| (In millions) |
| | | | | |
| Gross margin | $ | 280.1 | | | $ | 246.5 | | | $ | 33.6 | |
| | | | | |
| Transmission and distribution costs | 37.1 | | | 37.0 | | | 0.1 |
| Depreciation and amortization | 125.9 | | | 113.1 | | | 12.8 |
| Utility margin | $ | 443.0 | | | $ | 396.6 | | | $ | 46.4 | |
| | | | | |
The following table summarizes the operating results for TNMP:
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Change | | |
| | 2024 | | 2023 | | | | 2024/2023 | | |
| | (In millions) | | |
| Electric operating revenues | $ | 592.1 | | | $ | 535.3 | | | | | $ | 56.8 | | | |
| Cost of energy | 149.1 | | | 138.6 | | | | | 10.5 | | | |
| Utility margin | 443.0 | | | 396.6 | | | | | 46.4 | | | |
| Operating expenses | 136.2 | | | 133.4 | | | | | 2.8 | | | |
| Depreciation and amortization | 125.9 | | | 113.1 | | | | | 12.8 | | | |
| Operating income | 180.9 | | | 150.0 | | | | | 30.9 | | | |
| Other income (deductions) | 8.7 | | | 8.4 | | | | | 0.3 | | | |
| Interest charges | (59.0) | | | (46.2) | | | | | (12.8) | | | |
| Segment earnings before income taxes | 130.6 | | | 112.2 | | | | | 18.4 | | | |
| Income (taxes) | (27.1) | | | (17.3) | | | | | (9.8) | | | |
| Segment earnings | $ | 103.5 | | | $ | 94.9 | | | | | $ | 8.6 | | | |
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 | | |
| | 2024 | | 2023 | | | | 2024/2023 | | |
Volumetric load (1) (GWh) | |
| Residential | 3,202.0 | | | 3,248.4 | | | | | (1.4) | % | | |
| Commercial and other | 47.2 | | | 48.9 | | | | | (3.5) | | | |
| Total volumetric load | 3,249.2 | | | 3,297.3 | | | | | (1.5) | % | | |
Demand-based load (2) (MW) | 31,425.1 | | | 30,668.6 | | | | | 2.5 | % | | |
Average retail consumers (thousands) (3) | 277.0 | | | 272.1 | | | | | 1.8 | % | | |
(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 – 2024 compared to 2023
The following table summarizes the significant changes to gross margin:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2024 | | | | | | |
| | | Change | | | | | | |
Gross margin: | | (In millions) | | | | | | |
| | | | | | | | | |
| Utility Margin (see below) | | $ | 46.4 | | | | | | | |
| Depreciation and amortization (see below) | | (12.8) | | | | | | | |
| Lower vegetation management expenses partially offset by higher employee related expenses and outside services, excluding administrative costs | | 0.4 | | | | | | | |
| Other | | (0.4) | | | | | | | |
| Net Change | | $ | 33.6 | | | | | | | |
The following table summarizes the significant changes to utility margin:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2024 | | | | | | |
| | | Change | | | | | | |
Utility margin: | | (In millions) | | | | | | |
| | | | | | | | | |
| Transmission rate relief/load – Transmission cost of service rate increases in May 2023, September 2023, March 2024, and September 2024 | | $ | 21.2 | | | | | | | |
| Distribution rate relief – Distribution cost of service rate increases in September 2023, July 2024, and November 2024 | | 14.1 | | | | | | | |
| Volumetric-based consumer usage/load – Weather normalized KWh sales increased 1.8%; the average number of volumetric consumers increased 1.8% | | 2.2 | | | | | | | |
| Demand based consumer usage/load – Weather normalized demand-based MW sales for large commercial and industrial consumers excluding retail transmission customers decreased 1.2% | | (1.7) | | | | | | | |
| Leap Year - Increase in revenue due to additional day in 2024 | | 0.3 | | | | | | | |
| Weather – Primarily due to warmer weather in the third quarter of 2023 | | (3.5) | | | | | | | |
| Impact of fully amortized AMS charges | | 6.2 | | | | | | | |
| Deferral of excess deferred income tax benefits refunded through base rates | | 7.8 | | | | | | | |
| 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 | | (0.2) | | | | | | | |
| Net Change | | $ | 46.4 | | | | | | | |
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, 2024 | | | | | | |
| | | Change | | | | | | |
Operating expenses: | | (In millions) | | | | | | |
| | |
| Lower vegetation management expenses partially offset by higher employee related expenses and outside services | | $ | (1.0) | | | | | | | |
| Higher property tax due to increased utility plant in service | | 3.2 | | | | | | | |
| Higher capitalization of administrative and general expenses due to higher construction expenditures | | (5.5) | | | | | | | |
| Higher allocated depreciation and amortization expense from Corporate and Other | | 3.5 | | | | | | | |
| Regulatory disallowance related to notice of violation settlement in 2023 (Note 17) | | (1.2) | | | | | | | |
| Higher insurance premiums primarily related to wildfire risk | | 3.3 | | | | | | | |
| Other | | 0.5 | | | | | | | |
| Net Change | | $ | 2.8 | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Depreciation and amortization: | | | | | | | | |
| | |
| Increased utility plant in service | | $ | 14.2 | | | | | | | |
| Other | | (1.4) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net Change | | $ | 12.8 | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Other income (deductions): | | | | | | | | |
| | |
| Higher CIAC | | $ | 0.7 | | | | | | | |
| Lower equity AFUDC | | (0.3) | | | | | | | |
| Other | | (0.1) | | | | | | | |
| Net Change | | $ | 0.3 | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2024 | | | | | | |
| | | Change | | | | | | |
Interest charges: | | (In millions) | | | | | | |
| | | | | | | | |
| | |
| Issuance of first mortgage bonds in 2024 | | $ | (9.7) | | | | | | | |
| Issuance of first mortgage bonds in 2023 | | (3.9) | | | | | | | |
