Txnm Energy, Inc. · NYSE:TXNM

Txnm Energy — PNM Resources — J.P. Morgan SMid Cap Conference 2011

42 slides from Txnm Energy's conference presentation, December 2011

1. Slide 1: J.P. Morgan SMid Cap Conference

   J.P. Morgan SMid Cap Conference December 2011

2. Slide 2: Safe Harbor Statement

   Safe Harbor Statement Statements made in this news release that relate to future events or PNM Resources’, 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

3. Slide 3: Company Overview

   Company Overview

4. Slide 4: Repositioning as Strong Regulated Utility

   New Strategic Direction Repositioning as Strong Regulated Utility Strategic Goals Earn Authorized Return on our Regulated Businesses Exit Hybrid Regulated Return to Solid Competitive Utility Utility Investment Grade Business Ratings Provide an attractive total return proposition to our shareholders

5. Slide 5: PNM Resources Overview

   PNM Resources Overview Focus:  Earn our allowed returns  Achieve solid investment grade credit ratings  Located in New Mexico  503,700 customers  Provide stable long-term earnings and dividend growth  14,529 miles transmission and distribution lines New Mexico and Texas  2,543MW generation ca

6. Slide 6: PNM: Recent Accomplishments

   PNM: Recent Accomplishments  Significant progress has 2008 been made to improve 6% base rate increase PNM’s financial health $33M rate increase Temporary fuel clause • Three rate increases in the past four years • Exited gas operations, 2009 8% base rate increase used 100% of the Permanent Merchant

7. Slide 7: Electric Affordability by State

   Electric Affordability by State 4.0% 3.5% 3.0% Est. 2012 Median Household Income 2.5% US Average Average 2012 Est. Electric Bill 2.0% 1.5% 1.0% 0.5% 0.0% WI AR WA CT IL CA MO VA AL FL WY CO NV HI MN PNM-South NH WV SC RI SD VT ND DC OK GA MD AK NC AZ LA TN ID IN KS OR PA TX UT PNM-North NJ KY MI IA

8. Slide 8: PNM: Pathway to Continued Success

   PNM: Pathway to Continued Success  Earn allowed return • Synchronize revenues and expenses • Balance future rate increases for customers while ensuring the appropriate return is earned for our shareholders  Continue to get positive regulatory outcomes  Continue to strengthen investment grade cred

9. Slide 9: NM Regulatory Environment

   NM Regulatory Environment  NM recognized as a challenging regulatory framework  Current effort in the state to reform the New Mexico Public Regulation Commission (NMPRC) • An independent results-oriented advocacy group • Has demonstrated success through several policy changes • Advocating legislat

10. Slide 10: TNMP: Recent Accomplishments

    TNMP: Recent Accomplishments  Restored earnings potential 2009 working with a constructive 7% rate increase General rate case Texas regulatory framework $13M rate increase • Achieved successful outcomes in four cases over 2010 the past three years 4% base rate increase • On track to achieve its TCO

11. Slide 11: TNMP: Pathway to Continued Success

    TNMP: Pathway to Continued Success  Continue to earn allowed rate of return  Use transmission cost of service filings to • Reduce regulatory lag • Grow rate base  Employ distribution cost of service filings, when available  Retain solid credit metrics  Invest in the business 11

12. Slide 12: Financial Direction

    Financial Direction

13. Slide 13: Exit of Competitive Business

    Exit of Competitive Business  Strengthens PNM Resources’ financial position  Eliminates financial and business risks associated with competitive entities  Focuses strategic direction on regulated utilities Recapitalized the business after competitive business exit Equity – repurchased $73.5M 4.8M

14. Slide 14: Recent Credit Rating Accomplishments

    Recent Credit Rating Accomplishments  Utilities at investment grade  Strength, stability and predictability recognized  Ratings upgraded Sept. 26 and Nov. 1 Moody’s S&P PNMR PNM TNMP PNMR PNM TNMP Debt rating Ba1(1) Baa3(1) A3(2) Debt rating BB (1) BBB- (1) BBB (2) Outlook Stable Stable Stable Ou

15. Slide 15: Liquidity/Dividend

    Liquidity/Dividend  Recently refinanced PNMR and PNM revolvers ($700M)  Targeting cap structure of • 50/50 at PNM • 55/45 at TNMP  Dividend will be reviewed by the Board in February PNMR PNM TNMP Total Available liquidity as of Nov. 1, 2011 Total Capacity $305 $400 $75 $780 Less LCs (1) (70) (2)

16. Slide 16: Key Strategic Goals and Checklist

    Key Strategic Goals and Checklist Earn Authorized Return on Our Maximize the Value of Our Regulated Businesses Competitive Businesses  Achieve successful outcomes in:  Maintain profitability of First Choice Power by  PNM retail rate case achieving customer growth and increasing  Achieved by mone

