UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2018
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Commission File
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Name of Registrants, State of Incorporation,
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I.R.S. Employer
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Number
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Address Of Principal Executive Offices and Telephone Numbers
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Identification No.
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001-32462
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PNM Resources, Inc.
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85-0468296
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(A New Mexico Corporation)
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414 Silver Ave. SW
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Albuquerque, New Mexico 87102-3289
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(505) 241-2700
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001-06986
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Public Service Company of New Mexico
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85-0019030
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(A New Mexico Corporation)
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414 Silver Ave. SW
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Albuquerque, New Mexico 87102-3289
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(505) 241-2700
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002-97230
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Texas-New Mexico Power Company
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75-0204070
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(A Texas Corporation)
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577 N. Garden Ridge Blvd.
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Lewisville, Texas 75067
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(972) 420-4189
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Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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PNM Resources, Inc. (“PNMR”)
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YES
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ü
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NO
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Public Service Company of New Mexico (“PNM”)
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YES
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ü
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NO
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Texas-New Mexico Power Company (“TNMP”)
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YES
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NO
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ü
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(NOTE: As a voluntary filer, not subject to the filing requirements, TNMP filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)
Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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PNMR
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YES
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ü
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NO
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PNM
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YES
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ü
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NO
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TNMP
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YES
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ü
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NO
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Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller reporting company
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Emerging growth company
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PNMR
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ü
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PNM
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ü
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TNMP
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ü
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
£
Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
NO
ü
As of
October 30, 2018
,
79,653,624
shares of common stock, no par value per share, of PNMR were outstanding.
The total number of shares of common stock of PNM outstanding as of
October 30, 2018
was
39,117,799
all held by PNMR (and none held by non-affiliates).
The total number of shares of common stock of TNMP outstanding as of
October 30, 2018
was
6,358
all held indirectly by PNMR (and none held by non-affiliates).
PNM AND TNMP MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H) (1) (a) AND (b) OF FORM 10-Q AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION (H) (2).
This combined Form 10-Q is separately filed by PNMR, PNM, and TNMP. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNMR, PNM, or TNMP, as a registrant, the portions of this Form 10-Q that relate to each other registrant are not incorporated by reference therein.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
INDEX
GLOSSARY
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Definitions:
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2014 IRP
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PNM’s 2014 IRP
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2017 IRP
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PNM’s 2017 IRP
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ABCWUA
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Albuquerque Bernalillo County Water Utility Authority
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AEP OnSite Partners
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AEP OnSite Partners, LLC, a subsidiary of American Electric Power, Inc.
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Afton
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Afton Generating Station
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AFUDC
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Allowance for Funds Used During Construction
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AMI
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Advanced Metering Infrastructure
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AMS
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Advanced Meter System
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AOCI
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Accumulated Other Comprehensive Income
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APS
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Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
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ARP
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Alternative Revenue Program
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ASU
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Accounting Standards Update
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August 2016 RD
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Recommended Decision in PNM’s NM 2015 Rate Case issued by the Hearing Examiner on August 4, 2016
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BART
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Best Available Retrofit Technology
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BDT
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Balanced Draft Technology
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Board
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Board of Directors of PNMR
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BTMU
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MUFG Bank Ltd., formerly The Bank of Tokyo-Mitsubishi UFJ, Ltd.
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BTMU Term Loan Agreement
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NM Capital’s $125.0 Million Unsecured Term Loan
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CAA
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Clean Air Act
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CCB
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Coal Combustion Byproducts
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CCN
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Certificate of Convenience and Necessity
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CO
2
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Carbon Dioxide
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CSA
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Coal Supply Agreement
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CTC
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Competition Transition Charge
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DC Circuit
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United States Court of Appeals for the District of Columbia Circuit
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DOE
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United States Department of Energy
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DOI
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United States Department of Interior
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EGU
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Electric Generating Unit
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EIM
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California Independent System Operator Western Energy Imbalance Market
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EIS
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Environmental Impact Study
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EPA
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United States Environmental Protection Agency
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ERCOT
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Electric Reliability Council of Texas
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ESA
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Endangered Species Act
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Exchange Act
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Securities Exchange Act of 1934
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Farmington
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The City of Farmington, New Mexico
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FASB
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Financial Accounting Standards Board
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FERC
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Federal Energy Regulatory Commission
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FIP
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Federal Implementation Plan
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Four Corners
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Four Corners Power Plant
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Four Corners CSA
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Four Corners Power Plant Coal Supply Agreement
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FPPAC
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Fuel and Purchased Power Adjustment Clause
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FTY
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Future Test Year
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GAAP
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Generally Accepted Accounting Principles in the United States of America
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GHG
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Greenhouse Gas Emissions
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GWh
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Gigawatt hours
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IRP
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Integrated Resource Plan
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IRS
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Internal Revenue Service
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ISFSI
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Independent Spent Fuel Storage Installation
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KW
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Kilowatt
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KWh
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Kilowatt Hour
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La Luz
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La Luz Generating Station
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LIBOR
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London Interbank Offered Rate
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Lightning Dock Geothermal
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Lightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
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Lordsburg
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Lordsburg Generating Station
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Los Alamos
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The Incorporated County of Los Alamos, New Mexico
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Luna
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Luna Energy Facility
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MD&A
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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MMBTU
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Million British Thermal Units
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Moody’s
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Moody’s Investor Services, Inc.
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MW
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Megawatt
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MWh
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Megawatt Hour
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NAAQS
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National Ambient Air Quality Standards
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Navajo Acts
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Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
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NDT
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Nuclear Decommissioning Trusts for PVNGS
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NEC
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Navopache Electric Cooperative, Inc.
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NEE
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New Energy Economy
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NEPA
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National Environmental Policy Act
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NERC
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North American Electric Reliability Corporation
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New Mexico Wind
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New Mexico Wind Energy Center
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NM 2015 Rate Case
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Request for a General Increase in Electric Rates Filed by PNM on August 27, 2015
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NM 2016 Rate Case
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Request for a General Increase in Electric Rates Filed by PNM on December 7, 2016
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NM Capital
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NM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR
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NM District Court
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United States District Court for the District of New Mexico
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NM Supreme Court
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New Mexico Supreme Court
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NMAG
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New Mexico Attorney General
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NMED
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New Mexico Environment Department
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NMIEC
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New Mexico Industrial Energy Consumers Inc.
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NMMMD
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The Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department
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NMPRC
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New Mexico Public Regulation Commission
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NMRD
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NM Renewable Development, LLC, owned 50% each by PNMR Development and AEP OnSite Partners, LLC
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NO
2
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Nitrogen Dioxide
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NOx
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Nitrogen Oxide
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NOPR
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Notice of Proposed Rulemaking
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NPDES
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National Pollutant Discharge Elimination System
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NRC
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United States Nuclear Regulatory Commission
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NSPS
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New Source Performance Standards
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NSR
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New Source Review
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NTEC
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Navajo Transitional Energy Company, LLC, an entity owned by the Navajo Nation
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OCI
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Other Comprehensive Income
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OPEB
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Other Post-Employment Benefits
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OSM
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United States Office of Surface Mining Reclamation and Enforcement
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PCRBs
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Pollution Control Revenue Bonds
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PNM
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Public Service Company of New Mexico and Subsidiaries
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PNM 2017 New Mexico Credit Facility
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PNM’s $40.0 Million Unsecured Revolving Credit Facility
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PNM 2017 Senior Unsecured Note Agreement
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PNM’s Agreement for the sale of Senior Unsecured Notes, aggregating $450.0 million
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PNM 2017 Term Loan Agreement
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PNM’s $200.0 Million Unsecured Term Loan
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PNM 2018 SUNs
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PNM’s Senior Unsecured Notes to be issued under the PNM 2017 Senior Unsecured Note Agreement
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PNM Revolving Credit Facility
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PNM’s $400.0 Million Unsecured Revolving Credit Facility
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PNMR
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PNM Resources, Inc. and Subsidiaries
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PNMR 2015 Term
Loan Agreement
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PNMR’s $150.0 Million Three-Year Unsecured Term Loan
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PNMR 2016 One-Year Term Loan
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PNMR’s $100.0 Million One-Year Unsecured Term Loan
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PNMR 2016 Two-Year Term Loan
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PNMR’s $100.0 Million Two-Year Unsecured Term Loan
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PNMR 2018 SUNs
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PNMR’s $300.0 Million Aggregate Principal Amount of Senior Unsecured Notes due 2021
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PNMR Development
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PNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR
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PNMR Development Revolving Credit Facility
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PNMR Development’s $24.5 Million Unsecured Revolving Credit Facility
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PNMR Revolving Credit Facility
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PNMR’s $300.0 Million Unsecured Revolving Credit Facility
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PPA
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Power Purchase Agreement
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PSD
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Prevention of Significant Deterioration
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PUCT
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Public Utility Commission of Texas
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PV
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Photovoltaic
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PVNGS
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Palo Verde Nuclear Generating Station
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RCRA
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Resource Conservation and Recovery Act
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RCT
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Reasonable Cost Threshold
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REA
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New Mexico’s Renewable Energy Act of 2004
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REC
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Renewable Energy Certificates
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Red Mesa Wind
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Red Mesa Wind Energy Center
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REP
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Retail Electricity Provider
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RFP
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Request For Proposal
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Rio Bravo
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Rio Bravo Generating Station
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ROE
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Return on Equity
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RPS
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Renewable Energy Portfolio Standard
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S&P
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Standard and Poor’s Ratings Services
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SCR
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Selective Catalytic Reduction
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SEC
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United States Securities and Exchange Commission
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SIP
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State Implementation Plan
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SJCC
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San Juan Coal Company
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SJGS
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San Juan Generating Station
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SJGS CSA
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San Juan Generating Station Coal Supply Agreement
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SJGS RA
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San Juan Project Restructuring Agreement
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SJPPA
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San Juan Project Participation Agreement
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SNCR
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Selective Non-Catalytic Reduction
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SO
2
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Sulfur Dioxide
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SOx
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Sulfur Oxide
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SUNs
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Senior Unsecured Notes
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TECA
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Texas Electric Choice Act
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Tenth Circuit
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United States Court of Appeals for the Tenth Circuit
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TNMP
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Texas-New Mexico Power Company and Subsidiaries
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TNMP 2018 Rate Case
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TNMP’s General Rate Case Application Filed on May 30, 2018
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TNMP 2018 Term Loan Agreement
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TNMP’s $20.0 Million Unsecured Two-Year Term Loan
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TNMP Revolving Credit Facility
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TNMP’s $75.0 Million Secured Revolving Credit Facility
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TNP
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TNP Enterprises, Inc. and Subsidiaries
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Tri-State
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Tri-State Generation and Transmission Association, Inc.
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Tucson
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Tucson Electric Power Company
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UAMPS
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Utah Associated Municipal Power Systems
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US Supreme Court
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United States Supreme Court
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Valencia
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Valencia Energy Facility
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VaR
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Value at Risk
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VIE
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Variable Interest Entity
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WACC
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Weighted Average Cost of Capital
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WEG
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WildEarth Guardians
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Westmoreland
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Westmoreland Coal Company
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Westmoreland Loan
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$125.0 million of funding provided by NM Capital to WSJ
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WSJ
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Westmoreland San Juan, LLC, an indirect wholly-owned subsidiary of Westmoreland
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2018
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2017
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2018
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2017
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(In thousands, except per share amounts)
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Electric Operating Revenues:
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Contracts with customers
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$
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400,023
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$
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392,607
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$
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1,042,033
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$
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1,016,384
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Alternative revenue programs
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(8,050
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)
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(1,908
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)
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(1,466
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)
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11,591
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Other electric operating revenue
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30,693
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29,201
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52,290
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84,423
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Total electric operating revenues
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422,666
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419,900
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1,092,857
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1,112,398
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Operating Expenses:
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Cost of energy
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113,536
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103,748
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293,803
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310,818
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Administrative and general
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49,969
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44,130
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141,607
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132,509
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Energy production costs
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31,350
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31,970
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108,588
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98,150
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Regulatory disallowances and restructuring costs
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(1,645
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)
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—
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149
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—
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Depreciation and amortization
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61,580
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58,821
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180,365
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172,829
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Transmission and distribution costs
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19,394
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16,801
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54,800
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50,309
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Taxes other than income taxes
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20,492
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19,808
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60,094
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57,820
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Total operating expenses
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294,676
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275,278
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839,406
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822,435
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Operating income
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127,990
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144,622
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253,451
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289,963
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Other Income and Deductions:
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Interest income
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3,400
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3,582
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11,862
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12,348
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Gains on investment securities
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2,463
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5,406
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1,081
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17,730
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Other income
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3,735
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6,275
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12,000
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14,626
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Other (deductions)
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(2,624
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)
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(6,709
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)
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(9,867
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)
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(17,372
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)
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Net other income and deductions
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6,974
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8,554
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15,076
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27,332
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Interest Charges
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30,492
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32,106
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|
|
96,868
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96,137
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Earnings before Income Taxes
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104,472
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121,070
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171,659
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221,158
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Income Taxes
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12,899
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42,743
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18,838
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75,154
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Net Earnings
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91,573
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78,327
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152,821
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146,004
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(Earnings) Attributable to Valencia Non-controlling Interest
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(3,920
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)
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(4,456
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)
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(11,706
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)
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(11,452
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)
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Preferred Stock Dividend Requirements of Subsidiary
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(132
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)
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(132
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)
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(396
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)
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(396
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)
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Net Earnings Attributable to PNMR
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$
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87,521
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$
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73,739
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$
|
140,719
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$
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134,156
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Net Earnings Attributable to PNMR per Common Share:
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Basic
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$
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1.10
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$
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0.92
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$
|
1.76
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$
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1.68
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Diluted
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$
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1.09
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$
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0.92
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$
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1.76
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$
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1.67
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Dividends Declared per Common Share
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$
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0.2650
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$
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0.2425
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$
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0.7950
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$
|
0.7275
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The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Net Earnings
|
$
|
91,573
|
|
|
$
|
78,327
|
|
|
$
|
152,821
|
|
|
$
|
146,004
|
|
Other Comprehensive Income:
|
|
|
|
|
|
|
|
Unrealized Gains on Available-for-Sale Securities
:
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period, net of income tax (expense) of $(356), $(2,871), $(730), and $(8,654)
|
1,044
|
|
|
4,528
|
|
|
2,142
|
|
|
13,648
|
|
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $91, $1,601, $885, and $4,302
|
(266
|
)
|
|
(2,526
|
)
|
|
(2,598
|
)
|
|
(6,786
|
)
|
Pension Liability Adjustment:
|
|
|
|
|
|
|
|
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(480), $(626), $(1,442), and $(1,878)
|
1,410
|
|
|
987
|
|
|
4,236
|
|
|
2,961
|
|
Fair Value Adjustment for Cash Flow Hedges:
|
|
|
|
|
|
|
|
Change in fair market value, net of income tax (expense) benefit of $(3), $(4), $(618), and $108
|
8
|
|
|
6
|
|
|
1,813
|
|
|
(170
|
)
|
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(28), $(62), $(27), and $(187)
|
81
|
|
|
99
|
|
|
75
|
|
|
297
|
|
Total Other Comprehensive Income
|
2,277
|
|
|
3,094
|
|
|
5,668
|
|
|
9,950
|
|
Comprehensive Income
|
93,850
|
|
|
81,421
|
|
|
158,489
|
|
|
155,954
|
|
Comprehensive (Income) Attributable to Valencia Non-controlling Interest
|
(3,920
|
)
|
|
(4,456
|
)
|
|
(11,706
|
)
|
|
(11,452
|
)
|
Preferred Stock Dividend Requirements of Subsidiary
|
(132
|
)
|
|
(132
|
)
|
|
(396
|
)
|
|
(396
|
)
|
Comprehensive Income Attributable to PNMR
|
$
|
89,798
|
|
|
$
|
76,833
|
|
|
$
|
146,387
|
|
|
$
|
144,106
|
|
The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Cash Flows From Operating Activities:
|
|
|
|
Net earnings
|
$
|
152,821
|
|
|
$
|
146,004
|
|
Adjustments to reconcile net earnings to net cash flows from operating activities:
|
|
|
|
Depreciation and amortization
|
207,406
|
|
|
200,286
|
|
Deferred income tax expense
|
18,706
|
|
|
75,224
|
|
Net unrealized (gains) losses on commodity derivatives
|
(84
|
)
|
|
968
|
|
(Gains) on investment securities
|
(1,081
|
)
|
|
(17,730
|
)
|
Stock based compensation expense
|
4,551
|
|
|
5,322
|
|
Regulatory disallowances and restructuring costs
|
149
|
|
|
—
|
|
Allowance for equity funds used during construction
|
(7,098
|
)
|
|
(6,217
|
)
|
Other, net
|
2,715
|
|
|
1,409
|
|
Changes in certain assets and liabilities:
|
|
|
|
Accounts receivable and unbilled revenues
|
(20,447
|
)
|
|
(21,077
|
)
|
Materials, supplies, and fuel stock
|
(8,731
|
)
|
|
(203
|
)
|
Other current assets
|
(13,657
|
)
|
|
21,761
|
|
Other assets
|
2,608
|
|
|
(5,981
|
)
|
Accounts payable
|
(32,638
|
)
|
|
3,729
|
|
Accrued interest and taxes
|
17,113
|
|
|
20,722
|
|
Other current liabilities
|
4,220
|
|
|
(1,588
|
)
|
Other liabilities
|
(9,656
|
)
|
|
(6,292
|
)
|
Net cash flows from operating activities
|
316,897
|
|
|
416,337
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
Additions to utility and non-utility plant
|
(365,484
|
)
|
|
(353,423
|
)
|
Proceeds from sales of investment securities
|
911,899
|
|
|
456,577
|
|
Purchases of investment securities
|
(920,217
|
)
|
|
(461,126
|
)
|
Principal repayments on Westmoreland Loan
|
56,640
|
|
|
28,770
|
|
Investments in NMRD
|
(9,000
|
)
|
|
—
|
|
Other, net
|
(365
|
)
|
|
160
|
|
Net cash flows from investing activities
|
(326,527
|
)
|
|
(329,042
|
)
|
The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Cash Flows From Financing Activities:
|
|
|
|
Revolving credit facilities borrowings (repayments), net
|
(42,800
|
)
|
|
(20,600
|
)
|
Long-term borrowings
|
829,652
|
|
|
317,000
|
|
Repayment of long-term debt
|
(650,162
|
)
|
|
(263,323
|
)
|
Proceeds from stock option exercise
|
937
|
|
|
1,739
|
|
Awards of common stock
|
(12,505
|
)
|
|
(13,816
|
)
|
Dividends paid
|
(63,721
|
)
|
|
(58,344
|
)
|
Valencia’s transactions with its owner
|
(12,677
|
)
|
|
(12,963
|
)
|
Amounts received under transmission interconnection arrangements
|
—
|
|
|
11,879
|
|
Refunds paid under transmission interconnection arrangements
|
(2,246
|
)
|
|
(9,368
|
)
|
Debt issuance costs and other, net
|
(5,858
|
)
|
|
(1,872
|
)
|
Net cash flows from financing activities
|
40,620
|
|
|
(49,668
|
)
|
|
|
|
|
Change in Cash, Restricted Cash, and Equivalents
|
30,990
|
|
|
37,627
|
|
Cash, Restricted Cash, and Equivalents at Beginning of Period
|
3,974
|
|
|
5,522
|
|
Cash, Restricted Cash, and Equivalents at End of Period
|
$
|
34,964
|
|
|
$
|
43,149
|
|
|
|
|
|
Restricted Cash Included in Other Current Assets on Condensed Consolidated Balance Sheets:
|
|
|
|
At beginning of period
|
$
|
—
|
|
|
$
|
1,000
|
|
At end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Supplemental Cash Flow Disclosures:
|
|
|
|
Interest paid, net of amounts capitalized
|
$
|
81,203
|
|
|
$
|
75,356
|
|
Income taxes paid (refunded), net
|
$
|
842
|
|
|
$
|
625
|
|
|
|
|
|
Supplemental schedule of noncash investing activities:
|
|
|
|
(Increase) decrease in accrued plant additions
|
$
|
16,177
|
|
|
$
|
(4,499
|
)
|
The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
34,964
|
|
|
$
|
3,974
|
|
Accounts receivable, net of allowance for uncollectible accounts of $1,433 and $1,081
|
108,648
|
|
|
90,473
|
|
Unbilled revenues
|
53,832
|
|
|
54,055
|
|
Other receivables
|
22,246
|
|
|
17,582
|
|
Current portion of Westmoreland Loan
|
—
|
|
|
3,576
|
|
Materials, supplies, and fuel stock
|
75,234
|
|
|
66,502
|
|
Regulatory assets
|
7,261
|
|
|
2,933
|
|
Commodity derivative instruments
|
1,083
|
|
|
1,088
|
|
Income taxes receivable
|
7,589
|
|
|
6,879
|
|
Other current assets
|
53,068
|
|
|
47,358
|
|
Total current assets
|
363,925
|
|
|
294,420
|
|
Other Property and Investments:
|
|
|
|
Long-term portion of Westmoreland Loan
|
—
|
|
|
53,064
|
|
Investment securities
|
331,746
|
|
|
323,524
|
|
Equity investment in NMRD
|
26,029
|
|
|
16,510
|
|
Other investments
|
348
|
|
|
503
|
|
Non-utility property
|
3,404
|
|
|
3,404
|
|
Total other property and investments
|
361,527
|
|
|
397,005
|
|
Utility Plant:
|
|
|
|
Plant in service and held for future use
|
7,527,250
|
|
|
7,238,285
|
|
Less accumulated depreciation and amortization
|
2,683,626
|
|
|
2,592,692
|
|
|
4,843,624
|
|
|
4,645,593
|
|
Construction work in progress
|
227,367
|
|
|
245,933
|
|
Nuclear fuel, net of accumulated amortization of $49,376 and $43,524
|
92,838
|
|
|
88,701
|
|
Net utility plant
|
5,163,829
|
|
|
4,980,227
|
|
Deferred Charges and Other Assets:
|
|
|
|
Regulatory assets
|
580,828
|
|
|
600,672
|
|
Goodwill
|
278,297
|
|
|
278,297
|
|
Commodity derivative instruments
|
2,741
|
|
|
3,556
|
|
Other deferred charges
|
97,848
|
|
|
91,926
|
|
Total deferred charges and other assets
|
959,714
|
|
|
974,451
|
|
|
$
|
6,848,995
|
|
|
$
|
6,646,103
|
|
The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(In thousands, except share information)
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current Liabilities:
|
|
|
|
Short-term debt
|
$
|
262,600
|
|
|
$
|
305,400
|
|
Current installments of long-term debt
|
471,880
|
|
|
256,895
|
|
Accounts payable
|
72,568
|
|
|
121,383
|
|
Customer deposits
|
10,833
|
|
|
11,028
|
|
Accrued interest and taxes
|
80,181
|
|
|
62,357
|
|
Regulatory liabilities
|
9,300
|
|
|
2,309
|
|
Commodity derivative instruments
|
1,092
|
|
|
1,182
|
|
Dividends declared
|
21,240
|
|
|
21,240
|
|
Other current liabilities
|
50,781
|
|
|
53,850
|
|
Total current liabilities
|
980,475
|
|
|
835,644
|
|
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
|
2,142,631
|
|
|
2,180,750
|
|
Deferred Credits and Other Liabilities:
|
|
|
|
Accumulated deferred income taxes
|
586,295
|
|
|
547,210
|
|
Regulatory liabilities
|
925,116
|
|
|
933,578
|
|
Asset retirement obligations
|
155,203
|
|
|
146,679
|
|
Accrued pension liability and postretirement benefit cost
|
80,871
|
|
|
94,003
|
|
Commodity derivative instruments
|
2,741
|
|
|
3,556
|
|
Other deferred credits
|
127,612
|
|
|
131,706
|
|
Total deferred credits and other liabilities
|
1,877,838
|
|
|
1,856,732
|
|
Total liabilities
|
5,000,944
|
|
|
4,873,126
|
|
Commitments and Contingencies (Note 11)
|
|
|
|
|
|
Cumulative Preferred Stock of Subsidiary
|
|
|
|
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)
|
11,529
|
|
|
11,529
|
|
Equity:
|
|
|
|
PNMR common stockholders' equity:
|
|
|
|
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)
|
1,150,648
|
|
|
1,157,665
|
|
Accumulated other comprehensive income (loss), net of income taxes
|
(101,480
|
)
|
|
(95,940
|
)
|
Retained earnings
|
722,130
|
|
|
633,528
|
|
Total PNMR common stockholders’ equity
|
1,771,298
|
|
|
1,695,253
|
|
Non-controlling interest in Valencia
|
65,224
|
|
|
66,195
|
|
Total equity
|
1,836,522
|
|
|
1,761,448
|
|
|
$
|
6,848,995
|
|
|
$
|
6,646,103
|
|
|
|
|
|
The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to PNMR
|
|
Non-
controlling
Interest
in Valencia
|
|
|
|
Common
Stock
|
|
AOCI
|
|
Retained
Earnings
|
|
Total PNMR Common Stockholders’ Equity
|
|
|
Total
Equity
|
|
(In thousands)
|
Balance at December 31, 2017, as originally reported
|
$
|
1,157,665
|
|
|
$
|
(95,940
|
)
|
|
$
|
633,528
|
|
|
$
|
1,695,253
|
|
|
$
|
66,195
|
|
|
$
|
1,761,448
|
|
Cumulative effect adjustment (Note 7)
|
—
|
|
|
(11,208
|
)
|
|
11,208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at January 1, 2018, as adjusted
|
1,157,665
|
|
|
(107,148
|
)
|
|
644,736
|
|
|
1,695,253
|
|
|
66,195
|
|
|
1,761,448
|
|
Net earnings before subsidiary preferred stock dividends
|
—
|
|
|
—
|
|
|
141,115
|
|
|
141,115
|
|
|
11,706
|
|
|
152,821
|
|
Total other comprehensive income
|
—
|
|
|
5,668
|
|
|
—
|
|
|
5,668
|
|
|
—
|
|
|
5,668
|
|
Subsidiary preferred stock dividends
|
—
|
|
|
—
|
|
|
(396
|
)
|
|
(396
|
)
|
|
—
|
|
|
(396
|
)
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
(63,325
|
)
|
|
(63,325
|
)
|
|
—
|
|
|
(63,325
|
)
|
Proceeds from stock option exercise
|
937
|
|
|
—
|
|
|
—
|
|
|
937
|
|
|
—
|
|
|
937
|
|
Awards of common stock
|
(12,505
|
)
|
|
—
|
|
|
—
|
|
|
(12,505
|
)
|
|
—
|
|
|
(12,505
|
)
|
Stock based compensation expense
|
4,551
|
|
|
—
|
|
|
—
|
|
|
4,551
|
|
|
—
|
|
|
4,551
|
|
Valencia’s transactions with its owner
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,677
|
)
|
|
(12,677
|
)
|
Balance at September 30, 2018
|
$
|
1,150,648
|
|
|
$
|
(101,480
|
)
|
|
$
|
722,130
|
|
|
$
|
1,771,298
|
|
|
$
|
65,224
|
|
|
$
|
1,836,522
|
|
The accompanying notes, as they relate to PNMR, are an integral part of these condensed consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Electric Operating Revenues:
|
|
|
|
|
|
|
|
Contracts with customers
|
$
|
306,019
|
|
|
$
|
300,604
|
|
|
$
|
783,310
|
|
|
$
|
769,069
|
|
Alternative revenue programs
|
(5,338
|
)
|
|
(2,551
|
)
|
|
(3,484
|
)
|
|
1,417
|
|
Other electric operating revenue
|
30,693
|
|
|
29,201
|
|
|
52,290
|
|
|
84,423
|
|
Total electric operating revenues
|
331,374
|
|
|
327,254
|
|
|
832,116
|
|
|
854,909
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
Cost of energy
|
92,384
|
|
|
82,367
|
|
|
229,547
|
|
|
246,635
|
|
Administrative and general
|
44,923
|
|
|
39,888
|
|
|
129,571
|
|
|
120,598
|
|
Energy production costs
|
31,350
|
|
|
31,970
|
|
|
108,588
|
|
|
98,150
|
|
Regulatory disallowances and restructuring costs
|
(1,645
|
)
|
|
—
|
|
|
149
|
|
|
—
|
|
Depreciation and amortization
|
38,474
|
|
|
36,764
|
|
|
113,314
|
|
|
109,228
|
|
Transmission and distribution costs
|
12,408
|
|
|
10,207
|
|
|
33,228
|
|
|
30,301
|
|
Taxes other than income taxes
|
10,964
|
|
|
10,668
|
|
|
34,033
|
|
|
32,837
|
|
Total operating expenses
|
228,858
|
|
|
211,864
|
|
|
648,430
|
|
|
637,749
|
|
Operating income
|
102,516
|
|
|
115,390
|
|
|
183,686
|
|
|
217,160
|
|
Other Income and Deductions:
|
|
|
|
|
|
|
|
Interest income
|
3,472
|
|
|
1,782
|
|
|
9,340
|
|
|
6,457
|
|
Gains on investment securities
|
2,463
|
|
|
5,406
|
|
|
1,081
|
|
|
17,730
|
|
Other income
|
2,137
|
|
|
3,762
|
|
|
6,821
|
|
|
10,270
|
|
Other (deductions)
|
(2,085
|
)
|
|
(4,964
|
)
|
|
(7,314
|
)
|
|
(14,490
|
)
|
Net other income and deductions
|
5,987
|
|
|
5,986
|
|
|
9,928
|
|
|
19,967
|
|
Interest Charges
|
18,063
|
|
|
20,451
|
|
|
58,881
|
|
|
62,393
|
|
Earnings before Income Taxes
|
90,440
|
|
|
100,925
|
|
|
134,733
|
|
|
174,734
|
|
Income Taxes
|
9,012
|
|
|
35,642
|
|
|
11,009
|
|
|
58,865
|
|
Net Earnings
|
81,428
|
|
|
65,283
|
|
|
123,724
|
|
|
115,869
|
|
(Earnings) Attributable to Valencia Non-controlling Interest
|
(3,920
|
)
|
|
(4,456
|
)
|
|
(11,706
|
)
|
|
(11,452
|
)
|
Net Earnings Attributable to PNM
|
77,508
|
|
|
60,827
|
|
|
112,018
|
|
|
104,417
|
|
Preferred Stock Dividends Requirements
|
(132
|
)
|
|
(132
|
)
|
|
(396
|
)
|
|
(396
|
)
|
Net Earnings Available for PNM Common Stock
|
$
|
77,376
|
|
|
$
|
60,695
|
|
|
$
|
111,622
|
|
|
$
|
104,021
|
|
The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Net Earnings
|
$
|
81,428
|
|
|
$
|
65,283
|
|
|
$
|
123,724
|
|
|
$
|
115,869
|
|
Other Comprehensive Income:
|
|
|
|
|
|
|
|
Unrealized Gains on Available-for-Sale Securities
:
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period, net of income tax (expense) of $(356), $(2,871), $(730), and $(8,654)
|
1,044
|
|
|
4,528
|
|
|
2,142
|
|
|
13,648
|
|
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $91, $1,601, $885, and $4,302
|
(266
|
)
|
|
(2,526
|
)
|
|
(2,598
|
)
|
|
(6,786
|
)
|
Pension Liability Adjustment:
|
|
|
|
|
|
|
|
Reclassification adjustment for amortization of experience (gains) losses recognized as net periodic benefit cost, net of income tax expense (benefit) of $(480), $(626), $(1,442), and $(1,878)
|
1,410
|
|
|
987
|
|
|
4,236
|
|
|
2,961
|
|
Total Other Comprehensive Income
|
2,188
|
|
|
2,989
|
|
|
3,780
|
|
|
9,823
|
|
Comprehensive Income
|
83,616
|
|
|
68,272
|
|
|
127,504
|
|
|
125,692
|
|
Comprehensive (Income) Attributable to Valencia Non-controlling Interest
|
(3,920
|
)
|
|
(4,456
|
)
|
|
(11,706
|
)
|
|
(11,452
|
)
|
Comprehensive Income Attributable to PNM
|
$
|
79,696
|
|
|
$
|
63,816
|
|
|
$
|
115,798
|
|
|
$
|
114,240
|
|
The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Cash Flows From Operating Activities:
|
|
|
|
Net earnings
|
$
|
123,724
|
|
|
$
|
115,869
|
|
Adjustments to reconcile net earnings to net cash flows from operating activities:
|
|
|
|
Depreciation and amortization
|
137,224
|
|
|
134,541
|
|
Deferred income tax expense
|
11,894
|
|
|
59,866
|
|
Net unrealized (gains) losses on commodity derivatives
|
(84
|
)
|
|
968
|
|
(Gains) on investment securities
|
(1,081
|
)
|
|
(17,730
|
)
|
Regulatory disallowances and restructuring costs
|
149
|
|
|
—
|
|
Allowance for equity funds used during construction
|
(5,473
|
)
|
|
(5,908
|
)
|
Other, net
|
2,495
|
|
|
1,705
|
|
Changes in certain assets and liabilities:
|
|
|
|
Accounts receivable and unbilled revenues
|
(14,164
|
)
|
|
(13,881
|
)
|
Materials, supplies, and fuel stock
|
(7,308
|
)
|
|
1,385
|
|
Other current assets
|
(15,493
|
)
|
|
23,488
|
|
Other assets
|
11,829
|
|
|
6,925
|
|
Accounts payable
|
(23,990
|
)
|
|
123
|
|
Accrued interest and taxes
|
13,560
|
|
|
16,221
|
|
Other current liabilities
|
(14,838
|
)
|
|
(17,988
|
)
|
Other liabilities
|
(12,228
|
)
|
|
(8,792
|
)
|
Net cash flows from operating activities
|
206,216
|
|
|
296,792
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
Utility plant additions
|
(177,550
|
)
|
|
(206,499
|
)
|
Proceeds from sales of investment securities
|
911,899
|
|
|
456,577
|
|
Purchases of investment securities
|
(920,217
|
)
|
|
(461,126
|
)
|
Other, net
|
141
|
|
|
150
|
|
Net cash flows from investing activities
|
(185,727
|
)
|
|
(210,898
|
)
|
The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Cash Flows From Financing Activities:
|
|
|
|
Revolving credit facilities borrowings (repayments), net
|
(39,800
|
)
|
|
(61,000
|
)
|
Long-term borrowings
|
450,000
|
|
|
257,000
|
|
Repayment of long-term debt
|
(450,025
|
)
|
|
(232,000
|
)
|
Dividends paid
|
(396
|
)
|
|
(396
|
)
|
Valencia’s transactions with its owner
|
(12,677
|
)
|
|
(12,963
|
)
|
Amounts received under transmission interconnection arrangements
|
68,200
|
|
|
11,879
|
|
Refunds paid under transmission interconnection arrangements
|
(2,246
|
)
|
|
(9,368
|
)
|
Debt issuance costs and other, net
|
(3,167
|
)
|
|
(1,000
|
)
|
Net cash flows from financing activities
|
9,889
|
|
|
(47,848
|
)
|
|
|
|
|
Change in Cash, Restricted Cash, and Equivalents
|
30,378
|
|
|
38,046
|
|
Cash, Restricted Cash, and Equivalents at Beginning of Period
|
1,108
|
|
|
1,324
|
|
Cash, Restricted Cash, and Equivalents at End of Period
|
$
|
31,486
|
|
|
$
|
39,370
|
|
|
|
|
|
Restricted Cash Included in Other Current Assets on Condensed Consolidated Balance Sheets:
|
|
|
|
At beginning of period
|
$
|
—
|
|
|
$
|
1,000
|
|
At end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Supplemental Cash Flow Disclosures:
|
|
|
|
Interest paid, net of amounts capitalized
|
$
|
50,160
|
|
|
$
|
48,627
|
|
Income taxes paid (refunded), net
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Supplemental schedule of noncash investing activities:
|
|
|
|
(Increase) decrease in accrued plant additions
|
$
|
(27
|
)
|
|
$
|
(9,399
|
)
|
The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
31,486
|
|
|
$
|
1,108
|
|
Accounts receivable, net of allowance for uncollectible accounts of $1,433 and $1,081
|
79,526
|
|
|
67,227
|
|
Unbilled revenues
|
43,239
|
|
|
43,869
|
|
Other receivables
|
21,158
|
|
|
14,541
|
|
Affiliate receivables
|
8,855
|
|
|
9,486
|
|
Materials, supplies, and fuel stock
|
68,167
|
|
|
60,859
|
|
Regulatory assets
|
7,063
|
|
|
2,139
|
|
Commodity derivative instruments
|
1,083
|
|
|
1,088
|
|
Income taxes receivable
|
4,294
|
|
|
3,410
|
|
Other current assets
|
46,467
|
|
|
39,904
|
|
Total current assets
|
311,338
|
|
|
243,631
|
|
Other Property and Investments:
|
|
|
|
Investment securities
|
331,746
|
|
|
323,524
|
|
Other investments
|
142
|
|
|
283
|
|
Non-utility property
|
96
|
|
|
96
|
|
Total other property and investments
|
331,984
|
|
|
323,903
|
|
Utility Plant:
|
|
|
|
Plant in service and held for future use
|
5,681,620
|
|
|
5,501,070
|
|
Less accumulated depreciation and amortization
|
2,087,595
|
|
|
2,029,534
|
|
|
3,594,025
|
|
|
3,471,536
|
|
Construction work in progress
|
141,174
|
|
|
204,079
|
|
Nuclear fuel, net of accumulated amortization of $49,376 and $43,524
|
92,838
|
|
|
88,701
|
|
Net utility plant
|
3,828,037
|
|
|
3,764,316
|
|
Deferred Charges and Other Assets:
|
|
|
|
Regulatory assets
|
440,346
|
|
|
459,239
|
|
Goodwill
|
51,632
|
|
|
51,632
|
|
Commodity derivative instruments
|
2,741
|
|
|
3,556
|
|
Other deferred charges
|
76,683
|
|
|
75,286
|
|
Total deferred charges and other assets
|
571,402
|
|
|
589,713
|
|
|
$
|
5,042,761
|
|
|
$
|
4,921,563
|
|
|
|
|
|
The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(In thousands, except share information)
|
LIABILITIES AND STOCKHOLDER’S EQUITY
|
|
|
|
Current Liabilities:
|
|
|
|
Short-term debt
|
$
|
—
|
|
|
$
|
39,800
|
|
Current installments of long-term debt
|
199,993
|
|
|
23
|
|
Accounts payable
|
53,131
|
|
|
77,094
|
|
Affiliate payables
|
3,148
|
|
|
22,875
|
|
Customer deposits
|
10,833
|
|
|
11,028
|
|
Accrued interest and taxes
|
48,389
|
|
|
33,945
|
|
Regulatory liabilities
|
5,796
|
|
|
784
|
|
Commodity derivative instruments
|
1,092
|
|
|
1,182
|
|
Dividends declared
|
132
|
|
|
132
|
|
Other current liabilities
|
30,582
|
|
|
31,633
|
|
Total current liabilities
|
353,096
|
|
|
218,496
|
|
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
|
1,456,109
|
|
|
1,657,887
|
|
Deferred Credits and Other Liabilities:
|
|
|
|
Accumulated deferred income taxes
|
480,479
|
|
|
449,012
|
|
Regulatory liabilities
|
736,123
|
|
|
754,441
|
|
Asset retirement obligations
|
154,171
|
|
|
145,707
|
|
Accrued pension liability and postretirement benefit cost
|
74,368
|
|
|
86,124
|
|
Commodity derivative instruments
|
2,741
|
|
|
3,556
|
|
Other deferred credits
|
171,345
|
|
|
106,442
|
|
Total deferred credits and liabilities
|
1,619,227
|
|
|
1,545,282
|
|
Total liabilities
|
3,428,432
|
|
|
3,421,665
|
|
Commitments and Contingencies (Note 11)
|
|
|
|
|
|
Cumulative Preferred Stock
|
|
|
|
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)
|
11,529
|
|
|
11,529
|
|
Equity:
|
|
|
|
PNM common stockholder’s equity:
|
|
|
|
Common stock (no par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)
|
1,264,918
|
|
|
1,264,918
|
|
Accumulated other comprehensive income (loss), net of income taxes
|
(104,521
|
)
|
|
(97,093
|
)
|
Retained earnings
|
377,179
|
|
|
254,349
|
|
Total PNM common stockholder’s equity
|
1,537,576
|
|
|
1,422,174
|
|
Non-controlling interest in Valencia
|
65,224
|
|
|
66,195
|
|
Total equity
|
1,602,800
|
|
|
1,488,369
|
|
|
$
|
5,042,761
|
|
|
$
|
4,921,563
|
|
The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to PNM
|
|
|
|
|
|
|
|
|
|
Total PNM
Common
Stockholder’s
Equity
|
|
Non-
controlling
Interest in Valencia
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
AOCI
|
|
Retained
Earnings
|
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
(In thousands)
|
Balance at December 31, 2017, as originally reported
|
$
|
1,264,918
|
|
|
$
|
(97,093
|
)
|
|
$
|
254,349
|
|
|
$
|
1,422,174
|
|
|
$
|
66,195
|
|
|
$
|
1,488,369
|
|
Cumulative effect adjustment (Note 7)
|
—
|
|
|
(11,208
|
)
|
|
11,208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at January 1, 2018, as adjusted
|
1,264,918
|
|
|
(108,301
|
)
|
|
265,557
|
|
|
1,422,174
|
|
|
66,195
|
|
|
1,488,369
|
|
Net earnings
|
—
|
|
|
—
|
|
|
112,018
|
|
|
112,018
|
|
|
11,706
|
|
|
123,724
|
|
Total other comprehensive income
|
—
|
|
|
3,780
|
|
|
—
|
|
|
3,780
|
|
|
—
|
|
|
3,780
|
|
Dividends declared on preferred stock
|
—
|
|
|
—
|
|
|
(396
|
)
|
|
(396
|
)
|
|
—
|
|
|
(396
|
)
|
Valencia’s transactions with its owner
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,677
|
)
|
|
(12,677
|
)
|
Balance at September 30, 2018
|
$
|
1,264,918
|
|
|
$
|
(104,521
|
)
|
|
$
|
377,179
|
|
|
$
|
1,537,576
|
|
|
$
|
65,224
|
|
|
$
|
1,602,800
|
|
The accompanying notes, as they relate to PNM, are an integral part of these condensed consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Electric Operating Revenues:
|
|
|
|
|
|
|
|
Contracts with customers
|
$
|
94,004
|
|
|
$
|
92,003
|
|
|
$
|
258,723
|
|
|
$
|
247,315
|
|
Alternative revenue programs
|
(2,712
|
)
|
|
643
|
|
|
2,018
|
|
|
10,174
|
|
Total Electric Operating Revenues
|
91,292
|
|
|
92,646
|
|
|
260,741
|
|
|
257,489
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
Cost of energy
|
21,152
|
|
|
21,381
|
|
|
64,256
|
|
|
64,183
|
|
Administrative and general
|
9,781
|
|
|
10,765
|
|
|
29,342
|
|
|
30,402
|
|
Depreciation and amortization
|
17,176
|
|
|
16,424
|
|
|
49,676
|
|
|
47,392
|
|
Transmission and distribution costs
|
6,986
|
|
|
6,594
|
|
|
21,572
|
|
|
20,008
|
|
Taxes other than income taxes
|
8,373
|
|
|
8,008
|
|
|
22,710
|
|
|
21,778
|
|
Total operating expenses
|
63,468
|
|
|
63,172
|
|
|
187,556
|
|
|
183,763
|
|
Operating income
|
27,824
|
|
|
29,474
|
|
|
73,185
|
|
|
73,726
|
|
Other Income and Deductions:
|
|
|
|
|
|
|
|
Other income
|
1,300
|
|
|
2,258
|
|
|
4,276
|
|
|
3,621
|
|
Other (deductions)
|
(149
|
)
|
|
(1,030
|
)
|
|
(1,209
|
)
|
|
(1,229
|
)
|
Net other income and deductions
|
1,151
|
|
|
1,228
|
|
|
3,067
|
|
|
2,392
|
|
Interest Charges
|
8,241
|
|
|
7,704
|
|
|
23,771
|
|
|
22,619
|
|
Earnings before Income Taxes
|
20,734
|
|
|
22,998
|
|
|
52,481
|
|
|
53,499
|
|
Income Taxes
|
4,634
|
|
|
8,271
|
|
|
11,602
|
|
|
18,964
|
|
Net Earnings
|
$
|
16,100
|
|
|
$
|
14,727
|
|
|
$
|
40,879
|
|
|
$
|
34,535
|
|
The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Cash Flows From Operating Activities:
|
|
|
|
Net earnings
|
$
|
40,879
|
|
|
$
|
34,535
|
|
Adjustments to reconcile net earnings to net cash flows from operating activities:
|
|
|
|
Depreciation and amortization
|
51,076
|
|
|
48,754
|
|
Deferred income tax expense (benefit)
|
(3,259
|
)
|
|
8,578
|
|
Allowance for equity funds used during construction
|
(1,624
|
)
|
|
(309
|
)
|
Other, net
|
184
|
|
|
(296
|
)
|
Changes in certain assets and liabilities:
|
|
|
|
Accounts receivable and unbilled revenues
|
(6,283
|
)
|
|
(7,196
|
)
|
Materials and supplies
|
(1,423
|
)
|
|
(1,588
|
)
|
Other current assets
|
759
|
|
|
(1,674
|
)
|
Other assets
|
(9,169
|
)
|
|
(13,799
|
)
|
Accounts payable
|
(4,277
|
)
|
|
669
|
|
Accrued interest and taxes
|
18,389
|
|
|
13,550
|
|
Other current liabilities
|
6,092
|
|
|
945
|
|
Other liabilities
|
2,613
|
|
|
1,633
|
|
Net cash flows from operating activities
|
93,957
|
|
|
83,802
|
|
Cash Flows From Investing Activities:
|
|
|
|
Utility plant additions
|
(170,785
|
)
|
|
(106,914
|
)
|
Net cash flows from investing activities
|
(170,785
|
)
|
|
(106,914
|
)
|
Cash Flow From Financing Activities:
|
|
|
|
Revolving credit facilities borrowings (repayments), net
|
17,500
|
|
|
—
|
|
Short-term borrowings (repayments) – affiliate, net
|
4,100
|
|
|
(4,600
|
)
|
Long-term borrowings
|
80,000
|
|
|
60,000
|
|
Dividends paid
|
(25,804
|
)
|
|
(29,663
|
)
|
Debt issuance costs and other, net
|
(668
|
)
|
|
(874
|
)
|
Net cash flows from financing activities
|
75,128
|
|
|
24,863
|
|
|
|
|
|
Change in Cash and Cash Equivalents
|
(1,700
|
)
|
|
1,751
|
|
Cash and Cash Equivalents at Beginning of Period
|
1,700
|
|
|
671
|
Cash and Cash Equivalents at End of Period
|
$
|
—
|
|
|
$
|
2,422
|
|
|
|
|
|
Supplemental Cash Flow Disclosures:
|
|
|
|
Interest paid, net of amounts capitalized
|
$
|
16,338
|
|
|
$
|
16,721
|
|
Income taxes paid (refunded), net
|
$
|
842
|
|
|
$
|
750
|
|
|
|
|
|
Supplemental schedule of noncash investing activities:
|
|
|
|
(Increase) decrease in accrued plant additions
|
$
|
12,822
|
|
|
$
|
(251
|
)
|
The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
ASSETS
|
|
|
|
Current Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
1,700
|
|
Accounts receivable
|
29,122
|
|
|
23,246
|
|
Unbilled revenues
|
10,593
|
|
|
10,186
|
|
Other receivables
|
2,315
|
|
|
2,860
|
|
Affiliate receivables
|
—
|
|
|
336
|
|
Materials and supplies
|
7,067
|
|
|
5,643
|
|
Regulatory assets
|
198
|
|
|
794
|
|
Other current assets
|
1,490
|
|
|
1,131
|
|
Total current assets
|
50,785
|
|
|
45,896
|
|
Other Property and Investments:
|
|
|
|
Other investments
|
206
|
|
|
220
|
|
Non-utility property
|
2,240
|
|
|
2,240
|
|
Total other property and investments
|
2,446
|
|
|
2,460
|
|
Utility Plant:
|
|
|
|
Plant in service and plant held for future use
|
1,602,210
|
|
|
1,504,778
|
|
Less accumulated depreciation and amortization
|
477,213
|
|
|
460,858
|
|
|
1,124,997
|
|
|
1,043,920
|
|
Construction work in progress
|
77,456
|
|
|
34,350
|
|
Net utility plant
|
1,202,453
|
|
|
1,078,270
|
|
Deferred Charges and Other Assets:
|
|
|
|
Regulatory assets
|
140,482
|
|
|
141,433
|
|
Goodwill
|
226,665
|
|
|
226,665
|
|
Other deferred charges
|
6,011
|
|
|
6,046
|
|
Total deferred charges and other assets
|
373,158
|
|
|
374,144
|
|
|
$
|
1,628,842
|
|
|
$
|
1,500,770
|
|
The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(In thousands, except share information)
|
LIABILITIES AND STOCKHOLDER’S EQUITY
|
|
|
|
Current Liabilities:
|
|
|
|
Short-term debt
|
$
|
17,500
|
|
|
$
|
—
|
|
Short-term debt – affiliate
|
4,100
|
|
|
—
|
|
Current installments of long-term debt
|
171,889
|
|
|
—
|
|
Accounts payable
|
12,714
|
|
|
29,812
|
|
Affiliate payables
|
3,792
|
|
|
667
|
|
Accrued interest and taxes
|
48,008
|
|
|
29,619
|
|
Regulatory liabilities
|
3,504
|
|
|
1,525
|
|
Other current liabilities
|
3,102
|
|
|
2,450
|
|
Total current liabilities
|
264,609
|
|
|
64,073
|
|
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs
|
388,404
|
|
|
480,620
|
|
Deferred Credits and Other Liabilities:
|
|
|
|
Accumulated deferred income taxes
|
123,318
|
|
|
126,415
|
|
Regulatory liabilities
|
188,993
|
|
|
179,137
|
|
Asset retirement obligations
|
843
|
|
|
793
|
|
Accrued pension liability and postretirement benefit cost
|
6,503
|
|
|
7,879
|
|
Other deferred credits
|
6,692
|
|
|
7,448
|
|
Total deferred credits and other liabilities
|
326,349
|
|
|
321,672
|
|
Total liabilities
|
979,362
|
|
|
866,365
|
|
Commitments and Contingencies (Note 11)
|
|
|
|
|
|
Common Stockholder's Equity:
|
|
|
|
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)
|
64
|
|
|
64
|
|
Paid-in-capital
|
504,166
|
|
|
504,166
|
|
Retained earnings
|
145,250
|
|
|
130,175
|
|
Total common stockholder’s equity
|
649,480
|
|
|
634,405
|
|
|
$
|
1,628,842
|
|
|
$
|
1,500,770
|
|
The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY-OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDER’S EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in Capital
|
|
Retained Earnings
|
|
Total Common Stockholder’s Equity
|
|
(In thousands)
|
Balance at December 31, 2017
|
$
|
64
|
|
|
$
|
504,166
|
|
|
$
|
130,175
|
|
|
$
|
634,405
|
|
Net earnings
|
—
|
|
|
—
|
|
|
40,879
|
|
|
40,879
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
(25,804
|
)
|
|
(25,804
|
)
|
Balance at September 30, 2018
|
$
|
64
|
|
|
$
|
504,166
|
|
|
$
|
145,250
|
|
|
$
|
649,480
|
|
The accompanying notes, as they relate to TNMP, are an integral part of these condensed consolidated financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(1)
|
Significant Accounting Policies and Responsibility for Financial Statements
|
Financial Statement Preparation
In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at
September 30, 2018
and
December 31, 2017
, the consolidated results of operations and comprehensive income for the three and nine months ended September 30, 2018 and 2017, and cash flows for the
nine months ended September 30, 2018 and 2017
. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.
The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the
2017
Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the
2018
financial statement presentation.
These Condensed Consolidated Financial Statements are unaudited. Certain information and note disclosures normally included in the annual audited Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s, and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective
2017
Annual Reports on Form 10-K.
GAAP defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Based on their nature, magnitude, and timing, certain subsequent events may be required to be reflected at the balance sheet date and/or required to be disclosed in the financial statements. The Company has evaluated subsequent events as required by GAAP.
Principles of Consolidation
The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNM also consolidates Valencia (Note 6). PNM owns undivided interests in several jointly-owned power plants and records its pro-rata share of the assets, liabilities, and expenses for those plants. The agreements for the jointly-owned plants provide that if an owner were to default on its payment obligations, the non-defaulting owners would be responsible for their proportionate share of the obligations of the defaulting owner. In exchange, the non-defaulting owners would be entitled to their proportionate share of the generating capacity of the defaulting owner. There have been
no
such payment defaults under any of the agreements for the jointly-owned plants.
PNMR shared services’ expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments. These services are billed at cost and are reflected as general and administrative expenses in the business segments. Other significant intercompany transactions between PNMR, PNM, and TNMP include interest and income tax sharing payments, equity transactions, and interconnection billings (Note 15). All intercompany transactions and balances have been eliminated.
Dividends on Common Stock
Dividends on PNMR’s common stock are declared by the Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. This has historically resulted in dividends attributable to the second quarter of each year being declared through actions of the Board during the third quarter of the year. The Board declared dividends on common stock attributable to the second quarter of
$0.2650
per share in July 2018 and
$0.2425
in July 2017, which are reflected
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
as being in the second quarter within “Dividends Declared per Common Share” on the PNMR Condensed Consolidated Statements of Earnings. The Board declared dividends on common stock for the third quarter of
$0.2650
per share in September 2018 and
$0.2425
per share in September 2017, which are reflected as being in the third quarter within “Dividends Declared per Common Share” on the PNMR Condensed Consolidated Statements of Earnings.
TNMP declared and paid cash dividends on common stock to PNMR of
$25.8 million
and
$29.7 million
in the nine months ended September 30, 2018 and 2017.
Investment in NM Renewable Development, LLC
As discussed in Note 1 of the 2017 Annual Reports on Form 10-K, PNMR Development and AEP OnSite Partners created NMRD in September 2017 to pursue the acquisition, development, and ownership of renewable energy projects, primarily in the state of New Mexico. NMRD’s current renewable energy capacity in operation is
34.3
MW. PNMR Development and AEP OnSite Partners each have a
50%
ownership interest in NMRD. The investment in NMRD is accounted for using the equity method of accounting because PNMR’s ownership interest results in significant influence, but not control, over NMRD and its operations.
In the nine months ended September 30, 2018, PNMR Development made cash contributions of
$9.0 million
to NMRD to be used primarily for its construction activities. For the three and nine months ended September 30, 2018, NMRD had revenues of
$1.0 million
and
$2.5 million
and net earnings of
$0.5 million
and
$1.0 million
. At September 30, 2018, NMRD had
$2.3 million
of current assets,
$50.4 million
of property, plant, and equipment and other assets,
$0.7 million
of current liabilities, and
$52.0 million
of owners’ equity.
Cash and Restricted Cash
Additional information concerning the Company’s policy for recording cash and cash equivalents is discussed in Note 1 of the 2017 Annual Reports on Form 10-K. In November 2016, the FASB issued
Accounting Standards Update 2016-18
–
Statement of Cash Flows (Topic 230)
, which requires amounts generally described as restricted cash and restricted cash equivalents (collectively, “restricted cash”) to be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statements of cash flows and adds disclosures necessary to reconcile such amounts to cash and cash equivalents on the balance sheets. ASU 2016-18 does not require that restricted cash be reflected as cash in the statement of financial position and does not provide a definition of what should be considered restricted cash.
During 2015, PNM received a deposit of
$8.2 million
from a third party that was restricted for PNM’s construction of transmission interconnection facilities for that party. During 2016, PNM utilized
$7.2 million
of such third-party deposits to offset construction costs for the interconnection facilities. The remaining
$1.0 million
was held as restricted cash until the second quarter of 2017, at which time a refund was made to the third party. The balances of this deposit arrangement were included in other current assets on the balance sheets of PNMR and PNM. Under the terms of the BTMU Term Loan Agreement (Note 9), all cash of NM Capital was restricted to be used for payments required under that agreement or for taxes and fees. On May 22, 2018, Westmoreland repaid the Westmoreland Loan in full. NM Capital used a portion of the proceeds to repay all its obligations under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements (Note 6). Cash held by NM Capital was included in cash and cash equivalents on the balance sheets of PNMR and was less than
$0.1 million
at December 31, 2017.
The Company adopted ASU 2016-18 as of January 1, 2018, its required effective date. Upon adoption, ASU 2016-18 requires the use of a retrospective transition method for the statement of cash flows in each period presented. Accordingly, PNM made retrospective adjustments to its Condensed Consolidated Statements of Cash Flows to increase beginning cash, restricted cash, and equivalents at January 1, 2017 by
$1.0 million
and to reduce operating cash in-flows – other current assets by
$1.0 million
during the nine months ending September 30, 2017. In addition, the beginning and ending balances of cash, restricted cash, and equivalents are presented on the Condensed Consolidated Statements of Cash Flows. No other changes were made to the Condensed Consolidated Financial Statements in connection with the adoption of ASU 2016-18.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
New Accounting Pronouncements
Information concerning recently issued accounting pronouncements that have not been adopted by the Company is presented below. The Company does not expect difficulty in adopting these standards by their required effective dates.
Accounting Standards Update 2016-02
–
Leases (Topic 842)
In February 2016, the FASB issued ASU 2016-02 to provide guidance on the recognition, measurement, presentation, and disclosure of leases. ASU 2016-02 will require that a liability be recorded on the balance sheet for all leases, based on the present value of future lease obligations. A corresponding right-of-use asset will also be recorded. Amortization of the lease obligation and the right-of-use asset for certain leases, primarily those classified as operating leases, will be on a straight-line basis, which is not expected to have a significant impact on the statements of earnings, whereas other leases will be required to be accounted for as financing arrangements similar to the accounting treatment for capital leases under current GAAP. ASU 2016-02 also revises certain disclosure requirements. ASU 2016-02 originally required that leases be recognized and measured as of the earliest period presented using a modified retrospective approach with all periods presented being restated and presented under the new guidance. The ASU allows entities to apply certain practical expedients to arrangements that exist upon adoption or that expired during the periods presented.
As further discussed in Note 7 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, the Company has operating leases of office buildings, vehicles, and equipment. PNM also has operating lease interests in PVNGS Units 1 and 2 that will expire in January 2023 and 2024. In addition, the Company also routinely enters into land easements and right-of-way agreements.
The Company, along with others in the utility industry, is continuing to monitor the activities of the FASB and other non-authoritative groups regarding industry specific issues for further clarification. The Company has formed a project team, is conducting outreach activities across its lines of business, and is in the process of implementing software to help administer and account for its leasing activities. The Company has made significant progress in identifying arrangements that may be classified as leases under ASU 2016-02 in addition to those currently classified as operating leases. It is likely the arrangements currently classified as leases will continue to be recognized as leases under ASU 2016-02. It is possible that other contractual arrangements not previously meeting the lease definition may contain elements that qualify as leases and that previously identified operating leases may be classified as financing leases under ASU 2016-02. The Company anticipates its leases of vehicles and certain office equipment commencing after January 1, 2019 will be classified as financing leases. The Company is in the process of analyzing each of the identified contractual arrangements to determine if it contains lease elements under the new standard and quantifying the potential impacts of identified lease arrangements. The Company anticipates this process will continue throughout 2018. The Company will adopt this standard effective as of January 1, 2019, its required effective date. The Company anticipates it will elect the “package” of practical expedients provided by ASU 2016-02 upon adoption. As a result, the Company will not reassess, as of the date of adoption, whether contracts should be accounted for as leases under ASU 2016-02, the classification of contracts accounted for as leases (as operating or financing), or whether any initial direct costs associated with contracts accounted for as leases should be recognized as a component of right-of-use assets.
In January 2018, the FASB issued ASU 2018-01, which clarifies that land easements are to be evaluated under ASU 2016-02, but provides an additional optional practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under the current guidance. The Company has numerous land easements and right-of-way agreements that would fall under this clarification. The only such agreement that has been accounted for as a lease under current guidance is the right-of-way agreement with the Navajo Nation, which is discussed in Note 7 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K. The Company anticipates it will elect to use the practical expedient for its existing and expired land easements upon adoption of ASU 2016-02.
In July 2018, the FASB issued ASU 2018-11, which provides entities an optional transitional relief method to apply ASU 2016-02 as of the date of initial application of the standard rather than as of the earliest period presented. The Company anticipates it will elect to use this optional transitional relief method.
Accounting Standards Update 2016-13
–
Financial Instruments
–
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which changes the way entities recognize impairment of many financial assets, including accounts receivable and investments in certain debt securities, by requiring immediate recognition of estimated credit losses expected to occur over the remaining lives of the assets. The Company anticipates adopting ASU 2016-13 as of
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
January 1, 2020, its required effective date, although early adoption is permitted beginning on January 1, 2019. The Company is in the process of analyzing the impacts of this new standard, but does not anticipate it will have a significant impact on its financial statements.
Accounting Standards Update 2017-04
–
Intangibles
–
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04 to simplify the annual goodwill impairment assessment process. Currently, the first step of a quantitative impairment test requires an entity to compare the fair value of each reporting unit containing goodwill with its carrying value (including goodwill). If as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, the entity is required to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise requires the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. ASU 2017-04 eliminates the second step of the impairment analysis. Accordingly, if the first step of a quantitative goodwill impairment analysis performed after adoption of ASU 2017-04 indicates that the fair value of a reporting unit is less than its carrying value, the goodwill of that reporting unit would be impaired to the extent of that difference. The Company anticipates it will adopt ASU 2017-04 for impairment testing after January 1, 2020, its required effective date, although early adoption is permitted. However, if there is an indication of potential impairment of goodwill as a result of an impairment assessment prior to 2020, the Company will evaluate the impact of ASU 2017-04 and could elect to early adopt this standard.
Accounting Standards Update 2017-12
–
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued ASU 2017-12 to better align hedge accounting with an organization’s risk management activities and to simplify the application of hedge accounting guidance. ASU 2017-12 is effective for the Company on January 1, 2019, although early adoption is permitted. At adoption, ASU 2017-12 is to be applied prospectively and allows entities to record a cumulative-effect adjustment at the transition date as well as allowing entities to elect certain practical expedients upon adoption. As discussed in Note 6 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 9, the Company periodically enters into, and designates as cash flow hedges, interest rate swaps to hedge its exposure to changes in interest rates. In addition, as discussed in Note 8 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 7, the Company enters into various derivative instruments to economically hedge the risk of changes in commodity prices, which are not currently designated as cash flow hedges. The Company is evaluating the requirements of ASU 2017-12, but does not anticipate the changes will have a significant impact on the Company’s accounting treatment for derivative instruments or on its financial statements.
Accounting Standards Update 2018-13 – Fair Value Measurements (Topic 820) Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurements
In August 2018, the FASB issued ASU 2018-13 to improve fair value disclosures. ASU 2018-13 eliminates certain disclosure requirements related to transfers between Levels 1 and 2 of the fair value hierarchy and the requirement to disclose the valuation process for Level 3 fair value measurements. ASU 2018-13 also amends certain disclosure requirements for investments measured at net asset value and requires new disclosures for Level 3 investments, including a new requirement to disclose changes in unrealized gains or losses recorded in OCI related to Level 3 fair value measurements. ASU 2018-13 is effective for the Company beginning on January 1, 2020, and permits entities to adopt all or certain elements of the new guidance prior to its effective date. ASU 2018-13 requires retrospective application, except for the new disclosures related to Level 3 investments which are to be applied prospectively. As discussed in Note 8 of the Notes to the Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 7, PNM and TNMP have investment securities in trusts for decommissioning, reclamation, pension benefits, and other post-employment benefits, which are measured at fair value. Certain investments in these trusts are measured at net asset value per share. These trusts also hold Level 3 investments. The Company is evaluating the requirements of ASU 2018-13, but does not anticipate it will have a significant impact on the Company’s fair value disclosures.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accounting Standards Update 2018-14 – Compensation - Retirement Benefits - Defined Benefit Plans (Topic 715) Disclosure Framework: Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14 to improve benefit plan sponsors’ disclosures for defined benefit pension and other post-employment benefit plans. ASU 2018-14 removes the requirement to disclose the amounts in other comprehensive income expected to be recognized as benefit cost over the next fiscal year and the requirement to disclose the impact of a one-percentage-point change in the assumed health care cost trend rate; clarifies the disclosure requirements for plans with assets that are less than their projected benefit, or accumulated benefit obligation; and requires significant gains and losses affecting benefit obligations during the period be disclosed. ASU 2018-14 is effective for the Company on January 1, 2021, although early adoption is permitted, and requires retrospective application. As discussed in Note 12 of the Notes to the Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 10, PNM and TNMP maintain qualified defined benefit, other postretirement benefit plans providing medical and dental benefits, and executive retirement programs. The Company is evaluating the requirements of ASU 2018-14, but does not anticipate these changes will have a significant impact on the Company’s defined benefit and other postretirement benefit plan disclosures.
Accounting Standards Update 2018-15 – Intangibles - Goodwill and Other - Internal Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for implementation costs incurred to develop or obtain internal-use software. Under ASU 2018-15, entities are required to capitalize implementation costs for hosting arrangements if those costs meet the capitalization requirements for internal-use software arrangements. ASU 2018-15 requires entities to present cash flows, capitalized costs, and amortization expense in the same financial statement line items as other costs incurred for such hosting arrangements. ASU 2018-15 is effective for the Company on January 1, 2020, although early adoption is permitted, and allows entities to apply the new requirements retrospectively or prospectively. The Company is in the process of analyzing the impacts of this new standard.
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.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2018
|
|
Electric operating revenues
|
$
|
331,374
|
|
|
$
|
91,292
|
|
|
$
|
—
|
|
|
$
|
422,666
|
|
Cost of energy
|
92,384
|
|
|
21,152
|
|
|
—
|
|
|
113,536
|
|
Utility margin
|
238,990
|
|
|
70,140
|
|
|
—
|
|
|
309,130
|
|
Other operating expenses
|
98,000
|
|
|
25,140
|
|
|
(3,580
|
)
|
|
119,560
|
|
Depreciation and amortization
|
38,474
|
|
|
17,176
|
|
|
5,930
|
|
|
61,580
|
|
Operating income (loss)
|
102,516
|
|
|
27,824
|
|
|
(2,350
|
)
|
|
127,990
|
|
Interest income
|
3,472
|
|
|
—
|
|
|
(72
|
)
|
|
3,400
|
|
Other income (deductions)
|
2,515
|
|
|
1,151
|
|
|
(92
|
)
|
|
3,574
|
|
Interest charges
|
(18,063
|
)
|
|
(8,241
|
)
|
|
(4,188
|
)
|
|
(30,492
|
)
|
Segment earnings (loss) before income taxes
|
90,440
|
|
|
20,734
|
|
|
(6,702
|
)
|
|
104,472
|
|
Income taxes (benefit)
|
9,012
|
|
|
4,634
|
|
|
(747
|
)
|
|
12,899
|
|
Segment earnings (loss)
|
81,428
|
|
|
16,100
|
|
|
(5,955
|
)
|
|
91,573
|
|
Valencia non-controlling interest
|
(3,920
|
)
|
|
—
|
|
|
—
|
|
|
(3,920
|
)
|
Subsidiary preferred stock dividends
|
(132
|
)
|
|
—
|
|
|
—
|
|
|
(132
|
)
|
Segment earnings (loss) attributable to PNMR
|
$
|
77,376
|
|
|
$
|
16,100
|
|
|
$
|
(5,955
|
)
|
|
$
|
87,521
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
Electric operating revenues
|
$
|
832,116
|
|
|
$
|
260,741
|
|
|
$
|
—
|
|
|
$
|
1,092,857
|
|
Cost of energy
|
229,547
|
|
|
64,256
|
|
|
—
|
|
|
293,803
|
|
Utility margin
|
602,569
|
|
|
196,485
|
|
|
—
|
|
|
799,054
|
|
Other operating expenses
|
305,569
|
|
|
73,624
|
|
|
(13,955
|
)
|
|
365,238
|
|
Depreciation and amortization
|
113,314
|
|
|
49,676
|
|
|
17,375
|
|
|
180,365
|
|
Operating income (loss)
|
183,686
|
|
|
73,185
|
|
|
(3,420
|
)
|
|
253,451
|
|
Interest income
|
9,340
|
|
|
—
|
|
|
2,522
|
|
|
11,862
|
|
Other income (deductions)
|
588
|
|
|
3,067
|
|
|
(441
|
)
|
|
3,214
|
|
Interest charges
|
(58,881
|
)
|
|
(23,771
|
)
|
|
(14,216
|
)
|
|
(96,868
|
)
|
Segment earnings (loss) before income taxes
|
134,733
|
|
|
52,481
|
|
|
(15,555
|
)
|
|
171,659
|
|
Income taxes (benefit)
|
11,009
|
|
|
11,602
|
|
|
(3,773
|
)
|
|
18,838
|
|
Segment earnings (loss)
|
123,724
|
|
|
40,879
|
|
|
(11,782
|
)
|
|
152,821
|
|
Valencia non-controlling interest
|
(11,706
|
)
|
|
—
|
|
|
—
|
|
|
(11,706
|
)
|
Subsidiary preferred stock dividends
|
(396
|
)
|
|
—
|
|
|
—
|
|
|
(396
|
)
|
Segment earnings (loss) attributable to PNMR
|
$
|
111,622
|
|
|
$
|
40,879
|
|
|
$
|
(11,782
|
)
|
|
$
|
140,719
|
|
|
|
|
|
|
|
|
|
At September 30, 2018:
|
|
|
|
|
|
|
|
Total Assets
|
$
|
5,042,761
|
|
|
$
|
1,628,842
|
|
|
$
|
177,392
|
|
|
$
|
6,848,995
|
|
Goodwill
|
$
|
51,632
|
|
|
$
|
226,665
|
|
|
$
|
—
|
|
|
$
|
278,297
|
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNM
|
|
TNMP
|
|
Corporate
and Other
|
|
PNMR Consolidated
|
|
(In thousands)
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
Electric operating revenues
|
$
|
327,254
|
|
|
$
|
92,646
|
|
|
$
|
—
|
|
|
$
|
419,900
|
|
Cost of energy
|
82,367
|
|
|
21,381
|
|
|
—
|
|
|
103,748
|
|
Utility margin
|
244,887
|
|
|
71,265
|
|
|
—
|
|
|
316,152
|
|
Other operating expenses
|
92,733
|
|
|
25,367
|
|
|
(5,391
|
)
|
|
112,709
|
|
Depreciation and amortization
|
36,764
|
|
|
16,424
|
|
|
5,633
|
|
|
58,821
|
|
Operating income (loss)
|
115,390
|
|
|
29,474
|
|
|
(242
|
)
|
|
144,622
|
|
Interest income
|
1,782
|
|
|
—
|
|
|
1,800
|
|
|
3,582
|
|
Other income (deductions)
|
4,204
|
|
|
1,228
|
|
|
(460
|
)
|
|
4,972
|
|
Interest charges
|
(20,451
|
)
|
|
(7,704
|
)
|
|
(3,951
|
)
|
|
(32,106
|
)
|
Segment earnings (loss) before income taxes
|
100,925
|
|
|
22,998
|
|
|
(2,853
|
)
|
|
121,070
|
|
Income taxes (benefit)
|
35,642
|
|
|
8,271
|
|
|
(1,170
|
)
|
|
42,743
|
|
Segment earnings (loss)
|
65,283
|
|
|
14,727
|
|
|
(1,683
|
)
|
|
78,327
|
|
Valencia non-controlling interest
|
(4,456
|
)
|
|
—
|
|
|
—
|
|
|
(4,456
|
)
|
Subsidiary preferred stock dividends
|
(132
|
)
|
|
—
|
|
|
—
|
|
|
(132
|
)
|
Segment earnings (loss) attributable to PNMR
|
$
|
60,695
|
|
|
$
|
14,727
|
|
|
$
|
(1,683
|
)
|
|
$
|
73,739
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
Electric operating revenues
|
$
|
854,909
|
|
|
$
|
257,489
|
|
|
$
|
—
|
|
|
$
|
1,112,398
|
|
Cost of energy
|
246,635
|
|
|
64,183
|
|
|
—
|
|
|
310,818
|
|
Utility margin
|
608,274
|
|
|
193,306
|
|
|
—
|
|
|
801,580
|
|
Other operating expenses
|
281,886
|
|
|
72,188
|
|
|
(15,286
|
)
|
|
338,788
|
|
Depreciation and amortization
|
109,228
|
|
|
47,392
|
|
|
16,209
|
|
|
172,829
|
|
Operating income (loss)
|
217,160
|
|
|
73,726
|
|
|
(923
|
)
|
|
289,963
|
|
Interest income
|
6,457
|
|
|
—
|
|
|
5,891
|
|
|
12,348
|
|
Other income (deductions)
|
13,510
|
|
|
2,392
|
|
|
(918
|
)
|
|
14,984
|
|
Interest charges
|
(62,393
|
)
|
|
(22,619
|
)
|
|
(11,125
|
)
|
|
(96,137
|
)
|
Segment earnings (loss) before income taxes
|
174,734
|
|
|
53,499
|
|
|
(7,075
|
)
|
|
221,158
|
|
Income taxes (benefit)
|
58,865
|
|
|
18,964
|
|
|
(2,675
|
)
|
|
75,154
|
|
Segment earnings (loss)
|
115,869
|
|
|
34,535
|
|
|
(4,400
|
)
|
|
146,004
|
|
Valencia non-controlling interest
|
(11,452
|
)
|
|
—
|
|
|
—
|
|
|
(11,452
|
)
|
Subsidiary preferred stock dividends
|
(396
|
)
|
|
—
|
|
|
—
|
|
|
(396
|
)
|
Segment earnings (loss) attributable to PNMR
|
$
|
104,021
|
|
|
$
|
34,535
|
|
|
$
|
(4,400
|
)
|
|
$
|
134,156
|
|
|
|
|
|
|
|
|
|
At September 30, 2017:
|
|
|
|
|
|
|
|
Total Assets
|
$
|
5,023,816
|
|
|
$
|
1,465,219
|
|
|
$
|
208,219
|
|
|
$
|
6,697,254
|
|
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.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(3)
|
Accumulated Other Comprehensive Income (Loss)
|
Information regarding accumulated other comprehensive income (loss) for the
nine
months ended
September 30, 2018
and
2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
PNM
|
|
PNMR
|
|
Unrealized
|
|
|
|
|
|
Fair Value
|
|
|
|
Gains on
|
|
|
|
|
|
Adjustment
|
|
|
|
Available-for-
|
|
Pension
|
|
|
|
for Cash
|
|
|
|
Sale
|
|
Liability
|
|
|
|
Flow
|
|
|
|
Securities
|
|
Adjustment
|
|
Total
|
|
Hedges
|
|
Total
|
|
(In thousands)
|
Balance at December 31, 2017, as originally reported
|
$
|
13,169
|
|
|
$
|
(110,262
|
)
|
|
$
|
(97,093
|
)
|
|
$
|
1,153
|
|
|
$
|
(95,940
|
)
|
Cumulative effect adjustment (Note 7)
|
(11,208
|
)
|
|
—
|
|
|
(11,208
|
)
|
|
—
|
|
|
(11,208
|
)
|
Balance at January 1, 2018, as adjusted
|
1,961
|
|
|
(110,262
|
)
|
|
(108,301
|
)
|
|
1,153
|
|
|
(107,148
|
)
|
Amounts reclassified from AOCI (pre-tax)
|
(3,483
|
)
|
|
5,678
|
|
|
2,195
|
|
|
102
|
|
|
2,297
|
|
Income tax impact of amounts reclassified
|
885
|
|
|
(1,442
|
)
|
|
(557
|
)
|
|
(27
|
)
|
|
(584
|
)
|
Other OCI changes (pre-tax)
|
2,872
|
|
|
—
|
|
|
2,872
|
|
|
2,431
|
|
|
5,303
|
|
Income tax impact of other OCI changes
|
(730
|
)
|
|
—
|
|
|
(730
|
)
|
|
(618
|
)
|
|
(1,348
|
)
|
Net after-tax change
|
(456
|
)
|
|
4,236
|
|
|
3,780
|
|
|
1,888
|
|
|
5,668
|
|
Balance at September 30, 2018
|
$
|
1,505
|
|
|
$
|
(106,026
|
)
|
|
$
|
(104,521
|
)
|
|
$
|
3,041
|
|
|
$
|
(101,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$
|
4,320
|
|
|
$
|
(96,748
|
)
|
|
$
|
(92,428
|
)
|
|
$
|
(23
|
)
|
|
$
|
(92,451
|
)
|
Amounts reclassified from AOCI (pre-tax)
|
(11,088
|
)
|
|
4,839
|
|
|
(6,249
|
)
|
|
484
|
|
|
(5,765
|
)
|
Income tax impact of amounts reclassified
|
4,302
|
|
|
(1,878
|
)
|
|
2,424
|
|
|
(187
|
)
|
|
2,237
|
|
Other OCI changes (pre-tax)
|
22,302
|
|
|
—
|
|
|
22,302
|
|
|
(278
|
)
|
|
22,024
|
|
Income tax impact of other OCI changes
|
(8,654
|
)
|
|
—
|
|
|
(8,654
|
)
|
|
108
|
|
|
(8,546
|
)
|
Net after-tax change
|
6,862
|
|
|
2,961
|
|
|
9,823
|
|
|
127
|
|
|
9,950
|
|
Balance at September 30, 2017
|
$
|
11,182
|
|
|
$
|
(93,787
|
)
|
|
$
|
(82,605
|
)
|
|
$
|
104
|
|
|
$
|
(82,501
|
)
|
The Condensed Consolidated Statements of Earnings include pre-tax amounts reclassified from AOCI related to Unrealized Gains on Available-for-Sale Securities in gains (losses) on investment securities, related to Pension Liability Adjustment in other (deductions), and related to Fair Value Adjustment for Cash Flow Hedges in interest charges. The income tax impacts of all amounts reclassified from AOCI are included in income taxes in the Condensed Consolidated Statements of Earnings.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In accordance with GAAP, dual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. Information regarding the computation of earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands, except per share amounts)
|
Net Earnings Attributable to PNMR
|
$
|
87,521
|
|
|
$
|
73,739
|
|
|
$
|
140,719
|
|
|
$
|
134,156
|
|
Average Number of Common Shares:
|
|
|
|
|
|
|
|
Outstanding during period
|
79,654
|
|
|
79,654
|
|
|
79,654
|
|
|
79,654
|
|
Vested awards of restricted stock
|
215
|
|
|
284
|
|
|
210
|
|
|
215
|
|
Average Shares – Basic
|
79,869
|
|
|
79,938
|
|
|
79,864
|
|
|
79,869
|
|
Dilutive Effect of Common Stock Equivalents:
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
111
|
|
|
216
|
|
|
126
|
|
|
263
|
|
Average Shares – Diluted
|
79,980
|
|
|
80,154
|
|
|
79,990
|
|
|
80,132
|
|
Net Earnings Per Share of Common Stock:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.10
|
|
|
$
|
0.92
|
|
|
$
|
1.76
|
|
|
$
|
1.68
|
|
Diluted
|
$
|
1.09
|
|
|
$
|
0.92
|
|
|
$
|
1.76
|
|
|
$
|
1.67
|
|
|
|
(5)
|
Electric Operating Revenues
|
PNMR is an investor-owned holding company with
two
regulated utilities providing electricity and electric services in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Revenue Recognition
Electric operating revenues are recorded in the period of energy delivery, which includes estimated amounts for service rendered but unbilled at the end of each accounting period. The determination of the energy sales billed to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading and the corresponding unbilled revenue are estimated. Unbilled electric revenue is estimated based on daily generation volumes, estimated customer usage by class, line losses, historical trends and experience, and applicable customer rates. Amounts billed are generally due within the next month. The Company does not incur incremental costs to obtain contracts for its energy services.
PNM’s wholesale electricity sales are recorded as electric operating revenues and wholesale electricity purchases are recorded as costs of energy sold. In accordance with GAAP, derivative contracts that are subject to unplanned netting are recorded net in earnings. A “book-out” is the planned or unplanned netting of off-setting purchase and sale transactions. A book-out is a transmission mechanism to reduce congestion on the transmission system or administrative burden. For accounting purposes, a book-out is the recording of net revenues upon the settlement of a derivative contract.
Unrealized gains and losses on derivative contracts that are not designated for hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power and fuel supply agreements, used to hedge generation assets and purchased power costs. Changes in the fair value of economic hedges are reflected in results of operations, with changes related to economic hedges on sales included in operating revenues and changes related to economic hedges on purchases included in cost of energy sold (Note 7).
In May 2014, the FASB issued ASU 2014-09 –
Revenue from Contracts with Customers (Topic 606)
. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also revises the disclosure requirements regarding revenue and requires that revenue from contracts with customers be reported separately from other revenues. ASU 2014-09 provides that it could be applied retrospectively to each prior period presented or on a modified retrospective basis with a cumulative effect adjustment to retained earnings on the date of adoption.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company adopted ASU 2014-09 effective as of January 1, 2018, its required effective date, using the modified retrospective method of adoption. The adoption of ASU 2014-09 did not result in changes to the nature, amount, and timing of the Company’s existing revenue recognition processes or information technology infrastructure. Therefore, the adoption of ASU 2014-09 had no effect on the amount of revenue recorded in 2018 compared to the amount that would have been recorded under prior GAAP, no effect on total electric operating revenues or any other caption within the Company’s financial statements, and no cumulative effect adjustment was recorded. Revenues for 2018 are presented in accordance with the standard on the Condensed Consolidated Statements of Earnings and 2017 revenues are presented on a comparative basis. Additional disclosures to further disaggregate 2018 revenues are presented below.
Under ASU 2014-09, PNM and TNMP recognize revenue as they satisfy performance obligations, which typically occurs as the customer or end-user consumes the electric service provided. Electric services are typically for a bundle of services that are distinct and transferred to the end-user in one performance obligation measured by KWh or KW. Electric operating revenues are recorded in the period of energy delivery, including estimated unbilled amounts. As permitted under GAAP, the Company has elected to exclude all sales and similar taxes from revenue.
Revenue from contracts with customers is recorded based upon the total authorized tariff price at the time electric service is rendered, including amounts billed under arrangements qualifying as an Alternative Revenue Program (“ARP”). ARP arrangements are agreements between PNM or TNMP and its regulator that allows PNM or TNMP to adjust future rates in response to past activities or completed events, if certain criteria are met. GAAP requires that ARP revenues be reported separately from contracts with customers. ARP revenues in a given period include the recognition of “originating” ARP revenues (i.e. when the regulator-specific conditions are met) in the period, offset by the reversal of ARP revenues billed to customers in that period.
Sources of Revenue
Additional information about the nature of revenues is provided below. Additional information about matters affecting PNM’s and TNMP’s regulated revenues is provided in Note 12.
Revenue from Contracts with Customers
PNM
NMPRC Regulated Retail Electric Service
– PNM provides electric generation, transmission, and distribution service to its rate-regulated customers in New Mexico. PNM’s retail electric service territory covers a large area of north central New Mexico, including the cities of Albuquerque, Rio Rancho, and Santa Fe, and certain areas of southern New Mexico. Customer rates for retail electric service are set by the NMPRC and revenue is recognized as energy is delivered to the customer. PNM invoices customers on a monthly basis for electric service and generally collects billed amounts within one month.
Transmission Service to Third Parties
– PNM owns transmission lines that are interconnected with other utilities in New Mexico, Texas, Arizona, Colorado, and Utah. Transmission customers receive service for the transmission of energy owned by the customer utilizing PNM’s transmission facilities. Customers generally receive transmission services, which are regulated by FERC, from PNM through PNM’s Open Access Transmission Tariff (“OATT”) or a specific contract. Customers are billed based on capacity and energy components on a monthly basis.
Other
–
On January 1, 2018, PNM acquired a
65
MW interest in SJGS Unit 4, which is held as merchant plant as ordered by the NMPRC (Note 11). PNM sells power from
36
MW of this capacity to a third party at a fixed price that is recorded as revenue from contracts with customers. PNM is obligated to deliver power under this arrangement only when SJGS Unit 4 is operating. Other market sales from this
65
MW interest are recorded in other electric operating revenues.
TNMP
PUCT Regulated Retail Electric Service
– TNMP provides transmission and distribution services in Texas under the provisions of TECA and the Texas Public Utility Regulatory Act. TNMP is subject to traditional cost-of-service regulation with respect to rates and service under the jurisdiction of the PUCT and certain municipalities. TNMP’s transmission and distribution activities are solely within ERCOT and not subject to traditional rate regulation by FERC. TNMP provides transmission and distribution services at regulated rates to various REPs that, in turn, provide retail electric service to consumers within TNMP’s
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
service area. Revenue is recognized as energy is delivered to the consumer. TNMP invoices REPs on a monthly basis and is generally paid within a month.
Transmission Cost of Service (“TCOS”)
– TNMP is a transmission service provider that is allowed to recover its TCOS through a network transmission rate that is approved by the PUCT. TCOS customers are other utilities that receive service for the transmission of energy owned by the customer utilizing TNMP’s transmission facilities.
Alternative Revenue Programs
ARP revenues, which are discussed above, include recovery or refund provisions under PNM’s renewable energy rider and true-ups to PNM’s formula transmission rates; TNMP’s AMS surcharge, transmission cost recovery factor, and rate impacts of the 2017 change in the corporate income tax rate; and the energy efficiency incentive bonus at both PNM and TNMP. GAAP provides for the recognition of regulatory assets and liabilities for the difference between ARP revenues and amounts billed under those programs. Regulatory assets and liabilities are amortized into earnings as amounts are billed. Accordingly, the Company has deferred certain costs and recorded certain liabilities pursuant to the rate actions of the NMPRC, PUCT, and FERC.
Other Electric Operating Revenues
Other electric operating revenues consist primarily of PNM’s sales for resale meeting the definition of a derivative under GAAP. Derivatives are not considered contracts with customers under ASU 2014-09. PNM engages in activities meeting the definition of derivatives to optimize its existing jurisdictional assets and long-term power agreements through spot market, hour-ahead, day-ahead, week-ahead, month-ahead, and other sales of excess generation not required to fulfill retail load and contractual commitments. Through December 31, 2017, PNM’s
134
MW share of Unit 3 at PVNGS was excluded from retail rates and was being sold in the wholesale market. In December 2015, the NMPRC approved PNM’s request to include PVNGS Unit 3 as a jurisdictional resource to service New Mexico retail customers beginning in 2018.
Disaggregation of Revenues
A disaggregation of revenues from contracts with customers by the type of customer is presented in the table below. The table also reflects ARP revenues and other revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNM
|
|
TNMP
|
|
PNMR Consolidated
|
Three Months Ended September 30, 2018
|
|
(In thousands)
|
Electric Operating Revenues:
|
|
|
|
|
|
|
Contracts with customers:
|
|
|
|
|
|
|
Retail electric revenue
|
|
|
|
|
|
|
Residential
|
|
$
|
138,091
|
|
|
$
|
40,227
|
|
|
$
|
178,318
|
|
Commercial
|
|
121,755
|
|
|
28,850
|
|
|
150,605
|
|
Industrial
|
|
17,919
|
|
|
4,402
|
|
|
22,321
|
|
Public authority
|
|
6,872
|
|
|
1,390
|
|
|
8,262
|
|
Economy energy service
|
|
6,158
|
|
|
—
|
|
|
6,158
|
|
Transmission
|
|
13,538
|
|
|
16,743
|
|
|
30,281
|
|
Miscellaneous
|
|
1,686
|
|
|
2,392
|
|
|
4,078
|
|
Total revenues from contracts with customers
|
|
306,019
|
|
|
94,004
|
|
|
400,023
|
|
Alternative revenue programs
|
|
(5,338
|
)
|
|
(2,712
|
)
|
|
(8,050
|
)
|
Other electric operating revenues
|
|
30,693
|
|
|
—
|
|
|
30,693
|
|
Total Electric Operating Revenues
|
|
$
|
331,374
|
|
|
$
|
91,292
|
|
|
$
|
422,666
|
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNM
|
|
TNMP
|
|
PNMR Consolidated
|
Nine Months Ended September 30, 2018
|
|
(In thousands)
|
Electric Operating Revenues:
|
|
|
|
|
|
|
Contracts with customers:
|
|
|
|
|
|
|
Retail electric revenue
|
|
|
|
|
|
|
Residential
|
|
$
|
334,767
|
|
|
$
|
100,808
|
|
|
$
|
435,575
|
|
Commercial
|
|
315,256
|
|
|
84,084
|
|
|
399,340
|
|
Industrial
|
|
45,976
|
|
|
12,891
|
|
|
58,867
|
|
Public authority
|
|
16,726
|
|
|
4,205
|
|
|
20,931
|
|
Economy energy service
|
|
19,825
|
|
|
—
|
|
|
19,825
|
|
Transmission
|
|
40,128
|
|
|
49,995
|
|
|
90,123
|
|
Miscellaneous
|
|
10,632
|
|
|
6,740
|
|
|
17,372
|
|
Total revenues from contracts with customers
|
|
783,310
|
|
|
258,723
|
|
|
1,042,033
|
|
Alternative revenue programs
|
|
(3,484
|
)
|
|
2,018
|
|
|
(1,466
|
)
|
Other electric operating revenues
|
|
52,290
|
|
|
—
|
|
|
52,290
|
|
Total Electric Operating Revenues
|
|
$
|
832,116
|
|
|
$
|
260,741
|
|
|
$
|
1,092,857
|
|
Contract balances
Performance obligations related to contracts with customers are typically satisfied when the energy is delivered and the customer or end-user utilizes the energy. Accounts receivable from customers represent amounts billed to the customer or end-user, including amounts under ARP programs. For PNM, accounts receivable reflected on the Condensed Consolidated Balance Sheets, net of allowance for uncollectible accounts, includes
$76.9 million
at September 30, 2018 and
$61.8 million
at December 31, 2017 resulting from contracts with customers. All of TNMP’s accounts receivable results from contracts with customers.
Contract assets are an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance). The Company has
no
contract assets as of September 30, 2018. Contract liabilities arise when consideration is received in advance from a customer before satisfying the performance obligations. Therefore, revenue is deferred and not recognized until the obligation is satisfied. Under its OATT, PNM accepts upfront consideration for capacity reservations requested by transmission customers, which requires PNM to defer the customer’s transmission capacity rights for a specific period of time. PNM recognizes the revenue of these capacity reservations over the period it defers the customer’s capacity rights. Other utilities pay PNM and TNMP in advance for the joint-use of their utility poles. These revenues are recognized over the period of time specified in the joint-use contract, typically for one calendar year. Deferred revenues on these arrangements are recorded as contract liabilities. The Company has no other arrangements with remaining performance obligations to which a portion of the transaction price would be required to be allocated.
Changes during the period in the balances of contract liabilities, which are included in other current liabilities on the Condensed Consolidated Balance Sheets, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNM
|
|
TNMP
|
|
PNMR Consolidated
|
|
|
(In thousands)
|
Balance at December 31, 2017
|
|
$
|
349
|
|
|
$
|
—
|
|
|
$
|
349
|
|
Consideration received in advance of service to be provided
|
|
4,174
|
|
|
1,512
|
|
|
5,686
|
|
Deferred revenue earned
|
|
(3,304
|
)
|
|
(1,134
|
)
|
|
(4,438
|
)
|
Balance at September 30, 2018
|
|
$
|
1,219
|
|
|
$
|
378
|
|
|
$
|
1,597
|
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(6)
|
Variable Interest Entities
|
GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity (“VIE”). GAAP also requires continual reassessment of the primary beneficiary of a VIE. Additional information concerning PNM’s VIEs is contained in Note 9 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K.
Valencia
PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a
158
MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed operation and maintenance and capacity charges in addition to variable operation and maintenance charges under this PPA. For the
three and nine
months ended
September 30, 2018
, PNM paid
$4.9 million
and
$14.7 million
for fixed charges and
$0.5 million
and
$1.4 million
for variable charges. For the
three and nine
months ended
September 30, 2017
, PNM paid
$4.9 million
and
$14.7 million
for fixed charges and
$0.9 million
and
$1.2 million
for variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy its obligations and creditors of Valencia do not have any recourse against PNM’s assets. During the term of the PPA, PNM has the option, under certain conditions, to purchase and own up to
50%
of the plant or the VIE. The PPA specifies that the purchase price would be the greater of
50%
of book value reduced by related indebtedness or
50%
of fair market value.
PNM sources fuel for the plant, controls when the facility operates through its dispatch, and receives the entire output of the plant, which factors directly and significantly impact the economic performance of Valencia. Therefore, PNM has concluded that the third-party entity that owns Valencia is a VIE and that PNM is the primary beneficiary of the entity under GAAP since PNM has the power to direct the activities that most significantly impact the economic performance of Valencia and will absorb the majority of the variability in the cash flows of the plant. As the primary beneficiary, PNM consolidates Valencia in its financial statements. Accordingly, the assets, liabilities, operating expenses, and cash flows of Valencia are included in the Condensed Consolidated Financial Statements of PNM although PNM has no legal ownership interest or voting control of the VIE. The assets and liabilities of Valencia set forth below are immaterial to PNM and, therefore, not shown separately on the Condensed Consolidated Balance Sheets. The owner’s equity and net income of Valencia are considered attributable to non-controlling interest.
Summarized financial information for Valencia is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Operating revenues
|
$
|
5,368
|
|
|
$
|
5,859
|
|
|
$
|
16,047
|
|
|
$
|
15,880
|
|
Operating expenses
|
(1,448
|
)
|
|
(1,403
|
)
|
|
(4,341
|
)
|
|
(4,428
|
)
|
Earnings attributable to non-controlling interest
|
$
|
3,920
|
|
|
$
|
4,456
|
|
|
$
|
11,706
|
|
|
$
|
11,452
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position
|
|
September 30,
|
|
December 31,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Current assets
|
$
|
3,449
|
|
|
$
|
2,688
|
|
Net property, plant, and equipment
|
62,698
|
|
|
64,109
|
|
Total assets
|
66,147
|
|
|
66,797
|
|
Current liabilities
|
923
|
|
|
602
|
|
Owners’ equity – non-controlling interest
|
$
|
65,224
|
|
|
$
|
66,195
|
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Westmoreland San Juan LLC (“WSJ”) and SJCC
As discussed in the subheading Coal Supply in Note 11, PNM purchases coal for SJGS from SJCC under a coal supply agreement (“SJGS CSA”). That section includes information on the acquisition of SJCC by WSJ, a subsidiary of Westmoreland Coal Company (“Westmoreland”), on January 31, 2016, as well as the
$125.0 million
loan (the “Westmoreland Loan”) from NM Capital, a subsidiary of PNMR, to WSJ, which loan provided substantially all of the funds required for the SJCC purchase, and the issuance of
$30.3 million
in letters of credit to facilitate the issuance of reclamation bonds required in order for SJCC to mine coal to be supplied to SJGS. The Westmoreland Loan and the letters of credit support result in PNMR being considered to have a variable interest in WSJ, including its subsidiary, SJCC, since PNMR and NM Capital could be subject to possible loss in the event of a default by WSJ under the Westmoreland Loan and/or performance was required under the letter of credit support. Principal payments under the Westmoreland Loan began on August 1, 2016 and were required quarterly thereafter. Interest was also paid quarterly beginning on May 3, 2016.
The Westmoreland Loan required that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it was fully repaid. As discussed in Note 11, the full principal outstanding under the Westmoreland Loan of
$50.1 million
was repaid on May 22, 2018. NM Capital used a portion of the proceeds to repay all remaining amounts owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements and PNMR’s guarantee of NM Capital’s obligations under the BTMU Term Loan Agreement. The Westmoreland Loan was secured by the assets of and the equity interests in SJCC. PNMR considers the possibility of loss under the letters of credit support to be remote since the purpose of posting the bonds is to provide assurance that SJCC performs the required reclamation of the mine site in accordance with applicable regulations and all reclamation costs are reimbursable under the SJGS CSA. Also, much of the mine reclamation activities will not be performed until after the expiration of the SJGS CSA. In addition, each of the SJGS participants has established and funds a trust to meet its future reclamation obligations.
On May 21, 2018, Westmoreland filed a Current Report on Form 8-K with the SEC indicating it had obtained a new credit agreement with certain of its existing creditors that provided Westmoreland with additional financing. In the May 21, 2018 Form 8-K, Westmoreland indicated that “A portion of the proceeds of the Financing have been used to refinance in full the Company’s and its subsidiaries’ existing asset-based revolving credit facilities and Westmoreland San Juan, LLC’s existing term loan facility.” As mentioned above, the Westmoreland Loan was repaid in full in May 2018. On October 9, 2018, Westmoreland filed a Current Report on Form 8-K with the SEC announcing it had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. In the October 9, 2018 Form 8-K, Westmoreland indicated that is has agreed to terms with its secured creditors that will allow it to fund its normal course operations and that will allow it to continue to serve its customers during the course of the bankruptcy case (Note 11).
Both WSJ and SJCC are considered to be VIEs. PNMR’s analysis of these arrangements concluded that Westmoreland, as the parent of WSJ, has the ability to direct the SJCC mining operations, which is the factor that most significantly impacts the economic performance of WSJ and SJCC. NM Capital’s rights under the Westmoreland Loan were the typical protective rights of a lender, but did not give NM Capital any oversight over mining operations. Other than PNM being able to ensure that coal is supplied in adequate quantities and of sufficient quality to provide the fuel necessary to operate SJGS in a normal manner, the mining operations are solely under the control of Westmoreland and its subsidiaries, including developing mining plans, hiring of personnel, and incurring operating and maintenance expenses. Neither PNMR nor PNM has any ability to direct or influence the mining operation. PNM’s involvement through the SJGS CSA is a protective right rather than a participating right and Westmoreland has the power to direct the activities that most significantly impact the economic performance of SJCC. The SJGS CSA requires SJCC to deliver coal required to fuel SJGS in exchange for payment of a set price per ton, which is escalated over time for inflation. If SJCC is able to mine more efficiently than anticipated, its economic performance will be improved. Conversely, if SJCC cannot mine as efficiently as anticipated, its economic performance will be negatively impacted. Accordingly, PNMR believes Westmoreland is the primary beneficiary of WSJ and, therefore, WSJ and SJCC are not consolidated by either PNMR or PNM. The amounts outstanding under the letter of credit support constitute PNMR’s maximum exposure to loss from the VIEs at September 30, 2018.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(7)
|
Fair Value of Derivative and Other Financial Instruments
|
Additional information concerning energy related derivative contracts and other financial instruments is contained in Note 8 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K.
Fair value is defined under GAAP 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.
Energy Related Derivative Contracts
Overview
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 a FPPAC.
PNM was exposed to market risk for its share of PVNGS Unit 3 through December 31, 2017, at which time PVNGS Unit 3 became a jurisdictional resource to serve New Mexico retail customers. Beginning January 1, 2018, PNM is exposed to market risk for its
65
MW interest in SJGS Unit 4, which is held as merchant plant as ordered by the NMPRC (Note 11). 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 is obligated to deliver
36
MW of power only when SJGS Unit 4 is operating. These agreements are not considered derivatives because there is no notional amount due to the unit-contingent nature of the transactions.
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.
Commodity Risk
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.
Accounting for Derivatives
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
nine
months ended
September 30, 2018
and the year ended December 31, 2017, PNM was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flows 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
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 has
no
trading transactions.
Commodity Derivatives
PNM’s commodity derivative instruments that are recorded at fair value, all of which are accounted for as economic hedges, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
Economic Hedges
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
Current assets
|
$
|
1,083
|
|
|
$
|
1,088
|
|
Deferred charges
|
2,741
|
|
|
3,556
|
|
|
3,824
|
|
|
4,644
|
|
Current liabilities
|
(1,092
|
)
|
|
(1,182
|
)
|
Long-term liabilities
|
(2,741
|
)
|
|
(3,556
|
)
|
|
(3,833
|
)
|
|
(4,738
|
)
|
Net
|
$
|
(9
|
)
|
|
$
|
(94
|
)
|
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 above table are equal amounts of assets and liabilities aggregating
$3.8 million
at
September 30, 2018
and
$4.6 million
at
December 31, 2017
, which result from PNM’s hazard sharing arrangements with Tri-State. The hazard sharing arrangements are net-settled upon delivery. Other amounts that could be offset under master netting agreements were immaterial.
At
September 30, 2018
and
December 31, 2017
, PNM had
no
amounts recognized for the legal right to reclaim cash collateral. However, at
September 30, 2018
and
December 31, 2017
, amounts posted as cash collateral under margin arrangements were
$0.5 million
and
$0.8 million
. At
September 30, 2018
and
December 31, 2017
, obligations to return cash collateral were
$1.0 million
and
$0.9 million
. Cash collateral amounts are included in other current assets and other current liabilities on the Condensed Consolidated Balance Sheets.
PNM has a NMPRC-approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. There were
no
amounts hedged under this plan as of September 30, 2018 or December 31, 2017.
The following table presents the effect of mark-to-market commodity derivative instruments on PNM’s earnings, excluding income tax effects. Commodity derivatives had
no
impact on OCI for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Hedges
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Electric operating revenues
|
$
|
(93
|
)
|
|
$
|
(2,237
|
)
|
|
$
|
(95
|
)
|
|
$
|
5,697
|
|
Cost of energy
|
93
|
|
|
(14
|
)
|
|
97
|
|
|
(5,289
|
)
|
Total gain
|
$
|
—
|
|
|
$
|
(2,251
|
)
|
|
$
|
2
|
|
|
$
|
408
|
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Commodity contract volume positions are presented in MMBTU for gas related contracts and in MWh for power related contracts. The table below presents PNM’s net buy (sell) volume positions:
|
|
|
|
|
|
|
|
|
|
Economic Hedges
|
|
|
MMBTU
|
|
MWh
|
|
|
|
|
|
September 30, 2018
|
|
100,000
|
|
|
4,800
|
|
December 31, 2017
|
|
100,000
|
|
|
—
|
|
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. At
September 30, 2018
and
December 31, 2017
, PNM had
no
such contracts in a liability position.
Non-Derivative Financial Instruments
The carrying amounts reflected on the Condensed 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 and trusts for PNM’s share of final reclamation costs related to the coal mines serving SJGS and Four Corners (Note 11). At
September 30, 2018
and
December 31, 2017
, the fair value of investment securities included
$298.4 million
and
$293.7 million
for the NDT and
$33.3 million
and
$29.8 million
for the mine reclamation trusts.
In January 2016, the FASB issued
Accounting Standards Update 2016-01
–
Financial Instruments (Subtopic 825-10),
which makes targeted improvements to GAAP regarding financial instruments. ASU 2016-01 eliminates the requirement to classify investments in equity securities with readily determinable fair values into trading or available-for-sale categories and requires those equity securities to be measured at fair value with changes in fair value recognized in net income rather than in OCI. Under ASU 2016-01, the accounting for available-for-sale debt securities remains essentially unchanged. The accounting required by ASU 2016-01 is to be applied prospectively with a cumulative effect adjustment recorded as of the beginning of the year of adoption. ASU 2016-01 also revises certain presentation and disclosure requirements. Accordingly, the following information for 2018 is presented under ASU 2016-01 and the information for 2017 is presented under prior GAAP.
Prior to 2018, PNM classified all debt and equity investments held in the NDT and coal mine reclamation trusts as available-for-sale securities. Unrealized losses on these securities were recorded immediately through earnings and unrealized gains were recorded in AOCI until the securities were sold.
On January 1, 2018, PNM recorded an after-tax cumulative effect adjustment of
$11.2 million
to reclassify unrealized holding gains on equity securities held in the NDT and coal mine reclamation trusts from AOCI to retained earnings on the Condensed Consolidated Balance Sheets. After January 1, 2018, all gains and losses resulting from sales and changes in the fair value of equity securities are recognized in earnings.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Gains and losses recognized on the Condensed Consolidated Statements of Earnings related to investment securities in the NDT and reclamation trusts are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
Nine Months Ended
September 30, 2018
|
|
|
(In thousands)
|
Equity securities:
|
|
|
|
|
Net gains from equity securities sold
|
|
$
|
113
|
|
|
$
|
5,443
|
|
Net gains from equity securities still held
|
|
2,943
|
|
|
2,636
|
|
Total net gains on equity securities
|
|
3,056
|
|
|
8,079
|
|
Available-for-sale debt securities:
|
|
|
|
|
Net (losses) on debt securities
|
|
(593
|
)
|
|
(6,998
|
)
|
Net gains on investment securities
|
|
$
|
2,463
|
|
|
$
|
1,081
|
|
The proceeds and gross realized gains and losses on the disposition of securities held in the NDT and coal mine reclamation trusts are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. Gross realized losses shown below exclude the (increase)/decrease in realized impairment losses of $
(0.8) million
and $
(4.6) million
for the three and nine months ended
September 30, 2018
and $
0.1 million
and $
1.1 million
for the three and nine months ended
September 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Proceeds from sales
|
$
|
117,801
|
|
|
$
|
98,532
|
|
|
$
|
911,899
|
|
|
$
|
456,577
|
|
Gross realized gains
|
$
|
3,460
|
|
|
$
|
8,128
|
|
|
$
|
17,030
|
|
|
$
|
24,745
|
|
Gross realized (losses)
|
$
|
(3,149
|
)
|
|
$
|
(2,829
|
)
|
|
$
|
(14,018
|
)
|
|
$
|
(8,150
|
)
|
Held-to-maturity securities are those investments in debt securities that the Company has the ability and intent to hold until maturity. At December 31, 2017, PNMR’s held-to-maturity debt securities consisted of the Westmoreland Loan. In May 2018, the full amount owed under the Westmoreland Loan was repaid (Note 11).