| Repayment of first mortgage bonds in 2024 | | 1.7 | | | | | | | |
| Higher interest on transmission interconnection and security deposit arrangements | | (1.3) | | | | | | | |
| Higher interest on revolving short-term borrowings | | (1.9) | | | | | | | |
| Higher debt AFUDC | | 2.3 | | | | | | | |
| Net Change | | $ | (12.8) | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Income (taxes): | | | | | | | | |
| | |
| Higher segment earnings before income taxes | | $ | (3.9) | | | | | | | |
| Lower amortization of excess deferred income taxes | | (6.1) | | | | | | | |
| Other | | 0.2 | | | | | | | |
| Net Change | | $ | (9.8) | | | | | | | |
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 |
| 2024 | | 2023 | | 2024/2023 |
| (In millions) |
| | | | | |
| Gross margin | $ | 567.3 | | | $ | 409.4 | | | $ | 157.9 | |
| Energy production costs | 93.7 | | | 91.6 | | | 2.1 | |
| Transmission and distribution costs | 61.3 | | | 61.7 | | | (0.4) | |
| Depreciation and amortization | 221.8 | | | 177.6 | | | 44.2 | |
| Utility margin | $ | 944.2 | | | $ | 740.3 | | | $ | 203.9 | |
| | | | | |
The following table summarizes the operating results for PNM:
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Change | | |
| | 2024 | | 2023 | | | | 2024/2023 | | |
| | (In millions) | | |
| Electric operating revenues | $ | 1,379.1 | | | $ | 1,403.9 | | | | | $ | (24.8) | | | |
| Cost of energy | 434.9 | | | 663.6 | | | | | (228.7) | | | |
| Utility margin | 944.2 | | | 740.3 | | | | | 203.9 | | | |
| Operating expenses | 440.4 | | | 479.5 | | | | | (39.1) | | | |
| Depreciation and amortization | 221.8 | | | 177.6 | | | | | 44.2 | | | |
| Operating income | 282.0 | | | 83.2 | | | | | 198.8 | | | |
| Other income (deductions) | 61.5 | | | 41.4 | | | | | 20.1 | | | |
| Interest charges | (106.0) | | | (86.6) | | | | | (19.4) | | | |
| Segment earnings before income taxes | 237.5 | | | 38.0 | | | | | 199.5 | | | |
Income (taxes) benefits | (29.2) | | | 16.8 | | | | | (46.0) | | | |
| Valencia non-controlling interest | (16.0) | | | (18.5) | | | | | 2.5 | | | |
| Preferred stock dividend requirements | (0.5) | | | (0.5) | | | | | — | | | |
| Segment earnings | $ | 191.7 | | | $ | 35.7 | | | | | $ | 156.0 | | | |
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 | | |
| | 2024 | | 2023 | | | | 2024/2023 | | |
| | (Gigawatt hours, except customers) | | |
| Residential | 3,397.3 | | | 3,390.7 | | | | | 0.2 | % | | |
| Commercial | 3,654.1 | | | 3,645.1 | | | | | 0.2 | | | |
Industrial (1) | 2,059.2 | | | 1,879.3 | | | | | 9.6 | | | |
| Public authority | 215.6 | | | 215.5 | | | | | — | | | |
Economy service (2) | 548.4 | | | 536.5 | | | | | 2.2 | | | |
| | | | | | | | | |
Other sales for resale (3) | 3,275.3 | | | 4,587.1 | | | | | (28.6) | | | |
| 13,149.9 | | | 14,254.2 | | | | | (7.7) | % | | |
| Average retail customer (thousands) | 552.6 | | | 548.0 | | | | | 0.8 | % | | |
(1)Includes energy provided by PNM for renewable energy resources to match the energy and capacity requirements of Meta. PNM purchases renewable energy which is passed through to Meta under a rate rider. A special service rate is applied to Meta’s energy consumption in those hours of the month when their consumption exceeds the energy production from the renewable resources.
(2)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.
(3)Includes sales for resale activity resulting from PNM’s participation in the EIM.
Operating results – 2024 compared to 2023
The following table summarizes the significant changes to gross margin:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2024 | | | | | | |
| | | Change | | | | | | |
Gross margin: | | (In millions) | | | | | | |
| | | | | | | | | |
| Utility margin (see below) | | $ | 203.9 | | | | | | | |
| Depreciation and amortization (see below) | | (44.2) | | | | | | | |
| Higher plant maintenance costs for the remaining interests in PVNGS and Four Corners, offset by lower costs at gas fired plants and the disposition of the PVNGS Unit 2 Leased Interests | | (0.8) | | | | | | | |
| Higher employee related expenses offset by lower outside services, and vegetation management expenses, excluding administrative costs | | (0.2) | | | | | | | |
| | | | | | | | | |
| Other | | (0.8) | | | | | | | |
| Net Change | | $ | 157.9 | | | | | | | |
The following table summarizes the significant changes to utility margin:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2024 | | | | | | |
| | | Change | | | | | | |
Utility margin: | | (In millions) | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Retail customer usage/load –Weather normalized retail KWh sales increased 1.5% for residential customers and 12.5% for industrial customers | | $ | 20.9 | | | | | | | |
| Weather – Hotter weather in the third quarter of 2023 partially offset by milder weather in the remaining quarters of 2024 | | (6.7) | | | | | | | |
| Leap Year - Increase in revenue due to additional day in 2024 | | 1.9 | | | | | | | |
| Transmission – Decrease in revenues primarily due to lower market prices and lower volumes in 2024, partially offset by the FERC Order 864 settlement in 2023 and EPE refund in 2024 | | (13.3) | | | | | | | |
| Rate relief – Increase in revenue approved in 2024 Rate Change | | 15.0 | | | | | | | |
| Capacity arrangements – Energy storage agreements starting in the third quarter of 2023, partially offset by purchase agreements in 2023 and sales agreements in 2024 | | (6.5) | | | | | | | |
| Rate Credits – SJGS abandonment settlement agreement in 2023 | | 128.7 | | | | | | | |
