Good morning. Thank you for joining us for PNM Resources' 2017 Financial Update. My name is Lisa Goodman. Joining me today are PNM Resources' Chairman, President and CEO, Pat Vincent-Collawn; and Chuck Eldred, our Executive Vice President and Chief Financial Officer; as well as Don Tarry, our Vice President, Finance and Controller; and Lisa Eden, our Vice President and Treasurer. I want to remind you that today's event is also being held via conference call and the presentation is available on our website at pnmresources.com. After the prepared remarks, we will take Q&A from the room first and then from the phone. Before I turn the presentation 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 things over to Pat.

Thank you, Lisa, and thank you to all of us that are joining us here this morning at the New York Stock Exchange or by telephone. Now the setup here is a little more formal than it is for our normal earnings calls in Albuquerque, so for those of you that are not in the room, I'm going to save you the suspense, we do not have any Halloween costumes on today, we're here in traditional business attire. But I have to tell you, this room here at the New York Stock Exchange is just beautiful. We're looking forward today to providing you company updates and discussing the details of our 2018-2019 guidance. Let's get started this morning on Slide 4. Earlier this morning, we announced 2018 ongoing EPS guidance of $1.70 to $1.80 per share. This reflects the phase-in of the retail rate settlement at PNM that is currently under consideration by the New Mexico Public Regulation Commission, with approximately half of the proposed increase implemented in 2018 and the second half implemented in 2019. 2019 ongoing earnings guidance of $2 to $2.16 reflects the full implementation of retail rates. Chuck will walk through the guidance in detail in just a couple of minutes. We also announced last week that the board voted to increase our common dividend by $0.09 to $1.06 per share, representing a 9.3% increase. The increase is consistent with our targeted payout ratio of 50% to 60%, although this will look a little higher in 2018 due to the reduction in earnings caused by PNM's retail rates phase-in. As we wrap up 2017, we continue to have several regulatory items on our agenda that are critical pieces to moving the business forward. So let's move on to Slide 5, and I'll provide an update on…

Well, good morning. So go back and look at the video for the closing bells that -- which we did yesterday because I was told that on CNBC that I bashed the gavel pretty hard. So I got on the news, for a change. Maybe better news than we're getting in New Mexico right? So we'd like to, again, thank you for joining us today. And as Pat talked about, I'm going to review the financial impacts, specifically for 2018 and 2019 guidance and the potential earnings power through 2021. So looking at Page 7 of the presentation, before we get into 2018 and '19, I want to note that we've had updated the range for 2017 to $1.85 to $1.90. This is reflective of our third quarter earnings call discussions about expecting to be at the top of our earnings range. The segment ranges are included in the presentation. Moving to 2018, we have been discussing for some time now that this will be a transition year for PNM Resources. The guidance range of 2018 is $1.70 to $1.80. We expect PNM to have earnings between $1.25 and $1.32, which reflects the initial phase of the rate settlement. TNMP will earn $0.53 to $0.55 during 2018, and Corporate and Other is projected to be at a loss of $0.07 to $0.08. Now moving this to 2019, we expect to implement PNM's full rate recovery. As a result, we're planning to come in at $2 to $2.16. PNM will represents $1.50 to $1.59, which does not include any amounts for the items under appeal at the New Mexico Supreme Court. At TNMP, we're expecting a $0.60 to $0.65 contribution to earnings. We expect Corporate and Other to be a loss of $0.08 to $0.10 in 2019. Now turning to Page…

Thank you, Chuck. So for our Q&A today, I'm going to start off by taking questions from the room while the operator assembles question from those on the phone. So for those of you here in person, if you'd please raise your hand, and Don Tarry will bring you a microphone. And for the benefit of those on the phone or the webcast, if you please state your name and your company before you ask your questions so everybody knows who's asking. So first I want the operator to please provide the instructions for questions on the phone, and then we will get started.

[Operator Instructions].

You got to be nice to Don, he's the one doing the order of the questions.

Ali Agha, SunTrust. Two questions. First [indiscernible] Chuck, you mentioned the growth rate off the '16 base, you are targeting that 6% growth rate through 2021, but the fact is you have a pretty big jump in earnings in '17. So if we were to use '17 as the base, since we're almost at the end of the year, mathematically, that brings that number down to around 4% or so. So just wondering, if you're looking at that profile, where are the areas where you think you could see further growth? And given customer rate constraints, are there opportunities for you to accelerate that growth '17 through '21, call it?

