EEI Financial Conference. November 2017

Transcription

1 EEI Financial Conference November 2017

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 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: $3.4B Generation Resources and Service Territories Energy holding company Based in Albuquerque, New Mexico Located in New Mexico 520,449 customers 15,049 miles transmission and distribution lines 2,791 MW generation capacity Top quartile reliability Affordable rates Located in Texas 246,620 end-users 9,298 miles transmission and distribution lines Top quartile reliability Affordable rates 4

5 PNM Resources Strategic Direction Strategic Financial Goals Earn authorized return on regulated businesses Above industry average earnings growth Earnings Growth Rate Base Growth Investing aligned to policy directives, evolving customer needs and transforming industry opportunities while ensuring reliability, resulting in cleaner generation fleet Realizing earnings potential in business Earning our allowed returns Reducing regulatory lag Maintain solid investment grade credit ratings Above industry average dividend growth Dividend Growth Sustaining and growing the dividend Providing above-average dividend growth 5

6 Staying Focused and Flexible in a Changing Environment Plans to be Coal-Free in 2031; New Generation Mix of Natural Gas, Renewables and Energy Storage 20% Renewable Energy by 2020 Transparency through Sustainability Portal Transforming PNM s Generation Portfolio Navigating the Regulatory Environment Responding to Evolving Customer Needs PNM 2018 General Rate Case PNM 2018 Renewable Plan NMPRC Proposed Rulemaking Workshops TNMP Upcoming General Rate Case Integrating technologies and customer insights to new products and services Energy Efficiency and Electrification Initiatives Robust Economy in Texas 6

7 Rate Base Growth: Capital Forecast $527 $58 $34 Targeted Consolidated Rate Base CAGR (1) : % Total Capital Plan: $2.7B Palo Verde Unit 3 added to rate base (In millions) $515 $527 $500 $17 $504 $17 $17 $681 $17 $170 $158 $186 $170 $170 $170 $116 $192 $146 $173 $164 $238 $277 $285 $20 $237 $53 $258 $96 $219 $137 $111 $94 $76 $74 $297 $80 $ PNM Core Generation PNM Renewables PNM SJGS Replacement Power PNM T&D TNMP Depreciation Corporate/Other Targeted PNM Rate Base CAGR (1) : 2-4% from 2016 base reflects potential outcomes from the pending NM Supreme Court general rate case appeal of $0-$150M and additional AMI spending of $12/$59/$24 million in 2018/2019/2020 Targeted TNMP Rate Base CAGR (1) : 11.4% from 2016 base (1) CAGR measured from a 2016 base Amounts may not visually add due to rounding. 7

8 Earnings Growth: Proposed PNM 2018 General Rate Case Settlement Agreement Recommended Decision Key Terms of Proposed Settlement Agreement (1) ROE unchanged at 9.575% Current allowed ROE of 9.575% $62.3M increased revenue requirement $7.5M financial impact from the amortization of excess deferred state taxes over 3 years (2) Revenue phase-in over 2018 and 2019 ($32.3M in 2018; additional $30.0M in 2019) Freeze for general rate increases before January 1, 2020 No adjustments to amounts or terms of previous BART settlement No debt or equity return on Selective Catalytic Reduction (SCR) investment and additional life-extending investments at Four Corners Power Plant Temporary disallowance of $36.8M of San Juan capital expenditures Lost Contribution to Fixed Costs ( LCFC ) mechanism withdrawn; energy efficiency disincentive to be addressed in separate docket and outcome included in PNM s next general rate case Increased fixed charge to $7.34 in 2018 and $7.64 in 2019 Revised settlement requires signatories agreement $62.3M increased revenue requirement $7.5M financial impact from the amortization of excess deferred state taxes over 3 years (2) Revenue phase-in over 2018 and 2019 ($32.3M in 2018; additional $30.0M in 2019) Freeze for general rate increases before Jan. 1, 2020 No adjustments to amounts or terms of previous BART settlement Recovery of Selective Catalytic Reduction (SCR) investment at Four Corners Power Plant at debt-only return Lost Contribution to Fixed Costs ( LCFC ) mechanism withdrawn; energy efficiency disincentive to be addressed in separate docket and outcome included in PNM s next general rate case Increased fixed charge to $7.34 in 2018 and $7.64 in 2019 Settlement supported / not opposed by all but one party to the filing (1) May 23 Revisions to Proposed Settlement Agreement (2) See slide 32 for details 8

