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,
	2013			2012
Assets:	(In thousands)
Current:
FPPAC	$	19,394		$	36,266
Other	—			224
	19,394			36,490
Non-Current:
Coal mine reclamation costs	40,144			46,065
Deferred income taxes	61,850			54,781
Loss on reacquired debt	27,490			29,702
Pension and OPEB	206,691			254,351
FPPAC	25,386			18,619
Renewable energy costs	13,311			18,768
Other	9,345			9,670
	384,217			431,956
Total regulatory assets	$	403,611		$	468,446
Liabilities:
Current:
Other	$	(1,081	)	$	(15,172	)
Non-Current:
Cost of removal	$	(266,075	)	$	(257,396	)
Deferred income taxes	(80,495		)	(49,723		)
AROs	(37,567		)	(39,280		)
Renewable energy tax benefits	(26,011		)	(26,988		)
Other	(4,463		)	(6,454		)
	(414,611		)	(379,841		)
Total regulatory liabilities	$	(415,692	)	$	(395,013	)

TNMP



	December 31,
	2013			2012
Assets:	(In thousands)
Current:
Transmission cost recovery factor	$	4,250		$	2,287
Other	772			343
	5,022			2,630
Non-Current:
CTC, including carrying charges	63,606			71,240
Deferred income taxes	10,868			11,179
Pension	19,938			28,307
Loss on reacquired debt	38,616			1,711
Hurricane recovery costs	—			4,572
AMS retirement costs	5,083			3,538
Other	1,627			3,074
	139,738			123,621
Total regulatory assets	$	144,760		$	126,251
Liabilities:
Non-Current:
Cost of removal	$	(30,863	)	$	(31,115	)
Deferred income taxes	(4,563		)	(5,203		)
AMS surcharge	(7,251		)	(6,386		)
OPEB	(3,361		)	(915		)
Total regulatory liabilities	$	(46,038	)	$	(43,619	)

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 $49.1 million (based on future FPPAC activity and regulatory proceedings); and AROs (to be determined in a future regulatory proceeding). In addition, TNMP does not receive a return on substantially all of its loss on reacquired debt (through 2043).

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.