EEI Financial Conference

Transcription

1 EEI Financial Conference November 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 $2.2B 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 PNM Resources Strategic Direction Strategic Goals Earn Authorized Return on Regulated Businesses Maintain Strong Credit Ratings Above Average Earnings and Dividend Growth Investing in core capital, renewables, environmental control equipment, and replacement power Rate Base Growth Earnings Growth Realizing earnings potential in business Continuing to earn our allowed returns Reducing regulatory lag Sustaining and growing the dividend Providing above average dividend growth Dividend Growth 5

6 Rate Base Growth: Capital Forecast Total Capital Plan: $2.3B $577 PNM Rate Base CAGR: 5 7% (1) TNMP Rate Base CAGR: 7 9% $34 $542 (In millions) $126 $78 $141 $34 $113 $97 $415 $19 $103 Palo Verde Unit 3 added to rate base $398 $14 $113 $132 $100 $351 $15 $117 $198 $298 $161 $171 $127 $ (2) PNM Generation PNM T&D PNM Renewables TNMP Corporate/Other Depreciation (2) (1) Includes the addition of PV3 to rate base, which does not have associated capital spending. (2) The additional 65 MW ownership of San Juan Unit 4 proposed in the BART supplemental stipulation is included in Corporate/Other for and PNM beginning in Beginning in July 2016, depreciation rates reflect the full rate change proposed in the August 2015 General Rate Case filing. Amounts may not add due to rounding. 6

7 Rate Base Growth: BART Regulatory Process Update Regulatory Schedule Hearings Concluded October 20 Hearing Examiner Recommended Decision November Expected Final Order Expected December (1) (1) Pending NM Supreme Court Decision as described below. N.M. Supreme Court Schedule Briefs Filed October 27 Oral arguments November 9 Decision Expected November Additional 132 MW of San Juan Unit 4 Palo Verde Unit 3 San Juan Units 2 & 3 SNCR Technology Terms of Settlement Approval of an unconditional CCN with an initial book value of zero plus SNCR and other capital investments Approval of CCN for 134 MW with an initial rate base value equal to book value (~$1,100/kW) Approval of retirement and recovery of half of the undepreciated investment, estimated to be ~$128M SNCR costs will be fully recovered by June 30, 2022; cost recovery determined in general rate case BART: Best Available Retrofit Technology SNCR: Selective Non Catalytic Reduction CCN: Certificate of Convenience and Necessity 7

8 Rate Base Growth: 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 Wind Center 102 MW PPA with NextEra Energy s Red Mesa 4 MW PPA with Lightning Dock Geothermal Customer Owned Solar Facilities 47.5 MW of solar capacity (1) The 40 MW of PNM owned solar capacity placed in service in 2015 will be recovered through base rates rather than through the Renewable Energy Rider. 8

9 Earnings Growth: 2016 Potential Earnings Power Allowed Return / Equity Ratio 2015 Guidance Mid Point 2016 Earnings Potential Avg Rate Base Return (1) The August 2015 General Rate Case filing proposes a 10.5% ROE. The currently authorized 10% ROE has been used for this presentation. (2) Implementation of the August 2015 General Rate Case between July and October 2016 could decrease earnings potential in (3) PNM Renewables reflect assets collected through the Renewable Rate Rider. (4) Transmission is recovered under the FERC formula rate methodology, which uses prior year average rate base and assumes mid year rate increases, at a 10% ROE. To reflect this inherent lag in the methodology, 2016 earnings potential represents the prior year average rate base and uses an ROE range of 7 9%. (5) 2016 Earnings Potential assumes a forward market price of $29/MWh; a price of $43/MWh is required to break even. (6) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation, and earnings potential associated with the Navopache contract in (7) TNMP EPS includes $0.02 of CTC, which is fully amortized in TNMP allowed returns are based on the most recently filed general rate case. Changes in certain factors, including load growth and lower debt costs, present opportunities for further potential. (8) Corporate/Other includes the 65MW ownership of San Juan Unit 4 before 2018 and short and intermediate term bank debt. 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 (1) 10% / 50% $2.0 B 7.5% $0.97 $2.4 B $0.52 $1.49 PNM Retail Timing (2) ($0.38) ($0.22) ($0.38) ($0.22) PNM Renewables (3) 10% / 50% $135 M 10.0% $0.08 $100 M ($0.02) $0.06 PNM FERC (4) 10% / ~50% $230 M 5.5% $0.08 $180 M $0.00 $0.02 $0.08 $0.10 PV3 (5) ($0.02) ($0.10) ($0.12) Items not in rates (6) $0.03 ($0.03) $0.00 $0.00 $0.03 Total PNM $2.3 B $1.14 $2.7 B ($0.01) $0.20 $1.13 $1.34 TNMP (7) % / 45% $650 M % $0.52 $750 M ($0.07) $0.45 Corporate/Other (8) ($0.08) $0.00 $0.02 ($0.08) ($0.06) Total PNM Resources $3.0 B $1.58 $3.4 B ($0.09) $0.14 $1.50 $1.73 EPS

