Investor Presentation

Transcription

1 Investor Presentation March 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, ongoing earnings per diluted share, and ongoing EBITDA), 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 $2.4B 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 our Regulated Businesses TNMP continues to earn its allowed return PNM is expected to earn its allowed return in 2016 Continue to Improve Credit Ratings PNM Resources is on positive outlook at both S&P and Moody s Provide Top Quartile Total Return On track to deliver 10% 13% total return by 2016 Well positioned for above average EPS and dividend growth in the future 5

6 Invest in the Business Positive regulatory outcomes allow for earnings and dividend growth through rate base investment Earnings Growth Investing in core capital, renewables, environmental control equipment, and replacement power Rate Base 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 Rate Base Growth: 5 Year Capital Forecast Total Capital Plan: $2.2B $569 $24 $514 (In millions) PNM Rate Base CAGR: 5 7% (1) TNMP Rate Base CAGR: 5 7% $121 $79 $122 $19 $93 $95 $444 $15 $93 $63 Palo Verde Unit 3 added to rate base $165 $300 $14 $380 $15 $105 $106 $43 $222 $308 $272 $65 $121 $115 $ PNM Generation PNM T&D PNM Renewables TNMP Other Depreciation (1) Includes the addition of PV3 to rate base, which does not have associated capital spending. Beginning in 2016, depreciation rates reflect the full rate change included in the 2016 future test year general rate case filing Amounts may not add due to rounding 7

8 Rate Base Growth: Investment in Renewable Energy Portfolio Standards as a % of Retail Sales 10% % % 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 Settlement Update RSIP and Proposed BART Settlement Key Components Next Steps: March/April 2015: Hearing Examiner Recommended Decision expected Q2 2015: Final Order expected Installation of SNCR technology on San Juan Units 1 and 4 ($81M) Retirement of San Juan Units 2 and 3 and recovery of half of the 12/31/17 undepreciated investments (expected to be ~$115M) CCNs for 134 MW Palo Verde Unit 3 ($1,650/kW) and 132 MW of San Juan Unit 4 ($26M) effective 1/1/18 Recovery in: RSIP: Revised State Implementation Plan BART: Best Available Retrofit Technology SNCR: Selective Non Catalytic Reduction Other Proposed Power Resources (1) 177 MW gas peaker ($189M) MW solar facility (2) ($79M) 2016 (1) Not included in the Proposed BART Settlement (2) Included in 2016 future test year general rate case filing 9

10 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 10

11 Earnings Growth: 2016 Potential Earnings Power Allowed Return / Equity Ratio 2015 Guidance Mid Point 2016 Earnings Potential Avg Rate Base Return (1) The 2016 Future Test Year Rate Case proposes a 10.5% ROE. As this rate case has not yet been approved, the currently authorized 10% ROE has been used for this presentation. (2) 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. Potential Earnings Power assumes returns of 5% 6%. (3) The potential earnings power assumes a 2016 forward market price of $37/MWh. A price of $43/MWh is required to break even in (4) 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. (5) TNMP EPS includes $0.02 of CTC, which is fully amortized in (6) PNM Resources $119 M 9.25% debt matures May 15, This table is not intended to represent a forward looking projection of 2016 earnings guidance. 11 EPS Avg Rate Base Growth PNM Retail (1) 10% / 50% $2.0 B 8.4% $1.02 $2.4 B $0.47 $1.49 PNM Renewables 10% / 50% $105 M 10.0% $0.07 $100 M ($0.01) $0.06 PNM FERC (2) 9 10% / 50% $235 M 5.5% $0.08 $235 M ($0.01) $0.01 $0.07 $0.09 PV3 (3) ($0.01) ($0.04) ($0.05) Items not in rates (4) $0.02 ($0.06) ($0.03) ($0.04) ($0.01) Total PNM $2.3 B $1.18 $2.7 B $0.35 $0.40 $1.53 $1.58 TNMP (5) % / 45% $680 M % $0.46 $750 M ($0.01) $0.45 Corporate/Other (6) ($0.08) $0.00 $0.02 ($0.08) ($0.06) Total PNM Resources $3.0 B $1.56 $3.5 B $0.34 $0.41 $1.90 $1.97 EPS

