June Investor Meetings

Transcription

1 June Investor Meetings June 2015

2 Contact Information and Safe Harbor Statement Investor Relations Contact Information Jimmie Blotter, Director, Investor Relations Lisa Goodman, Manager, Investor Relations U.S U.S Jimmie.Blotter@pnmresources.com Lisa.Goodman@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 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: 2

3 Strategic Overview

4 PNM Resources Overview NYSE Ticker Market Cap PNM $2.1B PNM Resources is a regulated electric utility holding company focused on providing a top quartile total return to shareholders Generation Resources and Service Territories Energy holding company Based in Albuquerque, New Mexico Located in New Mexico 512,960 customers 14,763 miles transmission and distribution lines 2,707 MW generation capacity Top quartile reliability Affordable rates Located in Texas 240,110 end users 9,203 miles transmission and distribution lines Top quartile reliability Affordable rates 4

5 Delivering on Strategic Goals Strategic Goals Earn Authorized Return on Regulated Businesses Maintain Strong Credit Ratings Provide Top Quartile Total Return Well positioned for 7 9% earnings growth and above average dividend growth 5

6 Invest in the Business Strong focus on customers and positive regulatory outcomes allow for earnings and dividend growth through rate base investment Investing in core capital, renewables, environmental control equipment, and replacement power to ensure reliability Rate Base Growth Earnings Growth Realizing earnings potential in business Earning our allowed returns Reducing regulatory lag Sustaining and growing the dividend Providing above average dividend growth Dividend Growth 6

7 5 Year Capital Forecast Total Capital Plan: $2.2B PNM Rate Base CAGR: 5 7% (1) $577 TNMP Rate Base CAGR: 5 7% $33 $121 $79 $134 $515 $20 $93 $89 (In millions) $444 $16 $93 $70 Palo Verde Unit 3 added to rate base $302 $15 $106 $382 $17 $105 $43 $209 $313 $265 $65 $121 $116 $ PNM Generation PNM T&D PNM Renewables TNMP Corporate/Other Depreciation (1) Includes the addition of PV3 to rate base, which does not have associated capital spending. (2) Includes the potential additional 65 MW ownership of San Juan Unit 4. Beginning in 2016, depreciation rates reflect the full rate change included in the previously filed 2016 future test year general rate case Amounts may not add due to rounding (2) 7

8 Rate Base Growth: Investment in Renewable Energy Portfolio Standards 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 PNM Owned Renewable Resources 67 MW of solar capacity Solar battery storage facility Current Purchase Power Agreements (PPA) 204 MW PPA with NextEra Energy s Wind Center 102 MW PPA with NextEra Energy s Red Mesa 4 MW PPA with Lightning Dock Geothermal 2015 Renewable Procurement Plan (1) 40 MW additional owned solar capacity Additional customer owned solar facilities 2019 Renewable Planned Investments 20 MW additional owned solar capacity Customer Owned Solar Facilities (1) Cost recovery for the 40 MW solar project will be through base rates rather than through the Renewable Energy Rider. 8

9 Rate Base Growth: BART Regulatory Process Update BART Component Additional 132 MW of San Juan Unit 4 Settlement Terms Approval of CCN at $26M Hearing Examiner Recommendation Denial of CCN with ability to refile when coal supply and participant restructuring agreements are final Palo Verde Unit 3 Approval of CCN at $1,650/kW Approval of CCN at book value (~$1,071/kW) San Juan Units 2 & 3 SNCR Technology Approval of retirement and recovery of half of the undepreciated investment, estimated to be ~$115M Deferred approval to general rate case Conditional approval of retirement and recovery of half of the undepreciated investment, estimated to be ~$128M Requests affirmative proof of prudence of balanced draft in general rate case BART: Best Available Retrofit Technology SNCR: Selective Non Catalytic Reduction CCN: Certificate of Convenience and Necessity 9