The Company has
no
available-for-sale debt securities for which carrying value exceeds fair value. There are
no
impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At
September 30, 2018
, the available-for-sale debt securities held by PNM, had the following final maturities:
|
|
|
|
|
|
Fair Value
|
|
(In thousands)
|
Within 1 year
|
$
|
9,986
|
|
After 1 year through 5 years
|
59,944
|
|
After 5 years through 10 years
|
67,585
|
|
After 10 years through 15 years
|
10,375
|
|
After 15 years through 20 years
|
11,151
|
|
After 20 years
|
46,887
|
|
|
$
|
205,928
|
|
Fair Value Disclosures
The Company determines the fair values of its derivative and other financial instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes 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. The Company records any transfers between fair value hierarchy levels as of the end of each calendar quarter. There were
no
transfers between levels during the
nine
months ended
September 30, 2018
or the year ended
December 31, 2017
.
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 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. Level 3 investments are comprised of corporate term loans. 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 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 the trading multiples of public companies that are considered comparable to the company being valued, company specific issues, estimates of liquidation value, current operating performance and future expectations of performance, changes in market outlook and the financing environment, capitalization rates, discount rates, and cash flows. For the Westmoreland Loan, fair values were determined using an internal valuation model of discounted cash flows that took into consideration discount rates observable for similar types of assets and liabilities. Management of the Company independently verifies the information provided by pricing services.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Items recorded at fair value by PNM on the Condensed Consolidated Balance Sheets are presented below by level of the fair value hierarchy along with gross unrealized gains on investments in available-for-sale securities. Under ASU 2016-01, PNM does not classify its investments in equity instruments as available-for-sale securities beginning January 1, 2018.
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|
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|
|
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|
|
|
|
|
|
|
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|
|
|
GAAP Fair Value Hierarchy
|
|
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Unrealized Gains
|
|
(In thousands)
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,527
|
|
|
$
|
3,527
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
Corporate stocks, common
|
40,017
|
|
|
40,017
|
|
|
—
|
|
|
—
|
|
|
|
Corporate stocks, preferred
|
7,239
|
|
|
1,587
|
|
|
5,652
|
|
|
—
|
|
|
|
Mutual funds and other
|
75,035
|
|
|
75,035
|
|
|
—
|
|
|
—
|
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
|
U.S. Government
|
25,689
|
|
|
15,400
|
|
|
10,289
|
|
|
—
|
|
|
$
|
23
|
|
International Government
|
8,460
|
|
|
—
|
|
|
8,460
|
|
|
—
|
|
|
90
|
|
Municipals
|
51,280
|
|
|
—
|
|
|
51,280
|
|
|
—
|
|
|
78
|
|
Corporate and other
|
120,499
|
|
|
—
|
|
|
117,445
|
|
|
3,054
|
|
|
1,827
|
|
|
$
|
331,746
|
|
|
$
|
135,566
|
|
|
$
|
193,126
|
|
|
$
|
3,054
|
|
|
$
|
2,018
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative assets
|
$
|
3,824
|
|
|
$
|
—
|
|
|
$
|
3,824
|
|
|
$
|
—
|
|
|
|
Commodity derivative liabilities
|
(3,833
|
)
|
|
—
|
|
|
(3,833
|
)
|
|
—
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|
Net
|
$
|
(9
|
)
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|
$
|
—
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|
$
|
(9
|
)
|
|
$
|
—
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|
|
|
|
|
|
|
|
|
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|
|
December 31, 2017
|
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|
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|
|
|
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|
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Available-for-sale securities
|
|
|
|
|
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|
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Cash and cash equivalents
|
$
|
52,636
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|
|
$
|
52,636
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|
|
$
|
—
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|
|
$
|
—
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|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
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Domestic value
|
40,032
|
|
|
40,032
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|
|
—
|
|
|
—
|
|
|
$
|
4,011
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|
Domestic growth
|
35,456
|
|
|
35,456
|
|
|
—
|
|
|
—
|
|
|
3,995
|
|
International and other
|
45,867
|
|
|
42,332
|
|
|
3,535
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|
|
—
|
|
|
6,810
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|
Fixed income securities:
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|
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U.S. Government
|
34,317
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|
|
33,645
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|
|
672
|
|
|
—
|
|
|
273
|
|
Municipals
|
48,076
|
|
|
—
|
|
|
48,076
|
|
|
—
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|
|
1,225
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|
Corporate and other
|
67,140
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|
|
—
|
|
|
67,140
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|
|
—
|
|
|
1,714
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|
|
$
|
323,524
|
|
|
$
|
204,101
|
|
|
$
|
119,423
|
|
|
$
|
—
|
|
|
$
|
18,028
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative assets
|
$
|
4,644
|
|
|
$
|
—
|
|
|
$
|
4,644
|
|
|
$
|
—
|
|
|
|
Commodity derivative liabilities
|
(4,738
|
)
|
|
—
|
|
|
(4,738
|
)
|
|
—
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|
|
|
Net
|
$
|
(94
|
)
|
|
$
|
—
|
|
|
$
|
(94
|
)
|
|
$
|
—
|
|
|
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A reconciliation of the changes in Level 3 fair value measurements is as follows:
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Corporate Debt
|
|
(In thousands)
|
Balance at December 31, 2017
|
$
|
—
|
|
Actual return on assets sold during the period
|
(6
|
)
|
Actual return on assets still held at period end
|
16
|
|
Purchases
|
5,234
|
|
Sales
|
(2,190
|
)
|
Balance at September 30, 2018
|
$
|
3,054
|
|
The carrying amounts and fair values of investments in the Westmoreland Loan, other investments, and long-term debt, which are not recorded at fair value on the Condensed Consolidated Balance Sheets are presented below:
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|
|
GAAP Fair Value Hierarchy
|
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Carrying Amount
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
September 30, 2018
|
(In thousands)
|
PNMR
|
|
|
|
|
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|
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Long-term debt
|
$
|
2,614,511
|
|
|
$
|
2,642,154
|
|
|
$
|
—
|
|
|
$
|
2,642,154
|
|
|
$
|
—
|
|
Other investments
|
$
|
348
|
|
|
$
|
348
|
|
|
$
|
348
|
|
|
$
|
—
|
|
|
$
|
—
|
|
PNM
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
1,656,102
|
|
|
$
|
1,665,064
|
|
|
$
|
—
|
|
|
$
|
1,665,064
|
|
|
$
|
—
|
|
Other investments
|
$
|
142
|
|
|
$
|
142
|
|
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
—
|
|
TNMP
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
560,293
|
|
|
$
|
580,017
|
|
|
$
|
—
|
|
|
$
|
580,017
|
|
|
$
|
—
|
|
Other investments
|
$
|
206
|
|
|
$
|
206
|
|
|
$
|
206
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
PNMR
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
2,437,645
|
|
|
$
|
2,554,836
|
|
|
$
|
—
|
|
|
$
|
2,554,836
|
|
|
$
|
—
|
|
Westmoreland Loan
|
$
|
56,640
|
|
|
$
|
66,588
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66,588
|
|
Other investments
|
$
|
503
|
|
|
$
|
503
|
|
|
$
|
503
|
|
|
$
|
—
|
|
|
$
|
—
|
|
PNM
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
1,657,910
|
|
|
$
|
1,727,135
|
|
|
$
|
—
|
|
|
$
|
1,727,135
|
|
|
$
|
—
|
|
Other investments
|
$
|
283
|
|
|
$
|
283
|
|
|
$
|
283
|
|
|
$
|
—
|
|
|
$
|
—
|
|
TNMP
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
480,620
|
|
|
$
|
527,563
|
|
|
$
|
—
|
|
|
$
|
527,563
|
|
|
$
|
—
|
|
Other investments
|
$
|
220
|
|
|
$
|
220
|
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(8)
|
Stock-Based Compensation
|
PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. The Company has not awarded stock options since 2010. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 13 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, awards to employees vest ratably over
three
years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become
100%
vested in certain stock awards. Awards of restricted stock to non-employee members of the Board are expensed over a
one
year vesting period.
The stock-based compensation expense related to restricted stock awards without performance or market conditions to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized to compensation expense over the shorter of the requisite vesting period or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized over the performance period as required service is provided and is adjusted periodically to reflect the level of achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At
September 30, 2018
and
December 31, 2017
, PNMR had unrecognized expense related to stock awards of
$4.4 million
and
$3.8 million
, which are expected to be recognized over an average of
1.64
and
1.53
years.
PNMR receives a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the options are sold over the exercise prices of the options, and a tax deduction for the value of restricted stock at the vesting date. GAAP requires that all excess tax benefits and deficiencies be recorded to tax expense and, when used to reduce income taxes payable, classified as cash flows from operating activities.
The grant date fair value for restricted stock and stock awards with Company internal performance targets is determined based on the market price of PNMR common stock on the date of the agreements reduced by the present value of future dividends, which will not be received prior to vesting, applied to the total number of shares that are anticipated to vest, although the number of performance shares that ultimately vest cannot be determined until after the performance periods end. The grant date fair value of stock awards with market targets is determined using Monte Carlo simulation models, which provide grant date fair values that include an expectation of the number of shares to vest at the end of the measurement period.
The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Restricted Shares and Performance Based Shares
|
|
2018
|
|
2017
|
Expected quarterly dividends per share
|
|
$
|
0.2650
|
|
|
$
|
0.2425
|
|
Risk-free interest rate
|
|
2.38
|
%
|
|
1.50
|
%
|
|
|
|
|
|
Market-Based Shares
|
|
|
|
|
Dividend yield
|
|
2.96
|
%
|
|
2.67
|
%
|
Expected volatility
|
|
19.12
|
%
|
|
20.80
|
%
|
Risk-free interest rate
|
|
2.36
|
%
|
|
1.54
|
%
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes activity in restricted stock awards, including performance-based and market-based shares, and stock options, for the
nine months ended
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Stock Options
|
|
Shares
|
|
Weighted-
Average
Grant Date Fair Value
|
|
Shares
|
|
Weighted-
Average
Exercise Price
|
Outstanding at December 31, 2017
|
189,045
|
|
|
$
|
31.11
|
|
|
193,441
|
|
|
$
|
9.98
|
|
Granted
|
221,062
|
|
|
$
|
29.65
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
(235,868
|
)
|
|
$
|
28.44
|
|
|
(109,441
|
)
|
|
$
|
8.56
|
|
Forfeited
|
(6,054
|
)
|
|
$
|
31.37
|
|
|
—
|
|
|
$
|
—
|
|
Expired
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at September 30, 2018
|
168,185
|
|
|
$
|
32.93
|
|
|
84,000
|
|
|
$
|
11.82
|
|
PNMR’s stock-based compensation program provides for performance and market targets through 2020. Included as granted and as exercised in the above table are
97,697
previously awarded shares that were earned for the 2015 through 2017 performance measurement period and ratified by the Board in February 2018 (based upon achieving market targets at “target” levels, weighted at
60%
, and performance targets at below “target” levels, weighted at
40%
). Excluded from the above table are maximums of
132,729
,
130,302
, and
146,941
shares for the
three
-year performance periods ending in 2018, 2019, and 2020 that would be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.
Effective as of January 1, 2015, the Company entered into a retention award agreement with its Executive Vice President and Chief Financial Officer under which he would receive awards of restricted stock if PNMR met specific performance targets at the end of 2016 and 2017 and he remained an employee of the Company. If PNMR achieved the specified performance target for the period from January 1, 2015 through December 31, 2016, he was to receive
$100,000
of PNMR common stock based on the market value per share on the grant date in early 2017. The specified market target was achieved at the end of 2016 and the Board ratified him receiving
$100,000
of PNMR common stock in February 2017 based on a market per share value of
$36.30
on the grant date of March 3, 2017, or
2,754
shares. Similarly, if PNMR achieved the specified performance target for the period from January 1, 2015 through December 31, 2017, he was to receive
$275,000
of PNMR common stock based on the market value per share on the grant date in early 2018. The specified performance target was achieved at the end of 2017 and the Board ratified him receiving
$275,000
of PNMR common stock in February 2018 based on the market value per share of
$35.85
on the grant date of March 2, 2018, or
7,670
shares, which are included in the above table. The retention award was made under the PEP and was approved by the Board on December 9, 2014.
In March 2015, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive
53,859
shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2019 and she remains an employee of the Company. Under the agreement, she was to receive
17,953
of the total shares if PNMR achieved specific performance targets at the end of 2017. The specified performance target was achieved at the end of 2017 and the Board ratified her receiving the
17,953
shares in February 2018, which are included in the above table. The retention award was made under the PEP and was approved by the Board on February 26, 2015. The above table does not include the restricted stock shares that remain unvested under this retention award agreement.
At
September 30, 2018
, the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was
$2.3 million
with a weighted-average remaining contract life of
1.3
years. At
September 30, 2018
,
no
outstanding stock options had an exercise price greater than the closing price of PNMR common stock on that date.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides additional information concerning restricted stock activity, including performance-based and market-based shares, and stock options:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Restricted Stock
|
|
2018
|
|
2017
|
Weighted-average grant date fair value
|
|
$
|
29.65
|
|
|
$
|
23.06
|
|
Total fair value of restricted shares that vested (in thousands)
|
|
$
|
8,493
|
|
|
$
|
5,666
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
Weighted-average grant date fair value of options granted
|
|
$
|
—
|
|
|
$
|
—
|
|
Total fair value of options that vested (in thousands)
|
|
$
|
—
|
|
|
$
|
—
|
|
Total intrinsic value of options exercised (in thousands)
|
|
$
|
3,016
|
|
|
$
|
2,234
|
|
The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures. Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities or refinance other debt. Prior to July 2018, each of the Company’s revolving credit facilities and term loans contained a single financial covenant, which required the maintenance of a debt-to-capitalization ratio of less than or equal to
65%
. In July 2018, the PNMR Revolving Credit Facility, the PNMR 2016
One
-Year Term Loan (as extended), the PNMR 2016
Two
-Year Term Loan, and the PNMR Development Revolving Credit Facility were each amended such that PNMR is now required to maintain a debt-to-capitalization ratio of less than or equal to
70%
. The debt-to-capitalization ratio requirement remains at less than or equal to
65%
for PNM and TNMP agreements. The Company’s revolving credit facilities and term loans generally also contain customary covenants, events of default, cross-default provisions, and change-of-control provisions. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than
18
months. In addition, PNM files its annual short-term financing plan with the NMPRC. Additional information concerning financing activities is contained in Note 6 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K.
Financing Activities
As discussed in Note 11, NM Capital, a wholly-owned subsidiary of PNMR, entered into a
$125.0 million
term loan agreement (the “BTMU Term Loan Agreement”) with BTMU, as lender and administrative agent, as of February 1, 2016. The BTMU Term Loan Agreement had a maturity date of February 1, 2021 and bore interest at a rate based on LIBOR plus a customary spread. PNMR, as parent company of NM Capital, guaranteed NM Capital’s obligations to BTMU. NM Capital utilized the proceeds of the BTMU Term Loan Agreement to provide funding of
$125.0 million
(the “Westmoreland Loan”) to a ring-fenced, bankruptcy-remote, special-purpose entity subsidiary of Westmoreland to finance Westmoreland’s purchase of SJCC. See Note 6. The BTMU Term Loan Agreement required that NM Capital utilize all amounts, less taxes and fees, it received under the Westmoreland Loan to repay the BTMU Term Loan Agreement. On May 22, 2018, the full principal outstanding under the Westmoreland Loan of
$50.1 million
was repaid. NM Capital used a portion of the proceeds to repay all remaining principal of
$43.0 million
owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated.
On October 21, 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank, N.A. (the “JPM LOC Facility”) under which letters of credit aggregating
$30.3 million
were issued to facilitate the posting of reclamation bonds, which SJCC is required to post in connection with permits relating to the operation of the San Juan mine (Note 11).
On July 28, 2017, PNM entered into an agreement (the “PNM 2017 Senior Unsecured Note Agreement”) with institutional investors for the sale of
$450.0 million
aggregate principal amount of SUNs (the “PNM 2018 SUNs”) offered in private placement transactions. On May 14, 2018, PNM issued
$350.0 million
of the PNM 2018 SUNs under that agreement and used the proceeds
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
to repay an equal amount of PNM’s
7.95%
SUNs that matured on May 15, 2018. On July 31, 2018, PNM issued the remaining
$100.0 million
of the PNM 2018 SUNs and used the proceeds to repay an equal amount of PNM’s
7.50%
SUNs on August 1, 2018. The PNM 2017 Senior Unsecured Note Agreement includes customary covenants, including a covenant that requires PNM to maintain a debt-to-capitalization ratio of less than or equal to
65%
, customary events of default, including a cross-default provision, and covenants regarding parity of financial covenants, liens and guarantees with respect to PNM’s material credit facilities. In the event of a change of control, PNM will be required to offer to prepay the PNM 2018 SUNs at par. PNM will have the right to redeem any or all of the PNM 2018 SUNs prior to their respective maturities, subject to payment of a customary make-whole premium. Information concerning the maturities and interest rates on the PNM 2018 SUNs is as follows:
|
|
|
|
|
|
|
|
|
|
|
Funding
|
|
Maturity
|
|
Principal
|
|
Interest
|
Date
|
|
Date
|
|
Amount
|
|
Rate
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
May 14, 2018
|
|
May 15, 2023
|
|
$
|
55.0
|
|
|
3.15
|
%
|
May 14, 2018
|
|
May 15, 2025
|
|
104.0
|
|
|
3.45
|
%
|
May 14, 2018
|
|
May 15, 2028
|
|
88.0
|
|
|
3.68
|
%
|
May 14, 2018
|
|
May 15, 2033
|
|
38.0
|
|
|
3.93
|
%
|
May 14, 2018
|
|
May 15, 2038
|
|
45.0
|
|
|
4.22
|
%
|
May 14, 2018
|
|
May 15, 2048
|
|
20.0
|
|
|
4.50
|
%
|
|
|
|
|
350.0
|
|
|
|
July 31, 2018
|
|
August 1, 2028
|
|
15.0
|
|
|
3.78
|
%
|
July 31, 2018
|
|
August 1, 2048
|
|
85.0
|
|
|
4.60
|
%
|
|
|
|
|
100.0
|
|
|
|
|
|
|
|
$
|
450.0
|
|
|
|
On March 9, 2018, PNMR issued
$300.0 million
aggregate principal amount of
3.250%
SUNs (the “PNMR 2018 SUNs”), which mature on March 9, 2021. The proceeds from the offering were used to repay the
$150.0 million
PNMR 2015 Term Loan Agreement and to reduce borrowings under the PNMR Revolving Credit Facility.
On April 9, 2018, PNMR Development deposited
$68.2 million
with PNM related to potential transmission network interconnections, which is shown as a cash inflow from financing activities on PNM’s Condensed Consolidated Statements of Cash Flows. PNM used the deposit to repay intercompany borrowings. PNM is required to pay interest to PNMR Development to the extent work under the interconnections has not been performed. During the three and nine months ended September 30, 2018, PNM recognized
$0.8 million
and
$1.5 million
of interest expense under the agreement. At September 30, 2018, PNM’s remaining obligation under the interconnection agreement with PNMR Development of
$68.2 million
, excluding unpaid interest, is reflected in other deferred credits on PNM’s Condensed Consolidated Balance Sheets. As required by GAAP, all intercompany transactions related to this deposit have been eliminated on PNMR’s Condensed Consolidated Financial Statements.
On June 28, 2018, TNMP entered into an agreement, under which TNMP issued
$60.0 million
aggregate principal amount of
3.85%
first mortgage bonds, due 2028. On July 25, 2018, TNMP entered into a
$20.0 million
term loan agreement (the “TNMP 2018 Term Loan Agreement”) that bears interest at a variable rate and has a maturity of July 25, 2020. TNMP used the proceeds from these issuances to repay short-term borrowings and for TNMP’s general corporate purposes.
At
September 30, 2018
, variable interest rates were
3.03%
on the
$100.0 million
PNMR 2016
Two
-Year Term Loan, which matures in December 2018,
2.98%
on the
$200.0 million
PNM 2017 Term Loan Agreement, which matures in January 2019, and
2.94%
on the
$20.0 million
TNMP 2018 Term Loan Agreement, which matures in July 2020.
Short-term Debt and Liquidity
Currently, the PNMR Revolving Credit Facility has a financing capacity of
$300.0 million
and the PNM Revolving Credit Facility has a financing capacity of
$400.0 million
. Both facilities currently expire on October 22, 2022, but contain options to be extended through October 2024. However,
one
lender whose current commitment is
$10.0 million
under the PNMR Revolving Credit Facility and
$40.0 million
under the PNM Revolving Credit Facility, did not agree to extend its commitments beyond
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 31, 2020. Unless
one
or more of the other current lenders or a new lender assumes the commitments of the non-extending lender, the financing capacities will be reduced to
$290.0 million
for the PNMR Revolving Credit Facility and
$360.0 million
for the PNM Revolving Credit Facility beginning on November 1, 2020. PNM also has the
$40.0 million
PNM 2017 New Mexico Credit Facility that expires on December 12, 2022. The TNMP Revolving Credit Facility is a
$75.0 million
revolving credit facility secured by
$75.0 million
aggregate principal amount of TNMP first mortgage bonds and matures on September 23, 2022. In July 2018, the PNMR Revolving Credit Facility was amended to provide for
two
one
-year extension options, subject to approval by a majority of the lenders. In October 2018, and after receiving NMPRC approval, the PNM Revolving Credit Facility was amended to add
two
one
-year extension options, subject to approval by a majority of the lenders.
On February 26, 2018, PNMR Development entered into a revolving credit facility with Wells Fargo Bank, National Association, as lender, which allows PNMR Development to borrow up to
$24.5 million
on a revolving credit basis and also provides for the issuance of letters of credit. The facility expires on February 25, 2019, bears interest at a variable rate, and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and other activities.
Short-term debt outstanding consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
Short-term Debt
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
PNM:
|
|
|
|
|
PNM Revolving Credit Facility
|
|
$
|
—
|
|
|
$
|
39,800
|
|
PNM 2017 New Mexico Credit Facility
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
39,800
|
|
TNMP Revolving Credit Facility
|
|
17,500
|
|
|
—
|
|
PNMR:
|
|
|
|
|
PNMR Revolving Credit Facility
|
|
120,600
|
|
|
165,600
|
|
PNMR 2016 One-Year Term Loan (as extended)
|
|
100,000
|
|
|
100,000
|
|
PNMR Development Revolving Credit Facility
|
|
24,500
|
|
|
—
|
|
|
|
$
|
262,600
|
|
|
$
|
305,400
|
|
At
September 30, 2018
, the weighted average interest rate was
3.34%
for the PNMR Revolving Credit Facility,
2.99%
for the TNMP Revolving Credit Facility,
3.07%
for the PNMR Development Revolving Credit Facility, and
3.02%
for the PNMR 2016
One
-Year Term Loan (as extended).
In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of
$4.7 million
,
$2.5 million
, and
$0.1 million
at
September 30, 2018
that reduce the available capacity under their respective revolving credit facilities. The above table excludes intercompany debt. As of
September 30, 2018
and December 31, 2017, TNMP had
$4.1 million
and
zero
of intercompany borrowings from PNMR.
In 2017, PNMR entered into
three
separate
four
-year hedging agreements whereby it effectively established fixed interest rates of
1.926%
,
1.823%
, and
1.629%
, plus customary spreads over LIBOR, subject to change if there is a change in PNMR’s credit rating, for
three
separate tranches, each of
$50.0 million
, of its variable rate debt. These hedge agreements are accounted for as cash flow hedges. These hedge agreements had fair value gains totaling
$4.0 million
at
September 30, 2018
that is included in other deferred charges and
$1.4 million
at December 31, 2017 that is included in other current assets on the Condensed Consolidated Balance Sheets. The fair values were determined using Level 2 inputs under GAAP, including using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the agreement.
At
October 30, 2018
, PNMR, PNM, TNMP, and PNMR Development had availability of
$168.8 million
,
$397.5 million
,
$47.4 million
, and
none
under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit, and PNM had
$40.0 million
of availability under the PNM New Mexico Credit Facility. Total availability at
October 30, 2018
, on a consolidated basis, was
$653.7 million
for PNMR. As of
October 30, 2018
, PNM and TNMP had borrowings
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
from PNMR under their intercompany loan agreements of
zero
and
$5.4 million
. At
October 30, 2018
, PNMR, PNM, and TNMP had invested cash of
$0.9 million
,
$55.3 million
, and
none
.
The Company’s debt arrangements have various maturities and expiration dates. These maturities include the
$200.0 million
PNM 2017 Term Loan Agreement, which matures on January 18, 2019. TNMP has
$172.3 million
of first mortgage bonds that are due in April 2019. The
$100.0 million
PNMR 2016 One-Year Term Loan (as extended) matures on December 14, 2018 and the
$100.0 million
PNMR 2016
Two
-Year Term Loan matures on December 21, 2018. The Company has no other long-term debt due through September 30, 2019. The
$24.5 million
PNMR Development Revolving Credit Facility expires on February 25, 2019. Additional information on debt maturities is contained in Note 6 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K.
|
|
(10)
|
Pension and Other Postretirement Benefit Plans
|
PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans. The periodic costs or income of the PNM Plans and TNMP Plans are included in regulated rates to the extent attributable to regulated operations. PNM and TNMP receive a regulated return on the amounts funded for pension and OPEB plans in excess of the periodic cost or income to the extent included in retail rates (a “prepaid pension asset”).
Additional information concerning pension and OPEB plans is contained in Note 12 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K. Annual net periodic benefit cost for the plans is actuarially determined using the methods and assumptions set forth in that note and is recognized ratably throughout the year.
In March 2017, the FASB issued
Accounting Standards Update 2017-07
–
Compensation - Retirement Benefits (Topic 715)
to improve the presentation of net periodic pension and other postretirement benefit costs. Prior to ASU 2017-07, the Company presented all of its net periodic benefit costs, net of amounts capitalized to construction and other accounts, as administrative and general expenses on its statements of earnings. ASU 2017-07 requires the service cost component of net benefit costs be presented in the same line item or items as employees’ compensation. The other components of net periodic benefit cost (the “non-service cost components”) are required to be presented separately from the service cost component and outside of operating income. ASU 2017-07 also limits capitalization of net periodic benefit costs to only the service cost component. ASU 2017-07 requires retrospective presentation of the service and non-service cost components of net periodic benefit costs in the income statement and prospective application regarding the capitalization of only the service cost component of net periodic benefit costs. The Company adopted ASU 2017-07 as of January 1, 2018, its required effective date. In accordance with the standard, the PNM and PNMR Condensed Consolidated Statements of Earnings reflect a reclassification from administrative and general expenses to other (deductions) for the non-service cost components of net periodic benefit costs in the amount of
$2.1 million
and
$6.4 million
, net of amounts capitalized prior to the adoption of the standard, in the three and nine months ended September 30, 2017. The non-service components of TNMP’s net periodic benefit costs in 2017 were insignificant. The Company believes PNM and TNMP can continue to capitalize the non-service cost components of net periodic benefit costs as regulatory assets and liabilities to the extent attributable to regulated operations. During the three and nine months ended
September 30, 2018
, PNM recorded
$1.1 million
and
$3.2 million
of non-service cost as other (deductions), which is net of
$0.1 million
and
$0.3 million
deferred as regulatory assets, and TNMP recorded
$0.1 million
and
$0.3 million
of non-service cost to other income, which is net of less than
$0.1 million
and
$0.1 million
deferred as regulatory liabilities.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PNM Plans
The following table presents the components of the PNM Plans’ net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Pension Plan
|
|
OPEB Plan
|
|
Executive Retirement Program
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
24
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
6,068
|
|
|
6,727
|
|
|
860
|
|
|
1,006
|
|
|
155
|
|
|
174
|
|
Expected return on plan assets
|
(8,672
|
)
|
|
(8,451
|
)
|
|
(1,353
|
)
|
|
(1,308
|
)
|
|
—
|
|
|
—
|
|
Amortization of net (gain) loss
|
4,087
|
|
|
4,001
|
|
|
588
|
|
|
921
|
|
|
90
|
|
|
78
|
|
Amortization of prior service cost
|
(241
|
)
|
|
(241
|
)
|
|
(416
|
)
|
|
(416
|
)
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
1,242
|
|
|
$
|
2,036
|
|
|
$
|
(300
|
)
|
|
$
|
227
|
|
|
$
|
245
|
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Pension Plan
|
|
OPEB Plan
|
|
Executive Retirement Program
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
18,203
|
|
|
20,181
|
|
|
2,579
|
|
|
3,019
|
|
|
467
|
|
|
523
|
|
Expected return on plan assets
|
(26,014
|
)
|
|
(25,352
|
)
|
|
(4,061
|
)
|
|
(3,923
|
)
|
|
—
|
|
|
—
|
|
Amortization of net (gain) loss
|
12,261
|
|
|
12,004
|
|
|
1,765
|
|
|
2,762
|
|
|
269
|
|
|
235
|
|
Amortization of prior service cost
|
(724
|
)
|
|
(724
|
)
|
|
(1,248
|
)
|
|
(1,248
|
)
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
3,726
|
|
|
$
|
6,109
|
|
|
$
|
(903
|
)
|
|
$
|
682
|
|
|
$
|
736
|
|
|
$
|
758
|
|
PNM did
not
make any contributions to its pension plan trust in the nine months ended
September 30, 2018
and 2017 and does
not
anticipate making any contributions to the pension plan in
2018
-2021, but expects to contribute
$5.5 million
in 2022, based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. The funding assumptions were developed using discount rates of
4.0%
to
5.1%
. Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rate. PNM may make additional contributions at its discretion. PNM made
no
contributions to the OPEB trust in the nine months ended
September 30, 2018
and 2017. PNM does not expect to make any contributions to the OPEB trust in 2018-2022. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were
$0.4 million
and
$1.3 million
in the
three and nine
months ended
September 30, 2018
and
$0.4 million
and
$1.2 million
in the three and nine months ended September 30, 2017 and are expected to total
$1.6 million
during
2018
and
$5.7 million
for 2019-2022.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TNMP Plans
The following table presents the components of the TNMP Plans’ net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Pension Plan
|
|
OPEB Plan
|
|
Executive Retirement Program
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
656
|
|
|
722
|
|
|
119
|
|
|
139
|
|
|
7
|
|
|
8
|
|
Expected return on plan assets
|
(991
|
)
|
|
(945
|
)
|
|
(135
|
)
|
|
(114
|
)
|
|
—
|
|
|
—
|
|
Amortization of net (gain) loss
|
272
|
|
|
231
|
|
|
(56
|
)
|
|
(20
|
)
|
|
4
|
|
|
2
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net Periodic Benefit Cost
|
$
|
(63
|
)
|
|
$
|
8
|
|
|
$
|
(39
|
)
|
|
$
|
41
|
|
|
$
|
11
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Pension Plan
|
|
OPEB Plan
|
|
Executive Retirement Program
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
1,969
|
|
|
2,165
|
|
|
358
|
|
|
417
|
|
|
22
|
|
|
25
|
|
Expected return on plan assets
|
(2,972
|
)
|
|
(2,834
|
)
|
|
(406
|
)
|
|
(342
|
)
|
|
—
|
|
|
—
|
|
Amortization of net (gain) loss
|
816
|
|
|
692
|
|
|
(170
|
)
|
|
(60
|
)
|
|
11
|
|
|
7
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net Periodic Benefit Cost
|
$
|
(187
|
)
|
|
$
|
23
|
|
|
$
|
(118
|
)
|
|
$
|
122
|
|
|
$
|
33
|
|
|
$
|
32
|
|
TNMP did
not
make any contributions to its pension plan trust in the nine months ended
September 30, 2018
and 2017 and does
not
anticipate making any contributions in
2018
-2022, based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. The funding assumptions were developed using discount rates of
4.0%
to
5.1%
. Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made contributions of
zero
and
$0.3 million
to the OPEB trust in the
three and nine
months ended
September 30, 2018
and
zero
and
$0.7 million
in the three and nine months ended September 30, 2017. TNMP expects to make
no
additional contributions to the OPEB trust in
2018
and
$1.4 million
for 2019-2022. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were less than
$0.1 million
in the
three and nine
months ended
September 30, 2018 and 2017
and are expected to total
$0.1 million
during
2018
and
$0.4 million
in 2019-2022.
|
|
(11)
|
Commitments and Contingencies
|
Overview
There are various claims and lawsuits pending against the Company. In addition, the Company is subject to federal, state, and local environmental laws and regulations and periodically participates in the investigation and remediation of various sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. Also, the Company is involved in various legal and regulatory (Note 12) proceedings in the normal course of its business. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. The Company assesses legal and regulatory matters based on current information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of any damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, or other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. Except as otherwise disclosed, the Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.
Additional information concerning commitments and contingencies is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K.
Commitments and Contingencies Related to the Environment
Nuclear Spent Fuel and Waste Disposal
Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE that require the DOE to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance of these requirements. In November 1997, the DC Circuit issued a decision preventing the DOE from excusing its own delay, but refused to order the DOE to begin accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other PVNGS owners, including PNM), filed damages actions against the DOE in the Court of Federal Claims. The lawsuits filed by APS alleged that damages were incurred due to DOE’s continuing failure to remove spent nuclear fuel and high-level waste from PVNGS. In August 2014, APS and the DOE entered into a settlement agreement, which established a process for the payment of claims for costs incurred through December 31, 2016. The settlement agreement has been extended to December 31, 2019. Under the settlement agreement, APS must submit claims annually for payment of allowable costs. PNM records estimated claims on a quarterly basis. The benefit from the claims is passed through to customers under the FPPAC to the extent applicable to NMPRC regulated operations.
PNM estimates that it will incur approximately
$57.7 million
(in 2016 dollars) for its share of the costs related to the on-site interim storage of spent nuclear fuel at PVNGS during the term of the operating licenses. PNM accrues these costs as a component of fuel expense as the nuclear fuel is consumed. At
September 30, 2018
and
December 31, 2017
, PNM had a liability for interim storage costs of
$12.5 million
and
$12.3 million
included in other deferred credits.
PVNGS has sufficient capacity at its on-site ISFSI to store all of the nuclear fuel that will be irradiated during the initial operating license period, which ends in December 2027. Additionally, PVNGS has sufficient capacity at its on-site ISFSI to store a portion of the fuel that will be irradiated during the period of extended operation, which ends in November 2047. If uncertainties regarding the United States government’s obligation to accept and store spent fuel are not favorably resolved, APS will evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the period of extended operation.
The Clean Air Act
Regional Haze
In 1999, EPA developed a regional haze program and regional haze rules under the CAA. The rule directs each of the
50
states to address regional haze. Pursuant to the CAA, states have the primary role to regulate visibility requirements by promulgating SIPs. States are required to establish goals for improving visibility in national parks and wilderness areas (also known as Class I
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
areas) and to develop long-term strategies for reducing emissions of air pollutants that cause visibility impairment in their own states and for preventing degradation in other states. States must establish a series of interim goals to ensure continued progress by adopting a new SIP every ten years. In the first SIP planning period, states were required to conduct BART determinations for certain covered facilities, including utility boilers, built between 1962 and 1977 that have the potential to emit more than
250
tons per year of visibility impairing pollution. If it was demonstrated that the emissions from these sources caused or contributed to visibility impairment in any Class I area, then BART must have been installed by the beginning of 2018. For all future SIP planning periods, states must evaluate whether additional emissions reduction measures may be needed to continue making reasonable progress toward natural visibility conditions.
On January 10, 2017, EPA published in the Federal Register revisions to the regional haze rule. EPA also provided a companion draft guidance document for public comment. The new rule delayed the due date for the next cycle of SIPs from 2019 to 2021, altered the planning process that states must employ in determining whether to impose “reasonable progress” emission reduction measures, and gave new authority to federal land managers to seek additional emission reduction measures outside of the states’ planning process. Finally, the rule made several procedural changes to the regional haze program, including changes to the schedule and process for states to file
5
-year progress reports. EPA’s new rule was challenged by numerous parties. On January 19, 2018, EPA filed a motion to hold the case in abeyance in light of several letters issued by EPA on January 17, 2018 to grant various petitions for reconsideration of the 2017 rule revisions. On January 30, 2018, the court placed the case in abeyance and directed EPA to file status reports on
90
-day intervals beginning April 30, 2018. On September 11, 2018, EPA released a memo titled “Regional Haze Reform Roadmap.” The memo covers forthcoming tools and guidance to support states in their SIP development processes for the second planning period, including updated 2028 visibility modeling. SIPs for the second compliance period are due in July 2021. EPA plans to initiate a notice-and-comment rulemaking to address certain aspects of its Regional Haze Rule. EPA’s decision to revisit the rule is not a determination on the merits of the issues raised in the petitions. PNM is evaluating the potential impacts of these matters.
SJGS
BART Compliance
–
SJGS is a source that is subject to the statutory obligations of the CAA to reduce visibility impacts. Note 16 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K contains detailed information concerning the BART compliance process, including interactions with governmental agencies responsible for environmental oversight and the NMPRC approval process. In December 2015, PNM received NMPRC approval for the plan to comply with the EPA regional haze rule at SJGS. Under the approved plan, the installation of selective non-catalytic reduction technology (“SNCR”) on SJGS Units 1 and 4 was completed in early 2016 and Units 2 and 3 were retired in December 2017. In addition to the required SNCR equipment, the NSR permit, which was required to be obtained in order to install the SNCRs, specified that SJGS Units 1 and 4 be converted to balanced draft technology (“BDT”). See Note 12 for information concerning the NMPRC’s treatment of BDT in PNM’s NM 2015 Rate Case.
The December 2015 NMPRC order also provided, among other things, that:
|
|
•
|
PNM was granted a CCN to acquire an additional
132
MW in SJGS Unit 4 effective January 1, 2018
|
|
|
•
|
PNM was granted a CCN for
134
MW of PVNGS Unit 3 as a jurisdictional resource to serve New Mexico customers beginning January 1, 2018
|
|
|
•
|
PNM was authorized to acquire
65
MW of SJGS Unit 4 as merchant plant
|
|
|
•
|
No later than December 31, 2018, and before entering into a binding agreement for post-2022 coal supply for SJGS, PNM will file its position in a NMPRC case to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after mid-2022 (see Other SJGS Matters below and Note 12)
|
NEE filed a notice of appeal with the NM Supreme Court of the NMPRC’s December 2015 order alleging that the NMPRC’s decision violated New Mexico statutes and NMPRC regulations because PNM did not adequately consider replacement resources other than those proposed by PNM, the NMPRC did not require PNM to adequately address and mitigate ratepayer risk, the NMPRC unlawfully shifted the burden of proof, and the NMPRC’s decision was arbitrary and capricious. The parties presented oral argument to the court on January 25, 2017. On March 5, 2018, the NM Supreme Court issued its opinion affirming the NMPRC’s December 2015 order, thereby denying NEE’s appeal. A request for rehearing of the NM Supreme Court’s decision was not filed by the statutory deadline. This matter is now concluded.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NEE Complaint
– On March 31, 2016, NEE filed a complaint with the NMPRC against PNM regarding the financing provided by NM Capital to facilitate the sale of SJCC. See Coal Supply below. The complaint alleges that PNM failed to comply with its discovery obligation in the SJGS abandonment case and requests the NMPRC investigate whether the financing transactions could adversely affect PNM’s ability to provide electric service to its retail customers. PNM responded to the complaint on May 4, 2016. On January 31, 2018, NEE filed a motion asking the NMPRC to investigate whether PNM’s relationship with WSJ, in light of Westmoreland’s financial condition, could be harmful to PNM’s customers. PNM responded requesting the NMPRC deny the motion and that NEE’s prior complaint be dismissed. On May 23, 2018, PNM filed its response to the NMPRC staff’s comments requesting additional information about the financing and noting that the Westmoreland Loan was paid in full on May 22, 2018. NEE and NMPRC staff responded on July 16, 2018. NEE continues its request that the NMPRC investigate whether Westmoreland’s financial condition could adversely affect PNM’s customers. The NMPRC staff response requested that PNM provide certain additional information about the financing transactions and stated an order to show cause requested by NEE is not warranted. On October 11, 2018, PNM filed a supplemental response notifying the NMPRC that Westmoreland had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code on October 9, 2018. PNM’s supplemental response indicated Westmoreland had agreed to terms with its secured creditors that will allow it to continue to fund normal-course operations and to continue to serve its customers during the course of the bankruptcy case. See Note 6. PNM’s supplemental response also included a letter from the United States Southern District of Texas Bankruptcy Court indicating that, subject to specified conditions, Westmoreland is authorized to “perform under its coal contracts and to conduct its business under the ordinary course of business” without seeking Court approval. The NMPRC has taken no further action on NEE’s complaints. PNM cannot predict the outcome of these matters.
SJGS Ownership Restructuring Matters
– As discussed in Note 16 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K, SJGS was jointly owned by PNM and
eight
other entities. The SJPPA that governs the operation of SJGS expires on July 1, 2022. In connection with the plan to comply with EPA regional haze rules at SJGS, some of the SJGS participants expressed a desire to exit their ownership in the plant. As a result, the SJGS participants negotiated a restructuring of the ownership in SJGS and addressed the obligations of the exiting participants for plant decommissioning, mine reclamation, environmental matters, and certain future operating costs, among other items.
On July 31, 2015, the SJGS participants executed the San Juan Project Restructuring Agreement (“SJGS RA”). The SJGS RA provides the essential terms of restructured ownership and addresses other related matters, including that the exiting participants remain obligated for their proportionate shares of environmental, mine reclamation, and certain other legacy liabilities that are attributable to activities that occurred prior to their exit. The SJGS RA became effective contemporaneously with the effectiveness of the new SJGS CSA. The effectiveness of the new SJGS CSA was dependent on the closing of the purchase of the existing coal mine operation by a new mine operator, which occurred on January 31, 2016 as discussed in Coal Supply below.
Other SJGS Matters
– Although the SJGS RA results in an agreement among the SJGS participants enabling compliance with current CAA requirements, it is possible that the financial impact of climate change regulation or legislation, other environmental regulations, the result of litigation, and other business considerations could jeopardize the economic viability of SJGS or the ability or willingness of individual participants to continue participation in the plant. PNM’s 2017 IRP (Note 12) filed with the NMPRC on July 3, 2017 presented resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 (see Coal Supply below) and for scenarios that assumed SJGS will cease operations after mid-2022. The 2017 IRP data shows that retiring SJGS in 2022 would provide long-term cost benefits to PNM’s customers.
The 2017 IRP is not a final determination of PNM’s future generation portfolio. Retiring PNM’s share of SJGS would require PNM to make a formal abandonment filing with the NMPRC. The final determination of PNM’s exit from SJGS would be subject to NMPRC review and approval. PNM would also be required to obtain NMPRC approval of replacement power resources through formal CCN filings. The December 2015 NMPRC order discussed above authorized PNM to acquire
132
MW of SJGS Unit 4 as a New Mexico jurisdictional resource and
65
MW of SJGS Unit 4 as merchant plant. That order also provides that, if SJGS Unit 4 is abandoned with undepreciated investment on PNM’s books, PNM would not be allowed to recover the undepreciated investment of its
132
MW interest. PNM is currently depreciating all its investments in SJGS through 2053, the expected life approved by the NMPRC. PNM’s undepreciated investment in SJGS at September 30, 2018 was
$405.5 million
, which includes interests in the
132
MW and the
65
MW of
$20.3 million
and
$10.1 million
. In the event of an early retirement of SJGS, PNM would be exposed to loss of its undepreciated investments in the facility and other costs, including costs associated
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
with coal mine reclamation discussed below, if recovery of these items is not approved by the NMPRC. The financial impact of early retirement and the NMPRC approval process are influenced by factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment on the area surrounding the plant and related mine, as well as overall political and economic conditions in New Mexico. Because of the uncertainty in obtaining the required approvals, PNM is unable to predict the outcome of this matter.
Four Corners
On August 6, 2012, EPA issued its Four Corners FIP with a final BART determination for Four Corners. The rule included
two
compliance alternatives. On December 30, 2013, APS notified EPA that the Four Corners participants selected the alternative that required APS to permanently close Units 1, 2, and 3 by January 1, 2014 and install selective catalytic reduction technology (“SCR”) post-combustion NOx controls on each of Units 4 and 5 by July 31, 2018. Installation of SCRs on Four Corners Unit 5 was completed in March 2018 and the installation on Unit 4 was completed in June 2018. PNM owns a
13%
interest in Units 4 and 5, but had
no
ownership interest in Units 1, 2, and 3, which were shut down by APS on December 30, 2013. For particulate matter emissions, EPA is requiring Units 4 and 5 to meet an emission limit of
0.015
lbs./MMBTU and the plant to meet a
20%
opacity limit, both of which are achievable through operation of the existing baghouses. Although unrelated to BART, the final BART rule also imposes a
20%
opacity limitation on certain fugitive dust emissions from Four Corners’ coal and material handling operations.
PNM estimates its share of costs for post-combustion controls at Four Corners Units 4 and 5 to be up to
$88.6 million
, including amounts incurred through
September 30, 2018
and PNM’s AFUDC. See Note 17 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K and Note 12 for a discussion of the treatment of these costs in PNM’s NM 2016 Rate Case.
The agreements governing the operation of Four Corners and its coal supply expire in 2031. The Four Corners participants’ obligations to comply with EPA’s final BART determinations, coupled with the financial impact of climate change regulation or legislation, other environmental regulations, and other business or regulatory considerations, could jeopardize the economic viability of Four Corners or the ability of individual participants to continue their participation in Four Corners.
Four Corners Federal Agency Lawsuit
– On April 20, 2016, several environmental groups filed a lawsuit against OSM and other federal agencies in the United States District Court for the District of Arizona in connection with their issuance of the approvals that extended the life of Four Corners and the adjacent mine. The lawsuit alleges that these federal agencies violated both the ESA and NEPA in providing the federal approvals necessary to extend operations at Four Corners and the adjacent mine past July 6, 2016. The court granted an APS motion to intervene in the litigation on August 3, 2016. On September 15, 2016, NTEC, the current owner of the mine providing coal to Four Corners, filed a motion to intervene for the limited purpose of seeking dismissal of the lawsuit based on NTEC’s tribal sovereign immunity. On September 11, 2017, the court granted NTEC’s motion and dismissed the case with prejudice, terminating the proceedings. The environmental group plaintiffs filed a Notice of Appeal of the dismissed order in the United States Court of Appeals for the Ninth Circuit on November 9, 2017, and the court granted their subsequent motion to expedite the appeal. The parties anticipate oral arguments will be heard in early 2019. PNM cannot predict if such appeal will be successful and, if it is successful, the outcome of further district court proceedings.
Carbon Dioxide Emissions
On August 3, 2015, EPA established final standards to limit CO
2
emissions from power plants. EPA took
three
separate but related actions in which it: (1) established the final carbon pollution standards for new, modified, and reconstructed power plants; (2) established the final Clean Power Plan to set standards for carbon emission reductions from existing power plants; and (3) released a proposed federal plan associated with the final Clean Power Plan. The Clean Power Plan was published on October 23, 2015.
Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. On January 21, 2016, the DC Circuit denied petitions to stay the Clean Power Plan, but
29
states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9,
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2016. The decision means the Clean Power Plan is not in effect and neither states nor sources are obliged to comply with its requirements. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a ten judge
en banc
panel. However, before the DC Circuit could issue an opinion, the Trump Administration asked that the case be held in abeyance while the rule is re-evaluated, which was granted.
On March 28, 2017, President Trump issued an Executive Order on Energy Independence. The order puts forth two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean. The order directs the EPA Administrator to immediately review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Clean Power Plan, (2) the NSPS for GHG from new, reconstructed, or modified electric generating units, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. It also directs the EPA Administrator to notify the US Attorney General of his intent to review rules subject to pending litigation so that the US Attorney General may notify the court and, in his discretion, request that the court delay further litigation pending completion of the reviews. In response to the Executive Order, EPA filed a petition with the DC Circuit requesting the cases challenging the Clean Power Plan be held in abeyance until 30 days after the conclusion of EPA’s review and any subsequent rulemaking, which was granted. In addition, the DC Circuit issued a similar order in connection with a motion filed by EPA to hold cases challenging the NSPS in abeyance.
On October 10, 2017, EPA issued a NOPR proposing to repeal the Clean Power Plan and filed its status report with the court requesting the case be held in abeyance until the completion of the rulemaking on the proposed repeal. The NOPR proposes a legal interpretation concluding that the Clean Power Plan exceeds EPA’s statutory authority. Under the proposed interpretation, Section 111(d) limits EPA’s authority to adopt performance standards to only those physical and operational changes that can be implemented within an individual source. Therefore, measures in the Clean Power Plan that would require power generators to change their energy portfolios by shifting generation from coal to gas and from fossil fuel to renewable energy exceed EPA’s statutory authority. The NOPR was published in the Federal Register on October 16, 2017 and comments were due by April 26, 2018. Any final rule will be subject to judicial review. In a separate but related action, on December 28, 2017, EPA published the Advance Notice of Proposed Rulemaking for replacement of the Clean Power Plan. On December 18, 2017, EPA released an advanced NOPR addressing GHG guidelines for existing electric utility generating units. Comments to EPA’s new rule were due by February 26, 2018. On August 31, 2018, EPA published a proposed rule, which is informally known as the Affordable Clean Energy rule, to replace the Clean Power Plan. The proposed Affordable Clean Energy rule, among other things, would establish guidelines that replace the “outside-the-fenceline” control measures and specific numerical emission rates for existing EGUs. These measures are replaced with a list of “candidate technologies” for heat rate improvement measures, which include both technologies and operational changes, that EPA has identified as Best System of Emission Reduction (“BSER”). States would determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable through application of the selected BSER. States will have three years from when the rule is finalized to submit a plan to EPA. EPA will then have
one
year to determine if each proposed plan is acceptable. If states do not submit a plan, or if a state’s plan is not acceptable, EPA will develop a federal plan for the state to implement. EPA is also proposing revisions to the NSR program that would provide coal-fired power plants more latitude to make efficiency improvements consistent with BSER without triggering NSR permit requirements. Comments on the proposed Affordable Clean Energy rule were due to EPA by October 31, 2018.
The proposed Affordable Clean Energy rule and the 2015 federal plan released concurrently with the Clean Power Plan are important to Four Corners and the Navajo Nation. Since the Navajo Nation does not have primacy over its air quality program, EPA would be the regulatory authority responsible for implementing the proposed Affordable Clean Energy rule or the Clean Power Plan on the Navajo Nation. PNM is unable to predict the financial or operational impacts on Four Corners if the Affordable Clean Energy rule, the Clean Power Plan, or other future GHG reduction rulemaking are ultimately implemented and EPA determines that a federal plan is necessary or appropriate for the Navajo Nation.
PNM’s review of the CO
2
emission reductions standards under the proposed Affordable Clean Energy rule and the Clean Power Plan is ongoing and the assessment of its impacts will depend on the proposed repeal of the Clean Power Plan, promulgation of the Affordable Clean Energy rule, other future GHG reduction rulemaking, litigation of any final rule, and other actions the Trump Administration is taking through judicial and regulatory proceedings. Accordingly, PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance, if any.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
National Ambient Air Quality Standards (“NAAQS”)
The CAA requires EPA to set NAAQS for pollutants considered harmful to public health and the environment. EPA has set NAAQS for certain pollutants, including NOx, SO
2
,
ozone, and particulate matter. In 2010, EPA updated the primary NOx and SO
2
NAAQS to include a 1-hour maximum standard while retaining the annual standards for NOx and SO
2
and the 24-hour SO
2
standard. New Mexico is in attainment for the 1-hour NOx NAAQS.
On April 18, 2018, EPA published the final rule to retain the current primary health-based NOx standards of which NO
2
is the constituent of greatest concern and is the indicator for the primary NAAQS. EPA concluded that the current 1-hour and annual primary NO
2
standards are requisite to protect public health with an adequate margin of safety. The rule became effective on May 18, 2018.
On May 13, 2014, EPA released the draft data requirements rule for the 1-hour SO
2
NAAQS, which directs state and tribal air agencies to characterize current air quality in areas with large SO
2
sources to identify maximum 1-hour SO
2
concentrations. This characterization would result in these areas being designated as attainment, nonattainment, or unclassified for compliance with the 1-hour SO
2
NAAQS. On March 2, 2015, the United States District Court for the Northern District of California approved a settlement that imposed deadlines for EPA to identify areas that violate the NAAQS standards for 1-hour SO
2
emissions. The settlement resulted from a lawsuit brought by Earthjustice on behalf of the Sierra Club and the Natural Resources Defense Council under the CAA. The consent decree required that: (1) within
16
months of the consent decree entry, EPA must issue area designations for areas containing non-retiring facilities that either emitted more than
16,000
tons of SO
2
in 2012 or emitted more than
2,600
tons with an emission rate of
0.45
lbs./MMBTU or higher in 2012; (2) by December 2017, EPA must issue designations for areas for which states have not adopted a new monitoring network under the proposed data requirements rule; and (3) by December 2020, EPA must issue designations for areas for which states have adopted a new monitoring network under the proposed data requirements rule. SJGS and Four Corners SO
2
emissions are below the thresholds set forth in (1) above. EPA regions sent letters to state environmental agencies explaining how EPA plans to implement the consent decree. The letters outline the schedule that EPA expects states to follow in moving forward with new SO
2
non-attainment designations. NMED did not receive a letter.
On August 11, 2015, EPA released the Data Requirements Rule for SO
2
, telling states how to model or monitor to determine attainment or nonattainment with the new 1-hour SO
2
NAAQS. On June 3, 2016, NMED notified PNM that air quality modeling results indicated that SJGS was in compliance with the standard. In January 2017, NMED submitted their formal modeling report regarding attainment status to EPA. The modeling indicated that no area in New Mexico exceeds the 1-hour SO
2
standard. On June 27, 2018, NMED submitted the first annual report for SJGS as required by the Data Requirements Rule. The report recommends that no further modeling is warranted at this time due to decreased SO
2
emissions.
On May 14, 2015, PNM received an amendment to its NSR air permit for SJGS, which reflects the revised state implementation plan for regional haze BART and requires the installation of SNCRs as described above. The revised permit also requires the reduction of SO
2
emissions to
0.10
pound per MMBTU on SJGS Units 1 and 4 and the installation of BDT equipment modifications for the purpose of reducing fugitive emissions, including NOx, SO
2,
and particulate matter. These reductions help SJGS meet the NAAQS for these constituents. The BDT equipment modifications were installed at the same time as the SNCRs, in order to most efficiently and cost effectively conduct construction activities at SJGS. See Regional Haze – SJGS above.
On May 29, 2018, EPA released a proposed rule that would retain the primary health-based NAAQS for SOx. EPA is proposing to retain the current 1-hour standard for SO
2
, which is
75
parts per billion (“ppb”), based on the
3
-year average of the 99th percentile of daily maximum 1-hour SO
2
concentrations. SO
2
is the most prevalent SOx compound and is used as the indicator for the primary SOx NAAQS.
On October 1, 2015, EPA finalized the new ozone NAAQS and lowered both the primary and secondary 8-hour standard from
75
ppb to
70
ppb. With ozone standards becoming more stringent, fossil-fueled generation units will come under increasing pressure to reduce emissions of NOx and volatile organic compounds, and to generate emission offsets for new projects or facility expansions located in nonattainment areas.
On November 10, 2015, EPA proposed a rule revising its Exceptional Events Rule, which outlines the requirements for excluding air quality data (including ozone data) from regulatory decisions if the data is affected by events outside an area’s control.
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The proposed rule is important in light of the new more stringent ozone NAAQS final rule since western states like New Mexico and Arizona are particularly subject to elevated background ozone transport from natural local sources, such as wildfires, and transported via winds from distant sources, such as the stratosphere or another region or country.
On February 25, 2016, EPA released guidance on area designations for ozone, which states used to determine their initial designation recommendations by October 1, 2016. NMED published its 2015 Ozone NAAQS Designation Recommendation Report on September 2, 2016. In New Mexico, NMED is designating only a small area in southern Dona Ana County as non-attainment for ozone. NMED will have responsibility for bringing this non-attainment area into compliance and will look at all sources of NOx and volatile organic compounds since these are the pollutants that form ground-level ozone. According to NMED’s website, “If emissions from Mexico keep New Mexico from meeting the standards, the New Mexico area could remain non-attainment but would not face more stringent requirements over time.”
On June 6, 2017, the EPA Administrator sent letters to state governors announcing that EPA was extending, by
one
year, the deadline for promulgating area designations. However, on August 2, 2017, the Trump Administration reversed the decision to extend the deadline to issue area designations, thereby requiring EPA to issue designations for ozone attainment areas by October 1, 2017.
On November 6, 2017, EPA released a final rule establishing some, but not all, initial area designations. In that final rule, San Juan County, New Mexico, where SJGS and Four Corners are located, is designated as attainment/unclassifiable. The only county in New Mexico designated as non-attainment is Dona Ana County. On April 30, 2018, EPA completed additional area designations for the 2015 ozone standards. In a related matter, EPA published a final rule on March 9, 2018 establishing air quality thresholds that define the classifications assigned to all non-attainment areas for ozone NAAQS. The final rule also establishes the timing of attainment dates for each non-attainment area classification, which are marginal, moderate, serious, severe, or extreme. The rule became effective May 8, 2018.
NMED is required to submit an infrastructure and transport SIP that provides the basic air quality management program to implement the revised ozone standard. This plan is generally due within 36 months from the date the NAAQS is promulgated. The NMED has published a proposed certification that New Mexico currently has an adequate, federally-approved SIP that addresses elements of the CAA Section 110(a)(2) infrastructure SIP, as applicable to the 2015 ozone NAAQS. The purpose of the proposed certification is to confirm to EPA that New Mexico has the required “infrastructure” in place under the current SIP to implement, maintain, and enforce the revised 2015 ozone NAAQS. Comments on the proposed certification were due by October 29, 2018. State ozone attainment plans are generally due within five to six years from the date of the ozone NAAQS promulgation and are planned for submittal in 2020 and 2021.
PNM does not believe there will be material impacts to its facilities as a result of NMED’s non-attainment designation of the small area within Dona Ana County. Until EPA approves attainment designations for the Navajo Nation and releases a proposal to implement the revised ozone NAAQS, APS is unable to predict what impact the adoption of these standards may have on Four Corners. PNM cannot predict the outcome of this matter.
WEG v. OSM NEPA Lawsuit
In February 2013, WEG filed a Petition for Review in the United States District Court of Colorado against OSM challenging federal administrative decisions affecting
seven
different mines in
four
states issued at various times from 2007 through 2012. In its petition, WEG challenged several unrelated mining plan modification approvals, which were each separately approved by OSM. WEG alleged various NEPA violations against OSM, including, but not limited to, OSM’s alleged failure to provide requisite public notice and participation, alleged failure to analyze certain environmental impacts, and alleged reliance on outdated and insufficient documents. WEG’s petition sought various forms of relief, including a finding that the federal defendants violated NEPA by approving the mine plans; voiding, reversing, and remanding the various mining modification approvals; enjoining the federal defendants from re-issuing the mining plan approvals for the mines until compliance with NEPA has been demonstrated; and enjoining operations at the
seven
mines.
Of the
fifteen
claims for relief in the WEG Petition,
two
concerned SJCC’s San Juan mine. WEG’s allegations concerning the San Juan mine arise from OSM administrative actions in 2008. SJCC intervened in this matter. The court granted SJCC’s
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motion to sever its claims from the lawsuit and transfer venue to the NM District Court. In July 2016, OSM filed a Motion for Voluntary Remand to allow the agency to conduct a new environmental analysis. On August 31, 2016, the court entered an order remanding the matter to OSM for the completion of an EIS by August 31, 2019. The court ruled that mining operations may continue in the interim and the litigation is administratively closed. If OSM does not complete the EIS within the time frame provided, the court will order immediate
vacatur
of the mining plan at issue absent a further court order based on good cause shown. On March 22, 2017, OSM issued its Notice of Intent to initiate the public scoping process and prepare an EIS for the project. The Notice of Intent provided that, in addition to analyzing the environmental effects of the mining project, the EIS will also analyze the indirect effects of coal combustion at SJGS. The public comment period ended on May 8, 2017 and the EIS resource data submittal phase was completed in November 2017. The draft EIS was made available in May 2018. Public comments were due on July 9, 2018. PNM cannot currently predict the outcome of this matter.
Navajo Nation Environmental Issues
Four Corners is located on the Navajo Reservation and is held under an easement granted by the federal government, as well as a lease from the Navajo Nation. The Navajo Acts purport to give the Navajo Nation Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation challenging the applicability of the Navajo Acts to Four Corners. In May 2005, APS and the Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation’s authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement, APS sought, and the court granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts. PNM cannot currently predict the outcome of these matters or the range of their potential impacts.
Cooling Water Intake Structures
EPA signed its final cooling water intake structures rule on May 16, 2014, which establishes national standards for certain cooling water intake structures at existing power plants and other facilities under the Clean Water Act to protect fish and other aquatic organisms by minimizing impingement mortality (the capture of aquatic wildlife on intake structures or against screens) and entrainment mortality (the capture of fish or shellfish in water flow entering and passing through intake structures). The final rule became effective October 14, 2014.
The final rule allows multiple compliance options and considerations for site specific conditions and the permit writer is granted a significant amount of discretion in determining permit requirements, schedules, and conditions. To minimize impingement mortality, the rule provides operators of facilities, such as SJGS and Four Corners,
seven
options for meeting Best Technology Available (“BTA”) standards for reducing impingement. SJGS has a closed-cycle recirculating cooling system, which is a listed BTA and may also qualify for the “
de minimis
rate of impingement” based on the design of the intake structure. To minimize entrainment mortality, the permitting authority must establish the BTA for entrainment on a site-specific basis, taking into consideration an array of factors, including endangered species and social costs and benefits. Affected sources must submit source water baseline characterization data to the permitting authority to assist in the determination. Compliance deadlines under the rule are tied to permit renewal and will be subject to a schedule of compliance established by the permitting authority.
The rule is not clear as to how it applies and what the compliance timelines are for facilities like SJGS that have a cooling water intake structure and only a multi-sector general stormwater permit. PNM is working with EPA regarding this issue. However, PNM does not expect material changes as a result of any requirements that may be imposed upon SJGS.
On May 23, 2018, several environmental groups sued EPA Region IX in the United States Court of Appeals for the Ninth Circuit Court over EPA’s failure to timely reissue the Four Corners NPDES permit. The petitioners asked the court to issue a
writ of mandamus
compelling EPA Region IX to take final action on the pending NPDES permit by a reasonable date. EPA subsequently reissued the NPDES permit on June 12, 2018. The permit does not contain conditions related to the cooling water intake structure rule as EPA determined that the facility has achieved BTA for both impingement and entrainment by operating a closed-cycle recirculation system and no additional conditions are necessary. On July 16, 2018, several environmental groups filed a petition for review with the EPA’s Environmental Appeals Board concerning the reissued permit. The environmental groups alleged that the permit was reissued in contravention of several requirements under the Clean Water Act and does not contain required provisions
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concerning certain revised effluent limitation guidelines, existing-source regulations governing cooling-water intake structures, and effluent limits for surface seepage and subsurface discharges from coal-ash disposal facilities. The coalition is seeking to have the permit remanded to EPA for revision to address these allegations. PNM cannot predict the outcome of this matter.
Effluent Limitation Guidelines
On June 7, 2013, EPA published proposed revised wastewater effluent limitation guidelines establishing technology-based wastewater discharge limitations for fossil fuel-fired electric power plants. EPA’s proposal offered numerous options that target metals and other pollutants in wastewater streams originating from fly ash and bottom ash handling activities, scrubber activities, and non-chemical metal cleaning waste operations. All proposed alternatives establish a “zero discharge” effluent limit for all pollutants in fly ash transport water. Requirements governing bottom ash transport water differ depending on which alternative EPA ultimately chooses and could range from effluent limits based on Best Available Technology Economically Achievable to “zero discharge” effluent limits.
EPA signed the final Steam Electric Effluent Guidelines rule on September 30, 2015. The final rule, which became effective on January 4, 2016, phases in the new, more stringent requirements in the form of effluent limits for arsenic, mercury, selenium, and nitrogen for wastewater discharged from wet scrubber systems and zero discharge of pollutants in ash transport water that must be incorporated into plants’ NPDES permits. Each plant must comply between 2018 and 2023 depending on when it needs a new or revised NPDES permit.
On April 14, 2017, EPA filed a motion with the United States Court of Appeals for the Fifth Circuit relating to ongoing litigation of the 2016 Steam Electric Effluent Guidelines rule. EPA asked the court to hold all proceedings in the case in abeyance until August 12, 2017 while EPA reconsiders the rule. EPA also asked to be allowed to file a motion on August 12, 2017 to inform the court if EPA wishes to seek a remand of any provisions of the rule so that EPA may conduct further rulemaking, if appropriate. The motion referred to the notice signed by the EPA Administrator on April 12, 2017, which announced EPA’s intent to reconsider this rule, as well as EPA’s administrative stay of the compliance deadlines. On August 22, 2017, the court granted the government’s motion and the litigation is held in abeyance until EPA’s further rulemaking has concluded.
On September 18, 2017, EPA published the final rule for postponement of certain compliance dates, which have not yet passed for the Effluent Limitations Guidelines rule, consistent with the EPA’s decision to grant reconsideration of that rule. The final rule postponed the earliest date on which compliance with the effluent limitation guidelines for these waste streams would be required from November 1, 2018 until November 1, 2020.
Because SJGS is zero discharge for wastewater and is not required to hold a NPDES permit, it is expected that minimal to no requirements will be imposed. Reeves Station, a PNM-owned gas-fired generating station, discharges cooling tower blowdown to a publicly owned treatment works and holds an NPDES permit. It is expected that minimal to no requirements will be imposed at Reeves Station.
EPA reissued an NPDES permit for Four Corners on June 12, 2018. EPA determined that the guidelines in the 2015 rule are not applicable to this permit because the effective dates of the 2015 effluent guidelines rule were extended. Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques, during the next NPDES permit renewal for Four Corners, which will be in 2023. See Cooling Water Intake Structures above. PNM is unable to predict the outcome of these matters or a range of the potential costs of compliance.
Santa Fe Generating Station
PNM and the NMED are parties to agreements under which PNM installed a remediation system to treat water from a City of Santa Fe municipal supply well, an extraction well, and monitoring wells to address gasoline contamination in the groundwater at the site of PNM’s former Santa Fe Generating Station and service center. PNM believes the observed groundwater contamination originated from off-site sources, but agreed to operate the remediation facilities until the groundwater meets applicable federal and state standards or until the NMED determines that additional remediation is not required, whichever is earlier. The City of Santa Fe has indicated that since the City no longer needs the water from the well, the City would prefer to discontinue its operation and maintain it only as a backup water source. However, for PNM’s groundwater remediation system to operate, the water well
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must be in service. Currently, PNM is not able to assess the duration of this project or estimate the impact on its obligations if the City of Santa Fe ceases to operate the water well.
The Superfund Oversight Section of the NMED also has conducted multiple investigations into the chlorinated solvent plume in the vicinity of the site of the former Santa Fe Generating Station. In February 2008, a NMED site inspection report was submitted to EPA, which states that neither the source nor extent of contamination has been determined and that the source may not be the former Santa Fe Generating Station. Results of tests conducted by NMED in April 2012 and April 2013 showed elevated concentrations of nitrate in
three
monitoring wells and an increase in free-phase hydrocarbons in another well. PNM conducted similar site-wide sampling activities in April 2014 and obtained results similar to the 2013 data. As part of this effort, PNM also collected a sample of hydrocarbon product for “fingerprint” analysis from a monitoring well located on the northeastern corner of the property. This analysis indicated that the hydrocarbon product was a mixture of newer and older fuels, and the location of the monitoring well suggests that the hydrocarbon product is likely from offsite sources. PNM does not believe the former generating station is the source of the increased levels of free-phase hydrocarbons, but no conclusive determinations have been made. However, it is possible that PNM’s prior activities to remediate hydrocarbon contamination, as conducted under an NMED-approved plan, may have resulted in increased nitrate levels. Therefore, PNM has agreed to monitor nitrate levels in a limited number of wells under the terms of the renewed discharge permit for the former generating station.
Effective December 22, 2015, PNM and NMED entered into a memorandum of understanding to address changing groundwater quality conditions at the site. Under the memorandum, PNM will continue hydrocarbon investigation of the site under the supervision of NMED and qualified costs of the work will be eligible for payment through the New Mexico Corrective Action Fund (“CAF”), which is administered by the NMED Petroleum Storage Tank Bureau. Among other things, money in the CAF is available to NMED to make payments to or on behalf of owners and operators for corrective action taken in accordance with statutory and regulatory requirements to investigate, minimize, eliminate, or clean up a release. PNM’s work plan and cost estimates for specific groundwater investigation tasks were approved by the Petroleum Storage Tank Bureau. PNM submitted a monitoring plan consisting of a compilation of the data associated with monitoring activities conducted under the CAF to NMED on October 3, 2016. PNM completed all CAF-related work associated with the monitoring plan and received NMED’s approval. PNM’s contractor prepared a scope of work, which PNM and NMED approved, for the installation of additional monitoring wells and additional sampling of certain existing monitoring wells at the site. These activities were completed in June 2018. PNM’s contractor has commenced the next phase of work which includes the installation of up to
38
additional monitoring wells. Work is expected to be completed in early 2019. Qualified costs of this work are eligible for payment through the CAF.
PNM is unable to predict the outcome of these matters.
Coal Combustion Byproducts Waste Disposal
CCBs consisting of fly ash, bottom ash, and gypsum generated from coal combustion at SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCB impoundments or landfills. The NMMMD currently regulates placement of ash in the San Juan mine with federal oversight by the OSM. APS disposes of CCBs in ash ponds and dry storage areas at Four Corners. Ash management at Four Corners is regulated by EPA and the New Mexico State Engineer’s Office.
EPA’s final coal ash rule, which became effective on October 19, 2015, included a non-hazardous waste determination for coal ash. The rule sets minimum criteria for existing and new CCB landfills and existing and new CCB surface impoundments and all lateral expansions consisting of location restrictions, design and operating criteria; groundwater monitoring and corrective action; closure requirements and post closure care; and recordkeeping, notification, and internet posting requirements.
Because the rule is promulgated under Subtitle D of RCRA, it does not require regulated facilities to obtain permits, does not require the states to adopt and implement the rules, and is not within EPA’s enforcement jurisdiction. Instead, the rule’s compliance mechanism is for a state or citizen group to bring a RCRA citizen suit in federal district court against any facility that is alleged to be in non-compliance with the requirements.
On December 16, 2016, the Water Infrastructure Improvements for the Nation Act (the “WIIN Act”) was signed into law to address critical water infrastructure needs in the United States. The WIIN Act contains a number of provisions requiring EPA to modify the self-implementing provisions of the current CCB rules under Subtitle D. Among other things, the WIIN Act provides
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for the establishment of state and EPA permit programs for CCBs, provides flexibility for states to incorporate the EPA final rule for CCBs or develop other criteria that are at least as protective as the EPA’s final rule, and requires EPA to approve state permit programs within
180
days of submission by the state for approval. As a result, the CCB rule is no longer self-implementing and there will either be a state or federal permit program. Subject to Congressional appropriated funding, EPA will implement the permit program in states that choose not to implement a program. Until permit programs are in effect, EPA has authority to directly enforce the self-implementing CCB rule. For facilities located within the boundaries of Native American tribal reservations, such as the Navajo Nation where Four Corners is located, EPA is required to develop a federal permit program regardless of appropriated funds. EPA has yet to undertake rulemaking proceedings to implement the CCB provisions of the WIIN Act. There is no time line for establishing either state or federal permitting programs. APS recently filed a comment letter with EPA seeking clarification as to when and how EPA would be initiating permit proceedings for facilities on tribal reservations, including Four Corners. PNM is unable to predict when EPA will be issuing permits for Four Corners.
On September 13, 2017, EPA agreed to evaluate whether to revise the CCB regulations based upon utility industry petitions for EPA to reconsider the RCRA Subtitle D regulations for CCBs, which were premised in part on the provisions of the WIIN Act. In light of the WIIN Act and the petitions for rulemaking, the EPA is considering making additional changes to the CCB rule to provide flexibility to state programs consistent with the WIIN Act. With respect to ongoing litigation initiated by industry and environmental groups challenging the legality of the CCB regulations and pursuant to an order issued by the DC Circuit, EPA filed a status report on November 15, 2017 on the challenges to the CCB rule identifying provisions it intends to reconsider. On November 20, 2017, the DC Circuit heard oral arguments from industry groups, environmentalists, and EPA. EPA and the industry groups argued the court should postpone adjudication until EPA completes the reconsideration process for the affected provision. On December 20, 2017, a proposal to remand the CCB rule was transmitted to the Office of Management and Budget for interagency review.
Pursuant to a June 24, 2016 order by the DC Circuit in litigation by industry and environmental groups challenging EPA’s CCB regulations, EPA is required to complete a rulemaking proceeding by June 2019 to address specific technical issues related to the handling of CCBs. On March 15, 2018, EPA proposed its Phase I Remand Rule that includes potential revisions to provide site-specific, risk-based tailoring of groundwater monitoring, corrective action and location restriction requirements of the CCB rule. On June 12, 2018, EPA sent a final CCB revision “fast-track” rule to OMB that addresses some of the provisions from the proposed rule released in March 2018. EPA published the final rule on July 30, 2018. According to EPA, the July 30, 2018 rule constitutes “Phase One, Part One” of its ongoing reconsideration and revision of the April 15, 2017 coal ash rule. The final rule includes two types of revisions. The first revision extends the deadline to allow EGUs with unlined impoundments or that fail to meet the uppermost aquifer requirement to continue to receive coal ash until October 31, 2020. The second revision authorizes a “Participating State Director” or EPA, in lieu of a professional engineer, to approve suspension of groundwater monitoring and to issue certifications related to the location restrictions, design criteria, groundwater monitoring, remedy selection and implementation. The revisions also modify groundwater protection standards for certain constituents, which include cobalt, molybdenum, lithium, and lead without a maximum contamination level. EPA indicated that provisions in the March 2018 rule that are not addressed in the July 2018 final rule will be addressed in a subsequent rulemaking.
On August 21, 2018, the DC Circuit Court of Appeals issued its decision in the CCB litigation. The court denied EPA’s request to hold the case in abeyance; remanded the industry group’s challenges to the regulation of certain on-site CCB piles; denied relief for the remaining industry group’s claims, including the challenge to EPA’s authority to regulate inactive surface impoundments; and found for the environmental groups on their challenges to the ability of unlined impoundments to continue operating, the classification of certain unlined impoundments as “lined” units, and EPA’s failure to regulate legacy ponds. It remains unclear how the DC Circuit Court of Appeals decision will impact Four Corners as EPA has not yet taken regulatory action on remand to revise its CCB regulations.
The CCB rule does not cover mine placement of coal ash. OSM is expected to publish a proposed rule covering mine placement in the future and will likely be influenced by EPA’s rule. PNM cannot predict the outcome of OSM’s proposed rulemaking regarding CCB regulation, including mine placement of CCBs, or whether OSM’s actions will have a material impact on PNM’s operations, financial position, or cash flows. Based upon the requirements of the final rule, PNM conducted a CCB assessment at SJGS and made minor modifications at the plant to ensure that there are no facilities which would be considered impoundments or landfills under the rule. PNM would seek recovery from its ratepayers of all CCB costs that are ultimately incurred. PNM does not expect the rule to have a material impact on operations, financial position, or cash flows.
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As indicated above, CCBs at Four Corners are currently disposed of in ash ponds and dry storage areas. The CCB rule requires ongoing, phased groundwater monitoring. By October 17, 2017, utilities that own or operate CCB disposal units, such as those at Four Corners must have collected sufficient groundwater sampling data to initiate a detection monitoring program. To the extent that certain threshold constituents are identified through this initial detection monitoring at levels above the CCB rule’s standards, the rule required the initiation of an assessment monitoring program by April 15, 2018. If this assessment monitoring program reveals concentrations of certain constituents above the CCB rule standards that trigger remedial obligations, a corrective measures evaluation must be completed by April 2019. Four Corners recently completed an analysis that determined several of its CCB disposal units will need corrective action or will need to cease operations and initiate closure by October 2020. Four Corners anticipates it will complete its evaluation of these matters by early 2019. At this time, PNM does not anticipate its share of the cost to complete these corrective actions or to close the CCB disposal units at Four Corners will have a significant impact on its operations, financial position, or cash flows.
Other Commitments and Contingencies
Coal Supply
SJGS
The coal requirements for SJGS are supplied by SJCC. SJCC holds certain federal, state, and private coal leases. In addition to coal delivered to meet the current needs of SJGS, PNM has prepaid SJCC for certain coal mined but not yet delivered to the plant site. At
September 30, 2018
and December 31, 2017, prepayments for coal (including amounts purchased from the exiting SJGS participants discussed below), which are included in other current assets, amounted to
$26.3 million
. Additional information concerning the coal supply for SJGS is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K.
In conjunction with the activities undertaken to comply with the CAA for SJGS, as discussed above, PNM and the other owners of SJGS evaluated alternatives for the supply of coal to SJGS. On July 1, 2015, PNM and Westmoreland entered into a new coal supply agreement (the “SJGS CSA”), pursuant to which Westmoreland is to supply all of the coal requirements of SJGS through June 30, 2022. PNM and Westmoreland also entered into agreements under which Westmoreland is to provide CCB disposal and mine reclamation services for SJGS. Contemporaneous with the entry into the coal-related agreements, Westmoreland entered into a stock purchase agreement (the “Stock Purchase Agreement”) on July 1, 2015 to acquire all of the capital stock of SJCC.
The SJGS CSA became effective as of 11:59 PM on January 31, 2016, upon the closing under the Stock Purchase Agreement. Upon closing under the Stock Purchase Agreement, Westmoreland’s rights and obligations under the SJGS CSA and the agreements for CCB disposal and mine reclamation services were assigned to SJCC. Westmoreland has guaranteed SJCC’s performance under the SJGS CSA. Pricing under the SJGS CSA is primarily fixed, adjusted to reflect general inflation. The pricing structure takes into account that SJCC has been paid for coal mined but not delivered, as discussed above.
PNM has the option to extend the SJGS CSA, subject to negotiation of the term of the extension and compensation to the miner. In order to extend, the SJGS CSA provides that PNM must give written notice of that intent by July 1, 2018 and the parties must agree to the terms of the extension by January 1, 2019. In addition, the SJPPA obligates each SJGS participant to provide notice to the other participants whether they wish to extend the terms of the SJPPA and the SJGS CSA beyond June 30, 2022. Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022. Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. PNM gave preliminary notice to the other participants that, based on updated coal pricing and other relevant information, PNM does not wish to extend the terms of the SJPPA or the SJGS CSA beyond June 30, 2022. PNM is continuing to analyze the permanent retirement of SJGS in 2022, including plant decommissioning and related coal mine reclamation. The final determination of PNM’s exit from SJGS is subject to NMPRC approval in a formal abandonment proceeding (Note 12). Due to Farmington’s stated interest in continuing SJGS operations beyond 2022, PNM and Westmoreland agreed to extend the July 1, 2018 notice deadline to December 1, 2018.
On March 17, 2018, a coal silo used to supply fuel to SJGS Unit 1 collapsed resulting in an outage. Repairs necessary to return Unit 1 to service were completed by July 5, 2018. See Note 12. PNM notified Westmoreland that this event constituted a
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“force majeure”
under the SJGS CSA and that PNM would be unable to satisfy its minimum obligations to purchase coal for Unit 1 as a result of the event. On October 5, 2018, PNM and SJCC reached a settlement under which the minimum obligation to purchase coal for SJGS during the 2018 contract year was reduced by
111,668
tons and resolving the issues related to the event. The benefit of this reduction will be returned to customers through the FPPAC.
The SJGS RA sets forth terms under which PNM acquired the coal inventory, including coal mined but not delivered, of the exiting SJGS participants as of January 1, 2016 and supplied coal to the SJGS exiting participants for the period from January 1, 2016 through December 31, 2017 and is supplying coal to the SJGS remaining participants over the term of the SJGS CSA. Coal costs under the SJGS CSA are significantly less than under the previous arrangement with SJCC. Since substantially all of PNM’s coal costs are passed through the FPPAC, the benefit of the reduced costs is passed through to PNM’s customers.
In support of the closing under the Stock Purchase Agreement and to facilitate PNM customer savings, NM Capital, a wholly-owned subsidiary of PNMR, provided funding of
$125.0 million
(the “Westmoreland Loan”) to Westmoreland San Juan, LLC (“WSJ”), a ring-fenced, bankruptcy-remote, special-purpose entity subsidiary of Westmoreland, to finance WSJ’s purchase of the stock of SJCC (including an insignificant affiliate) under the Stock Purchase Agreement. NM Capital provided the
$125.0 million
financing to WSJ by first entering into a
$125.0 million
term loan agreement (the “BTMU Term Loan Agreement”) with BTMU, as lender and administrative agent. The BTMU Term Loan Agreement became effective as of February 1, 2016, had a maturity date of February 1, 2021, and bore interest at a rate based on LIBOR plus a customary spread. In connection with the BTMU Term Loan Agreement, PNMR, as parent company of NM Capital, guaranteed NM Capital’s obligations to BTMU.
The Westmoreland Loan was a
$125.0 million
loan agreement among NM Capital, as lender, WSJ, as borrower, and SJCC and its affiliate, as guarantors. The Westmoreland Loan became effective as of February 1, 2016 and had a maturity date of February 1, 2021. The interest rate on the Westmoreland Loan escalated over time and was
9.25%
plus LIBOR for the period from February 1, 2017 through January 31, 2018 and
12.25%
plus LIBOR beginning February 1, 2018. WSJ paid principal and interest quarterly to NM Capital in accordance with an amortization schedule. In addition, the Westmoreland Loan required that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it was fully repaid. The Westmoreland Loan was secured by the assets of and the equity interests in SJCC and its affiliate. The Westmoreland Loan also included customary representations and warranties, covenants, and events of default. There were
no
prepayment penalties. See Note 6.
On May 22, 2018, the full principal outstanding under the Westmoreland Loan of
$50.1 million
was repaid. NM Capital used a portion of the proceeds to repay all remaining principal of
$43.0 million
owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated.
In connection with certain mining permits relating to the operation of the San Juan mine, SJCC is required to post reclamation bonds of
$118.7 million
with the NMMMD. In order to facilitate the posting of reclamation bonds by sureties on behalf of SJCC, PNMR entered into letter of credit arrangements with a bank under which letters of credit aggregating
$30.3 million
have been issued.
See NEE Complaint above, for information concerning Westmoreland’s October 9, 2018 Chapter 11 bankruptcy filing.
Four Corners
APS purchases all of Four Corners’ coal requirements from NTEC, an entity owned by the Navajo Nation, under a coal supply contract (the “Four Corners CSA”) that expires in 2031. The coal comes from reserves located within the Navajo Nation. NTEC has contracted with Bisti Fuels Company, LLC, a subsidiary of The North American Coal Corporation, for management and operation of the mine. The contract provides for pricing adjustments over its term based on economic indices. The average coal price per ton under the contract was approximately
51%
higher in the twelve months ended June 30, 2017 than in the twelve months ended June 30, 2016. In the twelve months ended June 30, 2018, the average coal price per delivered ton increased approximately
6.9%
over the 2017 prices. As discussed below, the Four Corners CSA has been amended. PNM’s share of the coal costs is being recovered through the FPPAC.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Four Corners Coal Supply Arbitration
– The owners of Four Corners are obligated to purchase a specified minimum amount of coal each contract year and to pay for any shortfall below the minimum amount, except when caused by “uncontrollable forces” as defined in the Four Corners CSA. On June 13, 2017, APS received a demand for arbitration from NTEC in connection with the Four Corners CSA. NTEC originally sought a declaratory judgment to support its interpretation of a provision regarding uncontrollable forces in the agreement relating to the annual minimum quantities of coal to be purchased by the Four Corners owners. NTEC also alleged a shortfall in those purchases for the initial contract year, which ended June 30, 2017. On September 20, 2017, NTEC amended its demand for arbitration removing the request for a declaratory judgment. On June 29, 2018, a settlement was reached for the disputed shortfall during the period July 7, 2016 through February 28, 2018. PNM’s share of the settlement payment made to NTEC by the Four Corners owners was
$4.9 million
. PNM’s share of the shortfall for the guaranteed minimum purchase of coal for the period March 1, 2018 through June 30, 2018 was
$1.4 million
. The arbitration was dismissed on July 9, 2018. Substantially all of the amount that PNM is required to pay under this settlement agreement will be collected through the FPPAC.
Contemporaneous with the execution of the settlement agreement, the Four Corners owners and NTEC amended the Four Corners CSA. The amendments reduce required take-or-pay volumes and the base price of coal. The amendments do not extend the term of the Four Corners CSA beyond its current July 6, 2031 expiration date.
Coal Mine Reclamation
As indicated under Coal Combustion Byproducts Waste Disposal above, SJGS currently disposes of CCBs in the surface mine pits adjacent to the plant and Four Corners disposes of CCBs in ash ponds and dry storage areas. As discussed in Note 16 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K, in conjunction with the shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, the SJGS participants requested that the coal mine reclamation study for SJGS be updated periodically. In 2015, PNM updated the SJGS reclamation cost estimate to reflect the terms of a new reclamation services agreement with Westmoreland and changes related to the approval of the 2015 SJCC Mine Permit Plan. The 2015 reclamation cost estimate reflected that the scope and pricing structure of the reclamation service agreement with Westmoreland, design plan changes, updated regulatory expectations, and common mine reclamation practices would significantly increase reclamation costs. As a result, in December 2015 PNM recorded its
$16.5 million
share of this increase as regulatory disallowances and restructuring costs in the Consolidated Statements of Earnings. In the third quarter of 2016, PNM, on behalf of the SJGS owners, coordinated a more detailed coal mine reclamation cost study reflecting the terms of the new reclamation services agreement with Westmoreland. The study indicated an additional increase in the reclamation cost estimate. PNM recorded its
$4.5 million
share of the increase as of September 30, 2016 as regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings. The SJGS RA required PNM to complete an update to the reclamation cost estimate after the December 31, 2017 shutdown of SJGS Units 2 and 3. This reclamation cost estimate was completed in October 2018 and assumed continuation of mining operations through 2053. The 2018 study indicated a decrease in reclamation costs primarily driven by lower inflationary factors used to determine the estimated future cost of reclamation activities. PNM recorded its
$2.5 million
share of this decrease as of September 30, 2018, which is reflected in regulatory disallowances and restructuring costs in the Condensed Consolidated Statements of Earnings.
The current estimate for decommissioning the mine serving Four Corners reflects the operation of the mine through 2031, the term of the Four Corners CSA.
Based on the 2018 estimates and PNM’s ownership share of SJGS, PNM’s remaining payments as of
September 30, 2018
for mine reclamation, in future dollars, are estimated to be
$87.5 million
for the surface mines at both SJGS and Four Corners and
$101.2 million
for the underground mine at SJGS. At
September 30, 2018
and December 31, 2017, liabilities, in current dollars, of
$39.5 million
and
$41.4 million
for surface mine reclamation and
$14.3 million
and
$14.7 million
for underground mine reclamation were recorded in other deferred credits.
As discussed in Note 12, PNM filed its 2017 IRP on July 3, 2017. The conclusions contained in the 2017 IRP indicate that it would be cost beneficial to PNM’s customers for PNM to retire its SJGS capacity in 2022 and for PNM to exit its ownership interest in Four Corners in 2031. The 2017 IRP is not a final determination of PNM’s future generation portfolio. Retiring PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, which PNM would make at appropriate times in the future. In the event of the abandonment of those facilities, PNM would be required to remeasure its liability for coal mine reclamation to reflect that reclamation activities would occur sooner than currently anticipated. The
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
remeasurement would likely result in a significant increase in PNM’s liability for SJGS mine reclamation due to an increase in the amount of fill dirt required to remediate the mine areas, thereby increasing the overall reclamation costs. PNM would be exposed to loss if recovery of the additional costs is not approved by the NMPRC in connection with the NMPRC approvals indicated above. The amount of the increase in the liability would depend on the timing of those approvals and other regulatory actions, as well estimates made at that time of the costs to perform the future reclamation activities, including the then current inflation and discount rates. In the event of an early retirement of SJGS, PNM’s estimates its liability for SJGS mine reclamation would increase by approximately
$30 million
for the surface mine and
$10 million
for the underground mine as of September 30, 2018. PNM would record a regulatory asset for amounts recoverable from ratepayers under existing or future orders of the NMPRC and amounts not recoverable would be expensed. PNM cannot predict what actions the NMPRC might take.
Under the terms of the SJGS CSA, PNM and the other SJGS owners are obligated to compensate SJCC for all reclamation costs associated with the supply of coal from the San Juan mine. The SJGS owners entered into a reclamation trust funds agreement to provide funding to compensate SJCC for post-term reclamation obligations. As part of the restructuring of SJGS ownership (see SJGS Ownership Restructuring Matters above), the SJGS owners negotiated the terms of an amended agreement to fund post-term reclamation obligations under the CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable reclamation trust, and periodically deposit funds into the reclamation trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. PNM funded
$5.8 million
in 2017. Based on PNM’s reclamation trust fund balance at
September 30, 2018
, the current funding curves indicate PNM’s required contributions to its reclamation trust fund would be
$6.4 million
in 2018,
$8.7 million
in 2019, and
$9.2 million
in 2020.
Under the Four Corners CSA, which became effective on July 7, 2016, PNM is required to fund its ownership share of estimated final reclamation costs in
thirteen
annual installments, beginning on August 1, 2016, into an irrevocable escrow account solely dedicated to the final reclamation cost of the surface mine at Four Corners. PNM contributed
$2.3 million
to the escrow account in each of 2017 and 2018 and anticipates providing additional funding of
$2.3 million
in 2019.
PNM collects a provision for surface and underground mine reclamation costs in its rates. The NMPRC has capped the amount that can be collected from retail customers for final reclamation of the surface mines at
$100.0 million
. Previously, PNM recorded a regulatory asset for the
$100.0 million
and recovers the amortization of this regulatory asset in rates. If future estimates increase the liability for surface mine reclamation, the excess would be expensed at that time. Regulatory determinations made by the NMPRC may also affect the impact on PNM. PNM is currently unable to determine the outcome of these matters or the range of possible impacts.
Continuous Highwall Mining Royalty Rate
In August 2013, the DOI Bureau of Land Management (“BLM”) issued a proposed rulemaking that would retroactively apply the surface mining royalty rate of
12.5%
to continuous highwall mining (“CHM”). Comments regarding the rulemaking were due on October 11, 2013 and PNM submitted comments in opposition to the proposed rule. There is no legal deadline for adoption of the final rule.
SJCC utilized the CHM technique from 2000 to 2003 and, with the approval of the Farmington, New Mexico Field Office of BLM to reclassify the final highwall as underground reserves, applied the
8.0%
underground mining royalty rate to coal mined using CHM and sold to SJGS. In March 2001, SJCC learned that the DOI Minerals Management Service (“MMS”) disagreed with the application of the underground royalty rate to CHM. In August 2006, SJCC and MMS entered into an agreement tolling the statute of limitations on any administrative action to recover unpaid royalties until BLM issued a final, non-appealable determination as to the proper rate for CHM-mined coal. The proposed BLM rulemaking has the potential to terminate the tolling provision of the settlement agreement. Underpaid royalties of approximately
$5 million
for SJGS would become due if the proposed BLM rule is adopted as proposed. PNM’s share of any amount that is ultimately paid would be approximately
46.3%
, none of which would be passed through PNM’s FPPAC. PNM is unable to predict the outcome of this matter.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PVNGS Liability and Insurance Matters
Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both commercial sources and an industry-wide retrospective payment plan. In accordance with this act, the PVNGS participants are insured against public liability exposure for a nuclear incident up to
$13.2 billion
per occurrence. PVNGS maintains the maximum available nuclear liability insurance in the amount of
$450 million
, which is provided by American Nuclear Insurers. The remaining
$12.7 billion
is provided through a mandatory industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, PNM could be assessed retrospective premium adjustments. Based on PNM’s
10.2%
interest in each of the
three
PVNGS units, PNM’s maximum potential retrospective premium assessment per incident for all
three
units is
$38.9 million
, with a maximum annual payment limitation of
$5.8 million
, to be adjusted periodically for inflation.
The PVNGS participants maintain insurance for damage to, and decontamination of, property at PVNGS in the aggregate amount of
$2.75 billion
, a substantial portion of which must first be applied to stabilization and decontamination. These coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). The primary policy offered by NEIL contains a sublimit of
$2.25 billion
for non-nuclear property damage. If NEIL’s losses in any policy year exceed accumulated funds, PNM is subject to retrospective premium adjustments of
$5.4 million
for each retrospective premium assessment declared by NEIL’s Board of Directors due to losses. The insurance coverages discussed in this and the previous paragraph are subject to certain policy conditions, sublimits, and exclusions.
Water Supply
Because of New Mexico’s arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. Although PNM does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast long-term weather patterns. Public policy, local, state and federal regulations, and litigation regarding water could also impact PNM operations. To help mitigate these risks, PNM has secured permanent groundwater rights for the existing plants at Reeves Station, Rio Bravo, Afton, Luna, Lordsburg, and La Luz. Water availability is not an issue for these plants at this time. However, prolonged drought, ESA activities, and a federal lawsuit by the State of Texas (suing the State of New Mexico over water deliveries) could pose a threat of reduced water availability for these plants.
For SJGS and Four Corners, PNM and APS have negotiated an agreement with the more senior water rights holders (tribes, municipalities, and agricultural interests) in the San Juan basin to mutually share the impacts of water shortages with tribes and other water users in the San Juan basin. The agreement to share shortages in 2017 through 2020 has been endorsed by the parties and is being reviewed by the New Mexico Office of the State Engineer.
In April 2010, APS signed an agreement on behalf of the PVNGS participants with
five
cities to provide cooling water essential to power production at PVNGS for
40
years.
PVNGS Water Supply Litigation
In 1986, an action commenced regarding the rights of APS and the other PVNGS participants to the use of groundwater and effluent at PVNGS. APS filed claims that dispute the court’s jurisdiction over PVNGS’ groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In 1999, the Arizona Supreme Court issued a decision finding that certain groundwater rights may be available to the federal government and Indian tribes. In addition, the Arizona Supreme Court issued a decision in 2000 affirming the lower court’s criteria for resolving groundwater claims. Litigation on these issues has continued in the trial court. No trial dates have been set in these matters. PNM does not expect that this litigation will have a material impact on its results of operation, financial position, or cash flows.
San Juan River Adjudication
In 1975, the State of New Mexico filed an action in NM District Court to adjudicate all water rights in the San Juan River Stream System, including water used at Four Corners and SJGS. PNM was made a defendant in the litigation in 1976. In March 2009, then President Obama signed legislation confirming a 2005 settlement with the Navajo Nation. Under the terms of the settlement agreement, the Navajo Nation’s water rights would be settled and finally determined by entry by the court of two proposed adjudication decrees. The court issued an order in August 2013 finding that no evidentiary hearing was warranted in the
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Navajo Nation proceeding and, on November 1, 2013, issued a Partial Final Judgment and Decree of the Water Rights of the Navajo Nation approving the proposed settlement with the Navajo Nation. Several parties filed a joint motion for a new trial, which was denied by the court. A number of parties subsequently appealed to the New Mexico Court of Appeals. PNM entered its appearance in the appellate case. On April 3, 2018, the New Mexico Court of Appeals issued an order affirming the decision of the NM District Court. Several parties filed motions requesting a rehearing with the New Mexico Court of Appeals seeking clarification of the order, which were denied. The State of New Mexico and various other appellants filed a
Writ of Certiorari
with the NM Supreme Court. The NM Supreme Court granted the State of New Mexico’s petition, denied the other parties’ requests, and set a due date for petitioner’s brief of October 29, 2018. Adjudication of non-Indian water rights is ongoing.
PNM is participating in this proceeding since PNM’s water rights in the San Juan Basin may be affected by the rights recognized in the settlement agreement and adjudicated to the Navajo Nation, which comprise a significant portion of water available from sources on the San Juan River and in the San Juan Basin and which have priority in times of shortages. PNM is unable to predict the ultimate outcome of this matter or estimate the amount or range of potential loss and cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. Final resolution of the case cannot be expected for several years. An agreement reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.
Rights-of-Way Matter
On January 28, 2014, the County Commission of Bernalillo County, New Mexico passed an ordinance requiring utilities to enter into a use agreement and pay a yet-to-be-determined fee as a condition to installing, maintaining, and operating facilities on county rights-of-way. The fee is purported to compensate the county for costs of administering and maintaining the rights-of-way, as well as for capital improvements. On February 27, 2014, PNM and other utilities filed a Complaint for Declaratory and Injunctive Relief in the United States District Court for the District of New Mexico challenging the validity of the ordinance. The court denied the utilities’ motion for judgment. The court further granted the County’s motion to dismiss the state law claims. The utilities filed an amended complaint reflecting the
two
federal claims remaining before the federal court. The utilities also filed a complaint in Bernalillo County, New Mexico District Court reflecting the state law counts dismissed by the federal court. In subsequent briefing in federal court, the county filed a motion for judgment on
one
of the utilities’ claims, which was granted by the court, leaving a claim regarding telecommunications service as the remaining federal claim. On January 4, 2016, the utilities filed an Application for Interlocutory Appeal from the state court, which was denied. On March 28, 2017, the utilities filed a
Writ of Certiorari
with the NM Supreme Court, which was denied
.
The matter is proceeding in NM District Court. The utilities and Bernalillo County reached a standstill agreement whereby the county would not take any enforcement action against the utilities pursuant to the ordinance during the pendency of the litigation, but not including any period for appeal of a judgment, or upon
30
days written notice by either the county or the utilities of their intention to terminate the agreement. The NM District Court set a mediation date of January 23, 2019. If the challenges to the ordinance are unsuccessful, PNM believes any fees paid pursuant to the ordinance would be considered franchise fees and would be recoverable from customers. PNM is unable to predict the outcome of this matter or its impact on PNM’s operations.
Navajo Nation Allottee Matters
In September 2012,
43
landowners filed a notice of appeal with the Bureau of Indian Affairs (“BIA”) appealing a March 2011 decision of the BIA Regional Director regarding renewal of a right-of-way for a PNM transmission line. The landowners claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes Act of 1887, were allotted ownership in land carved out of the Navajo Nation and allege that PNM is a rights-of-way grantee with rights-of-way across the allotted lands and are either in trespass or have paid insufficient fees for the grant of rights-of-way or both. The allottees generally allege that they were not paid fair market value for the right-of-way, that they were denied the opportunity to make a showing as to their view of fair market value, and thus denied due process. The allottees filed a motion to dismiss their appeal with prejudice, which was granted in April 2014. Subsequent to the dismissal, PNM received a letter from counsel on behalf of what appears to be a subset of the
43
landowner allottees involved in the appeal, notifying PNM that the specified allottees were revoking their consents for renewal of right of way on six specific allotments. On January 22, 2015, PNM received a letter from the BIA Regional Director identifying
ten
allotments with rights-of-way indicating that certain renewals were not approved by the BIA because the previous consent obtained by PNM was later revoked, prior to BIA approval, by the majority owners of the allotments. It is the BIA Regional Director’s position that PNM must re-obtain consent from these landowners. On July 13, 2015, PNM filed a condemnation action
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
in NM District Court regarding the approximately
15.49
acres of land at issue. On December 1, 2015, the court ruled that PNM could not condemn
two
of the
five
allotments at issue based on the Navajo Nation’s fractional interest in the land. PNM filed a motion for reconsideration of this ruling, which was denied. On March 31, 2016, the Tenth Circuit granted PNM’s petition to appeal the December 1, 2015 ruling. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. Both matters have been consolidated. Oral argument before the Tenth Circuit was heard on January 17, 2017. On May 26, 2017, the Tenth Circuit affirmed the district court. On July 8, 2017, PNM filed a Motion for Reconsideration
en banc
with the Tenth Circuit, which was denied. The NM District Court stayed the case based on the Navajo Nation’s acquisition of interests in
two
additional allotments and the unresolved ownership of the fifth allotment due to the owner’s death. On November 20, 2017, PNM filed its Petition for
Writ of Certiorari
with the US Supreme Court. On April 30, 2018, the US Supreme Court declined to hear PNM’s Petition for
Writ of Certiorari
. The underlying litigation continues in the NM District Court.
PNM cannot predict the outcome of these matters.
Sales Tax Audits
In November 2011, PNMR completed the sale of its retail electric provider, which operated in Texas under the name First Choice Power (“First Choice”). Under the sale agreement, PNMR is contractually obligated for First Choice’s taxes relating to periods prior to the sale.
The Texas Comptroller of Public Accounts (“Comptroller”) initiated audits of First Choice’s sales and use tax filings and miscellaneous gross receipts tax filings for periods prior to the sale. During the course of the audits, PNMR accrued an immaterial liability for items identified in the audits for which PNMR believed an unfavorable resolution was probable. The Comptroller originally issued notifications of audit results indicating additional tax due of
$5.0 million
, plus penalties and interest. The primary issue in dispute is the disallowance by the auditor of the tax benefits of bad debt charge-offs and billing credits. On behalf of First Choice, PNMR filed requests for redetermination for both audits. In September 2018, the Comptroller issued an updated settlement offer that significantly reduced the additional tax due under the audits. Based on the terms of the settlement offer, PNMR increased its liability for amounts due under First Choice’s sales and use tax filings as of September 30, 2018 by an insignificant amount. In October 2018, PNMR settled the sales and use tax audit for a total of
$0.9 million
, which resolved the matter.
PNMR’s discussions with the Comptroller regarding the miscellaneous gross receipts tax audit are ongoing and PNMR is seeking additional documentation in support of its position. If PNMR and the Comptroller do not reach agreement, this matter will go to hearing with the Texas State Office of Administrative Hearings. Although PNMR believes its positions are correct, it is unable to predict the outcome of this matter.
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(12)
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Regulatory and Rate Matters
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The Company is involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 11. Additional information concerning regulatory and rate matters is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K.
PNM
New Mexico General Rate Cases
New Mexico 2015 General Rate Case
(“NM 2015 Rate Case”)
On August 27, 2015, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposed a revenue increase of
$123.5 million
, including base non-fuel revenues of
$121.7 million
. PNM’s application was based on a future test year (“FTY”) period beginning October 1, 2015 and proposed a ROE of
10.5%
. The primary drivers of PNM’s identified revenue deficiency were the cost of infrastructure investments, including depreciation expense based on an updated depreciation study, and a decline in energy sales as a result of PNM’s successful energy efficiency programs and economic factors. The application included several proposed changes in rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation. Specific rate design proposals included higher customer and demand charges, a revenue decoupling pilot program applicable to residential and small commercial customers, a re-allocation of revenue among
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PNM’s customer classes, a new economic development rate, and continuation of PNM’s renewable energy rider. PNM requested that the proposed new rates become effective beginning in July 2016. A public hearing on the proposed new rates was held in April 2016. Subsequent to this hearing, the NMPRC ordered PNM to file additional testimony regarding PNM’s interests in PVNGS, including the
64.1
MW of PVNGS Unit 2 that PNM repurchased in January 2016, pursuant to the terms of the initial sales-leaseback transactions (Note 13). A subsequent public hearing was held in June 2016. After the June hearing, PNM and other parties were ordered to file supplemental briefs and to provide final recommended revenue requirements that incorporated fuel savings that PNM implemented effective January 1, 2016 from the SJGS CSA (Note 11). PNM’s filing indicated that recovery for fuel related costs would be reduced by approximately
$42.9 million
reflecting the current SJGS CSA, which also reduced the request for base non-fuel related revenues by
$0.2 million
to
$121.5 million
.
