EEI Financial Conference November 2018

Transcription

1 EEI Financial Conference November 2018

2 Contact Information and Safe Harbor Statement Investor Relations Contact Information Lisa Goodman Jimmie Blotter, Assistant Treasurer Manager, Investor Relations Director, Investor Relations and Shareholder Services U.S U.S Lisa.Goodman@pnmresources.com Jimmie.Blotter@pnmresources.com Safe Harbor Statement Statements made in this presentation that relate to future events or PNM Resources, Inc. s ( PNMR ), Public Service Company of New Mexico s ( PNM ), or Texas New Mexico Power Company s ( TNMP ) (collectively, the Company ) expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 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 flow, 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. For a discussion of risk factors and other important factors affecting forward looking statements, please see the Company s Form 10 K and 10 Q filings with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein. Non GAAP Financial Measures For an explanation of the non GAAP financial measures that appear on certain slides in this presentation (ongoing earnings and ongoing earnings per diluted share), as well as a reconciliation to GAAP measures, please refer to the Company s website as follows: 2

3 Company Overview

4 PNM Resources Overview PNM Resources is a regulated electric utility holding company focused on providing environmentally responsible, affordable and reliable electricity to customers and above industry average earnings and dividend growth to shareholders NYSE Ticker: PNM Market Cap: $3.2B Generation Resources and Service Territories Energy holding company Based in Albuquerque, New Mexico Located in New Mexico 523,812 customers 15,091 miles transmission and distribution lines 2,580 MW generation capacity Top quartile reliability Affordable rates Located in Texas 249,632 end users 9,338 miles transmission and distribution lines Top quartile reliability Affordable rates 4

5 PNM Resources Strategic Direction and Financial Goals Transform to Cleaner Energy Portfolio Plans to be coal free by 2031 Retire and replace coal fired generation with cleaner energy portfolio Invest to maintain system reliability Meet Customer Expectations Provide reliable, affordable energy while enhancing customer experience Integrate technologies and customer insights to new products and services Enhance grid to facilitate evolving customer needs Provide Earnings and Dividend Growth Deliver above industry average earnings and dividend growth Earn allowed returns Maintain investment grade credit ratings 5

6 Current Investment Plan $2.6B five year investment plan with opportunities for incremental growth Reflects $229M increase over prior plan; $176M increase at TNMP (in millions) $32 $2 $61 $38 $10 $49 $517 $607 $580 $79 $20 $27 $25 $109 $98 $97 $79 $122 $125 $130 $125 $29 Opportunities for Incremental Growth $444 $20 $413 $20 $82 $91 $216 $215 $220 $220 $ TNMP PNM T&D PNM Existing Generation Corporate/Other PNM Transmission Expansion PNM Renewable Additions 50% NMRD Renewable Additions 1 Depreciation Amounts may not visually add due to rounding (1) Depreciation does not include amounts associated with NMRD 6

