COVID-19 Update and Q1 2020 Earnings Review May 1, 2020 Safe Harbor - - PowerPoint PPT Presentation

COVID-19 Update and Q1 2020 Earnings Review

May 1, 2020 November 1, 2019

Safe Harbor Statement

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Statements made in this presentation for PNM Resources, Inc. (“PNMR”), Public Service Company of New Mexico (“PNM”) and Texas-New Mexico Power Company (“TNMP”) (collectively, the “Company”) that relate to future events or expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and

• estimates. The Company assumes no obligation to update this information. Because actual results

may differ materially from those expressed or implied by these forward-looking statements, the Company cautions readers not to place undue reliance on these statements. The Company’s business, financial condition, cash flow, and operating results are influenced by many factors, which are often beyond its 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 Form 10-Q filings and the information filed on the Company’s Forms 8-K 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, ongoing earnings per diluted share and ongoing earnings guidance measures), as well as a reconciliation to GAAP measures, please refer to the Company’s website as follows: http://www.pnmresources.com/investors/results.cfm.

Opening Remarks and Overview

Pat Vincent-Collawn

Chairman, President and CEO

Opening Remarks

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COVID-19 reminds us of our purpose, values and culture

• We are responsible for providing an essential service
• Our communities rely on us for more than electricity
• Our team is our most valuable asset, supported by our values

and culture

Top priorities in COVID-19 environment:

• Safety of our team
• Caring for our customers and communities
• Managing our essential operations

Strategy and Vision

• Transformation of PNM generation portfolio
• Expansion of PNM transmission grid to integrate renewable

resources and battery storage

• Invest in TNMP infrastructure to support reliable service across

diverse service territory and customer base

Regulatory Strategies

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Deferring plans to file general rate review due to COVID-19, filing instead for full decoupling for residential and small commercial customers Filed to defer incremental COVID-19 related expenses to a regulatory asset that will be included in a future rate review for recovery COVID-19 Electricity Relief Program designed to support entire ERCOT market: customers, Retail Electric Providers, and T&D utilities Utilizing DCOS (filed April 6, 2020) and TCOS mechanisms (first 2020 filing approved in March, second filing expected in July) to recover capital investments without general rate review

Regulatory strategies have been modified to consider the current environment and reflect our focus on benefitting customers and communities

Executing Strategic Plans

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San Juan abandonment, securitization and replacement power

 San Juan abandonment/

securitization unanimously approved on April 1, 2020

 San Juan replacement

power: Hearing Examiner recommended decision and NMPRC order by October 1, 2020

Developing plans to exit Four Corners

 200 MW ownership  Contracts expire

2031, PNM looking to exit sooner

Evaluating decision to retain / replace Palo Verde leased capacity

 104 MW expires 2023  10 MW expires 2024

Transform the PNM generation portfolio Balance appropriate level of baseload resources to be emissions-free by 2040 and shift towards additional low-cost renewables and flexible resources

Financial Overview and COVID-19 Updates

Chuck Eldred

Executive Vice President, Corporate Development and Finance

COVID-19 Scenario Analysis

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Stage 1 Stage 2 Stage 3

Duration / Economic Conditions (Margin Impact) Up to 60 day-impact (through May) with closure

• f non-essential businesses,

restrictions lifted by end of May 60 - 120 day-impact (through July), with closure

• f non-essential businesses,

restrictions lifted beginning

• f August

>120 day-impact, duration

• f 4-6 months before

recovery begins (continues through the end of 2020) Workforce Disruption (Capital Impact) No significant disruption to critical workforce; remaining workforce able to work remotely Up to 15% disruption for a sustained period resulting from absenteeism Up to 40% disruption for a sustained period resulting from absenteeism Supply Chain (Capital Impact) No material supply chain issues, adequate near-term supply of capital equipment

• n-site or available

Disruption in supply chain for specific capital equipment results in 1–2 month delay on certain projects; no issues with maintenance capital necessary to maintain reliable service Major disruption in supply chain delays significant capital projects; prioritization of capital equipment to meet most essential reliability projects

