2008 Earnings Presentation February 6, 2009
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Statements made in this presentation that relate to future events or PNMR’s, PNM’s, or TNMP’s (collectively, the “Companies”) 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 and the Companies assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, the Companies caution readers not to place undue reliance on these statements. The Companies’ 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. These factors include conditions affecting the Companies’ ability to access the financial markets, or Optim Energy’s access to additional debt financing following the utilization of its existing credit facility, including actions by ratings agencies affecting the Companies’ credit ratings; the recession and its consequent extreme disruption in the credit markets; state and federal regulatory and legislative decisions and actions, including the PNM and TNMP electric rate cases filed in 2008; the performance of generating units, including the Palo Verde Nuclear Generating Station, the San Juan Generating Station, the Four Corners Plant and Optim Energy generating units, and transmission systems; the risk that Optim Energy is unable to identify and implement profitable acquisitions, including development of the Cedar Bayou Generating Station Unit 4, or that PNMR and ECJV will not agree to make additional capital contributions to Optim Energy; the potential unavailability of cash from PNMR’s subsidiaries or Optim Energy due to regulatory, statutory or contractual restrictions; the impacts of the decline in the values of marketable equity securities on the trust funds maintained to provide nuclear decommissioning funding and pension and other postretirement benefits, including the levels of funding and expense; the outcome of any appeals of the PUCT order in the stranded cost true-up proceeding; the ability of First Choice Power to attract and retain customers; changes in ERCOT protocols; changes in the cost of power acquired by First Choice Power; the completion of the impairment analysis related to goodwill at First Choice Power; collections experience; insurance coverage available for claims made in litigation; fluctuations in interest rates; weather; water supply; changes in fuel costs; the risk that PNM Electric may incur fuel and purchased power costs that exceed the cap allowed under its Emergency Fuel and Purchase Power Adjustment Clause; availability of fuel supplies; the effectiveness of risk management and commodity risk transactions; seasonality and other changes in supply and demand in the market for electric power; variability of wholesale power prices and natural gas prices; volatility and liquidity in the wholesale power markets and the natural gas markets; uncertainty regarding the ongoing validity of government programs for emission allowances; changes in the competitive environment in the electric and natural gas industries; the ability to secure long-term power sales; the risk that the Companies and Optim Energy may have to commit to substantial capital investments and additional operating costs to comply with new environmental control requirements, including possible future requirements to address concerns about global climate change; the risks associated with completion of generation, including the Cedar Bayou Generating Station Unit 4, transmission, distribution and other projects, including construction delays and unanticipated cost overruns; the outcome of legal proceedings, including pending appeal of PNM’s electric rate case and the Emergency FPPAC; changes in applicable accounting principles; and the performance of state, regional, and national economies. 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://pnm.client.shareholder.com/investors/gaap.cfm February 6, 2009: Preliminary & Unaudited 2
Opening Remarks Chairman & CEO Jeff Sterba 3 February 6, 2009: Preliminary & Unaudited
Presentation Summary � Ongoing 2008 EPS: $0.12 � 2008 was a difficult transitional year. Focus was on shoring up the foundation to provide sustainable returns in the future � Significant progress made on four key initiatives • Achieve fair regulatory treatment for all our regulated utilities • Streamline processes, reduce costs and maximize efficiency • Separate merchant operations from PNM utility for regulatory simplicity • Focus on core regulated and unregulated electric businesses � 2009 outlook provided February 6, 2009: Preliminary & Unaudited 4
2008 Checklist � � Close the sale of NM gas business in the 4 th quarter Received regulatory approval in 4 th quarter and closed the transaction on January 30 th , met all operational transition milestone s � � Close the acquisition of Cap Rock Energy in the 4 th quarter Terminated agreement; PNM Resources received $15M at close of PNM Gas sale � � Continue disciplined growth of First Choice Power retail business � � Opportunistically expand EnergyCo’s asset/trading position in ERCOT � � Ensure Palo Verde’s return to premier operating status within 24 months � � Complete scheduled environmental upgrades at San Juan Unit 3 by April, Unit 1 by November � � Achieve annual O&M reduction of at least $35 million � � Further evaluate PNM electric rate relief action, pending outcome of current rate case February 6, 2009: Preliminary & Unaudited 5
Utility Operations Pat Vincent-Collawn President & COO 6 February 6, 2009: Preliminary & Unaudited
PNM: Solid Achievements in 2008 � Implemented new rates in May, FPPAC in June � Filed subsequent rate case in September • Reached generation resource stipulation with key parties � Completed San Juan scheduled environmental upgrades � Maintained top-quartile T&D reliability � Ensured Palo Verde continued improvement � Achieved Business Improvement Plan targets February 6, 2009: Preliminary & Unaudited 7
PNM: 2009 Key Focus Areas Achieve appropriate regulatory treatment to earn allowed ROE � Seek timely recovery of costs • Advocate legislative action for forward test year, GHG cost recovery � Enhance stakeholder relationships • Continue momentum of recent regulatory stipulations � Expand renewable portfolio through effective recovery avenues Streamline capital deployment, manage costs and focus on fundamentals � Maintain Business Improvement Plan commitments � Continue improving power plant availability � Complete final San Juan environmental upgrade February 6, 2009: Preliminary & Unaudited 8
TNMP: Solid Achievements in 2008 � Good contributor to earnings � Filed rate case in August 2008 • First increase request in more than 5 years • Unlocks transmission cost recovery mechanism � Hurricane Ike response • Largest restoration effort in company history • Praised by public officials � Achieved Business Improvement Plan targets February 6, 2009: Preliminary & Unaudited 9
TNMP: 2009 Key Focus Areas Achieve appropriate regulatory treatment to earn allowed ROE � Seek timely recovery of costs • Will be amending rate case to recover: •Hurricane Ike costs •Higher interest expense � Enhance stakeholder relationships • Possible rate case settlement Streamline capital deployment, manage costs and focus on fundamentals � Maintain Business Improvement Plan commitments February 6, 2009: Preliminary & Unaudited 10
Streamlining Capital Deployment Reduced forecasted 5-year capital spending by $354 million Comparison of 5-year capital spending plans ($ Millions) � Delay of new plant construction due to $1,741 inclusion of the Luna & Lordsburg plants $149-Other into rate base $1,387 $300 � Lower load growth expectations TNMP $71-Other $165-Nuclear Fuel $339 � Reduction in nuclear fuel costs TNMP TNMP $136-Nuclear Fuel $563 � Completion of San Juan environmental upgrades Generation $419 Generation � TNMP increase targeted for transmission expansion PNM $564 $422 PNM T&D PNM T&D 2008E – 2012E 2009E – 2013E 2008E - 2012E 2009E - 2013E February 6, 2009: Preliminary & Unaudited 11
First Choice Power Jeff Sterba Chairman & CEO, PNM Resources February 6, 2009: Preliminary & Unaudited 12
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