2 Quarter 2008 Earnings Teleconference - PNM Resources/media/Files/P/PNM-Resources/quarterly-res… · 2nd Quarter 2008 Earnings Teleconference August 12, ... Issuers’ business,

1Aug. 12, 2008: Preliminary & Unaudited

2nd Quarter 2008

Earnings Teleconference

August 12, 2008


Non-GAAP Financial MeasuresPNM Resources (“the Company”) uses ongoing earnings, ongoing earnings per diluted share (or ongoing diluted earnings per share), EBITDA and ongoing EBITDA to evaluate the operations of the Company and to establish goals for management and employees. While the Company believes these financial measures are appropriate and useful for investors, they are not measures presented in accordance with generally accepted accounting principles in the U.S. (GAAP). The Company does not intend for these measures, or any piece of these measures, to represent any financial measure as defined by GAAP. Furthermore, the Company’s calculations of these measures as presented may or may not be comparable to similarly titled measures used by other companies.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995Statements made in this presentation that relate to future events or PNMR’s, PNM’s, or TNMP’s (collectively, “Issuers”) 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 Issuers assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, Issuers caution readers not to place undue reliance on these statements. Issuers’ 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 the risk that conditions affecting Issuers’ ability to access the financial markets, including actions by ratings agencies affecting the Issuers’ credit ratings, EnergyCo’s access to additional debt financing following the utilization of its existing credit facility, state and federal regulatory and legislative decisions and actions, the risk that the closing of the pending sale of the PNM natural gas utility may not occur due to regulatory or other reasons, outcome of the decision to pursue strategic alternatives for First Choice Power and of not successfully implementing such alternatives, the performance of generating units and transmission systems, including PVNGS, SJGS, Four Corners, and EnergyCo generating units, and transmission systems, the risk that EnergyCo is unable to identify and implement profitable acquisitions, including development of the Cedar Bayou IV Generating Station, that PNMR and ECJV will not agree to make additional capital contributions to EnergyCo, the potential unavailability of cash from PNMR’s subsidiaries orEnergyCo due to regulatory, statutory or contractual restrictions, the decision by the Texas Supreme Court whether or not to review the PUCT order in the stranded cost true-up proceeding and the outcome of any such review if granted, the ability of First Choice Power to attract and retain customers, changes in ERCOT protocols, changes in the cost of power acquired by First Choice Power, finalization of the goodwill impairment analysis, collections experience, insurance coverage available for claims made in litigation, fluctuations in interest rates, weather, water supply, changes in fuel costs, the risk that PNM Electric may incur fuel and purchased power costs that exceed the cap allowed under its Emergency FPPAC, availability of fuel supplies, the effectiveness of risk management and commodity risk transactions, seasonality and other changes in supply and demand in the market for electric power, 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 and natural gas industries, the ability to secure long-term power sales, the risk that the Issuers and EnergyCo may have to commit to substantial capital investments and additional operating costs to comply with new environmental control requirements including possible future requirements to address concerns about global climate change, the risks associated with completion of generation, including pollution control equipment at SJGS and theEnergyCo Cedar Bayou IV Generating Station, transmission, distribution, and other projects, including construction delays and unanticipated cost overruns, the outcome of legal proceedings, including pending appeals of PNM’s electric and gas rate cases and the Emergency FPPAC, changes in applicable accounting principles, and the performance of state, regional, and national economies.

Safe Harbor & Non-GAAP


Opening Remarks

Jeff SterbaChairman & CEO


Highlights

Successful financing actions in tough marketIssued total of $700M in PNM Resources and PNM senior notesTNMP secured $150M short-term loan to redeem senior notesExpanded PNM credit facilities to ensure adequate liquidityResulted in higher financing costs of $18M

Focus on regulated business beginning to show resultsPNM Electric $34.4M rate increase, emergency FPPAC for a period of up to two years or next rate caseTNMP providing stable performanceStrong coal plant availability, Palo Verde continues to improve

Terminated agreement to purchase Cap Rock Energy, additional $15M at close of PNM Gas sale

EnergyCo benefited from market conditions and strong plant availabilityWill not proceed with Twin Oaks 3 permit


