TXNM ENERGY INC

Previous wording

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

Current wording

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

Previous wording

PNMR is a holding company with two regulated utilities serving approximately 830,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP. PNMR strives to create a clean and bright energy future for customers, communities, and shareholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power built on a foundation of Environmental, Social and Governance (ESG) principles.

Current wording

TXNM is a holding company with two regulated utilities serving approximately 831,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. TXNM’s electric utilities are PNM and TNMP. TXNM strives to create a clean and bright energy future for customers, communities, and shareholders. TXNM’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power built on a foundation of sustainability.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

PNM joined the Western Resource Adequacy Program (“WRAP”) in April 2023 to bolster PNM’s preparations for times of critical need. WRAP is a first-of-its-kind program in the West that adds a region-wide coordination between power providers for assessing and addressing resource adequacy. This step helps ensure regional resource availability is visible and coordinated in the event PNM customers are critically impacted by a resource emergency. WRAP is currently in the non-binding phases of the program, which is expected to continue through the winter of 2026.

Current wording

PNM joined the Western Resource Adequacy Program (“WRAP”) in April 2023 to bolster PNM’s preparations for times of critical need. WRAP is a first-of-its-kind program in the West that adds a region-wide coordination between power providers for assessing and addressing resource adequacy. This step helps ensure regional resource availability is visible and coordinated in the event PNM customers are critically impacted by a resource emergency. WRAP is currently in the non-binding phases of the program, which is expected to continue through the summer of 2027.

Previous wording

PNM has also experienced growing demand, including a new system peak recorded in 2023. PNM investments are aimed at advancing the infrastructure beyond its original architecture to a more flexible and redundant system accommodating growing amounts of intermittent and distributed generation resources and integrating evolving technologies that provide long-term customer value. New Mexico’s clean energy future depends on a reliable, resilient, secure grid to deliver an evolving mix of energy resources to customers. In addition, projects included in the Grid Modernization Application improve customers’ ability to customize their use of energy and modernize PNM’s electric grid through infrastructure and technology improvements. Under New Mexico legislation for grid modernization, any approved investments may be recovered under a rate rider.

Current wording

PNM has also experienced growing demand, including a new system peak recorded in 2023. PNM investments are aimed at advancing the infrastructure beyond its original architecture to a more flexible and redundant system accommodating growing amounts of intermittent and distributed generation resources and integrating evolving technologies that provide long-term customer value. New Mexico’s clean energy future depends on a reliable, resilient, secure grid to deliver an evolving mix of energy resources to customers. In addition, projects included in the approved Grid Modernization Application improve customers’ ability to customize their use of energy and modernize PNM’s electric grid through infrastructure and technology improvements. Under New Mexico legislation for grid modernization, the approved investments will be recovered under a rate rider.

Previous wording

The Company strives to deliver a superior customer experience. In 2024, PNM continues in-person engagements with residential and business customers through customer advisory councils. These engagements have helped PNM to build and improve customer relationships and have provided PNM with valuable customer insights to gauge customer interest levels towards programs and services to be highly customer centric. Additionally, PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including enhanced digital payment options, strategic customer outreach, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers. In 2024, PNM and the electric utility industry continues to experience a decline in customer satisfaction as measured by J.D. Power. However, PNM did achieve improvements in overall JD Power performance ranking among the overall industry and in the west mid-size region.

Current wording

The Company strives to deliver a superior customer experience. In 2024, PNM continues in-person engagements with residential and business customers through customer advisory councils. These engagements have helped PNM to build and improve customer relationships and have provided PNM with valuable customer insights to gauge customer interest levels towards programs and services to be highly customer centric. Additionally, PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including enhanced digital payment options, strategic customer outreach, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers. In 2024, PNM and the electric utility industry continue to experience a decline in customer satisfaction as measured by J.D. Power. However, PNM did achieve improvements in overall JD Power performance ranking among the overall industry and in the west mid-size region.

Previous wording

With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. In both 2021 and 2022, TNMP provided 30-person teams in support of other utilities that experienced significant damage to their transmission and distribution system as a result of Hurricane Ida and Hurricane Ian. TNMP has been honored by the Edison Electric Institute eight times since 2012 for its assistance to out-of-state utilities affected by hurricanes. TNMP has also been honored three times since 2008 for hurricane response in its own territory.

