Investor Presentation March 2015 Contact Information and Safe Harbor - - PowerPoint PPT Presentation

Investor Presentation

March 2015

Contact Information and Safe Harbor Statement

2

Investor Relations Contact Information Jimmie Blotter, Director, Investor Relations Lisa Goodman, Manager, Investor Relations U.S. 1‐505‐241‐2227 U.S. 1‐505‐241‐2160 Jimmie.Blotter@pnmresources.com Lisa.Goodman@pnmresources.com Safe Harbor Statement

Statements made in this presentation that relate to future events or PNM Resources’ (“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 1995. 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, ongoing earnings per diluted share, and ongoing EBITDA), as well as a reconciliation to GAAP measures, please refer to the Company’s website as follows: http://www.pnmresources.com/investors/results.cfm

Strategic Overview

NYSE Ticker PNM Market Cap $2.4B

PNM Resources Overview

• Energy holding company
• Based in Albuquerque, New Mexico
• Located in New Mexico
• 512,960 customers
• 14,763 miles transmission and distribution

lines

• 2,707 MW generation capacity
• Top quartile reliability
• Affordable rates
• Located in Texas
• 240,110 end‐users
• 9,203 miles transmission and distribution

lines

• Top quartile reliability
• Affordable rates

PNM Resources is a regulated electric utility holding company focused on providing a top quartile total return to shareholders

Generation Resources and Service Territories

4

Delivering on Strategic Goals

5

Strategic Goals

Earn Authorized Return on our Regulated Businesses

TNMP continues to earn its allowed return PNM is expected to earn its allowed return in 2016 PNM Resources is on positive outlook at both S&P and Moody’s

Provide Top Quartile Total Return

On track to deliver 10%‐13% total return by 2016

Continue to Improve Credit Ratings Well positioned for above average EPS and dividend growth in the future

Invest in the Business

• Investing in core capital,

renewables, environmental control equipment, and replacement power

Rate Base Growth

• Realizing earnings

potential in business

• Continuing to earn our

allowed returns

• Reducing regulatory lag

Earnings Growth

• Sustaining and growing the

dividend

• Providing above‐average

dividend growth

Dividend Growth

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Positive regulatory outcomes allow for earnings and dividend growth through rate base investment

2015 – 2019 Total Capital Plan: $2.2B

Rate Base Growth: 5 Year Capital Forecast

PNM Rate Base CAGR: 5 ‐ 7%(1) TNMP Rate Base CAGR: 5 ‐ 7%

(1)Includes the addition of PV3 to rate base, which does not have associated capital spending.

Beginning in 2016, depreciation rates reflect the full rate change included in the 2016 future test year general rate case filing Amounts may not add due to rounding

7

$222 $308 $272 $115 $96 $122 $95 $63 $65 $121 $79 $43 $121 $93 $93 $106 $105

$24 $19 $15 $14 $15

2015 2016 2017 2018 2019

(In millions)

PNM Generation PNM T&D PNM Renewables TNMP Other Depreciation

$569 $514 $444 $300 $380

Palo Verde Unit 3 added to rate base $165

Portfolio Standards as a % of Retail Sales

10% 2011 15% 2015 20% 2020

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Rate Base Growth: Investment in Renewable Energy

Renewable Rider Collection Methodology Recovery of renewable investments and REC purchases permitted through Renewable Energy Rider 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 Current 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 Lightning Dock Geothermal Current Owned Renewable Resources 67 MW PNM‐owned facilities currently in service Solar battery storage facility Customer‐owned solar facilities

(1) Cost recovery for the 40 MW solar project will be through base rates rather than through the Renewable Energy Rider.

2019 Renewable Planned Investments 20 MW additional owned solar capacity 2015 Renewable Procurement Plan(1) 40 MW additional owned solar capacity Additional customer‐owned solar facilities

Rate Base Growth: BART Settlement Update

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RSIP and Proposed BART Settlement Key Components Recovery in: Installation of SNCR technology on San Juan Units 1 and 4 ($81M) 2016 Retirement of San Juan Units 2 and 3 and recovery of half of the 12/31/17 undepreciated investments (expected to be ~$115M) 2018 CCNs for 134 MW Palo Verde Unit 3 ($1,650/kW) and 132 MW of San Juan Unit 4 ($26M) effective 1/1/18 2018 Other Proposed Power Resources(1) 177 MW gas peaker ($189M) 2018 40 MW solar facility(2) ($79M) 2016 Next Steps:

• March/April 2015:

