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EX-32.6 - TNMP - 906 CERTIFICATION OF THE CFO - TEXAS NEW MEXICO POWER COdex326.htm
EX-31.2 - PNMR - 302 CERTIFICATION OF THE CFO - TEXAS NEW MEXICO POWER COdex312.htm
EX-12.3 - TNMP - RATIO OF EARNINGS TO FIXED CHARGES - TEXAS NEW MEXICO POWER COdex123.htm
EX-31.5 - TNMP - 302 CERTIFICATION OF THE CEO - TEXAS NEW MEXICO POWER COdex315.htm
EX-32.2 - PNMR - 906 CERTIFICATION OF THE CFO - TEXAS NEW MEXICO POWER COdex322.htm
EX-32.4 - PNM - 906 CERTIFICATION OF THE CFO - TEXAS NEW MEXICO POWER COdex324.htm
EX-12.2 - PNM - RATIO OF EARNINGS TO FIXED CHARGES - TEXAS NEW MEXICO POWER COdex122.htm
EX-31.3 - PNM - 302 CERTIFICATION OF THE CEO - TEXAS NEW MEXICO POWER COdex313.htm
EX-31.4 - PNM - 302 CERTIFICATION OF THE CFO - TEXAS NEW MEXICO POWER COdex314.htm
EX-32.3 - PNM - 906 CERTIFICATION OF THE CEO - TEXAS NEW MEXICO POWER COdex323.htm
EX-31.6 - TNMP - 302 CERTIFICATION OF THE CFO - TEXAS NEW MEXICO POWER COdex316.htm
EX-12.1 - PNMR - RATIO OF EARNINGS TO FIXED CHARGES - TEXAS NEW MEXICO POWER COdex121.htm
EX-32.1 - PNMR - 906 CERTIFICATION OF THE CEO - TEXAS NEW MEXICO POWER COdex321.htm
EX-31.1 - PNMR - 302 CERTIFICATION OF THE CEO - TEXAS NEW MEXICO POWER COdex311.htm
EX-32.5 - TNMP - 906 CERTIFICATION OF THE CEO - TEXAS NEW MEXICO POWER COdex325.htm
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

 

    Commission
    File Number    

 

  Name of Registrants, State of Incorporation,

  Address and Telephone Number

  I.R.S. Employer
    Identification No.    

      001-32462

 

  PNM Resources, Inc.

  85-0468296
 

  (A New Mexico Corporation)

 
 

  Alvarado Square

 
 

  Albuquerque, New Mexico 87158

 
 

  (505) 241-2700

 

      001-06986

 

  Public Service Company of New Mexico

  85-0019030
 

  (A New Mexico Corporation)

 
 

  Alvarado Square

 
 

  Albuquerque, New Mexico 87158

 
 

  (505) 241-2700

 

      002-97230

 

  Texas-New Mexico Power Company

  75-0204070
 

  (A Texas Corporation)

 
 

  577 N. Garden Ridge Blvd.

 
 

  Lewisville, Texas 75067

 
 

  (972) 420-4189

 

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

PNM Resources, Inc. (“PNMR”)

 

YES

 

ü

  

    NO

 

 

 

Public Service Company of New Mexico (“PNM”)

 

YES

 

ü 

  

    NO

 

 

 

Texas-New Mexico Power Company (“TNMP”)

 

YES

 

 

  

    NO

 

ü

 

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

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

 

PNMR

 

YES

 

 

  

    NO

 

 

 

PNM

 

YES

 

 

  

    NO

 

 

 

TNMP

 

YES

 

 

  

    NO

 

 

 


Table of Contents

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act).

 

 

Large accelerated

filer

   Accelerated

filer

   Non-accelerated

filer

   Smaller Reporting
Company

PNMR

  ü                        

PNM

 

    

           ü        

TNMP

                  ü        

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

As of July 29, 2010, 86,673,174 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of common stock of PNM outstanding as of July 29, 2010 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of common stock of TNMP outstanding as of July 29, 2010 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).

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

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

 

2


Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

INDEX

 

        

Page No.

GLOSSARY

   4

PART I. FINANCIAL INFORMATION

  

  ITEM 1.   

 

FINANCIAL STATEMENTS (UNAUDITED)

  

    PNM RESOURCES, INC. AND SUBSIDIARIES

  

Condensed Consolidated Statements of Earnings (Loss)

   6

Condensed Consolidated Balance Sheets

   7

Condensed Consolidated Statements of Cash Flows

   9

Condensed Consolidated Statements of Changes in PNMR Common Stockholders’ Equity

   11

Condensed Consolidated Statements of Comprehensive Income (Loss)

   12

    PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

  

Condensed Consolidated Statements of Earnings (Loss)

   13

Condensed Consolidated Balance Sheets

   14

Condensed Consolidated Statements of Cash Flows

   16

Condensed Consolidated Statements of Changes in PNM Common Stockholder’s Equity

   18

Condensed Consolidated Statements of Comprehensive Income (Loss)

   19

    TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

  

Condensed Consolidated Statements of Earnings

   20

Condensed Consolidated Balance Sheets

   21

Condensed Consolidated Statements of Cash Flows

   23

Condensed Consolidated Statements of Changes in Common Stockholder’s Equity

   25

Condensed Consolidated Statements of Comprehensive Income

   26

    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   27

  ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   74

  ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   98

  ITEM 4.

 

CONTROLS AND PROCEDURES

   103

PART II. OTHER INFORMATION

  

  ITEM 1.

 

LEGAL PROCEEDINGS

   104

  ITEM 1A.   RISK FACTORS

   104

  ITEM 6.

 

EXHIBITS

   105

SIGNATURE

   106

 

3


Table of Contents

GLOSSARY

 

Definitions:

Afton

  

Afton Generating Station

AG

  

New Mexico Attorney General

ALJ

  

Administrative Law Judge

Altura

  

Optim Energy Twin Oaks, LP

Altura Cogen

  

Optim Energy Altura Cogen, LLC (the CoGen Lyondell Power Generation Facility)

AOCI

  

Accumulated Other Comprehensive Income

APS

  

Arizona Public Service Company, which is the operator and a co-owner of PVNGS and

  Four Corners

BACT

  

Best Available Control Technology

BART

  

Best Available Retrofit Technology

BHP

  

BHP Billiton, Ltd, the parent of SJCC

Board

  

Board of Directors of PNMR

BTU

  

British Thermal Unit

Cal PX

  

California Power Exchange

Cal ISO

  

California Independent System Operator

Cascade

  

Cascade Investment, L.L.C.

CCB

  

Coal Combustion Byproducts

CO2

  

Carbon Dioxide

Continental

  

Continental Energy Systems, L.L.C.

CRHC

  

Cap Rock Holding Corporation, a subsidiary of Continental

CTC

  

Competition Transition Charge

Decatherm

  

Million BTUs

Delta

  

Delta-Person Limited Partnership

DOE

  

Department of Energy

ECJV

  

ECJV Holdings, LLC

EIB

  

New Mexico Environment Improvement Board

EIP

  

Eastern Interconnection Project

EPA

  

United States Environmental Protection Agency

EPE

  

El Paso Electric

ERCOT

  

Electric Reliability Council of Texas

FASB

  

Financial Accounting Standards Board

FERC

  

Federal Energy Regulatory Commission

First Choice

  

First Choice Power, L. P. and Subsidiaries, a subsidiary of TNP

Four Corners

  

Four Corners Power Plant

FPPAC

  

Fuel and Purchased Power Adjustment Clause

GAAP

  

Generally Accepted Accounting Principles in the United States of America

GEaR

  

Gross Earnings at Risk

GHG G

  

Greenhouse Gas Emissions

GWh

  

Gigawatt hours

IBEW

  

International Brotherhood of Electrical Workers, Local 611

KWh

  

Kilowatt Hour

LBB

  

Lehman Brothers Bank, FSB, a subsidiary of LBH

LBH

  

Lehman Brothers Holdings Inc.

LCC

  

Lyondell Chemical Company

LIBOR

  

London Interbank Offered Rate

Lordsburg

  

Lordsburg Generating Station

Luna

  

Luna Energy Facility

MD&A

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Moody’s

  

Moody’s Investor Services, Inc.

MW

  

Megawatt

MWh

  

Megawatt Hour

Navajo Acts

  

Navajo Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe Drinking Water Act, and the Navajo Nation Pesticide Act

NDT

  

Nuclear Decommissioning Trusts for PVNGS

Ninth Circuit

  

United States Court of Appeals for the Ninth Circuit

NMGC

  

New Mexico Gas Company, a subsidiary of Continental

 

4


Table of Contents

NMED

  

New Mexico Environment Department

NMPRC

  

New Mexico Public Regulation Commission

NOX

  

Nitrogen Oxide

NOI

  

Notice of Inquiry

NRC

  

United States Nuclear Regulatory Commission

NSR

  

New Source Review

O&M

  

Operations and Maintenance

OCI

  

Other Comprehensive Income

Optim Energy

  

Optim Energy, LLC, a limited liability company, owned 50% by each of PNMR and ECJV

PBO

  

Projected Benefit Obligation

PCRBs

  

Pollution Control Revenue Bonds

PG&E

  

Pacific Gas and Electric Co.