10 BART: San Juan Generating Station Agreements Ownership Restructuring Changes Next Steps Provide executed agreements Hearings Final order Expected Date August 1 ~September ~October/November Coal Supply Agreement Agreement with Westmoreland Coal Company through 2022 with ability to extend Significantly improved pricing Westmoreland would purchase mine January 2016 Unit Owner 1 PNM Tucson Electric Power Company 4 PNM City of Farmington Los Alamos County UAMPS (1) PNMR Development Company 2018 MW Total 847 (1) Utah Associated Municipal Power Systems Exiting Participants: Southern California Power Authority Tri State (2) M S R Public Power Agency City of Anaheim (2) Tri State Generation and Transmission Association, Inc. 10

11 Earnings Growth Targeted earnings growth continues the progress made to date and seeks to maximize the earnings potential of the business 7% 9% Earnings Growth $1.31 $1.41 $1.62 $1.49 $ E 2016E 2017E 2018E 2019E Ongoing EPS actual results represent ongoing earnings per diluted share 2015E represents the ongoing earnings guidance range of $1.50 $1.62 per diluted share 11

12 Earnings Growth: 2016 Potential Earnings Power Allowed Return / Equity Ratio 2015 Guidance Mid Point 2016 Earnings Potential Avg Rate Base Return (1) 2016 Earnings Potential assumes the previously filed 2016 future test year general rate case, effective January 1, (2) Implementation of the 2016 future test year general rate case between July and October 2016 could decrease earnings in (3) PNM FERC is made up of both Transmission and Wholesale Generation business; transmission represents about 75% of rate base. Earnings reflect FERC formula rate methodology, which uses prior year average rate base and assumes mid year rate increases. Earnings Potential assumes returns of 5% 6%. (4) Earnings Potential assumes a 2016 forward market price of $37/MWh. A price of $43/MWh is required to break even in (5) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation and pension related costs associated with the sale of PNM Gas. (6) TNMP EPS includes $0.02 of CTC, which is fully amortized in (7) PNM Resources $119M 9.25% debt was retired May 15, This table is not intended to represent a forward looking projection of 2016 earnings guidance. EPS Avg Rate Base Growth PNM Retail 10% / 50% $2.0 B 8.4% $1.02 $2.4 B $0.47 $1.49 (1) PNM Retail Timing (2) ($0.35) ($0.21) ($0.35) ($0.21) PNM Renewables 10% / 50% $105 M 10.0% $0.07 $100 M ($0.01) $0.06 PNM FERC (3) 9 10% / 50% $235 M 5.5% $0.08 $235 M ($0.01) $0.01 $0.07 $0.09 PV3 (4) ($0.01) ($0.04) ($0.05) Items not in rates (5) $0.02 ($0.06) ($0.03) ($0.04) ($0.01) Total PNM $2.3 B $1.18 $2.7 B $0.00 $0.19 $1.18 $1.37 TNMP (6) % / 45% $680 M % $0.46 $750 M ($0.01) $0.45 Corporate/Other (7) ($0.08) $0.00 $0.02 ($0.08) ($0.06) Total PNM Resources $3.0 B $1.56 $3.5 B ($0.01) $0.20 $1.55 $1.76 (2) EPS

13 Earnings Growth: 2019 Potential Earnings Power 2016 Earnings Potential 2019 Earnings Potential Avg Rate Base EPS Avg Rate Base Growth EPS PNM Retail $2.4 B $1.49 (1) $2.6 B $0.11 $1.60 PNM Retail Timing (2) ($0.35) ($0.21) $0.35 $0.21 $0.00 PNM Renewables $100 M $0.06 $85 M ($0.01) $0.05 PNM FERC (3) $235 M $0.07 $0.09 $270 M $0.01 $0.08 $0.10 PV3 (4) ($0.05) Included in PNM Retail $0.05 Included in PNM Retail Items not in rates (5) ($0.04) ($0.01) $0.03 ($0.01) $0.02 Total PNM $2.7 B $1.18 $1.37 $2.9 B $0.54 $0.40 $1.72 $1.77 TNMP (6) $750 M $0.45 $890 M $0.09 $0.54 Corporate/Other ($0.08) ($0.06) $0.02 ($0.06) ($0.04) (7) Total PNM Resources $3.5 B $1.55 $1.76 (2) $3.8 B $0.65 $0.51 $2.20 $2.27 (1) 2016 Earnings Potential assumes the previously filed 2016 future test year general rate case, effective January 1, (2) Implementation of the 2016 future test year general rate case between July and October 2016 could decrease earnings in (3) PNM FERC is made up of both Transmission and Wholesale Generation business. Transmission represents about 75% of rate base and is recovered through formula rates. (4) PV 3 included in PNM rates starting in (5) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation and pension related costs associated with the sale of PNM Gas. (6) TNMP Earnings Potential includes refinancing $172M of 9.5% debt and $0.01 of CTC in (7) Does not include potential additional 65 MW ownership of San Juan Unit 4 of approximately ($0.02) ($0.03). 13 This table is not intended to represent a forward looking projection of 2016 or 2019 earnings guidance.