| 2024 Rate Change – PVNGS Unit 1 Leased Interest regulatory liability in 2023 | | 38.4 | | | | | | | |
| | | | | | | | | |
| Rate riders and other – Includes renewable energy, FPPAC, energy efficiency, energy transition charge, and transportation electrification riders which are partially offset in operating expenses, depreciation and amortization, other income (deductions) and interest charges | | 25.5 | | | | | | | |
| Net Change | | $ | 203.9 | | | | | | | |
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, 2024 | | | | | | |
| | | Change | | | | | | |
Operating expenses: | | (In millions) | | | | | | |
| | |
| Higher costs for the remaining interests in PVNGS, partially offset by lower plant maintenance and administrative costs at gas fired plants, Four Corners, and the disposition of the PVNGS Unit 2 Leased Interests | | $ | 2.0 | | | | | | | |
| Higher regulatory disallowances in 2023, primarily resulting from the 2024 Rate Change | | (70.7) | | | | | | | |
| Unrecoverable portion of San Juan & Four Corners Coal Mine reclamation remeasurements related to the capped surface mine liability in 2024 | | 9.0 | | | | | | | |
| Higher allocated depreciation and amortization expense from Corporate and Other | | 8.3 | | | | | | | |
| Higher employee related expenses partially offset by lower outside services and vegetation management expenses | | 2.1 | | | | | | | |
| Higher capitalization of administrative and general expenses due to higher construction expenditures | | (2.2) | | | | | | | |
| Higher insurance premiums primarily related to wildfire risk | | 3.8 | | | | | | | |
| Higher costs associated with rate riders included in Utility margin | | 7.3 | | | | | | | |
| Other | | 1.3 | | | | | | | |
| Net Change | | $ | (39.1) | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2024 | | | | | | |
| | | Change | | | | | | |
Depreciation and amortization: | | (In millions) | | | | | | |
| | | | | | | | |
| | |
| Increased utility plant in service | | $ | 15.7 | | | | | | | |
| Amortization of regulatory assets approved in the 2024 Rate Change | | 10.4 | | | | | | | |
| Increase in depreciation approved in 2024 Rate Change | | 13.4 | | | | | | | |
| Amortization related to ETBC I Securitized Costs, offset in utility margin | | 4.1 | | | | | | | |
| Other | | 0.6 | | | | | | | |
| Net Change | | $ | 44.2 | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Other income (deductions): | | | | | | | | |
| | |
| Increased performance on investment securities in the NDT and coal mine reclamation trusts | | $ | 7.8 | | | | | | | |
| Lower interest income and higher trust expenses related to investment securities in the NDT, coal mine reclamation and SJGS decommissioning trusts | | (4.2) | | | | | | | |
| Higher equity AFUDC | | 3.2 | | | | | | | |
| Interest related to the NTEC agreement | | 4.4 | | | | | | | |
| Lower non-service post-retirement benefit costs | | 4.9 | | | | | | | |
| Higher interest income primarily related to transmission projects | | 1.6 | | | | | | | |
| Higher charitable contributions in 2023 | | 2.0 | | | | | | | |
| Other | | 0.4 | | | | | | | |
| Net Change | | $ | 20.1 | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Interest charges: | | | | | | | | |
| | |
| Lower interest on term loans | | $ | 3.6 | | | | | | | |
| Higher interest related to remarketed PCRBs in June 2024 | | (2.1) | | | | | | | |
| Higher interest related to remarketed PCRBs in June 2023 | | (1.5) | | | | | | | |
| Issuance of SUNs in April 2023 | | (3.7) | | | | | | | |
| Higher interest on transmission interconnection and security deposit arrangements | | (1.6) | | | | | | | |
| Interest related to ETBC I Securitized Bonds, offset in utility margin | | (17.6) | | | | | | | |
| Higher debt AFUDC | | 3.3 | | | | | | | |
| Other | | 0.2 | | | | | | | |
| Net Change | | $ | (19.4) | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Income (taxes): | | | | | | | | |
| | |
| Higher segment earnings before income taxes | | $ | (51.3) | | | | | | | |
| Higher amortization of federal excess deferred income taxes | | 6.5 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Other | | (1.2) | | | | | | | |
| Net Change | | $ | (46.0) | | | | | | | |
Corporate and Other
The table below summarizes the operating results for Corporate and Other:
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Change | | |
| | 2024 | | 2023 | | | | 2024/2023 | | |
| | (In millions) | | |
| Total revenues | $ | — | | | $ | — | | | | | $ | — | | | |
| Cost of energy | — | | | — | | | | | — | | | |
| Utility margin | — | | | — | | | | | — | | | |
| Operating expenses | (27.8) | | | (26.9) | | | | | (0.9) | | | |
| Depreciation and amortization | 37.2 | | | 28.7 | | | | | 8.5 | | | |
| Operating income (loss) | (9.4) | | | (1.9) | | | | | (7.5) | | | |
| | | | | | | | | |
| Other income (deductions) | (15.4) | | | (0.2) | | | | | (15.2) | | | |
| Interest charges | (63.1) | | | (57.6) | | | | | (5.5) | | | |
| Segment earnings (loss) before income taxes | (87.9) | | | (59.7) | | | | | (28.2) | | | |
Income (taxes) benefits | 34.8 | | | 16.9 | | | | | 17.9 | | | |
| Segment earnings (loss) | $ | (53.1) | | | $ | (42.8) | | | | | $ | (10.3) | | | |
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 an increase of $2.0 million in costs related to the Merger that were not allocated to PNM or TNMP. Substantially all depreciation and amortization expense are offset in operating expenses as a result of allocation of these costs to other business segments.