12 Earnings Growth: 2019 Potential Earnings Power 2016 Earnings Potential 2019 Earnings Potential Avg Rate Base EPS Avg Rate Base Growth EPS PNM Retail (1) $2.4 B $1.49 $2.6 B $0.11 $1.60 PNM Renewables $100 M $0.06 $85 M ($0.01) $0.05 PNM FERC (2) $235 M $0.07 $0.09 $270 M $0.01 $0.08 $0.10 PV3 (3) ($0.05) Included in PNM Retail $0.05 Included in PNM Retail Items not in rates (4) ($0.04) ($0.01) $0.03 ($0.01) $0.02 Total PNM $2.7 B $1.53 $1.58 $2.9 B $0.19 $1.72 $1.77 TNMP (5) $750 M $0.45 $890 M $0.09 $0.54 Corporate/Other ($0.08) ($0.06) $0.02 ($0.06) ($0.04) Total PNM Resources $3.5 B $1.90 $1.97 $3.8 B $0.30 $2.20 $2.27 (1) The 2016 Future Test Year Rate Case proposes a 10.5% ROE. As this rate case has not yet been approved, the currently authorized 10% ROE has been used for this presentation. (2) 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. Potential Earnings Power assumes returns of 5% 6%. (3) PV3 included in PNM Retail rates starting in (4) 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. (5) TNMP EPS includes refinancing $165M of 9.5% debt and $0.01 of CTC in CTC is fully amortized in This table is not intended to represent a forward looking projection of 2016 or 2019 earnings guidance. 12

13 Dividend Growth: Continued Dividend Increases $ % increase $ % increase Dividend rate: $0.80 (1) Payout ratio: 51% (2) $ % increase Dividend yield: 2.9% (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 3/6/15 stock price of $

14 PNM Overview

15 PNM: Recent Accomplishments Increasing credit ratings Credit ratings raised by Moody s to Baa2 with a positive outlook and S&P to BBB with a positive outlook Retail Renewable Rider implemented in August of 2012 with rates reset annually 2014 revenue was $33 M; 2015 expected revenue is ~$45 M Future Test Year construct in place Improving regulatory environment in New Mexico Qualification requirements enacted for future NMPRC Commissioners Analysts comments have noted an improvement in the New Mexico regulatory environment Reached proposed settlement on BART filing that diversifies generation portfolio 2014 reliability measure best in 7 years Customer satisfaction metrics reflect significant 5 year gains 15

16 PNM Load Growth and Economic Conditions Regulated Retail Energy Sales (weather normalized) PNM % of FY 2014 Sales Q vs. Q YE 2014 vs. YE 2013 Residential 39% (1.0%) (0.7%) Commercial 47% (1.7%) (1.3%) Industrial 12% 1.9% (5.5%) Total Retail (0.9%) (1.7%) 2014 Revised Load Forecast: (3%) (2%) 2015 Load Forecast: (2%) 0% PNM Average Customer Growth 2014 Actual 0.6% 2014 Forecast 0.5% 2015 Forecast 0.5% Unemployment Rate 6.1% (1) 5.5% (2) NM 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, December 2014 (2) U.S. Bureau of Labor Statistics, February

17 PNM Regulatory Update Filing Filing Action Action Timing Timing Docket No. Docket No. NMPRC: BART Filing Filed December 20, Proposed settlement filed October 1, UT BART Filing Filed December , 2013 Proposed 2014settlement filed October 1, UT Final approval Final approval expected expected Q Q Renewable Plan Filed June 2, 2014 Final approval received November 26, UT 2015 Renewable Plan Filed June 2, 2014 Final approval received November 26, UT Future Test Year Filed December 11, 2014 Rates expected to be effective January 1, UT 2016 Future Test Year General Filed December 11, Rates expected to be effective January 1, UT General Rate Case Rate Case FERC: FERC Transmission Formula Filed December 31, Settlement expected to be filed in the Transmission Rates Formula Filed December , 2012 Settlement near future expected to be filed in the near Rates future ER and ER ER and ER

