Slide 1: 2016 Analyst Day
2016 Analyst Day December 14, 2016
Slide 2: Introduction
Introduction Jimmie Blotter Assistant Treasurer Director, Investor Relations and Shareholder Services
Slide 3: Agenda
Agenda Time Topic Presenter 10:00 – 10:05 Welcome / Introductions Jimmie Blotter 10:05 – 10:30 Strategic Overview Pat Vincent-Collawn 10:30 – 11:00 PNM 2018 General Rate Case Gerard Ortiz 11:00 – 11:30 2017 Guidance / Financial Update Chuck Eldred 11:30 – 12:00 Wrap Up / Q&A Pat Vincent-Collawn 12:0
Slide 4: Safe Harbor Statement and Non-GAAP Financial Measures
Safe Harbor Statement and Non-GAAP Financial Measures 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”)
Slide 5: Strategic Overview
Strategic Overview Pat Vincent-Collawn Chairman, President and CEO
Slide 6: PNM Resources Strategic Direction
PNM Resources Strategic Direction Create enduring value for customers, communities and shareholders • PNM: 2015 and 2016 ReliabilityOne Award recipient Build a Highly Efficient, • PNM: Below regional and national average residential rates Customer-Focused and • PNM: Record-high customer perception s
Slide 7: PNM Resources Strategic Goals
PNM Resources Strategic Goals Strategic Financial Goals • Investing aligned to policy Rate Base directives, reliability, evolving customer needs and Earn authorized return on Growth transforming industry opportunities regulated businesses • Realizing earnings potential in Earnings business Above ind
Slide 8: PNM Resources: Staying Focused in a Changing Environment
PNM Resources: Staying Focused in a Changing Environment • PNM 2018 General Rate Case • PNM AMI Filing • TNMP Upcoming General • 2017 Integrated Improving Rate Case Resource Plan Regulatory • San Juan Generating Transforming Environment Station Scenarios PNM’s Generation Portfolio Supporting Custome
Slide 9: PNM Regulatory
PNM Regulatory NM Supreme Court Appeal • Appeal filed September 30, 2016 2018 General Rate Case Filed December 7, 2016 • Requested revenue increase of $99 million with 10.125% ROE • Based on calendar year 2018 future test year • Rates effective January 1, 2018 AMI Filing • Suspension lifted December
Slide 10: TNMP Regulatory: Upcoming General Rate Case
TNMP Regulatory Upcoming General Rate Case: Key Elements True-up Transmission and Distribution Recovery • TCOS filings update for transmission investments, but distribution assets and other rate base items have not been updated since last rate case filing (test period ending March 2010) True-up Oper
Slide 11: Enhancing the Customer Experience
PNM Customer Focus Enhancing the Customer Experience High Community Customer Affordability Reliability Partner Satisfaction Highlights • Customer Satisfaction Research and Polling, Inc. survey results • New Mexico Economic Development Efforts Secured Facebook data center which opens the door for
Slide 12: PNM 2017 Integrated Resource Plan
PNM 2017 Integrated Resource Plan Additional Requirements Roadmap for meeting customer demand over 20-year from BART Agreement horizon, provides foundation for the selection of future resources • Two potential resource portfolios to be included in 2017 IRP Filed with Solicits and One with and one
Slide 13: PNM 2018 General Rate Case
PNM 2018 General Rate Case Gerard Ortiz Vice President, PNM Regulatory Affairs
Slide 14: PNM 2018 General Rate Case
PNM 2018 General Rate Case • Requested revenue increase of $99 million Based on calendar year 2018 and 10.125% ROE Revenue Requirement Rate Design • BART items • Increase fixed charge Palo Verde Unit 3 • Lost Contribution to Fixed Cost Retirement of San Juan Units 2 & 3 mechanism (LCFC) 132
Slide 15: PNM 2018 General Rate Case Drivers
PNM 2018 General Rate Case Drivers Incremental Revenue Rate Base Requirement (in millions) (in millions) Compliance Items: BART Items: Palo Verde Unit 3 $96 $45 Retirement of San Juan Units 2 and 3 (95) (29) 132 MW of San Juan Unit 4 11 16 Accelerated Depreciation on San Juan SNCRs - 3 Subtotal BART