Current wording

With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. In both 2021 and 2022, TNMP provided 30-person teams in support of other utilities that experienced significant damage to their transmission and distribution system as a result of Hurricane Ida and Hurricane Ian. TNMP has been honored by the Edison Electric Institute, the association representing all US investor-owned electric companies, eight times since 2012 for its assistance to out-of-state utilities affected by hurricanes. TNMP has also been honored three times since 2008 for hurricane response in its own territory.

Previous wording

PNM continues to focus on addressing energy affordability by promoting participation in utility programs among households with high energy burden to offset high bills. PNM has implemented efforts to increase participation in low income energy efficiency programs, providing additional aid through the PNM Good Neighbor Fund, partnering with state agencies to make it easier to access funding, improving access to clean energy through expanded outreach and communication, and the implementation of low income transportation electrification programs. As a result of these communication efforts, 1,778 families in need have received emergency assistance through the PNM Good Neighbor Fund during 2024.

Current wording

PNM continues to focus on addressing energy affordability by promoting participation in utility programs among households with high energy burden to offset high bills. PNM has implemented efforts to increase participation in low income energy efficiency programs, providing additional aid through the PNM Good Neighbor Fund, partnering with state agencies to make it easier to access funding, improving access to clean energy through expanded outreach and communication, and the implementation of low income transportation electrification programs. As a result of these communication efforts, 2,682 families in need have received emergency assistance through the PNM Good Neighbor Fund for the nine months ended September 30, 2024.

Previous wording

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

Current wording

TXNM has a long-standing record of environmental stewardship. PNM’s environmental focus is in three key areas:

Previous wording

PNMR’s corporate website (www.pnmresources.com) includes a dedicated section providing key environmental and other sustainability information related to PNM’s and TNMP’s operations and other information that collectively demonstrates the Company’s commitment to ESG principles. This information highlights plans for PNM to be coal-free no later than 2031 and to achieve a carbon-free generating portfolio by 2040.

Current wording

TXNM’s corporate website (www.txnmenergy.com) includes a dedicated section providing key environmental and other information related to PNM’s and TNMP’s operations, including information that collectively demonstrates the Company’s commitment to sustainability. This information highlights plans for PNM to be coal-free no later than 2031 and to achieve a carbon-free generating portfolio by 2040.

Previous wording

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

Current wording

PNM has announced an agreement partnering with Sandia National Laboratories in research and development projects focused on energy resiliency, clean energy, and national security. The partnership demonstrates TXNM’s commitment to sustainability and its support of projects that further its carbon-free generation goals and plans for a reliable, resilient, and secure grid to deliver New Mexico’s clean energy future. PNM also recently joined the Electric Power Research Institute (“EPRI”) Climate READi (Resilience and Adaptation) Initiative, a three-year initiative to develop a comprehensive and consistent approach to physical climate risk and facilitate the analysis and application of appropriate climate data among all stakeholders to enhance the planning, design and operation of a resilient power system. In addition, PNM’s Time-of-Day pilot approved in the 2024 Rate Change final order incentivizes customers, through price signals, to use energy during the day when renewable generation is abundant.

Previous wording

•A joint submission with Sandia National Laboratories on a project application to DOE for the Flexible and Innovative Transformer Technologies program. The program is for modular, hierarchical, Solid State Transformer control architecture that utilizes distributed control across individual minimal complexity, minimal component-count, AC-AC converter modules and acts as a drop-in replacement for traditional transformers. PNM is anticipating to match expected costs incurred by Sandia National Laboratories of $0.4 million;

Current wording

•A joint submission with Sandia National Laboratories on a project application to DOE for the Flexible and Innovative Transformer Technologies program. The program is for modular, hierarchical, Solid State Transformer control architecture that utilizes distributed control across individual minimal complexity, minimal component-count, AC-AC converter modules and acts as a drop-in replacement for traditional transformers. PNM is anticipating matching expected costs incurred by Sandia National Laboratories of $0.4 million;

