Good day, and welcome to the TXNM Energy Q1 2025 Conference Call. All participants will be in listen-only mode. Should you need assistance, please note this event is being recorded. I would now like to turn the conference over to Lisa Goodman, Investor. Please go ahead.

Thank you, Dave. And thank you, everyone, for joining us this morning for the TXNM Energy first quarter 2025 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 Chair 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-Ks, quarterly reports on Form 10-Q, as well as reports on Form 8-Ks filed with the SEC. With that, I will turn the call over to Pat.

Thank you, Lisa, and good morning, everyone. And thank you for joining us today on Billy Joel's 70th birthday. What better way to celebrate his birthday than by kicking our call off with Piano Man? But even more exciting than Billy Joel's birthday is that today is PNM's 108th birthday. We were founded in 1917 as the Albuquerque Gas Electric Company. And today, we're celebrating more than a century of serving our customers. So happy birthday to PNM. I'll start on Slide four with our financial results and company updates. Ongoing earnings for the first quarter this year are $0.19. This keeps us on track with our expectations for the year, which reflect the midyear implementation of new rates at PNM. We are affirming our guidance for 2025 at a range of $2.74 to $2.84 per share, along with maintaining our long-term EPS growth target of 7% to 9%. Lisa will cover the numbers in more detail. I'm going to cover a couple of highlights for this quarter before handing things over to Don. Rate base growth at TNMP continues to be supported by the timely recovery of our investments. During the first quarter, our system resiliency plan was approved, allowing us to invest and recover $546 million in capital improvements that will enhance our ability to protect our system and respond to extreme weather events in service of our customers. In New Mexico, the unopposed stipulation in our rate case continues to move forward. Hearings in the docket were completed in February, and in April, the hearing examiners recommended approval of the stipulation. We expect the commission to make a decision in May or June ahead of the July first rate implementation date. New Mexico completed this year's legislative session with some key bills signed. The state has gained increased levels of interest in economic development and has identified the need to expedite the build-out of infrastructure needed to serve new large customers. The business community rallied around these site readiness bills, which were passed with strong bipartisan support. This provides an avenue for electric, gas, and water utilities to prebuild this infrastructure and is designed to allow New Mexico to become even more competitive in attracting new businesses. Another piece of legislation we supported was the creation of a wildfire task force. The purpose of the task force is to develop a comprehensive approach on how New Mexico can better prevent and respond to wildfires and make recommendations on solutions for this. We see this as a positive step forward in laying the groundwork for future legislation that could help protect our customers, employees, and the communities we serve. With that, Don, 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 has already set a new system peak in the first quarter, coming in 22% higher than last year's first quarter system peak. Demand-based load from traditional customers along with data centers had a strong start to the year. Demand-based load increased 9.7%, largely driven by growth in our North and West Texas regions, where commercial businesses have grown in the areas where data centers have been located. Data center load picked up another 70 megawatts in the first quarter. We have a couple of existing customers that are expected to increase their demand up to another 150 megawatts before the end of the year. Interconnection requests were also up 6% compared to the first quarter of last year, with a noticeable uptick in the Gulf Coast area, supporting our continued growth expectations. Pat highlighted their regulatory success TNMP has already seen in the first quarter of this year. Our system resiliency plan was approved with $540 million of capital investments planned through 2027. TNMP has filed and received approval for $83 million transmission rate base investments made last year and the proposed order approving recovery of $176 million of distribution rate-based investments pending final approval from the commission this month. In April, the commission formally approved the common projects in ERCOT's Permian Basin Reliability Study. TNMP will be investing approximately $750 million by 2030 to complete our share of these projects, which we added into our capital plans in February. We expect to file CCNs applications for these projects in the first quarter of 2026. Turning to Slide seven. We have not made any additional changes to our five-year capital plan from the updates at our year-end earnings call in February. Our plan remains focused on supporting the high level of growth in Texas with a reliable and resilient grid. The level of investments grows significantly over the five years of our plan, from $600 million this year to over $1 billion starting in 2028. Rate base grows by 17% and becomes the largest portion of our total rate base. All of the discussions in Texas around ERCOT load forecast and higher voltage transmission lines support the growth embedded in our plans. We continue to see good discussions in the Texas legislature and items that help facilitate these growth plans. This year's session ends June 2, so it's too early to know which bills will pass. But there has been some good progress. There were a handful of bills introduced this year aimed at reducing regulatory lag, strengthening credit metrics as capital spending increases. Each of these could benefit TNMP. In addition, we have been having conversations on these same topics with stakeholders as we prepare to file our general rate review later this year. There are also utility bills addressing wildfire prevention ranging from pole inspections to the approval of wildfire mitigation plans. We are pleased that the legislature recognizes the need for some definition around utility responsibility and their associated liabilities, and we will be closely following the remaining progress. The upcoming regulatory agenda includes our second TCOS and DCRF filings, and we will look to receive approval on both mechanisms before filing our general rate review in the fourth quarter, which will kick off the 180-day statutory clock. We are targeting the implementation of new rates in Q2 of next year. Let's move on to PNM on Slide eight. The Hearing Examiner's recommendation to approve the unopposed stipulation in our rate review is our top highlight. It has been quite some time since we were able to achieve this type of agreement in a rate review. The hearings were originally scheduled for two and a half weeks and ultimately were held for two days, providing a good opportunity for hearing examiners and commissioners to ask questions and discuss policy items raised in the filing. We were pleased to see the recommendation and look forward to the commission decision in May or June ahead of the implementation in July. We also filed an unopposed stipulation in our 2028 resource filing for 450 megawatts of resources, including a 150 megawatt solar and storage facility in the central consolidated school district, the same area where the San Juan coal plant was retired. This was a key priority for stakeholders. Hearings in these dockets were held in one day, and the hearing examiner issued their recommendation to approve the stipulation earlier this week. We expect a decision from the commission in the third quarter. As Pat mentioned, New Mexico's 60-day legislative session ended in March. And a key priority from the business community was for site readiness. The bill's primary objective allows utilities to prepare sites and build capacity to serve these customers in advance. It also shortens their regulatory approval timeline and allows utilities to defer costs until they can be included in a rate case proceeding. These bills have been signed into law, and we are excited to see their impact along with the proposals that will come from the wildfire task force. Another bill, HB 91, added a key tool that has been missing from rate making. The commission did not have the ability to approve rates specific to low-income customers. This will be an important tool that we can use in our next rate review. Turning to slide nine. I'll cover the current outlook at PNM. Again, we have not made any changes to our five-year capital investment plan. And we remain focused on balancing the needs of our system with customer rate impacts. One area coming into greater focus for PNM is transmission development. We completed a 20-year transmission study late last year and have been holding discussions with stakeholders, including the commission. Last week, we were able to share details about how additional investments could improve our system and meet the growing demands of our customers, along with ways these investments could utilize resources in New Mexico to provide benefits to our customers. We have a number of upcoming items on our regulatory agenda. We will look for a decision on our rate review in Q2 and our 2028 resource application in Q3. We'll make our annual update to our FERC formula rates in June. We will also be proposing the build-out of two small transmission lines later this year. These would improve our ability to serve our customers, perform maintenance on existing lines, and facilitate economic development. These investments have already been included in our capital plan. We currently have an RFP outstanding for new resources available between 2029 and 2032. We forecast a need of at least 500 megawatts of new capacity by 2030, with the actual amount dependent upon the type of resources selected from the independently monitored process. We expect to file a resource application to propose our selected resources at the beginning of next year. Our current capital plan does not include any amounts for this; we will incorporate any new amounts after that application is filed. With that, I'll turn it over to Lisa for a more detailed look at the numbers.