PNM

  

Public Service Company of New Mexico and Subsidiaries, a subsidiary of PNMR

PNM Facility

  

PNM’s $400 Million Unsecured Revolving Credit Facility

PNMR

  

PNM Resources, Inc. and Subsidiaries

PNMR Facility

  

PNMR’s $600 Million Unsecured Revolving Credit Facility

PPA

  

Power Purchase Agreement

PRP

  

Potential Responsible Party

PSD

  

Prevention of Significant Deterioration

PUCT

  

Public Utility Commission of Texas

PV

  

Photovoltaic

PVNGS

  

Palo Verde Nuclear Generating Station

RCRA

  

Resource Conservation and Recovery Act

RCT

  

Reasonable Cost Threshold

REC

  

Renewable Energy Certificates

REP

  

Retail Electricity Provider

RMC

  

Risk Management Committee

SCE

  

Southern Cal Edison Company

SEC

  

United States Securities and Exchange Commission

SIP

  

State Implementation Plan

SJCC

  

San Juan Coal Company, a subsidiary of BHP

SJGS

  

San Juan Generating Station

SO2

  

Sulfur Dioxide

SPS

  

Southwestern Public Service Company

SRP

  

Salt River Project

S&P

  

Standard and Poor’s Ratings Services

TECA

  

Texas Electric Choice Act

Term Loan Agreement

  

PNM’s $300 Million Unsecured Delayed Draw Term Loan Facility

TNMP

  

Texas-New Mexico Power Company and Subsidiaries, a subsidiary of TNP

TNMP Revolving Credit Facility

  

TNMP’s $75 Million Unsecured Revolving Credit Facility

TNP

  

TNP Enterprises, Inc. and Subsidiaries, a subsidiary of PNMR

Twin Oaks

  

Assets of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P.

Valencia

  

Valencia Energy Facility

VaR

  

Value at Risk

 

5


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2010    2009    2010    2009
     (In thousands, except per share amounts)

Electric Operating Revenues

       $  405,817          $  401,110          $789,212          $ 786,974  
                   

Operating Expenses:

           

Cost of energy

   151,181      175,253      342,069      356,501  

Administrative and general

   62,420      61,550      125,205      123,687  

Energy production costs

   51,811      47,134      105,696      95,691  

Regulatory disallowances

   -      27,286      -      27,286  

Depreciation and amortization

   37,376      36,946      74,655      73,017  

Transmission and distribution costs

   15,672      16,398      29,562      30,416  

Taxes other than income taxes

   13,683      11,665      27,869      25,595  
                   

Total operating expenses

   332,143      376,232      705,056      732,193  
                   

Operating income

   73,674      24,878      84,156      54,781  
                   

Other Income and Deductions:

           

Interest income

   5,083      11,223      10,110      16,446  

Gains (losses) on investments held by NDT

   (1,342)     2,469      400      (1,913) 

Other income

   1,171      5,157      11,370      28,321  

Equity in net earnings (loss) of Optim Energy

   (3,858)     (7,353)     (8,210)     (5,958) 

Other deductions

   (3,173)     (2,272)     (5,014)     (4,632) 
                   

Net other income (deductions)

   (2,119)     9,224      8,656      32,264  
                   

Interest Charges

   31,761      31,817      63,171      60,766  
                   

Earnings before Income Taxes

   39,794      2,285      29,641      26,279  

Income Taxes (Benefit)

   13,492      (1,134)     8,552      6,452  
                   

Earnings from Continuing Operations

   26,302      3,419      21,089      19,827  

Earnings (Loss) from Discontinued Operations, net of Income Taxes (Benefit) of $0, $(1,861), $0 and $38,166

   -      (2,611)     -      73,241  
                   

Net Earnings

   26,302      808      21,089      93,068  

Earnings Attributable to Valencia Non-controlling Interest

   (3,292)     (2,775)     (6,396)     (5,354) 

Preferred Stock Dividend Requirements of Subsidiary

   (132)     (132)     (264)     (264) 
                   

Net Earnings (Loss) Attributable to PNMR

   $   22,878      $  (2,099)     $  14,429      $  87,450  
                   

Earnings from Continuing Operations Attributable to PNMR per Common Share:

           

  Basic

   $    0.25        $      0.01      $      0.16      $      0.16  

  Diluted

   $    0.25        $      0.01      $      0.16      $      0.16  

Net Earnings (Loss) Attributable to PNMR per Common Share:

           

  Basic

   $    0.25        $    (0.02)     $      0.16      $      0.96  

  Diluted

   $    0.25        $    (0.02)     $      0.16      $      0.96  

Dividends Declared per Common Share

   $  0.125        $    0.125      $    0.250      $    0.250  

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

 

6


Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 30,    December 31,
     2010    2009
     (In thousands)
ASSETS      

Current Assets:

     

Cash and cash equivalents

   $   19,097      $   14,641  

Accounts receivable, net of allowance for uncollectible accounts of $10,598 and $12,783

   106,104      106,593  

Unbilled revenues

   89,371      78,274  

Other receivables

   65,212      77,672  

Materials, supplies, and fuel stock

   52,246      50,631  

Regulatory assets

   28,589      7,476  

Commodity derivative instruments

   40,556      50,619  

Income taxes receivable

   72,637      129,171  

Other current assets

   92,878      63,128  
         

Total current assets

   566,690      578,205  
         

Other Property and Investments:

     

Investment in PVNGS lessor notes

   121,454      137,511  

Equity investment in Optim Energy

   199,676      195,666  

Investments held by NDT

   135,496      137,032  

Other investments

   22,481      25,528  

Non-utility property, net of accumulated depreciation of $1,984 and $3,779

   7,668      7,923  
         

Total other property and investments

   486,775      503,660  
         

Utility Plant:

     

Plant in service and plant held for future use

   4,747,334      4,693,530  

Less accumulated depreciation and amortization

   1,621,441      1,611,496  
         
   3,125,893      3,082,034  

Construction work in progress

   179,652      181,078  

Nuclear fuel, net of accumulated amortization of $21,689 and $19,456

   78,985      69,337  
         

Net utility plant

   3,384,530      3,332,449  
         

Deferred Charges and Other Assets:

     

Regulatory assets

   523,482      524,136  

Goodwill

   321,310      321,310  

Other intangible assets, net of accumulated amortization of $5,357 and $5,272

   26,482      26,567  

Commodity derivative instruments

   3,251      2,413  

Other deferred charges

   91,002      71,181  
         

Total deferred charges and other assets

   965,527      945,607  
         
         $ 5,403,522            $ 5,359,921  
         

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

 

7


Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 30,    December 31,
     2010    2009
     (In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY      

Current Liabilities:

     

Short-term debt

   $ 285,000        $    198,000  

Current installments of long-term debt

   2,125        2,125  

Accounts payable

   110,956        111,432  

Accrued interest and taxes

   42,233        45,341  

Regulatory liabilities

   1,463        908  

Commodity derivative instruments

   37,106        24,025  

Other current liabilities

   112,260        181,442  
         

Total current liabilities

   591,143        563,273  
         

Long-term Debt

   1,565,527        1,565,206  
         

Deferred Credits and Other Liabilities:

     

Accumulated deferred income taxes

   543,730        531,166  

Accumulated deferred investment tax credits

   19,304        20,518  

Regulatory liabilities

   352,364        350,324  

Asset retirement obligations

   73,903        70,963  

Accrued pension liability and postretirement benefit cost

   275,519        281,923  

Commodity derivative instruments

   10,727        4,549  

Other deferred credits

   127,039        121,394  
         

Total deferred credits and other liabilities

   1,402,586        1,380,837  
         

Total liabilities

   3,559,256        3,509,316  
         

Commitments and Contingencies (See Note 9)

     

Cumulative Preferred Stock of Subsidiary

     

without mandatory redemption requirements ($100 stated value, 10,000,000 shares authorized: issued and outstanding 115,293 shares)

   11,529        11,529  
         

Equity:

     

PNMR Convertible Preferred Stock, Series A without mandatory redemption requirements

(no stated value, 10,000,000 shares authorized: issued and outstanding 477,800 shares)

   100,000        100,000  
         

PNMR common stockholders’ equity:

     

Common stock outstanding (no par value, 120,000,000 shares authorized: issued and outstanding 86,673,174 shares)

   1,290,247        1,289,890  

Accumulated other comprehensive income (loss), net of income taxes

   (55,128)       (46,057) 

Retained earnings

   408,882        405,884  
         

Total PNMR common stockholders’ equity

   1,644,001        1,649,717  
         

Non-controlling interest in Valencia

   88,736        89,359  
         

Total equity

   1,832,737        1,839,076  
         
       $ 5,403,522            $ 5,359,921  
         

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

 

8


Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended June 30,
     2010    2009
     (In thousands)

Cash Flows From Operating Activities:

     

Net earnings

   $  21,089        $  93,068    

Adjustments to reconcile net earnings to net cash flows from operating activities:

     

Depreciation and amortization

   89,608        84,843    

PVNGS firm sales contract revenue

   (28,856)       (28,152)   

Bad debt expense

   13,035        25,672    

Deferred income taxes (benefit)

   15,649        (55,915)   

Equity in net (earnings) loss of Optim Energy

   8,210        5,958    

Net unrealized (gains) losses on derivatives

   24,752        (2,307)   

Realized (gains) losses on investments held by NDT

   (400)       1,913    

Gain on sale of PNM Gas

   -        (101,090)   

(Gain) loss on reacquired debt

   466        (7,316)   

Stock based compensation expense

   1,962        1,520    

Regulatory disallowances

   -        27,286    

Increase in legal reserve

   -        12,600    

Other, net

   1,822        (281)   

Changes in certain assets and liabilities:

     

Accounts receivable and unbilled revenues

   (23,643)       (37,067)   

Materials, supplies, and fuel stock

   (1,615)       921    

Other current assets

   (34,909)       (2,928)   

Other assets

   (5,739)       666    

Accounts payable

   (476)       (93,073)   

Accrued interest and taxes

   55,024        51,641    

Other current liabilities

   (44,694)       (7,218)   