10 Earnings Growth: 2017 and 2019 Potential Earnings Power 2017 Earnings Potential 2019 Earnings Potential Avg Rate Base EPS Avg Rate Base EPS PNM Retail (1) $2.4 B $1.49 $2.5 B $1.59 PNM Renewables (2) $95 M $0.06 $85 M $0.05 PNM FERC (3) $185 M $0.08 $0.10 $275 M $0.12 $0.15 PV3 (4) ($0.10) Included in PNM Retail Included in PNM Retail Items not in rates (5) $0.01 $0.04 ($0.01) $0.05 Total PNM $2.7 B $1.54 $1.59 $2.9 B $1.75 $1.84 TNMP (6) $805 M $0.48 $935 M $0.56 Corporate/Other (7) ($0.08) ($0.06) ($0.06) ($0.04) Total PNM Resources $3.5 B $1.94 $2.01 $3.8 B $2.25 $2.36 (1) The August 2015 General Rate Case filing proposes a 10.5% ROE. The currently authorized 10% ROE has been used for this presentation. (2) PNM Renewables reflect assets collected through the Renewable Rate Rider. (3) Transmission is recovered under the FERC formula rate methodology, which uses prior year average rate base and assumes mid year rate increases, at a 10% ROE. To reflect this inherent lag in the methodology, 2017 and 2019 earnings potential represents the prior year average rate base and uses an ROE range of 7 9%. (4) 2017 Earnings Potential assumes a forward market price of $31/MWh; a price of $44/MWh is required to break even. PV3 is included in PNM rates beginning in (5) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation, earnings potential associated with the Navopache contract in 2017, and the 65MW ownership of San Juan Unit 4 in (6) TNMP Earnings Potential includes $0.02 and $0.01 of CTC in 2017 and 2019, respectively. TNMP allowed returns are based on the most recently filed general rate case. Changes in certain factors, including load growth and lower debt costs, present opportunities for further potential Earnings Potential includes the refinancing $172M of 9.5% debt for $0.02. (7) Corporate/Other includes the 65MW ownership of San Juan Unit 4 before 2018 and short and intermediate term bank debt. This table is not intended to represent a forward looking projection of 2017 or 2019 earnings guidance. 10

11 Earnings Growth: Above Average Growth Through 2019 Targeted earnings growth continues the progress made to date and seeks to maximize the earnings potential of the business 7% 9% Earnings Growth $1.61 $1.31 $1.41 $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 $1.56 $1.61 per diluted share 11

12 Dividend Growth: Continued Dividend Increases 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 Dividend rate: $0.80 (1) Payout ratio: 51% (2) Dividend yield: 2.8% (3) (1) Indicated annual rate (2) Assumes mid point of the revised 2015 guidance range (3) Based on 11/3/15 stock price of $28.09 Next dividend review in December 2015 $0.50 $ % increase $ % increase $ % increase $0.80 8% increase Jul '08 Feb '12 Feb'12 Feb'13 Dec'13 Dec' Declared Dividends 12

13 PNM Overview

14 PNM: Recent Accomplishments Progressing regulatory environment Retail Renewable Rider implemented in August of 2012 with rates reset annually 2014 revenue was $33.5M; 2015 expected revenue is ~$43M Filed settlement on FERC Transmission formula rate case with 10% ROE Rates in effect, subject to refund Operational highlights 2015 ReliabilityOne Award recipient, recognizing exceptional reliability among midsized investor owned utilities 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 14

