Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. Valuations of derivative assets and liabilities take into account nonperformance risk, including the effect of counterparties’ and the Company’s credit risk. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.

The primary objective for the use of commodity derivative instruments, including energy contracts, options, swaps, and futures, is to manage price risk associated with forecasted purchases of energy and fuel used to generate electricity, as well as managing anticipated generation capacity in excess of forecasted demand from existing customers. PNM’s energy related derivative contracts manage commodity risk. PNM is required to meet the demand and energy needs of its customers. PNM is exposed to market risk for the needs of its customers not covered under the FPPAC.

In 2021, PNM entered into three agreements to purchase power from third parties at a fixed price in order to ensure that customer demand during the 2022 summer peak load period was met. Two of the agreements, the purchase of 85 MW from June through September 2022 and the purchase of 40 MW for the full year of 2022, were not considered derivatives because there were no notional amounts due to the unit-contingent nature of the agreements. The third agreement for the purchase of 150 MW firm power in June and September 2022 met the definition of an economic hedge described below and was accounted for accordingly. PNM entered into several agreements to purchase power from third parties in order to ensure that customer demand during the 2023 summer peak load was met. Agreements for purchases totaling 85 MW from June 1, 2023 through September 30, 2023 were not considered derivatives because there was either no notional amount due to their unit-contingent nature or qualified for a normal purchase, normal sale scope exception. Agreements totaling 375 MW were accounted for as derivative agreements and are considered economic hedges. For additional information related to 2023 summer peak resource adequacy, see Note 17.

PNM was exposed to market risk for its 65 MW interest in SJGS Unit 4, which was held as merchant plant as ordered by the NMPRC from January 1, 2018 until September 30, 2022. PNM entered into agreements to sell power from 36 MW of that capacity to a third party at a fixed price for the period January 1, 2018 through June 30, 2022, subject to certain conditions. Under these agreements, PNM was obligated to deliver 36 MW of power only when SJGS Unit 4 was operating. In May 2022, PNM executed a new agreement to sell 50 MW of that capacity to a third party for the period from July 1, 2022 through September 30, 2022 on a system-contingent basis. These agreements were not considered derivatives because there was no notional amount due to the unit-contingent nature of the transactions.

PNM and Tri-State had a hazard sharing agreement that expired in May 2022. Under this agreement, each party sold the other party 100 MW of capacity and energy from a designated generation resource on a unit contingent basis, subject to certain performance guarantees. The agreement was accounted for as a commodity derivative. In May 2022, PNM and Tri-State entered into another hazard sharing agreement that existed on a unit contingent basis through September 30, 2022, however this agreement did not include a performance guarantee. As a result, this agreement was not considered a derivative. Both the purchases and sales are made at the same market index price. This agreement served to reduce the magnitude of each party’s single largest generating hazard and assist in enhancing the reliability and efficiency of their respective operations. PNM passed the sales and purchases through to customers under PNM’s FPPAC.

PNM’s operations are managed primarily through a net asset-backed strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM could be exposed to market risk if its generation capabilities were to be disrupted or if its load requirements were to be greater than anticipated. If all or a portion of load requirements were required to be covered as a result of such unexpected situations, commitments would have to be met through market purchases. TNMP does not enter into energy related derivative contracts.

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing positions in the energy markets, primarily on a short-term basis. PNM routinely enters into various derivative instruments such as forward contracts, option agreements, and price basis swap agreements to economically hedge price and volume risk on power commitments and fuel requirements and to minimize the effect of market fluctuations. PNM monitors the market risk of its commodity contracts in accordance with approved risk and credit policies.

Under derivative accounting and related rules for energy contracts, PNM accounts for its various instruments for the purchase and sale of energy, which meet the definition of a derivative, based on PNM’s intent. During the years ended December 31, 2023, 2022, and 2021, PNM was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flow hedges. The derivative contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. PNM also uses such instruments under an NMPRC approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. Changes in the fair value of instruments covered by its FPPAC are recorded as regulatory assets and liabilities. PNM has no trading transactions.

Certain of PNM’s commodity derivative instruments in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. PNM does not offset fair value and cash collateral for derivative instruments under master netting arrangements and the above table reflects the gross amounts of fair value assets and liabilities for commodity derivatives. Included in the table above are equal amounts of current assets and current liabilities aggregating zero at December 31, 2022 resulting from PNM’s hazard sharing arrangements with Tri-State that ended May 2022. The hazard sharing arrangements were net-settled upon delivery. As discussed above, PNM’s most recent hazard sharing agreement with Tri-State was not considered a derivative.

As discussed above, PNM has NMPRC-approved guidelines for hedging arrangements to manage fuel and purchased power costs related to customers covered by its FPPAC. The table above includes $0.8 million in current assets and zero of current liabilities related to these arrangements at December 31, 2023 and $9.8 million in current assets and $19.2 million of current liabilities at December 31, 2022 with changes in fair value recorded as regulatory assets and regulatory liabilities. See Note 13.