7 Potential Earnings Power PNM Retail PNM Renewables PNM FERC Strong 2018 revised guidance supports continued success in executing our plan to meet growth expectations Allowed Return / Equity Ratio 9.575% / 50% 9.575% / 50% 10% / ~50% 2018 Ongoing Earnings Guidance Midpoint Avg Rate Base Return EPS 2019 Ongoing Earnings Guidance Midpoint Avg Rate Base Return EPS 2020 Earnings Potential Avg Rate Base EPS 2021 Earnings Potential Avg Rate Base $2.3 B 9.4% $1.35 $2.4 B 9.3% $1.40 $2.4 B $1.42 $2.5 B $1.49 $90 M 9.575% $0.05 $115 M 9.575% $0.07 $150 M $0.09 $145 M $0.09 $220 M 8.6% $0.13 $285 M 8.0% $0.14 $330 M $0.15 $0.19 $370 M $0.16 $0.21 Items not in Rates ($0.01) $0.01 ($0.04) ($0.02) ($0.04) ($0.02) Total PNM $2.6 B $1.52 $2.7 B $1.62 $2.9 B $1.62 $1.68 $3.0 B $1.70 $1.77 TNMP 9.65% / 45% $850 M 9.6% $0.63 $1,080 M 9.65% $0.68 $1,220 M $0.71 $1,355 M $0.78 Corporate/Other ($0.18) ($0.17) ($0.18) ($0.16) ($0.20) ($0.18) ATM Program ($0.03) ($0.01) ($0.07) ($0.04) Total PNM Resources (Before Supreme Court) $3.5 B $1.97 $3.8 B $2.13 $4.1 B $2.12 $2.22 $4.3 B $2.21 $2.33 Supreme Court Appeal $0 150 M $0.00 $0.09 $0 150 M $0.00 $0.09 $0 150 M $0.00 $0.09 Total PNM Resources (After Supreme Court) $3.5 B $1.97 $ B $2.13 $2.22 $ B $2.12 $2.31 $ B $2.21 $2.42 Targeted Rate Base CAGR (1) : Total 7.5% 8.5% / PNM 4.5% 5.5% / TNMP 16.8% Range at PNM reflects potential outcomes from the pending NM Supreme Court general rate case appeal of $0 $150M EPS Earnings potential shown above does not include incremental growth opportunities (1) CAGR measured from a 2018 base This table is not intended to represent a forward looking projection of earnings guidance. Refer to Slide 32 for additional details and disclosures. 7

8 Opportunities for Incremental Growth New Customer Load and Infrastructure Investments Increasing capital in Texas to support continued strong economic growth while New Mexico growth prospects are driven by load from new data center interest and existing customer expansions In order to support the increased load growth while maintaining reliability, aging infrastructure will need to be replaced and further grid modernization investments made to support the changing customer needs, load profiles and generation resource mix Transmission and Renewable Energy Expansion in New Mexico New transmission growth is driven by demand for renewables to serve the western US as well as enhancing the capabilities to meet increasing integration of renewables within our service area Generation Portfolio Transformation Proposed plans to exit coal by 2031 changes the future generation mix by replacing the power with a more flexible resource mix that may include additional gas peaking units, renewable resources and battery storage The use of securitization is the most favorable economic option for all stakeholders to achieve New Mexico s energy transition for a sustainable future 8

9 Incremental Investment Opportunities Up to $950M of incremental investment opportunities provides additional rate base growth through 2022 in millions $517 up to $780 $100 $100 $607 $580 up to $894 $100 $150 $200 up to $713 $100 $200 $444 $413 up to $300M up to $250M up to $400M Growth Opportunities New Customer Load and Infrastructure Investments Transmission and Renewable Energy Expansion in New Mexico Generation Portfolio Transformation New Customer Load and Infrastructure Investments Transmissiom and Renewable Energy Expansion in New Mexico Generation Portfolio Transformation Current Plan 9

10 Potential Earnings Power of Growth Opportunities by Earnings Growth Target: 5 6% Growth Opportunities: Avg Rate Base EPS New Customer Load and Infrastructure Investments up to $300M up to $0.18 Transmission and Renewable Energy Expansion in New Mexico up to $250M up to $0.15 Generation Portfolio Transformation (1) up to $400M up to $0.23 Subtotal up to $950M up to $0.56 San Juan Retirement (2) up to ($320M) up to ($0.19) Impact of Financing (3) up to ($0.15) Value of Growth Opportunities up to $630M up to $0.22 Note: CAGR measured from a 2018 guidance midpoint of $1.97 (1) Reflects investment in replacement power resources and supporting transmission needs (2) Reflects projected undepreciated investment San Juan Generating Station (3) Reflects equity financing to maintain capital structure and investment grade credit ratings This table is not intended to represent a forward looking projection of earnings guidance. 10

