Good morning, and welcome to the PNM Resources’ First Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Jimmie Blotter, Director of Investor Relations. Please go ahead.

Thank you, Cole, and thank you, everyone, for joining us this morning for the PNM Resources’ first quarter 2018 earnings conference call. 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-Collawn; and Chuck Eldred, our Executive Vice President and Chief Financial Officer; as well as several other members of our executive management team. 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. And with that, I will turn the call over to Pat.

Thank you, Jimmie. Good morning, everyone. And yes, it is another beautiful sunny Friday in New Mexico, and it’s also Arbor Day, so Happy Arbor Day. Thank you for joining us today for our first quarterly earnings call of 2018. Let’s start on Slide 4, with the financial results and some company updates. Our GAAP earnings per share in the first quarter of 2018 were $0.19. Ongoing earnings per share were consistent with the quarterly expectation of guidance at $0.21 compared to $0.28 in the first quarter of last year. We are also affirming guidance for both 2018 and 2019. I’ll turn it over to Chuck to go through the details of these results in just a few minutes. As we work our way through 2018, we are expecting a straightforward year. At PNM, our general rate settlement is now behind us and our retail customers are already benefiting from tax reform savings. The phase and approach from our rate case creates a transitional year in 2018 and the full implementation in 2019 supports our two-year plan. We weren’t surprised this month that the commission did not move forward with our proposal for smart meters in New Mexico. In a state where the economy continues to light the nation, no one likes the prospect of job losses. We are encouraged, however, by the commission’s inclusion of our proposal for a pilot program in our next energy efficiency filing. This demonstrates the desire to integrate this type of technology in New Mexico in the future. We continue to await a decision from the New Mexico Supreme Court on the appeal of certain items disallowed from our September 2016 general rate case order. This could be issued any day. We announced our plan to transition out of coal generation last year, and…

Thank you, Pat, and good morning, everyone. And thank you for joining us today. Let’s start with a review of the load on Slide 6. Beginning the discussion with New Mexico. Economic conditions continue to be stable. The 12-month rolling average employment growth has been consistent for nearly a year now, although it remains lower than the national average. We continue to see economic activity such as the construction work at the Facebook data center. They announced last year that their site will grow from two buildings to six and have anywhere from 800 to 1,000 workers on site each day due to the construction work. We also see commercial expansion from restaurants, retail and other activities such as a 200-room hotel scheduled to open at the Santa Ana Casino in July and the construction of three new projects to support new apartments, a hotel and retail shops, bringing more than 11,000 – 1,100 construction jobs and 400 permanent jobs to Albuquerque. Along with this activity, we’re seeing customer growth at 0.7% for the first quarter 2018. This is a slight increase over the level we saw last year. While PNM’s weather-normalized load is consistent with our expectations, the first quarter has a smaller impact on earnings because of the seasonality in our business and, therefore, has less of an impact on the load forecast for the year. As a result, we continue to believe that we will achieve our annual forecast of flat to down 0.7% at PNM. Economic growth in Texas continues to outpace the rest of the country. We also see strong demand in our service territories, particularly with interconnection requests in our West Texas region. We have started the year strong for both the volumetric and demand baseload, exceeding the forecasted range. But as I mentioned…

Thanks, Chuck. As we wrap up today and look ahead to the second quarter and our general rate case at TNMP, I want to acknowledge that TNMP was recently honored as an ENERGY STAR partner of the year for 2017 for recognition of the sustained excellence of its energy efficiency programs. This is not the first time TNMP has been awarded this honor, so I want to congratulate our team in Texas for achieving this recognition once again. Along with that, I said earlier that today is Arbor Day, but I didn’t mention that our TNMP employees are commemorating the day again this year by planting trees. April is also National Volunteer Month, and our employees in New Mexico and Texas are some of the best volunteers I’ve seen, and I’m not the only one taking notice. Earlier this month, the mayor of Albuquerque recognized the PNM Community Crew as the 2018 Corporate Volunteer Group of the Year. As I’ve said before, it’s truly an honor working alongside so many individuals that are committed to making our communities better. Thank you again for joining us today. With that, I’ll ask our operator, Cole, to open it up for questions.

