Q1 2019 Earnings Review May 7, 2019 Safe Harbor Statement - - PowerPoint PPT Presentation

Q1 2019 Earnings Review

May 7, 2019

Safe Harbor Statement

2 Statements made in this presentation for PNM Resources, Inc. (“PNMR”), Public Service Company of New Mexico (“PNM”), or 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. 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

• r 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 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

Financial Results and Key Highlights

4

• Upper end of earnings guidance increased to $2.20
• Revised 2019 Ongoing EPS Guidance $2.10 - $2.20

Financial Results

Note: EPS is presented on a diluted basis. For a reconciliation of GAAP EPS to Ongoing EPS and a description of adjustments made, please refer to the first quarter earnings release issued May 7, 2019.

Q1 2019 Q1 2018 GAAP EPS $0.23 $0.19 Ongoing EPS $0.13 $0.21

• New Mexico Legislative Updates
• Energy Transition Act: Securitization, increased Renewable Portfolio

Standards, 2045 carbon‐free requirement

• PNM goal to achieve 100% emissions‐free by 2040
• Constitutional amendment to move to appointed New Mexico Public

Regulation Commissioners will be sent to voters in 2020 general election

• Western Spirit acquisition to expand FERC transmission, support renewable

development

Key Highlights

PNM and TNMP Regulatory Agenda

5

Filing Action Timing Docket No. PNM

Appeal of 2015 General Rate Case to New Mexico Supreme Court Oral arguments held October 30, 2017 No statutory timeline S‐1‐SC‐36115 San Juan Generating Station Compliance Filing / Abandonment Filing NMPRC order issued to file application in support

• f abandonment by March 1, 2019; New Mexico

Supreme Court issued temporary stay of Order on March 1, 2019 Parties’ responses filed with New Mexico Supreme Court March 19, 2019 PNM plans to file for abandonment, securitization and replacement power CCNs in June 2019 19‐00018‐UT TBD Western Energy Imbalance Market Filing Final Order issued March 27th affirmed accounting treatment and Clarifying Order issued April 24th related to future calculation of benefits PNM plans to join Western Energy Imbalance Market in April 2021 18‐00261‐UT BB2 Transmission Project Final Order issued April 16, 2019 granting CCN and denying PNM’s requested ratemaking treatment. PNM filed on April 29, 2019 for re‐hearing; Commission response expected by May 19 18‐00243‐UT 2017 Integrated Resource Plan San Juan Entities filed notice of appeal to New Mexico Supreme Court January 18, 2019 No statutory timeline 17‐00174‐UT S‐1‐SC‐37482 2018 Renewable Plan NMIEC and New Energy Economy filed notices of appeal to New Mexico Supreme Court November 29, 2017 No statutory timeline; oral arguments held May 6, 2019 17‐00129‐UT S‐1‐SC‐36772

TNMP

TCOS Filing Filed January 25, 2019 Rates implemented March 21, 2019 49143

Financial Overview

Chuck Eldred

Executive Vice President and CFO

Q1 2019 Ongoing EPS Financial Summary

7

Note: Segment drivers included in appendix

$0.02 ($0.07) ($0.03) $0.21 $0.13 Q1 2018 Q1 2019 PNM TNMP Corporate

Load and Economic Conditions

8

Regulated Retail Energy Sales and Customers

(weather‐normalized)

(1) Primarily Residential usage; represents per‐kWh billings (2) Commercial and Industrial demand excluding Transmission customers; represents per‐kW monthly peak billings

• Oil and gas customer requests for new

service trending ~33% higher than prior year levels

• Residential and small commercial

requests trending higher

TNMP

Q1 2019 vs. Q1 2018 2019 Guidance

TNMP Total Volumetric Load(1) (1.9%) 2% – 3% TNMP Demand-Based Load(2) 4.7% 6% – 8% TNMP Avg. End Users 1.5% 1.5% – 2.0%

PNM

Q1 2019 vs. Q1 2018 2019 Guidance

PNM Residential & Commercial 0.6% 0.3% - 0.5% Total PNM Retail Load (Revised) 1.2% 0.5% – 1.5% PNM Avg. Customers 0.8% 0.8% - 1.0%

