2016 Analyst Day December 14, 2016

Transcription

1 2016 Analyst Day December 14, 2016

2 Introduction Jimmie Blotter Assistant Treasurer Director, Investor Relations and Shareholder Services

3 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: Guidance / Financial Update Chuck Eldred 11:30 12:00 Wrap Up / Q&A Pat Vincent-Collawn 12:00 1:00 Lunch 3

4 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 ) expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 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, ongoing earnings per diluted share and EBITDA), as well as a reconciliation to GAAP measures, please refer to the Company s website as follows: 4

5 Strategic Overview Pat Vincent-Collawn Chairman, President and CEO

6 PNM Resources Strategic Direction Create enduring value for customers, communities and shareholders Build a Highly Efficient, Customer-Focused and Adaptable Organization Improve Regulatory Outcomes PNM: 2015 and 2016 ReliabilityOne Award recipient PNM: Below regional and national average residential rates PNM: Record-high customer perception survey results TNMP: 11 th consecutive ENERGY STAR Market Leader Award TNMP: Strong record of high reliability TNMP: 60% reduction in 2016 meter reading/estimated billing complaints PNM economic development rate and special renewable energy rate for new customers San Juan Generating Station Plan (BART) approved NMPRC approval of future test year definition FERC formula rate methodology implemented TNMP semi-annual TCOS filings Continue to Invest in the Business Transformation to a more carbon-free generation portfolio well under way Investments in transmission and distribution upgrades, environmental equipment and grid modernization Over $2 billion of capital investments over past 5 years 6

7 PNM Resources Strategic Goals Strategic Financial Goals Earn authorized return on regulated businesses Rate Base Growth Investing aligned to policy directives, reliability, evolving customer needs and transforming industry opportunities Above industry average earnings and dividend growth Earnings Growth Realizing earnings potential in business Reducing regulatory lag Earning our allowed return Maintain solid investment grade credit ratings Dividend Growth Sustaining and growing the dividend Providing above-average dividend growth 7

8 PNM Resources: Staying Focused in a Changing Environment 2017 Integrated Resource Plan San Juan Generating Station Scenarios Transforming PNM s Generation Portfolio Improving Regulatory Environment PNM 2018 General Rate Case PNM AMI Filing TNMP Upcoming General Rate Case Supporting Customer Growth Potential New PNM Customers from Economic Development Efforts Robust Economy in Texas 8

9 PNM Regulatory NM Supreme Court Appeal Appeal filed September 30, General Rate Case Filed December 7, 2016 Requested revenue increase of $99 million with % ROE Based on calendar year 2018 future test year Rates effective January 1, 2018 AMI Filing Suspension lifted December 6, 2016; hearing scheduled February 27, 2017 Distributed Generation Workshops Participation in Notice of Inquiry and workshops to explore impacts of utility-owned distributed generation 9

10 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 Operating Costs and Load Operating costs and retail load have not been updated since 2010 rate case Timing To be filed no later than September 2018 to coincide with AMS filing requirements 10

11 PNM Customer Focus Enhancing the Customer Experience High Reliability Affordability Community Partner Customer Satisfaction Highlights Customer Satisfaction Research and Polling, Inc. survey results New Mexico Economic Development Efforts Secured Facebook data center which opens the door for similar customers to consider NM Legislation Consumer protection 11

12 PNM 2017 Integrated Resource Plan Additional Requirements from BART Agreement Two potential resource portfolios to be included in 2017 IRP One with and one without SJGS Units 1 and 4 continuing operations post-2022 By December 31, 2018, PNM must make a separate NMPRC filing to determine whether SJGS should continue to serve customers Roadmap for meeting customer demand over 20-year horizon, provides foundation for the selection of future resources Solicits and incorporates public input Documents four- year action plan Revisited every three years 2017 IRP submission required by July 3, 2017 Filed with NMPRC for review and acceptance Proposed resources approved separately Determines need to secure remaining Palo Verde leases beyond expiration date 12