11 New Customer Load and Infrastructure Investments: Load and Economic Conditions Regulated Retail Energy Sales and Customers (weather normalized) Employment Growth (3) 12 Month Rolling Average 2018 vs Abq. U.S. January 1.2% 1.4% 2.9% February 1.6% 1.5% 1.5% March 1.3% 1.6% 1.3% April 1.3% 1.6% May 1.3% 1.7% June 1.3% 1.6% Albuquerque Dallas U.S. July 2.1% 1.6% (1) Primarily Residential usage; represents per kwh billings August 1.9% 1.6% (2) Commercial and Industrial usage excluding Transmission customers; represents per kw monthly peak billings % Change PNM / TNMP (3) U.S. Bureau of Labor Statistics, August 2018 Q vs. Q YTD 2018 vs. YTD E 2019E PNM Residential & Commercial 0.8% 0.5% ~0.3% 0.3% 0.5% Total PNM Retail Load 1.1% 0.4% 0% 0.5% 0.3% 1.0% PNM Avg. Customers 0.9% 0.8% 0.8% 1.0% per year TNMP Total Volumetric Load (1) 4.1% 3.2% 2% 3% per year TNMP Demand Based Load (2) 7.0% 6.4% 5% 7% 6% 8% TNMP Avg. End Users 1.3% 1.3% 1.5% 2.0% per year Monthly Employment Growth (3) 11

12 New Customer Load and Infrastructure Investments: Aging Infrastructure and Texas Demand Average Age of Infrastructure PNM Transmission lines: ~50 years Overhead distribution lines: ~45 years Substations: ~40 years TNMP Demand Texas ranks #1 in the US for total electricity production and wind energy production (1) ERCOT summer peak demand projected to grow by 17% over next 10 years (2) TNMP Capital Spend by Region (committed projects) West Texas ~40% North/Central TX ~25% TNMP Transmission lines: ~30 years Transmission transformers: ~30 years Distribution lines: ~25 years TNMP Service Area Gulf Coast ~35% (1) Source: Energy Information Administration (EIA) (2) Source: ERCOT 12

13 Transmission and Renewable Expansion in New Mexico: Integration of Renewable Generation Integration of renewable generation requires T&D investment and addition of supporting peaking capacity MW Capacity 1,500 1, PNM Planned Renewable Capacity included in 2017 Integrated Resource Plan , Solar Wind Solar (DG) Geothermal , Current Renewable Portfolio Standard as a % of Retail Sales 15% %

14 Transmission and Renewable Expansion in New Mexico: Third Party Renewable Development Third party renewable development increases demand for transmission capacity across our system El Cabo Broadview Grady New Mexico added wind capacity at a faster rate than any other state in ,682 MW installed capacity, 51% increase over 2016 El Cabo Wind Farm (298 MW) and Broadview Wind Facility (324 MW) added in ,251 MW under construction, including 220 MW Grady Wind Facility Source: American Wind Energy Association, Nov PNM Service Area New Mexico ranks 2 nd in US for solar potential and 6 th for land based wind potential 14

15 Generation Portfolio Transformation: PNM s Cleaner Energy Portfolio Coal free generation portfolio by 2031; develop new generation portfolio that moves to increased renewable resources Continued power from Palo Verde Nuclear Generating Station Storage or backup power resources to maintain system reliability Transparency through Sustainability Portal Energy Mix in 2017 Integrated Resource Plan 983 MW Coal Coal 56% 2012 Gas 9% Nuclear 30% Gas 23% 200 MW Coal Wind 16% Coal 12% 2025 (1) Cost effective replacement power proposals for storage options will also be considered 1 Solar 14% Nuclear 34% Geothermal 1% Coal Free Gas 31% Wind 22% Solar 15% Nuclear 31% Geothermal 1% 15

