Regulatory Assets and Liabilities

The operations of PNM and TNMP are regulated by the NMPRC, PUCT, and FERC and the provisions of GAAP for rate-regulated enterprises are applied to its regulated operations. Regulatory assets represent probable future recovery of previously incurred costs that will be collected from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets are presented below.

PNM



	December 31,
	2011			2010
Assets:	(In thousands)
Current:
Fuel and purchased power adjustment clause	$	41,254		$	35,835
Other	3,226			—
	44,480			35,835
Non-Current:
Coal mine reclamation costs	51,985			57,906
Deferred income taxes	51,436			48,226
Loss on reacquired debt	31,276			34,572
Pension and OPEB	208,033			208,620
Renewable energy costs	9,550			1,896
Other	107			6,724
	352,387			357,944
Total regulatory assets	$	396,867		$	393,779
Liabilities:
Non-Current:
Cost of removal	$	(250,778	)	$	(239,928	)
Deferred income taxes	(45,323		)	(12,575		)
Asset retirement obligations	(39,979		)	(40,369		)
Renewable energy tax benefits	(27,958		)	—
Other	(9,665		)	(6,891		)
Total regulatory liabilities	$	(373,703	)	$	(299,763	)

TNMP



	December 31,
	2011			2010
Assets:	(In thousands)
Current:
Other	$	513		$	457

Non-Current:
Stranded costs	81,256			95,105
Deferred income taxes	11,491			11,803
Pension and OPEB	18,818			20,613
Loss on reacquired debt	2,852			—
Hurricane recovery costs	9,210			13,683
Other	6,141			3,318
	129,768			144,522
Total regulatory assets	$	130,281		$	144,979
Liabilities:
Non-Current:
Cost of removal	$	(32,786	)	$	(33,496	)
Deferred income taxes	(5,843		)	(6,482		)
Other	(5,766		)	(2,724		)
Total regulatory liabilities	$	(44,395	)	$	(42,702	)

The Company’s regulatory assets and regulatory liabilities are reflected in rates charged to customers or have been addressed in a regulatory proceeding. The Company does not receive or pay a rate of return on the following regulatory assets and regulatory liabilities (and their remaining amortization periods): coal mine reclamation costs (through 2020); deferred income taxes (over the remaining life of the taxable item, up to the remaining life of utility plant); pension and OPEB costs (through 2033); FPPAC deferrals greater than $30.5 million (based on future FPPAC activity and regulatory proceedings); and asset retirement obligations (to be determined in a future regulatory proceeding).

The Company is permitted, under rate regulation, to accrue and record a regulatory liability for the estimated cost of removal and salvage associated with certain of its assets through depreciation expense. Under GAAP, actuarial losses and prior service costs for pension plans are required to be recorded in AOCI; however, to the extent authorized for recovery through the regulatory process these amounts are recorded as regulatory assets or liabilities. Based on prior regulatory approvals, the amortization of these amounts will be included in the Company’s rates. See Note 17 for information related to TNMP’s stranded costs and regulatory decisions.

Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, the Company believes that future recovery of its regulatory assets are probable.