Good day, and welcome to the PNM Resources' Second Quarter 2024 Earnings 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 this event is being recorded. I would now like to turn the conference over to Lisa Goodman, Investor Relations. Please go ahead.

Thank you, Danielle and thank you, everyone for joining us this morning for the PNM Resources' second quarter 2024 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, 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. [Foreign Language] And thank all of you, and good morning. This is one of our favorite national days, National Avocado Day. But since this is the third time our earnings call has fallen on Avocado Day this decade, we haven't given much credit to the other days recognized on July 31, but today we are changing that. In 1970, the British Royal Navy sadly ended its daily rum ration, or tot, on July 31. So we're commemorating black tot day. Sailors gathered for more than 200 years from 11:00 a.m. to noon to enjoy their daily tot. Although, we are going to wait for ours for later this evening. I'll start on Slide 4 with our financial results and company updates. Ongoing earnings for the second quarter are $0.60, above our expectations. We are affirming our 2024 guidance at a range of $2.65 to $2.75 and we are also affirming our long term targets. Lisa will provide more detail on the numbers and our expectations for the year. Don will provide highlights from our utility operations, along with some color about our upcoming System Resiliency Plan filing in Texas and other infrastructure investment areas. Before that, I have a couple of company updates. First, the reason behind our holding team this morning, our shareholders will overwhelmingly approved our name change, and next week we will officially operate as TXNM Energy. This name better represents the entirety of our business, as TNMP is currently 40% of our rate base and grows to be our largest jurisdiction over the next few years. On Monday, we will visit the New York Stock Exchange for the opening bell to mark our first day of trading under the TXNM stock ticker. I also want to provide some comments in response to the…

Thank you, Pat, and good morning everyone. I'll pick up on Slide 6 with highlights for the quarter at TNMP and PNM. At TNMP, we reached another all-time system peak in May, at just over 2,700 megawatts, 6% higher than our summer peak last year. Since 2020, our system demand in Texas has grown at a 10% compound annual growth rate, driving an increased level of investment to expand our infrastructure to keep up with our customer demand. This year, we have experienced an increased number of storms, most notably Hurricane Beryl earlier this month. Before Beryl hit, we enacted our Emergency Operation Plan which brought in additional TNMP crews and contractors, and staged them strategically throughout the service territory in advance of the storm. Additional TNMP crews were also put on standby in our north central service territory, just in case the storm impacted those areas. Ultimately, it did not. And these crews, along with mutual assistance were brought into our Gulf Coast area for storm restoration. As Pat mentioned, over 116,000 of our customers had lost power when the storm passed. Our industrial customers did not lose service. Once we were able to safely get crews into our field, restoration began. And 50% of our customers were back online within 24 hours, leaving only those areas with significant tree removal and rebuild left to restore. Our teams worked around the clock until the last customer was restored. Storms like Beryl are one type of extreme weather events that is considered in our System Resiliency Analysis that we plan to file next month. Well I'll come back to that in a minute to discuss in more detail. Our regulatory updates in Texas, TNMP's investment plan over the last two decades has been in response to growth, like we've seen…

Thank you, Don and good morning, everyone. I'll start on Slide 10 with a summary of the key year-over-year changes in the second quarter. Earnings per share were $0.60, compared to $0.55 in the prior year. Recovery of capital investments through TCOS and DCRF mechanisms at TNMP increased earnings year-over-year. In addition, the implementation of new retail rates at TNM in January, based on a future test year of 2024, contributed to increased earnings. Load growth at PNM combined with hotter temperatures lifted PNM above our expectations. While TNMP experienced increased usage from hotter temperatures, this was offset by a shift from demand based billings to a transmission rate structure for certain data centers. Income from our PNM decommissioning trust also increased earnings based on market performance. Offsetting these increases were reduced PNM transmission margins due to lower market prices this year. Continued investments in capital projects to serve growing customer demand resulted in increases to depreciation, property tax and interest expense year-over-year. Now turning to Slide 11, I'll cover our guidance assumptions for the rest of the year. We are affirming our annual guidance range for 2024 of $2.65 to $2.75. We are ahead of expectations in the first half of the year. We will revisit our year-end assumptions next quarter given the third quarter typically accounts for the largest portion of our earnings. On Slide 12, we're also affirming our long term targets. We have rate based growth of 10% based on our existing capital plan, which do not yet incorporate the additional $150 million resiliency investments at team TNMP. We will update our capital plan next quarter. In the meantime, I'll provide updates on our financing plan. In June, we completed our planned issuance of $550 million of junior subordinated convertible notes. We received both favorable pricing…

Thank you, Lisa. Before we open it up for questions, I again want to recognize our employees that dropped everything in their lives and went out to restore our customers, both at PNM and TNMP. Crews from both of our utilities, along with those from other mutual aid utilities and our support personnel looked for ways to help the impacted communities and provided examples of what it means to put our customers first. The crews worked long days and nights keeping each other safe while pushing ahead. This is our company's spirit and showcases our values of safety, caring and integrity. To all of our employees, thank you. You are appreciated not only for what you do, but for how you do it. Danielle, let's open it up for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Julien Dumoulin-Smith from Jefferies. Please go ahead.

