Good morning, and welcome to the PNM Resources Second Quarter 2019 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jimmie Blotter, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Nancy. And thank you, everyone, for joining us this morning for the PNM Resources second quarter 2019 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'll turn the call over to Pat.

Thank you, Jimmie, and good morning, everyone. Thank you for joining us today for our second quarter earnings call and for nice National Ice Cream Sandwich Day. So let's begin on Slide 4. Our GAAP earnings per share in the second quarter of 2019 reflect a loss of $0.95 compared to earnings of $0.48 in the second quarter of 2018. This was driven by the $104 million after tax write-off of items that were under appeal with the New Mexico Supreme Court following the order confirming their disallowance from rate base. Ongoing earnings per share of $0.37 compared to $0.53 in the second quarter of last year. We reported in July that weather during the second quarter in New Mexico was the mildest in 20 years, significantly impacting our financial results. We're reaffirming our revised guidance of $2.05 to $2.11 that incorporates these results. Chuck will provide further details on the financials in a few minutes. After the newly passed Energy Transition Act became effective in June, we filed our consolidated application on July 1 to request approvals for the abandonment, securitization and replacement power for the San Juan Generating Station. So let's turn to Slide 5 for the details on the filing. The application requests the abandonment of San Juan after the participation agreement and coal supply contracts end in June of 2022 and a request of the issuance of $361 million of energy transition bonds. The lower financing costs of these bonds provide a financial benefit to customers. The Energy Transition Act also benefits other stakeholders that are impacted by the transition out of coal. The total amount to be securitized by the bonds includes significant dollars and resources to assist the employees affected by the transition out of coal and the surrounding community that has relied on…

Thank you, Pat. Good morning, everyone. It's also a Happy International Beer Day. I'll begin this morning on Slide 8 with a recap of earnings and guidance. We issued a release in July discussing the impacts of weather in the second quarter. Our earnings for the quarter of $0.37 are consistent with that information. As expected, PNM was significantly lower than second quarter 2018. While all the drivers are included in the appendix, the primary item to note is that the weather load were down a combined $0.15 from second quarter of last year. For TNMP, the drivers fully offset each other for the second quarter of 2019 versus 2018. Corporate and Other was down $0.01 compared to the second quarter of 2018. As a result of the weather impacts at PNM, we've revised guidance for the year. To address the earnings impact of the second quarter, we're able to implement mitigating plans for the remainder of the year. Our budgets are developed with flexibility and prioritized in a way that allow us to align our cost with the revenues. Of course, the size of this impact was significant, so we're also offsetting this by managing the timing of when vacancies are filled as well as lowering our results base and incentive compensation expense. We also saw strong market performance in our NDT resulting in realized gains. For 2019, we expect to have ongoing earnings per share of $2.05 to $2.11, targeting the midpoint of $2.08. We have updated a quarterly EPS distribution for the third and fourth quarter expectations. We do not expect any of these items to impact 2020. Now turning to Slide 9 for our load information. In our guidance range, PNM was the primary driver, and you can see when we look at the degree days.…

Thank you, Chuck. Before I begin questions, I want to make note of the collaboration and commitment from multiple stakeholders towards the common goal that led to the passage of the Energy Transition Act. The process for our San Juan filing is no different. To keep the spirit of collaboration moving forward, PNM filed four scenarios for the replacement power. We did this in acknowledgment of competing interest in the Energy Transition Act. This innovative approach has been welcomed as a road map to continue the cooperation with these important stakeholders that were started by the EPA. As part of that process, we’ve already held two community meetings, a specific session for parties running their own resource model, meetings with [indiscernible] president and legislative committee, along with the special session for our own employees. In these meetings, we listen to concerns, share data and consider alternatives. So far, more than 523 people have participated in these meetings and we only expect that number to grow. You know, this certainly isn’t the easy way to do things as it takes incredible effort from our team and from the other parties. But this is too important to get wrong. So thank you to everyone here at PNM Resources and all around New Mexico for committing your time and energy to this transition. With that, operator, let’s open it up for questions.

We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Greg Gordon with Evercore. Please go ahead, sir.

Good morning. I don’t know, if I can drink a beer while I’m eating my ice cream sandwich, but I think I’ll give it a try.

