Third Quarter 2010 Earnings Presentation - PNM...

Third Quarter 2010Earnings Presentation

October 29, 2010

October 29, 2010: Preliminary & Unaudited 2

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Non-GAAP Financial MeasuresFor an explanation of the non-GAAP financial measures that appear on certain slides in this presentation (ongoing earnings, ongoing earnings per diluted share, ongoing EBITDA, and cash earnings), as well as a reconciliation to GAAP measures, please refer to the Company's website as follows: http://www.pnmresources.com/investors/results.cfm

Statements made in this presentation that relate to future events or PNM Resources', PNM's, or TNMP's (collectively, the "Companies") expectations, projections, estimates, intentions, goals, targets and strategies, are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates and the Companies assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, the Companies caution readers not to place undue reliance on these statements. The Companies' 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. These factors include conditions affecting the Companies’ ability to access the financial markets and negotiate new credit facilities for those expiring in 2011 and 2012, or Optim Energy’s access to additional debt financing following the utilization of its existing credit facility, including actions by ratings agencies affecting the Companies’ credit ratings; the recession, its consequent extreme disruption in the credit markets, and its impacts on the electricity usage of the Companies’ customers; state and federal regulatory and legislative decisions and actions, including appeals of prior regulatory proceedings, and including provisions relating to climate change, reduction of green house gases, coal combustion byproducts, and other power plant emissions; the ability of PNM to meet the renewable energy requirements established by the New Mexico Public Regulation Commission (“NMPRC”), including the resource diversity requirement, within the specified cost parameters; the ability of PNM to successfully utilize a future test year in its rate filing with the NMPRC, including PNM’s ability to accurately forecast operating and capital expenditures and withstand challenges by regulators and intervenors; the performance of generating units, including the Palo Verde Nuclear Generating Station, the San Juan Generating Station, the Four Corners Plant, and Optim Energy generating units, and transmission systems; the risk that recently enacted reliability standards regarding total transmission capacity may limit PNM’s ability to transmit its generation resources and provide access to transmission customers; the risk that Optim Energy desires to expand its generation capacity but is unable to identify and implement profitable acquisitions or that PNM Resources and ECJV Holdings, LLC will not agree to make additional capital contributions to Optim Energy; the potential unavailability of cash from PNM Resources’ subsidiaries or Optim Energy due to regulatory, statutory or contractual restrictions; the impacts of the decline in the values of marketable equity securities on the trust funds maintained to provide nuclear decommissioning funding and pension and other postretirement benefits, including the levels of funding and expense; the ability of First Choice Power to attract and retain customers and collect amounts billed, changes in Electric Reliability Council of Texas protocols; changes in the cost of power acquired by First Choice Power; collections experience; insurance coverage available for claims made in litigation; fluctuations in interest rates; weather; water supply; changes in fuel costs; availability of fuel supplies; uncertainty regarding the requirements and related costs of decommissioning power plants owned or partially owned by PNM and Optim Energy and coal mines supplying certain PNM power plants, as well as the ability to recover decommissioning costs through charges to customers; the risk that replacement power costs incurred by PNM related to not meeting the specified capacity factor for its generating units under its emergency fuel and purchased power adjustment clause will not be approved by the NMPRC; the risk that PNM may not be able to recover costs of renewal of rights-of-way on Native American lands through rates charged to customers; the effectiveness of risk management and commodity risk transactions; seasonality and other changes in supply and demand in the market for electric power; the impact of mandatory energy efficiency measures on customer energy usage; variability of wholesale power prices and natural gas prices; volatility and liquidity in the wholesale power markets and the natural gas markets; uncertainty regarding the ongoing validity of government programs for emission allowances; changes in the competitive environment in the electric industry; the risk that the Companies and Optim Energy may have to commit to substantial capital investments and additional operating costs to comply with new environmental requirements including possible future requirements to address concerns about global climate change, and the resultant impacts on the operations and economic viability of generating plants in which PNM and Optim Energy have interests; the risks associated with completion of generation, transmission, distribution, and other projects, including construction delays and unanticipated cost overruns; uncertainty surrounding the status of PNM’s participation in jointly-owned projects resulting from the scheduled expiration of the operational documents for the projects beginning in 2015 and potential changes in the objectives of the participants in the projects; the outcome of legal proceedings; changes in applicable accounting principles; and the performance of state, regional, and national economies.