18 PNM 2016 Future Test Year General Rate Case Requested revenue increase of $107 million Based on 2016 future test year and 10.5% ROE Reflects $585 million increase in rate base from 2010 filing Average customer bill impact of 7.7% Rate Base Operations Rate Design New Generation: 40 MW Solar 40 MW La Luz Gas Peaker Rio Bravo Generating Station SNCR Equipment Palo Verde Unit 2 Lease Purchases 50% Reduction of Remaining Palo Verde Lease Payments Other O&M Changes Structural Rate Design Changes DG Interconnection Fee T&D Reliability and Core Investments Depreciation Rate Change Energy Sales Decoupling 18

19 PNM 2016 Future Test Year General Rate Case Schedule 2016 General Rate Case Filing Procedural Schedule May 11, 2015 Intervention deadline June 5, 2015 Staff and Intervenor testimony due June 29, 2015 Rebuttal testimony due July 9, 2015 Pre hearing Conference July 20 August 7, 2015 Hearings conducted October 2015 Recommended Decision expected November 2015 Final Order expected 19

20 PNM Rates Continue to Compare Favorably in the U.S. 4.0% Residential Electric Affordability by State for 2013 (Including PNM) US Average Indicated by Dashed Line 3.5% Est. Average 2013 Residential Electric Bill Es.t 2013 Median Household Income 3.0% 2.5% 2.0% 1.5% 1.0% US Average: 2.55% 0.5% 0.0% UT CO IL NH DC WA MA ME MN WY CA PNM (2013) NJ RI VT WI NM PNM (2016) OR IA AK VA NE MI MD CT ND ID MT PA SD KS NY IN MO OK OH DE NV WV AZ TX GA FL AR KY NC TN LA SC AL HI MS Sources: EIA Form 826, US Census Bureau, and PNM Data PNM rates reflect current rates (2013) and the filed general rate case (2016). All others reflect U.S. Energy Information Administration's Forecasted Residential Rate increases through

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 Balance future rate increases for customers while ensuring the appropriate return is earned for our shareholders Continue to strengthen 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 $4.4M is expected to be approved with rates in place March 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 A2 with a positive 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 Regulated Retail Energy Sales (weather normalized) % of FY 2014 Sales TNMP Q vs. Q YE 2014 vs. YE 2013 Residential 50% (1.1%) 1.0% Commercial 46% 9.0% 6.3% Total Retail 3.2% 3.2% 2014 Load Forecast: 1% 3% Unemployment Rate 4.6% (1) 5.5% (2) TX U.S Load Forecast: 2% 3% TNMP Average Customer Growth 2014 Actual 1.3% 2014 Forecast 1.0% 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, December 2014 (2) U.S. Bureau of Labor Statistics, February

25 TNMP Regulatory Update Filing Action Timing Docket No. TNMP TCOS Filed January 16, 2015 Rates expected to be effective March TNMP TCOS Expected to file July 2015 Rates expected to be effective September 2015 TBD 25

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 Invest in the business Continue to strengthen investment grade credit metrics Continue to control costs 26

27 Financial Overview

28 Q Financial Summary 28

29 PNM and TNMP: Q vs Q EPS (Ongoing) PNM Q Key Performance Drivers EPS Rate Relief $0.02 PNM Resources Foundation Contribution in 2013 $0.02 AFUDC $0.01 PV3 Market Prices $0.01 Gallup Contract ($0.01) Outage Costs ($0.01) Load ($0.01) Weather ($0.02) Other $0.01 TNMP Q Key Performance Drivers EPS TCOS Rate Relief $0.01 PNM Resources Foundation Contribution in 2013 $0.01 Weather ($0.01) Other $

