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November 1, 2019
Investor Meetings June 2020
Contact Information and Safe Harbor Statement
2
Investor Relations Contact Information
Lisa Goodman Director, Investor Relations and Shareholder Services U.S. [email protected]
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995Statements 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 oftenbeyond 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 MeasuresFor 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.
COVID-19, 2020 Guidance and Regulatory Updates
COVID-19 Scenario Analysis: Current Status
4
Stage 1 Stage 2 Stage 3
Duration / Economic Conditions
(Margin Impact)
Up to 60 day-impact (through May) with closure of non-
essential businesses, restrictions lifted by end of May
60 - 120 day-impact (through July), with closure of non-
essential businesses, restrictions lifted beginning of August
>120 day-impact, duration of 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 Disruption
(Capital Impact)
No material supply chain issues, adequate near-term supply of capital equipment on-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:• Duration / Economic Conditions are entering Stage 2 with some restrictions lifted,
monthly impacts will continue to be evaluated during phased re-openings• No Workforce and Supply Chain Disruptions have been experienced
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2020 2020 Guidance Projection 2019
COVID-19 Load Impacts
5
Stage 1 Stage 2 Stage 3
May trends are in line with planning assumptions, impacts of phased state re-openings to be evaluated in June
PNM Stage 1 and 2 load projections• Residential COVID-19 increase +5%• Commercial COVID-19 reduction -15%
TNMPDemand-Based
TNMPVolumetric
PNM Volumes
TNMP Stage 1 and 2 load projections• Volumetric COVID-19 increase +5%• Demand-based COVID-19 reduction -5%
2020 Ongoing Earnings Guidance Affirmed
6
March
April
May
June
July
August
September
Q4
$2.16 Consolidated EPS $2.26
Based on strong May weather impacts, Stage 2 can be managed within guidance
Stage 1: Manage within
Guidance
Stage 3: Outside of Guidance
Reduced load impacts were offset by warmer than normal May temperatures at PNM, lower interest and financing costs, lower O&M
Expected load impacts can be offset by phased-in cost contingency plans, regulatory filings, weather
Reassess guidance: expected load impacts cannot be managed within the guidance range
Note: Refer to Slide 45 for EPS sensitivities of load impacts under planning assumptions
Regulatory Updates
7
PNM Decoupling Filing
• Filed Petition for Approval of Rate Adjustment Mechanism to Remove Regulatory Disincentives on May 28, 2020
• Full decoupling focuses on recovery of fixed costs for residential and small commercial customers
• Current rate design recovers these fixed costs through volumetric rates, leading to a consistent under-recovery
TNMP DCOS Filing
• First DCOS filing for TNMP filed April 6, 2020
• Settlement in principle reached with parties in DCOS filing, rates expected to be implemented September 1, 2020
PNM Resources Overview
PNM Resources Overview
9
Energy holding company based in Albuquerque, New Mexico with two fully regulated electric utility subsidiaries
NYSE: PNM $3.2B market cap
• Vertically integrated utility in New Mexico focused on clean energy transformation
• $3.0B rate base • 500k retail customers• 2,761 MW resource portfolio• 15k miles transmission and
distribution lines
• T&D utility operating within the ERCOT market in Texas
• $1.3B rate base• 250k consumers• 10k miles transmission and
distribution lines
Service Territories and Generation Resources
Key Investment Themes
10
Transformation of PNM generation portfolio
Reliably support growth and integration
of clean energy
Transparent growth plan driven by rate
base investment
Create shareholder value through a clean and bright energy future
Clean Energy Focus
Critical Electricity Infrastructure
Strong Financial Profile
Focused on Sustainability
11
Environment
Eliminating emissions
• Carbon-free transition aligns with Paris Climate Agreement and is five years ahead of state mandate
• Elimination of carbon emissions will also eliminate mercury, NOx, SOx and other pollutants
Saving freshwater
• 36% water intensity reduction from 2007 to 2018
• Municipal effluent water used to cool Palo Verde plant
Investing and supporting renewables
• 609 MW owned and purchased solar, wind and geothermal