14 Dividend Growth: Continued Dividend Increases $ % increase $ % increase Dividend rate: $0.80 (1) Payout ratio: 51% (2) $ % increase Dividend yield: 3.1% (3) $0.80 8% increase Feb'12 Feb'13 Dec'13 Dec'14 The annual common stock dividend raised by 8% in December 2014 to $0.80 per share Expect above industry average dividend growth while targeting the 50% 60% payout ratio range The Board will continue to evaluate the dividend on an annual basis, considering: Sustainability and growth Capital planning Industry standards Next dividend review in December 2015 (1) Indicated annual rate (2) Assumes mid point of the 2015 guidance range (3) Based on 6/22/15 stock price of $

15 PNM Overview

16 PNM: Recent Accomplishments Progressing regulatory environment Retail Renewable Rider implemented in August of 2012 with rates reset annually 2014 revenue was $33 M; 2015 expected revenue is ~$45M Filed settlement on FERC Transmission formula rate case with 10% ROE Rates in effect subject to refund Operational highlights 2014 reliability measure best in 7 years Customer satisfaction metrics reflect significant 5 year gains Increasing credit ratings Credit ratings raised by Moody s to Baa2 with a stable outlook and S&P to BBB with a positive outlook 16

17 PNM Load Growth and Economic Conditions Regulated Retail Energy Sales (weather normalized) % of FY 2014 Sales PNM Q vs. Q Residential 39% 2.0% Commercial 47% (4.0%) Industrial 12% (2.9%) Total Retail (1.3%) 2015 Load Forecast: (2%) 0% PNM Average Customer Growth Q % 2015 Forecast 0.5% Unemployment Rate (1) 6.2% NM 5.5% U.S. Positive Economic Indicators Recent announcements of more than 1,000 new jobs Gross receipts tax increasing in Albuquerque Metro Single sales factor state tax reform (1) U.S. Bureau of Labor Statistics, May

18 PNM Rates Continue to Compare Favorably in the U.S. 4.5% Residential Electric Affordability Estimate by State (Including PNM) US Average Indicated by Dashed Line 4.0% Est. Average 2014 Residential Electric Bill Es.t 2013 Median Household Income 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% US Average: 2.62% 0.5% 0.0% UT CO WA IL DC NH MN CA WY ME PNM MA NJ WI OR RI VT IA ID NM AK VA MI NE MT SD PA CT ND MD KS NY IN MO AZ OH DE NV OK TX WV AR FL KY GA HI NC LA TN SC MS AL Sources: EIA Form 826, US Census Bureau, and PNM Data PNM rates reflect current rates. All others reflect U.S. Energy Information Administration's Forecasted Residential Rate increases through

19 PNM Regulatory Update NMPRC: Filing Action Timing Docket No. BART Filing Filed December 20, 2013 Final approval expected by year end UT General Rate Case Dismissed May 13, 2015 Expect to re file September 1, 2015 with rates expected to be effective Q FERC: Transmission Formula Rates Filed December 31, 2012 Settlement filed March 20, 2015 with rates effective April 1, 2015 TBD ER and ER

