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ITEM 1.	BUSINESS

•	Earning authorized returns on its regulated businesses

•	Delivering at or above industry-average earnings and dividend growth

•	Maintaining solid investment grade credit ratings

•	Maintaining strong employee safety, plant performance, and system reliability

•	Delivering a superior customer experience

•	Demonstrating environmental stewardship in business operations, including reducing CO2 emissions

•	Supporting the communities in their service territories

•	PNMR: www.pnmresources.com

•	PNM: www.pnm.com

•	TNMP: www.tnmp.com

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•	Corporate Governance Principles

•	Code of Ethics (Do the Right Thing – Principles of Business Conduct)

•	Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee

•	Restated Articles of Incorporation and Bylaws

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•	PVNGS Decommissioning Funding

•	Nuclear Spent Fuel and Waste Disposal

•	Environmental Matters under the caption “The Clean Air Act”

•	WEG v. OSM NEPA Lawsuit

•	Navajo Nation Environmental Issues

•	Cooling Water Intake Structures

•	Effluent Limitation Guidelines

•	Santa Fe Generating Station

•	Environmental Matters under the caption “Coal Combustion Residuals Waste Disposal”

•	Environmental Matters under the caption “Coal Supply”

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The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case, the appeal of that order, the NM 2016 Rate Case and related deferral of the issue of PNM’s prudence of continuation of participation in Four Corners to PNM’s next general rate case and recovery of PNM’s investments in that plant, any actions resulting from PNM’s December 2018 Compliance Filing, which indicates PNM intends to retire its share of SJGS in 2022 (subject to future NMPRC approval), and/or the conclusions reached in PNM’s 2017 IRP (collectively, the “Regulatory Proceedings”) and the impact on service levels for PNM customers if the ultimate outcomes do not provide for the recovery of costs of operating and capital expenditures, as well as other impacts of federal or state regulatory and judicial actions

•	The ability of the Company to successfully forecast and manage its operating and capital expenditures, including aligning expenditures with the revenue levels resulting from the ultimate outcomes of the Regulatory Proceedings and supporting forecasts utilized in future test year rate proceedings

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Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, the outcome of PNM’s December 2018 Compliance Filing, the results of PNM’s 2017 IRP filing, which indicates that PNM’s customers would benefit from PNM’s exit from Four Corners in 2031, including regulatory recovery of undepreciated investments in the event the NMPRC orders generating facilities be retired

•	Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings

•	The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, advances in technology, and other changes in supply and demand

•	Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2 that is under lease at the expiration of the lease terms in 2023 and 2024, or upon the occurrence of certain specified events, as well as the related treatment for ratemaking purposes by the NMPRC

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The Company’s ability to access the financial markets in order to provide financing to repay or refinance debt as it comes due, as well as for ongoing operations and construction expenditures, including disruptions in the capital or credit markets, actions by ratings agencies, and fluctuations in interest rates, including any negative impacts that could result from the ultimate outcomes of the Regulatory Proceedings

•	The risks associated with completion of generation, transmission, distribution, and other projects

•	The potential unavailability of cash from PNMR’s subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows

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The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply issues, unplanned outages, extreme weather conditions, wildfires, terrorism, cybersecurity breaches, and other catastrophic events, as well the costs the Company may incur to repair its facilities and/or the liabilities the Company may incur to third parties in connection with such issues

•	State and federal regulation or legislation relating to environmental matters and renewable energy requirements, the resultant costs of compliance, and other impacts on the operations and economic viability of PNM’s generating plants

•	State and federal regulatory, legislative, executive, and judicial decisions and actions on ratemaking, tax, including the impacts and related uncertainties of tax reform enacted in 2017, and other matters

•	Risks related to climate change, including potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG

•	Employee workforce factors, including cost control efforts and issues arising out of collective bargaining agreements and labor negotiations with union employees

•	Variability of prices and volatility and liquidity in the wholesale power and natural gas markets

•	Changes in price and availability of fuel and water supplies, including the ability of the mines supplying coal to PNM’s coal-fired generating units and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel

•	Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties

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•	The risk that FERC rulemakings or lack of additional capacity during peak hours may negatively impact the operation of PNM’s transmission system