Operating results – 2024 compared to 2023
The following tables summarize the primary drivers for other income (deductions), interest charges, and income taxes:
| | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2024 | | | | | | |
| | | Change | | | | | | |
Other income (deductions): | | (In millions) | | | | | | |
| | |
| | | | | | | | | |
| Sale of NMRD equity method investment | | $ | (15.1) | | | | | | | |
| | | | | | | | | |
| Lower equity method investment income due to sale of NMRD | | (2.8) | | | | | | | |
| Rent income allocated to business units | | 0.5 | | | | | | | |
| Lower charitable contributions | | 1.9 | | | | | | | |
| Other | | 0.3 | | | | | | | |
| Net Change | | $ | (15.2) | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Interest charges: | | | | | | | | |
| | |
| Issuance of the $550.0 million Convertible Notes | | $ | (17.7) | | | | | | | |
| Higher interest on short-term borrowings | | (0.7) | | | | | | | |
| Lower interest on term loans | | 12.7 | | | | | | | |
| Other | | 0.2 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net Change | | $ | (5.5) | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | |
Income (taxes) benefits: | | | | | | | | |
| | |
| Higher segment loss before income taxes | | $ | 7.2 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Investment tax credits related to the sale of NMRD | | 15.7 | | | | | | | |
| Income tax impact of non-deductible merger related costs | | (2.4) | | | | | | | |
| Lower investment tax credit amortization | | (1.0) | | | | | | | |
| Income tax valuation allowance | | (1.3) | | | | | | | |
| Other | | (0.3) | | | | | | | |
| Net Change | | $ | 17.9 | | | | | | | |
LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows
The information concerning TXNM’s cash flows is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Change | | |
| | 2024 | | 2023 | | | | 2024/2023 | | |
| Net cash flows from: | (In millions) |
|
| Operating activities | $ | 508.2 | | | $ | 551.2 | | | | | $ | (43.0) | | | |
| Investing activities | (1,174.4) | | | (1,088.4) | | | | | (86.0) | | | |
| Financing activities | 684.4 | | | 537.1 | | | | | 147.3 | | | |
| Net change in cash and cash equivalents | $ | 18.1 | | | $ | (0.1) | | | | | $ | 18.3 | | | |
Cash Flows from Operating Activities
Changes in TXNM’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 TXNM’s cash flows from investing activities relate primarily to changes in utility plant additions. Cash flows from investing activities include purchases and sales of investment securities in the NDT, SJGS decommissioning trust, and coal mine reclamation trusts as well as the sale of NMRD on February 27, 2024.
Major components of TXNM’s cash inflows and (outflows) from investing activities are shown below:
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | Change | | |
| 2024 | | 2023 | | | | 2024/2023 | | |
| Cash (Outflows) for Utility Plant Additions | (In millions) | | |
| PNM: | | | | | | | | | |
| Generation | $ | (126.4) | | | $ | (63.8) | | | | | $ | (62.6) | | | |
| Renewables | (0.2) | | | — | | | | | (0.2) | | | |
| Transmission and distribution | (538.8) | | | (485.0) | | | | | (53.8) | | | |
| Nuclear fuel | (17.0) | | | (16.3) | | | | | (0.7) | | | |
| (682.4) | | | (565.1) | | | | | (117.3) | | | |
| TNMP: | | | | | | | | | |
| Transmission | (161.2) | | | (124.4) | | | | | (36.8) | | | |
| Distribution | (380.4) | | | (340.0) | | | | | (40.4) | | | |
| (541.6) | | | (464.4) | | | | | (77.2) | | | |
| Corporate and Other: | | | | | | | | | |
| Computer hardware and software | (20.7) | | | (30.6) | | | | | 9.9 | | | |
General services, building, and other | (2.3) | | | (15.7) | | | | | 13.4 | | | |
| $ | (1,247.0) | | | $ | (1,075.8) | | | | | $ | (171.2) | | | |
| | | | | | | | | |
| Other Cash Flows from Investing Activities | | | | | | | | | |
Proceeds from sale of plant assets (Note 8) | $ | 2.8 | | | $ | 32.7 | | | | | $ | (29.9) | | | |
| Proceeds from sales of investment securities | 707.4 | | | 574.2 | | | | | 133.2 | | | |
| Purchases of investment securities | (756.8) | | | (593.2) | | | | | (163.6) | | | |
Proceeds from sale of NMRD | 116.9 | | | — | | | | | 116.9 | | | |
| | | | | | | | | |
| Investments in NMRD | (12.6) | | | (26.3) | | | | | 13.7 | | | |
| | | | | | | | | |
| Other, net | 14.9 | | | — | | | | | 14.9 | | | |
| $ | 72.6 | | | $ | (12.6) | | | | | $ | 85.2 | | | |
| | | | | | | | | |
| Net cash flows from investing activities | $ | (1,174.4) | | | $ | (1,088.4) | | | | | $ | (86.0) | | | |
Cash Flow from Financing Activities
The changes in TXNM’s cash flows from financing activities include:
•Short-term borrowings increased $347.4 million in 2024 compared to an increase of $29.9 million in 2023, resulting in a net increase in cash flows from financing activities of $317.5 million in 2024
•In 2024, TNMP issued $285.0 million aggregate principal amount of TNMP 2024 Bonds and used the proceeds to repay borrowings under the TNMP Revolving Credit Facility and $80.0 million of 4.03% TNMP FMBs, to fund capital expenditures, and for other corporate purposes
•In 2024, PNM entered into the PNM 2024 Term Loan for $200.0 million and used the proceeds to repay borrowings under the PNM Revolving Credit Facility, the PNM New Mexico Credit Facility, and for other corporate purposes
•In 2024, PNM remarketed $198.0 million of outstanding PCRBs to new investors
•In 2024, TXNM issued $550.0 million in Junior Subordinated Convertible Notes and used the proceeds to prepay $449.0 million of borrowings under the TXNM 2021 Delayed Draw Term Loan and $90.0 million of borrowings under the TXNM 2023 Term Loan, without penalty, and for other corporate purposes
•In 2024, TXNM physically settled forward sales of common stock under the TXNM 2024 ATM Program and received $98.6 million in net proceeds that were used to repay amounts borrowed under the TXNM Revolving Credit Facility.
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 closely monitoring the 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 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 TXNM 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.