Hearing Examiner Recommended Decision expected

• Q2 2015: Final Order

expected

RSIP: Revised State Implementation Plan BART: Best Available Retrofit Technology SNCR: Selective Non‐Catalytic Reduction

(1) Not included in the Proposed BART Settlement (2) Included in 2016 future test year general rate case filing

Earnings Growth (Ongoing EPS)

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Targeted earnings growth continues the progress made to date and seeks to maximize the earnings potential of the business $1.31 $1.41 $1.49 $1.50 $1.62 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Ongoing EPS

7% ‐ 9% Earnings Growth 2015 ‐ 2019

2012 – 2014 actual results represent ongoing earnings per diluted share

Earnings Growth: 2016 Potential Earnings Power

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(1) The 2016 Future Test Year Rate Case proposes a 10.5% ROE. As this rate case has not yet been approved, the currently authorized 10% ROE has been used for this

presentation.

(2) PNM FERC is made up of both Transmission and Wholesale Generation business; transmission represents about 75% of rate base. Earnings reflect FERC formula

rate methodology, which uses prior year average rate base and assumes mid‐year rate increases. Potential Earnings Power assumes returns of 5% ‐ 6%.

(3) The potential earnings power assumes a 2016 forward market price of $37/MWh. A price of $43/MWh is required to break even in 2016. (4) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation and pension‐related costs

associated with the sale of PNM Gas.

(5) TNMP EPS includes $0.02 of CTC, which amortizes to zero in 2020. (6) PNM Resources’ $119 M 9.25% debt matures May 15, 2015.

This table is not intended to represent a forward‐looking projection of 2016 earnings guidance.

Allowed Return / Equity Ratio

2015 Guidance Mid Point 2016 Earnings Potential

Avg Rate Base Return EPS Avg Rate Base Growth EPS PNM Retail (1) 10% / 50% $2.0 B 8.4% $1.02 $2.4 B $0.47 $1.49 PNM Renewables 10% / 50% $105 M 10.0% $0.07 $100 M ($0.01) $0.06 PNM FERC (2) 9‐10% / 50% $235 M 5.5% $0.08 $235 M ($0.01)‐$0.01 $0.07‐$0.09 PV3 (3) ($0.01) ($0.04) ($0.05) Items not in rates (4) $0.02 ($0.06)‐($0.03) ($0.04)‐($0.01) Total PNM $2.3 B $1.18 $2.7 B $0.35 ‐ $0.40 $1.53 ‐ $1.58 TNMP (5) 10.125% / 45% $680 M 10.125% $0.46 $750 M ($0.01) $0.45 Corporate/Other(6) ($0.08) $0.00‐$0.02 ($0.08)‐($0.06) Total PNM Resources $3.0 B $1.56 $3.5 B $0.34 ‐ $0.41 $1.90 ‐ $1.97

Earnings Growth: 2019 Potential Earnings Power

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(1) The 2016 Future Test Year Rate Case proposes a 10.5% ROE. As this rate case has not yet been approved, the currently authorized 10% ROE has been used for this

presentation.

(2) PNM FERC is made up of both Transmission and Wholesale Generation business; transmission represents about 75% of rate base. Earnings reflect FERC formula

rate methodology, which uses prior year average rate base and assumes mid‐year rate increases. Potential Earnings Power assumes returns of 5% ‐ 6%.

(3) PV3 included in PNM rates starting in 2018. (4) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation and pension‐related costs

associated with the sale of PNM Gas.

(5) TNMP Earnings Potential includes refinancing $165M of 9.5% debt and $0.01 of CTC in 2019.

This table is not intended to represent a forward‐looking projection of 2016 or 2019 earnings guidance.

2016 Earnings Potential 2019 Earnings Potential

Avg Rate Base EPS Avg Rate Base Growth EPS PNM Retail (1) $2.4 B $1.49 $2.6 B $0.11 $1.60 PNM Renewables $100 M $0.06 $85 M ($0.01) $0.05 PNM FERC (2) $235 M $0.07‐$0.09 $270 M $0.01 $0.08‐$0.10 PV3 (3) ($0.05)

Included in PNM retail

$0.05

Included in PNM retail

Items not in rates (4) ($0.04)‐($0.01) $0.03 ($0.01)‐$0.02 Total PNM $2.7 B $1.53 ‐ $1.58 $2.9 B $0.19 $1.72 ‐ $1.77 TNMP (5) $750 M $0.45 $890 M $0.09 $0.54 Corporate/Other ($0.08)‐($0.06) $0.02 ($0.06)‐($0.04) Total PNM Resources $3.5 B $1.90 ‐ $1.97 $3.8 B $0.30 $2.20 ‐ $2.27

