Q4 2017 Earnings Review February 27, 2018
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
Opening Remarks and Overview Pat Vincent‐Collawn Chairman, President and CEO
Q4 2017 Financial Results and Key Highlights Financial Results: Q4 2017 Q4 2016 2017 2016 GAAP EPS ($0.68) $0.31 $1.00 $1.46 Ongoing EPS $0.24 $0.34 $1.94 $1.65 • Tax reform impacted Q4 and full year 2017 EPS by ($0.72) • 2018 Ongoing EPS Guidance of $1.82 ‐ $1.92 affirmed • 2019 Ongoing EPS Guidance of $2.04 ‐ $2.16 affirmed Key Highlights: • Negotiated PNM general rate review settlement, approved in January 2018 • Transformation of PNM generation portfolio Filed Integrated Resource Plan with roadmap to be coal‐free by 2031 (pending regulatory approval) Published Climate Change Report Retired San Juan Generating Station Units 2 and 3 4 Note: EPS is presented on a diluted basis. For a reconciliation of GAAP EPS to Ongoing EPS and a description of adjustments made, please refer to the fourth quarter earnings release issued February 27, 2018.
Regulatory Update Filing Action Timing Docket No. Final order modifying revised Phased‐in (50% each year) settlement agreement includes $57.9M PNM 2018 General Rate Review with February 2018 16‐00276‐UT increase, before the impacts of tax implementation reform and cost of debt true‐up PNM Appeal of 2015 General Rate Case to New Mexico Oral arguments held October 30, 2017 No statutory timeline S‐1‐SC‐36115 Supreme Court PNM Advanced Metering Hearings held October 25‐26, 2017; Decision expected Q2 2018 15‐00312‐UT Infrastructure pending Recommended Decision PNM 2017 Integrated Resource Order defining scope of proceeding Hearings scheduled to begin 17‐00174‐UT Plan issued January 16, 2018 June 4, 2018 Public workshops held September 14, 2017 and November 6, 2017; additional NMPRC Rulemaking on Utility public workshop scheduled for January No statutory timeline 17‐00046‐UT Ratemaking Policies 23, 2018 was vacated and is pending rescheduling Expected to be approved TNMP TCOS Filed January 30, 2018 47802 March 2018 TNMP General Rate Review N/A Expected to be filed May 2018 N/A 5
Financial Overview Chuck Eldred Executive Vice President and CFO
Impacts of Tax Reform Provision Summary Effect on PNM & TNMP Effect on Holding Company • Reduces tax benefit from holding Tax Rate 21% Reduced tax expense • Results in lower costs and revenues as tax beginning 2018 company losses by ($0.02) • Excess deferred tax assets savings are passed on to customers beginning in 2018 associated with items not in rates • Creation of excess deferred tax liabilities for results in a write‐off of $20.0M in items included in rates, which are returned to 2017 customers over time Negative cash flow Rate base increases • Excess deferred tax assets associated with items excluded from rates results in a write‐ off of $37.5M in 2017 • Deduction limited to • Interest fully deductible under utility • Small amount of interest allocable Interest Expense 30% of EBITDA exception to non‐utility operations • Exception for regulated • No material impact Deductibility utilities • 100% immediate • Normal tax depreciation rates under utility • Positive cash flow from tax benefit Tax Depreciation expensing of capital exception for clearings beginning in October and no effect on tax expense costs for five years 2017 • Exception for regulated • Elimination of bonus depreciation results in utilities rate base increases of $150M at PNM and $30M at TNMP by 2021 7
Q4 and FY 2017 Ongoing EPS Financial Summary $0.34 ($0.07) $0.24 ($0.02) ($0.01) PNM TNMP Corporate Q4 2016 Q4 2017 $0.01 $0.34 ($0.06) $1.94 $1.65 TNMP Corporate PNM FY 2016 FY 2017 8