On March 28, 2024, TNMP entered into the TNMP 2024 Bond Purchase Agreement for the sale of $285.0 million aggregate principal amount of four series of TNMP first mortgage bonds. TNMP issued the first two series on March 28, 2024, consisting of $32.0 million at a 5.26% interest rate, due March 28, 2029, and $85.0 million at a 5.55% interest rate, due March 28, 2036. The third and fourth series were issued on July 1, 2024, consisting of $40.0 million at a 5.65% interest rate, due July 1, 2039, and $128.0 million at a 5.79% interest rate, due July 1, 2054. The proceeds were used to repay $80.0 million of 4.03% TNMP FMBs, to repay borrowings under the TNMP Revolving Credit Facility, to fund capital expenditures, and for other corporate purposes.
In May 2024, TXNM entered into the TXNM 2024 ATM Program pursuant to which TXNM may sell, from time to time, up to an aggregate amount of $100.0 million of its common stock. In August 2024, subsequent to approval by shareholders to increase TXNM’s authorized shares, the Company increased the aggregate sales amount from $100.0 million to $300.0 million of its common stock, no par value, that may be sold under the TXNM 2024 ATM Program. Throughout 2024, TXNM entered into forward sale agreements with forward purchasers, for the sale of 3,563,592 shares of TXNM common stock. TXNM did not receive any proceeds upon the execution of this agreement and, except in certain specified circumstances, has the option to elect physical, cash, or net share settlement of the forward sale agreement on or before a date that is 12 months from the agreement effective dates. Refer to Note 7 for information regarding the initial forward sale price, the Company's settlement options and related accounting treatment. On December 30, 2024, TXNM physically settled forward purchases under the TXNM 2024 ATM Program for 2,458,951 shares, receiving $98.6 million in cash proceeds, and used those proceeds to repay borrowings under the TXNM Revolving Credit Facility. As of December 31, 2024, 1,104,641 shares remain unsettled under the 2024 Forward Sales Agreements.
On May 10, 2024, PNM entered into the PNM 2024 Term Loan. PNM used the proceeds of the PNM 2024 Term Loan to repay borrowings under the PNM Revolving Credit Facility, the PNM New Mexico Credit Facility, and for general corporate purposes. The PNM 2024 Term Loan bears interest at a variable rate, which was 5.40% at December 31, 2024, and must be repaid on or before November 10, 2025.
On June 10, 2024, TXNM issued $500.0 million aggregate principal amount of Convertible Notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Convertible Notes bear interest at a rate of 5.75% per year, payable semi-annually in arrears on June 1 and December 1 and mature on June 1, 2054, unless earlier converted, redeemed, or repurchased in accordance with their terms. On June 21, 2024, TXNM issued an additional $50.0 million aggregate principal amount of the Convertible Notes, pursuant to an overallotment option granted by TXNM to the initial purchasers of the $500.0 million Convertible Notes. Proceeds from the Convertible Notes were used to prepay $449.0 million of borrowings under the TXNM 2021 Delayed Draw Term Loan and $90.0 million of borrowings under the TXNM 2023 Term Loan, without penalty, and for other corporate purposes. See Note 7 for details related to the conversion rate and conditions for such conversion.
At December 31, 2023, PNM had outstanding $37.0 million of 3.00% PCRBs and $125.0 million of 1.15% PCRBs issued by the City of Farmington, New Mexico with a mandatory remarketing date of June 1, 2024 and final maturities of June 2040 and $36.0 million of 3.00% PCRBs issued by Maricopa County, Arizona with a mandatory remarketing date of June 1, 2024 and a final maturity of January 2038. On June 3, 2024, PNM remarketed these PCRBs aggregating $198.0 million to new investors at 3.875% with a mandatory tender date of June 1, 2029.
On January 21, 2025, PNM entered into the PNM 2025 Term Loan. PNM used the proceeds of the PNM 2025 Term Loan to repay borrowings under the PNM Revolving Credit Facility, the PNM New Mexico Credit Facility, and for general corporate purposes. The PNM 2025 Term Loan bears interest at a variable rate and must be repaid on or before July 21, 2026.
On February 14, 2025, TNMP entered into an agreement (the “TNMP 2025 Bond Purchase Agreement”) with institutional investors for the sale of $140.0 million aggregate principal amount of its 5.19% TNMP first mortgage bonds (the “TNMP 2025 Bonds”) offered in private placement transactions. TNMP issued all $140.0 million at a 5.19% interest rate, due April 1, 2031. The proceeds were used to repay borrowings under the TNMP Revolving Credit Facility, for funding of capital expenditures, and for other corporate purposes.
TXNM entered into multiple hedging arrangements, with maturity dates ranging from December 2024 through December 2025. In November 2024, TXNM unwound and settled the hedging agreements that were expected to mature on December 31, 2025, and on December 31, 2024, the remaining active hedging agreements matured. See Note 7 for the related effective dates and terms of each arrangement. All of these hedging agreements establish a fixed rate for the indicated amount of variable rate debt, above which a customary spread is applied, which is subject to change if there is a change in TXNM’s credit rating. These hedge agreements were accounted for as cash flow hedges.
Capital Requirements
TXNM’s total capital requirements consist of construction expenditures, cash dividend requirements for TXNM common stock and PNM preferred stock.
Key activities in TXNM’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 2025-2029 are:
| | | | | | | | | | | | | | | | | |
| | 2025 | | 2026-2029 | | Total |
| | (In millions) |
| Construction expenditures | $ | 1,321.3 | | | $ | 6,513.0 | | | $ | 7,834.3 | |
| | | | | |
Dividends on TXNM common stock | 151.0 | | | 611.3 | | | 762.3 | |
| Dividends on PNM preferred stock | 0.5 | | | 2.1 | | | 2.6 | |
Total capital requirements | $ | 1,472.8 | | | $ | 7,126.4 | | | $ | 8,599.2 | |
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 TNMP’s investments to support continued high growth in system demand across TNMP’s service territories and growing encouragement for infrastructure investments from the Texas legislature to support grid reliability and resilience. PNM’s capital initiative that includes investments in transmission and distribution infrastructure to deliver clean energy, enhance customer satisfaction, and increase grid resilience. Construction expenditures also include investments included in PNM’s Grid Modernization Application and TNMP’s SRP. These investments provide for a more resilient, reliable, efficient, and decarbonized electric system. 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 TXNM to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to pay dividends to TXNM. 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, 2024, TXNM 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 $3.4 million and $3.5 million in scheduled principal payments due for the ETBC I Securitized Bonds in February and August 2025 which are funded by the energy transition charge billed to customers (Note 16). PNM also has $104.0 million and $250.0 million of SUNs that are due in May and August 2025 plus $200.0 million under the PNM 2024 Term Loan that is due in November 2025. TXNM has $51.0 million outstanding under the TXNM 2021 Delayed Draw Term Loan that matures in May 2025. 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, 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.