Previous wording

•A BIL grant, through DOE, in the Advanced Reliability and Resiliency Operations for Wind and Solar program. GridBeyond Ltd, as principal grantee, would receive $3.9 million in BIL funding and PNM would provide the in-kind, $3.9 million local match. The program would aim to boost confidence in renewable power investments using GridBeyond Ltd artificial intelligence (“AI”) powered distributed energy resource management system technology. The AI-powered system would be used to forecast, optimize, and control resources such as wind, solar, and batteries on PNM’s power grid in real-time, and enable GridBeyond Ltd to collect, analyze, and quantify the overall energy savings to determine how successful PNM is able to integrate these resources against a backdrop of variable renewable power output and storage;

Current wording

In October 2024, PNM was awarded two grants from the DOE. The first was for the Grid Resilience and Innovation Partnerships (“GRIP”) program. The award will improve grid stability and reduce customers’ electricity bills through smart grid technology, data aggregation software, and financial incentives. PNM will enable Virtual Power Plant (“VPP”) control on PNM’s power grid, enhance PNM’s control systems to integrate VPP, deploy distribution and behind-the-meter assets to enable a pilot area, and enable a VPP program between PNM and third party VPP aggregators for five substations. The grant is in partnership with the Pueblo of Santa Ana, ensuring that benefits reach disadvantaged communities in line with the objectives of the Justice 40 Initiative. The second grant awarded was in the Advanced Reliability and Resiliency Operations for Wind and Solar (“ARROWS”) program. GridBeyond Ltd, as principal grantee, will receive $3.9 million in DOE funding and PNM will provide the in-kind, $3.9 million local match. The program aims to boost confidence in renewable power investments using GridBeyond Ltd artificial intelligence (“AI”) powered distributed energy resource management system technology. The AI-powered system will be used to forecast, optimize, and control resources such as wind, solar, and batteries on PNM’s power grid in real-time, and enable GridBeyond Ltd to collect, analyze, and quantify the overall energy savings to determine how successful PNM is able to integrate these resources against a backdrop of variable renewable power output and storage.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

To demonstrate PNMR’s commitment to increase the electrification of vehicles in its service territory, PNM implemented its first TEP in 2022, and received approval of its 2024-2026 TEP effective April 26, 2024. TEP supports customer adoption of electric vehicles by addressing barriers to adoption. PNM’s TEP program budget provides both residential and non-residential customers funding towards the purchase of chargers and/or behind-the-meter infrastructure, as well as customer education and outreach on EV-specific electricity rates to encourage charging during off-peak periods. Over 25% of the program budget is dedicated to low- and moderate-income customers to plan for an equitable transition to an electrified transportation sector.

Current wording

To demonstrate TXNM’s commitment to increase the electrification of vehicles in its service territory, PNM implemented its first TEP in 2022, and received approval of its 2024-2026 TEP effective April 26, 2024. TEP supports customer adoption of electric vehicles by addressing barriers to adoption. PNM’s TEP program budget provides both residential and non-residential customers funding towards the purchase of chargers and/or behind-the-meter infrastructure, as well as customer education and outreach on EV-specific electricity rates to encourage charging during off-peak periods. Over 25% of the program budget is dedicated to low- and moderate-income customers to plan for an equitable transition to an electrified transportation sector.

Previous wording

PNM’s utility-owned solar capacity, as well as solar, wind, and geothermal renewable procurements in service as of June 30, 2024, have a total net generation capacity of 1,597 MW in addition to 232 MW of utility-owned battery storage and battery storage agreements. In addition to PNM’s owned solar facilities, PNM also has a customer distributed solar generation program that represented 295.7 MW at June 30, 2024. The NMPRC has approved plans for PNM to procure energy and RECs from additional resources to serve retail customers and a data center located in PNM’s service territory, including the portfolio to replace SJGS and the PVNGS Leased Interest Abandonment Application. PNM’s approved resource plans have a generation capacity of 1,550 MW and are expected to be in operation before summer 2026. The majority of these resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, including those set by the ETA, without exceeding cost requirements. For additional discussion of the ETA and 2026 Resource Application see Notes 11 and 12.