First Choice Power

PNM Resources pursuing strategic options for First Choice Power

Goal: Maximize shareholder valueRemain committed to ERCOT market

First Choice Power will execute conservative strategy Margin preservation

Customer retention

First Choice Power continuing commitment to serving customers


ConsiderationsConsiderations

Pending sale of PNM Gas

Evaluation of strategic alternatives for First Choice Power

Focus on restoring financial health of PNM

Dividend ActionDividend Action

46% Reduction

Annual indicated dividend rate: $0.50

Maintain target payout policy of 50% to 60% of consolidated earnings

Re-Aligning Dividend


2nd quarter results below expectationsRegulated utilities on path for improvementEnergyCo performed betterVolatile ERCOT market significantly affected FCP performanceNon-cash impairment charges reflected in GAAP earnings

Q2 2008 Q2 2007GAAP EPS ($1.76) $0.26Includes impairment charge ($1.73)

Ongoing EPS ($0.09) $0.19

2nd Quarter Earnings


Utility Operations

Pat Vincent-CollawnPresident & Chief Operating Officer


Improving Utility Performance

PNM’s new electric ratesEmergency FPPAC provide foundation for future earnings

New fuel clause meets NMPRC criteria (Rule 550)• Cost of fuel and purchased power are significant percentage of total

cost of service• Cost of fuel and purchased power which, periodically fluctuate and

can not be precisely determined in a rate case• The utility's fuel and purchased power policies and practices are

designed to assure that electric power is generated and purchased at lowest reasonable cost

Three ongoing focus areas to improve regulated returns:Continue O&M cost managementMaintain power plant availability, top quartile T&D reliabilityRegulatory strategy


Plant Availability Strengthening

Baseload Plant Equivalent Availability Factor

Improved San Juan outage execution

Strong summer reliability at coal and nuclear facilities

Addition of the emergency FPPAC reduces earnings volatility

66.7%76.3%

92.2% 94.5%

Q1 April/May June July


Implementing Regulatory Strategy

PNM ElectricNew electric rates and emergency FPPAC in placeFile new rate case in Q3 for 2009 implementationFile PNM Electric Integrated Resource Plan in Sept.

TNMPFile rate case in Q3 for 2009 implementation

PNM Gas Operations SaleStaff/intervenor testimony due Aug. 13Hearing begins Sept. 12Recommended decision expected mid Oct. – Nov.Final order expected in Nov.Target for closing Dec. 31


Financial Results

Chuck EldredExecutive Vice President & CFO


2nd Quarter 2008 (Ongoing )

First Choice

Q2 2007

Q2 2008

TNMP

Corp/Other

EnergyCo$0.19

($0.09)

$0.01

($0.06)

$0.02$0.03

($0.01)Altura(1)

PNMGas

($0.23)PNM

Electric

($0.04)

(1) The Altura segment consisted of the Twin Oaks Power Plant which was contributed to EnergyCo in June 2007.


PNM Electric 2nd Quarter (Ongoing )

Improved Plant Availability

Rate Relief(Base + Fuel

Clause)

Q2 2007 Q2 2008

Lower SO2Sales

Other

Financing Costs

$0.09

$0.05

($0.02)

($0.03)

$0.01$0.04

$0.08

($0.10)

Sales Growth

($0.02)

Nuclear Decom.

Trust


First Choice Power 2nd Quarter

Supply costs &

retail rates

Q2 2007

Q2 2008

Bad Debt

O&M

$10.2

($18.6)

($4.4)

($4.9)

($16.4)

Other

($3.1)

Actions taken:Revised hedging strategy to limit supply cost exposureUpdated retail pricing and improved processes to ensure adequate recovery of supply cost

On-Going EBITDA(in millions)


Non-Cash Impairment Charges

Accounting rules require yearly intangible asset impairment testing. Tests conducted in the 2nd quarter

Book value exceeds market value when measured against current stock price

Non cash impairment charges impacted GAAP EPS ($1.73)

EnergyCo (1)

(PNMR share) $7.1M

Total PNMR $570.9M $140.7 M

TNMP $261.1M $34.5M

FCP $207.0M

$102.8MPNM

$48.0M

$51.1M

Recorded intangible asset

valuesAs of 03/31/08

After-taxImpairment

Charge

(1)EnergyCo recorded a non-cash intangible impairment of $21.8M for the termination of the Twin Oaks permitting process.