9 Earnings Growth: Proposed PNM 2018 General Rate Case Procedural Schedule Procedural Schedule Exceptions to Recommended Decision November 10, 2017 Responses to Exceptions November 20, 2017 Suspension period January 6, 2018 Potential extension of suspension period March 6,

10 Tax Reform Considerations PNM Resources well-positioned for tax reform, customers benefit Business Segments PNM & TNMP Reduced Tax Rate Decreases the tax expense flowing through rates; Increases rate base as excess deferred taxes are returned to customers over normalization period Key Tax Reform Considerations Interest Nondeductibility 30% EBITDA cap; not applicable to utilities under House bill 100% Bonus Depreciation Not applicable to utilities under House bill Reduction of Production Tax Credits No direct impact Corporate/ Other Decreases the tax benefit from Holding Company losses 30% EBITDA cap; not applicable to utilities under House bill Not applicable No impact 10

11 Earnings Growth: Potential Earnings Power Potential Earnings Power reflects 8% earnings growth through 2019 (1) Targeted earnings growth of 6% through 2021 (1) PNM growth achieved through recovery of 4.5%-5.5% rate base growth in addition to recovery of existing Palo Verde Unit 3 costs Phased-in rate implementation creates transitional year in 2018; 2019 reflects full implementation Potential recovery of NMPRC disallowed assets through New Mexico Supreme Court appeal TNMP growth achieved by continuing capital investment and recovery through TCOS and general rate case filings; 2018 reflects one TCOS filing in Q1 to recover 2017 transmission rate base before the suspension of TCOS filings during May 2018 general rate case proceedings 2017 Guidance Midpoint 2018 Earnings Potential 2019 Earnings Potential Allowed Return Avg Rate Avg Rate Return EPS EPS Avg Rate Base EPS / Equity Ratio Base Base PNM Retail / Renewables 9.575% / 50% $2.4 B 9.3% $1.39 $2.4 B $1.43 $2.4 B $ $1.44 PNM Rate Case Phase-In ($0.23) Supreme Court Appeal $0 - $150 M $ $0.09 PV3 ($0.12) Included in PNM Retail Included in PNM Retail PNM FERC 10% / ~50% $180 M 7.9% $0.09 $220 M $ $0.12 $285 M $ $0.16 Items not in Rates ($0.03) ($0.03) - $0.00 ($0.03) - $0.00 Total PNM $2.6 B $1.33 $2.6 B $ $1.32 $2.7 - $2.8 B $ $1.69 TNMP % / 45% $815 M % $0.52 $900 M $0.53 $1.0 B $0.60 Corporate/Other ($0.03) ($0.09) - ($0.07) ($0.09) - ($0.07) Total PNM Resources $3.4 B $1.82 $3.5 B $ $1.78 $3.7 - $3.9 B $ $2.22 This table is not intended to represent a forward-looking projection of earnings guidance. Refer to Slide 31 for additional details and disclosures. (1) Calculated from 2016 base period of $

12 Dividend Growth Expect above industry average dividend growth in the future while targeting the 50% - 60% payout ratio range $1.31 $1.41 $1.49 $1.64 $1.65 $1.87 $1.77 $0.58 Feb 12 $0.66 Feb 13 $0.74 Dec 13 $0.80 Dec 14 $0.88 Dec 15 $0.97 Dec 16 53% (1) payout ratio E 2018E 2019E Ongoing EPS Annual common stock dividend raised by 10% to $0.97 (2) per share in December 2016 Next dividend review in December 2017 Indicated Annual Dividends (1) Assumes mid-point of 2017 guidance (2) Indicative annual rate Ongoing EPS represents actual results 2017E Ongoing EPS represents ongoing earnings guidance 12