Current wording

PNM’s utility-owned solar capacity, as well as solar, wind, and geothermal renewable procurements in service as of September 30, 2024, have a total net generation capacity of 1,647 MW in addition to 232 MW of utility-owned battery storage and battery storage agreements. In addition to PNM’s owned solar facilities, PNM also has a customer distributed solar generation program that represented 302.4 MW at September 30, 2024. The NMPRC has approved plans for PNM to procure energy and RECs from additional resources to serve retail customers and a data center located in PNM’s service territory, including the portfolio to replace SJGS and the PVNGS Leased Interest Abandonment Application. PNM’s approved resource plans have a generation capacity of 1,810 MW and are expected to be in operation before summer 2026. The majority of these resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, including those set by the ETA, without exceeding cost requirements. For additional discussion of the ETA and 2026 Resource Application see Notes 11 and 12.

Previous wording

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

Current wording

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

Previous wording

During the three years ended December 31, 2023, corporate giving contributed $12.5 million to civic, educational, environmental, low income, and economic development organizations. During 2023, corporate giving has maintained a strategic focus on these pillars and continues to highlight corporate citizenship through active involvement with sponsorships demonstrating PNMR’s commitment to the community. In 2023, this corporate giving included $1.0 million to support New Mexico high school students and their ability to participate in electric trade programs. In the third quarter of 2023, PNMR shareholders donated $0.6 million to a newly created PNM Summer Heat Bill Help Fund which delivered crucial relief to low and moderate income customers struggling to pay their electric bills during the record-breaking 2023 summer heatwave and $0.5 million was given to the PNM Good Neighbor Fund.

Current wording

During the three years ended December 31, 2023, corporate giving contributed $12.5 million to civic, educational, environmental, tribal communities, low income, and economic development organizations. During 2023, corporate giving has maintained a strategic focus on these pillars and continues to highlight corporate citizenship through active involvement with sponsorships demonstrating TXNM’s commitment to the community. In 2023, this corporate giving included $1.0 million to support New Mexico high school students and their ability to participate in electric trade programs. In the third quarter of 2023, TXNM shareholders donated $0.6 million to a newly created PNM Summer Heat Bill Help Fund which delivered crucial relief to low and moderate income customers struggling to pay their electric bills during the record-breaking 2023 summer heatwave and $0.5 million was given to the PNM Good Neighbor Fund.

Previous wording

Additionally, the PNM Resources Foundation (the “Foundation”) has provided an annual average of $1.4 million in grant funding over the past three years across New Mexico and Texas. Throughout 2023, the Foundation celebrated its 40th year of serving community needs highlighting education, inclusion, the environment and community vitality and awarded $0.7 million to 44 organizations in New Mexico and Texas. During the first half of 2024, the Foundation has focused on grants for nontraditional pathways to education. These grants help nonprofits innovate or sustain programs to grow and develop their mission, develop and implement environmental programs, and provide educational opportunities. The PNM Resources Foundation continues to expand its matching and volunteer grant programs and the annual amount of matching donations available to each of its employees. The PNM Resources Foundation has also approved an increase to the amount awarded to employees, through the employee crisis management fund, who have been affected by the wildfires. In response to the South Fork and Salt wildfires that have caused devastation in the Ruidoso and Mescalero Apache Tribe communities, PNM and the PNM Resources Foundation have donated to the Ruidoso Fire Emergency Action Fund, hosted by the Community Foundation of Southern New Mexico. PNM is also collaborating with community foundations to help support the effort and direct funds where they are most needed. To support our team members impacted by Hurricane Beryl, the PNM Resources Foundation has increased the employee crisis fund, which is available to help our employees with financial support for catastrophic emergencies and basic living needs during times of crises. In addition, the Company donated $25,000 to aid our customers in storm relief in the hard-hit communities.