16 Generation Portfolio Transformation: Emission Reductions Implementation of the Integrated Resource Plan at PNM would reduce GHG by 71% in 2025 and 80% in 2035 (from 2005 levels) Compares favorably to the United States INDC 26% 28% by 2025 and the former administration s effort to achieve an 80% reduction by 2050 Reduction of MW Coal Capacity % reduction % reduction % coal free ,695 Reduction CO 2 Emissions (tons per year) 33% reduction 71% 5,128 reduction 80% reduction 2,263 1, Read more in our Climate Change Report at us/sustainability portal.aspx 16

17 PNM

18 PNM Bills Remain Below National and Regional Averages Customer bill impacts of increased investments are mitigated by: Return of federal tax savings to customers Load growth reduces per customer cost of new investments Energy Imbalance Market and renewable investments result in lower costs for fuel Arizona Public Service Co (AZ) Salt River Project (AZ) Imperial Irrigation District (CA) Entergy Texas Inc. (TX) Modesto Irrigation District (CA) Southwestern Electric Power Co (TX) PacifiCorp (CA) City of San Antonio (TX) Nevada Power Co (NV) PacifiCorp (WA) Regional Average Bill Pacific Gas & Electric Co. (CA) PacifiCorp (OR) Tucson Electric Power Co (AZ) Southern California Edison Co (CA) Black Hills Power, Inc. d/b/a (WY) San Diego Gas & Electric Co (CA) Sacramento Municipal Util Dist (CA) Montana Dakota Utilities Co (WY) Idaho Power Co (ID) US Average Bill Southwestern Public Svc Co (NM) Portland General Electric Co (OR) PacifiCorp (ID) Avista Corp (WA) City of Tacoma (WA) Avista Corp (ID) PacifiCorp (WY) NorthWestern Energy LLC (MT) City of Colorado Springs (CO) LADWP (CA) El Paso Electric Co (TX) PNM 2019 (NM) Proposed Montana Dakota Utilities Co (MT) PacifiCorp (UT) El Paso Electric Co (NM) Public Service Co of NM (NM) Public Svc Co of Colorado (CO) City of Seattle (WA) Comparison of Average Residential Bills (2) Western Region Average Bills by Utility $73.35 PNM 2018 (Phase I) $68.11 (1) PNM rates reflect rates approved in the 2018 General Rate Case. All others reflect U.S. Energy Information Administration's Residential Rate increases through August $76.78 PNM 2019 $ Current Regional Avg $98.94 Current US Avg $ $50 $100 $150 18

19 NMPRC Commissioners and Districts NMPRC Districts and PNM Service Areas District Name Term Ends Party District 1 District 2 Cynthia Hall, Vice Chairman Patrick Lyons Jefferson Byrd 2020 (1) Democrat (1) Republican Republican District 3 Valerie Espinoza 2020 Democrat District 4 District 5 Lynda Lovejoy Theresa Becenti Aguilar Sandy Jones, Chairman Stephen Fischmann (1) Democrat Democrat (1) Democrat Democrat (1) Eligible for re election to a second four year term 19

20 PNM Regulatory Agenda Filing Action Timing Docket No. PNM Appeal of 2015 General Rate Case to New Mexico Supreme Court Oral arguments held October 30, 2017 No statutory timeline S 1 SC PNM 2017 Integrated Resource Plan Hearing Examiner Recommended Decision to accept received October 26, 2018 Decision expected in Q or Q UT PNM Petition for Disincentive Intervenor testimony due November 19, 2018 No statutory timeline UT PNM 2019 Renewable Filing Hearings held September October 2018 Recommended Decision expected Q UT PNM Western Energy Imbalance Market Filing Hearing scheduled for December 12, 2018 No statutory timeline UT PNM San Juan Generating Station Compliance Filing Compliance filing due by December 2018 Review of filing expected within six months UT 20