Opening Remarks & OverviewPat Vincent-Collawn

President and CEO


Q3 2010 Highlights

Rate relief for PNM, TNMP and warmer weather improved results

First Choice Power down quarter over quarter as expected; however, bad debt expense continues to improve

Optim Energy sustaining strong plant performance with excellent summer availability

2010 consolidated ongoing EPS guidance increased

2010 2009 2010 2009

Ongoing EPS $0.63 $0.63 $0.90 $0.94

GAAP EPS $0.53 $0.59 $0.69 $1.55

Q3 YTD

(1)(1)

(1) Includes discontinued operations


Regulatory UpdatePNM

Current case procedural schedule reset:Hearing scheduled for Jan. 31 - Feb. 18, 2011

Filed FERC transmission case Oct. 27, requesting:$11.1 million increase 12.25% ROE

TNMPFiled general rate case on Aug. 26 requesting:

$20.1 million increase11.5% ROE

Filed advanced meter surcharge in MayFebruary 2011 hearing


Renewable Plan Update

PRC unanimously approved modified Solar Plan on Aug. 31

Plan calls for:Five utility-scale sites totaling 22 MW

Recovery capped at expected costs of $101.7M500-kW solar power, storage demo projectExpanded customer solar incentive programs

PNM to file for recovery via rider beginning in 2012

Expected 2012 EPS contribution: $0.03-$0.05


Retail Load

TXNM U.S.

Retail load is rebounding, however no definite trend has emerged

Regulated Retail Energy Sales Growth(weather-normalized kWh)

TXNM U.S.

(1) (1)(2) (2)

PNM TNMP PNM TNMPResidential 2.6% 0.0% 1.8% 1.0%Commercial 1.8% 2.3% 1.9% 2.9%Industrial -0.2% -0.6% 0.7% 0.7%Total Retail 2.1% 0.7% 1.8% 1.7%

Customer Growth 0.5% 0.3% 0.5% 0.3%

YTD 2010 vs YTD 2009Q3 2010 vs Q3 2009

(1) Excluding Economy Service customers(2) Excluding Transmission Service customers


Competitive Businesses

First Choice PowerBad debt expense decreasing• Lower departures, reduced bills, increased deposit coverage, credit

scrutinyCommercial business developing• Provides diversity, improved retention, earnings predictability

New local offices opening

Optim EnergyStrong power plant availability continuingAncillary sales partially offsetting low-price marketFocusing on cost control, liquidity management, cash flow


Financial Overview Chuck Eldred

Executive Vice President & CFO


Q3 2010 Financial Summary (Ongoing)

Q3 2009 Q3 2010

$0.63 $0.63$0.09 $0.03

($0.03)($0.03)($0.08)

FCP Margins

Optim Energy

OtherRate ReliefWeather

Ongoing EPS of $0.63; flat with last yearYTD cash earnings of $285M

RegulatedLoad

$0.02


Q3 2009 Q3 2010

Q3 2009 Q3 2010

Regulated Operations: Q3 2010 EPS (Ongoing)

PNM Electric

TNMP

Q3 Key Performance Drivers EPSRate relief $0.02

Other ($0.01)

Weather $0.01

$0.08$0.06

Q3 Key Performance DriversRate relief

EPS$0.07

Weather and load $0.04

Pension and retiree medical costs ($0.01)

Interest expense ($0.01)

Property taxes ($0.01)

Other ($0.01)

$0.42$0.35


Q3 2009 Q3 2010

First Choice Power(In millions)

$20.8$29.6

Optim Energy(1) (100%)(In millions)

Q3 2009 Q3 2010

$25.4$28.6

Q3 Key Performance Drivers EBITDALower bad debt expense $1.8

Lower margins ($10.6)

Q3 Key Performance Drivers EBITDASale of ancillary services $3.1

Lower O&M $1.8

Market and fuel prices ($8.1)

Competitive Operations: Q3 2010 EBITDA (Ongoing)

(1) PNM Resources has 50% ownership interest in Optim Energy; gains and losses of Optim Energy are equally shared by the owners.