On August 4, 2016, the Hearing Examiner in the case issued a recommended decision (the “August 2016 RD”). The August 2016 RD proposed an increase in non-fuel revenues of
$41.3 million
compared to the
$121.5 million
increase requested by PNM. Major components of the difference in the increase in non-fuel revenues proposed in the August 2016 RD, included:
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•
|
A ROE of
9.575%
compared to the
10.5%
requested by PNM
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•
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Disallowing recovery of the entire
$163.3 million
purchase price for the January 15, 2016 purchases of the assets underlying
three
leases of portions of PVNGS Unit 2 (Note 13); the August 2016 RD proposed that power from the previously leased assets, aggregating
64.1
MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expenses (other than property taxes, which were
$0.8 million
per year when the August 2016 RD was issued), but the customers would not bear any capital or depreciation costs other than those related to improvements made after the date of the original leases
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•
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Disallowing recovery from retail customers of the rent expense, which aggregates
$18.1 million
per year, under the
four
leases of capacity in PVNGS Unit 1 that were extended for
eight
years beginning January 15, 2015 and the
one
lease of capacity in PVNGS Unit 2 that was extended for
eight
years beginning January 15, 2016 (Note 13) and related property taxes, which were
$1.5 million
per year when the August 2016 RD was issued; the August 2016 RD proposed that power from the leased assets, aggregating
114.6
MW of capacity, be dedicated to serving New Mexico retail customers with those customers being charged for the costs of fuel and operating and maintenance expense, except that customers would not bear rental costs or property taxes
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•
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Disallowing recovery of the costs of converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS, (Note 11); PNM’s share of the costs of installing the BDT equipment was
$52.3 million
of which
$40.0 million
was included in rate base in PNM’s rate request
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•
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Disallowing recovery of
$4.5 million
of amounts recorded as regulatory assets and deferred charges
|
The August 2016 RD recommended that the NMPRC find PNM was imprudent in the actions taken to purchase the previously leased
64.1
MW of capacity in PVNGS Unit 2, extending the leases for
114.6
MW of capacity of PVNGS Units 1 and 2, and installing the BDT equipment on SJGS Units 1 and 4. The August 2016 RD also proposed that all fuel costs be removed from base rates and be recovered through the FPPAC. In addition, the August 2016 RD would remove recovery of the costs of power obtained from New Mexico Wind from the FPPAC and include recovery of those costs through PNM’s renewable energy rider discussed below. The August 2016 RD recommended continuation of the renewable energy rider and certain aspects of PNM’s proposals regarding rate design, but would not approve certain other rate design proposals or PNM’s request for a revenue decoupling pilot program. The August 2016 RD proposed approving PNM’s proposals for revised depreciation rates (except the August 2016 RD would require depreciation on Four Corners be calculated based on a 2041 life rather than the 2031 life proposed by PNM), the inclusion of construction work in progress in rate base, and ratemaking treatment of the “prepaid pension asset.” The August 2016 RD proposed retail customers receive
100%
of the New Mexico jurisdictional portion of revenues from “refined coal” (a third-party pre-treatment process) at SJGS. The August 2016 RD did not preclude PNM from supporting the prudence of the PVNGS purchases and lease renewals in its next general rate case and seeking recovery of those costs. PNM disagreed with many of the key conclusions reached by the Hearing Examiner in the August 2016 RD and filed exceptions to defend its prudent utility investments. Other parties also filed exceptions to the August 2016 RD.
On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in non-fuel rates of
$61.2 million
, effective for bills sent to customers after September 30, 2016. The order generally approved the August 2016 RD, but with certain significant modifications. The modifications to the August 2016 RD included:
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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•
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Inclusion of the January 2016 purchase of the assets underlying
three
leases of capacity, aggregating
64.1
MW, of PVNGS Unit 2 at an initial rate base value of
$83.7 million
; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the
64.1
MW was being leased by PNM, which aggregated
$43.8 million
when the order was issued
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•
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Allowing full recovery of the rent expense and property taxes associated with the extended leases for capacity, aggregating
114.6
MW, in Palo Verde Units 1 and 2
|
|
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•
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Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the
64.1
MW of capacity purchased in January 2016 and the
114.6
MW of capacity under the extended leases
|
|
|
•
|
Recovery of assumed operating and maintenance expense savings of
$0.3 million
annually related to BDT
|
On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. Subsequently, NEE, NMIEC, and ABCWUA filed notices of cross-appeal to PNM’s appeal. On October 26, 2016, PNM filed a statement of issues related to its appeal with the NM Supreme Court, which stated PNM is appealing the NMPRC’s determination that PNM was imprudent in the actions taken to purchase the previously leased
64.1
MW of capacity in PVNGS Unit 2, extending the leases for
114.6
MW of capacity of PVNGS Units 1 and 2, and installing BDT equipment on SJGS Units 1 and 4. In addition, PNM’s statement indicated it is appealing the following specific elements of the NMPRC’s order:
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•
|
Disallowance of recovery of the full purchase price, representing fair market value, of the
64.1
MW of capacity in PVNGS Unit 2 purchased in January 2016
|
|
|
•
|
Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the
64.1
MW of capacity was leased by PNM
|
|
|
•
|
Disallowance of recovery of future contributions for PVNGS decommissioning attributable to the
64.1
MW of purchased capacity and the
114.6
MW of capacity under the extended leases
|
|
|
•
|
Disallowance of recovery of the costs of converting SJGS Units 1 and 4 to BDT
|
The issues that are being appealed by the various cross-appellants include:
|
|
•
|
The NMPRC allowing PNM to recover the costs of the lease extensions for the
114.6
MW of PVNGS Units 1 and 2 and any of the purchase price for the
64.1
MW in PVNGS Unit 2
|
|
|
•
|
The NMPRC allowing PNM to recover the costs incurred under the new Four Corners CSA
|
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|
•
|
The revised method to collect PNM’s fuel and purchased power costs under the FPPAC
|
|
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•
|
The NMPRC allowing PNM to include the “prepaid pension asset” in rate base
|
NEE subsequently filed a motion for a partial stay of the order at the NM Supreme Court. This motion was denied. The NM Supreme Court orally stated that the court’s intent was to request that PNM reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits.
On February 17, 2017, PNM filed its Brief in Chief, and pursuant to the court’s rules, the briefing schedule was completed on July 21, 2017. Oral argument at the NM Supreme Court was held on October 30, 2017. Although appeals of regulatory actions of the NMPRC have a priority at the NM Supreme Court under New Mexico law, there is no required time frame for the court to act on the appeals.
GAAP requires a loss to be recognized when it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. When there is a range of the amount of the probable loss, the minimum amount of the range is to be accrued unless an amount within the range is a better estimate than any other amount. As of September 30, 2016, PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the likelihood of being successful on the issues it is appealing in the NM Supreme Court as required under GAAP. The evaluation indicated it is reasonably possible that PNM will be successful on the issues it is appealing. If the NM Supreme Court rules in PNM’s favor on some or all of the issues, those issues would be remanded back to the NMPRC for further action. As of September 30, 2016, PNM estimated it would take a minimum of
15
months from the date PNM filed its appeal for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. During such time, the rates specified in the order would remain in effect. PNM concluded that a range of probable loss resulted from the NMPRC order in the NM 2015 Rate Case; that the minimum amount of loss was
15
months of
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
capital cost recovery that the order disallowed for PNM’s investments in the PVNGS Unit 2 purchases, PVNGS Unit 2 capitalized improvements, and BDT; and that no amount within the range of possible loss was a better estimate than any other amount. Accordingly, PNM recorded a pre-tax regulatory disallowance of
$6.8 million
at September 30, 2016 for the capital costs that would not be recovered during that
15
-month appeal period. In addition, PNM recorded a pre-tax regulatory disallowance for
$4.5 million
of costs recorded as regulatory assets and deferred charges (which the order disallowed and which PNM did not challenge in its appeal) since PNM could no longer assert that those assets were probable of being recovered through the ratemaking process.
PNM also evaluated the accounting consequences of the issues that are being appealed by the cross-appellants. PNM does not believe the issues raised in the cross-appeals have substantial merit. Accordingly, PNM does not believe that the likelihood of the cross-appeals being successful is probable and, therefore, no loss has been recorded related to the issues subject to the cross-appeals.
Since the NM Supreme Court did not issue a decision on the appeals related to the NM 2015 Rate Case by December 31, 2017, which was
15
months from the date of the NMPRC’s order in that case, PNM reevaluated the accounting consequences of the order in the NM 2015 Rate Case. At December 31, 2017, PNM estimated the most likely period for the NM Supreme Court to issue a decision in the case and for the NMPRC to take action on any remanded issues was
seven
months. As a result, PNM recorded an additional pre-tax loss of
$3.1 million
at December 31, 2017, representing
seven
months of capital cost recovery that the order disallowed and would not be recovered through July 31, 2018.
In June 2018, PNM again reevaluated the estimated time frame it would take for the resolution of this matter. As of June 30, 2018, PNM estimated it would take an additional
five
months for the NM Supreme Court to issue a decision and for any remanded issues to be addressed by the NMPRC. Accordingly, PNM recorded an additional pre-tax loss of
$1.8 million
at June 30, 2018, representing additional capital cost recovery that the order disallowed and would not be recovered through October 31, 2018.
In September 2018, PNM again reevaluated the estimated time frame it would take for resolution of the matter. PNM continues to believe it is reasonably possible that PNM will be successful on the issues it is appealing and that it is not probable the cross appeals will be successful. Based on the proceedings to date in the appeal process and other actions by the NM Supreme Court, PNM estimates it will take an additional four months from September 30, 2018 for the NM Supreme Court to issue a decision and for any remanded issues to be addressed by the NMPRC. Accordingly, PNM recorded an additional pre-tax loss of
$0.9 million
at September 30, 2018, representing capital costs that the order disallowed and will not be recovered through January 31, 2019. Further losses will be recorded if the currently estimated time frame for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues is extended.
PNM continues to believe that the disallowed investments, which are the subject of PNM’s appeal, were prudent and that PNM is entitled to full recovery of those investments through the ratemaking process. Although PNM believes it is reasonably possible that its appeals will be successful, it cannot predict what decision the NM Supreme Court will reach or what further actions the NMPRC will take on any issues remanded to it by the court. If PNM’s appeal is unsuccessful, PNM would record further pre-tax losses related to the capitalized costs for any unsuccessful issues. The impacts of not recovering future contributions for decommissioning would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The amounts of any such losses to be recorded would depend on the ultimate outcome of the appeal and NMPRC process, as well as the actual amounts reflected on PNM books at the time of the resolution. However, based on the book values recorded by PNM as of
September 30, 2018
, such losses could include:
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•
|
The remaining costs to acquire the assets previously leased under
three
leases aggregating
64.1
MW of PVNGS Unit 2 capacity in excess of the recovery permitted under the NMPRC’s order; the net book value of such excess amount was
$73.9 million
, after considering the losses recorded to date
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•
|
The undepreciated costs of capitalized improvements made during the period the
64.1
MW of capacity in PVNGS Unit 2 purchased by PNM in January 2016 was being leased by PNM; the net book value of these improvements was $
38.3 million
, after considering the losses recorded to date
|
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•
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The remaining costs to convert SJGS Units 1 and 4 to BDT; the net book value of these assets was
$50.3 million
, after considering the losses recorded to date
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Although PNM does not believe that the likelihood of the cross-appeals being successful is probable, it is unable to predict what decision the NM Supreme Court will reach. If the NM Supreme Court were to overturn all of the issues subject to the cross-appeals and, upon remand, the NMPRC did not provide any cost recovery of those items, PNM would write-off all of the costs to acquire the assets previously leased under
three
leases, aggregating
64.1
MW of PVNGS Unit 2 capacity, totaling
$147.5 million
(which amount includes
$73.9 million
that is the subject of PNM’s appeal discussed above) at
September 30, 2018
, after considering the losses recorded to date. The impacts of not recovering costs for the lease extensions, new coal supply contract for Four Corners, and “prepaid pension asset” in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The outcomes of the cross-appeals regarding the FPPAC and rate design should not have a financial impact to PNM.
PNM is unable to predict the outcome of this matter.
New Mexico 2016 General Rate Case
(“NM 2016 Rate Case”)
On December 7, 2016, PNM filed an application with the NMPRC for a general increase in retail electric rates. PNM did not include any of the costs disallowed in the NM 2015 Rate Case that are at issue in its pending appeal to the NM Supreme Court. Key aspects of PNM’s request were:
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|
•
|
An increase in base non-fuel revenues of
$99.2 million
|
|
|
•
|
Based on a FTY beginning January 1, 2018 (the NMPRC’s rules specify that a FTY is a
12
month period beginning up to
13
months after the filing of a rate case application)
|
|
|
•
|
Drivers of revenue deficiency
|
|
|
◦
|
Implementation of the modifications in PNM’s resource portfolio, which were previously approved by the NMPRC as part of the SJGS regional haze compliance plan (Note 11)
|
|
|
◦
|
Infrastructure investments, including environmental upgrades at Four Corners
|
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|
◦
|
Declines in forecasted energy sales due to successful energy efficiency programs and other economic factors
|
|
|
◦
|
Updates in the FERC/retail jurisdictional allocations
|
|
|
•
|
Proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation
|
|
|
◦
|
Increased customer and demand charges
|
|
|
◦
|
A “lost contribution to fixed cost” mechanism applicable to residential and small commercial customers to address the regulatory disincentive associated with PNM’s energy efficiency programs
|
The NMPRC scheduled a public hearing to begin on June 5, 2017, ordered that a settlement conference be held, and that any resulting stipulation should be filed by March 27, 2017. Settlement discussions were held, but no agreements were reached by March 27, 2017, after which the date for filing a stipulation was extended. In early May 2017, PNM and
thirteen
intervenors (the “Signatories”) entered into a comprehensive stipulation. On May 12, 2017, the Hearing Examiners issued an order rejecting the stipulation in its then current form, but allowed the Signatories to revise the stipulation. On May 23, 2017, the Signatories filed a revised stipulation that addressed the issues raised by the Hearing Examiners. NEE was the sole party opposing the revised stipulation. The terms of the revised stipulation, which required NMPRC approval in order to take effect, included:
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•
|
A revenue increase totaling
$62.3 million
, with an initial increase of
$32.3 million
beginning January 1, 2018 and the remaining increase beginning January 1, 2019
|
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•
|
Full recovery of PNM’s investment in SCRs at Four Corners with a debt-only return
|
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•
|
An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
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•
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An agreement to adjust the January 2019 increase for certain changes in federal corporate tax laws enacted prior to November 1, 2018 and effective and applicable to PNM by January 1, 2019 and to true-up PNM’s cost of debt for refinancing transactions through 2018
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
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•
|
Returning to customers over a
three
-year period the benefit of the reduction in the New Mexico corporate income tax rate (Note 14) to the extent attributable to PNM’s retail operations
|
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•
|
PNM would withdraw its proposal for a “lost contribution to fixed cost” mechanism with the issue to be addressed in a future docket
|
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•
|
PNM would perform a cost benefit analysis in its 2020 IRP of the impact of a possible early exit from Four Corners in 2024 and 2028
|
A hearing on the revised stipulation was held in August 2017. On October 31, 2017, the Hearing Examiners issued a Certification of Stipulation recommending a Modified Revised Stipulation. The significant changes to the revised stipulation in the Hearing Examiners’ Modified Revised Stipulation included:
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•
|
Identifying PNM’s decision to continue its participation in Four Corners as imprudent
|
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•
|
Disallowing PNM’s ability to collect a debt or equity return on its
$90.1 million
investment in SCRs at Four Corners and on
$58.0 million
of projected capital improvements during the period July 1, 2016 through December 31, 2018
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•
|
Recommending a temporary disallowance of
$36.8 million
of PNM’s projected capital improvements at SJGS through December 31, 2018
|
On December 20, 2017, the NMPRC issued an
Order Partially Adopting Certification of Stipulation, which approved the Hearing Examiners’ Certification of Stipulation with certain changes. Substantive changes from the Certification of Stipulation included requiring the impacts of changes related to the reduction in the federal corporate income tax rate be implemented effective January 1, 2018 rather than January 1, 2019 and deferring further consideration regarding the prudency of PNM’s decision to continue its participation in Four Corners to a future proceeding.
On December 28, 2017, PNM filed a Motion for Rehearing and Request for Oral Argument
asking the NMPRC to vacate their December 20, 2017 order and allow the parties to present oral argument. Additionally, several Signatories to the revised stipulation filed a Joint Motion for Partial Rehearing asking that the NMPRC approve the revised stipulation without modification. On January 2, 2018, NEE filed a response urging the NMPRC to reject PNM’s Motion.
On January 3, 2018, the NMPRC vacated its December 20, 2017 order and granted the motions for rehearing. The rehearing was held on January 10, 2018.
The NMPRC issued a Revised Order Partially Adopting Certification of Stipulation dated January 10, 2018 (the “Revised Order”). The Revised Order approved the Hearing Examiners’ Certification of Stipulation with certain changes including:
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•
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Requiring the impacts of changes related to the reduction in the federal corporate income tax rate and PNM’s cost of debt (aggregating an estimated
$47.6 million
) be implemented in 2018 rather than January 1, 2019
|
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•
|
Deferring further consideration regarding the prudency of PNM’s decision to continue its participation in Four Corners to PNM’s next rate case
|
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•
|
Disallowing PNM’s ability to collect an equity return on its
$90.1 million
investment in SCRs at Four Corners and on
$58.0 million
of projected capital improvements during the period July 1, 2016 through December 31, 2018, but allowed recovery of the total
$148.1 million
of investments with a debt-only return
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•
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Requiring PNM to reduce the requested
$62.3 million
increase in non-fuel revenue by
$9.1 million
|
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•
|
Implementation of the first phase of the rate increase for services rendered, rather than bills sent, beginning February 1, 2018 and of the second phase for services rendered beginning January 1, 2019
|
On January 16, 2018, PNM requested clarifying changes to the Revised Order to adjust the
$9.1 million
reduction to
$4.4 million
, asserting that
$4.7 million
of the reduction was duplicative. On January 17, 2018, the NMPRC issued an order approving the adjustment requested by PNM. On January 19, 2018, PNM and the Signatories filed a joint notice of acceptance of the Revised Order, as amended. On January 31, 2018, the NMPRC issued an order closing the docket in the NM 2016 Rate Case. After implementation of changes to the federal corporate income tax rate and cost of debt, the final order results in a net increase to PNM’s non-fuel revenue requirement of
$10.3 million
. PNM implemented
50%
of the approved increase for service rendered beginning February 1, 2018 and will implement the rest of the increase for service rendered beginning January 1, 2019.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
GAAP required PNM to recognize a loss to reflect that PNM will not earn an equity return on
$148.1 million
of investments at Four Corners. As of December 31, 2017, PNM recorded a pre-tax regulatory disallowance of
$27.9 million
. The amount of the loss was calculated by determining the present value of disallowed cash flows, which equals the difference between the cash flows resulting from recovery of those investments at PNM’s embedded cost of debt and the cash flows with a full return on investment (including an equity component), and discounting the differences at PNM’s WACC.
On February 7, 2018, NEE filed a notice of appeal with the NM Supreme Court asking the court to review the NMPRC’s decisions in the NM 2016 Rate Case. On March 7, 2018, NEE filed its statement of issues with the NM Supreme Court requesting, among other things, that the NMPRC be required to identify PNM’s decision to continue its participation in Four Corners as imprudent and to deny any recovery related to PNM’s
$148.1 million
investments in that facility. NEE’s Brief in Chief was filed on July 16, 2018 and PNM’s Answer Brief was filed on October 12, 2018. Several parties to the case have intervened in the appeal as intervenor-appellees in support of the NMPRC’s final decisions in the Revised Order. Although PNM does not believe it is probable that NEE’s appeal will be successful, it is unable to predict what decision the NM Supreme Court will reach. If the NM Supreme Court were to remand the case to the NMPRC and the NMPRC identified PNM’s continued involvement in Four Corners as imprudent with no recovery of the
$148.1 million
of investments in Four Corners, PNM would be required to record additional losses for the remaining amount of those investments (after considering the
$27.9 million
disallowance recorded in 2017). In addition, PNM’s future investments in Four Corners, which could be required under the participation agreement governing that facility, could also be subject to disallowance. PNM cannot predict the outcome of this matter.
Investigation/Rulemaking Concerning NMPRC Ratemaking Policies
On March 22, 2017, the NMPRC issued an order opening an investigation and rulemaking to simplify and increase “the transparency of NMPRC rate cases by reducing the number of issues litigated in rate cases,” and provide a “more level playing field among intervenors and NMPRC staff on the one hand, and the utilities on the other.” The order posed the following questions: whether a standardized method should be established for determining ROE; should the ROE be subject to reward or penalty based on utilities meeting or failing to meet certain metrics, which could include customer complaints, outages, peak demand reductions, and RPS and energy efficiency compliance; whether recovery of utility rate case expenses should be limited to
50%
unless the case is settled; whether intervenors should be allowed to recover their expenses if the NMPRC accepts their position; whether parties should have access to software used by utilities to support their positions; and how regulatory assets should be authorized and recovered. Initial comments were filed in July 2017 and several public workshops have been held. PNM cannot predict the outcome of this proceeding.
Renewable Portfolio Standard
The REA establishes a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to
10%
of retail electric sales by 2011,
15%
by 2015, and
20%
by 2020. PNM files annual renewable energy procurement plans for approval by the NMPRC. The NMPRC requires renewable energy portfolios to be “fully diversified.” The current diversity requirements, which are subject to the limitation of the RCT, are minimums of
30%
wind,
20%
solar,
3%
distributed generation, and
5%
other.
The REA provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures that utilities recover costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. Currently, the RCT is set at
3%
of customers’ annual electric charges. PNM makes renewable procurements consistent with the NMPRC approved plans. PNM recovers certain renewable procurement costs from customers through a rate rider. See Renewable Energy Rider
below.
Included in PNM’s approved procurement plans are the following renewable energy resources:
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•
|
157
MW of PNM-owned solar-PV facilities, including
50
MW of PNM-owned solar-PV facilities approved by the NMPRC in PNM’s 2018 renewable energy procurement plan that will be constructed in 2018 and 2019
|
|
|
•
|
A PPA through 2044 for the output of New Mexico Wind, having a current aggregate capacity of
204
MW, and a PPA through 2035 for the output of Red Mesa Wind, having an aggregate capacity of
102
MW
|
|
|
•
|
A PPA through 2042 for the output of the Lightning Dock Geothermal facility; the geothermal facility began providing power to PNM in January 2014; the current capacity of the facility is
4
MW
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
•
|
Solar distributed generation, aggregating
95.9
MW at
September 30, 2018
, owned by customers or third parties from whom PNM purchases any net excess output and RECs
|
|
|
•
|
Solar and wind RECs as needed to meet the RPS requirements
|
PNM filed its 2016 renewable energy procurement plan on June 1, 2015. The plan met RPS and diversity requirements within the RCT in 2016 and 2017 using existing resources and did not propose any significant new procurements. The NMPRC approved the plan in November 2015, and, after granting a rehearing motion to consider issues regarding the rate treatment of certain customers eligible for a cap on, or an exemption from, RPS procurement, the NMPRC again approved the plan in an order issued on February 3, 2016. The NMPRC deferred issues related to capped and exempt customers to PNM’s NM 2015 Rate Case and to a new case, which the NMPRC subsequently initiated through issuance of an order to show cause. The NM 2015 Rate Case and show cause proceeding were to examine whether PNM miscalculated the FPPAC factor and base fuel costs in its treatment of renewable energy costs and application of the renewable procurement cost caps and exemptions. The show cause proceeding was stayed pending the outcome of the NM 2015 Rate Case. The September 28, 2016 order in the NM 2015 Rate Case directed that the cost of New Mexico Wind be recovered through PNM’s renewable rider, rather than the FPPAC, and ordered certain other modifications regarding the accounting for renewable energy in PNM’s FPPAC. These modifications do not affect the amount of fuel and purchased power or renewable costs that PNM will collect. No action has been taken in the show cause proceeding and PNM cannot predict its outcome.
PNM filed its 2017 renewable energy procurement plan on June 1, 2016. The plan met RPS and diversity requirements for 2017 and 2018 using existing resources and PNM did not propose any significant new procurements. PNM projected that its plan would slightly exceed the RCT in 2017 and would be within the RCT in 2018. PNM requested a variance from the RCT in 2017 to the extent the NMPRC determined a variance was necessary. A public hearing was held on September 26, 2016. On October 21, 2016, the Hearing Examiner issued a recommended decision recommending that the plan be approved as filed and also found that a variance from the RCT was not required. The NMPRC approved the recommended decision on November 23, 2016.
On June 1, 2017, PNM filed its 2018 renewable energy procurement plan. PNM requested approval to procure an additional
80
GWh in 2019 and
105
GWh in 2020 from a re-powering of New Mexico Wind; approval to procure an additional
55
GWh in 2019 and
77
GWh in 2020 from a re-powering of Lightning Dock Geothermal; approval to procure
50
MW of new solar facilities to be constructed beginning in 2018, and continuation of customer REC purchase programs and other purchases of RECs to ensure annual compliance with the RPS. PNM’s proposed procurement costs for 2018 and 2019 will be within the RCT. The plan also sought a variance from the “other” diversity category in 2018 due to a revised production forecast of the Lightning Dock Geothermal facility in 2018. A public hearing on the application was held in September 2017. On October 17, 2017, the Hearing Examiner issued a recommended decision that PNM’s 2018 renewable energy procurement plan be approved by the NMPRC, except for the re-powering of Lightning Dock Geothermal and PNM’s request to procure
50
MW of new solar facilities. The Hearing Examiner recommended that the PPA for the output of energy from Lightning Dock Geothermal be terminated effective January 1, 2018. The Hearing Examiner also recommended that PNM be required to issue another all-renewables RFP allowing developers to utilize PNM-owned sites to construct facilities, the output from which facilities would be sold to PNM through PPAs. PNM filed exceptions contesting the Hearing Examiner’s proposals. On November 15, 2017, the NMPRC issued an order approving PNM’s plan and rejecting the Hearing Examiner’s recommendations. On November 29, 2017, NMIEC filed an appeal with the NM Supreme Court objecting to the fuel allocation methodology. On December 14, 2017, NEE filed a motion to intervene and cross-appeal objecting to the approval of the
50
MW of new solar facilities. On December 18, 2017, PNM filed a motion to intervene, which was granted. NMIEC filed a motion for a partial stay of the NMPRC order, which was denied. Briefing on NMIEC’s appeal of the fuel allocation methodology is complete. On June 20, 2018, NEE filed its Brief in Chief with the NM Supreme Court stating, among other things, that PNM’s process favored ownership of the
50
MW solar facilities compared to PPAs. PNM and the NMPRC each filed Answer Briefs on September 4, 2018 stating there is substantial evidence in the case record to support the NMPRC’s decision, and that PNM’s RFP process was reasonable, complied with RPS requirements, and consistent with industry standards. NEE’s Reply Brief was filed on October 15, 2018. PNM cannot predict the outcome of this matter.
On June 1, 2018, PNM filed its 2019 renewable energy procurement plan. The plan meets RPS and diversity requirements for 2019 and 2020 using resources already approved by the NMPRC and did not propose any significant new procurements. PNM projects that the plan will be within the RCT in 2019 and will slightly exceed the RCT in 2020. The Hearing Examiner assigned to the case issued a procedural order that required NMPRC staff and intervenors to file testimony by September 6, 2018. Public
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
hearings were held on the case in September and October 2018. On October 29, 2018, PNM and NMPRC staff filed a joint proposed recommended decision requesting the NMPRC accept PNM’s 2019 renewable energy procurement plan filing. The joint proposed recommended decision includes a requirement for PNM to periodically, or for certain events, inform the NMPRC of matters related to PNM’s PPA with Lightning Dock Geothermal. PNM cannot predict the outcome of this matter.
Renewable Energy Rider
The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per KWh basis. In PNM’s NM 2015 Rate Case, the NMPRC authorized continuation of the renewable rider. In its 2018 renewable energy procurement plan case, PNM proposed to collect
$43.5 million
for the year. The 2018 renewable energy procurement plan became effective on January 1, 2018. PNM recorded revenues from the rider of
$8.7 million
and
$30.4 million
in the three and nine months ended
September 30, 2018
and
$9.4 million
and
$33.6 million
in the three and nine months ended September 30, 2017. In its 2019 renewable energy procurement plan case, PNM proposed to collect
$49.6 million
.
Under the renewable rider, if PNM’s earned rate of return on jurisdictional equity in a calendar year, adjusted for weather and other items not representative of normal operations, exceeds the NMPRC-approved rate by
0.5%
, PNM is required to refund the excess to customers during May through December of the following year. PNM’s annual compliance filings with the NMPRC show that its rate of return on jurisdictional equity did not exceed the limitation through 2017.
Energy Efficiency and Load Management
Program Costs and Incentives/Disincentives
The New Mexico Efficient Use of Energy Act (“EUEA”) requires public utilities to achieve specified levels of energy savings and to obtain NMPRC approval to implement energy efficiency and load management programs. The EUEA requires the NMPRC to remove utility disincentives to implementing energy efficiency and load management programs and to provide incentives for such programs. The NMPRC has adopted a rule to implement this act. The EUEA sets an annual program budget equal to
3%
of an electric utility’s annual revenue. PNM’s costs to implement approved programs are recovered through a rate rider.
On April 15, 2016, PNM filed an application for energy efficiency and load management programs to be offered in 2017. The proposed program portfolio consisted of
ten
programs with a total budget of
$28.0 million
. The application also sought approval of an incentive of
$2.4 million
based on targeted savings of
75
GWh. The actual incentive would be based on actual savings achieved. On January 11, 2017, the NMPRC approved an unopposed stipulation that established a method to ensure that funding of PNM’s energy efficiency program is equal to
3%
of retail revenues, with an estimated 2017 energy efficiency funding level of
$26.0 million
, and approved a sliding scale profit incentive with a base level of
7.1%
of program costs, equal to
$1.8 million
, if PNM achieves a minimum proscribed level of energy savings, increasing to a maximum of
9.0%
depending on actual energy savings achieved above the minimum. On April 13, 2018, PNM filed its reconciliation of 2017 program costs and incentives, which indicated the incentive earned in 2017 is
$2.3 million
. The reconciliation filing and related incentive were approved on May 23, 2018.
On April 14, 2017, PNM filed an application for energy efficiency and load management programs to be offered in 2018. The proposed program portfolio consists of a continuation of the
ten
programs approved in the 2016 application with a total budget of
$25.1 million
. The application also sought approval of a sliding scale incentive with a base incentive of
$1.9 million
if PNM is able to achieve savings of
53
GWh in 2018. As proposed, PNM would have earned an incentive of
$2.1 million
based on targeted savings of
70
GWh. The actual incentive would be based on actual savings achieved. PNM proposed to continue the same
ten
programs and a similar incentive mechanism in 2019, with a proposed budget of
$28.2 million
and a base level incentive of
$2.1 million
. On July 26, 2017, PNM, NMPRC staff, and other parties filed a stipulation that would resolve all issues in the case if approved by the NMPRC. Under the settlement, all of PNM’s proposed programs would be approved with limited modifications and PNM’s base level incentive would be
$1.7 million
in 2018. PNM would earn an incentive of
$1.9 million
based on targeted savings of
69
GWh. A public hearing was held in September 2017. On November 8, 2017, the Hearing Examiner issued a Certification of Stipulation recommending approval of the stipulation with various modifications, including adoption of a discount rate equal to the tax-adjusted WACC of
9.59%
rather than the
7.71%
proposed in the stipulation and modifying the program budgets to
$23.6 million
for 2018 and
$24.9 million
for 2019. On January 31, 2018, the NMPRC issued an order that largely accepted the certification with certain exceptions concerning the measurement and verification of the approved load management programs.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Energy Efficiency Rulemaking
In July 2012, the NMPRC opened an energy efficiency rulemaking docket to potentially address decoupling and incentives. Workshops to develop a proposed rule have been held, but no order proposing a rule has been issued. PNM is unable to predict the outcome of this matter.
On January 25, 2017, the NMPRC opened another energy efficiency rulemaking docket to consider whether applications for approval of energy efficiency and load management programs should be filed every
two
years rather than annually. On June 21, 2017, the NMPRC issued an order that modifies the filing frequency for utility energy efficiency plans to every
three
years.
On June 21, 2017, the NMPRC also issued a new notice of proposed rulemaking to consider possible changes affecting a utility’s ability to modify NMPRC approved funding levels by up to
10%
between energy efficiency program applications. This rulemaking is in response to consensus changes proposed by parties in the January 25, 2017 rulemaking. On September 13, 2017, the NMPRC approved the proposed rule. Under the new rule, PNM’s next application for energy efficiency and load management programs will be made in 2020 for programs to be offered beginning in 2021. As discussed below, PNM’s next energy efficiency application will include a proposal to implement an Advanced Metering Infrastructure pilot project.
Petition for Energy Efficiency Disincentive
As discussed above, PNM’s December 2016 application in the NM 2016 Rate Case had requested a “lost contribution to fixed cost” mechanism to address the disincentives associated with PNM’s energy efficiency programs. In the revised stipulation to that case, PNM agreed to withdraw its proposal for such a mechanism and to address energy efficiency disincentives in a future docket. On March 2, 2018, PNM filed a petition proposing a “lost contribution to fixed cost mechanism” with substantially the same terms as those proposed in the NM 2016 Rate Case application. The Hearing Examiner issued a procedural order that included a public hearing to begin on October 30, 2018. On September 17, 2018, the Hearing Examiner extended the deadline to file response testimony until November 19, 2018 and vacated the hearing schedule. The remaining procedural schedule is to be reestablished at a future date. PNM cannot predict the outcome of this matter.
FPPAC Continuation Application
NMPRC rules require public utilities to file an application to continue using their FPPAC every four years. On April 23, 2018, PNM filed the required continuation application and requested that its FPPAC be continued without modification. On June 20, 2018, the NMPRC approved PNM’s continuation application.
Integrated Resource Plans
NMPRC rules require that investor owned utilities file an IRP every
three
years. The IRP is required to cover a
20
-year planning period and contain an action plan covering the first
four
years of that period.
2014 IRP
PNM filed its 2014 IRP on July 1, 2014. The
four
-year action plan was consistent with the replacement resources identified in PNM’s application to retire SJGS Units 2 and 3. PNM indicated that it planned to meet its anticipated long-term resource needs with a combination of additional renewable energy resources, energy efficiency, and natural gas-fired facilities. Consistent with statute and NMPRC rule, PNM incorporated a public advisory process into the development of its 2014 IRP. On July 31, 2014, several parties requested the NMPRC to not accept the 2014 IRP as compliant with NMPRC rule because to do so could affect the then pending proceeding on PNM’s application to abandon SJGS Units 2 and 3 and for CCNs for certain replacement resources (Note 11) and because they asserted that the 2014 IRP did not conform to the NMPRC’s IRP rule. Certain parties also asked that further proceedings on the 2014 IRP be held in abeyance until the conclusion of the SJGS abandonment/CCN proceeding. The NMPRC issued an order in August 2014 that docketed a case to determine whether the 2014 IRP complied with applicable NMPRC rules. The order also held the case in abeyance pending the issuance of final, non-appealable orders in PNM’s 2015 renewable energy procurement plan case and its application to retire SJGS Units 2 and 3. The order regarding PNM’s application to abandon SJGS Units 2 and 3 states that the NMPRC will issue a Notice of Proposed Dismissal in the 2014 IRP docket. On May 4, 2016, the NMPRC issued the Notice of Proposed Dismissal, stating that the docket would be closed with prejudice within
thirty
days unless good cause was shown why the docket should remain open. On May 31, 2016, NEE filed a request to hold the protests
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
filed against PNM’s 2014 IRP in abeyance or to dismiss those protests without prejudice. PNM responded on June 13, 2016 and requested that the NMPRC dismiss the case with prejudice. The NMPRC has not yet acted on its Notice of Proposed Dismissal or the request filed on May 31, 2016. PNM cannot predict the outcome of this matter.
2017 IRP
PNM filed its 2017 IRP on July 3, 2017. The 2017 IRP addresses the
20
-year planning period from 2017 through 2036 and includes an action plan describing PNM’s plan to implement the 2017 IRP in the
four
-year period following its filing. PNM held its initial public advisory meeting on the 2017 IRP on June 30, 2016 and hosted
17
meetings statewide to present details of the process and receive public comment. The NMPRC’s order concerning SJGS’ compliance with the BART requirements of the CAA discussed in Note 11 requires PNM to make a filing in 2018 to determine the extent to which SJGS Units 1 and 4 should continue serving PNM’s retail customers’ needs after June 30, 2022. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP include:
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Retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreements would provide long-term cost savings for PNM’s customers
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PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also save customers money
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The best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could include energy storage, if the economics support it, and wind energy provided additional transmission capacity becomes available
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•
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Significant increases in future wind energy supplies will likely require new transmission capacity to be built from eastern New Mexico to PNM’s service territory
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•
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PNM should retain the currently leased capacity in PVNGS, which would avoid replacement with carbon-emitting generation
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PNM should continue to develop and implement energy efficiency and demand management programs
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PNM should assess the costs and benefits of participating in the California Independent System Operator Western Energy Imbalance Market
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•
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PNM should analyze its current Reeves Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage
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Protests to the 2017 IRP were filed by several parties. The issues addressed in the protests included the future of PNM’s interests in SJGS, Four Corners, and PVNGS and the timing of future procurement of renewable resources. On January 16, 2018, the Hearing Examiner issued an order setting the scope of the proceedings as the 2017 IRP’s compliance with the applicable statute and NMPRC rules. On February 22, 2018, PNM provided certain underlying information and clarified how costs, transmission constraints, energy storage, and public input were considered in developing the 2017 IRP. Hearings were held in June 2018. On October 26, 2018, the Hearing Examiner issued a recommended decision recommending that the NMPRC accept PNM’s 2017 IRP as compliant with the applicable statute and NMPRC rules.
The 2017 IRP is not a final determination of PNM’s future generation portfolio. Retiring PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, which PNM would make at appropriate times in the future. Likewise, NMPRC approval of new generation resources through CCN filings would be required. PNM cannot predict the ultimate outcome of the 2017 IRP process or whether the NMPRC will approve subsequent filings that would encompass actions to implement the conclusions of the 2017 IRP.
Cost Recovery Related to Joining the EIM
The California Independent System Operator developed the Western Energy Imbalance Market (“EIM”) as a real-time wholesale energy trading market that enables participating electric utilities to buy and sell energy. The EIM aggregates the variability of electricity generation and load for multiple balancing authority areas and utility jurisdictions. In addition, the EIM facilitates greater integration of renewable resources through the aggregation of flexible resources by capturing diversity benefits from the expanded geographic footprint and the expanded potential uses for those resources.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In 2018, PNM completed a cost-benefit analysis of participating in the EIM. PNM’s analysis indicated participation in the EIM would provide substantial benefits to retail customers. On August 22, 2018, PNM filed an application with the NMPRC requesting, among other things, authorization to recover an estimated
$20.9 million
of initial capital investments and to establish a regulatory asset to recover an estimated
$7.4 million
of other expenses that would be incurred in order to join the EIM. PNM’s application proposes the regulatory asset be adjusted to provide for full recovery of such costs, including carrying charges, until the effective date of new rates in PNM’s next general rate case. PNM’s application also proposes the benefits of participating in the EIM be credited to retail customers through PNM’s existing FPPAC. On August 28, 2018, the NMPRC issued an order granting PNM’s request for an expedited procedural schedule and that set a public hearing for December 12, 2018. If approved by the NMPRC, PNM anticipates it will begin participating in the EIM by mid-2021. PNM cannot predict the outcome of this matter.
San Juan Generating Station Units 2 and 3 Retirement
On December 16, 2015, the NMPRC issued an order approving PNM’s retirement of SJGS Units 2 and 3 on December 31, 2017. On January 14, 2016, NEE filed an appeal of the order with the NM Supreme Court. SJGS Units 2 and 3 were retired in December 2017. On March 5, 2018, the NM Supreme Court rendered a decision affirming the NMPRC’s ruling, thereby denying NEE’s appeal. A request for rehearing of the NM Supreme Court’s decision was not filed by the statutory deadline. This matter is now concluded. Additional information concerning the NMPRC filing and related proceedings is set forth in Note 11.
San Juan Generating Station Unit 1 Outage
On March 17, 2018, a coal silo used to supply fuel to SJGS Unit 1 collapsed resulting in an outage. PNM initiated a review of the cause of the outage and promptly contacted the staff of the NMPRC to inform them of the event. To minimize the operational and financial impacts of this event, PNM accelerated the fall 2018 planned outage to be performed while the unit was out of service for this event. Repairs necessary to return Unit 1 to service were completed by July 5, 2018. PNM anticipates the damages to the facility will be reimbursed under an existing property insurance policy that covers SJGS, subject to a deductible of
$2.0 million
. PNM’s exposure to the cost of repairs is
$1.0 million
, reflecting PNM’s
50%
ownership interest in SJGS Unit 1.
On April 12, 2018, NEE filed a petition (jointly with certain other organizations) requesting that the NMPRC order an investigation into the SJGS Unit 1 event. The petition requested that the NMPRC order PNM to respond to the petition, that proceedings be set on this matter, and that PNM be required to provide a narrative explanation, cost/benefit analysis, and alternatives assessment used to determine that Unit 1 should be repaired rather than utilizing alternative resources. On April 25, 2018, the NMPRC issued an order requiring PNM to provide a factual statement of the nature and cause of the event, as well as the anticipated need for and schedule of repairs required. PNM was also required to address the necessity and appropriateness of the request for a cost/benefit analysis, alternatives assessment, and request for further proceedings. On May 8, 2018, PNM filed its response to the NMPRC order indicating that PNM used best practices when inspecting the SJGS coal silos during planned outages, that the damage to SJGS Unit 1 was repairable and could be made in a timely manner, that all but a limited amount of cost of the repairs are reimbursable under an existing insurance policy, and that further proceedings on the matter were unnecessary. In addition, PNM’s response indicated that if the unit was not repaired, customers would be exposed to significant contractual liabilities under the agreements governing the ownership of SJGS and would incur significant costs associated with the procurement of replacement power. On May 31, 2018, the NMPRC staff preliminarily recommended that the NMPRC not allow PNM to recover any costs associated with the SJGS Unit 1 coal silo repairs, including the cost of preventing similar failures on other SJGS coal silos, and that PNM reimburse customers for the loss of off-system sales during the time SJGS Unit 1 was in outage. The NMPRC staff also recommended, among other things, that further proceedings on the matter be deemed unnecessary provided PNM agree to hold customers harmless for such costs. On October 9, 2018, PNM filed a motion with the NMPRC requesting the inquiry docket be closed and stating the NMPRC staff’s proposal that PNM be required to absorb all losses related to the event, including the loss of off-system sales, is unwarranted and would result in piecemeal ratemaking. PNM cannot predict the outcome of this event.
Advanced Metering Infrastructure Application
On February 26, 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”). The application asked the NMPRC to authorize the recovery of the cost of the project, up to
$87.2 million
, in future ratemaking proceedings, as well as to approve the recovery of the remaining undepreciated investment in existing metering equipment estimated to be approximately
$33 million
at the date
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of implementation, the costs of customer education, and severances for affected employees. Hearings in this matter were held in February and March 2017. During the March 2017 hearing, it was disclosed that the proposed meter contractor may not have complied with certain New Mexico contractor licensing requirements. PNM subsequently filed testimony regarding that matter and requested a new procedural schedule that allowed PNM to issue a new RFP for contracting work related to the meter installation and to update its cost-benefit analysis. PNM subsequently updated the amount of the requested recovery for the anticipated cost of the project to
$95.1 million
. An additional hearing was held on October 25-26, 2017. On March 19, 2018, the Hearing Examiner issued a recommended decision finding that PNM had not proven a net public benefit in the case and recommending the NMPRC not approve the application. On April 2, 2018, PNM filed a statement on exceptions to the recommended decision indicating, among other things, that PNM disagreed with the finding that the record did not demonstrate a net public benefit to customers, but that PNM would not take exception to a recommendation to not approve the application. No other parties filed exceptions to the recommended decision by the required deadline. On April 11, 2018, the NMPRC adopted an order accepting the recommended decision and disapproving PNM’s application. The order indicated PNM’s next energy efficiency plan application should include a proposal for an AMI pilot project.
Facebook, Inc. Data Center Project
As discussed in Note 17 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, the NMPRC approved a PNM application for arrangements in connection with services to be provided to Facebook, Inc. for a new data center to be constructed in PNM’s service area. The approvals included:
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Two
new electric service rates
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A PPA under which PNM would purchase renewable energy from PNMR Development
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A special service contract to provide electric service
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Facebook’s service requirements include the acquisition by PNM of a sufficient amount of new renewable energy resources and RECs to match the energy and capacity requirements of the data center. PNM’s initial procurement was to be through a PPA with PNMR Development for the energy production from
30
MW of new solar capacity that PNMR Development was to construct. As discussed in Note 1, PNMR Development transferred its interests in the solar capacity and the PPA to NMRD in December 2017. The cost of the PPA is passed through to Facebook under a rate rider. A special service rate is applied to Facebook’s energy consumption in those hours of the month when their consumption exceeds the energy production from the renewable resources. Of the solar capacity,
10
MW began commercial operation in each of January 2018, March 2018, and May 2018.
In late 2017, PNM entered into
three
separate
25
-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable energy to Facebook. These PPAs were subject to NMPRC approval and PNM made a filing requesting approval on January 17, 2018. A NMPRC hearing on PNM’s filing was held on March 7, 2018 and the NMPRC approved the PPAs on March 21, 2018. These PPAs include the purchase of the power and RECs from:
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Casa Mesa Wind, LLC, a subsidiary of NextEra Energy Resources, LLC., which is expected to be located near House, New Mexico, have a total capacity of
50
MW, and be operational by December 31, 2018
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A
166
MW portion of the La Joya Wind Project, owned by Avangrid Renewables, LLC, which is expected to be located near Estancia, New Mexico and be operational in November 2020
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Route 66 Solar Energy Center, LLC, a subsidiary of NextEra Energy Resources, LLC., which is expected to be located west of Albuquerque, New Mexico, have a total capacity of
50
MW, and be operational in December 2021
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On August 24, 2018, PNM filed an application with the NMPRC requesting approval to enter into
two
25
-year PPAs to purchase renewable energy and RECs from an aggregate of approximately
100
MW of capacity from
two
solar-PV facilities to be owned and operated by NMRD to supply power to Facebook. The cost of these PPAs will be passed through to Facebook under PNM’s rider. The NMPRC approved PNM’s application on October 17, 2018. The PPAs also require approval by FERC. Subject to FERC approval, the first
50
MW of these facilities is expected to begin commercial operation in December 2019 and the remaining capacity is expected to begin commercial operation in June 2020.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TNMP
TNMP 2018 Rate Case
On May 30, 2018, TNMP filed a general rate proceeding with the PUCT (the “TNMP 2018 Rate Case”) requesting an annual increase to base rates of
$25.9 million
based on a requested ROE of
10.5%
, a cost of debt of
7.2%
, and a capital structure comprised of
50%
debt and
50%
equity. TNMP’s request included
$7.7 million
of new rate riders to recover Hurricane Harvey restoration, rate case, and additional vegetation management costs. The application included the integration of revenues currently recorded under the AMS rider and collection of other unrecovered AMS investments into base rates. In 2017, TNMP recorded revenues of
$21.8 million
under the AMS rider. The TNMP 2018 Rate Case application also proposed to return the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and to reduce the federal corporate income tax rate to
21%
. As discussed in Note 11 of the Notes to the Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, at December 31, 2017, TNMP recorded a regulatory liability of
$146.5 million
to reflect the change in federal corporate income tax rates that will be refunded to customers in future periods. The TNMP 2018 Rate Case application proposed to refund
$14.4 million
of this regulatory liability over a period of
five
years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2017.
On November 2, 2018, TNMP and other parties to the case filed an unopposed settlement agreement that, if approved by the PUCT, will result in a
$10.0 million
annual increase to base rates. The key elements of the settlement include a ROE of
9.65%
, a cost of debt of
6.44%
, and a capital structure comprised of
55%
debt and
45%
equity. The settlement excludes certain items from rate base that were requested in TNMP’s original filing, including approximately
$11.7 million
of transmission investments that TNMP expects will be included in its next TCOS filing. Under the terms of the settlement agreement, TNMP will refund approximately
$37.8 million
of the regulatory liability recorded at December 31, 2017 related to tax reform to customers over a period of
five
years and the remaining amount over the estimated useful lives of plant in service as of December 31, 2017. The settlement agreement also approves TNMP’s request for new depreciation rates as well as TNMP’s request for a new rider to recover Hurricane Harvey restoration costs. TNMP’s deferred costs related to Hurricane Harvey restoration efforts are to be offset by a regulatory liability for the reduction in the federal income tax rate beginning on January 25, 2018 and charged to customers over a
five
-year period beginning on the effective date of new rates (Note 14). TNMP anticipates the PUCT will review the settlement prior to December 31, 2018 and that rates will become effective in early 2019. TNMP cannot predict the outcome of this matter.
Advanced Meter System Deployment
In July 2011, the PUCT approved a settlement and authorized an AMS deployment plan that permits TNMP to collect
$113.4 million
in deployment costs through a surcharge over a
12
-year period. TNMP began collecting the surcharge on August 11, 2011. Deployment of advanced meters began in September 2011. TNMP completed its mass deployment in 2016 and has installed more than
242,000
advanced meters. The TNMP 2018 Rate Case and associated settlement discussed above included a reconciliation of AMS costs and, if approved by the PUCT, will integrate TNMP’s AMS recovery into base rates beginning on the effective dates of new rates.
Transmission Cost of Service Rates
TNMP can update its transmission cost of service (“TCOS”) rates twice per year to reflect changes in its invested capital although updates are not allowed while a general rate case is in process. Updated rates reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities. The following sets forth TNMP’s recent interim transmission cost rate increases:
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Effective Date
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Approved Increase in Rate Base
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Annual Increase in Revenue
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(In millions)
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September 8, 2016
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$
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9.5
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$
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1.8
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March 14, 2017
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30.2
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4.8
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September 13, 2017
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27.5
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4.7
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March 27, 2018
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32.0
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0.6
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PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Periodic Distribution Rate Adjustment
PUCT rules permit interim rate adjustments to reflect changes in investments in distribution assets. Distribution utilities may file for a periodic rate adjustment between April 1 and April 8 of each year as long as the electric utility is not earning more than its authorized rate of return using weather-normalized data. However, TNMP has not made a filing to adjust rates for additional investments in distribution assets. TNMP has also committed that it would not file a request for an increase in rates to reflect changes in investments in distribution assets until after the effective date of final order in the TNMP 2018 Rate Case.
Order Related to Changes in Federal Income Tax Rates
On January 25, 2018, the PUCT issued an accounting order that addresses the change in the federal corporate income tax rates on investor-owned utilities in the state of Texas. The order requires investor-owned utilities to record a regulatory liability equal to the reduction in accumulated federal deferred income tax balances at the end of 2017 due to the change in the federal corporate income tax rate.
In addition, the order requires that a regulatory liability be recorded to reflect the difference between revenues collected under existing rates and those that would have been collected had those rates been set reflecting federal income tax reform beginning on the date of the order (Note 14). In compliance with the PUCT order, during the three and nine months ended
September 30, 2018
, TNMP reduced revenues by
$1.5 million
and
$4.2 million
and recorded these as a regulatory liability to reflect the impact of the reduction in the federal corporate income tax rate beginning January 25, 2018. The settlement agreement for TNMP’s 2018 Rate Case discussed above includes a requirement that TNMP continue to record this regulatory liability until the effective date of new base rates, which amount is to be offset against TNMP’s Hurricane Harvey restoration costs and recovered from customers under a new rate rider over a period of
five
years.
Energy Efficiency
TNMP recovers the costs of its energy efficiency programs through an energy efficiency cost recovery factor (“EECRF”), which includes projected program costs, under and over collected costs from prior years, rate case expenses, and performance bonuses (if programs exceed mandated savings goals). On May 30, 2018, TNMP filed its request to adjust the EECRF to reflect changes in costs for 2019. The total amount requested was
$5.7 million
, which included a performance bonus of
$0.9 million
based on TNMP’s energy efficiency achievements in the 2017 plan year. On June 21, 2018, the PUCT issued a declaratory order announcing the PUCT’s interpretation of the bonus calculation in its rule. The order does not affect cost recovery but reduces the bonus calculation as filed by utilities in their current EECRF proceedings. Accordingly, in June of 2018, TNMP reduced its estimated performance bonus for the 2017 plan year to
$0.8 million
. On August 6, 2018, TNMP and other parties to the case reached a unanimous settlement stipulation to provide
$5.6 million
of EECRF recovery, which includes a performance bonus of
$0.8 million
. On October 12, 2018, the PUCT approved the settlement stipulation with rates to become effective on March 1, 2019.
The Company leases office buildings, vehicles, and other equipment. In addition, PNM leases interests in Units 1 and 2 of PVNGS and certain right-of-way agreements are classified as leases. All of the Company’s leases are currently accounted for as operating leases. See New Accounting Pronouncements in Note 1. Additional information concerning the Company’s lease commitments is contained in Note 7 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K, including PNM’s actions with regard to renewal and purchase options under the PVNGS leases.
The PVNGS leases were scheduled to expire on January 15, 2015 for the
four
Unit 1 leases and January 15, 2016 for the
four
Unit 2 leases. The
four
Unit 1 leases have been extended to expire on January 15, 2023 and
one
of the Unit 2 leases has been extended to expire on January 15, 2024. For the other
three
PVNGS Unit 2 leases, PNM exercised its fair market value options to purchase the assets underlying those leases on the expiration date of the original leases. On January 15, 2016, PNM paid
$78.1 million
to the lessor under
one
lease for
31.25
MW of the entitlement from PVNGS Unit 2 and
$85.2 million
to the lessors under the other
two
leases for
32.76
MW of the entitlement from PVNGS Unit 2. See Note 12 for information concerning the NMPRC’s treatment of the purchased assets and extended leases in PNM’s NM 2015 Rate Case.
PNM is exposed to losses under the PVNGS lease arrangements upon the occurrence of certain events that PNM does not consider to be reasonably likely to occur. Under certain circumstances (for example, the NRC issuing specified violation orders with respect to PVNGS or the occurrence of specified nuclear events), PNM would be required to make specified payments to the
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
lessors, and take title to the leased interests. If such an event had occurred as of
September 30, 2018
, amounts due to the lessors under the circumstances described above would be up to
$163.8 million
, payable on January 15, 2019 in addition to the scheduled lease payments due on January 15, 2019.
On December 22, 2017, comprehensive changes in United States federal income taxes were enacted through legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes many significant modifications to the tax laws, including reducing the federal corporate income tax rate from
35%
to
21%
effective January 1, 2018. The Tax Act also eliminates federal bonus depreciation for utilities effective September 28, 2017 and, effective January 1, 2018, limits interest deductibility for non-utility businesses and limits the deductibility of certain officer compensation.
Although most of the provisions of the Tax Act are not effective until 2018, GAAP required that some effects be recognized in 2017. Under the asset and liability method of accounting for income taxes used by the Company, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. At the date of enactment of the Tax Act, the Company had net deferred tax liabilities for its regulated activities and net deferred tax assets for non-regulated activities. As a result of the change in the federal corporate income tax rate, the Company re-measured and adjusted its deferred tax assets and liabilities as of December 31, 2017. The portion of that adjustment not related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax assets and an increase in income tax expense. The portion related to PNM’s and TNMP’s regulated activities was recorded as a reduction in net deferred tax liabilities and an increase in regulatory liabilities, based on the assumption that PNM and TNMP will be required to return the benefit to ratepayers over time. PNM’s NM 2016 Rate Case (Note 12) reflects that assumption by including an amortization of the estimated benefit of the reduction in existing deferred federal corporate income taxes as a reduction to customer rates over a
twenty-one
year period beginning in 2018. On January 25, 2018, the PUCT issued an order requiring Texas utilities, including TNMP, to begin recording regulatory liabilities for the effects of the Tax Act with the stated purpose of reflecting those effects in the utility bills of Texas ratepayers. During the three and nine months ended
September 30, 2018
, TNMP reduced revenue and recorded a regulatory liability of
$1.5 million
and
$4.2 million
in accordance with the PUCT’s order. The TNMP 2018 Rate Case filed on May 30, 2018, and related settlement agreement include a reduction in customer rates to reflect the impacts of the Tax Act, including amortization of the regulatory liability related to the 2017 re-measurement of deferred tax liabilities and to reduce the federal corporate income tax rate to
21%
(Note 12).
In December 2017, the SEC issued Staff Accounting Bulletin No. 118, which provides guidance to address the application of GAAP to reflect the Tax Act in circumstances where all information and analysis of the Tax Act is not yet available or complete. This bulletin provides for up to a one-year period in which to complete the required analyses and accounting for the impacts of the Tax Act. The Company believes it made reasonable estimates of the effects of the Tax Act and reflected the impacts in the Consolidated Financial Statements included in the 2017 Annual Reports on Form 10-K. However, the reported effects on the Company’s deferred tax assets and liabilities, regulatory assets and liabilities, and income tax expense are provisional and it is possible that changes to United States Treasury regulations, IRS interpretations of the provisions of the Tax Act, actions by the NMPRC, PUCT, and FERC, or the Company’s further analysis of historical records could cause these estimates to change. Through
September 30, 2018
, no significant adjustments to the impacts reflected in the 2017 Consolidated Financial Statements included in the 2017 Annual Reports on Form 10-K have been identified. In August 2018, the IRS issued new guidance clarifying the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code as amended by the Tax Act. In addition, the IRS issued proposed regulations interpreting Tax Act amendments to depreciation provisions of the Internal Revenue Code which would allow the Company to claim a bonus depreciation deduction on certain construction projects placed in service during the fourth quarter of 2017. The Company is currently evaluating the IRS’s new guidance and proposed regulations and anticipates it will record adjustments, if any, prior to December 31, 2018.
In 2013, New Mexico House Bill 641 reduced the New Mexico corporate income tax rate from
7.6%
to
5.9%
. The rate reduction is being phased-in from 2014 to 2018. In accordance with GAAP, PNMR and PNM adjusted accumulated deferred income taxes to reflect the tax rate at which the balances are expected to reverse during the period that includes the date of enactment, which was in the year ended December 31, 2013. At that time, the portion of the adjustment related to PNM’s regulated activities was recorded as a reduction in deferred tax liabilities and an increase in a regulatory liability, based on the assumption that PNM would be required to return the benefit to customers over time. PNM’s NM 2016 Rate Case (Note 12) reflects the benefit of the lower New Mexico corporate income tax rate being returned to customers over a three-year period beginning February 1, 2018. In addition, the portion of the adjustment that was not related to PNM’s regulated activities was recorded as a reduction in deferred tax assets and an increase in income tax expense. Changes in the estimated timing of reversals of deferred tax assets and liabilities
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
resulted in refinements of the impacts of this change in tax rates being recorded periodically through December 31, 2017, at which time the impacts of the rate reduction were fully phased-in. In the three months ended March 31, 2017, PNM’s regulatory liability was reduced by
$4.8 million
, which increased deferred tax liabilities. Deferred tax assets not related to PNM’s regulatory activities were reduced by
$0.1 million
in the three months ended March 31, 2017, increasing income tax expense by less than
$0.1 million
for PNM and
$0.1 million
for the Corporate and Other segment.
As required under GAAP, the Company makes an estimate of its anticipated effective tax rate for the year as of the end of each quarterly period within its fiscal year. In interim periods, income tax expense is calculated by applying the anticipated annual effective tax rate to year-to-date earnings before income taxes, which includes the earnings attributable to the Valencia non-controlling interest. GAAP also provides that certain unusual or infrequently occurring items, including excess tax benefits related to stock awards, be excluded from the estimated annual effective tax rate calculation. At
September 30, 2018
, PNMR, PNM, and TNMP estimated their effective income tax rates for the year ended December 31, 2018 would be
12.35%
,
9.51%
, and
22.78%
. These rates reflect the reduced federal corporate income tax rate of
21%
, which rates are adjusted to reflect permanent differences between earnings determined in accordance with GAAP and taxable income, as well as state income taxes. The primary permanent difference is the reduction in income tax expense resulting from the amortization of excess deferred federal and state income taxes ordered by the NMPRC in PNM’s NM 2016 Rate Case. During the three and nine months ended
September 30, 2018
, income tax expense calculated by applying the expected annual effective income tax rate to earnings before income taxes was further reduced by excess tax benefits related to stock awards of
zero
and
$1.4 million
for PNMR,
zero
and
$1.0 million
for PNM, and less than
$0.1 million
and
$0.4 million
for TNMP.
|
|
(15)
|
Related Party Transactions
|
PNMR, PNM, TNMP, and NMRD are considered related parties as defined under GAAP, as is PNMR Services Company, a wholly-owned subsidiary of PNMR that provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. These services are billed at cost on a monthly basis to the business units. In addition, PNMR provides construction and operations and maintenance services to NMRD, a
50%
owned subsidiary of PNMR Development (Note 1), and PNM purchases renewable energy from certain NMRD-owned facilities at a fixed price per MWh of energy produced. PNM also provides interconnection services to PNMR Development (Note 9) and NMRD.
The table below summarizes the nature and amount of related party transactions of PNMR, PNM, TNMP, and NMRD:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(In thousands)
|
Services billings:
|
|
|
|
|
|
|
|
PNMR to PNM
|
$
|
22,972
|
|
|
$
|
23,451
|
|
|
$
|
69,122
|
|
|
$
|
71,044
|
|
PNMR to TNMP
|
8,074
|
|
|
7,828
|
|
|
24,497
|
|
|
23,771
|
|
PNM to TNMP
|
104
|
|
|
115
|
|
|
281
|
|
|
302
|
|
TNMP to PNMR
|
35
|
|
|
35
|
|
|
105
|
|
|
106
|
|
TNMP to PNM
|
—
|
|
|
8
|
|
|
—
|
|
|
154
|
|
PNMR to NMRD
|
32
|
|
|
—
|
|
|
162
|
|
|
—
|
|
Renewable energy purchases:
|
|
|
|
|
|
|
|
PNM from NMRD
|
969
|
|
|
—
|
|
|
2,343
|
|
|
—
|
|
Interconnection billings:
|
|
|
|
|
|
|
|
PNM to NMRD
|
47
|
|
|
—
|
|
|
2,099
|
|
|
—
|
|
PNM to PNMR
|
—
|
|
|
—
|
|
|
68,200
|
|
|
—
|
|
Interest billings:
|
|
|
|
|
|
|
|
PNMR to PNM
|
844
|
|
|
3
|
|
|
1,653
|
|
|
14
|
|
PNM to PNMR
|
75
|
|
|
71
|
|
|
211
|
|
|
163
|
|
PNMR to TNMP
|
65
|
|
|
66
|
|
|
87
|
|
|
126
|
|
Income tax sharing payments:
|
|
|
|
|
|
|
|
PNMR to PNM
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
TNMP to PNMR
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The excess purchase price over the fair value of the assets acquired and the liabilities assumed by PNMR for its 2005 acquisition of TNP was recorded as goodwill and was pushed down to the businesses acquired. In 2007, the TNMP assets that were included in its New Mexico operations, including goodwill, were transferred to PNM. PNMR’s reporting units that currently have goodwill are PNM and TNMP. Additional information concerning the Company’s goodwill is contained in Note 18 of Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K.
GAAP requires the Company to evaluate its goodwill for impairment annually at the reporting unit level or more frequently if circumstances indicate that the goodwill may be impaired. Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit.
GAAP provides that in certain circumstances an entity may perform a qualitative analysis to conclude that the goodwill of a reporting unit is not impaired. Under a qualitative assessment an entity considers macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events affecting a reporting unit, as well as whether a sustained decrease (both absolute and relative to its peers) in share price has occurred. An entity considers the extent to which each of the adverse events and circumstances identified could affect the comparison of a reporting unit’s fair value with its carrying amount. An entity places more weight on the events and circumstances that most affect a reporting unit’s fair value or the carrying amount of its net assets. An entity also considers positive and mitigating events and circumstances that may affect its determination of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity evaluates, on the basis of the weight of evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative analysis is not required if, after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount.
In other circumstances, an entity may perform a quantitative analysis to reach the conclusion regarding impairment with respect to a reporting unit. An entity may choose to perform a quantitative analysis without performing a qualitative analysis and may perform a qualitative analysis for certain reporting units, but a quantitative analysis for others. The first step of the quantitative impairment test requires an entity to compare the fair value of the reporting unit with its carrying value, including goodwill. If as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, GAAP currently requires the entity to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise would require the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss would be reflected in results of operations. As further discussed under New Accounting Pronouncements in Note 1, a new accounting pronouncement changes how a goodwill impairment is determined by eliminating the second step of the quantitative impairment analysis.
For its annual evaluations performed as of April 1, 2017, PNMR performed qualitative analyses for both the PNM and TNMP reporting units. The qualitative analysis was performed by considering changes in the Company’s expectations of future financial performance since the April 1, 2016 quantitative analysis. This analysis considered Company specific events such as the potential impacts of legal and regulatory matters discussed in Note 11 and Note 12, including the then estimated impacts of the proposed revised stipulation in PNM’s NM 2016 Rate Case, the impacts of potential outcomes of the matters appealed to the NM Supreme Court under the NM 2015 Rate Case, and the impacts of changes in PNM’s resource needs based on PNM’s 2017 IRP. This evaluation also considered changes in TNMP’s regulatory environment such as the PUCT’s then proposed amendments to the interim transmission cost of service filing rule, as well as potential outcomes associated with TNMP’s anticipated general rate case filing. The qualitative analysis also considered market and macroeconomic factors including changes in growth rates, changes in the WACC, and changes in discount rates. The Company also evaluated its stock price relative to historical performance, industry peers, and to major market indices, including an evaluation of the Company’s market capitalization relative to the carrying value of its reporting units. Based on an evaluation of these and other factors, the Company determined it was not more likely than not that the April 1, 2017 carrying values of PNM or TNMP exceeded their fair values.
PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For its annual evaluations performed as of April 1, 2018, PNMR performed a quantitative analysis for the PNM reporting unit and a qualitative analysis for the TNMP reporting unit. For the quantitative analyses, a discounted cash flow methodology was primarily used to estimate the fair value of the PNM reporting unit. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of long-term growth rates for the business, and determination of appropriate weighted average cost of capital for the reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment. The April 1, 2018 quantitative evaluations indicated the fair value of the PNM reporting unit, which has goodwill of
$51.6 million
, exceeded its carrying value by approximately
19%
. The 2018 qualitative analysis for the TNMP reporting unit was performed by considering changes in expectations of future financial performance since the April 1, 2016 quantitative analysis that indicated the fair value of the TNMP reporting unit, which has goodwill of
$226.7 million
, exceeded its carrying value by approximately
32%
and the April 1, 2017 qualitative analysis. The 2018 analysis considered events specific to TNMP such as the potential impacts of legal and regulatory matters discussed in Note 12, including potential adverse outcomes in the TNMP 2018 Rate Case, which was filed in May 2018. Both the PNM quantitative analysis and the TNMP qualitative analysis considered market and macroeconomic factors including changes in growth rates, changes in the WACC, and changes in discount rates. The Company also evaluated its stock price relative to historical performance, industry peers, and to major market indices, including an evaluation of the Company’s market capitalization relative to the carrying value of its reporting units. Based on an evaluation of these and other factors, the Company determined it is not more likely than not that the April 1, 2018 carrying values of PNM or TNMP exceed their fair values.
As indicated above, the annual evaluations performed as of April 1, 2018 and 2017 did
not
indicate impairments of the goodwill of any of PNMR’s reporting units. Since the April 1, 2018 annual evaluation, there have been no indications that the fair values of the reporting units with recorded goodwill have decreased below their carrying values.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations for PNMR is presented on a combined basis, including certain information applicable to PNM and TNMP. The MD&A for PNM and TNMP is presented as permitted by Form 10-Q General Instruction H(2). This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. A reference to a “Note” in this Item 2 refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1, unless otherwise specified. Certain of the tables below may not appear visually accurate due to rounding.
MD&A FOR PNMR
EXECUTIVE SUMMARY
Overview and Strategy
PNMR is a holding company with two regulated utilities serving approximately 780,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.
Strategic Goals
PNMR is focused on achieving three key strategic goals:
|
|
•
|
Earning authorized returns on regulated businesses
|
|
|
•
|
Delivering above industry-average earnings and dividend growth
|
|
|
•
|
Maintaining solid investment grade credit ratings
|
In conjunction with these goals, PNM and TNMP are dedicated to:
|
|
•
|
Maintaining strong employee safety, plant performance, and system reliability
|
|
|
•
|
Delivering a superior customer experience
|
|
|
•
|
Demonstrating environmental stewardship in business operations, including reducing CO
2
emissions
|
|
|
•
|
Supporting the communities in their service territories
|
Earning Authorized Returns on Regulated Businesses
PNMR’s success in accomplishing its strategic goals is highly dependent on two key factors: fair and timely regulatory treatment for its utilities and the utilities’ strong operating performance. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: safety, operational excellence, and customer satisfaction, while engaging stakeholders to build productive relationships. Both PNM and TNMP seek cost recovery for their investments through general rate cases and various rate riders.
Fair and timely rate treatment from regulators is crucial to PNM and TNMP in earning their allowed returns and critical for PNMR to achieve its strategic goals. PNMR believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the Company’s ratings could lower costs to utility customers.
Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 12.
State Regulation
New Mexico 2015 Rate Case
– On September 28, 2016, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $61.2 million for New Mexico retail customers, effective for bills sent after September 30, 2016. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2015 Rate Case”) filed in August 2015. PNM’s application requested an increase in base non-fuel revenues of $121.5 million based on a future test year (“FTY”) beginning October 1, 2015. The primary drivers of the revenue deficiency were infrastructure investments and declines in forecasted energy sales due to successful energy efficiency programs and other economic factors.
The NMPRC’s September 28, 2016 order included a determination that PNM was imprudent in purchasing 64.1 MW of previously leased capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing BDT equipment on SJGS Units 1 and 4. Major components of the difference between the increase in non-fuel revenues approved in the order and PNM’s request, include:
|
|
•
|
A ROE of 9.575%, compared to the 10.5% requested by PNM
|
|
|
•
|
Inclusion of the January 2016 purchase of the assets underlying three leases of capacity, totaling 64.1 MW, of PVNGS Unit 2 (Note 13) at an initial rate base value of $83.7 million, compared to PNM’s request for recovery of the fair market value purchase price of $163.3 million; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW was being leased by PNM, which costs totaled $43.8 million when the order was issued
|
|
|
•
|
Disallowance of the recovery of any future contributions for PVNGS decommissioning costs related to the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016 and the 114.6 MW of the leased capacity in PVNGS Units 1 and 2 that were extended for eight years beginning January 15, 2015 and 2016 (Note 13)
|
|
|
•
|
Disallowance of recovery of the costs associated with converting SJGS Units 1 and 4 to BDT, which is required by the NSR permit for SJGS (Note 12); PNM’s share of the costs of installing the BDT equipment was $52.3 million, $40.0 million of which PNM requested be included in rate base in the NM 2015 Rate Case
|
On September 30, 2016, PNM filed a notice of appeal with the NM Supreme Court regarding the order in the NM 2015 Rate Case. PNM is appealing the NMPRC’s determination that PNM was imprudent in the actions taken to purchase the previously leased 64.1 MW of capacity in PVNGS Unit 2, extending the leases for 114.6 MW of capacity of PVNGS Units 1 and 2, and installing BDT equipment on SJGS Units 1 and 4. PNM’s appeal includes the following specific elements of the NMPRC’s order:
|
|
•
|
Disallowance of recovery of the full fair market value purchase price of the 64.1 MW of capacity in PVNGS Unit 2 purchased in January 2016
|
|
|
•
|
Disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 MW of capacity was leased by PNM
|
|
|
•
|
Disallowance of recovery of future contributions for PVNGS decommissioning attributable to 64.1 MW of purchased capacity and the 114.6 MW of capacity under the extended leases
|
|
|
•
|
Disallowance of recovery of the costs of converting SJGS Units 1 and 4 to BDT
|
NEE, NMIEC, and ABCWUA filed notices of cross appeal to PNM’s appeal. The issues that are being appealed by the various cross-appellants are:
|
|
•
|
The NMPRC allowing PNM to recover the costs of the lease extensions for the 114.6 MW of PVNGS Units 1 and 2 and any of the purchase price for the 64.1 MW in PVNGS Unit 2
|
|
|
•
|
The NMPRC allowing PNM to recover the costs incurred under the new coal supply contract for Four Corners
|
|
|
•
|
The revised method to collect PNM’s fuel and purchased power costs under the FPPAC
|
|
|
•
|
The NMPRC allowing PNM to include the “prepaid pension asset” in rate base
|
The NM Supreme Court has orally stated that the court’s intent would be to request that PNM reimburse ratepayers for any amount overcharged should the cross-appellants prevail on the merits. Oral argument at the NM Supreme Court was held on October 30, 2017. Although appeals of regulatory actions of the NMPRC have a priority at the NM Supreme Court under New Mexico law, there is no required time frame for the court to act on the appeals.
PNM evaluated the accounting consequences of the order in the NM 2015 Rate Case and the likelihood of being successful on the issues it is appealing in the NM Supreme Court as required under GAAP. The evaluation indicated it is reasonably possible that PNM will be successful on the issues it is appealing. If the NM Supreme Court rules in PNM’s favor on some or all of the issues, those issues would be remanded back to the NMPRC for further action. PNM currently estimates it will take a minimum of four months from September 30, 2018 for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues. During such time, the rates specified in the order remain in effect. PNM recorded pre-tax regulatory disallowances through September 30, 2018 aggregating $17.1 million, representing capital cost recovery for the period October 1, 2016 through January 31, 2019 on its investments that the order disallowed, and amounts recorded as regulatory assets and deferred charges that the order disallowed, and which PNM did not challenge in its appeal. Additional losses will be recorded if
the estimated time frame for the NM Supreme Court to render a decision and for the NMPRC to take action on any remanded issues is further extended.
PNM continues to believe that the disallowed investments, which are the subject of PNM’s appeal, were prudently incurred and that PNM is entitled to full recovery of those investments through the ratemaking process. If PNM’s appeal is unsuccessful, PNM would record additional pre-tax losses related to any unsuccessful issues. The
September 30, 2018
book values of PNM’s investments that the order disallowed, after considering the losses recorded through September 30, 2018, were $73.9 million for the 64.1 MW of purchased capacity in PVNGS Unit 2, $38.3 million for the PVNGS Unit 2 disallowed capital improvements, and $50.3 million for the BDT equipment.
PNM does not believe that the likelihood of the cross-appeals being successful is probable. However, if the NM Supreme Court were to overturn all of the issues subject to the cross-appeals and, upon remand, the NMPRC did not provide any cost recovery of those items, PNM would write-off all of the costs to acquire the assets previously leased under three leases aggregating 64.1 MW of PVNGS Unit 2 capacity, totaling $147.5 million at
September 30, 2018
(which amount includes $73.9 million that is the subject of PNM’s appeal discussed above) after considering the losses recorded through September 30, 2018. The impacts of not recovering costs for the lease extensions, new coal supply contract for Four Corners, and “prepaid pension asset” in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred. The outcomes of the cross-appeals regarding the FPPAC and rate design should not have a financial impact to PNM.
New Mexico 2016 Rate Case
– On January 16, 2018, the NMPRC issued an order that authorized PNM to implement an increase in base non-fuel rates of $10.3 million. PNM implemented 50% of the approved increase for service rendered, rather than bills sent, beginning February 1, 2018 and will implement the rest of the increase for service rendered beginning January 1, 2019. This order was on PNM’s application for a general increase in retail electric rates (the “NM 2016 Rate Case”) filed in December 2016. PNM’s December 2016 application requested an increase in base non-fuel revenues of $99.2 million based on a FTY beginning January 1, 2018 and did not include a request to recover any of the costs disallowed in the NM 2015 Rate Case that are at issue in PNM’s pending appeal to the NM Supreme Court. The primary drivers of the revenue deficiency in PNM’s application were:
|
|
•
|
Implementation of the modifications in PNM’s resource portfolio, which were previously approved by the NMPRC as part of the SJGS regional haze compliance plan (see below and Note 11)
|
|
|
•
|
Infrastructure investments, including environmental upgrades at Four Corners
|
|
|
•
|
Declines in forecasted energy sales due to successful energy efficiency programs and other economic factors
|
|
|
•
|
Updates in the FERC/retail jurisdictional allocations
|
After NMPRC ordered settlement discussions were held, PNM and thirteen intervenors entered into a comprehensive stipulation in May 2017, which was subsequently revised to address issues raised by the Hearing Examiners in the case. NEE was the sole party opposing the revised stipulation. The terms of the revised stipulation included:
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A revenue increase totaling $62.3 million, with an initial increase of $32.3 million beginning January 1, 2018 and the remaining increase beginning January 1, 2019
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A ROE of 9.575%, compared to the 10.125% requested by PNM
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Full recovery of PNM’s investment in SCRs at Four Corners with a debt-only return
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An agreement to not implement non-fuel base rate changes, other than changes related to PNM’s rate riders, with an effective date prior to January 1, 2020
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An agreement to adjust the January 2019 increase for certain changes in federal corporate tax laws and to true-up PNM’s cost of debt
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Returning to customers over a three-year period the benefit of the reduction in the New Mexico corporate income tax rate to the extent attributable to PNM’s retail operations
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PNM would perform a cost benefit analysis in its 2020 IRP of the impact of a possible early exit from Four Corners in 2024 and 2028
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A public hearing on the revised stipulation was held in August 2017. On October 31, 2017, the Hearing Examiners issued a Certification of Stipulation recommending modifications to the revised stipulation that would identify PNM’s decision to continue its participation in Four Corners as imprudent, not allow PNM to collect a debt or equity return on $148.1 million of investments in SCRs and other projects at Four Corners, and to temporarily disallow recovery of $36.8 of PNM’s projected capital improvements at SJGS.
Extensive proceedings before the NMPRC were conducted in December 2017 and January 2018 as described in Note 12. Ultimately, the NMPRC’s January 16, 2018 order approved the Certification of Stipulation with certain changes, which included allowing PNM to recover its $148.1 million of investments in SCR and other projects at Four Corners with a debt-only return (but maintaining the recommended disallowance of an equity return), deferring further consideration regarding the prudency of PNM’s decisions to continue its participation in Four Corners to PNM’s next general rate case, requiring the impacts of changes related to the reduction in the federal corporate income tax rate and PNM’s cost of debt (aggregating an estimated $47.6 million) be implemented in 2018 rather than January 1, 2019, and requiring PNM to reduce its requested $62.3 million increase in non-fuel revenues by $4.4 million.
GAAP required PNM to recognize a loss reflecting that it will earn a debt-only return on $148.1 million of investments at Four Corners rather than a full return. Accordingly, PNM recorded a pre-tax regulatory disallowance of $27.9 million as of December 31, 2017.
On February 7, 2018, NEE filed a notice of appeal with the NM Supreme Court asking the court to review the NMPRC’s decisions in the NM 2016 Rate Case. On March 7, 2018, NEE filed its statement of issues with the NM Supreme Court requesting, among other things, that the NMPRC be required to identify PNM’s decision to continue its participation in Four Corners as imprudent and to deny any recovery related to PNM’s $148.1 million of investments in Four Corners. NEE’s Brief in Chief was filed on July 16, 2018 and PNM’s Answer Brief was filed on October 12, 2018. Several parties to the case are participating in the appeal as intervenor-appellees in support of the NMPRC’s final decisions in the case. Although PNM does not believe it is probable that NEE’s appeal will be successful, it is unable to predict what decision the NM Supreme Court will reach. If the NM Supreme Court were to remand the case to the NMPRC and the NMPRC identified PNM’s continued involvement in Four Corners as imprudent with no recovery of the $148.1 million of investments in Four Corners, PNM would be required to record additional losses for the remaining amount of those investments (after considering the $27.9 million regulatory disallowance recorded in 2017). In addition, PNM’s future investments in Four Corners, which could be required under the participation agreement governing that facility, could also be subject to disallowance. PNM cannot predict the outcome of this matter.
TNMP 2018 Rate Case –
On May 30, 2018, TNMP filed a general rate proceeding with the PUCT (the “TNMP 2018 Rate Case”), which requested an annual increase to base rates of $25.9 million based on a ROE of 10.5%, a cost of debt of 7.2%, and a capital structure comprised of 50% debt and 50% equity. TNMP’s request included $7.7 million of new rate riders to recover Hurricane Harvey restoration, rate case, and additional vegetation management costs. The application also included a request for increased depreciation rates and the integration of revenues currently recorded under the AMS rider, as well as collection of other unrecovered AMS investments, into base rates. In 2017, TNMP recorded revenues of $21.8 million under the AMS rider. The TNMP 2018 Rate Case application also proposed to return the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers and to reduce its federal corporate income tax rate to 21%. On November 2, 2018, TNMP and other parties to the case filed an unopposed settlement agreement that, if approved by the PUCT, will result in a $10.0 million annual increase to base rates. The key elements of the settlement include a ROE of 9.65%, a cost of debt of 6.44%, and a capital structure comprised of 55% debt and 45% equity. The settlement excludes from rate base certain investments that were requested in TNMP’s original filing, including amounts that TNMP expects will be included in its next TCOS filing. The settlement also adjusts how TNMP will return the regulatory liability recorded at December 31, 2017 related to federal tax reform to customers. The settlement agreement also approved TNMP’s request for updated depreciation rates, as well as a new rider to recover Hurricane Harvey restoration costs. As discussed below, the new rider for Hurricane Harvey restoration costs is to be offset by 2018 tax savings resulting from the reduction in the federal corporate income tax rate. TNMP anticipates the PUCT will review the settlement prior to December 31, 2018 and that new rates will be effective in early 2019. TNMP cannot predict the outcome of this matter.
San Juan Generating Station Unit 1 Outage
– On March 17, 2018, a coal silo used to supply fuel to SJGS Unit 1 collapsed resulting in an outage. PNM initiated a review of the cause of the outage and promptly contacted the staff of the NMPRC to inform them of the event. To minimize the operational and financial impacts of this event, PNM accelerated the fall 2018 planned outage on Unit 1 to be performed while the unit was out of service for this event. Repairs necessary to return Unit 1 to service were completed by July 5, 2018. PNM anticipates the damages to the facility related to the coal silo collapse are reimbursable under an existing property insurance policy that covers SJGS, subject to a deductible of $2.0 million. PNM’s exposure to the cost of repairs is $1.0 million, reflecting PNM’s 50% ownership interest in SJGS Unit 1.
On April 12, 2018, NEE filed a petition (jointly with certain other organizations) requesting that the NMPRC order an investigation into the SJGS Unit 1 event. The petition requested that the NMPRC order PNM to respond to the petition, that proceedings be set on this matter, and that PNM be required to provide a narrative explanation, cost/benefit analysis, and alternatives
assessment used to determine that Unit 1 should be repaired rather than utilizing alternative resources. Pursuant to an NMPRC order, PNM filed a response on May 8, 2018 indicating that it used best practices when inspecting the SJGS coal silos during planned outages, that the damage to SJGS Unit 1 was repairable and could be made in a timely manner, that all but a limited amount of cost of the repairs are reimbursable under an existing insurance policy, and that further proceedings on the matter were unnecessary. In addition, PNM’s response indicated that if the unit was not repaired, customers would be exposed to significant contractual liabilities under the agreements governing the ownership of SJGS and would incur significant additional costs associated with the procurement of replacement power. On May 31, 2018, the NMPRC staff preliminarily recommended that the NMPRC not allow PNM to recover any costs associated with the SJGS Unit 1 coal silo repairs, including the cost of preventing similar failures on other SJGS coal silos, and that PNM reimburse customers for the loss of off-system sales during the time SJGS Unit 1 was in outage. The NMPRC staff also recommended, among other things, that further proceedings on the matter be deemed unnecessary provided PNM agree to hold customers harmless for such costs. On October 9, 2018, PNM filed a motion with the NMPRC requesting the inquiry docket be closed and stating the NMPRC staff’s proposal that PNM be required to absorb all losses related to the event, including the loss of off-system sales, is unwarranted and would result in piecemeal ratemaking. PNM cannot predict the outcome of this matter.
Advanced Metering
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In September 2011, TNMP began its deployment of advanced meters for homes and businesses across its service area. TNMP completed its mass deployment in 2016 and has installed more than 242,000 advanced meters. As part of the State of Texas’ long-term initiative to create an advanced electric grid, installation of advanced meters will ultimately give consumers more data about their energy consumption and help them make more informed decisions. In addition, TNMP completed installation of a new outage management system that will leverage capabilities of the advanced metering infrastructure to enhance TNMP’s responsiveness to outages.
On February 26, 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”). The application also asked the NMPRC to authorize the recovery, in future ratemaking proceedings, of the cost of the project, as well as to approve the recovery of the remaining undepreciated investment in existing metering equipment, the costs of customer education, and severance for any affected employees. On March 19, 2018, the Hearing Examiner issued a recommended decision finding that PNM had not proven a net public benefit in the case and recommending the NMPRC not approve the application. On April 2, 2018, PNM filed a statement on exceptions to the recommended decision indicating, among other things, that PNM disagreed with the finding that the record did not demonstrate a net public benefit to customers, but that PNM would not take exception to a recommendation to not approve the application. On April 11, 2018, the NMPRC adopted an order accepting the recommended decision and disapproving PNM’s application. The order also indicated PNM’s next energy efficiency plan filing should include a proposal for an AMI pilot project.
Rate Riders and Interim Rate Relief
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The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case. This permits more timely recovery of investments. The PUCT has also approved riders that allow TNMP to recover amounts related to AMS, energy efficiency, third-party transmission costs, and the CTC. As discussed above, the unopposed settlement agreement in the TNMP 2018 Rate Case would authorize TNMP to integrate revenues currently recorded under the AMS rider into base rates and to establish a new rate rider to collect Hurricane Harvey restoration costs. Amounts collected under the new rider would be offset by 2018 savings resulting from the reduction in the federal corporate income tax rate and be collected from customers over a five-year period beginning on the effective date of new rates. The NMPRC has approved PNM recovering fuel costs through the FPPAC, as well as rate riders for renewable energy and energy efficiency that allow for more timely recovery of investments and improve PNM’s ability to earn its authorized return.
Cost Recovery Related to Joining the EIM –
In 2018, PNM completed a cost-benefit analysis that indicated PNM’s participation in the California Independent System Operator Western Energy Imbalance Market (“EIM”) would provide substantial benefits to retail customers. In August 2018, PNM filed an application with the NMPRC requesting, among other things, authorization to recover the cost of initial capital investments, and to establish a regulatory asset to recover other expenses, that would be incurred in order to join the EIM. PNM’s application proposes recovery of the costs incurred to join the EIM would be recovered beginning on the effective date of new rates in PNM’s next general rate case and that the benefits of participating in the EIM be credited to retail customers through PNM’s existing FPPAC. In August 2018, the NMPRC issued an order granting PNM’s request for an expedited procedural schedule and that set a public hearing for December 12, 2018. If approved by the NMPRC, PNM anticipates it will begin participating in the EIM by mid-2021. PNM cannot predict the outcome of this matter.
FERC Regulation
Rates PNM charges wholesale transmission customers and wholesale generation customers are subject to traditional rate
regulation by FERC. Rates charged to wholesale electric transmission customers are based on a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula. The formula includes updating cost of service components, including investment in plant and operating expenses, based on information contained in PNM’s annual financial report filed with FERC, as well as including projected transmission capital projects to be placed into service in the following year. The projections included are subject to true-up. Certain items, including changes to return on equity and depreciation rates, require a separate filing to be made with FERC before being included in the formula rate.
The low natural gas price environment has resulted in market prices for power being substantially lower than what PNM is able to offer wholesale generation customers under the cost of service model that FERC requires PNM to use. Consequently, PNM decided to stop pursuing wholesale generation contracts and currently has no full-requirements wholesale generation customers.
Delivering Above Industry-Average Earnings and Dividend Growth
PNMR’s strategic goal to deliver above industry-average earnings and dividend growth enables investors to realize the value of their investment in the Company’s business. PNMR’s current target is 5% to 6% earnings and dividend growth for the period 2018 through 2022. PNMR’s earnings and dividend target for the year ending December 2022 includes assumptions about potential capital expenditures that would be incremental to construction expenditures discussed below in Liquidity and Capital Resources - Capital Requirements. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes from GAAP earnings certain non-recurring, infrequent, and other items that are not indicative of fundamental changes in the earnings capacity of the Company’s operations. PNMR uses ongoing earnings to evaluate the operations of the Company and to establish goals, including those used for certain aspects of incentive compensation, for management and employees.
PNMR targets a dividend payout ratio of 50% to 60% of its ongoing earnings. PNMR expects to provide above industry-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The Board will continue to evaluate the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:
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Approval Date
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Percent Increase
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February 2012
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16
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%
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February 2013
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14
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%
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December 2013
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12
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%
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December 2014
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8
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%
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December 2015
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10
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%
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December 2016
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10
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%
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December 2017
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9
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Maintaining Solid Investment Grade Credit Ratings
The Company is committed to maintaining solid investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. In January 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative. In June 2018, Moody’s changed the outlook for PNMR and PNM from positive to stable and maintained the stable outlook for TNMP.
Business and Strategic Focus
PNMR strives to create enduring value for customers, communities, and shareholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power. The Company works closely with customers, stakeholders, legislators, and regulators to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities. Equally important is the focus of PNMR’s utilities on customer satisfaction and community engagement.
Reliable and Affordable Power
PNMR and its utilities are aware of the important roles they play in enhancing economic vitality in their service territories. Management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting
economic growth. When contemplating expanding or relocating their operations, businesses consider energy affordability and reliability to be important factors. PNM and TNMP strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a superior customer experience. Investing in PNM’s and TNMP’s infrastructure is critical to ensuring reliability and meeting future energy needs. Both utilities have long-established records of providing customers with reliable electric service.
Utility Plant and Strategic Investments
Utility Plant Investments
– During the 2015 to 2017 period, PNM and TNMP together invested $1,552.0 million in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. PNM completed the 40 MW natural gas-fired La Luz peaking generating station located near Belen, New Mexico in December 2015. PNM also completed installation of SNCR and BDT equipment on SJGS Units 1 and 4 in early 2016 and the addition of 40 MW of PNM-owned solar-PV facilities in 2015. In addition, on January 15, 2016, PNM completed the $163.3 million acquisition of 64.1 MW of capacity in PVNGS Unit 2 that had previously been leased to PNM. During 2018 and 2019, PNM will construct an additional 50 MW of PNM-owned PV facilities, which were approved by the NMPRC in PNM’s 2018 renewable energy procurement plan. The 50 MW PV facilities are expected to be completed in stages throughout 2019 at a cost not to exceed $73.0 million. See the subheading Capital Requirements included in the full discussion of Liquidity and Capital Resources below for additional discussion of the Company’s projected capital requirements.
Strategic Investments
– In 2017, PNMR Development and AEP OnSite Partners created NM Renewable Development, LLC (“NMRD”) to pursue the acquisition, development, and ownership of renewable energy generation projects, primarily in the state of New Mexico. Abundant renewable resources, large tracts of affordable land, and strong government and community support make New Mexico a favorable location for renewable generation. New Mexico has the 2
nd
highest technical potential of the 48 contiguous states for utility scale solar photovoltaics as noted in 2015 by the National Renewable Energy Laboratory, while New Mexico is 6
th
for technical potential for land-based wind. PNMR Development and AEP OnSite Partners each have a 50% ownership interest in NMRD. Through NMRD, PNMR anticipates being able to provide additional renewable generation solutions to customers within and surrounding its regulated jurisdictions through partnering with a subsidiary of one of the United States’ largest electric utilities. The formation of this joint venture provides a more efficient use of PNMR’s capital to support new renewable investment opportunities while maintaining the necessary capital to support investments required by regulated jurisdictions. NMRD’s current renewable energy capacity in operation is 34.3 MW, which includes 30 MW of solar-PV facilities required to supply energy to the Facebook data center located within PNM’s service territory, 1.8 MW to supply energy to Columbus Electric Cooperative located in southwest New Mexico, and 2.5 MW to supply energy to the Central New Mexico Electric Cooperative. In August 2018, the NMPRC approved PNM’s request to enter into two additional 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook. Subject to FERC approval, these facilities are expected be in commercial operation by June 2020.
NMRD actively explores opportunities for additional renewable projects, including large-scale projects to serve future data centers and other customer needs.
Integrated Resource Plan
NMPRC rules require that investor-owned utilities file an IRP every
three
years. The IRP is required to cover a
20
-year planning period and contain an action plan covering the first four years of that period. PNM filed its 2014 IRP on July 1, 2014. The four-year action plan was consistent with the replacement resources identified in PNM’s application to retire SJGS Units 2 and 3. PNM indicated that it planned to meet its anticipated energy demand with a combination of additional renewable energy resources, energy efficiency, and natural gas-fired facilities.
PNM filed its 2017 IRP on July 3, 2017. Under the NMPRC’s order concerning SJGS’ compliance with the BART requirements of the CAA discussed in Note 11, PNM is required to make a filing in 2018 to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after June 30, 2022. The 2017 IRP analyzed several scenarios utilizing assumptions that PNM continues service from its SJGS capacity beyond mid-2022 and that PNM retires its capacity after mid-2022. Key findings of the 2017 IRP include:
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Retiring PNM’s share of SJGS in 2022 after the expiration of the current operating and coal supply agreements would provide long-term cost savings for PNM’s customers
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PNM exiting its ownership interest in Four Corners after its current coal supply agreement expires in 2031 would also provide long-term cost savings for customers
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The best mix of new resources to replace the retired coal generation would include solar energy and flexible natural gas-fired peaking capacity; the mix could include energy storage if the economics support it and wind energy provided additional transmission capacity becomes available
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Significant increases in future wind energy supplies will likely require new transmission capacity to be built from eastern New Mexico to PNM’s service territory
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PNM should retain the currently leased capacity in PVNGS, which would avoid replacement with carbon-emitting generation
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PNM should continue to develop and implement energy efficiency and demand management programs
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PNM should assess the costs and benefits of participating in the California Independent System Operator Western Energy Imbalance Market
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PNM should analyze its current Reeves Station to consider possible technology improvements to phase out the older generators and replace them with new, more flexible supplies or energy storage
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Several parties filed protests to the 2017 IRP. The issues addressed in the protests include PNM’s future interest in SJGS, Four Corners, and PVNGS and the timing of future procurement of renewable resources. The 2017 IRP is not a final determination of PNM’s future generation portfolio. Retiring PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, which PNM would make at appropriate times in the future. Likewise, NMPRC approval of new generation resources through CCN filings would be required. Hearings were held in June 2018. On October 26, 2018, the Hearing Examiner issued a recommended decision recommending that the NMPRC accept PNM’s 2017 IRP as compliant with the applicable statute and NMPRC rules. PNM cannot predict the ultimate outcome of the 2017 IRP process or whether the NMPRC will approve subsequent filings that would encompass actions to implement the conclusions of the 2017 IRP.
Environmentally Responsible Power
PNMR has a long-standing record of environmental stewardship. PNM’s environmental focus is in three key areas:
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Developing strategies to provide reliable and affordable power, while transforming PNM’s generation resources to a cleaner energy portfolio by reducing CO
2
emissions
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Preparing PNM’s system to meet New Mexico’s increasing renewable energy resources as cost-effectively as possible
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Increasing energy efficiency participation
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PNMR’s Sustainability Portal provides key environmental and sustainability information related to PNM’s and TNMP’s operations and is available at
http://www.pnmresources.com/about-us/sustainability-portal.aspx
. The portal also contains a Climate Change Report, which outlines plans to be coal-free by 2031 (subject to regulatory approval). This would enable PNM to reduce GHG emissions from its fossil-fueled plants by 71% in 2025 and by 80% in 2035 compared to 2005 baseline levels.
SJGS
Regional Haze Rule Compliance Plan
– In December 2015, PNM received NMPRC approval for the plan to comply with the EPA regional haze rule at SJGS that minimizes the cost impact to customers while still achieving broad environmental benefits. Under the approved plan, the installation of SNCRs on SJGS Units 1 and 4 was completed in early 2016 and Units 2 and 3 were retired in December 2017. The plan provides for similar visibility improvements, but at a lower cost to PNM customers than a previous EPA ruling that would have required the installation of more expensive SCRs on all four units at SJGS. The plan has the added advantage of reducing other emissions in addition to NOx, including SO
2
, particulate matter, CO
2
, and mercury, as well as significantly reducing water usage. Additional information is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and in Note 11.
The December 2015 order also provided, among other things, that:
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PNM was granted a CCN to acquire an additional 132 MW in SJGS Unit 4 effective January 1, 2018
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PNM was granted a CCN for 134 MW of PVNGS Unit 3 as a jurisdictional resource to serve New Mexico customers beginning January 1, 2018
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PNM was authorized to acquire 65 MW of SJGS Unit 4 as merchant utility plant
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No later than December 31, 2018, and before entering into a binding coal supply agreement for SJGS, PNM will make a NMPRC filing to determine the extent that SJGS should continue serving PNM’s customers’ needs after mid-2022
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NEE filed a notice of appeal with the NM Supreme Court of the NMPRC’s December 2015 order. On March 5, 2018, the NM Supreme Court issued its opinion affirming the NMPRC’s December 2015 order, thereby denying NEE’s appeal. This matter is now concluded.
SJGS Ownership Restructuring and Other Matters
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In connection with the plan to comply with EPA regional haze rules at SJGS, some of the SJGS participants expressed a desire to exit their ownership in the plant. As a result, the SJGS participants negotiated a restructuring of the ownership in SJGS and addressed the obligations of the exiting participants for plant decommissioning, mine reclamation, environmental matters, and certain future operating costs, among other items. The San Juan Project Restructuring Agreement (“SJGS RA”) sets forth the agreement among the SJGS owners regarding ownership restructuring and addresses other related matters, including that the exiting participants remain obligated for their proportionate shares of environmental, mine reclamation, and certain other legacy liabilities that are attributable to activities that occurred prior to their exit. The SJGS RA became effective contemporaneously with the effectiveness of the new SJGS CSA on January 31, 2016. See Note 11.
Although the SJGS RA results in an agreement among the SJGS participants enabling compliance with CAA requirements, it is possible that the financial impact of climate change regulation or legislation, other environmental regulations, the result of litigation, and other business considerations, could jeopardize the economic viability of SJGS or the ability or willingness of individual participants to continue participation in the plant. PNM’s 2017 IRP (Note 12), presented resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 (Note 11) and for scenarios that assumed SJGS will cease operations after mid-2022. The 2017 IRP data shows that retiring SJGS in 2022 would provide long-term cost benefits to PNM’s customers.
The 2017 IRP is not a final determination of PNM’s future generation portfolio. Retiring PNM’s share of SJGS would require PNM to make a formal abandonment filing with the NMPRC. The final determination of PNM’s exit from SJGS would be subject to NMPRC review and approval. PNM would also be required to obtain NMPRC approval of replacement power resources through formal CCN filings. The December 2015 NMPRC order discussed above authorized PNM to acquire 132 MW of SJGS Unit 4 as a New Mexico jurisdictional resource and 65 MW of SJGS Unit 4 as merchant plant. That order also provides that, if SJGS Unit 4 is abandoned with undepreciated investment on PNM’s books, PNM would not be allowed to recover the undepreciated investment of its 132 MW interest. PNM is currently depreciating all its investments in SJGS through 2053, the expected life approved by the NMPRC. PNM’s undepreciated investment in SJGS at September 30, 2018 was $405.5 million, which includes interests in the 132 MW and the 65 MW of $20.3 million and $10.1 million. In the event of an early retirement of SJGS, PNM would be exposed to loss of its undepreciated investments in the facility and other costs, including costs associated with coal mine reclamation, if recovery of these items is not approved by the NMPRC. The financial impact of early retirement and the NMPRC approval process are influenced by factors outside of PNM’s control, including the economic impact of a potential SJGS abandonment on the area surrounding the plant and related mine, as well as overall political and economic conditions in New Mexico. Because of the uncertainty in obtaining the required approvals, PNM is unable to predict the outcome of this matter.
As discussed in Note 11, PNM has the option to extend the SJGS CSA, which currently expires on June 30, 2022, subject to negotiation of the term of the extension and compensation to the miner. In order to extend, the SJGS CSA provides that PNM must give written notice of that intent by July 1, 2018 and the parties must agree to the terms of the extension by January 1, 2019. In addition, the SJPPA obligates each SJGS participant to provide notice to the other participants whether they wish to extend the SJPPA and SJGS CSA beyond June 30, 2022. Los Alamos, UAMPS, and Tucson provided notice of their intent to exit SJGS in 2022. Farmington gave notice that it wishes to continue SJGS operations and to extend the terms of both agreements. PNM gave preliminary notice to the other participants that, based on updated coal pricing and other relevant information, PNM does not wish to extend the terms of the agreements beyond June 30, 2022. PNM is continuing to analyze the permanent retirement of SJGS in 2022 and the final determination of PNM’s exit from SJGS is subject to NMPRC approval in a formal abandonment proceeding (Note 12). Due to Farmington’s stated interest in continuing SJGS operations beyond 2022, PNM and Westmoreland agreed to extend the July 1, 2018 notice deadline to December 1, 2018.
Other SJGS Environmental Matters
–
In addition to the regional haze rule, SJGS is required to comply with other rules currently being developed or implemented that affect coal-fired generating units, including rules regarding GHG under Section 111(d) of the CAA. Implementation of the Clean Power Plan, which was published by EPA in October 2015, is currently stayed by order of the US Supreme Court pending further proceedings before the DC Circuit. Oral argument was heard by the DC Circuit in September 2016, but the court has taken no action. On March 28, 2017, President Trump issued an Executive Order on Energy Independence. The order sets out two general policies: promote clean and safe development of energy resources, while avoiding regulatory burdens, and ensure electricity is affordable, reliable, safe, secure, and clean. The order rescinds various actions
undertaken by the previous administration and directs the EPA Administrator to review and if appropriate suspend, revise, or rescind the Clean Power Plan, as well as other environmental regulations. On October 10, 2017, EPA issued a proposal to repeal the Clean Power Plan based on a legal interpretation of the CAA under which the Clean Power Plan exceeds EPA’s statutory authority. EPA published the proposed repeal rule on October 16, 2017 and accepted public comments through April 26, 2018. In addition, EPA published an advance NOPR on December 28, 2017 to take comment on whether EPA should adopt a rule to replace the Clean Power Plan and what such a replacement rule might include, for which public comments were due February 26, 2018. On August 31, 2018, EPA published a proposed rule, informally known as the Affordable Clean Energy rule, to replace the Clean Power Plan. The Affordable Clean Energy rule proposes GHG reductions be achieved through heat-rate improvement technologies identified as Best System of Emission Reduction (“BSER”). Under the proposed rule, states would determine and propose to EPA which technologies to apply to each coal-fired EGU and establish performance based on the degree of emission reduction achievable through application of the selected BSER (Note 11). PNM estimates that implementation of the BART plan at SJGS, along with potentially exiting ownership in the remaining units at SJGS (as well as Four Corners), as discussed above, should provide significant steps for New Mexico to meet its ultimate compliance with Section 111(d) under the Clean Power Plan, the proposed Affordable Clean Energy rule, or other replacement rule. PNM is unable to predict the impact of these matters on its generation portfolio.
Because of environmental upgrades completed in 2009, SJGS has a mercury removal efficiency of 98% and mercury emissions are well below the mercury limit imposed by EPA in the 2011 Mercury and Air Toxics Standards. Major environmental upgrades on each of the units at SJGS have significantly reduced emissions of NOx, SO
2
, particulate matter, and mercury. Between 2006 and 2017, SJGS has reduced emissions of NOx by 41%, SO
2
by 70%, particulate matter by 61%, and mercury by 98%.
Renewable Energy
PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As discussed above, PNM is also considering the use of additional energy storage capacity in the event of an early retirement of SJGS. As of December 31, 2017, PNM had 107 MW of utility-owned solar capacity. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 95.9 MW at
September 30, 2018
. PNM also owns the 500 KW PNM Prosperity Energy Storage Project, which uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited. The project was one of the first combinations of battery storage and PV energy in the nation and involved extensive research and development of advanced grid concepts. The facility also was the nation’s first solar storage facility fully integrated into a utility’s power grid. Since 2003, PNM has purchased the output from New Mexico Wind, a 204 MW wind facility, and began purchasing the output of Red Mesa Wind, an existing 102 MW wind energy center, on January 1, 2015. PNM has a 20-year agreement to purchase energy from the Lightning Dock Geothermal facility built near Lordsburg, New Mexico. The geothermal facility, which has a current capacity of 4 MW, began providing power to PNM in January 2014. PNM also purchases RECs as necessary to meet the RPS.