13 Credit Metrics: Liquidity and Debt Maturity Outlook Maintain appropriate credit metrics Long-term Debt Maturities (1) (in millions) $293 $1,060 Remain a solid investment grade rated company Target regulatory capital structures at PNM and TNMP $250 $172 $200 $100 $ and Beyond PNM TNMP Corporate Extended TNMP s $75M revolving credit facility in September 2017 In process of extending PNM Resources $300M and PNM s $400M revolving credit facilities by one year to 2022 In process of extending PNM s $50M community bank revolving credit facility that expires in January 2018 Capital expenditures beyond 2019 will be funded through a balance of new debt issuances and an At-the-Market equity program (1) Reflects the execution of PNM s July 2017 note purchase agreement to refinance an aggregate of $450M long-term debt due in 2018 to varying maturity dates beyond Excludes $61M of debt related to the Westmoreland financing agreements. 13

14 Credit Metrics: Rating Agency Perspectives Moody s Rating/Outlook S&P Rating/Outlook PNM Resources Baa3 (2) / Positive BBB+ (2) / Stable PNM Baa2 (3) / Positive BBB+ (3) / Stable TNMP A1 (4) / Stable A (4) / Stable PNM Resources FFO-to-Debt is maintained well within Moody s Baa investment grade target range of 13% to 22% Moody s (June 23, 2017): its solid financial profile including a ratio of cash flow from operations pre-working capital to debt in the mid-to-high teens range and a view that capital expenditures will be financed in a balanced manner consistent with PNMR's current financial position. Although the New Mexico regulatory environment remains challenging, PNMR has been able to maintain strong financial metrics that are similar to Baa2 rated peers. S&P (April 7, 2017): Our financial risk assessment of PNMR reflects FFO to debt that we expect to range from 16%-17% under our medial volatility benchmark table, reflecting the company's lower risk, rate-regulated utilities and management of regulatory risk. Business risk largely reflects the company's management of regulatory risk in New Mexico that we view as challenging. (1) Issuer/Corporate rating (2) Senior unsecured (3) Senior secured 14

15 PNM Overview

16 PNM: Regulatory Update NMPRC: Filing Action Timing Docket No. PNM 2018 General Rate Case PNM Integrated Resource Plan Recommended decision issued October 31, 2017 Procedural order issued September 14, 2017 Suspension period currently ends January 6, 2018; NMPRC has ability to extend to March 6, 2018 Briefings and responses on scope of proceeding due Q4 2017; Hearing Examiner to determine scope and whether to hold hearings UT UT PNM Advanced Metering Infrastructure Hearings held October 25-26, 2017 Decision expected Q UT PNM 2018 Renewable Plan Recommended decision issued October 17, 2017 Decision expected Q UT NMPRC Rulemaking on Utility Ratemaking Policies Public workshop held September 14, 2017 Additional public workshops to be held November 6-7, UT PNM Appeal of 2015 General Rate Case to New Mexico Supreme Court Oral arguments held October 30, 2017 No statutory timeline S-1-SC

17 PNM: 2017 Integrated Resource Plan Plans for Coal-Free Generation Portfolio by 2031 Roadmap for meeting customer demand over 20-year horizon, provides foundation for the selection of future resources Solicits and incorporates public input Documents four- year action plan Revisited every three years Submitted July 3, 2017 Filed with NMPRC for review and acceptance Proposed resources approved separately Most cost effective portfolio includes securing remaining Palo Verde leases beyond 2023 and 2024 expiration dates Note: By December 31, 2018, PNM must make a separate NMPRC filing to determine whether the San Juan Generating Station should continue to serve customers 17

18 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 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 Leasehold Improvements related to previously leased 64MW capacity Included in net book value of purchased 64MW capacity Leasehold improvements rate base disallowed San Juan Generating Station: Balanced Draft Air permit rejected and investment deemed imprudent Rate base disallowed Oral arguments held October 30, 2017 No statutory timeline; New Mexico Supreme Court to set calendar for remaining process Note: At September 30, 2016, the asset value of the Palo Verde and balanced draft investments pending appeal with the New Mexico Supreme Court were reduced by $6.8 million pre-tax to reflect a minimum of fifteen months disallowed recovery during appeal. 18

