November 1, 2019 COVID-19 Update and Q1 2020 Earnings Review May 1, 2020
Safe Harbor Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Statements 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 often beyond 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 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. 2
Opening Remarks and Overview Pat Vincent-Collawn Chairman, President and CEO
Opening Remarks COVID-19 reminds us of our purpose, values and culture • We are responsible for providing an essential service • Our communities rely on us for more than electricity • Our team is our most valuable asset, supported by our values and culture Top priorities in COVID-19 environment: • Safety of our team • Caring for our customers and communities • Managing our essential operations Strategy and Vision • Transformation of PNM generation portfolio • Expansion of PNM transmission grid to integrate renewable resources and battery storage • Invest in TNMP infrastructure to support reliable service across diverse service territory and customer base 4
Regulatory Strategies Regulatory strategies have been modified to consider the current environment and reflect our focus on benefitting customers and communities Deferring plans to file general rate review due to COVID-19, filing instead for full decoupling for residential and small commercial customers Filed to defer incremental COVID-19 related expenses to a regulatory asset that will be included in a future rate review for recovery COVID-19 Electricity Relief Program designed to support entire ERCOT market: customers, Retail Electric Providers, and T&D utilities Utilizing DCOS (filed April 6, 2020) and TCOS mechanisms (first 2020 filing approved in March, second filing expected in July) to recover capital investments without general rate review 5
Executing Strategic Plans Transform the PNM generation portfolio Balance appropriate level of baseload resources to be emissions-free by 2040 and shift towards additional low-cost renewables and flexible resources San Juan abandonment, securitization and replacement power Developing plans to exit Four Corners San Juan abandonment/ securitization unanimously Evaluating decision to approved on April 1, 2020 200 MW ownership retain / replace Palo San Juan replacement Contracts expire Verde leased capacity power: Hearing Examiner 2031, PNM looking 104 MW expires 2023 recommended decision to exit sooner 10 MW expires 2024 and NMPRC order by October 1, 2020 6
Financial Overview and COVID-19 Updates Chuck Eldred Executive Vice President, Corporate Development and Finance
COVID-19 Scenario Analysis • Continued scenario analysis and planning under 3 different stages: Stage 1 Stage 2 Stage 3 Up to 60 day-impact 60 - 120 day-impact Duration / >120 day-impact, duration (through May) with closure (through July), with closure Economic of 4-6 months before of non-essential businesses, of non-essential businesses, Conditions recovery begins (continues restrictions lifted by end of restrictions lifted beginning (Margin Impact) through the end of 2020) May of August No significant disruption to Workforce Up to 15% disruption for a Up to 40% disruption for a critical workforce; remaining Disruption sustained period resulting sustained period resulting workforce able to work (Capital Impact) from absenteeism from absenteeism remotely Disruption in supply chain for specific capital Major disruption in supply No material supply chain equipment results in 1–2 chain delays significant Supply Chain issues, adequate near-term month delay on certain capital projects; (Capital Impact) supply of capital equipment projects; no issues with prioritization of capital on-site or available maintenance capital equipment to meet most necessary to maintain essential reliability projects reliable service 8
COVID-19 Financial Considerations: Continued Transparency • Continued transparency into our scenario analysis as we progress through stages and evaluate continued impacts: March • Developed planning scenarios Stage 1 • Q1 results in line with assumptions April Manage within • April results evaluated, assumptions updated Guidance May • Continue to evaluate Summer June Stage 2 impacts and implement temperatures Guidance at Risk mitigating plans July are key August Stage 3 Slow recovery into 2021, September potential that some Outside of Guidance businesses do not reopen Q4 9
Business Fundamentals Remain Intact Amidst COVID-19 • 8.9% rate base growth 2019 - 2023 Rate Base • PNM and TNMP T&D continues to support critical Growth infrastructure and reliability projects • Balancing replacement power with additional opportunities for PNM T&D Earnings • 5% - 6% earnings growth target of 2019 - 2023 Growth • Proven history of building flexible plans that are adaptable in response to changing conditions • Dividend growth to mirror earnings growth Dividend • Quarterly declarations by Board of Directors Growth • Annual dividend evaluated in December • Immediate equity needs met through January 2020 forward offering Liquidity • Adequate liquidity remains available to finance business needs 10
Liquidity / Financings Available liquidity remains adequate at $1 billion to finance business needs • $855 million capacity under Capacity Borrowed Available multi-year revolving credit projected May 1, 2020 facilities (in millions) Revolvers $855 $179 $676 • $287 million under January Invested Cash 25 25 2020 forward equity offering, Forward Equity 287 - 287 which has the flexibility to be drawn down earlier than Available Liquidity $1,167 $179 $988 December 2020 if needed April 2020 Transactions: • PNM $250 million 14-month (through June 2021) term loan effective April 15, 2020 • PNM $200 million Senior Unsecured Notes issued April 30, 2020 at a weighted average rate of 3.3% • TNMP $185 million First Mortgage Bonds, with $110 million of bonds issued on April 24, 2020 and $75 million of bonds to be issued by July 15, 2020 at a weighted average rate of 3.0% 11
COVID-19 Financial Considerations and Updates Ongoing Earnings Guidance Considerations • Load impacts, mitigating impacts COVID-19 Load Impacts • Updated assumptions: PNM greater impacts, TNMP lesser impacts Bad Debt Considerations • TNMP relief program in effect; PNM filed for regulatory asset treatment of COVID-19 related costs PNM Decoupling • PNM deferring planned general rate review due to COVID-19, filing instead for full decoupling in May 2020 12
COVID-19 Financial Considerations and Updates Don Tarry Senior Vice President and CFO
Ongoing Earnings Guidance Affirmed Based on COVID-19 Stage 1 2020 Earnings Guidance affirmed based on Stage 1 COVID-19 Considerations $2.16 Consolidated EPS $2.26 COVID-19 Load Impacts Mitigating Impacts March $0.00 Stage 1: Lower interest and financing Manage within April ($0.02) costs, weather, managing O&M Guidance May ($0.02) June ($0.02)-($0.03) Phase-in cost contingency plans, regulatory filings, weather July ($0.02)-($0.03) August ($0.02) Stage 3: Outside Reassess guidance September ($0.02) of Guidance Q4 ($0.02) / month 14
COVID-19 Load Impacts: Updated Assumptions April results provide additional clarity, updated assumptions PNM: reduced load projection as Commercial experiences greater COVID-19 impacts • Residential COVID-19 increase remains +5% • Commercial COVID-19 reduction updated to -15% (from -10%) TNMP: increased load projection as Demand-based experience lesser COVID-19 impacts • Demand-based COVID-19 reduction updated to -5% (from -10%) • Volumetric COVID-19 increase remains +5% Stage 1 Stage 2 Stage 3 PNM Volumes TNMP Demand- Based TNMP Volumetric Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2020 Guidance Projection 2019 15
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