30 2014 Financial Summary 30

31 PNM and TNMP: 2014 vs 2013 EPS (Ongoing) $1.16 $1.10 YE 2013 YE 2014 $0.36 $0.47 YE 2013 YE 2014 PNM TNMP YE 2014 Key Performance Drivers EPS Rate Relief and Off System Sales Sharing $0.05 PV3 Market Prices $0.03 Nuclear Decommissioning Trust $0.02 PNM Resources Foundation Contribution in 2013 $0.02 Rio Bravo (Formerly Delta) Purchase $0.01 Navajo Workforce Training Initiative in 2013 $0.01 AFUDC $0.01 Gallup Contract ($0.02) Outage Costs ($0.02) Depreciation & Property Tax ($0.03) Weather ($0.08) Load ($0.08) Other $0.02 YE 2014 Key Performance Drivers EPS Rate Relief $0.05 O&M $0.03 Load $0.02 PNM Resources Foundation Contribution in 2013 $0.01 Energy Efficiency Incentive $0.01 Weather ($0.02) Other $

32 2015 Guidance (Ongoing) 2014 Ongoing EPS $ 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 February 20, 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 as of 2/20/15 $464.3 $54.9 $293.4 $812.6 (1) Not included are PNM s fully drawn $175M term loan due 9/4/15, PNM s new multi draw $125M term loan ($100M drawn as of 2/20/15) due 6/21/16, Corporate/Other s fully drawn $100M term loan due 12/21/15, and Corporate/Other s new fully drawn $150M term loan due 3/9/2018. Total Debt (2) (in millions) Dec 31, 2013 Dec 31, 2014 PNM $1,339.8 $1,490.7 TNMP Corporate/Other Consolidated $1,894.6 $2,080.7 (2) Excludes inter company debt Amounts may not add due to rounding Long term Debt Maturities (In millions) $214 $119 $157 $172 $511 $173 $ Beyond 2020 PNM Resources 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 (1) Ba2 Baa3 PNM (1) Baa3 Baa2 TNMP Baa3 (1) A2 (2) Outlook Negative Positive S&P PNM Resources (1) BB BBB PNM (1) BB+ BBB TNMP BB+ (1) A (2) Outlook Negative Positive 22% PNM Resources FFO to Debt 13% 19% 19% 17% (1) Senior unsecured (2) Senior secured E 34

35 PNM Resources Summary Continued earnings and dividend growth make PNM Resources an attractive investment On target to meet 2016 total return target of 10% 13% Potential earnings growth of 7% 9% through 2019 Expected rate base CAGR of 5% 7% through 2019 Potential investments beyond 2018: o Renewable resources o Transmission investments o Grid enhancements o Purchase remaining 114 MWs of Palo Verde leases Continued above industry average dividend growth o 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 (1) Aug Aug Republican Commissioners are appointed by Governor of Texas. Length of term is determined by the Governor. (1) Pending Senate confirmation. 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 July 1,

40 PNM Load Including Impact of EE and DG 8,000 PNM Retail Energy Sales by Component The economy in New Mexico has been sluggish with customer growth during 2014 of 0.6%. PNM supports state and local economic development efforts to make New Mexico more business friendly, which has resulted in an increased number of inquiries from companies considering locating or expanding in the state. Energy Sales, GWh 5,000 2,000 (1,000) Customer Owned Photovoltaic Distributed Generation PNM Energy Efficiency Programs (Including Freeridership) Retail Sales Before EE, DG and Intel Total Energy Sales Programs supporting energy efficiency and solar distributed generation initiatives also affect sales growth for PNM. Energy efficiency programs are expected to impact 2015 sales growth by 3.9% and customer owned DG is estimated to impact 2015 sales growth by 1.1%. Year Over Year Retail Energy Sales Change Year Over Year Customer Count Change % 0.4% 2012 (1.0%) 0.4% 2013 (1.8%) 0.5% 2014 (1.7%) 0.6% 2015E (2%) 0% 0.5% 40

