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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

The adjustments to deferred income taxes recorded as increases in regulatory liabilities and income tax expense as a result of the enactment of the Tax Act are presented below:



	PNM		TNMP		Corporate and Other			Consolidated
	(In thousands)
Net increase in regulatory liabilities	$	402,501	$	146,451	$	—		$	548,952
Net decrease in deferred income tax liabilities (deferred income tax assets)	372,895		138,586		(19,990		)	491,491
Net deferred income tax expense	$	29,606	$	7,865	$	19,990		$	57,461

Schedule of Components of Income Tax Expense (Benefit)

PNM’s income taxes (benefit) consist of the following components:



	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Current federal income tax	$	118		$	(10,290	)	$	(7,934	)
Current state income tax	(1,112		)	(1,907		)	(1,988		)
Deferred federal income tax	73,308			49,123			(6,827		)
Deferred state income tax	9,527			4,969			5,333
Amortization of accumulated investment tax credits	(286		)	(973		)	(1,342		)
Total income taxes (benefit)	$	81,555		$	40,922		$	(12,758	)

PNMR’s income taxes consist of the following components:



	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Current federal income tax	$	—		$	—		$	—
Current state income tax	(188		)	(527		)	(1,376		)
Deferred federal income tax	119,182			60,892			5,488
Deferred state income tax	11,632			3,886			12,305
Amortization of accumulated investment tax credits	(286		)	(973		)	(1,342		)
Total income taxes	$	130,340		$	63,278		$	15,075

TNMP’s income taxes consist of the following components:



	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Current federal income tax	$	2,472		$	9,445		$	1,603
Current state income tax	1,765			1,729			1,639
Deferred federal income tax	27,304			12,690			20,904
Deferred state income tax	(29		)	(28		)	(21		)
Total income taxes	$	31,512		$	23,836		$	24,125

Schedule of Effective Income Tax Rate Reconciliation

The differences are attributable to the following factors:



	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Federal income tax at statutory rates	$	23,475		$	22,928		$	23,131
State income tax, net of federal benefit	1,198			1,132			1,065
Federal income tax rate change	7,865			—			—
Allocation of excess tax benefit related to stock compensation awards	(616		)	—			—
Other	(410		)	(224		)	(71		)
Total income taxes	$	31,512		$	23,836		$	24,125
Effective tax rate	46.98		%	36.39		%	36.5		%

The differences are attributable to the following factors:



	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Federal income tax (benefit) at statutory rates	$	59,139		$	46,501		$	(4,579	)
Amortization of accumulated investment tax credits	(286		)	(973		)	(1,342		)
Flow-through of depreciation items	1,103			1,185			1,465
Earnings attributable to non-controlling interest in Valencia	(5,256		)	(5,082		)	(5,218		)
State income tax, net of federal benefit	4,926			3,921			(2,162		)
Impairment of state net operating loss carryforwards	627			(213		)	3,619
Allowance for equity funds used during construction	(3,032		)	(1,457		)	(3,650		)
Reversal of deferred items related to BART at SJGS	—			—			1,826
Regulatory recovery of prior year impairment of state net operating loss carryforward, net of amortization	(2,225		)	(1,877		)	—
Federal income tax rate change	29,606			—			—
Allocation of excess tax benefit related to stock compensation awards	(1,708		)	—			—
Other	(1,339		)	(1,083		)	(2,717		)
Total income taxes (benefit)	$	81,555		$	40,922		$	(12,758	)
Effective tax rate	48.27		%	30.80		%	97.52		%

PNMR’s provision for income taxes differed from the federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:



	Year Ended December 31,
	2017			2016			2015
	(In thousands)
Federal income tax at statutory rates	$	79,016		$	68,311		$	16,154
Amortization of accumulated investment tax credits	(286		)	(973		)	(1,342		)
Flow-through of depreciation items	1,147			1,227			1,485
Earnings attributable to non-controlling interest in Valencia	(5,256		)	(5,082		)	(5,218		)
State income tax, net of federal benefit	5,398			4,537			(1,781		)
Impairment of state net operating loss carryforwards	819			(311		)	5,278
Impairment of state production tax credits	—			—			3,092
Allowance for equity funds used during construction	(3,331		)	(1,732		)	(3,650		)
Reversal of deferred items related to BART at SJGS	—			—			1,826
Impairment of charitable contribution carryforward	909			—			2,042
Regulatory recovery of prior year impairments of state net operating loss carryforward, net of amortization	(2,225		)	(1,877		)	—
Federal income tax rate change	57,461			—			—
Excess tax benefits related to stock compensation awards	(2,324		)	—			—
Other	(988		)	(822		)	(2,811		)
Total income taxes	$	130,340		$	63,278		$	15,075
Effective tax rate	57.73		%	32.42		%	32.66		%