Current wording

Additionally, the PNM Resources Foundation (the “Foundation”) has provided an annual average of $1.4 million in grant funding over the past three years across New Mexico and Texas. In 2023, the Foundation celebrated its 40th year of serving community needs highlighting education, inclusion, the environment and community vitality and awarded $0.7 million to 44 organizations in New Mexico and Texas. Throughout 2024, the Foundation has focused on grants for nontraditional pathways to education and grants for the environment. These grants help nonprofits innovate or sustain programs to grow and develop their mission, develop and implement environmental programs, and provide educational opportunities. The Foundation continues to expand its matching and volunteer grant programs and the annual amount of matching donations available to each of its employees. The Foundation has also approved an increase to the amount awarded to employees, through the employee crisis management fund, who have been affected by the wildfires, floods and hurricanes. In response to the South Fork and Salt wildfires that have caused devastation in the Ruidoso and Mescalero Apache Tribe communities, PNM and the Foundation have donated to the Ruidoso Fire Emergency Action Fund, hosted by the Community Foundation of Southern New Mexico. PNM is also collaborating with community foundations to help support the effort and direct funds where they are most needed. In September 2024, TNMP sent employees to assist in restoring power to those communities impacted by Hurricane Helene. To support our team members impacted by Hurricane Beryl, the Foundation has increased the employee crisis fund, which is available to help our employees with financial support for catastrophic emergencies and basic living needs during times of crises. In addition, the Company donated $25,000 to aid our customers in storm relief in the hard-hit communities.

Previous wording

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

Current wording

The Company is also committed to supporting the communities it serves in New Mexico and Texas. This support extends beyond corporate giving and financial donations from the Foundation to also include collaborations on community projects, low-income customer assistance programs, and employee volunteerism.

Previous wording

PNM Navajo Nation Workforce Training Scholarship Program provides support for Navajo tribal members and encourages the pursuit of education and training in existing and emerging jobs in the communities in which they live. PNM has invested in paid summer college engineering internship programs for American Indian students available in the greater Albuquerque area, established the PNM Pueblo Education Scholarship Endowment to invest in higher education for Native American Indian students, and supported the development of an entrepreneur complex located in Albuquerque and operated by the Indian Pueblo Cultural Center, owned by the 19 pueblo nations of New Mexico. PNM continues to partner with the Navajo Nation in the Light up Navajo project, piloted in 2019 and modeled as a mutual aid project to connect Navajo homes without electricity to the power grid. PNM is one of 42 utilities across 16 states to participate in improving the quality of life for families by bringing electricity to over 700 homes since inception of the project. PNM has also partnered with New Mexico universities to enhance intern programs and developed a business coalition model to drive economic development through intern partnerships. PNM continues to partner with key nonprofit organizations to initiate funding and action for programs focused on diversity, equity and inclusion.

Current wording

TXNM recognizes its responsibility to support programs and organizations that enrich the quality of life across its service territories and seeks opportunities to further demonstrate its commitment in these areas as needs arise. In response to community needs, TXNM partners with other corporate funders to support nonprofits and small businesses. While its service territory does not include the Navajo Nation, PNM’s operations include generating facilities and employees in this region. The PNM Navajo Nation Workforce Training Scholarship Program provides support for Navajo tribal members and encourages the pursuit of education and training in existing and emerging jobs in the communities in which they live. PNM has invested in paid summer college engineering internship programs for American Indian students available in the greater Albuquerque area, established the PNM Pueblo Education Scholarship Endowment to invest in higher education for Native American Indian students, and supported the development of an entrepreneur complex located in Albuquerque and operated by the Indian Pueblo Cultural Center, owned by the 19 pueblo nations of New Mexico. PNM continues to partner with the Navajo Nation in the Light up Navajo project, piloted in 2019 and modeled as a mutual aid project to connect Navajo homes without electricity to the power grid. PNM is one of 42 utilities across 16 states to participate in improving the quality of life for families by bringing electricity to over 700 homes since inception of the project. PNM has also partnered with New Mexico universities to enhance intern programs and developed a business coalition model to drive economic development through intern partnerships. PNM continues to partner with key nonprofit organizations to initiate funding and action for programs focused on diversity, equity and inclusion.