13 PNM 2018 General Rate Case Gerard Ortiz Vice President, PNM Regulatory Affairs

14 PNM 2018 General Rate Case Requested revenue increase of $99 million Based on calendar year 2018 and % ROE Revenue Requirement BART items Palo Verde Unit 3 Retirement of San Juan Units 2 & MW San Juan Unit 4 Accelerated depreciation on SNCR equipment Four Corners SCRs T&D reliability and core investments Energy sales Re-allocation of FERC Wholesale Generation & Transmission ROE Rate Design Increase fixed charge Lost Contribution to Fixed Cost mechanism (LCFC) Phase-in implementation Phase I: $50M in 2018 Phase II: $49M in

15 PNM 2018 General Rate Case Drivers Rate Base (in millions) Incremental Revenue Requirement (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 Accelerated Depreciation on San Juan SNCRs - 3 Subtotal BART Items $12 $35 Four Corners SCRs 61 9 Subtotal Compliance Items (44% of requested increase) $73 $44 Core Rate Base, Depreciation and Property Taxes Energy Sales 11 ROE to % from 9.575% 10 Re-allocation of FERC Wholesale Generation & Transmission 12 9 Other 5 Total $118 $99 15

16 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, and distributed generation Industrial usage reflects recent declines Lost Contribution to Fixed Costs (LCFC) Residential Use per Customer (kwh/month) GRC 2018 GRC Energy Efficiency Codes and Standards Distributed Generation LCFC Mechanism: Reimburses lost fixed costs per kwh due to energy efficiency and load management programs Consistent with mechanism described in Hearing Examiner s recommended decision in 2016 general rate case Annual true-up based on verified energy efficiency program savings 16

17 PNM 2018 General Rate Case Bill Impact Forecasted PNM customer bills remain below current national and regional averages Customer Impact Bill Impact (1) Phase I Total Residential 6.4% 12.8% Commercial 4.8% - 5.2% 9.5% % Industrial 4.3% - 5.1% 8.5% % System Average 5.7% 11.2% (1) Bill Impact considers impacts of proposed rates under the 2018 General Rate Case along with Fuel and Purchased Power Cost Adjustment Clause, Renewable Energy Rider and Energy Efficiency Rider changes. The $99 million request represents a non-fuel revenue increase of 14.3%. Proposed rate design continues to reduce residential subsidization Imperial Irrigation District (CA) Modesto Irrigation District (CA) APS (AZ) SRP (AZ) Nevada Power Co (NV) Entergy (TX) City of San Antonio - (TX) PacifiCorp (CA) US Average Bill Region Average Bill PacifiCorp (WA) Black Hills Power Inc (WY) PacifiCorp (OR) PacifiCorp (ID) Idaho Power Co (ID) SDG&E (CA) PG&E (CA) SMUD (CA) PGE (OR) SPS (TX) SCE (CA) TEP (AZ) SPS (NM) Avista Corp (WA) Montana-Dakota Util. (WY) PacifiCorp (UT) PNM (NM) GRC PacifiCorp (WY) Avista Corp (ID) City of Tacoma - (WA) EPE (NM) LADWP (CA) NorthWestern Energy - (MT) City of Colorado Springs - (CO) PNM (NM) - Current PS Colorado (CO) EPE (TX) Montana-Dakota Util. (MT) City of Seattle - (WA) Comparison of Average Residential Bills (2) Western Region Average Bills by Utility $73.19 $84.86 $ $ Current US Avg $ Current Region Avg - PNM 2018 GRC - PNM Current $59.80 $50 $100 $150 (2) PNM rates reflect current approved rates (2016) and proposed rates filed under the 2018 General Rate Increase. All others reflect U.S. Energy Information Administration's Residential Rate increases through June

18 PNM 2018 General Rate Case Timeline Potential Settlement Period 12/7/2016 Rate Case Filed 12/7/2016 thru 10/8/2017 Statutory 9+1 Month Suspension Period 10/8/2017 thru 1/5/ Month Allowance for Additional Consideration by NMPRC 1/1/2018 Expected Effective Date ~January: Expect Hearing Examiner to be assigned and schedule set ~May: Staff and Intervener Testimony ~July: Hearing 18

