Good day, and welcome to the TXNM Energy Q4 2024 Conference Call. Please signal a conference specialist by pressing the star key followed by zero. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Lisa Goodman, Investor Relations. Please go ahead.

And thank you everyone for joining us this morning for the TXNM Energy 2024 earnings call. Please note that the presentation for this conference call and other supporting documents are available on our website at txnmenergy.com. Joining me today are TXNM Energy 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 TXNM Energy assumes no obligation to update this information. For a detailed discussion of factors affecting TXNM Energy 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 the eve of National Margarita Day. We thought that bringing this day to your attention now would allow you to celebrate the holiday and on the actual day. You can thank us for that later. I'll start on slide four with our financial results and company updates. Ongoing earnings for 2024 are $2.74 per share at the high end of our guidance for the year. This continues our strong track record of achieving our targets. We are introducing guidance for 2025 at a range of $2.74 to $2.84 per share. This reflects strong growth in Texas and incorporates the unopposed settlement of our rate request in New Mexico, which I will talk more about in a minute. We also incorporated this PNM long unopposed settlement into our long-term targets along with the incremental investment opportunities we have shared over the last year. Our five-year investment plan in Texas has increased by over $1 billion. Our future is so bright with these increased investment levels that we are now targeting earnings growth of 7% to 9% through 2029. Lisa will provide more details on all those numbers. Now for a few company updates. In December, the board increased the dividend by 5%. This keeps us within our targeted payout ratio of 50% to 60% for 2025. Given our strong investment opportunities, the board believes this is the appropriate target. Before I hand it over to Don for an update on our utilities, I want to highlight two outstanding regulatory accomplishments for the year. At PNM, the team's engagement with stakeholders has provided us the opportunity to bring an unopposed stipulation to the New Mexico Public Regulation Commission in our pending rate request. This is a significant accomplishment, and I am very proud of the work that the team has done. At TNMP, our team put together their first system resiliency plan and reached a unanimous settlement with parties in the fourth quarter. This plan includes significant improvements to our system to strengthen resiliency against severe weather events including wildfire prevention, and vegetation management.

I'll turn it over to you for more details. Thank you, Pat, and good morning, everyone. I'll start on Slide six. With TNMP, TNMP continues to set new system peak records, including another one in December, finishing the year with an 18% increase over the 2023 peak. We are still seeing growth across the board, from our traditional volumetric and demand-based customers and from data centers on both distribution and transmission basis. Data center demand on our system totaled over 600 megawatts at the end of the year, which reflects 200 megawatts added during the fourth quarter. Our interconnection requests in 2024 were 10% higher than the number of requests in 2023, leading to an increased growth expectation in 2025. We are expecting 2% to 4% growth from distribution customers billed on a volumetric basis, and 4% to 6% from customers billed on a demand basis. On the regulatory front, Pat talked about the unopposed settlement in our system resiliency plan filing with $566 million of capital investments. This adds to the successful year of semiannual TCOS and DCRF filings that we discussed last quarter, recovering over $350 million of new rate base. In West Texas, the projects described as common in ERCOT's Permian Basin Reliability Study are moving forward after receiving no protests. We are working through the process set forth by the commission and executing the local projects and developing schedules for the required CCN filings. We are also securing the equipment needed for these projects. As we look forward to 2025 and beyond, on slide seven, we will continue to focus on supporting the high level of growth in Texas with a reliable and resilient grid. We have increased our capital investments to support a higher level of core projects across our service territory. The capital spending…

