Good morning and welcome to the PNM Resources Fourth Quarter 2022 Conference Call. All participants will be in a 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 Lisa Goodman, Executive Director of Investor Relations. Please go ahead.

Thank you, Joe and thank you everyone for joining us this morning for the PNM Resources fourth quarter and 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 Vincent-Collawn; President and Chief Operating Officer; Don Tarry; and Senior Vice President and Chief Financial Officer, and Treasurer, 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 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 this beautiful setting New Mexico Friday morning. Today is the day we celebrate some of our favorite people. It is World Bartender Day and I'm just going to leave it at that. 2022 was a year full of successes as we stayed committed to moving forward and executing on our business plans or as one might say taken care of business. Today, we will cover our year-end results for 2022 to provide an update on our pending merger with AVANGRID, review operational highlights, and share more details on our earnings guidance for 2023. On Slide 4. I'll start with our financial results. We finished the year with ongoing earnings of $2.69 just above our expectations for the year. For 2023, we are narrowing our guidance range to $2.65 to $2.75. In December, our Board increased the common dividend to $1.47 per share on an annual basis. Lisa will walk through each of these numbers in more detail. Next, an update on our pending merger. The case remains on appeal with the New Mexico Supreme Court. Over the last month, we have been pleased to see the commission post notice of three closed sessions with the case on the agenda. We do not yet have any information available. In New Mexico, the newly appointed commission took their seats in January and we're confirmed by the New Mexico Senate earlier this month. We have already seen their experience and expertise on display and we are looking forward to working together to achieve New Mexico's carbon free energy future. In December, PNM filed its 2024 Rate Change as planned. Our last case was filed in 2016 with a 2018 test year. We deferred our plans to file earlier because…

Thank you, Pat, and good morning, everyone. I'll start on Slide 7 with our load growth by service area, with PNM first. Load grew at 2.9% in the fourth quarter compared to the prior year with growth coming from all customer classes. For most of 2022, we saw residential and commercial load growth above our expectations, while industrial customer expansions were delayed by supply chain and related market issues. We expect the growth we saw in the fourth quarter to continue into 2023 between 2% and 3%. We're still seeing the results of New Mexico's economic development efforts through our customer expansions. We also see government and tribal projects that are less impacted by market-wide economics. At TNMP load growth in 2022 exceeded expectations for both volumetric and demand based load plus the added growth from crypto mining customers entering the market. These customers are mostly in our West Texas service territory providing some economic diversity to the region. Our operations in North Central Texas and the Gulf Coast, provides strong geographic and economic diversity to TNMP, and each of those areas support a mix of business operations and growing residential and commercial communities surrounding the nearby larger cities. For 2023, volumetric growth is expected at 2% to 3% consistent with the full-year results of 2022. Demand based growth is expected at 3.5% to 4.5% above the 2022 levels. Now turning to Slide 8. I'll cover the ways we've been taking care of business at PNM and making progress on our strategic objectives. The transformation of our generation portfolio has been front and center. We have plans to exit coal and reach carbon free electricity by 2040 five years ahead of the New Mexico mandate. The closure of San Juan Generating Station this year was a significant step in achieving…

Thank you, Don, and good morning, everyone. I'll start on Slide 12, with a summary of the changes in 2022 earnings compared to 2021. Earnings per share grew $2.45 in 2021 to $2.69 in 2022, as we have also been taking care of business on the financial side. The key drivers are consistent with the items we've discussed throughout the year. Usage was up at both PNM and TNMP due to both load growth and weather, particularly as TNMP as crypto currency mining enter the market in West Texas. Recovery of investments through the TCOS and DCOS mechanism was also significant increased the EPS at TNMP. At PNM higher transmission demand and market prices increased earnings along with the addition of the Western Spirit contract. These increases served to offset expenses at the utilities for depreciation, property tax and interest associated with our rate base investments along with increases to our planned O&M spending. Market losses on our decommissioning trust dampened our earnings at -- earnings growth at PNM. We took actions in 2022 with fund managers to ensure alignment with our portfolio objectives. To be clear, the decommissioning trust along with our pension plans remain well funded, despite the challenging market conditions in 2022 and we don't anticipate making any cash contributions to these trust in the near future. Earnings at our corporate segment are driven by the whole -- by holding company debt and in 2022 higher interest rates reduced EPS. Turning to Slide 13. I'll cover our expectations and key drivers for 2023 guidance. As Pat mentioned, we have narrowed our guidance range to $2.65 to $2.75 per share. Given the growth we've seen in Texas and New Mexico in 2022, we brought up the bottom end of the range to $2.65. In terms of our load,…

Thank you, Lisa. Before I open it up for questions, I would like to thank our team members in New Mexico and Texas for the great work they did in 2022 and continue to do in 2023 to take care of each other, our customers, our communities and the environment. With that, Joe. Let's open it up for questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question here will come from Paul Zimbardo with Bank of America. Please go ahead.

