Good day and welcome to the PNM Resources Third Quarter 2022 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lisa Goodman, Executive Director of Investor Relations. Lisa, please go ahead.

Thank you, Melys and thank you, everyone, for joining us this morning for the PNM Resources third quarter 2022 earnings 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 and CEO, Pat Patricia Vincent-Collawn; President and Chief Operating Officer; Don Terry; and Senior Vice President and Chief Financial Officer, Lisa Eden. 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, everyone and thank you for joining us today on both National Jersey Friday and National Candy day. We are all decked out in our jerseys today, eating our left over Halloween candy with, of course, the exception of our General Counsel. But since it's also a lobby lawyer day, we're going to let that slide. On Slide 4, I'll start with our financial results. and ongoing earnings increased in the third quarter over the prior year, bringing year-to-date ongoing earnings to $2.54. As a result, we are raising our guidance for 2022 ongoing earnings to a range of $2.63 to $2.68. We are maintaining our guidance for 2023 at a range of $2.60 to $2.75 based on the continued strength at the utilities, offset by higher interest rates. Lisa will walk through these numbers in more detail. In October, PNM filed its application for a big modernization plan to bring smart meters and other system upgrades to our customers. We asked for approval of our plan by next July and hearings have been scheduled for March. Don will talk more about our application. This quarter also brought us a step forward as we execute our plan to be emissions-free by 2040 with the retirement of our last unit of the San Juan Generating Station. This significantly reduces the amount of coal in PNM's generation to less than 10% and brings our portfolio to 55% carbon free. I'd like to thank the teams at San Juan, who operated the plant safely and efficiently to continue serving our customers through one last summer. On the regulatory front, the New Mexico Commission had ordered us to begin providing rate credits associated with the retirement of San Juan. We appealed the order and requested a stay of the rate…

Thank you, Pat and good morning, everyone. I'll start on Slide 7, with our loan growth by service area with PNM first. The third quarter is typically our highest demand. And as temperatures soared in early July, PNM set a new system peak, our first since 2013, in terms of overall load, our growth has been coming in slightly lower than our original expectations. The primary driver of growth in our original guidance was from our industrial customers. Delays related to customer supply chain issues and other pressures have moved this timing out till next year. Residential and commercial load has done better than expectations for the year. With these overall shifts in load, we have reduced our 2022 retail load growth expectations to 0.5% to 1.5%. Industrial customers have the lowest rate so this does not have significant impacts on our EPS. Looking ahead to 2023, our expectation is for industrial customers to move through their delays and get back to the original forecast of 2% to 3%. Economic development efforts in New Mexico have increased the number of continuing inquiries coming from companies looking to relocate or expand in our state particularly from those who are looking to achieve their own clean energy goals, we play a key role in working with these companies to plan for their energy needs. And as a result, we anticipate growth in our system in the years to come. Load growth at TNMP has exceeded expectations across the board. Volumetric growth has been 2.8% year-to-date and we have increased our expectations for the year to a range of 2% to 3%. On demand-based load, usage from crypto mining customers has pushed growth up to double-digit levels. Without crypto mining usage, demand-based load has grown consistent with our expectations for the year of…

Thank you, Don and good morning, everyone. Turning to Slide 11 with a summary of the changes in third quarter earnings compared to last year. As usual, the detailed drivers for each segment are available in the appendix. Earnings per share for the third quarter grew from $1.37 in 2021 to $1.46 in 2022. As Don mentioned, load and weather increased earnings this year, particularly in Texas and the TCOS and DCOS rate mechanisms increased earnings on our capital investments at TNMP. Continued resource constraints in the West, increased market prices and FERC transmission demand at PNM in addition to earnings from the new Western Spirit transmission line. These increases were partially offset by depreciation expense on new investments across both utilities. At PNM, lower market performance on our decommissioning and reclamation trust reduced earnings compared to last year. These long-term trust along with our pension, remain well funded despite the challenging market conditions in 2022 and we don't anticipate making any cash contributions to these trust in our current plan. Higher interest expense also reduced earnings and I will talk more about our financing plans in a few minutes. Slide 12 has our revised capital plan through 2025 of $3.7 billion. This investment plan continues to be focused on T&D infrastructure and meeting the growing needs of our customers across New Mexico and Texas. We have added $131 million for our grid mod plan as part of PNM T&D along with an additional $100 million across the business to support investments in reliability and resiliency. We continue to monitor supply chain and inflation. And our partnership with our integrated supplier has mitigated impacts to our business. We have also taken steps to improve our equipment standardization [ph], identify critical equipment and where possible, we have put in earlier orders…