19 2017 Guidance Chuck Eldred Executive Vice President and CFO

20 Consolidated Earnings Guidance Range (Ongoing) 2016 Narrowed Earnings Guidance (1) $1.60 Consolidated EPS $ Earnings Guidance Midpoint: $1.82 $1.77 Consolidated EPS $1.87 PNM $1.30- $1.37 TNMP $ $0.53 Corp/Other ($0.04) ($0.03) (1) 2016 Ongoing earnings guidance originally $ $1.76. Narrowed to $ $1.65 on August 4, 2016 and $ $1.65 on December 13,

21 New Mexico Economic Conditions 3% Employment Growth Rates New Mexico and Albuquerque Metro (Year-end measurement, except 2016) PNM Customer Counts and Retail Energy Sales 10, ,000 9, ,000 8, ,000 2% 1% Energy Sales (GWh) 7,000 6, , ,000 Total Customers 5, ,000 0% Oct ,000 0 Energy Sales Customers -1% New Mexico Albuquerque Metro 2017 Load Projection (1.0%) 0% (1) 2017 Expected Customer Growth 0.7% (1) Weather-normalized 21

22 PNM Guidance (Ongoing) $1.18 PNM Ongoing EPS $ $1.13 $ $ E 2017E 2016E 2017E Key Performance Drivers Year-over-Year EPS Retail rate relief $0.26 Restructuring cost savings $ $0.10 Transmission $ $0.06 AFUDC $ $0.06 Palo Verde Unit 3 market prices $0.03 Interest expense savings $ weather $0.02 Outage costs $ $0.02 Load ($0.05) - $0.00 Q interest income from IRS, net of fees ($0.02) Palo Verde Nuclear Decommissioning Trust gains ($0.05) FERC Generation Navopache contract ($0.06) O&M increases ($0.07) - ($0.05) Depreciation and property tax ($0.08) - ($0.06) 22

23 Texas Economic Conditions 5% Employment Growth Rates Texas and Dallas Metro (Year-end measurement, except 2016) TNMP End User Counts and Retail Energy Sales 7, ,000 6, ,000 6, ,000 3% Energy Sales (GWh) 5,500 5,000 4,500 4, , , ,000 Total End Users 1% 3,500 3, , , Oct Energy Sales Customers -1% Texas Dallas Metro 2017 Load Projection 2% - 3% (1) 2017 Expected End User Growth 1.6% (1) Weather-normalized 23

24 TNMP Guidance (Ongoing) TNMP Ongoing EPS $0.52 $ $0.53 $ $ E 2017E 2016E 2017E Key Performance Drivers Year-over-Year EPS TCOS rate relief $ $0.05 Load $ $ weather $0.01 O&M increases ($0.01) - $0.00 Interest expense ($0.02) Depreciation and property tax ($0.06) - ($0.05) 24

25 Corporate and Other Guidance (Ongoing) Corporate and Other Ongoing EPS ($0.06) ($0.02) ($0.01) ($0.04) ($0.03) E 2017E 2016E 2017E Key Performance Drivers and Assumptions Year-over-Year EPS Westmoreland financing agreements ($0.02) 25

26 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 $ Quarterly Ongoing Earnings Distribution 47% 16% 24% 13% Q1 2017E Q2 2017E Q3 2017E Q4 2017E 26

