Segment Information

The following segment presentation is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. A reconciliation of the segment presentation to the GAAP financial statements is provided.

PNM

PNM includes the retail electric utility operations of PNM that are subject to traditional rate regulation by the NMPRC. PNM provides integrated electricity services that include the generation, transmission, and distribution of electricity for retail electric customers in New Mexico. PNM also includes the generation and sale of electricity into the wholesale market, as well as providing transmission services to third parties. The sale of electricity includes the asset optimization of PNM’s jurisdictional capacity, as well as the capacity excluded from retail rates. FERC has jurisdiction over wholesale power and transmission rates.

TNMP

TNMP is an electric utility providing services in Texas under the TECA. TNMP’s operations are subject to traditional rate regulation by the PUCT. TNMP provides transmission and distribution services at regulated rates to various REPs that, in turn, provide retail electric service to consumers within TNMP’s service area. TNMP also provides transmission services at regulated rates to other utilities that interconnect with TNMP’s facilities.

Corporate and Other

The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and PNMR Services Company. The activities of PNMR Development, NM Capital, and the equity method investment in NMRD are also included in Corporate and Other. Eliminations of intercompany income and expense transactions are reflected in the Corporate and Other segment.

The following tables present summarized financial information for PNMR by segment. PNM and TNMP each operate in only one segment. Therefore, tabular segment information is not presented for PNM and TNMP.

PNMR SEGMENT INFORMATION



	PNM			TNMP			Corporate and Other			PNMR Consolidated
	(In thousands)
Three Months Ended June 30, 2018
Electric operating revenues	$	264,511		$	87,802		$	—		$	352,313
Cost of energy	66,361			21,350			—			87,711
Utility margin	198,150			66,452			—			264,602
Other operating expenses	107,058			23,510			(5,358		)	125,210
Depreciation and amortization	38,213			16,113			5,737			60,063
Operating income (loss)	52,879			26,829			(379		)	79,329
Interest income	3,381			—			958			4,339
Other income (deductions)	(3,146		)	832			(428		)	(2,742		)
Interest charges	(19,988		)	(7,801		)	(5,532		)	(33,321		)
Segment earnings (loss) before income taxes	33,126			19,860			(5,381		)	47,605
Income taxes (benefit)	2,345			4,493			(1,682		)	5,156
Segment earnings (loss)	30,781			15,367			(3,699		)	42,449
Valencia non-controlling interest	(4,109		)	—			—			(4,109		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	26,540		$	15,367		$	(3,699	)	$	38,208

Six Months Ended June 30, 2018
Electric operating revenues	$	500,742		$	169,449		$	—		$	670,191
Cost of energy	137,163			43,104			—			180,267
Utility margin	363,579			126,345			—			489,924
Other operating expenses	207,569			48,484			(10,375		)	245,678
Depreciation and amortization	74,840			32,500			11,445			118,785
Operating income (loss)	81,170			45,361			(1,070		)	125,461
Interest income	5,868			—			2,594			8,462
Other income (deductions)	(1,927		)	1,916			(349		)	(360		)
Interest charges	(40,818		)	(15,530		)	(10,028		)	(66,376		)
Segment earnings (loss) before income taxes	44,293			31,747			(8,853		)	67,187
Income taxes (benefit)	1,997			6,968			(3,026		)	5,939
Segment earnings (loss)	42,296			24,779			(5,827		)	61,248
Valencia non-controlling interest	(7,786		)	—			—			(7,786		)
Subsidiary preferred stock dividends	(264		)	—			—			(264		)
Segment earnings (loss) attributable to PNMR	$	34,246		$	24,779		$	(5,827	)	$	53,198

At June 30, 2018:
Total Assets	$	4,994,277		$	1,583,311		$	172,501		$	6,750,089
Goodwill	$	51,632		$	226,665		$	—		$	278,297



	PNM			TNMP			Corporate and Other			PNMR Consolidated
	(In thousands)
Three Months Ended June 30, 2017
Electric operating revenues	$	276,097		$	86,223		$	—		$	362,320
Cost of energy	82,952			21,315			—			104,267
Utility margin	193,145			64,908			—			258,053
Other operating expenses	95,395			23,025			(5,235		)	113,185
Depreciation and amortization	36,448			15,597			5,580			57,625
Operating income (loss)	61,302			26,286			(345		)	87,243
Interest income	1,858			—			2,027			3,885
Other income (deductions)	3,762			432			(123		)	4,071
Interest charges	(20,931		)	(7,510		)	(3,891		)	(32,332		)
Segment earnings (loss) before income taxes	45,991			19,208			(2,332		)	62,867
Income taxes	15,515			7,004			(883		)	21,636
Segment earnings (loss)	30,476			12,204			(1,449		)	41,231
Valencia non-controlling interest	(3,544		)	—			—			(3,544		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	26,800		$	12,204		$	(1,449	)	$	37,555

Six Months Ended June 30, 2017
Electric operating revenues	$	527,655		$	164,843		$	—		$	692,498
Cost of energy	164,268			42,802			—			207,070
Utility margin	363,387			122,041			—			485,428
Other operating expenses	189,151			46,822			(9,894		)	226,079
Depreciation and amortization	72,464			30,968			10,576			114,008
Operating income (loss)	101,772			44,251			(682		)	145,341
Interest income	4,675			—			4,091			8,766
Other income (deductions)	9,306			1,165			(459		)	10,012
Interest charges	(41,943		)	(14,915		)	(7,173		)	(64,031		)
Segment earnings (loss) before income taxes	73,810			30,501			(4,223		)	100,088
Income taxes (benefit)	23,223			10,693			(1,505		)	32,411
Segment earnings (loss)	50,587			19,808			(2,718		)	67,677
Valencia non-controlling interest	(6,996		)	—			—			(6,996		)
Subsidiary preferred stock dividends	(264		)	—			—			(264		)
Segment earnings (loss) attributable to PNMR	$	43,327		$	19,808		$	(2,718	)	$	60,417

At June 30, 2017:
Total Assets	$	4,939,407		$	1,437,547		$	207,491		$	6,584,445
Goodwill	$	51,632		$	226,665		$	—		$	278,297

The Company defines utility margin as electric operating revenues less cost of energy. Cost of energy consists primarily of fuel and purchase power costs for PNM and costs charged by third-party transmission providers for TNMP. The Company believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since substantially all such costs are offset in revenues as fuel and purchase power costs are passed through to customers under PNM’s FPPAC and third-party transmission costs are passed on to customers through TNMP’s transmission cost recovery factor. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.