At December 31, 2023 and 2022, PNM had no amounts recognized for the legal right to reclaim cash collateral. However, amounts posted as cash collateral under margin arrangements were $0.2 million at December 31, 2023 and $10.5 million at December 31, 2022. These amounts are included in other current assets on the Consolidated Balance Sheets. At December 31, 2023 and December 31, 2022, obligations to return cash collateral were $0.2 million, which is included in other current liabilities on the Consolidated Balance Sheets.

PNM has contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. In connection with managing its commodity risks, PNM enters into master agreements with certain counterparties. If PNM is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral if PNM’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that PNM will perform; and others have no provision for collateral.

The table below presents information about PNM’s contingent requirement to provide collateral under certain commodity contracts having an objectively determinable collateral position, that are in net liability positions, and that are not fully collateralized with cash. Contractual liability represents those commodity derivative contracts recorded at fair value on the balance sheet, determined on an individual contract basis without offsetting amounts for individual contracts that are in an asset position and could be offset under master netting agreements with the same counterparty. Cash collateral posted under these contracts does not reflect letters of credit under the Company’s revolving credit facilities that may have been issued as collateral. Net exposure is the net contractual liability for all contracts, including those designated as normal purchase and normal sale, offset by existing collateral and by any offsets available under master netting agreements, including both assets and liability positions.

The carrying amounts reflected on the Consolidated Balance Sheets approximate fair value for cash, receivables, and payables due to the short period of maturity. Investment securities are carried at fair value. Investment securities consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS, a trust for PNM’s share of decommissioning costs at SJGS, and trusts for PNM’s share of final reclamation costs related to the coal mines serving SJGS and Four Corners. See Note 16. At December 31, 2023 and 2022, the fair value of investment securities included $361.0 million and $325.3 million for the NDT, $12.3 million and $14.7 million for the SJGS decommissioning trust, and $71.1 million and $77.5 million for the coal mine reclamation trusts.

PNM records a realized loss as an impairment for any available-for-sale debt security that has a fair value that is less than its carrying value. As a result, the Company has no available-for-sale debt securities for which carrying value exceeds fair value and there are no impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings. All gains and losses resulting from sales and changes in the fair value of equity securities are recognized immediately in earnings.


	Year ended December 31,
	2023		2022		2021
	(In thousands)
Equity securities:
Net gains (losses) from equity securities sold	$	1,086	$	(6,940)	$	8,738
Net gains (losses) from equity securities still held	14,152		(38,025)		(442)
Total net gains (losses) on equity securities	15,238		(44,965)		8,296
Available-for-sale debt securities:


Net gains (losses) on debt securities	4,008		(33,392)		8,554
Net gains (losses) on investment securities	$	19,246	$	(78,357)	$	16,850

The Company determines the fair values of its derivative and other financial instruments based on the hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

For investment securities, Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For Level 2 fair values, the pricing provider predominantly uses the market approach using bid side market values based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value. For commodity derivatives, Level 2 fair values are determined based on market observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall

exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. The valuation of Level 3 investments, when applicable, requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The Company has no Level 3 investments as of December 31, 2023 and 2022. Management of the Company independently verifies the information provided by pricing services.


			GAAP Fair Value Hierarchy
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unrealized Gains
	(In thousands)
December 31, 2023
Cash and cash equivalents	$	93,873	$	93,873	$	—
Equity securities:
Corporate stocks, common	77,422		77,422		—
Corporate stocks, preferred	4,323		504		3,819
Mutual funds and other	57,966		57,966		—
Available-for-sale debt securities:
U.S. government	35,113		34,522		591		$	2,055
International government	8,735		—		8,735		104
Municipals	53,436		—		53,436		2,872
Corporate and other	113,540		—		113,540		9,285
	$	444,408	$	264,287	$	180,121	$	14,316




December 31, 2022

Cash and cash equivalents	$	66,843	$	66,843	$	—
Equity securities:
Corporate stocks, common	40,103		40,103		—
Corporate stocks, preferred	5,191		790		4,401
Mutual funds and other	66,359		66,359		—
Available-for-sale debt securities:
U.S. government	45,905		45,645		260		$	1,334
International government	9,762		—		9,762		1,117
Municipals	43,136		—		43,136		1,062
Corporate and other	140,177		—		140,177		6,473
	$	417,476	$	219,740	$	197,736	$	9,986

As discussed in Note 11, PNM and TNMP have trusts that hold investment assets for their pension and other postretirement benefit plans. The fair value of the assets held by the trusts impacts the determination of the funded status of each plan, but the assets are not reflected on the Company’s Consolidated Balance Sheets. Both the PNM Pension Plan and the TNMP Pension Plan hold units of participation in the PNM Resources, Inc. Master Trust (the “PNMR Master Trust”), which was established for the investment of assets of the pension plans. The PNM Pension Plan’s investment allocation targets in 2023 consist of 35% equities, 15% alternative investments (both of which are considered return generating), and 50% fixed income. The TNMP Pension Plan’s investment allocation targets in 2023 consist of 16% equities, 14% alternative investments (both of which are considered return generating), and 70% fixed income.