20 PNM General Rate Case Future Test Year Upcoming Filing File by September 1, 2015 Test year ~October 2015 September 2016 Rates expected to be effective Q Defined by New Mexico statute and NMPRC Rule as: twelvemonth period beginning no later than the date aproposed rate change is expected to take effect NMPRC Order: future test period begins no later than 45 days after rate application is made PNM appealed this order with the New Mexico Supreme Court on June 25 th Utility appeals are placed at top of docket Filing Date Test Period Date Rates Effective 10 Month Suspension 13 Month Suspension Assuming the current NMPRC Future Test Year interpretation is vacated, the next expected filing would be: December 2016 January 2018 December 2018 January 2018 January 2018 If the current NMPRC Future Test Year interpretation is upheld, the frequency of future filings would be accelerated to minimize regulatory lag: October 2016 November 2016 October 2017 July 2017 October 2017 October 2017 November 2017 October 2018 July 2018 October

21 PNM Regulatory Accomplishments NMPRC Subject Matter Accomplishments 2011 General Rate Case NMPRC approved $72.1 million rate increase; 10.0% ROE (Aug. 2011) Renewable Riders Generation Plant Fuel Clause Renewable Resources Energy Efficiency Rider San Juan Revised State Implementation Plan (Current) NMPRC approved Renewable Energy Rider; rates reset annually to recover projected and true up procurement costs (Aug. 2012) NMPRC approved revised Sky Blue Program using blend of solar and wind for voluntary customer purchases (Dec. 2012) NMPRC approved acquisition of the (formerly Delta Person) Rio Bravo Plant (June 2013) NMPRC approved CCN for the La Luz Energy Center (June 2014) NMPRC approved continuation of fuel clause for four years and quarterly fuel clause factor resets (April 2014) NMPRC has approved construction and cost recovery of 83 MW of PNM owned solar facilities (in 3 cases, most recently 40 MW in Dec. 2014) NMPRC approved recovery of stipulated incentive amount concurrently with EE program costs, subject only to meeting statutory cumulative energy savings (April 2015) PNM New Mexico EPA agreement on Regional Haze plan (Feb. 2013) New Mexico Environmental Improvement Board approved plan (Sept. 2013) PNM s application filed at NMPRC (Dec. 2013) EPA approved Revised State Implementation Plan (Sept. 2014) PNM files Notice that Fuel Agreements and Stock Agreement expected to be approved by August 2015 (June 3, 2015) 21

22 PNM Regulatory Accomplishments FERC Subject Matter 2010 Transmission Rate Case Generation Rate Case 2012 Transmission Rate Case (Current) Accomplishments Settlement filed (July 2012) FERC approved Settlement (Jan. 2013) Application filed to serve Navopache Electric Cooperative (Sept. 2011) Settlement filed; imputed ROE is 10.0% (Dec. 2012) FERC approved Settlement (April 2013) Application filed (Dec. 2012) Settlement filed; imputed ROE is 10.0% (March 2015) FERC approval of Settlement is currently pending; rates implemented, subject to refund 22

23 PNM: Pathway to Continued Success Continue to earn allowed return Minimize regulatory lag through timely rate case filings Synchronize revenues and expenses Use future test year Continue to maintain strong investment grade credit metrics Continue to control costs 23

24 TNMP Overview

25 TNMP: Recent Accomplishments TCOS and DCOS filings provide the ability to recover transmission and distribution cost of service investments on a timely basis TNMP s latest TCOS filing requesting additional revenue of $4.4M was approved with rates effective March 16, 2015 Energy efficiency program costs collected through Energy Efficiency Cost Recovery Factor TNMP has achieved performance bonuses each year since 2010 Smart meter rider approval led to implementation of $12M surcharge collected Credit ratings increased by Moody s to A1 with a stable outlook and S&P to A with a positive outlook 2014 reliability measure best in 10 years 25

26 TNMP Load Growth and Economic Conditions Regulated Retail Energy Sales (weather normalized) % of FY 2014 Sales TNMP Q vs. Q Residential 50% 2.1% Commercial 46% 1.6% Total Retail 1.7% 2015 Load Forecast: 2% 3% Unemployment Rate (1) 5.5% 4.3% TX U.S. TNMP Average Customer Growth TNMP Q % 2015 Forecast 1.0% Positive Economic Indicators Dallas and Houston employment and GDPs rank in top 10 of US metros Residential building permit levels approaching the high levels seen in 2007 The diversified Texas economy leads to continued load growth (1) U.S. Bureau of Labor Statistics, May

