PNM Resources, Inc. (Holding Co.)

Good morning and welcome to the PNM resources financial update conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Lisa Goodman, Director of Investor Relations. Please go ahead.

Thank you, Kate, and thank you, everyone, for joining us this morning for the PNM Resources Financial Update with Preliminary 2021 Earnings and Guidance for 2022 and 2023. Please note that the presentation for this conference call and other supporting documents are available on our website at pnmresources.com. Joining me today are PNM Resources Chairman, President, and CEO, Pat Vincent-Coulon, and Don Terry, our Senior Vice President and Chief Financial Officer. Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward-looking statements are based upon current expectations and estimates, and that PNM Resources assumes no obligation to update this information. For a detailed discussion of factors affecting PNM Resources results, please refer to our current and future annual reports on Form 10-K, quarterly reports on Form 10-Q, as well as reports on Form 8-K filed with the SEC. With that, I will turn the call over to Pat.

Thank you, Lisa. Good morning, and thank you all for joining us today. It's been some time since we've held an earnings call, but I can assure you it is all coming back to us now. You probably knew that yesterday was Groundhog Day, but since the day after Groundhog Day often gets overshadowed, you may not know that today is both National Optimist Day and National Carrot Cake Day. And when you start the day off eating carrot cake, it's easy to be an optimist. Of course, it's also easy to be an optimist when you have great team members like Lisa Goodman. Lisa was recently named a 2022 Woman of Influence by Albuquerque Business First. Lisa deserves this recognition and has been a great part of our PNM Resources family for more than 18 years. Congratulations, Lisa, and thank you for all that you do. I'm going to start on slide four with our financial results and guidance. Preliminary ongoing earnings for 2021 are 245 per share, reflecting another strong year of delivering results. Growth in PNM's FERC transmission business and recovery of TNMP's capital investments through rate riders provided year-over-year utility earnings growth. We are also providing earnings guidance for 2022 at a range of 250 to 260 per share, and for 2023, at a range of $260 to $275. We continue to be focused on running our business in New Mexico and Texas, investing in the infrastructure needed to meet the growing demands of our customers and communities, and providing shareholders a return for their investment. Tied to this increased earnings expectation is a 6% increase to our common dividend, keeping us in the middle of our targeted payout ratio for 2022 earnings. Don will cover each of these items in more detail in the financial slides. As our merger process with Auburn Grid continues, and I'll get to that in a minute, our teams continue to build on the successes of years past and adapt and respond to changes in our business environment to move PNM and TNMP forward. At PNM, we are implementing plans to achieve our goal of providing 100% emissions-free energy by 2040. In the fourth quarter of 2021, our annual renewable plan and our first transportation electrification program were both approved by the Commission. We are also continuing our efforts to exit from coal-fired generation early with our appeal to the New Mexico Supreme Court following the Commission's denial of our planned exit of the Four Corners coal plant. The early exit not only aligns with our carbon-free goals, but it brings customer savings, including reduced fuel costs, and provides the local communities financial support as they transition to a non-fossil fuel economy. TNMP just completed its most significant year of capital expenditures to support growth in its service territory, and it isn't slowing down. Last winter's storm, URIE, has increased interest in adding resource and storage capacity in ERCOT, and we've seen more requests to interconnect to our system. The transmission and distribution capital rate riders in Texas ensure that our investments are recovered in a timely manner. We filed our first semi-annual transmission cost of service adjustment for 2022 last week with a requested increase in annual revenues $14.2 million based on our investments in the second half of 2021. Let's turn to slide five and talk more about the merger. We've extended the agreement with Avangrid to April of 2023 with a three-month extension option to preserve the progress we have made over the last year. We obtained approval from the five required federal agencies and the Public Utility Commission of Texas, leaving only the New Mexico Public Regulation Commission. In our New Mexico application, we negotiated unprecedented customer and economic development benefits, which we conservatively estimate to be worth $300 million. That was all in a stipulation that has broad support, with 23 out of the 24 intervening parties either supporting or not opposing it. Our reasons for the merger have not changed. As we look out into the future and see the capital needed to navigate the transition to clean energy and meet growing demand, we knew that a combination with a larger company would provide benefits of scale, regulatory diversity, and a stronger credit profile. We also looked for a partner who would align strategically with our goals. Avangrid and eBedrola have an impressive ESG profile on the national and global level, and are willing to make commitments on important items to stakeholders in New Mexico and Texas, maintaining local control of the utilities, following through on the clean energy commitments we've made in New Mexico, supporting economic development efforts, and continuing to be strong partners in our community. Our combination makes sense. In December, The New Mexico PRC rejected the stipulated agreement with parties, and at the beginning of January, we filed our notice of appeal with the New Mexico Supreme Court. Yesterday, we