•	The impacts of decreases in the values of marketable securities maintained in trusts to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits, including potential increased volatility resulting from international developments

•	Uncertainty surrounding counterparty performance and credit risk, including the ability of counterparties to supply fuel and perform reclamation activities and impacts to financial support provided to facilitate the coal supply at SJGS

•	The effectiveness of risk management regarding commodity transactions and counterparty risk

•	The outcome of legal proceedings, including the extent of insurance coverage

•	Changes in applicable accounting principles or policies

•	Costs of asset construction for generation, transmission, and distribution systems necessary to provide electric service, including new generation and transmission resources, as well as the cost to remove and retire existing assets

•	Environmental compliance expenditures

•	The regulatory mandate to acquire power from renewable resources

•	Increased regulation related to nuclear safety

•	Increased interest costs to finance capital investments

•	Depreciation

•	Changing customer behaviors, including increased emphasis on energy efficiency measures and utilization of alternative sources of power

•	Rate design that is not driven by economics, which could influence customer behavior

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•	Unfavorable economic conditions

•	Reductions in costs of self-generation energy resources and energy efficiency technology

•	Reduced new sources of demand

•	Unpredictable weather patterns

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•	Rates charged by PNM and TNMP

•	Rates charged by REPs utilizing TNMP’s facilities to deliver power

•	Energy efficiency initiatives

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•	Availability and cost of alternative sources of power

•	National, regional, or local economic conditions

•	Federally-mandated base closures or significant curtailment of the activities at the bases or national laboratories

•	Closure of industrial facilities or significant curtailment of their activities

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•	The ability to obtain adequate supplies of nuclear fuel and water

•	The ability to dispose of spent nuclear fuel

•	Decommissioning of the plant (see above)

•	Securing the facilities against possible terrorist attacks

•	Unscheduled outages due to equipment failures

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•	The extent to which cash flows will support dividends

•	The Company’s financial circumstances and performance

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•	Decisions of the NMPRC and PUCT in various regulatory cases currently pending or that may be docketed in the future, including the outcome of appeals of those decisions

•	Conditions imposed by the NMPRC, PUCT, or Federal Power Act

•	The effect of federal regulatory decisions and legislative acts

•	Economic conditions in the United States and in the Company’s service areas

•	Future growth plans and the related capital requirements

•	Other business considerations

•	An economic recession

•	Declines in the health of the banking sector generally, or the failure of specific banks who are parties to the Company’s credit facilities

•	Deterioration in the overall health of the utility industry

•	The bankruptcy of an unrelated energy company

•	War, terrorist attacks, or cybersecurity attacks, or threatened attacks

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•	Authorization for the Board to issue PNMR’s preferred stock in series and to fix rights and preferences of the series (including, among other things, voting rights and preferences with respect to dividends and other matters)

•	Advance notice procedures with respect to any proposal other than those adopted or recommended by the Board

•	Provisions specifying that only a majority of the Board, the chairman of the Board, the chief executive officer, or holders of at least one-tenth of all of PNMR’s shares entitled to vote may call a special meeting of shareholders

ITEM 1B.	UNRESOLVED STAFF COMMENTS

ITEM 2.	PROPERTIES

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ITEM 3.	LEGAL PROCEEDINGS

•	The Clean Air Act – Regional Haze – NEE Complaint

•	The Clean Air Act – Regional Haze – December 2018 Compliance Filing

•	The Clean Air Act – Regional Haze – Four Corners – Four Corners Federal Agency Lawsuit

•	WEG v. OSM NEPA Lawsuit

•	Navajo Nation Environmental Issues

•	Santa Fe Generating Station

•	Coal Combustion Residuals Waste Disposal

•	Continuous Highwall Mining Royalty Rate

•	PVNGS Water Supply Litigation

•	San Juan River Adjudication

•	Rights-of-Way Matter

•	Navajo Nation Allottee Matters

•	PNM – New Mexico 2015 Rate Case

•	PNM – Renewable Portfolio Standard

•	PNM – Renewable Energy Rider

•	PNM – Energy Efficiency and Load Management

•	PNM – Integrated Resource Plans

•	PNM – Cost Recovery Related to Joining the EIM

•	PNM – Facebook, Inc. Data Center Project

•	TNMP – Transmission Cost of Service Rates

ITEM 4.	MINE SAFETY DISCLOSURES

ITEM 5.	MARKET FOR PNMR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

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ITEM 6.	SELECTED FINANCIAL DATA