21 TNMP

22 TNMP Rates Compare Favorably in Texas $60 $50 $40 Residential Total Wires Charge for 1,000 kwh Rates expected to be comparable to other IOUs after upcoming rate filings Scheduled to File by Oct 2021 Settlement Scheduled to File by July 2019 Scheduled to File by May 2019 Scheduled to File by May 2019 $30 $20 $10 $ Oncor TNMP Centerpoint AEP North AEP Central Source: TDU tariffs for retail delivery service effective September 1, 2018 and PUCT Filings Interchange. 22

23 PUCT Commissioners and TNMP Regulatory Agenda PUCT Commissioners Name Term Began Term Ends Party DeAnn Walker (Chair) Sept Aug Republican Arthur D Andrea Nov Aug Republican Shelly Botkin June 2018 Sept Republican Commissioners are appointed by the Governor of Texas and confirmed by the Senate. Length of term is determined by the Governor. TNMP Regulatory Agenda Filing Action Timing Docket No. TNMP General Rate Review Settlement filed November 2, 2018 TNMP TCOS Filings Two filings expected in 2019 Final order expected December 2018 / January 2019; rates expected to be implemented January 2019 First filing after general rate review is resolved TBD 23

24 TNMP General Rate Review Settlement General Rate Review TNMP Filing Settlement Annual revenue increase $25.9M $10.0M ROE (prior authorized %) 10.5% 9.65% Capital structure (prior authorized 45% equity) 50% Equity 45% Equity Cost of debt 7.2% 6.4% Increase to rate base (1) $90M $73M Return of excess deferred federal income taxes $7.8M $11.0M (1) Amounts are incremental to previous Transmission Cost of Service (TCOS) filings and Advanced Metering System (AMS) investments. These are largely related to transmission projects that are expected to be included in subsequent TCOS filings. 24

25 Financial Overview

26 Earnings Growth $ : Targeting 5 6% Ongoing EPS CAGR : Achieved 8% Ongoing EPS CAGR : Reflects 6% Ongoing EPS CAGR $2.31 $2.39 $2.22 $2.13 $1.97 $1.94 $1.65 $1.64 $1.49 Target: $2.39 $ Actual Ongoing EPS Midpoint Guidance / Earnings Potential Note: CAGR measured from a 2018 guidance midpoint of $

27 Earnings Growth: Achieving Targets Strong track record of meeting/beating annual expectations $2.00 Actual Ongoing EPS vs Consensus $1.75 $1.50 $1.25 $1.00 Actual Consensus Actuals $1.31 $1.41 $1.49 $1.64 $1.65 $1.94 $1.97 Consensus (beginning of year) $1.27 $1.38 $1.48 $1.57 $1.63 $1.82 $1.87 % Difference 3.1% 2.2% 0.7% 4.5% 1.2% 6.6% 5.3% 1 2 (1) Reflects 2018 guidance midpoint of $1.97 (2) Reflects consensus after accounting for revisions to guidance for tax reform 27

28 Dividend Growth Consistent Delivery of Above Industry Average Dividend Growth $0.66 Feb 13 12% $0.74 Dec 13 8% $0.80 Dec 14 10% $0.88 Dec 15 10% $0.97 Dec 16 9% $1.06 Dec 17 Expect future dividend growth to mirror earnings growth (approximately 5 6%) Indicative annual dividend rate Expect above industry average (~4%) dividend growth in the future while targeting the 50% 60% payout ratio range Next dividend review in December

29 Consolidated Earnings and Quarterly Earnings Distribution Guidance (Ongoing) Consolidated Earnings Guidance 2018 Previous Narrowed Consolidated EPS $1.91 $1.98 $1.95 $1.98 PNM $1.48 $1.52 $1.51 $1.52 TNMP $0.60 $0.62 $0.62 $0.63 Corporate/Other ($0.17) ($0.16) ($0.18) ($0.17) 2019 Previous Segment Revisions Consolidated EPS $2.08 $2.18 $2.08 $2.18 PNM $1.57 $1.63 $1.59 $1.65 TNMP $0.67 $0.69 $0.67 $0.69 Corporate/Other ($0.16) ($0.14) ($0.18) ($0.16) Quarterly Ongoing Earnings Distribution 57% 30% 3% 10% Q1 Q2 Q3 Q4 29