Other liabilities

   (15,083)       (5,111)   
         

Net cash flows from operating activities

   76,202        (34,370)   
         

Cash Flows From Investing Activities:

     

Utility plant additions

   (136,296)       (132,045)   

Proceeds from sales of investments held by NDT

   36,285        75,850    

Purchases of investments held by NDT

   (37,850)       (77,236)   

Proceeds from sale of PNM Gas

   -        640,620    

Transaction costs for sale of PNM Gas

   -        (10,924)   

Return of principal on PVNGS lessor notes

   14,216        11,913    

Investments in Optim Energy

   (16,407)       -    

Other, net

   1,416        1,613    
         

Net cash flows from investing activities

           (138,636)               509,791    
         

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

 

9


Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended June 30,
     2010    2009
     (In thousands)

Cash Flows From Financing Activities:

     

Short-term borrowings (repayments), net

   87,000        (559,667)   

Long-term borrowings

   403,845        309,242    

Repayment of long-term debt

   (403,845)       (314,079)   

Issuance of common stock

   -        1,213    

Proceeds from stock option exercise

   778        -    

Purchase of common stock to satisfy stock awards

   (2,269)       (907)   

Excess tax (shortfall) from stock-based payment arrangements

   (114)       (645)   

Dividends paid

   (23,127)       (23,103)   

Equity transactions with Valencia’s owner

   (7,019)       (6,712)   

Payments received on PVNGS firm-sales contracts

   15,233        15,347    

Debt issuance costs and other

   (3,592)       (10,732)   
         

        Net cash flows from financing activities

   66,890        (590,043)   
         

Change in Cash and Cash Equivalents

   4,456        (114,622)   

Cash and Cash Equivalents at Beginning of Period

   14,641        140,644    
         

Cash and Cash Equivalents at End of Period

         $    19,097              $    26,022    
         

Supplemental Cash Flow Disclosures:

     

Interest paid, net of capitalized interest

   $    61,188        $    58,937    
         

Income taxes paid (refunded), net

   $  (63,408)       $    49,039    
         

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

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PNMR COMMON STOCKHOLDERS’ EQUITY

(Unaudited)

 

          Accumulated
Other
Comprehensive
Income (Loss)
   Retained
Earnings
   Total PNMR
Common
Stockholders’
Equity
     Common Stock         
     Number of    Aggregate         
     Shares    Value         
          (Dollars in thousands)

Balance at December 31, 2009

   86,673,174     $1,289,890              $ (46,057)              $   405,884              $ 1,649,717  

Proceeds from stock option exercise

      778        -        -        778  

Purchase of common stock to satisfy stock awards

      (2,269)       -        -        (2,269) 

Tax shortfall from stock-based compensation arrangements

      (114)       -        -        (114) 

Stock based compensation expense

      1,962        -        -        1,962  

Net earnings attributable to PNMR

      -        -        14,429        14,429  

Total other comprehensive income (loss)

      -        (9,071)        -        (9,071) 

Dividends declared on common stock

      -        -        (11,431)       (11,431) 
                              

Balance at June 30, 2010

         86,673,174           $1,290,247              $ (55,128)              $ 408,882              $ 1,644,001  
                              

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

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2010    2009    2010    2009
                  
          (In thousands)     

Net Earnings

   $  26,302                    $ 808              $ 21,089              $ 93,068      
                         

Other Comprehensive Income (Loss):

           

Unrealized Gain (Loss) on Investment Securities:

           

Unrealized holding gains (losses) arising during the period, net of income tax (expense) benefit of $1,280, $(2,778), $58, and $(3,034)

   (1,953)             4,239          (88)         4,629      

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $720, $118, $1,330, and $313

   (1,098)             (180)         (2,029)         (478)     

Pension liability adjustment, net of income tax benefit of $0, $0, $147, and $42,487

   -              -          (223)         (64,830)     

Fair Value Adjustment for Cash Flow Hedges:

           

Change in fair market value, net of income tax (expense) benefit of $1,197, $688, $(3,859), and $(10,106)

   (1,978)             (1,038)         5,639          14,098      

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $4,035, $4,555, $8,227, and $10,656

   (6,055)             (6,337)         (12,370)         (15,426)     
                         

Total Other Comprehensive Income (Loss)

   (11,084)             (3,316)         (9,071)         (62,007)     
                         

Comprehensive Income (Loss)

   15,218              (2,508)         12,018          31,061      

Comprehensive Income Attributable to Valencia Non-controlling Interest

   (3,292)             (2,775)         (6,396)         (5,354)     

Preferred Stock Dividend Requirements of Subsidiary

   (132)             (132)         (264)         (264)     
                         

Comprehensive Income (Loss) Attributable to PNMR

   $  11,794                    $ (5,415)             $ 5,358              $ 25,443      
                         

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

 

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2010    2009    2010    2009
          (In thousands)     

Electric Operating Revenues

           $  243,060            $ 226,541              $  473,596            $ 458,496  
                           

Operating Expenses:

           

Cost of energy

     79,639        91,125        166,073        192,657  

Administrative and general

     37,498        30,373        75,184        60,063  

Energy production costs

     51,809        49,522        105,694        100,466  

Regulatory disallowances

     -        26,615        -        26,615  

Depreciation and amortization

     22,924        22,925        45,776        45,354  

Transmission and distribution costs

     10,323        10,727        19,631        19,801  

Taxes other than income taxes

     7,477        5,695        15,391        13,495  
                           

Total operating expenses

     209,670        236,982        427,749        458,451  
                           

Operating income (loss)

     33,390        (10,441)       45,847        45  
                           

Other Income and Deductions:

           

Interest income

     5,081        12,557        10,015        18,518  

Gains (losses) on investments held by NDT

     (1,342)       2,469        400        (1,913) 

Other income

     1,145        3,517        11,182        3,833  

Other deductions

     (1,794)       (996)       (2,415)       (1,861) 
                           

Net other income (deductions)

     3,090        17,547        19,182        18,577  
                           

Interest Charges

     18,385        17,392        36,462        34,599  
                           

Earnings (Loss) before Income Taxes

     18,095        (10,286)       28,567        (15,977) 

Income Taxes (Benefit)

     5,901        (5,140)       8,822        (8,488) 
                           

Earnings (Loss) from Continuing Operations

     12,194        (5,146)       19,745        (7,489) 

Earnings (Loss) from Discontinued Operations, net of Income

           

Taxes (Benefit) of $0, $(1,861), $0 and $38,166

     -        (2,611)       -        73,241  
                           

Net Earnings (Loss)

     12,194        (7,757)       19,745        65,752  

Earnings Attributable to Valencia Non-controlling Interest

     (3,292)       (2,775)       (6,396)       (5,354) 
                           

Net Earnings (Loss) Attributable to PNM

     8,902        (10,532)       13,349        60,398  

Preferred Stock Dividends Requirements

     (132)       (132)       (264)       (264) 
                           

Net Earnings (Loss) Available for PNM Common Stock

           $ 8,770              $   (10,664)             $ 13,085              $ 60,134  
                           

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

 

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 30,    December 31,
     2010    2009
   (In thousands)
ASSETS      

Current Assets:

     

Cash and cash equivalents

   $ 5,741       $    1,373   

Accounts receivable, net of allowance for uncollectible accounts of $1,483 and $1,483

   59,171       70,515   

Unbilled revenues

   46,463       38,067   

Other receivables

   58,197       74,120   

Affiliate receivables

   8,586       33   

Materials, supplies, and fuel stock

   48,943       47,789   

Regulatory assets

   28,589       7,476   

Commodity derivative instruments

   16,461       24,498   

Income taxes receivable

   33,987       59,299   

Other current assets

   47,272       40,199   
         

Total current assets

   353,410       363,369   
         

Other Property and Investments:

     

Investment in PVNGS lessor notes

   121,454       137,511   

Investments held by NDT

   135,496       137,032   

Other investments

   6,523       7,473   

Non-utility property

   976       976   
         

Total other property and investments

   264,449       282,992   
         

Utility Plant:

     

Plant in service and plant held for future use

   3,724,293       3,677,974   

Less accumulated depreciation and amortization

   1,263,802       1,260,903   
         
   2,460,491       2,417,071   

Construction work in progress

   162,772       159,793   

Nuclear fuel, net of accumulated amortization of $21,689 and $19,456

   78,985       69,337   
         

Net utility plant

   2,702,248       2,646,201   
         

Deferred Charges and Other Assets:

     

Regulatory assets

   373,724       375,131   

Goodwill

   51,632       51,632   

Other deferred charges

   68,061       55,841   
         

Total deferred charges and other assets

   493,417       482,604   
         
         $  3,813,524             $  3,775,166   
         

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

 

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 30,
2010
   December 31,
2009
    

(In thousands, except share

information)

LIABILITIES AND STOCKHOLDER’S EQUITY      

Current Liabilities:

     

Short-term debt

         $    192,000          $    118,000    

Accounts payable

   59,788      57,473    

Affiliate payables

   7,753      13,481    

Accrued interest and taxes

   23,533      24,124    

Regulatory liabilities

   1,463      908    

Commodity derivative instruments

   4,266      1,509    

Other current liabilities

   77,348      126,273    
         

Total current liabilities

   366,151      341,768    
         

Long-term Debt

   1,055,740      1,055,733    
         

Deferred Credits and Other Liabilities:

     