Thank you, Lisa. Before I open it up for questions and please make sure you save some questions for us at EEI. I'd like to thank our crews in Texas who made their way to Florida to assist in the restoration efforts after Hurricane Ian. This type of assisted exemplifies the best of our company and the best of our industry as our partners get together to help customers. Melys, let's open it up for questions.

[Operator Instructions] Our first question comes from Ryan Levine from Citi.

For the 2023 guidance that was maintained, can you walk us through what the impact was from the higher interest rates that were hedged that you highlighted in terms of the impact that was offset by other factors.

Sure. Ryan, it's Pat. I can have Lisa to answer that.

Yes. Brian, good to talk to you. Yes. So we have hedged $850 million of our variable rate debt through 2023 at 3.5% and -- and we will have our normal year-end guidance -- year-end call in February. And so at that time, we will provide detailed drivers and EPS drivers, Brian.

Okay. And then loan growth was very strong for the -- for your outlook for '22. You mentioned crypto demand. Are you seeing any drop-off in that demand into the fourth quarter and into next year?

Yes. No, we haven't. I mean we continue to see it hit about that level. As we take into consideration in 2023, we look at all factors associated with that. I think one of the key things is our core demand growth continues at that 2.5% to 3.5% and the cryptos on top of that, so.

Okay. And then last question for me. In terms of the equity issuance that you highlighted, the pending filing of an ATM. Do you anticipate utilizing any of that ahead of any decision around the pending merger?

Yes. Ryan, like we've said, we have identified up to $200 million of equity needs by the end of 2023. And -- and like I said before, we put an ATM in place to make sure that we have ample of tools in the toolbox. And we will just look at the next year and -- we just want to make sure with the ATM program that we have the flexibility.

Our next question comes from Jonathan Reeder from Wells Fargo.

For the appendix, it looks like above normal weather year-to-date has been $0.11 favorable. Should we be thinking that weather is what really drives the midpoint to midpoint '22 guidance increase, whereas the higher non-weather-related demand is offsetting the interest expense headwind.

I think that's a good way to look at it. I mean I think the core business, I think there's a couple of things, Jonathan. I think clearly, we saw the benefits of weather. We saw -- also saw our FERC transmission business with the constraints in the West provide benefits in that arena as well. And then yes, those things are the strong utility performance, both at TNMP and PNM have helped to offset some of that corporate debt interest.

Okay. So then when we look at kind of '23, that weather benefit goes away, in other words, you're kind of then the starting point is back at the middle of that original '22 guidance range perhaps and then your normal growth and that, I guess, the interest headwind, again, is offset by that core business strength and that's how you're able to kind of maintain the '23 range?

Yes. So we always look at whether when we prepare a guidance range to normal weather, right? And so that's what we have anticipated in 2023. And so we feel very comfortable with the range that we are -- have provided in 2023. We did have some upside on weather this year. And so of course, you're going to see the growth being a little lower between 2022 and 2023 as a result.

Right. Okay. And then on the grid mod application, -- can you remind us about the rate rider request, -- like is there a precedent for a grid mod rider in the state? Or is this a novel request that [indiscernible]?

Yes, Jonathan, it's actually included in the legislation -- so it provides that avenue to be able to file an earring.

Okay. So assuming the commission upholds the legislation might be the question in New Mexico but hopefully, that will be I guess, a little better if -- or when the new commission.

Yes, Jonathan, this will be heard in March, the time frame will be the hearings and decision next year under a new position.

Okay. And then is there any update on the appeal by the like, I think it was a women's indigenous group or maybe both women and an indigenous group to the Supreme Court regarding the constitutionality of that constitutional amendment to move to the appointed commission?

Ryan, no, there isn't really any update on that but the Attorney General has filed and spoken out that they believe that appeal is not based on anything. So that is not on the list of things that we worry about.

Okay. What is on the list that you worry about?