Dividend Growth: Continued Dividend Increases

• The annual common stock dividend

raised by 8% in December 2014 to $0.80 per share

• Expect above industry average dividend

growth while targeting the 50% ‐ 60% payout ratio range

• The Board will continue to evaluate the

dividend on an annual basis, considering:

• Sustainability and growth
• Capital planning
• Industry standards
• Next dividend review in December 2015

Dividend rate: $0.80 (1) Payout ratio: 51% (2) Dividend yield: 2.8% (3) Dividend rate: $0.80 (1) Payout ratio: 51% (2) Dividend yield: 2.8% (3)

(1) Indicated annual rate (2) Assumes mid‐point of the 2015 guidance range (3) Based on 2/25/15 stock price of $28.45

$0.58 $0.66 $0.74 $0.80 Feb'12 Feb'13 Dec'13 Dec'14

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PNM Overview

PNM: Recent Accomplishments

• Increasing credit ratings
• Credit ratings raised by Moody’s to Baa2 with a positive
• utlook and S&P to BBB with a positive outlook
• Retail Renewable Rider implemented in August of 2012 with rates

reset annually

• 2014 revenue was $33 M; 2015 expected revenue is ~$45 M
• Future Test Year construct in place
• Improving regulatory environment in New Mexico
• Qualification requirements enacted for future NMPRC

Commissioners

• Analysts’ comments have noted an improvement in the New

Mexico regulatory environment

• Reached proposed settlement on BART filing that diversifies

generation portfolio

• 2014 reliability measure best in 7 years
• Customer satisfaction metrics reflect significant 5‐year gains

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PNM Load Growth and Economic Conditions

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Regulated Retail Energy Sales

(weather‐normalized)

6.1%(1) 5.7%(2)

Unemployment Rate NM U.S. Positive Economic Indicators

• Recent announcements of more than

1,000 new jobs

• Gross receipts tax increasing in

Albuquerque Metro

• Single sales factor state tax reform

PNM

% of FY 2014 Sales Q4 2014 vs. Q4 2013 YE 2014 vs. YE 2013 Residential 39% (1.0%) (0.7%) Commercial 47% (1.7%) (1.3%) Industrial 12% 1.9% (5.5%) Total Retail (0.9%) (1.7%) 2014 Revised Load Forecast: (3%) – (2%) 2015 Load Forecast: (2%) – 0%

(1) U.S. Bureau of Labor Statistics, December 2014 (2) U.S. Bureau of Labor Statistics, January 2015

PNM Average Customer Growth 2014 0.6% 2014 Forecast 0.5% 2015 Forecast 0.5%

PNM Regulatory Update

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Filing Action Timing Docket No.

BART Filing Filed December 20, 2013 Proposed settlement filed October 1, 2014 Final approval expected Q2 2015 13‐00390‐UT 2015 Renewable Plan Filed June 2, 2014 Final approval received November 26, 2014 14‐00158‐UT 2016 Future Test Year General Rate Case Filed December 11, 2014 Rates expected to be effective January 1, 2016 14‐00332‐UT FERC Transmission Formula Rates Filed December 31, 2012 Settlement expected to be filed in the near future ER13‐685‐000 and ER13‐690‐000

Filing Action Timing Docket No.

NMPRC:

BART Filing Filed December 20, 2013 Proposed settlement filed October 1, 2014 Final approval expected Q2 2015 13‐00390‐UT 2015 Renewable Plan Filed June 2, 2014 Final approval received November 26, 2014 14‐00158‐UT 2016 Future Test Year General Rate Case Filed December 11, 2014 Rates expected to be effective January 1, 2016 14‐00332‐UT

FERC:

Transmission Formula Rates Filed December 31, 2012 Settlement expected to be filed in the near future ER13‐685‐000 and ER13‐690‐000

PNM 2016 Future Test Year General Rate Case

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• Requested revenue increase of $107 million
• Based on 2016 future test year and 10.5% ROE
• Reflects $585 million increase in rate base from 2010 filing
• Customer bill impact of 7.7%

New Generation:

• 40 MW Solar
• 40 MW La Luz Gas Peaker

SNCR Equipment Palo Verde Unit 2 Lease Purchases T&D Reliability and Core Investments Depreciation Rate Change 50% Reduction of Remaining Palo Verde Lease Payments Other O&M Changes Energy Sales DG Interconnection Fee Structural Rate Design Changes Decoupling

Rate Base Operations Rate Design

Rio Bravo Generating Station

PNM 2016 Future Test Year General Rate Case Schedule

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2016 General Rate Case Filing – Tentative Procedural Schedule

May 6, 2015 Intervention deadline June 5, 2015 Staff and Intervenor testimony due June 29, 2015 Rebuttal testimony due July 9, 2015 Pre‐hearing Conference July 20 – August 7, 2015 Hearings conducted October 2015 Recommended Decision expected November 2015 Final Order Expected

PNM Rates Continue to Compare Favorably in the U.S.