The majority of these renewable resources are key means for PNM to meet the RPS and related regulations that require PNM to achieve prescribed levels of energy sales from renewable sources, if that can be accomplished without exceeding the RCT limit set by the NMPRC. PNM makes renewable procurements consistent with the plans approved by the NMPRC. PNM’s 2017 renewable energy procurement plan meets RPS and diversity requirements for 2017 and 2018 using existing resources and does not propose any significant new procurements. PNM’s 2018 renewable energy procurement plan requested approval to procure an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind; approval to procure an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; approval to procure 50 MW of new solar facilities to be constructed beginning in 2018; continuation of customer REC purchase programs; and other purchases of RECs to ensure annual compliance with the RPS. On November 15, 2017, the NMPRC issued an order approving PNM’s plan. NMIEC filed an appeal with the NM Supreme Court objecting to the fuel allocation methodology. NEE filed a motion to intervene and cross-appeal objecting to the approval of the 50 MW of new solar facilities indicating, among other things, that PNM’s RFP process favored ownership of the 50 MW facilities compared to PPAs. PNM and other parties have been granted approval to intervene in the case. On February 27, 2018, the court issued an order denying a motion by NMIEC for a partial stay. PNM and the NMPRC each filed Answer Briefs to the NM Supreme Court on September 4, 2018 stating, among other things, that there is substantial evidence in the case record to support the NMPRC’s decision, and that PNM’s RFP process was reasonable, complied with RPS requirements, and consistent with industry standards. NEE’s Reply Brief was filed on October 15, 2018. On June 1, 2018, PNM filed its 2019 renewable energy procurement plan which meets RPS and diversity requirements for 2019 and 2020 using resources already approved by the NMPRC and does not propose any significant new procurements. Hearings on PNM’s 2019 renewable energy procurement plan were held in September and October 2018. On October 29, 2018, PNM and NMPRC staff filed a joint proposed recommended decision requesting the NMPRC accept PNM’s 2019 renewable energy procurement
plan filing provided PNM agree to certain requirements. See Note 12. PNM cannot predict the outcome of these matters.
As discussed in Strategic Investments above, PNM is currently purchasing the output of 30 MW of solar capacity from NMRD that is used to serve the Facebook data center. In late 2017, PNM entered into three separate 25-year PPAs to purchase renewable energy and RECs to be used by PNM to supply additional renewable power to the Facebook data center. These PPAs include the purchase of the power and RECs from a 50 MW wind project to be operational by December 31, 2018, a 166 MW wind project to be operational in November 2020, and a 50 MW solar project to be operational in December 2021. The NMPRC approved these PPAs on March 21, 2018. In August 2018, the NMPRC approved PNM’s request to enter into two additional 25-year PPAs to purchase renewable energy and RECs from an aggregate of approximately 100 MW of capacity from two solar-PV facilities to be constructed by NMRD to supply power to Facebook. These PPAs also require approval by FERC. Subject to FERC approval, these facilities are expected to begin commercial operation by June 2020 (Note 12).
PNM will continue to procure renewable resources while balancing the impact to customers’ electricity costs in order to meet New Mexico’s escalating RPS requirements.
Energy Efficiency
Energy efficiency plays a significant role in helping to keep customers’ electricity costs low while meeting their energy needs and is one of the Company’s approaches to supporting environmentally responsible power. PNM’s and TNMP’s energy efficiency and load management portfolios continue to achieve robust results. In 2017, incremental energy saved as a result of new participation in PNM’s portfolio of energy efficiency programs was approximately 74 GWh. This is equivalent to the annual consumption of approximately 11,000 homes in PNM’s service territory. PNM’s load management and annual energy efficiency programs also help lower peak demand requirements. In 2017, TNMP’s incremental energy saved as a result of new participation in TNMP’s energy efficiency programs was approximately 21 GWh. This is equivalent to the annual consumption of approximately 2,300 homes in TNMP’s service territory. In April 2016 and again in April 2017, TNMP was recognized by Energy Star for TNMP’s successful energy efficiency efforts. In April 2018, TNMP received the “Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program.
Water Conservation and Solid Waste Reduction
PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 20% more efficient than in 2007). Continued growth in PNM’s fleet of solar and wind energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction. Water usage will continue to decline as PNM substitutes less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018, as water consumption at that plant has been reduced by approximately 50%. Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy.
In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. In 2017, 18 of the Company’s 23 facilities met the solid waste diversion goal of a 60% diversion rate, while recycling at least the same number of waste streams as 2016. The Company expects to continue to do well in this area in the future.
Customer, Stakeholder, and Community Engagement
The Company strives to deliver a superior customer experience. Through outreach, collaboration, and various community-oriented programs, the Company has a demonstrated commitment to building productive relationships with stakeholders, including customers, community partners, regulators, intervenors, legislators, and shareholders. PNM continues to focus its efforts to enhance the customer experience through customer service improvements, including billing and payment options, strategic customer engagement, and improved communications. These efforts are supported by market research to understand the varying needs of customers, identifying and establishing valued services and programs, and proactively communicating and engaging with customers.
The Company has leveraged a number of communications channels and strategic content to better serve and engage its many stakeholders. PNM’s website,
www.pnm.com
, provides the details of major regulatory filings, including general rate requests, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. PNM has also leveraged social media in communications with customers on various topics such as education, outage alerts, safety, customer service, and PNM’s community partnerships in philanthropic projects. In May 2017, a chat function was added to PNM’s website
to allow customers options when communicating with customer service representatives and an online management system was launched to expedite applications for solar interconnections. The website continues to be a resource for the facts about PNM’s operations and community support efforts, including plans for building a sustainable energy future for New Mexico. In September 2016, PNMR launched a dedicated sustainability portal on its corporate website
www.pnmresources.com
to provide additional information regarding the Company’s environmental and other sustainability efforts. The site provides the key corporate governance and sustainability information related to the operations of PNM and TNMP. In January 2018, PNM added a Climate Change Report to this portal. The portal also includes information presented under four additional headings: Environment, Social, Economic, and Governance.
With reliability being the primary role of a transmission and distribution service provider in Texas’ deregulated market, TNMP continues to focus on keeping end-users updated about interruptions and to encourage consumer preparation when severe weather is forecasted. In August 2017, Hurricane Harvey made landfall in the gulf coast region and TNMP employees worked diligently to restore power safely and efficiently for affected customers. In addition, PNMR made donations to support relief and restoration efforts in the gulf coast region. TNMP employees who were impacted by Hurricane Harvey were provided emergency crisis funds supported by the PNM Resources Foundation and other employee donations.
Local relationships and one-on-one communications remain two of the most valuable ways both PNM and TNMP connect with their stakeholders. Both companies maintain long-standing relationships with governmental representatives and key electricity consumers to ensure that these stakeholders are updated on company investments and initiatives. Key electricity consumers also have dedicated Company contacts that support their important service needs.
PNMR has a long tradition of supporting the communities it serves in New Mexico and Texas. The Company demonstrates its core value of caring through the PNM Resources Foundation, corporate giving, widespread employee volunteerism, and PNM’s low-income assistance programs. In addition to the extensive engagement both PNM and TNMP have with nonprofit organizations in their communities, the PNM Resources Foundation provides more than $1 million in grant funding each year across New Mexico and Texas. These grants help nonprofits innovate or sustain programs to grow and develop business, help create community spaces for public use, and provide educational opportunities supporting economic development. PNMR also provides employee matching and volunteer grants for various purposes. In 2017, “A New Century of Service” grants, which celebrate PNM’s 100th anniversary, funded 62 community projects to build a better future for local communities. In December 2017, PNM announced an additional $1.0 million in donations to the PNM Resources Foundation to support future economic and educational programs in New Mexico. In early 2018, the PNM Resources Foundation awarded five grants of $0.2 million each, to be paid over two years, to a number of not-for-profit organizations to support their efforts in areas such as assisting businesses, supporting education, and other economic development efforts. Recipients included the New Mexico State University College of Engineering, to support education for professional surveyors and for other economic and development educational opportunities.
PNM provides funds to support nonprofits in New Mexico focused in the areas of economic development, education, and the environment. One of PNM’s most important outreach programs is tailored for low-income customers. In 2017, PNM hosted 44 community events throughout its service territory to connect low-income customers with nonprofit community service providers offering support and help with such needs as water and gas utility bills, food, clothing, medical programs, and services for seniors. Additionally, through its Good Neighbor Fund, PNM provided $0.5 million of assistance with electric bills to 3,804 families in 2017 and offered financial literacy training to further support customers.
Volunteerism is an important facet of the PNMR culture. In 2017, more than 800 PNM and TNMP employees and retirees contributed approximately 10,800 volunteer hours serving their local communities. Company volunteers also actively participate on nonprofit boards, in educational, economic, and environmental forums, as well as safety seminars. PNMR employees are, in large part, responsible for the success of the Company’s customer, stakeholder, and community outreach.
Economic Factors
PNM
–
In the
three and nine
months ended
September 30, 2018
, PNM experienced an increase in weather-normalized retail load of 1.1% and 0.4% compared to 2017, reflecting New Mexico’s overall economy, along with PNM’s successful energy efficiency programs and increases in distributed generation. The New Mexico economy appears to be strengthening as there is growth in personal income and the state’s finances are stronger. Employment growth in Albuquerque continues to rise and is coming closer to the national average as the state continues efforts to spur economic growth and attract jobs. PNM’s customer growth of 0.9% and 0.8% in the three and nine months ended
September 30, 2018
reflects these factors, including some of the previously announced successful economic development efforts.
TNMP
–
In the
three and nine
months ended
September 30, 2018
, TNMP experienced an increase in volumetric weather normalized retail load of 4.1% and 3.2% compared to 2017. Most of TNMP’s industrial and larger commercial customers are billed based on their peak demand. Demand-based load, excluding retail transmission customers, increased 7.0% and 6.4% in the three and nine months ended
September 30, 2018
compared to 2017. Economic and business growth in Texas continues to outpace the rest of the country. TNMP continues to see strong demand in its service territories, particularly with new transmission interconnection requests in the West Texas region where oil and gas production continues to grow and in the Gulf Coast area for load additions related to petroleum refineries.
Results of Operations
Net earnings attributable to PNMR were $140.7 million, or $1.76 per diluted share in the nine months ended
September 30, 2018
compared to $134.2 million, or $1.67 per diluted share, in 2017. Among other things, earnings in the nine months ended
September 30, 2018
benefited from additional revenues due to the rate increase approved in the NM 2016 Rate Case at PNM, higher revenues from new transmission customers and FERC formula transmission rates at PNM, lower interest expense at PNM, rate increases and increased load at TNMP, warmer weather at PNM and TNMP in the summer of 2018 and colder weather at TNMP in early 2018, and reduced income tax expense due to the reduced federal corporate income tax rate and the amortization of excess deferred income taxes ordered by the NMPRC. These increases were more than offset by reduced revenues at PNM due to power from PVNGS Unit 3 not being sold into the wholesale market, higher plant maintenance costs at PNM, increased operating expense due to the additional 197 MW of ownership in SJGS Unit 4 (offset by reduced expenses from the shutdown of SJGS Units 2 and 3), increased depreciation and property taxes due to increased plant in service at PNM and TNMP, and lower gains on the sales of investment securities at PNM. Additional information on factors impacting results of operation for each segment is discussed under Results of Operations below.
Liquidity and Capital Resources
PNMR and PNM have revolving credit facilities that currently expire in October 2022. In July 2018, the PNMR Revolving Credit Facility was amended to provide for two one-year extension options, subject to approval by a majority of the lenders. In October 2018, the PNM Revolving Credit Facility was amended to add two one-year extension options, subject to approval by a majority of the lenders. As a result, PNMR and PNM have the opportunity to extend the facilities through October 2024. The PNMR and PNM facilities have capacities of $300.0 million and $400.0 million through October 2020 and $290.0 million and $360.0 million beginning November 2020. Both facilities provide for short-term borrowings and letters of credit. In addition, PNM has a $40.0 million revolving credit facility, which expires in December 2022, with banks having a significant presence in New Mexico, and TNMP has a $75.0 million revolving credit facility, which expires in September 2022. On February 26, 2018, PNMR Development entered into a $24.5 million revolving credit facility that matures on February 25, 2019. Total availability for PNMR on a consolidated basis was
$653.7 million
at
October 30, 2018
. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries.
PNMR projects that its consolidated capital requirements, consisting of construction expenditures, capital contributions for PNMR Development’s 50% ownership interest in NMRD, and dividends, will total
$2,984.5 million
for 2018-2022, including amounts expended through
September 30, 2018
. The construction expenditures include estimated amounts for environmental upgrades at Four Corners, 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, and an anticipated expansion of PNM’s transmission system.
In July 2017, PNM entered into the PNM 2017 Senior Unsecured Note Agreement, under which $350.0 million of the PNM 2018 SUNs were issued in May 2018 and the remaining $100.0 million were issued in July 2018. The proceeds from these issuances were used to repay $450.0 million of SUNs on their maturity dates. In March 2018, PNMR issued $300.0 million of 3.25% PNMR 2018 SUNs, which will mature on March 9, 2021. Proceeds from the issuance of the PNMR 2018 SUNs were used to repay a $150.0 million term loan and borrowings under the PNMR Revolving Credit Facility. On June 28, 2018, TNMP issued $60.0 million of first mortgage bonds which will mature on June 28, 2028 and used the proceeds to reduce borrowings under the TNMP Revolving Credit Facility. On July 25, 2018, TNMP entered into the $20.0 million TNMP 2018 Term Loan Agreement that is due on July 25, 2020 and used the proceeds to reduce short-term borrowings and for general corporate purposes. After considering the effects of those financings, PNMR has consolidated maturities and other repayments of short-term and long-term debt aggregating $572.3 million in the period from October 1, 2018 through September 30, 2019. Furthermore, the $24.5 million PNMR Development revolving credit facility expires in February 2019. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2018-2022 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements for at least the next twelve months.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Disclosure Regarding Forward Looking Statements and to Part II, Item 1A. Risk Factors.
A summary of net earnings attributable to PNMR is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
(In millions, except per share amounts)
|
Net earnings attributable to PNMR
|
$
|
87.5
|
|
|
$
|
73.7
|
|
|
$
|
13.8
|
|
|
$
|
140.7
|
|
|
$
|
134.2
|
|
|
$
|
6.5
|
|
Average diluted common and common equivalent shares
|
80.0
|
|
|
80.2
|
|
|
(0.2
|
)
|
|
80.0
|
|
|
80.1
|
|
|
(0.1
|
)
|
Net earnings attributable to PNMR per diluted share
|
$
|
1.09
|
|
|
$
|
0.92
|
|
|
$
|
0.17
|
|
|
$
|
1.76
|
|
|
$
|
1.67
|
|
|
$
|
0.09
|
|
The components of the change in net earnings attributable to PNMR are:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30, 2018
|
|
September 30, 2018
|
|
(In millions)
|
PNM
|
$
|
16.7
|
|
|
$
|
7.6
|
|
TNMP
|
1.4
|
|
|
6.4
|
|
Corporate and Other
|
(4.3
|
)
|
|
(7.4
|
)
|
Net change
|
$
|
13.8
|
|
|
$
|
6.5
|
|
Information regarding the factors impacting PNMR’s operating results by segment are set forth below.
Segment Information
The following discussion is based on the segment methodology that PNMR’s management uses for making operating decisions and assessing performance of its various business activities. See Note 2 for more information on PNMR’s operating segments.
PNM
PNM defines utility margin as electric operating revenues less cost of energy, which consists primarily of fuel and purchase power costs. PNM believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since substantially all fuel and purchase power costs are offset in revenues as those costs are passed through to customers under PNM’s FPPAC. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.
The following table summarizes the operating results for PNM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
(In millions)
|
Electric operating revenues
|
$
|
331.4
|
|
|
$
|
327.3
|
|
|
$
|
4.1
|
|
|
$
|
832.1
|
|
|
$
|
854.9
|
|
|
$
|
(22.8
|
)
|
Cost of energy
|
92.4
|
|
|
82.4
|
|
|
10.0
|
|
|
229.5
|
|
|
246.6
|
|
|
(17.1
|
)
|
Utility margin
|
239.0
|
|
|
244.9
|
|
|
(5.9
|
)
|
|
602.6
|
|
|
608.3
|
|
|
(5.7
|
)
|
Operating expenses
|
98.0
|
|
|
92.7
|
|
|
5.3
|
|
|
305.6
|
|
|
281.9
|
|
|
23.7
|
|
Depreciation and amortization
|
38.5
|
|
|
36.8
|
|
|
1.7
|
|
|
113.3
|
|
|
109.2
|
|
|
4.1
|
|
Operating income
|
102.5
|
|
|
115.4
|
|
|
(12.9
|
)
|
|
183.7
|
|
|
217.2
|
|
|
(33.5
|
)
|
Other income (deductions)
|
6.0
|
|
|
6.0
|
|
|
—
|
|
|
9.9
|
|
|
20.0
|
|
|
(10.0
|
)
|
Interest charges
|
(18.1
|
)
|
|
(20.5
|
)
|
|
2.4
|
|
|
(58.9
|
)
|
|
(62.4
|
)
|
|
3.5
|
|
Segment earnings before income taxes
|
90.4
|
|
|
100.9
|
|
|
(10.5
|
)
|
|
134.7
|
|
|
174.7
|
|
|
(40.0
|
)
|
Income (taxes)
|
(9.0
|
)
|
|
(35.6
|
)
|
|
26.6
|
|
|
(11.0
|
)
|
|
(58.9
|
)
|
|
47.9
|
|
Valencia non-controlling interest
|
(3.9
|
)
|
|
(4.5
|
)
|
|
0.6
|
|
|
(11.7
|
)
|
|
(11.5
|
)
|
|
(0.2
|
)
|
Preferred stock dividend requirements
|
(0.1
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|
—
|
|
Segment earnings
|
$
|
77.4
|
|
|
$
|
60.7
|
|
|
$
|
16.7
|
|
|
$
|
111.6
|
|
|
$
|
104.0
|
|
|
$
|
7.6
|
|
The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
(Gigawatt hours, except customers)
|
Residential
|
996.4
|
|
|
978.5
|
|
|
1.8
|
%
|
|
2,495.5
|
|
|
2,439.0
|
|
|
2.3
|
%
|
Commercial
|
1,065.5
|
|
|
1,058.6
|
|
|
0.7
|
|
|
2,917.0
|
|
|
2,883.4
|
|
|
1.2
|
|
Industrial
|
229.9
|
|
|
218.4
|
|
|
5.3
|
|
|
645.7
|
|
|
640.5
|
|
|
0.8
|
|
Public authority
|
73.6
|
|
|
73.2
|
|
|
0.5
|
|
|
185.1
|
|
|
189.1
|
|
|
(2.1
|
)
|
Economy energy service
(1)
|
160.4
|
|
|
174.8
|
|
|
(8.2
|
)
|
|
503.4
|
|
|
542.8
|
|
|
(7.3
|
)
|
Firm-requirements wholesale
(2)
|
—
|
|
|
22.1
|
|
|
(100.0
|
)
|
|
—
|
|
|
65.5
|
|
|
(100.0
|
)
|
Other sales for resale
(3)
|
644.8
|
|
|
821.7
|
|
|
(21.5
|
)
|
|
1,805.0
|
|
|
2,731.7
|
|
|
(33.9
|
)
|
|
3,170.6
|
|
|
3,347.3
|
|
|
(5.3
|
)%
|
|
8,551.7
|
|
|
9,492.0
|
|
|
(9.9
|
)%
|
Average retail customers (thousands)
|
526.9
|
|
|
522.3
|
|
|
0.9
|
%
|
|
525.8
|
|
|
521.6
|
|
|
0.8
|
%
|
(1)
PNM purchases energy for a large customer on the customer’s behalf and delivers the energy to the customer’s location through PNM’s transmission system. PNM charges the customer for the cost of the energy as a direct pass through to the customer with only a minor impact in utility margin resulting from providing ancillary services.
(2)
Decrease in 2018 reflects the loss of NEC as a wholesale generation customer.
(3)
Decrease in 2018 reflects that PVNGS Unit 3 is included as a New Mexico jurisdictional resource beginning January 1, 2018 rather than as merchant plant in 2017, partially offset by sales from PNM’s 65 MW merchant interest in SJGS Unit 4 (Note 11).
Operating Results
–
Three months ended
September 30, 2018
compared to
2017
The following table summarizes the significant changes to utility margin:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Utility margin:
|
|
(In millions)
|
|
|
|
|
|
Rate relief
– Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 (Note 12)
|
|
$
|
1.5
|
|
|
Retail Customer usage/load
–
Weather normalized KWh sales increased 1.1% due to increased sales to residential, commercial, industrial, and other customers
|
|
2.0
|
|
|
Weather
– Warmer weather in 2018; cooling degree days were 2.1% higher
|
|
0.9
|
|
|
Transmission
–
The addition of new customers and higher revenues under formula transmission rates
|
|
1.4
|
|
|
Wholesale contracts
–
Loss of NEC as a wholesale generation customer
|
|
(0.6
|
)
|
|
Unregulated margin
–
Primarily related to loss of PVNGS Unit 3 wholesale power sales
|
|
(8.3
|
)
|
|
Third party transmission cost
–
Transmission of power from PVNGS Unit 3 to serve New Mexico retail customers
|
|
(2.0
|
)
|
|
Rate riders
–
Includes renewable energy and energy efficiency riders, which are partially offset in operating expenses, depreciation and amortization, and interest charges
|
|
(0.6
|
)
|
|
Net unrealized economic hedges
–
Primarily related to 2017 hedges of PVNGS Unit 3 power sales and sales to NEC
|
|
(0.1
|
)
|
|
Other
|
|
(0.1
|
)
|
|
Net Change
|
|
$
|
(5.9
|
)
|
The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Operating expenses:
|
|
(In millions)
|
|
|
|
|
Higher plant maintenance and other costs at SJGS and gas-fired plants, partially offset by decreased costs at Four Corners
|
|
$
|
2.7
|
|
|
Increased costs associated with additional 132 MW of SJGS Unit 4 and accelerated recovery of SNCRs on SJGS Units 1 and 4
|
|
3.9
|
|
|
Increased costs associated with 65 MW of SJGS Unit 4 held as merchant plant beginning January 1, 2018 (Note 11)
|
|
1.5
|
|
|
2018 regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 12)
|
|
0.9
|
|
|
Higher property taxes due to increases in utility plant in service and higher assessed values
|
|
0.6
|
|
|
Higher bad debt expense
|
|
0.2
|
|
|
Higher employee related, outside service, and vegetation management expenses
|
|
1.3
|
|
|
Lower capitalized administrative and general expenses due to lower construction spending in 2018
|
|
0.9
|
|
|
Cost savings realized from the retirement of SJGS Units 2 and 3
|
|
(4.7
|
)
|
|
2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring (Note 11)
|
|
(2.5
|
)
|
|
Other
|
|
0.5
|
|
|
Net Change
|
|
$
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Depreciation and amortization:
|
|
(In millions)
|
|
|
|
|
Increased utility plant in service
|
|
$
|
2.3
|
|
|
Lower depreciation resulting from the retirement of SJGS Units 2 and 3, partially offset by amortization of the associated regulatory asset (Note 11)
|
|
(1.0
|
)
|
|
Other
|
|
0.4
|
|
|
Net Change
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
Other income (deductions):
|
|
|
|
|
|
|
Lower gains on investment securities in the NDT and coal mine reclamation trusts, including the impact of a new accounting pronouncement (Note 7)
|
|
$
|
(2.9
|
)
|
|
Lower equity AFUDC
|
|
(1.0
|
)
|
|
Lower non-service components of pension and OPEB expense
|
|
1.0
|
|
|
Higher interest income and lower trust expenses related to investment securities in the NDT and coal mine reclamation trusts
|
|
2.4
|
|
|
Other
|
|
0.5
|
|
|
Net Change
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Interest charges:
|
|
|
|
|
|
|
Lower interest on $350.0 million of SUNs refinanced in May 2018
|
|
$
|
3.9
|
|
|
Lower interest on $100.0 million of SUNs refinanced in August 2018
|
|
0.5
|
|
|
Lower debt AFUDC
|
|
(0.5
|
)
|
|
Higher interest on term loan agreements
|
|
(0.5
|
)
|
|
Interest on deposit by PNMR Development for potential transmission interconnections
|
|
(0.8
|
)
|
|
Other
|
|
(0.2
|
)
|
|
Net Change
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes
|
|
$
|
15.5
|
|
|
Amortization of excess deferred income taxes, as ordered by the NMPRC in PNM’s NM 2016 Rate Case
|
|
12.7
|
|
|
Increase due to lower excess tax benefits related to stock compensation awards (Note 8)
|
|
(0.2
|
)
|
|
Higher effective tax rate resulting from lower equity AFUDC
|
|
(0.4
|
)
|
|
Other
|
|
(1.0
|
)
|
|
Net Change
|
|
$
|
26.6
|
|
Operating Results
–
Nine months ended
September 30, 2018
compared to
2017
The following table summarizes the significant changes to utility margin:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
Change
|
Utility margin:
|
|
(In millions)
|
|
|
|
|
|
Rate relief
– Additional revenue due to rate increase approved by the NMPRC effective February 1, 2018 (Note 12)
|
|
$
|
3.5
|
|
|
Retail Customer usage/load
–
Weather normalized KWh sales increased 0.4% due to increased sales to commercial and industrial customers
|
|
1.9
|
|
|
Weather
– Warmer weather in 2018; cooling degree days were 13.4% higher and heating degree days were 10.5% higher
|
|
6.7
|
|
|
Transmission
–
The addition of new customers and higher revenues under formula transmission rates
|
|
8.2
|
|
|
Wholesale contracts
–
Loss of NEC as a wholesale generation customer
|
|
(1.7
|
)
|
|
Unregulated margin
–
Primarily related to loss of PVNGS Unit 3 wholesale power sales
|
|
(19.7
|
)
|
|
Third party transmission cost
–
Transmission of power from PVNGS Unit 3 to serve New Mexico retail customers
|
|
(5.6
|
)
|
|
Rate riders
–
Includes renewable energy and energy efficiency riders, which are partially offset in operating expenses, depreciation and amortization, and interest charges
|
|
0.2
|
|
|
Net unrealized economic hedges
–
Primarily related to 2017 hedges of PVNGS Unit 3 power sales and sales to NEC
|
|
0.9
|
|
|
Other
|
|
(0.1
|
)
|
|
Net Change
|
|
$
|
(5.7
|
)
|
The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
Change
|
Operating expenses:
|
|
(In millions)
|
|
|
|
|
Higher plant maintenance and other costs at SJGS, Four Corners, and gas-fired plants
|
|
$
|
17.5
|
|
|
Increased costs associated with additional 132 MW of SJGS Unit 4 and accelerated recovery of SNCRs on SJGS Units 1 and 4
|
|
10.9
|
|
|
Increased costs associated with 65 MW of SJGS Unit 4 held as merchant plant beginning January 1, 2018 (Note 11)
|
|
4.2
|
|
|
2018 regulatory disallowance resulting from the NMPRC’s September 28, 2016 order in PNM’s NM 2015 Rate Case (Note 12)
|
|
2.7
|
|
|
Higher property taxes due to increases in utility plant in service and higher assessed values
|
|
2.2
|
|
|
Higher employee related, outside service, and vegetation management expenses
|
|
1.8
|
|
|
Higher bad debt expense
|
|
0.8
|
|
|
Lower capitalized administrative and general expenses due to lower construction spending in 2018
|
|
1.6
|
|
|
Cost savings realized from the retirement of SJGS Units 2 and 3
|
|
(13.9
|
)
|
|
2017 training costs associated with new software implementation
|
|
(1.1
|
)
|
|
2018 decrease in estimated coal mine reclamation costs associated with ownership restructuring (Note 11)
|
|
(2.5
|
)
|
|
Other
|
|
(0.5
|
)
|
|
Net Change
|
|
$
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
Change
|
Depreciation and amortization:
|
|
(In millions)
|
|
|
|
|
Increased utility plant in service
|
|
$
|
6.6
|
|
|
Lower depreciation resulting from the retirement of SJGS Units 2 and 3, partially offset by amortization of the associated regulatory asset (Note 11)
|
|
(3.6
|
)
|
|
Other
|
|
1.1
|
|
|
Net Change
|
|
$
|
4.1
|
|
|
|
|
|
|
|
|
Other income (deductions):
|
|
|
|
|
|
|
Lower gains on investment securities in the NDT and coal mine reclamation trusts, including the impact of a new accounting pronouncement (Note 7)
|
|
$
|
(16.6
|
)
|
|
Lower equity AFUDC
|
|
(0.4
|
)
|
|
2017 interest income from third-party transmission service provider due to FERC ruling
|
|
(1.0
|
)
|
|
Lower non-service components of pension and OPEB expense
|
|
3.3
|
|
|
Higher interest income and lower trust expenses related to investment securities in the NDT and coal mine reclamation trusts
|
|
3.8
|
|
|
Other
|
|
0.9
|
|
|
Net Change
|
|
$
|
(10.0
|
)
|
|
|
|
|
|
|
|
Interest charges:
|
|
|
|
|
|
|
Lower interest on $350.0 million of SUNs refinanced in May 2018
|
|
$
|
5.7
|
|
|
Lower interest on $100.0 million of SUNs refinanced in August 2018
|
|
0.5
|
|
|
Lower interest on $57.0 million of PCRBs refinanced in June 2017
|
|
0.5
|
|
|
Higher interest on term loan agreements
|
|
(1.7
|
)
|
|
Interest on deposit by PNMR Development for potential transmission interconnections
|
|
(1.5
|
)
|
|
Net Change
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes
|
|
$
|
32.1
|
|
|
Amortization of excess deferred income taxes, as ordered by the NMPRC in PNM’s NM 2016 Rate Case
|
|
18.5
|
|
|
Increase due to lower excess tax benefits related to stock compensation awards (Note 8)
|
|
(0.7
|
)
|
|
Higher effective tax rate resulting from lower equity AFUDC
|
|
(1.1
|
)
|
|
Other
|
|
(0.9
|
)
|
|
Net Change
|
|
$
|
47.9
|
|
TNMP
TNMP defines utility margin as electric operating revenues less cost of energy, which consists of costs charged by third-party transmission providers. TNMP believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since all third-party transmission costs are passed on to consumers through a transmission cost recovery factor. Utility margin is not a financial measure required to be presented under GAAP and is considered a non-GAAP measure.
The following table summarizes the operating results for TNMP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
(In millions)
|
Electric operating revenues
|
$
|
91.3
|
|
|
$
|
92.6
|
|
|
$
|
(1.3
|
)
|
|
$
|
260.7
|
|
|
$
|
257.5
|
|
|
$
|
3.2
|
|
Cost of energy
|
21.2
|
|
|
21.4
|
|
|
(0.2
|
)
|
|
64.3
|
|
|
64.2
|
|
|
0.1
|
|
Utility margin
|
70.1
|
|
|
71.3
|
|
|
(1.2
|
)
|
|
196.5
|
|
|
193.3
|
|
|
3.2
|
|
Operating expenses
|
25.1
|
|
|
25.4
|
|
|
(0.3
|
)
|
|
73.6
|
|
|
72.2
|
|
|
1.4
|
|
Depreciation and amortization
|
17.2
|
|
|
16.4
|
|
|
0.8
|
|
|
49.7
|
|
|
47.4
|
|
|
2.3
|
|
Operating income
|
27.8
|
|
|
29.5
|
|
|
(1.7
|
)
|
|
73.2
|
|
|
73.7
|
|
|
(0.5
|
)
|
Other income (deductions)
|
1.2
|
|
|
1.2
|
|
|
—
|
|
|
3.1
|
|
|
2.4
|
|
|
0.7
|
|
Interest charges
|
(8.2
|
)
|
|
(7.7
|
)
|
|
(0.5
|
)
|
|
(23.8
|
)
|
|
(22.6
|
)
|
|
(1.2
|
)
|
Segment earnings before income taxes
|
20.7
|
|
|
23.0
|
|
|
(2.3
|
)
|
|
52.5
|
|
|
53.5
|
|
|
(1.0
|
)
|
Income (taxes)
|
(4.6
|
)
|
|
(8.3
|
)
|
|
3.7
|
|
|
(11.6
|
)
|
|
(19.0
|
)
|
|
7.4
|
|
Segment earnings
|
$
|
16.1
|
|
|
$
|
14.7
|
|
|
$
|
1.4
|
|
|
$
|
40.9
|
|
|
$
|
34.5
|
|
|
$
|
6.4
|
|
The following table shows total sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Volumetric load
(1)
(GWh)
|
|
Residential
|
1,005.0
|
|
|
983.8
|
|
|
2.2
|
%
|
|
2,452.0
|
|
|
2,295.2
|
|
|
6.8
|
%
|
Commercial and other
|
8.3
|
|
|
8.3
|
|
|
—
|
|
|
24.3
|
|
|
26.0
|
|
|
(6.5
|
)
|
Total volumetric load
|
1,013.3
|
|
|
992.1
|
|
|
2.2
|
%
|
|
2,476.3
|
|
|
2,321.2
|
|
|
6.7
|
%
|
Demand-based load
(2)
(MW)
|
4,887.8
|
|
|
4,443.6
|
|
|
10.0
|
%
|
|
13,540.8
|
|
|
12,359.8
|
|
|
9.6
|
%
|
Average retail consumers (thousands)
(3)
|
252.2
|
|
|
249.0
|
|
|
1.3
|
%
|
|
251.1
|
|
|
247.9
|
|
|
1.3
|
%
|
(1)
Volumetric load consumers are billed on KWh usage.
(2)
Demand-based load includes consumers billed on monthly KW peak and also includes retail transmission customers that are primarily billed under TNMP’s rate riders.
(3)
TNMP provides transmission and distribution services to REPs that provide electric service to their customers in TNMP’s service territories. The number of consumers above represents the customers of these REPs. Under TECA, consumers in Texas have the ability to choose any REP to provide energy.
Operating Results
–
Three months ended
September 30, 2018
compared to
2017
The following table summarizes the significant changes to utility margin:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Utility margin:
|
|
(In millions)
|
|
|
|
|
|
Rate relief
–
Transmission cost of service rate increases in September 2017 and March 2018
|
|
$
|
0.9
|
|
|
Retail customer usage/load
–
Weather normalized KWh sales increased 4.1%; the average number of retail consumers increased 1.3%
|
|
0.8
|
|
|
Demand based customer usage/load
–
Higher demand-based revenues for large commercial and industrial retail consumers; billed demand, excluding retail transmission customers, increased 7.0%
|
|
1.2
|
|
|
Weather
– Milder weather in 2018; cooling degree days were 0.8% lower in 2018
|
|
(0.4
|
)
|
|
Rate Riders
– Impacts of rate riders, including the AMS surcharge, CTC surcharge, energy efficiency rider, and transmission cost recovery factor
|
|
(2.4
|
)
|
|
Revenue subject to refund
– Amounts deferred as a regulatory liability for the impact of the reduction in the federal corporate income tax rate (Note 12)
|
|
(1.5
|
)
|
|
Other
|
|
0.2
|
|
|
Net Change
|
|
$
|
(1.2
|
)
|
The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Operating expenses:
|
|
(In millions)
|
|
|
|
|
Higher employee related expenses
|
|
$
|
0.5
|
|
|
Higher capitalization of administrative and general expenses due to higher construction expenditures
|
|
(1.9
|
)
|
|
Higher property taxes due to increased utility plant in service
|
|
0.4
|
|
|
Higher allocated corporate depreciation, primarily related to computer software
|
|
0.2
|
|
|
Higher costs associated with rate riders, primarily AMS
|
|
0.3
|
|
|
Higher property and casualty expense, primarily due to unfavorable claims experience
|
|
0.3
|
|
|
Other
|
|
(0.1
|
)
|
|
Net Change
|
|
$
|
(0.3
|
)
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Increased utility plant in service
|
|
$
|
1.0
|
|
|
Reduced CTC amortization and AMS depreciation
|
|
(0.2
|
)
|
|
Net Change
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Other income (deductions):
|
|
(In millions)
|
|
|
|
|
Higher equity AFUDC
|
|
$
|
0.7
|
|
|
Lower contributions in aid of construction
|
|
(0.5
|
)
|
|
Other
|
|
(0.2
|
)
|
|
Net Change
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Interest charges:
|
|
|
|
|
|
|
Increase due to issuance of $60.0 million of long-term debt in June 2018
|
|
$
|
(0.6
|
)
|
|
Increase due to issuance of $60.0 million of long-term debt in August 2017
|
|
(0.3
|
)
|
|
Increase due to issuance of $20.0 million term loan in July 2018
|
|
(0.2
|
)
|
|
Higher debt AFUDC
|
|
0.4
|
|
|
Other
|
|
0.2
|
|
|
Net Change
|
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes
|
|
$
|
3.8
|
|
|
Increase due to lower excess tax benefits related to stock compensation awards (Note 8)
|
|
(0.1
|
)
|
|
Net Change
|
|
$
|
3.7
|
|
Operating Results
–
Nine months ended
September 30, 2018
compared to
2017
The following table summarizes the significant changes to utility margin:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
Change
|
Utility margin:
|
|
(In millions)
|
|
|
|
|
|
Rate relief
–
Transmission cost of service rate increases in March 2017, September 2017, and March 2018
|
|
$
|
3.6
|
|
|
Retail customer usage/load
–
Weather normalized KWh sales increased 3.2%; the average number of retail consumers increased 1.3%
|
|
1.4
|
|
|
Demand based customer usage/load
–
Higher demand-based revenues for large commercial and industrial retail consumers; billed demand, excluding retail transmission customers, increased 6.4%
|
|
3.0
|
|
|
Weather
– Milder weather in 2017 than 2018; heating degree days were 82.1% higher in 2018
|
|
1.8
|
|
|
Rate riders
–
Impacts of rate riders, including the AMS surcharge, CTC surcharge, energy efficiency rider, and transmission cost recovery factor
|
|
(2.4
|
)
|
|
Revenue subject to refund
– Amounts deferred as a regulatory liability for the impact of the reduction in the federal corporate income tax rate (Note 12)
|
|
(4.3
|
)
|
|
Other
|
|
0.1
|
|
|
Net Change
|
|
$
|
3.2
|
|
The following tables summarize the primary drivers for changes in operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
Change
|
Operating expenses:
|
|
(In millions)
|
|
|
|
|
Higher employee related expenses
|
|
$
|
0.9
|
|
|
Higher outside consulting costs, including vegetation management
|
|
0.9
|
|
|
Training costs associated with new software implementation in 2017
|
|
(0.4
|
)
|
|
Higher costs associated with rate riders, primarily AMS
|
|
0.6
|
|
|
Higher property taxes due to increased utility plant in service
|
|
1.1
|
|
|
Higher property and casualty expense, primarily due to unfavorable claims experience
|
|
0.7
|
|
|
Higher allocated corporate depreciation, primarily related to computer software
|
|
0.6
|
|
|
Higher capitalization of administration and general expense due to higher construction expenditures
|
|
(3.3
|
)
|
|
Other
|
|
0.3
|
|
|
Net Change
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Increased utility plant in service
|
|
$
|
2.9
|
|
|
Reduced CTC amortization and AMS depreciation
|
|
(0.6
|
)
|
|
Net Change
|
|
$
|
2.3
|
|
|
|
|
|
|
|
|
Other income (deductions):
|
|
|
|
|
|
|
Higher equity AFUDC
|
|
$
|
1.3
|
|
|
Lower contributions in aid of construction
|
|
(0.4
|
)
|
|
Other
|
|
(0.2
|
)
|
|
Net Change
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
Interest charges:
|
|
|
|
|
|
|
Increase due to issuance of $60.0 million of long-term debt in August 2017
|
|
$
|
(1.3
|
)
|
|
Increase due to issuance of $60.0 million of long-term debt in June 2018
|
|
(0.6
|
)
|
|
Increase due to issuance of $20.0 million term loan in July 2018
|
|
(0.2
|
)
|
|
Higher debt AFUDC
|
|
0.9
|
|
|
Net Change
|
|
$
|
(1.2
|
)
|
|
|
|
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
Decrease due to reduction in corporate income tax rate and lower segment earnings before income taxes
|
|
$
|
7.7
|
|
|
Increase due to lower excess tax benefits related to stock compensation awards (Note 8)
|
|
(0.3
|
)
|
|
Net Change
|
|
$
|
7.4
|
|
Corporate and Other
The table below summarizes the operating results for Corporate and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
|
(In millions)
|
Electric operating revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of energy
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Utility margin
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating expenses
|
(3.6
|
)
|
|
(5.4
|
)
|
|
1.8
|
|
|
(14.0
|
)
|
|
(15.3
|
)
|
|
1.3
|
|
Depreciation and amortization
|
5.9
|
|
|
5.6
|
|
|
0.3
|
|
|
17.4
|
|
|
16.2
|
|
|
1.2
|
|
Operating income (loss)
|
(2.4
|
)
|
|
(0.2
|
)
|
|
(2.2
|
)
|
|
(3.4
|
)
|
|
(0.9
|
)
|
|
(2.5
|
)
|
Other income (deductions)
|
(0.2
|
)
|
|
1.3
|
|
|
(1.5
|
)
|
|
2.1
|
|
|
5.0
|
|
|
(2.9
|
)
|
Interest charges
|
(4.2
|
)
|
|
(4.0
|
)
|
|
(0.2
|
)
|
|
(14.2
|
)
|
|
(11.1
|
)
|
|
(3.1
|
)
|
Segment earnings (loss) before income taxes
|
(6.7
|
)
|
|
(2.9
|
)
|
|
(3.8
|
)
|
|
(15.6
|
)
|
|
(7.1
|
)
|
|
(8.5
|
)
|
Income (taxes) benefit
|
0.7
|
|
|
1.2
|
|
|
(0.5
|
)
|
|
3.8
|
|
|
2.7
|
|
|
1.1
|
|
Segment earnings (loss)
|
$
|
(6.0
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
(11.8
|
)
|
|
$
|
(4.4
|
)
|
|
$
|
(7.4
|
)
|
Corporate and Other operating expenses shown above are net of amounts allocated to PNM and TNMP under shared services agreements. The amounts allocated include certain expenses shown as depreciation and amortization and other income (deductions) in the table above. Operating expenses for the three and nine months ended September 30, 2018 includes approximately $1.5 million in legal and consulting costs that were not allocated to PNM or TNMP. The change in depreciation expense primarily relates to additions to computer software. Substantially all depreciation and amortization expense is offset in operating expenses as a result of allocation of these costs to other business segments.
Operating Results
–
Three months ended
September 30, 2018
compared to
2017
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Other income (deductions):
|
|
(In millions)
|
|
|
|
|
Decrease in interest income on the Westmoreland Loan
|
|
$
|
(1.9
|
)
|
|
Equity in net earnings of NMRD
|
|
0.3
|
|
|
Other
|
|
0.1
|
|
|
Net Change
|
|
$
|
(1.5
|
)
|
|
|
|
|
|
|
|
Interest charges:
|
|
|
|
|
|
|
Issuance of $300.0 million of PNMR 2018 SUNs in March 2018 (Note 9)
|
|
$
|
(2.2
|
)
|
|
Increase in interest expense on the PNMR 2016 Two-Year Term Loan
|
|
(0.2
|
)
|
|
Repayment of $150.0 million PNMR 2015 Term Loan Agreement in March 2018
|
|
0.8
|
|
|
Repayment of the BTMU Term Loan Agreement
|
|
0.8
|
|
|
Elimination of intercompany interest (Note 9)
|
|
0.8
|
|
|
Other
|
|
(0.2
|
)
|
|
Net Change
|
|
$
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Change
|
Income taxes:
|
|
(In millions)
|
|
|
|
|
Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods
|
|
$
|
(1.3
|
)
|
|
Decrease due to reduction in corporate income tax rate and larger segment loss before income taxes
|
|
0.6
|
|
|
Other
|
|
0.2
|
|
|
Net Change
|
|
$
|
(0.5
|
)
|
Operating Results
–
Nine months ended
September 30, 2018
compared to
2017
The following tables summarize the primary drivers for changes in other income (deductions), interest charges, and income taxes:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
Change
|
Other income (deductions):
|
|
(In millions)
|
|
|
|
|
Decrease in interest income on the Westmoreland Loan
|
|
$
|
(3.3
|
)
|
|
Donations
|
|
(0.5
|
)
|
|
Equity in net earnings of NMRD
|
|
0.5
|
|
|
Other
|
|
0.4
|
|
|
Net Change
|
|
$
|
(2.9
|
)
|
|
|
|
|
|
|
|
Interest charges:
|
|
|
|
|
|
|
Issuance of $300.0 million of PNMR 2018 SUNs in March 2018 (Note 9)
|
|
$
|
(5.5
|
)
|
|
Increase in interest expense on the PNMR 2016 Two-Year Term Loan
|
|
(0.5
|
)
|
|
Higher short-term borrowings and interest rates
|
|
(0.4
|
)
|
|
Repayment of $150.0 million PNMR 2015 Term Loan Agreement in March 2018
|
|
1.7
|
|
|
Elimination of intercompany interest (Note 9)
|
|
1.5
|
|
|
Other
|
|
0.1
|
|
|
Net Change
|
|
$
|
(3.1
|
)
|
|
|
|
|
|
|
|
Income taxes:
|
|
|
|
|
|
|
Decrease due to reduction in corporate income tax rate and larger segment loss before income taxes
|
|
$
|
1.2
|
|
|
Impact of phased-in reduction in New Mexico corporate income tax rates
|
|
0.1
|
|
|
Impact of difference in effective tax rates used by PNMR and its subsidiaries in the calculation of income taxes in interim periods
|
|
(0.3
|
)
|
|
Other
|
|
0.1
|
|
|
Net Change
|
|
$
|
1.1
|
|
LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows
The changes in PNMR’s cash flows for the
nine
months ended
September 30, 2018
compared to
September 30, 2017
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Change
|
|
(In millions)
|
Net cash flows from:
|
|
|
|
|
|
Operating activities
|
$
|
316.9
|
|
|
$
|
416.3
|
|
|
$
|
(99.4
|
)
|
Investing activities
|
(326.5
|
)
|
|
(329.0
|
)
|
|
2.5
|
|
Financing activities
|
40.6
|
|
|
(49.7
|
)
|
|
90.3
|
|
Net change in cash and cash equivalents
|
$
|
31.0
|
|
|
$
|
37.6
|
|
|
$
|
(6.6
|
)
|
Cash Flows from Operating Activities
Changes in PNMR’s cash flow from operating activities result from net earnings, adjusted for items impacting earnings that do not provide or use cash. See Results of Operations above. Certain changes in assets and liabilities resulting from normal operations, including the effects of the seasonal nature of the Company’s operations, also impact operating cash flows.
Cash Flows from Investing Activities
The changes in PNMR’s cash flows from investing activities relate primarily to changes in utility plant additions. Cash flows from investing activities also include purchases and sales of investment securities in the NDT and coal mine reclamation trusts, including activity to rebalance the investment portfolio. In addition, cash flows from investing activities include activity related to the Westmoreland Loan, which was paid in full in May 2018, and NMRD. Major components of PNMR’s cash inflows and (outflows) from investing activities are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
Change
|
Cash (Outflows) for Utility Plant Additions
|
(In millions)
|
PNM:
|
|
|
|
|
|
Generation
|
$
|
(47.5
|
)
|
|
$
|
(36.6
|
)
|
|
$
|
(10.9
|
)
|
Transmission and distribution
|
(100.8
|
)
|
|
(124.6
|
)
|
|
23.8
|
|
Four Corners SCRs
|
(7.3
|
)
|
|
(24.7
|
)
|
|
17.4
|
|
Nuclear fuel
|
(21.9
|
)
|
|
(20.6
|
)
|
|
(1.3
|
)
|
|
(177.5
|
)
|
|
(206.5
|
)
|
|
29.0
|
|
TNMP:
|
|
|
|
|
|
Transmission
|
(78.0
|
)
|
|
(54.7
|
)
|
|
(23.3
|
)
|
Distribution
|
(92.8
|
)
|
|
(51.1
|
)
|
|
(41.7
|
)
|
AMS
|
—
|
|
|
(1.1
|
)
|
|
1.1
|
|
|
(170.8
|
)
|
|
(106.9
|
)
|
|
(63.9
|
)
|
Corporate and Other:
|
|
|
|
|
|
Computer hardware and software
|
(17.2
|
)
|
|
(25.3
|
)
|
|
8.1
|
|
PNMR Development utility plant additions
|
—
|
|
|
(14.7
|
)
|
|
14.7
|
|
|
(17.2
|
)
|
|
(40.0
|
)
|
|
22.8
|
|
Total cash (outflows) for additions to utility and non-utility plant
|
$
|
(365.5
|
)
|
|
$
|
(353.4
|
)
|
|
$
|
(12.1
|
)
|
|
|
|
|
|
|
Other Cash Flows from Investing Activities
|
|
|
|
|
|
Proceeds from sales of investment securities
|
$
|
911.9
|
|
|
$
|
456.6
|
|
|
$
|
455.3
|
|
Purchases of investment securities
|
(920.2
|
)
|
|
(461.1
|
)
|
|
(459.1
|
)
|
Principal payments on the Westmoreland Loan
|
56.6
|
|
|
28.8
|
|
|
27.8
|
|
Investments in NMRD
|
(9.0
|
)
|
|
—
|
|
|
(9.0
|
)
|
Other, net
|
(0.3
|
)
|
|
0.1
|
|
|
(0.4
|
)
|
Total cash (outflows) from investing activities
|
$
|
(326.5
|
)
|
|
$
|
(329.0
|
)
|
|
$
|
2.5
|
|
Cash Flow from Financing Activities
The changes in PNMR’s cash flows from financing activities include:
|
|
•
|
Short-term borrowings decreased $42.8 million in 2018 compared to a decrease of $20.6 million in 2017, resulting in a net decrease in cash flows from financing activities of $22.2 million
|
|
|
•
|
In 2018, PNMR issued $300.0 million aggregate principal amount of 3.250% SUNs and used the proceeds to repay the $150.0 million PNMR 2015 Term Loan Agreement and to reduce short-term borrowings
|
|
|
•
|
NM Capital made principal payments on the BTMU Term Loan Agreement of $50.1 million in 2018 compared to $31.3 million in 2017
|
|
|
•
|
In 2018, PNM issued $350.0 million of SUNs and repaid $350.0 million of 7.95% of SUNs
|
|
|
•
|
In 2018, TNMP issued $60.0 million of 3.85% first mortgage bonds and used the proceeds to reduce short-term debt
|
|
|
•
|
In 2018, TNMP borrowed $20.0 million under the TNMP 2018 Term Loan Agreement and used the proceeds to reduce short-term borrowings and for general corporate purposes
|
|
|
•
|
In 2018, PNM issued $100.0 million of SUNs and repaid $100.0 of 7.50% of SUNs
|
|
|
•
|
In 2017, PNM successfully remarketed $57.0 million of outstanding PCRBs
|
Financing Activities
See Note 6 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K and Note 9 for additional information concerning the Company’s financing activities. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. The Company’s ability to access the credit and capital markets at a reasonable cost is largely dependent upon its:
|
|
•
|
Ability to earn a fair return on equity
|
|
|
•
|
Ability to obtain required regulatory approvals
|
|
|
•
|
Conditions in the financial markets
|
Prior to July 2018, each of the Company’s revolving credit facilities and term loans contained a single financial covenant, which required the maintenance of debt-to-capitalization ratios of less than or equal to 65%. In July 2018, the PNMR Revolving Credit Facility, the PNMR 2016 One-Year Term Loan (as extended), the PNMR 2016 Two-Year Term Loan, and the PNMR Development Revolving Credit Facility were each amended such that PNMR is now required to maintain a debt-to-capitalization ratio of less than or equal to 70%. The debt-to-capitalization ratio requirement remains at less than or equal to 65% for the PNM and TNMP agreements. The Company’s revolving credit facilities and term loans generally also include customary covenants, events of default, cross-default provisions, and change-of-control provisions. The Company is in compliance with its debt covenants.
As discussed in Note 11, NM Capital, a wholly-owned subsidiary of PNMR, entered into the $125.0 million BTMU Term Loan Agreement with BTMU, as lender and administrative agent. The BTMU Term Loan Agreement had a maturity date of February 1, 2021 and bore interest at a rate based on LIBOR plus a customary spread. PNMR, as parent company of NM Capital, guaranteed NM Capital’s obligations to BTMU. NM Capital utilized the proceeds of the BTMU Term Loan Agreement to provide funding for the $125.0 million Westmoreland Loan to a ring-fenced, bankruptcy-remote, special-purpose entity subsidiary of Westmoreland to finance Westmoreland’s purchase of SJCC. On May 22, 2018, the full principal outstanding under the Westmoreland Loan of $50.1 million was repaid. NM Capital used a portion of the proceeds to repay all remaining principal of $43.1 million owed under the BTMU Term Loan Agreement. These payments effectively terminated the loan agreements. In addition, PNMR’s guarantee of NM Capital’s obligations was also effectively terminated. See Note 6.
On October 21, 2016, PNMR entered into letter of credit arrangements with JPMorgan Chase Bank, N.A. (the “JPM LOC Facility”) under which letters of credit aggregating
$30.3 million
were issued to facilitate the posting of reclamation bonds, which SJCC is required to post in connection with permits relating to the operation of the San Juan mine (Note 11).
On July 28, 2017, PNM entered into the PNM 2017 Senior Unsecured Note Agreement with institutional investors for the sale of $450.0 million aggregate principal amount of eight series of SUNs (the “PNM 2018 SUNs”) offered in private placement transactions. In May 2018, PNM issued $350.0 million of the PNM 2018 SUNs (at fixed annual interest rates ranging from 3.15%
to 4.50% for terms between 5 and 30 years) and used the proceeds to repay an equal amount of PNM’s 7.95% SUNs that matured on May 15, 2018. PNM issued the remaining $100.0 million of the PNM 2018 SUNs (at fixed annual interest rates of 3.78% and 4.60% for terms of 10 and 30 years) on July 31, 2018 and used the proceeds to repay an equal amount of PNM’s 7.50% SUNs that matured on August 1, 2018.
On March 9, 2018, PNMR issued $300.0 million aggregate principal amount of 3.250% SUNs (the “PNMR 2018 SUNs”), which mature on March 9, 2021. The proceeds from the offering were used to repay the $150.0 million PNMR 2015 Term Loan Agreement and to reduce borrowings under the PNMR Revolving Credit Facility.
On February 26, 2018, PNMR Development entered into a $24.5 million revolving credit facility with Wells Fargo Bank, National Association, as lender. The facility allows PNMR Development to borrow on a revolving credit basis and also provides for the issuance of letters of credit. The facility expires on February 25, 2019. The facility bears interest at a variable rate and contains terms similar to the PNMR Revolving Credit Facility. PNMR has guaranteed the obligations of PNMR Development under the facility. PNMR Development uses the facility to finance its participation in NMRD and other activities.
On June 28, 2018, TNMP entered into an agreement under which TNMP issued $60.0 million aggregate principal amount of 3.85% first mortgage bonds, due 2028. On July 25, 2018, TNMP entered into the $20.0 million TNMP 2018 Term Loan Agreement that bears interest at a variable rate and matures on July 25, 2020. TNMP used the proceeds from these issuances to repay short-term borrowings and for TNMP’s general corporate purposes.
At September 30, 2018, variable interest rates were 3.03% for the $100.0 million PNMR 2016 Two-Year Term Loan, 2.98% for the $200.0 million PNM 2017 Term Loan Agreement, and 2.94% for the $20.0 million TNMP 2018 Term Loan Agreement.
In 2017, PNMR entered into three separate four-year hedging agreements whereby it effectively established fixed interest rates on three separate tranches, each of $50.0 million, of its variable rate debt. The hedging agreements effectively fix interest rates on the aggregate $150.0 million of short-term debt at rates of 1.926%, 1.823%, and 1.629%, plus customary spreads over LIBOR, and are subject to changes if there is a change in PNMR’s credit rating.
Capital Requirements
PNMR’s total capital requirements consist of construction expenditures, cash dividend requirements for PNMR common stock and PNM preferred stock, and capital contributions for PNMR Development’s 50% ownership interest in NMRD. Key activities in PNMR’s current construction program include:
|
|
•
|
Upgrading generation resources, including expenditures for compliance with environmental requirements and for renewable energy resources
|
|
|
•
|
Expanding the electric transmission and distribution systems
|
|
|
•
|
Purchasing nuclear fuel
|
Projected capital requirements, including amounts expended through
September 30, 2018
, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019-2022
|
|
Total
|
|
(In millions)
|
Construction expenditures
|
$
|
514.5
|
|
|
$
|
1,982.8
|
|
|
$
|
2,497.3
|
|
Capital contributions to NMRD
|
1.8
|
|
|
60.7
|
|
|
62.5
|
|
Dividends on PNMR common stock
|
84.4
|
|
|
337.7
|
|
|
422.1
|
|
Dividends on PNM preferred stock
|
0.5
|
|
|
2.1
|
|
|
2.6
|
|
Total capital requirements
|
$
|
601.2
|
|
|
$
|
2,383.3
|
|
|
$
|
2,984.5
|
|
The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The construction expenditures above include environmental upgrades of $7.6 million at Four Corners, $71.6 million for 50 MW of new solar facilities included in PNM’s 2018 renewable energy procurement plan, and approximately $165.8 million in 2018-2020 for other anticipated expansions of PNM’s transmission system. Not included in the table above are potential incremental expenditures for new customer growth in New Mexico and Texas, transmission and renewable energy expansion in New Mexico, or replacement resources related to the potential shutdown of SJGS Units 1 and 4 in 2022. Expenditures for new customer growth, the expansion of PNM’s transmission system and renewable energy facilities, and SJGS replacement resources
are subject to obtaining necessary approvals of the NMPRC. PNM will be required to file CCN applications with the NMPRC to obtain those approvals, as well as to make an abandonment filing for approval to shut down SJGS. The ability of PNMR to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to be able to pay dividends to PNMR. Note 5 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K describes regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.
During the
nine
months ended
September 30, 2018
, PNMR met its capital requirements and construction expenditures through cash generated from operations, as well as its liquidity arrangements and the borrowings discussed in Financing Activities above.
In addition to the capital requirements discussed above, the Company has long-term debt and term loans that must be paid or refinanced at maturity. The $100.0 million PNMR 2016 One-Year Term Loan (as extended) matures on December 14, 2018, the $100.0 million PNMR 2016 Two-Year Term Loan matures on December 21, 2018, the $200.0 million PNM 2017 Term Loan Agreement matures on January 18, 2019, and $172.3 million of TNMP first mortgage bonds are due in April 2019. Also, the $24.5 million PNMR Development Revolving Credit Facility expires in February 2019. Note 6 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K contains additional information about the maturities of long-term debt. The Company anticipates that funds to repay these long-term debt maturities and term loans will come from entering into new arrangements similar to the existing agreements, borrowing under their revolving credit facilities, issuance of new long-term debt in the public or private capital markets, or a combination of these sources. The Company has from time to time refinanced or repurchased portions of its outstanding debt before scheduled maturity. Depending on market conditions, the Company may refinance other debt issuances or make additional debt repurchases in the future.
Liquidity
PNMR’s liquidity arrangements include the PNMR Revolving Credit Facility, the PNM Revolving Credit Facility, and the TNMP Revolving Credit Facility. In July 2018, the PNMR Revolving Credit Facility was amended to provide for two one-year extension options, subject to approval by a majority of the lenders. In October 2018, the PNM Revolving Credit Facility was amended to add two one-year extension options, subject to approval by a majority of the lenders. As a result, PNMR and PNM have the opportunity to extend these facilities through October 2024. The PNMR and PNM facilities have capacities of $300.0 million and $400.0 million through October 2020 and $290.0 million and $360.0 million beginning in November 2020. The $75.0 million TNMP Revolving Credit Facility matures in September 2022. PNM also has the $40.0 million PNM 2017 New Mexico Credit Facility, which expires in December 2022. PNMR Development has a $24.5 million revolving credit facility that expires in February 2019. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry. The Company expects that it will be able to extend or replace these credit facilities under similar terms and conditions prior to their expirations.
The revolving credit facilities and the PNM 2017 New Mexico Credit Facility provide short-term borrowing capacity. The revolving credit facilities also allow letters of credit to be issued. Letters of credit reduce the available capacity under the facilities. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. The Company’s business is seasonal with more revenues and cash flows from operations being generated in the summer months. In general, the Company relies on the credit facilities to be the initial funding source for construction expenditures. Accordingly, borrowings under the facilities may increase over time. Depending on market and other conditions, the Company will periodically sell long-term debt and use the proceeds to reduce the borrowings under the credit facilities. Information regarding the range of borrowings for each facility is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
Range of Borrowings
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
|
(In millions)
|
PNM:
|
|
|
|
|
|
|
|
|
PNM Revolving Credit Facility
|
|
$
|
—
|
|
|
$
|
26.5
|
|
|
$
|
—
|
|
|
$
|
64.2
|
|
PNM 2017 New Mexico Credit Facility
|
|
—
|
|
|
10.0
|
|
|
—
|
|
|
20.0
|
|
TNMP Revolving Credit Facility
|
|
—
|
|
|
13.5
|
|
|
—
|
|
|
73.9
|
|
PNMR Revolving Credit Facility
|
|
106.0
|
|
|
136.5
|
|
|
29.1
|
|
|
210.0
|
|
PNMR Development Revolving Credit Facility
|
|
24.5
|
|
|
24.5
|
|
|
—
|
|
|
24.5
|
|
At
September 30, 2018
, the average interest rate was
3.34%
for the PNMR Revolving Credit Facility, 3.02% for the PNMR 2016 One-Year Term Loan (as extended), 2.99% for the TNMP Revolving Credit Facility, and 3.07% for the PNMR Development Revolving Credit Facility.
The Company currently believes that its capital requirements for at least the next twelve months can be met through internal cash generation, existing, extended, or new credit arrangements, and access to public and private capital markets. The Company anticipates that it will be necessary to obtain additional long-term financing to fund its capital requirements during the 2018-2022 period. This could include new debt and/or equity issuances. The Company currently anticipates utilizing a three-year at-the-market equity issuance program to raise equity beginning in 2020 to partially fund capital requirements. This at-the-market program should provide a flexible, efficient, and low-cost way to issue equity as needed. The Company also expects to issue new debt periodically to fund capital investments. To cover the difference in the amounts and timing of internal cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements. However, if difficult market conditions return, the Company may not be able to access the capital markets or renew credit facilities when they expire. Should that occur, the Company would seek to improve cash flows by reducing capital expenditures and exploring other available alternatives.
Information concerning the credit ratings for PNMR, PNM, and TNMP was set forth under the heading Liquidity in the MD&A contained in the 2017 Annual Reports on Form 10-K. As of
October 30, 2018
, ratings on the Company’s securities were as follows:
|
|
|
|
|
|
|
|
PNMR
|
|
PNM
|
|
TNMP
|
S&P
|
|
|
|
|
|
Corporate rating
|
BBB+
|
|
BBB+
|
|
BBB+
|
Senior secured debt
|
*
|
|
*
|
|
A
|
Senior unsecured debt
|
BBB
|
|
BBB+
|
|
*
|
Preferred stock
|
*
|
|
BBB-
|
|
*
|
Moody’s
|
|
|
|
|
|
Issuer rating
|
Baa3
|
|
Baa2
|
|
A3
|
Senior secured debt
|
*
|
|
*
|
|
A1
|
Senior unsecured debt
|
Baa3
|
|
Baa2
|
|
*
|
* Not applicable
|
|
|
|
|
|
Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. On January 16, 2018, S&P changed the outlook for PNMR, PNM, and TNMP from stable to negative while affirming the ratings above for all entities. On June 29, 2018, Moody’s changed the ratings outlook for PNMR and PNM from positive to stable, maintained the stable outlook for TNMP, and affirmed the long-term credit ratings of each entity. The ultimate outcomes from PNM’s NM 2015 Rate Case and NM 2016 Rate Case, including the pending appeals before the NM Supreme Court, and the TNMP 2018 Rate Case, as discussed in Note 12, could affect both the outlook and credit ratings. Investors are cautioned that a security rating is not a recommendation to buy, sell, or hold securities, that each rating is subject to revision or withdrawal at any time by the assigning rating organization, and that each rating should be evaluated independently of any other rating.
A summary of liquidity arrangements as of
October 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNM
|
|
TNMP
|
|
PNMR
Separate
|
|
PNMR
Development
|
|
PNMR Consolidated
|
|
(In millions)
|
Financing capacity:
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
400.0
|
|
|
$
|
75.0
|
|
|
$
|
300.0
|
|
|
$
|
24.5
|
|
|
$
|
799.5
|
|
PNM 2017 New Mexico Credit Facility
|
40.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40.0
|
|
Total financing capacity
|
$
|
440.0
|
|
|
$
|
75.0
|
|
|
$
|
300.0
|
|
|
$
|
24.5
|
|
|
$
|
839.5
|
|
|
|
|
|
|
|
|
|
|
|
Amounts outstanding as of October 30, 2018:
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
—
|
|
|
$
|
27.5
|
|
|
$
|
126.5
|
|
|
$
|
24.5
|
|
|
$
|
178.5
|
|
PNM New Mexico Credit Facility
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Letters of credit
|
2.5
|
|
|
0.1
|
|
|
4.7
|
|
|
—
|
|
|
7.3
|
|
Total short-term debt and letters of credit
|
2.5
|
|
|
27.6
|
|
|
131.2
|
|
|
24.5
|
|
|
185.8
|
|
|
|
|
|
|
|
|
|
|
|
Remaining availability as of October 30, 2018
|
$
|
437.5
|
|
|
$
|
47.4
|
|
|
$
|
168.8
|
|
|
$
|
—
|
|
|
$
|
653.7
|
|
Invested cash as of October 30, 2018
|
$
|
55.3
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
56.2
|
|
In addition to the above, PNMR had $30.3 million of letters of credit outstanding under the JPM LOC Facility. The above table excludes intercompany debt. As of
October 30, 2018
, PNM and TNMP had intercompany borrowings from PNMR of
zero
and
$5.4 million
. The remaining availability under the revolving credit facilities at any point in time varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures.
For offerings of debt or equity securities registered with the SEC, including shares of common stock through the PNM Resources Direct Plan, PNMR has a shelf registration statement expiring in March 2021. This shelf registration statement has unlimited availability and can be amended to include additional securities, subject to certain restrictions and limitations. PNM has a shelf registration statement for up to $475.0 million of SUNs that expires in May 2020.
Off-Balance Sheet Arrangements
PNMR’s off-balance sheet arrangements include PNM’s operating leases for portions of PVNGS Units 1 and 2. These arrangements help ensure PNM the availability of lower-cost generation needed to serve customers. See MD&A – Off-Balance Sheet Arrangements and Notes 7 and 9 of the Notes to Consolidated Financial Statements in the 2017 Annual Reports on Form 10-K, as well as Note 13.
Commitments and Contractual Obligations
PNMR, PNM, and TNMP have contractual obligations for long-term debt, operating leases, construction expenditures, purchase obligations, and certain other long-term obligations. See MD&A – Commitments and Contractual Obligations in the 2017 Annual Reports on Form 10-K.
Contingent Provisions of Certain Obligations
As discussed in the 2017 Annual Reports on Form 10-K,
PNMR, PNM, and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. In the unlikely event that the contingent requirements were to be triggered, PNMR, PNM, or TNMP could be required to provide security, immediately pay outstanding obligations, or be prevented from drawing on unused capacity under certain credit agreements. The contingent provisions also include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations and interest rate swaps in the event of a downgrade in credit ratings. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions. No conditions have occurred that would result in any of the above contingent provisions being implemented.
Capital Structure
The capitalization tables below include the current maturities of long-term debt, but do not include short-term debt and do not include operating lease obligations as debt.
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
PNMR
|
|
|
|
PNMR common equity
|
40.3
|
%
|
|
40.9
|
%
|
Preferred stock of subsidiary
|
0.3
|
%
|
|
0.3
|
%
|
Long-term debt
|
59.4
|
%
|
|
58.8
|
%
|
Total capitalization
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
PNM
|
|
|
|
PNM common equity
|
48.0
|
%
|
|
46.0
|
%
|
Preferred stock
|
0.4
|
%
|
|
0.4
|
%
|
Long-term debt
|
51.6
|
%
|
|
53.6
|
%
|
Total capitalization
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
TNMP
|
|
|
|
Common equity
|
53.7
|
%
|
|
56.9
|
%
|
Long-term debt
|
46.3
|
%
|
|
43.1
|
%
|
Total capitalization
|
100.0
|
%
|
|
100.0
|
%
|
OTHER ISSUES FACING THE COMPANY
Climate Change Issues
Background
For the past several years, management has identified multiple risks and opportunities related to climate change, including potential environmental regulation, technological innovation, and availability of fuel and water for operations, as among the most significant risks facing the Company. Accordingly, these risks are overseen by the full Board in order to facilitate more integrated risk and strategy oversight and planning. Board oversight includes understanding the various challenges and opportunities presented by these risks, including the financial consequences that might result from potential federal and/or state regulation of GHG; plans to mitigate the risks; and the impacts these risks may have on the Company’s strategy. In addition, the Board approves certain PNM investments in environmental equipment and grid modernization technologies.
Management is also responsible for assessing significant risks, developing and executing appropriate responses, and reporting to the Board on the status of risk activities. For example, management periodically updates the Board on implementation of the corporate environmental policy and the Company’s environmental management systems, promotion of energy efficiency, and use of renewable resources. The Board is also advised of the Company’s practices and procedures to assess the impacts of operations on the environment. The Board considers issues associated with climate change, the Company’s GHG exposures, and the financial consequences that might result from potential federal and/or state regulation of GHG. Management has published, with Board oversight, a Climate Change Report available at
http://www.pnmresources.com/about-us/sustainability-portal.aspx
, that details PNM’s efforts to transition to a coal-free generation portfolio.
As part of management’s continuing effort to monitor climate-related risks and opportunities, the Company is evaluating different transparency frameworks, including the framework created by the Task Force on Climate-related Financial Disclosures and a framework created by Edison Electric Institute. The Company is also participating in an Electric Power Research Institute project that is evaluating potential climate change policy scenario analysis and GHG goal setting.
Changes in the climate are generally not expected to have material consequences to the Company in the near-term. The Company cannot anticipate or predict the potential long-term effects of climate change or climate change related regulation on its assets and operations.
Greenhouse Gas Emissions (“GHG”) Exposures
In 2017, GHG associated with PNM’s interests in its fossil-fueled generating plants included approximately 6.9 million metric tons of CO
2
, which comprises the vast majority of PNM’s GHG.
As of January 1, 2018, approximately 67.9% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the United States, consisted of coal or gas-fired generation that produces GHG. This reflects the retirement of SJGS Units 2 and 3 that occurred in December 2017 and the restructuring of ownership in SJGS Unit 4. These events reduced PNM’s entitlement in SJGS from 783 MW to 562 MW and will cause the Company’s output of GHG to decrease in 2018 compared to 2017. Many factors affect the amount of GHG emitted, including plant performance, economic dispatch, and the availability of renewable resources. For example, between 2007 and 2017, production from New Mexico Wind has varied from a high of 580 GWh in 2011 to a low of 405 GWh in 2014. Variations are primarily due to how much and how often the wind blows. In addition, if PVNGS experienced prolonged outages or if PNM’s entitlement from PVNGS were reduced, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG.
PNM has several programs underway to reduce or offset GHG from its generation resource portfolio, thereby reducing its exposure to climate change regulation. See Note 12. As described in Note 11, PNM received approval for the December 31, 2017 shutdown of SJGS Units 2 and 3 as part of its strategy to address the regional haze requirements of the CAA. The shutdown of SJGS Units 2 and 3 is expected to result in a reduction of GHG for the entire station of approximately 50%, including an overall reduction of approximately 40% of GHG from the Company’s owned interests. In addition, as discussed in Note 12, PNM’s 2017 IRP indicates exiting ownership in the remaining SJGS units in 2022 and Four Corners in 2031 would provide long-term cost savings to its customers and would further reduce PNM’s GHG. PNM owns utility-scale solar generation with a total generation capacity of 107 MW. Since 2003, PNM has purchased the entire output of New Mexico Wind, which has an aggregate capacity of 204 MW, and, since January 2015, has purchased the full output of Red Mesa Wind, which has an aggregate capacity of 102 MW. PNM has a 20-year PPA for the output of Lightning Dock Geothermal, which began providing power to PNM in January 2014. The current capacity of the geothermal facility is 4 MW. On November 15, 2017 the NMPRC approved PNM’s 2018 renewable energy procurement plan. As a result, PNM will acquire an additional 80 GWh in 2019 and 105 GWh in 2020 from a re-powering of New Mexico Wind; an additional 55 GWh in 2019 and 77 GWh in 2020 from a re-powering of Lightning Dock Geothermal; and PNM will construct 50 MW of new solar facilities in 2018 and 2019. Additionally, PNM began purchasing renewable energy from 30 MW of solar-PV facilities owned by NMRD in 2018 and, subject to FERC approval, will purchase an additional 100 MW of capacity from solar-PV facilities to be owned by NMRD in 2019 and 2020 to supply power to a data center being constructed in PNM’s service territory (Note 11). PNM also has a customer distributed solar generation program that represented 95.9 MW at September 30, 2018. PNM’s distributed solar programs will reduce PNM’s annual production from fossil-fueled electricity generation by about 192 GWh. PNM has offered its customers a comprehensive portfolio of energy efficiency and load management programs since 2007, with a budget of $23.6 million for the 2018 program year. PNM’s cumulative annual savings from these programs were approximately 622 GWh of electricity in 2017. Over the next 20 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 8,000 GWh of electricity, which will avoid at least 4.3 million metric tons of CO
2
based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in demand for electricity, and complex relationships between those variables.
Because of PNM’s dependence on fossil-fueled generation, legislation or regulation that imposes a limit or cost on GHG could impact the cost at which electricity is produced. While PNM expects to recover any such costs through rates, the timing and outcome of proceedings for cost recovery are uncertain. In addition, to the extent that any additional costs are recovered through rates, customers may reduce their usage, relocate facilities to other areas with lower energy costs, or take other actions that ultimately could adversely impact PNM.
Other Climate Change Risks
PNM’s generating stations are located in the arid southwest. Access to water for cooling for some of these facilities is critical to continued operations. Forecasts for the impacts of climate change on water supply in the southwest range from reduced precipitation to changes in the timing of precipitation. In either case, PNM’s generating facilities requiring water for cooling will need to mitigate the impacts of climate change through adaptive measures. Current measures employed by PNM generating stations such as air cooling, use of grey water, improved reservoir operations, and shortage sharing arrangements with other water users will continue to be important to sustain operations.
PNM’s service areas occasionally experience periodic high winds, forest fires, and severe thunderstorms. TNMP has operations in the Gulf Coast area of Texas, which experiences periodic hurricanes and other extreme weather conditions. In addition to potentially causing physical damage to Company-owned facilities, which disrupts the ability to transmit and/or distribute energy, weather and other events of nature can temporarily reduce customers’ usage and demand for energy. During the third quarter of 2017, Hurricane Harvey had significant impacts on the Gulf Coast region, including certain areas serviced by TNMP.
EPA Regulation
In April 2007, the US Supreme Court held that EPA has the authority to regulate GHG under the CAA. This decision heightened the importance of this issue for the energy industry. In December 2009, EPA released its endangerment finding for emissions from new motor vehicles, stating that the atmospheric concentrations of six key greenhouse gases (CO
2
, methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) endanger the public health and welfare of current and future generations. In May 2010, EPA released the final PSD and Title V Greenhouse Gas Tailoring Rule to address GHG from stationary sources under the CAA permitting programs. The purpose of the rule was to “tailor” the applicability of two programs, the PSD construction permit and Title V operating permit programs, to avoid impacting millions of small GHG emitters. On June 23, 2014, the US Supreme Court found EPA lacked authority to “tailor” the CAA’s unambiguous numerical thresholds of 100 or 250 tons per year, and thus held EPA may not require a source to obtain a PSD permit solely on the basis of its potential GHG emissions. However, the court upheld EPA’s authority to apply the PSD program for GHGs to “anyway” sources – those sources that have to comply with the PSD program for other non-GHG pollutants.
On June 25, 2013, then President Obama announced his Climate Action Plan, which outlined how his administration planned to cut GHG in the United States, prepare the country for the impacts of climate change, and lead international efforts to combat and prepare for global warming. The plan proposed actions that would lead to the reduction of GHG by 17% below 2005 levels by 2020.
On August 3, 2015, EPA responded to the Climate Action Plan by issuing three separate but related actions: (1) the final Carbon Pollution Standards for new, modified, and reconstructed power plants (under Section 111(b)); (2) the final Clean Power Plan for existing power plants (under Section 111(d)); and (3) a proposed federal plan associated with the final Clean Power Plan.
EPA’s Carbon Pollution Standards for new sources (those constructed after January 8, 2014) established separate standards for gas- and coal-fired units. The standards reflect the degree of emission limitation achievable through the application of what EPA determined to be the best system of emission reduction (“BSER”) demonstrated for each type of unit. For newly constructed and reconstructed base load natural gas-fired stationary combustion turbines, EPA finalized a standard based on efficient natural gas combined cycle technology. The final standards for coal-fired power plants vary depending on whether the unit is new, modified, or reconstructed.
The final Clean Power Plan established numeric “emission standards” for existing electric generating units – one for “fossil-steam” units (coal- and oil-fired units) and one for natural gas-fired units (combined cycle only). The emission standards are based on emission reduction opportunities that EPA deemed achievable using technical assumptions for three “building blocks”: efficiency improvements at coal-fired EGUs, displacement of affected EGUs with renewable energy, and displacement of coal-fired generation with natural gas-fired generation.
Multiple states, utilities, and trade groups filed petitions for review in the DC Circuit to challenge both the Carbon Pollution Standards for new sources and the Clean Power Plan for existing sources. Numerous parties also simultaneously filed motions to stay the Clean Power Plan during the litigation. The DC Circuit refused to stay the rule, but 29 states and state agencies successfully petitioned the US Supreme Court for a stay, which was granted on February 9, 2016. As a result, the Clean Power Plan is not in effect and neither states nor sources are obliged to comply with its requirements. With the US Supreme Court stay in place, the DC Circuit heard oral arguments on the merits of the Clean Power Plan on September 27, 2016 in front of a 10-judge
en banc
panel. However, before the DC Circuit could issue an opinion, President Trump took office and his administration asked the court to hold the case in abeyance while the rule is re-evaluated, which the court granted.
On March 28, 2017, President Trump issued an Executive Order titled “Promoting Energy Independence and Economic Growth.” Among its goals are to “promote clean and safe development of our Nation’s vast energy resources, while at the same time avoiding regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation.” The order rescinds several key pieces of the Obama Administration’s climate agenda, including the Climate Action Plan and the Final Guidance on Consideration of Climate Change in NEPA Reviews. It directs agencies to review and suspend,
revise or rescind any regulations or agency actions that potentially burden the development or use of domestically produced energy resources.
Most notably, the order directs EPA to immediately review and, if appropriate and consistent with law, suspend, revise, or rescind (1) the Carbon Pollution Standards for new, reconstructed or modified electric utilities, (2) the Clean Power Plan, (3) the Proposed Clean Power Plan Model Trading Rules, and (4) the Legal Memorandum supporting the Clean Power Plan. In response, the EPA signed a NOPR to repeal the Clean Power Plan on October 10, 2017. The notice proposes a legal interpretation concluding that the Clean Power Plan exceeds EPA’s statutory authority. EPA accepted comments on that proposed interpretation through April 26, 2018. Any final rule will likely be subject to judicial review. On December 18, 2017, EPA released an advanced NOPR addressing GHG guidelines for existing electric utility generating units. Comments were due by February 26, 2018. On August 31, 2018, EPA published a proposed rule, which is informally known as the Affordable Clean Energy rule, to replace the Clean Power Plan. The proposed Affordable Clean Energy rule, among other things, would establish guidelines that replace the “outside-the-fenceline” control measures and specific numerical emission rates for existing EGUs with a list of “candidate technologies” for heat rate improvement measures that EPA has identified as Best System of Emission Reduction (“BSER”). States would determine which of the candidate technologies to apply to each coal-fired unit and establish standards of performance based on the degree of emission reduction achievable once BSER is applied. States will have three years from when the rule is finalized to submit a plan to EPA and EPA will have one year to determine if each proposed plan is acceptable. If states do not submit a plan, or if their submitted plan is not acceptable, EPA will have two years to develop a federal plan. EPA is also proposing revisions to NSR program that would provide coal-fired power plants more latitude to make efficiency improvements consistent with BSER without triggering NSR permit requirements. Comments on the proposed Affordable Clean Energy rule were due to EPA by October 31, 2018.
PNM is unable to predict the impact to the Company of these proposed rulemakings. If a future regulation limiting or otherwise reducing GHG from fossil-fueled EGUs is adopted, such regulations could impact PNM’s existing and future fossil-fueled EGUs. The existing Carbon Pollution Standards covering new sources could also impact PNM’s generation fleet, although that rule remains under review by EPA and the DC Circuit.
Federal Legislation
Prospects for enactment in Congress of legislation imposing a new or enhanced regulatory program to address climate change are highly unlikely in 2018.
State and Regional Activity
Pursuant to New Mexico law, each utility must submit an IRP to the NMPRC every three years to evaluate renewable energy, energy efficiency, load management, distributed generation, and conventional supply-side resources on a consistent and comparable basis. The IRP is required to take into consideration risk and uncertainty of fuel supply, price volatility, and costs of anticipated environmental regulations when evaluating resource options to meet supply needs of the utility’s customers. The NMPRC requires that New Mexico utilities factor a standardized cost of carbon emissions into their IRPs using prices ranging between $8 and $40 per metric ton of CO
2
emitted and escalating these costs by 2.5% per year. Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs. Reflecting the developing nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances. Although these prices may not reflect the costs that ultimately will be incurred, PNM is required to use these prices for purposes of its IRP. In its 2017 IRP, PNM analyzed resource portfolio plans for scenarios that assumed SJGS will operate beyond the end of the current coal supply agreement that runs through June 30, 2022 and for scenarios that assumed SJGS will cease operations by the end of 2022 as discussed in Note 12. The key findings of the 2017 IRP include that exiting SJGS in 2022 would provide long-term cost benefits to PNM’s customers and that PNM exiting its ownership interest in Four Corners in 2031 would also save customers money. The materials presented in the IRP process are available at
www.pnm.com\irp
.
On August 30, 2017, Western Resource Advocates provided the NMPRC with a presentation on a proposed rulemaking for the adoption of a clean energy standard in New Mexico and a suggestion that the NMPRC issue a NOPR. The NMAG’s office and Prosperity Works joined in the petition. The proposed clean energy standard, if adopted, would require utilities to reduce carbon emissions by four percent per year for the next 20 years. The NMPRC has convened a series of workshops to develop a clean energy standard rule that could be proposed for a future rulemaking proceeding. The major topic areas discussed at the workshops are: jurisdictional and other legal issues; selection of the timeframe for the emissions baseline year to be used, unspecified power, and electric vehicle credits; and cost responsibilities, benefits, reasonable cost threshold, impact on rates, compliance issues,
reliability impacts, and unintended consequences. Workshops were completed in 2018. PNM is unable to predict the outcome of any proposed rule that may result from this process.
International Accords
The United Nations Framework Convention on Climate Change (“UNFCCC”) is an international environmental treaty that was negotiated at the 1992 United Nations Conference on Environment and Development (informally known as the Earth Summit) and entered into force in March 1994. The objective of the treaty is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” Parties to the UNFCCC, including the United States, have been meeting annually in Conferences of the Parties (“COP”) to assess progress in meeting the objectives of the UNFCCC.
On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The aim of the Paris Agreement is to limit global temperature rise to two degrees Celsius above pre-industrial levels. The agreement, which was agreed to by more than 190 nations, requires that countries submit Intended Nationally Determined Contributions (“INDCs”). INDCs reflect national targets and actions that arise out of national policies and elements relating to oversight, guidance and coordination of actions to reduce emissions by all countries. In November 2014, then President Obama announced the United States’ commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005 levels by the year 2025. The United States INDC is part of an overall effort by the former administration to have the United States achieve economy-wide reductions of around 80% by 2050. The former administration’s GHG reduction target for the electric utility industry is a key element of its INDC and is based on EPA’s final GHG regulations for new, existing, and modified and reconstructed sources. The United States is one of 190 nations that offered INDCs. Thresholds for the number of countries necessary to ratify or accede to the Paris Agreement and total global GHG percentage were achieved on October 5, 2016 and the Paris Agreement entered into force on November 4, 2016. To date, 181 countries have ratified the Paris Agreement and 177 countries have submitted INDCs. On June 1, 2017, President Trump announced that the United States would withdraw from the Paris Agreement. In his public statement, he indicated that the United States would “begin negotiations to reenter either the Paris Accord or a .... new transaction on terms that are fair to the United States, its businesses, its workers, its people, its taxpayers.” The United States continues to hold the position that it will withdraw from the Paris Agreement unless it can negotiate better terms. The earliest date that the United States could give formal notification of its withdrawal is November 4, 2020. In the interim, the United States continues to participate in international climate negotiations. It is uncertain if the United States will choose to pursue a transition to a low-carbon economy using a pathway that aligns with the Paris Agreement to keep global temperature rise to below two degrees Celsius (the “2 Degree Scenario”) above pre-industrial levels or in connection with other regulation or legislation. PNM has not conducted a 2 Degree Scenario analysis but has calculated GHG reductions that would result from implementation of the 2017 IRP scenarios that assume PNM would retire its share of the SJGS in 2022 and would exit from Four Corners in 2031. Assuming necessary regulatory approvals are obtained for an early retirement of the SJGS and for an exit from Four Corners, PNM estimates GHG emissions from its fossil-fueled plants would be 71% lower in 2025 and 80% lower in 2035 against 2005 baseline levels. This compares favorably to the 26% - 28% by 2025 United States INDC and the former administration’s effort to achieve an 80% reduction by 2050. As discussed in Note 11, retiring PNM’s share of SJGS capacity and exiting Four Corners would require NMPRC approval of abandonment filings, which PNM would make at appropriate times in the future.
PNM will continue to monitor the United States’ and other parties’ involvement in international accords, but the potential impact that such accords may have on the Company cannot be determined at this time.
Assessment of Legislative/Regulatory Impacts
The Company has assessed, and continues to assess, the impacts of climate change legislation and regulation on its business. This assessment is ongoing and future changes arising out of the legislative or regulatory process could impact the assessment significantly. PNM’s assessment includes assumptions regarding specific GHG limits; the timing of implementation of these limits; the possibility of a market-based trading program, including the associated costs and the availability of emission credits or allowances; the development of emission reduction and/or renewable energy technologies; and provisions for cost containment. Moreover, the assessment assumes various market reactions such as the price of coal and gas and regional plant economics. These assumptions are, at best, preliminary and speculative. However, based upon these assumptions, the enactment of climate change legislation or regulation could, among other things, result in significant compliance costs, including large capital expenditures by PNM, and could jeopardize the economic viability of certain generating facilities. See Note 11. In turn, these consequences could lead to increased costs to customers and affect results of operations, cash flows, and financial condition if the incurred costs are
not fully recovered through regulated rates. Higher rates could also contribute to reduced usage of electricity. PNM’s assessment process is too preliminary and speculative at this time for a meaningful prediction of financial impact.
Transmission Issues
At any given time, FERC has various notices of inquiry and rulemaking dockets related to transmission issues pending. Such actions may lead to changes in FERC administrative rules or ratemaking policy, but have no time frame in which action must be taken or a docket closed with no further action. Further, such notices and rulemaking dockets do not apply strictly to PNM, but will have industry-wide effects in that they will apply to all FERC-regulated entities. PNM monitors and often submits comments taking a position in such notices and rulemaking dockets or may join in larger group responses. PNM often cannot determine the full impact of a proposed rule and policy change until the final determination is made by FERC and PNM is unable to predict the outcome of these matters.
On November 24, 2009, FERC issued Order 729 approving two Modeling, Data, and Analysis Reliability Standards (“Reliability Standards”) submitted by NERC – MOD-001-1 (Available Transmission System Capability) and MOD-029-1 (Rated System Path Methodology). Both MOD-001-1 and MOD-029-1 require a consistent approach, provided for in the Reliability Standards, to measuring the total transmission capability (“TTC”) of a transmission path. The TTC level established using the two Reliability Standards could result in a reduction in the available transmission capacity currently used by PNM to deliver generation resources necessary for its jurisdictional load and for fulfilling its obligations to third-party users of the PNM transmission system.
During the first quarter of 2011, at the request of PNM and other southwestern utilities, NERC advised all transmission owners and transmission service providers that the implementation of portions of the MOD-029 methodology for “Flow Limited” paths has been delayed until such time as a modification to the standard can be developed that will mitigate the technical concerns identified by the transmission owners and transmission service providers. PNM and other western utilities filed a Standards Action Request with NERC in the second quarter of 2012.
NERC initiated an informal development process to address directives in Order 729 to modify certain aspects of the MOD standards, including MOD-001 and MOD-029. The modifications to this standard would retire MOD-029 and require each transmission operator to determine and develop methodology for TTC values for MOD-001.
A final ballot for MOD-001-2 concluded on December 20, 2013 and received sufficient affirmative votes for approval. On February 10, 2014, NERC filed with FERC a petition for approval of MOD-001-2 and retirement of reliability standards MOD-001-1a, MOD-004-1, MOD-008-1, MOD-028-2, MOD-029-1a, and MOD-030-2. On June 19, 2014, FERC issued a NOPR to approve a new reliability standard. The MOD-001-2 standard will become effective on the first day of the calendar quarter that is 18 months after the date the standard is approved by FERC. MOD-001-2 will replace multiple existing reliability standards and will remove the risk of reduced TTC for PNM and other western utilities.
Financial Reform Legislation
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Reform Act”), enacted in July 2010, includes provisions that will require certain over-the-counter derivatives, or swaps, to be centrally cleared and executed through an exchange or other approved trading facility. It also includes provisions related to swap transaction reporting and record keeping and may impose margin requirements on swaps that are not centrally cleared. The United States Commodity Futures Trading Commission (“CFTC”) has published final rules defining several key terms related to the act and has set compliance dates for various types of market participants. The Dodd-Frank Reform Act provides exemptions from certain requirements, including an exception to the mandatory clearing and swap facility execution requirements for commercial end-users that use swaps to hedge or mitigate commercial risk. PNM has elected the end-user exception to the mandatory clearing requirement. PNM expects to be in compliance with the Dodd-Frank Reform Act and related rules within the time frames required by the CFTC. However, as a result of implementing and complying with the Dodd-Frank Reform Act and related rules, PNM’s swap activities could be subject to increased costs, including from higher margin requirements. The Trump Administration has indicated that the provisions of the Dodd-Frank Reform Act will be reviewed and certain regulations may be rolled back, but no formal action has been taken yet. At this time, PNM cannot predict the ultimate impact the Dodd-Frank Reform Act may have on PNM’s financial condition, results of operations, cash flows, or liquidity.
Other Matters
See Notes 11 and 12 herein and Notes 16 and 17 of the Notes to Consolidated Financial Statements in the
2017
Annual Reports on Form 10-K for a discussion of commitments and contingencies and rate and regulatory matters. See Note 1 for a discussion of accounting pronouncements that have been issued, but are not yet effective and have not been adopted by the Company.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with GAAP requires Company management to select and apply accounting policies that best provide the framework to report the results of operations and financial position for PNMR, PNM, and TNMP. The selection and application of those policies requires management to make difficult, subjective, and/or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
As of
September 30, 2018
, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s
2017
Annual Reports on Forms 10-K. The policies disclosed included unbilled revenues, regulatory accounting, impairments, decommissioning and reclamation costs, pension and other postretirement benefits, accounting for contingencies, and income taxes.
MD&A FOR PNM
RESULTS OF OPERATIONS
PNM operates in only one reportable segment, as presented above in Results of Operations for PNMR.
MD&A FOR TNMP
RESULTS OF OPERATIONS
TNMP operates in only one reportable segment, as presented above in Results of Operations for PNMR.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Statements made in this filing that relate to future events or PNMR’s, PNM’s, or TNMP’s 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. PNMR, PNM, and TNMP assume no obligation to update this information.
Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR’s, PNM’s, and TNMP’s business, financial condition, cash flows, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:
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The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the impacts of the NMPRC orders in PNM’s NM 2015 Rate Case and NM 2016 Rate Case, appeals of those orders, the deferral of the issue of PNM’s prudence of continuation of participation in Four Corners to PNM’s next rate case and recovery of PNM’s investments in that plant, any actions resulting from PNM’s 2017 IRP, and the TNMP 2018 Rate Case (collectively, the “Regulatory Proceedings”) and the impact on service levels for PNM customers if the ultimate outcomes do not provide for the recovery of costs of operating and capital expenditures, as well as other impacts of federal or state regulatory and judicial actions
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The ability of the Company to successfully forecast and manage its operating and capital expenditures, including aligning expenditures with the revenue levels resulting from the ultimate outcomes of the Regulatory Proceedings and supporting forecasts utilized in future test year rate proceedings
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Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects, including the 2022 scheduled expiration of the operational and fuel supply agreements for SJGS, as well as the 2018 required NMPRC filing to determine the extent to which SJGS should continue serving PNM’s retail customers beyond mid-2022 and any actions resulting from PNM’s 2017 IRP, including regulatory recovery of undepreciated investments in the event the NMPRC orders generating facilities to be retired before currently scheduled
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Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers, including the potential impacts of the ultimate outcomes of the Regulatory Proceedings
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The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, energy efficiency measures, weather, seasonality, alternative sources of power, and other changes in supply and demand
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Uncertainty regarding what actions PNM may take with respect to the generating capacity in PVNGS Units 1 and 2, which is under lease, at the expiration of the lease terms in 2023 and 2024, as well as the related treatment for ratemaking purposes by the NMPRC
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The Company’s ability to access the financial markets in order to provide financing to repay or refinance debt as it comes due, as well as for ongoing operations and construction expenditures, including disruptions in the capital or credit markets, actions by ratings agencies, and fluctuations in interest rates, including any negative impacts that could result from the ultimate outcomes of the Regulatory Proceedings
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The risks associated with completion of generation, transmission, distribution, and other projects
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The potential unavailability of cash from PNMR’s subsidiaries due to regulatory, statutory, or contractual restrictions or subsidiary earnings or cash flows
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The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality and supply issues, unplanned outages, extreme weather conditions, terrorism, cybersecurity breaches, and other catastrophic events
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State and federal regulation or legislation relating to environmental matters and renewable energy requirements, the resultant costs of compliance, and other impacts on the operations and economic viability of PNM’s generating plants
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State and federal regulatory, legislative, executive, and judicial decisions and actions on ratemaking, tax, including the impacts and related uncertainties of tax reform enacted in 2017, and other matters
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Risks related to climate change, including potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG
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Employee workforce factors, including cost control efforts and issues arising out of collective bargaining agreements and labor negotiations with union employees
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Variability of prices and volatility and liquidity in the wholesale power and natural gas markets
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Changes in price and availability of fuel and water supplies, including the ability of the mines supplying coal to PNM’s coal-fired generating units and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel
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Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties
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The risk that FERC rulemakings or lack of additional capacity during peak hours may negatively impact the operation of PNM’s transmission system
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The impacts of decreases in the values of marketable securities maintained in trusts to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits, including potential increased volatility resulting from international developments
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Uncertainty surrounding counterparty performance and credit risk, including the ability of counterparties to supply fuel and perform reclamation activities and impacts to financial support provided to facilitate the coal supply at SJGS
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The effectiveness of risk management regarding commodity transactions and counterparty risk
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The outcome of legal proceedings, including the extent of insurance coverage
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Changes in applicable accounting principles or policies
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Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, and TNMP’s
2017
Annual Reports on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.
For information about the risks associated with the use of derivative financial instruments, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”
SECURITIES ACT DISCLAIMER
Certain securities described or cross-referenced in this report have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be reoffered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. This Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy any securities.
WEBSITES
The PNMR website,
www.pnmresources.com
, is an important source of Company information. New or updated information for public access is routinely posted. PNMR encourages analysts, investors, and other interested parties to register on the website to automatically receive Company information by e-mail. This information includes news releases, notices of
webcasts, and filings with the SEC. Participants will not receive information that was not requested and can unsubscribe at any time.
Our corporate Internet addresses are:
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PNMR:
www.pnmresources.com
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The PNMR website includes a link to PNMR’s Sustainability Portal,
www.pnmresources.com/about-us/sustainability-portal.aspx
. This portal provides access to key sustainability information, including a Climate Change Report, related to the operations of PNM and TNMP and reflects PNMR’s commitment to do business in an ethical, open, and transparent manner.
The contents of these websites are not a part of this Form 10-Q. The SEC filings of PNMR, PNM, and TNMP, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are accessible free of charge on the PNMR website as soon as reasonably practicable after they are filed with, or furnished to, the SEC. These reports are also available in print upon request from PNMR free of charge.
Also available on the Company’s website at
http://www.pnmresources.com/corporate-governance.aspx
and in print upon request from any shareholder are PNMR’s:
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Corporate Governance Principles
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Code of Ethics (
Do the Right Thing
–
Principles of Business Conduct
)
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Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee
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Restated Articles of Incorporation and Bylaws
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The Company will post amendments to or waivers from its code of ethics (to the extent applicable to the Company’s executive officers and directors) on its website.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manages the scope of its various forms of market risk through a comprehensive set of policies and procedures with oversight by senior level management through the Risk Management Committee (“RMC”). The Board’s Finance Committee sets the risk limit parameters. The RMC has oversight over the risk control organization. The RMC is assigned responsibility for establishing and enforcing the policies, procedures, and limits and evaluating the risks inherent in proposed transactions on an enterprise-wide basis. The RMC’s responsibilities include:
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Establishing policies regarding risk exposure levels and activities in each of the business segments
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Approving the types of derivatives entered into for hedging
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Reviewing and approving hedging risk activities
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Establishing policies regarding counterparty exposure and limits
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Authorizing and delegating transaction limits
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Reviewing and approving controls and procedures for derivative activities
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Reviewing and approving models and assumptions used to calculate mark-to-market and market risk exposure
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Proposing risk limits to the Board’s Finance Committee for its approval
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Reporting to the Board’s Audit and Finance Committees on these activities
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To the extent an open position exists, fluctuating commodity prices, interest rates, equity prices, and economic conditions can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results, or financial position.
Commodity Risk
Information concerning accounting for derivatives and the risks associated with commodity contracts is set forth in Note 7, including a summary of the fair values of mark-to-market energy related derivative contracts included in the Condensed Consolidated Balance Sheets. During the
nine
months ended
September 30, 2018
and the year ended December 31, 2017, the Company had no commodity derivative instruments designated as cash flow hedging instruments.
Commodity contracts, other than those that do not meet the definition of a derivative under GAAP, are recorded at fair value on the Condensed Consolidated Balance Sheets. The following table details the changes in the net asset or liability balance sheet position for mark-to-market energy transactions.
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Nine Months Ended
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September 30,
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2018
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2017
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Economic Hedges
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(In thousands)
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Sources of fair value gain (loss):
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Net fair value at beginning of period
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$
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(94
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$
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2,885
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Amount realized on contracts delivered during period
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83
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(1,266
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Changes in fair value
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2
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408
|
|
Net mark-to-market change recorded in earnings
|
85
|
|
|
(858
|
)
|
Net change recorded as regulatory assets and liabilities
|
—
|
|
|
(213
|
)
|
Net fair value at end of period
|
$
|
(9
|
)
|
|
$
|
1,814
|
|
All of the fair values as of
September 30, 2018
were determined based on prices provided by external sources other than actively quoted market prices. The net mark-to-market amounts will settle in 2018.
PNM is exposed to changes in the market prices of electricity and natural gas for the positions in its wholesale portfolio not covered by the FPPAC. The Company manages risks associated with these market fluctuations by utilizing various commodity instruments that may qualify as derivatives, including futures, forwards, options, and swaps. PNM uses such instruments to hedge its exposure to changes in the market prices of electricity and natural gas. 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.
Prior to 2018, PNM measured the market risk of its wholesale activities not covered by the FPPAC using a Monte Carlo VaR simulation model to report the possible loss in value from price movements. In January 2018, PNM’s interest in PVNGS Unit 3 became a jurisdictional resource to serve New Mexico customers and PNM began selling 36 MW of its 65 MW merchant interest in SJGS Unit 4 to a third party at a fixed price. These events significantly reduced PNM’s exposure to commodity risk and, beginning in February 2018, the Company no longer uses VaR as a risk metric. VaR limits were not exceeded during the year ended December 31, 2017.
Credit Risk
The Company is exposed to credit risk from its retail and wholesale customers, as well as the counterparties to derivative instruments. The Company conducts counterparty risk analysis across business segments and uses a credit management process to assess the financial conditions of counterparties. The following table provides information related to credit exposure by the credit worthiness (credit rating) and concentration of credit risk for wholesale counterparties, all of which will mature in less than two years.
|
|
|
|
|
|
|
|
|
|
|
Schedule of Credit Risk Exposure
|
September 30, 2018
|
Rating
(1)
|
Credit Risk Exposure
(2)
|
|
Number of Counter-parties >10%
|
|
Net Exposure of Counter-parties >10%
|
|
(Dollars in thousands)
|
External ratings:
|
|
|
|
|
|
Investment grade
|
$
|
1,952
|
|
|
2
|
|
$
|
1,353
|
|
Non-investment grade
|
1
|
|
|
—
|
|
—
|
|
Split ratings
|
—
|
|
|
—
|
|
—
|
|
Internal ratings:
|
|
|
|
|
|
Investment grade
|
1,239
|
|
|
2
|
|
826
|
|
Non-investment grade
|
—
|
|
|
—
|
|
—
|
|
Total
|
$
|
3,192
|
|
|
|
|
$
|
2,179
|
|
|
|
(1)
|
The rating “Investment Grade” is for counterparties, or a guarantor, with a minimum S&P rating of BBB- or Moody’s rating of Baa3. The category “Internal Ratings – Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.
|
|
|
(2)
|
The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than the Tri-State hazard sharing agreement), forward sales, and short-term sales. The gross exposure captures the amounts from receivables/
|
payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements, but are not reduced by posted credit collateral. At
September 30, 2018
, PNMR held $1.0 million of cash collateral to offset its credit exposure.
Net credit risk for the Company’s largest counterparty as of
September 30, 2018
was $0.8 million.
Other investments have no significant counterparty credit risk.
Interest Rate Risk
The majority of the Company’s long-term debt is fixed-rate debt and does not expose earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of PNMR’s consolidated long-term debt instruments would increase by 2.2%, or $58.1 million if interest rates were to decline by 50 basis points from their levels at
September 30, 2018
. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if all or a portion of debt instruments were acquired in the open market prior to their maturity. At
October 30, 2018
, PNMR, PNM, TNMP, and PNMR Development had short-term debt outstanding of $126.5 million, none, $27.5 million, and $24.5 million under their revolving credit facilities, which allow for a maximum aggregate borrowing capacity of $300.0 million for PNMR, $400.0 million for PNM, $75.0 million for TNMP, and $24.5 million for PNMR Development. PNM had no borrowings under the $40.0 million PNM 2017 New Mexico Credit Facility at
October 30, 2018
. The revolving credit facilities, the PNM 2017 New Mexico Credit Facility, the $100.0 million PNMR 2016 One-Year Term Loan Agreement (as extended), the $100.0 million PNMR 2016 Two-Year Term Loan Agreement, the $200.0 million PNM 2017 Term Loan Agreement, and the $20.0 million TNMP 2018 Term Loan Agreement bear interest at variable rates. On
October 30, 2018
, interest rates on borrowings averaged 3.54% for the PNMR Revolving Credit Facility, 3.09% for the PNMR 2016 One-Year Term Loan Agreement (as extended), 3.20% for the PNMR 2016 Two-Year Term Loan Agreement, 2.98% for the PNM 2017 Term Loan Agreement, 3.03% for the TNMP Revolving Credit Facility, 2.94% for the TNMP 2018 Term Loan Agreement, and 3.28% for the PNMR Development Revolving Credit Facility. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates. However, as discussed in Note 9, PNMR has entered into hedging arrangements to effectively establish fixed interest rates on $150.0 million of variable rate debt.
The investments held by PNM in trusts for decommissioning and reclamation had an estimated fair value of $331.7 million at
September 30, 2018
, of which 62.1% were fixed-rate debt securities that subject PNM to risk of loss of fair value with increases in market interest rates. If interest rates were to increase by 50 basis points from their levels at
September 30, 2018
, the decrease in the fair value of the fixed-rate securities would be 2.8%, or $5.8 million.
PNM does not directly recover or return through rates any losses or gains on the securities, including equity investments discussed below, in the trusts for decommissioning and reclamation. However, the overall performance of these trusts does enter into the periodic determinations of expense and funding levels, which are factored into the rate making process to the extent applicable to regulated operations. However, as described in Note 12, the NMPRC has ruled that PNM would not be able to include future contributions made by PNM for decommissioning of PVNGS, to the extent applicable to certain capacity previously leased by PNM, in rates charged to retail customers. PNM has appealed the NMPRC’s ruling to the NM Supreme Court. PNM is at risk for shortfalls in funding of obligations due to investment losses, including those from the equity market risks discussed below, to the extent not ultimately recovered through rates charged to customers.