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

•	Earning authorized returns on regulated businesses

•	Delivering at or above industry-average earnings and dividend growth

•	Maintaining solid investment grade credit ratings

•	Maintaining strong employee safety, plant performance, and system reliability

•	Delivering a superior customer experience

•	Demonstrating environmental stewardship in business operations, including reducing CO2 emissions

•	Supporting the communities in their service territories

•	A ROE of 9.575%, compared to the 10.5% requested by PNM

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Inclusion of the January 2016 purchase of the assets underlying three leases of capacity, totaling 64.1 MW, of PVNGS Unit 2 (Note 8) at an initial rate base value of $83.7 million, compared to PNM’s request for recovery of the fair market value purchase price of $163.3 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which costs totaled $43.8 million when the order was issued

•	Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016 and the 114.6 MW of the leased capacity in PVNGS Units 1 and 2 that were extended for eight years beginning January 15, 2015 and 2016 (Note 8)

•	Disallowance of recovery of the costs associated with converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS (Note 16); PNM’s share of the costs of installing the BDT equipment was $52.3 million, $40.0 million of which PNM requested be included in rate base in the NM 2015 Rate Case

•	Disallowance of recovery of the full fair market value purchase price of the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016

•	Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM

•	Disallowance of recovery of future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases

•	Disallowance of recovery of the costs of converting SJGS Units 1 and 4 to BDT

•	The NMPRC allowing PNM to recover the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2

•	The NMPRC allowing PNM to recover the costs incurred under the new coal supply contract for Four Corners

•	The revised method to collect PNM’s fuel and purchased power costs under the FPPAC

•	The final rate design

•	The NMPRC allowing PNM to include the “prepaid pension asset” in rate base

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•	Implementation of the modifications in PNM’s resource portfolio, which were previously approved by the NMPRC as part of the SJGS regional haze compliance plan (see below and Note 16)

•	Infrastructure investments, including environmental upgrades at Four Corners

•	Declines in forecasted energy sales due to successful energy efficiency programs and other economic factors

•	Updates in the FERC/retail jurisdictional allocations

•	A revenue increase totaling $62.3 million, with an initial increase of $32.3 million beginning January 1, 2018 and the remaining increase beginning January 1, 2019

•	A ROE of 9.575%, compared to the 10.125% requested by PNM

•	Full recovery of PNM’s investment in SCRs at Four Corners with a debt-only return

•	An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020

•	An agreement to adjust the January 2019 increase for certain changes in federal corporate tax laws and to true-up PNM’s cost of debt

•	Returning to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate to the extent attributable to PNM’s retail operations

•	PNM would perform a cost benefit analysis in its 2020 IRP of the impact of a possible early exit from Four Corners in 2024 and 2028

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•	Retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreements would provide long-term cost savings for PNM’s customers

•	PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also provide long-term cost savings for customers

•	The best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could include energy storage if the economics support it and wind energy provided additional transmission capacity becomes available

•	Significant increases in future wind energy supplies will likely require new transmission capacity to be built from eastern New Mexico to PNM’s service territory

•	PNM should retain the currently leased capacity in PVNGS, which would avoid replacement with carbon-emitting generation

•	PNM should continue to develop and implement energy efficiency and demand management programs

•	PNM should assess the costs and benefits of participating in the California Independent System Operator Western Energy Imbalance Market

•	PNM should analyze its current Reeves Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage

•	Developing strategies to provide reliable and affordable power while transforming PNM’s generation resources to a cleaner energy portfolio by reducing CO2 emissions

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•	Preparing PNM’s system to meet New Mexico’s increasing renewable energy resources as cost-effectively as possible