Previous wording

Employee volunteers are the lifeblood of a healthy corporate culture. Community giving through volunteers’ time and effort is at the heart of employee engagement. Throughout 2023, the Company held large-scale volunteer events, working alongside nonprofits, schools, and vulnerable communities throughout New Mexico and Texas. More than 500 employees in both states participated in the “Day of Service”, a workday event encouraging employee volunteerism. Throughout the year, employees volunteer their time generously through independent volunteer activities and board participation. Employees strengthen community resilience by giving at least 9,000 volunteer hours each year to support the health, safety, and well-being of diverse communities.

Current wording

Employee volunteers are the lifeblood of a healthy corporate culture. Community giving through volunteers’ time and effort is at the heart of employee engagement. Throughout 2024, the Company held large-scale volunteer events, working alongside nonprofits, schools, and vulnerable communities throughout New Mexico and Texas. More than 600 employees in both states participated in the annual “Day of Service”, a workday event encouraging employee volunteerism and serving more than 50 organizations. Throughout the year, employees volunteer their time generously through independent volunteer activities and board participation. Employees strengthen community resilience by giving at least 9,000 volunteer hours each year to support the health, safety, and well-being of diverse communities.

Previous wording

PNMR’s success in accomplishing its financial objectives is highly dependent on two key factors: fair and timely regulatory treatment for its utilities and the utilities’ strong operating performance. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: safety, operational excellence, and customer satisfaction, while engaging stakeholders to build productive relationships. Both PNM and TNMP seek cost recovery for their investments through general rate cases, periodic cost of service filings, and various rate riders. See Note 12.

Current wording

TXNM’s success in accomplishing its financial objectives is highly dependent on two key factors: fair and timely regulatory treatment for its utilities and the utilities’ strong operating performance. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: safety, operational excellence, and customer satisfaction, while engaging stakeholders to build productive relationships. Both PNM and TNMP seek cost recovery for their investments through general rate cases, periodic cost of service filings, and various rate riders. See Note 12.

Previous wording

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

Current wording

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

Previous wording

The regulatory framework in Texas strongly encourages investments into the grid by providing timely recovery through rate mechanisms outside of general rate cases. The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case. The PUCT also approved rate riders that allow TNMP to recover amounts related to energy efficiency and third-party transmission costs. In 2024, TNMP anticipates filing its first resiliency plan under the new rules implementing the legislation passed in 2023. An independent evaluation and development of a system resiliency plan covering three years is required in the filing. Under the rules, TNMP may choose to recover the associated capital investments under the existing TCOS and DCRF rules. The rules also allow for recovery of certain O&M costs, such as vegetation management expenditures that exceed the amount authorized for recovery in base rates. TNMP also has approximately 275,000 advanced meters across its service territory, the costs of which are being recovered through base rates.

Current wording

The regulatory framework in Texas strongly encourages investments into the grid by providing timely recovery through rate mechanisms outside of general rate cases. The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case. The PUCT also approved rate riders that allow TNMP to recover amounts related to energy efficiency and third-party transmission costs. In August 2024, TNMP filed its first resiliency plan under the new rules implementing the legislation passed in 2023. An independent evaluation and development of a system resiliency plan covering three years is required in the filing. Under the rules, TNMP may choose to recover the associated capital investments under the existing TCOS and DCRF rules. The rules also allow for recovery of certain O&M costs, such as vegetation management expenditures that exceed the amount authorized for recovery in base rates. See Note 12. TNMP also has approximately 276,000 advanced meters across its service territory, the costs of which are being recovered through base rates.

Previous wording

On October 3, 2022, in compliance with New Mexico Grid Modernization Statute, PNM filed its Grid Modernization Application with the NMPRC. The projects included in the Grid Modernization Application improve customers’ ability to customize their use of energy and ensure that customers, including low-income customers, are a top priority and will benefit from the electricity grid consistent with the Grid Modernization Statute. PNM’s proposal to modernize its electricity grid through infrastructure and technology improvements also increases the efficiency, reliability, resilience, and security of PNM’s electric system. PNM’s application seeks approval of grid modernization investments of approximately $344 million for the first six years of a broader 11-year strategy. The proposed Grid Modernization Rider would recover capital costs, operating expenses, and taxes associated with the investments included in the Grid Modernization Application. See Note 12.