• 356 MW approved renewables expansion for 2020
• 133 MW customer-owned solar
• Enhancing grid to facilitate renewables and battery storage
Social
Fostering tribal relationships
• Active outreach with numerous tribes in New Mexico
• Renewed commitment to the PNM Navajo Nation Workforce Training Scholarship Program
• Joined in the launch of Light up Navajo to provide residential electrification
Promoting employee diversity
• 57% of new hires in 2019 were minorities and 37% were women
• Overall workforce is 50% minority, 27% female, 8% veterans
Engaging and retaining our workers
• Competitive benefits open to full-time and part-time employees
• Educational assistance program offering up to $5,250 per year
Governance
Executing strong governance
• 9 of 10 directors independent
• 40% female board
• Extensive board expertise across finance, environment, labor and human resources, and cybersecurity
• Top ISS Governance QualityScore
Strategic Direction
12
• Transform PNM generation portfolio to exit coal and be 100% emissions-free by 2040
• Enhance PNM transmission grid to facilitate the integration of renewable generation and battery storage
• Invest in TNMP infrastructure to reliably support customer demand across high-growth service territory
Strong Financial Profile
13
Rate Base Growth
Earnings Growth
Dividend Growth
Liquidity
• Expect 8.9% rate base growth 2019-2023• PNM and TNMP T&D investment continues to
support critical infrastructure and reliability projects• Generation replacement power investments are
balanced with additional opportunities for PNM T&D
• Target: 5%-6% earnings growth 2019-2023• Earn authorized return on rate base growth• 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
• Maintain investment grade credit ratings• Immediate equity needs met through January
2020 forward offering• Adequate liquidity remains available to
finance business needs
$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
mill
ion
s)
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
14
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)
$3.3B investment plan results in 8.9% rate base growth$35M of incremental PNM T&D added in 2020 to support new customer additions
2020 - 2023 Potential Earnings Power
15This table is not intended to represent a forward-looking projection of 2021 - 2023 earnings guidance.
Refer to Slide 54 for additional details and disclosures.
Earnings Growth Target 5%-6%Incorporates impact of January 2020 forward equity offering dilution beginning 2021
Note: 5-6% targeted earnings growth CAGR measured from 2019 Ongoing EPS of $2.16. Note: Number of shares outstanding increases from 80M to 86M in December 2020 January forward equity offering(1) Assumes 2022 mid-year implementation of San Juan Replacement(2) Reflects debt costs associated with $250M-$300M mandatory convertibles issued in the second half of 2021
that convert in 2024
Allowed Return / Equity Ratio
2020 Ongoing Earnings Guidance Midpoint
2021 Earnings Potential
2022 Earnings Potential
2023 Earnings Potential
Avg Rate Base
Return EPSAvg Rate
BaseEPS
Avg Rate Base
EPSAvg Rate
BaseEPS
PNM Retail9.575% /
50%$2.5 B 9.5% $1.47 $2.5 B $1.41 $2.4 B $1.37 $2.4 B $1.38
San JuanReplacement(1)
9.575% / 50%
$150 M $0.08 $280 M $0.16
PNM Renewables9.575% /
50%$150 M 9.575% $0.09 $145 M $0.08 $140 M $0.08 $130 M $0.06
PNM FERC10% / ~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 ($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
TNMP9.65% /
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 ($0.22) ($0.13)-($0.11) ($0.11)-($0.09) ($0.15)-($0.13)
Equity Financing Plans(2) ($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
$1.94 $2.00 $2.16 $2.21
$2.37 $2.51
$2.68
2017 2018 2019 2020E 2021E 2022E 2023EActual Ongoing EPS Midpoint Earnings Guidance/Potential Indicated Annual Dividend
$0.97Dec ‘16
$1.06Dec ‘17
$1.16Dec ‘18
$1.23Dec ‘19
$1.29-$1.30
$1.36-$1.38
$1.42-$1.46
Dividend Growth
16
• Expect dividend growth consistent with earnings growth targeting the middle of a 50% - 60% payout ratio range
• Next dividend review in December 2020
Dividend Growth to Mirror Earnings Growth at 5%-6%
56% payout
Liquidity and Debt Maturity Outlook
17
PNM Resources FFO-to-Debt is maintained within Moody’s Baa investment grade
target range of 13% to 22%
(1) Senior unsecured rating (2) Senior secured rating
$496 $57
$1,203
$843
$140
$450
2020 2021 2022 2023 and Beyond