Equity Market Risk
The investments held by PNM in trusts for decommissioning and reclamation include certain equity securities at
September 30, 2018
. These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 36.9% of the securities held by the trusts as of
September 30, 2018
. A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $12.2 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
As of the end of the period covered by this quarterly report, each of PNMR, PNM, and TNMP conducted an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer of each of PNMR, PNM, and TNMP concluded that the disclosure controls and procedures are effective.
Changes in internal controls over financial reporting
There have been no changes in each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended
September 30, 2018
that have materially affected, or are reasonably likely to materially affect, each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Notes 11 and 12 for information related to the following matters, for PNMR, PNM, and TNMP, incorporated in this item by reference.
Note 11
|
|
•
|
The Clean Air Act – Regional Haze – NEE Complaint
|
|
|
•
|
The Clean Air Act – Regional Haze – Four Corners – Four Corners Federal Agency Lawsuit
|
|
|
•
|
Navajo Nation Environmental Issues
|
|
|
•
|
Santa Fe Generating Station
|
|
|
•
|
Continuous Highwall Mining Royalty Rate
|
|
|
•
|
PVNGS Water Supply Litigation
|
|
|
•
|
San Juan River Adjudication
|
|
|
•
|
Navajo Nations Allottee Matters
|
Note 12
|
|
•
|
PNM – New Mexico General Rate Cases
|
|
|
•
|
PNM – Renewable Portfolio Standard
|
|
|
•
|
PNM – Energy Efficiency and Load Management – Petition for Energy Efficiency Disincentives
|
|
|
•
|
PNM – Integrated Resource Plans
|
|
|
•
|
PNM – San Juan Generating Station Unit 1 Outage
|
|
|
•
|
PNM – Cost Recovery Related to Joining the EIM
|
|
|
•
|
PNM – Facebook, Inc. Data Center Project
|
|
|
•
|
TNMP – TNMP 2018 Rate Case
|
|
|
•
|
TNMP – Order Related to Changes in Federal Income Tax Rates
|
ITEM 1A. RISK FACTORS
As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in PNMR’s, PNM’s, and TNMP’s Annual Reports on Form 10-K for the year ended
December 31, 2017
.
ITEM 6. EXHIBITS
|
|
|
|
3.1
|
PNMR
|
|
|
|
|
3.2
|
PNM
|
|
|
|
|
3.3
|
TNMP
|
|
|
|
|
3.4
|
PNMR
|
|
|
|
|
3.5
|
PNM
|
|
|
|
|
3.6
|
TNMP
|
|
|
|
|
10.1
|
PNMR
|
|
|
|
|
10.2
|
PNMR
|
|
|
|
|
10.3
|
PNMR
|
|
|
|
|
10.4
|
PNM
|
|
|
|
|
31.1
|
PNMR
|
|
|
|
|
31.2
|
PNMR
|
|
|
|
|
31.3
|
PNM
|
|
|
|
|
31.4
|
PNM
|
|
|
|
|
31.5
|
TNMP
|
|
|
|
|
31.6
|
TNMP
|
|
|
|
|
32.1
|
PNMR
|
|
|
|
|
32.2
|
PNM
|
|
|
|
|
32.3
|
TNMP
|
|
|
|
|
101.INS
|
PNMR, PNM, and TNMP
|
XBRL Instance Document
|
|
|
|
101.SCH
|
PNMR, PNM, and TNMP
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL
|
PNMR, PNM, and TNMP
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.DEF
|
PNMR, PNM, and TNMP
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB
|
PNMR, PNM, and TNMP
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE
|
PNMR, PNM, and TNMP
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
PNM RESOURCES, INC.
PUBLIC SERVICE COMPANY OF NEW MEXICO
TEXAS-NEW MEXICO POWER COMPANY
|
|
|
(Registrants)
|
|
|
|
|
|
|
Date:
|
November 6, 2018
|
/s/ Joseph D. Tarry
|
|
|
Joseph D. Tarry
|
|
|
Vice President, Controller and Treasurer
|
|
|
(Officer duly authorized to sign this report)
|
Published CUSIP Number: 69349GAE9
$300,000,000
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
among
PNM RESOURCES, INC.,
as Borrower,
THE LENDERS IDENTIFIED HEREIN,
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent
MUFG UNION BANK, N.A.,
as Syndication Agent
AND
CITIBANK, N.A.
and
JPMORGAN CHASE BANK, N.A.,
as Co-Documentation Agents
DATED AS OF JULY 30, 2018
WELLS FARGO SECURITIES, LLC,
MUFG UNION BANK, N.A.,
CITIGROUP GLOBAL MARKETS, INC.
and
JPMORGAN CHASE BANK, N.A.,
as Joint Lead Arrangers and Co-Bookrunners
TABLE OF CONTENTS
|
|
|
|
|
|
|
SECTION 1 DEFINITIONS AND ACCOUNTING TERMS
|
1
|
|
|
|
|
|
|
1.1
|
Definitions
|
1
|
|
|
1.2
|
Computation of Time Periods and Other Definitional Provisions
|
21
|
|
|
1.3
|
Accounting Terms/Calculation of Financial Covenant
|
21
|
|
|
1.4
|
Time
|
21
|
|
|
1.5
|
Rounding of Financial Covenant
|
22
|
|
|
1.6
|
References to Agreements and Requirement of Laws
|
22
|
|
|
1.7
|
Letter of Credit Amounts
|
22
|
|
|
1.8
|
Rates
|
22
|
|
|
|
|
|
|
SECTION 2 CREDIT FACILITY
|
22
|
|
|
|
|
|
|
|
2.1
|
Revolving Loans
|
22
|
|
|
2.2
|
Letter of Credit Subfacility
|
24
|
|
|
2.3
|
Continuations and Conversions
|
32
|
|
|
2.4
|
Minimum Amounts
|
32
|
|
|
2.5
|
Extension Option
|
32
|
|
|
2.6
|
Evidence of Debt
|
33
|
|
|
2.7
|
Swing Line Loans
|
33
|
|
|
|
|
|
|
SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS
|
36
|
|
|
|
|
|
|
|
3.1
|
Interest
|
36
|
|
|
3.2
|
Payments Generally
|
37
|
|
|
3.3
|
Prepayments
|
38
|
|
|
3.4
|
Fees
|
39
|
|
|
3.5
|
Payment in full at Maturity
|
39
|
|
|
3.6
|
Computations of Interest and Fees
|
40
|
|
|
3.7
|
Pro Rata Treatment
|
40
|
|
|
3.8
|
Sharing of Payments
|
41
|
|
|
3.9
|
Capital Adequacy
|
41
|
|
|
3.10
|
Eurodollar Provisions
|
42
|
|
|
3.11
|
Illegality
|
43
|
|
|
3.12
|
Requirements of Law
|
43
|
|
|
3.13
|
Taxes
|
44
|
|
|
3.14
|
Compensation
|
47
|
|
|
3.15
|
Determination and Survival of Provisions
|
47
|
|
|
3.16
|
Defaulting Lenders
|
48
|
|
|
3.17
|
Mitigation Options
|
50
|
|
|
|
|
|
|
SECTION 4 CONDITIONS PRECEDENT TO CLOSING
|
50
|
|
|
|
|
|
|
|
4.1
|
Closing Conditions
|
50
|
|
|
|
|
|
|
SECTION 5 CONDITIONS TO ALL EXTENSIONS OF CREDIT
|
52
|
|
|
|
|
|
|
|
5.1
|
Funding Requirements
|
52
|
|
|
|
|
|
|
SECTION 6 REPRESENTATIONS AND WARRANTIES
|
53
|
|
|
|
|
|
|
6.1
|
Organization and Good Standing
|
53
|
|
|
6.2
|
Due Authorization
|
53
|
|
|
6.3
|
No Conflicts
|
54
|
|
|
6.4
|
Consents
|
54
|
|
|
|
|
|
|
|
|
|
6.5
|
Enforceable Obligations
|
54
|
|
|
6.6
|
Financial Condition
|
54
|
|
|
6.7
|
No Material Change
|
54
|
|
|
6.8
|
No Default
|
55
|
|
|
6.9
|
Litigation
|
55
|
|
|
6.10
|
Taxes
|
55
|
|
|
6.11
|
Compliance with Law
|
55
|
|
|
6.12
|
ERISA
|
55
|
|
|
6.13
|
Use of Proceeds; Margin Stock
|
56
|
|
|
6.14
|
Government Regulation
|
56
|
|
|
6.15
|
Solvency
|
56
|
|
|
6.16
|
Disclosure
|
56
|
|
|
6.17
|
Environmental Matters
|
57
|
|
|
6.18
|
[Reserved]
|
57
|
|
|
6.19
|
[Reserved]
|
57
|
|
|
6.20
|
Anti-Corruption Laws and Sanctions
|
57
|
|
|
|
|
|
|
SECTION 7 AFFIRMATIVE COVENANTS
|
57
|
|
|
|
|
|
|
|
7.1
|
Information Covenants
|
57
|
|
|
7.2
|
Financial Covenant
|
59
|
|
|
7.3
|
Preservation of Existence and Franchises
|
60
|
|
|
7.4
|
Books and Records
|
60
|
|
|
7.5
|
Compliance with Law
|
60
|
|
|
7.6
|
Payment of Taxes and Other Indebtedness
|
60
|
|
|
7.7
|
Insurance
|
61
|
|
|
7.8
|
Performance of Obligations
|
61
|
|
|
7.9
|
Use of Proceeds
|
61
|
|
|
7.10
|
Audits/Inspections
|
61
|
|
|
7.11
|
Ownership of Certain Subsidiaries
|
61
|
|
|
|
|
|
|
SECTION 8 NEGATIVE COVENANTS
|
62
|
|
|
|
|
|
|
|
8.1
|
Nature of Business
|
62
|
|
|
8.2
|
Consolidation and Merger
|
62
|
|
|
8.3
|
Sale or Lease of Assets
|
62
|
|
|
8.4
|
Affiliate Transactions
|
62
|
|
|
8.5
|
Liens
|
62
|
|
|
8.6
|
Accounting Changes
|
64
|
|
|
|
|
|
|
SECTION 9 EVENTS OF DEFAULT
|
64
|
|
|
|
|
|
|
|
9.1
|
Events of Default
|
64
|
|
|
9.2
|
Acceleration; Remedies
|
66
|
|
|
9.3
|
Allocation of Payments After Event of Default
|
67
|
|
|
|
|
|
|
SECTION 10 AGENCY PROVISIONS
|
67
|
|
|
|
|
|
|
|
10.1
|
Appointment and Authority
|
67
|
|
|
10.2
|
Rights as a Lender
|
68
|
|
|
10.3
|
Exculpatory Provisions
|
68
|
|
|
10.4
|
Reliance by Administrative Agent
|
69
|
|
|
10.5
|
Delegation of Duties
|
69
|
|
|
10.6
|
Resignation of Administrative Agent
|
69
|
|
|
10.7
|
Non-Reliance on Administrative Agent and Other Lenders
|
71
|
|
|
|
|
|
|
|
|
|
10.8
|
No Other Duties, Etc.
|
71
|
|
|
10.9
|
Administrative Agent May File Proofs of Claim
|
71
|
|
|
10.10
|
ERISA Matters
|
72
|
|
|
|
|
|
|
SECTION 11 MISCELLANEOUS
|
74
|
|
|
|
|
|
|
|
11.1
|
Notices; Effectiveness; Electronic Communication
|
74
|
|
|
11.2
|
Right of Set-Off
|
75
|
|
|
11.3
|
Successors and Assigns
|
76
|
|
|
11.4
|
No Waiver; Remedies Cumulative
|
80
|
|
|
11.5
|
Attorney Costs, Expenses, Taxes and Indemnification by Borrower
|
80
|
|
|
11.6
|
Amendments, Etc.
|
82
|
|
|
11.7
|
Counterparts
|
83
|
|
|
11.8
|
Headings
|
83
|
|
|
11.9
|
Survival of Indemnification and Representations and Warranties
|
83
|
|
|
11.10
|
Governing Law; Venue; Service
|
84
|
|
|
11.11
|
Waiver of Jury Trial; Waiver of Consequential Damages
|
84
|
|
|
11.12
|
Severability
|
84
|
|
|
11.13
|
Further Assurances
|
85
|
|
|
11.14
|
Confidentiality
|
85
|
|
|
11.15
|
Entirety
|
85
|
|
|
11.16
|
Binding Effect; Continuing Agreement
|
85
|
|
|
11.17
|
Regulatory Statement
|
86
|
|
|
11.18
|
USA Patriot Act Notice
|
86
|
|
|
11.19
|
Acknowledgement
|
86
|
|
|
11.20
|
Replacement of Lenders
|
86
|
|
|
11.21
|
No Advisory of Fiduciary Responsibility
|
87
|
|
|
11.22
|
Acknowledgement and Consent to Bail-In of EEA Financial Institutions
|
88
|
|
|
11.23
|
Amendment and Restatement
|
88
|
|
SCHEDULES
Schedule 1.1(a) Pro Rata Shares
Schedule 1.1(b) Existing Letters of Credit
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.1(b) Form of Notice of Revolving Borrowing
Exhibit 2.1(e) Form of Revolving Note
Exhibit 2.3 Form of Notice of Continuation/Conversion
Exhibit 2.7 Form of Swing Line Note
Exhibit 2.7(d) Form of Notice of Swing Line Borrowing
Exhibit 4.1(k) Form of Account Designation Letter
Exhibit 7.1(c) Form of Compliance Certificate
Exhibit 11.3(b) Form of Assignment and Assumption
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT (this “
Credit Agreement
”) is entered into as of July 30, 2018 among PNM RESOURCES, INC., a New Mexico corporation, as Borrower, the Lenders and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent, and is made with reference to that certain Credit Agreement dated as of October 31, 2011 (as amended by that certain First Amendment to Credit Agreement, dated as of January 18, 2012, that certain Second Amendment to Credit Agreement, dated as of October 31, 2013, that certain Third Amendment to Credit Agreement, dated as of December 17, 2014, that certain Fourth Amendment to Credit Agreement, dated as of September 9, 2015, and that certain Fifth Amendment to Credit Agreement, dated as of November 2, 2016, the “
Existing Credit Agreement
”), by and among the Borrower, the Lenders and the Administrative Agent.
RECITALS
A. The Borrower, the Lenders and the Administrative Agent are parties to the Existing Credit Agreement.
B. The Borrower has requested the Lenders and the Administrative Agent make certain modifications to, and amend and restate in its entirety, the Existing Credit Agreement, which the Lenders and the Administrative Agent have agreed to do on the terms and conditions set forth in this Credit Agreement as of the Restatement Date.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1
Definitions
.
The following terms shall have the meanings specified herein unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular:
“
Account Designation Letter
” means the Notice of Account Designation Letter dated the Restatement Date from the Borrower to the Administrative Agent in substantially the form of
Exhibit
4.1(k)
.
“
Adjusted Base Rate
” means the Base Rate plus the Applicable Percentage.
“
Adjusted Eurodollar Rate
” means the Eurodollar Rate plus the Applicable Percentage.
“
Adjusted LIBOR Market Index Rate
” means the LIBOR Market Index Rate plus the Applicable Percentage for Swing Line Loans bearing interest at the LIBOR Market Index Rate.
“
Administrative Agent
” means Wells Fargo Bank, National Association or any successor administrative agent appointed pursuant to
Section 10.6
.
“
Administrative Agent’s Office
” means the Administrative Agent’s address and, as appropriate, account as set forth on
Schedule 11.1
or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.
“
Administrative Fees
” has the meaning set forth in
Section 3.4(d)
.
“
Administrative Questionnaire
” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“
Affiliate
” means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such other Person or (b) to direct or cause direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.
“
Agent-Related Persons
” means the Administrative Agent, together with its Affiliates and the officers, directors, employees, agents and attorneys-in-fact of the Administrative Agent and its Affiliates.
“
Anti-Corruption Laws
” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.
“
Applicable Percentage
” means, for Eurodollar Loans, LIBOR Market Index Rate Swing Line Loans, L/C Fees, Base Rate Loans and Commitment Fees, the appropriate applicable percentages, in each case (subject to the exception indicated below), corresponding to the Debt Rating of the Borrower in effect as of the most recent Calculation Date as shown below:
|
|
|
|
|
|
Pricing Level
|
Debt Rating
|
Applicable
Percentage for
Eurodollar Loans,
LIBOR Market
Index Rate Swing
Line Loans and
L/C Fees
|
Applicable
Percentage for
Base Rate Loans
|
Applicable
Percentage for
Commitment
Fees
|
I
|
BBB+/Baa1
|
1.125%
|
0.125%
|
0.175%
|
II
|
BBB/Baa2
|
1.250%
|
0.250%
|
0.200%
|
III
|
BBB‑/Baa3
|
1.500%
|
0.500%
|
0.250%
|
IV
|
BB+/Ba1
|
1.750%
|
0.750%
|
0.300%
|
V
|
BB/Ba2
|
2.000%
|
1.000%
|
0.350%
|
VI
|
<
BB- or unrated /
Ba3 or unrated
|
2.250%
|
1.250%
|
0.450%
|
The Applicable Percentage shall be determined and adjusted on the date (each a “
Calculation Date
”) one Business Day after the date on which the Borrower’s Debt Rating is upgraded or downgraded in a manner which requires a change in the then applicable Pricing Level set forth above. If at any time there is a split in the Borrower’s Debt Ratings between S&P and Moody’s, the Applicable Percentage shall be determined by the higher of the two Debt Ratings (i.e. the lower pricing), provided that if the two Debt Ratings are more than one level apart, the Applicable Percentage shall be based on the Debt Rating which is one level lower than the higher rating. If the Borrower does not have a Debt Rating from either
S&P or Moody’s, then, Pricing Level VI shall apply. Each Applicable Percentage shall be effective from one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Percentage shall be applicable to all existing Eurodollar Loans as well as any new Eurodollar Loans made. The applicable Pricing Level for Applicable Percentage, as of the Restatement Date, is Pricing Level II.
“
Approved Fund
” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“
Arrangers
” means Wells Fargo Securities, LLC, MUFG Union Bank, N.A., Citigroup Global Markets, Inc. and JPMorgan Chase Bank, N.A. together with their successors and/or assigns.
“
Assignment and Assumption
” means an Assignment and Assumption substantially in the form of
Exhibit 11.3(b)
.
“
Authorized Officer
” means any of the president, chief executive officer, chief financial officer or treasurer of the Borrower.
“
Bail-In Action
” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“
Bail-In Legislation
” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“
Bankruptcy Code
” means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
“
Base Rate
” means, at any time, the highest of (a) the Prime Rate, (b) the Federal Funds Rate
plus
0.50% and (c) except during any period of time during which a notice delivered to the Borrower under
Section 3.10
shall remain in effect, the Eurodollar Base Rate for an Interest Period of one month
plus
1%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or the Eurodollar Base Rate.
“
Base Rate Loan
” means any Loan bearing interest at a rate determined by reference to the Base Rate.
“
Beneficial Ownership Regulation
” means 31 C.F.R. § 1010.230.
“
Benefit Plan
” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“
Borrower
” means PNM Resources, Inc., a New Mexico corporation, together with its successors and permitted assigns.
“
Borrower Obligations
” means, without duplication, all of the obligations of the Borrower to the Lenders and the Administrative Agent, whenever arising, under this Credit Agreement, the Notes, or any of the other Credit Documents.
“
Borrowing
” means (a) a borrowing consisting of simultaneous Revolving Loans of the same Type and, in the case of Eurodollar Loans, having the same Interest Period made by each of the Lenders pursuant to
Section 2.1
or (b) a borrowing consisting of Swing Line Loans made by the Swing Line Lender pursuant to
Section 2.7
, as the context may require.
“
Business Day
” means (a) for all purposes other than as set forth in clause (b) below, any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina and New York, New York, are open for the conduct of their commercial banking business, and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, any Eurodollar Loan, or any Base Rate Loan as to which the interest rate is determined by reference to LIBOR, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.
“
Capital Stock
” means (a) in the case of a corporation, all classes of capital stock of such corporation, (b) in the case of a partnership, partnership interests (whether general or limited), (c) in the case of a limited liability company, membership interests and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person; including, in each case, all warrants, rights or options to purchase any of the foregoing.
“
Cash Collateralize
” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the applicable L/C Issuer and the Lenders, as collateral for the L/C Obligations, obligations in respect of Swing Line Loans, or obligations to fund participations in respect of either thereof (as the context may require), cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the applicable L/C Issuer or Swing Line Lender. “
Cash Collateral
” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“
Change in Law
” means the occurrence, after the date of this Credit Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, promulgation, implementation or application thereof by any Governmental Authority, (c) the adoption or taking effect of any request, rule, guideline, policy or directive (whether or not having the force of law) by any Governmental Authority or (d) any change in any request, rule, guideline, policy or directive (whether or not having the force of law) by any Governmental Authority;
provided
that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and all requests, rules, guidelines or directives thereunder or issued in connection therewith shall be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“
Change of Control
” means the occurrence of any of the following: (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all Capital Stock that such person or group has the right to acquire (such right, an “
option right
”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of twenty-five (25%) of the Capital
Stock of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); (b) during any period of 24 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower, or control over the Voting Stock of the Borrower on a fully-diluted basis (and taking into account all such Voting Stock that such Person or group has the right to acquire pursuant to any option right) representing twenty-five percent (25%) or more of the combined voting power of such Voting Stock.
“
Closing Date
” means October 31, 2011.
“
Code
” means the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.
“
Commitment
” means, as to each Lender, its obligation to (a) make Revolving Loans to the Borrower pursuant to
Section 2.1
and (b) fund or purchase Participation Interests in L/C Obligations pursuant to
Section 2.2
or Swing Line Loans pursuant to
Section 2.7
, in an aggregate principal amount at any one time outstanding not to exceed such Lender’s Pro Rata Share of the Revolving Committed Amount as set forth opposite such Lender’s name on
Schedule 1.1(a)
or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Credit Agreement.
“
Compensation Period
” has the meaning set forth in
Section 3.2(c)(ii)
.
“
Compliance Certificate
” means a fully completed and duly executed officer’s certificate in the form of
Exhibit 7.1(c)
, together with a Covenant Compliance Worksheet.
“
Consolidated Capitalization
” means the sum of (a) all of the shareholders’ equity or net worth of the Borrower and its Subsidiaries, as determined in accordance with GAAP plus (b) Consolidated Indebtedness plus (c) the outstanding principal amount of Preferred Stock plus (d) 100% of the outstanding principal amount of Equity Preferred Securities of the Borrower and its Subsidiaries minus (e) Securitization Equity.
“
Consolidated Indebtedness
” means, as of any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, an amount equal to (a) all Indebtedness of the Borrower and its Subsidiaries as of such date minus (b) an amount equal to the outstanding principal amount of Equity Preferred Securities of the Borrower and its Subsidiaries, provided that the amount deducted pursuant to this clause (b) shall not exceed an amount equal to 15% of the Consolidated Capitalization of the Borrower and its Subsidiaries minus (c) Non-Recourse Securitization Indebtedness.
“
Contingent Obligation
” means, with respect to any Person, any direct or indirect liability of such Person with respect to any Indebtedness, liability or other obligation (the “primary obligation”) of another
Person (the “primary obligor”), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor in respect thereof to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof;
provided
,
however
, that, with respect to the Borrower and its Subsidiaries, the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation of any Person shall be deemed to be an amount equal to the maximum amount of such Person’s liability with respect to the stated or determinable amount of the primary obligation for which such Contingent Obligation is incurred or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder).
“
Covenant Compliance Worksheet
” shall mean a fully completed worksheet in the form of Schedule I to
Exhibit 7.1(c)
.
“
Credit Agreement
” has the meaning set forth in the Preamble hereof.
“
Credit Documents
” means this Credit Agreement, the Notes, any Notice of Borrowing, any Notice of Continuation/Conversion, and any other document, agreement or instrument entered into or executed in connection with the foregoing.
“
Credit Exposure
” has the meaning set forth in the definition of “Required Lenders”.
“
Credit Extension
” means each of the following: (a) a Borrowing and (b) a L/C Credit Extension.
“
Debt Rating
” means, with respect to any Person, the long term, senior, unsecured non-credit enhanced debt rating of such Person by S&P or Moody’s, as applicable; provided, however, that if neither S&P nor Moody’s issues a long term, senior, unsecured non-credit enhanced rating of such Person, then (a) the Debt Rating shall be such Person’s issuer corporate credit rating by S&P or Moody’s, as applicable, and (b) for purposes of determining the applicable pricing level in the definition of Applicable Percentage, the Debt Rating of the Borrower shall be deemed to be the lesser of (x) the actual Debt Rating of the Borrower and (y) one level lower than the Debt Rating of PSNM (e.g., if the Debt Rating of PSNM by S&P is BBB then the Debt Rating of the Borrower by S&P pursuant to this clause (b) can be no greater than BBB-).
“
Debtor Relief Laws
” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“
Default
” means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
“
Default Rate
” means an interest rate equal to two percent (2%) plus the rate that otherwise would be applicable (or if no rate is applicable, the Base Rate plus two percent (2%) per annum).
“
Defaulting Lender
” means any Lender that (a) has failed to fund any portion of the Revolving Loans, Participation Interests in L/C Obligations or Participation Interests in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more of the conditions precedent to funding (each of which conditions precedent, together with any applicable Default, shall be specifically identified in such writing) has not been satisfied, (b) has notified the Borrower or the Administrative Agent in writing that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder (unless such writing or public statement states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable Default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has notified the Borrower, the Administrative Agent or any other Lender in writing that it does not intend to comply with any of its funding obligations hereunder or has made a public statement to the effect that it does not intend to comply or has failed to comply with its funding obligations hereunder, or (d) has become or is insolvent or has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment, or has become the subject of a Bail-in Action.
“
Dollars
” and “
$
” means dollars in lawful currency of the United States of America.
“
EEA Financial Institution
” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“
EEA Member Country
” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“
EEA Resolution Authority
” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“
Eligible Assignee
” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and (d) any other Person (other than a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person)) approved by the Administrative Agent, each L/C Issuer and the Borrower (such approval not to be unreasonably withheld or delayed);
provided
that (i) the Borrower’s consent is not required during the existence and continuation of a Default or an Event of Default, (ii) approval by the Borrower shall be deemed given if no objection is received by the assigning Lender and the Administrative Agent from the Borrower within five Business Days after notice of such proposed assignment has been delivered to the Borrower and (iii) neither the Borrower nor any Subsidiary or Affiliate of the Borrower shall qualify as an Eligible Assignee.
“
Environmental Claims
” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, accusations, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of its business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or relating to any permit issued, or any approval given, under any such Environmental Law (collectively, “
Claims
”), including,
without limitation, (a) any and all Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to human health or the environment.
“
Environmental Laws
” shall mean any and all federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, rules of common law and orders of courts or Governmental Authorities, relating to the protection of human health or occupational safety or the environment, now or hereafter in effect and in each case as amended from time to time, including, without limitation, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Substances.
“
Equity Preferred Securities
” means, with respect to any Person, any trust preferred securities or deferrable interest subordinated debt securities issued by such Person or other financing vehicle of such Person that (i) have an original maturity of at least twenty years, and (ii) require no repayments or prepayments and no mandatory redemptions or repurchases, in each case, prior to the first anniversary of the latest Maturity Date.
“
ERISA
” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute, and all rules and regulations from time to time promulgated thereunder.
“
ERISA Affiliate
” means any Person who together with the Borrower or any of its Subsidiaries is treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.
“
ERISA Event
” means the occurrence of any of the following which, individually or in the aggregate, has resulted or could reasonably be expected to result, within a reasonable period of time, in liability of the Borrower in an aggregate amount in excess of the Threshold Amount: (a) a Reportable Event with respect to a Single Employer Plan or a Multiemployer Plan, (b) a complete or partial withdrawal by the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiemployer Plan if withdrawal liability is asserted by such plan, or the receipt by the Borrower, any of its Subsidiaries or any ERISA Affiliate of notice from a Multiemployer Plan that it is insolvent pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA, (c) the distribution by the Borrower, any of its Subsidiaries or any ERISA Affiliate under Section 4041 or 4041A of ERISA of a notice of intent to terminate any Single Employer Plan or Multiemployer Plan or the taking of any action to terminate any Single Employer Plan or Multiemployer Plan if the plan assets are not sufficient to pay all plan liabilities, (d) the commencement of proceedings by the PBGC under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Single Employer Plan, or the receipt by the Borrower, any of its Subsidiaries or any ERISA Affiliate of a notice from any Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan, (e) the determination that any Single Employer Plan or Multiemployer Plan is considered an at-risk plan or plan in endangered or critical status within the meaning of Sections 430, 431 or 432 of the Code or Sections 303, 304 or 305 of ERISA; (f) the imposition upon the Borrower, any of its Subsidiaries or any ERISA Affiliate of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, or the imposition or threatened imposition of any Lien upon any assets of the Borrower, any of its Subsidiaries or any ERISA Affiliate as a result of any alleged failure to comply with the Code or ERISA in respect of any Single Employer Plan or Multiemployer Plan, or (g) the withdrawal of the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in
Section 4001(a)(2) of ERISA), or a cessation of operations that is treated as such a withdrawal or the termination of a Multiple Employer Plan, where the Borrower, a Subsidiary or an ERISA Affiliate has liability under Section 4062 or 4063 of ERISA.
“
EU Bail-In Legislation Schedule
” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“
Eurodollar Base Rate
” means, subject to the implementation of a Replacement Rate in accordance with
Section 3.10(b)
,
(a)
for any interest rate calculation with respect to a Eurodollar Loan, the rate of interest per annum equal to the rate for deposits in Dollars for a period equal to the applicable Interest Period as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quote service approved by the Administrative Agent, at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period (rounded upward, if necessary, to the nearest 1/100th of 1%). If, for any reason, such rate is not so published, then the “Eurodollar Base Rate” shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars in minimum amounts of at least $5,000,000 would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period.
(b)
for any interest rate calculation with respect to a Base Rate Loan, the rate of interest per annum equal to the rate for deposits in Dollars in minimum amounts of at least $5,000,000 for a period equal to one month (commencing on the date of determination of such interest rate) as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quoting service approved by the Administrative Agent, at approximately 11:00 a.m. (London time) on such date of determination, or, if such date is not a Business Day, then the immediately preceding Business Day (rounded upward, if necessary, to the nearest 1/100th of 1%). If, for any reason, such rate is not so published, then the “Eurodollar Base Rate” for such Base Rate Loan shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars in minimum amounts of at least $5,000,000 would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) on such date of determination for a period equal to one month commencing on such date of determination.
Each calculation by the Administrative Agent of the Eurodollar Base Rate shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding the foregoing, (x) if the Eurodollar Base Rate (including, without limitation, any Replacement Rate with respect thereto) shall be less than zero, such rate shall be deemed zero for purposes of this Credit Agreement and (y) unless otherwise specified in any amendment to this Credit Agreement entered into in accordance with
Section 3.10(b)
, in the event that a Replacement Rate with respect to the Eurodollar Base Rate is implemented, then all references herein to the Eurodollar Base Rate shall be deemed to be references to such Replacement Rate.
“
Eurodollar Loan
” means a Revolving Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate.
“
Eurodollar Rate
” means a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent pursuant to the following formula:
|
|
|
Eurodollar Rate =
|
Eurodollar Base Rate
|
|
1.00-Eurodollar Reserve Percentage
|
“
Eurodollar Reserve Percentage
” means, for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any basic, supplemental or emergency reserves) in respect of eurocurrency liabilities or any similar category of liabilities for a member bank of the Federal Reserve System in New York City.
“
Event of Default
” has the meaning set forth in
Section 9.1
.
“
Exchange Act
” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.
“
Excluded Taxes
” means, with respect to the Administrative Agent, any Lender, any L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located, (c) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with
Section 3.13(e)
, except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to
Section 3.13(a)
and (d) any U.S. federal withholding Taxes imposed under FATCA.
“
Existing Credit Agreement
” has the meaning set forth in the introductory paragraph.
“
Existing Letters of Credit
” means the letters of credit set forth on
Schedule 1.1(b)
.
“
FATCA
” means Sections 1471 through 1474 of the Code, as of the date hereof, (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any applicable intergovernmental agreements entered into by the United States that implement the foregoing.
“
Federal Funds Rate
” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day (or, if such day is not a Business Day, for the immediately preceding Business Day), as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day,
provided
that if such rate is not so published for any day which is a Business Day, the average of the quotation for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent. If the Federal Funds Rate shall be less than zero, such rate shall be deemed zero for purposes of this Credit Agreement.
“
Fee Letter
” means those certain letter agreements, each dated as of September 27, 2011, among (a) the Borrower, Wells Fargo Bank, National Association, Wells Fargo Securities, LLC and Union Bank,
N.A. and (b) the Borrower, Wells Fargo Bank, National Association and Wells Fargo Securities, LLC, in each case as amended, modified, supplemented or restated from time to time.
“
Financial Officer
” means the chief financial officer, principal accounting officer or treasurer of the Borrower.
“
Fiscal Quarter
” means each of the calendar quarters ending as of the last day of each March, June, September and December.
“
Fiscal Year
” means the calendar year ending December 31.
“
Foreign Lender
” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
“
Fronting Exposure
” means, at any time there is a Defaulting Lender, (a) with respect to the applicable L/C Issuer, such Defaulting Lender’s Pro Rata Share of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lender’s Participation Interest has been funded by such Defaulting Lender or reallocated to other Lenders or Cash Collateral or other credit support acceptable to the applicable L/C Issuer has been provided in accordance with the terms hereof and (b) with respect to the Swing Line Lender, such Defaulting Lender’s Pro Rata Share of Swing Line Loans other than Swing Line Loans as to which such Defaulting Lender’s Participation Interest has been funded by such Defaulting Lender or reallocated to other Lenders, repaid by the Borrower or for which Cash Collateral or other credit support acceptable to the Swing Line Lender has been provided in accordance with the terms hereof.
“
Fund
” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“
GAAP
” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) or that are promulgated by any Governmental Authority having appropriate jurisdiction.
“
Government Acts
” has the meaning set forth in
Section 2.2(k)
.
“
Governmental Authority
” means any domestic or foreign nation or government, any state or other political subdivision thereof and any central bank thereof, any municipal, local, city or county government, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
“
Granting Lender
” has the meaning specified in
Section 11.3(h)
.
“
Hazardous Substances
” means any substances or materials (a) that are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants or toxic substances under any Environmental Law, (b) that are defined by any Environmental Law as toxic, explosive, corrosive, ignitable, infectious, radioactive, mutagenic or otherwise hazardous, (c) the presence of which require investigation or response under any Environmental Law, (d) that constitute a nuisance, trespass or health
or safety hazard to Persons or neighboring properties, (e) that consist of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance, or (f) that contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.
“
Hedging Agreements
” means, collectively, interest rate protection agreements, equity index agreements, foreign currency exchange agreements, option agreements or other interest or exchange rate or commodity price hedging agreements (other than forward contracts for the delivery of power or gas written by the Borrower to its jurisdictional and wholesale customers in the ordinary course of business).
“
Indebtedness
” means with respect to any Person (without duplication), (a) all indebtedness and obligations of such Person for borrowed money or in respect of loans or advances of any kind, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all reimbursement obligations of such Person with respect to surety bonds, letters of credit and bankers’ acceptances (in each case, whether or not drawn or matured and in the stated amount thereof), (d) all obligations of such Person to pay the deferred purchase price of property or services, (e) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (f) all obligations of such Person as lessee under leases that are or are required to be, in accordance with GAAP, recorded as capital leases, to the extent such obligations are required to be so recorded, (g) the net termination obligations of such Person under any Hedging Agreements, calculated as of any date as if such agreement or arrangement were terminated as of such date in accordance with the applicable rules under GAAP, (h) all Contingent Obligations of such Person, (i) all obligations and liabilities of such Person incurred in connection with any transaction or series of transactions providing for the financing of assets through one or more securitizations or in connection with, or pursuant to, any synthetic lease or similar off-balance sheet financing, (j) the aggregate amount of uncollected accounts receivable of such Person subject at the time of determination to a sale of receivables (or similar transaction) to the extent such transaction is effected with recourse to such Person (whether or not such transaction would be reflected on the balance sheet of such Person in accordance with GAAP), (k) all Equity Preferred Securities and (l) all indebtedness referred to in clauses (a) through (k) above secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by such Person or is nonrecourse to the credit of such Person.
“
Indemnified Liabilities
” has the meaning set forth in
Section 11.5(b)
.
“
Indemnified Taxes
” means Taxes and Other Taxes other than Excluded Taxes.
“
Indemnitees
” has the meaning set forth in
Section 11.5(b)
.
“
Initial L/C Issuers
” means Wells Fargo Bank, National Association and MUFG Union Bank, N.A. in their capacity as L/C Issuers.
“
Interest Payment Date
” means, (a) as to any Eurodollar Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date;
provided
,
however
, that if any Interest Period for a Eurodollar Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates, (b) as to any Base Rate Loan, the third Business Day after the end of each Fiscal Quarter and the Maturity Date, and (c) as to LIBOR Market Index Rate Swing Line Loans, on the third Business Day after the end of each calendar month and the Maturity Date.
“
Interest Period
” means, (a) as to each Eurodollar Loan, the period commencing on the date such Eurodollar Loan is disbursed or converted to or continued as a Eurodollar Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Notice of Revolving Borrowing or Notice of Continuation/Conversion and (b) with respect to LIBOR Market Index Rate Swing Line Loans, a period beginning on the date the Swing Line Loan is made and ending on the date specified for repayment of such LIBOR Market Index Rate Swing Line Loan, which repayment date shall not be more than 14 days after the date such LIBOR Market Index Rate Swing Line Loan is made;
provided
that:
(i)
any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii)
any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(iii)
no Interest Period shall extend beyond the Maturity Date.
“
ISP
” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
“
Laws
” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“
L/C Borrowing
” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made.
“
L/C Commitment
” means, (a) with respect to Wells Fargo Bank, National Association, in its capacity as an Initial L/C Issuer, its obligation to issue Letters of Credit to the Borrower pursuant to
Section 2.2
in an aggregate principal amount at any one time outstanding not to exceed $22,500,000 and (b) with respect to MUFG Union Bank, N.A., in its capacity as an Initial L/C Issuer, its obligation to issue Letters of Credit to the Borrower pursuant to
Section 2.2
in an aggregate principal amount at any one time outstanding not to exceed $22,500,000, in each case, as such amount may be adjusted from time to time in accordance with this Credit Agreement.
“
L/C Credit Extension
” means, with respect to any Letter of Credit, the issuance thereof, the extension of the expiry date thereof, the renewal or increase of the amount thereof or any extension of credit resulting from a drawing thereunder that has not been reimbursed.
“
L/C Fees
” has the meaning set forth in
Section 3.4(c)
.
“
L/C Fronting Fee
” has the meaning set forth in
Section 2.2(i)
.
“
L/C Issuer
” means with respect to a particular Letter of Credit, (a) the applicable Initial L/C Issuer in its capacity as issuer of such Letter of Credit and (b) any other Lender that agrees to issue Letters
of Credit hereunder, in each case, in its capacity as an issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
“
L/C Obligations
” means, as of any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit
plus
the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with
Section 1.7
. For all purposes of this Credit Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.
“
Lender
” means any of the Persons identified as a “Lender” on the signature pages hereto, any Eligible Assignee which may become a Lender by way of assignment in accordance with the terms hereof, and any other Lender which becomes a Lender pursuant to
Section 2.1(f)
, together with their successors and permitted assigns and shall include the Swing Line Lender, as the context requires.
“
Lending Office
” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
“
Letter of Credit
” means any letter of credit issued hereunder and shall include the Existing Letters of Credit.
“
Letter of Credit Application
” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the applicable L/C Issuer.
“
Letter of Credit Expiration Date
” means the day that is ten days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
“
Letter of Credit Sublimit
” means an amount equal to NINETY MILLION DOLLARS ($90,000,000). The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Committed Amount.
“
LIBOR Market Index Rate
” means, subject to the implementation of a Replacement Rate in accordance with
Section 3.10(b)
, for any day, the one month interbank offered rate for deposits in Dollars as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quote service approved by the Administrative Agent, at approximately 11:00 a.m. (London time) on such day, or if such day is not a Business Day, then the immediately preceding Business Day (or if not so published, then as determined by the Administrative Agent from another recognized source or interbank quotation). If the LIBOR Market Index Rate (including, without limitation, any Replacement Rate with respect thereto) shall be less than zero, such rate shall be deemed zero for purposes of this Credit Agreement.
“
LIBOR Market Index Rate Swing Line Loan
” means a Swing Line Loan that bears interest at a rate based on the LIBOR Market Index Rate.
“
Lien
” means any mortgage, pledge, hypothecation, assignment, security interest, lien (statutory or otherwise), preference, priority, charge or other encumbrance of any nature, whether voluntary or involuntary, including, without limitation, the interest of any vendor or lessor under any conditional sale
agreement, title retention agreement, capital lease or any other lease or arrangement having substantially the same effect as any of the foregoing.
“
Loan
” means the collective reference to the Revolving Loans and the Swing Line Loans, and “Loan” means any of such Loans.
“
Mandatory Borrowing
” has the meaning set forth in
Section 2.2(d)
.
“
Margin Stock
” has the meaning ascribed to such term in Regulation U.
“
Material Adverse Change
” means a material adverse change in the condition (financial or otherwise), operations, business, performance, properties or assets of the Borrower and its Subsidiaries, taken as a whole.
“
Material Adverse Effect
” means a material adverse effect upon (a) the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower to perform its obligations under this Credit Agreement or any of the other Credit Documents or (c) the legality, validity or enforceability of this Credit Agreement or any of the other Credit Documents or the rights and remedies of the Administrative Agent and the Lenders hereunder and thereunder, provided, however, that a Material Adverse Effect shall not include the effect of a shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant, provided that the Borrower remains in compliance with
Section 7.2
of this Credit Agreement.
“
Maturity Date
” means (a) with respect to SunTrust Bank, October 31, 2020 and (b) with respect to all other Lenders, October 31, 2022 or with respect to some or all of the Lenders if such date is otherwise extended pursuant to
Section 2.5
, October 31, 2023 and/or October 31, 2024 (subject to the limitations set forth in
Section 2.5
).
“
Moody’s
” means Moody’s Investors Service, Inc. and its successors.
“
Multiemployer Plan
” means any “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA to which the Borrower, any of its Subsidiaries or any ERISA Affiliate makes, is making or is accruing an obligation to make contributions or has made or been obligated to make contributions within the preceding seven (7) years.
“
Multiple Employer Plan
” means a Single Employer Plan to which the Borrower, any of its Subsidiaries or any ERISA Affiliate and at least one employer other than the Borrower, any of its Subsidiaries or any ERISA Affiliate are contributing sponsors.
“
Non-Recourse Securitization Indebtedness
” means, as of any date of determination, (a) all Indebtedness related to State Approved Securitizations up to a maximum amount of $500,000,000 at any one time and (b) all Indebtedness related to the TNMP Securitization up to a maximum amount of $150,000,000 at any one time;
provided
that, in each case, such Indebtedness is non-recourse to the Borrower, other than with respect to Standard Securitization Undertakings.
“
Nonrenewal Notice Date
” has the meaning set forth in
Section 2.2(b)(iii)
.
“
Notes
” means (a) the promissory notes of the Borrower in favor of each of the Lenders evidencing the Revolving Loans provided pursuant to
Section 2.1
, individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or
replaced from time to time and as evidenced in the form of
Exhibit 2.1(e)
and (b) the promissory note of the Borrower in favor of the Swing Line Lender evidencing the Swing Line Loans provided pursuant to
Section 2.7
, as such promissory note may be amended, modified, supplemented, extended, renewed or replaced from time to time and as evidenced in the form of
Exhibit 2.7
.
“
Notice of Borrowing
” means a Notice of Revolving Borrowing and/or a Notice of Swing Line Borrowing, as applicable.
“
Notice of Revolving Borrowing
” means a request by the Borrower for a Revolving Loan in the form of
Exhibit 2.1(b)
.
“
Notice of Swing Line Borrowing
” means a request by the Borrower for a Swing Line Loan in the form of
Exhibit 2.7(d)
.
“
Notice of Continuation/Conversion
” means a request by the Borrower to continue an existing Eurodollar Loan to a new Interest Period or to convert a Eurodollar Loan to a Base Rate Loan or a Base Rate Loan to a Eurodollar Loan, in the form of
Exhibit 2.3
.
“
OFAC
” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“
Other Taxes
” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Credit Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Credit Agreement or any other Credit Document.
“
PBGC
” means the Pension Benefit Guaranty Corporation and any successor thereto.
“
Participant
” has the meaning set forth in
Section 11.3(d)
.
“
Participation Interest
” means (a) the purchase by a Lender of a participation in Letters of Credit or L/C Obligations as provided in
Section 2.2
, (b) the purchase by a Lender of a participation in Swing Line Loans as provided in
Section 2.7
or (c) the purchase by a Lender of a participation in any Revolving Loan as provided in
Section 3.8
.
“
PATRIOT Act
” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), as amended.
“
Person
” means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated), or any Governmental Authority.
“
Preferred Stock
” means, with respect to any Person, all preferred Capital Stock issued by such Person in which the terms thereof do not require such Capital Stock to be redeemed or to make mandatory sinking fund payments.
“
Prime Rate
” means, at any time, the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in such prime rate occurs. The parties hereto acknowledge that the rate announced publicly by the Administrative Agent as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks.
“
Pro Rata Share
” means, with respect to each Lender at any time, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitment of such Lender at such time and the denominator of which is the amount of the Revolving Committed Amount at such time;
provided
that if the Commitment of each Lender to make Loans and the obligation of the L/C Issuers to make L/C Credit Extensions have been terminated pursuant to
Section 9.2
or otherwise, then the Pro Rata Share of each Lender shall be determined based on such Lender’s percentage ownership of the sum of the aggregate amount of outstanding Loans plus the aggregate amount of outstanding L/C Obligations. The initial Pro Rata Share of each Lender is set forth opposite the name of such Lender on
Schedule 1.1(a)
or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
“
Prohibited Transaction
” means any transaction described in (a) Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or by reason of a Department of Labor prohibited transaction individual or class exemption or (b) Section 4975(c) of the Code that is not exempt by reason of Section 4975(c)(2) or 4975(d) of the Code.
“
Property
” means any right, title or interest in or to any property or asset of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.
“
PSNM
” means Public Service Company of New Mexico, a New Mexico corporation.
“
PTE
” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“
Register
” has the meaning set forth in
Section 11.3(c)
.
“
Regulations T, U and X
” means Regulations T, U and X, respectively, of the Federal Reserve Board, and any successor regulations.
“
Replacement Rate
” has the meaning set forth in
Section 3.10(b)
.
“
Reportable Event
” means (a) any “reportable event” within the meaning of Section 4043(c) of ERISA for which the notice under Section 4043(a) of ERISA has not been waived by the PBGC (including any failure to meet the minimum funding standard of, or timely make any required installment under, Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code), (b) any such “reportable event” subject to advance notice to the PBGC under Section 4043(b)(3) of ERISA, (c) any application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code, and (d) a cessation of operations described in Section 4062(e) of ERISA.
“
Required Lenders
” means, at any time, Lenders whose aggregate Credit Exposure (as hereinafter defined) constitutes more than 50% of the Credit Exposure of all Lenders at such time;
provided
,
however
, that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Lenders the aggregate principal amount of Credit Exposure of such Lender at such time. For purposes of the preceding sentence, the term “Credit Exposure” as applied to each Lender shall mean (a) at any time prior to the termination of the Commitments, the Pro Rata Share of such Lender of the Revolving Committed Amount multiplied by the Revolving Committed Amount and (b) at any time after the termination of the Commitments, the sum of (i) the principal balance of the outstanding Loans of such Lender plus (ii) such Lender’s Participation Interests in the face amount of the outstanding Letters of Credit. Notwithstanding the foregoing, the Credit Exposure held or deemed held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
“
Requirement of Law
” means, with respect to any Person, the organizational documents of such Person and any Law applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject or otherwise pertaining to any or all of the transactions contemplated by this Credit Agreement and the other Credit Documents.
“
Responsible Officer
” means the president, the chief executive officer, the co-chief executive officer, the chief financial officer, any executive officer, vice president-finance, principal accounting officer or treasurer of the Borrower, and any other officer or similar official thereof responsible for the administration of the obligations of the Borrower in respect of this Credit Agreement and the other Credit Documents.
“
Restatement Date
” means July 30, 2018.
“
Restricted Payment
” means, with respect to any Person, any dividend or other distribution (whether in cash, securities or other property) with respect to any Capital Stock of such Person.
“
Revolving Committed Amount
” means THREE HUNDRED MILLION DOLLARS ($300,000,000) or such other amount, as it may be reduced from time to time in accordance with
Section 2.1(d)
or increased pursuant to
Section 2.1(f)
.
“
Revolving Loans
” has the meaning set forth in
Section 2.1(a)
.
“
S&P
” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
“
Sanctioned Country
” means, at any time, a country, region or territory which is itself subject to or the target of comprehensive country-wide Sanctions (at the time of this Credit Agreement, the Crimea region of Ukraine, Cuba, Iran, North Korea, Sudan and Syria).
“
Sanctioned Person
” means (a) a Person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC, as published from time to time, (b) a Person named on the lists maintained by the United Nations Security Council, as published from time to time, (c) a Person named on the lists maintained by the European Union, as published from time to time, (d) a Person named on the lists maintained by Her Majesty’s Treasury, as published from time to time, or (e) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a Person resident in a Sanctioned Country, to the extent any Person described in clauses (i), (ii) or (iii) is the subject of a sanctions program administered by OFAC.
“
Sanctions
” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State or (b) the United Nations Security Council, the European Union, or any European Union member state.
“
SEC Reports
” means (i) the Annual Report on Form 10-K of the Borrower for the Fiscal Year ended December 31, 2017, and (ii) the Quarterly Report on Form 10-Q of the Borrower for the Fiscal Quarter ended March 31, 2018.
“
Securities Act
” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Securitization Equity
” means, as of any date of determination, with respect to a Subsidiary of the Borrower formed for the purpose of entering into a State Approved Securitization or the TNMP Securitization, all of the equity of such Subsidiary, as determined in accordance with GAAP.
“
Single Employer Plan
” means any “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) which is covered by Title IV of ERISA, but which is not a Multiemployer Plan and which the Borrower, any Subsidiary or any ERISA Affiliate has maintained, funded or administered for employees at any time within the preceding seven (7) years.
“
Solvent
” means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, Contingent Obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s assets would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the assets of such Person is greater than the total amount of liabilities, including, without limitation, Contingent Obligations, of such Person and (e) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured.
“
SPC
” has the meaning set forth in
Section 11.3(h)
.
“
Standard Securitization Undertakings
” means representations, warranties, covenants and indemnities entered into by the Borrower or a Subsidiary thereof that are reasonably customary in non-recourse securitization transactions.
“
State Approved Securitization
” means a securitization financing entered into by PSNM pursuant to existing or future New Mexico statutory authority and regulatory approval by the New Mexico Public Regulation Commission (or any successor commission) (the “
NMPRC
”) authorizing the imposition on electric customers of a charge to permit the recovery over time of costs identified by a financing order issued by the NMPRC pursuant to statutory authority.
“
Subsidiary
” means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries has more than a 50% equity interest at any time. Any reference to Subsidiary herein, unless otherwise identified, shall mean a Subsidiary, direct or indirect, of the Borrower. Any reference to a Subsidiary of the Borrower herein shall not include any Subsidiary that is inactive, has minimal or no assets and does not generate revenues.
“
Swing Line Lender
” means Wells Fargo Bank, National Association in its capacity as Swing Line lender hereunder or any successor thereto.
“
Swing Line Loan
” means any Swing Line loan made by the Swing Line Lender to the Borrower pursuant to
Section 2.7
, and all such Swing Line loans collectively as the context requires.
“
Swing Line Sublimit
” means an amount equal to THIRTY MILLION DOLLARS ($30,000,000). The Swing Line Sublimit is part of, and not in addition to, the Revolving Committed Amount.
“
Taxes
” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, fines, additions to tax or penalties applicable thereto.
“
Threshold Amount
” means $20,000,000.
“
TNMP
” means Texas-New Mexico Power Company, a Texas corporation.
“
TNMP Credit Agreement
” means that certain Third Amended and Restated Credit Agreement, dated as of September 25, 2017, among TNMP, the lenders party thereto and KeyBank National Association, as administrative agent.
“
TNMP First Mortgage Bonds
” means those certain first mortgage bonds issued pursuant to the First Mortgage Indenture dated as of March 23, 2009, between TNMP and Union Bank, N.A. (successor to The Bank of New York Mellon Trust Company, N.A.), as trustee thereunder, as it may be supplemented and amended from time to time.
“
TNMP Securitization
” means a securitization financing entered into by TNMP or a Subsidiary of TNMP relating to regulatory assets, stranded costs, transition property, all rights and property interests (contractual, statutory, regulatory or otherwise) to impose and collect transition charges, including all cash proceeds collected, and accounts receivable arising, therefrom and all rights and interests that may become transition property under the Texas Utilities Code.
“
Total Assets
” means all assets of the Borrower and its Subsidiaries as shown on its most recent quarterly consolidated balance sheet, as determined in accordance with GAAP.
“
Type
” means, with respect to a Revolving Loan, its character as a Base Rate Loan or a Eurodollar Loan.
“
Unreimbursed Amount
” has the meaning specified in
Section 2.2(d)(i)
.
“
Unused Revolving Commitment
” means, for any date of determination, the amount by which (a) the aggregate Revolving Committed Amount on such date exceeds (b) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations on such date.
“
VIE
” has the meaning set forth in
Section 1.3(c)
.
“
Voting Stock
” means the Capital Stock of a Person that is then outstanding and normally entitled to vote in the election of directors and other securities of such Person convertible into or exercisable for such Capital Stock (whether or not such securities are then currently convertible or exercisable).
“
Write-Down and Conversion Powers
” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
1.2
Computation of Time Periods and Other Definitional Provisions
.
For purposes of computation of periods of time hereunder, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding.” References in this Credit Agreement to “Articles”, “Sections”, “Schedules” or “Exhibits” shall be to Articles, Sections, Schedules or Exhibits of or to this Credit Agreement unless otherwise specifically provided.
1.3
Accounting Terms/Calculation of Financial Covenant
.
(a)
Except as otherwise expressly provided herein, all accounting terms used herein or incorporated herein by reference shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. Notwithstanding anything to the contrary in this Credit Agreement, for purposes of calculation of the financial covenant set forth in
Section 7.2
, all accounting determinations and computations thereunder shall be made in accordance with GAAP as in effect as of the date of this Credit Agreement applied on a basis consistent with the application used in preparing the most recent financial statements of the Borrower referred to in
Section 4.1(d)
. In the event that any changes in GAAP after such date are required to be applied to the Borrower and would affect the computation of the financial covenant contained in
Section 7.2
, such changes shall be followed only from and after the date this Credit Agreement shall have been amended to take into account any such changes.
(b)
Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein, (ii) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and, except as specifically provided in the definitions of “Consolidated Capitalization” and “Consolidated Indebtedness”, such Indebtedness shall at all times be valued at the full stated principal amount thereof and (iii) in a manner such that any obligations relating to a lease that was accounted for by a Person as an operating lease as of the Restatement Date and any similar lease entered into after the Restatement Date by such Person shall be accounted for as obligations relating to an operating lease.
(c) All references herein to consolidated financial statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity (“
VIE
”) that the Borrower is required to consolidate pursuant to FASB Accounting Standards Codification Topic 810 – Consolidation – Variable Interest Entities as if such variable interest entity were a Subsidiary as defined herein;
provided
that the financial covenant in
Section 7.2
shall be calculated without consolidation of any VIE to the extent the Borrower or its consolidated Subsidiaries have entered into power purchase agreements with such VIE to serve retail customers as a result of the shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant.
1.4
Time
.
All references to time herein shall be references to Eastern Standard Time or Eastern Daylight Time, as the case may be, unless specified otherwise.
1.5
Rounding of Financial Covenant
.
Any financial ratios required to be maintained by the Borrower pursuant to this Credit Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.6
References to Agreements and Requirement of Laws
.
Unless otherwise expressly provided herein: (a) references to organization documents, agreements (including the Credit Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Credit Document and (b) references to any Requirement of Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Requirement of Law.
1.7
Letter of Credit Amounts
.
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time;
provided
,
however
, that with respect to any Letter of Credit that, by its terms or the terms of any Letter of Credit related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
1.8
Rates
.
The Administrative Agent does not warrant or accept responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to the rates in the definition of “Eurodollar Base Rate”.
SECTION 2
CREDIT FACILITY
2.1
Revolving Loans
.
(a)
Revolving Loan Commitment
. Subject to the terms and conditions set forth herein, each Lender severally agrees to make revolving loans (each a “
Revolving Loan
” and collectively the “
Revolving Loans
”) in Dollars to the Borrower, at any time and from time to time, during the period from and including the Closing Date to but not including the Maturity Date (or such earlier date if the Commitments have been terminated as provided herein);
provided
,
however
, that after giving effect to any Borrowing (i) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans shall not exceed the Revolving Committed Amount and (ii) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans of such
Lender plus such Lender’s Pro Rata Share of the aggregate principal amount of outstanding L/C Obligations and Swing Line Loans shall not exceed such Lender’s Commitment. Subject to the terms of this Credit Agreement (including
Section 3.3
), the Borrower may borrow, repay and reborrow Revolving Loans.
(b)
Method of Borrowing for Revolving Loans
. By no later than (i) 12:00 noon on the date of the requested Borrowing of Revolving Loans that will be Base Rate Loans and (ii) 12:00 noon three Business Days prior to the date of the requested Borrowing of Revolving Loans that will be Eurodollar Loans, the Borrower shall submit a written Notice of Revolving Borrowing in the form of
Exhibit 2.1(b)
to the Administrative Agent setting forth (A) the amount requested, (B) the date of the requested Borrowing, (C) the Type of Revolving Loan, (D) with respect to Revolving Loans that will be Eurodollar Loans, the Interest Period applicable thereto, and (E) certification that the Borrower has complied in all respects with
Section 5
. If the Borrower shall fail to specify (1) an Interest Period in the case of a Eurodollar Loan, then such Eurodollar Loan shall be deemed to have an Interest Period of one month or (2) the Type of Revolving Loan requested, then such Revolving Loan shall be deemed to be a Base Rate Loan. All Revolving Loans made on the Closing Date shall be Base Rate Loans. Thereafter, all or any portion of the Revolving Loans (other than Swing Line Loans) may be converted into Eurodollar Loans in accordance with the terms of
Section 2.3
.
(c)
Funding of Revolving Loans
. Upon receipt of a Notice of Revolving Borrowing, the Administrative Agent shall promptly inform the Lenders as to the terms thereof. Each such Lender shall make its Pro Rata Share of the requested Revolving Loans available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Notice of Revolving Borrowing. Upon satisfaction of the conditions set forth in
Section 5
, the amount of the requested Revolving Loans will then be made available to the Borrower by the Administrative Agent by wire transfer of such funds in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower.
(d)
Reductions of Revolving Committed Amount
. Upon at least three Business Days’ notice, the Borrower shall have the right to permanently terminate or reduce the aggregate unused amount of the Revolving Committed Amount at any time or from time to time; provided that (i) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 and in integral multiples of $1,000,000 above such amount and (ii) no reduction shall be made which would reduce the Revolving Committed Amount to an amount less than the sum of the aggregate principal amount of outstanding Loans plus the aggregate principal amount of outstanding L/C Obligations. Any reduction in (or termination of) the Revolving Committed Amount shall be permanent and may not be reinstated.
(e)
Revolving Notes
. At the request of any Lender, the Revolving Loans made by such Lender shall be evidenced by a duly executed promissory note of the Borrower to such Lender in substantially the form of
Exhibit 2.1(e)
.
(f)
Increases of the Revolving Committed Amount
. The Borrower shall have the right, upon at least fifteen (15) Business Days’ prior written notice to the Administrative Agent, to increase the Revolving Committed Amount, in one or more increases, at any time and from time to time after the Restatement Date,
subject
,
however
, in any such case, to satisfaction of the following conditions precedent:
(i)
no Default or Event of Default shall have occurred and be continuing on the date on which such increase is to become effective;
(ii)
after giving effect to such increase, the Revolving Committed Amount shall not exceed $400,000,000;
(iii)
the representations and warranties set forth in
Section 6
shall be true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) on and as of the date on which such increase is to become effective;
(iv)
such increase shall be in a minimum amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof;
(v)
such requested increase shall only be effective upon receipt by the Administrative Agent of (A) additional commitments in a corresponding amount of such requested increase from either existing Lenders and/or one or more other institutions that qualify as an Eligible Assignee (it being understood and agreed that no existing Lender shall be required to provide an additional commitment) and (B) documentation from each institution providing an additional commitment evidencing its commitment and its obligations under this Credit Agreement in form and substance acceptable to the Administrative Agent;
(vi)
the Administrative Agent shall have received all documents (including resolutions of the board of directors of the Borrower and applicable opinions) it may reasonably request relating to the corporate or other necessary authority for and the validity of such increase in the Revolving Committed Amount, and any other matters relevant thereto, all in form and substance reasonably satisfactory to the Administrative Agent;
(vii)
if any Revolving Loans are outstanding at the time of the increase in the Revolving Committed Amount, the Borrower shall, if applicable, prepay one or more existing Revolving Loans (such prepayment to be subject to
Section 3.14
) in an amount necessary such that after giving effect to the increase in the Revolving Committed Amount, each Lender will hold its pro rata share (based on its Pro Rata Share of the increased Revolving Committed Amount) of outstanding Revolving Loans; and
(viii)
the Borrower shall pay such fees to the Administrative Agent, for the benefit of the Lenders providing such additional commitments, as determined at the time of such increase.
2.2
Letter of Credit Subfacility
.
(a)
The Letter of Credit Commitment
.
(i) Subject to the terms and conditions set forth herein and other terms and conditions that the applicable L/C Issuer may reasonably require, (A) each L/C Issuer agrees, in reliance upon the agreements of the other Lenders set forth in this
Section 2.2
, from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue standby Letters of Credit in Dollars for the account of the Borrower and to amend Letters of Credit previously issued by it, in each
case in accordance with subsection (b) below and (B) the Lenders severally agree to participate in such Letters of Credit issued for the account of the Borrower;
provided
,
however
, that after giving effect to the issuance of any Letter of Credit (1) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of Swing Line Loans shall not exceed the Revolving Committed Amount, (2) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans of such Lender plus such Lender’s Pro Rata Share of the aggregate principal amount of outstanding L/C Obligations and Swing Line Loans shall not exceed such Lender’s Commitment, (3) the aggregate amount of L/C Obligations shall not at any time exceed the Letter of Credit Sublimit and (4) the aggregate principal amount of outstanding L/C Obligations of any Initial L/C Issuer shall not exceed such Initial L/C Issuer’s L/C Commitment. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(ii)
An L/C Issuer shall not issue or amend any Letter of Credit if:
(A)
the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date;
provided
that, subject to the agreement of the Borrower set forth below in this clause (A), an L/C Issuer may issue Letters of Credit with an expiry date of up to one year after the Letter of Credit Expiration Date (but no L/C Issuer shall have an obligation to issue such Letter of Credit). The Borrower hereby agrees that on or before 90 days prior to the Letter of Credit Expiration Date it shall Cash Collateralize any Letter of Credit existing on such date with an expiry date after the Letter of Credit Expiration Date in an amount equal to at least 110% of the face amount of such Letter of Credit; or
(B)
such Letter of Credit is to be used for a purpose other than as permitted by
Section 7.9
, or is denominated in a currency other than Dollars.
(iii)
An L/C Issuer shall be under no obligation to issue or amend any Letter of Credit if:
(A)
any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such L/C Issuer from issuing such Letter of Credit, or any Requirement of Law applicable to such L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such L/C Issuer shall prohibit, or request that such L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such L/C Issuer in good faith deems material to it;
(B)
the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance, unless the Required Lenders have approved such expiry date;
(C)
the issuance of such Letter of Credit would violate one or more policies of such L/C Issuer;
(D)
such Letter of Credit is in an initial amount less than $100,000 (unless otherwise agreed to by such L/C Issuer); or
(E)
a default of any Lender’s obligations to fund under
Section 2.2(d)
exists or any Lender is at such time a Defaulting Lender hereunder, unless the applicable L/C Issuer has entered into satisfactory arrangements with the Borrower or such Lender to eliminate such L/C Issuer’s risk with respect to such Lender.
(iv)
An L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) such L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
(v)
Defaulting Lenders
. Notwithstanding anything to the contrary contained in this
Section 2.2
, no L/C Issuer shall be obligated to issue any Letter of Credit at a time when any other Lender is a Defaulting Lender, unless the applicable L/C Issuer has entered into arrangements (which may include the delivery of Cash Collateral) with the Borrower or such Defaulting Lender which are satisfactory to such L/C Issuer to eliminate such L/C Issuer’s Fronting Exposure (after giving effect to
Section 3.16(c)
) with respect to any such Defaulting Lender.
(b)
Procedures for Issuance and Amendment of Letters of Credit
.
(i)
Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to a L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. The Letter of Credit Application must be received by the applicable L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as such L/C Issuer may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as applicable. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day), (B) the amount thereof, (C) the expiry date thereof, (D) the name and address of the beneficiary thereof, (E) the documents to be presented by such beneficiary in case of any drawing thereunder, (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder and (G) such other matters as such L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable L/C Issuer (1) the Letter of Credit to be amended, (2) the proposed date of amendment thereof (which shall be a Business Day), (3) the nature of the proposed amendment and (4) such other matters as such L/C Issuer may require.
(ii)
Promptly after receipt of any Letter of Credit Application, the applicable L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such L/C Issuer will provide the Administrative Agent with a copy thereof. Upon receipt by the applicable L/C Issuer of confirmation from the Administrative Agent that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, such L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with such L/C Issuer’s usual and customary business practices.
(iii)
If the Borrower so requests in any applicable Letter of Credit Application, the applicable L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic renewal provisions (each, an “
Auto‑Renewal Letter of Credit
”); provided that any such Auto‑Renewal Letter of Credit must permit such L/C Issuer to prevent any such renewal at least once in each twelve‑month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “
Nonrenewal Notice Date
”) in each such twelve‑month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the applicable L/C Issuer, the Borrower shall not be required to make a specific request to such L/C Issuer for any such renewal. Once an Auto‑Renewal Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the applicable L/C Issuer to permit the renewal of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that such L/C Issuer shall not permit any such renewal if (A) such L/C Issuer has determined that it would have no obligation at such time to issue such Letter of Credit in its renewed form under the terms hereof (by reason of the provisions of
Section 2.2(a)(ii)
or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Nonrenewal Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such renewal or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in
Section 5
is not then satisfied.
(iv)
Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the applicable L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(c)
Participations
.
(i)
On the Closing Date, each Lender shall be deemed to have purchased without recourse a risk participation from the applicable L/C Issuer in each Existing Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its Pro Rata Share of the obligations under such Existing Letter of Credit, and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to such L/C Issuer therefor and discharge when due, its Pro Rata Share of the obligations arising under such Existing Letter of Credit.
(ii)
Each Lender, upon issuance of a Letter of Credit, shall be deemed to have purchased without recourse a risk participation from the applicable L/C Issuer in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its Pro Rata Share of the obligations under such Letter of Credit, and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to such L/C Issuer therefor and discharge when due, its Pro Rata Share of the obligations arising under such Letter of Credit.
(d)
Reimbursement
.
(i)
In the event of any drawing under any Letter of Credit, the applicable L/C Issuer will promptly notify the Borrower. The Borrower shall reimburse the applicable L/C Issuer on the day of drawing under any Letter of Credit either with the proceeds of a Revolving Loan obtained hereunder or otherwise in immediately available funds. If the Borrower shall fail to reimburse the applicable L/C Issuer as provided hereinabove (the “
Unreimbursed Amount
”), the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Base Rate plus two percent (2%).
(ii)
Subsequent to a drawing under any Letter of Credit, unless the Borrower shall immediately notify the applicable L/C Issuer of its intent to otherwise reimburse such L/C Issuer, the Borrower shall be deemed to have requested a Base Rate Loan in the amount of the drawing as described herein, the proceeds of which will be used to satisfy the reimbursement obligations. On any day on which the Borrower shall be deemed to have requested a Revolving Loan borrowing to reimburse a drawing under a Letter of Credit, the Administrative Agent shall give notice to the Lenders that a Revolving Loan has been deemed requested in connection with a drawing under a Letter of Credit, in which case a Revolving Loan borrowing comprised solely of Base Rate Loans (each such borrowing, a “
Mandatory Borrowing
”) shall be immediately made from all Lenders (without giving effect to any termination of the Commitments pursuant to
Section 9.2
or otherwise)
pro
rata
based on each Lender’s respective Pro Rata Share and the proceeds thereof shall be paid directly to the applicable L/C Issuer for application to the respective L/C Obligations. Each Lender hereby irrevocably agrees to make such Revolving Loans immediately upon any such request or deemed request on account of each such Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the same such date
notwithstanding
(A) the amount of Mandatory Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (B) the failure of any conditions specified in
Section 5.1
to have been satisfied, (C) the existence of a Default or an Event of Default, (D) the failure of any such request or deemed request for Revolving Loans to be made by the time otherwise required hereunder, (E) the date of such Mandatory Borrowing, or (F) any reduction in the Revolving Committed Amount or any termination of the Commitments.
(iii)
In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower), then each such Lender hereby agrees that it shall forthwith fund (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) its Pro Rata Share in the outstanding L/C Obligations;
provided
, that in the event any Lender shall fail to fund its Pro Rata Share on the day the Mandatory Borrowing would
otherwise have occurred, then the amount of such Lender’s unfunded participation interest therein shall bear interest payable to the applicable L/C Issuer upon demand, at the rate equal to, if paid within two Business Days of such date, the Federal Funds Rate, and thereafter at a rate equal to the Base Rate. Simultaneously with the making of each such payment by a Lender to such L/C Issuer, such Lender shall, automatically and without any further action on the part of such L/C Issuer or such Lender, acquire a participation in an amount equal to such payment (excluding the portion of such payment constituting interest owing to such L/C Issuer) in the related unreimbursed drawing portion of the L/C Obligation and in the interest thereon and shall have a claim against the Borrower with respect thereto. Any payment by the Lenders pursuant to this clause (iii) shall not relieve or otherwise impair the obligations of the Borrower to reimburse the applicable L/C Issuer under a Letter of Credit.
(e)
Obligations Absolute
. The obligation of the Borrower to reimburse the applicable L/C Issuer for each drawing under each Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Credit Agreement under all circumstances, including the following:
(i)
any lack of validity or enforceability of such Letter of Credit, this Credit Agreement, or any other agreement or instrument relating thereto;
(ii)
the existence of any claim, counterclaim, set‑off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), such L/C Issuer or any other Person, whether in connection with this Credit Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
(iii)
any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv)
any payment by such L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by such L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor‑in‑possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
(v)
any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower’s instructions or other irregularity, the Borrower will immediately notify the applicable L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the applicable L/C Issuer and its correspondents unless such notice is given as aforesaid.
(f)
Role of L/C Issuers
. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the applicable L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuers, any Agent‑Related Person nor any of the respective correspondents, participants or assignees of the L/C Issuers shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable, (ii) any action taken or omitted in the absence of gross negligence or willful misconduct or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit;
provided
,
however
, that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuers, any Agent‑Related Person, nor any of the respective correspondents, participants or assignees of the L/C Issuers, shall be liable or responsible for any of the matters described in clauses (i) through (v) of
Section 2.2(e)
; provided, however, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against a L/C Issuer, and such L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by such L/C Issuer’s willful misconduct or gross negligence or such L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, a L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation and such L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
(g)
Cash Collateral
. If, as of the Letter of Credit Expiration Date, any Letter of Credit for any reason remains outstanding and partially or wholly undrawn, the Borrower shall immediately Cash Collateralize the then aggregate principal amount of all L/C Obligations (in an amount equal to such aggregate principal amount determined as of the Letter of Credit Expiration Date). The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuers and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash collateral shall be maintained in blocked, non‑interest bearing deposit accounts at the Administrative Agent.
(h)
Applicability of ISP
. Unless otherwise expressly agreed by the applicable L/C Issuer and the Borrower when a Letter of Credit is issued, the rules of the ISP shall apply to each Letter of Credit.
(i)
Fronting Fee and Documentary and Processing Charges Payable to L/C Issuers
. The Borrower shall pay directly to the applicable L/C Issuer for its own account a fronting fee with respect to each Letter of Credit at the rate per annum agreed to by the Borrower and the applicable L/C Issuer in writing, computed on the daily maximum amount available to be drawn under such Letter of Credit (the “
L/C Fronting Fee
”). The L/C Fronting Fee shall be computed on a quarterly basis in arrears and shall be due and payable on the third Business Day after the end of each Fiscal Quarter (as well as on the Letter of Credit Expiration Date) for the Fiscal Quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the
issuance of such Letter of Credit. In addition, the Borrower shall pay directly to the applicable L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(j)
Conflict with Letter of Credit Application
. In the event of any conflict between the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.
(k)
Indemnification of L/C Issuers
.
(i)
In addition to its other obligations under this Credit Agreement, the Borrower hereby agrees to protect, indemnify, pay and hold each L/C Issuer harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys’ fees) that such L/C Issuer may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or (B) the failure of such L/C Issuer to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority (all such acts or omissions, herein called “
Government Acts
”).
(ii)
As between the Borrower and the L/C Issuers, the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. In the absence of gross negligence or willful misconduct, no L/C Issuer shall be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon a Letter of Credit; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (G) any consequences arising from causes beyond the control of such L/C Issuer, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of a L/C Issuer’s rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by a L/C Issuer, under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such L/C Issuer under any resulting liability to the Borrower. It is the intention of the parties that this Credit Agreement shall be construed and applied to protect and indemnify the L/C Issuers against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any present or future Government Acts. No L/C Issuer shall, in any way, be liable for any failure by such L/C Issuer or anyone else to pay any drawing under any
Letter of Credit as a result of any Government Acts or any other cause beyond the control of such L/C Issuer.
(iv)
Nothing in this subsection (k) is intended to limit the reimbursement obligation of the Borrower contained in this
Section 2.2
. The obligations of the Borrower under this subsection (k) shall survive the termination of this Credit Agreement. No act or omission of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the applicable L/C Issuer to enforce any right, power or benefit under this Credit Agreement.
(v)
Letter of Credit Amounts
. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the maximum face amount of such Letter of Credit after giving effect to all increases thereof contemplated by such Letter of Credit or the Letter of Credit Application therefor, whether or not such maximum face amount is in effect at such time.
2.3
Continuations and Conversions
.
Subject to the terms below, the Borrower shall have the option, on any Business Day prior to the Maturity Date, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate Loans (other than Swing Line Loans) into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans. By no later than 12:00 noon (a) two Business Days prior to the date of the requested conversion of a Eurodollar Loan to a Base Rate Loan and (b) three Business Days prior to the date of the requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, the Borrower shall provide a written Notice of Continuation/Conversion in the form of
Exhibit 2.3
, setting forth whether the Borrower wishes to continue or convert such Revolving Loans. Notwithstanding anything herein to the contrary, (A) except as provided in
Section 3.11
, Eurodollar Loans may only be continued or converted into Base Rate Loans on the last day of the Interest Period applicable thereto, (B) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar Loans during the existence and continuation of a Default or an Event of Default and (C) any request to continue a Eurodollar Loan that fails to comply with the terms hereof or any failure to request a continuation of a Eurodollar Loan at the end of an Interest Period shall be deemed a request to convert such Eurodollar Loan to a Base Rate Loan on the last day of the applicable Interest Period.
2.4
Minimum Amounts
.
Each request for a borrowing, conversion or continuation shall be subject to the requirements that (a) each Eurodollar Loan shall be in a minimum amount of $3,000,000 and in integral multiples of $1,000,000 in excess thereof, (b) each Base Rate Loan shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess thereof (or the remaining amount of outstanding Revolving Loans) and (c) no more than seven Eurodollar Loans shall be outstanding hereunder at any one time. For the purposes of this
Section 2.4
, separate Eurodollar Loans that begin and end on the same date, as well as Eurodollar Loans that begin and end on different dates, shall all be considered as separate Eurodollar Loans.
2.5
Extension Option
.
(a)
Request for Extensions
. At any time after the Restatement Date, the Borrower may, by notice to the Lenders, request that the Lenders extend the then current Maturity Date for one additional year;
provided
that (i) not more than two such requests may be made during the term of this Credit Agreement and (ii) such extension shall not become effective before the date
which is five years before the Maturity Date as so extended. Each Lender shall, by notice to the Borrower and the Administrative Agent not later than the 30
th
day following the date of any such request from the Borrower, advise the Borrower whether or not it agrees to extend the Maturity Date as requested. Each decision by a Lender shall be in the sole discretion of such Lender, and any Lender that has not so advised the Administrative Agent by the 30
th
day following the date of such request from the Borrower shall be deemed to have declined to agree to such extension. Each of the parties hereto acknowledges and agrees that no Lender shall be obligated to extend the Maturity Date pursuant to the terms of this
Section 2.5
. Any Lender who fails to agree to the extension request of the Borrower, as set forth herein, shall be referred to, for purposes of this Section, as a “
Non-Extending Lender
”.
(b)
Extension
. If Lenders holding Commitments representing at least 50% of the Revolving Committed Amount agree to any such request for extension of the Maturity Date (collectively, the “
Approving Lenders
”), then the Borrower may, subject to receipt of all approvals with respect thereto, if any, extend the Maturity Date for an additional year solely as to the Approving Lenders with a Revolving Committed Amount equal to the aggregate Commitments of the Approving Lenders during such extension period; provided that the Maturity Date shall never extend beyond any date for which the Borrower does not have approval. If Non-Extending Lenders hold Commitments representing more than 50% of the Revolving Committed Amount, then the Borrower shall withdraw its extension request and the Maturity Date will remain unchanged. With respect to the Non-Extending Lenders, it is understood and agreed that the Maturity Date relating to the Non-Extending Lenders shall remain unchanged and the repayment of all obligations owed to them and the termination of their Commitments shall occur on the then existing Maturity Date without giving effect to such extension request.
2.6
Evidence of Debt
.
(a)
The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to its Borrower Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
(b)
In addition to the accounts and records referred to in subsection (a) above, each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.7
Swing Line Loans
.
(a)
Availability
. Subject to the terms and conditions of this Credit Agreement, the Swing Line Lender shall make Swing Line Loans to the Borrower from time to time from the Closing Date through, but not including, the Maturity Date;
provided
that after giving effect to any amount requested, (i) the sum of the aggregate principal amount of outstanding Revolving
Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of Swing Line Loans shall not exceed the Revolving Committed Amount, (ii) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans of such Lender plus such Lender’s Pro Rata Share of the aggregate principal amount of outstanding L/C Obligations and Swing Line Loans shall not exceed such Lender’s Commitment and (iii) the aggregate amount of Swing Line Loans shall not at any time exceed the Swing Line Sublimit. Each Swing Line Loan shall be a Base Rate Loan or a LIBOR Market Index Rate Swing Line Loan. Notwithstanding the foregoing, the Swing Line Lender shall not be under any obligation to issue a Swing Line Loan if any Lender is at that time a Defaulting Lender, unless the Swing Line Lender has entered into arrangements, including the delivery of Cash Collateral, with the Borrower or such Lender to eliminate the Swing Line Lender’s actual or potential Fronting Exposure (after giving effect to
Section 3.16(c)
) with respect to the Defaulting Lender arising from the Swing Line Loan then proposed to be made and all other Swing Line Loans as to which the Swing Line Lender has actual or potential Fronting Exposure, as it may elect in its sole discretion.
(b)
Refunding
.
(i)
Swing Line Loans shall be refunded by the Lenders on demand by the Swing Line Lender. Such refundings shall be made by the Lenders in accordance with their respective Pro Rata Shares and shall thereafter be reflected as Revolving Loans of the Lenders on the books and records of the Administrative Agent. Each Lender shall fund its respective Pro Rata Share of Revolving Loans as required to repay Swing Line Loans outstanding to the Swing Line Lender upon demand by the Swing Line Lender but in no event later than 1:00 p.m. on the next succeeding Business Day after such demand is made. No Lender’s obligation to fund its respective Pro Rata Share of a Swing Line Loan shall be affected by any other Lender’s failure to fund its Pro Rata Share of a Swing Line Loan, nor shall any Lender’s Pro Rata Share be increased as a result of any such failure of any other Lender to fund its Pro Rata Share of a Swing Line Loan.
(ii)
The Borrower shall pay to the Swing Line Lender on demand the amount of such Swing Line Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swing Line Loans requested or required to be refunded. In addition, the Borrower hereby authorizes the Administrative Agent to charge any account maintained by the Borrower with the Swing Line Lender (up to the amount available therein) in order to immediately pay the Swing Line Lender the amount of such Swing Line Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swing Line Loans requested or required to be refunded. If any portion of any such amount paid to the Swing Line Lender shall be recovered by or on behalf of the Borrower from the Swing Line Lender in bankruptcy or otherwise, the loss of the amount so recovered shall be ratably shared among all the Lenders in accordance with their respective Pro Rata Shares (unless the amounts so recovered by or on behalf of the Borrower pertain to a Swing Line Loan extended after the occurrence and during the continuance of an Event of Default of which the Administrative Agent has received notice in the manner required pursuant to
Section 11.1
and which such Event of Default has not been waived by the Required Lenders or the Lenders, as applicable).
(iii) Each Lender acknowledges and agrees that its obligation to refund Swing Line Loans in accordance with the terms of this Section is absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, non-
satisfaction of the conditions set forth in
Section 5
. Further, each Lender agrees and acknowledges that if prior to the refunding of any outstanding Swing Line Loans pursuant to this Section, one of the events described in
Section 9.1(e)
shall have occurred, each Lender will, on the date the applicable Revolving Loan would have been made, purchase an undivided Participating Interest in the Swing Line Loan to be refunded in an amount equal to its Pro Rata Share of the aggregate amount of such Swing Line Loan. Each Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its Participation Interest and upon receipt thereof the Swing Line Lender will deliver to such Lender a certificate evidencing such Participation Interest dated the date of receipt of such funds and for such amount. Whenever, at any time after the Swing Line Lender has received from any Lender such Lender’s Participation Interest in a Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Lender its Participation Interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s Participation Interest was outstanding and funded).
(c)
Defaulting Lenders
. Notwithstanding anything to the contrary contained in this
Section 2.7
, the Swing Line Lender shall not be obligated to make any Swing Line Loan at a time when any other Lender is a Defaulting Lender, unless the Swing Line Lender has entered into arrangements (which may include the delivery of Cash Collateral) with the Borrower or such Defaulting Lender which are satisfactory to the Swing Line Lender to eliminate the Swing Line Lender’s Fronting Exposure (after giving effect to
Section 3.16(c)
) with respect to such Defaulting Lender.
(d)
Requests for Borrowing of Swing Line Loans
. The Borrower shall give the Administrative Agent irrevocable prior written notice substantially in the form of
Exhibit 2.7(d)
(a “
Notice of Swing Line Borrowing
”) not later than 12:00 noon on the same Business Day as each Swing Line Loan, of its intention to borrow, specifying (i) the date of such borrowing, which shall be a Business Day, (ii) the amount of such borrowing, which shall be in an aggregate principal amount of $100,000 or a whole multiple of $100,000 in excess thereof and (iii) whether such Swing Line Loan will accrue interest at the Adjusted Base Rate or the Adjusted LIBOR Market Index Rate. A Notice of Swing Line Borrowing received after 12:00 noon shall be deemed received on the next Business Day. The Administrative Agent shall promptly notify the Lenders of each Notice of Swing Line Borrowing.
(e)
Disbursement of Swing Line Loans
. Not later than 1:00 p.m. on the proposed borrowing date, the Swing Line Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, the Swing Line Loans to be made on such borrowing date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each borrowing requested pursuant to this Section in immediately available funds by wiring such proceeds to the deposit account of the Borrower identified in the most recent Account Designation Letter delivered by the Borrower to the Administrative Agent or as may be otherwise agreed upon by the Borrower and the Administrative Agent from time to time.
(f)
Repayment of Swing Line Loans and Participations
.
(i)
If outstanding Swing Line Loans have not been refinanced with Revolving Loans pursuant to
Section 2.7(b)
hereof, Swing Line Loans shall be due and payable within fourteen (14) days following the making of such Swing Line Loan.
(ii)
At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, such Swing Line Lender will distribute to such Lender its Pro Rata Share thereof in the same funds as those received by such Swing Line Lender.
(iii)
If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by such Swing Line Lender under any of the circumstances described in this Credit Agreement (including pursuant to any settlement entered into by such Swing Line Lender in its discretion), each Lender shall pay to such Swing Line Lender its Pro Rata Share thereof on demand of the Administrative Agent,
plus
interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Borrower Obligations and the termination of this Credit Agreement.
(g)
Interest for Account of Swing Line Lender
. The Swing Line Lender shall be responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Lender funds its Revolving Loan or risk participation pursuant to this
Section 2.7
to refinance such Lender’s Pro Rata Share of any Swing Line Loan, interest in respect of such Pro Rata Share shall be solely for the account of the Swing Line Lender.
(h)
Payments Directly to Swing Line Lenders
. The Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.
(i)
Swing Line Note
. At the request of the Swing Line Lender, any Swing Line Loans made by the Swing Line Lender shall be evidenced by a duly executed promissory note of the Borrower to the Swing Line Lender in substantially the form of
Exhibit 2.7
.
SECTION 3
GENERAL PROVISIONS APPLICABLE
TO LOANS
3.1
Interest
.
(a)
Interest Rate
. Subject to
Sections 3.1(b)
, (i) all Base Rate Loans shall accrue interest at the Adjusted Base Rate, (ii) all Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate and (iii) all Swing Line Loans shall bear interest at the Adjusted Base Rate or the Adjusted LIBOR Market Index Rate, as requested by the Borrower.
(b)
Default Rate of Interest
.
(i)
After the occurrence, and during the continuation, of an Event of Default pursuant to
Section 9.1(a)
, the principal of and, to the extent permitted by Law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at the Default Rate.
(ii)
After the occurrence, and during the continuation, of an Event of Default (other than an Event of Default pursuant to
Section 9.1(a)
), at the request of the Required Lenders, the principal of and, to the extent permitted by Law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at the Default Rate.
(c)
Interest Payments
. Interest on Loans shall be due and payable in arrears on each Interest Payment Date.
3.2
Payments Generally
.
(a)
No Deductions; Place and Time of Payments
. All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. Each payment to the Administrative Agent on account of the principal of or interest on the Swing Line Loans or of any fee, commission or other amounts payable to the Swing Line Lender shall be made in like manner, but for the account of the Swing Line Lender. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. Notwithstanding the foregoing, if there exists a Defaulting Lender, each payment by the Borrower to such Defaulting Lender hereunder shall be applied in accordance with
Section 3.16(b)
.
(b)
Payment Dates
. Subject to the definition of “
Interest Period
,” if any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(c)
Advances by Administrative Agent
. Unless the Borrower or any Lender has notified the Administrative Agent, prior to the time any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then:
(i)
if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and
(ii)
if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the “
Compensation Period
”) at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to such Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.
(d)
Several Obligations
. The obligations of the Lenders hereunder to make Revolving Loans and to fund or purchase Participation Interests are several and not joint. The failure of any Lender to make any Revolving Loan or to fund or purchase any Participation Interest on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Revolving Loan or fund or purchase its Participation Interest.
(e)
Funding Offices
. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
3.3
Prepayments
.
(a)
Voluntary Prepayments
. The Borrower shall have the right to prepay the Revolving Loans or Swing Line Loans in whole or in part from time to time without premium or penalty;
provided
,
however
, that (i) all prepayments under this
Section 3.3(a)
shall be subject to
Section 3.14
, (ii) Eurodollar Loans may only be prepaid on three Business Days’ prior written notice to the Administrative Agent, (iii) each such partial prepayment of Eurodollar Loans shall be in the minimum principal amount of $1,000,000 and integral multiples of $1,000,000 (iv) each such partial prepayment of Base Rate Loans shall be in the minimum principal amount of $500,000 and integral multiples of $100,000, (v) each such partial prepayment of Swing Line Loans shall be in the minimum principal amount of $100,000 and integral multiples of $100,000 or, in the case of clauses (iii), (iv) and (v), if less than such minimum amounts, the entire principal amount thereof then outstanding. Amounts prepaid pursuant to this
Section 3.3(a)
shall be applied as the Borrower may elect based on the Lenders’ Pro Rata Shares;
provided
,
however
, if the Borrower fails to specify, such prepayment shall be applied by the Administrative Agent, subject to
Section 3.7
, in such manner as it deems reasonably appropriate.
(b)
Mandatory Prepayments
. If at any time (i) the sum of the aggregate principal amount of Revolving Loans outstanding plus the aggregate principal amount of L/C Obligations outstanding plus the aggregate principal amount of Swing Line Loans outstanding exceeds the
Revolving Committed Amount, (ii) the aggregate principal amount of L/C Obligations outstanding exceeds the Letter of Credit Sublimit or (iii) the aggregate principal amount of Swing Line Loans outstanding exceeds the Swing Line Sublimit, the Borrower shall immediately make a principal payment on the Loans to the Administrative Agent and/or Cash Collateralize outstanding L/C Obligations in a manner, in an amount and in Dollars as is necessary to be in compliance with
Sections 2.1
,
2.2
and
2.7
, as applicable, and as directed by the Administrative Agent. All amounts required to be prepaid pursuant to this
Section 3.3(b)
shall be applied
first
to Swing Line Loans pro rata among all outstanding Swing Line Loans (first to Base Rate Loans and then to LIBOR Market Index Rate Swing Line Loans),
second
to Base Rate Loans,
third
to Eurodollar Loans in direct order of Interest Period maturities and
fourth
to Cash Collateralize outstanding L/C Obligations. All prepayments pursuant to this
Section 3.3(b)
shall be subject to
Section 3.14
.
3.4
Fees
.
(a)
Commitment Fees
. In consideration of the Revolving Committed Amount being made available by the Lenders hereunder, the Borrower agrees to pay to the Administrative Agent, for the pro rata benefit of each Lender (other than the Defaulting Lenders, if any) based on its Pro Rata Share, a per annum fee equal to the daily average sum of the Applicable Percentage for Commitment Fees for each day during the period of determination multiplied by the Unused Revolving Commitment for each such day (the “
Commitment Fees
”). The Commitment Fees shall commence to accrue on the Closing Date and shall be due and payable in arrears on the third Business Day after the end of each Fiscal Quarter (as well as on the Maturity Date and on any date that the Revolving Committed Amount is reduced) for the Fiscal Quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the Closing Date. For purposes of clarification, Swing Line Loans shall not be considered usage of the Revolving Committed Amount for the purpose of calculating the Commitment Fees.
(b)
[Reserved]
.
(c)
L/C Fees
. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share a fee for each Letter of Credit equal to the Applicable Percentage for L/C Fees
times
the daily maximum amount available to be drawn under such Letter of Credit (the “
L/C Fees
”). The L/C Fees shall be computed on a quarterly basis in arrears and shall be due and payable on the third Business Day after the end of each Fiscal Quarter (as well as on the Letter of Credit Expiration Date) for the Fiscal Quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the issuance of such Letter of Credit and continuing until each such Letter of Credit has expired.
(d)
Administrative Fees
. The Borrower agrees to pay to the Administrative Agent, for its own account, an annual fee as agreed to between the Borrower and the Administrative Agent (the “
Administrative Fees
”) in the Fee Letter.
3.5
Payment in full at Maturity
.
Subject to the terms of
Section 2.5
, on the Maturity Date, the entire outstanding principal balance of all Loans, together with accrued but unpaid interest and all fees and other sums owing under the Credit Documents, shall be due and payable in full, unless accelerated sooner pursuant to
Section 9.2
;
provided
that if the Maturity Date is not a Business Day, then such principal, interest, fees and other sums shall be due and payable in full on the next preceding Business Day.
3.6
Computations of Interest and Fees
.
(a)
Calculation of Interest and Fees
. Except for Base Rate Loans that are based upon the Prime Rate, in which case interest shall be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, all computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Interest shall accrue from and including the first date of Borrowing (or continuation or conversion) to but excluding the last day occurring in the period for which such interest is payable. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
(b)
Usury
. It is the intent of the Lenders and the Borrower to conform to and contract in strict compliance with applicable usury Law from time to time in effect. All agreements between the Lenders and the Borrower are hereby limited by the provisions of this subsection which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including but not limited to prepayment or acceleration of the maturity of any Borrower Obligation), shall the interest taken, reserved, contracted for, charged, or received under this Credit Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable Law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this subsection and such documents shall be automatically reduced to the maximum nonusurious amount permitted under applicable Law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable Law and which would, apart from this provision, be in excess of the maximum nonusurious amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Loans. The right to demand payment of the Loans or any other Indebtedness evidenced by any of the Credit Documents does not include the right to accelerate the payment of any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of the Loans does not exceed the maximum nonusurious amount permitted by applicable Law.
3.7
Pro Rata Treatment
.
Except to the extent otherwise provided herein, each Borrowing, each payment or prepayment of principal of any Loan, each L/C Credit Extension, each payment of interest, each payment of fees (other than administrative fees paid to the Administrative Agent and fronting, documentary and processing fees paid to the L/C Issuers), each conversion or continuation of any Revolving Loans and each reduction in the Revolving Committed Amount, shall be allocated pro rata among the relevant Lenders in accordance with their Pro Rata Shares;
provided
that, if any Lender shall have failed to pay its Pro Rata Share of any Revolving Loan or fund or purchase its Participation Interest, then any amount to which such Lender would otherwise be entitled pursuant to this
Section 3.7
shall instead be payable to the Administrative Agent until the share of such Revolving Loan or such Participation Interest not funded or purchased by
such Lender has been repaid. In the event any principal, interest, fee or other amount paid to any Lender pursuant to this Credit Agreement or any other Credit Document is rescinded or must otherwise be returned by the Administrative Agent, (a) such principal, interest, fee or other amount that had been satisfied by such payment shall be revived, reinstated and continued in full force and effect as if such payment had not occurred and (b) such Lender shall, upon the request of the Administrative Agent, repay to the Administrative Agent the amount so paid to such Lender, with interest for the period commencing on the date such payment is returned by the Administrative Agent until the date the Administrative Agent receives such repayment at a rate per annum equal to the Federal Funds Rate if repaid within two (2) Business Days after such request and thereafter the Base Rate.
3.8
Sharing of Payments
.
The Lenders agree among themselves that, except to the extent otherwise provided herein, in the event that any Lender shall obtain payment in respect of any Revolving Loan, any Swing Line Loan, any L/C Obligations or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker’s lien or counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable Debtor Relief Law or other similar Law or otherwise, or by any other means, in excess of its Pro Rata Share of such payment as provided for in this Credit Agreement, such Lender shall promptly pay in cash or purchase from the other Lenders a participation in such Revolving Loans, Swing Line Loans, L/C Obligations and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their Pro Rata Shares. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker’s lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be returned, each Lender which shall have shared the benefit of such payment shall, by payment in cash or a repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise returned. The Borrower agrees that (a) any Lender so purchasing such a participation may, to the fullest extent permitted by Law, exercise all rights of payment, including setoff, banker’s lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Revolving Loan, Swing Line Loan, L/C Obligations or other obligation in the amount of such participation and (b) the Borrower Obligations that have been satisfied by a payment that has been rescinded or otherwise returned shall be revived, reinstated and continued in full force and effect as if such payment had not occurred. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Administrative Agent shall fail to remit to any other Lender an amount payable by such Lender or the Administrative Agent to such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Administrative Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable Debtor Relief Law or other similar Law, any Lender receives a secured claim in lieu of a setoff to which this
Section 3.8
applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this
Section 3.8
to share in the benefits of any recovery on such secured claim.
Notwithstanding the foregoing, if there exists a Defaulting Lender, all amounts received by such Defaulting Lender hereunder shall be applied in accordance with
Section 3.16(b)
.
3.9
Capital Adequacy
.
If any Lender determines that any Change in Law has or would have the effect of reducing the rate of return on the capital or assets of such Lender or any corporation controlling such Lender as a consequence of such Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy, liquidity requirements and such Lender’s desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such reduction; provided that, in determining to charge such additional amounts to the Borrower, such Lender treats the Borrower substantially the same as other similarly situated borrowers from such Lender.
3.10
Eurodollar Provisions
.
(a)
Unless and until a Replacement Rate is implemented in accordance with clause (b) below, if the Administrative Agent determines (which determination shall be conclusive and binding upon the Borrower) in connection with any request for a Eurodollar Loan or a conversion to or continuation thereof or otherwise or a LIBOR Market Index Rate Swing Line Loan that (i) deposits in Dollars are not being offered to banks in the applicable offshore interbank market for the applicable amount and Interest Period of such Eurodollar Loan or such LIBOR Market Index Rate Swing Line Loan, (ii) adequate and reasonable means do not exist for determining the Eurodollar Rate for such Eurodollar Loan or the LIBOR Market Index Rate for such LIBOR Market Index Rate Swing Line Loan, or (iii) the Eurodollar Rate for such Eurodollar Loan or the LIBOR Market Index Rate Swing Line Loan does not adequately and fairly reflect the cost to the Lenders of funding such Eurodollar Loan or such LIBOR Market Index Rate Swing Line Loan, the Administrative Agent will promptly notify the Borrower and the Lenders. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Loans or LIBOR Market Index Rate Swing Line Loans shall be suspended until the Administrative Agent revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending Notice of Borrowing or Notice of Continuation/Conversion with respect to Eurodollar Loans or LIBOR Market Index Rate Swing Line Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of or, to the extent permitted hereunder, conversion into a Base Rate Loan in the amount specified therein.
(b) Notwithstanding anything to the contrary in
Section 3.10(a)
above, if the Administrative Agent has made the determination (such determination to be conclusive absent manifest error) that (i) the circumstances described in
Section 3.10(a)(i)
or
(a)(ii)
have arisen and that such circumstances are unlikely to be temporary, (ii) any applicable interest rate specified herein is no longer a widely recognized benchmark rate for newly originated loans in the U.S. syndicated loan market in the applicable currency or (iii) the applicable supervisor or administrator (if any) of any applicable interest rate specified herein or any Governmental Authority having, or purporting to have, jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which any applicable interest rate specified herein shall no longer be used for determining interest rates for loans in the U.S. syndicated loan market in the applicable currency, then the Administrative Agent may, to the extent practicable (in consultation with the Borrower and as determined by the Administrative Agent to be generally in accordance with similar situations in other transactions in which it is serving as administrative agent or otherwise consistent with market practice generally), establish a replacement interest rate (the “
Replacement Rate
”), in which case, the Replacement Rate shall, subject to the next two sentences, replace such applicable interest rate for all purposes under the Credit Documents unless and until (A) an event described in
Section 3.10(a)(i)
,
(a)(ii)
,
(b)(i)
,
(b)(ii)
or
(b)(iii)
occurs with respect to the Replacement Rate or (B) the Administrative Agent (or the Required Lenders through the Administrative Agent) notifies the Borrower that the Replacement Rate does not adequately and fairly reflect the cost to the Lenders of funding the Loans bearing interest at the
Replacement Rate. In connection with the establishment and application of the Replacement Rate, this Credit Agreement and the other Credit Documents shall be amended solely with the consent of the Administrative Agent, as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this
Section 3.10(b)
. Notwithstanding anything to the contrary in this Credit Agreement or the other Credit Documents (including, without limitation,
Section 11.6
), such amendment shall become effective without any further action or consent of any other party to this Credit Agreement so long as the Administrative Agent shall not have received, within five (5) Business Days of the delivery of such amendment to the Lenders, written notices from such Lenders that in the aggregate constitute Required Lenders, with each such notice stating that such Lender objects to such amendment (which such notice shall note with specificity the particular provisions of the amendment to which such Lender objects). To the extent the Replacement Rate is approved by the Administrative Agent in connection with this clause (b), the Replacement Rate shall be applied in a manner consistent with market practice; provided that, in each case, to the extent such market practice is not administratively feasible for the Administrative Agent, such Replacement Rate shall be applied as otherwise reasonably determined by the Administrative Agent (it being understood that any such modification by the Administrative Agent shall not require the consent of, or consultation with, any of the Lenders).
3.11
Illegality
.
If any Lender determines that any Requirement of Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Loans the interest rate on which is determined by reference to the Eurodollar Rate, or materially restricts the authority of such Lender to purchase or sell, or to take deposits of Dollars in the London interbank market, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Loans or Base Rate Loan as to which the interest rate is determined with reference to the Eurodollar Base Rate or to convert Base Rate Loans to Eurodollar Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand to the Borrower from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Loans of such Lender to Base Rate Loans as to which the interest rate is not determined with reference to the Eurodollar Base Rate, either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Loans. Upon any such prepayment or conversion, the Borrower shall also pay interest on the amount so prepaid or converted, together with any amounts due with respect thereto pursuant to
Section 3.14
.
3.12
Requirements of Law
.
If any Lender determines that as a result of any Change in Law, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Loans, or a reduction in the amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this
Section 3.12
any such increased costs or reduction in amount resulting from (a) Indemnified Taxes or Other Taxes covered by
Section 3.13
and the imposition of or change in the rate of any Excluded Taxes and (b) the Eurodollar Reserve Percentage covered by the definition of Eurodollar Rate), then from time to time, upon demand of such Lender (through the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction in yield; provided that, in determining to charge such additional amounts to the Borrower, such Lender treats the Borrower substantially the same as other similarly situated borrowers from such Lender.
3.13
Taxes
.
(a)
Payments Free of Taxes
. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Credit Document shall to the extent permitted by applicable Law be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes;
provided
that if the Borrower or the Administrative Agent shall be required by applicable Law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable by the Borrower shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, the applicable Lender or the applicable L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or the Administrative Agent shall make such deductions and (iii) the Borrower or the Administrative Agent shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Law.
(b)
Payment of Other Taxes by the Borrower
. Without limiting the provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Law.
(c)
Indemnification by the Borrower
. The Borrower shall indemnify the Administrative Agent, each Lender and each L/C Issuer, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or such L/C Issuer, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority;
provided
that the Borrower shall not be obligated to indemnify the Administrative Agent, any Lender or any L/C Issuer for any amount in respect of any such penalties, interest or reasonable expenses if written demand therefor was not made by the Administrative Agent, such Lender or such L/C Issuer within 180 days from the date on which such party makes payment for such penalties, interest or expenses;
provided
further
that the foregoing limitation shall not apply to any such penalties, interest or reasonable expenses arising out of the retroactive application of any such Indemnified Tax or Other Tax. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or a L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or a L/C Issuer, shall be conclusive absent manifest error. In addition, the Borrower shall indemnify the Administrative Agent, each Lender and each L/C Issuer, within ten (10) days after demand therefor, for any incremental Taxes that may become payable by such Administrative Agent, Lender (or its beneficial owners) or L/C Issuer as a result of any failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority or to deliver to such Administrative Agent, pursuant to clause (d), documentation evidencing the payment of Taxes.
(d)
Evidence of Payments
. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e)
Status of Lenders
. Any Lender or L/C Issuer that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is
resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Credit Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender or L/C Issuer, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender or L/C Issuer is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than the documentation described in (i), (ii), (iii), (iv), (v) and (vii) below) shall not be required if in the Lender’s or the L/C Issuer’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender or L/C Issuer. Without limiting the generality of the foregoing, in the event that the Borrower is a resident for tax purposes in the United States, any Lender or L/C Issuer shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Lender or L/C Issuer becomes a Lender or L/C Issuer under this Credit Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but, in the case of any Foreign Lender, only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
(i)
duly completed and executed originals of IRS Form W-9;
(ii)
duly completed and executed originals of IRS Form W-8BEN or W-8BEN-E (as applicable) claiming eligibility for benefits of an income tax treaty to which the United States is a party;
(iii)
duly completed copies of IRS Form W-8ECI;
(iv)
in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed and executed originals of IRS Form W-8BEN or W-8BEN-E (as applicable);
(v)
to the extent a Foreign Lender is not the beneficial owner, properly completed and executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or W-8BEN-E (as applicable), IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable;
(vi)
any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower to determine the withholding or deduction required to be made.
(vii)
If a payment made to a Lender or an L/C Issuer under any Credit Document would be subject to U.S. Federal withholding Tax imposed by FATCA if such Lender or L/C Issuer fails to comply with any requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender or L/C Issuer shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by applicable Law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender or such L/C Issuer has complied with such Lender’s or such L/C Issuer’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (vii), “FATCA” shall include any amendments made to FATCA after the date of this Credit Agreement.