30 Financial Overview: Liquidity and Debt Maturity Outlook Maintain appropriate credit metrics Remain a solid investment grade rated company Target regulatory capital structures at PNM and TNMP $100 Long term Debt Maturities (in millions) $172 $20 $200 $100 $300 $306 $353 $1, and Beyond PNM TNMP Corporate Extended all revolving credit facilities through 2022 Eliminated variable rate debt exposure through Corporate issuance of $300M 3 year fixed rate notes in March 2018 At The Market equity program will be used to fund expenditures of approximately $150 million New debt issuances expected at utilities of $455 million Moody s Rating/Outlook S&P Rating/Outlook PNM Resources Baa3 (1) / Stable BBB+ (1) / Negative PNM Baa2 (2) / Stable BBB+ (2) / Negative TNMP A1 (3) / Stable A (3) / Negative (1) Issuer rating (2) Senior unsecured rating (3) Senior secured rating PNM Resources FFO to Debt is maintained well within Moody s Baa investment grade target range of 13% to 22% 30

31 Appendix

32 Potential Earnings Power Allowed Return / Equity Ratio 2018 Ongoing Earnings Guidance Midpoint Avg Rate Base Return EPS 2019 Ongoing Earnings Guidance Midpoint Avg Rate Base 2020 Earnings Potential 2021 Earnings Potential (1) Average rate base has been reduced by approximately $130M to represent the ($0.05) of Earnings Potential for the lost equity return on the Four Corners investment resulting from the 2018 general rate case settlement. (2) PNM Renewables reflect assets collected through the Renewable Rate Rider. (3) PNM FERC reflects a return of 7 9% versus the allowed return of 10%, as FERC formula rate methodology uses prior year average rate base and provides for mid year rate increases. (4) Consists primarily of decommissioning/reclamation trust income (net of fees and taxes), AFUDC, certain incentive compensation, and the 65MW ownership of San Juan Unit 4. (5) TNMP reflects a 9.65% return and 45% equity ratio consistent with the filed general rate review settlement. Earnings also include additional recovery for Competitive Transition Costs (fully recovered in 2020) and Energy Efficiency, along with items excluded from rates (primarily AFUDC). Earnings also include $0.04 annual interest savings beginning mid 2019 from the refinancing of existing debt average rate base has been held at the year end 2017 level to reflect the required suspension of TCOS filings during general rate review proceedings. (6) Corporate/Other includes earnings associated with short and intermediate term bank debt and 50% equity interest in NMRD. (7) Dilution impact assumes equity issuances up to $50M by 2020 and up to $150M by (8) Reflects a range of outcomes for the New Mexico Supreme Court appeal of the August 2015 General Rate Case final order. A minimum 28 month appeal timeframe has been used for purposes of writing down the value of the assets under appeal average rate base presented includes: PV2 64MW Acquisition Adjustment (~$75M), PV2 Leasehold Improvements (~$25M) and Balanced Draft Technology (~$50M). 32 This table is not intended to represent a forward looking projection of earnings guidance. Return EPS Avg Rate Base EPS Avg Rate Base PNM Retail (1) 9.575% / 50% $2.3 B 9.4% $1.35 $2.4 B 9.3% $1.40 $2.4 B $1.42 $2.5 B $1.49 PNM Renewables (2) 9.575% / 50% $90 M 9.575% $0.05 $115 M 9.575% $0.07 $150 M $0.09 $145 M $0.09 PNM FERC (3) 10% / ~50% $220 M 8.6% $0.13 $285 M 8.0% $0.14 $330 M $0.15 $0.19 $370 M $0.16 $0.21 Items not in Rates (4) ($0.01) $0.01 ($0.04) ($0.02) ($0.04) ($0.02) Total PNM $2.6 B $1.52 $2.7 B $1.62 $2.9 B $1.62 $1.68 $3.0 B $1.70 $1.77 TNMP (5) 9.65% / 45% $850 M 9.6% $0.63 $1,080 M 9.65% $0.68 $1,220 M $0.71 $1,355 M $0.78 Corporate/Other (6) ($0.18) ($0.17) ($0.18) ($0.16) ($0.20) ($0.18) ATM Program (7) ($0.03) ($0.01) ($0.07) ($0.04) Total PNM Resources (Before Supreme Court) $3.5 B $1.97 $3.8 B $2.13 $4.1 B $2.12 $2.22 $4.3 B $2.21 $2.33 Supreme Court Appeal (8) $0 150 M $0.00 $0.09 $0 150 M $0.00 $0.09 $0 150 M $0.00 $0.09 Total PNM Resources (After Supreme Court) $3.5 B $1.97 $ B $2.13 $2.22 $ B $2.12 $2.31 $ B $2.21 $2.42 EPS