Thank you. We’ll now begin the question-and-answer session. And the first question comes from Nick Campanella from Bank of America. Please go ahead.

Hey, good morning. Happy Arbor Day.

Good morning.

Thank you, Nick. Same to you.

Can you remind us when you’re filing for MI again? I’m sorry if I missed that.

It’s in the next energy efficiency filing that we make.

Got it, thanks. And then keeping with the Arbor Day theme here, just looking at replacement power for San Juan. What are you guys thinking of in terms of fuel mix? I know that your thoughts there can be changing based on cost efficiencies.

Yes, Nick, the current capital budget reflects gas units, 2 large frame units of 374 megawatts and 82 megawatts of reciprocating engines. But as Pat pointed out, we have an RFP process going on now that would bank too on exactly what we view to be the right mix of generations, so it’s likely to include some energy storage as a possibility and maybe some renewables along with some peaking units. So that we really won’t know the detail to that until probably around the mid-part of 2019.

Got it. And then just in terms of recovery for that spend. It appears that New Mexico recently had an order in which new generation they had to operate as merchant initially. Can you just kind of talk about the recovery path there? Obviously, there’s a lot of company-specific factors that come into play with these proceedings, but I’m just trying to get an idea of how that all plays out.

Nick, you said SPS, and I think that you said the keywords there, the company-specific factors. SPS files under historical test year. We file under a future test year. And so I think they wanted to recover some of that lag there before they got it into their rate base. Anything we do is under a future test year, so theoretically, we don’t have that lag.

Got it. Thank you very much.

And Nick, the other thing is our next energy efficiency filling is in the spring of 2020. I forgot to tell you that.

Thank you.

You welcome.

And the next question comes from Ali Agha from SunTrust. Please go ahead.

Thank you. Good morning.

Good morning, Ali.

Good morning.

Good morning. First, Chuck, can you just remind us, I recall the tax reform impact has been phased in over the two years. Specifically, what’s the impact to earnings in 2018 and 2019? I’m assuming by 2019, it’s neutral, but can you just remind us the tax reform earnings impact?

Yes, Ali. If you look in the appendix of the slide, I think it’s on Page 12, in the actual – not appendix but in the presentation, we show the tax reform to be about $0.04 in 2018 for the first.

Yes, that was for the – for the first quarter, right?

For the first quarter. And then for the year, you’d have to actually go back to look at some of the fourth quarter earnings review and get the details, which we show you the amount of tax reform for the full year of 2018 over 2017 of $0.25. And that’s – if you go back to the materials that we posted previously in the fourth quarter on Page 23.

Yes, yes, got it. Secondly, Pat or Chuck, again, what is the cause for this difference between your customer growth in New Mexico and the load, which continues to be negative? What’s the persistent disconnect between the two of them right now?

Well, really, the growth is not – at 0.7%, it’s still not substantive enough to impact the load to be positive, so to speak, because of the offset of energy efficiency and distributed generation. So it just kind of at a point where we still see it relatively flat to a slight increase, but just down enough on the customer side to really see a significant positive benefit offsetting energy efficiency in BG.

I see. And then I believe it’s three, but a bunch of commission seats are up for election this November. Any sense or any expectation of a change to the commission composition post the November election?

Ali, I think it’s too soon to tell. Commissioner Lyons is obviously term limited out, so we know we will have a new commissioner there. Commissioner Jones and Commissioner Lovejoy both have challengers in their primaries. But the campaigns are just getting started here. They really kind of start in earnest maybe in the middle of May. So we could have up to three new seats or we could have just one. But whoever it is, we look forward to working with them.

