TXNM ENERGY INC Q4 FY2023 earnings call

• Advancing standalone business strategy to invest in infrastructure for clean energy transition and customer needs.
• TNMP benefits from Texas regulatory frameworks like TCOS and DCRF for timely investment recovery, with upcoming resilience plan filings and legislative changes supporting grid reliability.
• PNM's investments in T&D projects, resolution of legacy generation issues in rate cases, and ongoing filings for grid modernization and new resources.
• Sale of New Mexico Renewable Development (NMRD) on track to close this month with net proceeds anticipated at $115 million.

PNM Resources has two main utility segments: TNMP and PNM. TNMP's rate base and FERC rate base combined are now over 50% of the consolidated rate base. TNMP has substantial infrastructure investments to support customer growth and grid reliability in Texas, with regulatory mechanisms like TCOS and DCRF allowing for timely recovery of investments. PNM's investments are focused on customer-driven T&D projects to strengthen the grid, with clean energy mandates in New Mexico driving transmission resource acquisitions. PNM's recent rate case resolved legacy generation issues and approved distribution level battery storage recovery.

• 2024 guidance is a range of $2.65 to $2.75.
• Target 6% to 7% earnings growth through 2028 based on 10% rate base growth over the period.
• Capital plan through 2028 is $6.1 billion, with TNMP as the largest investment area (13% rate base growth) and PNM's T&D investments including grid modernization and battery storage projects.
• Financing plans include $500 million of equity to fund growth and refinancing of $1 billion term loans with equity-linked debt instruments.

• Regulatory changes could impact the timing and recovery of investments.
• Market conditions affecting financing costs and equity needs.
• Unforeseen events like extreme weather could require additional investments in temporary mobile generation not currently in capital plans.

Q: What is the cadence of rate cases in New Mexico and how does it impact earnings power?

A: In New Mexico, they will file a forward-looking test year this summer, with rate cases likely every couple of years due to a 13-month window, allowing timely cost recovery and smaller rate increases.

Q: What is the targeted FFO to debt metric and how have rating agency conversations been post-rate case resolution?

A: The objective is to stay above thresholds of 13% at Moody's and 14% at S&P. Lisa and her team have had constructive conversations with rating agencies post-rate case resolution.

Q: How much equity is expected to fund incremental investments and what's the approach to financing?

A: They think about 40% to 50% equity to support incremental capital, with a balanced financing approach including refinancing term loans with equity-linked debt instruments.

Q: How should we think about the Board's consideration of strategic options like the merger?

A: The Board reassesses strategic options annually based on market conditions, industry landscape, and the company's position, balancing access to cheaper capital and other strategic benefits against current market outlooks.