Accumulated deferred income taxes

   376,487      364,498    

Accumulated deferred investment tax credits

   19,304      20,518    

Regulatory liabilities

   310,149      316,215    

Asset retirement obligations

   73,003      70,099    

Accrued pension liability and postretirement benefit cost

   260,687      265,791    

Commodity derivative instruments

   1,446      556    

Other deferred credits

   94,599      90,425    
         

Total deferred credits and liabilities

   1,135,675      1,128,102    
         

Total liabilities

   2,557,566      2,525,603    
         

Commitments and Contingencies (See Note 9)

     

Cumulative Preferred Stock

     

without mandatory redemption requirements ($100 stated value, 10,000,000 authorized: issued and outstanding 115,293 shares)

   11,529      11,529    
         

Equity:

     

PNM common stockholder’s equity

     

Common stock outstanding (no par value, 40,000,000 shares authorized: issued and outstanding 39,117,799 shares)

   1,018,776      1,018,776    

Accumulated other comprehensive income (loss), net of income taxes

   (57,874)      (51,807)    

Retained earnings

   194,791      181,706    
         

Total PNM common stockholder’s equity

   1,155,693      1,148,675    

Non-controlling interest in Valencia

   88,736      89,359    
         

Total equity

   1,244,429      1,238,034    
         
         $  3,813,524          $  3,775,166    
         

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

 

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended June 30,
     2010    2009
     (In thousands)

Cash Flows From Operating Activities:

     

Net earnings

       $ 19,745             $ 65,752     

Adjustments to reconcile net earnings to net cash flows from operating activities:

     

Depreciation and amortization

     56,975           52,399     

PVNGS firm sales contract revenue

     (28,856)          (28,152)    

Deferred income taxes (benefit)

     18,777           (56,529)    

Net unrealized losses on derivatives

     5,605           1,956     

Realized (gains) losses on investments held by NDT

     (400)          1,913     

Gain on sale of PNM Gas

     -           (101,090)    

Loss on reacquired debt

     466           -     

Regulatory disallowances

     -           26,615     

Increase in legal reserve

     -           12,600     

Other, net

     3,564           1,003     

Changes in certain assets and liabilities:

     

Accounts receivable and unbilled revenues

     1,845           (3,317)    

Materials, supplies, and fuel stock

     (1,154)          650     

Other current assets

     (17,477)          2,320     

Other assets

     3,395           6,664     

Accounts payable

     2,315           (57,480)    

Accrued interest and taxes

     24,721           44,004     

Other current liabilities

     (44,593)          (18,290)    

Other liabilities

     (14,521)          (2,994)    
             

Net cash flows from operating activities

     30,407           (51,976)    
             

Cash Flows From Investing Activities:

     

Utility plant additions

     (118,467)          (108,265)    

Proceeds from sales of NDT investments

     36,285           75,850     

Purchases of NDT investments

     (37,850)          (77,236)    

Proceeds from sale of PNM Gas

     -           640,620     

Transaction cost for sale of PNM Gas

     -           (10,924)    

Return of principal on PVNGS lessor notes

     14,216           13,680      

Other, net

     945           1,351     
             

Net cash flows from investing activities

     (104,871)          535,076     
             

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

 

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended June 30,
     2010    2009
     (In thousands)

Cash Flows From Financing Activities:

     

Short-term borrowings (repayments), net

     74,000          (295,000)   

Long-term borrowings

     403,845          -    

Repayment of long-term debt

     (403,845)         -    

Payments received on PVNGS firm-sales contracts

     15,233          15,347    

Equity transactions with Valencia’s owner

     (7,019)         (6,712)   

Dividends paid

     (264)         (235,258)   

Debt issuance costs and other

     (3,118)         -    
             

Net cash flows from financing activities

     78,832          (521,623)   
             

Change in Cash and Cash Equivalents

     4,368          (38,523)   

Cash and Cash Equivalents at Beginning of Period

     1,373          46,621    
             

Cash and Cash Equivalents at End of Period

       $ 5,741            $ 8,098    
             

Supplemental Cash Flow Disclosures:

     

Interest paid, net of capitalized interest

       $ 37,656            $ 34,456    
             

Income taxes paid (refunded), net

       $ (35,189)           $ 45,740    
             

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

 

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PNM COMMON STOCKHOLDER’S EQUITY

(Unaudited)

 

          Accumulated         Total PNM
     Common Stock    Other         Common
       Number of        Aggregate        Comprehensive      Retained      Stockholder’s  
     Shares    Value    Income (Loss)      Earnings      Equity
          (Dollars in thousands)

Balance at December 31, 2009

   39,117,799       $ 1,018,776         $ (51,807)       $ 181,706        $ 1,148,675  

Net earnings attributable to PNM

             -        13,349        13,349  

Total other comprehensive income (loss)

             (6,067)       -        (6,067) 

Dividends on preferred stock

             -        (264)       (264) 
                                

Balance at June 30, 2010

   39,117,799       $ 1,018,776         $ (57,874)       $ 194,791        $ 1,155,693  
                                

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

 

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2010    2009    2010    2009
          (In thousands)     

Net Earnings (Loss)

         $   12,194             $ (7,757)            $ 19,745             $ 65,752     
                           

Other Comprehensive Income (Loss):

           

Unrealized Gain (Loss) on Investment Securities:

           

Unrealized holding gains (losses) arising during the period, net of income tax (expense) benefit of $1,280, $(2,778), $58, and $(3,034)

     (1,953)        4,239         (88)        4,629     

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $720, $118, $1,330, and $313

     (1,098)        (180)        (2,029)        (478)    

Pension liability adjustment, net of income tax benefit of $0, $0, $147, and $42,487

     -         -         (223)        (64,830)    

Fair Value Adjustment for Cash Flow Hedges:

           

Change in fair market value, net of income tax (expense) benefit of $(71), $519, $(2,767), and $(6,940)

     109         (791)        4,223         10,590     

Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $2,540, $3,330, $5,210, and $7,179

     (3,876)        (5,081)        (7,950)        (10,953)    
                           

Total Other Comprehensive Income (Loss)

     (6,818)        (1,813)        (6,067)        (61,042)    
                           

Comprehensive Income (Loss)

     5,376         (9,570)        13,678         4,710     

Comprehensive Income Attributable to Valencia Non-controlling Interest

     (3,292)        (2,775)        (6,396)        (5,354)    
                           

Comprehensive Income (Loss) Attributable to PNM

         $ 2,084             $   (12,345)            $ 7,282             $ (644)    
                           

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

 

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

         Three Months Ended June 30,            Six Months Ended June 30,    
     2010    2009    2010    2009
    

(In thousands)

Electric Operating Revenues:

           

Non-affiliates

   $ 42,934      $ 36,640      $ 81,525      $ 68,562  

Affiliate

   9,635      10,179      19,221      19,482  
                   

Total electric operating revenues

   52,569      46,819      100,746      88,044  
                   

Operating Expenses:

           

Cost of energy

   9,057      8,694      18,107      17,289  

Administrative and general

   8,818      7,720      18,312      16,049  

Regulatory disallowances

   -      670      -      670  

Depreciation and amortization

   10,040      8,915      20,135      17,513  

Transmission and distribution costs

   5,348      5,669      9,929      10,610  

Taxes other than income taxes

   4,865      4,719      9,581      9,396  
                   

Total operating expenses

   38,128      36,387      76,064      71,527  
                   

Operating income

   14,441      10,432      24,682      16,517  
                   

Other Income and Deductions:

           

Interest income

   -      9      -      9  

Other income

   309      494      673      911  

Other deductions

   (26)     (23)     (43)     (48) 
                   

Net other income (deductions)

   283      480      630      872  
                   

Interest Charges

   7,953      7,938      15,822      12,033  
                   

Earnings Before Income Taxes

   6,771      2,974      9,490      5,356  

Income Taxes

   2,665      1,208      3,740      2,169  
                   

Net Earnings

   $ 4,106      $ 1,766      $ 5,750      $ 3,187  
                   

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

 

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

         June 30,    
2010
     December 31,  
2009
       
     (In thousands)
ASSETS      

Current Assets:

     

Cash and cash equivalents

       $ 72          $ 138  

Accounts receivable

     15,902        11,773  

Unbilled revenues

     6,350        7,239  

Other receivables

     2,342        579  

Affiliate receivables

     5,670        5,151  

Materials and supplies

     3,085        2,591  

Income taxes receivable

     6,389        10,762  

Other current assets

     1,761        1,062  
             

Total current assets

     41,571        39,295  
             

Other Property and Investments:

     

Other investments

     270        270  

Non-utility property

     2,242        2,111  
             

Total other property and investments

     2,512        2,381  
             

Utility Plant:

     

Plant in service and plant held for future use

     869,323        864,260  

Less accumulated depreciation and amortization

     295,252        292,608  
             
     574,071        571,652  

Construction work in progress

     7,721        9,832  
             

Net utility plant

     581,792        581,484  
             

Deferred Charges and Other Assets:

     

Regulatory assets

     149,758        149,005  

Goodwill

     226,665        226,665  

Other deferred charges

     10,833        10,225  
             

Total deferred charges and other assets

     387,256        385,895  
             
       $  1,013,131          $ 1,009,055  
             

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

 

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 30,
2010
   December 31,
2009
     (In thousands, except share
information)

LIABILITIES AND STOCKHOLDER’S EQUITY

     

Current Liabilities:

     

Short-term debt – affiliate

   $  24,000     $    23,500 

Accounts payable

   4,691     6,243 

Affiliate payables

   772     2,281 

Accrued interest and taxes

   13,730     16,505 

Other current liabilities

   3,742     2,194 
         

Total current liabilities

   46,935     50,723 
         

Long-term Debt

   310,024     309,712 
         

Deferred Credits and Other Liabilities:

     