27 Earnings Growth Potential Earnings Power supports 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 disallowed assets through New Mexico Supreme Court appeal TNMP growth achieved through continuing capital investment and recovery through general rate case and TCOS filings Corporate/Other includes Westmoreland financing 2017 Guidance Midpoint 2018 Earnings Potential 2019 Earnings Potential Allowed Return / Avg Rate Avg Rate Return EPS Equity Ratio Base Base EPS Avg Rate Base EPS PNM Retail / Renewables 9.575% / 50% $2.3 B 9.3% $1.32 $2.5 B $1.47 $2.5 B $1.46 Supreme Court Appeal $0 - $150 M $ $0.09 PV3 ($0.12) Included in PNM Retail Included in PNM Retail PNM FERC 10% / ~50% $180 M 7.9% $0.09 $245 M $ $0.14 $275 M $ $0.16 Items not in Rates ($0.03) ($0.03) - $0.00 ($0.03) - $0.00 Total PNM $2.6 B $1.33 $2.7 B $ $1.61 $2.7 - $2.9 B $ $1.71 TNMP % / 45% $815 M % $0.52 $890 M $0.53 $965 M $0.56 Corporate/Other ($0.03) ($0.06) - ($0.04) ($0.06) - ($0.04) Total PNM Resources $3.4 B $1.82 $3.6 B $ $2.10 $3.7 - $3.9 B $ $2.23 This table is not intended to represent a forward-looking projection of earnings guidance. Refer to Slide 39 for additional details and disclosures. 27

28 Capital Forecast Total Capital Plan: $2.3B PNM Rate Base CAGR: 4-6% (1) $573 (In millions) TNMP Rate Base CAGR: 8-10% $36 $125 $120 $516 $57 $151 Palo Verde Unit 3 added to rate base $395 $30 $134 $435 $15 $137 Expect future refinements $404 $15 $136 $292 $198 $170 $138 $163 $119 $221 $238 $243 $112 $119 $157 $96 $ PNM Generation PNM T&D TNMP Corporate/Other Depreciation (2) 2020 (1) Includes the addition of PV3 to rate base in 2018, which does not have associated capital spending. (2) The additional 65 MW ownership of San Juan Unit 4 included in the December BART approval is part of Corporate/Other for and PNM beginning in Amounts may not add due to rounding. 28

29 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 PNM TNMP Corporate/ Other PNM Resources Consolidated Financing Capacity as of November 30, 2016: (In millions) Total Capacity (1) $450.0 $75.0 $300.0 $825.0 Less short-term debt (1) and LOC balances $34.9 $0.1 $184.6 $219.6 Plus invested cash Total Available Liquidity $415.1 $74.9 $116.9 $606.9 Moody s S&P PNM Resources Baa3 (2) BBB+ (2) PNM (4) Baa2 BBB+ (3) TNMP A1 (4) A (4) Issuer Outlook Stable Stable PNMR FFO-to-Debt is maintained well within Moody s Baa investment grade target range of 13% to 22% (1) Excludes intercompany debt and term loans (2) Issuer/Corporate rating (3) Senior unsecured (4) Senior secured (5) Reflects estimated principle payments under the Westmoreland financing agreements $682 Long-term Debt Maturities Principal Amounts (in millions) $172 $198 $100 $40 $ Beyond 2020 (5) Corporate PNM TNMP Target regulatory cap structures: 50/50 at PNM, 55/45 at TNMP $233 $859 29

30 Deliver Above Industry Average Earnings and Dividend Growth 7% - 8% Earnings Growth $1.31 $1.41 $0.58 Feb 12 $0.66 Feb 13 $1.49 $0.74 Dec 13 $1.64 $0.80 Dec 14 $1.65 $1.87 $1.60 $1.77 $0.88 Dec 15 $0.97 Dec 16 53% (1) payout ratio E 2017E 2018E 2019E Ongoing EPS Annual common stock dividend raised by 10% to $0.97 (2) per share in December 2016 Expect above industry average dividend growth in the future while targeting the 50% - 60% payout ratio range Next dividend review in December 2017 Indicated Annual Dividends (1) Assumes mid-point of 2017 guidance (2) Indicative annual rate Ongoing EPS represents actual results 2016E Ongoing EPS represents ongoing earnings guidance of $ $1.65 per diluted share 2017E Ongoing EPS represents ongoing earnings guidance of $ $1.87 per diluted share 30

31 Wrap Up Pat Vincent-Collawn Chairman, President and CEO

32 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 credit ratings Work with community partners to enhance economic development and regulatory support Integrated Resource Plan Filing represents milestone in determination of PNM s future generation portfolio PNM Resources Sustainability Portal 32

