Investor Meetings January 2018 Contact Information and Safe Harbor - PowerPoint PPT Presentation

Investor Meetings January 2018

Contact Information and Safe Harbor Statement Investor Relations Contact Information Lisa Goodman Jimmie Blotter, Assistant Treasurer Manager, Investor Relations Director, Investor Relations and Shareholder Services U.S. 1‐505‐241‐2160 U.S. 1‐505‐241‐2227 Lisa.Goodman@pnmresources.com Jimmie.Blotter@pnmresources.com Safe Harbor Statement Statements made in this presentation that relate to future events or PNM Resources, Inc.’s (“PNMR”), Public Service Company of New Mexico’s (“PNM”), or Texas‐New Mexico Power Company’s (“TNMP”) (collectively, the “Company”) 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 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 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 and ongoing earnings per diluted share), 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

Company Overview

PNM Resources Overview PNM Resources is a regulated electric utility holding company focused on providing environmentally responsible, affordable and reliable electricity to customers and above industry average • Energy holding company earnings and dividend growth to shareholders • Based in Albuquerque, New Mexico NYSE Ticker: PNM Market Cap: $3.0B Generation Resources and Service Territories • Located in New Mexico • 520,449 customers • 15,049 miles transmission and distribution lines • 2,791 MW generation capacity • Top quartile reliability • Affordable rates • Located in Texas • 246,620 end‐users • 9,298 miles transmission and distribution lines • Top quartile reliability • Affordable rates 4

PNM Resources Strategic Direction Strategic Financial • Investing aligned to policy directives, evolving customer Rate Base Goals needs and transforming industry opportunities while Growth ensuring reliability, resulting in cleaner generation fleet Earn authorized return on regulated businesses Earnings • Realizing earnings potential in business Above industry average • Earning our allowed returns Growth earnings growth • Reducing regulatory lag Maintain solid investment grade credit ratings • Sustaining and growing the Dividend dividend Above industry average Growth • Providing above‐average dividend growth dividend growth 5

Staying Focused and Flexible in a Changing Environment • PNM 2018 General Rate Case • PNM 2018 Renewable Plan • NMPRC Proposed • Plans to be Coal‐Free in Rulemaking Workshops • TNMP Upcoming General Navigating 2031; New Generation Mix the Regulatory Rate Case of Natural Gas, Renewables Transforming Environment and Energy Storage PNM’s • 20% Renewable Energy Generation by 2020 Portfolio • Transparency through Sustainability Portal Responding to Evolving Customer Needs • Integrating technologies and customer insights to new products and services • Energy Efficiency and Electrification Initiatives • Robust Economy in Texas 6

Rate Base Growth: Capital Forecast Targeted Consolidated 2017‐2021 Rate Base CAGR (1) : 4.5% ‐ 5.5% $681 2018–2022 Total Capital Plan: $2.7B $17 Palo Verde Unit 3 (In millions) added to $170 rate base $527 $527 $515 $500 $504 $17 $58 $34 $17 $17 $116 $170 $170 $170 $158 $186 $192 $146 $297 $173 $164 $238 $96 $20 $53 $137 $111 $94 $80 $76 $74 2017 2018 2019 2020 2021 2022 PNM Core Generation PNM Renewables PNM SJGS Replacement Power PNM T&D TNMP Depreciation Corporate/Other Targeted PNM 2017‐2021 Rate Base CAGR (1) : 2%‐4% from 2016 base reflects potential outcomes from the pending NM Supreme Court general rate case appeal of $0‐$150M and additional AMI spending of $12/$59/$24 million in 2018/2019/2020 Targeted TNMP 2017‐2021 Rate Base CAGR (1) : 11.4% from 2016 base 7 (1) 2017‐2021 CAGR measured from a 2016 base Amounts may not visually add due to rounding.