• Residential and commercial sectors are

expected to be in line with annual guidance

• Revised guidance resulting from stronger

economic growth in the industrial sector

$2.10 Consolidated EPS $2.20

PNM $1.63 – $1.70 TNMP $0.67 – $0.69 Corp/Other ($0.20) – ($0.19)

Consolidated Earnings Guidance (Ongoing)

9

2019 Previous Revised

Consolidated EPS $2.10 - $2.18 $2.10 - $2.20

PNM $1.61 ‐ $1.65 $1.63 ‐ $1.70 TNMP $0.67 ‐ $0.69 $0.67 ‐ $0.69 Corporate/Other ($0.18) – ($0.16) ($0.20) – ($0.19)

2019 Earnings Guidance (Revised)

$2.6B investment plan achieves targeted earnings growth

Growth opportunities realized in the plan:

• $285M(1) Western Spirit acquisition included as PNM transmission expansion in 2021
• $40M of additional PNM T&D capital added in 2022

Additional capital investment to be reflected with June 2019 abandonment filing

$255 $276 $306 $316

$245 $245 $245 $245 $143 $171 $169 $181 $98 $97 $79 $82

$60 $37

$88 $285

$21 $25 $26 $20 $30 $34

2019 2020 2021 2022

(in millions)

TNMP PNM T&D PNM Existing Generation PNM Renewable Additions PNM Transmission Expansion Corporate/Other 50% NMRD Renewable Additions Depreciation

$634 $528 $804 $660

10

2019 – 2022 Investment Plan

(1) Reflects assumed purchase price of $360M, net of $75M customer funding (2) Depreciation does not include amounts associated with NMRD

(2)

Targeted 2018-2022 Rate Base CAGR (2018 base): Total 8.7%-9.5% / PNM 5.9%-7.1% / TNMP 16.2%

Range at PNM reflects the removal of items pending NM Supreme Court general rate review appeal from the base period and includes the potential outcomes of $0‐$150M through the growth period

(1)

San Juan Replacement Power

2019 - 2022 Potential Earnings Power

11

This table is not intended to represent a forward-looking projection of 2020 - 2022 earnings guidance. Refer to Slide 16 for additional details and disclosures.

Earnings Growth Target: 5 - 6%

Note: 2018‐2022 CAGR measured from 2018 Ongoing EPS of $2.00

(1) Assumes mid‐year implementation

Allowed Return / Equity Ratio

2019 Ongoing Earnings Guidance Midpoint 2020 Earnings Potential 2021 Earnings Potential 2022 Earnings Potential

Avg Rate Base Return EPS Avg Rate Base EPS Avg Rate Base EPS Avg Rate Base EPS

PNM Retail 9.575% / 50% $2.4 B 9.5% $1.44 $2.4 B $1.44 $2.5 B $1.52 $2.4 B $1.48 PNM Renewables 9.575% / 50% $115 M 9.575% $0.07 $150 M $0.09 $145 M $0.09 $140 M $0.08 PNM FERC 10% / ~50% $275 M 7.4% $0.13 $330 M $0.15‐$0.20 $530 M $0.26‐$0.30 $740 M $0.37‐$0.42 Items not in Rates $0.03 ($0.04)‐($0.02) ($0.04)‐($0.02) ($0.04)‐($0.02) Total PNM $2.7 B $1.67 $2.9 B $1.64-$1.71 $3.2 B $1.83-$1.89 $3.4 B $1.89-$1.96 TNMP 9.65% / 45% $1.1 B 9.65% $0.68 $1.3 B $0.73 $1.4 B $0.80 $1.6 B $0.84 Corporate/Other ($0.20) ($0.21)‐($0.19) ($0.21)‐($0.19) ($0.19)‐($0.17) Equity Financing Plans ($0.01)‐$0.00 ($0.08)‐($0.07) ($0.15)‐($0.13) Subtotal Base PNM Resources $3.8 B $2.15 $4.1 B $2.15 - $2.25 $4.6 B $2.34 - $2.43 $4.9 B $2.39 - $2.50 Supreme Court Appeal (1) $0-$150M $0.00-$0.05 $0-$150M $0.00-$0.09 $0-$150M $0.00-$0.09 $0-$150M $0.00-$0.09 Total PNM Resources up to $3.9 B $2.15 - $2.20 $4.1-$4.3B $2.15 - $2.34 $4.6-$4.8B $2.34 - $2.52 $4.9-$5.1B $2.39 - $2.59