19 PNM: Load and Economic Conditions Regulated Retail Energy Sales and Customers (weather-normalized, leap-year adjusted) PNM % of 2016 Sales Volumes Q vs. Q YTD 2017 vs. YTD 2016 Retail Load: Residential 40% 0.0% 0.3% Commercial 47% (1.5%) (1.2%) Industrial 11% (2.4%) (2.4%) Total Retail Load (0.9%) (0.7%) 2017 Load Growth Forecast: (1%) 0% Avg. Customers 0.6% 0.7% 2017 Customer Growth Forecast: 0.7% Employment Growth (3) 12-Month Rolling Average % Change 1.6% 1.0% Albuquerque U.S. (1) U.S. Bureau of Labor Statistics, August

20 PNM: Sustainability Portal 20

21 PNM: Pathway to Continued Success Continue to efficiently manage the business with a customercentered focus, delivering reliable and affordable energy Earn allowed return Minimize regulatory lag through timely rate case filings Synchronize revenues and expenses Use future test year Continue to maintain strong investment grade credit metrics 21

22 TNMP Overview

23 TNMP: Regulatory Update Filing Action Timing Docket No. TNMP TCOS Filed July 19, 2017 Approved September 13, TNMP General Rate Case N/A Expected to be filed May 2018 N/A 23

24 TNMP: Upcoming General Rate Case Key Elements True-up Transmission and Distribution Recovery TCOS filings update for transmission investments, but distribution assets and other rate base items have not been updated since last rate case filing (test period ending March 2010) True-up Operating Costs and Load Operating costs and retail load have not been updated since 2010 rate case Timing Expected to be filed May

25 TNMP: Load and Economic Conditions Regulated Retail Energy Sales and End Users (weather-normalized, leap-year adjusted) TNMP % of 2016 Sales Revenues Q vs. Q YTD 2017 vs. YTD 2016 Volumetric Load (1) : Residential 0.2% 2.0% Total Volumetric Load 52% 0.0% 1.7% Demand-Based Load (2) 48% 3.3% 4.3% 2017 Load Growth Forecast: 2% 3% Avg. End Users 1.3% 1.2% 2017 End User Growth Forecast: 1.6% Employment Growth (3) 12-Month Rolling Average 3.4% % Change 1.6% Dallas U.S. (1) Primarily Residential usage; represents per-kwh billings (2) Commercial and Industrial usage; represents per-kw monthly peak billings (3) U.S. Bureau of Labor Statistics, August

26 TNMP: Pathway to Continued Success Continue to efficiently manage the business with an end usercentered focus, delivering reliable and affordable energy Continue to earn allowed rate of return through timely execution of transmission cost of service and general rate case filings Additional investments in the business to support strong growth Continue to control costs Continue to maintain strong investment grade credit metrics 26

27 Financial Overview

28 Financial Overview: Consolidated Earnings Guidance (Ongoing) Actual results for the first half of the year support fullyear performance at upper end of range Guidance $1.77 Consolidated EPS $1.87 PNM $ $1.37 TNMP $ $0.53 Corp/Other ($0.04) ($0.03) 28

29 Liquidity as of October 20, 2017 Financing Capacity (1) : PNM TNMP Corporate/ Other (In millions) PNM Resources Consolidated Revolving credit facilities $450.0 $75.0 $300.0 $825.0 As of 10/20/17: Short-term debt and LOC balances $2.5 $6.0 $181.5 $190.0 Remaining availability Invested cash Total Available Liquidity $498.0 $69.0 $120.0 $687.0 (1) Excludes intercompany debt and term loans 29