Accumulated deferred income taxes

   133,442     136,944 

Regulatory liabilities

   42,215     34,109 

Asset retirement obligations

   804     772 

Accrued pension liability and postretirement benefit cost

   14,832     16,132 

Other deferred credits

   10,218     8,872 
         

Total deferred credits and other liabilities

   201,511     196,829 
         

Total liabilities

   558,470     557,264 
         

Commitments and Contingencies (See Note 9)

     

Common Stockholder’s Equity:

     

Common stock outstanding ($10 par value, 12,000,000 shares authorized: issued and outstanding 6,358 shares)

   64     64 

Paid-in-capital

   441,543     443,187 

Accumulated other comprehensive income (loss), net of income taxes

   (1,310)     (74) 

Retained earnings

   14,364     8,614 
         

Total common stockholder’s equity

   454,661     451,791 
         
       $  1,013,131         $  1,009,055 
         

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

 

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

         Six Months Ended June 30,    
     2010    2009
     (In thousands)

Cash Flows From Operating Activities:

     

Net earnings

   $ 5,750       $  3,187   

Adjustments to reconcile net earnings to net cash flows from operating activities:

     

Depreciation and amortization

   22,147       20,469   

Regulatory disallowances

   -       670   

Deferred income taxes (benefit)

   (3,444)      (1,740)  

Other, net

   (633)      165   

Changes in certain assets and liabilities:

     

Accounts receivable and unbilled revenues

   (3,240)      (2,122)  

Materials and supplies

   (494)      (222)  

Other current assets

   (1,153)      (2,884)  

Other assets

   (1,730)      (727)  

Accounts payable

   (1,552)      (6,442)  

Accrued interest and taxes

   1,598       (3,049)  

Other current liabilities

   (1,391)      2,322  

Other liabilities

   (689)      (1,366)  
         

Net cash flows from operating activities

   15,169       8,261   
         

Cash Flows From Investing Activities:

     

Utility plant additions

   (13,967)      (19,006)  
         

Net cash flows from investing activities

   (13,967)      (19,006)  
         

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

 

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended June 30,
     2010    2009
     (In thousands)

Cash Flow From Financing Activities:

     

Short-term borrowings (repayments), net

     -           (150,000)  

Short-term borrowings, net – affiliate

     500         30,400   

Long-term borrowings

     -         309,242   

Repayment of long-term debt

     -         (167,690)  

Dividends paid

     (1,644)        (1,421)  

Debt issuance costs and other

     (124)        (9,831)  
             

Net cash flows from financing activities

     (1,268)        10,700   
             

Change in Cash and Cash Equivalents

     (66)        (45)  

Cash and Cash Equivalents at Beginning of Period

     138         124   
             

Cash and Cash Equivalents at End of Period

         $ 72             $ 79   
             

Supplemental Cash Flow Disclosures:

     

Interest paid, net of capitalized interest

         $   14,050             $ 9,716   
             

Income taxes paid (refunded), net

         $ 2,940             $ 4,593   
             

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

 

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY

(Unaudited)

 

               Accumulated         Total
     Common Stock         Other         Common
         Number of    
Shares
       Aggregate    
Value
   Paid-in
     Capital    
     Comprehensive  
Income (Loss)
       Retained    
Earnings
   Stockholder’s
Equity
          (Dollars in thousands)

Balance at December 31, 2009

   6,358          $ 64        $ 443,187           $ (74)            $ 8,614          $ 451,791   

Net earnings

   -        -        -         -         5,750        5,750   

Total other comprehensive income (loss)

   -        -        -         (1,236)        -        (1,236)  

Dividends declared on common stock

   -        -        (1,644)        -         -        (1,644)  
                                       

Balance at June 30, 2010

   6,358          $ 64        $ 441,543           $ (1,310)            $ 14,364          $ 454,661   
                                       

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

 

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TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2010        2009        2010    2009
    

(In thousands)

Net Earnings

           $ 4,106               $ 1,766      $5,750       $ 3,187  
                       

Other Comprehensive Income (Loss):

           

Fair Value Adjustment for Cash Flow Hedges:

           

Change in fair market value, net of income tax (expense) benefit of $541, $(497), $891, and $(198)

     (976)        898      (1,607)      357  

Reclassification adjustment for losses included in net earnings, net of income tax (benefit) of $(103), $(60), $(205), and $(60)

     186         108      371       108  
                       

Total Other Comprehensive Income (Loss)

     (790)        1,006      (1,236)      465  
                       

Comprehensive Income

           $ 3,316               $ 2,772      $4,514       $ 3,652  
                       

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

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1)

Significant Accounting Policies and Responsibility for Financial Statements

Financial Statement Preparation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at June 30, 2010 and December 31, 2009, and the consolidated results of operations and comprehensive income for the three months and six months ended June 30, 2010 and 2009, and cash flows for the six months ended June 30, 2010 and 2009. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. The results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

These Condensed Consolidated Financial Statements are unaudited, and certain information and note disclosures normally included in the annual Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 2009 Annual Reports on Form 10-K.

The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP will be indicated as such. Certain amounts in the 2009 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2010 financial statement presentation.

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

Principles of Consolidation

The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNMR’s primary subsidiaries are PNM, TNMP, and First Choice. PNM consolidates the PVNGS Capital Trust and Valencia. PNMR shared services’ administrative and general expenses, which represent costs that are primarily driven by corporate level activities, are allocated to the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include transmission and distribution services; lease, interest, and income tax sharing payments; and dividends paid on common stock. All intercompany transactions and balances have been eliminated. See Note 12.

Restatement

As discussed in Note 12 of Notes to Consolidated Financial Statements in the 2009 Annual Reports on Form 10-K, the actuarial determination of the PBO for the PNM pension plan at December 31, 2009 revealed that there had been an increase in the PBO of $9.6 million due to the retirement of employees transferred to NMGC following the sale of PNM Gas in January 2009. This increase was expensed, similar to a plan curtailment, as required by GAAP and reduced the gain recognized on the sale. The expense for the PBO increase is reflected through a retroactive adjustment of the March 31, 2009 quarter for PNMR and PNM and does not impact the three months

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

ended June 30, 2010. The retroactive adjustment is part of discontinued operations for PNMR and PNM and does not impact earnings from continuing operations or earnings per share from continuing operations. The retroactive adjustment had the following impact on the June 30, 2009 amounts:

 

     Six Months Ended June 30, 2009
     As Originally
Reported
   As Restated
     (In thousands, except per share amounts)

PNMR

     

Net earnings

   $    98,890      $    93,068  

Net earnings (loss) attributable to PNMR

   93,272      87,450  

Net earnings (loss) attributable to PNMR per common share:

     

Basic

   1.02      0.96  

Diluted

   1.02      0.96  

PNM

     

Net earnings (loss)

   71,574      65,752  

Net earnings (loss) attributable to PNM

   66,220      60,398  

 

(2)

Disposition

PNM Gas Sale

On January 12, 2008, PNM reached a definitive agreement to sell its natural gas operations, which comprised the PNM Gas segment, to NMGC, a subsidiary of Continental, for $620.0 million in cash, subject to adjustment based on the actual level of working capital at closing. PNM received an additional $32.9 million related to working capital true-ups, including $20.6 million received at closing. In a separate transaction conditioned upon the sale of the natural gas operations, PNMR proposed to acquire CRHC, Continental’s regulated Texas electric transmission and distribution business, for $202.5 million in cash. On July 22, 2008, PNMR and Continental agreed to terminate the agreement for the acquisition of CRHC. Under the termination agreement, Continental agreed to pay PNMR $15.0 million upon the closing of the PNM Gas transaction. PNM completed the sale of PNM Gas on January 30, 2009 and recognized a gain of $67.0 million, after income taxes of $34.1 million in the six months ended June 30, 2009, which is included in discontinued operations. This gain reflects the reduction for the increase in the PBO of the PNM pension plan related to the retirement of employees transferred to NMGC. See Note 1. PNMR recognized an additional pre-tax gain of $15.0 million ($9.1 million after income taxes) due to the CRHC termination payment, which is included in other income in the six months ended June 30, 2009. In connection with the sale, PNM retained obligations under the frozen PNM pension and executive retirement plans for employees transferred to NMGC. PNM had a regulatory asset related to these plans, which was removed from regulatory assets and transferred to AOCI. The after-tax charge to AOCI was $59.0 million. PNM also retained obligations for certain contingent liabilities that existed at the date of sale.

PNM used proceeds from the sale to retire short-term debt and paid a dividend of $220.0 million to PNMR. PNMR used the dividend from PNM and the $15.0 million from Continental to retire debt. There were no material prior relationships between the PNMR and Continental parties other than in respect of the transactions described herein. See Note 14 for financial information concerning PNM Gas, which is classified as discontinued operations in the accompanying financial statements.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3)

Segment Information

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

PNM Electric

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

TNMP Electric

TNMP Electric is a regulated utility operating in Texas. TNMP’s operations are subject to traditional rate regulation by the PUCT. TNMP provides regulated transmission and distribution services under the TECA.

PNM Gas

PNM Gas distributed natural gas to most of the major communities in New Mexico, subject to traditional rate regulation by the NMPRC. The customer base of PNM Gas included both sales-service customers and transportation-service customers. PNM Gas purchased natural gas in the open market and sold it at cost to its sales-service customers. As a result, increases or decreases in gas revenues resulting from gas price fluctuations did not impact gross margin or earnings. As described in Note 2, PNM completed the sale of its gas operations on January 30, 2009. PNM Gas is reported as discontinued operations in the accompanying financial statements and is not included in the segment information presented below. Financial information for PNM Gas is presented in Note 14.

