Q4 2018 Earnings Review February 27, 2019 Safe Harbor Statement - - PowerPoint PPT Presentation

Q4 2018 Earnings Review

February 27, 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, Key Highlights and Company Updates

4

• 2019 Ongoing EPS Guidance narrowed to $2.10 ‐ $2.18

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 fourth quarter earnings release issued February 27, 2019.

Q4 2018 Q4 2017 2018 2017 GAAP EPS ($0.69) ($0.68) $1.07 $1.00 Ongoing EPS $0.18 $0.24 $2.00 $1.94 2018 Key Highlights

• TNMP continued growth, load growth at PNM
• Return of federal tax savings to customers
• Investments in reliability and environmentally sustainable power
• 9% dividend increase moves payout ratio to middle of 50‐60% targeted range

2019 Company Updates

• New Mexico legislative session: Energy Transition Act
• Regulatory Updates: NMPRC actions, TNMP TCOS filing

Key Highlights and Company Updates

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 Filed December 31, 2018, docket closed; Order issued in new docket to file application in support of abandonment by March 1, 2019 PNM request for reconsideration of Order to be addressed by February 27, 2019 or denied by operation of law 13‐00390‐UT 19‐00018‐UT Western Energy Imbalance Market Filing Order governing accounting treatment approved December 19, 2018; Order to vacate previous order and grant rehearing issued February 6, 2019 Procedural schedule or final order pending 18‐00261‐UT 2017 Integrated Resource Plan Final Order to accept Plan issued December 19, 2018; notice of appeal to New Mexico Supreme Court received January 18, 2019 No statutory timeline 17‐00174‐UT S‐1‐SC‐37482 2019 Renewable Plan Hearings held September ‐ October 2018 Approved November 29, 2018 18‐00158‐UT

TNMP

General Rate Review Settlement approved December 20, 2018 Rates implemented January 2019 48401 TCOS Filing Filed January 25, 2019 Expected to be approved March 2019 49143

Financial Overview

Chuck Eldred

Executive Vice President and CFO

FY 2018 Ongoing EPS Financial Summary

7

Note: Segment drivers included in appendix

$0.06 $0.11 ($0.11) $1.94 $2.00 FY 2017 FY 2018 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 usage excluding Transmission customers; represents per‐kW monthly peak billings (3) U.S. Bureau of Labor Statistics, December 2018

1.9% 3.1% 1.6% 2015 2016 2017 2018 % Change

Employment Growth(3) 12‐Month Rolling Average

Albuquerque Dallas U.S.

PNM / TNMP

Q4 2018 vs. Q4 2017 2018 vs. 2017 2018E 2019E

PNM Residential & Commercial 1.3% 0.7% ~0.3% 0.3% ‐ 0.5% Total PNM Retail Load 1.3% 0.6% 0% – 0.5% 0.3% – 1.0% PNM Avg. Customers 0.9% 0.8% 0.8% ‐ 1.0% per year TNMP Total Volumetric Load(1) 3.5% 3.2% 2% – 3% per year TNMP Demand‐Based Load(2) 7.8% 6.8% 5% – 7% 6% – 8% TNMP Avg. End Users 1.3% 1.3% 1.5% – 2.0% per year Monthly Employment Growth(3)

2018 vs. 2017 Abq. U.S. January 1.2% 1.4% February 1.6% 1.5% March 1.3% 1.6% April 1.3% 1.6% May 1.3% 1.7% June 1.3% 1.6% July 2.1% 1.6% August 2.1% 1.7% September 2.5% 1.7% October 2.6% 1.7% November 2.4% 1.7% December 2.6% 1.8%

Consolidated Earnings Guidance (Ongoing)

9

2019 Previous Current

Consolidated EPS $2.08 ‐ $2.18 $2.10 ‐ $2.18

PNM $1.59 ‐ $1.65 $1.61 ‐ $1.65 TNMP $0.67 ‐ $0.69 $0.67 ‐ $0.69 Corporate/Other ($0.18) – ($0.16) ($0.18) – ($0.16)

2019 Earnings Guidance

$2.10 Consolidated EPS $2.18

PNM $1.61 – $1.65 TNMP $0.67 – $0.69 Corp/Other ($0.18) – ($0.16)