30 Appendix

31 Potential Earnings Power 2017 Guidance Midpoint 2018 Earnings Potential 2019 Earnings Potential Allowed Return Avg Rate Avg Rate Return EPS / Equity Ratio Base Base EPS Avg Rate Base EPS PNM Retail (1) 9.575% / 50% $2.3 B 9.3% $1.33 $2.3 B $1.38 $2.3 B $1.37 PNM Rate Case Phase-In (2) ($0.23) Supreme Court Appeal (3) $0 - $150 M $ $0.09 PNM Renewables (4) 9.575% / 50% $95 M 9.575% $0.06 $90 M $0.05 $85 - $110 M $ $0.07 PV3 (5) ($0.12) Included in PNM Retail Included in PNM Retail PNM FERC (6) 10% / ~50% $180 M 7.9% $0.09 $220 M $ $0.12 $285 M $ $0.16 Items not in Rates (7) ($0.03) ($0.03) - $0.00 ($0.03) - $0.00 Total PNM $2.6 B $1.33 $2.6 B $ $1.32 $2.7 - $2.8 B $ $1.69 TNMP (8) % / 45% $815 M % $0.52 $900 M $0.53 $1.0 B $0.60 Corporate/Other (9) ($0.03) ($0.09) - ($0.07) ($0.09) - ($0.07) Total PNM Resources $3.4 B $1.82 $3.5 B $ $1.78 $3.7 - $3.9 B $ $2.22 (1) Reflects revised settlement in PNM s ongoing general rate case, including 9.575% currently authorized ROE for all forecasted years. Average rate base in 2018 and 2019 has been reduced by approximately $65M to represent the ($0.04) EPS impact of the lost equity return on the Four Corners SCR investment (debt-only return included in the proposed 2018 general rate case settlement). (2) Reflects the $30M of revenue collection delayed to 1/1/2019 as part of the proposed 2018 general rate case settlement. (3) Reflects a range of outcomes for the New Mexico Supreme Court appeal of the August 2015 General Rate Case final order. For purposes of writing down the value of the assets under appeal at September 30, 2016, a minimum 15-month appeal timeframe was used. Potential average rate base presented in 2019 to be conservative includes: PV2 64MW Acquisition Adjustment (~$75M), PV2 Leasehold Improvements (~$25M) and Balanced Draft Technology (~$50M). (4) PNM Renewables reflect assets collected through the Renewable Rate Rider; reflects potential timing delay of proposed 50MW solar addition. (5) 2017 Guidance Midpoint assumes a hedged price of $29/MWh; a price of $44/MWh is required to break even. PV3 is included in PNM rates beginning in (6) PNM FERC earnings potential 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 midyear rate increases. (7) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, certain incentive compensation, earnings in 2017 associated with the assets previously allocated to the Navopache contract, and the 65MW ownership of San Juan Unit 4 beginning in (8) TNMP EPS includes $0.02 of Competitive Transition Charge recovery in 2017 Guidance Midpoint and 2018 Earnings Potential and $0.01 in 2019 Earnings Potential average rate base has been held at the year-end 2017 level to reflect the required suspension of TCOS filings during general rate case proceedings reflects one TCOS filing in Q1 to recover 2017 transmission rate base before the suspension of TCOS filings during May 2018 general rate case proceedings (9) Corporate/Other includes earnings associated with the 65MW ownership of San Juan Unit 4 before PNM assumes ownership in 2018, short and intermediate term bank debt, and the net impact of Westmoreland financing through NM Capital Utility Corporation. This table is not intended to represent a forward-looking projection of earnings guidance. 31

32 Earnings Growth: Financial Impact of Proposed PNM 2018 General Rate Case Settlement Agreement Financial View Proposed Settlement Agreement Phase I Phase II (in millions, except EPS) Settlement increase (net revenue increase) $32.3 $62.3 Accelerated amortization of excess deferred state taxes (1) Financial impact $39.8 $69.8 Income tax (38.62% statutory rate) (15.4) (27.0) After-tax financial impact $24.4 $42.8 EPS (80M shares outstanding) $0.30 $0.53 Impact of phase-in: ($0.23) (1) New Mexico phased-in a lower state corporate income tax rate from Under the proposed settlement, PNM will begin the return of this benefit through customer rates in 2018, over a 3 year period. This also lowers PNM s income tax expense in 2018, 2019, and

33 PNM: 2018 General Rate Case Drivers (as Filed) Rate Base (in millions) Incremental Revenue Requirement (in millions) Compliance Items: BART Items: Palo Verde Unit 3 $96 $45 Retirement of San Juan Units 2 and 3 (95) (29) 132 MW of San Juan Unit Accelerated Depreciation on San Juan SNCRs - 3 Subtotal BART Items $12 $35 Four Corners SCRs 61 9 Subtotal Compliance Items (44% of requested increase) $73 $44 Core Rate Base, Depreciation and Property Taxes Energy Sales 11 ROE to % from 9.575% 10 Re-allocation of FERC Wholesale Generation & Transmission 12 9 Other 5 Total $118 $99 33

