PUBLIC SERVICE CO OF NEW MEXICO

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 PNMRTXNMs, PNMs, and TNMPs Annual Reports on Form 10-K for the year ended December 31, 2023, except as set forth below.

The impact of wildfires could negatively affect PNMs and TNMPs results of operations.

PNM and TNMP have large networks of electric transmission and distribution facilities. Weather conditions including severe drought, high winds, and the natural vegetation in the U.S. Southwest region and certain parts of Texas, could contribute to wildfires in or near PNMs and TNMPs service territories. The risk of wildfires could result in higher maintenance costs, increased insurance premiums, and the inability to maintain adequate insurance coverage. PNM and TNMP take proactive steps to mitigate wildfire risk. However, wildfire risk is always present and PNM and TNMP could be held liable for damages incurred as a result of wildfires caused, or allegedly caused, by their transmission and distribution systems. In addition, wildfires could cause damage to PNMs and TNMPs assets that could result in loss of service to customers or make it difficult to supply power in sufficient quantities to meet customer needs. Wildfire avoidance measures, such as intentional power interruptions, also may lead to customer claims for lost service, business interruption, and other injuries.

Failure to adequately address the risk of wildfires could also result in civil liability arising out of government enforcement actions or private claims. These actions could also result in reputational harm, which may cause stock price decreases, increased insurance premiums or the inability to maintain adequate insurance coverage, or cause certain investors and financial institutions not to purchase the Companys debt securities or otherwise provide the Company with capital or credit on favorable terms, which may cause the cost of capital to increase. In addition, PNMRTXNM and its operating subsidiaries may underestimate the costs of litigation due to the uncertainty inherent in these matters. These events could have negative impacts on the Companys financial position, results of operations, and cash flows.

PNMRTXNM and its subsidiaries substantial indebtedness could adversely affect its financial condition.

PNMRTXNM and its subsidiaries currently have a significant amount of indebtedness, including the Convertible Notes. This significant amount of indebtedness could limit PNMRTXNMs ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements, stock repurchases or other purposes. It may also increase PNMRTXNMs vulnerability to adverse economic, market and industry conditions, limit its flexibility in planning for, or reacting to, changes in its business operations or to its industry overall, and place PNMRTXNM at a disadvantage in relation to its competitors that have lower debt levels. Any or all of the above events and/or factors could have an adverse effect on PNMRTXNMs results of operations and financial condition.

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Servicing PNMRTXNM and its subsidiaries debt requires a significant amount of cash, and it may not have sufficient cash flow from its business to pay its substantial debt.

PNMRTXNM and its subsidiaries ability to make scheduled payments of the principal of, to pay interest on or to refinance, its indebtedness, including the Convertible Notes, depends on its future performance, which is subject to economic, financial, competitive and other factors beyond its control. PNMRTXNMs business may not continue to generate cash flow from operations in the future sufficient to service its debt and make necessary capital expenditures. If PNMRTXNM is unable to generate such cash flow, PNMRTXNM may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. PNMRTXNMs ability to refinance its indebtedness will depend on the capital markets and its financial condition at such time. PNMRTXNM may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on its debt obligations.

Despite PNMRTXNMs current consolidated debt levels, PNMRTXNM and its subsidiaries may still incur substantially more debt or take other actions which would intensify the risks discussed above.

Despite PNMRTXNMs current consolidated debt levels, PNMRTXNM and its subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in its debt instruments, some of which may be senior indebtedness or secured debt. PNMRTXNM is not restricted under the terms of the Convertible Notes Indenture from incurring additional debt, securing existing or future debt, recapitalizing its debt or taking a number of other actions. PNMRTXNMs Credit Agreement restricts its ability to incur additional indebtedness, including secured indebtedness, but if the PNMRTXNM Credit Agreement matures or is repaid, PNMRTXNM may not be subject to such restrictions under the terms of any subsequent indebtedness.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect PNMRTXNMs financial condition and operating results.

In the event the conditional conversion feature of the Convertible Notes is triggered, holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, to the extent PNMRTXNM is required to pay cash to settle a portion of its conversion obligation, it

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could adversely affect PNMRTXNMs liquidity. In addition, even if holders do not elect to convert their Convertible Notes, to the extent PNMRTXNM is required to pay cash to settle a portion of its conversion obligations, PNMRTXNM would be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of its net working capital.

The accounting method for the Convertible Notes could have a material effect on PNMRTXNMs reported financial results.

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-06, DebtDebt with Conversion and Other Options (Subtopic 470-20) and Derivatives and HedgingContracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entitys Own Equity (ASU 2020-06), which amends the accounting standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the if-converted method for calculating diluted earnings per share. Under the if-converted method, diluted earnings per share will generally be calculated assuming that all the Convertible Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect PNMRTXNMs diluted earnings per share. However, if the principal amount of the convertible debt security, such as the Convertible Notes, being converted is required to be paid in cash and only the excess is permitted to be settled in shares, the if-converted method will produce a similar result as the treasury stock method prior to the adoption of ASU 2020-06 for such convertible debt security.

ASU 2020-06 became effective for PNMRTXNM as of the start of fiscal year end 2022 and as such PNMRTXNM did not bifurcate the liability and equity components of the Convertible Notes on its balance sheet and PNMRTXNM used the if-converted method of calculating diluted earnings per share. To the extent PNMRTXNM is required to pay cash to settle the principal amount of the Convertible Notes upon conversion, with only the excess permitted to be settled in shares of PNMRTXNMs common stock, the application of the if-converted method will produce a similar result as the treasury stock method prior to the adoption of ASU 2020-06. The effect of the treasury stock method is that the shares issuable upon conversion of such Convertible Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such Convertible Notes exceeds their principal amount. The requirement that the principal amount of the Convertible Notes upon conversion must be paid in cash could adversely affect PNMRTXNMs liquidity.

PNMRTXNM cannot be sure whether other changes may be made to the current accounting standards related to the Convertible Notes, or otherwise, that could have a material effect on its reported financial results.

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The fundamental change repurchase feature of the Convertible Notes may delay or prevent an otherwise beneficial attempt to acquire PNMRTXNM.

Certain provisions in the indenture governing the Convertible Notes may make it more difficult or expensive for a third party to acquire PNMRTXNM. For example, the Convertible Notes Indenture requires PNMRTXNM, subject to certain exceptions, to repurchase the Convertible Notes for cash upon the occurrence of a fundamental change (as defined in the Convertible Notes Indenture) and, in certain circumstances, to increase the conversion rate for a holder that converts its Convertible Notes in connection with a make-whole fundamental change (as defined in the Convertible Notes Indenture). A takeover of PNMRTXNM may trigger the requirement that PNMRTXNM repurchase the Convertible Notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of PNMRTXNM that would otherwise be beneficial to investors.