•	Increasing energy efficiency participation

•	PNM was granted a CCN to acquire an additional 132 MW in SJGS Unit 4 as a jurisdictional resource to serve New Mexico customers effective January 1, 2018; PNM is prohibited from seeking recovery of any undepreciated investment in the 132 MW interest in the event SJGS Unit 4 is abandoned

•	PNM was granted a CCN for 134 MW of PVNGS Unit 3 as a jurisdictional resource to serve New Mexico customers beginning January 1, 2018

•	PNM was authorized to acquire 65 MW of SJGS Unit 4 as merchant utility plant

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PNM was required to make a filing with the NMPRC no later than December 31, 2018 to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after June 30, 2022. PNM’s filing was required to be made before PNM entered into a binding commitment to extend the SJGS CSA beyond its scheduled June 30, 2022 expiration date but after PNM had received firm pricing and other terms for the extended supply of coal to SJGS, unless PNM does not propose to pursue an extended SJGS CSA. See additional discussion in Note 16 and below under December 2018 Compliance Filing.

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

(2)	Decrease in 2018 and 2017 reflects the loss of NEC as a wholesale generation customer.

(3)	Decrease in 2018 reflects that PVNGS Unit 3 is included as a New Mexico jurisdictional resource beginning January 1, 2018 rather than as a merchant plant in 2017, partially offset by sales from PNM’s 65 MW merchant interest in SJGS Unit 4 (Note 16).

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(1)	Volumetric load consumers are billed on KWh usage.

(2)	Demand-based load includes consumers billed on a monthly KW peak and also includes 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.

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•	In 2016, PNMR borrowed $100.0 million under the PNMR One-Year Term Loan (included in short-term borrowings) and $100.0 million under the PNMR Two-Year Loan and repaid the PNMR Term Loan with the proceeds

•	In 2016, PNM borrowed $175.0 million under the PNM 2016 Term Loan and repaid the PNM Multi-draw Term Loan with the proceeds

•	NM Capital received net proceeds of $122.5 million under the $125.0 million BTMU Term Loan in 2016 and utilized the proceeds to provide funds for the Westmoreland Loan; in accordance with the BTMU Term Loan agreement, NM Capital made principal payments of $50.1 million in 2018, $42.1 million in 2017 and $32.8 million in 2016

•	In 2017, PNM borrowed $200.0 million under the PNM 2017 Term Loan and repaid the PNM 2016 Term Loan with the proceeds

•	PNM successfully remarketed PCRBs of $57.0 million in 2017 and $146.0 million in 2016

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•	TNMP issued $60.0 million of 3.85% first mortgage bonds in 2018, $60.0 million of 3.22% first mortgage bonds in 2017, and $60.0 million of 3.53% first mortgage bonds in 2016

•	In 2018, PNMR issued $300.0 million aggregate principal amount of 3.250% SUNs and used the proceeds to repay the $150.0 million PNMR 2015 Term Loan and to reduce short-term borrowings

•	In 2018, PNM issued $450.0 million of SUNs and repaid $350.0 million of 7.95% SUNs and $100.0 million of 7.50% SUNs

•	In 2018, TNMP borrowed $35.0 million under the TNMP 2018 Term Loan and used the proceeds to reduce short-term borrowings and for general corporate purposes

•	In 2018, PNMR Development borrowed $90.0 million under the PNMR Development Term Loan

•	In 2018, PNMR borrowed $150.0 million under the PNMR 2018 One-Year Term Loan and used the proceeds to repay the PNMR 2016 One-Year Term Loan, a portion of the PNMR 2016 Two-Year Term Loan, and for general corporate purposes

•	In 2018, PNMR borrowed $50.0 million under the PNMR 2018 Two-Year Term Loan and used the proceeds to repay the remaining amount of the PNMR 2016 Two-Year Term Loan and for general corporate purposes

•	Short-term borrowings decreased $119.5 million in 2018 compared to an increase of $18.3 million in 2017 compared to an increase of $86.5 million in 2016, resulting in a net decrease in cash flows from financing activities of $137.8 in 2018 and $68.2 million in 2017

•	In 2018, PNMR had net amounts received under transmission interconnection arrangements of $1.2 million compared to net amounts repaid in 2017 of $9.4 million compared to net amounts received in 2016 of $4.3 million