33 Liquidity as of October 30, 2018 PNMR Development PNMR Corporate /Other PNM Resources Consolidated PNM TNMP Financing Capacity (1) : (In millions) Revolving credit facilities $440.0 $75.0 $24.5 $300.0 $839.5 As of 10/30/18: Short term debt and LOC balances $2.5 $27.6 $24.5 $131.2 $185.8 Remaining availability Invested cash Total Available Liquidity $492.8 $47.4 $169.7 $709.9 (1) Excludes intercompany debt and term loans 33

34 PNM New Mexico Supreme Court Appeal PNM filed Notice of Appeal with New Mexico Supreme Court on September 30, 2016 PNM filed Statement of Issues on October 26, 2016 detailing items for appeal: Appealed Item Conclusion Resulting Impact Ongoing EPS Impact Palo Verde Nuclear Generating Station: 64 MW Unit 2 capacity purchase and Units 1 and 2 lease extensions Purchase and extension deemed imprudent Fair market value disallowed; future responsibility for decommissioning shifted to shareholders $0.04 Leasehold Improvements related to previously leased 64MW capacity Included in net book value of purchased 64MW capacity Leasehold improvements rate base disallowed $0.02 San Juan Generating Station: Balanced Draft Air permit rejected and investment deemed imprudent Rate base disallowed $0.03 Oral arguments held October 30, 2017 No statutory timeline; New Mexico Supreme Court to set calendar for remaining process Note: As of September 30, 2018, the asset value of the Palo Verde and balanced draft investments pending appeal with the New Mexico Supreme Court were reduced by $12.6 million pre tax to reflect a minimum of 28 months disallowed recovery during appeal. 34

35 PNM San Juan Generating Station Ownership and Participants Unit Total MW PNM MW PNM Ownership % Tucson Electric 50% (170 MW) Other Participants/Ownership % City of Farmington 8.5% (43 MW) Los Alamos County 7.2% (36.5 MW) Utah Associated Municipal Power Systems (UAMPS) 7.0% (35.5 MW) PNMR Development Company 12.8% (65 MW) Total 1,

36 PNM Palo Verde Nuclear Generating Station Unit 1 and 2 Leases MW Owned vs. Leased Unit 1 Owned 2.3% 30 MW Leased 7.9% 104 MW Total 10.2% 134 MW Unit 2 Owned 9.5% 124 MW Leased 0.7% 10 MW Total 10.2% 134 MW Lease Expiration Unit 1: January 15, 2015; exercised option to extend leases to 2023 Unit 2: January 15, 2016; exercised right to purchase 3 leases in 2016 and option to extend one lease to 2024 Yearly Payment Amounts Total PV Unit 1 $16.5M Total PV Unit 2 $1.6M 36