Right. Last question, you talked about the 6% CAGR you are targeting 2018 through 2021. But when you look at the profile, you have that big jump in 2019, so 2019 through 2021, we’re looking at slightly more flattish or smaller growth of earnings. So how are you looking at sort of the longer-term picture once we get the full year impact in 2019 behind us?

We’re really – we’re going to focus on the 6% from 2018 through 2021. And then beyond that really is going to depend on outcome relative to the replacement power of San Juan. So even though it’s in the capital budget and we have it in our projections, currently until we fine-tune exactly what that replacement power mix is and the recoverability of those costs, we really don’t want to speculate on growth beyond 2021.

Okay.

But I feel encouraged by the opportunities we have, so don’t take that message as we’re concerned. We’re just not wanting to speculate on information till we get a little further along as to the details of what that replacement power looks like.

Got it. Thank you.

And the next question comes from Greg Gordon from Evercore ISI. Please go ahead.

Hey guys, good morning. It’s actually Durgesh on for Greg. How are you?

Good. How are you?

Good morning.

Excellent. Two quick questions. One, first for you, Pat. The Supreme Court deal, I missed the earlier part of the call. Did you guys discuss what a timeline might be? I know there’s no statutory timeline, but is there an expectation on when you could potentially get a decision, whether it’s this year or next year?

Well, I think I said we’re waiting. We’re waiting anxiously. The court had said last year that anything that was in before October, they’d hope to get out by March. And they did do that with the any Supreme Court appeal of the BART case, which the court ruled in our favor. And that came out in the beginning of March. This case is complicated. The court doesn’t have a lot of utility cases. So literally, I think it’s every Monday and Wednesday when the – excuse me – Monday and Thursday when the dockets come out. So the team is checking every day. So we’re hopeful that we’ll be soon, but as you said, there’s no time to frame.

Okay, thanks. And then just on the like the low growth in Texas. I think Ali was asking – asked you a question on New Mexico. The Texas load growth seems very robust. I just was wondering if with the growth that you’re experiencing, is there potential upside into your CapEx? What I mean there is – could you – I don’t know what – if you could articulate what assumptions are built – have you built into your Texas CapEx plan? And that CapEx plan could be higher if you keep seeing a level of growth that you’re seeing in Texas.

Yes, it’s still – we’ve actually contributed more to the capital budget to reflect a significant growth in the Permian Basin area even though all of the areas that we cover in Texas are seeing strong growth. The Permian Basin is still a very robust area. So at this point, we update our annual budget in December in that time frame, so it’s too early to tell whether or not we see a continued growth. But if we see opportunities, we’ll certainly wanting to contribute more capital to support the growth in Texas. But it’s just too early at this point, Durgesh, to comment any more other than we are contributing significant amount of capital to support the growth that we see today.

That’s fair. Thank you guys and great quarter.

Thank you.

And the next question comes from Paul Fremont from Mizuho. Please go ahead.

Thanks a lot. Can you discuss at all the Facebook data center power needs and whether they’re going to be coming out with some additional RFPs for generation?

Yes. They’ve already – we start out with 50 megawatts, which PNM is providing a build on that. In addition to that, the commission approved three other different sources of renewables that are pursuing – being pursued right now, one of which is 50 megawatts of what’s referred to [indiscernible] which is a wind PPA. Another 166 megawatts of wind, which is another PPA supported by Avangrid. And then there’s a 50 megawatts of solar PPA from NextEra. And they’re currently looking at some additional solar, anywhere from 50 to 100 megawatts. It’s not clear exactly what that will be. And we’re actively involved with that discussion to look at the possibility of serving that from PNM’s build opportunity.

And would you be doing that on your own or would you be doing that in partnership with somebody?

We’ll look at it both ways, but certainly, we would look at the JV we have with AAP to support that as well.

And then, can you also just update us on sort of the current outstanding under the Westmoreland node and when that is expected to pay off?