33 2017 Marks 100 Years of PNM History Albuquerque Gas & Electric Company formed (1917) Bernalillo Sawmill Power Plant generated 2,500 KW (1927) Public Service Company of New Mexico formed (1946) Celebrating 100 years of serving New Mexico (2017) 33

34 Questions & Answers

35 Appendix

36 2017 Assumptions amounts shown are before tax PNM TNMP Corporate/ Other 2017 weather $0 (normal) $0 (normal) N/A Load (1.0%) to 0.0% 1% = $ % to 3.0% 1% = $0.01 N/A Palo Verde Unit 3 sales price ($/MWh) ~$29 N/A N/A Outage costs $14M - $16M N/A N/A PV3 Nuclear Decommissioning Trust gains $10M - $12M N/A N/A Anticipated effective tax rate 36.9% 36.8% 54.3% Average PNM Resources diluted shares outstanding 80.0M 80.0M 80.0M 36

37 PNM Plant Outages and Retirement Schedule Planned Outage Schedule Unit Four Corners Duration in Days Time Period 4 10 Q Q Q3-Q Unit Palo Verde Duration in Days Time Period 3 34 Q Q Q Scheduled Unit Retirements San Juan Unit Time Period 2 12/31/ /31/

38 2016 Consolidated Earnings Guidance Range (Ongoing) 2016 Narrowed Earnings Guidance (1) $1.60 Consolidated EPS $1.65 PNM $ $1.13 TNMP $ $0.53 Corp/Other ($0.02) ($0.01) (1) 2016 Ongoing earnings guidance originally $ $1.76. Tightened to $ $1.65 on August 4, 2016 and $ $1.65 on December 13,

39 Potential Earnings Power Allowed Return / Equity Ratio 2017 Guidance Midpoint 2018 Earnings Potential 2019 Earnings Potential Avg Rate Base Return EPS Avg Rate Base EPS Avg Rate 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 - $150 M $ $0.09 PNM Renewables (3) 9.575% / 50% $95 M 9.575% $0.06 $90 M $0.05 $85 M $0.05 PNM FERC (4) 10% / ~50% $180 M 7.9% $0.09 $245 M $ $0.14 $275 M $ $0.16 PV3 (5) ($0.12) Included in PNM Retail Included in PNM Retail Items not in Rates (6) ($0.03) ($0.03) - $0.00 ($0.03) - $0.00 Total PNM $2.6 B $1.33 $2.7 B $ $1.61 $2.7 - $2.9 B $ $1.71 TNMP (7) % / 45% $815 M % $0.52 $890 M $0.53 $965 M $0.56 Corporate/Other (8) ($0.03) ($0.06) - ($0.04) ($0.06) - ($0.04) Total PNM Resources $3.4 B $1.82 $3.6 B $ $2.10 $3.7 - $3.9 B $ $2.23 (1) Recently authorized 9.575% ROE has been used for all forecasted years. (2) Reflects a range of outcomes for the New Mexico Supreme Court appeal of the August 2015 General Rate Case final order. For purposes of writing down the value of the assets under appeal at Sept. 30, 2016, a minimum 15-month appeal timeframe was used average rate base presented includes: PV2 64MW Acquisition Adjustment (~$75M), PV2 Leasehold Improvements (~$25M) and Balanced Draft Technology (~$50M). (3) PNM Renewables reflect assets collected through the Renewable Rate Rider. (4) PNM FERC earnings potential reflects a return of 7-9% versus the allowed return of 10%, as FERC formula rate methodology uses prior year average rate base and provides for mid-year rate increases. (5) 2017 Earnings Potential assumes a forward market price of $29/MWh; a price of $44/MWh is required to break even. PV3 is included in PNM rates beginning in (6) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, certain incentive compensation, earnings in 2017 associated with the assets previously allocated to the Navopache contract, and the 65MW ownership of San Juan Unit 4 beginning in (7) TNMP Earnings Potential includes $0.02 of Competitive Transition Charge recovery in 2017 and 2018 and $0.01 in (8) Corporate/Other includes earnings associated with the 65MW ownership of San Juan Unit 4 before PNM assumes ownership in 2018, short and intermediate term bank debt, and the net impact of Westmoreland financing through NM Capital Utility Corporation. This table is not intended to represent a forward-looking projection of earnings guidance. EPS 39