•	Ability to earn a fair return on equity

•	Results of operations

•	Ability to obtain required regulatory approvals

•	Conditions in the financial markets

•	Credit ratings

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•	Upgrading generation resources, including expenditures for compliance with environmental requirements and for renewable energy resources

•	Expanding the electric transmission and distribution systems

•	Purchasing nuclear fuel

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(a)	Represents total long-term debt, excluding unamortized discounts, premiums, and issuance costs (Note 7)

(b)	Represents interest payments during the period

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(c)	The operating lease amounts exclude expected future payments of $18.5 million that could be avoided if the leases were returned and the lessor is able to recover the estimated market value of the equipment from third parties and include payments under the PVNGS leases through their expiration dates; see Off-Balance Sheet Arrangements above, Note 8, and Note 10

(d)	Represents certain minimum payments that may be required under the coal contracts in effect on December 31, 2018 if no deliveries are taken for SJGS and Four Corners and other minimum payments due for Four Corners

(e)	Includes funding of trusts for post-term reclamation related to the mines serving SJGS and Four Corners (Note 16)

(f)	These obligations represent funding based on the current rate of return on investments

(g)	The Company only forecasts funding for its pension and retiree medical plans for the next five years

(h)	Represents commitments to fund NMRD for its contractual construction obligations

(i)	Represents forecasted construction expenditures, including nuclear fuel, under which substantial commitments have been made; the Company only forecasts capital expenditures for the next five years; see Capital Requirements above and Note 14

(j)

PNMR is unable to reasonably estimate the timing of liability for uncertain income tax positions (Note 18) in individual years due to uncertainties in the timing of the effective settlement of tax positions and, therefore, PNMR’s liability of $10.2 million is not reflected in this table; amounts PNM is obligated to pay Valencia are not included above since Valencia is consolidated by PNM in accordance with GAAP, as discussed in Note 10; no amounts are included above for the New Mexico Wind, Lightning Dock Geothermal, Red Mesa Wind, and Casa Mesa Wind PPAs, and the Tri-State hazard sharing agreement since there are no minimum payments required under those agreements

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ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

•	Establishing policies regarding risk exposure levels and activities in each of the business segments

•	Approving the types of derivatives entered into for hedging

•	Reviewing and approving hedging risk activities

•	Establishing policies regarding counterparty exposure and limits

•	Authorizing and delegating transaction limits

•	Reviewing and approving controls and procedures for derivative activities

•	Reviewing and approving models and assumptions used to calculate mark-to-market and market risk exposure

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•	Proposing risk limits to the Board’s Finance Committee for its approval

•	Reporting to the Board’s Audit and Finance Committees on these activities

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(1)	The rating “Investment Grade” is for counterparties, or a guarantor, with a minimum S&P rating of BBB- or Moody’s rating of Baa3. The category “Internal Ratings – Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.

(2)

The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than firm-requirements wholesale customers and the Tri-State hazard sharing agreement), forward sales, and short-term sales. The gross exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements but are not reduced by posted credit collateral. At December 31, 2018, PNMR held $1.0 million of cash collateral to offset its credit exposure.

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ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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(1)	Summary of the Business and Significant Accounting Policies

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(2)	Segment Information

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(3)	Accumulated Other Comprehensive Income (Loss)

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(4)	Electric Operating Revenues

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(5)	Earnings and Dividends Per Share

(6)	Stockholders’ Equity

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(8)	Lease Commitments

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(9)	Fair Value of Derivative and Other Financial Instruments

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(10)	Variable Interest Entities

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(11)	Pension and Other Postretirement Benefits

•	Implement investment strategies commensurate with the risk that the Corporate Investment Committee deems appropriate to meet the obligations of the pension plans and OPEB plans, minimize the volatility of expense, and account for contingencies

•	Transition asset mix over the long-term to a higher proportion of high quality fixed income investments as the plans’ funded statuses improve

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(12)	Stock-Based Compensation

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(13)	Regulatory Assets and Liabilities

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(14)	Construction Program and Jointly-Owned Electric Generating Plants

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(1)	Includes cost of removal.