27 TNMP Regulatory Update Filing Action Timing Docket No. TNMP TCOS Approved March 16, 2015 Rates effective March 16, TNMP TCOS Expected to file July 2015 Rates expected to be effective September 2015 TBD 27

28 TNMP: Pathway to Continued Success Continue to earn allowed rate of return through timely execution of transmission cost of service and general rate case filings Invest in the business Continue to maintain strong investment grade credit metrics Continue to control costs 28

29 Financial Overview

30 Q Financial Summary Ongoing EPS $0.18 $0.03 PNM $0.01 ($0.01) TNMP Corporate $0.21 Q Q

31 PNM and TNMP: Q vs Q EPS (Ongoing) $0.11 $0.14 Q Q PNM Q Key Performance Drivers EPS Palo Verde Unit 1 leases at half price $0.03 Palo Verde spent fuel reimbursement $0.01 AFUDC $0.01 Refined coal $0.01 Palo Verde Nuclear Decommissioning Trust gains $0.01 Load ($0.01) Depreciation and property tax ($0.01) FERC Generation Gallup contract ($0.01) Other ($0.01) $0.09 $0.10 TNMP Q Key Performance Drivers EPS TCOS rate relief $0.02 Depreciation and property tax ($0.01) Q Q

32 2015 Guidance (Ongoing) 2015 Guidance Range: $1.50 Consolidated EPS $1.62 PNM $1.14 $1.21 TNMP $0.45 $0.48 Corp/Other ($0.09) ($0.07) 32

33 Liquidity and Capital Structure Target cap structures: 50/50 at PNM, 55/45 at TNMP Corporate/ Other PNM Resources Consolidated PNM TNMP Financing Capacity as of April 24, 2015 Total Capacity (1) $450.0 $75.0 $300.0 $825.0 Less short term debt (1) and LOC balances Plus invested cash Total Available Liquidity $446.8 $74.9 $379.7 $901.4 (1) Not included are PNM s fully drawn $175M term loan due 9/4/15, PNM s fully drawn $125M term loan due 6/21/16, Corporate/Other s fully drawn $100M term loan due 12/21/15, and Corporate/Other s fully drawn $150M term loan due 3/9/2018. Total Debt (2) (in millions) Dec 31, 2014 Mar 31, 2015 PNM $1,490.7 $1,490.7 TNMP Corporate/Other (3) Consolidated $2,080.7 $2,225.0 (2) Excludes inter company debt (3) PNM Resources $119 M 9.25% debt was retired May 15, 2015 Amounts may not add due to rounding Long term Debt Maturities (In millions) $214 $157 $172 $511 $173 $ Beyond 2020 PNM TNMP 33

34 Debt Ratings Rate relief, cost control, and tax benefits keep FFO to Debt solidly in Moody s Baa investment grade target range of 13% to 22% Debt Ratings Moody s PNM Resources Ba2 (2) Baa3 (1) PNM (2) Baa3 Baa2 TNMP Baa3 (2) A1 (3) Outlook Negative Stable S&P PNM Resources BB (2) BBB (1) PNM (2) BB+ BBB TNMP BB+ (3) A (3) Outlook Negative Positive 22% PNM Resources FFO to Debt 13% 19% 19% 17% (1) Issuer/Corporate rating (2) Senior unsecured (3) Senior secured E 34

35 PNM Resources Summary Continued earnings and dividend growth make PNM Resources an attractive investment Potential earnings growth of 7% 9% through 2019 Expected rate base CAGR of 5% 7% through 2019 Potential investments beyond 2018: Renewable resources Transmission investments Grid enhancements Purchase remaining 114 MWs of Palo Verde leases Continued above industry average dividend growth Option to increase target payout ratio range after heightened capital spending is complete 35