First Choice

First Choice is a certified retail electric provider operating in Texas that primarily serves residential, small commercial, and governmental customers. Although First Choice is regulated in certain respects by the PUCT, it is not subject to traditional rate of return regulation.

Optim Energy

Optim Energy is treated as a separate segment for PNMR. PNMR’s investment in Optim Energy is held in the Corporate and Other segment and is accounted for using the equity method of accounting. Optim Energy’s revenues and expenses are not included in PNMR’s consolidated revenues and expenses or the following tables. See Note 11.

Corporate and Other

PNMR Services Company is included in the Corporate and Other segment.

The following tables present summarized financial information for PNMR by reportable segment. Excluding PNM Gas, which is presented as discontinued operations, PNM has only one operating segment. TNMP operates in only one reportable segment. Therefore, tabular segment information is not presented for PNM and TNMP.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

PNMR SEGMENT INFORMATION

 

     PNM
Electric
   TNMP
Electric
   First
Choice
   Corporate
and Other
   Consolidated

Three Months Ended June 30, 2010

     (In thousands)

Operating revenues

       $ 243,060          $ 42,934          $ 119,916          $ (93)        $405,817   

Intersegment revenues

     -        9,635        -        (9,635)        -   
                                  

Total electric operating revenues

     243,060        52,569        119,916        (9,728)        405,817   

Cost of energy

     79,639        9,057        72,121        (9,636)        151,181   
                                  

Gross margin

     163,421        43,512        47,795        (92)        254,636   

Other operating expenses

     107,107        19,031        21,253        (3,805)        143,586   

Depreciation and amortization

     22,924        10,040        210        4,202        37,376   
                                  

Operating income (loss)

     33,390        14,441        26,332        (489)        73,674   

Interest income

     5,081        -        11        (9)        5,083   

Equity in net earnings (loss) of Optim Energy

     -        -        -        (3,858)        (3,858)  

Other income (deductions)

     (1,991)        283        (90)        (1,546)        (3,344)  

Net interest charges

     (18,385)        (7,953)        (387)        (5,036)        (31,761)  
                                  

Earnings (loss) before income taxes

     18,095        6,771        25,866        (10,938)        39,794   

Income taxes (benefit)

     5,901        2,665        9,313        (4,387)        13,492   
                                  

Earnings (loss) from continuing operations

     12,194        4,106        16,553        (6,551)        26,302   

Valencia non-controlling interest

     (3,292)        -        -        -        (3,292)  

Subsidiary preferred stock dividends

     (132)        -        -        -        (132)  
                                  

Segment earnings (loss) from continuing operations attributable to PNMR

       $ 8,770          $ 4,106          $ 16,553          $ (6,551)          $ 22,878   
                                  

Six Months Ended June 30, 2010

              

Operating revenues

       $ 473,596          $ 81,525          $ 234,306          $ (215)          $ 789,212   

Intersegment revenues

     -        19,221        -        (19,221)        -   
                                  

Total electric operating revenues

     473,596        100,746        234,306        (19,436)        789,212   

Cost of energy

     166,073        18,107        177,111        (19,222)        342,069   
                                  

Gross margin

     307,523        82,639        57,195        (214)        447,143   

Other operating expenses

     215,900        37,822        41,701        (7,091)        288,332   

Depreciation and amortization

     45,776        20,135        473        8,271        74,655   
                                  

Operating income

     45,847        24,682        15,021        (1,394)        84,156   

Interest income

     10,015        -        13        82        10,110   

Equity in net earnings (loss) of Optim Energy

     -        -        -        (8,210)        (8,210)  

Other income (deductions)

     9,167        630        (98)        (2,943)        6,756   

Net interest charges

     (36,462)        (15,822)        (697)        (10,190)        (63,171)  
                                  

Earnings (loss) before income taxes

     28,567        9,490        14,239        (22,655)        29,641   

Income taxes (benefit)

     8,822        3,740        5,139        (9,149)        8,552   
                                  

Earnings (loss) from continuing operations

     19,745        5,750        9,100        (13,506)        21,089   

Valencia non-controlling interest

     (6,396)        -        -        -        (6,396)  

Subsidiary preferred stock dividends

     (264)        -        -        -        (264)  
                                  

Segment earnings (loss) from continuing operations attributable to PNMR

       $ 13,085          $ 5,750          $ 9,100          $ (13,506)          $ 14,429   
                                  

At June 30, 2010:

              

Total Assets

       $ 3,813,524          $ 1,013,131          $  239,035          $ 337,832          $  5,403,522   

Goodwill

       $ 51,632          $ 226,665          $ 43,013          $ -          $ 321,310   

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

     PNM
Electric
   TNMP
Electric
   First
Choice
   Corporate
and Other
   Consolidated

Three Months Ended June 30, 2009

     (In thousands)

Operating revenues

       $ 226,541          $ 36,640          $ 137,950          $ (21)            $ 401,110   

Intersegment revenues

     -        10,179        -        (10,179)        -   
                                  

Total electric operating revenues

     226,541        46,819        137,950        (10,200)        401,110   

Cost of energy

     91,125        8,694        85,613        (10,179)        175,253   
                                  

Gross margin

     135,416        38,125        52,337        (21)        225,857   

Other operating expenses

     122,932        18,778        26,081        (3,758)        164,033   

Depreciation and amortization

     22,925        8,915        469        4,637        36,946   
                                  

Operating income (loss)

     (10,441)        10,432        25,787        (900)        24,878   

Interest income

     12,557        9        14        (1,357)        11,223   

Equity in net earnings (loss) of Optim Energy

     -        -        -        (7,353)        (7,353)  

Other income (deductions)

     4,990        471        (81)        (26)        5,354   

Net interest charges

     (17,392)        (7,938)        (777)        (5,710)        (31,817)  
                                  

Earnings (loss) before income taxes

     (10,286)        2,974        24,943        (15,346)        2,285   

Income taxes (benefit)

     (5,140)        1,208        8,989        (6,191)        (1,134)  
                                  

Earnings (loss) from continuing operations

     (5,146)        1,766        15,954        (9,155)        3,419   

Valencia non-controlling interest

     (2,775)        -        -        -        (2,775)  

Subsidiary preferred stock dividends

     (132)        -        -        -        (132)  
                                  

Segment earnings (loss) from continuing operations attributable to PNMR

       $ (8,053)          $ 1,766          $ 15,954          $ (9,155)            $ 512   
                                  

Six Months Ended June 30, 2009

              

Operating revenues

       $ 458,485          $ 68,562          $ 260,124          $ (197)            $ 786,974   

Intersegment revenues

     11        19,482        -        (19,493)        -   
                                  

Total electric operating revenues

     458,496        88,044        260,124        (19,690)        786,974   

Cost of energy

     192,657        17,289        166,036        (19,481)        356,501   
                                  

Gross margin

     265,839        70,755        94,088        (209)        430,473   

Other operating expenses

     220,440        36,725        55,413        (9,903)        302,675   

Depreciation and amortization

     45,354        17,513        987        9,163        73,017   
                                  

Operating income

     45        16,517        37,688        531        54,781   

Interest income

     18,518        9        49        (2,130)        16,446   

Equity in net earnings (loss) of Optim Energy

     -        -        -        (5,958)        (5,958)  

Other income (deductions)

     59        863        (81)        20,935        21,776   

Net interest charges

     (34,599)        (12,033)        (1,776)        (12,358)        (60,766)  
                                  

Earnings (loss) before income taxes

     (15,977)        5,356        35,880        1,020        26,279   

Income taxes (benefit)

     (8,488)        2,169        12,888        (117)        6,452   
                                  

Earnings (loss) from continuing operations

     (7,489)        3,187        22,992        1,137        19,827   

Valencia non-controlling interest

     (5,354)        -        -        -        (5,354)  

Subsidiary preferred stock dividends

     (264)        -        -        -        (264)  
                                  

Segment earnings (loss) from continuing operations attributable to PNMR

       $ (13,107)          $ 3,187          $ 22,992          $ 1,137            $ 14,209   
                                  

At June 30, 2009:

              

Total Assets

       $  3,644,326          $ 984,191          $  258,827          $   373,817            $  5,261,161   

Goodwill

       $ 51,632          $  226,665          $ 43,013          $ -            $ 321,310   

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(4)

Energy Related Derivative Contracts and Fair Value Disclosures

Energy Related Derivative Contracts

The Company is exposed to certain risks relating to its ongoing business operations. The primary objective for the use of derivative instruments, including energy contracts, options, and futures, is to manage price risk associated with forecasted purchases of energy or fuel used to generate electricity, or to manage anticipated generation capacity in excess of forecasted demand from existing customers. Substantially all of the Company’s energy related derivative contracts are entered into to manage commodity risk and the Company does not currently engage in speculative trading.

Commodity Risk

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing open positions in the energy markets, primarily on a short-term basis. The Company routinely enters into various derivative instruments such as forward contracts, option agreements, and price basis swap agreements to economically hedge price and volume risk on power commitments and fuel requirements and to minimize the risk of market fluctuations in wholesale portfolios. The Company monitors the market risk of its commodity contracts using VaR and GEaR calculations to maintain total exposure within management-prescribed limits.

PNM is required to meet the demand and energy needs of its retail and wholesale customers. For PNM’s share of PVNGS Unit 3 and the requirements of retail customers not covered under PNM’s FPPAC, PNM is exposed to market risk. PNM’s operations are managed primarily through a net asset-backed strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM would be exposed to market risk if its generation capabilities were to be disrupted or if its retail load requirements were to be greater than anticipated. If all or a portion of the net open contract position were required to be covered as a result of the aforementioned unexpected situations, commitments would have to be met through market purchases. As discussed in Note 10, on April 20, 2010, PNM received NMPRC approval of a hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. PNM has begun hedging activities.