• Continued scenario analysis and planning under 3 different stages:

COVID-19 Financial Considerations: Continued Transparency

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Q4 September August July June May April March

Stage 2 Guidance at Risk Stage 3 Outside of Guidance

• Continue to evaluate

impacts and implement mitigating plans

Stage 1 Manage within Guidance

• Developed planning scenarios
• Q1 results in line with assumptions
• April results evaluated, assumptions updated
• Continued transparency into our scenario analysis as we progress through

stages and evaluate continued impacts:

Summer temperatures are key Slow recovery into 2021, potential that some businesses do not reopen

Business Fundamentals Remain Intact Amidst COVID-19

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Rate Base Growth Earnings Growth Dividend Growth Liquidity

• 8.9% rate base growth 2019 - 2023
• PNM and TNMP T&D continues to support critical

infrastructure and reliability projects

• Balancing replacement power with additional
• pportunities for PNM T&D
• 5% - 6% earnings growth target of 2019 - 2023
• Proven history of building flexible plans that are

adaptable in response to changing conditions

• Dividend growth to mirror earnings growth
• Quarterly declarations by Board of Directors
• Annual dividend evaluated in December
• Immediate equity needs met through

January 2020 forward offering

• Adequate liquidity remains available to

finance business needs

Liquidity / Financings

11 projected May 1, 2020

Capacity Borrowed Available

(in millions)

Revolvers $855 $179 $676 Invested Cash 25 25 Forward Equity 287

• 287

Available Liquidity $1,167 $179 $988

Available liquidity remains adequate at $1 billion to finance business needs

April 2020 Transactions:

• PNM $250 million 14-month (through June 2021) term loan effective April 15, 2020
• PNM $200 million Senior Unsecured Notes issued April 30, 2020 at a weighted

average rate of 3.3%

• TNMP $185 million First Mortgage Bonds, with $110 million of bonds issued on April

24, 2020 and $75 million of bonds to be issued by July 15, 2020 at a weighted average rate of 3.0%

• $855 million capacity under

multi-year revolving credit facilities

• $287 million under January

2020 forward equity offering, which has the flexibility to be drawn down earlier than December 2020 if needed

COVID-19 Financial Considerations and Updates

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• Load impacts, mitigating impacts

Ongoing Earnings Guidance Considerations

• Updated assumptions: PNM greater impacts, TNMP lesser impacts

COVID-19 Load Impacts

• TNMP relief program in effect; PNM filed for regulatory asset

treatment of COVID-19 related costs Bad Debt Considerations

• PNM deferring planned general rate review due to COVID-19, filing

instead for full decoupling in May 2020 PNM Decoupling

COVID-19 Financial Considerations and Updates

Don Tarry

Senior Vice President and CFO

Ongoing Earnings Guidance Affirmed Based on COVID-19 Stage 1

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COVID-19 Load Impacts March $0.00 April ($0.02) May ($0.02) June ($0.02)-($0.03) July ($0.02)-($0.03) August ($0.02) September ($0.02) Q4 ($0.02) / month

$2.16 Consolidated EPS $2.26

Mitigating Impacts Lower interest and financing costs, weather, managing O&M Phase-in cost contingency plans, regulatory filings, weather Reassess guidance

2020 Earnings Guidance affirmed based on Stage 1 COVID-19 Considerations

Stage 1: Manage within Guidance Stage 3: Outside

• f Guidance

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2020 Guidance Projection 2019

COVID-19 Load Impacts: Updated Assumptions

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Stage 1 Stage 2 Stage 3

April results provide additional clarity, updated assumptions

PNM: reduced load projection as Commercial experiences greater COVID-19 impacts

• Residential COVID-19 increase remains +5%
• Commercial COVID-19 reduction updated to -15% (from -10%)

TNMP: increased load projection as Demand-based experience lesser COVID-19 impacts

• Demand-based COVID-19 reduction updated to -5% (from -10%)
• Volumetric COVID-19 increase remains +5%