Long-term Debt Maturities(in millions)
PNM TNMP Corporate• Completed:
• $290 million forward equity offering in January 2020• PNM and TNMP issued ~$400M of new debt in 2020 and PNM
addressed its 2020 debt maturities• Planned:
• $250-$300 million mandatory convertibles issuance expected in late 2021 to fund Western Spirit acquisition and strengthen credit metrics
• New debt issuances projected at utilities through 2023 of ~$1.0 billion and $361 million securitization bonds
$1B available liquidity
Maintain appropriate credit metrics and investment grade
ratings
Target regulatory capital structures at
PNM and TNMP
Moody’s Rating/Outlook
S&P Rating/Outlook
PNM Resources Baa3(1) / Stable BBB-(1) / Stable
PNM Baa2(1) / Stable BBB(1) / Stable
TNMP A1(2) / Stable A(2) / Stable
Key Takeaways
18
Providing environmentally responsible, affordable and reliable electricity to key markets in New Mexico and growing markets in Texas
Executing clear growth strategy to deliver 5%-6% earnings and dividend growth
Maintaining commitment to strong ESG practices, including transitioning away from coal, being emissions-free by 2040 and shifting towards additional low-cost renewables and flexible resources
PNM
PNM Load and Economic Development
20
Year-over Year-Growth
Q1 2020 2019 2018
Total Retail Load 1.1% 0.3% 0.6%PNM Avg. Consumers 0.8% 0.7% 0.8%Load growth is weather normalized and leap year adjusted
New Mexico Economic Development
• Announcement of an Amazon fulfillment center under development in Albuquerque demonstrates the continued focus of economic development efforts in New Mexico
• Expected to bring 1,000 jobs and increase load in 2021
Retail Load Growth
• Steady customer growth has been offset by growing impacts of energy efficiency
• Decoupling filing aims to mitigate the under-recovery of fixed costs associated with reduced usage
New Mexico Energy Policy: Energy Transition Act
21
Nuclear 30%
Senate Bill 489 (Energy Transition Act): passed in 2019 legislative session and signed by New Mexico Governor Lujan Grisham; effective June 14, 2019
• Renewable Portfolio Standards and Carbon-Free Requirement• Previous: 20% renewables by 2020• Current:
• 40% renewables by 2025• 50% renewables by 2030• 80% renewables by 2040• 100% carbon-free by 2045
• Securitization measure for abandonment of coal-fired generating facilities reduces customer bills
• Economic development funds provide needed financial assistance to workers and the communities impacted by retirement of coal-fired generating facilities
50
% R
enew
able
s
80
% R
enew
able
s
40
% R
enew
able
s
10
0%
Car
bo
n-F
ree2045
20402030
2025
7,228
4,315
1,850 755
2015 2020 2025 2035 2040
Carbon-free goal
40% reduction
90% reduction
Executing the Energy Transition Act
22
Nuclear 30%
Our Goal: Transform PNM Generation to 100% Carbon-Free by 2040
Step 1: Exit Coal Generation by 2031
• San Juan Generating Station: •Retired Units 2 and 3 in 2017 (221 MWs);
Retirement of Units 1 and 4 in 2022 (562 MWs) • Four Corners Coal Plant:
•Exit from ownership participation no later than expiration of agreements in 2031 (200 MWs)
Step 2: Eliminate emissions from natural gas generation by 2040
• Exit from Valencia gas plant in 2028 (158 MWs)
• Transform existing and transitional gas plants to carbon-free capacity resources such as battery storage and pumped storage by 2040
Step 3: Actively pursue the development of carbon-free replacement power alternatives
• Current options: renewable + storage combinations, short-term natural gas peaking units to facilitate transition to emissions-free
983
762
200
2015 2020 2025 2031
80%reduction
Coal-free
22% reduction
Reduction of MW Coal Capacity
• Future options: Regional market participation, next-generation battery, pumped hydro, emissions-free combustion turbines through hydrogen or other clean fuels, emerging technologies
Reduction of Carbon Emissions(CO2 short-tons, in thousands)
74% reduction
PNM-owned facilities, as reported to EPA
Transform PNM Generation Portfolio
23
San Juan abandonment, securitization and replacement power
l San Juan abandonment/ securitization unanimously approved on April 1, 2020
l San Juan replacement power: Hearing Examiner recommended decision and NMPRC order by October 1, 2020
Developing plans to exit Four Corners
l 200 MW ownership
l Contracts expire 2031, PNM looking to exit sooner
Evaluating decision to retain / replace Palo
Verde leased capacityl 104 MW expires 2023l 10 MW expires 2024