Give it a try. Chuck does it, so…

Well, okay. There’s a safety in numbers then. The – there has been a little bit of confusion given report sort of what the NMPRC is doing with regard to the bifurcation of the case since some statements that have been made by commissioners with regard to the timing of these approvals and perhaps some dissonance in the expectation of what may happen in these bifurcated proceedings. So can you talk about your perspective on what flexibility the PRC has under the legislation to approve the securitization, not approve the securitization if they have flexibility to approve a different amount? And then the flexibility they have under the law with regard to finding the least cost or most balanced option ultimately for the replacement power?

Yes. Greg. I mean we’re very confident on our legal petition – legal position at the ETA, including securitization applies to our filing. And I think you saw that yesterday Commissioner Fischmann responded to Western Resource Advocates motion and moved up the date to get some responses back to August 9 because they know this is an important issue. So all of Western Resource Advocates and the environmentalist also believe that we have a good position on this. And if you look at the law for securitization, it’s really a checklist of things that the commission has to do. So we are very confident in our position. And I think we’re glad to see that the commission is moving up, the determination of that because it is important as we move through this process.

And then with regard to the different – the four different options you presented. How under the law or under pre-existing PRC precedent or standards, are they sort of mandated they go about making that decision?

Well, if you look at sort of pre-existing and precedent, you would take what’s kind of called the least cost plan, but it also can take into account the environment and reliability. And that’s the scenario one that we presented. The law also shows a preference for resources up in San Juan. And that was the second scenario that we filed. And then the third and the fourth, we filed in response to some of the stakeholders’ interest. So the commission, I think, has the latitude to pick among those different scenarios as long as it does – maintains reliability, the commission does not necessarily have to pick that least cost plan because there is that flexibility for them to take into account the environment and then law, the EPA gives them the flexibility to put resources up in San Juan school district.

.:

Your next question comes from Julien Dumoulin-Smith from Bank of America. Please go ahead.

Hi, good afternoon. This is Alex Morgan calling in for Julien. Thanks so much taking my call.

Welcome, Alex.

My first question, I know you mentioned a few things for cost cutting expectations in 2019 mostly about the not vacancies and potentially lower bonus compensation. I was wondering, if we should be thinking about any other cost cutting metrics as well for this year?

I think that’s really – as I mentioned, our plans are very flexible to align our revenues against the expenses in the business since we think about the circumstance that happened in the second quarter that gave us sufficient time to prioritize our budgets and use that flexibility to lay out a plan that we think and confident that we can execute. But it was significant, as I mentioned, changing guidance. We just don’t have enough to cover the entire $0.15 without making the guidance change. But with the changes and the focus on $2.08 and the mitigating plans we put in place, we’re confident we’re back on track where we should be.

Okay. Thank you so much. And I was hoping that you could – I know you discussed a little bit the additional equity or no need of that because of it more or less offsetting AFUDC, could you just talk a little bit more about the financing plan as the replacement power comes back online for San Juan and then using the bonds to pay off the interim financing?

Yes. So if you reference the earnings power slide that we have in the appendix, it gives you some detailed notes of the financing plans, which includes some equity financing that the business we plan about $50 million in 2020 and $100 million issued in 2021. And then we have $300 million mandatory convert beginning in mid-2021. So that’s the underlying basic assumptions about our financing plans. But – and also the proceeds we get out of securitization, those bonds will be used to pay off some interim financing that we have for the replacement power, as we began to pursue whatever decision comes out of the Commissioner ability make to those investments.

Okay. Thank you so much. Those are my question. Have a great after noon.

Thank you.

Our next question comes from Ali Agha from SunTrust. Please go ahead.

Thank you, good morning.

Good morning, Ali.

Fine. First question, Chuck, I just wanted to be also little more clear on the securitization aspect of the financing in the legislation. What’s your sense – again, given some reports that the commission doesn’t seem to be giving a very clear indication on where they stand on securitization, there’s some talk that they’re trying to take a timeline that starts before the legislation was passed so that somehow securitization doesn’t come into play. Can you just give a sense of what you are seeing or hearing from the commission? I guess, part one and part two, I understand your point that the legal side of it is very clear but could there be a scenario where you get the wrong decision out of the commission, you got to go to the Supreme Court and ultimately get the right decision, but there’s time lost during that process. So just wanted to get a little more perspective on what you’re thinking?