Well, I worry that my General Counsel is going to now try to eat all of my Halloween candy, so. Hopefully have some [indiscernible], not the peanut butter. There are absolutely no resi’s [ph] here, Jonathan. So if you want to be nice at EEI, you can bring me some.

Or you can bring either way.

I'll bring you some. Okay.

[Operator Instructions] Our next question comes from Julien Dumoulin-Smith from Bank of America.

Thank you guys for the opportunity. Good update here. So just a couple of things just to take through. Again, I can't promise I'm not taking through all the EEI questions here. But maybe to take it from the top here, the grid mod seems to have been reflected through the seems like average rate base didn't see a tick up for '23 and hence, why there's no change in the '23 guidance or the it's not material enough to change the range, especially against the interest rate dynamic you spoke about earlier? Is that kind of a fair way to characterize that?

That's a fair way to characterize it, Julien.

Got it. Excellent. And then related here, can you talk about financing? Just -- again, I know you guys are going to come up with this later. But you alluded to the ATM. You had some equity needs in the plan or the legacy plan, I'll call it that. You've updated your CapEx and rate base through '25 [ph] here, 8% CAGR versus 7.7% earlier. Is there incremental equity to fund that? Or just is it still kind of ballpark the same? Again, obviously, embedded in that to make it explicit, how do you think about AMT and other factors that may play into it as well, right? Again, this is more of a cash flow question versus the earlier equity needs.

Yes. And so we are still keeping the same equity needs that we had defined before, Julien. So we have up to $200 million through 2023. And beyond that, we will optimize our financing plans based on market conditions. And we're really focused on reaching that earnings growth target of 5%.

Excellent. Okay, great. And then maybe if I can, just in terms of the rate case timing, the grid mod filing and then ultimately the backdrop of another bite at the apple of the deal, if you will, can you talk about sort of the parallel process here, especially between the rate case and the deal? I mean just how do you think about that time line, both the filing and ongoing prosecution of both or all 3 efforts here as they come to some fruition here in '23, each of them.

Yes, Julien, the grid mod schedule is already set. So that ones in there and that will proceed along the normal administrative proceedings for the commission. The rate case will be filed as we said, this year in December, it will go on the normal schedule where it gets expended in hearing set, et cetera, et cetera. So that doesn't -- that will go after the grid mod filing in terms of when the commission hears it. And as we said in the merger agreement -- or excuse me, in the settlement with the interveners, we wouldn't file a rate case until December of this year. So we need to file a case. We haven't filed one for a long time. So those 2 go on a normal path. And then the -- the merger if the commission decides they'd like to hear it again and bring it back to the Supreme Court, that's kind of on their timetable. If it goes to the court process, it's a little longer. So I think that -- the one that we don't know exactly when the schedule will be yet as the merger but that would not get in the way of either the grid mod or the rate case. And conversely, the rate case or the grid mod wouldn't get a way of having the merger herd early in the year, so.

Got it. All right. Excellent. And then I presume at least at the time being, I know that Western Resource Adequacy is a hot button subject across all states. No updates here from that and/or IRA Juxtapose here as well, at least thus far, right? Again, obviously, there's a lot moving perhaps behind the scenes here but more formally to reflect the needs and the cost coming down?

Yes. The team continues to work on resource advocacy and is making good progress. We'll have more of an update when we do our year-end call. In terms of the IRA, will it help -- yes, the issue is the rules haven't been written yet. And as you know, with Treasury, the devil's in the details. So until we see the final rules, we aren't going to plug that in yet. But I think people have underestimated what a game changer that bill will be, so.

Right. And underestimate what a gain will be for your service territory and the opportunities that affords your customers, specifically when you are saying that.

Climate in general -- I'm sorry, that wasn't a particular statement about us, so.

I always got a check. Totally, Absolutely. All right. There we go. That's a deal [indiscernible] it is, right? We'll see you then.

Thanks, Julien.

And this concludes our question-and-answer session. I would like to turn the conference back over to PNM's CEO, Pat Vincent-Collawn for closing remarks.

Thank you, Melys and thank you, again, all of you for joining us this morning. We look forward to meeting with many of you at the EEI Financial Conference. Until then, if you haven't voted already, please do so, stay safe and always love your lawyer.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a good day.