Yes, Ali, thanks. We're using 2016 as a base because '17 we see as a phase-in approach. And so 2018 as a phase-in approach. And so for our view, we look at a five-year outlook. And so I know there's going to be some variability year-over-year as to how you might slice it and look at growth. Keep in mind, I said that the guidance we put out there has no information to reflect any earnings pick-up for the Supreme Court rulings. We don't have in our budget any information on the possibility of AMI, so that's another possible upside. I think at this point it's -- even though 2017 is a strong year, we just have to allow for the phase-in approach and the continued thinking through over the next five years to how we think about the growth of the business because we're trying to set dividend policy guidelines, et cetera, off of that five-year window to get to the total returns that we think are appropriate. And there may be some other opportunities at FERC side. Again, we show a reasonable range there. And certainly, there's some upside on that part of it as well. And then there's probably some upside, frankly, in TNMP. We show you a range of variability in TNMP based on what we think is some sensitivities around ROE. We don't talk about that because we haven't filed a case, but I think there's some potential upside for TNMP well.

Okay. And my second question, Pat, one of the advantages you currently have is you have a very strong currency. Your stock valuation relative to the sector peers is at a premium. Is that a thought in your mind to use that strong currency and perhaps look to diversify outside of New Mexico, look for growth opportunities which would be accretive mathematically as well? What's your thinking, just strategically, about potential consolidation opportunities out there?

Thank you, Ali. We're happy with our footprint. I mean, we like our balance sheet. And as you can tell from our regulatory slide up there, we've got a lot on our plate. So we're just going to stay focused on those key things in our business in terms of moving to a clean generation portfolio and doing our TNMP rate case. Thanks. And all we need is a fireplace up here and Santa Claus.

Yes, fire chat.

First, I just wanted to confirm my understanding, in the current settlement agreement that you have in New Mexico, is there a stay-out provision in that settlement agreement? And that goes to...

Yes, thanks for bringing that up, too. We have till January 2020, I think we have to stay it up to that point. So we haven't announced anything, but in our thinking, probably around the range of 2021, we might look for another rate case in that as you think about your modeling and your basic assumptions. But it's too early for us to make any public announcements. But we're just trying to say in our planning purposes, that's probably the time frame that you might see some possible rate increases, 2021.

That's a '21 effective or '21 filing?

Pardon me?

'21 effective or '21 filing?

'21 effective, yes.

And my second question is on taxes. So you've laid out the impact on the holdco very clear. Can you remind us what your status is in terms of are you a cash taxpayer? And if you are willing to tell us if you are a cash taxpayer throughout, I guess, through 2021?

Yes, we start paying taxes in 2020. So we have some ITC credits that will carry us through 2019 and start paying taxes in 2020.

Insoo Kim from RBC Capital Markets. Could you give any update on clarification of the hearing examiner's modifications to the settlement proposal? And seems like there may have been, at least on our end, some confusion to what that means for potential earnings or recovery. Is there going to be some kind of clarification process with the commission before they decide on whether to accept the settlement?

And so I'll just give you an update about where the case is, and then Chuck can talk about the earnings impact. It could have been on the agenda as early as this week, they held a meeting on Thursday. It was not on the agenda, so we expect it could be on the agenda this week. What happens is the right -- the hearing examiner did the recommended decision, so now the general council prepares an order or orders depending upon what they do. Sometimes they do multiple orders for the commission to look at and vote on. So that could happen as early as next Wednesday. Then typically, if anybody wants a rehearing, they have to file very quickly after that. We think it would move to a litigated path because everybody that's signed on to the hearing -- or excuse me, to the stipulation, wants that stipulation. And I think that there is great frustration that the commission encourages people to settle, and we had a settlement with 13 parties for and only one party as opposed. So I think that if the commission doesn't approve the settlement, it would end up in a litigated path.