Sure. And obviously, we have not talked to the commissioners directly because this is a pending case. And I won’t speculate on what was in the newspaper because I don’t know anything more than what was there. But – and we’re very confident of our legal petition and our legal position and I think as you saw Commissioner Fischmann yesterday issued an order that asked for responses due on this matter by August 9, right? So that moves up the uncertainty about it. And we can still go to Supreme Court, if we’re not getting that certainty. Because we agree that the certainty is important and we would rather have that sooner or later, so we see Commissioner Fischmann’s move as a good move. And if we don’t get it soon, we will definitely consider going to the Supreme Court with some of our other supporters of the ETA.

And so by moving this up to August 9, does that give you a timeline on do they expect to have a decision that very day on when would you expect them to clear this up?

No, we wouldn’t expect the decision that very day. And they didn’t set aforesaid date for a decision. But it’s moved it up significantly. Because, for example, the Hearing Examiner have right now on their schedule it would be August 24 but we have filings and responses due on October 18. So they’ve moved the responses up, let’s see my math goes, two months. So we would expect to have a decision, relatively soon after that. Because everybody understands that we need to have clarity as we move along and we would rather have the decision sooner rather than later because if it doesn’t – if it says that it doesn’t cover the [indiscernible], we will obviously go to Supreme Court on that.

Right. And my second question that, remind us, what’s the timing for the next rate case filing in New Mexico? And given that you’ll file that and then you will have another rate increase for the replacement power. How are you thinking about sort of back to back rate increases and the implications in New Mexico?

This is Chuck. We certainly have – we’ve indicated before, our plans are to file something in December. That’s currently our plan. But we’ll continue to monitor that based on the progress and the focus that we have on this current pending case with abandonment. And we want to make sure that the resources and dedication and focus on that execution is really where our priority is. And in assessment to that then we’ll really determine the final plans for issuing – filing the new rate case. So again, that’s our current plan but we’ll consider it based on what we see is the progress in the process we go through abandonment filing.

Okay. I see. And then to be clear, Chuck, there could be a scenario that instead of two cases you kind of roll it all into one, as part of the abandonment filing?

It’s too early to say what we might do and how we might think of it. I mean securitization itself will lend itself to a certain amount of rate proceedings that are required to support the ETA. And then beyond that it’s just a reflection of what our normal rate case needs are and we’ll just deal with that as we begin to see the process and to Pat’s point in a more clear way then we’ll make the determination of what the appropriate filing should be.

Thank you.

[Operator Instructions] Our next question comes from Paul Fremont from Mizuho Securities USA. Please go ahead.

Thanks. Pardon me for being confused with the NMPRC. But I had thought that Commissioner Becenti-Aguilar had dismissed the Western Resources petition. So how does – does the Fischmann order that was put out yesterday, does that represent a change in the commission's position? Or is the original petition still rejected?

So, what happened Paul, was, WRA filed an interlocutory appeal after it was denied by Commissioner Becenti-Aguilar. So this was a second filing by Western Resource Advocates that Commissioner Fischmann is responding to.

So, does that mean that the commission is going to essentially respond here or could they still come out with the same sort of response that Commissioner Becenti-Aguilar came out with basically, just rejecting the appeal?

So, what they did was they responded differently, right? And said that they're going to hear – give responses on this on August 9. Now, they can respond differently to what Commissioner Becenti-Aguilar did. So what Commissioner Fischmann said is no this is important, we got to hear this and we want responses due on August 9. So they could respond differently to what Commissioner Becenti-Aguilar did.

Okay. And then in my understanding then from what you said is if you get a definite – or there's a definite no then out of the commission and they rejected again, then WRA or yourself would then be free to go to the court? Is that…

That’s correct.

Okay. I think that’s it. Thank you very much.

Hey, you’re welcome, Paul.

This concludes our question-and-answer session. I would now like to turn the conference back over to Ms. Pat Vincent-Collawn for any closing remarks.

Thank you and thank you all again, for joining us this morning. I hope you enjoy the rest of your summer, and whether you choose to celebrate National Ice Cream Sandwich Day or International Beer Day or both. Please celebrate safely. Thanks. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect and enjoy the rest of your day.