2010 Revised Guidance

(1) Business segment guidance ranges are not additive

Guidance8/6/10

Guidance 10/29/10

Regulated OperationsPNM $0.51 - $0.55 $0.51 - $0.55TNMP $0.15 - $0.17 $0.15 - $0.17

Sub-total 0.66 - 0.72 0.66 - 0.72

Unregulated OperationsFirst Choice Power 0.27 - 0.33 0.40 - 0.43Optim Energy (PNMR Share - 50%) (0.10) - (0.07) (0.10) - (0.09)

Sub-total 0.17 - 0.26 0.30 - 0.34

Corp/Other (primarily interest expense) (0.18) - (0.16) (0.18) - (0.16)

Total EPS $0.65 - $0.75 (1) $0.83 - $0.90 (1)

Unregulated Operations First Choice Power $40M - $50M $59M - $63M Optim Energy (100%) $60M - $65M $60M - $65M

PNM Resources Consoidated $305M - $325M $380M - $395M

Ongoing EBITDA

Ongoing EPS

Cash Earnings


2010 ChecklistFile rate cases

PNM: Future-test-period by June 30Filed June 1TNMP: TCOS in Q2Approved and implemented in MayTNMP: General rate case in Q3Filed August 26FERC: PNM transmission rates in Q4Filed Oct.27

Achieve favorable regulatory outcome in PNM Renewable Resource Plan case22MW of utility-scale solar build approved by NMPRC with $101.7M recovery cap

Maintain strong electric reliability and power plant availabilityReliability on track to be within 1st quartile; plant performance on target

Achieve profitable customer growth from First Choice PowerOngoing EBITDA estimate increased; growth in commercial segment continuing

Achieve Optim Energy ongoing EBITDA growth of 5% to 10%Lower natural gas prices have negatively impacted EBITDA, not expected to grow

Continue to improve credit metricsMoody’s revised outlook from “Negative” to “Stable” (S&P revised outlook in December 2009)

x


Questions & Answers

Appendix

October 29, 2010: Preliminary & Unaudited A-2

PNM Plant EAF and Planned Outage Schedule

* Annual top quartile numbers from the North American Electricity Reliability Council

84.2%

98.3% 98.1%91.8%

77.9%86.8%

San Juan Four Corners Palo Verde

Q3 2009 Q3 2010

2010 & 2011 Outage Schedule

UnitDuration (days) Time Period

1 49 Q1 20112 11 Q2 20114 11 Q4 2011

5 21 Q2 20114 13 Q4 2011

3 66 Q4 20102 37 Q2 20111 37 Q4 2011

Four Corners

Palo Verde

San Juan

Annual Top Quartile Numbers*

Coal 90%Nuclear 92%


Optim Energy Plant Performance

98.5% 99.0%94.3%95.5%

99.7%99.6%

Twin Oaks Altura Cogen Cedar Bayou 4

Q3 2009 Q3 2010

Annual Top Quartile Numbers*Lignite 90%

Combined Cycle 92%

* Annual top quartile numbers from the North American Electricity Reliability Council


Optim Energy EBITDA

Three Months Ended Nine Months EndedSeptember 30, 2010 September 30, 2010

GAAP Net Earnings 7.6$ (6.8)$

Interest expense 4.7 14.0Income tax 0.2 0.3Depreciation and amortization expense 12.4 37.3Mark-to-market impact of economic hedges 0.9 (2.2)Purchase accounting amortizations (0.4) 10.4

Ongoing Optim Energy EBITDA 25.4 53.0

50 percent of Ongoing EBITDA (PNMR share) 12.7$ 26.5$

(In millions)


Optim Energy Amortizations

(1) Twin Oaks Contract

Amortization

(2) Altura Cogen

Contract Amortization

(3) Emission Allowance

Amortization

(1)+(2)+(3) * 50% PNMR's 50

percent share of Optim Energy Amortizations

PNMR's Basis in Amortizations

PNMR Net Earnings Impact

2009 $ 12.8 $ (19.5) $ (4.7) $ (5.7) $ (1.7) $ (7.4)2010 2.7 (16.3) (7.2) (10.4) (2.7) (13.1) 2011 - (14.7) (4.7) (9.7) * (9.7) 2012 - (9.4) (3.6) (6.5) * (6.5) 2013 - (8.8) (3.6) (6.2) * (6.2) 2014 - (8.3) (3.3) (5.8) * (5.8)

2015 and beyond - (42.9) (37.1) (40.0) * (40.0)

Total 15.5$ (119.9)$ (64.2)$ (84.3)$ (4.4)$ (88.7)$

(In millions)

Amortization for out of market contracts, emission allowances, and the impact on PNMR earnings is as follows:

In the table presented above, emission allowance amortization for 2010 - 2014 is forecasted based on estimated usage and sales. Since actual usage and sales will vary from this assumption, future year’s amortization expense may be different than presented.