2008 Guidance (Ongoing)

(1) Segment ranges are risk adjusted at consolidated level, and as a result, segments are not additive.(2) PNM Electric impacted by: higher financing costs ($0.12/share), reduced load growth (~$0.05)

and losses associated with Palo Verde decommissioning trust (~$0.05) (3) Assumes PNM Gas sale closes 12/31/08

Ongoing EPS08/12/08

2008 Outlook (1)

Provided 02/11/082008 Outlook (1)

Consolidated $0.13 - $0.280.05 – 0.09 (2)

0.22 – 0.24

0.26 – 0.28 (3)

(0.07) – 0.01

(0.02) – 0.02

(0.34) – (0.32)

PNM Electric

$0.54 - $0.840.19 – 0.34

0.18 – 0.21

0.20 – 0.24

0.25 – 0.38

(0.04) – 0.02

TNMP

PNM Gas

First Choice

EnergyCo

Corp/Other (0.29) – (0.27)

Reflects outcome of PNM Electric rate

case

Ongoing EBITDA (in millions)

08/12/082008 Outlook

Provided 02/11/082008 Outlook

First Choice ($5) – $5

$60 – $70EnergyCo -100%

$44

$60 – $70


2009 Outlook (Ongoing)

2009 Original EPS Outlook (02/11/08) $0.84 – $1.14

Changes:

Additional financing costs (0.15) – (0.14)

First Choice Power (reduced sales volume) (0.19) – (0.17)

Cap Rock -Terminated Purchase (0.05) – (0.08)

Current EPS Outlook $0.45 - $0.75

Reflects outcome of

PNM Electric rate case

2009 outlook excludes impact of Q3 2008 PNM & TNMP rate cases

Updated 2009 outlook will be provided with 4th Quarter 2008 results

Ongoing EBITDA (in millions)

08/12/082009 Outlook

Provided 02/11/082009 Outlook

First Choice $25 – $35

$100 – $110EnergyCo -100%

$50 - $60

$100 – $110

Ongoing EPS


Projected Sources/Uses of Cash

(1)

(1) Includes cash received from Palo Verde 3 toll, which is reported as cash from financing.

($ in millions)Cash Inflows

Cash from operations $450PNM Gas sale (after tax) 463Equity-linked securities 347Cap Rock termination fee (after tax) 9

Total Inflows $1,269

Cash OutflowsCapital spending $713Cap Rock Energy -Current dividends 103

Total Outflows $816

Amount remaining for other corporate uses $453

Remaining availability of credit facilities and cash as of 08/04/08 $1.2 Billion

Cash Inflows & Outflows (Before Financing)

2008 & 2009

(1)


Achieve annual O&M reduction of at least $35 millionOn track to achieve savings

Continue disciplined growth of First Choice Power retail business

Opportunistically expand EnergyCo’s asset/trading position in ERCOT

Close the sale of NM gas business in the 4th quarter

Close the acquisition of Cap Rock Energy in the 4th quarter

Ensure Palo Verde’s return to premier operating status within 24 months

Complete scheduled environmental upgrades at San Juan Unit 3 by Apr. and Unit 1 by Nov.

Further evaluate PNM electric rate relief action, pending outcome of current rate case

On track: NMPRC hearing scheduled to begin on Sept. 12

Terminated agreement, PNM Resources to receive $15M at close of PNM Gas sale

On track: Regulatory performance improving, focusing on plant operations

Disappointing YTD results; pursuing strategic alternatives to maximize value

On track: Cedar Bayou construction on schedule

On track: Unit 3 complete, Unit 1 on schedule

PNM electric rate case to be filed Q3 2008TNMP rate case to be filed Q3 2008

Checklist of 2008 Objectives


Appendix


Quarter EPS by Segment (Ongoing)

Three months ended June 30,

2008 2007 +/-Total Diluted EPS ($0.09) $0.19 ($0.28)

PNM Electric $0.05 $0.09 ($0.04)

TNMP Electric $0.07 $0.05 $0.02

PNM Gas $0.00 ($0.03) $0.03

First Choice ($0.16) $0.07 ($0.23)

EnergyCo $0.03 $0.02 $0.01

Altura $0.00 $0.06 ($0.06)

Corp/Other ($0.08) ($0.07) ($0.01)


Quarter EPS by Segment (GAAP)



PNM Electric ($0.58) $0.01 ($0.59)

TNMP Electric ($0.35) $0.05 ($0.40)

PNM Gas $0.04 ($0.02) $0.06

First Choice ($0.74) $0.08 ($0.82)

EnergyCo ($0.03) $0.02 ($0.05)

Altura $0.00 $0.06 ($0.06)

Corp/Other ($0.10) $0.06 ($0.16)