$245 $245 $245 $245 $125 $180 $175 $141 $98 $97 $79 $82

$61 $49

$79

$27 $25 $20 $20 $32 $29

$350 $100

2019 2020 2021 2022

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

$637 Total: $588 Total: $869 $655 Subtotal: $519

10

$2.3B investment plan plus incremental growth opportunities 2019 – 2022 Investment Plan

Amounts may not visually add due to rounding

(1) Depreciation does not include amounts associated with NMRD

(1)

Targeted 2018‐2022 Rate Base CAGR (2018 base): Total 7.1%‐9.0% / PNM 3.6%‐6.4% / TNMP 16.2%

Range at PNM reflects potential outcomes from the pending NM Supreme Court general rate review appeal

• f $0‐$150M and potential growth opportunities

Incremental growth opportunities

Subtotal: $488 Incremental growth opportunities (previously $950M)

• $255M moved into T&D capital at PNM and TNMP
• $450M supports new transmission and replacement power
• $245M awaiting future capital prioritization

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 20 for additional details and disclosures.

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 9.3% $1.41 $2.4 B $1.44 $2.5 B $1.52 $2.5 B $1.47 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% $285 M 8.0% $0.14 $340 M $0.15‐$0.20 $390 M $0.17‐$0.22 $470 M $0.21‐$0.26 Items not in Rates $0.01 ($0.04)‐($0.02) ($0.04)‐($0.02) ($0.04)‐($0.02) Total PNM $2.7 B $1.63 $2.9 B $1.64‐$1.71 $3.1 B $1.74‐$1.81 $3.1 B $1.72‐$1.79 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 ($0.17) ($0.18)‐($0.16) ($0.20)‐($0.18) ($0.22)‐($0.20) ATM Program ($0.02)‐($0.01) ($0.04)‐($0.03) ($0.06)‐($0.04) Subtotal Base PNM Resources $3.8 B $2.14 $4.1 B $2.17 ‐ $2.27 $4.5 B $2.30 ‐ $2.40 $4.6 B $2.28 ‐ $2.39 Incremental items: Supreme Court Appeal up to $150M $0.09 $150M $0.09 $150M $0.09 $150M $0.09 Growth Opportunities up to $175M $0.10 $400M $0.24 Growth Financing up to ($0.03) ($0.03) Total PNM Resources up to $3.9 B $2.23 $4.3 B $2.36 $4.8 B $2.56 $5.2 B $2.69

Earnings Growth Target: 5 ‐ 6%

• Base plan increases as capital opportunities are realized to support

growth at PNM and TNMP

• Planned San Juan retirement reduces 2022 PNM Retail average rate base
• $450M of incremental growth opportunities to be financed with $320M
• f securitization proceeds and $130M of debt and equity

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

Questions and Answers

Appendix Q4 and FY 2018 Earnings

Q4 2018 vs Q4 2017 EPS (Ongoing): PNM

$0.16 $0.10

Q4 2017 Q4 2018

14

PNM

Q4 2018 Key Performance Drivers ∆ EPS

Outage Costs $0.05 Weather $0.04 Interest expense savings $0.03 Retail load $0.01 Transmission margin $0.01 O&M increases ($0.05) Decommissioning/reclamation trust income, net of fees ($0.05) Depreciation and property tax ($0.03) Retail rate phase‐in, including changes in tax rates and retail generation portfolio changes approved in BART settlement ($0.02) San Juan unregulated 65MW ($0.02) FERC Generation Navopache contract ($0.01) Other ($0.02)

Q4 2018 vs Q4 2017 EPS (Ongoing): TNMP and Corporate

15

$0.11 $0.14 Q4 2017 Q4 2018

TNMP

Q4 2018 Key Performance Drivers ∆ EPS

Load $0.02 O&M decreases $0.01 Other (TCOS rate relief, AFUDC) $0.01 Other (weather, depreciation and property tax) ($0.01)

($0.03) ($0.06) Q4 2017 Q4 2018

Corporate

Q4 2018 Key Performance Drivers ∆ EPS

Interest expense ($0.02) Westmoreland loan agreements ($0.01)

2018 vs 2017 EPS (Ongoing): PNM

$1.48 $1.54

2017 2018

16

PNM

2018 Key Performance Drivers ∆ EPS

Retail rate phase‐in, including changes in tax rates and retail generation portfolio changes approved in BART settlement $0.31 Transmission margin $0.11 Weather $0.10 Interest expense savings $0.06 Retail load $0.02 Decommissioning/reclamation trust income, net of fees ($0.14) O&M increases ($0.12) Depreciation and property tax ($0.11) San Juan unregulated 65MW ($0.06) Outage costs ($0.05) FERC Generation Navopache contract ($0.02) AFUDC ($0.01) Other ($0.03)