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, excluding ETBC I Securitized Bonds
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 these long-term debt agreements are not prepaid or refinanced before their expected maturities, payments of interest are expected to total $158.4 million in 2025, $296.7 million in 2026 and 2027, $269.6 million in 2028 and 2029, and $1.8 billion in 2030 and thereafter.
Scheduled payments on ETBC I Securitized Bonds
The ETBC I Securitized Bonds are subject to fixed, scheduled, principal and interest payment arrangements that are paid semi-annually in accordance with the terms of the agreement and are funded by the energy transition charge billed to customers. See Note 16. Principal payments are expected to total $6.9 million for 2025, $15.0 million for 2026 and 2027, $16.8 million for 2028 and 2029, and $301.9 million for 2030 and thereafter. Interest payments are expected to total $19.8 million for 2025, $38.3 million for 2026 and 2027, $36.6 million for 2028 and 2029, and $204.9 million for 2030 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 $14.4 million in 2025, $28.9 million in 2026 and 2027 and, $13.5 million in 2028 and 2029.
Technology outsourcing
The Company has other technology services under long-term contracts. The obligations under these contracts total $8.4 million for 2025 and $17.3 million for 2026 and 2027.
Liquidity
TXNM’s liquidity arrangements include the $300.0 million TXNM Revolving Credit Facility, the $400.0 million PNM Revolving Credit Facility, and the $200.0 million TNMP Revolving Credit Facility. On April 1, 2024, TXNM and PNM amended their respective revolving credit facilities, extending their maturity to March 30, 2029, with two one-year extension options that, if exercised, would extend the maturity to March 2031, subject to approval by a majority of the lenders. PNM also has the $40.0 million PNM New Mexico Credit Facility with a maturity of May 20, 2026. On April 1, 2024, TNMP entered into its new $200.0 million Revolving Credit Facility that has a maturity of March 30, 2029 with two one-year extension options that, if exercised, would extend the maturity to March 2031, subject to approval by a majority of the lenders. Variable interest rates under the TXNM, 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.
Information regarding the range of borrowings for each facility is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Year Ended December 31 | | | | |
| | December 31, 2024 | | 2024 | | 2023 | | |
| Range of Borrowings | | Low | | High | | Low | | High | | Low | | High | | | | |
| | (In millions) | | | | |
| PNM: | | | | | | | | | | | | | | | | |
PNM Revolving Credit Facility | | $ | 148.2 | | | $ | 323.8 | | | $ | — | | | $ | 323.8 | | | $ | 16.7 | | | $ | 200.8 | | | | | |
| PNM New Mexico Credit Facility | | — | | | 40.0 | | | — | | | 40.0 | | | 5.0 | | | 40.0 | | | | | |
| | | | | | | | | | | | | | | | |
| TNMP Revolving Credit Facility | | 99.9 | | | 158.3 | | | 11.2 | | | 158.3 | | | 9.8 | | | 100.0 | | | | | |
TXNM Revolving Credit Facility | | 93.9 | | | 234.7 | | | 31.1 | | | 234.7 | | | 9.4 | | | 247.4 | | | | | |
| | | | | | | | | | | | | | | | |
At December 31, 2024, the weighted average interest rates were 5.73% for the PNM Revolving Credit Facility, 5.81% for the PNM New Mexico Credit Facility, 5.37% for the TNMP Revolving Credit Facility, and 5.96% for the TXNM 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 as discussed above and in Note 7. 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 2025 – 2029 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. Market conditions, such as rising interest rates, may raise the cost of borrowing under the Company’s current and future liquidity arrangements or other variable debt. In addition, 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 senior debt are investment grade. As of December 31, 2024, Moody’s and S&P’s outlook is stable 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 14, 2025, ratings on the Company’s securities were as follows:
| | | | | | | | | | | | | | | | | |
| | TXNM | | PNM | | TNMP |
| S&P | | | | | |
| Issuer rating | BBB | | BBB | | BBB+ |
| Senior secured debt | * | | * | | A |
| Senior unsecured debt | BBB- | | BBB | | * |
Junior subordinated debt | BB+ | | * | | * |
| Preferred stock | * | | BB+ | | * |
| Moody’s | | | | | |
| Issuer rating | Baa3 | | Baa2 | | Baa1 |
| Senior secured debt | * | | * | | A2 |
| Senior unsecured debt | Baa3 | | Baa2 | | * |
Junior subordinated debt | Ba1 | | * | | * |
| * Not applicable | | | | | |
A summary of liquidity arrangements as of February 14, 2025, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| PNM | | TNMP | | TXNM Separate | | | | TXNM Consolidated |
| (In millions) |
| Financing capacity: | | | | | | | | | |
| Revolving Credit Facility | $ | 400.0 | | | $ | 200.0 | | | $ | 300.0 | | | | | $ | 900.0 | |
| PNM New Mexico Credit Facility | 40.0 | | | — | | | — | | | | | 40.0 | |
| | | | | | | | | |
| Total financing capacity | $ | 440.0 | | | $ | 200.0 | | | $ | 300.0 | | | | | $ | 940.0 | |
Amounts outstanding as of February 14, 2025: | | | | | | | | | |
| Revolving Credit Facility | $ | 184.3 | | | $ | 112.2 | | | $ | 144.7 | | | | | $ | 441.2 | |
| PNM New Mexico Credit Facility | 35.0 | | | — | | | — | | | | | 35.0 | |
| | | | | | | | | |
| Letters of credit | — | | | — | | | 3.1 | | | | | 3.1 | |
| Total short-term debt and letters of credit | 219.3 | | | 112.2 | | | 147.8 | | | | | 479.3 | |
Remaining availability as of February 14, 2025 | $ | 220.7 | | | $ | 87.8 | | | $ | 152.2 | | | | | $ | 460.7 | |
Invested cash as of February 14, 2025 | $ | — | | | $ | — | | | $ | 0.9 | | | | | $ | 0.9 | |
In addition to the above, TXNM has $30.3 million of letters of credit outstanding under the WFB LOC Facility. The above table excludes intercompany debt. As of February 14, 2025, neither PNM nor TNMP had any intercompany borrowings outstanding from TXNM. As of February 14, 2025, TXNM had $1.5 million in intercompany borrowings outstanding 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.