34 PNM: 2018 General Rate Case Proposed Settlement Bill Impact Forecasted PNM customer bills remain below current national and regional averages Customer Impact Proposed Settlement Bill Impact (1) Phase I Total Residential 3.9% 7.5% Commercial 3.4% - 4.0% 6.7% - 7.5% Industrial 2.9% - 3.5% 5.5% - 6.7% System Average 3.7% 7.1% (1) Bill Impact considers impacts of proposed rates under the 2018 General Rate Case along with Fuel and Purchased Power Cost Adjustment Clause, Renewable Energy Rider and Energy Efficiency Rider changes. Imperial Irrigation District (CA) Arizona Public Service Co (AZ) Salt River Project (AZ) Modesto Irrigation District (CA) Entergy Texas Inc. (TX) City of San Antonio - (TX) PacifiCorp (CA) Nevada Power Co (NV) PacifiCorp (WA) US Average Bill Southwestern Electric Power Co (TX) Regional Average Bill PacifiCorp (OR) Pacific Gas & Electric Co (CA) PacifiCorp (ID) Black Hills Power, Inc. d/b/a (WY) Sacramento Muni Util Dist (CA) Idaho Power Co (ID) Portland General Electric Co (OR) Southwestern Pub Svc Co (NM) Avista Corp (WA) San Diego Gas & Electric Co (CA) Tucson Electric Power Co (AZ) Montana-Dakota Utilities Co (WY) Southern California Edison Co (CA) Avista Corp (ID) PacifiCorp (WY) PacifiCorp (UT) City of Tacoma - (WA) NorthWestern Energy LLC - (MT) El Paso Electric Co (TX) PNM (NM) - Proposed Settlement El Paso Electric Co (NM) City of Colorado Springs - (CO) LADWP (CA) Public Svc Co of Colorado (CO) PNM (NM) - Current Montana-Dakota Utilities Co (MT) City of Seattle - (WA) Comparison of Average Residential Bills (2) Western Region Average Bills by Utility $ PNM Current $64.48 $ $ Current US Avg $ Current Region Avg $ PNM Proposed Settlement $50 $100 $150 (2) PNM rates reflect current approved rates and proposed rates under the 2018 General Rate Case Proposed Settlement. All others reflect U.S. Energy Information Administration's Residential Rate increases through March

35 PNM 2016 General Rate Case Final Order NMPRC approved final order Sept. 28, 2016: Non-fuel revenue increase of $61.2M versus $121.5M request Retail rate base of $2,263M versus $2,458M request Key Rate Case Elements (PNM Retail Share, net of ADIT) Commission Order Original Request Impact to Rate Increase ROE 9.575% 10.5% ($17) M Rate Base: Palo Verde Unit 2 lease purchase (64 MW) $55 M (1) $153 M (2) ($15) M Leasehold improvements and common plant associated with the 64 MWs of previously leased Palo Verde Unit 2 capacity Disallowed $26 M ($4) M Balanced Draft Technology Disallowed $39 M ($5) M Five months of CWIP $55 M $55 M No adjustment Pre-Paid pension asset $83 M $83 M No adjustment Other Revenue Requirements: Depreciation Rates $14.2 M $20.6 M ($6.4) M Palo Verde Lease and Property Tax Expense (remaining 114 MW of leased capacity) (1) Reflects 13-month average rate base, equivalent to $1,306/kW (2) Reflects period-end rate base, equivalent to $2,500/kW $19.5 M $19.5 M No adjustment 35

36 NMPRC Commissioners and Districts NMPRC Districts and PNM Service Areas District Name Term Ends Party District 1 Cynthia Hall, Vice Chairman 2020 (1) Democrat District 2 Patrick Lyons 2018 Republican District 3 Valerie Espinoza 2020 Democrat District 4 Lynda Lovejoy 2018 (1) Democrat District 5 Sandy Jones, Chairman 2018 (1) Democrat (1) Eligible for re-election to a second four-year term 36