Note: Schedule is updated annually.


Optim Energy 5-Year Capital Plan

$24$22

$17

$8$11

2010 2011 2012 2013 2014

(In millions)


PNMR 5-Year Capital Plan(In millions)

$254 $257 $252 $238 $245

$96

$9$2 $17 $13 $11

$16

2010 2011 2012 2013 2014

Core Renewables TNMP Advanced Metering System

$265

$369

$269 $251 $256


Components of Revised Cash Earnings

(1) Including bad debt expense and settlement of legal proceedings(2) Optim Energy cash earnings defined as net cash flows from operating activities less changes in certain current assets & liabilities

2010E(In millions)

Net cash flows from operating activities $310 - $320+/- adjustments in arriving at cash earningsChanges in certain current assets & liabilities (1) (5) - (10)Return of principal on Palo Verde lessor notes 30Payments received from Palo Verde firm-sales contracts 30PNMR share of Optim Energy cash earnings (2) 20 - 22

Total Cash Earnings $380 - $395

Drivers of $75M - $80M increase vs. 8/6/10 guidance are as follows: Taxes $55M - $65MFCP Earnings $5M - $10MOther $1M - $2M


Liquidity

(1) Includes First Choice Power(2) The PNMR Facility and the PNM Facility were reduced by $26.0 million and $14.0 million in August 2010 and will be reduced an additional $25.0 million and $18.0 million in August 2011 according to their terms.

PNM Resources (1)

PNM Separate

TNMP Separate

PNM Resources

Consolidated (In millions)

Financing Capacity: Revolving credit facility $ 542.0 $ 386.0 $ 75.0 $ 1,003.0 Local lines of credit (LOC) 5.0 - - 5.0

Total Capacity 547.0 386.0 75.0 1,008.0

Short-term debt & LOC balances 82.9 218.7 0.3 301.9 Remaining availability 464.1 167.3 74.7 706.1 Invested cash 3.3 12.3 - 15.6

Available Liquidity as of 10/25/10 $ 467.4 $ 179.6 $ 74.7 $ 721.7

As of 10/25/10:

(2)


Dec 31, Sep 30,2009 2010

(In millions)

Long-Term Debt (incl. current portion)PNM 1,055.7$ 1,055.7$ TNMP 309.7 310.2 PNMR 201.9 201.9 Consolidated 1,567.3$ 1,567.8$

Total Debt (incl. short-term)PNM 1,173.7$ 1,228.7$ TNMP 309.7 310.2 PNMR 281.9 220.9 Consolidated 1,765.3$ 1,759.8$

Selected Balance Sheet Information

(1) Excludes intercompany borrowings

(1)


Credit Ratings

Senior Unsecured Debt

S&PPNM Resources BB-PNM BB+Outlook: Stable

Moody’sPNM Resources Ba2PNM Baa3Outlook: Stable

TNMP First Mortgage BondsS&P

BBB-Outlook: Stable

Moody'sBaa1

Outlook: Stable


NMPRC Commissioners and Districts

Name District Term Ends Party

Jason Marks District 1 2012 Democrat

David King (1)

ChairmanDistrict 2 2010 Republican

Jerome BlockVice Chair

District 3 2012 Democrat

TheresaBecenti-Aguilar (2)

District 4 2010 Democrat

Sandy Jones (3) District 5 2010 Democrat

NMPRC Districts and PNM Services Areas

(1) Two-term limit reached(2) Appointed to replace Carol Sloan and is seeking election to the Commission

(3) Did not run for re-election to the NMPRC


NM Public Regulation Commission Commissioner CandidatesDistrict 2 – Southeast NM (held by David King)