TNMP Demand- Based TNMP Volumetric PNM Volumes

PNM / New Mexico COVID-19 Update

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• New Mexico’s largest employers include government and health care, with a larger

number of small/medium businesses

• New Mexico Governor and Economic Recovery Council begin multi-phased plan for

“gradual and safe reopening” Customer Class Considerations

• Residential: highest rate class, increased volumes

during the Stay-at-Home order

• Commercial: weighted towards small businesses

that are most impacted by the Stay-at-Home order

• Industrial: no significant impacts expected

PNM Sales by Customer Class % Volumes % Revenues Residential 36% 46% Commercial 41% 42% Industrial 20% 10% Other 3% 2% Southern ~15% Central ~85%

PNM 2019 Revenues by Region

TNMP / Texas COVID-19 Update

17 West Texas ~15% North/ Central TX ~35% Gulf Coast ~50%

• TNMP Service Area

TNMP 2019 Revenues by Region

• TNMP EPS is less impacted by changes in load/demand:
• Transmission recovery (45% of revenues), trued up twice per year
• Majority of demand-based bills based on greater of peak monthly usage, or 80% of

previous 11 months peak; ERCOT set new April system peaks in 2020

• ERCOT peak demands have been less impacted than other areas of the country
• Governor lets stay-at-home order expire on April 30, 2020 and businesses begin to

reopen at limited capacity

TNMP Regional Breakdown

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TNMP – West Texas

West Texas ~15% North/ Central TX ~35% Gulf Coast ~50%

• TNMP Service Area

Region provided 15% of 2019 retail revenues

• ~50% of 2019 revenues derived from retail

transmission customers with recovery trued up twice per year

• ~25% of 2019 revenues demand derived from

higher-voltage customers that continue to trend above 2019 levels during COVID-19

• Diversification of customers within the oil &

gas industry between upstream (production, separation and water handling activities) and downstream (processing and transportation

• f oil and gas prior to market) activities
• Delaware Basin has one of the lowest break-

even price for oil and gas production in the Permian Basin and the entire US, area is only partially served by utility power

• Largest city: Pecos ~10,000 residents

TNMP 2019 Revenues by Region

Permian Basin Delaware Basin

TNMP Regional Breakdown

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TNMP – North/Central TX

West Texas ~15% North/ Central TX ~35% Gulf Coast ~50%

• TNMP Service Area

TNMP 2019 Revenues by Region Region provided 35% of 2019 retail revenues

• Dallas region is home to 250 corporate

headquarters that each employ more than 1,000 people globally, 22 Fortune 500 companies and 8 of Forbes’ largest privately held companies

• The sprawl from Dallas-Ft Worth into the

TNMP service territory has resulted in a load profile that is evenly split between residential customers and the commercial businesses supporting these communities (retail, restaurants, entertainment, schools, health care facilities)

• COVID-19 Trends: Increases in residential

customer usage are offset by reduced demand-based business usage

• Largest city: Lewisville ~100,000 residents

TNMP Regional Breakdown

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TNMP – Gulf Coast

West Texas ~15% North/ Central TX ~35% Gulf Coast ~50%

• TNMP Service Area

TNMP 2019 Revenues by Region Region provided 50% of 2019 retail revenues

• Regional economy driven largely by oil refining

and petrochemical industries, supplemented by the aerospace and medical industries

• Sprawl from Houston has led to TNMP’s greatest

portion of residential customers in this region, combined with supporting commercial businesses (retail, restaurants, entertainment, schools health care facilities) and the marine and tourism industry native to the coast

• ~60% of 2019 revenues from residential

customers, who have increased usage during COVID-19

• Petrochemical companies boosting production
• f chemicals used in medical personal protective

equipment and hand sanitizer during COVID-19

• Largest cities: League City ~100,000 residents

and Texas City ~50,000 residents

Bad Debt Considerations

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• PNM joint filing on April 27, 2020 with NMPRC to request deferral of utility’s uncollectible

payments and incremental costs in response to COVID-19 to regulatory asset, with recovery determined in next rate review

• Proactive outreach to customers with outstanding balances to offer information regarding

payment assistance options and programs, including payment plans specifically designed to offer COVID-19 assistance