37 NMPRC Rulemaking on Utility Ratemaking Policies NMPRC opened an investigation and rulemaking to consider: Developing a standardized method for determining ROE After a baseline ROE is determined, should the ROE be adjusted under an incentive/disincentive mechanism? Limitation of utility recovery of attorney and expert witness fees to 50%, except in cases that are fully resolved by contested or uncontested stipulations approved by the Commission Allowing intervenors to recover their expenses to the extent the Commission adopts the intervener s position If utilities use proprietary software to support their position, should interveners and Staff be given reasonable access to that software at no cost? How should regulatory assets be defined and recovered? A public workshop was held September 14, 2017; additional workshops have been scheduled for November 6-7,

38 PUCT Commissioners Name Term Began Term Ends Party DeAnn Walker (Chair) Sept Aug Republican Kenneth Anderson Sept Aug Republican Brandy Marty Marquez Aug Aug Republican Commissioners are appointed by the Governor of Texas and confirmed by the Senate. Length of term is determined by the Governor. 38

39 TNMP Rates Compare Favorably in Texas $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $- Residential Total Wires Charge for 1,000 kwh AEP Central Centerpoint Oncor TNMP AEP North Sharyland Source: TDU tariffs for retail delivery service effective September 1, 2017 and PUCT Filings Interchange. 39

40 PNM Diversified Generation Portfolio: Capacity Capacity 2,791 MW As of 12/31/2016 Capacity 2018 Forecasted Generation Mix (includes renewables related to Facebook data center) Renewables 15% Coal 35% Renewables 18% Coal 29% (1) Natural Gas 35% Nuclear 15% Natural Gas 38% Nuclear 15% (1) The potential retirement of the San Juan Generating Station in 2022 would result in a decrease of coal to 7% of the forecasted generation capacity mix in

41 PNM Diversified Generation Portfolio: Energy Energy 11,147 GWh Based on 12 months ending 12/31/16 Energy 2018 Forecasted Generation Mix (includes renewables related to Facebook data center) Renewables 9% Natural Gas 11% Coal 51% Renewables 11% Natural Gas 20% Coal 41% (1) Nuclear 29% Nuclear 28% (1) The potential retirement of the San Juan Generating Station in 2022 would result in a decrease of coal to 12% of the forecasted generation energy mix in

42 PNM Investment in Renewable Energy Portfolio Standard as a % of Retail Sales 15% % 2020 New Mexico Renewable Energy Act Streamlined proceedings for approval of utilities renewable energy procurement plans Provides for recovery of program costs under approved procurement plan Renewable Rider Collection Methodology Recovery of renewable investments and REC purchases permitted through Renewable Energy Rider Current Renewable Resources PNM-Owned Renewable Resources 107 MW of solar capacity (1) Solar battery storage facility Purchase Power Agreements (PPA) 204 MW PPA with NextEra Energy s Wind Center 102 MW PPA with NextEra Energy s Red Mesa 4 MW PPA with Dale Burgett Geothermal Generating Station Customer-Owned Solar Facilities 70 MW of solar capacity (1) The 40 MW of PNM-owned solar capacity placed in service in 2015 is recovered through base rates rather than through the Renewable Energy Rider. 42

43 PNM San Juan Generating Station Ownership and Participants Unit Total MW PNM MW PNM Ownership % Tucson Electric 50% (170 MW) % Tucson Electric 50% (170 MW) % % Total 1, Ownership Restructuring Changes Unit Owner 2018 MW 1 PNM Tucson Electric Power Company 4 PNM City of Farmington Los Alamos County UAMPS PNMR Development Company Other Participants/Ownership Southern California Power Authority 41.8% (208 MW) Tri-State 8.2% (41 MW) M-S-R Public Power Agency 28.8% (146 MW) City of Anaheim 10.04% (51 MW) City of Farmington 8.475% (43 MW) Los Alamos County 7.2% (37 MW) Utah Associated Municipal Power Systems (UAMPS) 7.028% (36 MW) Total 847 Exiting Participants: Southern California Power Authority Tri-State M-S-R Public Power Agency City of Anaheim 43

44 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 44