Emissions free by 2040

On May 23, 2023, EPA published its package of proposed regulatory actions under Clean Air Act sections 111(b) and (d) to reduce CO2 emissions from fossil-fueled electric generating units. The proposed regulations cover new and existing natural gas-based electric generating units and existing coal-based units. Standards of performance for existing coal and existing and new natural gas units will be based upon two technologies: carbon capture and storage, and the production of green hydrogen. States will be required to develop state plans and submit these to EPA that provide for the establishment, implementation and enforcement of these standards as they apply to existing sources. States may take into account remaining useful life and other factors when applying the standards. The package also includes a proposed repeal of the Affordable Clean Energy rule and a notice of public rulemaking seeking data and information about setting standards for existing smaller natural gas-based generators. EPA’s proposed regulations to curb carbon dioxide emissions are not anticipated to have a significant impact on PNM given the shutdown of SJGS, the company’s plans to exit all coal by 2031 and the shift to zero-emitting generation resources over the next two decades. The final rule is not expected until the summer of 2024.

Regardless of future regulation or legislation to reduce greenhouse gas emissions from existing and new fossil-fueled power plants, PNM has made major strides in reducing our emissions, and expects to continue with our plans to transform our generation portfolio to be emissions-free by 2040.

Resource Planning

determining the appropriate resource mix and deployment timing that will ensure safe, reliable, and affordable service for our customers. PNM conducts planning activities through several avenues, including preparation of an Integrated Resource Plan (IRP) once every three years. The IRP identifies the most cost-effective supply resource portfolio(s) that will reliably meet customer demand requirements over a 20-year period; the planning process involves rigorous analysis and evaluation of many load and resource scenarios and sensitivities. In addition, the IRP process incorporates public advisory meetings at several stages throughout the planning cycle, providing the stakeholder community various opportunities to put forth input and make contributions. Once a resource plan has been established, PNM lays out a resource planning roadmap and defines the actions necessary to achieve the plan's objectives over the next four years. In the second quarter of 2022, PNM initiated its 2023 IRP process which will cover the 20-year planning period from 2023 through 2043. PNM anticipates filing the 2023 IRP in December of 2023.

The 2020 IRP was the first resource plan completed following PNM’s announcement of our commitment to a carbon emissions-free portfolio by 2040 and was approved on July 13, 2022 (the 2020 IRP is available at www.pnm.com/irp). IIt identified the most cost-effective resource portfolios over the next 20 years to meet system reliability requirements and the carbon intensity conditions and renewable portfolio standards targets set out in the Energy Transition Act. This plan to reliably meet customer needs while facilitating a transition to a carbon-free resource portfolio consists of three main elements:

• Transition away from aging baseload infrastructure;
• Retired the remaining two units of the coal-fired SJGS in June 2022 and September 2022
• Return leased capacity from Palo Verde in 2023 and 2024
• o Exit our share of Four Corners at the end of 2024, subject to New Mexico Public Regulation Commission (NMPRC) approvals.
• Invest in renewables, energy efficiency and storage to decarbonize our energy supply;
• Optimally retain and invest in firm capacity to maintain reliability.

The results of resource modeling show that replacing coal-fired generation with renewable energy and flexible resources will reduce costs for customers in the long run. As such, PNM is taking action to eliminate coal from our supply portfolio and replace this capacity with less carbon-intense resources. Renewables and storage will also be brought online to replace leased capacity under the Palo Verde leases; in February 2022, the NMPRC approved replacement resources consisting of 450 MW of solar and 290 MW of battery storage.

PNM has experienced the same disruptions as the rest of the industry in deliverability and cost pressures associated with the approved renewable replacement resources and will continue to seek solutions to maintain system reliability until replacement resources are ultimately placed in service.

Palo Verde Nuclear Generating Station (Palo Verde)

PNM is proud to be a participant in Palo Verde, the largest nuclear power plant in the U.S., located near Phoenix, Arizona. Palo Verde is licensed and routinely inspected by the Nuclear Regulatory Commission (NRC). It is a three-unit, 3,810 MW generating station operated by Arizona Public Service Company that provides energy to more than one million homes in the Southwest. Palo Verde provided about 15% of the energy needs of PNM’s customers in 2022 through leased and owned capacity.

Palo Verde emits zero carbon dioxide in the generation process. The plant generates spent nuclear fuel that is stored in an onsite fuel pool until it can be transferred to dry storage casks inside an NRC licensed, on-site storage facility. This facility may be expanded to include all required casks for nuclear fuel used through Palo Verde's NRC Operating License duration of 2047.

Palo Verde is the only nuclear energy facility in the world that uses treated sewage effluent for cooling water. The sewage effluent water is produced from the metropolitan Phoenix area. The wastewater is treated again at the plant's water reclamation facility and then stored in an 80-acre reservoir for use in the plant's nine cooling towers. More than 20 billion gallons of water are recycled each year.

In January 2023, PNM returned 104 MW of leased capacity to Palo Verde and the remaining lease for 10 MW of leased interest will terminate in January 2024. These actions allow PNM to continue our energy transition, provide cost savings for PNM customers, enhance portfolio flexibility and maintain adequacy and reliability of the PNM system. In April 2021, PNM filed for regulatory approval of the abandonment and replacement of the PVNGS leased capacity. The NMPRC determined abandonment had been previously approved and also approved PNM’s replacement portfolio (450 MW of solar resources and 290 MW of battery storage resources) in February 2022. Separate from the leased capacity, PNM remains an owner of 288 MW of PVNGS and expects to utilize those resources to serve customers and achieve a carbon-free portfolio by 2040.

Forward-Looking Statements

Statements made in this Report that relate to future events or our expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward‐looking statements are based upon current expectations and estimates. We assume no obligation to update this information.

Because actual results may differ materially from those expressed or implied by these forward-looking statements, we caution readers not to place undue reliance on these statements. Our business, financial condition, cash flows, and operating results are influenced by many factors, which are often beyond our control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include the risks and uncertainties described in the "Risk Factors," "Quantitative and Qualitative Disclosures about Market Risk," and "Management's Discussion and Analysis" sections of our Forms 10-K and 10-Q filed with the SEC.