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,
	2012			2011
Assets:	(In thousands)
Current:
Fuel and purchased power adjustment clause	$	36,266		$	41,254
Other	224			3,226
	36,490			44,480
Non-Current:
Coal mine reclamation costs	46,065			51,985
Deferred income taxes	54,781			51,436
Loss on reacquired debt	29,702			31,276
Pension and OPEB	254,351			208,033
Fuel and purchased power adjustment clause	18,619			—
Renewable energy costs	18,768			9,550
Other	9,670			107
	431,956			352,387
Total regulatory assets	$	468,446		$	396,867
Liabilities:
Current:
Other	$	(15,172	)	$	(125	)

Non-Current:
Cost of removal	$	(257,396	)	$	(250,778	)
Deferred income taxes	(49,723		)	(45,323		)
Asset retirement obligations	(39,280		)	(39,979		)
Renewable energy tax benefits	(26,988		)	(27,958		)
Other	(6,454		)	(9,665		)
	(379,841		)	(373,703		)
Total regulatory liabilities	$	(395,013	)	$	(373,828	)

TNMP



	December 31,
	2012			2011
Assets:	(In thousands)
Current:
Other	$	2,630		$	513

Non-Current:
Stranded costs	71,240			81,256
Deferred income taxes	11,179			11,491
Pension and OPEB	28,307			18,818
Loss on reacquired debt	1,711			2,852
Hurricane recovery costs	4,572			9,210
Other	6,612			6,141
	123,621			129,768
Total regulatory assets	$	126,251		$	130,281
Liabilities:
Non-Current:
Cost of removal	$	(31,115	)	$	(32,786	)
Deferred income taxes	(5,203		)	(5,843		)
Other	(7,301		)	(5,766		)
Total regulatory liabilities	$	(43,619	)	$	(44,395	)

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 $22.2 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.

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.