Balance appropriate level of baseload resources to be emissions-free by 2040 and shift towards additional low-cost renewables and flexible resources
Third Party Resources PNM Owned Resources
__________________Total 410 MW
________________Total 350 MW
San Juan Recommended Replacement Power Scenario Details
24
• Competitive RFP processes resulted in a cost-effective mix of resources owned by PNM and third-party providers
• To manage the risks of integrating new battery storage technology, total storage capacity does not exceed 5% of peak load and the capacity at each location is limited to 40 MW
280 MW Gas Peaking Units at San Juan$191M investmentin-service June 2022
40 MW Storage$50M investment in-service June 2022
30 MW Storage$37M investmentin-service June 2022
300 MW Solar PPA + 40 MW Storage ESA$20M transmission investmentbegins June 2022
50 MW Solar PPA + 20 MW Storage ESAbegins Jan 2022
Note: All potential replacement power scenarios incorporated 140 MW wind energy PPA included in June 3, 2019 RPS Filing
Renewable and Battery Storage Portfolio
25
2019 2022
237
530356
662
15
15
0.5
130.5
Solar Wind Geothermal Battery Storage
609 MW2020
+50MW solar
+140MW wind
+166MW wind
2021
+50MW solar
+50MW solar
2022
+350MW(1) solar
+130MW(1) battery storage
157 MW Solar (Owned)
80 MW Solar (PPA)
356 MW Wind (PPA)
15 MW Geothermal (PPA)
0.5 MW Battery Storage (Owned)
207 MW Solar (Owned)
530 MW Solar (PPA)
662 MW Wind (PPA)
15 MW Geothermal (PPA)
70.5 MW Battery Storage (Owned)
60 MW Battery Storage (PPA)
1445 MW
(1) Pending approval as part of San Juan Generating Station recommended replacement power
PNM Renewable and Battery Storage Capacity
PNM Retail Transmission Opportunities
26
• Transmission service to portions of New Mexico’s grid is fully committed• The integration of new renewable generation and battery storage will
require additional T&D investment
2023-2025 2026-2030 2031-2035 2036-2038
110350
570
40160
340
500
80310
570
600
Solar Wind Battery Storage
120
580
1,260
1,670
Cumulative Capacity Additions 2023 – 2038 (MW)Included in Recommended San Juan Replacement Scenario(1)
(1) Consolidated Application for Approvals for the abandonment, financing and resource replacement for San Juan Generating Station, Phillips - Resource Planning Testimonial as of July 1, 2019
FERC Transmission Opportunities
27
Source: American Wind Energy Association, Oct. 2019
New Mexico ranks:
Wind
Solar
Source: NREL
New Mexico’s abundant solar and wind resources also attract third-party development, increasing the demand for transmission capacity and
creating rate base growth opportunities:
Source: WINDExchange.energy.gov, Q3 2019
in US wind capacity potential
Source: Nebraska Department of Environment & Energy Sun Index developed for NREL measuring direct sunlight received in each state, accounting for latitude and cloud cover
in US energy potential from solar power
• PNM acquisition of Western Spirit transmission line: $285M in 2021
• New Mexico added wind capacity at a higher growth rate than any other state in 2017 and currently has projects under construction or in advanced development that will more than double current installed capacity
•1,953 MW installed capacity
•1,227 MW under construction
•1,328 MW in advanced development
NMPRC Commissioners and Districts
28
District NameTerm Ends
Party
District 1 Cynthia Hall 2020(1) Democrat
District 2 Jefferson Byrd 2022(1) Republican
District 3Valerie Espinoza,Vice-Chairman
2020 Democrat
District 4Theresa Becenti-Aguilar,Chairman
2022(1) Democrat
District 5 Stephen Fischmann 2022(1) Democrat
NMPRC Districts and PNM Service Areas
(1) Eligible for re-election to a second four-year term
2019 Legislative Update – Appointed vs Elected:
• A Senate Joint Resolution was passed in the New Mexico legislature to include a state constitutional amendment on the ballot in the next general election (2020) to move to a 3-member, appointed Commission
• If the amendment is passed by a simple majority:• The legislature defines the nominating committee and the
requirements for Commissioners• The terms for Commissioners elected in Districts 1 and 3 in 2020 will
be for a two-year term ending in 2022; the terms for Commissioners in Districts 2, 4 and 5 already expire in 2022
• Three appointed Commissioners would begin terms January 1, 2023
PNM Regulatory Agenda
29
Upcoming activities:• PNM annual FERC formula rate and PNM annual Renewable plan filings
Filing Action Timing Docket No.