40 New Mexico Public Regulation Commissioners District Name Term Ends Party NMPRC Districts and PNM Service Areas District 1 Karen Montoya, Vice Chair 2016 (1) Democrat District 2 Patrick Lyons 2018 Republican District 3 Valerie Espinoza, Chairman 2016 (1) Democrat District 4 Lynda Lovejoy 2018 Democrat District 5 Sandy Jones 2018 Democrat (1) The terms for Karen Montoya and Valerie Espinoza expire in Valerie Espinoza was re-elected to a term ending in Cynthia Hall, Democrat, was elected to the District 1 seat with a term ending 2020 after defeating Karen Montoya in the primary. 40

41 Texas Public Utility Commissioners Name Term Began Term Ends Party Donna Nelson Chairman Aug Sept Republican Kenneth Anderson Sept Aug Republican Brandy Marty Marquez Aug Aug Republican Commissioners are appointed by Governor of Texas. Length of term is determined by the Governor. 41

42 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 (PNM Retail Share, net of ADIT) Commission Order Original Request Impact to Rate Increase ROE 9.575% 10.5% ($17) M Rate Base: Palo Verde Unit 2 lease purchase (64 MW) $55 M (1) $153 M (2) ($15) M Leasehold improvements and common plant associated with the 64 MWs of previously leased Palo Verde Unit 2 capacity Disallowed $26 M ($4) M Balanced Draft Technology Disallowed $39 M ($5) M Five months of CWIP $55 M $55 M No adjustment Pre-Paid pension asset $83 M $83 M No adjustment Other Revenue Requirements: Depreciation Rates $14.2 M $20.6 M ($6.4) M Palo Verde Lease and Property Tax Expense (remaining 114 MW of leased capacity) (1) Reflects 13-month average rate base, equivalent to $1,306/kW (2) Reflects period-end rate base, equivalent to $2,500/kW $19.5 M $19.5 M No adjustment 42

43 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 Capacity Purchase and Units 1 and 2 Lease Extensions San Juan Generating Station Purchase deemed imprudent Extension deemed imprudent Fair market value of purchase disallowed; leasehold improvements rate base disallowed; future responsibility for decommissioning shifted to shareholders Balanced Draft Air permit considered insufficient justification and investment deemed imprudent Rate base disallowed No statutory timeline; New Mexico Supreme Court to set calendar for remaining process Note: At September 30, 2016, the asset value of the Palo Verde and balanced draft investments pending appeal with the New Mexico Supreme Court were reduced by $6.8 million pre-tax to reflect a minimum of fifteen months disallowed recovery during appeal. 43

44 PNM Residential Affordability 4.5% PNM's Residential Affordability Remains Below the National Average 4.0% Est. Average 2015 Residential Electric Bill Es.t 2015 Median Household Income 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% U.S. Average: 2.4% 0.5% 0.0% Sources: EIA Form 826, US Census Bureau PNM bills reflect current approved rates (2016) and proposed rates filed under the 2018 General Rate Case. All others reflect U.S. Energy Information Administration's Forecasted Residential Rate increases through

45 Regulatory Update NMPRC: Filing Action Timing Docket No General Rate Case Filed December 7, 2016 Rates expected to be implemented January 1, UT AMI Suspension lifted December 6, 2016 Hearing scheduled to begin February 27, UT August 2015 General Rate Case FERC: No outstanding filings TNMP: No outstanding filings Appealed to New Mexico Supreme Court on September 30, 2016 Statement of Issues filed by PNM and crossappellants; pending scheduling by court No docket 45