2018 vs 2017 EPS (Ongoing): TNMP and Corporate

17

$0.54 $0.65 2017 2018

TNMP

2018 Key Performance Drivers ∆ EPS

Load $0.06 TCOS rate relief $0.04 AFUDC $0.03 Weather $0.01 Tax reform $0.01 Other $0.01 Depreciation and property tax ($0.05)

($0.08) ($0.19) 2017 2018

Corporate

2018 Key Performance Drivers ∆ EPS

Interest expense ($0.06) Westmoreland loan agreements ($0.03) Tax reform ($0.01) Other ($0.01)

Weather Impact

18

PNM Q4 2018 Q4 2017 2018 Normal(1) Heating Degree Days 1,005 608 861 Cooling Degree Days 18 16 13 Net EPS Impact

compared to normal

$0.02 ($0.02) TNMP Q4 2018 Q4 2017 2018 Normal(1) Heating Degree Days 719 596 617 Cooling Degree Days 246 376 283 Net EPS Impact

compared to normal

$0.00 $0.00

(1) 2018 normal weather assumption reflects the 20‐year average for the period 1998 ‐ 2017.

Ongoing Earnings Guidance

Potential Earnings Power

20

(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% versus the allowed return of 10%, as FERC formula rate methodology uses prior year average rate base and provides for mid‐year rate increases. (4) Consists primarily of decommissioning/reclamation trust income (net of fees and taxes), AFUDC, certain incentive compensation, and the 65MW ownership of San Juan Unit 4. (5) TNMP reflects a 9.65% return and 45% equity ratio consistent with the filed general rate review settlement. Earnings also include additional recovery for Competitive Transition Costs (fully

recovered in 2020) and Energy Efficiency, along with items excluded from rates (primarily AFUDC). Earnings also include debt savings beginning mid‐2019 from the refinancing of existing debt.

(6) Corporate/Other includes earnings associated with short and intermediate term bank debt and 50% equity interest in NMRD. (7) Dilution impact assumes equity issuances up to $50M in 2020, $150M in 2021 and 2022. (8) Reflects a range of outcomes for the New Mexico Supreme Court appeal of the August 2015 General Rate Review final order. A minimum 31‐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).

(9) Reflects $450M incremental capital opportunities shown on Slide 9. (9) Reflects $320M of securitization proceeds and $130M of debt and equity financing to maintain investment grade credit ratings.

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 9.3% $1.41 $2.4 B $1.44 $2.5 B $1.52 $2.5 B $1.47 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% $285 M 8.0% $0.14 $340 M $0.15‐$0.20 $390 M $0.17‐$0.22 $470 M $0.21‐$0.26 Items not in Rates(4) $0.01 ($0.04)‐($0.02) ($0.04)‐($0.02) ($0.04)‐($0.02) Total PNM $2.7 B $1.63 $2.9 B $1.64‐$1.71 $3.1 B $1.74‐$1.81 $3.1 B $1.72‐$1.79 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) ($0.17) ($0.18)‐($0.16) ($0.20)‐($0.18) ($0.22)‐($0.20) ATM Program(7) ($0.02)‐($0.01) ($0.04)‐($0.03) ($0.06)‐($0.04) Subtotal Base PNM Resources $3.8 B $2.14 $4.1 B $2.17 ‐ $2.27 $4.5 B $2.30 ‐ $2.40 $4.6 B $2.28 ‐ $2.39 Incremental items: Supreme Court Appeal(8) up to $150M $0.09 $150M $0.09 $150M $0.09 $150M $0.09 Growth Opportunities(9) up to $175M $0.10 $400M $0.24 Growth Financing(10) up to ($0.03) ($0.03) Total PNM Resources up to $3.9 B $2.23 $4.3 B $2.36 $4.8 B $2.56 $5.2 B $2.69

$1.48 $1.54 2017 2018 2019E

PNM Guidance (Ongoing)