(2)

In December 2018, PNM submitted an NMPRC required filing indicating that, consistent with the conclusions reached in PNM’s 2017 IRP, PNM’s customers would benefit from the retirement of PNM’s share of SJGS in mid-2022. As of December 31, 2018, PNM impaired $121.8 million of plant in service and $86.8 million of accumulated depreciation on its 132 MW and 65 MW interests in SJGS Unit 4. These amounts are reflected in the table above and as $35.0 million of pre-tax regulatory disallowances and restructuring costs in the Consolidated Statements of Earnings. See Note 16 for additional discussion of the NMPRC’s December 16, 2015 order regarding SJGS’s compliance with the regional haze rules under the CAA and PNM’s December 2018 Compliance Filing.

(3)	Includes interest in PVNGS Unit 3, interest in common facilities for all PVNGS units, and owned interests in PVNGS Units 1 and 2, including improvements.

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(15)	Asset Retirement Obligations

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(16)	Commitments and Contingencies

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•	Permission to retire SJGS Units 2 and 3 at December 31, 2017 and to recover over 20 years their net book value at that date along with a regulated return on those costs

•	A CCN to include PNM’s ownership of PVNGS Unit 3, amounting to 134 MW, as a resource to serve New Mexico retail customers at a proposed value of $2,500 per KW, effective January 1, 2018

•	An order allowing cost recovery for PNM’s share of the installation of SNCR and BDT equipment to comply with NAAQS requirements on SJGS Units 1 and 4, not to exceed a total cost of $82 million

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•	PNM would retire SJGS Units 2 and 3 (PNM’s ownership interest was 418 MW) by December 31, 2017 and recover, over 20 years, 50% of their undepreciated net book value at that date and earn a regulated return on those costs at PNM’s WACC

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PNM was granted a CCN to acquire an additional 132 MW in SJGS Unit 4 with an initial book value of zero, plus the costs of SNCR and other capital additions (an aggregate of $20.7 million), as a jurisdictional resource to serve PNM’s New Mexico retail customers effective January 1, 2018; PNM is prohibited from seeking recovery of any undepreciated investment in the 132 MW interest in the event SJGS Unit 4 is abandoned

•	PNM was granted a CCN for 134 MW of PVNGS Unit 3 with an initial rate base value equal to the book value as of December 31, 2017, including transmission assets associated with PVNGS Unit 3 (an aggregate of $154.9 million) as a jurisdictional resource to serve PNM’s New Mexico retail customers beginning January 1, 2018

•	PNM was authorized to acquire 65 MW of SJGS Unit 4 as merchant plant; PNM and PNMR commit that no further coal-fired merchant plant will be acquired at any time by PNM, PNMR, or any PNM affiliate and PNM is not precluded from seeking a CCN to include the 65 MW or other coal capacity in rate base

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Beginning January 1, 2020, for every MWh produced by 197 MW of coal-fired generation from PNM’s ownership share of SJGS, PNM will acquire and retire one MWh of RECs or allowances that include a zero-CO2 emission attribute compliant with EPA’s Clean Power Plan; this REC retirement is in addition to what is required to meet the RPS; the cost of these RECs are to be capped at $7.0 million per year and will be recovered in rates; PNM should purchase EPA-compliant RECs from New Mexico renewable generation unless those RECs are more costly

•	PNM would accelerate recovery of SNCR costs on SJGS Units 1 and 4 so that the costs are fully recovered by July 1, 2022 (cost recovery for PNM’s BDT project is discussed in Note 17)

•	PNM would not recover approximately $20 million of other costs incurred in connection with CAA compliance

•	The NMPRC would issue a Notice of Proposed Dismissal in PNM’s 2014 IRP

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PNM was required to make a filing with the NMPRC no later than December 31, 2018 to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after June 30, 2022. PNM’s filing was required to be made before PNM entered into a binding commitment to extend the SJGS CSA beyond its scheduled June 30, 2022 expiration date but after PNM had received firm pricing and other terms for the extended supply of coal to SJGS, unless PNM does not propose to pursue an extended SJGS CSA. See December 2018 Compliance Filing below and in Note 17

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(17)	Regulatory and Rate Matters