First Choice is responsible for energy supply related to the sale of electricity to retail customers in Texas. TECA contains no provisions for the specific recovery of fuel and purchased power costs. The rates charged to First Choice customers are negotiated with each customer. As a result, changes in purchased power costs can affect First Choice’s operating results with respect to margins and changes in retail customer load requirements. First Choice is exposed to market risk to the extent that it has not hedged fixed price load commitments or to the degree that market price movements affect customer retention, customer additions or customer attrition. Additionally, volumetric fluctuations in First Choice retail load requirements due to weather or other conditions may subject First Choice to market risk. First Choice’s strategy is to minimize its exposure to fluctuations in market energy prices by matching sales contracts with supply instruments designed to preserve targeted margins.

Accounting for Derivatives

Under derivative accounting and related rules for energy contracts, the Company accounts for its various derivative instruments for the purchase and sale of energy based on the Company’s intent. Energy contracts that meet the definition of a derivative under GAAP and do not qualify for the normal sales and purchases exception are recorded on the balance sheet at fair value at each period end. The changes in fair value are recognized in earnings unless specific hedge accounting criteria are met. Derivatives that meet the normal sales and purchases exception are not marked to market but rather recorded in results of operations when the underlying transactions settle.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

For derivative transactions meeting the definition of a cash flow hedge, the Company documents the relationships between the hedging instruments and the items being hedged. This documentation includes the strategy that supports executing the specific transaction and the methods utilized to assess the effectiveness of the hedges. Changes in the fair value of contracts qualifying for cash flow hedge accounting are included in AOCI to the extent effective. Ineffectiveness gains and losses were immaterial for all periods presented. Gains or losses related to cash flow hedge instruments, including those de-designated, are reclassified from AOCI when the hedged transaction settles and impacts earnings. Amounts related to contracts that will be settled in the next twelve months are shown as current assets and current liabilities. Based on market prices at June 30, 2010, after-tax gains of $8.2 million for PNMR and $9.0 million for PNM would be reclassified from AOCI into earnings during the next twelve months. However, the actual amount reclassified into earnings will vary due to future changes in market prices. As of June 30, 2010, the maximum length of time over which the Company’s designated cash flow hedges are hedging its exposure to the variability in future cash flows is through December 2010.

The contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as either economic hedges or trading transactions. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. Trading transactions include speculative transactions, which the Company ceased in 2008.

Fair value is defined under GAAP as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. Valuations of derivative assets and liabilities take into account nonperformance risk, including the effect of the Company’s own credit standing. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.

At June 30, 2010, amounts recognized for the right to reclaim cash collateral were $4.2 million for PNMR and $2.7 million for PNM. PNMR and PNM had no obligations to return cash collateral at June 30, 2010.

The following tables do not include activity related to PNM Gas. See Note 14.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Commodity Derivatives

Commodity derivative instruments are summarized as follows:

 

     Economic Hedges    Trading Transactions    Qualified Cash
Flow Hedges
     June 30,
2010
   December 31,
2009
   June 30,
2010
   December 31,
2009
   June 30,
2010
   December 31,
2009
          (In thousands)     

PNMR

                 

Current assets

       $ 16,165          $ 15,728          $ 9,453          $ 13,889          $ 14,938          $ 21,002  

Deferred charges

     3,251        2,413        -        -        -        -  
                                         
     19,416        18,141        9,453        13,889        14,938        21,002  
                                         

Current liabilities

     (28,265)        (11,375)        (8,841)        (12,650)        -        -  

Long-term liabilities

     (10,727)        (4,549)        -        -        -        -  
                                         
     (38,992)         (15,924)        (8,841)         (12,650)        -        -  
                                         

Net

       $  (19,576)          $ 2,217          $ 612          $ 1,239          $  14,938          $  21,002  
                                         

PNM

                 

Current assets

       $ 1,523          $ 3,496          $ -          $ -          $ 14,938          $ 21,002  

Deferred charges

     -        -        -        -        -        -  
                                         
     1,523        3,496        -        -        14,938        21,002  
                                         

Current liabilities

     (4,266)        (1,509)        -        -        -        -  

Long-term liabilities

     (1,446)        (556)        -        -        -        -  
                                         
     (5,712)        (2,065)        -        -        -        -  
                                         

Net

       $ (4,189)          $ 1,431          $ -          $ -          $ 14,938          $ 21,002  
                                         

First Choice decided to end speculative trading in 2008 and flattened remaining speculative positions. The PNMR trading transactions column of the above table includes all balances related to the remaining flattened speculative positions of First Choice. No significant additional costs are expected related to speculative trading.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the effect of commodity derivative instruments on earnings and OCI, excluding income tax effects. For cash flow hedges, the earnings impact reflects the reclassification from AOCI when the hedged transactions settle.

 

     Economic
Hedges
   Trading
Transactions
   Qualified Cash
Flow Hedges
     June 30,    June 30,    June 30,
     2010    2009    2010    2009    2010    2009

Three Months Ended

     (In thousands)

PNMR

                 

Electric operating revenues

       $ (121)          $ 1,210           $     (36)          $     100          $ 6,539           $ 8,462   

Cost of energy

     2,720         4,096         -        -        (771)        (6,047)  
                                         

Total gain (loss)

       $ 2,599           $ 5,306           $ (36)          $ 100          $ 5,768           $ 2,415   
                                         

Recognized in OCI

                   $ (5,581)          $  (5,014)  
                         
PNM                  

Electric operating revenues

       $ (121)          $ 1,210           $ -          $ 19          $ 6,539           $ 8,462   

Cost of energy

     (37)        910         -        -        (41)        (52)  
                                         

Total gain (loss)

       $ (158)          $ 2,120           $ -          $ 19          $ 6,498           $ 8,410   
                                         

Recognized in OCI

                   $  (6,311)          $ (9,721)  
                         
Six Months Ended                  
PNMR                  

Electric operating revenues

       $ (2,007)          $ 3,788           $ (33)          $ 95          $ 13,288           $ 18,137   

Cost of energy

     (29,229)        (9,969)        -        -        (1,246)        (8,207)  
                                         

Total gain (loss)

       $ (31,236)          $ (6,181)          $ (33)          $ 95          $ 12,042           $ 9,930   
                                         

Recognized in OCI

                   $ (4,818)          $ (6,246)  
                         
PNM                  

Electric operating revenues

       $ (2,007)          $ 3,788           $ -          $ 80          $ 13,288           $ 18,137   

Cost of energy

     (3,662)        (10,873)        -        -        14         (5)  
                                         

Total gain (loss)

       $ (5,669)          $ (7,085)          $ -          $ 80          $ 13,302           $ 18,132   
                                         

Recognized in OCI

                   $ (6,078)          $ (602)  
                         

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Commodity contract volume positions are presented in Decatherms for gas related contracts and in MWh for power related contracts. The table below presents PNMR’s and PNM’s net buy (sell) volume positions:

 

     Decatherms    MWh
       Economic  
Hedges
   Trading
Transactions
   Qualified
Cash Flow
Hedges
     Economic  
Hedges
   Trading
Transactions
   Qualified
  Cash Flow  
Hedges

June 30, 2010

                 

PNMR

   24,560,000      (989,317)        2,445,796      -      (397,530)  

PNM

   4,157,500      -          233,625      -      (397,530)  

December 31, 2009

                 

PNMR

   17,852,500      (1,963,293)        1,658,101      -      (788,400)  

PNM

   6,087,500      -          468,525      -      (788,400)  

In connection with managing its commodity risks, the Company enters into master agreements with certain counterparties. If the Company is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral from the Company if the Company’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that the Company will perform; and others have no provision for collateral.

The table below presents information about the Company’s contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. Contractual liability represents commodity derivative contracts recorded at fair value on the balance sheet, determined on an individual contract basis without offsetting amounts for individual contracts that are in an asset position and could be offset under master netting agreements with the same counterparty. The table only reflects cash collateral that has been posted under the existing contracts and does not reflect letters of credit under the Company’s revolving credit facilities that have been issued as collateral. Net exposure is the net contractual liability for all contracts, including those designated as normal purchases and sales, offset by existing cash collateral and by any offsets available under master netting agreements, including both asset and liability positions.

 

Contingent Feature –

Credit Rating Downgrade

       Contractual    
Liability
   Existing Cash
Collateral
       Net Exposure    
     (In thousands)
June 30, 2010         

PNMR

           $ 18,644      $ 2,600                $ 13,916  

PNM

           $ 2,972      $ 2,600                $ 333  
December 31, 2009         

PNMR

           $ 17,124      $ 1,000                $ 14,104  

PNM

           $ 1,211      $ 1,000                $ 37  

Sale of Power from PVNGS Unit 3

In April 2008, PNM entered into three separate contracts for the sale of capacity and energy related to its entire ownership interest in PVNGS Unit 3, which is 135 MW. Under two of the contracts, PNM sells 90 MW of firm capacity and energy. Under the remaining contract, PNM sells 45 MW of unit contingent capacity and energy. The term of the contracts is May 1, 2008 through December 31, 2010. Under the two firm contracts, the two buyers made prepayments of $40.6 million and $30.0 million. These amounts were recorded as deferred revenue and are being amortized over the life of the contracts. At June 30, 2010 and December 31, 2009, $14.2 million and $29.5

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

million were included in other current liabilities related to these contracts. The prepayments received under the firm contracts, as well as required subsequent monthly payments on them, are shown as a financing activity in the Condensed Consolidated Statement of Cash Flows. The firm contracts are considered energy derivatives and are accounted for as cash flow hedges with changes in fair value included in AOCI. The contingent contract is accounted for as a normal sale.