Current wording

On October 3, 2022, in compliance with New Mexico Grid Modernization Statute, PNM filed its Grid Modernization Application with the NMPRC. The projects included in the Grid Modernization Application improve customers’ ability to customize their use of energy and ensure that customers, including low-income customers, are a top priority and will benefit from the electricity grid consistent with the Grid Modernization Statute. PNM’s proposal to modernize its electricity grid through infrastructure and technology improvements also increases the efficiency, reliability, resilience, and security of PNM’s electric system. PNM’s application seeks approval of grid modernization investments of approximately $344 million for the first six years of a broader 11-year strategy. The proposed Grid Modernization Rider would recover capital costs, operating expenses, and taxes associated with the investments included in the Grid Modernization Application. On August 16, 2024, the hearing examiner in the case issued a RD. The RD largely approved PNM’s application with minor modifications, including limiting to a return of its undepreciated costs of legacy meters and conditioned approval upon PNM accelerating the deployment schedule following a final order. On October 17, 2024, the NMPRC issued a final order adopting the RD but removed the accelerated deployment schedule. See Note 12.

Previous wording

PNMR’s financial objective to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.

Current wording

TXNM’s financial objective to deliver at or above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. TXNM uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.

Previous wording

PNMR targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. PNMR expects to provide at or above industry-average dividend growth in the near-term. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards.

Current wording

TXNM targets a dividend payout ratio in the 50% to 60% range of its ongoing earnings. TXNM expects to provide at or above industry-average dividend growth in the near-term. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards.

Previous wording

The Company is committed to maintaining investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. On January 15, 2024, S&P revised PNMR, PNM, and TNMP’s outlook to stable from positive. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. All of the credit ratings issued by both Moody’s and S&P on the Company’s debt continue to be investment grade.

Current wording

The Company is committed to maintaining investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. On January 15, 2024, S&P revised TXNM, PNM, and TNMP’s outlook to stable from positive. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for TXNM, PNM, and TNMP. All of the credit ratings issued by both Moody’s and S&P on the Company’s debt continue to be investment grade.

Previous wording

TNMP– In the three and six months ended June 30, 2024, TNMP experienced a decrease of 0.7% and an increase of 0.9% in volumetric weather normalized retail load compared to 2023. Weather normalized demand-based load, excluding retail transmission consumers decreased 6.2% and 2.6% in the three and six months ended June 30, 2024 compared to 2023.

Current wording

TNMP– In the three and nine months ended September 30, 2024, TNMP experienced an increase of 4.3% and 2.3% in volumetric weather normalized retail load compared to 2023. Weather normalized demand-based load, excluding retail transmission consumers increased 2.6% and decreased 0.9% in the three and nine months ended September 30, 2024 compared to 2023.

Previous wording

PNM– In the three and six months ended June 30, 2024, PNM experienced an increase of 2.8% and 0.6% in weather normalized residential load. Weather normalized commercial load experienced a decrease of 1.1% and an increase of 0.2% compared to 2023. In addition, PNM experienced an increase in industrial load of 7.4% and 8.7% compared to 2023.

Current wording

PNM– In the three and nine months ended September 30, 2024, PNM experienced an increase of 0.9% and 0.7% in weather normalized residential load. Weather normalized commercial load experienced an increase of 0.4% and 0.3% compared to 2023. In addition, PNM experienced an increase in industrial load of 15.5% and 11.1% compared to 2023.

Previous wording

Net earnings attributable to PNMR were $95.2 million, or $1.05 per diluted share in the six months ended June 30, 2024 compared to $100.3 million, or $1.16 per diluted share in 2023. Among other things, earnings in the six months ended June 30, 2024 benefited from rate relief approved in PNM’s 2024 Rate Change, higher transmission and distribution rates at TNMP, higher volumetric load at TNMP, higher weather normalized retail load at PNM, warmer weather at PNM and TNMP, and increased performance on PNM’s NDT, coal mine reclamation and SJGS decommissioning investment securities. These increases were more than offset by increased operational and maintenance expense, including higher employee related, outside services and vegetation management expenses at PNM and TNMP, increased depreciation and amortization approved in PNM’s 2024 Rate Change and increased plant in service at PNM and TNMP, regulatory disallowance at PNM related to San Juan Coal Mine reclamation remeasurement, lower transmission margin at PNM, capacity arrangements at PNM, and higher interest charges at PNM, TNMP and Corporate and Other. Additional information on factors impacting results of operations for each segment is discussed below under Results of Operations.