Slide 16: PNM 2018 General Rate Case Energy Sales and LCFC
PNM 2018 General Rate Case Energy Sales and LCFC Energy Sales • Compared to the last filed retail load forecast, load decline has contributed to a $11 million revenue requirement deficiency Customer growth is offset by declining usage driven by energy efficiency, changes to codes and standards, an
Slide 17: PNM 2018 General Rate Case Bill Impact
PNM 2018 General Rate Case Bill Impact Comparison of Average Residential Bills(2) • Forecasted PNM customer bills remain Western Region Average Bills by Utility below current national and regional Imperial Irrigation District (CA) Modesto Irrigation District (CA) $142.36 averages APS (AZ) SRP (AZ) N
Slide 18: PNM 2018 General Rate Case Timeline
PNM 2018 General Rate Case Timeline Potential Settlement Period 10/8/2017 thru 12/7/2016 thru 1/5/2018 10/8/2017 1/1/2018 12/7/2016 3 Month Allowance Statutory 9+1 Expected Effective Rate Case Filed for Additional Month Suspension Date Consideration by Period NMPRC ~January: Expect Hearing Examiner
Slide 19: 2017 Guidance
2017 Guidance Chuck Eldred Executive Vice President and CFO
Slide 20: Consolidated EPS
Consolidated Earnings Guidance Range (Ongoing) 2016 Narrowed Earnings Guidance(1) $1.60 Consolidated EPS $1.65 2017 Earnings Guidance Midpoint: $1.82 $1.77 Consolidated EPS $1.87 PNM TNMP Corp/Other $1.30- $1.37 $0.51 - $0.53 ($0.04) – ($0.03) (1) 2016 Ongoing earnings guidance originally $1.55 - $1
Slide 21: New Mexico Economic Conditions and Total Customers
New Mexico Economic Conditions Employment Growth Rates PNM Customer Counts and Retail Energy Sales New Mexico and Albuquerque Metro 10,000 600,000 (Year-end measurement, except 2016) 3% 9,000 500,000 8,000 400,000 Total Customers Energy Sales (GWh) 2% 7,000 300,000 6,000 200,000 1% 5,000 100,000 4,0
Slide 22: PNM Guidance (Ongoing)
PNM Guidance (Ongoing) PNM Ongoing EPS $1.30 - $1.37 $1.18 $1.10 - $1.13 2015 2016E 2017E Year-over-Year 2016E – 2017E Key Performance Drivers ∆ EPS Retail rate relief $0.26 Restructuring cost savings $0.09 - $0.10 Transmission $0.04 - $0.06 AFUDC $0.04 - $0.06 Palo Verde Unit 3 market prices $0.03
Slide 23: Texas Economic Conditions
Texas Economic Conditions Employment Growth Rates TNMP End User Counts and Retail Energy Sales Texas and Dallas Metro 7,000 260,000 (Year-end measurement, except 2016) 5% 6,500 240,000 6,000 220,000 Energy Sales (GWh) 5,500 Total End Users 200,000 5,000 3% 180,000 4,500 160,000 4,000 3,500 140,000 1
Slide 24: TNMP Guidance (Ongoing)
TNMP Guidance (Ongoing) TNMP Ongoing EPS $0.52 $0.52 - $0.53 $0.51 - $0.53 2015 2016E 2017E Year-over-Year 2016E – 2017E Key Performance Drivers ∆ EPS TCOS rate relief $0.04 - $0.05 Load $0.02 - $0.03 2016 weather $0.01 O&M increases ($0.01) - $0.00 Interest expense ($0.02) Depreciation and property
Slide 25: Corporate and Other Guidance (Ongoing)
Corporate and Other Guidance (Ongoing) Corporate and Other Ongoing EPS ($0.06) ($0.02) – ($0.01) ($0.04) – ($0.03) 2015 2016E 2017E Year-over-Year 2016E – 2017E Key Performance Drivers and Assumptions ∆ EPS Westmoreland financing agreements ($0.02) 25
Slide 26: EBITDA and Quarterly Earnings Distribution Guidance
EBITDA and Quarterly Earnings Distribution Guidance (Ongoing) Ongoing EBITDA (In millions) 2016E Midpoint 2017E Midpoint Consolidated PNM Resources $541 $589 PNM $360 $396 TNMP $156 $162 2017 Quarterly Ongoing Earnings Distribution 47% 24% 16% 13% Q1 2017E Q2 2017E Q3 2017E Q4 2017E 26
Slide 27: Earnings Growth
Earnings Growth • Potential Earnings Power supports 2015 – 2019 earnings growth target of 7% - 8% PNM growth achieved through new retail rates implemented October 2016 and 2018 General Rate Case filing o Palo Verde Unit 3 added to rate base in 2018 o 2019 reflects potential recovery of NMPRC disal
Slide 28: Capital Forecast