So the financial impact if the modified stipulation were pursued, as you recall, the revenue of $62.3 million was still intact. So from that standpoint, the revenue remains intact. But the potential write-off of taking away the debt return on Four Corners could result in around $60-some-odd million additional write-off. The hearing examiner did recommend, again, questioning and raising the subject of coal investment in New Mexico, took the additional investments in Four Corners and put a little more gray area as to how we're supposed to handle the continued investment as we use that plant, the 200 megawatts that we're participating in for Four Corners with APS. If you were to run the numbers, the sensitivity of that could be a $0.05 potential impact to earnings if we're no longer allowed to recover any costs associated with Four Corners. They didn't say it was -- we couldn't file, but they did the same thing with San Juan. They took roughly $38 million out of the forward test year that was to be included in this rate case, and although it didn't affect the revenues, they said we have to bring the $27 million, $37 million back -- I think it was $37 million -- back to the next rate case and ask for recovery at that point. So I think the thinking there was, gee, you're getting ready to shut these plants down, and how do we know that this is capital that's necessary? But I can assure you, all our planning for capital of San Juan is geared towards beginning to phase down and shut the plant down in 2022. So that was disappointing, but certainly forces us, if it's approved, to go back and ask for recovery of that capital. So we'll just have to see how the recommendation comes or approval comes out of the commission and what the order is, but certainly, it's very focused on coal. And I think Pat's pointed out very clearly, you don't shut these plants down overnight, you have to slowly transition and address all of the stakeholders' impacts, the tax consequences, the economic impacts in the Four Corner region and do it in a very orderly and manageable fashion. So we hope that the commission will regard that as ultimately the decision to support the intervening parties and their original stipulation.

Got it. And just one more question on TNMP. The 2019 earnings contribution seems like it was a little bit higher than what you guys have put in the potential earnings power before. Is that mostly due to the upside in load growth in '19?

The upside of what, please?

The earnings contribution from TNMP for '19 seems at least $0.02 or $0.03 higher than where you guys had estimated in your earnings power slides before, is that coming from just increased load? Or is it...

Well, on the earnings power, it's really more the increase on the capital that we're putting in.

Right, okay. So it's just more capital that...?

Yes.

We'll go to the other side of the room next, Paul.

Lasan Johong, Auvila Research Consulting. Have you guys taken a look at the tax reform impact on your customers? And whether that's a net positive or a negative? In other words, could that be an additional upside potential factor that is not in your guidance going forward?

The settlement that Chuck talked about that we have on our current rate case, if tax reform is passed before November of this year, it will flow back to customers starting in '19. So we would have it in 2018, but our customers will get in 2019.

No, I was thinking more what the tax reform package may do to the economic activity of New Mexico, which would then translate into potentially more growth, more volumetric growth, more customer growth and how that might impact...

The tax reform itself, it drops customer rates roughly around 3%, so it's a good thing. New Mexico is all about keeping rates affordable and keeping them low. The ADIT adjustments over time for normalization rules only has about a $15 million impact, so it's not substantive. But to Pat's point, we're focused on trying to make sure that we have room to recover our current capital plans, and certainly, they are benefit to customers in reducing rates because of their lower tax rate, then that puts us in a pretty good position of how we deal with future rate cases and recovery of capital.

And I think I would say the administration is projecting economic growth. So as the country grows, we would have our fair share of it. But remember, a lot of what's in New Mexico is government and related to the government, so tax reform, theoretically, doesn't do those businesses. A lot of the growth we see, and we are looking at it in data centers, which are worldwide anyway and probably wouldn't change because of the tax reform. So I think we're going to continue to see our economy grow steadily, but I'm not sure tax reform will give us a huge jolt in New Mexico.

Okay. Last question, the 100% tax reduction on CapEx investments going forward, again, if the tax reform passes, could that give you an opportunity to accelerate your investment program? And where would you look at doing that?

Accelerate what?

What are the acoustics in here are just awful. Do you mind repeating your question? I got something about tax reform and the 100% deduction or the sensing, yes.

The tax reform package allows for a 100% deduction of capital investments immediately. And so does that provide PNM with an opportunity to potentially accelerate some investments? And where would you guys look to do that?

Utilities are exempted from that 100% immediate deduction. There's a utility carve-out in exchange for interest deductibility, so it wouldn't have any impact on us.

Yes.

Paul Fremont with Mizuho. If you were to securitize your remaining investment in San Juan, how would that affect the rate base numbers that we are looking at here, the equity need and also the, sort of, your projected earnings power or earnings growth?