36 Appendix

37 NMPRC Commissioners and Districts NMPRC Districts and PNM Service Areas District Name Term Ends Party District 1 Karen Montoya, Chairman 2016 Democrat District 2 Patrick Lyons 2018 Republican District 3 Valerie Espinoza 2016 Democrat District 4 Lynda Lovejoy, Vice Chair 2018 Democrat District 5 Sandy Jones 2018 Democrat 37

38 PUCT Commissioners Name Term Began Term Ends Party Donna Nelson Chairman Aug Aug 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. 38

39 TNMP Rates Compare Favorably in Texas $60 Residential Total Wires Charge for 1,000 kwh $50 $40 $30 $20 $10 $ Oncor TNMP AEP North Centerpoint AEP Central Source: TDU tariffs for retail delivery service as of March 1,

40 PNM Diversified Generation Portfolio: Capacity Capacity 2,707 MW As of 1/1/2015 Capacity 2018 Generation Mix based on RSIP Renewables 14% Coal 36% Renewables 16% Coal 26% Natural Gas 35% Nuclear 15% Natural Gas 43% Nuclear 15% 40

41 PNM Diversified Generation Portfolio: Energy Renewables Renewables 5% 5% Energy 10,791 GWh Based on 12 months ending 12/31/14 Energy 2018 Generation Mix based on RSIP Natural Gas 9% Nuclear 31% Coal 54% Natural Gas 11% Renewables 12% Nuclear 33% Coal 46% 41

42 PNM Service Territory and Generation Facilities 42

43 PNM Plant EAF and Outages 76.3% 73.0% 66.8% 68.1% 89.9% 91.8% San Juan Four Corners Palo Verde 12 months ending 3/31/14 12 months ending 3/31/ Outage Schedule Unit Duration in Days San Juan Time Period 4 51 Q Q Four Corners 5 75 Q Q Q1 Q Palo Verde 3 30 Q Q Q Q

44 PNM San Juan Generating Station Ownership and Participants Unit Total MW PNM MW PNM Ownership Other Participants/Ownership % Tucson Electric 50% (170 MW) % Tucson Electric 50% (170 MW) % % Total 1, 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% (37 MW) Utah Associated Municipal Power Systems 7.028% (36 MW) 44

45 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 4.6% 60 MW Leased 5.6% 74 MW Total 10.2% 134 MW Lease Expiration Unit 1: January 15, 2015; exercised option to extend leases to 2023 Unit 2: January 15, 2016; exercised right to purchase 3 leases in 2016 and option to extend one lease to 2024 Yearly Payment Amounts Total PV Unit 1 $33.1M Decreases to $16.5M per year beginning 2015 Total PV Unit 2 $23.7M One lease is extended and that payment will drop from $3.1M to $1.6M beginning

46 Environmental Control Equipment at Coal Units Coal Unit PNM Share Capacity (MW) Low NOx Burners/ Overfired Air Activated Carbon SNCR (2) SCR (2) Baghouse (3) Scrubbers Injection (1) San Juan Unit X X X X X San Juan Unit X X X X San Juan Unit X X X X San Juan Unit X X Four Corners Unit Four Corners Unit Pre 2000 low NOx burnersconsidered outdated Pre 2000 low NOx burnersconsidered outdated Expected 2016 Expected 2018 Expected 2018 X X X X X X (1) Activated carbon injection systems reduce mercury emissions. For San Juan, the installation was completed in 2009, as part of a3 year, $320M environmental upgrade. (2) SNCR refers to selective non catalytic reduction systems. SCR refers to selective catalytic reduction systems. Both systems reduce NOx emissions. (3) Baghouses collect flyash and other particulate matter. For San Juan, the installation was completed in 2009, as part of a 3 year, $320M environmental upgrade. 46