PNM:
Decoupling Filing (Petition for Approval of Rate Adjustment Mechanism to Remove Regulatory Disincentives)
Filed with the NMPRC on May 28, 2020 Pending 20-00121-UT
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
PNM 2020 Renewable Plan Filing Filed June 1, 2020 Pending 20-00124-UT
FERC Transmission Formula Rate True-Up
Filed June 1, 2020Informational filing submitted; rates effective June 1, 2020
N/A
Solar Direct ProgramPNM 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
PNM Decoupling Filing
30
Stand-alone full decoupling filing
Filed May 28, 2020
Request order 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
Full decoupling filing seeks to recover previously authorized fixed costs,current rate design attempts to recover fixed costs through volumetric rates
Decoupling Financial Impacts – 2020 / 2021 / 2022
31
2020 2021 2022
Customer Bills No Impact No impactRates adjusted to reflect prior year
under/over recovery
Earnings No Impact
Includes recovery true-up for customer use
Current estimate: ~$16M
Includes recovery true-up for customer use
FFO No Impact No Impact No Impact
2020 2021 2022
Customer Bills No Impact No impactRates adjusted to reflect prior year
under/over recovery
Revenues No Impact
Revenues adjusted for under/over recovery
based on customer useCurrent estimate: ~$16M increase in
revenues
Revenues adjusted for under/over recovery
based on customer use
FFO No ImpactIncludes adjusted
revenuesIncludes adjusted
revenues
Cash Flow No Impact No ImpactCollect prior year’s
under/over recovery
$68.59
$76.12
$106.17
$115.42
$137.51
$50 $100 $150
City of Seattle - (WA)
Public Service Co of Colorado (CO)
El Paso Electric Co (NM)
El Paso Electric Co (TX)
PacifiCorp (UT)
Public Service Co of NM (NM)
Montana-Dakota Utilities Co (MT)
PacifiCorp (WY)
City of Colorado Springs - (CO)
NorthWestern Energy LLC - (MT)
Avista Corp (ID)
Avista Corp (WA)
PacifiCorp (ID)
Idaho Power Co (ID)
Southern California Edison Co (CA)
Sacramento Municipal Util Dist (CA)
City of Tacoma - (WA)
San Diego Gas & Electric Co (CA)
Southwestern Public Service Co (NM)
Montana-Dakota Utilities Co (WY)
Tucson Electric Power Co (AZ)
Portland General Electric Co (OR)
PacifiCorp (OR)
Regional Average Bill
Black Hills Power, Inc. d/b/a (WY)
PacifiCorp (WA)
Pacific Gas & Electric Co. (CA)
Nevada Power Co (NV)
PacifiCorp (CA)
US Average Bill
City of San Antonio - (TX)
Southwestern Electric Power Co (TX)
Modesto Irrigation District (CA)
Entergy Texas Inc. (TX)
Salt River Project (AZ)
Imperial Irrigation District (CA)
LADWP (CA)
Arizona Public Service Co (AZ)
Comparison of Average Residential Bills(1)
Western Region Average Bills by Utility
PNM Bills Remain Below National and Regional Averages
32(1)Based on U.S. Energy Information Administration's Residential Rate increases through June 2019
- Current US Avg
- Current Regional Avg
- PNM 2019
Customer bill impacts of increased investments are mitigated by:‘
• Return of federal tax savings to customers
• Load growth reduces per-customer cost of new investments
• Energy Imbalance Market and renewable investments result in lower costs for fuel
TNMP
TNMP Demand and Infrastructure Investment
34
TNMP 2020 - 2023Investment Plan by Region
West Texas ~47%
North/Central TX ~28%
Gulf Coast ~25%
● TNMP Service Area
• ERCOT summer peak demand projected to grow by ~20% over next ten years(1), extensive regional studies call for increased transmission infrastructure to support reliability and growth, particularly in West Texas region
2020 Key Capital Projects• A group of transmission lines and substations in northern West Texas
will be upgraded from 69kv to 138kv to support regional growth;
• In the Gulf Coast, a 138kV transmission line upgrade will be completed to help with transmission contingency issues and support the interconnection of a new gas-fired power plant;
• Begin the replacement of our AMI meters to be compatible with current network capabilities
(1) Source: ERCOT 2019-2028 forecast
Year-over Year-Growth 2017 2018 2019
Demand-Based Load 4.0% 6.8% 4.9%
TNMP Avg. Consumers 1.2% 1.3% 1.4%
Texas growth drives infrastructure needs• TNMP has seen consistent consumer growth driven by