TXNM has an automatic shelf registration that provides for the issuance of various types of debt and equity securities that expires in March 2025, and at or prior to such time, TXNM expects to file a new automatic shelf registration statement. PNM has a shelf registration statement for up to $650.0 million of SUNs that expires in May 2026.
Off-Balance Sheet Arrangements
TXNM 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
TXNM, 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, TXNM, 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 TXNM 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 TXNM, PNM, or TNMP is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost. The TXNM facility requires that TXNM 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.
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 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, |
TXNM | 2024 | | 2023 |
TXNM common equity | 33.9 | % | | 34.1 | % |
| Preferred stock of subsidiary | 0.2 | | | 0.2 | |
Long-term debt 1 | 65.9 | | | 65.7 | |
| Total capitalization | 100.0 | % | | 100.0 | % |
| PNM | | | |
| PNM common equity | 46.4 | % | | 46.2 | % |
| Preferred stock | 0.2 | | | 0.3 | |
| Long-term debt | 53.4 | | | 53.5 | |
| Total capitalization | 100.0 | % | | 100.0 | % |
| TNMP | | | |
| Common equity | 48.3 | % | | 49.5 | % |
| Long-term debt | 51.7 | | | 50.5 | |
| Total capitalization | 100.0 | % | | 100.0 | % |
1 TXNM’s long-term debt as of December 31, 2024 includes Convertible Notes (Note 7), which receive 50% equity credit from ratings organizations.
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 the impacts of severe weather events, 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 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 https://www.txnmenergy.com/sustainability/environment/climate_change_report that details the Company’s efforts to transition to a carbon-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 included 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 that is expected to be published in Spring 2025.
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 2024, GHG emissions associated with PNM’s interests in its fossil-fueled generating plants included approximately 1.5 million metric tons of CO2, which comprises the vast majority of PNM’s GHG emissions.
As of December 31, 2024, approximately 28% of PNM’s generating capacity, including resources owned, leased, under PPAs or ESAs, all of which is located within the U.S., consisted of coal or gas-fired generation that produces GHG emissions. As PNM shifts its generation to cleaner energy resources, the Company’s output of GHG emissions continues to decrease. 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 emissions.
PNM has several programs underway to reduce or offset GHG emissions from its generation resource portfolio, thereby reducing its exposure to climate change regulation. PNM shut down 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 emissions for the entire station of approximately 54% for 2018, reflecting a reduction of 32% of GHG emissions from the Company’s owned interests in SJGS, below 2005 levels. PNM shut down the remaining SJGS Units 1 and 4 on June 30, 2022, and September 30, 2022, respectively, resulting in additional reductions of GHG emissions. Retiring PNM’s share of SJGS in 2022 resulted in a GHG emissions reduction from 2021 levels of 67% of PNM’s GHG emissions based upon 2021 GHG emissions from generation.
PNM’s utility-owned solar and energy storage capacity, as well as solar, energy storage, wind, and geothermal procurements in service as of December 31, 2024 have a total net generation capacity of 2,779 MW. The NMPRC has approved plans for PNM to procure energy and RECs from additional resources to serve retail customers and a data center located in PNM’s service territory. PNM’s approved resource plans have a generation capacity of 910 MW and are expected to be in service by summer of 2026. This includes approximately 310 MW of capacity under the Community Solar Act which will allow PNM to provide customers the option of accessing solar energy. In addition, PNM has filed an application with the NMPRC seeking approval of resources to be available for the 2028 summer peak, which are necessary for PNM to meet forecasted peak load requirements to serve its customers and to continue progress towards a carbon-free generating portfolio. 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 308.5 MW at December 31, 2024. PNM’s distributed solar programs will generate an estimated 617.0 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 were an estimated 8,227 GWh of electricity through 2024. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 12,900 GWh of electricity savings, which will avoid approximately 220,000 tons of CO2 based upon projected emissions from PNM’s portfolio of 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 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 include the use of sustainable, less variable groundwater supplies and investments in technologies such as air cooling and cooling water recycling. These types of actions 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 and a public safety power shutoff plan. TNMP has also developed a wildfire mitigation plan. However, both PNM and TNMP remain at risk for wildfires outside of their control and the resulting damages in their service areas.
EPA Regulation
In 2007, the US Supreme Court held that EPA has the authority to regulate GHG emissions under the CAA, and in 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. These actions triggered new GHG permitting requirements for stationary sources, including the energy industry, under the Prevention of Significant Deterioration (“PSD”) and Title V program, although the US Supreme Court held the CAA does not authorize EPA to require a source to obtain a PSD permit solely on the basis of its potential GHG emissions.
EPA also determined that its finding of endangerment requires it to issue performance standards under Section 111 of the CAA to regulate GHG emissions from new and existing stationary sources, including fossil fuel fired electric generating units. Accordingly, in 2015, EPA issued Carbon Pollution Standards for new, modified, and reconstructed power plants (under Section 111(b)) and 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. EPA used those “emission standards” to set state emission reduction goals that formed the basis of a trading program that relied on “generation shifting” to reduce emissions from the power sector as a whole.