17. Slide 17: Third Quarter Earnings

    Third Quarter Earnings

18. Slide 18: Third Quarter Financial Highlights

    Third Quarter Financial Highlights Q3 2011 Q3 2010 YTD 2011 YTD 2010 Ongoing EPS (1) $0.61 $0.63 $0.85 $0.90 GAAP EPS (1) $0.48 $0.53 $0.70 $0.69  Closed the sale of First Choice Power on Nov. 1 • Exit from competitive businesses and return to regulated utility model  Aligning utility costs with r

19. Slide 19: Load Growth Continues Positive Trend

    Load Growth Continues Positive Trend Regulated Retail Energy Sales Growth (weather-normalized KWh) Q3 2011 vs Q3 2010 YTD 2011 vs YTD 2010 PNM ∆ (1) TNMP ∆ (2) PNM ∆ (1) TNMP ∆ (2) Residential 0.2% -0.1% 0.9% 2.1% Commercial -2.0% 0.1% -0.1% 0.2% Industrial 8.8% 8.1% 5.4% 0.5% Total Retail 0.3% 0.3%

20. Slide 20: San Juan - BART Update

    San Juan - BART Update  EPA BART determination: SCR technology • Total estimated costs: $750M or more • PNM’s share of estimated costs (46%): minimum of $345M  PNM appealed EPA mandate, requesting stay  Petitioned EPA for reconsideration of state plan calling for SNCR technology  N.M. Gov. Marti

21. Slide 21: Q3 2011 Financial Summary

    Q3 2011 Financial Summary Ongoing EPS $0.02 $0.01 ($0.11) $0.03 $0.03 $0.63 TNMP Other Optim $0.61 PNM First Choice Energy (1) Power Q3 2010 Q3 2011 (1) Includes PNM Resources’ share of Optim Energy’s ongoing EPS through August 2011 21

22. Slide 22: Regulated Businesses: Q3 2011 EPS

    Regulated Businesses: Q3 2011 EPS (Ongoing) PNM $0.42 $0.45 Q3 Key Performance Drivers ∆ EPS Rate relief $0.07 Weather $0.03 Lower outage costs $0.01 PV3 toll expiration ($0.07) Other ($0.01) Q3 2010 Q3 2011 TNMP Q3 Key Performance Drivers ∆ EPS $0.10 Rate relief $0.01 $0.08 Weather $0.01 Q3 2010 Q3

23. Slide 23: First Choice Power Sale Update

    First Choice Power Sale Update  First Choice Power Sale • Received $329M in cash which includes $59M working capital  Repurchased Series A convertible Preferred Stock • Finalized on Oct. 5 • Purchased from Cascade for $73.5M, share price $15.38 • Reduces EPS share count by 4.8 million shares begin

24. Slide 24: Credit Rating Agency Actions

    Credit Rating Agency Actions Moody’s  Upgraded PNMR and TNMP credit ratings one notch on Nov. 1, 2011 and affirmed PNM rating on Sept. 23, 2011 PNMR PNM TNMP Debt rating Ba1(1) Baa3(1) A3(2) Outlook Stable Stable Stable S&P  Upgraded ratings one notch on Sept. 26, 2011 and placed all entities on p

25. Slide 25: Recent Financing Transactions

    Recent Financing Transactions TNMP • Refinanced $50 million term loan • Reduced interest rate by approximately 1.5% PNM • Issued $160 million 10-year notes • 5.35% interest rate PNM and PNM Resources • Renewed credit facilities • Total capacity of $700 million 25

26. Slide 26: 2011 Guidance (Ongoing) Consolidated EPS

    2011 Guidance (Ongoing) $1.00 Consolidated EPS(1) $1.05 Corp/Other Regulated Competitive ($0.17 - $0.15) $1.00 - $1.05 $0.16 - $0.18 PNM TNMP $0.72 - $0.75 $0.28 - $0.30 (1) Segments are not additive 26

27. Slide 27: Appendix

    Appendix

28. Slide 28: PNM Diversified Fuel Mix

    PNM Diversified Fuel Mix Capacity Generation (1) 2,543MW 11,686 GWh Based on last 12 months ending 9/30/11 Renewables Natural Renewables 8% Gas 5% 9% Nuclear Coal 16% 38% Coal Nuclear 58% 28% Natural Gas 38% (1) Includes PNM generation and PPAs 28

29. Slide 29: PNM Plant EAF and Outages

    PNM Plant EAF and Outages 98.1% Time 94.6% Unit Duration 91.3% Period 86.8% 85.0% San Juan 77.9% 2 47 Q1 – Q2 2012 3 54 Q3 – Q4 2012 Four Corners 4 10 Q4 2011 5 13 Q1 2012 Palo Verde 1 37 Q4 2011 3 40 Q1 - Q2 2012 2 40 Q4 2012 San Juan Four Corners Palo Verde Q3 2010 Q3 2011 Annual Top Quartile Numb