• In the absence of approval to defer costs, COVID-19 assumptions related to bad debt:
• Historically ~0.35% of revenues
• Stage 1: 10% write-off of payment deferrals increases expense by <$0.01 EPS
• Stage 2: 10% write-off of payment deferrals increases expense by $0.01-$0.02 EPS
• Stage 3: identify balances associated with discontinued businesses, reassess impacts

TNMP PNM

• TNMP risk mitigated by COVID-19 Electricity Relief Program
• Deferral of incremental costs associated with COVID-19 to regulatory asset including,

but not limited to, bad debt expense

PNM Decoupling Filing

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Stand-alone full decoupling filing

To be filed May 2020 Request

• rder by

year-end

Customer bills more accurately reflect the fixed, non-fuel costs of the service provided

Residential Small Commercial

Disassociates utility profits from sales volumes

Removes utility disincentives to promote energy efficiency or conservation programs Eliminates the upside/ downside risks of weather for the non-fuel portion of customer bills

PNM filing decoupling in lieu of its planned general rate review due to challenges created for customers by COVID-19

Questions and Answers

Appendix

PNM and TNMP Regulatory Agenda

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Filing Action Timing Docket No.

PNM:

Deferral of Incremental costs related to COVID-19 PNM and other utilities filed joint motion April 27, 2020 Pending 20-00069-UT Consolidated Application for San Juan Generating Station (Abandonment, Securitization and Replacement) PNM filed July 1, 2019; NMPRC bifurcated case; New Mexico Supreme Court ruled January 29, 2020 that Energy Transition Act applies to both dockets. NMPRC order approving abandonment/securitization issued April 1, 2020 Replacement hearings held January 2020 Replacement power: pending recommended decision and NMPRC Order by October 1, 2020 19-00018-UT 19-00195-UT Solar Direct Program PNM filed May 31, 2019 for approval of voluntary renewable program expected to begin March 31, 2021; Hearings completed January 2020 Approved March 25, 2020 19-00158-UT

TNMP:

TCOS Filing TNMP filed January 24, 2020; Approved March 27, 2020 Rates implemented March 27, 2020 50481 DCOS Filing TNMP filed April 6, 2020 Rates expected to be implemented September 1, 2020 50731

Upcoming activities:

• PNM Decoupling
• PNM annual FERC formula rate and PNM annual Renewable plan filings
• TNMP second 2020 TCOS filing anticipated for July 2020

COVID-19 Load: Assumptions and EPS Rules of Thumb

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Updated Assumption

• +5% Residential impact
• -15% Commercial impact
• No significant Industrial impacts

TNMP PNM TNMP EPS is less impacted by changes in load/demand:

• T&D rate (no generation)
• Transmission investment/expense recovery (45% of revenues), trued up twice per year
• Majority of demand-based bills based on greater of peak monthly usage, or 80% of

previous 11 months peak usage RULE OF THUMB 10% change in load = Monthly EPS Impact April – May +/- $0.02 June – September +/- $0.03 - $0.04 August – December +/- $0.02 RULE OF THUMB 10% change in load = Monthly EPS Impact Volumetric Demand-Based April – May +/- $0.01 +/- $0.01 June – September +/- $0.02 +/- $0.01 August – December +/- $0.01 +/- $0.01

Updated Assumptions

• +5% Volumetric impact
• -5% Demand-based impact

TNMP Low-Risk Revenue Profile

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30% Gulf Coast

3% West Texas

19% North/ Central 16% North/ Central 12% West Texas 20% Gulf Coast

• 52% Volumetric Revenues: billed on kWh usage
• Residential customers (97%)
• Primarily in the Gulf Coast, North/Central regions
• 48% Demand-Based Revenues: billed on the peak

hour of kW demand during the month

• Majority of customers subject to billing ratchet,

meaning billing is the greater of the current month peak or 80% of prior 11 months peak

2019 Retail Revenues

 50% Gulf Coast 35% North/Central Texas 15% West Texas

2019 TNMP Revenues

$295M Retail Revenues

Includes $94M of pass-through transmission expense recovery, trued up twice annually