Thank you, Don, and good morning, everyone. I'll start on slide eleven, with a recap of 2024 results. Earnings per share was $2.74, coming in at the high end of our guidance for this year. Earnings benefited from recovery of capital investments through TCOS and DCRS mechanisms at TNMP, the implementation of new retail rates at PNM in January, and our annual perk rate update. Higher retail load growth, particularly at PNM, was partially offset by milder weather year over year. Improved market performance on our decommissioning truck also improved earnings. Lower market prices reduced our preferred transmission margins. We implemented new depreciation rates at PNM as part of the rates review finalized at the beginning of 2024, resulting in increased depreciation. We also had higher depreciation, property tax, and interest expense associated with new investments year over year. Lastly, dilution impacts from shares issued in December of 2023 lowered our per-share amount of earnings. Now turning to 2025 on slide twelve. I'll cover the assumptions around our guidance introduced today at a range of $2.74 to $2.84. TNMP includes the midyear implementation of the first phase of customer rates versus the full year of the cost associated with new investments. This also causes more of our quarterly distribution to be weighted to the second half of the year. TNMP is expected to have another year of strong earnings growth as we recover transmission and distribution investments through the TCOS and DCRS mechanisms before filing our rate case towards the end of the year. Detailed year-over-year drivers for each of our segments are available independently. On slide thirteen, we have rolled forward our capital plans to 2029 and incorporated the additional investments that's on this go, increasing our five-year forecast to $7.8 billion. This is a $1.6 billion increase from…

Thank you, Lisa. We have our shades on here in New Mexico in part because it is sunny here today but most importantly, because 7% to 9% is a pretty significant growth rate, highlighting the high level of growth we are seeing in Texas. Before I open it up for questions, let me thank our teams across Texas and New Mexico for the wonderful accomplishments they achieved in 2024. I am looking forward to seeing what we can do in 2025. Asha, let's open it up for questions.

Thank you. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. First question comes from Julien Dumoulin-Smith with Jefferies. Please go ahead.

Hey, good morning team. Wow, you guys must be feeling pretty cool with those shades on, I say.

I hate Julian, mine are little Martian shades, green and yellow. Courtesy of Roswell.

There we go. Very apropos to New Mexico indeed. Excellent. And, kudos on the update here. Very nicely done. One of only a handful moving their EPS cagers of late. So very good indeed. Maybe to follow-up on that, in fact, as you think about what's in the plan and maybe specifically what's not in the plan. Can we go through a couple nuances here? You know, obviously, you provided some degree of updates here on IRP, but especially in the later dated portion of the plan, can you speak a little bit to what the incremental opportunity is? Again, I just wanted to clarify what's not. And then also, I think you provided some additional commentary in the remarks here on the Permian. And the total $750 million, but how do you think about the different potential scenarios that could play out in May around that $750 million and upside there as well as any related opportunities that could inter tie into New Mexico.

That's about five questions, Julian. Yeah. I can try? I think what's the upside to the upside, Julian?

No. Absolutely. Let me talk a little bit about New Mexico first because I think that's helpful, and then I'll jump to Texas. So in New Mexico, I mean, it's a balance for us about affordability and our CapEx plan. But there are two things that are happening in New Mexico that we're excited about. And one of them is economic development legislation, you know, which would allow us to pre-build. And that really benefits pre-build the CapEx, you know, infrastructure that we would need to serve larger customers. And that both benefits our existing customers based on rates and affordability in that arena. And it'll also benefit New Mexico as well. The second element is we did add our first transmission, a small transmission, aligned to in the capital plan. And as we look at New Mexico going forward, the opportunity to help existing customers is to remove some of those constraints. So there's gonna be opportunities as we think in the latter part of the plan. For continued transmission build to unlock some of those constraints that we have there. And I think the third thing in New Mexico is you were in the midst of the 2029 to 2032 RFP, and that's the replacement of Four Corners would be in there. And again, we have to run through that process. I don't wanna get ahead of that because it is governed by an independent evaluator, but there would be opportunities there. On the Texas side, we've added a significant amount of opportunity over a billion dollars of capital. But Texas continues to perform well. And I talked a little bit about the interconnections, 10% interconnection requests between 2023 and 2024. And I'll tell you, that's in every service area that we operate in. That's The goal that's…

Got it. Yeah. A lot of moving pieces there indeed, still on the upside to the upside as you say. But sorry. In the more mundane sense though, just to come back to nitpicking on the commentary, for 2025 financing activity, I think you said the four remaining $450 million term loan. What structure are you assuming there, and just what's reflected in the updated long-term guidance? I think you alluded to this, but I just wanna make it a little bit more explicit.