Yes, I guess the way to look at it is you -- obviously, you're pulling out the undepreciated costs at a rate base for San Juan, but our numbers reflect that we're reinvesting in new rate base. So there's a little bit of slight increment to rate base because of the replacement power, so that part of it helps from that standpoint. Securitization certainly is -- helps us with how we think about equity. If we carve that piece out and we get securitization passed in legislation, then I'm comfortable where we are in our plans using an at-the-market program, so we haven't made any other decisions or any consequences if that legislation doesn't pass. But again, it's important for us to get that legislation because it does keep us from having any further write-downs in the event that we go back to this 50-50 percent scenario with the other two units of San Juan being shut down. So I think at this point, our assumptions are, there's slight capital growth from replacement power, you pull out the dollars of San Juan out of rate base, securitization allows you for a funding mechanism to reinvest into that new generation, and we would be clearly within the planned expectations that we've laid out.

Nick Campanella, Bank of America. I'm just curious on tax reform, if you could just expand on the treatment of parent debt in the scenario, does the parent get the utility exception? And then how does that change the implications around the tax shield?

Yes, Nick, if you look at the slide, we showed $0.02 impact, we've actually done that analysis. So if you look at how we allocate corporate assets both from PNM and TNMP and then the unregulated piece of the holding company, we have a very, very insignificant impact if you use the 30% of EBITDA. So we've actually calculated the numbers and it's in the $0.02 that we've shown you in the slide.

Slide 14.

On Page 14.

14. We'll put the slide back up again.

Is there an offset from the Westmoreland interest income?

There's a little bit offset on Westmoreland interest income, but that winds down in 2019 and should be paid for in 2020.

There's no more questions here. We have one on the phone. We'll go ahead and take that question.

At this point we do not have any questions on the phone. [Operator Instructions].

Well, we've answered your questions, you're not allowed to ask any more questions. Probably one more. Go ahead.

Okay. Operator, we'll go ahead and take questions from the room here.

One question, but two parts to it.

Ali, you always find a way to get around Chuck's one-question rule.

First, Chuck, just mapping out that CapEx that you laid out for us and the earnings growth that goes with it, is that a rough way to think about what kind of a customer rate impact that would imply because presumably you want to return on that investment? What kind of rate increases would be required to support that five-year CapEx plan?

Yes, if you really were to break down the CAGR and the growth for PNM and TNMP, as I mentioned, it's 11.4% in TNMP, so we're allocating significant capital to Texas. And so we'll continue after the rate case to have the TCOS mechanism and possibly the DCOS mechanism to recover capital and use that as our way of moving forward. And then rates will be trued up, transmission customer rates will slightly decrease and distribution customers will increase in the rate case. So not concerned about that going forward because the mechanisms are placed to support the recovery of prudent capital investments that we continue to make in Texas to support organic growth. If you look at the growth in PNM, it's not substantive, frankly. The amount of rate base growth is at 2% to 4% range, and that 4%, really, is assuming the Supreme Court appeals get -- all of it gets put back into rates. And so you're probably looking more like the 3% CAGR. So it's not a substantive, and I can assure you that if we talk about and eventually decide to have a rate case in 2021, it would be very reasonable. Not a substantive rate increase. Remember, Ali, if you get tax reforms in, right, that goes and reduces customer costs. And as you segue out of coal and into more renewables, your fuel cost declines, right? So we haven't because we don't want to forecast rate increases until we tell the regulators where we are, but there's bunch of things working to help keep rates at a good level for customers.

Right. And Pat, just again, big-picture-wise, when you look at the current composition of the commission in New Mexico versus last couple of years or even few years before, any major changes? Is it relatively the same? I mean, just what's your perception right now?

Yes, I think the commission has been relatively constant in its composition. We have four Democrats right now and one Republican. Although, I think those labels are not as meaningful in New Mexico and on the commission. We have a couple of commissioners up for election next year. Commissioner Lyon has termed out, so we will have a new commissioner from that neck of the woods. Commissioner Jones is up for a reelection and will run again. And Commissioner Lovejoy is up, and she hasn't announced whether she's going to run or not. I suspect she will run. But I think that they are spending a lot of time familiarizing their selves with their issues. They are going to [indiscernible] a lot. So I think we're never going to be Wisconsin, but I think our commissioners are listening. And I think you've seen, for example on some of their decisions, they've have acted very independently from the hearing examiner. So we're comfortable with where they are. [indiscernible] Okay, very well. Well, all right, everybody. Thank you so much for coming today. Thank you to that are on the phone. For those of you that are on the phone, I hate to tell you that we have a lovely lunch waiting for us. So everyone, please have a wonderful, safe and happy holiday season. And we look forward to seeing everybody in the new year. Thank you.

Ladies and gentlemen, the conference has concluded. Thank you for attending this presentation. You may now disconnect your lines.