15 PNM Load Growth and Economic Conditions Regulated Retail Energy Sales (weather normalized) % of FY 2014 Sales PNM Q vs. Q YTD 2015 vs. YTD 2014 Residential 39% (1.1%) 0.0% Commercial 47% (2.6%) (2.2%) Industrial 12% 0.0% (3.5%) Total Retail (1.7%) (1.4%) 2015 Load Forecast: (2%) 0% Average Customer Growth Q vs. Q YTD 2015 vs. YTD Forecast PNM 0.8% 0.7% 0.5% 2.5% 2.0% 1.5% 1.0% 0.5% Employment Growth (1) 12 Month Rolling Average 2.0% 1.7% 0.0% 09/12 10/12 11/12 12/12 01/13 02/13 03/13 04/13 05/13 06/13 07/13 08/13 09/13 10/13 11/13 12/13 01/14 02/14 03/14 04/14 05/14 06/14 07/14 08/14 09/14 10/14 11/14 12/14 01/15 02/15 03/15 04/15 05/15 06/15 07/15 08/15 09/15 Albuquerque U.S. (1) U.S. Bureau of Labor Statistics, September

16 PNM Regulatory Update NMPRC: Filing Action Timing Docket No. BART Filing Filed December 20, 2013 Final approval expected Q UT NMPRC 2016 Renewable Plan Filed June 1, 2015 Final approval expected November UT San Juan Generating Station Natural Gas Plant CCN Application Filed June 30, 2015 Future Test Year Notice of Inquiry Issued July 15, 2015 August 2015 General Rate Case Filing FERC: Transmission Formula Rates Navopache Wholesale Generation Contract Filed August 27, 2015 Filed November 3, 2015 to vacate the current procedural schedule for testimony and public hearing and hold the case in abeyance pending further review of the size of the proposed gas plant Closed on August 5, 2015 pending NM Supreme Court action Rates expected to be implemented Q Filed December 31, 2012 Settlement filed March 20, 2015 with rates effective April 1, UT UT UT ER & ER Filed April 8, 2015 Settlement filed October 29, 2015 EL

17 PNM 2015 General Rate Case Requested revenue increase of $123.5 million Based on Oct Sept test year and 10.5% ROE Average system impact of 5.4%, including the new coal contract and other changes Operations Rate Base New Generation: 40 MW Solar 40 MW La Luz Gas Peaker Rio Bravo Generating Station SNCR Equipment, including Balanced Draft Palo Verde Unit 2 Lease Purchases T&D Reliability and Core Investments Depreciation Rate Change 50% Reduction of Remaining Palo Verde Units 1&2 Lease Payments Other O&M Changes Energy Sales Rate Design Customer Class Allocations Higher Fixed and Demand Charges Decoupling Timeline Rate case filed August 27, 2015 with rates expected to be implemented Q month suspension period allows rates to be implemented July 1 13 month suspension period allows rates to be implemented Sept. 1 17

18 PNM Rate Affordability PNM's Residential Affordability Continues to be Among the Best in the Nation 5.0% 4.5% 4.0% Est. Average 2014 Residential Electric Bill Est Median Household Income 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% U.S. Average: 2.5% 0.0% Sources: EIA Form 826, US Census Bureau PNM rates reflect current rates (2014) and the combined impacts of the August 2015 General Rate Case filing, existing riders and fuel clause, and the new coal contract with Westmoreland Coal Company (2016). All others reflect U.S. Energy Information Administration's Forecasted Residential Rate increases through

19 PNM Future Test Year Definition Defined by New Mexico statute and NMPRC Rule as: twelve month 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 Joint Motion filed by PNM and the NMPRC for a limited 30 day stay and remand of the FTY appeal on July 31 st Schedule of the appeal is pending Court decision on remand request 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. Two rates cases would be filed during this time frame: the first in 2016 with rates implemented in 2017 and the second filed in 2017 with rates implemented in

