DISCUSSION: The Intergovernmental Panel on Climate Change released a report in 2018 finding that "rapid, far-reaching" changes are necessary in the next 10 years to avoid disastrous levels of global warming.

The recent initiation of abandonment proceedings for the coal-fired San Juan Generating Station (SJGS) by PNM Resources (PNM) marks an important step in the effort to combat climate change.

These proceedings before the New Mexico Public Regulation Commission (NMPRC) will also determine how the generation capacity of SJGS will be replaced. Given the replacement options already offered by PNM, and its current significant reliance on gas-fired generation, it is likely that natural gas-fired plants will continue to play a prominent role in PNM's generation mix.

The energy sector has a critical role to play in mitigating climate risk. The sector at large is transitioning away from coal, but a growing reliance on natural gas creates its own ongoing risk. Natural gas is a major contributor to climate change due to combustion emissions and methane leaks. In 2018, gas contributed to an increase in power sector emissions, jeopardizing chances of achieving reductions in line with the Paris Agreement's goal of keeping global warming below 1.5 degrees Celsius.

Building new gas infrastructure may become uneconomic and result in costly stranded assets comparable to early retirements now occurring nationwide for coal, especially considering the rapid, and accelerating, pace of technological innovation. Coal generation went from viable alternative to stranded asset in only a few short years, and the tempo of change has only increased. Demand response, energy efficiency, and renewables plus storage are all increasingly efficient and economically competitive means of serving energy needs while reducing fossil fuel use and climate impacts.

While PNM is to be commended for its decision to abandon SJGS in 2022 and for its public embrace of the new Renewable Portfolio Standards included in the recently passed New Mexico Energy Transition Act, investors lack sufficient information to assess whether PNM has paid sufficient attention to the risks inherent in substantial investment in natural-gas-fired generation and how these costly assets and their depreciation timelines reconcile with climate stability goals or the existence of increasingly low cost, clean energy pathways.

Peer utilities, including NextEra and Xcel, have demonstrated alternatives to investing in natural gas by replacing coal assets with renewables and storage, creating win-win solutions. Shareholders are concerned that PNM may lag behind on such opportunities and increase its exposure to climate-related risks by investing in significant gas-fired infrastructure that may become stranded.

RESOLVED: Shareholders request that PNM issue a report describing how it is responding to the risk of stranded assets of natural gas-based infrastructure as the global response to climate change intensifies. This report should be available to the shareholders and the public on PNM's website by January 1, 2021, be prepared at reasonable cost, and omit confidential information, such as proprietary data or legal strategy.