strong Texas economy
• Rapid demand-based load growth over recent years in the Commercial and Industrial classes driven by energy sector in West Texas and Gulf Coast regions; drives need for increased electrification and reliability / system upgrade investments
• Customers are involved in production, midstream and refining processes, providing for diversity in customer mix
• Production costs in West Texas, specifically the Delaware Basin, are some of the lowest in the country
Load growth is weather normalized and leap year adjusted
TNMP Low-Risk Revenue Profile
35
30%Gulf Coast
3% West Texas
19%North/Central
16%North/Central
12%WestTexas
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 RevenuesIncludes $94M of pass-through transmission
expense recovery, trued up twice annually
$67M Wholesale RevenuesFixed transmission investment recovery; can
be adjusted twice annually through TCOS filings, $81M approved March 2020
PUCT Commissioners and TNMP Regulatory Agenda
36
Commissioners are appointed by the Governor of Texas and confirmed by the Senate.
Name Term Began Term Ends Party
DeAnn Walker (Chair) Sept. 2017 Sept. 2021 Republican
Arthur D’Andrea Nov. 2017 Sept. 2023 Republican
Shelly Botkin June 2018 Sept. 2025 Republican
PUCT Commissioners
Filing Action TimingDocket
No.
TCOS FilingTNMP filed January 24, 2020; Approved March 27, 2020
Rates implemented March 27, 2020 50481
DCOS FilingTNMP filed April 6, 2020; Settlement in principle reached in May 2020
Rates expected to be implemented September 1, 2020
50731
TNMP Regulatory Agenda
Upcoming activities:• TNMP second 2020 TCOS filing anticipated for July 2020
TNMP Rate Recovery Framework
37
General Rate ReviewDCOS (Distribution
Cost of Service)TCOS (Transmission
Cost of Service)
Process
Standard rate review involving comprehensive filing, discovery, interveners,
hearings, etc.;Staff recommendation and
PUCT approval; 180-day clock (potential for settlement)
Pre-defined schedules limited to distribution investments with
discovery, interveners, hearings;Staff recommendation and PUCT approval; filed 1st week of April with rates implemented Sept 1
(potential for settlement)
Pre-defined schedules; Staff recommendation and PUCT
approval, 60-day clock
Capital Structure / ROE / Cost of Debt Yes No No
Rate Base / Property Tax / Depreciation Yes Distribution only Transmission only
Other expenses Yes No No
Timing (allowed) PUCT defined (1) Once per year Twice per year
Current TNMP Filings
Historical: filed May 2018 (test year of FY 2017), approved
December 2018, rates implemented January 2019:
9.65% ROE, 45% Equity
2020 Filings: Filed April 6, 2020Settlement in principle reached in May, rates expected to be implemented September 1, 2020
2020 Filings: 1) Jan 2020 filing, approved/
implemented in Mar 20202) Expected July 2020 filing,
rates expected to be implemented Sept 2020
(1) PUCT rule calls for general rate review within 48 months of most recent order setting rates (TNMP order issued December 2018), unless earning less than 50 basis points over the average authorized ROE of ERCOT investor-owned utilities (based on year-end rate base, weather-normalized)
Appendix
Our Response to COVID-19
39
Safety of our Team
Caring for Customers and Communities
Managing our Business
• Identification of critical workforce, staging of backups, limited access to control rooms and critical assets
• Minimize critical employee exposure, inter-crew exposures and exposures with the public: eliminate group gatherings, deploy additional fleet vehicles
• Mandatory work-from-home and flexible arrangements for all applicable job functions
• Residential customer disconnects temporarily suspended, late fees waived
• TNMP helped create COVID-19 Electricity Relief Program
• PNM Resources Foundation community safety grant opportunity for PNM and TNMP service territories
• PNM and TNMP supporting local businesses
• Business continuity plans implemented, daily crisis team meetings
• Coordination with key vendors and suppliers
• Close contact with neighboring utilities, regional operators CAISO and ERCOT, reliability entities WECC and Texas RE, EEI, EPRI and North American Transmission Forum