To the extent that the relevant documentation provided pursuant to this section is rendered obsolete or inaccurate in any material respect as a result of changes in circumstances with respect to the status of a Lender or an L/C Issuer, such Lender or such L/C Issuer shall, to the extent permitted by applicable Law, deliver to the Borrower and the Administrative Agent revised and/or updated documentation or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
For purposes of determining withholding Taxes imposed under FATCA, from and after the Restatement Date, the Borrower and the Administrative Agent shall treat (and the Lenders and the L/C Issuers hereby authorize the Administrative Agent to treat) each of the Loans as not qualifying as “grandfathered obligations” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).
(f)
Treatment of Certain Refunds
. If the Administrative Agent, a Lender or a L/C Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified pursuant to this Section (including additional amounts paid by the Borrower pursuant to this Section), it shall pay to the applicable indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or such L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund);
provided
that the applicable indemnifying party, upon the request of the Administrative Agent, such Lender or such L/C Issuer, agrees to repay the amount paid over pursuant to this Section (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or such L/C Issuer in the event the Administrative Agent, such Lender or such L/C Issuer is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (f), in no event will the Administrative Agent, any L/C Issuer or any Lender be required to pay any amount to an indemnifying party pursuant to this paragraph (f) the payment of which would place the Administrative Agent, L/C Issuer or Lender in a less favorable net after-Tax position than the Administrative Agent, L/C Issuer or Lender would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph shall not be construed to require the Administrative Agent, any Lender or any L/C Issuer to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.
(g)
Indemnification of the Administrative Agent
. Each Lender and each L/C Issuer shall indemnify the Administrative Agent within ten (10) days after demand therefor, for the full amount of any Excluded Taxes attributable to such Lender or such L/C Issuer that are payable or paid by the Administrative Agent, and reasonable expenses arising therefrom or with respect thereto, whether or not such Excluded Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender and each L/C Issuer hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender or such L/C Issuer, as the case may be, under any Credit Document against any amount due to the Administrative Agent under this paragraph (g). The agreements in this paragraph (g) shall survive the resignation and/or replacement of the Administrative Agent.
(h)
Survival
. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section shall survive the payment in full of the Borrower Obligations and the termination of the Commitment.
3.14
Compensation
.
Upon the written demand of any Lender, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a)
any continuation, conversion, payment or prepayment of any Eurodollar Loan on a day other than the last day of the Interest Period for such Eurodollar Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or
(b)
any failure by the Borrower (for a reason other than the failure of such Lender to make a Eurodollar Loan) to prepay, borrow, continue or convert any Eurodollar Loan on the date or in the amount previously requested by the Borrower.
The amount each such Lender shall be compensated pursuant to this
Section 3.14
shall include, without limitation, (i) any loss incurred by such Lender in connection with the re‑employment of funds prepaid, repaid, not borrowed or paid, as the case may be and (ii) any reasonable out‑of‑pocket expenses (including the reasonable fees and expenses of legal counsel) incurred and reasonably attributable thereto.
For purposes of calculating amounts payable by the Borrower to the Lenders under this
Section 3.14
, each Lender shall be deemed to have funded each Eurodollar Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan was in fact so funded.
3.15
Determination and Survival of Provisions
.
All determinations by the Administrative Agent or a Lender of amounts owing under
Sections 3.9
through
3.14
, inclusive, shall, absent manifest error, be conclusive and binding on the parties hereto and all amounts owing thereunder shall be due and payable within ten Business Days of demand therefor. In determining such amount, the Administrative Agent or such Lender may use any reasonable averaging and attribution methods.
Section 3.9
through
3.14
, inclusive, shall survive the termination of this Credit Agreement and the payment of all Borrower Obligations.
3.16
Defaulting Lenders
.
Notwithstanding anything to the contrary contained in this Credit Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:
(a)
Waivers and Amendments
. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Credit Agreement shall be restricted as set forth in
Section 11.6
.
(b)
Reallocation of Payments
. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, or otherwise, and including any amounts made available to the Administrative Agent for the account of such Defaulting Lender pursuant to
Section 11.2
), shall be applied at such time or times as may be determined by the Administrative Agent as follows:
first
, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder;
second
, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the applicable L/C Issuer and/or the Swing Line Lender hereunder;
third
, if so determined by the Administrative Agent or requested by the applicable L/C Issuer and/or the Swing Line Lender, to be held as Cash Collateral for future funding obligations of such Defaulting Lender of any Participation Interest in any Swing Line Loan or Letter of Credit;
fourth
, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Credit Agreement, as determined by the Administrative Agent;
fifth
, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of such Defaulting Lender to fund Loans under this Credit Agreement;
sixth
, to the payment of any amounts owing to the Administrative Agent, the Lenders, the applicable L/C Issuer or Swing Line Lender as a result of any judgment of a court of competent jurisdiction obtained by the Administrative Agent, any Lender, any L/C Issuer or the Swing Line Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Credit Agreement;
seventh
, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Credit Agreement; and
eighth
, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction;
provided
that if (i) such payment is a payment of the principal amount of any Revolving Loans or funded Participation Interests in Swing Line Loans or Letters of Credit in respect of which such Defaulting Lender has not fully funded its appropriate share and (ii) such Revolving Loans or funded Participation Interests in Swing Line Loans or Letters of Credit were made at a time when the conditions set forth in
Section 5
were satisfied or waived, such payment shall be applied solely to pay the Revolving Loans of, and funded Participation Interests in Swing Line Loans or Letters of Credit owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Revolving Loans of, or funded Participation Interests in Swing Line Loans or Letters of Credit owed to, such Defaulting Lender. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this
Section 3.16(b)
shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(c)
Reallocation of Pro Rata Shares to Reduce Fronting Exposure
. During any period in which there is a Defaulting Lender, for purposes of computing the amount of the
obligation of each Non-Defaulting Lender to acquire, refinance or fund Participation Interests in Letters of Credit or Swing Line Loans pursuant to
Section 2.2(c)
and
Section 2.7(b)
, the “Pro Rata Share” of each Non-Defaulting Lender shall be computed without giving effect to the Commitment of such Defaulting Lender;
provided
that (i) each such reallocation shall be given effect only if, at the date the applicable Lender becomes a Defaulting Lender, no Default or Event of Default exists and (ii) the aggregate obligation of each Non-Defaulting Lender to acquire, refinance or fund reallocated Participation Interests in Letters of Credit and Swing Line Loans shall not exceed the positive difference, if any, of (A) the Commitment of that Non-Defaulting Lender
minus
(B) the aggregate outstanding principal amount of such Lender’s Loans and Participation Interests (without regard to any such reallocation) in Letters of Credit and Swing Line Loans. Subject to
Section 11.22
, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(d)
Cash Collateral for Letters of Credit
. Promptly on demand by any L/C Issuer or the Administrative Agent from time to time, the Borrower shall deliver to the Administrative Agent Cash Collateral in an amount sufficient to cover all Fronting Exposure with respect to such L/C Issuer (after giving effect to
Section 3.16(c)
) on terms reasonably satisfactory to the Administrative Agent and such L/C Issuer (and such Cash Collateral shall be in Dollars). Any such Cash Collateral shall be deposited in a separate account with the Administrative Agent, subject to the exclusive dominion and control of the Administrative Agent, as collateral (solely for the benefit of such L/C Issuer) for the payment and performance of each Defaulting Lender’s Pro Rata Share of outstanding L/C Obligations. Moneys in such account shall be applied by the Administrative Agent to reimburse the applicable L/C Issuer immediately for each Defaulting Lender’s Pro Rata Share of any drawing under any Letter of Credit which has not otherwise been reimbursed by the Borrower or such Defaulting Lender.
(e)
Prepayment of Swing Line Loans
. Promptly on demand by the Swing Line Lender or the Administrative Agent from time to time, the Borrower shall prepay Swing Line Loans in an amount of all Fronting Exposure with respect to the Swing Line Lender (after giving effect to
Section 3.16(c)
).
(f)
Certain Fees
. For any period during which such Lender is a Defaulting Lender, such Defaulting Lender (i) shall not be entitled to receive any Commitment Fee pursuant to
Section 3.4
(and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to such Defaulting Lender) and (ii) shall not be entitled to receive any L/C Fees pursuant to
Section 3.4(c)
otherwise payable to the account of a Defaulting Lender with respect to any Letter of Credit as to which such Defaulting Lender has not provided Cash Collateral or other credit support arrangements satisfactory to the applicable L/C Issuer pursuant to
Section 3.16(d)
, but instead, the Borrower shall pay to the Non-Defaulting Lenders the amount of such L/C Fees in accordance with the upward adjustments in their respective Pro Rata Shares allocable to such Letter of Credit pursuant to
Section 3.16(c)
, with the balance of such fee, if any, payable to the applicable L/C Issuer for its own account.
(g)
Defaulting Lender Cure
. If the Borrower, the Administrative Agent, the Swing Line Lender and the L/C Issuers agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase that portion of outstanding Revolving Loans of the
other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Revolving Loans and funded and unfunded Participation Interests in Letters of Credit and Swing Line Loans to be held on a pro rata basis by the Lenders in accordance with their Pro Rata Shares (without giving effect to
Section 3.16(c)
), whereupon such Lender will cease to be a Defaulting Lender;
provided
that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while such Lender was a Defaulting Lender; and
provided
,
further
, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender.
3.17
Mitigation Obligations
.
If any Lender requests compensation under
Section 3.9
or
Section 3.12
, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any L/C Issuer or any Governmental Authority for the account of any Lender or any L/C Issuer pursuant to
Section 3.13
or if any Lender gives a notice pursuant to
Section 3.11
, then, at the request of the Borrower, such Lender or such L/C Issuer shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender or such L/C Issuer, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to
Section 3.9
,
Section 3.12
or
Section 3.13
, as the case may be, in the future or eliminate the need for the notice pursuant to
Section 3.11
, as applicable, and (ii) in each case, would not subject such Lender or such L/C Issuer, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or such L/C Issuer, as the case may be. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or any L/C Issuer in connection with any such designation or assignment.
SECTION 4
CONDITIONS PRECEDENT TO CLOSING
4.1
Closing Conditions
.
The obligation of the Lenders to enter into this Credit Agreement and make Loans is subject to satisfaction of the following conditions:
(a)
Executed Credit Documents
. Receipt by the Administrative Agent of duly executed copies of: (i) this Credit Agreement, (ii) the Notes, and (iii) all other Credit Documents, each in form and substance reasonably acceptable to the Required Lenders in their sole discretion.
(b)
Authority Documents
. Receipt by the Administrative Agent of the following:
(i)
Organizational Documents
. Copies of the articles of incorporation of the Borrower certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its formation and copies of the bylaws of the Borrower certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct as of the Restatement Date.
(ii)
Resolutions
. Copies of resolutions of the board of directors of the Borrower approving and adopting this Credit Agreement and the other Credit Documents
to which it is a party, the transactions contemplated herein and therein and authorizing execution and delivery hereof and thereof, certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct and in full force and effect as of the Restatement Date.
(iii)
Good Standing
. Copies of certificates of good standing, existence or its equivalent with respect to the Borrower certified as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its formation.
(iv)
Incumbency
. An incumbency certificate of the Borrower certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct as of the Restatement Date.
(c)
Opinions of Counsel
. Receipt by the Administrative Agent of opinions of counsel from counsel to the Borrower (which may include in-house counsel with respect to matters of New Mexico law), in form and substance acceptable to the Administrative Agent, addressed to the Administrative Agent and the Lenders and dated as of the Restatement Date.
(d)
Financial Statements
. Receipt by the Administrative Agent of a copy of the annual consolidated financial statements (including balance sheets, income statements and cash flow statements) of the Borrower and its Subsidiaries for Fiscal Years 2016 and 2017, audited by independent public accountants of recognized national standing and (ii) such other financial information regarding the Borrower as the Administrative Agent may reasonably request. The Administrative Agent acknowledges that the items described in clauses (i) and (ii) above have been posted on the Borrower’s website address listed on
Schedule 11.1
and are therefore deemed to have been received by the Administrative Agent.
(e)
Due Diligence
. The Administrative Agent and the Lenders shall have completed all due diligence with respect to the Borrower and its Subsidiaries and the transactions contemplated by this Credit Agreement and the other Credit Documents, in scope and determination reasonably satisfactory to the Administrative Agent and the Lenders.
(f)
Material Adverse Effect
. Since December 31, 2017, except as disclosed in the SEC Reports, there shall have been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect and no Material Adverse Change in the facts and information regarding the Borrower and its Subsidiaries as disclosed in the SEC Reports.
(g)
Absence of Market Disruption
. There shall not have occurred a material adverse change in or material disruption of conditions in the financial, banking or capital markets which the Administrative Agent and the Arrangers, in their sole discretion, deem material in connection with the syndication of the Credit Agreement.
(h)
Litigation
. There shall not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against the Borrower or any of its Subsidiaries except as disclosed in the SEC Reports.
(i)
Consents
. All necessary governmental, shareholder and third party consents and approvals, if any, with respect to this Credit Agreement and the Credit Documents and the transactions contemplated herein and therein have been received and no condition or Requirement
of Law exists which would reasonably be likely to restrain, prevent or impose any material adverse conditions on the transactions contemplated hereby and by the other Credit Documents.
(j)
Officer’s Certificates
. Receipt by the Administrative Agent of a certificate or certificates executed by an Authorized Officer of the Borrower as of the Restatement Date stating that (i) the Borrower and each of its Subsidiaries are in compliance in all material respects with all existing material financial obligations and all material Requirements of Law, (ii) there does not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against the Borrower or any of its Subsidiaries, except as disclosed in the SEC Reports, (iii) the financial statements and information delivered to the Administrative Agent on or before the Restatement Date were prepared in good faith and in accordance with GAAP and (iv) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated herein or therein to occur on such date, (A) the Borrower is Solvent, (B) no Default or Event of Default exists, (C) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, (D) since December 31, 2017, except as disclosed in the SEC Reports, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect and there exists no event, condition or state of facts that could result in or reasonably be expected to result in a Material Adverse Change and (E) the Borrower is in compliance with the financial covenant set forth in
Section 7.2
, as of March 31, 2018, as demonstrated in the Covenant Compliance Worksheet attached to such certificate.
(k)
Account Designation Letter
. Receipt by the Administrative Agent of an executed counterpart of the Account Designation Letter.
(l)
PATRIOT Act
. The Borrower shall have provided to the Administrative Agent and the Lenders the documentation and other information reasonably requested by the Administrative Agent in order to comply with requirements of the PATRIOT Act.
(m)
Fees and Expenses
. Unless waived by the Person entitled thereto, payment by the Borrower of all fees and expenses owed by them to the Administrative Agent, the Arrangers and the Lenders on or before the Restatement Date, including, without limitation, as set forth in the Fee Letter.
(n)
Other
. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender.
SECTION 5
CONDITIONS TO ALL EXTENSIONS OF CREDIT
5.1
Funding Requirements
.
In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make Loans and the L/C Issuers shall not be obligated to issue Letters of Credit unless:
(a)
Notice
. The Borrower shall have delivered (i) in the case of any new Revolving Loan, a Notice of Revolving Borrowing, duly executed and completed, by the time specified in
Section 2.1
, (ii) in the case of any Letter of Credit, a Letter of Credit Application, duly executed and completed, by the time specified in
Section 2.2
and (iii) in the case of any new Swing Line
Loan, a Notice of Swing Line Borrowing, duly executed and completed, by the time specified in
Section 2.7
.
(b)
Representations and Warranties
. The representations and warranties made by the Borrower in any Credit Document (other than the representation and warranties in
Section 6.7(a)
(but only with respect to clause (a) of the definition of Material Adverse Effect) and
Section 6.9
of the Credit Agreement) are true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) at and as if made as of such date except to the extent they expressly and exclusively relate to an earlier date.
(c)
No Default
. No Default or Event of Default shall exist and be continuing either prior to or after giving effect to such Credit Extension.
(d)
Availability
. Immediately after giving effect to such Credit Extension (and the application of the proceeds thereof), (i) the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans shall not exceed the Revolving Committed Amount, (ii) with respect to each individual Lender, the sum of outstanding principal amount of Revolving Loans of such Lender plus such Lender’s Pro Rata Share of the outstanding principal amount of L/C Obligations and Swing Line Loans shall not exceed such Lender’s Pro Rata Share of the Revolving Committed Amount, (iii) the aggregate amount of L/C Obligations shall not exceed the Letter of Credit Sublimit and (iv) the aggregate amount of Swing Line Loans shall not exceed the Swing Line Sublimit.
The delivery of each Notice of Borrowing or a Letter of Credit Application shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b), (c) and (d) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this Credit Agreement and to induce the Lenders to extend the credit contemplated hereby, the Borrower represents and warrants to the Administrative Agent and the Lenders as follows:
6.1
Organization and Good Standing
.
Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) is duly qualified and in good standing as a foreign entity authorized to do business in every other jurisdiction where the failure to so qualify would have a Material Adverse Effect and (c) has the requisite power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted.
6.2
Due Authorization
.
The Borrower (a) has the requisite power and authority to execute, deliver and perform this Credit Agreement and the other Credit Documents and to incur the obligations herein and therein provided for and (b) has been authorized by all necessary action to execute, deliver and perform this Credit Agreement and the other Credit Documents.
6.3
No Conflicts
.
Neither the execution and delivery of this Credit Agreement and the other Credit Documents, nor the consummation of the transactions contemplated herein and therein, nor performance of and compliance with the terms and provisions hereof and thereof by the Borrower will (a) violate or conflict with any provision of its organizational documents, (b) violate, contravene or conflict with any law, regulation (including without limitation, Regulation U and Regulation X), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, the violation of which would have or would be reasonably expected to have a Material Adverse Effect or (d) result in or require the creation of any Lien upon or with respect to its properties.
6.4
Consents
.
No consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance of this Credit Agreement or any of the other Credit Documents that has not been obtained or completed.
6.5
Enforceable Obligations
.
This Credit Agreement and the other Credit Documents have been duly executed and delivered and constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by Debtor Relief Laws or similar laws affecting creditors’ rights generally or by general equitable principles.
6.6
Financial Condition
.
The financial statements delivered to the Lenders pursuant to
Section 4.1(d)
and pursuant to
Sections 7.1(a)
and
7.1(b)
: (i) have been prepared in accordance with GAAP except that the quarterly financial statements are subject to year-end adjustments and have fewer footnotes than annual statements and (ii) present fairly the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries as of such date and for such periods. No opinion provided with respect to the Borrower’s financial statements pursuant to
Section 7.1
(or as to any prior annual financial statements) has been withdrawn.
6.7
No Material Change
.
(a)
Since December 31, 2017, except as disclosed in the SEC Reports, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.
(b)
Since December 31, 2017, there has been no sale, transfer or other disposition by the Borrower or any of its Subsidiaries of any material part of its business or property, and no purchase or other acquisition by the Borrower or any of its Subsidiaries of any business or property (including the Capital Stock of any other Person) material in relation to the financial condition of the Borrower or any of its Subsidiaries, in each case which is not (i) reflected in the most recent financial statements delivered to the Lenders pursuant to
Section 4.1(d)
or
7.1
or in the notes thereto or (ii) otherwise permitted by the terms of this Credit Agreement and communicated to the Lenders.
6.8
No Default
.
Neither the Borrower nor any of its Subsidiaries is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default would have or would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default presently exists and is continuing.
6.9
Litigation
.
Except as disclosed in the SEC Reports, there are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.
6.10
Taxes
.
Each of the Borrower and its Subsidiaries has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owed by it, except for such taxes (i) the amount of which, individually or in the aggregate, is not material, or (ii) which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP.
6.11
Compliance with Law
.
Each of the Borrower and its Subsidiaries is in compliance with all laws, rules, regulations, orders and decrees applicable to it or to its properties, unless such failure to comply would not have or would not reasonably be expected to have a Material Adverse Effect.
6.12
ERISA
.
(a)
Except as would not result or reasonably be expected to result in a Material Adverse Effect:
(i)
Each Single Employer Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws, regulations and published interpretations thereunder, except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Single Employer Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code except for such plans that have not yet received determination letters but for which the remedial amendment period for submitting a determination letter has not yet expired. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties assessed with respect to any Single Employer Plan or any Multiemployer Plan except for a liability that could not reasonably be expected to have a Material Adverse Effect;
(ii)
No ERISA Event has occurred or is reasonably expected to occur;
(iii)
No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Single Employer Plan which has subjected or would be reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(iv)
No proceeding, claim (other than a benefits claim in the ordinary course of business), lawsuit and/or investigation is existing or, to the best of the knowledge of the Borrower after due inquiry, threatened concerning or involving (i) any employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or any ERISA Affiliate (a “Welfare Plan”), (ii) any Single Employer Plan or (iii) any Multiemployer Plan.
(v)
Each Welfare Plan to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.
(b)
The Borrower represents and warrants as of the Restatement Date that the Borrower is not and will not be using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments.
6.13
Use of Proceeds; Margin Stock
.
The proceeds of the Credit Extensions hereunder will be used solely for the purposes specified in
Section 7.9
. None of such proceeds will be used (a)(i) for the purpose of purchasing or carrying any Margin Stock or (ii) for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry Margin Stock, or (iii) for any other purpose that might constitute this transaction a “purpose credit” within the meaning of Regulation U or (b) for the acquisition of another Person unless the board of directors (or other comparable governing body) or stockholders, as appropriate, of such Person has approved such acquisition.
6.14
Government Regulation
.
The Borrower is not an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, or controlled by such a company.
6.15
Solvency
.
The Borrower is and, after the consummation of the transactions contemplated by this Credit Agreement, will be Solvent.
6.16
Disclosure
.
Neither this Credit Agreement nor any financial statements delivered to the Administrative Agent or the Lenders nor any other document, certificate or statement furnished to the Administrative Agent or the Lenders by or on behalf of the Borrower in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein, taken as a whole, not misleading.
6.17
Environmental Matters
.
Except as would not result or reasonably be expected to result in a Material Adverse Effect: (a) each of the properties of the Borrower and its Subsidiaries (the “
Properties
”) and all operations at the Properties are in substantial compliance with all applicable Environmental Laws, (b) there is no undocumented or unreported violation of any Environmental Law with respect to the Properties or the businesses operated by the Borrower and its Subsidiaries (the “
Businesses
”) that the Borrower is aware of, and (c) there are no conditions relating to the Businesses or Properties that have given rise to or would reasonably be expected to give rise to a liability under any applicable Environmental Laws or to any Environmental Claim.
6.18
[Reserved]
.
6.19
[Reserved]
.
6.20
Anti-Corruption Laws and Sanctions
.
The Borrower has implemented and maintains in effect policies and procedures reasonably designed to ensure compliance by the Borrower, any Subsidiary and their respective directors, officers and employees with the Anti-Corruption Laws and applicable Sanctions. The Borrower, any Subsidiary and to the knowledge of the Borrower or such Subsidiary their respective officers, directors and employees, are in compliance with
the
Anti-Corruption Laws and applicable Sanctions in all material respects.
None of (a) the Borrower, any Subsidiary or to the knowledge of the Borrower or such Subsidiary any of their respective directors, officers or employees, or (b) to the knowledge of the Borrower, any third party that will act in any capacity on behalf of or at the direction of the Borrower or any Subsidiary in connection with or will benefit from the credit facility established hereby, is a Sanctioned Person
.
No Borrowing, use of proceeds or other transactions by the Borrower or any Subsidiary contemplated by this Credit Agreement will knowingly violate any
Anti-Corruption Law or applicable Sanctions
.
SECTION 7
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the Commitments, the termination or expiration of all Letters of Credit and the payment in full of all Borrower Obligations:
7.1
Information Covenants
.
The Borrower will furnish, or cause to be furnished, to the Lenders:
(a)
Annual Financial Statements
. As soon as available, and in any event within 120 days after the close of each Fiscal Year, a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such Fiscal Year, together with the related consolidated statements of income and of cash flows for such Fiscal Year, setting forth in comparative form figures for the preceding Fiscal Year, all such financial information described above to be in reasonable form and detail and, in each case, audited by independent certified public accountants of recognized national standing reasonably acceptable to the Required Lenders
and whose opinion shall be furnished to the Lenders, and shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified in any respect. To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(a)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.
(b)
Quarterly Financial Statements
. As soon as available, and in any event within 60 days after the close of each Fiscal Quarter (other than the fourth Fiscal Quarter), a consolidated balance sheet and income statement of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter, together with the related consolidated statement of income for such Fiscal Quarter and a year to date statement of cash flows, in each case setting forth in comparative form figures for the corresponding period of the preceding Fiscal Year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Required Lenders, and, in each case, accompanied by a certificate of a Financial Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of such Person and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments and except that the quarterly financial statements have fewer footnotes than annual statements. To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(b)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.
(c)
Officer’s Certificate
. At the time of delivery of the financial statements provided for in
Sections 7.1(a)
and
7.1(b)
above, a certificate of a Financial Officer substantially in the form of
Exhibit 7.1(c)
: (i) setting forth calculations demonstrating compliance by the Borrower with the financial covenant set forth in
Section 7.2
as of the end of such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto.
(d)
Reports
. Notice of the filing by the Borrower of any Form 10-Q, Form 10-K or Form 8-K with the SEC promptly upon the filing thereof and copies of all financial statements, proxy statements, notices and reports as the Borrower shall send to its shareholders concurrently with the mailing of any such statements, notices or reports to its shareholders.
(e)
Notices
. Upon the Borrower obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent within ten days of (i) the occurrence of a Default or Event of Default, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto and (ii) the occurrence of any of the following with respect to the Borrower or any of its Subsidiaries (A) the pendency or commencement of any litigation, arbitration or governmental proceeding against the Borrower or any of its Subsidiaries which, if adversely determined, would have or would reasonably be expected to have a Material Adverse Effect, (B) one or more judgments, orders, or decrees shall be entered against the Borrower or any of its Subsidiaries involving a liability of $20,000,000 or more, in the aggregate or (C) the institution of any proceedings against the Borrower or any of its Subsidiaries with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation or alleged violation of, any federal, state or local law, rule or regulation (including, without limitation, any
Environmental Law), the violation of which would have or would reasonably be expected to have a Material Adverse Effect.
(f)
ERISA
. Upon the Borrower or any ERISA Affiliate obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent promptly (and in any event within ten days) of any of the following which would result in or reasonably would be expected to result in a Material Adverse Effect: (i) any unfavorable determination letter from the IRS regarding the qualification of a Single Employer Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all notices received by the Borrower or any ERISA Affiliate of the PBGC’s intent to terminate any Single Employer Plan or to have a trustee appointed to administer any Single Employer Plan, (iii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is insolvent (within the meaning of Title IV of ERISA); or (iv) the Borrower obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Single Employer Plan under a distress termination within the meaning of Section 4041(c) of ERISA. Promptly upon request, the Borrower shall furnish the Lenders with such additional information concerning any Single Employer Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each “plan year” (within the meaning of Section 3(39) of ERISA).
(g)
Debt Ratings
. Prompt notice of any change in its Debt Ratings.
(h)
Other Information
. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of the Borrower as the Lenders may reasonably request.
Documents required to be delivered pursuant to
Section 7.1(a)
,
7.1(b)
or
7.1(d)
(to the extent any such documents are included in materials otherwise filed with the Securities and Exchange Commission) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on
Schedule 11.1
; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third‑party website or whether sponsored by the Administrative Agent);
provided
that: (A) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (B) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (
i.e.
, soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Officer’s Certificate required by
Section 7.1(c)
to the Administrative Agent. Except for such Officer’s Certificate, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
7.2
Financial Covenant
.
The ratio of (a) Consolidated Indebtedness to (b) Consolidated Capitalization shall be less than or equal to 0.70 to 1.0 as of the last day of any Fiscal Quarter.
7.3
Preservation of Existence and Franchises
.
(a)
The Borrower will do (and will cause each of its Subsidiaries to do) all things necessary to preserve and keep in full force and effect its existence and material rights, franchises and authority.
(b)
The Borrower will maintain (and will cause each of its Subsidiaries to maintain) its properties in good condition and not waste or otherwise permit such properties to deteriorate, reasonable wear and tear excepted; provided that this
Section 7.3(b)
shall not prevent the Borrower or any Subsidiary from discontinuing the operation or the maintenance of any of the properties if such discontinuance is desirable in the conduct of its business and the Borrower has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
7.4
Books and Records
.
The Borrower will keep (and will cause each of its Subsidiaries to keep) complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves).
7.5
Compliance with Law
.
(a)
The Borrower will comply (and will cause each of its Subsidiaries to comply) with all laws (including, without limitation, all Environmental Laws and ERISA laws), rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its properties, if the failure to comply would have or would reasonably be expected to have a Material Adverse Effect.
(b)
Without limiting clause (a) above, the Borrower will, and will cause each of its Subsidiaries to, ensure that no person who owns a controlling interest in or otherwise controls the Borrower or any Subsidiary is or shall be a Sanctioned Person.
(c)
The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers and employees with the Anti-Corruption Laws and applicable Sanctions.
(d)
The Borrower shall, and shall cause each Subsidiary to, provide such information and take such actions as are reasonably requested by the Administrative Agent or any Lender in order to assist the Administrative Agent and the Lenders in maintaining compliance with the PATRIOT Act and applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Beneficial Ownership Regulation.
7.6
Payment of Taxes and Other Indebtedness
.
The Borrower will (and will cause each of its Subsidiaries to) pay, settle or discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and
(c) all of its other Indebtedness as it shall become due (to the extent such repayment is not otherwise prohibited by this Credit Agreement);
provided
,
however
, that the Borrower and its Subsidiaries shall not be required to pay any such tax, assessment, charge, levy, claim or Indebtedness which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP, unless the failure to make any such payment (i) would give rise to an immediate right to foreclose or collect on a Lien securing such amounts or (ii) would have or would be reasonably expected to have a Material Adverse Effect.
7.7
Insurance
.
The Borrower will (and will cause each of its Subsidiaries to) at all times maintain in full force and effect insurance (including worker’s compensation insurance and general liability insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice.
7.8
Performance of Obligations
.
The Borrower will perform (and will cause each of its Subsidiaries to perform) in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound.
7.9
Use of Proceeds
.
The proceeds of the Credit Extensions may be used solely (a) to repay amounts under the Existing Credit Agreement, (b) to pay fees and expenses required by the Credit Documents, (c) for letters of credit, and (d) for general corporate purposes of the Borrower (including, but not limited to, working capital, commercial paper and capital expenditures). The Borrower will not request any Borrowing, and the Borrower shall not use, and shall use commercially-reasonable efforts to ensure that any Subsidiary and its or their respective directors, officers and employees shall not use, the proceeds of any Borrowing directly or, to the knowledge of the Borrower, indirectly (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person in violation of applicable Sanctions, or in any Sanctioned Country in violation of applicable Sanctions.
7.10
Audits/Inspections
.
Upon reasonable notice and during normal business hours, the Borrower will permit representatives appointed by the Administrative Agent or the Lenders, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect the Borrower’s property, including its books and records, its accounts receivable and inventory, the Borrower’s facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Administrative Agent or such Lender or its representatives to investigate and verify the accuracy of information provided to it and to discuss all such matters with the officers, employees and representatives of the Borrower; provided, that an officer or authorized agent of the Borrower shall be present during any such discussions between the officers, employees or representatives of the Borrower and the representatives of the Administrative Agent or any Lender.
7.11
Ownership of Certain Subsidiaries
.
The Borrower shall at all times, (a) own and control 100% of the Voting Stock of PSNM and (b) own and control, directly or indirectly, 100% of the Voting Stock of TNMP.
SECTION 8
NEGATIVE COVENANTS
Unless otherwise approved in writing by the Required Lenders, the Borrower covenants and agrees that, until the termination of the Commitments, the termination or expiration of all Letters of Credit and the payment in full of all Borrower Obligations:
8.1
Nature of Business
.
The Borrower will not materially alter the character of its business from that conducted as of the Restatement Date.
8.2
Consolidation and Merger
.
The Borrower will not (a) enter into any transaction of merger or (b) consolidate, liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution);
provided
that, so long as no Default or Event of Default shall exist or be caused thereby, a Person may be merged or consolidated with or into the Borrower so long as the Borrower shall be the continuing or surviving Person.
8.3
Sale or Lease of Assets
.
The Borrower will not (nor will it permit its Subsidiaries to) sell, lease, transfer or otherwise dispose of, any of its assets (including, without limitation, all or substantially all of its assets, whether in one transaction or a series of related transactions) except (a) sales or transfers of accounts receivable and related rights to payment in connection with a State Approved Securitization, sales or transfers of stranded costs and related rights to payment in connection with a TNMP Securitization and other sales and transfers of accounts receivable and related rights to payment so long as such other sales and transfers are non-recourse to the Borrower (other than with respect to Standard Securitization Undertakings) and are otherwise on commercially reasonable terms; (b) sales of assets (excluding those permitted in clause (a) hereof) for fair value, if the aggregate value of all such transactions in any calendar year, does not exceed 25%
of the book value of Total Assets, as calculated as of the end of the most recent Fiscal Quarter; and (c) the sale, lease, transfer or other disposition, at less than fair value, of any other assets,
provided
that the aggregate book value of such assets shall not exceed $20,000,000 in any calendar year.
8.4
Affiliate Transactions
.
The Borrower will not enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm’s-length transaction with a Person other than an Affiliate.
8.5
Liens
.
The Borrower will not (nor will it permit its Subsidiaries to) contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, securing any Indebtedness other than the following: (a) Liens securing Borrower Obligations, including Liens on cash or deposits granted in
favor of the Swing Line Lender or a L/C Issuer to Cash Collateralize any Defaulting Lender’s participation in Letters of Credit or Swing Line Loans, (b) Liens for taxes not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (c) Liens in respect of property imposed by law arising in the ordinary course of business such as materialmen’s, mechanics’, warehousemen’s, carrier’s, landlords’ and other nonconsensual statutory Liens which are not yet due and payable, which have been in existence less than 90 days or which are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (d) pledges or deposits made in the ordinary course of business to secure payment of worker’s compensation insurance, unemployment insurance, pensions or social security programs, (e) Liens arising from good faith deposits in connection with or to secure performance of tenders, bids, leases, government contracts, performance and return‑of‑money bonds and other similar obligations incurred in the ordinary course of business (other than obligations in respect of the payment of borrowed money), (f) Liens arising from good faith deposits in connection with or to secure performance of statutory obligations and surety and appeal bonds, (g) easements, rights‑of‑way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered property for its intended purposes, (h) judgment Liens that would not constitute an Event of Default, (i) Liens arising by virtue of any statutory or common law provision relating to banker’s liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a creditor depository institution, (j) any Lien created or arising over any property which is acquired, constructed or created by the Borrower or its Subsidiaries, but only if (i) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto or a guarantee given in respect thereof, (ii) such Lien is created or arises on or before 180 days after the completion of such acquisition, construction or creation, (iii) such Lien is confined solely to the property so acquired, constructed or created and any improvements thereto and (iv) the aggregate principal amount of all Indebtedness secured by such Liens shall not exceed $50,000,000 at any one time outstanding, (k) any Lien on Margin Stock, (l) the assignment of, or Liens on, accounts receivable, stranded costs and related rights to payment in connection with (i) a State Approved Securitization, (ii) the TNMP Securitization and (iii) any other accounts receivable securitization so long as such other securitization is non-recourse to the Borrower (other than with respect to Standard Securitization Undertakings) and is otherwise on commercially reasonable terms, and the filing of related financing statements under the Uniform Commercial Code of the applicable jurisdictions, (m) the assignment of, or Liens on, demand, energy or wheeling revenues, or on capacity reservation or option fees, payable to the Borrower or any of its Subsidiaries with respect to any wholesale electric service or transmission agreements, the assignment of, or Liens on, revenues from energy services contracts, and the assignment of, or Liens on, capacity reservation or option fees payable to the Borrower or such Subsidiary with respect to asset sales permitted herein, (n) Liens on assets of TNMP to the extent such Liens are not prohibited by (i) the TNMP First Mortgage Bonds or the indenture pursuant to which the TNMP First Mortgage Bonds are issued, as the TNMP First Mortgage Bonds or such indenture may be amended, supplemented, refunded or replaced from time to time, or (ii) the TNMP Credit Agreement, as the TNMP Credit Agreement may be amended, restated or replaced from time to time, subject in each case to compliance with
Section 7.2
, (o) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses (a) through (n), for amounts not exceeding the principal amount of the Indebtedness secured by the Lien so extended, renewed or replaced, provided that such extension, renewal or replacement Lien is limited to all or a part of the same property or assets that were covered by the Lien extended, renewed or replaced (plus improvements on such property or assets), (p) Liens on Property that is subject to a lease that is classified as an operating lease as of the Closing Date but which is
subsequently converted to a capital lease, (q) Liens securing obligations under Hedging Agreements entered into in the ordinary course of business and not for speculative purposes, (r) Liens granted by bankruptcy remote special purpose Subsidiaries to secure stranded cost securitization bonds and (s) Liens on Property, in addition to those otherwise permitted by clauses (a) through (r) above, securing, directly or indirectly, Indebtedness or obligations arising pursuant to other agreements entered into in the ordinary course of business which do not exceed, in the aggregate at any one time outstanding, $50,000,000.
8.6
Accounting Changes
.
The Borrower will not (nor will it permit any of its Subsidiaries to) make or permit, any change in accounting policies or reporting practices, except as required by GAAP, or as permitted by GAAP, if the amounts involved are not material.
SECTION 9
EVENTS OF DEFAULT
9.1
Events of Default
.
An Event of Default shall exist upon the occurrence of any of the following specified events (each an “
Event of Default
”):
(a)
Payment
. The Borrower shall: (i) default in the payment when due of any principal of any of the Loans or L/C Obligations; or (ii) default, and such default shall continue for three or more Business Days, in the payment when due of any interest on the Loans or L/C Obligations or of any fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith.
(b)
Representations
. Any representation, warranty or statement made or deemed to be made by the Borrower herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made.
(c)
Covenants
. The Borrower shall:
(i)
default in the due performance or observance of any term, covenant or agreement contained in
Sections 7.1(e)(i)
,
7.2
,
7.3(a)
(solely with respect to the existence of the Borrower),
7.9
,
7.10
,
7.11
or
8.1
through
8.6
inclusive; or
(ii)
default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this
Section 9.1
) contained in this Credit Agreement or any other Credit Document and such default shall continue unremedied for a period of at least 30 days after the earlier of an Authorized Officer of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent.
(d)
Credit Documents
. Any Credit Document shall fail to be in force and effect or the Borrower shall so assert or any Credit Document shall fail to give the Administrative Agent or the Lenders the rights, powers, liens and privileges purported to be created thereby.
(e)
Bankruptcy, etc
. The occurrence of any of the following with respect to the Borrower or any of its Subsidiaries (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of its Subsidiaries in an involuntary case under any applicable Debtor Relief Law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Borrower or any of its Subsidiaries or for any substantial part of their property or ordering the winding up or liquidation of its affairs; or (ii) an involuntary case under any applicable Debtor Relief Law now or hereafter in effect is commenced against the Borrower or any of its Subsidiaries and such petition remains unstayed and in effect for a period of 60 consecutive days; or (iii) the Borrower or any of its Subsidiaries shall commence a voluntary case under any applicable Debtor Relief Law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or any substantial part of its property or make any general assignment for the benefit of creditors; or (iv) the Borrower or any of its Subsidiaries admit in writing its inability to pay its debts generally as they become due or any action shall be taken by any Person in furtherance of any of the aforesaid purposes.
(f)
Defaults under Other Agreements
.
(i)
The Borrower or any of its Subsidiaries shall default in the due performance or observance (beyond the applicable grace period with respect thereto) of any material obligation or condition of any contract or lease to which it is a party, if such default would have or would reasonably be expected to have a Material Adverse Effect.
(ii)
With respect to any Indebtedness of the Borrower or any of its Subsidiaries (other than Indebtedness outstanding under this Credit Agreement) in excess of $40,000,000 in the aggregate (A) the Borrower or such Subsidiary shall (x) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to such Indebtedness, or (y) default (after giving effect to any applicable grace period) in the observance or performance of any covenant or agreement relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause or permit the holder or the holders of such Indebtedness (or any trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required) such Indebtedness to become due prior to its stated maturity; or (B) such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment prior to the stated maturity thereof; or (C) such Indebtedness shall mature and remain unpaid.
(g)
Judgments
. Any judgment, order or decree involving a liability of $40,000,000 or more, or one or more judgments, orders, or decrees involving a liability of $80,000,000 or more, in the aggregate, shall be entered against the Borrower or any of its Subsidiaries and such judgments, orders or decrees shall continue unsatisfied, undischarged and unstayed for a period ending on the first to occur of (i) the last day on which such judgment, order or decree becomes final and unappealable and, where applicable, with the status of a judicial lien or (ii) 60 days;
provided
that if such judgment, order or decree provides for periodic payments over time then the Borrower or such Subsidiary shall have a grace period of 30 days with respect to each such periodic payment.
(h)
ERISA
. The occurrence of any of the following events or conditions (i) an ERISA Event or (ii) the Borrower or any ERISA Affiliate fails to make full payment when due of all amounts which, under the provisions of any Single Employer Plan or Sections 412 or 430 of the Code, the Borrower or any ERISA Affiliate is required to pay as contributions thereto and which are in excess of the Threshold Amount.
(i)
Change of Control
. There shall occur a Change of Control.
9.2
Acceleration; Remedies
.
Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may or, upon the request and direction of the Required Lenders, shall take the following actions without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for herein:
(a)
Termination of Commitments
. Declare the Commitments and the obligation of the L/C Issuers to make L/C Credit Extensions terminated whereupon the Commitments and the obligation of the L/C Issuers to make L/C Credit Extensions shall be immediately terminated.
(b)
Acceleration of Loans
. Declare the unpaid principal of and any accrued interest in respect of all Loans, all L/C Obligations and any and all other Borrower Obligations of any and every kind owing by the Borrower to the Administrative Agent or the Lenders under the Credit Documents to be due, whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
(c)
Cash Collateral
. Direct the Borrower to Cash Collateralize (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default under
Section 9.1(e)
, it will immediately Cash Collateralize) L/C Obligations in respect of subsequent drawings under all then outstanding Letters of Credit in an amount equal to the then outstanding principal amount of L/C Obligations.
(d)
Enforcement of Rights
. To the extent permitted by Law enforce any and all rights and interests created and existing under applicable Law and under the Credit Documents, including, without limitation, all rights of set‑off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.1(e)
shall occur, then the Commitments and any obligation of the L/C Issuers to make L/C Credit Extensions shall automatically terminate and all Loans, all L/C Obligations, all accrued interest in respect thereof, all accrued and unpaid fees and other Borrower Obligations owing to the Administrative Agent and the Lenders hereunder shall immediately become due and payable without the giving of any notice or other action by the Administrative Agent or the Lenders, which notice or other action is expressly waived by the Borrower.
Notwithstanding the fact that enforcement powers reside primarily with the Administrative Agent, each Lender has, to the extent permitted by Law, a separate right of payment and shall be considered a separate “creditor” holding a separate “claim” within the meaning of Section 101(5) of the Bankruptcy Code or any other insolvency statute.
9.3
Allocation of Payments After Event of Default
.
Notwithstanding any other provisions of this Credit Agreement, after the occurrence and during the continuation of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out‑of‑pocket costs and expenses (including the reasonable fees and expenses of legal counsel) of the Administrative Agent, the L/C Issuers or any of the Lenders in connection with enforcing the rights of the Administrative Agent, the L/C Issuers and the Lenders under the Credit Documents, ratably among them in proportion to the amounts described in this clause “FIRST” payable to them;
SECOND, to payment of any fees owed to the Administrative Agent, the Swing Line Lender, the L/C Issuers or any Lender, ratably among them in proportion to the amounts described in this clause “SECOND” payable to them;
THIRD, to the payment of all accrued interest payable to the Lenders, the Swing Line Lender and the L/C Issuers hereunder, ratably among them in proportion to the amounts described in this clause “THIRD” payable to them;
FOURTH, to the payment of the outstanding principal amount of the Revolving Loans, the Swing Line Loans and L/C Obligations, ratably among them in proportion to the amounts described in this clause “FOURTH” payable to them;
FIFTH, to the Administrative Agent, for the account of the L/C Issuers, to Cash Collateralize that portion of the L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit;
SIXTH, to all other Borrower Obligations which shall have become due and payable under the Credit Documents and not repaid pursuant to clauses “FIRST” through “FIFTH” above, ratably among the holders of such Borrower Obligations in proportion to the amounts described in this clause “SIXTH” payable to them; and
SEVENTH, the payment of the surplus, if any, to whomever may be lawfully entitled to receive such surplus.
Amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause “FIFTH” above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Borrower Obligations, if any, in the order set forth above.
SECTION 10
AGENCY PROVISIONS
10.1
Appointment and Authority
.
Each of the Lenders and each L/C Issuer hereby irrevocably appoints Wells Fargo Bank, National Association to act on its behalf as the Administrative Agent hereunder and under the other Credit
Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Section are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuers, and the Borrower shall not have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Credit Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
10.2
Rights as a Lender
.
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
10.3
Exculpatory Provisions
.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Credit Documents, and its duties hereunder and thereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(a)
shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b)
shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Credit Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Credit Documents),
provided
that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Credit Document or applicable Law, including, for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(c)
shall not, except as expressly set forth herein and in the other Credit Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, its Subsidiaries or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken by it (a) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the
circumstances as provided in
Sections 11.6
and
9.2
) or (b) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or a L/C Issuer.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Credit Agreement or any other Credit Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Credit Agreement, any other Credit Document or any other agreement, instrument or document, (v) the satisfaction of any condition set forth in
Section 4 or Section 5
or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, or (vi) the utilization of any L/C Issuer’s L/C Commitment (it being understood and agreed that each L/C Issuer shall monitor compliance with its own L/C Commitment without any further action of the Administrative Agent).
10.4
Reliance by Administrative Agent
.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or a L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or such L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or such L/C Issuer prior to the making of such Loan or the issuance, extension, renewal or increase of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
10.5
Delegation of Duties
.
The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Credit Document by or through any one or more sub‑agents appointed by the Administrative Agent. The Administrative Agent and any such sub‑agent may perform any and all of its duties and exercise its rights and powers by or through their respective Agent-Related Persons. The exculpatory provisions of this Section shall apply to any such sub‑agent and to the Agent-Related Persons of the Administrative Agent and any such sub‑agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
10.6
Resignation of Administrative Agent
.
(a)
The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuers and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the “
Resignation Effective Date
”), then the retiring Administrative Agent may (but shall not be obligated to), on behalf of the Lenders and the L/C Issuers, appoint a successor Administrative Agent meeting the qualifications set forth above;
provided
that in no event shall any such successor Administrative Agent be a Defaulting Lender. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b)
If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable Law, by notice in writing to the Borrower and such Person, remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “
Removal Effective Date
”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c)
With effect from the Resignation Effective Date or the Removal Effective Date (as applicable), (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuers under any of the Credit Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and each L/C Issuer directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Credit Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under the other Credit Documents, the provisions of this Article and
Section 11.5
shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Agent-Related Persons in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
(d) Any resignation by, or removal of, Wells Fargo Bank, National Association as Administrative Agent pursuant to this Section shall also constitute its resignation as an L/C Issuer and Swing Line Lender. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (i) such successor shall succeed to and become vested with all of the rights,
powers, privileges and duties of the retiring L/C Issuer, if in its sole discretion it elects to, and Swing Line Lender, (ii) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Credit Documents, and (iii) the successor L/C Issuer, if in its sole discretion it elects to, shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.
10.7
Non‑Reliance on Administrative Agent and Other Lenders‑
.
Each Lender and each L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Agent-Related Persons and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. Each Lender and each L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Agent-Related Persons and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Credit Agreement, any other Credit Document or any related agreement or any document furnished hereunder or thereunder.
10.8
No Other Duties, Etc
.
Anything herein to the contrary notwithstanding, none of the bookrunners, arrangers or agents listed on the cover page hereof shall have any powers, duties or responsibilities under this Credit Agreement or any of the other Credit Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or a L/C Issuer hereunder.
10.9
Administrative Agent May File Proofs of Claim
.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise
(a)
to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Borrower Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuers and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuers and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuers and the Administrative Agent under
Sections 2.2(i)
and
(k)
,
3.4
and
11.5
) allowed in such judicial proceeding; and
(b)
to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuers to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of
such payments directly to the Lenders and the L/C Issuers, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under
Sections 3.4
and
11.5
.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuers any plan of reorganization, arrangement, adjustment or composition affecting the Borrower Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
10.10
ERISA Matters
.
(a)
Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and each Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i)
such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments,
(ii)
the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement,
(iii)
(A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Credit Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement, or
(iv)
such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b)
In addition, unless subclause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in subclause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Arrangers and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that:
(i)
none of the Administrative Agent or any Arranger or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Credit Agreement, any Credit Document or any documents related to hereto or thereto),
(ii)
the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement is independent (within the meaning of 29 CFR § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E),
(iii)
the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Obligations),
(iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loans, the Letters of Credit, the Commitments and this Credit Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and
(v) no fee or other compensation is being paid directly to the Administrative Agent or any Arranger or any their respective Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Letters of Credit, the Commitments or this Credit Agreement.
(c) The Administrative Agent and each Arranger hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments and this Credit Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Credit Documents or otherwise, including structuring fees, commitment fees, arrangement fees,
facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
SECTION 11
MISCELLANEOUS
11.1
Notices; Effectiveness; Electronic Communication
.
(a)
Notices Generally
. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i)
if to the Borrower, the Administrative Agent or a L/C Issuer, to the address, telecopier number, electronic mail address or telephone number specified for such Person on
Schedule 11.1
; and
(ii)
if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b)
Electronic Communications
. Notices and other communications to the Lenders and the L/C Issuers hereunder may be delivered or furnished by electronic communication (including e‑mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent,
provided
that the foregoing shall not apply to notices to any Lender or any L/C Issuer pursuant to
Section 2
if such Lender or such L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it,
provided
that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e‑mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e‑mail or other written acknowledgement) and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e‑mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor;
provided
that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice,
email or other communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.
(c)
Borrower Materials/The Platform
. The Borrower hereby acknowledges that (i) the Administrative Agent and/or the Arrangers will make available to the Lenders and the L/C Issuers materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “
Borrower Materials
”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “
Platform
”). THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON‑INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Agent-Related Persons (collectively, the “
Agent Parties
”) have any liability to the Borrower, any Lender, any L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party;
provided
,
however
, that in no event shall any Agent Party have any liability to the Borrower, any Lender, any L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d)
Change of Address, Etc
. Each of the Borrower, the Administrative Agent and the L/C Issuers may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent and the L/C Issuers. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.
(e)
Reliance by Administrative Agent, L/C Issuers and Lenders
. The Administrative Agent, the L/C Issuers and the Lenders shall be entitled to rely and act upon any notices (including telephonic Notices of Borrowing) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, the L/C Issuers, each Lender and the Agent-Related Persons of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
11.2
Right of Set‑Off‑
.
In addition to any rights now or hereafter granted under applicable Law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default and the commencement of remedies described in
Section 9.2
, each Lender, each L/C Issuer and the Swing Line Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set‑off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender, such L/C Issuer or the Swing Line Lender (including, without limitation, branches, agencies or Affiliates of such Lender, such L/C Issuer or the Swing Line Lender wherever located) to or for the credit or the account of the Borrower against obligations and liabilities of the Borrower to the Lenders hereunder, under the Notes, the other Credit Documents or otherwise, irrespective of whether the Administrative Agent, the Lenders, the L/C Issuers or the Swing Line Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set‑off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. The Borrower hereby agrees that any Person purchasing a participation in the Revolving Loans and Commitments hereunder pursuant to
Sections 3.8
or
11.3(d)
may exercise all rights of set‑off with respect to its participation interest as fully as if such Person were a Lender hereunder.
11.3
Successors and Assigns
.
(a)
Successors and Assigns Generally
. The provisions of this Credit Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section, or (iv) to an SPC in accordance with the provisions of subsection (h) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Credit Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Agent-Related Persons of each of the Administrative Agent, the L/C Issuers and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Credit Agreement.
(b)
Assignments by Lenders
. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Credit Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b), participations in L/C Obligations) at the time owing to it);
provided
that
(i) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or contemporaneous assignments to related Approved Funds (determined after giving effect to such assignments) that equal at least the amount specified below in the aggregate or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with
respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed);
(ii)
each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Credit Agreement with respect to the Loans or the Commitment assigned;
(iii)
no consent shall be required for any assignment to an Eligible Assignee except to the extent required by paragraph (b)(i) of this Section and, in addition:
(A)
the consent of the Borrower (such consent not to be unreasonably withheld) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;
(B)
the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and
(C)
the consents of the L/C Issuers and the Swing Line Lender (such consents not to be unreasonably withheld or delayed) shall be required for any assignment.
(iv)
Assignment and Assumption
. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 for each assignment (
provided
, that only one such fee will be payable in connection with simultaneous assignments to two or more Approved Funds by a Lender), and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v)
No Assignment to Certain Persons
. No such assignment shall be made to (x) the Borrower or any of the Borrower’s Affiliates or Subsidiaries or (y) any Defaulting Lender or any of its Subsidiaries.
(vi)
No Assignment to Natural Persons
. No such assignment shall be made to a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person).
(vii)
Certain Additional Payments
. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested, but not funded by, the Defaulting Lender, to each of which the
applicable assignee and assignor hereby irrevocably consent), to (A) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the L/C Issuers, the Swing Line Lender and each other Lender hereunder (and interest accrued thereon), and (B) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swing Line Loans in accordance with its Pro Rata Share. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Credit Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Credit Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Credit Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Credit Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Credit Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of
Sections 3.9
,
3.12
,
3.13
,
3.14
, and
11.5(b)
with respect to facts and circumstances occurring prior to the effective date of such assignment;
provided
, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Credit Agreement that does not comply with this subsection shall be treated for purposes of this Credit Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
(c)
Register
. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “
Register
”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Credit Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and the L/C Issuers at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Credit Documents is pending, any Lender may request and receive from the Administrative Agent a copy of the Register.
(d)
Participations
. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person), or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “
Participant
”) in all or a portion of such Lender’s rights and/or obligations under this Credit Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations) owing to it);
provided
that (i) such Lender’s obligations under this Credit Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and
(iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuers shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Credit Agreement. Each Lender that sells a participation shall, acting solely for this purpose as an non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Credit Documents (the “
Participant Register
”);
provided
that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Credit Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Credit Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Credit Agreement and to approve any amendment, modification or waiver of any provision of this Credit Agreement;
provided
that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to
Section 11.6
that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 3.9
,
3.12
,
3.13
, and
3.14
to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by Law, each Participant also shall be entitled to the benefits of
Section 3.7
as though it were a Lender,
provided
such Participant agrees to be subject to
Section 3.8
as though it were a Lender.
(e)
Limitations upon Participant Rights
. A Participant shall not be entitled to receive any greater payment under
Section 3.9
,
3.12
,
3.13
, or
3.14
than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 3.13
unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with
Section 3.13(e)
as though it were a Lender.
(f)
Certain Pledges
. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Credit Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank;
provided
that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g)
Electronic Execution of Assignments
. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable Law, including the Federal Electronic Signatures in Global and National Commerce
Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
(h)
Special Purpose Funding Vehicles
. Notwithstanding anything to the contrary contained herein, any Lender (a “
Granting Lender
”) may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower (an “
SPC
”) the option to provide all or any part of any Loan that such Granting Lender would otherwise be obligated to make pursuant to this Credit Agreement;
provided
that (i) nothing herein shall constitute a commitment by any SPC to fund any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Credit Agreement (including its obligations under
Section 3.9
,
3.12, 3.12
and
3.14
), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Credit Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Credit Document, remain the lender of record hereunder. The making of a Committed Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Credit Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior debt of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained herein, any SPC may (A) with notice to, but without prior consent of the Borrower and the Administrative Agent and with the payment of a processing fee in the amount of $2,500, assign all or any portion of its right to receive payment with respect to any Loan to the Granting Lender and (B) disclose on a confidential basis any non‑public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or guarantee or credit or liquidity enhancement to such SPC.
11.4
No Waiver; Remedies Cumulative
.
No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.
11.5
Attorney Costs, Expenses, Taxes and Indemnification by Borrower
.
(a)
The Borrower agrees (i) to pay or reimburse the Administrative Agent and the Arrangers for all costs and expenses incurred in connection with the development, preparation, negotiation and execution of this Credit Agreement and the other Credit Documents and any
amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated hereby or thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all reasonable fees and expenses of legal counsel, and (ii) to pay or reimburse the Administrative Agent and each Lender for all costs and expenses incurred in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Credit Agreement or the other Credit Documents (including all such costs and expenses incurred during any “workout” or restructuring in respect of the Borrower Obligations and during any legal proceeding, including any proceeding under any Debtor Relief Law), including all reasonable fees and expenses of legal counsel. The foregoing costs and expenses shall include all search, filing, recording, and appraisal charges and fees and taxes related thereto, and other out‑of‑pocket expenses incurred by the Administrative Agent and the Arrangers and the cost of independent public accountants and other outside experts retained by the Administrative Agent, the Arrangers or any Lender. Other than costs and expenses payable in connection with the closing of the transactions contemplated by this Credit Agreement pursuant to this
Section 11.5(a)
(which shall be payable on the Restatement Date unless otherwise agreed by the Administrative Agent and the Arrangers), all amounts due under this
Section 11.5
shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the termination of the Commitments and repayment of all other Borrower Obligations.
(b) Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold harmless each Agent‑Related Person, each Lender and their respective Affiliates, directors, officers, employees, counsel, agents and attorneys‑in‑fact (collectively the “
Indemnitees
”) from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including the reasonable fees and expenses of legal counsel) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (i) the execution, delivery, enforcement, performance or administration of any Credit Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (ii) any Commitment, Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by a L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), or (iii) any actual or alleged presence or release of Hazardous Substances on or from any property currently or formerly owned or operated by the Borrower, any Subsidiary of the Borrower, or any Environmental Claim related in any way to the Borrower or any Subsidiary of the Borrower, (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding), whether brought by a third party or by the Borrower or any Subsidiary, and regardless of whether any Indemnitee is a party thereto or (v) any penalty or fine assessed by OFAC against, and all reasonable costs and expenses (including counsel fees and disbursements) incurred in connection with defense thereof, by the Administrative Agent or any Lender as a result of conduct of the Borrower that violates a sanction enforced by OFAC (all the foregoing, collectively, the “
Indemnified Liabilities
”), in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of the Indemnitee;
provided
that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee
shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Credit Agreement, nor shall any Indemnitee have any liability for any special, punitive, indirect or consequential damages relating to this Credit Agreement or any other Credit Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date).
(c)
To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub‑agent thereof), a L/C Issuer, the Swing Line Lender or any Agent-Related Person of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub‑agent), such L/C Issuer, the Swing Line Lender or such Agent-Related Person, as the case may be, such Lender’s
Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided
that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub‑agent), such L/C Issuer or the Swing Line Lender in its capacity as such, or against any Agent-Related Person of any of the foregoing acting for the Administrative Agent (or any such sub‑agent), such L/C Issuer or the Swing Line Lender in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of
Section 3.2(d)
.
All amounts due under this
Section 11.5
shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Borrower Obligations.
11.6
Amendments, Etc
.
No amendment or waiver of any provision of this Credit Agreement or any other Credit Document, and no consent to any departure by the Borrower therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given;
provided
,
however
, that no such amendment, waiver or consent shall:
(a)
waive any condition set forth in
Section 4.1
without the written consent of each Lender;
(b)
extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to
Section 9.2
) without the written consent of such Lender;
(c)
postpone any date fixed by this Credit Agreement or any other Credit Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) or any scheduled or mandatory reduction of the Revolving Committed Amount hereunder or under any other Credit Document without the written consent of each Lender directly affected thereby;
(d)
reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (v) of the second proviso to this
Section 11.6
) any fees or other amounts payable hereunder or under any other Credit Document without the written consent of each Lender directly affected thereby;
provided
,
however
, that only the consent of the
Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation to pay interest or L/C Fees at the Default Rate;
(e)
change
Section 3.8
or
Section 9.3
in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
(f)
change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender; or
(g)
release the Borrower from its obligations, or consent to the assignment or transfer by the Borrower of any of its rights and obligations under (or in respect of) the Credit Documents without the written consent of each Lender;
and,
provided
,
further
, that (i) no amendment, waiver or consent shall, unless in writing and signed by the applicable L/C Issuer in addition to the Lenders required above, affect the rights or duties of a L/C Issuer under this Credit Agreement or any other agreement relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Credit Agreement or any other Credit Document; (iii)
Section 11.3(h)
may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; (iv) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Credit Agreement, (v) a Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto, and (vi) the Administrative Agent may, without the consent of any Lender, enter into amendments or modifications to this Credit Agreement or any of the other Credit Documents or enter into additional Credit Documents as the Administrative Agent reasonably deems appropriate in order to implement the Replacement Rate or otherwise effectuate the terms of
Section 3.10(b)
in accordance with the terms of
Section 3.10(b)
. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
11.7
Counterparts
.
This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed signature page of this Credit Agreement by facsimile transmission or other secure electronic format (.pdf) shall be effective as delivery of a manually executed counterpart hereof.
11.8
Headings
.
The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement.
11.9
Survival of Indemnification and Representations and Warranties
.
(a)
Survival of Indemnification
. All indemnities set forth herein shall survive the execution and delivery of this Credit Agreement, the making of any Credit Extension and the
repayment of the Loans and other Borrower Obligations and the termination of the Commitments hereunder.
(b)
Survival of Representations and Warranties
. All representations and warranties made hereunder and in any other Credit Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or Event of Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Borrower Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
11.10
Governing Law; Venue; Service
.
(a)
THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5‑1401 AND 5‑1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES). Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York and appellate courts thereof, and, by execution and delivery of this Credit Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its Property, generally and unconditionally, the jurisdiction of such courts.
(b)
The Borrower irrevocably consents to the service of process in any action or proceeding with respect to this Credit Agreement or any other Credit Document by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to
Section 11.1
, such service to become effective ten days after such mailing. Nothing herein shall affect the right of a Lender to serve process in any other manner permitted by Law.
11.11
Waiver of Jury Trial; Waiver of Consequential Damages
.
EACH OF THE PARTIES TO THIS CREDIT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. Each of the parties to this Credit Agreement agrees not to assert any claim against any other party hereto, Administrative Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein and in the other Credit Documents.
11.12
Severability
.
If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full
force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
11.13
Further Assurances
.
The Borrower agrees, upon the request of the Administrative Agent, to promptly take such actions, as reasonably requested, as is necessary to carry out the intent of this Credit Agreement and the other Credit Documents.
11.14
Confidentiality
.
Each of the Administrative Agent, the Lenders and each L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by, or required to be disclosed to, any rating agency or regulatory authority purporting to have jurisdiction over it or an Affiliate (including any self‑regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Credit Document or any action or proceeding relating to this Credit Agreement or any other Credit Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Credit Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, any L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.
For purposes of this Section, “
Information
” means all information received from the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or any L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary,
provided
that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
11.15
Entirety
.
This Credit Agreement together with the other Credit Documents and the Fee Letter represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein.
11.16
Binding Effect; Continuing Agreement
.
(a)
This Credit Agreement shall become effective at such time when all of the conditions set forth in
Section 4.1
have been satisfied or waived by the Lenders and it shall have been executed by the Borrower and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns.
(b)
This Credit Agreement shall be a continuing agreement and shall remain in full force and effect until all Loans, interest, fees and other Borrower Obligations have been paid in full and all Letters of Credit and Commitments have been terminated. Upon termination, the Borrower shall have no further obligations (other than the indemnification provisions and other provisions that by their terms survive) under the Credit Documents;
provided
that should any payment, in whole or in part, of the Borrower Obligations be rescinded or otherwise required to be restored or returned by the Administrative Agent or any Lender, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then the Credit Documents shall automatically be reinstated and all amounts required to be restored or returned and all costs and expenses incurred by the Administrative Agent or any Lender in connection therewith shall be deemed included as part of the Borrower Obligations.
11.17
Regulatory Statement
.
Pursuant to the terms of an order issued by the New Mexico Public Regulation Commission and a stipulation that has been approved by the New Mexico Public Regulation Commission, the Borrower is required to include the following separateness covenants in any debt instrument:
The Borrower and PSNM are being operated as separate corporate and legal entities. In agreeing to make loans to the Borrower, the Borrower’s lenders
are relying solely on the creditworthiness of the Borrower based on the assets owned by the Borrower, and the repayment of the loan will be made solely from the assets of the Borrower and not from any assets of PSNM; and the Borrower’s lenders
will not take any steps for the purpose of procuring the appointment of an administrative receiver or the making of an administrative order for instituting any bankruptcy, reorganization, insolvency, wind up or liquidation or any like proceeding under applicable Law in respect of PSNM.
11.18
USA Patriot Act Notice
.
The Administrative Agent and each Lender hereby notifies the Borrower that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the PATRIOT Act.
11.19
Acknowledgment
.
Section 7 and Section 8
of this Credit Agreement contain affirmative and negative covenants applicable to the Borrower. Each of the parties to this Credit Agreement acknowledges and agrees that any such covenants that require the Borrower to cause any of its Subsidiaries to take or to refrain from taking specified actions will be enforceable unless prohibited by applicable Law or regulatory requirement.
11.20
Replacement of Lenders
.
If (a) any Lender requests compensation under Section 3.12, (b) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.13, or (c) a Lender (a “Non-Consenting Lender”) does not consent to a proposed change, waiver, discharge or termination with respect to any Credit Document that has been approved by the Required Lenders as provided in Section 11.6 but requires unanimous consent of all Lenders or all Lenders directly affected thereby (as applicable) or (d) any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.3), all of its interests, rights and obligations under this Credit Agreement and the related Credit Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(i)
the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 11.3(b);
(ii)
such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Obligations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Credit Documents (including any amounts under Section 3.14) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(iii)
in the case of any such assignment resulting from a claim for compensation under Section 3.12 or payments required to be made pursuant to Section 3.13, such assignment will result in a reduction in such compensation or payments thereafter;
(iv)
such assignment does not conflict with applicable Laws; and
(v)
in the case of any such assignment resulting from a Non-Consenting Lender’s failure to consent to a proposed change, waiver, discharge or termination with respect to any Credit Document, the applicable replacement bank, financial institution or Fund consents to the proposed change, waiver, discharge or termination; provided that the failure by such Non-Consenting Lender to execute and deliver an Assignment and Assumption shall not impair the validity of the removal of such Non-Consenting Lender and the mandatory assignment of such Non-Consenting Lender’s Commitments and outstanding Loans and participations in L/C Obligations pursuant to this Section shall nevertheless be effective without the execution by such Non-Consenting Lender of an Assignment and Assumption.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
11.21
No Advisory or Fiduciary Responsibility
.
In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Credit Document), the Borrower acknowledges and agrees that: (i) (A) the arranging and other services regarding this Credit Agreement provided by the Administrative Agent, the Arrangers and the Lenders are arm’s-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Administrative
Agent, the Arrangers and the Lenders, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Credit Documents; (ii) (A) each of the Administrative Agent, the Arrangers and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower or any of its Affiliates, or any other Person and (B) neither the Administrative Agent, any Arranger nor any Lender has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Credit Documents; and (iii) each of the Administrative Agent, the Arrangers and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and none of the Administrative Agent, the Arrangers or the Lenders has any obligation to disclose any of such interests to the Borrower or its Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and releases any claims that it may have against each of the Administrative Agent, the Arrangers and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
11.22
Acknowledgement and Consent to Bail-In of EEA Financial Institutions
.
Notwithstanding anything to the contrary in any Credit Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender that is an EEA Financial Institution arising under any Credit Document, to the extent such liability is unsecured, may be subject to the Write-down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)
the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any Lender that is an EEA Financial Institution; and
(b)
the effects of any Bail-in Action on any such liability, including, if applicable:
(i)
a reduction in full or in part or cancellation of any such liability;
(ii)
a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Credit Agreement or any other Credit Document; or
(iii)
the variation of the terms of such liability in connection with the exercise of the Write-down and Conversion Powers of any EEA Resolution Authority.
11.23
Amendment and Restatement
.
(a)
Amendment and Restatement
. The parties hereto agree that, subject to the satisfaction of the conditions set forth in
Section 4.1
, from and after the Restatement Date, the Existing Credit Agreement is hereby amended and restated in its entirety to read as set forth in this Credit Agreement.
(b)
Reallocation
. On the Restatement Date, the loans and commitments made by the Lenders under the Existing Credit Agreement shall be re-allocated and restated among the Lenders so that, and the loans and commitments shall be made by the Lenders so that, as of the Restatement Date, the respective commitments of the Lenders shall be as set forth on
Schedule 1.1(a)
attached hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written.
|
|
BORROWER
:
|
PNM RESOURCES, INC.,
a New Mexico corporation
|
By:
/s/ Laurie S. Monfiletto
Name: Laurie S. Monfiletto
Title: Vice President and Treasurer
|
|
LENDERS
:
|
WELLS FARGO BANK, NATIONAL ASSOCIATION
,
individually in its capacity as a Lender and in its capacity as Administrative Agent and a L/C Issuer
|
By:
/s/ Gregory R. Gredvig
Name: Gregory R. Gredvig
Title: Director
MUFG UNION BANK, N.A.
,
as a Lender and an L/C Issuer
By:
/s/ Eric Otieno
Name: Eric Otieno
Title: Vice President
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
CITIBANK, N.A.
,
as a Lender
By:
/s/ Amit Vasani
Name: Amit Vasani
Title: Vice President
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
JPMORGAN CHASE BANK, N.A.
,
as a Lender
By:
/s/ Nancy Barwig
Name: Nancy R. Barwig
Title: Credit Risk Manager
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
MORGAN STANLEY BANK, N.A.
,
as a Lender
By:
/s/ Jack Kuhns
Name: Jack Kuhns
Title: Authorized Signatory
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
KEYBANK NATIONAL ASSOCIATION
,
as a Lender
By:
/s/ Kevin D. Smith
Name: Kevin D. Smith
Title: Senior Vice President
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
ROYAL BANK OF CANADA
,
as a Lender
By:
/s/ Justin Painter
Name: Justin Painter
Title: Authorized Signatory
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
U.S. BANK NATIONAL ASSOCIATION
,
as a Lender
By:
/s/ John M. Eyerman
Name: John M. Eyerman
Title: Senior Vice President
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
THE BANK OF NEW YORK MELLON
,
as a Lender
By:
/s/ Mark W. Rogers
Name: Mark W. Rogers
Title: Vice President
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
BOKF, NA dba BANK OF ALBUQUERQUE
,
as a Lender
By:
/s/ John Valentine
Name: John Valentine
Title: SVP
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
SUNTRUST BANK
,
as a Lender
By:
/s/ Arize Agumadu
Name: Arize Agumadu
Title: Vice President
PNM RESOURCES, INC.
SIXTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
SCHEDULE 1.1(a)
PRO RATA SHARES
|
|
|
|
Lender
|
Revolving Committed Amount
|
Pro Rata Share of
Revolving Committed Amount
|
Wells Fargo Bank, National Association
|
$43,035,714.29
|
14.345238100%
|
MUFG Union Bank, N.A.
|
$43,035,714.29
|
14.345238100%
|
Citibank, N.A.
|
$43,035,714.29
|
14.345238100%
|
JPMorgan Chase Bank, N.A.
|
$43,035,714.29
|
14.345238100%
|
Morgan Stanley Bank, N.A.
|
$27,857,142.84
|
9.285714280%
|
KeyBank National Association
|
$21,428,571.43
|
7.142857143%
|
Royal Bank of Canada
|
$21,428,571.43
|
7.142857143%
|
U.S. Bank National Association
|
$21,428,571.43
|
7.142857143%
|
The Bank of New York Mellon
|
$15,000,000.00
|
5.000000000%
|
BOKF, NA dba Bank of Albuquerque
|
$10,714,285.71
|
3.571428570%
|
SunTrust Bank
|
$10,000,000.00
|
3.333333333%
|
TOTALS
|
$300,000,000.00
|
100.000000000%
|
SCHEDULE 1.1(b)
EXISTING LETTERS OF CREDIT
PNM RESOURCES, INC. LETTERS OF CREDIT
|
|
|
|
|
|
LOC Beneficiary:
|
LOC NUMBER
|
Issuing Bank
|
LOC Amount:
|
LOC Expiry
|
ACE American Insurance
|
SM221498W
|
Wachovia
|
$6,484,033.00
|
6/1/2012
|
Reliance Ins. Co.
|
SM216934W
|
Wachovia
|
$326,258.00
|
11/20/2011
|
NM Self-Insurer's General Fund
|
SM232293W
|
Wachovia
|
$3,000,000.00
|
4/14/2012
|
Zurich American Insurance Company
|
SM237493W
|
Wachovia
|
$1,315,000.00
|
6/1/2012
|
|
|
|
|
|
|
|
Total LOCs PNMR
|
$11,125,291.00
|
|
FCP LETTERS OF CREDIT
|
|
|
|
|
|
LOC Beneficiary:
|
LOC NUMBER
|
Issuing Bank
|
LOC Amount:
|
LOC Expiry
|
ERCOT
|
SM217961W
|
Wachovia
|
$31,000,000.00
|
1/20/2012
|
*BP Energy
|
SM226755W
|
Wachovia
|
$1.00
|
1/10/2012
|
*Merrill Lynch Commodities
|
SM230355W
|
Wachovia
|
$100,000.00
|
3/4/2012
|
Morgan Stanley
|
SM230577W
|
Wachovia
|
$1,000,000.00
|
3/20/2012
|
J. Aron
|
SM232362W
|
Wachovia
|
$1,000,000.00
|
8/5/2012
|
Fifth Third Bank
|
SM224206W
|
Wachovia
|
$600,000.00
|
8/1/2012
|
Constellation Commodities
|
SM232770W
|
Wachovia
|
$700,001.00
|
3/18/2012
|
Shell 1 - ISDA
|
SM233576W
|
Wachovia
|
$100,000.00
|
12/17/2011
|
Shell 2 - EEI
|
SM233577W
|
Wachovia
|
$2,000,000.00
|
12/17/2011
|
*NRG Power Marketing LLC
|
SM235978W
|
Wachovia
|
$500,001.00
|
8/1/2012
|
Tenaska Power Services Co.
|
SM234309W
|
Wachovia
|
$300,000.00
|
3/19/2012
|
CitiGroup Energy Inc
|
SM234927W
|
Wachovia
|
$4,500,000.00
|
6/10/2011
|
Deutsche Bank Trust Company Americas
|
SM237671W
|
Wachovia
|
$117,000.00
|
6/1/2012
|
*EDF Trading North America, LLC
|
SM237730W
|
Wachovia
|
$4,000,001.00
|
8/1/2012
|
*Luminant Energy
|
SM238083W
|
Wachovia
|
$1.00
|
10/26/2011
|
JP Morgan Ventures Energy Corporation
|
IS0002112
|
Wachovia
|
$1,000,000.00
|
8/4/2012
|
|
|
|
|
|
|
|
Total LOCs FCP LP
|
$46,917,005.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CenterPoint/Deutsche Bank (TC II)
|
SM236721W
|
Wachovia
|
$460,000.00
|
2/26/2012
|
CenterPoint/Deutsche Bank
|
SM236248W
|
Wachovia
|
$220,000.00
|
12/1/2011
|
Bank of NY/AEP Tex. Central
|
SM226948W
|
Wachovia
|
$960,582.54
|
7/20/2011
|
Public Utility Commission of Texas
|
SM236703W
|
Wachovia
|
$500,000.00
|
2/23/2012
|
Public Utility Commission of Texas
|
SM236702W
|
Wachovia
|
$10,000,000.00
|
2/23/2012
|
|
|
|
|
|
|
|
Total LOCs FCP SP
|
$12,140,582.54
|
|
*
In the process of being terminated.
SCHEDULE 11.1
NOTICES
Borrower
:
PNM Resources, Inc.
414 Silver Ave, SW MS0905
Albuquerque, New Mexico 87102-3289
Attention: Laurie S. Monfiletto, Vice President and Treasurer
Telephone No.: (505) 241-2832
Telecopy No.: (505)241-4314
Electronic Mail:
cashdesk@pnmresources.com
Website Address:
www.pnmresources.com
Address for notices as Administrative Agent:
Wells Fargo Bank, National Association
1525 West W.T. Harris Blvd.
Mail Code: D1109-019
Charlotte, NC 28262
Attention: Syndication Agency Services
Telephone No.: (704) 590-2706
Telecopy No.: (704) 590-2790
E-mail: agencyservices.requests@wellsfargo.com
Address for notices as LC Issuer, Swingline Lender and Credit Contact
:
Wells Fargo Bank, National Association
90 S. Seventh Street, 6th Floor
Minneapolis, MN 55402
MAC N9305-06G
Attention: Greg Gredvig
Telephone No.: (612) 667-4832
Telecopy No.: (612) 316-0506
Email: Gregory.R.Gredvig@wellsfargo.com
EXHIBIT 2.1(b)
FORM OF
NOTICE OF REVOLVING BORROWING
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Sixth Amendment to and Restatement of Credit Agreement dated as of July 30, 2018 among PNM Resources, Inc. (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
DATE: _____________, 20__
|
|
1.
|
This Notice of Revolving Borrowing is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement.
|
|
|
2.
|
Please be advised that the Borrower is requesting Revolving Loans on the terms set forth below:
|
|
|
(a)
|
Principal amount of requested
Revolving Loans $___________________
|
|
|
(b)
|
Date of requested Revolving
Loans ____________________
|
|
|
(c)
|
Interest rate applicable to the
|
requested Revolving Loans:
(i) ________ Adjusted Base Rate
(ii) ________ Adjusted Eurodollar Rate for an Interest Period of:
________ one month
________ two months
________ three months
________ six months
|
|
3.
|
The representations and warranties made by the undersigned in any Credit Document (other than the representation and warranties in
Section 6.7(a)
(but only with respect to clause (a) of the definition of Material Adverse Effect) and
Section 6.9
of the Credit Agreement) are true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) at and as if made on the date of the requested Revolving Loans except to the extent they expressly and exclusively relate to an earlier date.
|
|
|
4.
|
No Default or Event of Default exists or shall be continuing either prior to or after giving effect to the Revolving Loans made pursuant to this Notice of Borrowing.
|
|
|
5.
|
Subsequent to the funding of the requested Revolving Loans, the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans will be $________________, which is less than or equal to the Revolving Committed Amount.
|
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.1(e)
FORM OF REVOLVING NOTE
Lender: ______________ _____________, 20__
FOR VALUE RECEIVED, PNM RESOURCES, INC., a New Mexico corporation (the “
Borrower
”), hereby promises to pay to the order of the Lender referenced above (the “
Lender
”), at the Administrative Agent’s Office set forth in that certain Sixth Amendment to and Restatement of Credit Agreement dated as of July 30, 2018 (as amended, modified, extended or restated from time to time, the “
Credit Agreement
”) among the Borrower, the Lenders party thereto (including the Lender) and Wells Fargo Bank, National Association, as Administrative Agent (the “
Administrative Agent
”) (or at such other place or places as the holder of this Note may designate), the aggregate unpaid principal amount of the Revolving Loans made by the Lender to the Borrower under the Credit Agreement, in lawful money and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement (but, in any event, no later than the Maturity Date), and to pay interest on the unpaid principal amount of each Revolving Loan made by the Lender, at such office, in like money and funds, for the period commencing on the date of each Revolving Loan until each Revolving Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement and evidences Revolving Loans made by the Lender to the Borrower thereunder. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement and the terms and conditions of the Credit Agreement are expressly incorporated herein and made a part hereof.
The Credit Agreement provides for the acceleration of the maturity of the Revolving Loans evidenced by this Note upon the occurrence of certain events (and for payment of collection costs in connection therewith) and for prepayments of Revolving Loans upon the terms and conditions specified therein. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorney fees.
The date, amount, type, interest rate and duration of Interest Period (if applicable) of each Revolving Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books;
provided
that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Credit Agreement or under this Note in respect of the Revolving Loans to be evidenced by this Note, and each such recordation or endorsement shall be prima facie evidence of such information, absent manifest error.
Except as permitted by
Section 11.3(b)
of the Credit Agreement, this Note may not be assigned by the Lender to any other Person.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[signature page follows]
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be executed as of the date first above written.
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.3
FORM OF
NOTICE OF CONTINUATION/CONVERSION
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Sixth Amendment to and Restatement of Credit Agreement dated as of July 30, 2018 among PNM Resources, Inc. (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
|
|
DATE:
|
_____________, 20__
|
_________________________________________________________________
|
|
1.
|
This Notice of Continuation/Conversion is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement.
|
|
|
2.
|
Please be advised that the Borrower is requesting that a portion of the current outstanding Revolving Loans in the amount of $
, currently accruing interest at
, be extended or converted as of
, 20__ at the interest rate option set forth in paragraph 3 below.
|
|
|
3.
|
The interest rate option applicable to the extension or conversion of all or part of the existing Revolving Loans referenced above shall be:
|
a. ________ the Adjusted Base Rate
b. ________ the Adjusted Eurodollar Rate for an Interest Period of:
________ one month
________ two months
________ three months
________ six months
|
|
4.
|
As of the date hereof, no Default or Event of Default has occurred and is continuing.
|
[signature page follows]
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.7
FORM OF SWING LINE NOTE
_____________, 20__
FOR VALUE RECEIVED, PNM RESOURCES, INC., a New Mexico corporation (the “
Borrower
”), hereby promises to pay to the order of Wells Fargo Bank, National Association (the “
Swing Line Lender
”) and its registered assigns, at the office of Wells Fargo Bank, National Association (the “
Administrative Agent
”) as set forth in that certain Sixth Amendment to and Restatement of Credit Agreement dated as of July 30, 2018 (as amended, modified, extended or restated from time to time, the “
Credit Agreement
”) among the Borrower, the Lenders party thereto (including the Swing Line Lender) and Wells Fargo Bank, National Association, as Administrative Agent, the principal amount of the Swing Line Sublimit (or such lesser amount as shall equal the aggregate unpaid principal amount of the Swing Line Loans made by the Swing Line Lender to the Borrower under the Credit Agreement), in lawful money and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Swing Line Loan, at such office, in like money and funds, for the period commencing on the date of such Swing Line Loan until such Swing Line Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.
This Note is the Swing Line Note referred to in the Credit Agreement and evidences the Swing Line Loans made by the Swing Line Lender thereunder. All capitalized terms used in this Swing Line Note and not otherwise defined shall have the meanings provided in the Credit Agreement and the terms and conditions of the Credit Agreement are expressly incorporated herein and made a part hereof.
The Credit Agreement provides for the acceleration of the maturity of the Swing Line Loans evidenced by this Swing Line Note upon the occurrence of certain events (and for payment of collection costs in connection therewith) and for prepayments of such Swing Line Loans upon the terms and conditions specified therein. In the event this Swing Line Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorney fees.
The date, amount, type and interest rate of the Swing Line Loans made by the Swing Line Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Swing Line Lender on its books; provided that the failure of the Swing Line Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing hereunder or under this Swing Line Note in respect of the Swing Line Loans to be evidenced by this Swing Line Note, and each such recordation or endorsement shall be conclusive and binding absent manifest error.
This Swing Line Note and the Swing Line Loans evidenced hereby may be transferred in whole or in part only as provided in
Section 11.3(b)
of the Credit Agreement and by registration of such transfer on the Register maintained for such purpose by or on behalf of the Borrower as provided in
Section 11.3(c)
of the Credit Agreement.
THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[signature page follows]
IN WITNESS WHEREOF, the Borrower has caused this Swing Line Note to be executed as of the date first above written.
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.7(d)
FORM OF NOTICE OF SWING LINE BORROWING
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Sixth Amendment to and Restatement of Credit Agreement dated as of July 30, 2018 among PNM Resources, Inc. (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
|
|
DATE:
|
_____________, 20__
|
1. This Notice of Swing Line Borrowing is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings provided in the Credit Agreement.
2. Please be advised that the Borrower is requesting a Swing Line Loan on the terms set forth below:
|
|
(a)
|
Principal amount of requested
Swing Line Loan $___________________
|
|
|
(b)
|
Date of requested Swing Line
Loan ____________________
|
|
|
(c)
|
Interest rate applicable to the
|
requested Swing Line Loan:
(i) ________ Adjusted Base Rate
(ii) ________ Adjusted LIBOR Market Index Rate
3. Subsequent to the funding of the requested Swing Line Loan, the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans will be $_____________, which is less than or equal to the Revolving Committed Amount.
4. Subsequent to the funding of the requested Swing Line Loan, the aggregate amount of Swing Line Loans will be $______________, which is less than or equal to the Swing Line Sublimit.
[continues on next page]
5. The representations and warranties made by the undersigned in any Credit Document (other than the representation and warranties in
Section 6.7(a)
(but only with respect to clause (a) of the definition of Material Adverse Effect) and
Section 6.9
of the Credit Agreement) are true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) at and as if made on the date of the requested Swing Line Loans except to the extent they expressly and exclusively relate to an earlier date.
6. No Default or Event of Default exists or shall be continuing either prior to or after giving effect to the Swing Line Loans made pursuant to this Swing Line Borrowing.
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 4.1(k)
FORM OF
ACCOUNT DESIGNATION LETTER
[Date]
Wells Fargo Bank, National Association
[address]
Attention: Syndication Agency Services
Ladies and Gentlemen:
This Account Designation Letter is delivered to you by PNM RESOURCES, INC. (the “
Borrower
”), a New Mexico corporation, under
Section 4.1(l)
of the Sixth Amendment to and Restatement of Credit Agreement, dated as of July 30, 2018 (as amended, restated or otherwise modified from time to time, the “
Credit Agreement
”), by and among the Borrower, the Lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent (the “
Administrative Agent
”).
The Administrative Agent is hereby authorized to disburse all Loan proceeds into the following account, unless the Borrower shall designate, in writing to the Administrative Agent, one or more other accounts:
A/C# ______
ABA _______
Reference:
Notwithstanding the foregoing, on the effective date of the Credit Agreement, funds borrowed under the Credit Agreement shall be sent to the institutions and/or persons designated on the attached payment instructions.
IN WITNESS WHEREOF, the undersigned has executed this Account Designation Letter this [__] day of July, 2018.
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 7.1(c)
FORM OF
COMPLIANCE CERTIFICATE
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Sixth Amendment to and Restatement of Credit Agreement dated as of July 30, 2018 among PNM Resources, Inc. (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
|
|
DATE:
|
_____________, 20__
|
_______________________________________________________________________________
Pursuant to the terms of the Credit Agreement, I, ______________, [Title of Financial Officer] of PNM Resources, Inc., hereby certify on behalf of the Borrower that, as of the [Fiscal Quarter][Fiscal Year] ending ________, 20__, the statements below are accurate and complete in all respects (all capitalized terms used below shall have the meanings set forth in the Credit Agreement):
a. Attached hereto as
Schedule 1
are calculations (calculated as of the date of the annual financial statements delivered in accordance with
Section 7.1(a)
of the Credit Agreement or as of the date of the quarterly financial statements referred to in paragraph c. below) demonstrating compliance by the Borrower with the financial covenant contained in
Section 7.2
of the Credit Agreement.
b. No Default or Event of Default exists under the Credit Agreement, except as indicated on a separate page attached hereto, together with an explanation of the action taken or proposed to be taken by the Borrower with respect thereto.
c. [Attached hereto as
Schedule 2
are the quarterly financial statements for the fiscal quarter ended __________, 20___ and such quarterly financial statements] [The quarterly financial statements for the fiscal quarter ended _______, 20__, delivered electronically pursuant to the last paragraph of
Section 7.1
of the Credit Agreement,] fairly present in all material respects the financial condition of the Borrower and its Subsidiaries and have been prepared in accordance with GAAP, subject to changes resulting from normal year-end audit adjustments and except that the quarterly financial statements have fewer footnotes than annual statements.
[signature page follows]
___________________________
1
Use the first bracketed language when delivering paper copies of quarterly financial statements and the second bracketed language when delivering quarterly financial statements electronically.
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
SCHEDULE 1
TO EXHIBIT 7.1(c)
FINANCIAL COVENANT CALCULATIONS
|
|
|
|
A.
|
Debt Capitalization
|
|
|
1. Consolidated Indebtedness of the Borrower
|
$_________________
|
|
2. Consolidated Capitalization of the Borrower
|
$_________________
|
|
3. Debt to Capitalization Ratio (Line A1 ÷ A2)
|
____________
to 1.0
|
|
Maximum Permitted
|
.70 to 1.0
|
|
|
|
SCHEDULE 2
TO EXHIBIT 7.1(c)
[QUARTERLY] [ANNUAL] FINANCIAL STATEMENTS
[Attached]
EXHIBIT 11.3(b)
FORM OF
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the “
Assignment and Assumption
”) is dated as of the Effective Date set forth below and is entered into by and between ______________ (the “
Assignor
”) and _______________________ (the “
Assignee
”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “
Credit Agreement
”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Schedule 1 attached hereto (the “
Standard Terms and Conditions
”) are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (a) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including without limitation any Letters of Credit, guarantees, and swingline loans included in such facilities) and (b) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (a) above (the rights and obligations sold and assigned pursuant to clauses (a) and (b) above being referred to herein collectively as, the “
Assigned Interest
”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
1. Assignor: ______________________________
|
|
2.
|
Assignee: ______________________________
|
and is an Affiliate/Approved Fund of _________________
|
|
3.
|
Borrower: PNM Resources, Inc., a New Mexico
|
corporation
|
|
4.
|
Administrative Agent: Wells Fargo Bank, National Association, as the Administrative Agent under the Credit Agreement
|
|
|
5.
|
Credit Agreement: Sixth Amendment to and Restatement of Credit Agreement dated as of July 30, 2018 among the Borrower, the Administrative Agent, and the Lenders identified therein.
|
|
|
|
|
Aggregate Amount of Commitment/Loans for all Lenders
|
Amount of Commitment/Loans Assigned
|
Percentage Assigned of Commitment/Loans
|
$
|
$
|
%
|
7. After giving effect to the foregoing assignment, the Assignor and the Assignee shall have the following Commitments, Pro Rata Shares, outstanding Loans and Participation Interests:
|
|
|
|
|
|
|
Commitments
|
Pro Rata Share
|
Outstanding
Revolving
Loans
|
Participation Interests in
Letters of Credit
|
Assignor
|
|
|
|
|
Assignee
|
|
|
|
|
8. Trade Date: ______________
Effective Date: _____________ ___, 20__
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By:
Name:
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By:
Name:
Title:
Consented to and Accepted if applicable:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent and L/C Issuer
By:
Name:
Title:
Consented to if applicable:
PNM RESOURCES, INC.,
a New Mexico corporation
By:
Name:
Title:
SCHEDULE 1
TO EXHIBIT 11.3(b)
TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1.
Representations and Warranties
.
1.1
Assignor
. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Credit Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Credit Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Credit Document.
1.2.
Assignee
. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to
Section 7.1
thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a foreign lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Credit Documents are required to be performed by it as a Lender.
2.
Payments
. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.
3.
General Provisions
. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one
instrument.
Delivery of an executed counterpart of a signature page of this Assignment
and Assumption
by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment
and Assumption
.
This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
SECOND AMENDMENT TO TERM LOAN AGREEMENT
THIS SECOND AMENDMENT TO TERM LOAN AGREEMENT (this “
Amendment
”) is entered into as of July 30, 2018 among PNM RESOURCES, INC., a New Mexico corporation (the “
Borrower
”), the Lenders party hereto and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent for the Lenders (in such capacity, the “
Administrative Agent
”). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Lenders party thereto and the Administrative Agent are parties to that certain Term Loan Agreement, dated as of December 21, 2016 (as amended or modified from time to time, the “
Loan Agreement
”);
WHEREAS, the Borrower has requested a modification to the Loan Agreement as described below; and
WHEREAS, the Lenders party hereto are willing to agree to such modification, subject to the terms set forth herein as more fully set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
A G R E E M E N T
1.
Amendments to Loan Agreement
.
(a)
The following definitions are hereby added to Section 1.1 of the Loan Agreement in the appropriate alphabetical order to read as follows:
“
Beneficial Ownership Regulation
” means 31 C.F.R. § 1010.230.
“
Benefit Plan
” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“
Equity Preferred Securities
” means, with respect to any Person, any trust preferred securities or deferrable interest subordinated debt securities issued by such Person or other financing vehicle of such Person that (i) have an original maturity of at least twenty years, and (ii) require no repayments or prepayments and no mandatory redemptions or repurchases, in each case, prior to the first anniversary of the latest Maturity Date.
“
PTE
” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“
SEC Reports
” means (i) the Annual Report on Form 10-K of the Borrower for the Fiscal Year ended December 31, 2017, and (ii) the Quarterly Report on Form 10-Q of the Borrower for the Fiscal Quarter ended March 31, 2018.
“
Second Amendment Effective Date
” means July 30, 2018.
“
State Approved Securitization
” means a securitization financing entered into by PSNM pursuant to existing or future New Mexico statutory authority and regulatory approval by the New Mexico Public Regulation Commission (or any successor commission) (the “
NMPRC
”) authorizing the imposition on electric customers of a charge to permit the recovery over time of costs identified by a financing order issued by the NMPRC pursuant to statutory authority.
“
VIE
” has the meaning specified in
Section 1.3(c)
.
(b)
The following definitions in Section 1.1 of the Loan Agreement are amended and restated in their entirety to read as follows:
“
Consolidated Capitalization
” means the sum of (a) all of the shareholders’ equity or net worth of the Borrower and its Subsidiaries, as determined in accordance with GAAP plus (b) Consolidated Indebtedness plus (c) the outstanding principal amount of Preferred Stock plus (d) 100% of the outstanding principal amount of Equity Preferred Securities of the Borrower and its Subsidiaries minus (e) Securitization Equity.
“
Consolidated Indebtedness
” means, as of any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, an amount equal to (a) all Indebtedness of the Borrower and its Subsidiaries as of such date minus (b) an amount equal to the outstanding principal amount of Equity Preferred Securities of the Borrower and its Subsidiaries, provided that the amount deducted pursuant to this clause (b) shall not exceed an amount equal to 15% of the Consolidated Capitalization of the Borrower and its Subsidiaries minus (c) Non-Recourse Securitization Indebtedness.
“
Interest Payment Date
” means, (a) as to any Eurodollar Loan, the last day of each Interest Period applicable to such Loan, the date of any prepayment of the Loans pursuant to
Section 3.3
and the Maturity Date;
provided
,
however
, that if any Interest Period for a Eurodollar Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates and (b) as to any Base Rate Loan, the third Business Day after the end of each Fiscal Quarter, the date of any prepayment of the Loans pursuant to
Section 3.3
and the Maturity Date.
“
Material Adverse Effect
” means a material adverse effect upon (a) the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower to perform its obligations under this Loan Agreement or any of the other Loan Documents or (c) the legality, validity or enforceability of this Loan Agreement or any of the other Loan Documents or the rights and remedies of the Administrative Agent and the Lenders hereunder and thereunder,
provided
, however, that a Material Adverse Effect shall not include the effect of a shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant, provided that the Borrower remains in compliance with
Section 7.2
of this Loan Agreement.
“
Non-Recourse Securitization Indebtedness
” means, as of any date of determination, (a) all Indebtedness related to State Approved Securitizations up to a maximum amount of $500,000,000 at any one time and (b) all Indebtedness related to the TNMP Securitization up to a maximum amount
of $150,000,000 at any time;
provided
that, in each case, such Indebtedness is non-recourse to the Borrower, other than with respect to Standard Securitization Undertakings.
“
S&P
” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
“
Sanctioned Person
” means (a) a Person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC, as published from time to time, (b) a Person named on the lists maintained by the United Nations Security Council, as published from time to time, (c) a Person named on the lists maintained by the European Union, as published from time to time, (d) a Person named on the lists maintained by Her Majesty’s Treasury, as published from time to time, or (e) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a Person resident in a Sanctioned Country, to the extent any Person described in clauses (i), (ii) or (iii) is the subject of a sanctions program administered by OFAC.
“
Securitization Equity
” means, as of any date of determination, with respect to a Subsidiary of the Borrower formed for the purpose of entering into a State Approved Securitization or the TNMP Securitization, all of the equity of such Subsidiary, as determined in accordance with GAAP.
(c)
Clause (b) in the definition of “ERISA Event” is amended and restated in its entirety to read as follows:
(b) a complete or partial withdrawal by the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiemployer Plan if withdrawal liability is asserted by such plan, or the receipt by the Borrower, any of its Subsidiaries or any ERISA Affiliate of notice from a Multiemployer Plan that it is insolvent pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA,
(d)
Clause (k) in the definition of “Indebtedness” is amended and restated in its entirety to read as follows:
(k) all Equity Preferred Securities and
(e)
The definitions of “Specified Securities” and “State Approved Environmental Improvements Securitization” in Section 1.1 of the Loan Agreement are hereby deleted in their entirety.
(f)
A new clause (c) is hereby added to Section 1.3 of the Loan Agreement immediately following clause (b) to read as follows:
(c) All references herein to consolidated financial statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity (“
VIE
”) that the Borrower is required to consolidate pursuant to FASB Accounting Standards Codification Topic 810 – Consolidation – Variable Interest Entities as if such variable interest entity were a Subsidiary as defined herein;
provided
that the financial covenant in
Section 7.2
shall be calculated without consolidation of any VIE to the extent the Borrower or its consolidated Subsidiaries have entered into power purchase agreements with such VIE to serve retail customers as a result of the shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant.
(g)
A new Section 1.7 is hereby added to the Loan Agreement to read as follows:
1.7
Rates
.
The Administrative Agent does not warrant or accept responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to the rates in the definition of “Eurodollar Base Rate”.
(h)
A new Section 3.17 is hereby added to the Loan Agreement to read as follows:
3.17
Mitigation Obligations
.
If any Lender requests compensation under
Section 3.9
or
Section 3.12
, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to
Section 3.13
or if any Lender gives a notice pursuant to
Section 3.11
, then, at the request of the Borrower, such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to
Section 3.9
,
Section 3.12
or
Section 3.13
, as the case may be, in the future or eliminate the need for the notice pursuant to
Section 3.11
, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(i)
Section 6.7 of the Loan Agreement is amended and restated in its entirety to read as follows:
6.7
No Material Change
.
(a) Since December 31, 2017, except as disclosed in the SEC Reports, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect
.
(b) Since December 31, 2017, there has been no sale, transfer or other disposition by the Borrower or any of its Subsidiaries of any material part of its business or property, and no purchase or other acquisition by the Borrower or any of its Subsidiaries of any business or property (including the Capital Stock of any other Person) material in relation to the financial condition of the Borrower or any of its Subsidiaries, in each case which is not (i) reflected in the most recent financial statements delivered to the Lenders pursuant to Section 4.1(d) or 7.1 or in the notes thereto or (ii) otherwise permitted by the terms of this Loan Agreement and communicated to the Lenders.
(j)
Section 6.9 of the Loan Agreement is amended and restated in its entirety to read as follows:
6.9
Litigation
.
Except as disclosed in the SEC Reports, there are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.
(k)
Section 6.10 of the Loan Agreement is amended and restated in its entirety to read as follows:
6.10
Taxes
.
Each of the Borrower and its Subsidiaries has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owed by it, except for such taxes (i) the amount of which, individually or in the aggregate, is not material, or (ii) which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP.
(l)
Section 6.12 of the Loan Agreement is amended and restated in its entirety to read as follows:
6.12
ERISA
.
(a)
Except as would not result or reasonably be expected to result in a Material Adverse Effect:
(i)
Each Single Employer Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws, regulations and published interpretations thereunder, except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Single Employer Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code except for such plans that have not yet received determination letters but for which the remedial amendment period for submitting a determination letter has not yet expired. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties assessed with respect to any Single Employer Plan or any Multiemployer Plan except for a liability that could not reasonably be expected to have a Material Adverse Effect;
(ii)
No ERISA Event has occurred or is reasonably expected to occur;
(iii)
No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Single Employer Plan which has subjected or would be reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(iv)
No proceeding, claim (other than a benefits claim in the ordinary course of business), lawsuit and/or investigation is existing or, to the best of the knowledge of the Borrower after due inquiry, threatened concerning or involving (i) any employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to
by the Borrower or any ERISA Affiliate (a “Welfare Plan”), (ii) any Single Employer Plan or (iii) any Multiemployer Plan.
(v)
Each Welfare Plan to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.
(b)
The Borrower represents and warrants as of the Second Amendment Effective Date that the Borrower is not and will not be using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans or the Commitments.
(m)
The following sentence is hereby added to the end of Section 7.1(a) of the Loan Agreement to read as follows:
To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(a)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.
(n)
The following sentence is hereby added to the end of Section 7.1(b) of the Loan Agreement to read as follows:
To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(b)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.
(o)
The reference to “$5,000,000” in Section 7.1(e) of the Loan Agreement is hereby amended to be a reference to “$20,000,000”.
(p)
Clause (iii) of Section 7.1(f) of the Loan Agreement is amended and restated in its entirety to read as follows:
(iii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is in insolvent (within the meaning of Title IV of ERISA); or
(q)
Section 7.2 of the Loan Agreement is amended and restated in its entirety to read as follows:
7.2
Financial Covenant
.
The ratio of (a) Consolidated Indebtedness to (b) Consolidated Capitalization shall be less than or equal to 0.70 to 1.0 as of the last day of any Fiscal Quarter.
(r)
Section 7.3(b) of the Loan Agreement is amended and restated in its entirety to read as follows:
(b) The Borrower will maintain (and will cause each of its Subsidiaries to maintain) its properties in good condition and not waste or otherwise permit such properties to deteriorate, reasonable wear and tear excepted;
provided
that this
Section 7.3(b)
shall not prevent the Borrower or any Subsidiary from discontinuing the operation or the maintenance of any of the properties if such discontinuance is desirable in the conduct of its business and the Borrower has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(s)
Section 7.5(d) of the Loan Agreement is amended and restated in its entirety to read as follows:
(d) The Borrower shall, and shall cause each of its Subsidiaries to, provide such information and take such actions as are reasonably requested by the Administrative Agent or any Lender in order to assist the Administrative Agent and the Lenders in maintaining compliance with the PATRIOT Act and applicable “know your customer” and anti-money laundering rules and regulations, including, without limitation, the Beneficial Ownership Regulation.
(t)
Section 8.03 of the Loan Agreement is amended and restated in its entirety to read as follows:
8.3
Sale or Lease of Assets
.
The Borrower will not (nor will it permit its Subsidiaries to) sell, lease, transfer or otherwise dispose of, any of its assets (including, without limitation, all or substantially all of its assets, whether in one transaction or a series of related transactions) except (a) sales or transfers of accounts receivable and related rights to payment in connection with a State Approved Securitization, sales or transfers of stranded costs and related rights to payment in connection with a TNMP Securitization and other sales and transfers of accounts receivable and related rights to payment so long as such other sales and transfers are non-recourse to the Borrower (other than with respect to Standard Securitization Undertakings) and are otherwise on commercially reasonable terms; (b) sales of assets (excluding those permitted in clause (a) hereof) for fair value, if the aggregate value of all such transactions in any calendar year, does not exceed 25% of the book value of Total Assets, as calculated as of the end of the most recent Fiscal Quarter; and (c) the sale, lease, transfer or other disposition, at less than fair value, of any other assets,
provided
that the aggregate book value of such assets shall not exceed $20,000,000 in any calendar year.
(u)
The reference to “State Approved Environmental Improvements Securitization” in Section 8.5(l) of the Loan Agreement is hereby amended to be a reference to “State Approved Securitization”.
(v)
Section 8.7 of the Loan Agreement is hereby deleted in its entirety.
(w)
Section 9.1(c) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
(c)
Covenants
. The Borrower shall:
(i) default in the due performance or observance of any term, covenant or agreement contained in
Sections 7.1(e)(i)
,
7.2
,
7.3(a)
(solely with respect to the existence of the Borrower),
7.9
,
7.10
,
7.11
or
8.1
through
8.6
inclusive; or
(ii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this
Section 9.1
) contained in this Loan Agreement or any other Loan Document and such default shall continue unremedied for a period of at least 30 days after the earlier of an Authorized Officer of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent.
(x)
The reference to “$20,000,000” in Section 9.1(f)(ii) of the Loan Agreement is hereby amended to be a reference to “$40,000,000”.
(y)
The reference to “$20,000,000 in Section 9.1(g) of the Loan Agreement is hereby amended to be a reference to “$40,000,000” and the reference to “$40,000,000” in Section 9.1(g) of the Loan Agreement is hereby amended to be a reference to “$80,000,000”.