YTD EPS by Segment (Ongoing)

Six months ended June 30,


PNM Electric ($0.13) $0.24 ($0.37)

TNMP Electric $0.12 $0.07 $0.05

PNM Gas $0.24 $0.16 $0.08

First Choice ($0.14) $0.16 ($0.30)

EnergyCo $0.03 $0.01 $0.02

Altura $0.00 $0.08 ($0.08)

Corp/Other ($0.17) ($0.15) ($0.02)


YTD EPS by Segment (GAAP)



PNM Electric ($0.93) $0.19 ($1.12)

TNMP Electric ($0.32) $0.07 ($0.39)

PNM Gas $0.32 $0.16 $0.16

First Choice ($1.06) $0.16 ($1.22)

EnergyCo ($0.22) $0.01 ($0.23)

Altura $0.00 $0.08 ($0.08)

Corp/Other ($0.21) ($0.03) ($0.18)


2nd Quarter EBITDA (Ongoing)


2008 2007 +/-

Total EBITDA $57.8 $92.8 ($35.0)

PNM Electric $45.0 $44.8 $0.2

TNMP Electric $22.2 $20.0 $2.2

PNM Gas $3.4 $5.1 ($1.7)

First Choice ($18.6) $10.2 ($28.8)

Altura $0.0 $13.7 ($13.7)

Corp/Other $5.8 ($1.0) $6.8

(in millions)

EnergyCo - 100% $22.9 $6.0 $16.9


YTD EBITDA (Ongoing)


2008 2007 +/-

Total EBITDA $129.0 $218.7 ($89.7)

PNM Electric $57.0 $98.7 ($41.7)

TNMP Electric $41.6 $35.5 $6.1

PNM Gas $37.2 $37.8 ($0.6)

First Choice ($14.1) $22.0 ($36.1)

Altura $0.0 $26.2 ($26.2)

Corp/Other $7.3 ($1.5) $8.8

( in millions)

EnergyCo - 100% $38.1 $4.7 $33.4


First Choice Power 2nd Quarter(Ongoing )

Supply costs &

retail rates

Q2 2007

Q2 2008

Bad Debt

O&M

$0.07

($0.16)

($0.04)

($0.04)

($0.13)

Other

($0.02)

Actions taken:Revised hedging strategy to limit supply cost exposureUpdated retail pricing and improved processes to ensure adequate recovery of supply cost


Weather Data

Heating Degree DaysThree months ended June 30,

2008 2007 NormalPNM 370 338

TNMP 46 99 50

291

9971,113942TNMP

2,4002007

2,2162,466PNMNormal2008


Heating Degree Days

1,0159411,155TNMP

4122007

476478PNMNormal2008


Cooling Degree Days

1,0971,0521,268TNMP

4122007

476478PNMNormal2008


Cooling Degree Days


Liquidity Update

(in millions) PNM

Resources PNM TNMP PNM

Resources

(as of 08/04/08) Separate Separate Separate Consolidated

Revolving credit facility $ 600.0 $ 400.0 $ 200.0 $ 1,200.0

Local lines of credit $ 10.0 $ 8.5 $ 18.5

Delayed draw term loan $ 150.0 $ 150.0

Letters of Credit Agreement $ 100.0 $ 100.0

Bridge Facility $ 150.0 $ 150.0

Total Financing $ 610.0 $ 658.5 $ 350.0 $ 1,618.5

Total Short-term debt and letters of credit $ 357.2 $ 27.8 $ 151.5 $ 536.5

Remaining availability as of 08/04/08 $ 252.8 $ 630.7 $ 198.5 $ 1,082.0

Cash balances as of 08/04/08 $ 54.8 $ 54.4 $ - $ 109.2

Available Liquidity $ 307.6 $ 685.1 $ 198.5 $ 1,191.2


$241

$152$97

$54

$67

$72

$68 $140

$37

$42

$41 $68

$43

$21

2007 Actual 2008E 2009E

Existing generation & development TNMP PNM Electric T&D Gas Other

Capital Spending

$563

$564

$272

$300

$42

2008-2012

$372$357

$414

Includes AFUDC and capitalized interest.