Yes. The node itself is around $50 million outstanding, but we do have a $10 million reserve in the San Juan coal company structure that could be applied to that in the event that we need to pay that down further. The node itself, I think, comes due in 2020, 2021.

2021.

And so we’re on track. They’re making their payments. As we’ve said before, the San Juan coal company is bankruptcy remote and [indiscernible] and very secure to how we capture the cash flows and waterfall the excess cash to pay down the debt. So it’s been right on schedule, right on plan. And I know they’re going through restructuring, so there’s a possibility they may decide to pay off that debt, which is fine, too, if they end up in that decision, but that’s where it is right now.

Great. Thank you very much.

Okay.

[Operator Instructions] And the next question comes from Lasan Johong from Auvila Research Consulting. Please go ahead.

Thank you. I’m a little confused. Why would the outage for the scrubber installation be considered a normal part of operations? I mean, it sounds like you guys are going to do a scrubber installation every year, is that right?

I think what we’re trying to say, Lasan, is that an outage is normal course of business, so we just moved it around and moved it up from the fall into the spring. It’s not atypical when you – when something happens at a plant to move an outage up. I think that the scrubber outages at Four Corners, we were talking about at San Juan because we have the issue with the coal mill, we moved that outage up to the spring.

Okay. So the outage is not impact – I thought – actually, you guys said that, but I thought one of the impacts on PNM’s financial – first quarter financials one, due to the scrubber installation. I think that’s what you said in the call.

Yes. Last year, we did it. This is the outage we have for the first quarter to reflect the Four Corners installation of the SCRs. So it happened in first quarter last year. So that’s that…

Okay. That was last year. I was wondering what was the [indiscernible]

Yes.

And then the outage that we moved up, and Chuck said normal course of businesses, is the San Juan outage. Sorry, too many coal plants up in the Four Corners area.

I apologize I missed. I thought it was [indiscernible]

It’s okay.

No problem.

That’s all right. No problem.

Okay. Second, right now, natural gas prices are still kind of – shall we say, on the weaker side, and there’s no kind of expectations for anything dramatically to the upside for a very, very long time. So are you feeling any pressure to say, abandon building new topline facilities in this billion sub market and buying power to replace San Juan? So cheap.

No. I think if you look at that, the San Juan replacement isn’t until 2021 and 2022. You always buy a little bit of the market. But the market is tight in the west as people retire their coal plants. And some of the natural gas capacity we need is for peaking and for quick-start resources to follow all of that solar generation. And quite frankly, the cheap natural gas prices are what is driving the shutdown of San Juan because the economics for natural gas and renewables are compelling. So we haven’t seen that here yet.

Don’t get me wrong. I would love to see you guys build a couple of big CCGTs. But I’m just wondering how feasible that might be in the current environment. Third, I know this is kind of a weird question, but when do you expect – when does New Mexico expect that load growth will turn back towards that positive number again? There a lot of the other utilities saying the effects of energy efficiency have kind of substantially waned, but apparently that’s not the case in New Mexico. So I’m kind of wondering when the catch-up will occur.

Well, that’s a great question, Lasan. And I think there’s a couple of things going on. As Chuck mentioned, we’re seeing a lot of small commercial and other growth. There are some nice things in the economic development pipeline, which obviously we can’t talk about. But I think if you look at New Mexico, there is a real culture towards the environment and energy efficiency. We are, for example, in Albuquerque, the number one market in the United States for green-built homes, and so things are built pretty tightly here. And energy efficiency is a good thing. We’re in the midst of a proceeding to talk about some sort of a loss revenue adjustment or decoupling that came out of the rate case to give us a volume true-up mechanism because if customers use less energy, it’s good for the environment. And if we’re held for that, it’s okay for us and shareholders. So we hope our economy does pick up, and we see a lot of good things going on. The trick, I think, is just to come up with an energy efficiency disincentive mechanism that works.