Multiple states, utilities, and trade groups challenged 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 in 2017, and his administration asked the court to hold both cases in abeyance while the rules were re-evaluated, which the court granted.
In 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. vacating the ACE Rule. While the D.C. Circuit rejected the ACE Rule, it did not reinstate the Clean Power Plan. Rather, the DC Circuit granted an EPA motion asking the court to 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.
Numerous parties sought review by the US Supreme Court, and on June 30, 2022, the Court held 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’s opinion expressly invoked the major questions doctrine, which requires rules involving issues of “vast economic or political significance” to be supported by clear statutory authorization. In cases where there is no clear statement of authority, courts need not defer to the agency’s statutory interpretation on “major questions.” 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 reconsideration of the rule has concluded.
In 2023, EPA published in the Federal Register proposed regulatory actions under CAA sections 111(b) and (d) to replace the Clean Power Plan and the ACE Rule and finalized the rules on May 9, 2024. The final rules include revised new source performance standards under Section 111(b) for all new natural gas-fired combustion turbines and emission guidelines under Section 111(d) requiring states to develop standards of performance for GHG emissions from existing fossil-fuel-fired electric steam generating units. In the final rules, EPA determined that the standards for existing coal- or gas-fired steam generating units must be based on the use of either Carbon Capture Storage (“CCS”) (long-term), natural gas co-firing
(medium-term), or exempt from the rule via early retirement. The standards for new combustion turbines must be based on CCS (base load), efficient simple cycle design (intermediate load), or lower-emitting fuels (low load). Over a dozen states, several industry groups, and some power companies and labor unions have filed challenges to the rule at the DC Circuit. The DC Circuit heard oral arguments on December 6, 2024 but, on February 5, 2024, the Department of Justice filed a motion asking the DC Circuit to hold the litigation in abeyance while new EPA leadership reviews the rule and decides how to proceed, which indicates the new Trump Administration may not defend the rule in court. On February 19, 2025, the DC Circuit granted EPA’s request for a 60-day abeyance of challenges to the rules.
On March 26, 2024, EPA announced it was opening a non-regulatory docket and issued framing questions to gather input about ways to design a stronger, more durable approach to GHG regulation of existing gas combustion turbines. The docket was open for public comment from March 26 to May 28, 2024 and the agency held a policy forum to bring shareholders together to share ideas with EPA and others. Under the new Trump Administration, the agency is unlikely to propose a rule based on this non-regulatory docket.
On January 20, 2025, President Trump signed an executive order entitled “Unleashing American Energy” directing all agencies, including EPA, to review all agency actions and suspend, revise, or rescind those identified as imposing an undue burden on domestic energy resources. The order also disbands the Interagency Working Group on the Social Cost of Greenhouse Gases (“IWG”), eliminates the “social cost of carbon” from consideration in any Federal permitting or regulatory decision, and expressly directs EPA to submit joint recommendations on the legality and continuing applicability of the 2009 endangerment finding for greenhouse gases that currently provides the legal basis for EPA to regulate greenhouse gases under the Clean Air Act.
Federal Legislation
In 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, energy storage, carbon capture, and electric vehicle sales. The future of the IRA is uncertain under the new Trump Administration, given the control of both house of Congress by the Republican Party led by President Trump, and no other Federal legislation on climate change is expected during this Congress.
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. PNM’s 2023 filing has a continued focus on a carbon-free energy system by 2040. The plan highlights the need for the significant sustained addition of resources over the next two decades, replacing retiring or expiring capacity, meeting concurrent load growth, while reducing the carbon intensity of PNM’s portfolio. See Note 17.
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 will manage compliance with the standards based upon existing generation resources and 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 related to the retirement of coal-fired generating facilities to qualified investors. See additional discussion of the ETA in Note 16.
The ETA has a significant impact on PNM’s future generation portfolio. In 2022, in compliance with the ETA, 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. In 2022, the rule was passed which adopts new carbon emission standards for new and existing coal-fired power plants.
In 2020, the NMPRC approved PNM’s San Juan abandonment application and for the issuance of Securitized Bonds consistent with the requirements of the ETA and in 2023 PNM issued the ETBC I Securitized Bonds. PNM cannot predict the full impact of the ETA with respect to Four Corners. See additional discussion of PNM’s Four Corners Abandonment Application 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.
In 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. In 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 U.S. to rejoin the Paris Agreement on Climate Change. The instrument was deposited with the United Nations on January 21, 2021, and the U.S. officially became a party to the Agreement on February 19, 2021. On January 20, 2025, President Trump signed an executive order entitled “Putting America First in International Environmental Agreements,” directing the United States Ambassador to the United Nations to immediately submit formal written notification of the United States’ withdrawal from the Paris Agreement and any other agreement, pact, accord, or similar commitment made under the United Nations Framework Convention on Climate Change.
PNM has calculated GHG reductions that would result from scenarios that capture PNM’s retirement of its share of the SJGS in 2022 and assume exiting Four Corners in 2031 and PNM has set a goal to have a 100% carbon-free generating portfolio by 2040. While the Company has not conducted an independent 2 Degree Scenario analysis, our commitment to becoming 100% carbon-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. INDC 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. See Note 17.
PNM will continue to monitor the United States’ move to withdraw from 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. 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.
Other Matters
See Notes 16 and 17 for a discussion of commitments and contingencies and rate and regulatory matters.
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 TXNM, 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 2024, the Company utilized a quantitative analysis for the PNM reporting unit and a qualitative analysis for the TNMP reporting unit. No impairments were indicated in the Company’s annual goodwill testing, which was performed as of April 1, 2024. 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 2024, 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 future decommissioning costs at current price levels, inflation rates, and discount rates. Changes in these estimates could significantly impact TXNM’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 76% 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 $15.0 million at December 31, 2024. 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 $16.8 million at December 31, 2024. 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 TXNM.
MD&A FOR TNMP
RESULTS OF OPERATIONS
TNMP operates in only one reportable segment, as presented above in Results of Operations for TXNM.