Questions and Answers

Appendix

Q1 2019 vs Q1 2018 EPS (Ongoing): PNM

$0.12 $0.14

Q1 2018 Q1 2019

14

PNM

Q1 2019 Key Performance Drivers ∆ EPS

Weather $0.03 Interest expense savings $0.03 Retail rate phase‐in, including changes in tax rates and retail generation portfolio changes approved in BART settlement $0.02 Retail load $0.01 Outage costs $0.01 O&M increases ($0.04) Depreciation and property tax ($0.02) AFUDC ($0.01) Other ($0.01)

Q1 2019 vs Q1 2018 EPS (Ongoing): TNMP and Corporate

15

$0.12 $0.05 Q1 2018 Q1 2019

TNMP

Q1 2019 Key Performance Drivers ∆ EPS

Rate relief, including TCOS ($0.04) Depreciation and property tax ($0.02) Weather ($0.01)

($0.03) ($0.06) Q1 2018 Q1 2019

Corporate

Q1 2019 Key Performance Drivers ∆ EPS

Interest expense ($0.01) Westmoreland loan agreements ($0.01) Other ($0.01)

Potential Earnings Power

16

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

2018 general rate review settlement. 2022 rate base is reduced by $160M to reflect the projected average rate base retired at SJGS.

(2) PNM Renewables reflect assets collected through the Renewable Rate Rider. (3) PNM FERC reflects a return of 7%‐9% 2019 – 2020 versus the allowed return of 10%, as FERC formula rate methodology uses prior year average rate base and provides for mid‐year rate

• increases. 2021 – 2022 reflects a return of 8%‐9% to account for Western Spirit investment recovered through an incremental rates.

(4) Consists primarily of decommissioning/reclamation trust income (net of fees and taxes), AFUDC, certain incentive compensation, and the 65MW ownership of San Juan Unit 4. (5) TNMP earnings include additional recovery for Competitive Transition Costs (fully recovered in 2020) and Energy Efficiency, along with items excluded from rates (primarily AFUDC).

Earnings also include interest savings beginning mid‐2019 from the refinancing of existing debt.

(6) Corporate/Other includes the earnings impacts associated with short and intermediate term bank debt and the 50% equity interest in NMRD. (7) Equity Financing Plans reflect financing alternatives, including ATM Program issuance of up to $150M (dilution impacts assume $50M issued in 2020 and $100M issued in 2021, with a full

year dilution impact in 2022), and $250M mandatory convertibles beginning mid‐2021.

(8) Reflects a range of outcomes for the New Mexico Supreme Court appeal of the August 2015 General Rate Review final order. A minimum 34‐month appeal

timeframe has been used for purposes of writing down the value of the assets under appeal. 2019 average rate base presented includes: PV2 64MW Acquisition Adjustment (~$75M), PV2 Leasehold Improvements (~$25M) and Balanced Draft Technology (~$50M). This table is not intended to represent a forward-looking projection of 2020 - 2022 earnings guidance.