And Lasan, just to add to that. We do see in 2019 the potential to begin to see a positive growth up to 0.5% in the load forecast for PNM. So again, it could be slightly negative but beginning to see inching into some positive load growth in 2019 as a potential.

Okay. Pat, that answer was a fantastic answer because you set me up for my next question. When do you expect or – well, [indiscernible] but in the past, revenue decoupling was really not a priority. But it sounds like that’s kind of changing for PNM. And if that’s the case, kind of how much of earnings do you see in this? And when do you expect to make any kind of filings to get that done?

We had actually filed in the last rate case for a decoupling mechanism. We were asked to move it out of the rate case into a separate proceeding, which we did. And on March 2, we filed for an approval of a disincentive mechanism with the PRC. And on April 25 of this year, the hearing examiner issued a procedural schedule. So there will be a technical conference and testimony and then there’s going to be a hearing on October 31 of this year. So that got moved outside of the rate case, which I think is a good place for it to be outside of the rate case.

I agree, I agree 100%. Is there any kind of resistance, or is there a lot of people saying that this is free money to utility, don’t do it? How are you doing this? Or how do you position this with the regulators? And do you see resistance, a lot of it?

No. I think the discussion is over what mechanism is appropriate. There’s a lot of different opinions on what kind of a mechanism makes sense. Is it a full decoupling? Is it a lost revenue, a true-up? And with the fact that we have a forward test year, right, we true up our volumes every couple of years. So I think most – everybody realizes that energy efficiency can cause load growth, that we’re a high fixed cost business. And obviously, somebody that says we shouldn’t have a mechanism, but I think most of the discussion is going to be around what’s the appropriate mechanism.

Okay. So it’s a matter of if – a matter of how, not if?

I think so.

Yes. Well, I think that one of the hearing examiners that addressed in the last rate case literally laid out the steps of the framework, the methodology that Pat refers to. And we filed our information to reflect that. So we think we’re off to a good discussion and to get input, and it’s probably more about the methodology than it is whether it’s justified.

That’s great. Last question is, Chuck, you had mentioned rolling out potentially some new power generation facilities. I would assume, correct me if I’m wrong, that the approval of those facilities will also coincide with the recovery for – a revenue mechanism recovery for those power sites, correct?

Well, there’s two parts of this. When we shut down San Juan, we said we make a filing this year, a compliance filing, that reaffirms our intent to shut down San Juan. And then next year, we will make a formal filing for the abandonment of San Juan. And for a CCN, for the new generation, so then we will ask for what recovery mechanism in that CCN filing, but that’s next year.

And so that – and that should guarantee – there should be no question about what your rate of return will be on these plants going forward?

Yes, I mean, it’s just more of a question of this is what we feel is – makes the most sense to address reliability and the changes to the system to integrating with the additional renewables that we’re getting onto the system, and it’s a question of what that right mix is, whether we own or there’s PPAs or whatever the circumstances are. But we feel very comfortable that, to address reliability, particularly on peaking units, you need to have control of those resources.

Absolutely. I’d just leave it with that. Just wondering if the revenue recovery mechanism and the amounts would be preapproved so that there’s no question to the investors that the IRR that you will be receiving on these power plants are fixed and according to the regulated authorized rates.

Well, the CCN will address what the resources are that’s agreed and improved by the commission, and then we will just file that in our next rate case, which would remove any uncertainty. It’s a question at that point of getting that into our rates after the CCN is approved. So it does remove the uncertainty, yes.

Yes. I just want to double check. Thank you very much.

Okay, that’s good.

Thank you.

And that concludes our question-and-answer session. I would like to turn the conference back to Pat Vincent-Collawn for any closing remarks.

Thank you, Cole. Thank you all again for joining us this morning. Please have a happy Arbor Day. And if you plant any trees, please remember to take care of your backs. And we will talk to you all again soon. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.