Texas Status
New Mexico and Texas Status Updates
40
New Mexico Status
• New Mexico Governor and Economic Recovery Council begin multi-phased plan for “gradual and safe reopening”: limited re-openings began May 16th with capacity restrictions, additional openings beginning June 1st, some areas of state remain restricted
• Texas stay-at-home order expired April 30th, Phase 2 of state re-opening began May 18th with additional services and activities opened; public schools may begin in-person summer school beginning June 1st, restrictions vary by city/county
Continued Transparency into COVID-19 Financial Impacts
41
Q4
September
August
July
June
May
April
March
Stage 2 Manage within
Guidance
Stage 3Outside of Guidance
• Continue to evaluate impacts and implement mitigating plans
Stage 1Manage within
Guidance
• Q1 results in line with assumptions• April and May results in line with planning
assumptions, positive offsets from warmer weather at PNM
Summer temperatures
are key
Slow recovery into 2021, potential that some
businesses do not reopen
Mitigating Effects of COVID-19 on Customer Collections
42
PNM joint filing on April 27, 2020 with requests deferral of uncollectible payments and incremental costs in response to COVID-19 to regulatory asset, 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, balances with active payment plans are not subject to write-off as bad debt expense
In the absence of approval to defer costs, COVID-19 bad debt assumptions: Historically ~0.35% of revenues (~$3M) 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 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
As a T&D utility within ERCOT, TNMP’s customers are the Retail Electric Providers, bad debts are associated with these entities and not end users
Regulatory strategies reflect our focus on benefitting customers and communities
PNM COVID-19 Considerations
43
• PNM comprises the majority of customer non-fuel revenues
• New Mexico’s largest employers include government and health care, with a larger number of small/medium businesses
Customer Class Considerations• Residential: 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%
PNM 2019 Revenues by Region
Southern ~15%
Central~85%
New Mexico
74%
PNM Resources Non-Fuel Revenues
TNMP COVID-19 Considerations
44
West Texas ~15%
North/Central TX ~35%
Gulf Coast ~50%
● TNMP Service Area
TNMP 2019 Revenues by Region
• TNMP is a smaller portion of customer non-fuel revenues and is less impacted by changes in load/demand:
TNMP Sales by Tariff Class % Volumes % Revenues
Volumetric 28% 52%
Demand-Based 72% 48%
Customer Class Considerations• Volumetric: 97% Residential customers, increased
volumes during the Stay-at-Home order• Demand-Based: Commercial and Industrial customers,
some impacted by the Stay-at-Home order
West Texas4%
Houston/ Bay Area
13%
Dallas/ North TX
Area9%
PNM Resources Non-Fuel Revenues
• 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
COVID-19 Load: Assumptions and EPS Rules of Thumb
45
Planning Assumptions:
TNMP
PNM
RULE OF THUMB10% change in load =
Monthly EPS Impact
Residential Commercial
April – May +/- $0.02 +/- $0.02
June – September +/- $0.03-
$0.04+/- $0.03-
$0.04
October – December +/- $0.02 +/- $0.02
RULE OF THUMB10% change in load =
Monthly EPS Impact
Volumetric Demand-Based
April – May +/- $0.01 +/- $0.01
June – September +/- $0.02 +/- $0.01
October – December +/- $0.01 +/- $0.01
Stage 1 and 2 Stage 3
Residential + 5% - 5%
Commercial -15% - 5%
Industrial No significant impacts
Stage 1 and 2 Stage 3
Volumetric + 5% - 5%
Demand-Based - 5% - 5%
Planning Assumptions:
San Juan Abandonment, Securitization and Replacement Power
46
Ab
and
on
men
t ● Requests abandonment of San Juan coal plant after participation agreement and coal supply contracts end June 30, 2022
Secu
riti
zati
on ● $283M undepreciated
investment in San Juan, proceeds available to fund replacement power
● $29M decommissioning and reclamation costs
● $20M job training and severance costs
● $20M economic development funds
● $9M financing costs
Total $361M securitization
Rep
lace