20

PNM rates reflect current rates (2013) and the filed general rate case (2016). All others reflect U.S. Energy Information Administration's Forecasted Residential Rate increases through 2013. 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% UT CO IL NH DC WA MA ME MN WY CA PNM (2013) NJ RI VT WI NM PNM (2016) OR IA AK VA NE MI MD CT ND ID MT PA SD KS NY IN MO OK OH DE NV WV AZ TX GA FL AR KY NC TN LA SC AL HI MS

• Est. Average 2013 Residential Electric Bill

Es.t 2013 Median Household Income

Residential Electric Affordability by State for 2013 (Including PNM)

US Average Indicated by Dashed Line

Sources: EIA Form 826, US Census Bureau, and PNM Data

US Average: 2.55%

• Continue to earn allowed return
• Minimize regulatory lag through timely rate case filings
• Synchronize revenues and expenses
• Use future test year
• Balance future rate increases for customers while ensuring

the appropriate return is earned for our shareholders

• Continue to strengthen investment grade credit metrics
• Continue to control costs

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PNM: Pathway to Continued Success

TNMP Overview

TNMP: Recent Accomplishments

• TCOS and DCOS filings provide the ability to recover

transmission and distribution cost of service investments on a timely basis

• TNMP’s latest TCOS filing requesting additional revenue
• f $4.4M is expected to be approved with rates in place

March 2015

• Energy efficiency program costs collected through Energy

Efficiency Cost Recovery Factor

• TNMP has achieved performance bonuses each year

since 2010

• Smart meter rider approval led to implementation of $12M

surcharge collected 2011‐2023

• Credit ratings increased by Moody’s to A2 with a positive
• utlook and S&P to A‐ with a positive outlook
• 2014 reliability measure best in 10 years

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4.6%(1) 5.7%(2)

Unemployment Rate TX U.S.

TNMP Load Growth and Economic Conditions

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Regulated Retail Energy Sales

(weather‐normalized)

Positive Economic Indicators

• Dallas and Houston employment and GDPs

rank in top 10 of US metros

• Residential building permit levels approaching

the high levels seen in 2007

• The diversified Texas economy leads to

continued load growth

(1) U.S. Bureau of Labor Statistics, December 2014 (2) U.S. Bureau of Labor Statistics, January 2015

TNMP

% of FY 2014 Sales Q4 2014 vs. Q4 2013 YE 2014 vs. YE 2013 Residential 50% (1.1%) 1.0% Commercial 46% 9.0% 6.3% Total Retail 3.2% 3.2% 2014 Load Forecast: 1% – 3% 2015 Load Forecast: 2% – 3% TNMP Average Customer Growth 2014 1.3% 2014 Forecast 1.0% 2015 Forecast 1.0%

TNMP Regulatory Update

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Filing Action Timing Docket No.

TNMP TCOS Filed January 16, 2015 Rates expected to be effective March 2015 44340 TNMP TCOS Expected to file July 2015 Rates expected to be effective September 2015 TBD

TNMP: Pathway to Continued Success

• Continue to earn allowed rate of return through timely

execution of transmission cost of service and general rate case filings

• Invest in the business
• Continue to strengthen investment grade credit metrics
• Continue to control costs

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Financial Overview

Q4 2014 Financial Summary

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PNM and TNMP: Q4 2014 vs Q4 2013 EPS (Ongoing)

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PNM TNMP

Q4 2014 Key Performance Drivers ∆ EPS

Rate Relief $0.02 PNM Resources Foundation Contribution in 2013 $0.02 AFUDC $0.01 PV3 Market Prices $0.01 Gallup Contract ($0.01) Outage Costs ($0.01) Load ($0.01) Weather ($0.02) Other $0.01

Q4 2014 Key Performance Drivers ∆ EPS

TCOS Rate Relief $0.01 PNM Resources Foundation Contribution in 2013 $0.01 Weather ($0.01) Other $0.01

2014 Financial Summary

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PNM and TNMP: 2014 vs 2013 EPS (Ongoing)