(z)
A new Section 10.11 is hereby added to the Loan Agreement to read as follows:
10.11
ERISA Matters
.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and each Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i)
such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans or the Commitments,
(ii)
the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement,
(iii)
(A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Commitments and this Loan Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement, or
(iv)
such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(c)
In addition, unless subclause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in subclause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Arrangers and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that:
(i)
none of the Administrative Agent or any Arranger or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Loan Agreement, any Loan Document or any documents related to hereto or thereto),
(ii)
the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement is independent (within the meaning of 29 CFR § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E),
(iii)
the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Obligations),
(iv)
the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loans, the Commitments and this Loan Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and
(v)
no fee or other compensation is being paid directly to the Administrative Agent or any Arranger or any their respective Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Commitments or this Loan Agreement.
(d)
The Administrative Agent and each Arranger hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Commitments and this Loan Agreement, (ii) may recognize a gain if it extended the Loans or the Commitments for an amount less than the amount being paid for an interest in the Loans or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees,
arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term
out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
2.
Effectiveness; Conditions Precedent
.
This Amendment shall be effective as of July 30, 2018 upon receipt by the Administrative Agent of copies of this Amendment duly executed by the Borrower and each Lender.
3.
Ratification of Loan Agreement
. The term “Loan Agreement” as used in each of the Loan Documents shall hereafter mean the Loan Agreement as amended and modified by this Amendment. Except as herein specifically agreed, the Loan Agreement, as amended by this Amendment, is hereby ratified and confirmed and shall remain in full force and effect according to its terms. Each party hereto acknowledges and consents to the modifications set forth herein and agrees that, other than as explicitly set forth in Section 1 above, this Amendment does not impair, reduce or limit any of its obligations under the Loan Documents (including, without limitation, the indemnity obligations set forth therein) and that, after the date hereof, this Amendment shall constitute a Loan Document. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents or constitute a waiver of any provision of any of the Loan Documents.
4.
Authority/Enforceability
. The Borrower represents and warrants as follows:
(a) It has taken all necessary action to authorize the execution, delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered by the Borrower and constitutes the Borrower’s legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Amendment.
5.
Representations and Warranties
. The Borrower represents and warrants to the Lenders that (a) the representations and warranties of the Borrower set forth in Section 6 of the Loan Agreement, as amended by this Amendment, are true and correct as of the date hereof, unless they specifically refer to an earlier date, (b) no event has occurred and is continuing which constitutes a Default or an Event of Default, and (c) it has no claims, counterclaims, offsets, credits or defenses to its obligations under the Loan Documents, or to the extent it has any, they are hereby released in consideration of the Lenders party hereto entering into this Amendment.
6.
No Conflicts
. The Borrower represents and warrants that the execution and delivery of this Amendment, the consummation of the transactions contemplated herein and in the Loan Agreement (before and after giving effect to this Amendment), and the performance of and compliance with the terms and provisions hereof by the Borrower will not (a) violate, contravene or conflict with any provision of its articles or certificate of incorporation, bylaws or other organizational or governing document, (b) violate,
contravene or conflict with any law, rule, regulation (including, without limitation, Regulation U and Regulation X), order, writ, judgment, injunction, decree or permit applicable to the Borrower, (c) violate,
contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which the Borrower is a party or by which it or its properties may be bound, the violation of which would have or would reasonably be expected to have a Material Adverse Effect or (d) result in or require the creation of any Lien upon or with respect to the Borrower’s properties.
7.
Counterparts/Telecopy
. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of executed counterparts by telecopy or by electronic format (pdf) shall be effective as an original.
8.
GOVERNING LAW
. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[remainder of page intentionally left blank]
Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.
BORROWER
: PNM RESOURCES, INC.,
a New Mexico corporation
By:
/s/ Laurie S. Monfiletto
Name: Laurie S. Monfiletto
Title: Vice President and Treasurer
PNM RESOURCES, INC.
SECOND AMENDMENT – 2016 TERM LOAN
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LENDERS
:
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WELLS FARGO BANK, NATIONAL ASSOCIATION,
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individually in its capacity as a Lender and in its capacity as
Administrative Agent
By:
/s/ Gregory R. Gredvig
Name: Gregory R. Gredvig
Title: Director
PNM RESOURCES, INC.
SECOND AMENDMENT – 2016 TERM LOAN
MUFG BANK, LTD., formerly known as THE
BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
as a Lender
By:
/s/ Eric Otieno
Name: Eric Otieno
Title: Vice President
PNM RESOURCES, INC.
SECOND AMENDMENT – 2016 TERM LOAN
THE BANK OF NEW YORK MELLON, as a Lender
By:
/s/ Mark W. Rogers
Name: Mark W. Rogers
Title: Vice President
PNM RESOURCES, INC.
SECOND AMENDMENT – 2016 TERM LOAN
SECOND AMENDMENT TO TERM LOAN AGREEMENT
THIS SECOND AMENDMENT TO TERM LOAN AGREEMENT (this “
Amendment
”) is dated as of July 30, 2018 among PNM RESOURCES, INC., a New Mexico corporation (the “
Borrower
”), the Lenders party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent for the Lenders (in such capacity, the “
Administrative Agent
”). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Lenders party thereto and the Administrative Agent are parties to that certain Term Loan Agreement, dated as of December 21, 2016 (as amended by that certain First Amendment to Term Loan Agreement dated as of November 30, 2017 and as may be further amended or modified from time to time, the “
Loan Agreement
”);
WHEREAS, the Borrower has requested certain modifications to the Loan Agreement as described below; and
WHEREAS, the Administrative Agent and the Lenders party hereto are willing to agree to such modifications, subject to the terms set forth herein as more fully set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
A G R E E M E N T
1.
Amendments to Loan Agreement
. Effective as of the Second Amendment Effective Date (as defined below) and subject to the satisfaction of the conditions precedent set forth in
Section 2
below, the Loan Agreement is hereby amended as follows:
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(a)
|
The Loan Agreement is hereby amended by deleting each reference therein to the term “Specified Securities” and replacing it with the term “Equity Preferred Securities”.
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(b)
|
The Loan Agreement is hereby amended by deleting each reference therein to the terms “State Approved Environmental Improvements Securitization” and “State Approved Environmental Improvements Securitizations” and replacing them with the terms “State Approved Securitization” and “State Approved Securitizations”, as applicable.
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(c)
|
Section 1.1
of the Loan Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order:
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“
Beneficial Ownership Regulation
” means 31 C.F.R. § 1010.230.
“
Benefit Plan
” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“
Equity Preferred Securities
” means, with respect to any Person, any trust preferred securities or deferrable interest subordinated debt securities issued by such Person or other financing vehicle of such Person that (i) have an original maturity of at least twenty years, and (ii) require no repayments or prepayments and no mandatory redemptions or repurchases, in each case, prior to the first anniversary of the latest Maturity Date.
“
PTE
” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“
Second Amendment Effective Date
” means July 30, 2018.
“
SEC Reports
” means (i) the Annual Report on Form 10-K of the Borrower for the Fiscal Year ended December 31, 2017, and (ii) the Quarterly Report on Form 10-Q of the Borrower for the Fiscal Quarter ended March 31, 2018.
“
VIE
” has the meaning set forth in
Section 1.3(c)
.
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(d)
|
Section 1.1
of the Loan Agreement is hereby amended to amend and restate the following definitions in the appropriate alphabetical order:
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“
Consolidated Indebtedness
” means, as of any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, an amount equal to (a) all Indebtedness of the Borrower and its Subsidiaries as of such date minus (b) an amount equal to the outstanding principal amount of Equity Preferred Securities of the Borrower and its Subsidiaries, provided that the amount deducted pursuant to this clause (b) shall not exceed an amount equal to 15% of the Consolidated Capitalization of the Borrower and its Subsidiaries minus (c) Non-Recourse Securitization Indebtedness.
“
S&P
” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
“
Sanctioned Person
” means (a) a Person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC, as published from time to time, (b) a Person named on the lists maintained by the United Nations Security Council, as published from time to time, (c) a Person named on the lists maintained by the European Union, as published from time to time, (d) a Person named on the lists maintained by Her Majesty’s Treasury, as published from time to time, or (e) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a Person resident in a Sanctioned Country, to the extent any Person described in clauses (i), (ii) or (iii) is the subject of a sanctions program administered by OFAC.
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(e)
|
Clause (d)
of the definition of “Consolidated Capitalization” in
Section 1.1
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
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“(d) 100% of the outstanding principal amount of Equity Preferred Securities of the Borrower and its Subsidiaries minus”
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(f)
|
Clause (d)
in the definition of “Eligible Assignee” in
Section 1.1
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
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“(d) any other Person (other than a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of a natural person)) approved by the Administrative Agent and the Borrower (such approval not to be unreasonably withheld or delayed);”
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(g)
|
The definition of “ERISA Event” in
Section 1.1
of the Loan Agreement is hereby amended by deleting the reference to the phrase “in reorganization or insolvency” therein and replacing it with “insolvent”.
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(h)
|
The definition of “Material Adverse Effect” in
Section 1.1
of the Loan Agreement is hereby amended by inserting the following proviso at the end thereof:
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“,
provided
,
however
, that a Material Adverse Effect shall not include the effect of a shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant,
provided
that
the Borrower remains in compliance with
Section 7.2
of this Loan Agreement”
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(i)
|
Section 1.1
of the Loan Agreement is hereby amended by deleting the defined term “Specified Securities” therein in its entirety.
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(j)
|
The definition of “State Approved Environmental Improvements Securitization” in
Section 1.1
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
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“
State Approved Securitization
” means a securitization financing entered into by PSNM pursuant to existing or future New Mexico statutory authority and regulatory approval by the New Mexico Public Regulation Commission (or any successor commission) (the “
NMPRC
”) authorizing the imposition on electric customers of a charge to permit the recovery over time of costs identified by a financing order issued by the NMPRC pursuant to statutory authority.
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(k)
|
Section 1.3
of the Loan Agreement is hereby amended by inserting the following new
clause (c)
at the end thereof:
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“(c) All references herein to consolidated financial statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity (“
VIE
”) that the Borrower is required to consolidate pursuant to FASB Accounting Standards Codification Topic 810 – Consolidation – Variable Interest Entities as if such variable
interest entity were a Subsidiary as defined herein;
provided
that
the financial covenant in
Section 7.2
shall be calculated without consolidation of any VIE to the extent the Borrower or its consolidated Subsidiaries have entered into power purchase agreements with such VIE retail customers as a result of the shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant.”
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(l)
|
Section 3.2(a)
of the Loan Agreement is hereby amended by deleting the first sentence therein and replacing it with the following:
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“All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff.”
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(m)
|
Section 3
of the Loan Agreement is hereby amended by inserting the following new
subsection 3.17
at the end thereof:
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“
3.17
Mitigation Obligations
. If any Lender requests compensation under
Section 3.9
or
Section 3.12
, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to
Section 3.13
or if any Lender gives a notice pursuant to
Section 3.11
, then, at the request of the Borrower, such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to
Section 3.9
,
Section 3.12
or
Section 3.13
, as the case may be, in the future or eliminate the need for the notice pursuant to
Section 3.11
, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.”
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(n)
|
Section 6.7
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
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“
6.17
No Material Change
.
(a) Since December 31, 2017, except as disclosed in the SEC Reports, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.
(b) Since December 31, 2017, there has been no sale, transfer or other disposition by the Borrower or any of its Subsidiaries of any material part of its business or property, and no purchase or other acquisition by the Borrower or any of its Subsidiaries of any business or property (including the Capital Stock of any other Person) material in relation to the financial condition of the Borrower or any of its Subsidiaries, in each case which is not (i) reflected in the most recent financial statements delivered to the Lenders pursuant to
Section 4.1(d)
or
7.1
or in the notes thereto or (ii) otherwise permitted by the terms of this Loan Agreement and communicated to the Lenders.”
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(o)
|
Section 6.9
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
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“Except as disclosed in the SEC Reports, there are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.”
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(p)
|
Section 6.10
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
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“Each of the Borrower and its Subsidiaries has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owed by it, except for such taxes (i) the amount of which, individually or in the aggregate, is not material, or (ii) which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP.”
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(q)
|
Section 6.12
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
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“
6.12
ERISA
.
(a) Except as would not result or reasonably be expected to result in a Material Adverse Effect:
(i) Each Single Employer Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws, regulations and published interpretations thereunder, except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Single Employer Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code except for such plans that have not yet received determination letters but for which the remedial amendment period for submitting a determination letter has not yet expired. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties assessed with respect to any Single Employer Plan or any Multiemployer Plan except for a liability that could not reasonably be expected to have a Material Adverse Effect.
(ii) No ERISA Event has occurred or is reasonably expected to occur.
(iii) No prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Single Employer Plan which has subjected or would be reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(iv) No proceeding, claim (other than a benefits claim in the ordinary course of business), lawsuit and/or investigation is existing or, to the best of the knowledge of the Borrower after due inquiry, threatened concerning or involving (x) any employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or any ERISA Affiliate (a “Welfare Plan”), (y) any Single Employer Plan or (z) any Multiemployer Plan.
(v) Each Welfare Plan to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.
(b) The Borrower represents and warrants as of the Second Amendment Effective Date that the Borrower is not and will not be using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments.”
|
|
(r)
|
Section 7.1(a)
of the Loan Agreement is hereby amended by inserting the following sentence at the end thereof:
|
“To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(a)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.”
|
|
(s)
|
Section 7.1(b)
of the Loan Agreement is hereby amended by inserting the following sentence at the end thereof:
|
“To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(b)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.”
|
|
(t)
|
Section 7.1(e)
of the Loan Agreement is hereby amended by deleting the reference to “$5,000,000” therein and replacing it with “$20,000,000”.
|
|
|
(u)
|
Section 7.1(f)
is hereby amended by deleting clause (iii) therein and replacing it with the following:
|
“(iii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or
otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is insolvent (within the meaning of Title IV of ERISA);”
|
|
(v)
|
Section 7.2
of the Loan Agreement is hereby amended by deleting the reference to “0.65” therein and replacing it with “0.70”.
|
|
|
(w)
|
Section 7.3(b)
of the Loan Agreement is hereby amended by inserting the following proviso at the end thereof:
|
“;
provided
that
this
Section 7.3(b)
shall not prevent the Borrower or any Subsidiary from discontinuing the operation or the maintenance of any of the properties if such discontinuance is desirable in the conduct of its business and the Borrower has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.”
|
|
(x)
|
Section 7.5(d)
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
|
“(d) The Borrower shall, and shall cause each of its Subsidiaries to, provide such information and take such actions as are reasonably requested by the Administrative Agent or any Lender in order to assist the Administrative Agent and the Lenders in maintaining compliance with the PATRIOT Act and applicable “know your customer” and anti-money laundering rules and regulations, including, without limitation, the Beneficial Ownership Regulation.”
|
|
(y)
|
Section 8.3
of the Loan Agreement is hereby amended by deleting the reference to “$10,000,000” therein and replacing it with “$20,000,000”.
|
|
|
(z)
|
Section 8
of the Loan Agreement is hereby amended by deleting
subsection 8.7
therein in its entirety.
|
|
|
(aa)
|
Section 9.1(c)(i)
of the Loan Agreement is hereby amended by deleting the reference to “8.7” therein and replacing it with “8.6”.
|
|
|
(bb)
|
Section 9.1(c)(ii)
of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
|
“(ii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in
subsections (a)
,
(b)
or
(c)(i)
of this
Section 9.1
) contained in this Loan Agreement or any other Loan Document and such default shall continue unremedied for a period of at least thirty (30) days after the earlier of an Authorized Officer of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent.”
|
|
(cc)
|
Section 9.1(f)(ii)
of the Loan Agreement is hereby amended by deleting the reference to “$20,000,000” therein and replacing it with “$40,000,000”.
|
|
|
(dd)
|
Section 9.1(g)
of the Loan Agreement is hereby amended by deleting the references to “$20,000,000” and “$40,000,000” therein and replacing them with “$40,000,000” and “$80,000,000”, respectively.
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|
|
(ee)
|
Section 10
of the Loan Agreement is hereby amended by inserting the following new
subsection 10.11
at the end thereof:
|
“
10.11
ERISA Matters
.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans or the Commitments,
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement,
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Commitments and this Loan Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement, or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b) In addition, unless subclause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant
as provided in subclause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that:
(i) none of the Administrative Agent or the Arranger or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Loan Agreement, any Loan Document or any documents related to hereto or thereto),
(ii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement is independent (within the meaning of 29 CFR § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E),
(iii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Borrower Obligations),
(iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Loan Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loans, the Commitments and this Loan Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and
(v) no fee or other compensation is being paid directly to the Administrative Agent or the Arranger or any their respective Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Commitments or this Loan Agreement.
(c) The Administrative Agent and the Arranger hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Commitments and this Loan Agreement, (ii) may recognize a gain if it extended the Loans or the Commitments for an amount less than the amount being paid for an interest in the Loans or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees,
administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.”
2.
Effectiveness
. This Amendment shall be effective as of the date first written above;
provided
that
on or before such date the Administrative Agent shall have received:
|
|
(a)
|
copies of this Amendment duly executed by the Borrower, the Administrative Agent and the Lenders;
|
|
|
(b)
|
an amendment to or amendment and restatement of the Existing Credit Agreement, in form and substance reasonably acceptable to the Administrative Agent, which shall be effective substantially concurrently with the effectiveness of this Amendment; and
|
|
|
(c)
|
payment of the fees and expenses of counsel for the Administrative Agent in connection with this Amendment.
|
3.
Ratification of Loan Agreement
. The term “Loan Agreement” as used in each of the Loan Documents shall hereafter mean the Loan Agreement as amended and modified by this Amendment and as amended and modified from time to time hereafter. Except as herein specifically agreed, the Loan Agreement, as amended by this Amendment, is hereby ratified and confirmed and shall remain in full force and effect according to its terms. Each party hereto acknowledges and consents to the modifications set forth herein and agrees that, other than as explicitly set forth in
Section 1
above, this Amendment does not impair, reduce or limit any of its obligations under the Loan Documents (including, without limitation, the indemnity obligations set forth therein) and that, after the date hereof, this Amendment shall constitute a Loan Document.
4.
Authority/Enforceability
. The Borrower represents and warrants as follows:
(a)
It has taken all necessary action to authorize the execution, delivery and performance of this Amendment.
(b)
This Amendment has been duly executed and delivered by the Borrower and constitutes the Borrower’s legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws or similar laws affecting creditors’ rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).
(c)
No consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Amendment that has not been obtained or completed.
5.
Representations and Warranties
. The Borrower represents and warrants to the Administrative Agent and the Lenders that (a) the representations and warranties of the Borrower set forth in Section 6 of the Loan Agreement, as amended by this Amendment, are true and correct as of the date hereof, unless they specifically refer to an earlier date, (b) no event has occurred and is continuing which
constitutes a Default or an Event of Default, and (c) it has no claims, counterclaims, offsets, credits or defenses to its obligations under the Loan Documents, or to the extent it has any, they are hereby released in consideration of the Administrative Agent and the Lenders party hereto entering into this Amendment.
6.
No Conflicts
. The Borrower represents and warrants that the execution and delivery of this Amendment, the consummation of the transactions contemplated herein and in the Loan Agreement (before and after giving effect to this Amendment), and the performance of and compliance with the terms and provisions hereof by the Borrower will not (a) violate, contravene or conflict with any provision of its articles or certificate of incorporation, bylaws or other organizational or governing document, (b) violate, contravene or conflict with any law, rule, regulation (including, without limitation, Regulation U and Regulation X), order, writ, judgment, injunction, decree or permit applicable to the Borrower, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which the Borrower is a party or by which it or its properties may be bound, the violation of which would have or would be reasonably expected to have a Material Adverse Effect or (d) result in or require the creation of any Lien upon or with respect to the Borrower’s properties.
7.
Counterparts/Telecopy
. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of executed counterparts by telecopy or by electronic format (.pdf) shall be effective as an original.
GOVERNING LAW
. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.
BORROWER
:
PNM RESOURCES, INC.,
a New Mexico corporation
By:
/s/ Laurie S. Monfiletto
Name: Laurie S. Monfiletto
Title: Vice President and Treasurer
Signature Page to Second Amendment to Term Loan Agreement
ADMINISTRATIVE AGENT AND LENDER
:
JPMORGAN CHASE BANK, N.A.,
individually in its capacity as a Lender and in its capacity as Administrative Agent
By:
/s/ Nancy R. Barwig
Name: Nancy R. Barwig
Title: Credit Risk Director
Signature Page to Second Amendment to Term Loan Agreement
Published CUSIP Number: 74454EAC9
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
among
PUBLIC SERVICE COMPANY OF NEW MEXICO,
as Borrower,
THE LENDERS IDENTIFIED HEREIN,
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent
MUFG UNION BANK, N.A.,
as Syndication Agent
AND
CITIBANK, N.A.
and
JPMORGAN CHASE BANK, N.A.,
as Co-Documentation Agents
DATED AS OF OCTOBER 9, 2018
WELLS FARGO SECURITIES, LLC,
MUFG UNION BANK, N.A.,
CITIGROUP GLOBAL MARKETS, INC.
and
JPMORGAN CHASE BANK, N.A.,
as Joint Lead Arrangers and Co-Bookrunners
TABLE OF CONTENTS
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SECTION 1 DEFINITIONS AND ACCOUNTING TERMS
|
1
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1.1
|
Definitions
|
1
|
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1.2
|
Computation of Time Periods and Other Definitional Provisions
|
19
|
|
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1.3
|
Accounting Terms/Calculation of Financial Covenant
|
19
|
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1.4
|
Time
|
20
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1.5
|
Rounding of Financial Covenant
|
20
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1.6
|
References to Agreements and Requirement of Laws
|
20
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1.7
|
Letter of Credit Amounts
|
21
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1.8
|
Rates
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21
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SECTION 2 CREDIT FACILITY
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21
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2.1
|
Revolving Loans
|
21
|
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2.2
|
Letter of Credit Subfacility
|
23
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2.3
|
Continuations and Conversions
|
31
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2.4
|
Minimum Amounts
|
31
|
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2.5
|
Extension Option
|
31
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2.6
|
Evidence of Debt
|
32
|
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2.7
|
Swing Line Loans
|
32
|
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SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS
|
35
|
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3.1
|
Interest
|
35
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3.2
|
Payments Generally
|
36
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3.3
|
Prepayments
|
37
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3.4
|
Fees
|
38
|
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3.5
|
Payment in full at Maturity
|
38
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3.6
|
Computations of Interest and Fees
|
38
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3.7
|
Pro Rata Treatment
|
39
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3.8
|
Sharing of Payments
|
40
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3.9
|
Capital Adequacy
|
40
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3.10
|
Eurodollar Provisions
|
41
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3.11
|
Illegality
|
42
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3.12
|
Requirements of Law
|
42
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3.13
|
Taxes
|
42
|
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3.14
|
Compensation
|
46
|
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3.15
|
Determination and Survival of Provisions
|
46
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3.16
|
Defaulting Lenders
|
46
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3.17
|
Mitigation Options
|
49
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SECTION 4 CONDITIONS PRECEDENT TO CLOSING
|
49
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4.1
|
Closing Conditions
|
49
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SECTION 5 CONDITIONS TO ALL EXTENSIONS OF CREDIT
|
51
|
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|
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5.1
|
Funding Requirements
|
51
|
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SECTION 6 REPRESENTATIONS AND WARRANTIES
|
52
|
|
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|
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6.1
|
Organization and Good Standing
|
52
|
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6.2
|
Due Authorization
|
52
|
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6.3
|
No Conflicts
|
53
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6.4
|
Consents
|
53
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6.5
|
Enforceable Obligations
|
53
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6.6
|
Financial Condition
|
53
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6.7
|
No Material Change
|
54
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6.8
|
No Default
|
54
|
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6.9
|
Litigation
|
54
|
|
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6.10
|
Taxes
|
54
|
|
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6.11
|
Compliance with Law
|
54
|
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6.12
|
ERISA
|
54
|
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6.13
|
Use of Proceeds; Margin Stock
|
55
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6.14
|
Government Regulation
|
56
|
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6.15
|
Solvency
|
56
|
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6.16
|
Disclosure
|
56
|
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6.17
|
Environmental Matters
|
56
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6.18
|
[Reserved]
|
56
|
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6.19
|
[Reserved]
|
56
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6.20
|
Anti-Corruption Laws and Sanctions
|
56
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SECTION 7 AFFIRMATIVE COVENANTS
|
57
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|
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7.1
|
Information Covenants
|
57
|
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7.2
|
Financial Covenant
|
59
|
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7.3
|
Preservation of Existence and Franchises
|
59
|
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7.4
|
Books and Records
|
59
|
|
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7.5
|
Compliance with Law
|
59
|
|
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7.6
|
Payment of Taxes and Other Indebtedness
|
60
|
|
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7.7
|
Insurance
|
60
|
|
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7.8
|
Performance of Obligations
|
60
|
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7.9
|
Use of Proceeds
|
60
|
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7.10
|
Audits/Inspections
|
61
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SECTION 8 NEGATIVE COVENANTS
|
61
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8.1
|
Nature of Business
|
61
|
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8.2
|
Consolidation and Merger
|
61
|
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8.3
|
Sale or Lease of Assets
|
61
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8.4
|
Affiliate Transactions
|
62
|
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8.5
|
Liens
|
62
|
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8.6
|
Accounting Changes
|
63
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SECTION 9 EVENTS OF DEFAULT
|
63
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9.1
|
Events of Default
|
63
|
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9.2
|
Acceleration; Remedies
|
65
|
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9.3
|
Allocation of Payments After Event of Default
|
66
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SECTION 10 AGENCY PROVISIONS
|
67
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10.1
|
Appointment and Authority
|
67
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10.2
|
Rights as a Lender
|
67
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10.3
|
Exculpatory Provisions
|
67
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10.4
|
Reliance by Administrative Agent
|
68
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10.5
|
Delegation of Duties
|
68
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10.6
|
Resignation of Administrative Agent
|
69
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10.7
|
Non-Reliance on Administrative Agent and Other Lenders
|
70
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10.8
|
No Other Duties, Etc.
|
70
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10.9
|
Administrative Agent May File Proofs of Claim
|
70
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10.10
|
ERISA Matters
|
71
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SECTION 11 MISCELLANEOUS
|
73
|
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11.1
|
Notices; Effectiveness; Electronic Communication
|
73
|
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11.2
|
Right of Set-Off
|
75
|
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11.3
|
Successors and Assigns
|
75
|
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11.4
|
No Waiver; Remedies Cumulative
|
79
|
|
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11.5
|
Attorney Costs, Expenses, Taxes and Indemnification by Borrower
|
80
|
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11.6
|
Amendments, Etc.
|
81
|
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11.7
|
Counterparts
|
83
|
|
|
11.8
|
Headings
|
83
|
|
|
11.9
|
Survival of Indemnification and Representations and Warranties
|
83
|
|
|
11.10
|
Governing Law; Venue; Service
|
83
|
|
|
11.11
|
Waiver of Jury Trial; Waiver of Consequential Damages
|
84
|
|
|
11.12
|
Severability
|
84
|
|
|
11.13
|
Further Assurances
|
84
|
|
|
11.14
|
Confidentiality
|
84
|
|
|
11.15
|
Entirety
|
85
|
|
|
11.16
|
Binding Effect; Continuing Agreement
|
85
|
|
|
11.17
|
Regulatory Statement
|
85
|
|
|
11.18
|
USA Patriot Act Notice
|
86
|
|
|
11.19
|
Acknowledgement
|
86
|
|
|
11.20
|
Replacement of Lenders
|
86
|
|
|
11.21
|
No Advisory of Fiduciary Responsibility
|
87
|
|
|
11.22
|
Acknowledgement and Consent to Bail-In of EEA Financial Institutions
|
87
|
|
|
11.23
|
Amendment and Restatement
|
88
|
|
SCHEDULES
Schedule 1.1(a) Pro Rata Shares
Schedule 1.1(b) Existing Letters of Credit
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.1(b) Form of Notice of Revolving Borrowing
Exhibit 2.1(e) Form of Revolving
Note
Exhibit 2.3 Form of Notice of Continuation/Conversion
Exhibit 2.7 Form of Swing Line Note
Exhibit 2.7(d) Form of Notice of Swing Line Borrowing
Exhibit 4.1(k) Form of Account Designation Letter
Exhibit 7.1(c) Form of Compliance Certificate
Exhibit 11.3(b) Form of Assignment and Assumption
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
(this “
Credit Agreement
”) is entered into as of October 9, 2018 among
PUBLIC SERVICE COMPANY OF NEW MEXICO
, a New Mexico corporation, as Borrower, the Lenders and
WELLS FARGO BANK, NATIONAL ASSOCIATION
, as Administrative Agent, and is made with reference to that certain Credit Agreement dated as of October 31, 2011 (as amended by that certain First Amendment to Credit Agreement, dated as of January 18, 2012, that certain Second Amendment to Credit Agreement, dated as of December 17, 2014 that certain Third Amendment to Credit Agreement, dated as of November 2, 2016, the “
Existing Credit Agreement
”), by and among the Borrower, the Lenders and the Administrative Agent.
RECITALS
A. The Borrower, the Lenders and the Administrative Agent are parties to the Existing Credit Agreement.
B. The Borrower has requested the Lenders and the Administrative Agent make certain modifications to, and amend and restate in its entirety, the Existing Credit Agreement, which the Lenders and the Administrative Agent have agreed to do on the terms and conditions set forth in this Credit Agreement as of the Restatement Date.
NOW, THEREFORE, IN CONSIDERATION
of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1
Definitions
.
The following terms shall have the meanings specified herein unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular:
“
Account Designation Letter
” means the Notice of Account Designation Letter dated the Restatement Date from the Borrower to the Administrative Agent in substantially the form of
Exhibit 4.1(k)
.
“
Adjusted Base Rate
” means the Base Rate plus the Applicable Percentage.
“
Adjusted Eurodollar Rate
” means the Eurodollar Rate plus the Applicable Percentage.
“
Adjusted LIBOR Market Index Rate
” means the LIBOR Market Index Rate plus the Applicable Percentage for Swing Line Loans bearing interest at the LIBOR Market Index Rate.
“
Administrative Agent
” means Wells Fargo Bank, National Association or any successor administrative agent appointed pursuant to
Section 10.6
.
“
Administrative Agent’s Office
” means the Administrative Agent’s address and, as appropriate, account as set forth on
Schedule 11.1
or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.
“
Administrative Fees
” has the meaning set forth in
Section 3.4(d)
.
“
Administrative Questionnaire
” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“
Affiliate
” means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (b) to direct or cause direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.
“
Agent-Related Persons
” means the Administrative Agent, together with its Affiliates and the officers, directors, employees, agents and attorneys-in-fact of the Administrative Agent and its Affiliates.
“
Anti-Corruption Laws
” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery, corruption or anti-money laundering laws.
“
Applicable Percentage
” means, for Eurodollar Loans, LIBOR Market Index Rate Swing Line Loans, L/C Fees, Base Rate Loans and Commitment Fees, the appropriate applicable percentages, in each case (subject to the exception indicated below), corresponding to the Debt Rating in effect as of the most recent Calculation Date as shown below:
|
|
|
|
|
|
Pricing Level
|
Debt Rating
|
Applicable Percentage for Eurodollar Loans, LIBOR Market Index Rate Swing Line Loans and L/C Fees
|
Applicable Percentage for Base Rate Loans
|
Applicable Percentage for Commitment Fees
|
I
|
≥A‑/A3
|
1.000%
|
0.000%
|
0.125%
|
II
|
BBB+/Baa1
|
1.125%
|
0.125%
|
0.175%
|
III
|
BBB/Baa2
|
1.250%
|
0.250%
|
0.200%
|
IV
|
BBB‑/Baa3
|
1.500%
|
0.500%
|
0.250%
|
V
|
BB+/Ba1
|
1.750%
|
0.750%
|
0.300%
|
VI
|
<
BB or unrated /
Ba2 or unrated
|
2.000%
|
1.000%
|
0.350%
|
The Applicable Percentage shall be determined and adjusted on the date (each a “
Calculation Date
”) one Business Day after the date on which the Borrower’s Debt Rating is upgraded or downgraded in a manner which requires a change in the then applicable Pricing Level set forth above. If at any time there is a split in the Borrower’s Debt Ratings between S&P and Moody’s, the Applicable Percentage shall be determined by the higher of the two Debt Ratings (i.e. the lower pricing), provided that if the two Debt Ratings are more than one level apart, the Applicable Percentage shall be based on the Debt Rating
which is one level lower than the higher rating. If the Borrower does not have a Debt Rating from either S&P or Moody’s, then, Pricing Level VI shall apply. Each Applicable Percentage shall be effective from one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Percentage shall be applicable to all existing Eurodollar Loans as well as any new Eurodollar Loans made. The applicable Pricing Level for Applicable Percentage, as of the Restatement Date, is Pricing Level II.
“
Approved Fund
” means any Fund that is administered or managed by (a)
a Lender, (b)
an Affiliate of a Lender or (c)
an entity or an Affiliate of an entity that administers or manages a Lender.
“
Arrangers
” means Wells Fargo Securities, LLC, MUFG Union Bank, N.A., Citigroup Global Markets, Inc. and JPMorgan Chase Bank, N.A., together with their successors and/or assigns.
“
Assignment and Assumption
” means an Assignment and Assumption substantially in the form of
Exhibit 11.3(b)
.
“
Authorized Officer
” means any of the president, chief executive officer, chief financial officer or treasurer of the Borrower.
“
Bail-In Action
” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“
Bail-In Legislation
” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“
Bankruptcy Code
” means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
“
Base Rate
” means, at any time, the highest of (a) the Prime Rate, (b) the Federal Funds Rate
plus
0.50% and (c) except during any period of time during which a notice delivered to the Borrower under
Section 3.10
shall remain in effect, the Eurodollar Base Rate for an Interest Period of one month
plus
1%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or the Eurodollar Base Rate.
“
Base Rate Loan
” means any Loan bearing interest at a rate determined by reference to the Base Rate.
“
Beneficial Ownership Regulation
” means 31 C.F.R. § 1010.230.
“
Benefit Plan
” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“
Borrower
” means Public Service Company of New Mexico, a New Mexico corporation, together with its successors and permitted assigns.
“
Borrower Obligations
” means, without duplication, all of the obligations of the Borrower to the Lenders and the Administrative Agent, whenever arising, under this Credit Agreement, the Notes, or any of the other Credit Documents.
“
Borrowing
” means (a) a borrowing consisting of simultaneous Revolving Loans of the same Type and, in the case of Eurodollar Loans, having the same Interest Period made by each of the Lenders pursuant to
Section 2.1
or (b) a borrowing consisting of Swing Line Loans made by the Swing Line Lender pursuant to
Section 2.7
, as the context may require.
“
Business Day
” means (a) for all purposes other than as set forth in clause (b) below, any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina and New York, New York, are open for the conduct of their commercial banking business, and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, any Eurodollar Loan, or any Base Rate Loan as to which the interest rate is determined by reference to LIBOR, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.
“
Capital Stock
” means (a) in the case of a corporation, all classes of capital stock of such corporation, (b) in the case of a partnership, partnership interests (whether general or limited), (c) in the case of a limited liability company, membership interests and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person; including, in each case, all warrants, rights or options to purchase any of the foregoing.
“
Cash Collateralize
” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the applicable L/C Issuer and the Lenders, as collateral for the L/C Obligations, obligations in respect of Swing Line Loans, or obligations to fund participations in respect of either thereof (as the context may require), cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the applicable L/C Issuer or Swing Line Lender. “
Cash Collateral
” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“
Change in Law
” means the occurrence, after the date of this Credit Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, promulgation, implementation or application thereof by any Governmental Authority, (c) the adoption or taking effect of any request, rule, guideline, policy or directive (whether or not having the force of law) by any Governmental Authority or (d) any change in any request, rule, guideline, policy or directive (whether or not having the force of law) by any Governmental Authority;
provided
that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and all requests, rules, guidelines or directives thereunder or issued in connection therewith shall be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“
Change of Control
” means the failure of PNM Resources, Inc., a New Mexico corporation, to own and control 100% of the Voting Stock of the Borrower.
“
Closing Date
” means October 31, 2011.
“
Code
” means the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.
“
Commitment
” means, as to each Lender, its obligation to (a) make Revolving Loans to the Borrower pursuant to
Section 2.1
and (b) fund or purchase Participation Interests in L/C Obligations pursuant to
Section 2.2
or Swing Line Loans pursuant to
Section 2.7
, in an aggregate principal amount at any one time outstanding not to exceed such Lender’s Pro Rata Share of the Revolving Committed Amount as set forth opposite such Lender’s name on
Schedule 1.1(a)
or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Credit Agreement.
“
Compensation Period”
has the meaning set forth in
Section 3.2(c)(ii
).
“
Compliance Certificate
” means a fully completed and duly executed officer’s certificate in the form of
Exhibit 7.1(c)
, together with a Covenant Compliance Worksheet.
“
Consolidated Capitalization
” means the sum of (a) all of the shareholders’ equity or net worth of the Borrower and its Subsidiaries, as determined in accordance with GAAP plus (b) Consolidated Indebtedness minus (c) Securitization Equity.
“
Consolidated Indebtedness
” means, as of any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, the difference of (a) an amount equal to all Indebtedness of the Borrower and its Subsidiaries as of such date minus (b) Non-Recourse Securitization Indebtedness.
“
Contingent Obligation
” means, with respect to any Person, any direct or indirect liability of such Person with respect to any Indebtedness, liability or other obligation (the “primary obligation”) of another Person (the “primary obligor”), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor in respect thereof to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof;
provided
,
however
, that, with respect to the Borrower and its Subsidiaries, the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation of any Person shall be deemed to be an amount equal to the maximum amount of such Person’s liability with respect to the stated or determinable amount of the primary obligation for which such Contingent Obligation is incurred or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder).
“
Covenant Compliance Worksheet
” shall mean a fully completed worksheet in the form of
Schedule I
to
Exhibit 7.1(c)
.
“
Credit Agreement
” has the meaning set forth in the Preamble hereof.
“
Credit Documents
” means this Credit Agreement, the Notes, any Notice of Borrowing, any Notice of Continuation/Conversion, and any other document, agreement or instrument entered into or executed in connection with the foregoing.
“
Credit Exposure
” has the meaning set forth in the definition of “Required Lenders”.
“
Credit Extension
” means each of the following: (a) a Borrowing and (b) a L/C Credit Extension.
“
Debt Rating
” means the long term unsecured senior non-credit enhanced debt rating of the Borrower by S&P and/or Moody’s.
“
Debtor Relief Laws
” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“
Default
” means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
“
Default Rate
” means an interest rate equal to two percent (2%) plus the rate that otherwise would be applicable (or if no rate is applicable, the Base Rate plus two percent (2%) per annum).
“
Defaulting Lender
” means any Lender that (a) has failed to fund any portion of the Revolving Loans, Participation Interests in L/C Obligations or Participation Interests in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more of the conditions precedent to funding (each of which conditions precedent, together with any applicable Default, shall be specifically identified in such writing) has not been satisfied, (b) has notified the Borrower or the Administrative Agent in writing that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder (unless such writing or public statement states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable Default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has notified the Borrower, the Administrative Agent or any other Lender in writing that it does not intend to comply with any of its funding obligations hereunder or has made a public statement to the effect that it does not intend to comply or has failed to comply with its funding obligations hereunder, or (d) has become or is insolvent or has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment, or has become the subject of a Bail-in Action.
“
Dollars
” and “
$
” means dollars in lawful currency of the United States of America.
“
EEA Financial Institution
” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“
EEA Member Country
” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“
EEA Resolution Authority
” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“
Eligible Assignee
” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and (d) any other Person (other than a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of a natural person)) approved by the Administrative Agent, each L/C Issuer and the Borrower (such approval not to be unreasonably withheld or delayed);
provided
that (i) the Borrower’s consent is not required during the existence and continuation of a Default or an Event of Default, (ii) approval by the Borrower shall be deemed given if no objection is received by the assigning Lender and the Administrative Agent from the Borrower within five Business Days after notice of such proposed assignment has been delivered to the Borrower and (iii) neither the Borrower nor any Subsidiary or Affiliate of the Borrower shall qualify as an Eligible Assignee.
“
Environmental Claims
” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, accusations, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of its business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or relating to any permit issued, or any approval given, under any such Environmental Law (collectively, “
Claims
”), including, without limitation, (a) any and all Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to human health or the environment.
“
Environmental Laws
” shall mean any and all federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, rules of common law and orders of courts or Governmental Authorities, relating to the protection of human health or occupational safety or the environment, now or hereafter in effect and in each case as amended from time to time, including, without limitation, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Substances.
“
ERISA
” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute, and all rules and regulations from time to time promulgated thereunder.
“
ERISA Affiliate
” means any Person who together with the Borrower or any of its Subsidiaries is treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.
“
ERISA Event
” means the occurrence of any of the following which, individually or in the aggregate, has resulted or could reasonably be expected to result, within a reasonable period of time, in liability of the Borrower in an aggregate amount in excess of the Threshold Amount: (a) a Reportable Event with respect to a Single Employer Plan or a Multiemployer Plan, (b) a complete or partial withdrawal by the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiemployer Plan if withdrawal liability is asserted by such plan, or the receipt by the Borrower, any of its Subsidiaries or any ERISA Affiliate of notice from a Multiemployer Plan that it is insolvent pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA, (c) the distribution by the Borrower, any of its Subsidiaries or any ERISA Affiliate under Section 4041 or 4041A of ERISA of a notice of intent to terminate any Single Employer Plan or Multiemployer Plan or the taking of any action to terminate any Single Employer Plan or Multiemployer Plan if the plan assets are not sufficient to pay all plan liabilities, (d) the commencement of proceedings by the PBGC under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Single Employer Plan, or the receipt by the Borrower, any of its Subsidiaries or any ERISA Affiliate of a notice from any
Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan, (e) the determination that any Single Employer Plan or Multiemployer Plan is considered an at-risk plan or plan in endangered or critical status within the meaning of Sections 430, 431 or 432 of the Code or Sections 303, 304 or 305 of ERISA; (f) the imposition upon the Borrower, any of its Subsidiaries or any ERISA Affiliate of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, or the imposition or threatened imposition of any Lien upon any assets of the Borrower, any of its Subsidiaries or any ERISA Affiliate as a result of any alleged failure to comply with the Code or ERISA in respect of any Single Employer Plan or Multiemployer Plan, or (g) the withdrawal of the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or a cessation of operations that is treated as such a withdrawal or the termination of a Multiple Employer Plan, where the Borrower, a Subsidiary or an ERISA Affiliate has liability under Section 4062 or 4063 of ERISA.
“
EU Bail-In Legislation Schedule
” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“
Eurodollar Base Rate
” means, subject to the implementation of a Replacement Rate in accordance with
Section 3.10(b)
,
(a)
for any interest rate calculation with respect to a Eurodollar Loan, the rate of interest per annum equal to the rate for deposits in Dollars for a period equal to the applicable Interest Period as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quote service approved by the Administrative Agent, at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period (rounded upward, if necessary, to the nearest 1/100th of 1%). If, for any reason, such rate is not so published, then the “Eurodollar Base Rate” shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars in minimum amounts of at least $5,000,000 would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period.
(b)
for any interest rate calculation with respect to a Base Rate Loan, the rate of interest per annum equal to the rate for deposits in Dollars in minimum amounts of at least $5,000,000 for a period equal to one month (commencing on the date of determination of such interest rate) as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quoting service approved by the Administrative Agent, at approximately 11:00 a.m. (London time) on such date of determination, or, if such date is not a Business Day, then the immediately preceding Business Day (rounded upward, if necessary, to the nearest 1/100th of 1%). If, for any reason, such rate is not so published, then the “Eurodollar Base Rate” for such Base Rate Loan shall be determined by the Administrative Agent to be the arithmetic average of the rate per annum at which deposits in Dollars in minimum amounts of at least $5,000,000 would be offered by first class banks in the London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) on such date of determination for a period equal to one month commencing on such date of determination.
Each calculation by the Administrative Agent of the Eurodollar Base Rate shall be conclusive and binding for all purposes, absent manifest error. Notwithstanding the foregoing, (x) if the Eurodollar Base Rate (including, without limitation, any Replacement Rate with respect thereto) shall be less than zero, such rate shall be deemed zero for purposes of this Credit
Agreement and (y) unless otherwise specified in any amendment to this Credit Agreement entered into in accordance with
Section 3.10(b)
, in the event that a Replacement Rate with respect to the Eurodollar Base Rate is implemented, then all references herein to the Eurodollar Base Rate shall be deemed to be references to such Replacement Rate.
“
Eurodollar Loan
” means a Revolving Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate.
“
Eurodollar Rate
” means a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent pursuant to the following formula:
|
|
|
Eurodollar Rate =
|
Eurodollar Base Rate
|
|
1.00-Eurodollar Reserve Percentage
|
“
Eurodollar Reserve Percentage
” means, for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any basic, supplemental or emergency reserves) in respect of eurocurrency liabilities or any similar category of liabilities for a member bank of the Federal Reserve System in New York City.
“
Event of Default
” has the meaning set forth in
Section 9.1
.
“
Exchange Act
” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.
“
Excluded Taxes
” means, with respect to the Administrative Agent, any Lender, any L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located, (c) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with
Section 3.13(e)
, except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to
Section 3.13(a)
and
3.13(d)
any U.S. federal withholding Taxes imposed under FATCA.
“
Existing Credit Agreement
” has the meaning set forth in the introductory paragraph.
“
Existing Letters of Credit
” means the letters of credit set forth on
Schedule 1.1(b)
.
“
FATCA
” means Sections 1471 through 1474 of the Code, as of the date hereof, (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any applicable intergovernmental agreements entered into by the United States that implement the foregoing.
“
Federal Funds Rate
” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day (or, if such day is not a Business Day, for the immediately preceding Business Day), as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day,
provided
that if such rate is not so published for any day which is a Business Day, the average of the quotation for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent. If the Federal Funds Rate shall be less than zero, such rate shall be deemed zero for purposes of this Credit Agreement.
“
Fee Letter
” means those certain letter agreements, each dated as of September 27, 2011, among (a) the Borrower, Wells Fargo Bank, National Association, Wells Fargo Securities, LLC and Union Bank, N.A. and (b) the Borrower, Wells Fargo Bank, National Association and Wells Fargo Securities, LLC, in each case as amended, modified, supplemented or restated from time to time.
“
Financial Officer
” means the chief financial officer, principal accounting officer or treasurer of the Borrower.
“
Fiscal Quarter
” means each of the calendar quarters ending as of the last day of each March, June, September and December.
“
Fiscal Year
” means the calendar year ending December 31.
“
Foreign Lender
” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
“
Fronting Exposure
” means, at any time there is a Defaulting Lender, (a) with respect to the applicable L/C Issuer, such Defaulting Lender’s Pro Rata Share of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lender’s Participation Interest has been funded by such Defaulting Lender or reallocated to other Lenders or Cash Collateral or other credit support acceptable to the applicable L/C Issuer has been provided in accordance with the terms hereof and (b) with respect to the Swing Line Lender, such Defaulting Lender’s Pro Rata Share of Swing Line Loans other than Swing Line Loans as to which such Defaulting Lender’s Participation Interest has been funded by such Defaulting Lender or reallocated to other Lenders, repaid by the Borrower or for which Cash Collateral or other credit support acceptable to the Swing Line Lender has been provided in accordance with the terms hereof.
“
Fund
” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“
GAAP
” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) or that are promulgated by any Governmental Authority having appropriate jurisdiction.
“
Government Acts
” has the meaning set forth in
Section 2.2(k)
.
“
Governmental Authority
” means any domestic or foreign nation or government, any state or other political subdivision thereof and any central bank thereof, any municipal, local, city or county
government, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
“
Granting Lender
” has the meaning specified in
Section 11.3(h).
“
Hazardous Substances
” means any substances or materials (a) that are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants or toxic substances under any Environmental Law, (b) that are defined by any Environmental Law as toxic, explosive, corrosive, ignitable, infectious, radioactive, mutagenic or otherwise hazardous, (c) the presence of which require investigation or response under any Environmental Law, (d) that constitute a nuisance, trespass or health or safety hazard to Persons or neighboring properties, (e) that consist of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance, or (f) that contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.
“
Hedging Agreements
” means, collectively, interest rate protection agreements, equity index agreements, foreign currency exchange agreements, option agreements or other interest or exchange rate or commodity price hedging agreements (other than forward contracts for the delivery of power or gas written by the Borrower to its jurisdictional and wholesale customers in the ordinary course of business).
“
Indebtedness
” means with respect to any Person (without duplication), (a) all indebtedness and obligations of such Person for borrowed money or in respect of loans or advances of any kind, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all reimbursement obligations of such Person with respect to surety bonds, letters of credit and bankers’ acceptances (in each case, whether or not drawn or matured and in the stated amount thereof), (d) all obligations of such Person to pay the deferred purchase price of property or services, (e) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (f) all obligations of such Person as lessee under leases that are or are required to be, in accordance with GAAP, recorded as capital leases, to the extent such obligations are required to be so recorded, (g) the net termination obligations of such Person under any Hedging Agreements, calculated as of any date as if such agreement or arrangement were terminated as of such date in accordance with the applicable rules under GAAP, (h) all Contingent Obligations of such Person, (i) all obligations and liabilities of such Person incurred in connection with any transaction or series of transactions providing for the financing of assets through one or more securitizations or in connection with, or pursuant to, any synthetic lease or similar off-balance sheet financing, (j) the aggregate amount of uncollected accounts receivable of such Person subject at the time of determination to a sale of receivables (or similar transaction) to the extent such transaction is effected with recourse to such Person (whether or not such transaction would be reflected on the balance sheet of such Person in accordance with GAAP) and (k) all indebtedness referred to in clauses (a) through (j) above secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by such Person or is nonrecourse to the credit of such Person.
“
Indemnified Liabilities
” has the meaning set forth in
Section 11.5(b)
.
“
Indemnified Taxes
” means Taxes and Other Taxes other than Excluded Taxes.
“
Indemnitees
” has the meaning set forth in
Section 11.5(b)
.
“
Initial L/C Issuers
” means Wells Fargo Bank, National Association and MUFG Union Bank, N.A. in their capacity as L/C Issuers.
“
Interest Payment Date
” means, (a) as to any Eurodollar Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date;
provided
,
however
, that if any Interest Period for a Eurodollar Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates, (b) as to any Base Rate Loan, the third Business Day after the end of each Fiscal Quarter and the Maturity Date, and (c) as to LIBOR Market Index Rate Swing Line Loans, on the third Business Day after the end of each calendar month and the Maturity Date.
“
Interest Period
” means, (a) as to each Eurodollar Loan, the period commencing on the date such Eurodollar Loan is disbursed or converted to or continued as a Eurodollar Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Notice of Revolving Borrowing or Notice of Continuation/Conversion and (b) with respect to LIBOR Market Index Rate Swing Line Loans, a period beginning on the date the Swing Line Loan is made and ending on the date specified for repayment of such LIBOR Market Index Rate Swing Line Loan, which repayment date shall not be more than 14 days after the date such LIBOR Market Index Rate Swing Line Loan is made;
provided
that:
(i)
any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii)
any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(iii)
no Interest Period shall extend beyond the Maturity Date.
“
ISP
” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
“
Laws
” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“
L/C Borrowing
” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made.
“
L/C Commitment
” means, (a) with respect to Wells Fargo Bank, National Association, in its capacity as an Initial L/C Issuer, its obligation to issue Letters of Credit to the Borrower pursuant to
Section 2.2
in an aggregate principal amount at any one time outstanding not to exceed $30,000,000 and (b) with respect to MUFG Union Bank, N.A., in its capacity as an Initial L/C Issuer, its obligation to issue Letters of Credit to the Borrower pursuant to
Section 2.2
in an aggregate principal amount at any one time outstanding not to exceed $30,000,000, in each case, as such amount may be adjusted from time to time in accordance with this Credit Agreement.
“
L/C Credit Extension
” means, with respect to any Letter of Credit, the issuance thereof, the extension of the expiry date thereof, the renewal or increase of the amount thereof or any extension of credit resulting from a drawing thereunder that has not been reimbursed.
“
L/C Fees
” has the meaning set forth in
Section 3.4(c)
.
“
L/C Fronting Fee
” has the meaning set forth in
Section 2.2(i)
.
“
L/C Issuer
” means with respect to a particular Letter of Credit, (a) the applicable Initial L/C Issuer in its capacity as issuer of such Letter of Credit and (b) any other Lender that agrees to issue Letters of Credit hereunder, in each case, in its capacity as an issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
“
L/C Obligations
” means, as of any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit
plus
the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with
Section 1.7
. For all purposes of this Credit Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.
“
Lender
” means any of the Persons identified as a “Lender” on the signature pages hereto, any Eligible Assignee which may become a Lender by way of assignment in accordance with the terms hereof, and any other Lender which becomes a Lender pursuant to
Section 2.1(f)
, together with their successors and permitted assigns and shall include the Swing Line Lender, as the context requires.
“
Lending Office
” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
“
Letter of Credit
” means any letter of credit issued hereunder
and shall include the Existing Letters of Credit.
“
Letter of Credit Application
” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the applicable L/C Issuer.
“
Letter of Credit Expiration Date
” means the day that is ten days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
“
Letter of Credit Sublimit
” means an amount equal to ONE HUNDRED TWENTY MILLION DOLLARS ($120,000,000). The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Committed Amount.
“
LIBOR Market Index Rate
” means, subject to the implementation of a Replacement Rate in accordance with
Section 3.10(b)
, for any day, the one month interbank offered rate for deposits in Dollars as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quote service approved by the Administrative Agent, at approximately 11:00 a.m. (London time) on such day, or if such day is not a Business Day, then the immediately preceding Business Day (or if not so published, then as determined by the Administrative Agent from another recognized source or interbank quotation). If the LIBOR Market Index Rate (including, without
limitation, any Replacement Rate with respect thereto) shall be less than zero, such rate shall be deemed zero for purposes of this Credit Agreement.
“
LIBOR Market Index Rate Swing Line Loan
” means a Swing Line Loan that bears interest at a rate based on the LIBOR Market Index Rate.
“
Lien
” means any mortgage, pledge, hypothecation, assignment, security interest, lien (statutory or otherwise), preference, priority, charge or other encumbrance of any nature, whether voluntary or involuntary, including, without limitation, the interest of any vendor or lessor under any conditional sale agreement, title retention agreement, capital lease or any other lease or arrangement having substantially the same effect as any of the foregoing.
“
Loan
” means the collective reference to the Revolving Loans and the Swing Line Loans, and “Loan” means any of such Loans.
“
Mandatory Borrowing
” has the meaning set forth in
Section 2.2(d)
.
“
Margin Stock
” has the meaning ascribed to such term in Regulation U.
“
Material Adverse Change
” means a material adverse change in the condition (financial or otherwise), operations, business, performance, properties or assets of the Borrower and its Subsidiaries, taken as a whole.
“
Material Adverse Effect
” means a material adverse effect upon (a) the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower to perform its obligations under this Credit Agreement or any of the other Credit Documents or (c) the legality, validity or enforceability of this Credit Agreement or any of the other Credit Documents or the rights and remedies of the Administrative Agent and the Lenders hereunder and thereunder, provided, however, that a Material Adverse Effect shall not include the effect of a shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant, provided that the Borrower remains in compliance with
Section 7.2
of this Credit Agreement.
“
Maturity Date
” means (a) with respect to SunTrust Bank, October 31, 2020 and (b) with respect to all other Lenders, October 31, 2022 or with respect to some or all of the Lenders if such date is otherwise extended pursuant to
Section 2.5
, October 31, 2023 and/or October 31, 2024 (subject to the limitations set forth in
Section 2.5
).
“
Moody’s
” means Moody’s Investors Service, Inc. and its successors.
“
Multiemployer Plan
” means any “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA to which the Borrower, any of its Subsidiaries or any ERISA Affiliate makes, is making or is accruing an obligation to make contributions or has made or been obligated to make contributions within the preceding seven (7) years.
“
Multiple Employer Plan
” means a Single Employer Plan to which the Borrower, any of its Subsidiaries or any ERISA Affiliate and at least one employer other than the Borrower, any of its Subsidiaries or any ERISA Affiliate are contributing sponsors.
“
Non-Recourse Securitization Indebtedness
” means, as of any date of determination, all Indebtedness related to State Approved Securitizations up to a maximum amount of $500,000,000 at any
one time;
provided
that such Indebtedness is non-recourse to the Borrower, other than with respect to Standard Securitization Undertakings.
“
Nonrenewal Notice Date
” has the meaning set forth in
Section 2.2(b)(iii)
.
“
Notes
” means (a) the promissory notes of the Borrower in favor of each of the Lenders evidencing the Revolving Loans provided pursuant to
Section 2.1
, individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time and as evidenced in the form of
Exhibit 2.1(e)
and (b) the promissory note of the Borrower in favor of the Swing Line Lender evidencing the Swing Line Loans provided pursuant to
Section 2.7
, as such promissory note may be amended, modified, supplemented, extended, renewed or replaced from time to time and as evidenced in the form of
Exhibit 2.7
.
“
Notice of Borrowing
” means a Notice of Revolving Borrowing and/or a Notice of Swing Line Borrowing, as applicable.
“
Notice of Revolving Borrowing
” means a request by the Borrower for a Revolving Loan in the form of
Exhibit 2.1(b)
.
“
Notice of Swing Line Borrowing
” means a request by the Borrower for a Swing Line Loan in the form of
Exhibit 2.7(d)
.
“
Notice of Continuation/Conversion
” means a request by the Borrower to continue an existing Eurodollar Loan to a new Interest Period or to convert a Eurodollar Loan to a Base Rate Loan or a Base Rate Loan to a Eurodollar Loan, in the form of
Exhibit 2.3
.
“
OFAC
” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“
Other Taxes
” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Credit Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Credit Agreement or any other Credit Document.
“
PBGC
” means the Pension Benefit Guaranty Corporation and any successor thereto.
“
Participant
” has the meaning set forth in
Section 11.3(d)
.
“
Participation Interest
” means (a) the purchase by a Lender of a participation in Letters of Credit or L/C Obligations as provided in
Section 2.2
, (b) the purchase by a Lender of a participation in Swing Line Loans as provided in
Section 2.7
or (c) the purchase by a Lender of a participation in any Revolving Loan as provided in
Section 3.8
.
“
PATRIOT Act
” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), as amended.
“
Person
” means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated), or any Governmental Authority.
“
Prime Rate
” means, at any time, the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate. Each change in the Prime Rate shall be effective as of
the opening of business on the day such change in such prime rate occurs. The parties hereto acknowledge that the rate announced publicly by the Administrative Agent as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks.
“
Pro Rata Share
” means, with respect to each Lender at any time, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitment of such Lender at such time and the denominator of which is the amount of the Revolving Committed Amount at such time;
provided
that if the Commitment of each Lender to make Loans and the obligation of the L/C Issuers to make L/C Credit Extensions have been terminated pursuant to
Section 9.2
or otherwise, then the Pro Rata Share of each Lender shall be determined based on such Lender’s percentage ownership of the sum of the aggregate amount of outstanding Loans plus the aggregate amount of outstanding L/C Obligations. The initial Pro Rata Share of each Lender is set forth opposite the name of such Lender on
Schedule 1.1(a)
or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
“
Prohibited Transaction
” means any transaction described in (a) Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or by reason of a Department of Labor prohibited transaction individual or class exemption or (b) Section 4975(c) of the Code that is not exempt by reason of Section 4975(c)(2) or 4975(d) of the Code.
“
Property
” means any right, title or interest in or to any property or asset of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.
“
PTE
” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“
Register
” has the meaning set forth in
Section 11.3(c)
.
“
Regulations T, U and X
” means Regulations T, U and X, respectively, of the Federal Reserve Board, and any successor regulations.
“
Replacement Rate
” has the meaning set forth in
Section 3.10(b)
.
“
Reportable Event
” means (a) any “reportable event” within the meaning of Section 4043(c) of ERISA for which the notice under Section 4043(a) of ERISA has not been waived by the PBGC (including any failure to meet the minimum funding standard of, or timely make any required installment under, Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code), (b) any such “reportable event” subject to advance notice to the PBGC under Section 4043(b)(3) of ERISA, (c) any application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code, and (d) a cessation of operations described in Section 4062(e) of ERISA.
“
Required Lenders
” means, at any time, Lenders whose aggregate Credit Exposure (as hereinafter defined) constitutes more than 50% of the Credit Exposure of all Lenders at such time;
provided
,
however
, that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Lenders the aggregate principal amount of Credit Exposure of such Lender at such time. For purposes of the preceding sentence, the term “Credit Exposure” as applied to each Lender shall mean (a) at any time prior to the termination of the Commitments, the Pro Rata Share of such Lender of the Revolving Committed Amount multiplied by the Revolving Committed Amount and (b) at any time after the termination of the Commitments, the sum of (i) the principal balance of the outstanding Loans of such Lender plus (ii) such Lender’s Participation Interests in the face amount of the
outstanding Letters of Credit. Notwithstanding the foregoing, the Credit Exposure held or deemed held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
“
Requirement of Law
” means, with respect to any Person, the organizational documents of such Person and any Law applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject or otherwise pertaining to any or all of the transactions contemplated by this Credit Agreement and the other Credit Documents.
“
Responsible Officer
” means the president, the chief executive officer, the co-chief executive officer, the chief financial officer, any executive officer, vice president-finance, principal accounting officer or treasurer of the Borrower, and any other officer or similar official thereof responsible for the administration of the obligations of the Borrower in respect of this Credit Agreement and the other Credit Documents.
“
Restatement Date
” means October 9, 2018.
“
Revolving Committed Amount
” means FOUR HUNDRED MILLION DOLLARS ($400,000,000) or such other amount, as it may be reduced from time to time in accordance with
Section 2.1(d)
or increased pursuant to
Section 2.1(f)
.
“
Revolving Loans
” has the meaning set forth in
Section 2.1(a)
.
“
S&P
” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
“
Sanctioned Country
” means, at any time, a country, region or territory which is itself subject to or the target of comprehensive country-wide Sanctions (at the time of this Credit Agreement, the Crimea region of Ukraine, Cuba, Iran, North Korea and Syria).
“
Sanctioned Person
” means (a) a Person named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC, as published from time to time, (b) a Person named on the lists maintained by the United Nations Security Council, as published from time to time, (c) a Person named on the lists maintained by the European Union, as published from time to time, (d) a Person named on the lists maintained by Her Majesty’s Treasury, as published from time to time, or (e) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a Person resident in a Sanctioned Country, to the extent any Person described in clauses (i), (ii) or (iii) is the subject of a sanctions program administered by OFAC.
“
Sanctions
” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State or (b) the United Nations Security Council, the European Union, or any European Union member state.
“
SEC Reports
” means (i) the Annual Report on Form 10-K of the Borrower for the Fiscal Year ended December 31, 2017, and (ii) the Quarterly Report on Form 10-Q of the Borrower for the Fiscal Quarter ended June 30, 2018.
“
Securities Act
” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Securitization Equity
” means, as of any date of determination, with respect to a Subsidiary of the Borrower formed for the purpose of entering into a State Approved Securitization, all of the equity of such Subsidiary, as determined in accordance with GAAP.
“
Single Employer Plan
” means any “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) which is covered by Title IV of ERISA, but which is not a Multiemployer Plan and which the Borrower, any Subsidiary or any ERISA Affiliate has maintained, funded or administered for employees at any time within the preceding seven (7) years.
“
Solvent
” means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, Contingent Obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s assets would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the assets of such Person is greater than the total amount of liabilities, including, without limitation, Contingent Obligations, of such Person and (e) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured.
“
SPC
” has the meaning set forth in
Section 11.3(h)
.
“
Standard Securitization Undertakings
” means representations, warranties, covenants and indemnities entered into by the Borrower or a Subsidiary thereof that are reasonably customary in non-recourse securitization transactions.
“
State Approved Securitization
” means a securitization financing entered into by the Borrower pursuant to existing or future New Mexico statutory authority and regulatory approval by the New Mexico Public Regulation Commission (or any successor commission) (the “
NMPRC
”) authorizing the imposition on electric customers of a charge to permit the recovery over time of costs identified by a financing order issued by the NMPRC pursuant to statutory authority.
“
Subsidiary
” means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries has more than a 50% equity interest at any time. Any reference to Subsidiary herein, unless otherwise identified, shall mean a Subsidiary, direct or indirect, of the Borrower. Any reference to a Subsidiary of the Borrower herein shall not include any Subsidiary that is inactive, has minimal or no assets and does not generate revenues.
“
Swing Line Lender
” means Wells Fargo Bank, National Association in its capacity as Swing Line lender hereunder or any successor thereto.
“
Swing Line Loan
” means any Swing Line loan made by the Swing Line Lender to the Borrower pursuant to
Section 2.7
, and all such Swing Line loans collectively as the context requires.
“
Swing Line Sublimit
” means an amount equal to FORTY MILLION DOLLARS ($40,000,000). The Swing Line Sublimit is part of, and not in addition to, the Revolving Committed Amount.
“
Taxes
” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, fines, additions to tax or penalties applicable thereto.
“
Threshold Amount
” means $20,000,000.
“
Total Assets
” means all assets of the Borrower and its Subsidiaries as shown on its most recent quarterly consolidated balance sheet, as determined in accordance with GAAP.
“
Type
” means, with respect to a Revolving Loan, its character as a Base Rate Loan or a Eurodollar Loan.
“
Unreimbursed Amount
” has the meaning specified in
Section 2.2(d)(i)
.
“
Unused Revolving Commitment
” means, for any date of determination, the amount by which (a) the aggregate Revolving Committed Amount on such date exceeds (b) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations on such date.
“
VIE
” has the meaning set forth in
Section 1.3(c)
.
“
Voting Stock
” means the Capital Stock of a Person that is then outstanding and normally entitled to vote in the election of directors and other securities of such Person convertible into or exercisable for such Capital Stock (whether or not such securities are then currently convertible or exercisable).
“
Write-Down and Conversion Powers
” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
1.2
Computation of Time Periods and Other Definitional Provisions
.
For purposes of computation of periods of time hereunder, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding.” References in this Credit Agreement to “Articles”, “Sections”, “Schedules” or “Exhibits” shall be to Articles, Sections, Schedules or Exhibits of or to this Credit Agreement unless otherwise specifically provided.
1.3
Accounting Terms/Calculation of Financial Covenant
.
(a)
Except as otherwise expressly provided herein, all accounting terms used herein or incorporated herein by reference shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. Notwithstanding anything to the contrary in this Credit Agreement, for purposes of calculation of the financial covenant set forth in
Section 7.2
, all accounting determinations and computations thereunder shall be made in accordance with GAAP as in effect as of the date of this Credit Agreement applied on a basis consistent with the application used in preparing the most recent financial statements of the Borrower referred to in
Section 4.1(d)
. In the event that any changes in GAAP after such date are required to be applied to the Borrower and would affect the computation of the financial covenant contained in
Section 7.2
, such changes shall be
followed only from and after the date this Credit Agreement shall have been amended to take into account any such changes.
(b)
Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein, (ii) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and, except as specifically provided in the definitions of “Consolidated Capitalization” and “Consolidated Indebtedness”, such Indebtedness shall at all times be valued at the full stated principal amount thereof and (iii) in a manner such that any obligations relating to a lease that was accounted for by a Person as an operating lease as of the Restatement Date and any similar lease entered into after the Restatement Date by such Person shall be accounted for as obligations relating to an operating lease.
(c)
All references herein to consolidated financial statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity (“
VIE
”) that the Borrower is required to consolidate pursuant to FASB Accounting Standards Codification Topic 810 – Consolidation – Variable Interest Entities as if such variable interest entity were a Subsidiary as defined herein;
provided
that the financial covenant in
Section 7.2
shall be calculated without consolidation of any VIE to the extent the Borrower or its consolidated Subsidiaries have entered into power purchase agreements with such VIE to serve retail customers as a result of the shutdown or closure of the San Juan Generating Station or the Four Corners Power Plant.
1.4
Time
.
All references to time herein shall be references to Eastern Standard Time or Eastern Daylight Time, as the case may be, unless specified otherwise.
1.5
Rounding of Financial Covenant
.
Any financial ratios required to be maintained by the Borrower pursuant to this Credit Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.6
References to Agreements and Requirement of Laws
.
Unless otherwise expressly provided herein: (a) references to organization documents, agreements (including the Credit Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Credit Document and (b) references to any Requirement of Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Requirement of Law.
1.7
Letter of Credit Amounts
.
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time;
provided
,
however
, that with respect to any Letter of Credit that, by its terms or the terms of any Letter of Credit related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
1.8
Rates
.
The Administrative Agent does not warrant or accept responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to the rates in the definition of “Eurodollar Base Rate”.
SECTION 2
CREDIT FACILITY
2.1
Revolving Loans
.
(a)
Revolving Loan Commitment
. Subject to the terms and conditions set forth herein, each Lender severally agrees to make revolving loans (each a “
Revolving Loan
” and collectively the “
Revolving Loans
”) in Dollars to the Borrower, at any time and from time to time, during the period from and including the Closing Date to but not including the Maturity Date (or such earlier date if the Commitments have been terminated as provided herein);
provided
,
however
, that after giving effect to any Borrowing (i) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans shall not exceed the Revolving Committed Amount and (ii) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans of such Lender plus such Lender’s Pro Rata Share of the aggregate principal amount of outstanding L/C Obligations and Swing Line Loans shall not exceed such Lender’s Commitment. Subject to the terms of this Credit Agreement (including
Section 3.3
), the Borrower may borrow, repay and reborrow Revolving Loans.
(b)
Method of Borrowing for Revolving Loans
. By no later than (i) 12:00 noon on the date of the requested Borrowing of Revolving Loans that will be Base Rate Loans and (ii) 12:00 noon three Business Days prior to the date of the requested Borrowing of Revolving Loans that will be Eurodollar Loans, the Borrower shall submit a written Notice of Revolving Borrowing in the form of
Exhibit 2.1(b)
to the Administrative Agent setting forth (A) the amount requested, (B) the date of the requested Borrowing, (C) the Type of Revolving Loan, (D) with respect to Revolving Loans that will be Eurodollar Loans, the Interest Period applicable thereto, and (E) certification that the Borrower has complied in all respects with
Section 5
. If the Borrower shall fail to specify (1) an Interest Period in the case of a Eurodollar Loan, then such Eurodollar Loan shall be deemed to have an Interest Period of one month or (2) the Type of Revolving Loan requested, then such Revolving Loan shall be deemed to be a Base Rate Loan. All Revolving Loans made on the Closing Date shall be Base Rate Loans. Thereafter, all or any portion of the Revolving Loans (other than Swing Line Loans) may be converted into Eurodollar Loans in accordance with the terms of
Section 2.3
.
(c)
Funding of Revolving Loans
. Upon receipt of a Notice of Revolving Borrowing, the Administrative Agent shall promptly inform the Lenders as to the terms thereof. Each such Lender shall make its Pro Rata Share of the requested Revolving Loans available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Notice of Revolving Borrowing. Upon satisfaction of the conditions set forth in
Section 5
, the amount of the requested Revolving Loans will then be made available to the Borrower by the Administrative Agent by wire transfer of such funds in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower.
(d)
Reductions of Revolving Committed Amount
. Upon at least three Business Days’ notice, the Borrower shall have the right to permanently terminate or reduce the aggregate unused amount of the Revolving Committed Amount at any time or from time to time; provided that (i) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 and in integral multiples of $1,000,000 above such amount and (ii) no reduction shall be made which would reduce the Revolving Committed Amount to an amount less than the sum of the aggregate principal amount of outstanding Loans plus the aggregate principal amount of outstanding L/C Obligations. Any reduction in (or termination of) the Revolving Committed Amount shall be permanent and may not be reinstated.
(e)
Revolving Notes
. At the request of any Lender, the Revolving Loans made by such Lender shall be evidenced by a duly executed promissory note of the Borrower to such Lender in substantially the form of
Exhibit 2.1(e)
.
(f)
Increases of the Revolving Committed Amount
. The Borrower shall have the right, upon at least fifteen (15) Business Days’ prior written notice to the Administrative Agent, to increase the Revolving Committed Amount, in one or more increases, at any time and from time to time after the Restatement Date,
subject
,
however
, in any such case, to satisfaction of the following conditions precedent:
(i)
no Default or Event of Default shall have occurred and be continuing on the date on which such increase is to become effective;
(ii)
after giving effect to such increase, the Revolving Committed Amount shall not exceed $600,000,000;
(iii)
the representations and warranties set forth in
Section 6
shall be true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) on and as of the date on which such increase is to become effective;
(iv)
such increase shall be in a minimum amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof;
(v) such requested increase shall only be effective upon receipt by the Administrative Agent of (A) additional commitments in a corresponding amount of such requested increase from either existing Lenders and/or one or more other institutions that qualify as an Eligible Assignee (it being understood and agreed that no existing Lender shall be required to provide an additional commitment) and (B) documentation from each institution providing an additional commitment evidencing its commitment and its
obligations under this Credit Agreement in form and substance acceptable to the Administrative Agent;
(vi)
the Administrative Agent shall have received all documents (including resolutions of the board of directors of the Borrower and applicable opinions) it may reasonably request relating to the corporate or other necessary authority for and the validity of such increase in the Revolving Committed Amount, and any other matters relevant thereto, all in form and substance reasonably satisfactory to the Administrative Agent;
(vii)
if any Revolving Loans are outstanding at the time of the increase in the Revolving Committed Amount, the Borrower shall, if applicable, prepay one or more existing Revolving Loans (such prepayment to be subject to
Section 3.14
) in an amount necessary such that after giving effect to the increase in the Revolving Committed Amount, each Lender will hold its pro rata share (based on its Pro Rata Share of the increased Revolving Committed Amount) of outstanding Revolving Loans; and
(viii)
the Borrower shall pay such fees to the Administrative Agent, for the benefit of the Lenders providing such additional commitments, as determined at the time of such increase.
2.2
Letter of Credit Subfacility
.
(a)
The Letter of Credit Commitment
.
(i)
Subject to the terms and conditions set forth herein and other terms and conditions that the applicable L/C Issuer may reasonably require, (A) each L/C Issuer agrees, in reliance upon the agreements of the other Lenders set forth in this
Section 2.2
, from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue standby Letters of Credit in Dollars for the account of the Borrower and to amend Letters of Credit previously issued by it, in each case in accordance with subsection (b) below and (B) the Lenders severally agree to participate in such Letters of Credit issued for the account of the Borrower;
provided
,
however
, that after giving effect to the issuance of any Letter of Credit (1) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of Swing Line Loans shall not exceed the Revolving Committed Amount, (2) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans of such Lender plus such Lender’s Pro Rata Share of the aggregate principal amount of outstanding L/C Obligations and Swing Line Loans shall not exceed such Lender’s Commitment, (3) the aggregate amount of L/C Obligations shall not at any time exceed the Letter of Credit Sublimit and (4) the aggregate principal amount of outstanding L/C Obligations of any Initial L/C Issuer shall not exceed such Initial L/C Issuer’s L/C Commitment. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(ii)
An L/C Issuer shall not issue or amend any Letter of Credit if:
(A)
the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date;
provided
that, subject to the agreement of the Borrower set forth below in this clause (A), an L/C Issuer may issue Letters of Credit with an expiry date of up to one year after the Letter of Credit Expiration Date (but no L/C Issuer shall have an obligation to issue such Letter of Credit). The Borrower hereby agrees that on or before 90 days prior to the Letter of Credit Expiration Date it shall Cash Collateralize any Letter of Credit existing on such date with an expiry date after the Letter of Credit Expiration Date in an amount equal to at least 110% of the face amount of such Letter of Credit; or
(B)
such Letter of Credit is to be used for a purpose other than as permitted by
Section 7.9
, or is denominated in a currency other than Dollars.
(iii)
An L/C Issuer shall be under no obligation to issue or amend any Letter of Credit if:
(A)
any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such L/C Issuer from issuing such Letter of Credit, or any Requirement of Law applicable to such L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such L/C Issuer shall prohibit, or request that such L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such L/C Issuer in good faith deems material to it;
(B)
the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance, unless the Required Lenders have approved such expiry date;
(C)
the issuance of such Letter of Credit would violate one or more policies of such L/C Issuer;
(D)
such Letter of Credit is in an initial amount less than $100,000 (unless otherwise agreed to by such L/C Issuer); or
(E)
a default of any Lender’s obligations to fund under
Section 2.2(d)
exists or any Lender is at such time a Defaulting Lender hereunder, unless the applicable L/C Issuer has entered into satisfactory arrangements with the Borrower or such Lender to eliminate such L/C Issuer’s risk with respect to such Lender.
(iv)
An L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) such L/C Issuer would have no obligation at such time to issue such Letter of
Credit in its amended form under the terms hereof or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
(v)
Defaulting Lenders
. Notwithstanding anything to the contrary contained in this
Section 2.2
, no L/C Issuer shall be obligated to issue any Letter of Credit at a time when any other Lender is a Defaulting Lender, unless the applicable L/C Issuer has entered into arrangements (which may include the delivery of Cash Collateral) with the Borrower or such Defaulting Lender which are satisfactory to such L/C Issuer to eliminate such L/C Issuer’s Fronting Exposure (after giving effect to
Section 3.16(c)
) with respect to any such Defaulting Lender.
(b)
Procedures for Issuance and Amendment of Letters of Credit
.
(i)
Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to a L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. The Letter of Credit Application must be received by the applicable L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as such L/C Issuer may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as applicable. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day), (B) the amount thereof, (C) the expiry date thereof, (D) the name and address of the beneficiary thereof, (E) the documents to be presented by such beneficiary in case of any drawing thereunder, (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder and (G) such other matters as such L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable L/C Issuer (1) the Letter of Credit to be amended, (2) the proposed date of amendment thereof (which shall be a Business Day), (3) the nature of the proposed amendment and (4) such other matters as such L/C Issuer may require.
(ii)
Promptly after receipt of any Letter of Credit Application, the applicable L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such L/C Issuer will provide the Administrative Agent with a copy thereof. Upon receipt by the applicable L/C Issuer of confirmation from the Administrative Agent that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, such L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with such L/C Issuer’s usual and customary business practices.
(iii) If the Borrower so requests in any applicable Letter of Credit Application, the applicable L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic renewal provisions (each, an “
Auto‑Renewal Letter of Credit
”); provided that any such Auto‑Renewal Letter of Credit must permit such L/C Issuer to prevent any such renewal at least once in each twelve‑month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to
the beneficiary thereof not later than a day (the “
Nonrenewal Notice Date
”) in each such twelve‑month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the applicable L/C Issuer, the Borrower shall not be required to make a specific request to such L/C Issuer for any such renewal. Once an Auto‑Renewal Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the applicable L/C Issuer to permit the renewal of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that such L/C Issuer shall not permit any such renewal if (A) such L/C Issuer has determined that it would have no obligation at such time to issue such Letter of Credit in its renewed form under the terms hereof (by reason of the provisions of
Section 2.2(a)(ii)
or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Nonrenewal Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such renewal or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in
Section 5
is not then satisfied.
(iv)
Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the applicable L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(c)
Participations
.
(i)
On the Closing Date, each Lender shall be deemed to have purchased without recourse a risk participation from the applicable L/C Issuer in each Existing Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its Pro Rata Share of the obligations under such Existing Letter of Credit, and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to such L/C Issuer therefor and discharge when due, its Pro Rata Share of the obligations arising under such Existing Letter of Credit.
(ii)
Each Lender, upon issuance of a Letter of Credit, shall be deemed to have purchased without recourse a risk participation from the applicable L/C Issuer in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its Pro Rata Share of the obligations under such Letter of Credit, and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to such L/C Issuer therefor and discharge when due, its Pro Rata Share of the obligations arising under such Letter of Credit.
(d)
Reimbursement
.
(i)
In the event of any drawing under any Letter of Credit, the applicable L/C Issuer will promptly notify the Borrower. The Borrower shall reimburse the applicable L/C Issuer on the day of drawing under any Letter of Credit either with the proceeds of a Revolving Loan obtained hereunder or otherwise in immediately available funds. If the Borrower shall fail to reimburse the applicable L/C Issuer as provided hereinabove (the “
Unreimbursed Amount
”), the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Base Rate plus two percent (2%).
(ii)
Subsequent to a drawing under any Letter of Credit, unless the Borrower shall immediately notify the applicable L/C Issuer of its intent to otherwise reimburse such L/C Issuer, the Borrower shall be deemed to have requested a Base Rate Loan in the amount of the drawing as described herein, the proceeds of which will be used to satisfy the reimbursement obligations. On any day on which the Borrower shall be deemed to have requested a Revolving Loan borrowing to reimburse a drawing under a Letter of Credit, the Administrative Agent shall give notice to the Lenders that a Revolving Loan has been deemed requested in connection with a drawing under a Letter of Credit, in which case a Revolving Loan borrowing comprised solely of Base Rate Loans (each such borrowing, a “
Mandatory Borrowing
”) shall be immediately made from all Lenders (without giving effect to any termination of the Commitments pursuant to
Section 9.2
or otherwise)
pro
rata
based on each Lender’s respective Pro Rata Share and the proceeds thereof shall be paid directly to the applicable L/C Issuer for application to the respective L/C Obligations. Each Lender hereby irrevocably agrees to make such Revolving Loans immediately upon any such request or deemed request on account of each such Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the same such date
notwithstanding
(A) the amount of Mandatory Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (B) the failure of any conditions specified in
Section 5.1
to have been satisfied, (C) the existence of a Default or an Event of Default, (D) the failure of any such request or deemed request for Revolving Loans to be made by the time otherwise required hereunder, (E) the date of such Mandatory Borrowing, or (F) any reduction in the Revolving Committed Amount or any termination of the Commitments.
(iii)
In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower), then each such Lender hereby agrees that it shall forthwith fund (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) its Pro Rata Share in the outstanding L/C Obligations;
provided
, that in the event any Lender shall fail to fund its Pro Rata Share on the day the Mandatory Borrowing would otherwise have occurred, then the amount of such Lender’s unfunded participation interest therein shall bear interest payable to the applicable L/C Issuer upon demand, at the rate equal to, if paid within two Business Days of such date, the Federal Funds Rate, and thereafter at a rate equal to the Base Rate. Simultaneously with the making of each such payment by a Lender to such L/C Issuer, such Lender shall, automatically and without any further action on the part of such L/C Issuer or such Lender, acquire a participation in an amount equal to such payment (excluding the portion of such payment constituting interest owing to such L/C Issuer) in the related unreimbursed drawing portion of the L/C Obligation and in the interest thereon and shall have a claim against the Borrower with respect thereto. Any payment by the Lenders pursuant to this clause (iii) shall not relieve or otherwise impair the obligations of the Borrower to reimburse the applicable L/C Issuer under a Letter of Credit.
(e)
Obligations Absolute
. The obligation of the Borrower to reimburse the applicable L/C Issuer for each drawing under each Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Credit Agreement under all circumstances, including the following:
(i)
any lack of validity or enforceability of such Letter of Credit, this Credit Agreement, or any other agreement or instrument relating thereto;
(ii)
the existence of any claim, counterclaim, set‑off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), such L/C Issuer or any other Person, whether in connection with this Credit Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
(iii)
any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv)
any payment by such L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by such L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor‑in‑possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
(v)
any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower’s instructions or other irregularity, the Borrower will immediately notify the applicable L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the applicable L/C Issuer and its correspondents unless such notice is given as aforesaid.
(f)
Role of L/C Issuers
. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the applicable L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuers, any Agent‑Related Person nor any of the respective correspondents, participants or assignees of the L/C Issuers shall be liable to any Lender for (i)
any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable, (ii)
any action taken or omitted in the absence of gross negligence or willful misconduct or (iii)
the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of
any Letter of Credit;
provided
,
however
, that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuers, any Agent‑Related Person, nor any of the respective correspondents, participants or assignees of the L/C Issuers, shall be liable or responsible for any of the matters described in clauses (i) through (v) of
Section 2.2(e)
; provided, however, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against a L/C Issuer, and such L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by such L/C Issuer’s willful misconduct or gross negligence or such L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, a L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation and such L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
(g)
Cash Collateral
. If, as of the Letter of Credit Expiration Date, any Letter of Credit for any reason remains outstanding and partially or wholly undrawn, the Borrower shall immediately Cash Collateralize the then aggregate principal amount of all L/C Obligations (in an amount equal to such aggregate principal amount determined as of the Letter of Credit Expiration Date). The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuers and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash collateral shall be maintained in blocked, non‑interest bearing deposit accounts at the Administrative Agent.
(h)
Applicability of ISP
. Unless otherwise expressly agreed by the applicable L/C Issuer and the Borrower when a Letter of Credit is issued, the rules of the ISP shall apply to each Letter of Credit.
(i)
Fronting Fee and Documentary and Processing Charges Payable to L/C Issuers
. The Borrower shall pay directly to the applicable L/C Issuer for its own account a fronting fee with respect to each Letter of Credit at the rate per annum agreed to by the Borrower and the applicable L/C Issuer in writing, computed on the daily maximum amount available to be drawn under such Letter of Credit (the “
L/C Fronting Fee
”). The L/C Fronting Fee shall be computed on a quarterly basis in arrears and shall be due and payable on the third Business Day after the end of each Fiscal Quarter (as well as on the Letter of Credit Expiration Date) for the Fiscal Quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the issuance of such Letter of Credit. In addition, the Borrower shall pay directly to the applicable L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(j)
Conflict with Letter of Credit Application
. In the event of any conflict between the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.
(k)
Indemnification of L/C Issuers
.
(i)
In addition to its other obligations under this Credit Agreement, the Borrower hereby agrees to protect, indemnify, pay and hold each L/C Issuer harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys’ fees) that such L/C Issuer may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or (B) the failure of such L/C Issuer to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority (all such acts or omissions, herein called “
Government Acts
”).
(ii)
As between the Borrower and the L/C Issuers, the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. In the absence of gross negligence or willful misconduct, no L/C Issuer shall be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon a Letter of Credit; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (G) any consequences arising from causes beyond the control of such L/C Issuer, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of a L/C Issuer’s rights or powers hereunder.
(iii)
In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by a L/C Issuer, under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such L/C Issuer under any resulting liability to the Borrower. It is the intention of the parties that this Credit Agreement shall be construed and applied to protect and indemnify the L/C Issuers against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any present or future Government Acts. No L/C Issuer shall, in any way, be liable for any failure by such L/C Issuer or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of such L/C Issuer.
(iv)
Nothing in this subsection (k) is intended to limit the reimbursement obligation of the Borrower contained in this
Section 2.2
. The obligations of the Borrower under this subsection (k) shall survive the termination of this Credit Agreement. No act or omission of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the applicable L/C Issuer to enforce any right, power or benefit under this Credit Agreement.
(v)
Letter of Credit Amounts
. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the maximum face amount of such Letter of Credit after giving effect to all increases thereof contemplated by such Letter of Credit or the Letter of Credit Application therefor, whether or not such maximum face amount is in effect at such time.
2.3
Continuations and Conversions
.
Subject to the terms below, the Borrower shall have the option, on any Business Day prior to the Maturity Date, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate Loans (other than Swing Line Loans) into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans. By no later than 12:00 noon (a) two Business Days prior to the date of the requested conversion of a Eurodollar Loan to a Base Rate Loan and (b) three Business Days prior to the date of the requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, the Borrower shall provide a written Notice of Continuation/Conversion in the form of
Exhibit 2.3
, setting forth whether the Borrower wishes to continue or convert such Revolving Loans. Notwithstanding anything herein to the contrary, (A) except as provided in
Section 3.11
, Eurodollar Loans may only be continued or converted into Base Rate Loans on the last day of the Interest Period applicable thereto, (B) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar Loans during the existence and continuation of a Default or an Event of Default and (C) any request to continue a Eurodollar Loan that fails to comply with the terms hereof or any failure to request a continuation of a Eurodollar Loan at the end of an Interest Period shall be deemed a request to convert such Eurodollar Loan to a Base Rate Loan on the last day of the applicable Interest Period.
2.4
Minimum Amounts
.
Each request for a borrowing, conversion or continuation shall be subject to the requirements that (a) each Eurodollar Loan shall be in a minimum amount of $3,000,000 and in integral multiples of $1,000,000 in excess thereof, (b) each Base Rate Loan shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess thereof (or the remaining amount of outstanding Revolving Loans) and (c) no more than seven Eurodollar Loans shall be outstanding hereunder at any one time. For the purposes of this
Section 2.4
, separate Eurodollar Loans that begin and end on the same date, as well as Eurodollar Loans that begin and end on different dates, shall all be considered as separate Eurodollar Loans.
2.5
Extension Option
.
(a)
Request for Extensions
. At any time after the Restatement Date, the Borrower may by notice to the Lenders, request that the Lenders extend the then current Maturity Date for one additional year;
provided
that (i) not more than two such requests may be made during the term of this Credit Agreement and (ii) such extension shall not become effective before the date which is five years before the Maturity Date as so extended. Each Lender shall, by notice to the Borrower and the Administrative Agent not later than the 30th day following the date of any such request from the Borrower, advise the Borrower whether or not it agrees to extend the Maturity Date as requested. Each decision by a Lender shall be in the sole discretion of such Lender, and any Lender that has not so advised the Administrative Agent by the 30th day following the date of such request from the Borrower shall be deemed to have declined to agree to such extension. Each of the parties hereto acknowledges and agrees that no Lender shall be obligated to extend the Maturity Date pursuant to the terms of this
Section 2.5
. Any Lender who fails to agree to the extension request of the Borrower, as set forth herein, shall be referred to, for purposes of this Section, as a “
Non-Extending Lender
”.
(b)
Extension
. If Lenders holding Commitments representing at least 50% of the Revolving Committed Amount agree to any such request for extension of the Maturity Date (collectively, the “
Approving Lenders
”), then the Borrower may, subject to receipt of all approvals with respect thereto, if any, extend the Maturity Date for an additional year solely as to the Approving Lenders with a Revolving Committed Amount equal to the aggregate Commitments of the Approving Lenders during such extension period; provided that the Maturity Date shall never extend beyond any date for which the Borrower does not have approval. If Non-Extending Lenders hold Commitments representing more than 50% of the Revolving Committed Amount, then the Borrower shall withdraw its extension request and the Maturity Date will remain unchanged. With respect to the Non-Extending Lenders, it is understood and agreed that the Maturity Date relating to the Non-Extending Lenders shall remain unchanged and the repayment of all obligations owed to them and the termination of their Commitments shall occur on the then existing Maturity Date without giving effect to such extension request.
2.6
Evidence of Debt
.
(a)
The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to its Borrower Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
(b) In addition to the accounts and records referred to in subsection (a) above, each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.7
Swing Line Loans
.
(a)
Availability
. Subject to the terms and conditions of this Credit Agreement, the Swing Line Lender shall make Swing Line Loans to the Borrower from time to time from the Closing Date through, but not including, the Maturity Date;
provided
that after giving effect to any amount requested, (i) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of Swing Line Loans shall not exceed the Revolving Committed Amount, (ii) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans of such Lender plus such Lender’s Pro Rata Share of the aggregate principal amount of outstanding L/C Obligations and Swing Line Loans shall not exceed such Lender’s Commitment and (iii) the aggregate amount of Swing Line Loans shall not at any time exceed the Swing Line Sublimit. Each Swing Line Loan shall be a Base Rate Loan or a LIBOR Market Index Rate Swing Line Loan. Notwithstanding the foregoing, the Swing Line Lender shall not be under any obligation to issue a Swing Line Loan if any Lender is at that time a Defaulting Lender, unless the Swing Line Lender has entered into arrangements, including the delivery of Cash Collateral, with the Borrower or such Lender to eliminate the Swing Line Lender’s actual or
potential Fronting Exposure (after giving effect to
Section 3.16(c
)) with respect to the Defaulting Lender arising from the Swing Line Loan then proposed to be made and all other Swing Line Loans as to which the Swing Line Lender has actual or potential Fronting Exposure, as it may elect in its sole discretion.
(b)
Refunding
.
(i)
Swing Line Loans shall be refunded by the Lenders on demand by the Swing Line Lender. Such refundings shall be made by the Lenders in accordance with their respective Pro Rata Shares and shall thereafter be reflected as Revolving Loans of the Lenders on the books and records of the Administrative Agent. Each Lender shall fund its respective Pro Rata Share of Revolving Loans as required to repay Swing Line Loans outstanding to the Swing Line Lender upon demand by the Swing Line Lender but in no event later than 1:00 p.m. on the next succeeding Business Day after such demand is made. No Lender’s obligation to fund its respective Pro Rata Share of a Swing Line Loan shall be affected by any other Lender’s failure to fund its Pro Rata Share of a Swing Line Loan, nor shall any Lender’s Pro Rata Share be increased as a result of any such failure of any other Lender to fund its Pro Rata Share of a Swing Line Loan.
(ii) The Borrower shall pay to the Swing Line Lender on demand the amount of such Swing Line Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swing Line Loans requested or required to be refunded. In addition, the Borrower hereby authorizes the Administrative Agent to charge any account maintained by the Borrower with the Swing Line Lender (up to the amount available therein) in order to immediately pay the Swing Line Lender the amount of such Swing Line Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swing Line Loans requested or required to be refunded. If any portion of any such amount paid to the Swing Line Lender shall be recovered by or on behalf of the Borrower from the Swing Line Lender in bankruptcy or otherwise, the loss of the amount so recovered shall be ratably shared among all the Lenders in accordance with their respective Pro Rata Shares (unless the amounts so recovered by or on behalf of the Borrower pertain to a Swing Line Loan extended after the occurrence and during the continuance of an Event of Default of which the Administrative Agent has received notice in the manner required pursuant to
Section 11.1
and which such Event of Default has not been waived by the Required Lenders or the Lenders, as applicable).
(iii) Each Lender acknowledges and agrees that its obligation to refund Swing Line Loans in accordance with the terms of this Section is absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, non-satisfaction of the conditions set forth in
Section 5
. Further, each Lender agrees and acknowledges that if prior to the refunding of any outstanding Swing Line Loans pursuant to this Section, one of the events described in
Section 9.1(e)
shall have occurred, each Lender will, on the date the applicable Revolving Loan would have been made, purchase an undivided Participating Interest in the Swing Line Loan to be refunded in an amount equal to its Pro Rata Share of the aggregate amount of such Swing Line Loan. Each Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its Participation Interest and upon receipt thereof the Swing Line Lender will deliver to such Lender a certificate evidencing such Participation Interest dated the date of receipt of such funds and for such amount. Whenever, at any time after the Swing Line Lender has received from any Lender such Lender’s
Participation Interest in a Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Lender its Participation Interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s Participation Interest was outstanding and funded).
(c)
Defaulting Lenders
. Notwithstanding anything to the contrary contained in this
Section 2.7
, the Swing Line Lender shall not be obligated to make any Swing Line Loan at a time when any other Lender is a Defaulting Lender, unless the Swing Line Lender has entered into arrangements (which may include the delivery of Cash Collateral) with the Borrower or such Defaulting Lender which are satisfactory to the Swing Line Lender to eliminate the Swing Line Lender’s Fronting Exposure (after giving effect to
Section 3.16(c)
) with respect to such Defaulting Lender.
(d)
Requests for Borrowing of Swing Line Loans
. The Borrower shall give the Administrative Agent irrevocable prior written notice substantially in the form of
Exhibit 2.7(d)
(a “
Notice of Swing Line Borrowing
”) not later than 12:00 noon on the same Business Day as each Swing Line Loan, of its intention to borrow, specifying (i) the date of such borrowing, which shall be a Business Day, (ii) the amount of such borrowing, which shall be in an aggregate principal amount of $100,000 or a whole multiple of $100,000 in excess thereof and (iii) whether such Swing Line Loan will accrue interest at the Adjusted Base Rate or the Adjusted LIBOR Market Index Rate. A Notice of Swing Line Borrowing received after 12:00 noon shall be deemed received on the next Business Day. The Administrative Agent shall promptly notify the Lenders of each Notice of Swing Line Borrowing.
(e)
Disbursement of Swing Line Loans
. Not later than 1:00 p.m. on the proposed borrowing date, the Swing Line Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, the Swing Line Loans to be made on such borrowing date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each borrowing requested pursuant to this Section in immediately available funds by wiring such proceeds to the deposit account of the Borrower identified in the most recent Account Designation Letter delivered by the Borrower to the Administrative Agent or as may be otherwise agreed upon by the Borrower and the Administrative Agent from time to time.
(f)
Repayment of Swing Line Loans and Participations
.
(i)
If outstanding Swing Line Loans have not been refinanced with Revolving Loans pursuant to
Section 2.7(b)
hereof, Swing Line Loans shall be due and payable within fourteen (14) days following the making of such Swing Line Loan.
(ii)
At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, such Swing Line Lender will distribute to such Lender its Pro Rata Share thereof in the same funds as those received by such Swing Line Lender.
(iii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by such Swing Line Lender under any of the circumstances described in this Credit Agreement (including pursuant to any settlement entered into by such Swing Line Lender in its discretion), each Lender
shall pay to such Swing Line Lender its Pro Rata Share thereof on demand of the Administrative Agent,
plus
interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Borrower Obligations and the termination of this Credit Agreement.
(g)
Interest for Account of Swing Line Lender
. The Swing Line Lender shall be responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Lender funds its Revolving Loan or risk participation pursuant to this
Section 2.7
to refinance such Lender’s Pro Rata Share of any Swing Line Loan, interest in respect of such Pro Rata Share shall be solely for the account of the Swing Line Lender.
(h)
Payments Directly to Swing Line Lenders
. The Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.
(i)
Swing Line Note
. At the request of the Swing Line Lender, any Swing Line Loans made by the Swing Line Lender shall be evidenced by a duly executed promissory note of the Borrower to the Swing Line Lender in substantially the form of
Exhibit 2.7
.
SECTION 3
GENERAL PROVISIONS APPLICABLE
TO LOANS
3.1
Interest
.
(a)
Interest Rate
. Subject to
Sections 3.1(b)
, (i) all Base Rate Loans shall accrue interest at the Adjusted Base Rate, (ii) all Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate and (iii) all Swing Line Loans shall bear interest at the Adjusted Base Rate or the Adjusted LIBOR Market Index Rate, as requested by the Borrower.
(b)
Default Rate of Interest
.
(i)
After the occurrence, and during the continuation, of an Event of Default pursuant to
Section 9.1(a)
, the principal of and, to the extent permitted by Law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at the Default Rate.
(ii)
After the occurrence, and during the continuation, of an Event of Default (other than an Event of Default pursuant to
Section 9.1(a)
), at the request of the Required Lenders, the principal of and, to the extent permitted by Law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at the Default Rate.
(c)
Interest Payments
. Interest on Loans shall be due and payable in arrears on each Interest Payment Date.
3.2
Payments Generally
.
(a)
No Deductions; Place and Time of Payments
. All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. Each payment to the Administrative Agent on account of the principal of or interest on the Swing Line Loans or of any fee, commission or other amounts payable to the Swing Line Lender shall be made in like manner, but for the account of the Swing Line Lender. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. Notwithstanding the foregoing, if there exists a Defaulting Lender, each payment by the Borrower to such Defaulting Lender hereunder shall be applied in accordance with
Section 3.16(b)
.
(b)
Payment Dates
. Subject to the definition of “
Interest Period
,” if any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(c)
Advances by Administrative Agent
. Unless the Borrower or any Lender has notified the Administrative Agent, prior to the time any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then:
(i)
if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and
(ii)
if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the “
Compensation Period
”) at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such
amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to such Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.
(d)
Several Obligations
. The obligations of the Lenders hereunder to make Revolving Loans and to fund or purchase Participation Interests are several and not joint. The failure of any Lender to make any Revolving Loan or to fund or purchase any Participation Interest on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Revolving Loan or fund or purchase its Participation Interest.
(e)
Funding Offices
. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
3.3
Prepayments
.
(a)
Voluntary Prepayments
. The Borrower shall have the right to prepay the Revolving Loans or Swing Line Loans in whole or in part from time to time without premium or penalty;
provided
,
however
, that (i) all prepayments under this
Section 3.3(a)
shall be subject to
Section 3.14
, (ii) Eurodollar Loans may only be prepaid on three Business Days’ prior written notice to the Administrative Agent, (iii) each such partial prepayment of Eurodollar Loans shall be in the minimum principal amount of $1,000,000 and integral multiples of $1,000,000 (iv) each such partial prepayment of Base Rate Loans shall be in the minimum principal amount of $500,000 and integral multiples of $100,000, (v) each such partial prepayment of Swing Line Loans shall be in the minimum principal amount of $100,000 and integral multiples of $100,000 or, in the case of clauses (iii), (iv) and (v), if less than such minimum amounts, the entire principal amount thereof then outstanding. Amounts prepaid pursuant to this
Section 3.3(a)
shall be applied as the Borrower may elect based on the Lenders’ Pro Rata Shares;
provided
,
however
, if the Borrower fails to specify, such prepayment shall be applied by the Administrative Agent, subject to
Section 3.7
, in such manner as it deems reasonably appropriate.
(b)
Mandatory Prepayments
. If at any time (i) the sum of the aggregate principal amount of Revolving Loans outstanding plus the aggregate principal amount of L/C Obligations outstanding plus the aggregate principal amount of Swing Line Loans outstanding exceeds the Revolving Committed Amount, (ii) the aggregate principal amount of L/C Obligations outstanding exceeds the Letter of Credit Sublimit or (iii) the aggregate principal amount of Swing Line Loans outstanding exceeds the Swing Line Sublimit, the Borrower shall immediately make a principal payment on the Loans to the Administrative Agent and/or Cash Collateralize outstanding L/C Obligations in a manner, in an amount and in Dollars as is necessary to be in compliance with
Sections 2.1
,
2.2
and
2.7
, as applicable, and as directed by the Administrative Agent. All amounts required to be prepaid pursuant to this
Section 3.3(b)
shall be applied
first
to Swing Line Loans pro rata among all outstanding Swing Line Loans (first to Base Rate Loans and then to LIBOR Market Index Rate Swing Line Loans),
second
to Base Rate Loans,
third
to Eurodollar Loans in direct order of Interest Period maturities and
fourth
to Cash Collateralize
outstanding L/C Obligations. All prepayments pursuant to this
Section 3.3(b)
shall be subject to
Section 3.14
.
3.4
Fees
.
(a)
Commitment Fees
. In consideration of the Revolving Committed Amount being made available by the Lenders hereunder, the Borrower agrees to pay to the Administrative Agent, for the pro rata benefit of each Lender (other than the Defaulting Lenders, if any) based on its Pro Rata Share, a per annum fee equal to the daily average sum of the Applicable Percentage for Commitment Fees for each day during the period of determination multiplied by the Unused Revolving Commitment for each such day (the “
Commitment Fees
”). The Commitment Fees shall commence to accrue on the Closing Date and shall be due and payable in arrears on the third Business Day after the end of each Fiscal Quarter (as well as on the Maturity Date and on any date that the Revolving Committed Amount is reduced) for the Fiscal Quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the Closing Date. For purposes of clarification, Swing Line Loans shall not be considered usage of the Revolving Committed Amount for the purpose of calculating the Commitment Fees.
(b)
[Reserved].
(c)
L/C Fees
. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share
a fee for each Letter of Credit equal to the Applicable Percentage for L/C Fees
times
the daily maximum amount available to be drawn under such Letter of Credit (the “
L/C Fees
”). The L/C Fees shall be computed on a quarterly basis in arrears and shall be due and payable on the third Business Day after the end of each Fiscal Quarter (as well as on the Letter of Credit Expiration Date) for the Fiscal Quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the issuance of such Letter of Credit and continuing until each such Letter of Credit has expired.
(d)
Administrative Fees
. The Borrower agrees to pay to the Administrative Agent, for its own account, an annual fee as agreed to between the Borrower and the Administrative Agent (the “
Administrative Fees
”) in the Fee Letter.
3.5
Payment in full at Maturity
.
Subject to the terms of
Section 2.5
, on the Maturity Date, the entire outstanding principal balance of all Loans, together with accrued but unpaid interest and all fees and other sums owing under the Credit Documents, shall be due and payable in full, unless accelerated sooner pursuant to
Section 9.2
;
provided
that if the Maturity Date is not a Business Day, then such principal, interest, fees and other sums shall be due and payable in full on the next preceding Business Day.
3.6
Computations of Interest and Fees
.
(a)
Calculation of Interest and Fees
. Except for Base Rate Loans that are based upon the Prime Rate, in which case interest shall be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, all computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Interest shall accrue from and including the first date of Borrowing (or continuation or conversion) to but excluding the last day occurring in the period for which such interest is payable. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
(b)
Usury
. It is the intent of the Lenders and the Borrower to conform to and contract in strict compliance with applicable usury Law from time to time in effect. All agreements between the Lenders and the Borrower are hereby limited by the provisions of this subsection which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including but not limited to prepayment or acceleration of the maturity of any Borrower Obligation), shall the interest taken, reserved, contracted for, charged, or received under this Credit Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable Law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this subsection and such documents shall be automatically reduced to the maximum nonusurious amount permitted under applicable Law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable Law and which would, apart from this provision, be in excess of the maximum nonusurious amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Loans. The right to demand payment of the Loans or any other Indebtedness evidenced by any of the Credit Documents does not include the right to accelerate the payment of any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of the Loans does not exceed the maximum nonusurious amount permitted by applicable Law.