Capital Forecast 2016 – 2020 Total Capital Plan: $2.3B PNM 2015-2020 Rate Base CAGR: 4 - 6%(1) (In millions) TNMP 2015-2020 Rate Base CAGR: 8 - 10% $573 $36 $516 Palo Verde Expect future Unit 3 refinements $57 added to $125 rate base $435 $395 $15 $404 $15 $151 $30 $120 $137 $134 $136 $170 $163 $119
Slide 29: Liquidity, Capital Structure and Credit Ratings
Liquidity, Capital Structure and Credit Ratings Strong liquidity and balanced capital structure supports investment grade credit metrics at Moody’s and S&P Available Liquidity Corporate/ PNM Resources PNM TNMP Other Consolidated Financing Capacity as of November 30, 2016: (In millions) Total Capacit
Slide 30: Deliver Above Industry Average Earnings and Dividend Growth
Deliver Above Industry Average Earnings and Dividend Growth • 7% - 8% Earnings Growth 2015 - 2019 $1.87 $1.65 $1.64 $1.60 $1.77 $1.49 $1.31 $1.41 $0.88 $0.97 53%(1) $0.74 $0.80 Dec ‘16 $0.58 $0.66 Dec ‘15 payout Dec ‘13 Dec ‘14 Feb ‘12 Feb ‘13 ratio 2012 2013 2014 2015 2016E 2017E 2018E 2019E Ongoin
Slide 31: Wrap Up
Wrap Up Pat Vincent-Collawn Chairman, President and CEO
Slide 32: PNM Resources: Staying Focused in a Changing Environment
PNM Resources: Staying Focused in a Changing Environment Staying focused in order to deliver above industry average earnings and dividend growth • Maintain high reliability and enhance the customer experience • File rate cases to minimize regulatory lag, realize earnings potential and maintain cre
Slide 33: 2017 Marks 100 Years of PNM History
2017 Marks 100 Years of PNM History Celebrating 100 years of serving Public Service New Mexico Company of (2017) New Mexico Bernalillo formed (1946) Sawmill Power Plant generated 2,500 KW (1927) Albuquerque Gas & Electric Company formed (1917) 33
Slide 34: Questions & Answers
Questions & Answers
Slide 35: Appendix
Appendix
Slide 36: 2017 Assumptions
2017 Assumptions Corporate/ PNM TNMP amounts shown are before tax Other 2017 weather $0 (normal) $0 (normal) N/A (1.0%) to 0.0% 2.0% to 3.0% Load N/A 1% = $0.05 1% = $0.01 Palo Verde Unit 3 sales price ($/MWh) ~$29 N/A N/A Outage costs $14M - $16M N/A N/A PV3 Nuclear Decommissioning Trust gains $10M
Slide 37: PNM Plant Outages and Retirement Schedule
PNM Plant Outages and Retirement Schedule 2016 - 2017 Planned Outage Schedule Four Corners Palo Verde Duration in Time Duration in Time Unit Unit Days Period Days Period 4 10 Q2 2017 3 34 Q4 2016 5 10 Q2 2017 2 34 Q2 2017 5 95 Q3-Q4 2017 1 34 Q4 2017 2017 Scheduled Unit Retirements San Juan Unit Tim
Slide 38: Consolidated EPS
2016 Consolidated Earnings Guidance Range (Ongoing) 2016 Narrowed Earnings Guidance(1) $1.60 Consolidated EPS $1.65 PNM TNMP Corp/Other $1.10 - $1.13 $0.52 - $0.53 ($0.02) – ($0.01) (1) 2016 Ongoing earnings guidance originally $1.55 - $1.76. Tightened to $1.55 - $1.65 on August 4, 2016 and $1.60 -
Slide 39: 2017 - 2019 Potential Earnings Power
2017 - 2019 Potential Earnings Power Allowed 2017 Guidance Midpoint 2018 Earnings Potential 2019 Earnings Potential Return / Avg Rate Avg Rate Avg Rate Equity Ratio Return EPS EPS EPS Base Base Base PNM Retail (1) 9.575% / 50% $2.3 B 9.3% $1.32 $2.4 B $1.42 $2.4 B $1.41 Supreme Court Appeal (2) $0 -
Slide 40: New Mexico Public Regulation Commissioners
New Mexico Public Regulation Commissioners NMPRC Districts and District Name Term Ends Party PNM Service Areas Karen Montoya, District 1 2016(1) Democrat Vice Chair District 2 Patrick Lyons 2018 Republican Valerie Espinoza, District 3 2016(1) Democrat Chairman District 4 Lynda Lovejoy 2018 Democrat
Slide 41: Texas Public Utility Commissioners
Texas Public Utility Commissioners Term Name Term Began Party Ends Donna Nelson Aug. 2008 Sept. 2021 Republican Chairman Kenneth Anderson Sept. 2008 Aug. 2017 Republican Brandy Marty Marquez Aug. 2013 Aug. 2019 Republican Commissioners are appointed by Governor of Texas. Length of term is determined
Slide 42: PNM 2016 General Rate Case Final Order