20 PNM Regulatory Accomplishments Subject Matter Accomplishments NMPRC: 2011 General Rate Case NMPRC approved $72.1 million rate increase; 10.0% ROE (Aug. 2011) NMPRC approved Renewable Energy Rider; rates reset annually to recover projected and true up procurement costs (Aug. 2012) Renewable Riders 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) Generation Plant 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 Fuel Clause 2014) NMPRC has approved construction and cost recovery of 83 MW of PNM owned solar facilities (in 3 cases, Renewable Resources most recently 40 MW in Dec. 2014) NMPRC approved recovery of stipulated incentive amount concurrently with EE program costs, subject only Energy Efficiency Rider to meeting statutory cumulative energy savings (April 2015) On June 29, 2015, PNM filed for authorization to issued up to $300 million in Senior Unsecured Notes; Financing NMPRC approved received on August 5, 2015 FERC: Settlement filed (July 2012) 2010 Transmission Rate Case FERC approved Settlement (Jan. 2013) Application filed to serve Navopache Electric Cooperative (Sept. 2011) Generation Rate Case Settlement filed; imputed ROE is 10.0% (Dec. 2012) FERC approved Settlement (April 2013) Application filed (Dec. 2012) 2012 Transmission Rate Case Settlement filed; imputed ROE is 10.0% (March 2015) (Current) Settlement is currently pending; rates implemented, subject to refund 20

21 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 21

22 TNMP Overview

23 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 $1.4M was approved with rates effective September 10, 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 23

24 TNMP Load Growth and Economic Conditions TNMP Regulated Retail Energy Sales (weather normalized) % of FY 2014 Sales Q vs. Q YTD 2015 vs. YTD 2014 Residential 50% 1.7% 3.5% Commercial 46% 1.6% 2.1% Total Retail 1.5% 2.7% 2015 Load Forecast: 2% 3% Average Customer Growth Q vs. Q YTD 2015 vs. YTD Forecast TNMP 1.4% 1.5% 1.0% 5.0% Employment Growth (1) 12 Month Rolling Average 4.0% 3.0% 2.0% 1.0% 3.2% 2.0% 1.2% 0.0% 09/12 10/12 11/12 12/12 01/13 02/13 03/13 04/13 05/13 06/13 07/13 08/13 09/13 10/13 11/13 12/13 01/14 02/14 03/14 04/14 05/14 06/14 07/14 08/14 09/14 10/14 11/14 12/14 U.S. Dallas Houston 01/15 02/15 03/15 04/15 05/15 06/15 07/15 08/15 09/15 (1) U.S. Bureau of Labor Statistics, September

25 TNMP Regulatory Accomplishments Subject Matter PUCT: Transmission Cost of Service (TCOS) Accomplishments 2015 PUCT approved $1.4M increase, effective September 2015 PUCT approved $4.4M increase, effective March PUCT approved $4.2M increase, effective September 2014 PUCT approved $2.9M increase, effective March PUCT approved $2.9M increase, effective March PUCT approved $2.5M increase, effective September 2012 Advanced Metering Systems PUCT approved $12M rate rider, effective August 2011 (AMS) General Rate Case PUCT approved $10.25M base rate increase, implemented February

26 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 Additional investments in the business to support strong growth Continue to maintain strong investment grade credit metrics Continue to control costs 26

27 Financial Overview

28 2015 Guidance (Ongoing) Original 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) Narrowed 2015 Guidance Range: (1) $1.56 Consolidated EPS $1.61 PNM $1.13 $1.16 TNMP $0.51 $0.52 Corp/Other ($0.08) ($0.07) (1) Narrowed range on Oct. 30,

29 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 October 23, 2015 (In millions) 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 $480.9 $54.9 $304.8 $840.6 (1) Does not include intercompany debt and the following other short term debt: PNM s fully drawn $125M term loan due 6/21/16 Corporate/Other s fully drawn $100M term loan due 12/21/15 Total Debt (2) (in millions) Dec 31, 2014 Sep 30, 2015 PNM $1,490.7 $1,590.0 TNMP Corporate/Other Consolidated $2,080.7 $2,208.0 (2) Excludes inter company debt Amounts may not add due to rounding Long term Debt Maturities (In millions) $214 $182 $172 $173 $511 $150 $ Beyond 2020 Corporate PNM TNMP 29

30 Credit 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% Credit Ratings Moody s PNM Resources Ba2 (2) Baa3 (1) PNM (2) Baa3 Baa2 TNMP Baa3 (2) A1 (3) Issuer Outlook Negative Stable S&P PNM Resources BB (2) BBB (1) PNM (2) BB+ BBB (2) TNMP BB+ (3) A (3) Issuer Outlook Negative Positive 22% PNM Resources FFO to Debt 13% 19% 19% 17% (1) Issuer/Corporate rating (2) Senior unsecured (3) Senior secured E 30