me
nt
Pow
er ● Recommended scenario balances environment, cost and reliability
● 350 MW solar drives 62% reduction in carbon emissions
● 130 MW battery storage capacity responsibly integrates new technology
● 280 MW natural gas peaking plants ensure reliability during energy transition, provides San Juan property tax base
Total $298M investment
Timing• Filed July 1, 2019• NM Supreme Court ruled January 2020 that the ETA
applies to PNM’s application for abandonment, securitization and replacement power
• NMPRC approved abandonment and securitization on April 1, 2020; decisions on replacement power expected by October 1, 2020
Approved Pending ApprovalApproved
San Juan Securitization Next Steps
Abandonment and Securitization Orders approved April 1, 2020:
▪ Approval to abandon Units 1 and 4
▪ Grants irrevocable financing order authorizing the issuance of securitization bonds up to $361 million, to include:
• Abandonment costs, including undepreciated investment in San Juan, decommissioning and reclamation costs, and job training and severance costs
• Financing costs
• Economic development funds
Securitization next steps:
47
April 1, 2020: Irrevocable NMPRC financing order
Early 2022: PNM forms a Special Purpose Entity (SPE) that will issue the bonds
July 2022: SPE issues securitization bonds
Within 30 days of issuance: PNM files a report with the NMPRC, to include bond pricing and structure
Semi-annually after issuance: PNM files to true up the customer charge for under- or over-collection
San Juan and Four Corners Generating StationsOwnership and Participants
48
UnitTotalMW
PNM MW
PNM Ownership
Other Participants/Ownership
1 340 170 50% Tucson Electric 50% (170 MW)
4 507 392 77.3%City of Farmington 8.5% (43 MW)Los Alamos County 7.2% (36.5 MW)Utah Associated Municipal Power Systems (UAMPS) 7.0% (35.5 MW)
Total 847 562
UnitTotalMW
PNM MW
PNM Ownership
Other Participants/Ownership
4 770 100 13%
Arizona Public Service Company 63% (485 MW)Navajo Transitional Energy Company 7% (54 MW)Salt River Project 10% (77 MW)Tucson Electric Power 7% (54 MW)
5 770 100 13%
Arizona Public Service Company 70% (485 MW)Navajo Transitional Energy Company 7% (54 MW)Salt River Project 10% (77 MW)Tucson Electric Power 7% (54 MW)
Total 1,540 200
San Juan Generating Station
Four Corners Generating Station
Palo Verde Nuclear Generating Station Ownership and Leases
49
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 - $16.5M
▪ Total PV Unit 2 - $1.6M
Unit 1
Owned 2.3% 30 MW
Leased 7.9% 104 MW
Total 10.2% 134 MW
Unit 2
Owned 9.5% 124 MW
Leased 0.7% 10 MW
Total 10.2% 134 MW
Unit 3
Owned 10.2% 134 MW
Leased 0% 0 MW
Total 10.2% 134 MW
TNMP Regional Breakdown
50
TNMP – Gulf Coast
West Texas ~15%
North/Central TX ~35%
Gulf Coast ~50%
● TNMP Service Area
TNMP 2019 Revenues by RegionRegion 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 of 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
TNMP Regional Breakdown
51
TNMP – North/Central TX
West Texas ~15%
North/Central TX ~35%
Gulf Coast ~50%
● TNMP Service Area
TNMP 2019 Revenues by RegionRegion 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
52
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 of 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
2020 Consolidated Ongoing Earnings Guidance
53
$2.16 Consolidated EPS $2.26
2020 Earnings Guidance
2020 Annual EPS Distribution by Quarter
8%22%
55%
15%
Q1 Q2 Q3 Q4
2020 - 2023 Potential Earnings Power
54
(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 EPSAvg Rate
BaseEPS
Avg Rate Base
EPSAvg Rate
BaseEPS
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 JuanReplacement(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
Liquidity as of May 1, 2020
55
PNM TNMP
Corporate/ Other
PNM Resources
Consolidated
Financing Capacity(1):
Revolving credit facilities $440.0 $75.0 $340.0 $855.0
As of 05/01/20:
Short-term debt and LOCbalances $47.5 $0.1 $137.4 $185.0
Remaining availability 392.5 74.9 202.6 670.0
Invested cash 1.9 21.9 0.9 24.7
January 2020 Forward Equity Offering - - 287.1 287.1
Total Available Liquidity $394.4 $96.8 $490.6 $981.8
(1) Excludes intercompany debt and term loans