41 TNMP Load Including Impact of EE and DG Energy Sales, GWh 6,000 5,000 4,000 3,000 2,000 TNMP Energy Sales by Component The economy in Texas continues to be strong with customer growth during 2014 of 1.3%. Programs supporting energy efficiency and solar distributed generation initiatives have negligible sales growth impacts at TNMP. Energy efficiency programs are expected to impact 2015 sales growth by 0.3%. Customer owned DG is not estimated to impact 2015 sales growth. 1,000 (1,000) Customer Owned Distributed Generation TNMP Energy Efficiency Program Retail Sales Before EE, DG and Transmission Total Energy Sales Year Over Year Retail Energy Sales Change Year Over Year Customer Count Change % 0.7% % 0.7% % 0.9% % 1.3% 2015E 2% 3% 1.0% 41

42 PNM Energy Efficiency NM Efficient Use of Energy Act Requires cumulative savings of 5% of load (based on 2005) by 2014 and 8% by GWh is PNM s required cumulative energy efficiency savings in 2014 and 658 GWh by 2020 Approximately 347 GWh in savings has been achieved through the end of 2013 Projected savings of about 75 GWh in 2014 will exceed the minimum cumulative savings target for 2014 Energy Efficiency Rider Recovery of approved program costs and utility incentive collected through rate rider Currently collecting $22 M in program costs and $1.7 M in utility incentive Energy Efficiency Program Savings Projections for 2015 Commercial Comprehensive 34% Commercial Small Business 12% Home Energy Reports 10% Residential Cooling and Appliances 8% Residential Lighting 17% Refrigerator Recycling 8% Low Income Programs 5% Other 6% Annual Environmental Benefits from Savings in 2014 Equivalent to annual emissions from about 10,851 passenger vehicles Equivalent to power required for about 10,381 homes for one year Annual avoided water: about 24,402,000 gallons 42

43 TNMP Energy Efficiency Public Utility Regulatory Act Establishes annual demand savings goals for electric utilities TNMP s goal is to achieve: a 30% reduction in peak demand growth, subject to customer rate caps energy savings using a 20% conservation load factor TNMP s 2015 goals are to achieve 5.8 MW and 10,161 MWh savings Energy Efficiency Cost Recovery Factor (EECRF) Recovery of program costs through rate rider 2012 performance bonus of $650k and 2013 performance bonus of $1.5M Current Energy Efficiency Program Residential Programs 62% Commercial Programs (1) 36% Load Management Programs 2% Annual Environmental Benefits (2) Equivalent to annual greenhouse gas emissions from 2,496 passenger vehicles Equivalent to CO 2 emissions from 1,343,128 gallons of gasoline Equivalent to enough electricity use for 1,648 homes for one year (1) Not including Load Management (2) Based on kwh savings achieved in

44 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% 44

45 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% 45

46 PNM Service Territory and Generation Facilities 46

47 PNM Plant EAF and Outages Outage Schedule Unit Duration in Days San Juan Time Period 1 46 Q Q Q Four Corners 5 75 Q Q1 Q Q Palo Verde 3 30 Q Q Q Q

48 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) 48

49 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

50 San Juan BART Timeline Action Item Expected Completion Actual Completion EIB approval of RSIP submitted by NMED September 5, 2013 Submitted RSIP to EPA for approval October 18, 2013 EPA review and approval of RSIP Application deemed complete by EPA Preliminary approval by EPA Approval by EPA published in Federal Register December 17, 2013 April 30, 2014 October 9, 2014 Submitted BART filing to NMPRC for approval December 20, 2013 NMPRC approval for retirement and potential replacement power Proposed settlement filed with NMPRC Hearing with Hearing Examiner Briefs filed Response briefs filed Hearing Examiner Recommended Decision Final Order expected March/April 2015 Q SNCR construction Q Units 2 & 3 shut down December 31, 2017 October 1, 2014 January 5 27, 2015 February 16, 2015 February 27,

51 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 X X 2016 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. 51

52 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. 52

53 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. 53

54 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) 54