31 Q3 YTD 2015 Financial Summary Ongoing EPS $1.25 $0.11 PNM $0.05 TNMP $1.41 Q3 YTD 2014 Q3 YTD

32 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: PNM: 5% 7% through 2019 TNMP: 7% 9% through 2019 Potential investments beyond 2019: 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 32

33 Appendix

34 Q Financial Summary Ongoing EPS $0.68 $0.05 $0.02 $0.01 TNMP Corporate PNM $0.76 Q Q

35 PNM General Rate Case Drivers and Other Impacts to Customer Rates Revenue requirement driven by rate base additions and energy sales Amount (in millions) Rate Base $95 Energy Sales 31 Other: 50% Reduction of Remaining Palo Verde Lease Payments (17) Change in ROE from 10% to 10.5% 6 Re allocation of Gallup costs 10 Fuel Handling (Moved to Fuel Clause) (7) Other O&M Changes 3.5 Subtotal Other $(4.5) Total Non Fuel Revenue Deficiency $121.5 Projected Fuel 2.0 Total Revenue Deficiency per Filing $123.5 Other Impacts to Customer Rates (1) (71.5) Increase to Annual Customer Rates $52.0 (1) Includes the combined impacts of the new coal contract with Westmoreland Coal Company (pending BART approval), existing riders and fuel clause that begin as early as January 1,

36 PNM General Rate Case Drivers: Rate Base Rate Base Additions Incremental Revenue Requirement (Retail share, in millions) Solar (40 MW) $65 $11 La Luz Gas Peaker (40 MW) 50 8 Rio Bravo Generating Station (138 MW) (1) 32 San Juan SNCR Equipment & Balanced Draft 58 9 Palo Verde Unit 2 Lease Purchase (64 MW) Core Rate Base Growth Five Months of CWIP (2) 55 6 Core Depreciation and Property Taxes 21 Update to Depreciation Rates 21 Total increase due to rate base items $655 $95 (1) Acquisition of Rio Bravo Generating Station is included in filing, but is neutral from a revenue requirement perspective (2) Represents Construction Work in Progress (CWIP) assets placed into service between October 2016 and February

37 PNM Customer Rate Impact as of July 1, 2016 Major Customer Class Rate % Increase per Request Rate % Increase Including Fuel and Other Changes (1) Residential 15.8% 7.9% Small Power 14.4% 7.0% General Power 14.5% 5.2% Large Power 14.2% 2.8% Large Power >= 8,000kW 9.4% (2.6)% Universities 9.3% (2.4)% Manufacturing 9.4% (4.8)% System Total 14.4% 5.4% (1) Includes the combined impacts of the August 2015 General Rate Case filing, existing riders and fuel clause, and the new coal contract with Westmoreland Coal Company (pending BART approval). 37

38 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 38

39 PUCT Commissioners Name Term Began Term Ends Party Donna Nelson Chairman Aug Sep Republican Kenneth Anderson Sept Aug Republican Brandy Marty Marquez Aug Aug Republican Commissioners are appointed by the Governor of Texas. Length of term is determined by the Governor. 39

40 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,

41 PNM Diversified Generation Portfolio: Capacity Capacity 2,707 MW As of 1/1/2015 Capacity 2018 Forecasted Generation Mix Renewables 14% Coal 36% Renewables 16% Coal 29% Natural Gas 35% Nuclear 15% Natural Gas 40% Nuclear 15% 41

42 PNM Diversified Generation Portfolio: Energy Renewables Renewables 5% 5% Energy 10,791 GWh Based on 12 months ending 12/31/14 Energy 2018 Forecasted Generation Mix Natural Gas 9% Nuclear 31% Coal 54% Natural Gas 11% Renewables 12% Nuclear 33% Coal 46% 42

43 PNM Plant EAF and Outages 77.0% 69.1% 67.3% 72.2% 89.5% 92.1% San Juan Four Corners Palo Verde 12 months ending 9/30/14 12 months ending 9/30/ Outage Schedule Unit Duration in Days San Juan Time Period 4 50 Q Q Q1 Q Four Corners Q Q Q1 Q Palo Verde Q 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 current Owned 4.6% 60 MW Leased 5.6% 74 MW Total 10.2% 134 MW Unit 2 after 2016 purchases (1) Owned 9.5% 124 MW Leased 0.7% 10 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 The purchase of 64MW in 2016 is included in the August General Rate Case Filing in addition to the currently owned 60 MW One remaining lease is extended and its payment will drop from $3.3M to $1.6M beginning 2016 (1) In 2016, 64 MW of Unit 2 leases are purchased for $163.3M. 45