Load and Economic Conditions Regulated Retail Energy Sales and Customers (weather‐normalized, leap‐year adjusted) Q4 2017 2017 PNM / TNMP vs. vs. 2018E 2019E Q4 2016 2016 PNM Residential & Commercial (1.3%) (0.7%) ~(0.3%) ~(0.3%) Total PNM Retail Load (1.5%) (0.9%) (0.7%) – 0% (0.5%) – 0.5% PNM Avg. Customers 0.6% 0.6% ~0.5% per year TNMP Total Volumetric Load (1) (1.0%) 1.2% 2% – 3% per year TNMP Demand‐Based Load (2) 2.9% 4.0% 2% – 3% 7% – 8% TNMP Avg. End Users 1.2% 1.2% 1.5% – 2.0% per year Employment Growth (3) 12‐Month Rolling Average 3.1% % Change 1.5% 0.9% 2014 2015 2016 2017 Albuquerque Dallas U.S. (1) Primarily Residential usage; represents per‐kWh billings (2) Commercial and Industrial usage excluding Transmission customers; represents per‐kW monthly peak billings 9 (3) U.S. Bureau of Labor Statistics, December 2017
Consolidated Earnings Guidance (Ongoing) 2018 Earnings Guidance $1.82 Consolidated EPS $1.92 TNMP PNM Corp/Other $0.54 ‐ $0.56 $1.39 ‐ $1.46 ($0.11) – ($0.10) 2019 Earnings Guidance $2.04 Consolidated EPS $2.16 PNM TNMP Corp/Other $1.54 ‐ $1.61 $0.63 ‐ $0.66 ($0.13) – ($0.11) 10
Capital Forecast Targeted Consolidated 2018‐2021 Rate Base CAGR (1) : 6% ‐ 7% $681 2018–2022 Total Capital Plan: $2.7B $17 Palo Verde Unit 3 (In millions) added to $170 rate base $527 $504 $500 $500 $17 $17 $17 $19 $116 $170 $170 $170 $186 $51 $35 $81 $146 $297 $141 $129 $157 $96 $20 $53 $111 $94 $80 $76 $74 2018 2019 2020 2021 2022 PNM Core Generation PNM Renewables PNM SJGS Replacement Power PNM Core T&D PNM Transmission Expansion TNMP Depreciation Corporate/Other Targeted PNM 2018‐2021 Rate Base CAGR (1) : 4.5%‐6% from 2018 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 2018‐2021 Rate Base CAGR (1) : 10.7% from 2018 base 11 (1) 2018‐2021 CAGR measured from a 2018 base Amounts may not visually add due to rounding.
Potential Earnings Power Targeted earnings growth of 6% for 2018 ‐ 2021 (1) • PNM growth results from the implementation of retail rates beginning in 2018, the additional investments to add 50 MW of solar to meet the 20% by 2020 RPS requirement and increased FERC Transmission business to support third party renewable developments • TNMP growth is driven by incremental investments supporting economic expansion across its service territory 2018 Ongoing Earnings 2019 Ongoing Earnings 2020 Earnings 2021 Earnings Allowed Guidance Midpoint Guidance Midpoint Potential Potential Return / Equity Avg Rate Avg Rate Avg Rate Avg Rate Return EPS Return EPS EPS EPS Ratio Base Base Base Base 9.575% / PNM Retail $2.3 B 8.7% $1.27 $2.3 B 9.5% $1.38 $2.4 B $1.42 $2.5 B $1.49 50% Supreme Court Appeal $0‐150 M $0.00‐$0.09 $0‐150 M $0.00‐$0.09 $0‐150 M $0.00‐$0.09 9.575% / PNM Renewables $90 M 9.575% $0.05 $110 M 9.575% $0.07 $150 M $0.09 $147 M $0.09 50% 10% / PNM FERC $220 M 7.1% $0.11 $285 M 8.0% $0.14 $330 M $0.14‐$0.16 $370 M $0.16‐$0.18 ~50% Items not in Rates $0.01 ($0.02) ($0.04)‐($0.02) ($0.04)‐($0.02) Total PNM $2.6 B $1.44 $2.7‐2.9 B $1.57 $2.9–3.0 B $1.61‐$1.74 $3.0‐3.1 B $1.70‐$1.83 10.125% / TNMP $905 M 8.5% $0.54 $1,050 M 10.0% $0.65 $1,110 M $0.67 $1,220 M $0.69 45% Corporate/Other ($0.11) ($0.12) ($0.13)‐($0.11) ($0.13)‐($0.11) ATM Program ($0.03)‐($0.01) ($0.07)‐($0.04) Total PNM Resources $3.5 B $1.87 $3.7‐3.9 B $2.10 $4.0–4.1 B $2.12‐$2.29 $4.2‐4.3 B $2.19‐$2.37 (1) Calculated from 2018 EPS guidance midpoint of $1.87 This table is not intended to represent a forward‐looking projection of 2020 – 2021 earnings guidance. 12 Refer to Slide 22 for additional details and disclosures.
Questions and Answers
Appendix Q4 and FY 2017 Earnings
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