Yeah, Julian. So we're looking at replacing that term loan really just for debt. Right? And then include equity content to strengthen our credit metrics. So that's what we're looking to do.

Got it. Alright. And that's reflected in some of that equity content reflected in the updated EPS?

That's it reflected in throughout their earnings period and we've split out sort of existing financing, so the term loans are included in that and you have the growth financing, and that's really the equity and all the things that are associated with growing the investments and the growing capital budget that we have.

Wonderful. Alright, guys. I'll let it be. Thank you so much. Alright. All the best. See you guys soon. Thanks, guys.

Our next question comes from Michael Lonegan with Evercore ISI. Please go ahead.

Hi, good morning. Thanks for taking my questions.

Good morning, Michael. Good morning. Good morning.

So in the Texas legislative session, house bill 2868 was introduced. I know it's obviously early in the session, but as it stands now, it would require the PUC to use the utility's actual capital or the national average in determining rates. So my question is when you file your Texas rate case towards the end of the year, what are you targeting for your actual capital structure going into the case? You know, I don't wanna hop in front of us filing the actual rate case, but we're very cognizant of the house bill 2868.

Okay. Got it.

And then in that rate case, are there any key components or ticket items we should be expecting aside from ROE and capital structure? Obviously, you know, you have the TCOS and DCRF mechanisms covering that capital, but anything in particular we should keep note of? You haven't had the rate case since 2018. As you had mentioned.

Yeah. Given the mechanisms in Texas, the TCOS and DCRF, you know, we're fairly close to earning our ROE every year. So it'd really be balancing between the distribution and transmission side of the businesses. And, you know, it's been we're starting our seventh year. So it's important to go in and allow that balance to happen.

Got it. Thank you.

Thank you. Have a good day. Thank you.

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

Hey. Hey. Good morning, team. Just one housekeeping question first. What was the song it was playing before the call started? Was it, like, an Eddie Rabbit tune?

No. No. The future's so bright. You gotta wear shades.

What who's the artist on that?

Let me check. Let me check.

That's fine. I could Google it.

Excuse me. I wasn't familiar with it, but nicely done. I guess Timbuk3.

Timbuk3.

Yeah. I must have a box set somewhere in my house, the CD box set. I guess just quickly not to nitpick on slide fifteen, you really lay out the earnings power potential. I don't know if you wanna give more clarity, but I think when you talk about the, say, the growth financing line, I just picked one of the years, 2027. The $0.35 to $0.41. I think you talked about that's the range there is really different alternatives or equity financing. Could you just tell me what the bookends are? This would assume well, oh, equity or this will assume a different type of instrument? Is there something like that that you would be willing to share?

So, Anthony, great to talk to you and great question. I think that when we look at the over the five-year period, we put out that we're going to do $1.3 billion of equity in equity-linked securities. And so what we included in this line is just a variety of ways to finance that, both from a timing and using different security. And really this line is it's time to give you sort of guidance on what that would look like in executing on that equity plan.

I didn't do the math, but does this assume, like, a linear, like, linear approach to issuing equity over the period or is there some lumpiness to your assumption of the $1.3 billion financing over the plan?

So, Anthony, I mean, capital is not even every year, which means that risk base is not even, and then you have different clearings depending on if you have sort of quicker projects or more long-term projects. Which means that also financing will also be not evenly spread during that time period. So it's really matching your capital rate base with financing.

Great. And Lisa had asked me to make sure I asked Pat a couple of questions. So, Pat, Just I know you probably just wanna talk about the company, but your other job, I think you're president of the EEI. I'm just curious about the industry's approach to maybe wildfire. I mean, I guess my question would be, do you is there a buying with all the utilities where you know, the wildfire sensitivity for your company may be more focused on just some other utilities where maybe an urban utility like a Con Edison or something may not be as focused on it. I'm just wondering about I'm wondering any where's EEI or where's the industry focused on maybe wildfire legislation or whatever at the federal level. And is there support though across all the utilities for it?