$67M Wholesale Revenues

Fixed transmission investment recovery; can be adjusted twice annually through TCOS filings, $81M approved March 2020

2020 Consolidated Ongoing Earnings Guidance

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$2.16 Consolidated EPS $2.26

8% 22% 55% 15% Q1 Q2 Q3 Q4 2020 Annual EPS Distribution by Quarter

Appendix Q1 Earnings Review

Q1 2020 Ongoing EPS Financial Summary

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Note: Segment drivers included in appendix

$0.04 $0.04 ($0.01) $0.11 $0.18 Q1 2019 Q1 2020 PNM TNMP Corporate

Q1 2020 vs Q1 2019 EPS (Ongoing): PNM

$0.12 $0.16

Q1 2019 Q1 2020

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PNM

Q1 2020 Key Performance Drivers ∆ EPS

O&M decreases $0.03 Outage cost decreases $0.02 Renewable rider $0.01 Retail load $0.01 Leap year $0.01 FERC transmission margin $0.01 Weather ($0.02) Decommissioning/reclamation trust income, net of fees ($0.02) Depreciation and property tax ($0.01)

Q1 2020 vs Q1 2019 EPS (Ongoing): TNMP and Corporate

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$0.05 $0.09 Q1 2019 Q1 2020

TNMP

($0.06) ($0.07) Q1 2019 Q1 2020

Corporate

Q1 2020 Key Performance Drivers ∆ EPS

Effective tax rate ($0.01)

Q1 2020 Key Performance Drivers ∆ EPS

Rate relief (TCOS) $0.03 Interest rate savings $0.02 Load $0.01 Other $0.01 Depreciation and property tax ($0.02) Weather ($0.01)

Weather Impact

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PNM Q1 2020 Q1 2019 2020 Normal(1) Heating Degree Days 1,089 1,222 1,119 Cooling Degree Days 1 Net EPS Impact

compared to normal

$0.00 $0.02 TNMP Q1 2020 Q1 2019 2020 Normal(1) Heating Degree Days 711 927 907 Cooling Degree Days 196 75 97 Net EPS Impact

compared to normal

($0.01) $0.00

(1) 2020 normal weather assumption reflects the 20-year average for the period 2000 - 2019

PNM Scheduled Plant Outages

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San Juan

Unit Duration in Days Time Period

No planned outages in 2020

Palo Verde

Unit Duration in Days Time Period

2 30 Q2 2020 1 44 Q4 2020

Four Corners

Unit Duration in Days Time Period

5 75 Q1-Q2 2020 4 23 Q2 2020 4,5 13 Q4 2020

$3.3B investment plan results in 8.9% rate base growth

$15M added to PNM T&D in 2020 to support customer growth, incremental to $20M added in February

$275 $306 $322 $345 $337 $270 $342 $348 $211 $174 $182 $202 $128 $94 $82 $77 $68 $109 $268 $48 $177 $72

$27 $27 $21 $21 $25

2020 2021 2022 2023

(in millions)

TNMP PNM T&D PV Lease Purchases/Other Replacement Power PNM Existing Generation PNM Transmission Expansion SJGS Replacement Power 50% NMRD Renewable Additions Business Technology Services/General Services Depreciation

$771 $993 $853 $695

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2020 – 2023 Investment Plan

(1) Western Spirit acquisition of $285M reflects assumed purchase price of $360M, net of $75M customer funding (2) For Palo Verde leases that expire in 2023, capex assumes either the purchase of the leases or replacement of the power through new resources (3) Depreciation does not include amounts associated with NMRD (3) (1)

Targeted 2019-2023 Rate Base CAGR (2019 base): Total 8.9% / PNM 6.0% / TNMP 15.9%

(2)

2020 - 2023 Potential Earnings Power

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Note: 5-6% targeted earnings growth CAGR measured from 2019 Ongoing EPS of $2.16

(1) Average rate base has been reduced by approximately $130M to represent ($0.05) of Earnings Potential for the lost equity return on Four Corners investment determined in the 2018 general

rate review. 2022 and 2023 rate base also reflects the removal of $283M undepreciated SJGS investment upon its retirement in mid-2022 to be recovered through securitization.