Hey. Good morning, team. Thank you guys very much. Appreciate the time.

Good morning, and welcome back.

It's good to be back. It's a pleasure. Hey, look, you guys have had a fun time in the interim, lots to talk about here. So maybe just kicking it off here on the -- just on the resource filing here. I'm actually curious just to talk through this a little bit, right. You've done this resource filing, there's a good chunk of PPAs within the total. I mean, how do you think about ownership in utility-owned assets at this point? Obviously, storage is kind of an interesting tweener, that's a key piece of the ownership piece. But how do you think about the eligibility for other assets here, especially given what you've put in forth in the resource filing here?

Thanks, Julian. And good morning. I almost didn't recognize your voice. Just kidding, Julien. As you think about the 2026 resource filing, anytime we do a resource filing, it's heavily focused on whatever benefits our customers, and can best utilize our grid for reliability purposes. And so that's the core of how we evaluate our RFPs. I will point out in the 2026 resource filing that we received approval for last quarter, it was a mix. It was a mix of a company owned. We got approval for a 60 megawatt battery that we could utilize to best benefit to the grid that benefited our customers, and then PPA, solar and battery as well. As we look forward to the 2028 resource, we're in the process of going through that filing right now, the RFP process. And I wouldn't want to get ahead of the regulatory process. And again, I mean, it's focused on the benefits of the customer. I will point out in the -- as I talked about it that the transmission, we're transmission constrained as we add new resources. So there's always transmission opportunities as well, too.

Yeah. All right. You pre-empted my follow-up on '28, which is the logical next step. So indeed, we'll stay tuned on that. Now, the next piece of this though, as you say, you're transmission constrained, you've got ERCOT leading the charge on this effort to implement legislation. How could that change the outlook here? So, 2028 resources would imply that you need transmission prior, right, in the five year outlook. By contrast, ERCOT, they talk about 2030, could that have an impact in the medium term here in the next five years?

I believe it would. And let me give you just a run through a quick history of where they're at in that process. Legislation was developed in 2023 and approved to focus on the growth that we're seeing, and other transmission and distribution providers are seen in Texas. That report was just filed with the commission from ERCOT. And to kind of give you a feel, ERCOT, when they filed the report, said 24 gigawatts of load is expected by 2030 in Texas, in the West Texas area, with another 3 gigawatts by 2038. ERCOT went through a process of coming up with a couple of different options. And at the same time, ERCOT was studying the whole ERCOT area as well, too, the other locations within ERCOT. And so the two options that they came up with were very focused on what we would say a 345 kv kind of structure, and then another two extra high voltage options. And so they just filed that report on the 26th with the Commission. And they recommended that the Commission give it a few more months so they can study the whole state as it relates to the extra high voltage option. But the caveat that they put in there is, under either option there's about $4 billion of investments in the West Texas area that could proceed under either. So, the commission now has that, and they have until, or they look till, based on legislation in September that they will have some decision on that. And they've already sent out questions to the transmission and distribution providers with an August 9th comment period. For us, it depends on what comes out of that, but we do see upside associated with that.

Got it. Excellent. Then lastly on mobile Gen, I mean, does the latest development shift how you're thinking about tackling that opportunity? Just maybe what would be relevant to install or what have you? Again, obviously, it's gotten a certain degree of attention here off late.

Thanks, Julian. Good question, especially based on some of the comments over the last month or so. Our focus has always been, let the rules get developed, and that's where the process is. Our focus, given our service territory and the needs that we have, have always been based on, to kind of give you a feel, mobile generation that's 500 kw to 1 megawatt, that we could actually move around as necessary for our rural areas. So, I don't believe, I mean, I don't believe that that will change in our focus as we move forward. We see it as very beneficial.

Excellent, guys. I'll leave it there. Thank you so much. See you soon.

Thanks. We will.

The next question comes from Nick Campanella from Barclays. Please go ahead.

Hey. Thanks for the time. Good morning, everyone.

Good morning, Nic.

Good morning, Nic.

Hello. Good morning. I went back and checked, and this is my second Avocado Day while covering the stock, wherever I may have been, so always a pleasure. Hey, I wanted to ask on the resiliency filing, just this is essentially zero lag capital. So, when you layer that into the plan, you still need -- we still need to be kind of thinking about that 40% to 50% equity funding factor that you discussed or just how should we kind of think about that?

Well, I think first element is, we had assumed $450 million. This is a three year resiliency filing, so it covers '25 to '27. We would look to make another resiliency filing for the periods of '28 to '30 in 2027. So keep that in mind. $450 million of the capital was already assumed. What was added or what we expect to add in the August timeframe when we actually filed the resiliency file will be another $150 million.