I'll tell you what, Anthony. I would love to have that discussion with you, but I will have that offline. Because wildfire is a complicated story and it is an EEI priority and the good news utilities are aligned. But let's take that one that we'll let Ms. Goodman set something up, and I can wear my shades for you.

You bet. Thanks so much.

The next question comes from Andrew Weisel with Scotiabank. Please go ahead.

Hi. Thanks. Good morning, everyone. Here in New York, we need to wear sunglasses because it's so bright with the sun reflecting off the snow on the ground. So I'm a little bit jealous.

We're sorry.

Well, first, one quick question to clarify for Don. I think you mentioned something about mobile generation units and tech in their prepared remarks. Sorry if I missed it, but just to clarify, did the new CapEx plan include spending related to those ten gen units or not?

No. We're gonna wait till legislation works its way through and, you know, the rules were set and then legislate there's some legislation out there. So we'll wait till that happens and then make some decisions at that point.

Okay. Thanks for clarifying. And on the new CAGR, impressive number, certainly a good pickup there. Want to understand how should we think about the wider range at 200 basis points versus 100 previously? Is that a function of the higher numbers or a reflection of regulatory uncertainty? Or how should we think about that?

You know, I think, Andrew, that you've just we used to have a two percentage points and then we narrowed it and now it's a five-year period. There's a lot of CapEx included in this budget, and so we were just comfortable with the 7% to 9% range. A little larger than we've had in the last year.

Okay. Then lastly for me on the dividend growth, 5% increase. Is that a good bogey for how we should be thinking about the next few years, at least till you get to the middle of the targeted 50% to 60%? And then once you get there, should we think about dividend accelerating to match the pace of earnings or is that not even a consideration point?

No. The board looks at it every year, and there's a variety of factors. And one of it is the pace of earnings, it's our capital spending, etcetera, etcetera. So it can change during the year, but we just I think the biggest thing to keep in mind is we just targeted at the middle of that payout ratio. Some years, it'll be a little lower, some years, it'll be a little under, but the target is the middle.

Okay. So 5% until we get toward that middle probably?

It'll change every year. It won't vary significantly. But it does it can vary by year.

Okay. Fair enough. Thank you very much, everyone.

Thank you. Thank you. Have a good day.

The next question comes from Ryan Levine with Citi. Please go ahead.

Good morning, everybody. Happy to feature Margarita Day. Given the history around Four Corners and the comments made in the prepared remarks, curious if there's any color you could share around the timeline for stakeholder engagement this go around?

How about as it relates to Four Corners itself?

Well yeah. And what type of solutions that any decision there may have from?

Yeah. No idea. We've committed to, you know, within our rate case and through our intervener that our plan is to exit Four Corners in 2031 when the operating agreement is done and so forth. And that's why we've issued one of the reasons why we've issued the 2029 to 2032 RFP is a replacement to alternative for the Four Corners Arc. Couple hundred megawatts that are there, plus the additional growth that we expect.

I mean, just to follow-up for that. I mean, given all the new generation being built in this country, are there any long lead time items that you need to take action this year or in the near term to be able to address that incremental generation in that way?

Yeah. Good question. And we issued the RFP a lot sooner than we normally would for that specific reason. So have the results of that RFP internally by midyear and then as we work through it and so forth. So we're well in advance of what we normally would have issued the RFP on. And it's a broader window of that as well to you. And that's the whole reason why we did that process.

Okay. Thank you.

Thank you, Ryan.

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

Thank you, and thank you all for joining us this morning. We hope you enjoy the eve of National Margarita Day and then again tomorrow. We'll see I'm sure many of you soon on the road. Thank you all. Bye bye.

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