Allowed Return / Equity Ratio

2019 Ongoing Earnings Guidance Midpoint 2020 Earnings Potential 2021 Earnings Potential 2022 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% $2.4 B 9.5% $1.44 $2.4 B $1.44 $2.5 B $1.52 $2.4 B $1.48 PNM Renewables(2) 9.575% / 50% $115 M 9.575% $0.07 $150 M $0.09 $145 M $0.09 $140 M $0.08 PNM FERC(3) 10% / ~50% $275 M 7.4% $0.13 $330 M $0.15‐$0.20 $530 M $0.26‐$0.30 $740 M $0.37‐$0.42 Items not in Rates(4) $0.03 ($0.04)‐($0.02) ($0.04)‐($0.02) ($0.04)‐($0.02) Total PNM $2.7 B $1.67 $2.9 B $1.64-$1.71 $3.2 B $1.83-$1.89 $3.4 B $1.89-$1.96 TNMP(5) 9.65% / 45% $1.1 B 9.65% $0.68 $1.3 B $0.73 $1.4 B $0.80 $1.6 B $0.84 Corporate/Other(6) ($0.20) ($0.21)‐($0.19) ($0.21)‐($0.19) ($0.19)‐($0.17) Equity Financing Plans(7) ($0.01)‐$0.00 ($0.08)‐($0.07) ($0.15)‐($0.13) Subtotal Base PNM Resources $3.8 B $2.15 $4.1 B $2.15 - $2.25 $4.6 B $2.34 - $2.43 $4.9 B $2.39 - $2.50 Supreme Court Appeal(8) $0-$150M $0.00-$0.05 $0-$150M $0.00-$0.09 $0-$150M $0.00-$0.09 $0-$150M $0.00-$0.09 Total PNM Resources up to $3.9 B $2.15 - $2.20 $4.1-$4.3B $2.15 - $2.34 $4.6-$4.8B $2.34 - $2.52 $4.9-$5.1B $2.39 - $2.59

EBITDA and Quarterly Earnings Distribution Guidance (Ongoing)

17

Ongoing EBITDA (In millions) 2019E Midpoint

Consolidated PNM Resources $572 PNM $378 TNMP $173

6% 27% 56% 11% Q1 Q2 Q3 Q4 2019 Quarterly Ongoing Earnings Distribution

Weather Impact

18

PNM Q1 2019 Q1 2018 2019 Normal(1) Heating Degree Days 1,224 989 1,102 Cooling Degree Days 1 Net EPS Impact

compared to normal

$0.02 ($0.01) TNMP Q1 2019 Q1 2018 2019 Normal(1) Heating Degree Days 927 877 902 Cooling Degree Days 75 150 88 Net EPS Impact

compared to normal

$0.00 $0.00

(1) 2019 normal weather assumption reflects the 20‐year average for the period 1999 ‐ 2018.

PNM Scheduled Plant Outages

19 San Juan Unit Duration in Days Time Period

4 44 Q2 2019

Palo Verde Unit Duration in Days Time Period

1 30 Q2 2019 3 44 Q4 2019

Four Corners Unit Duration in Days Time Period

4 21 Q1 2019 (completed) 5 21 Q1 2019 (completed)

Balance Sheet and Credit Metrics

Liquidity as of May 3, 2019

21

PNM TNMP PNMR PNM Resources Consolidated PNMR Develop- ment Corporate /Other Financing Capacity(1): (In millions) Revolving credit facilities $440.0 $75.0 $25.0 $300.0 $840.0 As of 5/3/19: Short‐term debt and LOC balances $2.5 $29.3 $15.1 $60.6 $107.5 Remaining availability 437.5 45.7 9.9 239.4 732.5 Invested cash 9.0 ‐ ‐ 0.9 9.9 Total Available Liquidity $446.5 $45.7 $9.9 $240.3 $742.4

(1) Excludes intercompany debt and term loans

Selected Balance Sheet Information

22

(1) Net of unamortized debt issuance costs, premiums and discounts (2) Excludes intercompany debt (3) Balance includes $172.3M of bonds repaid April 1, 2019 with proceeds from $225M bonds issued on March 29, 2019

Amounts may not add due to rounding

(In millions) Dec 31, 2018 Mar 31, 2019 Long-Term Debt (incl. current portion) (1) PNM $1,656.5 $1,706.9 TNMP 575.4 798.9 Corporate/Other 438.2 438.4 Consolidated $2,670.1 $2,944.2 Total Debt (incl. short-term) (1,2) PNM $1,698.9 $1,706.9 TNMP 592.9 798.9 Corporate/Other 614.2 662.2 Consolidated $2,906.0 $3,168.0

(3) (3)

Credit Ratings

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