PNM 2016 General Rate Case Final Order NMPRC approved final order Sept. 28, 2016: • Non-fuel revenue increase of $61.2M versus $121.5M request • Retail rate base of $2,263M versus $2,458M request Key Rate Case Elements Commission Original Impact to (PNM Retail Share, net of ADIT) Order Request Rat
Slide 43: New Mexico Supreme Court Appeal
New Mexico Supreme Court Appeal • PNM filed Notice of Appeal with New Mexico Supreme Court on September 30, 2016 • PNM filed Statement of Issues on October 26, 2016: Appealed Item Conclusion Resulting Impact Palo Verde Nuclear Generating Station: 64MW Unit 2 Fair market value of purchase Capacity Pu
Slide 44: PNM Residential Affordability
PNM Residential Affordability PNM's Residential Affordability Remains Below the National Average 4.5% 4.0% 3.5% Est. Average 2015 Residential Electric Bill Es.t 2015 Median Household Income 3.0% 2.5% U.S. Average: 2.4% 2.0% 1.5% 1.0% 0.5% 0.0% Sources: EIA Form 826, US Census Bureau PNM bills reflec
Slide 45: Regulatory Update
Regulatory Update Filing Action Timing Docket No. NMPRC: 2018 General Rate Case Filed December 7, 2016 Rates expected to be implemented January 1, 16-00276-UT 2018 AMI Suspension lifted Hearing scheduled to begin February 27, 2017 15-00312-UT December 6, 2016 August 2015 General Rate Appealed to New
Slide 46: PNM San Juan Generating Station Ownership and Participants
PNM San Juan Generating Station Ownership and Participants Current Ownership Total PNM PNM Unit Other Participants/Ownership MW MW Ownership 1 340 170 50% Tucson Electric 50% (170 MW) 2 340 170 50% Tucson Electric 50% (170 MW) Southern California Power Authority 41.8% (208 MW) 3 497 248 50% Tri-Stat
Slide 47: PNM Palo Verde Nuclear Generating Station Unit 1 and 2 Leases
PNM Palo Verde Nuclear Generating Station Unit 1 and 2 Leases MW Owned vs. Leased Unit 1 Unit 2 Owned 2.3% 30 MW Owned 9.5% 124 MW Leased 7.9% 104 MW Leased 0.7% 10 MW Total 10.2% 134 MW Total 10.2% 134 MW Leases • Unit 1: January 15, 2015; exercised option to extend leases to 2023 • Unit 2: January
Slide 48: PNM Investment in Renewable Energy
PNM Investment in Renewable Energy New Mexico Renewable Energy Act Renewable Rider Collection Portfolio Standard as a % of Retail Sales Streamlined proceedings for approval of Methodology utilities’ renewable energy procurement Recovery of renewable investments 15% 20% plans and REC purchases permit
Slide 49: PNM Diversified Generation Portfolio: Capacity
PNM Diversified Generation Portfolio: Capacity Capacity Capacity 2,787 MW 2018 Forecasted As of 12/31/2015 Generation Mix Renewables Renewables 15% 16% Coal Coal 35% 29% Natural Gas Natural Gas 35% 40% Nuclear Nuclear 15% 15% Includes capacity from Purchased Power Agreements 49
Slide 50: PNM Diversified Generation Portfolio: Energy
PNM Diversified Generation Portfolio: Energy Energy Energy 10,763 GWh 2018 Forecasted Based on 12 months ending 12/31/15 Generation Mix Renewables 7% Renewables 10% Natural Gas 12% Coal Natural Gas 50% 17% Coal 44% Nuclear 31% Nuclear 29% Includes energy from Purchased Power Agreements 50
Slide 51: Impact of Environmental Regulation- SJGS
Impact of Environmental Regulation- SJGS Estimated Compliance Costs San Juan Generating Station Comments (PNM Share) Clean Air Act – Regional Haze Installation of SNCR technology on Units 1 and 4 completed in 2016; retirement of Units 2 and 3 Minimal remaining costs (State Alternative) – SNCR schedu
Slide 52: Impact of Environmental Regulation- Four Corners
Impact of Environmental Regulation- Four Corners Estimated Compliance Costs Four Corners (Units 4 and 5) Comments (PNM Share) Clean Air Act – Regional Haze – Final BART determination filed with EPA on Dec. 30, 2013. Impact to PNM: SCR controls $94M SCR for NOx on Units 4 & 5 by July 31, 2018. On Oct
Slide 53: Investor Relations Contact Information
Investor Relations Contact Information Jimmie Blotter Assistant Treasurer Director, Investor Relations and Shareholder Services U.S. 1-505-241-2227 Jimmie.Blotter@pnmresources.com Lisa Goodman Investor Relations Manager U.S. 1-505-241-2160 Lisa.Goodman@pnmresources.com 53