jointly filed with Avangrid and Ibadrola our statement of issues in the appeal, and they can be summarized into three key issues. First, was the PRC decision improperly based on inadmissible hearsay evidence? and information outside the evidentiary record? Second, did the Commission determine the merger was contrary to the public interest by imposing arbitrary standards, improperly weighing benefits and risks, and ignoring the weight of the admissible evidence? The benefits and protections we proposed were far beyond the level required in the approval of other mergers. These added benefits and protections were then weighed against perceived risks including a fear that PNM would begin ignoring its obligations to provide quality service to customers as the result of Avangrid's ownership. These were not real risks supported in the record and were contrary to the stipulated commitments made by PNM and Avangrid. The third issue is around the commissioner further acting unreasonable and unlawfully and in violation of due process in their handling of matters concerning the discovery process. We think the Commission failed to follow its own rules in withholding its approval. The next step is for the Supreme Court to assign a case to its calendar, which will trigger a 45-day deadline for P&M and Auburn Grid to file their detailed arguments in the appealed issues in the brief, followed by 45 days for the PRC to file an answer brief. We will then have 20 days to file a response to the PRC's brief. In the briefs, we can request oral argument, which will be at the court's discretion. We expect the appeal process to take 12 to 18 months. If the court agrees with our arguments, the case will be remanded back to the PRC. Our appeal of the PRC's rejection of the stipulation maintains the progress we have made, and retains our negotiated agreements with parties, which was an important consideration in filing the appeal and extending the merger agreement. The merger would create a stronger financial profile, but it does not change our strategic direction. My leadership team and I remain in place and are focused on the tasks at hand. During the appeal process, we will continue to manage our business successfully and deliver results. Don will walk you through our financial plans, but I first want to touch base on some ESG highlights for 2021 on slide six. P&M's resource portfolio capacity moved to more than 30% renewables and 40% carbon-free in 2021 with the addition of new wind resources. We are well on our way to achieving the renewable portfolio standards laid out in the Energy Transition Act. We also joined the Western Energy Imbalance Market in April of 2021. The regional coordination is designed to balance fluctuations in supply and demand by automatically finding lower cost resources to meet real-time power needs. It maximizes the potential for renewable resources across the market by making excess renewable energy available to utilities at low cost rather than curtailing the resource to balance the grid. In CalISO's third quarter report of Western EIM benefits, the total avoided renewable curtailment volume for the second and third quarters was calculated at over 132,000 megawatt hours. Under the assumption that these avoided curtailments displaced production from other resources, the estimated result in carbon dioxide reduction is over 56,000 metric tons. And P&M's participation also provided $12.5 million in customer savings over the first nine months. And as I mentioned earlier, we continue to advance support for electric vehicles with the approval of our first transportation electrification program for P&M customers. This comes on the heels of our announcement to shift more of our own fleet to EVs, and we've also joined a number of our EEI peers to partner with the National Electric Highway Coalition to bring more charging stations to our nation's roadways so that the public can drive EVs with confidence across the country by the end of 2023. To continue our tradition of environmental stewardship, we have named our first chief environmental officer at PNM. Maureen Gannon, who has been with PNM for 25 years, possesses an incredible knowledge base of the environmental challenges, achievements, regulations impacting our industry, and importantly, the future opportunities being explored. She will continue to represent us at a state, national, and global level as we work to achieve our goal for emissions-free energy by 2040 and will expand our ESG reporting. Maureen will also lead our work on a just transition, incorporating into our decision-making the impacts of the clean energy transition on workers and communities, particularly tribal communities. New Mexico's Energy Transition Act and PNM's plans to exit coal We're uniquely designed to consider these elements and we feel strongly that our core values of safety, caring, and integrity are embedded within our business plans for this critical transition. Our communities depend on this and we take this responsibility seriously. Our community support extends throughout our business. Our teams in Texas demonstrated this support through several challenges in 2021. Winter storm Uri created a significant disruption in February when the storm hit. And in August, Hurricane Ida hit Texas, and our TNMP crews assisted in the restoration efforts only to return home in time for Hurricane Nicholas to hit our own service territory in September. But our teams rose to meet these challenges. EEI recently recognized TNMP for their exceptional response to these events, with both an Emergency Assistance Award and an Emergency Response Award. And in New Mexico, we have continued to provide financial assistance for customers impacted by COVID-19 and help them access partnership funding. More than $7 million in cumulative assistance has been provided through these efforts. We care about our customers and our communities, and we continuously walk the talk and demonstrates our core values in our business practices. So now let me turn it over to Don to walk through our financial update.