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•	A ROE of 9.575% compared to the 10.5% requested by PNM

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Disallowing recovery of the entire $163.3 million purchase price for the January 15, 2016 purchases of the assets underlying three leases of portions of PVNGS Unit 2 (Note 8); the August 2016 RD proposed that power from the previously leased assets, aggregating 64.1 MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expenses (other than property taxes, which were $0.8 million per year when the August 2016 RD was issued), but the customers would not bear any capital or depreciation costs other than those related to improvements made after the date of the original leases

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Disallowing recovery from retail customers of the rent expense, which aggregates $18.1 million per year, under the four leases of capacity in PVNGS Unit 1 that were extended for eight years beginning January 15, 2015 and the one lease of capacity in PVNGS Unit 2 that was extended for eight years beginning January 15, 2016 (Note 8) and related property taxes, which were $1.5 million per year when the August 2016 RD was issued; the August 2016 RD proposed that power from the leased assets, aggregating 114.6 MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expense, except that customers would not bear rental costs or property taxes

•	Disallowing recovery of the costs of converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS, (Note 16); PNM’s share of the costs of installing the BDT equipment was $52.3 million of which $40.0 million was included in rate base in PNM’s rate request

•	Disallowing recovery of $4.5 million of amounts recorded as regulatory assets and deferred charges

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•	Inclusion of the January 2016 purchase of the assets underlying three leases of capacity, aggregating 64.1 MW, of PVNGS Unit 2 at an initial rate base value of $83.7 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which aggregated $43.8 million when the order was issued

•	Allowing full recovery of the rent expense and property taxes associated with the extended leases for capacity, aggregating 114.6 MW, in Palo Verde Units 1 and 2

•	Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity purchased in January 2016 and the 114.6 MW of capacity under the extended leases

•	Recovery of assumed operating and maintenance expense savings of $0.3 million annually related to BDT

•	Disallowance of recovery of the full purchase price, representing fair market value, of the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016

•	Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM

•	Disallowance of recovery of future contributions for PVNGS decommissioning attributable to the 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases

•	Disallowance of recovery of the costs of converting SJGS Units 1 and 4 to BDT

•	The NMPRC allowing PNM to recover the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2

•	The NMPRC allowing PNM to recover the costs incurred under the new Four Corners CSA

•	The revised method to collect PNM’s fuel and purchased power costs under the FPPAC

•	The final rate design

•	The NMPRC allowing PNM to include the “prepaid pension asset” in rate base

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•	The remaining costs to acquire the assets previously leased under three leases aggregating 64.1 MW of PVNGS Unit 2 capacity in excess of the recovery permitted under the NMPRC’s order; the net book value of such excess amount was $73.3 million, after considering the losses recorded to date

•	The undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity in PVNGS Unit 2 purchased by PNM in January 2016 was being leased by PNM; the net book value of these improvements was $38.0 million, after considering the losses recorded to date

•	The remaining costs to convert SJGS Units 1 and 4 to BDT; the net book value of these assets was $50.0 million, after considering the losses recorded to date

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•	An increase in base non-fuel revenues of $99.2 million

•	Based on a FTY beginning January 1, 2018 (the NMPRC’s rules specify that a FTY is a 12 month period beginning up to 13 months after the filing of a rate case application)

•	ROE of 10.125%

•	Drivers of revenue deficiency

◦	Implementation of the modifications in PNM’s resource portfolio, which were previously approved by the NMPRC as part of the SJGS regional haze compliance plan (Note 16)

◦	Infrastructure investments, including environmental upgrades at Four Corners

◦	Declines in forecasted energy sales due to successful energy efficiency programs and other economic factors

◦	Updates in the FERC/retail jurisdictional allocations

•	Proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation

◦	Increased customer and demand charges

◦	A “lost contribution to fixed cost” mechanism applicable to residential and small commercial customers to address the regulatory disincentive associated with PNM’s energy efficiency programs

•	A revenue increase totaling $62.3 million, with an initial increase of $32.3 million beginning January 1, 2018 and the remaining increase beginning January 1, 2019

•	A ROE of 9.575%

•	Full recovery of PNM’s investment in SCRs at Four Corners with a debt-only return