47 Impact of Proposed Environmental Regulation Estimated Compliance Costs (PNM Share) Comments San Juan Generating Station Clean Air Act Regional Haze (1) (State Alternative) SNCR $81M SNCR technology on 2 units; Retire 2 units. Clean Air Act National Ambient Air Quality Standards (NAAQS) Included in SNCR and SCR (1) estimates On November 25, 2014, EPA released a proposed rule that would revise the NAAQS for ground level ozone. The rule would reduce the current primary 8 hour ozone NAAQS from 75 parts per billion (ppb) to between 70 and 65 ppb. Balanced Draft,which has been included in the Regional Haze solution, would assist with compliance with NAAQS. Mercury Rules (MATS) None to minimal Testing shows 99% or greater removal. Resource Conservation and Recovery Act Coal Ash (proposed) Clean Water Act 316(b) Effluent Limitation Guidelines (proposed) Minimal to some exposure Minimal to some exposure Minimal to some exposure EPA issued the final coal combustion residuals (CCR) rule on December 19, The rule regulates CCR as a non hazardous waste under Subtitle D of RCRA. This rule does not apply to placement of coal ash in mines Office of Surface Mining (OSM) is expected to issue its own rule in 2015 and they will likely follow EPA s. PNM is performing analyses based upon EPA s May 19, 2014 ruling on the issue. PNM will work with EPA Region 6 to address 316(b) requirements in SJGS next National Pollutant Discharge Elimination System permit renewal. There is a low expected impact. PNM has reviewed the proposed rule and continues to assess the impact on SJGS. EPA has until September 30, 2015 to issue final effluent limits. 47

48 Impact of Proposed Environmental Regulation Estimated Compliance Costs (PNM Share) Comments Four Corners (Units 4 and 5) Clean Air Act Regional Haze SCR $80M Clean Air Act National Ambient Air Quality Standards (NAAQS) Some to significant exposure Final BART determination filed with EPA on December 30, Impact to PNM: SCR controls for NO x on Units 4 & 5. On November 25, 2014, EPA released a proposed rule that would revise the NAAQS for ground level ozone. The rule would reduce the current primary 8 hour ozone NAAQS from 75 parts PPB to between 70 and 65ppb. APS is unable to predict the impact of the adoption of a new standard. Mercury Rules (MATS) Slight exposure APS has determined that no additional equipment will be required. Resource Conservation and Recovery Act Coal Ash (proposed) Clean Water Act 316(b) Effluent Limitation Guidelines (proposed) Significant exposure Some exposure Some exposure EPA issued the final coal combustion residuals (CCR) rule on December 19, The rule regulates CCR as a non hazardous waste under Subtitle D of RCRA. APS is evaluating the rule on its existing ash impoundments and dry fly ash disposal areas. APS is performing analyses based on EPA s May 19, 2014 ruling on the issue to determine the potential costs of compliance with the proposed rule. APS has reviewed the proposed rule and continues to assess the impact. EPA has until September 30, 2015 to issue final effluent limits. 48

49 EPA s Proposed Clean Power Plan The goal of the plan is an estimated 30% reduction in CO 2 emissions from the U.S. electric power sector in 2030, relative to 2005 levels. Requires each state to develop and implement a state plan to reduce its CO 2 emissions rate to meet state specific standards based on 2012 average emissions rates for all affected fossil fueled units in the state. Issued under the authority of section 111(d) of the Clean Air Act (CAA). Results in a two phased program: Interim emission rate goal for phased in period of New Mexico s required interim reduction of emissions from 2012 will be 30%. Final emissions rate goal must be achieved in 2030 and beyond. New Mexico s required final reduction of emissions from 2012 will be 34%. State goals are based upon 4 building blocks that include: Increase in heat rate efficiency by 6% at fossil fuel power plants Switch to lower emitting combined cycle plants to operate up to 70% Add more RE (assumed 21% RPS for NM) Add more EE (all states increase annual EE savings by 10.5% by 2030) A supplemental proposal for regulating power plants in Indian County under section 111(d) was published on 11/04/14. The proposal sets emission reduction goals based upon building block 1 (heat rate improvements) and building block 4 (a small improvement in demand side energy efficiency). 10 New Mexico Facilities Affected Coal Plants San Juan (PNM) Escalante (Tri State) Natural Gas Combined Cycle Plants Afton (PNM) Luna (PNM) Bluffview (City of Farmington) Hobbs (Xcel) Oil and Gas Steam Plants Reeves (PNM) Cunningham (Xcel) Rio Grande (El Paso) Maddox (Xcel) 49