21

PNM Ongoing EPS

$1.61 ‐ $1.65

Key Year‐over‐Year EPS Performance Drivers 2018 vs 2019 Changes Retail rate phase‐in (includes federal and accelerated state tax amortization)(1) $0.07 Retail load $0.03 – $0.05 Weather ($0.07 in 2018, $0.02 estimated in 2019) ($0.05) Transmission margin $0.00 – $0.02 Renewable rider, including tax reform impacts $0.02 AFUDC $0.00 – $0.01 Interest expense savings $0.03 – $0.04 Outage costs ($0.03) – ($0.02) San Juan unregulated 65MW ($0.01) Decommissioning/reclamation trust income, net of fees $0.02 – $0.04 O&M decreases $0.02 – $0.04 Depreciation and property tax ($0.08) – ($0.06)

(1) See slide 22 for details

PNM Guidance (Ongoing) Additional Details

22

Financial impact under retail rate phase‐in (includes federal and accelerated state tax amortization) Phase I – February 1, 2018 Phase II – January 1, 2019

(in millions, except EPS)

Revenue increase (net of tax reform give‐back) $4.7 $10.3 Accelerated amortization of excess deferred state taxes

(1)

6.9 7.5 Financial impact $11.6 $17.8 Income tax (25.4% statutory rate) (2.9) (4.5) Amortization of excess deferred federal income taxes 11.8 12.9 After‐tax financial impact $20.5 $26.2 EPS (80M shares outstanding) $0.26 $0.33 (1) New Mexico phased‐in a lower state corporate income tax rate from 2014 – 2018. Under the PNM 2018 General Rate Review order, 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 2020.

TNMP Guidance (Ongoing)

23

$0.54 $0.65 $0.67 – $0.69 2017 2018 2019E

TNMP Ongoing EPS

Key Year‐over‐Year EPS Performance Drivers 2018 vs 2019 Changes Rate relief, including TCOS $0.07 Load $0.05 – $0.06 2018 weather (0.01) O&M increases ($0.02) – $0.01 Interest expense savings $0.02 – $0.03 Depreciation and property tax ($0.10) – ($0.09)

Corporate and Other Guidance (Ongoing)

24

($0.08) ($0.19) 2017 2018 2019E ($0.18) – ($0.16)

Corporate and Other Ongoing EPS

Key Year‐over‐Year EPS Performance Drivers 2018 vs 2019 Changes Westmoreland loan agreement paydown ($0.01) Interest expense ($0.01) – $0.00 O&M and Income tax expense decreases $0.02

EBITDA and Quarterly Earnings Distribution Guidance (Ongoing)

25

Ongoing EBITDA (In millions) 2019E Midpoint

Consolidated PNM Resources $577 PNM $376 TNMP $180

4% 30% 56% 10% Q1 Q2 Q3 Q4 2019 Quarterly Ongoing Earnings Distribution

2019 Assumptions

26

amounts shown are before tax

2019E

PNM Weather $2M Residential and Commercial Load 1% = $0.04 Outage costs $19M – $21M Decommissioning/reclamation trust income, net of fees $11M – $15M Anticipated effective tax rate

before amortization of excess deferred income taxes

24.6% Amortization of excess deferred income taxes $21.6M TNMP Weather $0 (normal) Volumetric Load 1% = $0.01 Anticipated effective tax rate

before amortization of excess deferred income taxes

23.9% Amortization of excess deferred income taxes $8.7M Corporate/Other Anticipated effective tax rate 28.3% Average PNM Resources diluted shares outstanding 79.9M

PNM Scheduled Plant Outages

27 San Juan Unit Duration in Days Time Period

4 44 Q1‐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 5 21 Q1 2019

Balance Sheet and Credit Metrics

Liquidity as of February 22, 2019

29

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 2/22/19: Short‐term debt and LOC balances $12.5 $37.6 $10.9 $50.0 $111.0 Remaining availability 427.5 37.4 14.1 250.0 729.0 Invested cash 18.1 ‐ ‐ 0.9 19.0 Total Available Liquidity $445.6 $37.4 $14.1 $250.9 $748.0

(1) Excludes intercompany debt and term loans

Selected Balance Sheet Information

30

(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, 2017 Dec 31, 2018 Long‐Term Debt (incl. current portion) (1) PNM $1,657.9 $1,656.5 TNMP 480.6 575.4 Corporate/Other 299.1 438.2 Consolidated $2,437.6 $2,670.1 Total Debt (incl. short‐term) (2) PNM $1,697.7 $1,698.9 TNMP 480.6 592.9 Corporate/Other 564.7 614.2 Consolidated $2,743.0 $2,906.0

Credit Ratings

31

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