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PNM TNMP

YE 2014 Key Performance Drivers ∆ EPS

Rate Relief and Off System Sales Sharing $0.05 PV3 Market Prices $0.03 Nuclear Decommissioning Trust $0.02 PNM Resources Foundation Contribution in 2013 $0.02 Rio Bravo (Formerly Delta) Purchase $0.01 Navajo Workforce Training Initiative in 2013 $0.01 AFUDC $0.01 Gallup Contract ($0.02) Outage Costs ($0.02) Depreciation & Property Tax ($0.03) Weather ($0.08) Load ($0.08) Other $0.02

$0.36 $0.47 YE 2013 YE 2014

YE 2014 Key Performance Drivers ∆ EPS

Rate Relief $0.05 O&M $0.03 Load $0.02 PNM Resources Foundation Contribution in 2013 $0.01 Energy Efficiency Incentive $0.01 Weather ($0.02) Other $0.01

$1.16 $1.10 YE 2013 YE 2014

$1.50 Consolidated EPS $1.62

PNM $1.14 ‐ $1.21 TNMP $0.45 ‐ $0.48 Corp/Other ($0.09) – ($0.07)

2015 Guidance (Ongoing) 2015 Guidance Range:

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2014 Ongoing EPS $1.49

Liquidity and Capital Structure

PNM TNMP Corporate/ Other PNM Resources Consolidated Financing Capacity as of February 20, 2015 Total Capacity(1) $450.0 $75.0 $300.0 $825.0 Less short‐term debt(1) and LOC balances 28.2 20.1 8.5 56.8 Plus invested cash 42.5 ‐ 1.9 44.4 Total Available Liquidity as of 2/20/15 $464.3 $54.9 $293.4 $812.6

Target cap structures: 50/50 at PNM, 55/45 at TNMP

(1)Not included are PNM’s fully drawn $175M term loan due 9/4/15, PNM’s new multi‐draw $125M term loan ($100M drawn as of 2/20/15) due 6/21/16, and

Corporate/Other’s fully drawn $100M term loan due 12/21/15.

33 (in millions) Dec 31, 2013 Dec 31, 2014 PNM $1,339.8 $1,490.7 TNMP 336.0 370.7 Corporate/Other 218.8 219.4 Consolidated $1,894.6 $2,080.7

Total Debt(2)

$119 $214 $157 $511 $609 $172 $173

2015 2016‐2017 2018 ‐ 2020 Beyond 2020

Long‐term Debt Maturities

(In millions)

PNM Resources PNM TNMP

(2) Excludes inter‐company debt

Amounts may not add due to rounding

Debt Ratings

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Debt Ratings

Moody’s 2008 2014

PNM Resources(1) Ba2 Baa3 PNM(1) Baa3 Baa2 TNMP Baa3(1) A2(2) Outlook Negative Positive

S&P 2008 2014

PNM Resources(1) BB‐ BBB‐ PNM(1) BB+ BBB TNMP BB+(1) A‐(2) Outlook Negative Positive

(1) Senior unsecured (2) Senior secured

Rate relief, cost control, and tax benefits keep FFO to Debt solidly in Moody’s Baa investment grade target range of 13% to 22%

19% 19% 17% 13% 22% 2013 2014 2015E

PNM Resources FFO to Debt

PNM Resources Summary

Continued earnings and dividend growth make PNM Resources an attractive investment

• On target to meet 2016 total return target of 10% ‐ 13%
• Potential earnings growth of 7% ‐ 9% through 2019
• Expected rate base CAGR of 5% ‐ 7% through 2019
• Potential investments beyond 2018:
• Renewable resources
• Transmission investments
• Grid enhancements
• Purchase remaining 114 MWs of Palo Verde leases
• Continued above industry‐average dividend growth
• Option to increase target payout ratio range after heightened capital spending

is complete

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Appendix

NMPRC Commissioners and Districts

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District Name Term Ends Party

District 1 Karen Montoya, Chairman 2016 Democrat District 2 Patrick Lyons 2018 Republican District 3 Valerie Espinoza 2016 Democrat District 4 Lynda Lovejoy, Vice Chair 2018 Democrat District 5 Sandy Jones 2018 Democrat

NMPRC Districts and PNM Service Areas

PUCT Commissioners

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Commissioners are appointed by Governor of Texas. Length of term is determined by the Governor.

(1)Pending Senate confirmation.