46 PNM San Juan Generating Station Ownership and Participants Current Ownership Unit Total MW PNM MW PNM Ownership % Tucson Electric 50% (170 MW) % Tucson Electric 50% (170 MW) % % Total 1, Ownership Restructuring Changes Unit Owner 2018 MW % 1 PNM Tucson Electric Power Company 4 PNM City of Farmington Los Alamos County UAMPS PNMR Development Company Other Participants/Ownership Southern California Power Authority 41.8% (208 MW) Tri-State 8.2% (41 MW) M-S-R Public Power Agency 28.8% (146 MW) City of Anaheim 10.04% (51 MW) City of Farmington 8.475% (43 MW) Los Alamos County 7.2% (36.5 MW) Utah Associated Municipal Power Systems (UAMPS) 7.028% (35.5 MW) Total Exiting Participants: Southern California Power Authority Tri-State M-S-R Public Power Agency City of Anaheim 46

47 PNM Palo Verde Nuclear Generating Station Unit 1 and 2 Leases MW Owned vs. Leased Unit 1 Owned 2.3% 30 MW Leased 7.9% 104 MW Total 10.2% 134 MW Unit 2 Owned 9.5% 124 MW Leased 0.7% 10 MW Total 10.2% 134 MW Leases Unit 1: January 15, 2015; exercised option to extend leases to 2023 Unit 2: January 15, 2016; exercised right to purchase 3 leases and option to extend one lease to 2024 Yearly Payment Amounts Total PV Unit 1 - $16.5M Total PV Unit 2 - $1.6M 47

48 PNM Investment in Renewable Energy Portfolio Standard as a % of Retail Sales 15% % 2020 New Mexico Renewable Energy Act Streamlined proceedings for approval of utilities renewable energy procurement plans Provides for recovery of program costs under approved procurement plan Renewable Rider Collection Methodology Recovery of renewable investments and REC purchases permitted through Renewable Energy Rider Current Renewable Resources PNM-Owned Renewable Resources 107 MW of solar capacity (1) Solar battery storage facility Purchase Power Agreements (PPA) 204 MW PPA with NextEra Energy s New Mexico Wind Energy Center 102 MW PPA with NextEra Energy s Red Mesa 4 MW PPA with Dale Burgett Geothermal Plant Customer-Owned Solar Facilities 57.3 MW of solar capacity (1) The 40 MW of PNM-owned solar capacity placed in service in 2015 is being recovered through base rates rather than through the Renewable Energy Rider. 48

49 PNM Diversified Generation Portfolio: Capacity Capacity 2,787 MW As of 12/31/2015 Capacity 2018 Forecasted Generation Mix Renewables 15% Coal 35% Renewables 16% Coal 29% Natural Gas 35% Nuclear 15% Natural Gas 40% Nuclear 15% Includes capacity from Purchased Power Agreements 49

50 PNM Diversified Generation Portfolio: Energy Energy 10,763 GWh Based on 12 months ending 12/31/15 Energy 2018 Forecasted Generation Mix Renewables 7% Natural Gas 12% Nuclear 31% Coal 50% Natural Gas 17% Renewables 10% Nuclear 29% Coal 44% Includes energy from Purchased Power Agreements 50