Yeah. And Nic, our objective is to continue to balance equity and growth to create value. And so we've always been transparent with our equity funding needs. And so when we update our capital plan in Q3, we will provide more transparency regarding our equity assumptions in our model.

That's great. I appreciate that. I just wanted to ask on New Mexico rate case process quickly. You talked about stipulation and intervener testimony I believe in November. But is it still the case that just you expect intervener testimony to come out regardless of the ability to achieve a stipulation? Just wanted to confirm that.

It depends. I think, what to kind of think about as you think about the timing is right now it's very early in the process. We filed in June. What's going on right now is there's discovery by interveners to understand the different components of what we filed. My guess is, ahead of November, clearly there'll start to be some discussions associated with that. And traditionally it's been a couple of months before that. You kind of let the intervenors get through asking their questions and getting an understanding. And then you can kind of move to settlement discussions ahead of the November period.

Okay. Thank you very much. Appreciate the time.

Thank you.

The next question comes from Michael Lonegan form Evercore ISI. Please go ahead.

Hi. Good morning. Thanks for taking my questions. So, you identified $150 million of incremental Texas CapEx through the '27 period for the Resiliency Filing. You talked about another one for '28 to '30. Just wondering how much is baked in your current plan through '28, or in '28 for resiliency spending and what could be incremental upside there?

Yeah. So what's baked into our plan is $450 million from 2025 to 2027. So, when you think about out there, that'll be a whole new filing. It's not baked into our current capital for '28 and beyond.

Got it. Thank you. And then going back to the New Mexico rate case settlement, you have the potential settlement. You have the controversial legacy issues behind you pertaining to four corners prudency and power leases. Obviously it's early in the case, but do you see a much stronger possibility you could settle? Obviously, Excel, their SPS subsidiary, reached a settlement not too long ago.

I think getting the legacy cases puts us in a better position to sit down with the interveners. I don't want to jump out there today and see, you got to see what their concerns are after they do their discovery and then sit down and have a discussion.

Got it. Great. Thanks for taking my questions.

Thank you and a belated good morning, Michael.

The next question comes from Jonathan Reeder from Wells Fargo. Please go ahead.

Hey. Good morning, team. Actually, all my questions have been asked and answered, so I am all set.

Thank you, Jonathan. Good morning. Enjoy your run.

[Operator Instructions] The next question comes from Ryan Levine from Citi. Please go ahead.

Good morning.

Good morning, Ryan.

Hi. In terms of the ERCOT Permian transmission opportunity, in your earlier question you highlighted the $4 billion. That's local, so I guess the common local upgrades. Is that what you're highlighting specifically related to your service territory? And do you see any opportunities in the import pass or incremental local upgrades that are outlined in the filing?

I think in the $4 billion, absolutely, we see opportunities there. Right now what the PUCT will do, based on the questions that they sent out, they'll have to kind of sort through which utilities get those upgrades. I think as you look broader, when the other options are out there, there's potential for those as well, too, when ERCOT finishes their full study. But for the $4 billion, it's a lot of these are in our backyard, so they're great opportunities.

Okay. And then, what are the main components of the incremental $150 million in the Texas Resiliency Filing? And how does stakeholder engagement or dialogue regarding the hurricane impact your CapEx outlook?

Yes. The first question is, we haven't filed it yet, so I don't want to get out there ahead of the filings. So we'll file it, and then we can have a lot more in depth conversation of the breakouts associated with it. I will tell you, the hurricanes and restoration, like we do with all storm events, we have after action reviews, we look at opportunities that we did really well at. And I can't say enough about our folks in the mutual assistance crews that Pat alluded to, did a tremendous job. But there's always areas that you can improve on, there's always areas that you, as you move forward, as it relates to resiliency that you need to look at. And so that's what we're going through right now. So I think the hurricane does play a role of what additional areas do we need to really focus on. And that's why we've kind of waited a little bit longer to kind of go through that and make our finally mid-August.

And has there been any change to your tree trimming or veg management program in response to what's happened elsewhere in the state?

We've continued to increase our veg management in Texas and the tools that we utilize as well, too. So, I think, as you look at the resiliency filing, there's opportunities to do just based on the way the legislature has designed it, even additional veg management. So, and I would remind you that in Texas, specifically in our service territories, there's a good portion of what caused the outages there that were outside of our right of ways. But that's working with communities as well as the PUCT and legislatures of how you fix to solve that piece of the puzzle as well, too. And I think that's probably one of the bigger learnings that came out of this hurricane.

I guess there's one follow-up on that, I don't know if it was asked in anyone else's question in terms of the percentage of veg management that may be associated with trees that aren't within your right of ways, do you have a sense of what that is for your service territory?

Yeah. For this specific hurricane, it was in the range of 55% to 60%.

Appreciate it. Thank you.

Thanks, Ryan.

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

Thank you again for joining us this morning. Enjoy your rum this evening. I’m pleased to announce to watch Lisa Eden ring the opening bell at the New York Stock Exchange this coming Monday morning. Stay safe.

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