30. Slide 30: PNM Resources 5-Year Capital Plan

    PNM Resources 5-Year Capital Plan(1) as of Q3 2011 (In millions) $362 $16 $88 $261 $250 $248 $252 $14 $16 $15 $16 $73 $59 $57 $63 $62 $74 $77 $71 $68 $67 $111 $111 $107 $101 $106 2011 2012 2013 2014 2015 PNM Generation PNM T&D TNMP T&D PNM Renewables Other (Primarily IT) (1) Excludes BART capital ex

31. Slide 31: Guidance (ongoing): First Choice Power & Optim Energy

    Guidance (ongoing): First Choice Power & Optim Energy First Choice Power Optim Energy Current Guidance (Jan – Oct 2011) (Jan – Aug 2011)(1) Earnings (Loss) per Share $0.22 – $0.24 $(0.06) EBITDA $34M-$37M $40.6M(2) (1) Actual results (2) 100% of Optim Energy 31

32. Slide 32: Regulatory Information

    Regulatory Information

33. Slide 33: NMPRC Commissioners and Districts

    NMPRC Commissioners and Districts NMPRC Districts and Term PNM Services Areas Name District Party Ends Jason Marks District 1 2012 Democrat Patrick Lyons District 2 2014 Republican Chairman Douglas Howe (1) District 3 2012 Independent Theresa Becenti-Aguilar District 4 2014 Democrat Vice Chair Ben H

34. Slide 34: Douglas Howe Qualifications

    Douglas Howe Qualifications  30 years of experience in the energy industry with a focus on utilities • Former Vice President of Regulatory Policy at General Public Utilities Service Corp. • Former consultant to the U.S. Nuclear Regulatory Commission • Current consultant to Cambridge Energy Research

35. Slide 35: Utility Rate Base and Return

    Utility Rate Base and Return % of Rate Allowed Equity Test Period (1) Rate Base ROE Increase Base Ratio PNM Retail Current Rates June 30, 2010 $1.8B 89% 51.28% 10.00% $72.1M PNM FERC Transmission Current Rates (2) Dec. 31, 2011 $156.2M 8% 49.40% 12.25% $11.1M PNM FERC Generation (3) Current Rates De

36. Slide 36: Balance Sheet and Credit Metrics

    Balance Sheet and Credit Metrics

37. Slide 37: Selected Balance Sheet Information

    Selected Balance Sheet Information Dec 31, 2010 Sep 30, 2011 Long-Term Debt (incl. current portion) PNM $1,055.7 $1,055.8 TNMP 310.3 $310.8 PNMR 199.8 $199.8 Consolidated $1,565.8 $1,566.3 Total Debt (incl. short-term) (1) PNM $1,245.7 $1,312.8 TNMP 310.3 310.8 PNMR 231.8 231.8 Consolidated $1,787.8

38. Slide 38: Liquidity as of Nov. 1, 2011

    Liquidity as of Nov. 1, 2011 PNM PNM Resources Resources PNM TNMP Consolidated Total Capacity: (in millions) Revolving Credit Facility $300.0 $400.0 $75.0 $775.0 Local lines of credit (LOC) 5.0 - - 5.0 Total Capacity $305.0 $400.0 $75.0 $780.0 As of 11/1/11: LC balances (1) 69.6 (2) 5.2 0.3 75.1 Rem

39. Slide 39: Environmental Compliance

    Environmental Compliance

40. Slide 40: San Juan – BART Timeline

    San Juan – BART Timeline  Proposed Federal Implementation Plan issued in January  Requires SCR technology as BART  PNM estimated costs @ between $750M - $1B (total plant costs) on all four units within three years  Final State Implementation Plan filed with EPA in July  Requires SNCR technology

41. Slide 41: Environmental Control Equipment at Coal Units

    Environmental Control Equipment at Coal Units Activated PNM Share Scrubbers Coal Unit Carbon SNCR (2) SCR (2) Baghouse (3) Capacity (MW) Injection (1) San Juan Unit 1 170 X X X San Juan Unit 2 170 X X X San Juan Unit 3 249 X X X San Juan Unit 4 194 X X X Four Corners Unit 4 97.5 X X Four Corners Uni

42. Slide 42: Impact of Proposed Environmental Regulation

    Impact of Proposed Environmental Regulation Estimated Compliance Costs Comments (PNM Share) San Juan Generating Station EPA approved plan on Aug. 5, Filed petition for review with 10th Circuit and filed request for stay with EPA Clean Air Act – Regional Haze (FIP) – SCR ~$340M - $460M on Sep 16., Fi

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