After a bit of testing, I can conclude that "Generate non-TN races only" setting straight up does not work in 1,13.
I checked NPRs that are generated at the start of the game and later tested NPRs that are generated with exploration. In both cases, NPRs have TN tech, build ships, research tech, create colonies, explore and so on. They do not even start with Conventional Industries - everything is already converted.
At first I thought that NPRs might wrongly receive and use instant research and build points. After further testing I can say NPRs are generated with TN tech because logs do not have a TN research message (as opposed to any other research being logged, both normal and instant). Because they are not generated as conventional, they receive their normal instant research and build points and immediately spend them and operate as normal post-TN NPR.
Some people told me that conventional NPRs are lobotomized because they have no conventional logic implemented (and lack of logic is the same reason for TN NPRs having hardcoded instant research points), but then why have the "Generate non-TN races only" option at all if it won't function as many players expect it to function? IMO it should either be removed completely, or it is time to make it work.
SJW: Fixed for v1.14