$1,741

(in millions)


Power Plant Availability

73.6%

91.6%

59.0%

73.1%

53.8%

89.1%

San Juan Four Corners Palo VerdeQ2 2008 Q2 2007

Q1 200994

Q4 2009105

Q1 – Q2 2008

Time period

1005

Duration(in days)

Unit

Four Corners 2008/2009 Planned OutagesFour Corners 2008/2009 Planned Outages

Q4 2009362

Q2 2009

Q4 2008

Q2 2008

Time period

433

391

542

Duration(in days)

Unit Palo Verde 2008/2009 Planned OutagesPalo Verde 2008/2009 Planned Outages

Q1 2009

Q3 2008

Q1 2008

Time period

502

511

583

Duration(in days)

Unit San Juan 2008/2009 Planned OutagesSan Juan 2008/2009 Planned Outages

Equivalent Availability Factor


Twin Oaks EAF

EnergyCo Plant Availability

Duration(in days)

Time period

35 4Q-2008

Duration(in days)

Time period

7 Q1-2008

7 Q2-2008

19 Q4-2008

Twin OaksTwin Oaks

Altura CogenAltura Cogen

95.4%

98.2%

95.9% 96.1%

98.2%

85.6%

2008 Planned Outages

Q2 2008

Q2 2007

Jan-Jun 2008

Jan-Jun 2007

Q2 2008

Jan-Jun 2008

Altura Cogen AF


Name District Next Election

Party

Jason MarksChairman

District 1- Bernalillo 2008 Democrat

David King District 2- BernalilloSouthern Bernalillo & Santa Fe, Torrance Lincoln, Otero, DeBaca, Quay, Curry, Roosevelt, Chavez, Eddy, Lea

2010 Republican

Ben R. Lujan District 3- Taos, Rio Arriba, Colfax, Union, Mora, Harding, San Miguel, Guadalupe, Santa Fe

2008 Democrat

Carol K. Sloan District 4- San Juan, McKinley, Cibola, Sandoval, Bernalillo, Santa Fe, Socorro

2010 Democrat

Sandy JonesVice Chair

District 5- Valencia, Socorro, Catron, Sierra, Don Ana,Luna, Grant,Hidalgo, Lincoln, Otero

2010 Democrat

New Mexico PRC


PNM Electric Rate Case

NMPRC-Final Order PNM Filing

ROE 10.1% 10.75%

Revenue Requirement

$591.5 million $635.4 million1

Rate Base $1.2 billion $1.2 billion

Rate Increase $34.4 million2 $76.9 million1

Emergency Fuel Clause

$58M to $62M ~$72M

Summary of Final Order andPNM Filing

1Adjusted in supplemental and rebuttal testimony2As adjusted by NMPRC on 5/01/08


Emergency Fuel Clause

Awarded on May 22, 2008Emergency fuel clause:

Expires 24 months after the effective date of the rates established in this case, or on the effective date of new rates in the next PNM general rate case, whichever is soonerRecovery capped at $0.024972Requires PRC approval of replacement power costs that are the result of base load power plant capacity factors being below a weighted average of 86.4% Credits customers with 100 percent of the proceeds from off-system sales from jurisdictional resourcesIs based on the projected fuel and purchased power costs with the factor to be adjusted after six months


Utility Rate Base

Rate Base Last

Allowed

ROE Last

Allowed

Test Period 12-

month ended

Comments

Debt-Equity Ratio

Implemented 2007 ROE Results

PNM-Electric $1.2billion

10.1% Sept. 2006 Final order issued May 2008

48%-52% May 2008

TNMP-NM (transferred to

PNM)

$70million

10.0% Sept. 2004 Rates frozen through Dec. 2010

55%-45% NA

5.0% Regulated Return$1.4B Rate Base1

51.4% Common Equity

PNM-Gas $377 million

9.53% Dec. 2005 Final order issued 2007

48%-52% Implemented July 2007

5.2% Regulated Return$0.4B Rate Base51.8 Common Equity

TNMP-TX $402 million

10.25% Sept. 2004 Rates Frozen through

May 2007

60%-40% NA 6.7% Regulated Return2

$0.4B Rate Base 40.0% Common Equity

1Includes former TNMP-NM operations & 50% of Afton2 Financial return, for calculation details see PNMResources.com

*


Credit Ratings

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

Moody’sPNM Resources Ba2PNM Baa3TNMP Baa3Outlook: Negative

Credit Agency RatingsCredit Agency Ratings

2 Quarter 2008 Earnings Teleconference - PNM Resources/media/Files/P/PNM-Resources/quarterly-res… · 2nd Quarter 2008 Earnings Teleconference August 12, ... Issuers’ business,

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