Hi. Good morning, team.

Good morning, Paul.

Good morning, Paul.

Good morning.

Thank you all. The first one, I saw the comment about the additional equity potentially in the second half of '23. Could you give, what was the 2022 FFO to debt and just expectations there for 2023?

Yeah, Paul. So we always target between 13 and 16% and, [Technical Difficulty] 2022 was just around 14%.

Okay. Great. And then secondarily, thank you for the background on the trust performance. I know you mentioned some actions you took with the fund managers in 2022, could you explain what are the assumptions that you embedded in the performance for 2023. I think it's like a $0.15 to $0.19 improvement. I don't know if that's just kind of a reversal or you assume higher returns or some sort of mix?

Yeah, Paul. So we just -- 2022 was really a bad year, we're 75% fixed income and 25% equity in that NDT trust. So we don't expect the same market conditions in 2022 going into 2023.

Okay. And correct me if I’m wrong, I think if it's just kind of flat market conditions. Wouldn't that just be like, unchanged year-over-year. I was just confused about the improvement?

Yeah. So if you remember, regarding our NDT, so when we have realized gains or losses in the NDT Trust, it will flow through the income statement and unrealized will not be part of the ongoing. So as a result, last year we had a lot of realized losses because fixed income manager in particular changed their portfolio and so they realized losses during the year and we don't anticipate that in next year.

Okay. No, That's very helpful. Thank you. And then last, quickly, if I may. Do you have any additional interest rate hedges for 2024?

No, we don't, Paul, but we do plan to issue like we said before, up to $200 million of equity. We're also looking to do securitization at the end of the year. So our variable rate debt exposure will be a lot different in 2024.

Yes. Great. No. Thank you all very much and have a nice weekend.

Thank you.

Thank you.

Our next question will come from Ryan Levine with Citi. Please go ahead.

Good morning. Just wanted to [Multiple Speakers] Good morning, everyone. Just had a general question in terms of the pending merger application. Wonder, what scenarios would you have to re-file the application entirely?

Ryan, right now, it's with the Supreme Court. I would note that the commission has had some hearings -- in private confidential hearings that we've noticed. We don't know the details of those at this point. Not sure exactly what would trigger re-filing, so...

Okay. And any color around dividend policy in the interim, pending -- pending this potential application being executed on -- there any ongoing conversations around any dividends changes?

No, I think as Lisa said the Board does the dividend in December. They just increased it last December. So they would not be doing that again until December and so we anticipate the merger would close before then. So I wouldn't able to -- this December.

Okay. Thanks for the clarification.

Okay. Thanks.

Thanks, Ryan.

And our next question comes from Jonathan Reeder with Wells Fargo. Please go ahead.

Hey. Good morning. If you could just expand a little, maybe on the last question, can you just discuss your latest thoughts in terms of how the merger approval process potentially gets going again, on what the PRCs timeline to reach into final order might be? I know you just kind of indicated certainly expect it before December and then do you need to first pool the appeal of the PRC's decision that's currently pending at the Supreme Court, and if so, do you have plans to do that?

Jonathan, right now, we need to wait to see what the commission has done in their sessions, if anything. And so right now, we're going to holding pattern, looking forward to hearing about their deliberations and any outcomes and that will determine what next steps are.

So in what form are we going to hear back from the PRC, like, I mean are they required or scheduled to give us some sort of update like?

No, I mean they have -- if you've listened to the meetings, they have reported on the fact that they have had closed sessions and delivery over the following matters and in particular on the merger case that commissioner, excuse me -- Chairman O'Connell has accused himself and they have deliberated on that. So that is all we have heard, I would assume, at some point in time they would report out on an open meeting, but it is -- there is no timetable for them to do that.

Okay. And then I guess how do you guys handle it from year end with the merger agreement expiring here in April, if you haven't heard anything from the commission and you haven't pulled your appeal, like what should we expect in terms of that?

Yeah. The Board is going to consider all the merger and potential Merger Extension items in due course and not going to speculate now on what happens in that April timeframe.

Okay. And then I guess just given the passage of time and everything, are there additional concessions that might need to be made. Do you think in all the prior signatories to this settlement are still on board with the deal? Should we expect you to file, like a new settlement agreement that at least encapsulates the commitments that AVANGRID made after the last settlement was filed.