Current wording

Net earnings attributable to TXNM were $226.4 million, or $2.50 per diluted share in the nine months ended September 30, 2024 compared to $138.0 million, or $1.60 per diluted share in 2023. Among other things, earnings in the nine months ended September 30, 2024 benefited from rate relief approved in PNM’s 2024 Rate Change, higher transmission and distribution rates at TNMP, higher volumetric load at TNMP, higher weather normalized retail load at PNM, and increased performance on PNM’s NDT, coal mine reclamation and SJGS decommissioning investment securities. In addition, rate credits as a result of the SJGS abandonment settlement agreement decreased earnings in 2023 compared to 2024. These increases were partially offset by increased operational and maintenance expense, including higher employee related, outside services and vegetation management expenses at PNM, increased depreciation and amortization approved in PNM’s 2024 Rate Change and increased plant in service at PNM and TNMP, regulatory disallowance at PNM related to San Juan Coal Mine reclamation remeasurement, lower transmission margin at PNM, capacity arrangements at PNM, milder weather at TNMP and PNM, and higher interest charges at PNM, TNMP and Corporate and Other. Additional information on factors impacting results of operations for each segment is discussed below under Results of Operations.

Previous wording

As of June 30, 2024, PNMR, PNM, and TNMP have revolving credit facilities with capacities of $300.0 million, $440.0 million, and $200.0 million. Total availability for PNMR on a consolidated basis was $642.4 million at July 26, 2024. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries. For additional details regarding the Company’s revolving credit facilities see Note 9.

Current wording

As of September 30, 2024, TXNM, PNM, and TNMP have revolving credit facilities with capacities of $300.0 million, $440.0 million, and $200.0 million. Total availability for TXNM on a consolidated basis was $468.8 million at October 25, 2024. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. TXNM also has intercompany loan agreements with each of its subsidiaries. For additional details regarding the Company’s revolving credit facilities see Note 9.

Previous wording

PNMR projects that its consolidated capital requirements, consisting of construction expenditures and dividends, will total $6.8 billion for 2024 - 2028, including amounts expended through June 30, 2024. These construction expenditures include TNMP’s investments to support continued high growth in system demand across TNMP’s service territories and growing encouragement for infrastructure investments from the Texas legislature to support grid reliability and resilience. PNM’s capital initiatives for investments in transmission and distribution infrastructure to deliver clean energy, enhance customer satisfaction, and increase grid resilience. Construction expenditures also include investments proposed in PNM’s Grid Modernization Application.

Current wording

TXNM projects that its consolidated capital requirements, consisting of construction expenditures and dividends, will total $6.9 billion for 2024 - 2028, including amounts expended through September 30, 2024. These construction expenditures include TNMP’s investments to support continued high growth in system demand across TNMP’s service territories and growing encouragement for infrastructure investments from the Texas legislature to support grid reliability and resilience. PNM’s capital initiatives for investments in transmission and distribution infrastructure to deliver clean energy, enhance customer satisfaction, and increase grid resilience. Construction expenditures also include investments proposed in PNM’s Grid Modernization Application and TNMP’s SRP.

Previous wording

After considering the effects of these financings and the Company’s short-term liquidity position as of July 26, 2024, the Company has consolidated maturities of long-term and short-term debt aggregating approximately $455.4 million through July 2025. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2024-2028 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. As of June 30, 2024 and July 26, 2024, the Company was in compliance with its debt covenants.

Current wording

After considering the effects of these financings and the Company’s short-term liquidity position as of October 25, 2024, the Company has consolidated maturities of long-term and short-term debt aggregating approximately $880.0 million through October 2025. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2024-2028 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months. As of September 30, 2024 and October 25, 2024, the Company was in compliance with its debt covenants.

Previous wording

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

Current wording

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