3.7
Pro Rata Treatment
.
Except to the extent otherwise provided herein, each Borrowing, each payment or prepayment of principal of any Loan, each L/C Credit Extension, each payment of interest, each payment of fees (other than administrative fees paid to the Administrative Agent and fronting, documentary and processing fees paid to the L/C Issuers), each conversion or continuation of any Revolving Loans and each reduction in the Revolving Committed Amount, shall be allocated pro rata among the relevant Lenders in accordance with their Pro Rata Shares;
provided
that, if any Lender shall have failed to pay its Pro Rata Share of any Revolving Loan or fund or purchase its Participation Interest, then any amount to which such Lender would otherwise be entitled pursuant to this
Section 3.7
shall instead be payable to the Administrative Agent until the share of such Revolving Loan or such Participation Interest not funded or purchased by such Lender has been repaid. In the event any principal, interest, fee or other amount paid to any Lender pursuant to this Credit Agreement or any other Credit Document is rescinded or must otherwise be returned by the Administrative Agent, (a) such principal, interest, fee or other amount that had been satisfied by such payment shall be revived, reinstated and continued in full force and effect as if such payment had not occurred and (b) such Lender shall, upon the request of the Administrative Agent, repay to the Administrative Agent the amount so paid to such Lender, with interest for the period commencing on the date such payment is returned by the Administrative Agent until the date the Administrative Agent receives such repayment at a rate per annum equal to the Federal Funds Rate if repaid within two (2) Business Days after such request and thereafter the Base Rate.
3.8
Sharing of Payments
.
The Lenders agree among themselves that, except to the extent otherwise provided herein, in the event that any Lender shall obtain payment in respect of any Revolving Loan, any Swing Line Loan, any L/C Obligations or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker’s lien or counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable Debtor Relief Law or other similar Law or otherwise, or by any other means, in excess of its Pro Rata Share of such payment as provided for in this Credit Agreement, such Lender shall promptly pay in cash or purchase from the other Lenders a participation in such Revolving Loans, Swing Line Loans, L/C Obligations and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their Pro Rata Shares. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker’s lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be returned, each Lender which shall have shared the benefit of such payment shall, by payment in cash or a repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise returned. The Borrower agrees that (a) any Lender so purchasing such a participation may, to the fullest extent permitted by Law, exercise all rights of payment, including setoff, banker’s lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Revolving Loan, Swing Line Loan, L/C Obligations or other obligation in the amount of such participation and (b) the Borrower Obligations that have been satisfied by a payment that has been rescinded or otherwise returned shall be revived, reinstated and continued in full force and effect as if such payment had not occurred. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Administrative Agent shall fail to remit to any other Lender an amount payable by such Lender or the Administrative Agent to such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Administrative Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable Debtor Relief Law or other similar Law, any Lender receives a secured claim in lieu of a setoff to which this
Section 3.8
applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this
Section 3.8
to share in the benefits of any recovery on such secured claim.
Notwithstanding the foregoing, if there exists a Defaulting Lender, all amounts received by such Defaulting Lender hereunder shall be applied in accordance with
Section 3.16(b)
.
3.9
Capital Adequacy
.
If any Lender determines that any Change in Law has or would have the effect of reducing the rate of return on the capital or assets of such Lender or any corporation controlling such Lender as a consequence of such Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy, liquidity requirements and such Lender’s desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such reduction; provided that, in determining to charge such additional amounts to the Borrower, such Lender treats the Borrower substantially the same as other similarly situated borrowers from such Lender.
3.10
Eurodollar Provisions
.
(a)
Unless and until a Replacement Rate is implemented in accordance with clause (b) below, if the Administrative Agent determines (which determination shall be conclusive and binding upon the Borrower) in connection with any request for a Eurodollar Loan or a conversion to or continuation thereof or otherwise or a LIBOR Market Index Rate Swing Line Loan that (i) deposits in Dollars are not being offered to banks in the applicable offshore interbank market for the applicable amount and Interest Period of such Eurodollar Loan or such LIBOR Market Index Rate Swing Line Loan, (ii) adequate and reasonable means do not exist for determining the Eurodollar Rate for such Eurodollar Loan or the LIBOR Market Index Rate for such LIBOR Market Index Rate Swing Line Loan, or (iii) the Eurodollar Rate for such Eurodollar Loan or the LIBOR Market Index Rate Swing Line Loan does not adequately and fairly reflect the cost to the Lenders of funding such Eurodollar Loan or such LIBOR Market Index Rate Swing Line Loan, the Administrative Agent will promptly notify the Borrower and the Lenders. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Loans or LIBOR Market Index Rate Swing Line Loans shall be suspended until the Administrative Agent revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending Notice of Borrowing or Notice of Continuation/Conversion with respect to Eurodollar Loans or LIBOR Market Index Rate Swing Line Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of or, to the extent permitted hereunder, conversion into a Base Rate Loan in the amount specified therein.
(b) Notwithstanding anything to the contrary in
Section 3.10(a)
above, if the Administrative Agent has made the determination (such determination to be conclusive absent manifest error) that (i) the circumstances described in
Section 3.10(a)(i)
or
(a)(ii)
have arisen and that such circumstances are unlikely to be temporary, (ii) any applicable interest rate specified herein is no longer a widely recognized benchmark rate for newly originated loans in the U.S. syndicated loan market in the applicable currency or (iii) the applicable supervisor or administrator (if any) of any applicable interest rate specified herein or any Governmental Authority having, or purporting to have, jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which any applicable interest rate specified herein shall no longer be used for determining interest rates for loans in the U.S. syndicated loan market in the applicable currency, then the Administrative Agent may, to the extent practicable (in consultation with the Borrower and as determined by the Administrative Agent to be generally in accordance with similar situations in other transactions in which it is serving as administrative agent or otherwise consistent with market practice generally), establish a replacement interest rate (the “
Replacement Rate
”), in which case, the Replacement Rate shall, subject to the next two sentences, replace such applicable interest rate for all purposes under the Credit Documents unless and until (A) an event described in
Section 3.10(a)(i)
,
(a)(ii)
,
(b)(i)
,
(b)(ii)
or
(b)(iii)
occurs with respect to the Replacement Rate or (B) the Administrative Agent (or the Required Lenders through the Administrative Agent) notifies the Borrower that the Replacement Rate does not adequately and fairly reflect the cost to the Lenders of funding the Loans bearing interest at the Replacement Rate. In connection with the establishment and application of the Replacement Rate, this Credit Agreement and the other Credit Documents shall be amended solely with the consent of the Administrative Agent, as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this
Section 3.10(b)
. Notwithstanding anything to the contrary in this Credit Agreement or the other Credit Documents (including, without limitation,
Section 11.6
), such amendment shall become effective without any further action or consent of any other party to this Credit Agreement so long as the Administrative Agent shall not have received, within five (5) Business Days of the delivery of such amendment to the Lenders, written notices from such Lenders that in the aggregate constitute Required Lenders, with each
such notice stating that such Lender objects to such amendment (which such notice shall note with specificity the particular provisions of the amendment to which such Lender objects). To the extent the Replacement Rate is approved by the Administrative Agent in connection with this clause (b), the Replacement Rate shall be applied in a manner consistent with market practice; provided that, in each case, to the extent such market practice is not administratively feasible for the Administrative Agent, such Replacement Rate shall be applied as otherwise reasonably determined by the Administrative Agent (it being understood that any such modification by the Administrative Agent shall not require the consent of, or consultation with, any of the Lenders).
3.11
Illegality
.
If any Lender determines that any Requirement of Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Loans the interest rate on which is determined by reference to the Eurodollar Rate, or materially restricts the authority of such Lender to purchase or sell, or to take deposits of Dollars in the London interbank market, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Loans or Base Rate Loan as to which the interest rate is determined with reference to the Eurodollar Base Rate or to convert Base Rate Loans to Eurodollar Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand to the Borrower from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Loans of such Lender to Base Rate Loans as to which the interest rate is not determined with reference to the Eurodollar Base Rate, either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Loans. Upon any such prepayment or conversion, the Borrower shall also pay interest on the amount so prepaid or converted, together with any amounts due with respect thereto pursuant to
Section 3.14
.
3.12
Requirements of Law
.
If any Lender determines that as a result of any Change in Law, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Loans, or a reduction in the amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this
Section 3.12
any such increased costs or reduction in amount resulting from (a) Indemnified Taxes or Other Taxes covered by
Section 3.13
and the imposition of or change in the rate of any Excluded Taxes and (b) the Eurodollar Reserve Percentage covered by the definition of Eurodollar Rate), then from time to time, upon demand of such Lender (through the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction in yield; provided that, in determining to charge such additional amounts to the Borrower, such Lender treats the Borrower substantially the same as other similarly situated borrowers from such Lender.
3.13
Taxes
.
(a)
Payments Free of Taxes
. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Credit Document shall to the extent permitted by applicable Law be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes; provided that if the Borrower or the Administrative Agent shall be required by applicable Law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable by the Borrower shall be increased as necessary so
that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, the applicable Lender or the applicable L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or the Administrative Agent shall make such deductions and (iii) the Borrower or the Administrative Agent shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Law.
(b)
Payment of Other Taxes by the Borrower
. Without limiting the provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Law.
(c)
Indemnification by the Borrower
. The Borrower shall indemnify the Administrative Agent, each Lender and each L/C Issuer, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or such L/C Issuer, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority;
provided
that the Borrower shall not be obligated to indemnify the Administrative Agent, any Lender or any L/C Issuer for any amount in respect of any such penalties, interest or reasonable expenses if written demand therefor was not made by the Administrative Agent, such Lender or such L/C Issuer within 180 days from the date on which such party makes payment for such penalties, interest or expenses;
provided
further
that the foregoing limitation shall not apply to any such penalties, interest or reasonable expenses arising out of the retroactive application of any such Indemnified Tax or Other Tax. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or a L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or a L/C Issuer, shall be conclusive absent manifest error. In addition, the Borrower shall indemnify the Administrative Agent, each Lender and each L/C Issuer, within ten (10) days after demand therefor, for any incremental Taxes that may become payable by such Administrative Agent, Lender (or its beneficial owners) or L/C Issuer as a result of any failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority or to deliver to such Administrative Agent, pursuant to clause (d), documentation evidencing the payment of Taxes.
(d)
Evidence of Payments
. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e)
Status of Lenders
. Any Lender or L/C Issuer that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Credit Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender or L/C Issuer, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrower or the Administrative
Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender or L/C Issuer is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than the documentation described in (i), (ii), (iii), (iv), (v) and (vii) below) shall not be required if in the Lender’s or the L/C Issuer’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender or L/C Issuer. Without limiting the generality of the foregoing, in the event that the Borrower is a resident for tax purposes in the United States, any Lender or L/C Issuer shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Lender or L/C Issuer becomes a Lender or L/C Issuer under this Credit Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but, in the case of any Foreign Lender, only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
(i)
duly completed and executed originals of IRS Form W-9;
(ii)
duly completed and executed originals of IRS Form W-8BEN or W-8BEN-E (as applicable) claiming eligibility for benefits of an income tax treaty to which the United States is a party;
(iii)
duly completed copies of IRS Form W-8ECI;
(iv)
in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed and executed originals of IRS Form W-8BEN or W-8BEN-E (as applicable);
(v)
to the extent a Foreign Lender is not the beneficial owner, properly completed and executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or W-8BEN-E (as applicable), IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable;
(vi)
any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower to determine the withholding or deduction required to be made.
(vii) If a payment made to a Lender or an L/C Issuer under any Credit Document would be subject to U.S. Federal withholding Tax imposed by FATCA if such Lender or L/C Issuer fails to comply with any requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender or L/C Issuer shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by applicable Law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional
documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender or such L/C Issuer has complied with such Lender’s or such L/C Issuer’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (vii), “FATCA” shall include any amendments made to FATCA after the date of this Credit Agreement.
To the extent that the relevant documentation provided pursuant to this section is rendered obsolete or inaccurate in any material respect as a result of changes in circumstances with respect to the status of a Lender or an L/C Issuer, such Lender or such L/C Issuer shall, to the extent permitted by applicable Law, deliver to the Borrower and the Administrative Agent revised and/or updated documentation or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
For purposes of determining withholding Taxes imposed under FATCA, from and after the Restatement Date, the Borrower and the Administrative Agent shall treat (and the Lenders and the L/C Issuers hereby authorize the Administrative Agent to treat) each of the Loans as not qualifying as “grandfathered obligations” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).
(f)
Treatment of Certain Refunds
. If the Administrative Agent, a Lender or a L/C Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified pursuant to this Section (including additional amounts paid by the Borrower pursuant to this Section), it shall pay to the applicable indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or such L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund);
provided
that the applicable indemnifying party, upon the request of the Administrative Agent, such Lender or such L/C Issuer, agrees to repay the amount paid over pursuant to this Section (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or such L/C Issuer in the event the Administrative Agent, such Lender or such L/C Issuer is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (f), in no event will the Administrative Agent, any L/C Issuer or any Lender be required to pay any amount to an indemnifying party pursuant to this paragraph (f) the payment of which would place the Administrative Agent, L/C Issuer or Lender in a less favorable net after-Tax position than the Administrative Agent, L/C Issuer or Lender would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph shall not be construed to require the Administrative Agent, any Lender or any L/C Issuer to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.
(g)
Indemnification of the Administrative Agent
. Each Lender and each L/C Issuer shall indemnify the Administrative Agent within ten (10) days after demand therefor, for the full amount of any Excluded Taxes attributable to such Lender or such L/C Issuer that are payable or paid by the Administrative Agent, and reasonable expenses arising therefrom or with respect thereto, whether or not such Excluded Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.
Each Lender and each L/C Issuer hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender or such L/C Issuer, as the case may be, under any Credit Document against any amount due to the Administrative Agent under this paragraph (g). The agreements in this paragraph (g) shall survive the resignation and/or replacement of the Administrative Agent.
(h)
Survival
. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section shall survive the payment in full of the Borrower Obligations and the termination of the Commitment.
3.14
Compensation
.
Upon the written demand of any Lender, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a)
any continuation, conversion, payment or prepayment of any Eurodollar Loan on a day other than the last day of the Interest Period for such Eurodollar Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or
(b)
any failure by the Borrower (for a reason other than the failure of such Lender to make a Eurodollar Loan) to prepay, borrow, continue or convert any Eurodollar Loan on the date or in the amount previously requested by the Borrower.
The amount each such Lender shall be compensated pursuant to this
Section 3.14
shall include, without limitation, (i) any loss incurred by such Lender in connection with the re‑employment of funds prepaid, repaid, not borrowed or paid, as the case may be and (ii) any reasonable out‑of‑pocket expenses (including the reasonable fees and expenses of legal counsel) incurred and reasonably attributable thereto.
For purposes of calculating amounts payable by the Borrower to the Lenders under this
Section 3.14
, each Lender shall be deemed to have funded each Eurodollar Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan was in fact so funded.
3.15
Determination and Survival of Provisions
.
All determinations by the Administrative Agent or a Lender of amounts owing under
Sections 3.9 through 3.14
, inclusive, shall, absent manifest error, be conclusive and binding on the parties hereto and all amounts owing thereunder shall be due and payable within ten Business Days of demand therefor. In determining such amount, the Administrative Agent or such Lender may use any reasonable averaging and attribution methods.
Section 3.9 through 3.14
, inclusive, shall survive the termination of this Credit Agreement and the payment of all Borrower Obligations.
3.16
Defaulting Lenders
.
Notwithstanding anything to the contrary contained in this Credit Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:
(a)
Waivers and Amendments
. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Credit Agreement shall be restricted as set forth in
Section 11.6
.
(b)
Reallocation of Payments
. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, or otherwise, and including any amounts made available to the Administrative Agent for the account of such Defaulting Lender pursuant to
Section 11.2
), shall be applied at such time or times as may be determined by the Administrative Agent as follows:
first
, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder;
second
, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the applicable L/C Issuer and/or the Swing Line Lender hereunder;
third
, if so determined by the Administrative Agent or requested by the applicable L/C Issuer and/or the Swing Line Lender, to be held as Cash Collateral for future funding obligations of such Defaulting Lender of any Participation Interest in any Swing Line Loan or Letter of Credit;
fourth
, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Credit Agreement, as determined by the Administrative Agent;
fifth
, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of such Defaulting Lender to fund Loans under this Credit Agreement;
sixth
, to the payment of any amounts owing to the Administrative Agent, the Lenders, the applicable L/C Issuer or Swing Line Lender as a result of any judgment of a court of competent jurisdiction obtained by the Administrative Agent, any Lender, any L/C Issuer or the Swing Line Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Credit Agreement;
seventh
, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Credit Agreement; and
eighth
, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction;
provided
that if (i) such payment is a payment of the principal amount of any Revolving Loans or funded Participation Interests in Swing Line Loans or Letters of Credit in respect of which such Defaulting Lender has not fully funded its appropriate share and (ii) such Revolving Loans or funded Participation Interests in Swing Line Loans or Letters of Credit were made at a time when the conditions set forth in
Section 5
were satisfied or waived, such payment shall be applied solely to pay the Revolving Loans of, and funded Participation Interests in Swing Line Loans or Letters of Credit owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Revolving Loans of, or funded Participation Interests in Swing Line Loans or Letters of Credit owed to, such Defaulting Lender. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this
Section 3.16(b)
shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(c)
Reallocation of Pro Rata Shares to Reduce Fronting Exposure
. During any period in which there is a Defaulting Lender, for purposes of computing the amount of the obligation of each Non-Defaulting Lender to acquire, refinance or fund Participation Interests in Letters of Credit or Swing Line Loans pursuant to
Section 2.2(c)
and
Section 2.7(b)
, the “Pro Rata Share” of each Non-Defaulting Lender shall be computed without giving effect to the Commitment of such Defaulting Lender;
provided
that (i) each such reallocation shall be given effect only if, at the date the applicable Lender becomes a Defaulting Lender, no Default or Event of Default exists and (ii) the aggregate obligation of each Non-Defaulting Lender to acquire,
refinance or fund reallocated Participation Interests in Letters of Credit and Swing Line Loans shall not exceed the positive difference, if any, of (A) the Commitment of that Non-Defaulting Lender
minus
(B) the aggregate outstanding principal amount of such Lender’s Revolving Loans and Participation Interests (without regard to any such reallocation) in Letters of Credit and Swing Line Loans. Subject to
Section 11.22
, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(d)
Cash Collateral for Letters of Credit
. Promptly on demand by any L/C Issuer or the Administrative Agent from time to time, the Borrower shall deliver to the Administrative Agent Cash Collateral in an amount sufficient to cover all Fronting Exposure with respect to such L/C Issuer (after giving effect to
Section 3.16(c)
) on terms reasonably satisfactory to the Administrative Agent and such L/C Issuer (and such Cash Collateral shall be in Dollars). Any such Cash Collateral shall be deposited in a separate account with the Administrative Agent, subject to the exclusive dominion and control of the Administrative Agent, as collateral (solely for the benefit of such L/C Issuer) for the payment and performance of each Defaulting Lender’s Pro Rata Share of outstanding L/C Obligations. Moneys in such account shall be applied by the Administrative Agent to reimburse the applicable L/C Issuer immediately for each Defaulting Lender’s Pro Rata Share of any drawing under any Letter of Credit which has not otherwise been reimbursed by the Borrower or such Defaulting Lender.
(e)
Prepayment of Swing Line Loans
. Promptly on demand by the Swing Line Lender or the Administrative Agent from time to time, the Borrower shall prepay Swing Line Loans in an amount of all Fronting Exposure with respect to the Swing Line Lender (after giving effect to
Section 3.16(c)
).
(f)
Certain Fees
. For any period during which such Lender is a Defaulting Lender, such Defaulting Lender (i) shall not be entitled to receive any Commitment Fee
pursuant to
Section 3.4
(and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to such Defaulting Lender) and (ii) shall not be entitled to receive any L/C Fees pursuant to
Section 3.4(c)
otherwise payable to the account of a Defaulting Lender with respect to any Letter of Credit as to which such Defaulting Lender has not provided Cash Collateral or other credit support arrangements satisfactory to the applicable L/C Issuer pursuant to
Section 3.16(d)
, but instead, the Borrower shall pay to the Non-Defaulting Lenders the amount of such L/C Fees in accordance with the upward adjustments in their respective Pro Rata Shares allocable to such Letter of Credit pursuant to
Section 3.16(c)
, with the balance of such fee, if any, payable to the applicable L/C Issuer for its own account.
(g)
Defaulting Lender Cure
. If the Borrower, the Administrative Agent, the Swing Line Lender and the L/C Issuers agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase that portion of outstanding Revolving Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Revolving Loans and funded and unfunded Participation Interests in Letters of Credit and Swing Line Loans to be held on a pro rata basis by the Lenders in accordance with their Pro Rata Shares (without giving effect to
Section 3.16(c)
), whereupon such Lender will cease to be a Defaulting Lender;
provided
that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower
while such Lender was a Defaulting Lender; and
provided
,
further
, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender.
3.17
Mitigation Obligations
.
If any Lender requests compensation under
Section 3.9
or
Section 3.12
, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any L/C Issuer or any Governmental Authority for the account of any Lender or any L/C Issuer pursuant to
Section 3.13
or if any Lender gives a notice pursuant to
Section 3.11
, then, at the request of the Borrower, such Lender or such L/C Issuer shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender or such L/C Issuer, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to
Section 3.9
,
Section 3.12
or
Section 3.13
, as the case may be, in the future or eliminate the need for the notice pursuant to
Section 3.11
, as applicable, and (ii) in each case, would not subject such Lender or such L/C Issuer, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or such L/C Issuer, as the case may be. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or any L/C Issuer in connection with any such designation or assignment.
SECTION 4
CONDITIONS PRECEDENT TO CLOSING
4.1
Closing Conditions
.
The obligation of the Lenders to enter into this Credit Agreement and make Loans is subject to satisfaction of the following conditions:
(a)
Executed Credit Documents
. Receipt by the Administrative Agent of duly executed copies of: (i) this Credit Agreement, (ii) the Notes, and (iii) all other Credit Documents, each in form and substance reasonably acceptable to the Lenders in their sole discretion.
(b)
Authority Documents
. Receipt by the Administrative Agent of the following:
(i)
Organizational Documents
. Copies of the articles of incorporation of the Borrower certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its formation and copies of the bylaws of the Borrower certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct as of the Restatement Date.
(ii)
Resolutions
. Copies of resolutions of the board of directors of the Borrower approving and adopting this Credit Agreement and the other Credit Documents to which it is a party, the transactions contemplated herein and therein and authorizing execution and delivery hereof and thereof, certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct and in full force and effect as of the Restatement Date.
(iii)
Good Standing
. Copies of certificates of good standing, existence or its equivalent with respect to the Borrower certified as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its formation.
(iv)
Incumbency
. An incumbency certificate of the Borrower certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct as of the Restatement Date.
(c)
Opinions of Counsel
. Receipt by the Administrative Agent of opinions of counsel from counsel to the Borrower (which may include in-house counsel with respect to matters of New Mexico law), in form and substance acceptable to the Administrative Agent, addressed to the Administrative Agent and the Lenders and dated as of the Restatement Date.
(d)
Financial Statements
. Receipt by the Administrative Agent of a copy of (i) the annual consolidated financial statements (including balance sheets, income statements and cash flow statements) of the Borrower and its Subsidiaries for Fiscal Years 2016 and 2017, audited by independent public accountants of recognized national standing, (ii) the consolidated balance sheet and income statement of the Borrower and its Subsidiaries for the Fiscal Quarter ended June 30, 2018, together with the related consolidated statement of income for such Fiscal Quarter and a year to date statement of cash flows and (iii) such other financial information regarding the Borrower as the Administrative Agent may reasonably request. The Administrative Agent acknowledges that the items described in clauses (i) and (ii) above have been posted on the Borrower’s website address listed on
Schedule 11.1
and are therefore deemed to have been received by the Administrative Agent.
(e)
Due Diligence
. The Administrative Agent and the Lenders shall have completed all due diligence with respect to the Borrower and its Subsidiaries and the transactions contemplated by this Credit Agreement and the other Credit Documents, in scope and determination reasonably satisfactory to the Administrative Agent and the Lenders.
(f)
Material Adverse Effect
. Since December 31, 2017, except as disclosed in the SEC Reports, there shall have been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect and no Material Adverse Change in the facts and information regarding the Borrower and its Subsidiaries as disclosed in the SEC Reports.
(g)
Absence of Market Disruption
. There shall not have occurred a material adverse change in or material disruption of conditions in the financial, banking or capital markets which the Administrative Agent and the Arrangers, in their sole discretion, deem material in connection with the syndication of the Credit Agreement.
(h)
Litigation
. There shall not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against the Borrower or any of its Subsidiaries except as disclosed in the SEC Reports.
(i)
Consents
. All necessary governmental, shareholder and third party consents and approvals, if any, with respect to this Credit Agreement and the Credit Documents and the transactions contemplated herein and therein have been received and no condition or Requirement of Law exists which would reasonably be likely to restrain, prevent or impose any material adverse conditions on the transactions contemplated hereby and by the other Credit Documents.
(j)
Officer’s Certificates
. Receipt by the Administrative Agent of a certificate or certificates executed by an Authorized Officer of the Borrower as of the Restatement Date stating that (i) the Borrower and each of its Subsidiaries are in compliance in all material respects with all existing material financial obligations and all material Requirements of Law, (ii) there does not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against the Borrower or any of its Subsidiaries, except as disclosed in the SEC Reports, (iii) the financial statements and information delivered to the Administrative Agent on or before the Restatement Date were prepared in good faith and in accordance with GAAP and (iv) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated herein or therein to occur on such date, (A) the Borrower is Solvent, (B) no Default or Event of Default exists, (C) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, (D) since December 31, 2017, except as disclosed in the SEC Reports, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect and there exists no event, condition or state of facts that could result in or reasonably be expected to result in a Material Adverse Change and (E) the Borrower is in compliance with the financial covenant set forth in
Section 7.2
, as of June 30, 2018, as demonstrated in the Covenant Compliance Worksheet attached to such certificate.
(k)
Account Designation Letter
. Receipt by the Administrative Agent of an executed counterpart of the Account Designation Letter.
(l)
PATRIOT Act
. The Borrower shall have provided to the Administrative Agent and the Lenders the documentation and other information reasonably requested by the Administrative Agent in order to comply with requirements of the PATRIOT Act.
(m)
Fees and Expenses
. Unless waived by the Person entitled thereto, payment by the Borrower of all fees and expenses owed by them to the Administrative Agent, the Arrangers and the Lenders on or before the Restatement Date, including, without limitation, as set forth in the Fee Letter.
(n)
Other
. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender.
SECTION 5
CONDITIONS TO ALL EXTENSIONS OF CREDIT
5.1
Funding Requirements
.
In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make Loans and the L/C Issuers shall not be obligated to issue Letters of Credit unless:
(a)
Notice
. The Borrower shall have delivered (i) in the case of any new Revolving Loan, a Notice of Revolving Borrowing, duly executed and completed, by the time specified in
Section 2.1
, (ii) in the case of any Letter of Credit, a Letter of Credit Application, duly executed and completed, by the time specified in
Section 2.2
and (iii) in the case of any new Swing Line Loan, a Notice of Swing Line Borrowing, duly executed and completed, by the time specified in
Section 2.7
.
(b)
Representations and Warranties
. The representations and warranties made by the Borrower in any Credit Document (other than the representation and warranties in
Section 6.7(a)
(but only with respect to clause (a) of the definition of Material Adverse Effect) and
Section 6.9
of the Credit Agreement) are true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) at and as if made as of such date except to the extent they expressly and exclusively relate to an earlier date.
(c)
No Default
. No Default or Event of Default shall exist and be continuing either prior to or after giving effect to such Credit Extension.
(d)
Availability
. Immediately after giving effect to such Credit Extension (and the application of the proceeds thereof), (i) the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans shall not exceed the Revolving Committed Amount, (ii) with respect to each individual Lender, the sum of outstanding principal amount of Revolving Loans of such Lender plus such Lender’s Pro Rata Share of the outstanding principal amount of L/C Obligations and Swing Line Loans shall not exceed such Lender’s Pro Rata Share of the Revolving Committed Amount, (iii) the aggregate amount of L/C Obligations shall not exceed the Letter of Credit Sublimit and (iv) the aggregate amount of Swing Line Loans shall not exceed the Swing Line Sublimit.
The delivery of each Notice of Borrowing or a Letter of Credit Application shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b), (c) and (d) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this Credit Agreement and to induce the Lenders to extend the credit contemplated hereby, the Borrower represents and warrants to the Administrative Agent and the Lenders as follows:
6.1
Organization and Good Standing
.
Each of the Borrower and its Subsidiaries (a) is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) is duly qualified and in good standing as a foreign entity authorized to do business in every other jurisdiction where the failure to so qualify would have a Material Adverse Effect and (c) has the requisite power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted.
6.2
Due Authorization
.
The Borrower (a) has the requisite power and authority to execute, deliver and perform this Credit Agreement and the other Credit Documents and to incur the obligations herein and therein provided for and (b) has been authorized by all necessary action to execute, deliver and perform this Credit Agreement and the other Credit Documents.
6.3
No Conflicts
.
Neither the execution and delivery of this Credit Agreement and the other Credit Documents, nor the consummation of the transactions contemplated herein and therein, nor performance of and compliance with the terms and provisions hereof and thereof by the Borrower will (a) violate or conflict with any provision of its organizational documents, (b) violate, contravene or conflict with any law, regulation (including without limitation, Regulation U and Regulation X), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, the violation of which would have or would be reasonably expected to have a Material Adverse Effect or (d) result in or require the creation of any Lien upon or with respect to its properties.
6.4
Consents
.
(a)
With respect to the initial Revolving Committed Amount and Maturity Date, other than the filing of annual short-term financing plans with the New Mexico Public Regulation Commission in the normal course of business, and such Commission’s actions thereon, no consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance of this Credit Agreement or any of the other Credit Documents that has not been obtained or completed.
(b)
If the Revolving Committed Amount has been increased pursuant to Section 2.1(f) or the Maturity Date has been extended pursuant to
Section 2.5
, other than the approval of the New Mexico Public Regulation Commission (which will have been obtained before such increase of the Revolving Committed Amount or extension of the Maturity Date may become effective), no consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance of this Credit Agreement or any of the other Credit Documents that has not been obtained or completed.
6.5
Enforceable Obligations
.
This Credit Agreement and the other Credit Documents have been duly executed and delivered and constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by Debtor Relief Laws or similar laws affecting creditors’ rights generally or by general equitable principles.
6.6
Financial Condition
.
The financial statements delivered to the Lenders pursuant to
Section 4.1(d)
and pursuant to
Sections 7.1(a)
and
7.1(b)
: (i) have been prepared in accordance with GAAP except that the quarterly financial statements are subject to year-end adjustments and have fewer footnotes than annual statements and (ii) present fairly the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries as of such date and for such periods. No opinion provided with respect to the Borrower’s financial statements pursuant to
Section 7.1
(or as to any prior annual financial statements) has been withdrawn.
6.7
No Material Change
.
(a)
Since December 31, 2017, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.
(b)
Since December 31, 2017, except as disclosed in the SEC Reports, there has been no sale, transfer or other disposition by the Borrower or any of its Subsidiaries of any material part of its business or property, and no purchase or other acquisition by the Borrower or any of its Subsidiaries of any business or property (including the Capital Stock of any other Person) material in relation to the financial condition of the Borrower or any of its Subsidiaries, in each case which is not (i) reflected in the most recent financial statements delivered to the Lenders pursuant to
Section 4.1(d)
or
7.1
or in the notes thereto or (ii) otherwise permitted by the terms of this Credit Agreement and communicated to the Lenders.
6.8
No Default
.
Neither the Borrower nor any of its Subsidiaries is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default would have or would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default presently exists and is continuing.
6.9
Litigation
.
Except as disclosed in the SEC Reports, there are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.
6.10
Taxes
.
Each of the Borrower and its Subsidiaries has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owed by it, except for such taxes (i) the amount of which, individually or in the aggregate, is not material, or (ii) which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP.
6.11
Compliance with Law
.
Each of the Borrower and its Subsidiaries is in compliance with all laws, rules, regulations, orders and decrees applicable to it or to its properties, unless such failure to comply would not have or would not reasonably be expected to have a Material Adverse Effect.
6.12
ERISA
.
(a)
Except as would not result or reasonably be expected to result in a Material Adverse Effect:
(i)
Each Single Employer Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws, regulations and published interpretations thereunder, except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Single Employer Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code except for such plans that have not yet received determination letters but for which the remedial amendment period for submitting a determination letter has not yet expired. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties assessed with respect to any Single Employer Plan or any Multiemployer Plan except for a liability that could not reasonably be expected to have a Material Adverse Effect;
(ii)
No ERISA Event has occurred or is reasonably expected to occur;
(iii)
No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Single Employer Plan which has subjected or would be reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(iv)
No proceeding, claim (other than a benefits claim in the ordinary course of business), lawsuit and/or investigation is existing or, to the best of the knowledge of the Borrower after due inquiry, threatened concerning or involving (i) any employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or any ERISA Affiliate (a “Welfare Plan”), (ii) any Single Employer Plan or (iii) any Multiemployer Plan.
(v)
Each Welfare Plan to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.
(b)
The Borrower represents and warrants as of the Restatement Date that the Borrower is not and will not be using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments.
6.13
Use of Proceeds; Margin Stock
.
The proceeds of the Credit Extensions hereunder will be used solely for the purposes specified in
Section 7.9
. None of such proceeds will be used (a)(i) for the purpose of purchasing or carrying any Margin Stock or (ii) for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry Margin Stock, or (iii) for any other purpose that might constitute this transaction a “purpose credit” within the meaning of Regulation U or (b) for the acquisition of another Person unless the board of directors (or other comparable governing body) or stockholders, as appropriate, of such Person has approved such acquisition.
6.14
Government Regulation
.
The Borrower is not an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, or controlled by such a company.
6.15
Solvency
.
The Borrower is and, after the consummation of the transactions contemplated by this Credit Agreement, will be Solvent.
6.16
Disclosure
.
Neither this Credit Agreement nor any financial statements delivered to the Administrative Agent or the Lenders nor any other document, certificate or statement furnished to the Administrative Agent or the Lenders by or on behalf of the Borrower in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein, taken as a whole, not misleading.
6.17
Environmental Matters
.
Except as would not result or reasonably be expected to result in a Material Adverse Effect: (a) each of the properties of the Borrower and its Subsidiaries (the “
Properties
”) and all operations at the Properties are in substantial compliance with all applicable Environmental Laws, (b) there is no undocumented or unreported violation of any Environmental Law with respect to the Properties or the businesses operated by the Borrower and its Subsidiaries (the “
Businesses
”) that the Borrower is aware of, and (c) there are no conditions relating to the Businesses or Properties that have given rise to or would reasonably be expected to give rise to a liability under any applicable Environmental Laws or to any Environmental Claim.
6.18
[Reserved]
.
6.19
[Reserved]
.
6.20
Anti-Corruption Laws and Sanctions
.
The Borrower has implemented and maintains in effect policies and procedures reasonably designed to ensure compliance by the Borrower, any Subsidiary and their respective directors, officers and employees with the Anti-Corruption Laws and applicable Sanctions. The Borrower, any Subsidiary and to the knowledge of the Borrower or such Subsidiary their respective officers, directors and employees, are in compliance with
the
Anti-Corruption Laws and applicable Sanctions in all material respects.
None of (a) the Borrower, any Subsidiary or to the knowledge of the Borrower or such Subsidiary any of their respective directors, officers or employees, or (b) to the knowledge of the Borrower, any third party that will act in any capacity on behalf of or at the direction of the Borrower or any Subsidiary in connection with or will benefit from the credit facility established hereby, is a Sanctioned Person
.
No Borrowing, use of proceeds or other transactions by the Borrower or any Subsidiary contemplated by this Credit Agreement will knowingly violate any
Anti-Corruption Law or applicable Sanctions
.
SECTION 7
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the Commitments, the termination or expiration of all Letters of Credit and the payment in full of all Borrower Obligations:
7.1
Information Covenants
.
The Borrower will furnish, or cause to be furnished, to the Lenders:
(a)
Annual Financial Statements
. As soon as available, and in any event within 120 days after the close of each Fiscal Year, a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such Fiscal Year, together with the related consolidated statements of income and of cash flows for such Fiscal Year, setting forth in comparative form figures for the preceding Fiscal Year, all such financial information described above to be in reasonable form and detail and, in each case, audited by independent certified public accountants of recognized national standing reasonably acceptable to the Required Lenders and whose opinion shall be furnished to the Lenders, and shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified in any respect. To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(a)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.
(b)
Quarterly Financial Statements
. As soon as available, and in any event within 60 days after the close of each Fiscal Quarter (other than the fourth Fiscal Quarter), a consolidated balance sheet and income statement of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter, together with the related consolidated statement of income for such Fiscal Quarter and a year to date statement of cash flows, in each case setting forth in comparative form figures for the corresponding period of the preceding Fiscal Year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Required Lenders, and, in each case, accompanied by a certificate of a Financial Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of such Person and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments and except that the quarterly financial statements have fewer footnotes than annual statements. To the extent that any VIEs have been consolidated with the Borrower in the preparation of the financial statements furnished pursuant to this
Section 7.1(b)
(as contemplated in
Section 1.3(c)
), the Borrower shall deliver to the Administrative Agent with such financial statements a reconciliation of such financial statements that excludes the impact of such consolidation.
(c)
Officer’s Certificate
. At the time of delivery of the financial statements provided for in
Sections 7.1(a)
and
7.1(b)
above, a certificate of a Financial Officer substantially in the form of
Exhibit 7.1(c)
: (i) setting forth calculations demonstrating compliance by the Borrower with the financial covenant set forth in
Section 7.2
as of the end of such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto.
(d)
Reports
. Notice of the filing by the Borrower of any Form 10-Q, Form 10-K or Form 8-K with the SEC promptly upon the filing thereof and copies of all financial statements, proxy statements, notices and reports as the Borrower shall send to its shareholders concurrently with the mailing of any such statements, notices or reports to its shareholders.
(e)
Notices
. Upon the Borrower obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent within ten days of (i) the occurrence of a Default or Event of Default, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto and (ii) the occurrence of any of the following with respect to the Borrower or any of its Subsidiaries (A) the pendency or commencement of any litigation, arbitration or governmental proceeding against the Borrower or any of its Subsidiaries which, if adversely determined, would have or would reasonably be expected to have a Material Adverse Effect, (B) one or more judgments, orders, or decrees shall be entered against the Borrower or any of its Subsidiaries involving a liability of $20,000,000 or more, in the aggregate or (C) the institution of any proceedings against the Borrower or any of its Subsidiaries with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation or alleged violation of, any federal, state or local law, rule or regulation (including, without limitation, any Environmental Law), the violation of which would have or would reasonably be expected to have a Material Adverse Effect.
(f)
ERISA
. Upon the Borrower or any ERISA Affiliate obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent promptly (and in any event within ten days) of any of the following which would result in or reasonably would be expected to result in a Material Adverse Effect: (i) any unfavorable determination letter from the IRS regarding the qualification of a Single Employer Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all notices received by the Borrower or any ERISA Affiliate of the PBGC’s intent to terminate any Single Employer Plan or to have a trustee appointed to administer any Single Employer Plan, (iii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is insolvent (within the meaning of Title IV of ERISA); or (iv) the Borrower obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Single Employer Plan under a distress termination within the meaning of Section 4041(c) of ERISA. Promptly upon request, the Borrower shall furnish the Lenders with such additional information concerning any Single Employer Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each “plan year” (within the meaning of Section 3(39) of ERISA).
(g)
Debt Ratings
. Prompt notice of any change in its Debt Ratings.
(h)
Other Information
. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of the Borrower as the Lenders may reasonably request.
Documents required to be delivered pursuant to
Section 7.1(a)
,
7.1(b)
or
7.1(d)
(to the extent any such documents are included in materials otherwise filed with the Securities and Exchange Commission) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on
Schedule 11.1
; or (ii) on which such documents are posted on the
Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third‑party website or whether sponsored by the Administrative Agent);
provided
that: (A) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (B) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (
i.e.
, soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Officer’s Certificate required by
Section 7.1(c)
to the Administrative Agent. Except for such Officer’s Certificate, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
7.2
Financial Covenant
.
The ratio of (a) Consolidated Indebtedness to (b) Consolidated Capitalization shall be less than or equal to 0.65 to 1.0 as of the last day of any Fiscal Quarter.
7.3
Preservation of Existence and Franchises
.
(a)
The Borrower will do (and will cause each of its Subsidiaries to do) all things necessary to preserve and keep in full force and effect its existence and material rights, franchises and authority.
(b)
The Borrower will maintain (and will cause each of its Subsidiaries to maintain) its properties in good condition and not waste or otherwise permit such properties to deteriorate, reasonable wear and tear excepted; provided that this
Section 7.3(b)
shall not prevent the Borrower or any Subsidiary from discontinuing the operation or the maintenance of any of the properties if such discontinuance is desirable in the conduct of its business and the Borrower has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
7.4
Books and Records
.
The Borrower will keep (and will cause each of its Subsidiaries to keep) complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves).
7.5
Compliance with Law
.
(a)
The Borrower will comply (and will cause each of its Subsidiaries to comply) with all laws (including, without limitation, all Environmental Laws and ERISA laws), rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its properties, if the failure to comply would have or would reasonably be expected to have a Material Adverse Effect.
(b)
Without limiting clause (a) above, the Borrower will, and will cause each of its Subsidiaries to, ensure that no person who owns a controlling interest in or otherwise controls the Borrower or any Subsidiary is or shall be a Sanctioned Person.
(c)
The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers and employees with the Anti-Corruption Laws and applicable Sanctions.
(d)
The Borrower shall, and shall cause each Subsidiary to, provide such information and take such actions as are reasonably requested by the Administrative Agent or any Lender in order to assist the Administrative Agent and the Lenders in maintaining compliance with the PATRIOT Act and applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Beneficial Ownership Regulation.
7.6
Payment of Taxes and Other Indebtedness
.
The Borrower will (and will cause each of its Subsidiaries to) pay, settle or discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and (c) all of its other Indebtedness as it shall become due (to the extent such repayment is not otherwise prohibited by this Credit Agreement);
provided
,
however
, that the Borrower and its Subsidiaries shall not be required to pay any such tax, assessment, charge, levy, claim or Indebtedness which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP, unless the failure to make any such payment (i) would give rise to an immediate right to foreclose or collect on a Lien securing such amounts or (ii) would have or would be reasonably expected to have a Material Adverse Effect.
7.7
Insurance
.
The Borrower will (and will cause each of its Subsidiaries to) at all times maintain in full force and effect insurance (including worker’s compensation insurance and general liability insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice.
7.8
Performance of Obligations
.
The Borrower will perform (and will cause each of its Subsidiaries to perform) in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound.
7.9
Use of Proceeds
.
The proceeds of the Credit Extensions may be used solely (a) to repay amounts under the Existing Credit Agreement, (b) to pay fees and expenses required by the Credit Documents, (c) for letters of credit, and (d) for general corporate purposes of the Borrower (including, but not limited to, working capital, commercial paper and capital expenditures). The Borrower will not request any Borrowing, and the Borrower shall not use, and shall use commercially-reasonable efforts to ensure that any Subsidiary and its or their respective directors, officers and employees shall not use, the proceeds of any Borrowing directly or, to the knowledge of the Borrower, indirectly (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person in violation of applicable Sanctions, or in any Sanctioned Country in violation of applicable Sanctions.
7.10
Audits/Inspections
.
Upon reasonable notice and during normal business hours, the Borrower will permit representatives appointed by the Administrative Agent or the Lenders, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect the Borrower’s property, including its books and records, its accounts receivable and inventory, the Borrower’s facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Administrative Agent or such Lender or its representatives to investigate and verify the accuracy of information provided to it and to discuss all such matters with the officers, employees and representatives of the Borrower; provided, that an officer or authorized agent of the Borrower shall be present during any such discussions between the officers, employees or representatives of the Borrower and the representatives of the Administrative Agent or any Lender.
SECTION 8
NEGATIVE COVENANTS
Unless otherwise approved in writing by the Required Lenders, the Borrower covenants and agrees that, until the termination of the Commitments, the termination or expiration of all Letters of Credit and the payment in full of all Borrower Obligations:
8.1
Nature of Business
.
The Borrower will not materially alter the character of its business from that conducted as of the Restatement Date.
8.2
Consolidation and Merger
.
The Borrower will not (a) enter into any transaction of merger or (b) consolidate, liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution);
provided
that, so long as no Default or Event of Default shall exist or be caused thereby, a Person may be merged or consolidated with or into the Borrower so long as the Borrower shall be the continuing or surviving Person.
8.3
Sale or Lease of Assets
.
The Borrower will not (nor will it permit its Subsidiaries to) sell, lease, transfer or otherwise dispose of, any of its assets (including, without limitation, all or substantially all of its assets, whether in one transaction or a series of related transactions) except (a) sales or transfers of accounts receivable and related rights to payment in connection with a State Approved Securitization and other sales and transfers of accounts receivable and related rights to payment so long as such other sales and transfers are non-recourse to the Borrower (other than with respect to Standard Securitization Undertakings) and are otherwise on commercially reasonable terms; (b) sales of assets (excluding those permitted in clause (a) hereof) for fair value, if the aggregate value of all such transactions in any calendar year, does not exceed 25%
of the book value of Total Assets, as calculated as of the end of the most recent Fiscal Quarter; and (c) the sale, lease, transfer or other disposition, at less than fair value, of any other assets,
provided
that the aggregate book value of such assets shall not exceed $20,000,000 in any calendar year.
8.4
Affiliate Transactions
.
The Borrower will not enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm’s-length transaction with a Person other than an Affiliate.
8.5
Liens
.
The Borrower will not (nor will it permit its Subsidiaries to) contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, securing any Indebtedness other than the following: (a) Liens securing Borrower Obligations, including Liens on cash or deposits granted in favor of the Swing Line Lender or a L/C Issuer to Cash Collateralize any Defaulting Lender’s participation in Letters of Credit or Swing Line Loans, (b) Liens for taxes not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (c) Liens in respect of property imposed by law arising in the ordinary course of business such as materialmen’s, mechanics’, warehousemen’s, carrier’s, landlords’ and other nonconsensual statutory Liens which are not yet due and payable, which have been in existence less than 90 days or which are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (d) pledges or deposits made in the ordinary course of business to secure payment of worker’s compensation insurance, unemployment insurance, pensions or social security programs, (e) Liens arising from good faith deposits in connection with or to secure performance of tenders, bids, leases, government contracts, performance and return‑of‑money bonds and other similar obligations incurred in the ordinary course of business (other than obligations in respect of the payment of borrowed money), (f) Liens arising from good faith deposits in connection with or to secure performance of statutory obligations and surety and appeal bonds, (g) easements, rights‑of‑way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered property for its intended purposes, (h) judgment Liens that would not constitute an Event of Default, (i) Liens arising by virtue of any statutory or common law provision relating to banker’s liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a creditor depository institution, (j) any Lien created or arising over any property which is acquired, constructed or created by the Borrower or its Subsidiaries, but only if (i) such Lien secures only principal amounts (not exceeding the cost of such acquisition, construction or creation) raised for the purposes of such acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in relation thereto or a guarantee given in respect thereof, (ii) such Lien is created or arises on or before 180 days after the completion of such acquisition, construction or creation, (iii) such Lien is confined solely to the property so acquired, constructed or created and any improvements thereto and (iv) the aggregate principal amount of all Indebtedness secured by such Liens shall not exceed $50,000,000 at any one time outstanding, (k) any Lien on Margin Stock, (l) the assignment of, or Liens on, accounts receivable and related rights to payment in connection with (i) a State Approved Securitization, (ii) any other accounts receivable securitization so long as such other securitization is non-recourse to the Borrower (other than with respect to Standard Securitization Undertakings) and is otherwise on commercially reasonable terms, and the filing of related financing statements under the Uniform Commercial Code of the applicable jurisdictions, (m) the assignment of, or Liens on, demand, energy or wheeling revenues, or on capacity reservation or option fees, payable to the Borrower with respect to any wholesale electric service or transmission agreements, the assignment of, or Liens on, revenues from energy services contracts, and the assignment of, or Liens on, capacity
reservation or option fees payable to the Borrower with respect to asset sales permitted herein
,
(n) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in the foregoing clauses (a) through (m), for amounts not exceeding the principal amount of the Indebtedness secured by the Lien so extended, renewed or replaced, provided that such extension, renewal or replacement Lien is limited to all or a part of the same property or assets that were covered by the Lien extended, renewed or replaced (plus improvements on such property or assets), (o) Liens on Property that is subject to a lease that is classified as an operating lease as of the Closing Date but which is subsequently converted to a capital lease, (p) Liens securing obligations under Hedging Agreements entered into in the ordinary course of business and not for speculative purposes, and (q) Liens on Property, in addition to those otherwise permitted by clauses (a) through (p) above, securing, directly or indirectly, Indebtedness or obligations arising pursuant to other agreements entered into in the ordinary course of business which do not exceed, in the aggregate at any one time outstanding, $50,000,000.
8.6
Accounting Changes
.
The Borrower will not (nor will it permit any of its Subsidiaries to) make or permit, any change in accounting policies or reporting practices, except as required by GAAP, or as permitted by GAAP, if the amounts involved are not material.
SECTION 9
EVENTS OF DEFAULT
9.1
Events of Default
.
An Event of Default shall exist upon the occurrence of any of the following specified events (each an “
Event of Default
”):
(a)
Payment
. The Borrower shall: (i) default in the payment when due of any principal of any of the Loans or L/C Obligations; or (ii) default, and such default shall continue for three or more Business Days, in the payment when due of any interest on the Loans or L/C Obligations or of any fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith.
(b)
Representations
. Any representation, warranty or statement made or deemed to be made by the Borrower herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made.
(c)
Covenants
. The Borrower shall:
(i)
default in the due performance or observance of any term, covenant or agreement contained in
Sections 7.1(e)(i)
,
7.2
,
7.3(a)
(solely with respect to the existence of the Borrower),
7.9
,
7.10
or
8.1 through 8.6
inclusive; or
(ii)
default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this
Section 9.1
) contained in this Credit Agreement or any other Credit Document and such default shall continue unremedied for a period of at least 30 days after the earlier of an
Authorized Officer of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent.
(d)
Credit Documents
. Any Credit Document shall fail to be in force and effect or the Borrower shall so assert or any Credit Document shall fail to give the Administrative Agent or the Lenders the rights, powers, liens and privileges purported to be created thereby.
(e)
Bankruptcy, etc
. The occurrence of any of the following with respect to the Borrower or any of its Subsidiaries (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of its Subsidiaries in an involuntary case under any applicable Debtor Relief Law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Borrower or any of its Subsidiaries or for any substantial part of their property or ordering the winding up or liquidation of its affairs; or (ii) an involuntary case under any applicable Debtor Relief Law now or hereafter in effect is commenced against the Borrower or any of its Subsidiaries
and such petition remains unstayed and in effect for a period of 60 consecutive days; or (iii) the Borrower or any of its Subsidiaries shall commence a voluntary case under any applicable Debtor Relief Law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or any substantial part of its property or make any general assignment for the benefit of creditors; or (iv) the Borrower or any of its Subsidiaries
admit in writing its inability to pay its debts generally as they become due or any action shall be taken by any Person in furtherance of any of the aforesaid purposes.
(f)
Defaults under Other Agreements
.
(i)
The Borrower or any of its Subsidiaries
shall default in the due performance or observance (beyond the applicable grace period with respect thereto) of any material obligation or condition of any contract or lease to which it is a party, if such default would have or would reasonably be expected to have a Material Adverse Effect.
(ii)
With respect to any Indebtedness of the Borrower or any of its Subsidiaries
(other than Indebtedness outstanding under this Credit Agreement) in excess of $40,000,000 in the aggregate (A) the Borrower or such Subsidiary
shall (x) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to such Indebtedness, or (y) default (after giving effect to any applicable grace period) in the observance or performance of any covenant or agreement relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause or permit the holder or the holders of such Indebtedness (or any trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required) such Indebtedness to become due prior to its stated maturity; or (B) such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment prior to the stated maturity thereof; or (C) such Indebtedness shall mature and remain unpaid.
(g)
Judgments
. Any judgment, order or decree involving a liability of $40,000,000 or more, or one or more judgments, orders, or decrees involving a liability of $80,000,000 or more, in the aggregate, shall be entered against the Borrower or any of its Subsidiaries and such
judgments, orders or decrees shall continue unsatisfied, undischarged and unstayed for a period ending on the first to occur of (i) the last day on which such judgment, order or decree becomes final and unappealable and, where applicable, with the status of a judicial lien or (ii) 60 days;
provided
that if such judgment, order or decree provides for periodic payments over time then the Borrower or such Subsidiary
shall have a grace period of 30 days with respect to each such periodic payment.
(h)
ERISA
. The occurrence of any of the following events or conditions (i) an ERISA Event or (ii) the Borrower or any ERISA Affiliate fails to make full payment when due of all amounts which, under the provisions of any Single Employer Plan or Sections 412 or 430 of the Code, the Borrower or any ERISA Affiliate is required to pay as contributions thereto and which are in excess of the Threshold Amount.
(i)
Change of Control
. There shall occur a Change of Control.
9.2
Acceleration; Remedies
.
Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may or, upon the request and direction of the Required Lenders, shall take the following actions without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for herein:
(a)
Termination of Commitments
. Declare the Commitments and the obligation of the L/C Issuers to make L/C Credit Extensions terminated whereupon the Commitments and the obligation of the L/C Issuers to make L/C Credit Extensions shall be immediately terminated.
(b)
Acceleration of Loans
. Declare the unpaid principal of and any accrued interest in respect of all Loans, all L/C Obligations and any and all other Borrower Obligations of any and every kind owing by the Borrower to the Administrative Agent or the Lenders under the Credit Documents to be due, whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
(c)
Cash Collateral
. Direct the Borrower to Cash Collateralize (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default under
Section 9.1(e)
, it will immediately Cash Collateralize) L/C Obligations in respect of subsequent drawings under all then outstanding Letters of Credit in an amount equal to the then outstanding principal amount of L/C Obligations.
(d)
Enforcement of Rights
. To the extent permitted by Law enforce any and all rights and interests created and existing under applicable Law and under the Credit Documents, including, without limitation, all rights of set‑off.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.1(e)
shall occur, then the Commitments and any obligation of the L/C Issuers to make L/C Credit Extensions shall automatically terminate and all Loans, all L/C Obligations, all accrued interest in respect thereof, all accrued and unpaid fees and other Borrower Obligations owing to the Administrative Agent and the Lenders hereunder shall immediately become due and payable without the giving of any notice or other action by the Administrative Agent or the Lenders, which notice or other action is expressly waived by the Borrower.
Notwithstanding the fact that enforcement powers reside primarily with the Administrative Agent, each Lender has, to the extent permitted by Law, a separate right of payment and shall be considered a separate “creditor” holding a separate “claim” within the meaning of Section 101(5) of the Bankruptcy Code or any other insolvency statute.
9.3
Allocation of Payments After Event of Default
.
Notwithstanding any other provisions of this Credit Agreement, after the occurrence and during the continuation of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out‑of‑pocket costs and expenses (including the reasonable fees and expenses of legal counsel) of the Administrative Agent, the L/C Issuers or any of the Lenders in connection with enforcing the rights of the Administrative Agent, the L/C Issuers and the Lenders under the Credit Documents, ratably among them in proportion to the amounts described in this clause “FIRST” payable to them;
SECOND, to payment of any fees owed to the Administrative Agent, the Swing Line Lender, the L/C Issuers or any Lender, ratably among them in proportion to the amounts described in this clause “SECOND” payable to them;
THIRD, to the payment of all accrued interest payable to the Lenders, the Swing Line Lender and the L/C Issuers hereunder, ratably among them in proportion to the amounts described in this clause “THIRD” payable to them;
FOURTH, to the payment of the outstanding principal amount of the Revolving Loans, the Swing Line Loans and L/C Obligations, ratably among them in proportion to the amounts described in this clause “FOURTH” payable to them;
FIFTH, to the Administrative Agent, for the account of the L/C Issuers, to Cash Collateralize that portion of the L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit;
SIXTH, to all other Borrower Obligations which shall have become due and payable under the Credit Documents and not repaid pursuant to clauses “FIRST” through “FIFTH” above, ratably among the holders of such Borrower Obligations in proportion to the amounts described in this clause “SIXTH” payable to them; and
SEVENTH, the payment of the surplus, if any, to whomever may be lawfully entitled to receive such surplus.
Amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause “FIFTH” above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Borrower Obligations, if any, in the order set forth above.
SECTION 10
AGENCY PROVISIONS
10.1
Appointment and Authority
.
Each of the Lenders and each L/C Issuer hereby irrevocably appoints Wells Fargo Bank, National Association to act on its behalf as the Administrative Agent hereunder and under the other Credit Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Section are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuers, and the Borrower shall not have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Credit Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
10.2
Rights as a Lender
.
The P
erson serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
10.3
Exculpatory Provisions
.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Credit Documents, and its duties hereunder and thereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Credit Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Credit Documents),
provided
that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Credit Document or applicable Law, including, for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(c)
shall not, except as expressly set forth herein and in the other Credit Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, its Subsidiaries or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken by it (a) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in
Sections 11.6
and
9.2
) or (b) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or a L/C Issuer.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Credit Agreement or any other Credit Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Credit Agreement, any other Credit Document or any other agreement, instrument or document, (v) the satisfaction of any condition set forth in
Section 4 or Section 5
or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, or (vi) the utilization of any L/C Issuer’s L/C Commitment (it being understood and agreed that each L/C Issuer shall monitor compliance with its own L/C Commitment without any further action of the Administrative Agent).
10.4
Reliance by Administrative Agent
.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or a L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or such L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or such L/C Issuer prior to the making of such Loan or the issuance, extension, renewal or increase of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
10.5
Delegation of Duties
.
The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Credit Document by or through any one or more sub‑agents appointed by the Administrative Agent. The Administrative Agent and any such sub‑agent may perform any and all of its duties and exercise its rights and powers by or through their respective Agent-Related Persons. The exculpatory provisions of this Section shall apply to any such sub‑agent and to the Agent-Related Persons
of the Administrative Agent and any such sub‑agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
10.6
Resignation of Administrative Agent
.
(a)
The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuers and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the “
Resignation Effective Date
”), then the retiring Administrative Agent may (but shall not be obligated to), on behalf of the Lenders and the L/C Issuers, appoint a successor Administrative Agent meeting the qualifications set forth above;
provided
that in no event shall any such successor Administrative Agent be a Defaulting Lender. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b)
If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable Law, by notice in writing to the Borrower and such Person, remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “
Removal Effective Date
”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c)
With effect from the Resignation Effective Date or the Removal Effective Date (as applicable), (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuers under any of the Credit Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and each L/C Issuer directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Credit Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under
the other Credit Documents, the provisions of this Article and
Section 11.5
shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Agent-Related Persons in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
(d)
Any resignation by, or removal of, Wells Fargo Bank, National Association as Administrative Agent pursuant to this Section shall also constitute its resignation as an L/C Issuer and Swing Line Lender. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer, if in its sole discretion it elects to, and Swing Line Lender, (ii) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Credit Documents, and (iii) the successor L/C Issuer, if in its sole discretion it elects to, shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.
10.7
Non‑Reliance on Administrative Agent and Other Lenders‑
.
Each Lender and each L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Agent-Related Persons and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. Each Lender and each L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Agent-Related Persons and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Credit Agreement, any other Credit Document or any related agreement or any document furnished hereunder or thereunder.
10.8
No Other Duties, Etc
.
Anything herein to the contrary notwithstanding, none of the bookrunners, arrangers or agents listed on the cover page hereof shall have any powers, duties or responsibilities under this Credit Agreement or any of the other Credit Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or a L/C Issuer hereunder.
10.9
Administrative Agent May File Proofs of Claim
.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Borrower Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuers and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuers and the Administrative Agent and their respective agents and counsel and all other
amounts due the Lenders, the L/C Issuers and the Administrative Agent under
Sections 2.2(i)
and
(k)
,
3.4
and
11.5
) allowed in such judicial proceeding; and
(b)
to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuers to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuers, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under
Sections 3.4
and
11.5
.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuers any plan of reorganization, arrangement, adjustment or composition affecting the Borrower Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
10.10
ERISA Matters
.
(a)
Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and each Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i)
such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments,
(ii)
the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement,
(iii)
(A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Credit Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement satisfies the requirements of sub-sections (b)
through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement, or
(iv)
such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b)
In addition, unless subclause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in subclause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Arrangers and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that:
(i)
none of the Administrative Agent or any Arranger or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Credit Agreement, any Credit Document or any documents related to hereto or thereto),
(ii)
the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement is independent (within the meaning of 29 CFR § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E),
(iii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Obligations),
(iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Credit Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loans, the Letters of Credit, the Commitments and this Credit Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and
(v) no fee or other compensation is being paid directly to the Administrative Agent or any Arranger or any their respective Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Letters of Credit, the Commitments or this Credit Agreement.
(c) The Administrative Agent and each Arranger hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a
fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments and this Credit Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Credit Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
SECTION 11
MISCELLANEOUS
11.1
Notices; Effectiveness; Electronic Communication
.
(a)
Notices Generally
. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i)
if to the Borrower, the Administrative Agent or a L/C Issuer, to the address, telecopier number, electronic mail address or telephone number specified for such Person on
Schedule 11.1
; and
(ii)
if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b)
Electronic Communications
. Notices and other communications to the Lenders and the L/C Issuers hereunder may be delivered or furnished by electronic communication (including e‑mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent,
provided
that the foregoing shall not apply to notices to any Lender or any L/C Issuer pursuant to
Section 2
if such Lender or such L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it,
provided
that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e‑mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e‑mail or other written acknowledgement) and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e‑mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor;
provided
that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or other communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.
(c)
Borrower Materials/The Platform
. The Borrower hereby acknowledges that (i) the Administrative Agent and/or the Arrangers will make available to the Lenders and the L/C Issuers materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “
Borrower Materials
”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “
Platform
”). THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON‑INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Agent-Related Persons (collectively, the “
Agent Parties
”) have any liability to the Borrower, any Lender, any L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party;
provided
,
however
, that in no event shall any Agent Party have any liability to the Borrower, any Lender, any L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d)
Change of Address, Etc
. Each of the Borrower, the Administrative Agent and the L/C Issuers may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent and the L/C Issuers. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.
(e)
Reliance by Administrative Agent, L/C Issuers and Lenders
. The Administrative Agent, the L/C Issuers and the Lenders shall be entitled to rely and act upon any notices (including telephonic Notices of Borrowing) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not
preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, the L/C Issuers, each Lender and the Agent-Related Persons of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
11.2
Right of Set‑Off‑
.
In addition to any rights now or hereafter granted under applicable Law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default and the commencement of remedies described in
Section 9.2
, each Lender, each L/C Issuer and the Swing Line Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set‑off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender, such L/C Issuer or the Swing Line Lender (including, without limitation, branches, agencies or Affiliates of such Lender, such L/C Issuer or the Swing Line Lender wherever located) to or for the credit or the account of the Borrower against obligations and liabilities of the Borrower to the Lenders hereunder, under the Notes, the other Credit Documents or otherwise, irrespective of whether the Administrative Agent, the Lenders, the L/C Issuers or the Swing Line Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set‑off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. The Borrower hereby agrees that any Person purchasing a participation in the Revolving Loans and Commitments hereunder pursuant to
Sections 3.8
or
11.3(d)
may exercise all rights of set‑off with respect to its participation interest as fully as if such Person were a Lender hereunder.
11.3
Successors and Assigns
.
(a)
Successors and Assigns Generally
. The provisions of this Credit Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section
,
or (iv) to an SPC in accordance with the provisions of subsection (h) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Credit Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Agent-Related Persons of each of the Administrative Agent, the L/C Issuers and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Credit Agreement.
(b)
Assignments by Lenders
. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Credit Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b), participations in L/C Obligations) at the time owing to it);
provided
that
(i)
except in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or contemporaneous assignments to related Approved Funds (determined after giving effect to such assignments) that equal at least the amount specified below in the aggregate or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000
unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed);
(ii)
each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Credit Agreement with respect to the Loans or the Commitment assigned;
(iii)
no consent shall be required for any assignment to an Eligible Assignee except to the extent required by paragraph (b)(i) of this Section and, in addition:
(A)
the consent of the Borrower (such consent not to be unreasonably withheld) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;
(B)
the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and
(C)
the consents of the L/C Issuers and the Swing Line Lender (such consents not to be unreasonably withheld or delayed) shall be required for any assignment.
(iv)
Assignment and Assumption
. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 for each assignment (
provided
, that only one such fee will be payable in connection with simultaneous assignments to two or more Approved Funds by a Lender), and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v)
No Assignment to Certain Persons
. No such assignment shall be made to (x) the Borrower or any of the Borrower’s Affiliates or Subsidiaries or (y) any Defaulting Lender or any of its Subsidiaries.
(vi)
No Assignment to Natural Persons
. No such assignment shall be made to a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person).
(vii)
Certain Additional Payments
. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested, but not funded by, the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (A) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the L/C Issuers, the Swing Line Lender and each other Lender hereunder (and interest accrued thereon), and (B) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swing Line Loans in accordance with its Pro Rata Share. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Credit Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Credit Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Credit Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Credit Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Credit Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of
Sections 3.9
,
3.12
,
3.13
,
3.14
, and
11.5(b)
with respect to facts and circumstances occurring prior to the effective date of such assignment;
provided
, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Credit Agreement that does not comply with this subsection shall be treated for purposes of this Credit Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
(c)
Register
. The Administrative Agent, acting solely for this purpose as a non‑fiduciary agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “
Register
”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Credit Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and the L/C Issuers at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Credit Documents
is pending, any Lender may request and receive from the Administrative Agent a copy of the Register.
(d)
Participations
. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person), or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “
Participant
”) in all or a portion of such Lender’s rights and/or obligations under this Credit Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations) owing to it);
provided
that (i) such Lender’s obligations under this Credit Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders and the L/C Issuers shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Credit Agreement. Each Lender that sells a participation shall, acting solely for this purpose as an non‑fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Credit Documents (the “
Participant Register
”);
provided
that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Credit Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Credit Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Credit Agreement and to approve any amendment, modification or waiver of any provision of this Credit Agreement;
provided
that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to
Section 11.6
that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 3.9
,
3.12
,
3.13
, and
3.14
to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by Law, each Participant also shall be entitled to the benefits of
Section 3.7
as though it were a Lender,
provided
such Participant agrees to be subject to
Section 3.8
as though it were a Lender.
(e)
Limitations upon Participant Rights
. A Participant shall not be entitled to receive any greater payment under
Section
3.9
,
3.12
,
3.13
, or
3.14
than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 3.13
unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with
Section 3.13(e)
as though it were a Lender.
(f)
Certain Pledges
. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Credit Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank;
provided
that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g)
Electronic Execution of Assignments
. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
(h)
Special Purpose Funding Vehicles
. Notwithstanding anything to the contrary contained herein, any Lender (a “
Granting Lender
”) may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower (an “
SPC
”) the option to provide all or any part of any Loan that such Granting Lender would otherwise be obligated to make pursuant to this Credit Agreement;
provided
that (i) nothing herein shall constitute a commitment by any SPC to fund any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Credit Agreement (including its obligations under
Section 3.9
,
3.12, 3.12
and
3.14
), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Credit Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Credit Document, remain the lender of record hereunder. The making of a Committed Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Credit Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior debt of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained herein, any SPC may (A) with notice to, but without prior consent of the Borrower and the Administrative Agent and with the payment of a processing fee in the amount of $2,500, assign all or any portion of its right to receive payment with respect to any Loan to the Granting Lender and (B) disclose on a confidential basis any non‑public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or guarantee or credit or liquidity enhancement to such SPC.
11.4
No Waiver; Remedies Cumulative
.
No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.
11.5
Attorney Costs, Expenses, Taxes and Indemnification by Borrower
.
(a)
The Borrower agrees (i) to pay or reimburse the Administrative Agent and the Arrangers for all costs and expenses incurred in connection with the development, preparation, negotiation and execution of this Credit Agreement and the other Credit Documents and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated hereby or thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all reasonable fees and expenses of legal counsel, and (ii) to pay or reimburse the Administrative Agent and each Lender for all costs and expenses incurred in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Credit Agreement or the other Credit Documents (including all such costs and expenses incurred during any “workout” or restructuring in respect of the Borrower Obligations and during any legal proceeding, including any proceeding under any Debtor Relief Law), including all reasonable fees and expenses of legal counsel. The foregoing costs and expenses shall include all search, filing, recording, and appraisal charges and fees and taxes related thereto, and other out‑of‑pocket expenses incurred by the Administrative Agent and the Arrangers and the cost of independent public accountants and other outside experts retained by the Administrative Agent, the Arrangers or any Lender. Other than costs and expenses payable in connection with the closing of the transactions contemplated by this Credit Agreement pursuant to this
Section 11.5(a)
(which shall be payable on the Restatement Date unless otherwise agreed by the Administrative Agent and the Arrangers), all amounts due under this
Section 11.5
shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the termination of the Commitments and repayment of all other Borrower Obligations.
(b) Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold harmless each Agent‑Related Person, each Lender and their respective Affiliates, directors, officers, employees, counsel, agents and attorneys‑in‑fact (collectively the “
Indemnitees
”) from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including the reasonable fees and expenses of legal counsel) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (i) the execution, delivery, enforcement, performance or administration of any Credit Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (ii) any Commitment, Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by a L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), or (iii) any actual or alleged presence or release of Hazardous Substances on or from any property currently or formerly owned or operated by the Borrower, any Subsidiary of the Borrower, or any Environmental Claim related in any way to the Borrower or any Subsidiary of the Borrower, (iv) any actual or prospective claim, litigation, investigation or proceeding relating
to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding), whether brought by a third party or by the Borrower or any Subsidiary, and regardless of whether any Indemnitee is a party thereto or (v) any penalty or fine assessed by OFAC against, and all reasonable costs and expenses (including counsel fees and disbursements) incurred in connection with defense thereof, by the Administrative Agent or any Lender as a result of conduct of the Borrower that violates a sanction enforced by OFAC (all the foregoing, collectively, the “
Indemnified Liabilities
”); in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of the Indemnitee;
provided
that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Credit Agreement, nor shall any Indemnitee have any liability for any special, punitive, indirect or consequential damages relating to this Credit Agreement or any other Credit Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date).
(c)
To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub‑agent thereof), a L/C Issuer, the Swing Line Lender or any Agent-Related Person of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub‑agent), such L/C Issuer, the Swing Line Lender or such Agent-Related Person, as the case may be, such Lender’s
Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount,
provided
that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub‑agent), such L/C Issuer or the Swing Line Lender in its capacity as such, or against any Agent-Related Person of any of the foregoing acting for the Administrative Agent (or any such sub‑agent), such L/C Issuer or the Swing Line Lender in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of
Section 3.2(d)
.
All amounts due under this
Section 11.5
shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Borrower Obligations.
11.6
Amendments, Etc
.
No amendment or waiver of any provision of this Credit Agreement or any other Credit Document, and no consent to any departure by the Borrower therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given;
provided
,
however
, that no such amendment, waiver or consent shall:
(a)
waive any condition set forth in
Section 4.1
without the written consent of each Lender;
(b)
extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to
Section 9.2
) without the written consent of such Lender;
(c)
postpone any date fixed by this Credit Agreement or any other Credit Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) or any scheduled or mandatory reduction of the Revolving Committed Amount hereunder or under any other Credit Document without the written consent of each Lender directly affected thereby;
(d)
reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (v) of the second proviso to this
Section 11.6
) any fees or other amounts payable hereunder or under any other Credit Document without the written consent of each Lender directly affected thereby;
provided
,
however
, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation to pay interest or L/C Fees at the Default Rate;
(e)
change
Section 3.8
or
Section 9.3
in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
(f)
change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender; or
(g)
release the Borrower from its obligations, or consent to the assignment or transfer by the Borrower of any of its rights and obligations under (or in respect of) the Credit Documents without the written consent of each Lender;
and,
provided
,
further
, that (i) no amendment, waiver or consent shall, unless in writing and signed by the applicable L/C Issuer in addition to the Lenders required above, affect the rights or duties of a L/C Issuer under this Credit Agreement or any other agreement relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Credit Agreement or any other Credit Document; (iii)
Section 11.3(h)
may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; (iv) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Credit Agreement, (v) a Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto, and (vi) the Administrative Agent may, without the consent of any Lender, enter into amendments or modifications to this Credit Agreement or any of the other Credit Documents or enter into additional Credit Documents as the Administrative Agent reasonably deems appropriate in order to implement the Replacement Rate or otherwise effectuate the terms of
Section 3.10(b)
in accordance with the terms of
Section 3.10(b)
. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
11.7
Counterparts
.
This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed signature page of this Credit Agreement by facsimile transmission or other secure electronic format (.pdf) shall be effective as delivery of a manually executed counterpart hereof.
11.8
Headings
.
The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement.
11.9
Survival of Indemnification and Representations and Warranties
.
(a)
Survival of Indemnification
. All indemnities set forth herein shall survive the execution and delivery of this Credit Agreement, the making of any Credit Extension and the repayment of the Loans and other Borrower Obligations and the termination of the Commitments hereunder.
(b)
Survival of Representations and Warranties
. All representations and warranties made hereunder and in any other Credit Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or Event of Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Borrower Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
11.10
Governing Law; Venue; Service
.
(a)
THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5‑1401 AND 5‑1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES). Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York and appellate courts thereof, and, by execution and delivery of this Credit Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its Property, generally and unconditionally, the jurisdiction of such courts.
(b)
The Borrower irrevocably consents to the service of process in any action or proceeding with respect to this Credit Agreement or any other Credit Document by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to
Section 11.1
, such service to become effective ten days after such mailing. Nothing herein shall affect the right of a Lender to serve process in any other manner permitted by Law.
11.11
Waiver of Jury Trial; Waiver of Consequential Damages
.
EACH OF THE PARTIES TO THIS CREDIT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. Each of the parties to this Credit Agreement agrees not to assert any claim against any other party hereto, Administrative Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein and in the other Credit Documents.
11.12
Severability
.
If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
11.13
Further Assurances
.
The Borrower agrees, upon the request of the Administrative Agent, to promptly take such actions, as reasonably requested, as is necessary to carry out the intent of this Credit Agreement and the other Credit Documents.
11.14
Confidentiality
.
Each of the Administrative Agent, the Lenders and each L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by, or required to be disclosed to, any rating agency or regulatory authority purporting to have jurisdiction over it or an Affiliate (including any self‑regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Credit Document or any action or proceeding relating to this Credit Agreement or any other Credit Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Credit Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, any L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.
For purposes of this Section, “
Information
” means all information received from the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or any L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary,
provided
that, in the case of information received from the Borrower or
any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
11.15
Entirety
.
This Credit Agreement together with the other Credit Documents and the Fee Letter represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein.
11.16
Binding Effect; Continuing Agreement
.
(a)
This Credit Agreement shall become effective at such time when all of the conditions set forth in
Section 4.1
have been satisfied or waived by the Lenders and it shall have been executed by the Borrower and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns.
(b)
This Credit Agreement shall be a continuing agreement and shall remain in full force and effect until all Loans, interest, fees and other Borrower Obligations have been paid in full and all Letters of Credit and Commitments have been terminated. Upon termination, the Borrower shall have no further obligations (other than the indemnification provisions and other provisions that by their terms survive) under the Credit Documents;
provided
that should any payment, in whole or in part, of the Borrower Obligations be rescinded or otherwise required to be restored or returned by the Administrative Agent or any Lender, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then the Credit Documents shall automatically be reinstated and all amounts required to be restored or returned and all costs and expenses incurred by the Administrative Agent or any Lender in connection therewith shall be deemed included as part of the Borrower Obligations.
11.17
Regulatory Statement
.
Pursuant to the terms of an order issued by the New Mexico Public Regulation Commission, the Borrower is required to include the following separateness covenants in any debt instrument:
(a)
The Borrower and its corporate parent, PNM Resources, Inc. (“
Parent
”) are being operated as separate corporate and legal entities. In agreeing to make loans to Parent, Parent’s lenders
are relying solely on the creditworthiness of Parent based on the assets owned by Parent, and the repayment of the loan will be made solely from the assets of Parent and not from any assets of the Borrower; and the Parent’s lenders
will not take any steps for the purpose of procuring the appointment of an administrative receiver or the making of an administrative order for instituting any bankruptcy, reorganization, insolvency, wind up or liquidation or any like proceeding under applicable law in respect of the Borrower.
(b)
Notwithstanding any of the foregoing set forth in this
Section 11.17
, the Borrower and the Lenders hereby acknowledge and agree that (i) this Credit Agreement and the
Notes evidence Indebtedness of the Borrower and not of the Parent, (ii) the Lenders are not, and shall not at any time be deemed to be, “Parent’s lenders” under this Credit Agreement and the Notes, (iii) as set forth in this Credit Agreement and the Notes, the Borrower is responsible for the repayment of all amounts outstanding hereunder, and (iv) the Lenders reserve all rights to pursue any and all remedies available at law and otherwise (including, without limitation, in bankruptcy) should the Borrower breach any of its obligations under this Credit Agreement and/or the Notes.
11.18
USA Patriot Act Notice
.
The Administrative Agent and each Lender hereby notifies the Borrower that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the PATRIOT Act.
11.19
Acknowledgment
.
Section 7
and
Section 8
of this Credit Agreement contain affirmative and negative covenants applicable to the Borrower
. Each of the parties to this Credit Agreement acknowledges and agrees that any such covenants that require the Borrower to cause any of its Subsidiaries to take or to refrain from taking specified actions will be enforceable unless prohibited by applicable Law or regulatory requirement.
11.20
Replacement of Lenders
.
If (a) any Lender requests compensation under
Section 3.12
, (b) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to
Section 3.13
, or (c) a Lender (a “Non-Consenting Lender”) does not consent to a proposed change, waiver, discharge or termination with respect to any Credit Document that has been approved by the Required Lenders as provided in
Section 11.6
but requires unanimous consent of all Lenders or all Lenders directly affected thereby (as applicable) or (d) any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by,
Section 11.3
), all of its interests, rights and obligations under this Credit Agreement and the related Credit Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(i)
the Borrower shall have paid to the Administrative Agent the assignment fee specified in
Section 11.3(b)
;
(ii)
such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Obligations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Credit Documents (including any amounts under
Section 3.14
) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(iii)
in the case of any such assignment resulting from a claim for compensation under
Section 3.12
or payments required to be made pursuant to
Section 3.13
, such assignment will result in a reduction in such compensation or payments thereafter;
(iv)
such assignment does not conflict with applicable Laws; and
(v)
in the case of any such assignment resulting from a Non-Consenting Lender’s failure to consent to a proposed change, waiver, discharge or termination with respect to any Credit Document, the applicable replacement bank, financial institution or Fund consents to the proposed change, waiver, discharge or termination; provided that the failure by such Non-Consenting Lender to execute and deliver an Assignment and Assumption shall not impair the validity of the removal of such Non-Consenting Lender and the mandatory assignment of such Non-Consenting Lender’s Commitments and outstanding Loans and participations in L/C Obligations pursuant to this Section shall nevertheless be effective without the execution by such Non-Consenting Lender of an Assignment and Assumption.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
11.21
No Advisory or Fiduciary Responsibility
.
In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Credit Document), the Borrower acknowledges and agrees that: (i) (A) the arranging and other services regarding this Credit Agreement provided by the Administrative Agent, the Arrangers and the Lenders are arm’s-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Arrangers and the Lenders, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Credit Documents; (ii) (A) each of the Administrative Agent, the Arrangers and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower or any of its Affiliates, or any other Person and (B) neither the Administrative Agent, any Arranger nor any Lender has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Credit Documents; and (iii) each of the Administrative Agent, the Arrangers and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and none of the Administrative Agent, the Arrangers or the Lenders has any obligation to disclose any of such interests to the Borrower or its Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and releases any claims that it may have against each of the Administrative Agent, the Arrangers and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
11.22
Acknowledgement and Consent to Bail-In of EEA Financial Institutions
.
Notwithstanding anything to the contrary in any Credit Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender that is an EEA Financial Institution arising under any Credit Document, to the extent such liability is unsecured, may be subject to the Write-down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)
the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any Lender that is an EEA Financial Institution; and
(b)
the effects of any Bail-in Action on any such liability, including, if applicable:
(i)
a reduction in full or in part or cancellation of any such liability;
(ii)
a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Credit Agreement or any other Credit Document; or
(iii)
the variation of the terms of such liability in connection with the exercise of the Write-down and Conversion Powers of any EEA Resolution Authority.
11.23
Amendment and Restatement
.
(a)
Amendment and Restatement
. The parties hereto agree that, subject to the satisfaction of the conditions set forth in
Section 4.1
, from and after the Restatement Date, the Existing Credit Agreement is hereby amended and restated in its entirety to read as set forth in this Credit Agreement.
(b)
Reallocation
. On the Restatement Date, the loans and commitments made by the Lenders under the Existing Credit Agreement shall be re-allocated and restated among the Lenders so that, and the loans and commitments shall be made by the Lenders so that, as of the Restatement Date, the respective commitments of the Lenders shall be as set forth on
Schedule 1.1(a)
attached hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written.
BORROWER
:
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
/s/ Joseph D. Tarry
Name: Joseph D. Tarry
Title: Vice President, Controller and Treasury
Signature Page to Credit Agreement
S-1
LENDERS
:
WELLS FARGO BANK, NATIONAL ASSOCIATION
,
individually in its capacity as a Lender and in its capacity as Administrative Agent and a L/C Issuer
By:
/s/ Gregory R. Gredvig
Name: Gregory R. Gredvig
Title: Director
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
MUFG UNION BANK, N.A.
,
as a Lender and an L/C Issuer
By:
/s/ Paul Farrell
Name: Paul Farrell
Title: Managing Director
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
CITIBANK, N.A.
,
as a Lender
By:
/s/ Amit Vasani
Name: Amit Vasani
Title: Vice President
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
JPMORGAN CHASE BANK, N.A.
,
as a Lender
By:
/s/ Nancy R. Barwig
Name: Nancy R. Barwig
Title: Credit Risk Director
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
MORGAN STANLEY BANK, N.A.
,
as a Lender
By:
/s/ Rikin Pandya
Name: Rikin Pandya
Title: Authorized Signatory
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
KEYBANK NATIONAL ASSOCIATION
,
as a Lender
By:
/s/ Keven D. Smith
Name: Keven D. Smith
Title: Senior Vice President
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
ROYAL BANK OF CANADA
,
as a Lender
By:
/s/ Justin Painter
Name: Justin Painter
Title: Authorized Signatory
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
U.S. BANK NATIONAL ASSOCIATION
,
as a Lender
By:
/s/ John M. Eyerman
Name: John M. Eyerman
Title: Senior Vice President
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
THE BANK OF NEW YORK MELLON
,
as a Lender
By:
/s/ Mark W. Rogers
Name: Mark W. Rogers
Title: Vice President
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
BOKF, NA dba BANK OF ALBUQUERQUE
,
as a Lender
By:
/s/ John Valentine
Name: John Valentine
Title: SVP
PUBLIC SERVICE COMPANY OF NEW MEXICO
FOURTH AMENDMENT TO AND RESTATEMENT OF CREDIT AGREEMENT
SCHEDULE 1.1(a)
PRO RATA SHARES
|
|
|
|
Lender
|
Revolving Committed Amount
|
Pro Rata Share of
Revolving Committed Amount
|
Wells Fargo Bank, National Association
|
$50,714,285.71
|
12.678571430%
|
MUFG Union Bank, N.A.
|
$50,714,285.71
|
12.678571430%
|
Citibank, N.A.
|
$50,714,285.71
|
12.678571430%
|
JPMorgan Chase Bank, N.A.
|
$50,714,285.71
|
12.678571430%
|
SunTrust Bank
|
$40,000,000.00
|
10.000000000%
|
Morgan Stanley Bank, N.A.
|
$37,142,857.16
|
9.285714290%
|
KeyBank National Association
|
$28,571,428.57
|
7.142857142%
|
Royal Bank of Canada
|
$28,571,428.57
|
7.142857142%
|
U.S. Bank National Association
|
$28,571,428.57
|
7.142857142%
|
The Bank of New York Mellon
|
$20,000,000.00
|
5.000000000%
|
BOKF, NA dba Bank of Albuquerque
|
$14,285,714.29
|
3.571428572%
|
TOTALS
|
$400,000,000.00
|
100.000000000%
|
SCHEDULE 1.1(b)
EXISTING LETTERS OF CREDIT
PUBLIC SERVICE COMPANY OF NEW MEXICO LETTERS OF CREDIT
|
|
|
|
|
|
LOC Beneficiary:
|
LOC NUMBER
|
Issuing Bank
|
LOC Amount:
|
LOC Expiry
|
LA Water and Power (LADWP)
|
SM231304W
|
Wells Fargo
|
$300,000.00
|
5/17/2019
|
|
|
|
|
|
Nuclear Electric Insurance Limited (NEIL)
|
SM234554W
|
Wells Fargo
|
$2,228,893.00
|
3/31/2019
|
|
|
|
|
|
|
|
Total LOCs PNM
|
$2,528,893.00
|
|
SCHEDULE 11.1
NOTICES
Borrower
:
Public Service Company of New Mexico
414 Silver Ave, SW MS0905
Albuquerque, New Mexico 87102-3289
Attention: Joseph D. Tarry, Vice President, Controller and Treasurer
Telephone: (505) 241-4672
Telecopier: (505) 241-4386
Electronic Mail:
cashdesk@pnmresources.com
Website Address:
www.pnmresources.com
Address for notices as Administrative Agent:
Wells Fargo Bank, National Association
1525 West W.T. Harris Blvd.
Mail Code: D1109-019
Charlotte, NC 28262
Attention: Syndication Agency Services
Telephone No.: (704) 590-2706
Telecopy No.: (704) 590-2790
E-mail: agencyservices.requests@wellsfargo.com
Address for notices as LC Issuer, Swing Line Lender and Credit Contact
:
Wells Fargo Bank, National Association
90 S. Seventh Street, 6th Floor
Minneapolis, MN 55402
MAC N9305-06G
Attention: Greg Gredvig
Telephone No.: (612) 667-4832
Telecopy No.: (612) 316-0506
Email: Gregory.R.Gredvig@wellsfargo.com
EXHIBIT 2.1(b)
FORM OF
NOTICE OF REVOLVING BORROWING
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 among Public Service Company of New Mexico (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
DATE: _____________, 20__
|
|
1.
|
This Notice of Revolving Borrowing is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement.
|
|
|
2.
|
Please be advised that the Borrower is requesting Revolving Loans on the terms set forth below:
|
|
|
(a)
|
Principal amount of requested
Revolving Loans $___________________
|
|
|
(b)
|
Date of requested Revolving
Loans ____________________
|
|
|
(c)
|
Interest rate applicable to the
|
requested Revolving Loans:
(i) ________ Adjusted Base Rate
(ii) ________ Adjusted Eurodollar Rate for an Interest Period of:
________ one month
________ two months
________ three months
________ six months
|
|
3.
|
The representations and warranties made by the undersigned in any Credit Document (other than the representation and warranties in
Section 6.7(a)
(but only with respect to clause (a) of the definition of Material Adverse Effect) and
Section 6.9
of the Credit Agreement) are true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) at and as if made on the date of the requested Revolving Loans except to the extent they expressly and exclusively relate to an earlier date.
|
|
|
4.
|
No Default or Event of Default exists or shall be continuing either prior to or after giving effect to the Revolving Loans made pursuant to this Notice of Borrowing.
|
|
|
5.
|
Subsequent to the funding of the requested Revolving Loans, the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans will be $________________, which is less than or equal to the Revolving Committed Amount.
|
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.1(e)
FORM OF REVOLVING NOTE
Lender: ______________ _____________, 20__
FOR VALUE RECEIVED, PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the “
Borrower
”), hereby promises to pay to the order of the Lender referenced above (the “
Lender
”), at the Administrative Agent’s Office set forth in that certain Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 (as amended, modified, extended or restated from time to time, the “
Credit Agreement
”) among the Borrower, the Lenders party thereto (including the Lender) and Wells Fargo Bank, National Association, as Administrative Agent (the “
Administrative Agent
”) (or at such other place or places as the holder of this Note may designate), the aggregate unpaid principal amount of the Revolving Loans made by the Lender to the Borrower under the Credit Agreement, in lawful money and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement (but, in any event, no later than the Maturity Date), and to pay interest on the unpaid principal amount of each Revolving Loan made by the Lender, at such office, in like money and funds, for the period commencing on the date of each Revolving Loan until each Revolving Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement and evidences Revolving Loans made by the Lender to the Borrower thereunder. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement and the terms and conditions of the Credit Agreement are expressly incorporated herein and made a part hereof.
The Credit Agreement provides for the acceleration of the maturity of the Revolving Loans evidenced by this Note upon the occurrence of certain events (and for payment of collection costs in connection therewith) and for prepayments of Revolving Loans upon the terms and conditions specified therein. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorney fees.
The date, amount, type, interest rate and duration of Interest Period (if applicable) of each Revolving Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books;
provided
that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Credit Agreement or under this Note in respect of the Revolving Loans to be evidenced by this Note, and each such recordation or endorsement shall be prima facie evidence of such information, absent manifest error.
Except as permitted by
Section 11.3(b)
of the Credit Agreement, this Note may not be assigned by the Lender to any other Person.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[signature page follows]
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be executed as of the date first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.3
FORM OF
NOTICE OF CONTINUATION/CONVERSION
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 among Public Service Company of New Mexico (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
|
|
DATE:
|
_____________, 20__
|
_________________________________________________________________
|
|
1.
|
This Notice of Continuation/Conversion is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Credit Agreement.
|
|
|
2.
|
Please be advised that the Borrower is requesting that a portion of the current outstanding Revolving Loans in the amount of $
, currently accruing interest at
, be extended or converted as of
, 20__ at the interest rate option set forth in paragraph 3 below.
|
|
|
3.
|
The interest rate option applicable to the extension or conversion of all or part of the existing Revolving Loans referenced above shall be:
|
a. ________ the Adjusted Base Rate
b. ________ the Adjusted Eurodollar Rate for an Interest Period of:
________ one month
________ two months
________ three months
________ six months
|
|
4.
|
As of the date hereof, no Default or Event of Default has occurred and is continuing.
|
[signature page follows]
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.7
FORM OF SWING LINE NOTE
_____________, 20__
FOR VALUE RECEIVED, PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (the “
Borrower
”), hereby promises to pay to the order of Wells Fargo Bank, National Association (the “
Swing Line Lender
”) and its registered assigns, at the office of Wells Fargo Bank, National Association (the “
Administrative Agent
”) as set forth in that certain Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 (as amended, modified, extended or restated from time to time, the “
Credit Agreement
”) among the Borrower, the Lenders party thereto (including the Swing Line Lender) and Wells Fargo Bank, National Association, as Administrative Agent, the principal amount of the Swing Line Sublimit (or such lesser amount as shall equal the aggregate unpaid principal amount of the Swing Line Loans made by the Swing Line Lender to the Borrower under the Credit Agreement), in lawful money and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Swing Line Loan, at such office, in like money and funds, for the period commencing on the date of such Swing Line Loan until such Swing Line Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.
This Note is the Swing Line Note referred to in the Credit Agreement and evidences the Swing Line Loans made by the Swing Line Lender thereunder. All capitalized terms used in this Swing Line Note and not otherwise defined shall have the meanings provided in the Credit Agreement and the terms and conditions of the Credit Agreement are expressly incorporated herein and made a part hereof.
The Credit Agreement provides for the acceleration of the maturity of the Swing Line Loans evidenced by this Swing Line Note upon the occurrence of certain events (and for payment of collection costs in connection therewith) and for prepayments of such Swing Line Loans upon the terms and conditions specified therein. In the event this Swing Line Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorney fees.
The date, amount, type and interest rate of the Swing Line Loans made by the Swing Line Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Swing Line Lender on its books; provided that the failure of the Swing Line Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing hereunder or under this Swing Line Note in respect of the Swing Line Loans to be evidenced by this Swing Line Note, and each such recordation or endorsement shall be conclusive and binding absent manifest error.
This Swing Line Note and the Swing Line Loans evidenced hereby may be transferred in whole or in part only as provided in
Section 11.3(b)
of the Credit Agreement and by registration of such transfer on the Register maintained for such purpose by or on behalf of the Borrower as provided in
Section 11.3(c)
of the Credit Agreement.
THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[signature page follows]
IN WITNESS WHEREOF, the Borrower has caused this Swing Line Note to be executed as of the date first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 2.7(d)
FORM OF NOTICE OF SWING LINE BORROWING
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 among Public Service Company of New Mexico (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
|
|
DATE:
|
_____________, 20__
|
1. This Notice of Swing Line Borrowing is made pursuant to the terms of the Credit Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings provided in the Credit Agreement.
2. Please be advised that the Borrower is requesting a Swing Line Loan on the terms set forth below:
|
|
(a)
|
Principal amount of requested
Swing Line Loan $___________________
|
|
|
(b)
|
Date of requested Swing Line
Loan ____________________
|
|
|
(c)
|
Interest rate applicable to the
|
requested Swing Line Loan:
(i) ________ Adjusted Base Rate
(ii) ________ Adjusted LIBOR Market Index Rate
3. Subsequent to the funding of the requested Swing Line Loan, the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations plus the aggregate principal amount of outstanding Swing Line Loans will be $_____________, which is less than or equal to the Revolving Committed Amount.
4. Subsequent to the funding of the requested Swing Line Loan, the aggregate amount of Swing Line Loans will be $______________, which is less than or equal to the Swing Line Sublimit.
[continues on next page]
5. The representations and warranties made by the undersigned in any Credit Document (other than the representation and warranties in
Section 6.7(a)
(but only with respect to clause (a) of the definition of Material Adverse Effect) and
Section 6.9
of the Credit Agreement) are true and correct in all material respects (except to the extent that any representation and warranty that is qualified by materiality shall be true and correct in all respects) at and as if made on the date of the requested Swing Line Loans except to the extent they expressly and exclusively relate to an earlier date.
6. No Default or Event of Default exists or shall be continuing either prior to or after giving effect to the Swing Line Loans made pursuant to this Swing Line Borrowing.
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 4.1(k)
FORM OF
ACCOUNT DESIGNATION LETTER
[Date]
Wells Fargo Bank, National Association
[address]
Attention: Syndication Agency Services
Ladies and Gentlemen:
This Account Designation Letter is delivered to you by PUBLIC SERVICE COMPANY OF NEW MEXICO (the “
Borrower
”), a New Mexico corporation, under
Section 4.1(k)
of the Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 (as amended, restated or otherwise modified from time to time, the “
Credit Agreement
”), by and among the Borrower, the Lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent (the “
Administrative Agent
”).
The Administrative Agent is hereby authorized to disburse all Loan proceeds into the following account, unless the Borrower shall designate, in writing to the Administrative Agent, one or more other accounts:
A/C# ______
ABA _______
Reference:
[Notwithstanding the foregoing, on the effective date of the Credit Agreement, funds borrowed under the Credit Agreement shall be sent to the institutions and/or persons designated on the attached payment instructions.]
IN WITNESS WHEREOF, the undersigned has executed this Account Designation Letter as of the date first set forth above.
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
EXHIBIT 7.1(c)
FORM OF
COMPLIANCE CERTIFICATE
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
|
|
RE:
|
Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 among Public Service Company of New Mexico (the “
Borrower
”), Wells Fargo Bank, National Association, (the “
Administrative Agent
”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “
Credit Agreement
”)
|
|
|
DATE:
|
_____________, 20__
|
_________________________________________________________________
Pursuant to the terms of the Credit Agreement, I, ______________, [Title of Financial Officer] of Public Service Company of New Mexico, hereby certify on behalf of the Borrower that, as of the [Fiscal Quarter][Fiscal Year] ending ________, 20__, the statements below are accurate and complete in all respects (all capitalized terms used below shall have the meanings set forth in the Credit Agreement):
a. Attached hereto as
Schedule 1
are calculations (calculated as of the date of the annual financial statements delivered in accordance with
Section 7.1(a)
of the Credit Agreement or as of the date of the quarterly financial statements referred to in paragraph c. below) demonstrating compliance by the Borrower with the financial covenant contained in
Section 7.2
of the Credit Agreement.
b. No Default or Event of Default exists under the Credit Agreement, except as indicated on a separate page attached hereto, together with an explanation of the action taken or proposed to be taken by the Borrower with respect thereto.
c. [Attached hereto as
Schedule 2
are the quarterly financial statements for the fiscal quarter ended __________, 20___ and such quarterly financial statements] [The quarterly financial statements for the fiscal quarter ended _______, 20__, delivered electronically pursuant to the last paragraph of
Section 7.1
of the Credit Agreement,] fairly present in all material respects the financial condition of the Borrower and its Subsidiaries and have been prepared in accordance with GAAP, subject to changes resulting from normal year-end audit adjustments and except that the quarterly financial statements have fewer footnotes than annual statements.
[signature page follows]
___________________________
1
Use the first bracketed language when delivering paper copies of quarterly financial statements and the second bracketed language when delivering quarterly financial statements electronically.
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
SCHEDULE 1
TO EXHIBIT 7.1(c)
FINANCIAL COVENANT CALCULATIONS
|
|
|
|
A.
|
Debt Capitalization
|
|
|
1. Consolidated Indebtedness of the Borrower
|
$
________________
|
|
2. Consolidated Capitalization of the Borrower
|
$
________________
|
|
3. Debt to Capitalization Ratio (Line A1 ÷ A2)
|
___________
to 1.0
|
|
Maximum Permitted
|
.65 to 1.0
|
|
|
|
SCHEDULE 2
TO EXHIBIT 7.1(c)
[QUARTERLY] [ANNUAL] FINANCIAL STATEMENTS
[Attached]
EXHIBIT 11.3(b)
FORM OF
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the “
Assignment and Assumption
”) is dated as of the Effective Date set forth below and is entered into by and between ______________ (the “
Assignor
”) and _______________________ (the “
Assignee
”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “
Credit Agreement
”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Schedule 1 attached hereto (the “
Standard Terms and Conditions
”) are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (a) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including without limitation any Letters of Credit, guarantees, and swingline loans included in such facilities) and (b) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (a) above (the rights and obligations sold and assigned pursuant to clauses (a) and (b) above being referred to herein collectively as, the “
Assigned Interest
”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
1. Assignor: ______________________________
|
|
2.
|
Assignee: ______________________________
|
and is an Affiliate/Approved Fund of _________________
|
|
3.
|
Borrower: Public Service Company of New Mexico, a New Mexico
|
corporation
|
|
4.
|
Administrative Agent: Wells Fargo Bank, National Association, as the Administrative Agent under the Credit Agreement
|
|
|
5.
|
Credit Agreement: Fourth Amendment to and Restatement of Credit Agreement dated as of October 9, 2018 among the Borrower, the Administrative Agent, and the Lenders identified therein.
|
|
|
|
|
Aggregate Amount of Commitment/Loans for all Lenders
|
Amount of Commitment/Loans Assigned
|
Percentage Assigned of Commitment/Loans
|
$
|
$
|
%
|
7. After giving effect to the foregoing assignment, the Assignor and the Assignee shall have the following Commitments, Pro Rata Shares, outstanding Loans and Participation Interests:
|
|
|
|
|
|
|
Commitments
|
Pro Rata Share
|
Outstanding
Revolving
Loans
|
Participation Interests in
Letters of Credit
|
Assignor
|
|
|
|
|
Assignee
|
|
|
|
|
8. Trade Date: ______________
Effective Date: _____________ ___, 20__
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By:
Name:
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By:
Name:
Title:
Consented to and Accepted if applicable:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent and L/C Issuer
By:
Name:
Title:
Consented to if applicable:
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By:
Name:
Title:
SCHEDULE 1
TO EXHIBIT 11.3(b)
TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1.
Representations and Warranties
.
1.1
Assignor
. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Credit Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Credit Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Credit Document.
1.2.
Assignee
. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to
Section 7.1
thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a foreign lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Credit Documents are required to be performed by it as a Lender.
2.
Payments
. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.
3.
General Provisions
. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
PNM Resources
414 Silver Ave. SW
Albuquerque, NM 87102-3289
EXHIBIT 31.1
CERTIFICATION
I, Patricia K. Collawn, certify that:
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of PNM Resources, Inc.;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
Date:
|
November 6, 2018
|
By:
|
/s/ Patricia K. Collawn
|
|
|
|
Patricia K. Collawn
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
PNM Resources, Inc.
|
PNM Resources
414 Silver Ave. SW
Albuquerque, NM 87102-3289
EXHIBIT 31.2
CERTIFICATION
I, Charles N. Eldred, certify that:
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of PNM Resources, Inc.;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
Date:
|
November 6, 2018
|
By:
|
/s/ Charles N. Eldred
|
|
|
|
Charles N. Eldred
|
|
|
|
Executive Vice President and
|
|
|
|
Chief Financial Officer
|
|
|
|
PNM Resources, Inc.
|
Public Service Company of New Mexico
414 Silver Ave. SW
Albuquerque, NM 87102-3289
EXHIBIT 31.3
CERTIFICATION
I, Patricia K. Collawn, certify that:
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Public Service Company of New Mexico;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
Date:
|
November 6, 2018
|
By:
|
/s/ Patricia K. Collawn
|
|
|
|
Patricia K. Collawn
|
|
|
|
President and Chief Executive Officer
|
|
|
|
Public Service Company of New Mexico
|
Public Service Company of New Mexico
414 Silver Ave. SW
Albuquerque, NM 87102-3289
EXHIBIT 31.4
CERTIFICATION
I, Charles N. Eldred, certify that:
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Public Service Company of New Mexico;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
Date:
|
November 6, 2018
|
By:
|
/s/ Charles N. Eldred
|
|
|
|
Charles N. Eldred
|
|
|
|
Executive Vice President and
|
|
|
|
Chief Financial Officer
|
|
|
|
Public Service Company of New Mexico
|
Texas-New Mexico Power Company
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
EXHIBIT 31.5
CERTIFICATION
I, Patricia K. Collawn, certify that:
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Texas-New Mexico Power Company;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
Date:
|
November 6, 2018
|
By:
|
/s/ Patricia K. Collawn
|
|
|
|
Patricia K. Collawn
|
|
|
|
Chief Executive Officer
|
|
|
|
Texas-New Mexico Power Company
|
Texas-New Mexico Power Company
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
EXHIBIT 31.6
CERTIFICATION
I, Charles N. Eldred, certify that:
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Texas-New Mexico Power Company;
|
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
Date:
|
November 6, 2018
|
By:
|
/s/ Charles N. Eldred
|
|
|
|
Charles N. Eldred
|
|
|
|
Executive Vice President and
|
|
|
|
Chief Financial Officer
|
|
|
|
Texas-New Mexico Power Company
|
PNM Resources
414 Silver Ave. SW
Albuquerque, NM 87102-3289
www.pnmresources.com
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended
September 30, 2018
, for PNM Resources, Inc. (“Company”), as filed with the Securities and Exchange Commission on
November 6, 2018
(“Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1)
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the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date:
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November 6, 2018
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By:
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/s/ Patricia K. Collawn
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Patricia K. Collawn
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Chairman, President and Chief Executive Officer
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PNM Resources, Inc.
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By:
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/s/ Charles N. Eldred
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Charles N. Eldred
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Executive Vice President and
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Chief Financial Officer
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Public Service Company of New Mexico
414 Silver Ave. SW
Albuquerque, NM 87102-3289
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended
September 30, 2018
, for Public Service Company of New Mexico (“Company”), as filed with the Securities and Exchange Commission on
November 6, 2018
(“Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1)
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the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date:
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November 6, 2018
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By:
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/s/ Patricia K. Collawn
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Patricia K. Collawn
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President and Chief Executive Officer
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Public Service Company of New Mexico
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By:
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/s/ Charles N. Eldred
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Charles N. Eldred
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Executive Vice President and
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Chief Financial Officer
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Texas-New Mexico Power Company
577 N. Garden Ridge Blvd.
Lewisville, Texas 75067
EXHIBIT 32.3
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended
September 30, 2018
, for Texas-New Mexico Power Company (“Company”), as filed with the Securities and Exchange Commission on
November 6, 2018
(“Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
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(1)
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the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date:
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November 6, 2018
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By:
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/s/ Patricia K. Collawn
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Patricia K. Collawn
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Chief Executive Officer
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Texas-New Mexico Power Company
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By:
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/s/ Charles N. Eldred
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Charles N. Eldred
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Executive Vice President and
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Chief Financial Officer
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