51 Impact of Environmental Regulation- SJGS San Juan Generating Station Clean Air Act Regional Haze (State Alternative) SNCR Clean Air Act National Ambient Air Quality Standards (NAAQS) Estimated Compliance Costs (PNM Share) Minimal remaining costs Included in SNCR Mercury Rules (MATS) None to minimal Testing shows 99% or greater removal. Resource Conservation and Recovery Act Coal Ash Clean Water Act 316(b) Cooling Water Intake Structures Effluent Limitation Guidelines (Wastewater Discharge) Clean Power Plan (CPP) Minimal to some exposure Minimal to some exposure None to minimal exposure Slight exposure Comments Installation of SNCR technology on Units 1 and 4 completed in 2016; retirement of Units 2 and 3 scheduled for Dec. 31, Balanced draft will assist with NAAQS compliance. On Oct. 1, 2015, EPA published the new primary and secondary ozone NAAQS of 70 ppb (from 75 ppb). States and tribes submitted area designations for ozone attainment/non-attainment areas by Oct. 1, By June 1, 2017, EPA will respond to state and tribal recommendations. The state has designated San Juan County in attainment for ozone. EPA published the final coal combustion residuals (CCR) rule on April 20, The rule regulates CCR as a non-hazardous waste under Subtitle D of RCRA. SJGS operations are in compliance with the CCR rule which became effective Oct. 19, The rule does not apply to placement of coal ash in mines Office of Surface Mining (OSM) is expected to issue its own proposed rule (perhaps in 2016 but likely later) and OSM will be influenced by EPA s rule. On Sept. 22, 2015, EPA granted approval to terminate SJGS s National Pollutant Discharge Elimination System ( NPDES ) permit. Although SJGS has been a zero discharge facility for several years, EPA required the plant to maintain a NPDES permit. The cooling water intake structure rule still applies as the plant operates under EPA s NPDES Multi-Sector General Stormwater Permit. PNM is currently working with EPA Region 6 to address any requirements with the next permit renewal which could be issued as soon as EPA published the final Steam Effluent Guidelines Rule on September 30, Because SJGS is zero discharge for wastewater and no longer holds an NPDES process water permit, minimum to no requirements are expected. On Oct. 23, 2015, EPA published the CPP in the Federal Register under section 111(d) of the Clean Air Act. SJGS and PNM s other affected units in NM appear to be well positioned to assist the state in meeting the rule s requirements. Supreme Court stayed the rule pending judicial review by the D.C. Circuit Court. Oral arguments were held Sept. 27, 2016; decision expected in 2017 with Supreme Court appeal and ruling likely to follow. 51

52 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, Impact to PNM: SCR controls $94M SCR for NO x on Units 4 & 5 by July 31, On Oct. 1, 2015, EPA published the new primary and secondary NAAQS for ozone. The standard decreased from 75 ppb to 70 ppb. ). States and tribes submitted area Clean Air Act National Ambient Some to significant exposure designations for ozone attainment/non-attainment areas by Oct. 1, 2016.By June 1, Air Quality Standards (NAAQS) 2017, EPA (1) will respond to state and tribal recommendations. The state has designated San Juan County in attainment for ozone. Mercury Rules (MATS) Slight exposure APS has determined that no additional equipment will be required. Resource Conservation and Recovery Act Coal Ash Clean Water Act 316(b) Cooling Water Intake Structures Effluent Limitation Guidelines (Wastewater Discharge) Slight exposure Some exposure Some exposure EPA published the final coal combustion residuals (CCR) rule on April 20, The rule regulates CCR as a non-hazardous waste under Subtitle D of RCRA. APS will be required to make some modifications to their ash handling operations. APS does not expect the cost impacts of this rule to be material and is currently in discussions with EPA Region 9, the NPDES permit writer for Four Corners, to determine the scope of requirements which will dictate the costs to comply. EPA published the final Steam Effluent Guidelines Rule on Sept. 30, Effluent limitation guidelines restrictions will become effective with the next NPDES permit renewal, which occur in 5-year intervals that arise between 2018 and Until a draft NPDES permit for Four Corners is proposed, APS is uncertain what will be required to control these discharges in compliance with the finalized effluent limitations at that facility. Clean Power Plan (CPP) (2) Some to significant exposure On Oct. 23, 2015, EPA published the CPP in the Federal Register under section 111(d) of the Clean Air Act. Supreme Court stayed the rule pending judicial review of the rule by the D.C. Circuit Court. Oral arguments were held Sept. 27, 2016; decision expected in 2017 with Supreme Court appeal and ruling likely to follow. (1) NMED does not have jurisdiction over Navajo Nation. (2) EPA has proposed to determine that it is necessary or appropriate to impose a federal plan on the Navajo Nation to comply with CPP. 52

53 Investor Relations Contact Information Jimmie Blotter Assistant Treasurer Director, Investor Relations and Shareholder Services U.S Lisa Goodman Investor Relations Manager U.S