I think, it's a couple of things, we have not heard that any of the interveners are not on board, we have not been actively talking to them about this and start about the rate case and grid mod. With them, and I'm going to speculate on the new application until we hear what the commission has to say, I mean that, that's really what we need to hear from -- what we need to hear before we decide next steps.

Okay. And then I guess from the standalone growth perspective. I guess, I was a little confused on Slide 15, is the 5% long-term growth target is that off the midpoint of the '23 guidance $2.70, like a five year target or are you just kind of reiterating the 5% through 2025 off the 20 base?

So, Jonathan, we are very pleased with this slide, you can see 6.7% CAGR from 2013 to 2023 and what we have said is that we're comfortable with in our growth target of 5%. We set out the growth target of 2022 to 2025 and we will provide details later in the year, but at this point we're comfortable with the 5% growth.

But just the 5% growth through 2025 or extending beyond there?

We are comfortable with 2020 to 2025 percent and then as we look forward 5% is, we are comfortable with that growth target. And...

And Jonathan, we have and if you look at our capital slide, we haven't updated our capital past 2025. So when we do that, if we end up doing that, then we would -- we would go further on those numbers, but right now, 2025 is the furthest we have for our projections.

Okay. And then last for me, expanding on the already to discuss financing needs in the merger scenario. Can you talk a little more about how you would address the $1 billion outstanding under the term loan. Is it just long-term debt, a combination of debt and equity beyond the $200 million already contemplated in guidance or perhaps do you take this strategy that seems to be popular right now and issue convertible?

Yeah, Jonathan. So what we've said is that we will put permanent financing in place. We have talked about our equity needs for this year. But beyond 2023, we haven't exactly define what that's going to look like, but of course that will be something that we will do later in the year.

Okay. All right. Great. Thank you for taking my questions.

You're welcome.

Thank you and have a great weekend

Our next question will come from Anthony Crowdell with Mizuho. Please go ahead.

Hey. Good morning. Thanks for the update on National Bartender Day. I really appreciate it.

You're welcome. Just tip well, Anthony. I know you well.

Absolutely. I just have one quick one and I apologize if you've already addressed that it's on Slide 13 kind of where Jonathan was headed. You mentioned non-merger scenario potentially for $20 million of equity. What if -- and maybe just split into many hairs here, but what is the mergers approval process is still going on by the time we get to end of '23, it -- would this company is still do the equity or that's equity needs only if the deal was voted down and I -- I also appreciate if you don't want to discuss it because the deal is still pending?

Yeah. So we really can't answer that one right now, because it requires a whole bunch of discussions with the Board and AVANGRID whether the appeal is still going on. So we will update you on that one next time when we have some more clarity.

Perfect. Thanks so much. I'll go to the Bartender now. Thanks.

Okay.

[Operator Instructions] Our next question here will come from Tim Winter with Gabelli Funds. Please go ahead.

Good morning and congrats on a good year.

Thank you.

Thanks, Tim.

Good morning, Tim.

I was just hoping for some more clarification on the interplay of the merger application between the Supreme Court and the commission. So you need -- what I understand is you need to pull the appeal with the Supreme Court to get the commission moving on your merger application. And then the second part of that would be, what if the commission remanded -- the Supreme Court remanded it back to the commission, let's just say today, what would be the next process? And then finally with one commissioner refusing himself, do you need both of them to approve it, or how does that work?

So I'll start with the last. Yes, you need with one commissioner recruiting himself, you need two of the two, if you get one on one at the tie-ins and it fails, so that's one thing. Next question is the Supreme Court remanding it back today, they haven't helped arguments, they haven't briefed, they haven't done anything. So the odds of that happening are Counsel is looking at me none. So I shouldn't say none, slim to none. But what we would need to do is, before the consider it again, it's now in the Supreme Court, we would have to ask with the commission for it to come back, and the Supreme Court would have to consider that case, but we would need both parties or I should say all parties to ask for it back from the court.

Okay. So that wouldn't just be your decision it's -- it's more than that.

Yeah. Correct. It is more than that.

Okay. And do you have any -- any thoughts on extending the merger agreement or how long this is going to play out?

No, Tim. We're just going to wait and like I said that the Board will consider everything in due course. And there's really no reason for them to think about it now because it's only in February. So we'll see what happens between now and then, and they will decide then.

Okay. Thank you.

You're welcome.

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

Thank you, Joe. And again, thank you all for joining us this morning. As I've said multiple times, tip your bartender well and please take a taxi home. Stay safe.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.