Components of Deferred Tax Assets and Liabilities

The components of PNM’s net accumulated deferred income tax liability were:



	December 31,
	2017			2016
	(In thousands)
Deferred tax assets:
Net operating loss	$	67,719		$	117,922
Regulatory liabilities related to income taxes	152,059			60,940
Federal tax credit carryforwards	60,085			59,156
Shutdown of SJGS Units 2 and 3	2,204			53,434
Other	23,801			41,700
Total deferred tax assets	305,868			333,152
Deferred tax liabilities:
Depreciation and plant related	(544,270		)	(891,578		)
Investment tax credit	(55,731		)	(56,017		)
Regulatory assets related to income taxes	(52,392		)	(56,577		)
Pension	(51,774		)	(50,134		)
Regulatory asset for shutdown of SJGS Units 2 and 3	(31,887		)	—
Other	(18,826		)	(27,512		)
Total deferred tax liabilities	(754,880		)	(1,081,818		)
Net accumulated deferred income tax liabilities	$	(449,012	)	$	(748,666	)

The components of TNMP’s net accumulated deferred income tax liability at December 31, were:



	December 31,
	2017			2016
	(In thousands)
Deferred tax assets:
Regulatory liabilities related to income taxes	$	43,103		$	3,718
Other	3,762			6,016
Total deferred tax assets	46,865			9,734
Deferred tax liabilities:
Depreciation and plant related	(135,647		)	(201,017		)
CTC	(5,670		)	(12,715		)
Regulatory assets related to income taxes	(9,564		)	(9,800		)
Loss on reacquired debt	(6,890		)	(11,937		)
Pension	(4,296		)	(7,153		)
AMS	(7,707		)	(8,928		)
Other	(3,506		)	(3,969		)
Total deferred tax liabilities	(173,280		)	(255,519		)
Net accumulated deferred income tax liabilities	$	(126,415	)	$	(245,785	)

The components of PNMR’s net accumulated deferred income tax liability were:



	December 31,
	2017			2016
	(In thousands)
Deferred tax assets:
Net operating loss	$	98,301		$	160,901
Regulatory liabilities related to income taxes	189,501			64,657
Federal tax credit carryforwards	71,849			78,675
Shutdown of SJGS Units 2 and 3	2,204			53,434
Other	45,656			75,805
Total deferred tax assets	407,511			433,472
Deferred tax liabilities:
Depreciation and plant related	(690,909		)	(1,102,458		)
Investment tax credit	(55,731		)	(56,017		)
Regulatory assets related to income taxes	(61,956		)	(66,378		)
CTC	(5,670		)	(12,715		)
Pension	(56,070		)	(57,287		)
Regulatory asset for shutdown of SJGS Units 2 and 3	(31,887		)	—
Other	(52,498		)	(79,267		)
Total deferred tax liabilities	(954,721		)	(1,374,122		)
Net accumulated deferred income tax liabilities	$	(547,210	)	$	(940,650	)

Reconciliation of Accumulated Deferred Income Tax Liability to Deferred Income Tax Benefit

The following table reconciles the change in TNMP’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:



	Year Ended
	December 31, 2017
	(In thousands)
Net change in deferred income tax liability per above table	$	(119,370	)
Change in tax effects of income tax related regulatory assets and liabilities	(112		)
Federal income tax rate change	146,451
Other	306
Deferred income taxes	$	27,275

The following table reconciles the change in PNM’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:



	Year Ended
	December 31, 2017
	(In thousands)
Net change in deferred income tax liability per above table	$	(299,654	)
Change in tax effects of income tax related regulatory assets and liabilities	(16,332		)
Tax effect of mark-to-market adjustments	(4,110		)
Tax effect of excess pension liability	(3,421		)
Adjustment for uncertain income tax positions	2,614
Reclassification of unrecognized tax benefits	(2,614		)
Regulatory recovery of prior year impairment of state net operating loss carryforward, net of amortization	(2,225		)
Federal income tax rate change	402,501
Allocation of cumulative effect adjustment for excess tax benefit related to stock compensation awards	7,770
Other	(1,980		)
Deferred income taxes	$	82,549