Non-Derivative Financial Instruments

The carrying amounts reflected on the Condensed Consolidated Balance Sheets approximate fair value for cash, temporary investments, receivables, and payables due to the short period of maturity. Available-for-sale securities are carried at fair value.

Available-for-sale securities for PNMR and PNM consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS. The NDT holds equity and fixed income securities. The fair value and gross unrealized gains of investments in available-for-sale securities are presented in the following table. PNMR and PNM do not have any unrealized losses on available-for-sale securities.

 

     June 30, 2010    December 31, 2009
     Unrealized Gains    Fair Value    Unrealized Gains    Fair Value
          (In thousands)     

Equity securities:

           

Domestic value

                       $ 2,519                     $ 20,517                   $ 1,684             $ 21,458 

Domestic growth

     7,484       36,415       8,901       38,132 

International and other

     1,149       8,637       1,558       9,985 

Fixed income securities:

           

Municipals

     1,894       37,352       1,715       36,901 

U.S. Government

     616       21,296       25       20,451 

Corporate and other

     649       8,553       309       8,006 

Cash investments

          2,726            2,099 
                           
                       $ 14,311                     $ 135,496                   $ 14,192             $     137,032 
                           

The proceeds and gross realized gains and losses on the disposition of available-for-sale securities for PNMR and PNM are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold.

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2010    2009    2010    2009
          (In thousands)     

Proceeds from sales

       $  15,586          $ 33,394          $ 36,285          $ 74,931  

Gross realized gains

       $ 1,526          $ 1,886          $ 3,431          $ 3,421  

Gross realized (losses)

       $ (510)         $  (1,342)         $  (1,872)         $  (5,659) 

Held-to-maturity securities are those investments in debt securities that the Company has the ability and intent to hold until maturity. Held-to-maturity securities consist of the investment in PVNGS lessor notes and certain items within other investments, including the EIP lessor note.

The Company has no available-for-sale or held-to-maturity securities for which carrying value exceeds fair value. There are no impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

At June 30, 2010, the available-for-sale and held-to-maturity debt securities had the following final maturities:

 

     Fair Value
     Available-for-Sale    Held-to-Maturity
     PNMR and PNM    PNMR    PNM
     (In thousands)

Within 1 year

   $ 1,302              $ 18              $ 18  

After 1 year through 5 years

   15,294        178,725        164,044  

After 5 years through 10 years

   12,282        4,361        -  

Over 10 years

   38,323        -        -  
                  
           $67,201              $ 183,104              $ 164,062  
                  

The carrying amount and fair value of held-to-maturity debt securities and other non-derivative financial instruments (including current maturities) are:

 

     June 30, 2010    December 31, 2009
     Carrying
Amount
   Fair Value    Carrying
Amount
   Fair Value
     (In thousands)
PNMR            

Long-term debt

       $ 1,567,652          $ 1,668,389          $ 1,567,331          $ 1,627,986  

Investment in PVNGS lessor notes

       $ 152,463          $ 157,666          $ 159,936          $ 169,863  

Other investments

       $ 22,481          $ 28,257          $ 25,528          $ 34,078  
PNM            

Long-term debt

       $ 1,055,740          $ 1,058,125          $ 1,055,733          $ 1,044,516  

Investment in PVNGS lessor notes

       $ 152,463          $ 157,666          $ 159,936          $ 169,863  

Other investments

       $ 6,523          $ 7,280          $ 7,473          $ 8,457  
TNMP            

Long-term debt

       $ 310,024          $ 393,881          $ 309,712          $ 368,350  

Other investments

       $ 270          $ 270          $ 270          $ 270  

The fair value of long-term debt shown above was primarily determined using quoted market values, as were certain items included in other investments. To the extent market values were not available, fair value was determined by discounting the cash flows for the instrument using quoted interest rates for comparable instruments.

Other Fair Value Disclosures

The Company determines the fair values of its derivative and other instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Level 3 inputs used in determining fair values for the Company consist of internal valuation models.

For NDT investments, Level 2 fair values are provided by the trustee utilizing a pricing service. The pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

for specific securities or securities with similar characteristics. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. Fair values of Level 3 commodity derivatives are determined in a manner similar to those in Level 2, but are at a lower level in the hierarchy due to low transaction volume or market illiquidity that significantly limit the availability of observable market data.

Derivatives and Investments

The fair values of derivatives and investments that are recorded at fair value on the Condensed Consolidated Balance Sheets are as follows:

 

     Total(1)    Quoted Prices
in Active
Market for
Identical Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
June 30, 2010         (In thousands)   
PNMR and PNM            

NDT investments

           

Cash and equivalents

       $ 2,726             $ 2,726           $ -             $ -   

Equity securities:

           

Domestic value

     20,517         20,517         -         -   

Domestic growth

     36,415         36,415         -         -   

International and other

     8,637         8,637         -         -   

Fixed income securities:

           

Municipals

     37,352         -         37,352         -   

U.S. government

     21,296         15,988         5,308         -   

Corporate and other

     8,553         3         8,550         -   
                           

Total NDT investments

       $  135,496             $ 84,286           $ 51,210             $ -   
                           
PNMR            

Commodity derivative assets

       $ 43,807             $ 12,342           $ 30,905             $ 174   

Commodity derivative liabilities

     (47,833)        (23,516)        (23,479)        (452)  
                           

Net

       $ (4,026)            $ (11,174)          $ 7,426             $ (278)  
                           
PNM            

Commodity derivative assets

       $ 16,461             $ 295           $ 16,166             $ -   

Commodity derivative liabilities

     (5,712)        (1,538)        (4,174)        -   
                           

Net

       $ 10,749             $ (1,243)          $ 11,992             $ -   
                           

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

     Total(1)    Quoted Prices
in Active
Market for
Identical Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
December 31, 2009         (In thousands)   
PNMR and PNM            

NDT investments

           

Cash and equivalents

       $ 2,099                 $ 2,099           $ -                 $ -   

Equity securities:

           

Domestic value

     21,458         21,458         -         -   

Domestic growth

     38,132         38,132         -         -   

International and other

     9,985         9,985         -         -   

Fixed income securities:

           

U.S. government

     20,451         15,135         5,316         -   

Municipals

     36,901         -         36,901         -   

Corporate and other

     8,006         -         8,006         -   
                           

Total NDT investments

       $ 137,032                 $ 86,809           $ 50,223                 $ -   
                           
PNMR            

Commodity derivative assets

       $ 53,032                 $ 9,097           $ 43,510                 $ 320   

Commodity derivative liabilities

     (28,574)        (10,534)        (17,863)        (72)  
                           

Net

       $ 24,458                 $ (1,437)          $ 25,647                 $ 248   
                           
PNM            

Commodity derivative assets

       $ 24,498                 $ -           $ 24,498                 $ -   

Commodity derivative liabilities

     (2,065)        (958)        (1,090)        (17)  
                           

Net

       $ 22,433                 $ (958)          $ 23,408                 $ (17)  
                           

 

  (1)

The Level 1, 2 and 3 columns in the above table is presented based on the nature of each instrument. The total column is presented based on the balance sheet classification of the instruments and reflect unit of account reclassifications between commodity derivative assets and commodity derivative liabilities of $0.4 million for PNMR and zero for PNM at June 30, 2010 and $0.1 million for PNMR and zero for PNM at December 31, 2009. There were no transfers between levels during the three and six months ended June 30, 2010.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

A reconciliation of the changes in Level 3 fair value measurements is as follows:

 

     PNMR    PNM
     June 30,    June 30,
     2010    2009    2010    2009
Three Months Ended      (In thousands)

Balance at beginning of period

       $ 85          $ (2,211)          $ -          $   (1,865)  

Total gains (losses) included in earnings

     (437)        (14)        -        (14)  

Total gains (losses) included in other comprehensive income

     -        (359)        -        -  

Purchases, issuances, and settlements(1)

     74        948        -        750  
                           

Balance at end of period

       $ (278)          $  (1,636)          $ -          $ (1,129)  
                           

Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the end of the period

       $ (363)          $ 685          $ -          $ 685  
                           
Six Months Ended            

Balance at beginning of period

       $ 248          $ (409)          $ (17)          $ (409)  

Total gains (losses) included in earnings

     (814)        (2,102)         (128)        (2,102)  

Total gains (losses) included in other comprehensive income

     -        (772)        -        -  

Purchases, issuances, and settlements(1)

     288        1,647        145        1,382  
                           

Balance at end of period

       $   (278)          $ (1,636)          $ -          $ (1,129)  
                           

Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the end of the period

       $ (543)          $ (786)          $ -          $ (786)  
                           

 

  (1)

Includes fair value reversal of contracts settled, unearned and prepaid option premiums received and paid during the period for contracts still held at end of period.

 

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Gains and losses (realized and unrealized) for Level 3 fair value measurements included in earnings are reported in operating revenues and cost of energy as follows:

 

     PNMR    PNM
     June 30,    June 30,
     2010    2009    2010    2009
Three Months Ended      (In thousands)

Gains (losses) included in earnings:

           

Electric operating revenues

         $ -            $ 78            $ -            $ 78  

Cost of energy

     (437)        (92)        -        (92)  
                           

Total

         $ (437)            $ (14)            $ -            $ (14)  
                           

Change in unrealized gains or losses related to assets still held at the reporting date:

           

Electric operating revenues

         $ -            $ -            $ -            $ -  

Cost of energy

     (363)        685        -        685  
                           

Total

         $ (363)            $ 685            $ -            $ 685