Earnings Growth: PNM 2018 General Rate Case Considerations Commission Proposed Modifications to Revised Settlement Agreement: • Reduces $62.3M settlement agreement by $47.6M of tax savings and cost of debt true‐ up and additional $9.1M related to the return on Four Corners Power Plant investments • Net $5.6M increase proposed to be phased‐in (50% each year) • Calls for prudency determination on Four Corners Power Plant to be made in next rate case with no precedent set in this case • Maintains rate design as filed in revised settlement agreement • Deadline for parties to the revised settlement agreement to accept modifications is January 16, 2018; rates expected to be implemented February 1, 2018 (suspension period ends March 6, 2018) Considerations for 2018 Ongoing Considerations for 2019 Ongoing Earnings Guidance of $1.70 ‐ $1.80 (1) Earnings Guidance of $2.00 ‐ $2.16 (1) • • 2018 Guidance assumed implementation 2019 Guidance assumed implementation of of Phase I settlement rates ($32.3M) in full $62.3M settlement January 1: $0.53 March: $0.25 • Guidance did not include assumptions for • Guidance did not include assumptions for tax reform; settlement provisions had tax reform; PNM rate settlement called called for implementation of tax reform for retention of any benefits in 2018 savings into customer rates January 1, 2019 8 (1) Earnings Guidance issued on December 8, 2017

Tax Reform Considerations PNM Resources well‐positioned for tax reform, customers benefit Provision Summary Effect on PNM & TNMP Effect on Holding Company  Reduced tax benefit from holding Tax Rate 21% Reduced tax expense • Under revised rate settlement, PNM beginning 2018 company losses by ($0.02) retained cash benefits in 2018. Under Commission’s proposed modifications to the revised rate settlement, benefits reduce the phased‐in rate increase beginning in 2018 Excess deferred taxes are returned to customers over time • Negative cash flow • Rate base increases • Deduction limited to 30% of • Interest fully deductible under utility • Small amount of interest Interest Expense EBITDA exception allocable to non‐utility • Exception for regulated Deductibility operations • No material impact utilities • 100% immediate expensing • Normal tax depreciation rates under utility  Positive cash flow from tax Tax Depreciation of capital costs for five years exception benefit and no effect on tax • Exception for regulated expense utilities 9

Dividend Growth $2.16 $1.80 $1.90 $2.00 $1.70 $1.85 $1.65 $1.64 $1.49 $1.06 $0.97 $0.88 $0.80 Dec ‘17 $0.74 Dec ‘16 Dec ‘15 Dec ‘14 Dec ‘13 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Ongoing EPS Indicated Annual Dividends Annual common stock dividend raised by 9.3% to $1.06 (1) per share in • December 2017 • Expect above industry average dividend growth in the future while targeting the 50% ‐ 60% payout ratio range • Next dividend review in December 2018 10 (1) Indicative annual rate 2012 – 2016 Ongoing EPS represents actual results; 2017‐2019 represent ongoing earnings guidance issued on December 8, 2017.

Credit Metrics: Liquidity and Debt Maturity Outlook Long‐term Debt Maturities (1) (in millions) $293 Maintain appropriate $1,060 credit metrics $172 $250 $306 Remain a solid $200 $100 investment grade 2018 2019 2020 2021 2022 and Beyond rated company PNM TNMP Corporate • Extended TNMP’s $75M revolving credit facility in September 2017 • Extended PNM Resources’ $300M and PNM’s $400M revolving credit Target regulatory facilities by one year to 2022 capital structures at • In process of extending PNM’s community bank revolving credit PNM and TNMP facility that expires in January 2018 • At‐The‐Market equity program will be used to fund 2020 ‐ 2022 expenditures in the range of $150 million • New debt issuances 2018 ‐ 2021 of $375 million (1) Reflects the execution of PNM’s July 2017 note purchase agreement to refinance an aggregate of $450M long‐term debt due 11 in 2018 to varying maturity dates beyond 2021. Excludes $50M of debt related to the Westmoreland financing agreements.