The following table reconciles the change in PNMR’s net accumulated deferred income tax liability to the deferred income tax benefit included in the Consolidated Statement of Earnings:



	Year Ended
	December 31, 2017
	(In thousands)
Net change in deferred income tax liability per above table	$	(393,440	)
Change in tax effects of income tax related regulatory assets and liabilities	(16,444		)
Tax effect of mark-to-market adjustments	(4,724		)
Tax effect of excess pension liability	(3,421		)
Adjustment for uncertain income tax positions	2,677
Reclassification of unrecognized tax benefits	(2,677		)
Regulatory recovery of prior year impairments of state net operating loss carryforward, net of amortization	(2,225		)
Federal income tax rate change	548,952
Cumulative effect adjustment for excess tax benefit related to stock compensation awards	10,382
Alternative minimum tax carryforward reclassified to receivable	(8,336		)
Other	(216		)
Deferred income taxes	$	130,528

Reconciliation of Unrecognized Tax Benefits (Expenses)

A reconciliation of unrecognized tax benefits (expenses) is as follows:



	PNMR			PNM			TNMP
	(In thousands)
Balance at December 31, 2014	$	15,031		$	12,228		$	—
Additions based on tax positions related to 2015	1,214			1,214			—
Additions (reductions) for tax positions of prior years	(9,790		)	(9,790		)	—
Settlement payments	—			—			—
Balance at December 31, 2015	6,455			3,652			—
Additions based on tax positions related to 2016	242			242			—
Additions (reductions) for tax positions of prior years	55			55			—
Settlement payments	—			—			—
Balance at December 31, 2016	6,752			3,949			—
Additions based on tax positions related to 2017	262			262			—
Additions (reductions) for tax positions of prior years	2,415			2,352			63
Settlement payments	—			—			—
Balance at December 31, 2017	$	9,429		$	6,563		$	63

Interest Income (Expense) Related to Income Taxes

Interest income (expense) related to income taxes was as follows:



	PNMR		PNM		TNMP
	(In thousands)
2017	$	—	$	—	$	—
2016	$	4,398	$	3,625	$	345
2015	$	—	$	—	$	—

Deferred Income Taxes, Increase (Decrease) In Regulatory Liability and Income Tax Expense

Adjustments to deferred income taxes recorded as increases (decreases) in the regulatory liability and income tax expense are as follows:



	PNMR			PNM			TNMP
	(In thousands)
December 31, 2017:
Regulatory liability	$	(10,109	)	$	(10,109	)	$	—
Income tax expense	$	(1,259	)	$	(1,179	)	$	—
December 31, 2016:
Regulatory liability	$	(7,132	)	$	(7,132	)	$	—
Income tax expense	$	712		$	804		$	—
December 31, 2015:
Regulatory liability	$	(1,903	)	$	(1,903	)	$	—
Income tax expense	$	(674	)	$	(470	)	$	—

Tax Carryforward, Impairments, net of Federal Tax Benefit

The impairments, net of federal tax benefit, for 2015 through 2017 are as follows:



	PNMR			PNM			TNMP
	(In thousands)
December 31, 2017:
State tax credit carryforwards	$	—		$	—		$	—
State net operating loss carryforwards	$	819		$	627		$	—
Charitable contribution carryforwards	$	909		$	—		$	—
December 31, 2016:
State tax credit carryforwards	$	—		$	—		$	—
State net operating loss carryforwards	$	(311	)	$	(213	)	$	—
Charitable contribution carryforwards	$	—		$	—		$	—
December 31, 2015:
State tax credit carryforwards	$	3,092		$	—		$	—
State net operating loss carryforwards	$	5,278		$	3,619		$	—
Charitable contribution carryforwards	$	2,042		$	—		$	—

Summary of Tax Credit Carryforwards

The reserve balances, after reflecting expiration of carryforwards under applicable tax laws, at December 31, 2017 and 2016 are as follows:



	PNMR		PNM		TNMP
	(In thousands)
December 31, 2017:
State tax credit carryforwards	$	2,487	$	—	$	—
State net operating loss carryforwards	$	1,131	$	839	$	—
Charitable contribution carryforwards	$	952	$	—	$	—
December 31, 2016:
State tax credit carryforwards	$	3,986	$	—	$	—
State net operating loss carryforwards	$	361	$	248	$	—
Charitable contribution carryforwards	$	659	$	—	$	—