Name Term Began Term Ends Party

Donna Nelson

Chairman

• Aug. 2008
• Aug. 2015

Republican Kenneth Anderson

• Sept. 2008
• Aug. 2017

Republican Brandy Marty Marquez(1)

• Aug. 2013
• Aug. 2019

Republican

TNMP Rates Compare Favorably in Texas

$‐ $10 $20 $30 $40 $50 $60 Oncor TNMP AEP North Centerpoint AEP Central

Residential Total Wires Charge for 1,000 kWh

Source: TDU tariffs for retail delivery service, as of July 1, 2014.

39

PNM Load Including Impact of EE and DG

40

• The economy in New Mexico has been sluggish with

customer growth during 2014 of 0.6%.

• PNM supports state and local economic development

efforts to make New Mexico more business‐friendly, which has resulted in an increased number of inquiries from companies considering locating or expanding in the state.

• Programs supporting energy efficiency and solar distributed

generation initiatives also affect sales growth for PNM.

• Energy efficiency programs are expected to impact

2015 sales growth by 3.9% and customer‐owned DG is estimated to impact 2015 sales growth by 1.1%.

Year Over Year Retail Energy Sales Change Year Over Year Customer Count Change 2011 1.4% 0.4% 2012 (1.0%) 0.4% 2013 (1.8%) 0.5% 2014 (1.7%) 0.6% 2015E (2%) – 0% 0.5% (1,000) 2,000 5,000 8,000

2010 2011 2012 2013 2014 PNM Retail Energy Sales by Component

Customer Owned Photovoltaic Distributed Generation PNM Energy Efficiency Programs (Including Freeridership) Retail Sales Before EE, DG and Intel Total Energy Sales

TNMP Load Including Impact of EE and DG

41

• The economy in Texas continues to be strong with

customer growth during 2014 of 1.3%.

• Programs supporting energy efficiency and solar

distributed generation initiatives have negligible sales growth impacts at TNMP.

• Energy efficiency programs are expected to impact

2015 sales growth by 0.3%.

• Customer‐owned DG is not estimated to impact 2015

sales growth.

Year Over Year Retail Energy Sales Change Year Over Year Customer Count Change 2011 1.4% 0.7% 2012 3.7% 0.7% 2013 2.6% 0.9% 2014 3.2% 1.3% 2015E 2% ‐ 3% 1.0%

(1,000) ‐ 1,000 2,000 3,000 4,000 5,000 6,000

2010 2011 2012 2013 2014 Energy Sales, GWh

TNMP Energy Sales by Component

Customer Owned Distributed Generation TNMP Energy Efficiency Program Retail Sales Before EE, DG and Transmission Total Energy Sales

PNM Energy Efficiency

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NM Efficient Use of Energy Act

• Requires cumulative savings of 5% of load (based on 2005) by 2014 and 8% by 2020
• 411 GWh is PNM’s required cumulative energy efficiency savings in 2014 and 658 GWh by 2020
• Approximately 347 GWh in savings has been achieved through the end of 2013
• Projected savings of about 75 GWh in 2014 will exceed the minimum cumulative savings target for 2014

Energy Efficiency Program Savings Projections for 2015

• Commercial Comprehensive 34%
• Commercial Small Business 12%
• Home Energy Reports 10%
• Residential Cooling and Appliances 8%

Annual Environmental Benefits from Savings in 2014

• Equivalent to annual emissions from about 10,851 passenger vehicles
• Equivalent to power required for about 10,381 homes for one year
• Annual avoided water: about 24,402,000 gallons

Energy Efficiency Rider

• Recovery of approved program costs and utility incentive collected through rate rider
• Currently collecting $22 M in program costs and $1.7 M in utility incentive
• Residential Lighting 17%
• Refrigerator Recycling 8%
• Low Income Programs 5%
• Other 6%

TNMP Energy Efficiency

43

Public Utility Regulatory Act

• Establishes annual demand savings goals for electric utilities
• TNMP’s goal is to achieve:
• a 30% reduction in peak demand growth, subject to customer rate caps
• energy savings using a 20% conservation load factor
• TNMP’s 2015 goals are to achieve 5.8 MW and 10,161 MWh savings

Current Energy Efficiency Program

• Residential Programs 62%
• Commercial Programs(1) 36%
• Load Management Programs 2%

Annual Environmental Benefits(2)

• Equivalent to annual greenhouse gas emissions from 2,496 passenger vehicles
• Equivalent to CO2 emissions from 1,343,128 gallons of gasoline
• Equivalent to enough electricity use for 1,648 homes for one year

Energy Efficiency Cost Recovery Factor (EECRF)

• Recovery of program costs through rate rider
• 2012 performance bonus of $650k and 2013 performance bonus of $1.5M