(2) Replacement Power includes $298M investment implemented mid-2022; $278M of generation investment and $20M of transmission investment. (3) PNM Renewables reflect assets collected through the Renewable Rate Rider. (4) PNM FERC in 2021-2023 reflects a return of 8%-9% to account for Western Spirit investment recovered through incremental rates. (5) Consists primarily of decommissioning/reclamation trust income (net of fees/taxes), AFUDC, certain incentive compensation, and the 65MW ownership of San Juan Unit 4 (prior to retirement). (6) TNMP earnings include additional recovery for Energy Efficiency, along with items excluded from rates (primarily AFUDC) and interest savings from the refinancing of existing debt. (7) Corporate/Other includes the earnings impacts associated with short and intermediate term bank debt and the 50% equity interest in NMRD. (8) Equity Financing Plans reflect $250M - $300M of mandatory convertibles issued in the second half of 2021 that would convert in 2024.

This table is not intended to represent a forward-looking projection of 2021 - 2023 earnings guidance.

Allowed Return / Equity Ratio

2020 Ongoing Earnings Guidance Midpoint 2021 Earnings Potential 2022 Earnings Potential 2023 Earnings Potential

Avg Rate Base Return EPS

Avg Rate Base EPS Avg Rate Base EPS Avg Rate Base EPS PNM Retail(1)

9.575% / 50% $2.5 B 9.5% $1.47 $2.5 B $1.41 $2.4 B $1.37 $2.4 B $1.38

San Juan Replacement(2)

9.575% / 50% $150 M $0.08 $280 M $0.16

PNM Renewables(3)

9.575% / 50% $150 M 9.575% $0.09 $145 M $0.08 $140 M $0.08 $130 M $0.06

PNM FERC(4)

10% / ~50% $340 M 7.5% $0.15 $530 M $0.25-$0.28 $740 M $0.35-$0.39 $780 M $0.36-$0.41

Items not in Rates(5)

($0.01) ($0.03)-($0.01) ($0.03)-($0.01) ($0.03)-($0.01)

Total PNM

$3.0 B $1.70 $3.2 B $1.71-$1.76 $3.5 B $1.85-$1.91 $3.6 B $1.93-$2.00

TNMP(6)

9.65% / 45% $1.3 B 9.65% $0.73 $1.5 B $0.79 $1.6 B $0.83 $1.9 B $0.95

Corporate/Other(7)

($0.22) ($0.13)-($0.11) ($0.11)-($0.09) ($0.15)-($0.13)

Equity Financing Plans(8)

($0.06)-($0.01) ($0.11)-($0.09) ($0.11)-($0.09)

Total PNM Resources

$4.3 B $2.21 $4.7 B $2.31 - $2.43 $5.1 B $2.46 - $2.56 $5.6 B $2.62 - $2.73

Earnings Growth Target 5-6%

Selected Balance Sheet Information

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(1) Net of unamortized debt issuance costs, premiums and discounts (2) Excludes intercompany debt

Amounts may not add due to rounding

(In millions) Dec 31, 2019 Mar 31, 2020 Long-Term Debt (incl. current portion) (1) PNM $1,748.0 $1,748.4 TNMP 670.7 670.6 Corporate/Other 589.0 589.2 Consolidated $3,007.7 $3,008.3 Total Debt (incl. short-term) (1,2) PNM $1,806.0 $1,808.4 TNMP 685.7 740.6 Corporate/Other 701.1 759.8 Consolidated $3,192.8 $3,308.9

Credit Ratings

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PNMR Consolidated S&P Moody’s Issuer rating BBB Baa3 Outlook Stable Stable Senior unsecured rating BBB- Baa3 PNM S&P Moody’s Issuer rating BBB Baa2 Outlook Stable Stable Senior unsecured rating BBB Baa2 TNMP S&P Moody’s Issuer rating BBB+ A3 Issuer outlook Stable Stable Senior secured rating A A1