Investor Presentation October 2014 Contact Information and Safe - PowerPoint PPT Presentation

Investor Presentation October 2014

Contact Information and Safe Harbor Statement Investor Relations Contact Information Jimmie Blotter, Investor Relations Director Allyson Beck, Investor Relations Analyst U.S. 1-505-241-2227 U.S. 1-505-241-4612 Jimmie.Blotter@pnmresources.com Allyson.Beck@pnmresources.com Safe Harbor Statement Statements made in this presentation that relate to future events or PNM Resources’ (“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 Form 10-Q filings with the Securities and Exchange Commission, which 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 EBITDA), 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

Strategic Overview

PNM Resources Overview PNM Resources is a regulated electric utility holding company NYSE Ticker PNM focused on providing a top quartile total return to shareholders Market Cap $2B Service Territories • Energy holding company • Based in Albuquerque, New Mexico, USA • Located in New Mexico • 509,879 customers • 14,707 miles transmission and distribution lines • 2,572 MW generation capacity • Top quartile reliability • Affordable rates • Located in Texas • 236,399 end-users • 9,137 miles transmission and distribution lines • Top quartile reliability • Affordable rates 4

PNM Resources Strategic Direction Strategic Goals • Earn Authorized Return on our Regulated Businesses • Continue to Improve Credit Ratings • Provide Top Quartile Total Return Strategic Transition 2011 Repositioned as a pure-play electric utility through competitive business exit 2012 Execution of strategic redirection of business 2013 – 2015 Regulatory successes and efficient management of the business strengthen financial position Well positioned for above average EPS and dividend growth in the future. 5

Delivering Top Quartile Returns 2016 goal: Provide top quartile total return to shareholders  Total return is 5-year ongoing EPS growth + 5-year average dividend yield  Top quartile total return currently equal to an average annual rate (1) of 10% - 13% over a 5 year period Earnings Growth • Investing in core capital, • Sustaining and growing the renewables, environmental dividend • Realizing earnings potential in control equipment, and business • Providing above-average replacement power dividend growth • Continuing to earn our allowed returns • Reducing regulatory lag Rate Base Dividend Growth Growth 6 (1) Base year of 2012

Capital Forecast PNM Rate Base CAGR: 6 - 8% (1) 2014 – 2018 Total Capital Plan: $2.3B TNMP Rate Base CAGR: 6 - 8% 5 Year Capital Forecast $558 (In millions) $14 $509 $499 $18 $101 $14 $443 Palo Verde $14 Unit 3 $113 $130 added to $78 $94 rate base $48 $71 $302 $72 $136 $14 $154 $106 $301 $65 $263 $229 $210 $202 $195 $180 $166 $159 $117 2014 2015 2016 2017 2018 PNM Generation PNM T&D PNM Renewables TNMP Other Depreciation (1) Includes the addition of PV3 to rate base, which does not have associated capital spending. Amounts may not add due to rounding 7

Investment in Renewable Energy Renewable Rider Collection New Mexico Renewable Energy Act Methodology Streamlined proceedings for approval of Recovery of renewable investments Portfolio Standards as a % of Retail Sales utilities’ renewable energy procurement and REC purchases permitted plans. through Renewable Energy Rider 15% 10% 20% Provides for recovery of program costs 2011 2020 2015 under approved procurement plan. 2015 Renewable Procurement Plan (1) 2014 Renewable 40 MW additional owned Procurement Plan Current Owned Renewable solar capacity Resources Construction of 23 MW Current Purchase Power additional owned solar 44 MW PNM-owned Additional customer-owned Agreements (PPA) facilities currently in service capacity solar facilities 204 MW agreement with NextEra Energy’s Wind Solar battery storage facility 102 MW PPA with NextEra Center Energy’s Red Mesa 2011 – 2013 2014 – 2015 10 MW agreement with Additional customer-owned $140M of renewable Additional renewable Lightning Dock Geothermal solar facilities investments were investments will make placed in service. up 6% of PNM’s 5-year Customer-owned solar core capital. facilities (1) A stipulation was filed on Sep 25, 2014 that included approval for the 40MW solar project. Cost recovery for the 40 MW solar project will be through base rates rather than through the Renewable Energy Rider. 8

Environmental Control Equipment Investment The U.S. Environmental Protection Agency’s (EPA) Clean Air Act requires regional haze reduction near national parks  Compliance should be achieved through Best Available Retrofit Technology (BART)  San Juan Generating Station’s alternative for BART compliance: Revised State Implementation Plan (RSIP) • o Shut down units 2 and 3 by year-end 2017 Proposed replacement resources include 177 MW gas peaker ($189M) and 40 MW solar facility ($79M) – Implementation of RSIP will achieve significant strides toward 111D compliance – o Install Selective Non-Catalytic Reduction (SNCR) technology on units 1 and 4 by early 2016 o Recently approved by the EPA  New Mexico Public Regulation Commission (NMPRC) review of BART settlement in process Settlement Components Remaining NMPRC Milestones  Retirement of San Juan Units 2 and 3 and  Testimony recovery of half of expected 12/31/17 undepreciated investments ($115.5M)  Rebuttal testimony  Installation of SNCR technology on San Juan Units 1 and 4 ($91M)  Hearings with Hearing Examiner  CCNs for Palo Verde Unit 3 ($1,650/kW) and  Final Order 132 MW of San Juan Unit 4 ($26M) 9

Environmental Control Equipment Investment Capacity Capacity Assumed 2018 Generation Mix 2,572 MW Based on 12 months ending 12/31/13 Renewables 10% Renewables Coal 16% 26% Coal Natural 38% Gas Natural 36% Nuclear Gas 15% 43% Nuclear 16% 10

Potential Earnings Power Strong potential earnings growth 2014 to 2016 2014 2014 Mid Point of 2016 Allowed Allowed Average Guidance Expected Potential Earnings 2016 Potential Equity Return Rate Average Growth Earnings Power Ratio Return EPS Base Rate Base PNM retail 10% 50% $1.9 B 9% $1.02 $2.2 B $0.37 (1) $1.39 PNM renewables 10% 50% $120 M 10% $0.07 $140 M $0.02 $0.09 $0.08 $225 M (2) $0.01 – $0.04 (3) $0.09 - $0.12 PNM FERC 9% - 10% 50% $220 M 6% PV3 (4) ($0.02) ($0.03) ($0.05) (5) TNMP 10.125% 45% $620 M 10.125% $0.44 $750 M ($0.01) $0.43 Corporate/Other ($0.10) $0.02 – $0.04 (6) ($0.08) – ($0.06) Costs not included ($0.02) ($0.04) – ($0.01) ($0.06) – ($0.03) in rates (4) (7) Total $2.8 B $1.47 $3.4 B $0.34 – $0.42 $1.81 - $1.89 (1) Assumes a forward test year rate case with rates in place 1/1/2016. (2) 2015 average rate base. (3) Based on FERC formula rate methodology which uses prior year average rate base and assumes mid-year rate increases. Earnings are reflective of returns adjusted for mid-year increases. 2016 Potential Earnings Power assumes returns of 6.5% - 8.5%. (4) Included in PNM. (5) The potential earnings power assumes a 2016 forward market price of $37/MWh. A price of $43/MWh is required to breakeven in 2016. PV3’s addition to rate base at a $1,650/kW valuation would represent earnings power of $0.10 in 2018. (6) PNM Resources’ $119 M 9.25% debt matures May 15, 2015. (7) Consists primarily of NDT gains and losses, AFUDC, certain incentive compensation and pension-related costs associated with the sale of PNM Gas. This table is not intended to represent a forward-looking projection of 2016 earnings guidance. 11