•	An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020

•	An agreement to adjust the January 2019 increase for certain changes in federal corporate tax laws enacted prior to November 1, 2018 and effective and applicable to PNM by January 1, 2019 and to true-up PNM’s cost of debt for refinancing transactions through 2018

•	Returning to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate (Note 18) to the extent attributable to PNM’s retail operations

•	PNM would withdraw its proposal for a “lost contribution to fixed cost” mechanism with the issue to be addressed in a future docket

•	PNM would perform a cost benefit analysis in its 2020 IRP of the impact of a possible early exit from Four Corners in 2024 and 2028

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•	Identifying PNM’s decision to continue its participation in Four Corners as imprudent

•	Disallowing PNM’s ability to collect a debt or equity return on its $90.1 million investment in SCRs at Four Corners and on $58.0 million of projected capital improvements during the period July 1, 2016 through December 31, 2018

•	Recommending a temporary disallowance of $36.8 million of PNM’s projected capital improvements at SJGS through December 31, 2018

•	Requiring the impacts of changes related to the reduction in the federal corporate income tax rate and PNM’s cost of debt (aggregating an estimated $47.6 million annually) be implemented in 2018 rather than January 1, 2019

•	Deferring further consideration regarding the prudency of PNM’s decision to continue its participation in Four Corners to PNM’s next rate case

•	Disallowing PNM’s ability to collect an equity return on its $90.1 million investment in SCRs at Four Corners and on $58.0 million of projected capital improvements during the period July 1, 2016 through December 31, 2018, but allowed recovery of the total $148.1 million of investments with a debt-only return

•	Requiring PNM to reduce the requested $62.3 million increase in non-fuel revenue by $9.1 million

•	Implementation of the first phase of the rate increase for services rendered, rather than bills sent, beginning February 1, 2018 and of the second phase for services rendered beginning January 1, 2019

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•	157 MW of PNM-owned solar-PV facilities, including 50 MW of PNM-owned solar-PV facilities approved by the NMPRC in PNM’s 2018 renewable energy procurement plan which are currently under construction

•	A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of 204 MW, and a PPA through 2035 for the output of Red Mesa Wind, having an aggregate capacity of 102 MW

•	A PPA through 2042 for the output of the Lightning Dock Geothermal facility; the geothermal facility began providing power to PNM in January 2014; the current capacity of the facility is 15 MW

•	Solar distributed generation, aggregating 100.6 MW at December 31, 2018, owned by customers or third parties from whom PNM purchases any net excess output and RECs

•	Solar and wind RECs as needed to meet the RPS requirements

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•	Retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreements would provide long-term cost savings for PNM’s customers

•	PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also save customers money

•	The best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could include energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available

•	Significant increases in future wind energy supplies will likely require new transmission capacity to be built from eastern New Mexico to PNM’s service territory

•	PNM should retain the currently leased capacity in PVNGS, which would avoid replacement with carbon-emitting generation

•	PNM should continue to develop and implement energy efficiency and demand management programs

•	PNM should assess the costs and benefits of participating in the California Independent System Operator Western Energy Imbalance Market

•	PNM should analyze its current Reeves Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage

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•	Two new electric service rates

•	A PPA under which PNM would purchase renewable energy from PNMR Development

•	A special service contract to provide electric service

•	Casa Mesa Wind, LLC, a subsidiary of NextEra Energy Resources, LLC., which is expected to be located near House, New Mexico, have a total capacity of 50 MW, and became operational in November 2018

•	A 166 MW portion of the La Joya Wind Project, owned by Avangrid Renewables, LLC, which is expected to be located near Estancia, New Mexico and be operational in November 2020

•	Route 66 Solar Energy Center, LLC, a subsidiary of NextEra Energy Resources, LLC., which is expected to be located west of Albuquerque, New Mexico, have a total capacity of 50 MW, and be operational in December 2021

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(18)	Income Taxes

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(20)	Related Party Transactions

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ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.	CONTROLS AND PROCEDURES

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ITEM 9B.	OTHER INFORMATION

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ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

ITEM 11.	EXECUTIVE COMPENSATION

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

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