(1) Not including Load Management (2) Based on kWh savings achieved in 2013

Coal 26% Nuclear 15% Natural Gas 43% Renewables 16%

Capacity

2018 Generation Mix based on RSIP

Coal 36% Nuclear 15% Natural Gas 35% Renewables 14%

Capacity

2,707 MW

As of 1/1/2015

PNM Diversified Generation Portfolio: Capacity

44

PNM Diversified Generation Portfolio: Energy

45

Coal 54% Nuclear 31% Natural Gas 9% Renewables 5%

Energy

10,791 GWh

Based on 12 months ending 12/31/14

Renewables 5% Coal 46% Nuclear 33% Natural Gas 10% Renewables 11%

Energy

2018 Generation Mix

based on RSIP

PNM Service Territory and Generation Facilities

46

PNM Plant EAF and Outages

47

2015 ‐ 2016 Outage Schedule

Unit Duration in Days Time Period San Juan

1 46 Q1 2015 4 44 Q4 2015 3 14 Q4 2015

Four Corners

5 75 Q4 2015 4 21 Q1‐Q2 2016 5 10 Q4 2016

Palo Verde

3 30 Q2 2015 2 30 Q4 2015 1 30 Q2 2016 3 30 Q4 2016

PNM San Juan Generating Station Ownership and Participants

Unit Total MW PNM MW PNM Ownership Other Participants/Ownership 1 340 170 50%

Tucson Electric 50% (170 MW)

2 340 170 50%

Tucson Electric 50% (170 MW)

3 497 248 50%

Southern California Power Authority 41.8% (208 MW) Tri‐State 8.2% (41 MW)

4 507 195 38.457%

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 7.028% (36 MW)

Total 1,684 783

48

MW Owned vs. Leased 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 ‐ $33.1M
• Decreases to $16.5M per year beginning 2015
• Total PV Unit 2 ‐ $23.7M
• One lease is extended and that payment will drop from $3.1M to $1.6M beginning 2016

Unit 1 Owned 2.3% 30 MW Leased 7.9% 104 MW Total 10.2% 134 MW Unit 2 Owned 4.6% 60 MW Leased 5.6% 74 MW Total 10.2% 134 MW

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PNM Palo Verde Nuclear Generating Station Unit 1 and 2 Leases

San Juan BART Timeline

Action Item Expected Completion Actual Completion

EIB approval of RSIP submitted by NMED September 5, 2013 Submitted RSIP to EPA for approval October 18, 2013 EPA review and approval of RSIP

• Application deemed complete by EPA
• Preliminary approval by EPA
• Approval by EPA published in Federal Register

December 17, 2013 April 30, 2014 October 9, 2014 Submitted BART filing to NMPRC for approval December 20, 2013 NMPRC approval for retirement and potential replacement power

• Proposed settlement filed with NMPRC
• Hearing with Hearing Examiner
• Briefs filed
• Response briefs filed
• Hearing Examiner Recommended Decision
• Final Order expected

March/April 2015 Q2 2015 October 1, 2014 January 5 ‐ 27, 2015 February 16, 2015 February 27, 2015 SNCR construction Q1 2016 Units 2 & 3 shut down December 31, 2017

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Coal Unit PNM Share Capacity (MW) Low NOx Burners/ Overfired Air Activated Carbon Injection (1) SNCR (2) SCR (2) Baghouse (3) Scrubbers San Juan Unit 1 170 X X Expected 2016 X X San Juan Unit 2 170 X X X X San Juan Unit 3 248 X X X X San Juan Unit 4 195 X X Expected 2016 X X Four Corners Unit 4 100 Pre‐2000 low NOx burners‐ considered

• utdated

Expected 2018 X X Four Corners Unit 5 100 Pre‐2000 low NOx burners‐ considered

• utdated

Expected 2018 X X

(1) Activated carbon injection systems reduce mercury emissions. For San Juan, the installation was completed in 2009, as part of a 3‐year, $320M environmental upgrade. (2) SNCR refers to selective non‐catalytic reduction systems. SCR refers to selective catalytic reduction systems. Both systems reduce NOx emissions. (3) Baghouses collect flyash and other particulate matter. For San Juan, the installation was completed in 2009, as part of a 3‐year, $320M environmental upgrade.