GAAP provides a practical expedient that allows the net asset value per share to be used as fair value for investments in certain entities that do not have readily determinable fair values and are considered to be investment companies. Fair values for alternative investments held by the PNMR Master Trust and PNM OPEB Plan are valued using this practical expedient. Investments for which fair value is measured using that practical expedient are not required to be categorized within the fair value hierarchy. Level 2 and Level 3 fair values are provided by fund managers utilizing a pricing service. For level 2 fair values, the pricing provider predominately uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. Fair values of Level 2 investments in mutual funds are equal to net asset value as of year-end. Fair value prices for Level 2 corporate term loans predominately use the market approach which uses bid side market values based upon hierarchy information for specific securities or securities with similar characteristics. Alternative investments include private equity funds, hedge funds, real estate funds, and a private collective investment trust. The private equity funds are not voluntarily redeemable. These investments are realized through periodic distributions occurring over a 10 to 15 years term after the initial investment. The real estate funds and hedge funds may be voluntarily redeemed but are subject to redemption provisions that may result in the funds not being redeemable in the near term. The private collective investment trust is a non-unitized fund that does not publish daily prices. Audited financial statements are received for each fund and are reviewed by the Company annually.

The valuation of alternative investments requires significant judgment by the pricing provider due to the absence of quoted market values, changes in market conditions, and the long-term nature of the assets. The significant unobservable inputs include estimates of liquidation value, current operating performance, and future expectations of performance. Neither of the employee benefit plans nor the PNMR Master Trust have any Level 3 investments as of December 31, 2023 or 2022.


			GAAP Fair Value Hierarchy
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
December 31, 2023	(In thousands)
PNM Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	342,296	$	136,474	$	205,822
Uncategorized investments	65,421
Total Master Trust Investments	$	407,717
TNMP Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	35,870	$	12,192	$	23,678
Uncategorized investments	5,258
Total Master Trust Investments	$	41,128
PNM OPEB Plan
Cash and cash equivalents	$	2,419	$	2,419	$	—
Equity securities:
Mutual funds	47,674		43,703		3,971
Investments categorized within fair value hierarchy	$	50,093	$	46,122	$	3,971
Uncategorized investments	23,290
	$	73,383
TNMP OPEB Plan
Cash and cash equivalents	$	162	$	162	$	—
Equity securities:
Mutual funds	8,241		7,806		435
Investments categorized within fair value hierarchy	$	8,403	$	7,968	$	435




December 31, 2022
PNM Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	342,183	$	143,911	$	198,272
Uncategorized investments	67,787
Total Master Trust Investments	$	409,970
TNMP Pension Plan
Participation in PNMR Master Trust Investments:
Investments categorized within fair value hierarchy	$	38,617	$	13,556	$	25,061
Uncategorized investments	5,433
Total Master Trust Investments	$	44,050
PNM OPEB Plan
Cash and cash equivalents	$	1,703	$	1,703	$	—
Equity securities:





Mutual funds	69,001		42,068		26,933
Investments categorized within fair value hierarchy	$	70,704	$	43,771	$	26,933
TNMP OPEB Plan
Cash and cash equivalents	$	149	$	149	$	—
Equity securities:





Mutual funds	8,573		8,018		555
Investments categorized within fair value hierarchy	$	8,722	$	8,167	$	555


			GAAP Fair Value Hierarchy
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
December 31, 2023	(In thousands)
PNMR Master Trust
Cash and cash equivalents	$	13,995	$	13,995	$	—
Equity securities:
Corporate stocks, common	27,167		27,167		—
Corporate stocks, preferred	741		741		—
Mutual funds and other	159,281		49,219		110,062
Fixed income securities:
U.S. government	61,684		57,544		4,140
International government	4,713		—		4,713
Municipals	5,071		—		5,071
Corporate and other	105,514		—		105,514
Total investments categorized within fair value hierarchy	378,166		$	148,666	$	229,500
Uncategorized investments:
Private equity funds	5,617
Hedge funds	35,137
Real estate funds	29,925
	$	448,845



December 31, 2022
PNMR Master Trust
Cash and cash equivalents	$	17,106	$	17,106	$	—
Equity securities:
Corporate stocks, common	53,661		53,661		—
Corporate stocks, preferred	639		639		—
Mutual funds and other	135,200		27,412		107,788
Fixed income securities:
U.S. government	62,637		58,649		3,988
International government	3,318		—		3,318
Municipals	4,922		—		4,922
Corporate and other	103,317		—		103,317
Total investments categorized within fair value hierarchy	380,800		$	157,467	$	223,333
Uncategorized investments:
Private equity funds	6,691
Hedge funds	33,258
Real estate funds	33,271
	$	454,020