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 Expected 2016 X X San Juan Unit X X X X San Juan Unit X X X X San Juan Unit X X Four Corners Unit Pre 2000 low NOx burnersconsidered outdated Expected 2016 Expected 2018 X X X X Four Corners Unit Pre 2000 low NOx burnersconsidered outdated Expected 2018 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 Environmental Regulation SJGS San Juan Generating Station Clean Air Act Regional Haze (1) (State Alternative) SNCR Clean Air Act National Ambient Air Quality Standards (NAAQS) Estimated Compliance Costs (PNM Share) Comments $78M SNCR technology on 2 units; Retire 2 units. Included in SNCR and SCR (1) estimates 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) Minimal to some exposure Minimal to some exposure None to minimal exposure (1) The additional 65 MW ownership of San Juan Unit 4 proposed in the BART supplemental stipulation is included in Corporate/Other for and PNM beginning in Balanced draft will assist with NAAQS compliance. On October 1, 2015, EPA published the new primary and secondary ozone NAAQS. The standard decreased from 75 ppb to 70 ppb. EPA and NMED will initiate a 2 year process to determine attainment/non attainment areas. It is uncertain at this time if San Juan County will become non 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 October 19, The 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 OSM will be influenced by EPA s rule. On September 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 will work with EPA Region 6 to address any requirements. 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. 47

48 Impact of Environmental Regulation Four Corners Four Corners (Units 4 and 5) Estimated Compliance Costs (PNM Share) Clean Air Act Regional Haze SCR $91M Clean Air Act National Ambient Air Quality Standards (NAAQS) Some to significant exposure Comments Final BART determination filed with EPA on December 30, Impact to PNM: SCR controls for NO x on Units 4 & 5. On October 1, 2015, EPA published the new primary and secondary NAAQS for ozone. The standard decreased from 75 ppb to 70 ppb. EPA (1) will initiate a 2 year process to determine attainment/non attainment areas. It is uncertain at this time if San Juan County will become non 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) Some to significant 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 is in discussion with EPA Region 9, the NPDES permit writer for Four Corners, to determine the scope of requirements to achieve compliance with the 316(b) cooling water intake rule. APS does not believe that changes to plant operations will be material. EPA published the final Steam Effluent Guidelines Rule on September 30, Four Corners is uncertain what will be required to ensure compliance until a draft NPDES permit is proposed between 2018 and 2023 but believes compliance costs will not be material. (1) NMED does not have jurisdiction over Navajo Nation. It is uncertain if and how EPA will engage NMED in determining attainment/nonattainment designations for those areas of San Juan County that fall on the Navajo Nation. 48

49 Clean Power Plan On October 23, 2015, EPA published in the Federal Register the final Clean Power Plan (CPP) under section 111(d) of the Clean Air Act. Projected outcome = 32% reduction in CO 2 in the U.S. from 2005 levels by 2030 Final guidelines require states to regulate CO 2 emissions from existing fossil generating units. The CPP establishes uniform national emission rates 1305 lb CO 2 /MWh for coal/oil and 771 lb CO 2 /MWh for natural gas combined cycle. Rates are applied to each state to create state goals based upon generation mix. Compliance starts in 2022 with the final goal to be met in 2030 and beyond. For New Mexico, 36% reduction (rate based) and 28% reduction (mass based) from 10 affected facilities state wide by Shutdown of two units at SJGS will reduce annual CO 2 emissions by approximately 5 to 6 M tons beginning in 2018 and is a significant step to allow NM to achieve compliance. States (including NM) main job is to apply emissions limits to units and decide whether to allow trading. The Clean Power Plan allows states to Be flexible with respect to timing and source of reductions, Choose rate based or mass based compliance, Choose what limits to impose on units, Take on some of the units burdens under the mass based system (trade among affected units or with other states), and Have the ability to trade emission reduction credits (ERCs) under a rate based system or allowances under a mass based system. 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