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Environmental Control Equipment at Coal Units

Estimated Compliance Costs (PNM Share) Comments San Juan Generating Station Clean Air Act – Regional Haze(1) (State Alternative) – SNCR $81M SNCR technology on 2 units; Retire 2 units. Clean Air Act – National Ambient Air Quality Standards (NAAQS) Included in SNCR and SCR(1) estimates On November 25, 2014, EPA released a proposed rule that would revise the NAAQS for ground level ozone. The rule would reduce the current primary 8‐hour ozone NAAQS from 75 parts per billion (ppb) to between 70 and 65

• ppb. Balanced Draft , which has been included in the Regional Haze solution,

would assist with compliance with NAAQS. Mercury Rules (MATS) None to minimal Testing shows 99% or greater removal. Resource Conservation and Recovery Act – Coal Ash (proposed) Minimal to some exposure EPA issued the final coal combustion residuals (CCR) rule on December 19,

• 2014. The rule regulates CCR as a non‐hazardous waste under Subtitle D of
• RCRA. This rule does not apply to placement of coal ash in mines – Office of

Surface Mining (OSM) is expected to issue its own rule in 2015 and they will likely follow EPA’s . Clean Water Act – 316(b) Minimal to some exposure PNM is performing analyses based upon EPA’s May 19, 2014 ruling on the

• issue. PNM will work with EPA Region 6 to address 316(b) requirements in

SJGS’ next National Pollutant Discharge Elimination System permit renewal. There is a low expected impact. Effluent Limitation Guidelines (proposed) Minimal to some exposure PNM has reviewed the proposed rule and continues to assess the impact on

• SJGS. EPA has until September 30, 2015 to issue final effluent limits.

Impact of Proposed Environmental Regulation

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Estimated Compliance Costs (PNM Share) Comments Four Corners (Units 4 and 5) Clean Air Act – Regional Haze ‐ SCR $80M Final BART determination filed with EPA on December 30, 2013. Impact to PNM: SCR controls for NOx on Units 4 & 5. Clean Air Act – National Ambient Air Quality Standards (NAAQS) Some to significant exposure On November 25, 2014, EPA released a proposed rule that would revise the NAAQS for ground level ozone. The rule would reduce the current primary 8‐hour ozone NAAQS from 75 parts PPB to between 70 and 65ppb. APS is unable to predict the impact of the adoption of a new standard. Mercury Rules (MATS) Slight exposure APS has determined that no additional equipment will be required. Resource Conservation and Recovery Act – Coal Ash (proposed) Significant exposure EPA issued the final coal combustion residuals (CCR) rule on December 19,

• 2014. The rule regulates CCR as a non‐hazardous waste under Subtitle D of
• RCRA. APS is evaluating the rule on its existing ash impoundments and dry fly

ash disposal areas. Clean Water Act – 316(b) Some exposure APS is performing analyses based on EPA’s May 19, 2014 ruling on the issue to determine the potential costs of compliance with the proposed rule. Effluent Limitation Guidelines (proposed) Some exposure APS has reviewed the proposed rule and continues to assess the impact. EPA has until September 30, 2015 to issue final effluent limits.

Impact of Proposed Environmental Regulation

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EPA’s Proposed Clean Power Plan

• Requires each state to develop and implement a state plan to reduce its CO2

emissions rate to meet state‐specific standards based on 2012 average emissions rates for all affected fossil‐fueled units in the state.

• Issued under the authority of section 111(d) of the Clean Air Act (CAA).
• Results in a two‐phased program:
• Interim emission rate goal for “phased‐in” period of 2020‐2029.
• New Mexico’s required interim reduction of emissions from

2012 will be 30%.

• Final emissions rate goal must be achieved in 2030 and beyond.
• New Mexico’s required final reduction of emissions from 2012

will be 34%.

• State goals are based upon 4 building blocks that include:
• Increase in heat rate efficiency by 6% at fossil fuel power plants
• Switch to lower emitting combined cycle plants‐ to operate up to 70%
• Add more RE (assumed 21% RPS for NM)
• Add more EE (all states increase annual EE savings by 10.5% by 2030)
• A supplemental proposal for regulating power plants in Indian County under

section 111(d) was published on 11/04/14. The proposal sets emission reduction goals based upon building block 1 (heat rate improvements) and building block 4 (a small improvement in demand‐side energy efficiency).

10 New Mexico Facilities Affected

Coal Plants San Juan (PNM) Escalante (Tri‐State) Natural Gas Combined Cycle Plants Afton (PNM) Luna (PNM) Bluffview (City of Farmington) Hobbs (Xcel) Oil and Gas Steam Plants Reeves (PNM) Cunningham (Xcel) Rio Grande (El Paso) Maddox (Xcel)

The goal of the plan is an estimated 30% reduction in CO2 emissions from the U.S. electric power sector in 2030, relative to 2005 levels.

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