Stephanie DuBois (D)Patrick Lyons (R)

District 4 – Northwest NM (held by Theresa Becenti-Aguilar)Theresa Becenti-Aguilar (D)Gary Montoya (R)

District 5 – Southwest NM (held by Sandy Jones)Ben Hall (R)Bill McCamley (D)

Seated CommissionersDistrict 1 – Jason Marks (D), final term ends 2012District 3 – Jerome Block, Jr. (D), current term ends 2012


Timeline of PNM Rate Cases

2007 2008 2009 2010 201120031994

PNM voluntarily

gives up fuel clause to keep off-system sales

revenues

January 2003“Global

Settlement”reached: 5-year

rate freeze, move toward

deregulation in NM stops February 2007

Filing Requesting:- $76.9M rate increase- Institute fuel clause

Case: 07-00077-UT

April 2008NMPRC Decision:$33M rate increase

Case: 07-00077-UT

May 2008NMPRC Decision:

Emergency fuel clause granted

Case: 08-00092-UT

September 2008Filing Requesting:

-$123.3M rate increase- Traditional fuel clause

Case: 08-00273-UT

March 2009 Settlement Filing:

-$77M rate increase -Traditional fuel clause

Case: 08-00273-UT

May 2009 NMPRC Decision:

- $77M rate increase- Traditional fuel clause

Case: 08-00273-UT

June 2010Filing Requesting

$165.2M rate increase

Future Test Year Filing

Case: 10-00086-UT

Aug. 5, 2010Supplemental filing made

Future Test Year FilingCase: 10-00086-UT

March 6, 2008 Recommended Decision:

- $24.2M rate increase- Fuel clause denied

Case: 07-00077-UT

March 20, 2008Filing Requesting:

Emergency Fuel Clause

Case: 08-00092-UT


Utility Rate Base and Return

PNM Retail Current Rates

Proposed Rates Dec. 31, 2011 $1.9B 50% 11.75% $923.8M $165.2M

PNM FERC TransmissionCurrent Rates Dec. 31, 2005 $98.1M(2) 51.8% N/A N/A

Proposed Rates Dec. 31, 2011 $171.0M 49.4% 12.25% $99.5M $11.1M

TNMP Current Retail Rates March 31, 2008 $399.0M 40% N/A N/A

Proposed Retail Rates March 31, 2010 $448.3M 50% 11.5% $204.3M $20.1M

Allowed Equity Ratio

Rate Base ROE

10.8% Implied

10.25% Allowed

Proposed Increase

10.5% ImpliedMarch 31, 2008 $1.5B 50% N/A N/A

Test Period (1)Revenue

Requirement

(1) Period is for the 12 months ending on stated date(2) Excluded PNM South (formerly TNMP-New Mexico) rate base


Lost Load$28.0M

PNMSouth $12.3M

Rate BaseRecovery

$60.0M

Fuel$12.8M

PNM Rate Case Drivers

Production O&M

$19.2MPension$16.9M

Benefits$12.1M

Other$3.9M

Total Requested Rate Increase = $165.2MPNM North $152.9MPNM South $12.3M


PNM Rate Increase Drivers

Rate BaseRecovery

$60.0M

Requested Rate Increase$165.2M

Return on Rate Base $39.9• Increase in ROE $17.1

– Requested ROE of 11.75%– 10.5% ROE implied

in current rates • Increase in rate base of $213M $22.8

– $1,702M filed rate base – $1,489M previously filed rate base

Return of Rate Base $20.1• Increase in depreciation expense

due to higher rate base $ 9.0• Increase in depreciation rates $11.1

Total $60.0

(In millions)PNM North


Non-fuel Operating Expenses(1)

Pension $16.9Market performance $7.9Modified method $9.0

Benefits $12.1

Production O&M (primarily outages) $19.2Other $ 3.9

Total $52.1


PNM North


(In millions)

(1) Excludes depreciation

Benefits$12.1M

Pension$16.9M

Production O&M

$19.2MOther$3.9M


PNM North Lost Load $28.07,869 GWh projected in 20115% decrease from 8,317 GWh projected in last filed case

Fuel $12.8

Total $40.8


LostLoad

$28.0M

Fuel$12.8M

(In millions)


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