Thank you, Don, and good morning, everyone. I'll start on Slide 11 with a recap of first-quarter results. Ongoing earnings per share were $0.19. This is consistent with the expectation provided for the first quarter and reflects the absence of new rate recovery of PNM until the second half of the year. Overall earnings benefited from recovery of capital investments through TCOS and DCRF mechanisms at TNMP, and retail load growth at both utilities, including the impact of weather. Degree days were higher at TNMP, partially offsetting lower heating degree days experienced in New Mexico. These increases were offset by new demand charges from energy storage agreements implemented at PNM in late 2024, lower transmission margins, higher insurance premiums, and the timing of plant outage costs. Remember, that under our unopposed rate stipulation, any changes to our demand charges are deferred to the balance sheet, reducing variability in these costs once the new rate request has been approved. Depreciation, property tax, and interest expense associated with new investments increased year over year. Detailed drivers for each of our segments are available in the appendix. We have affirmed our guidance range for 2025 of $2.74 to $2.84. We have updated the quarterly EPS distribution in the appendix to reflect our latest assumptions. The third quarter continues to account for more than half of our EPS for the year. The capital plan on Slide 12 remains the same as the plan we showed in February. We expect tariffs to have about a 2% impact as we move forward, and we will incorporate any changes into our capital allocation and prioritization process. We are mindful of customer impacts and will balance this with system needs as we work to mitigate any increases. I'll wrap up with our earnings power on Slide 13. There are no changes from what we disclosed in February, which included a number of incremental capital opportunities and increased our growth targets. We continue to target EPS growth of 7% to 9% from 2025 through 2029, and the earnings power supports the upper half of this range. We feel confident in our ability to execute on this plan. With that, I'll turn it back over to Pat.

Thank you, Lisa. Before I open it up for questions, I want to take a moment to thank our teams across New Mexico and Texas. These are exciting times for us as we build out our systems and prepare for growth. Our teams are stepping up to the plate, and I am proud to lead these teams and watch our employees grow and succeed. Dave, with that, let's open it up for questions.

We will begin the question and answer session. Our first question comes from Nicholas Campanella with Barclays. Please go ahead.

Alright. Hey, everyone, and happy birthday.

Thank you. Morning.

Morning.

So, hey, a lot of good comments on legislation in your prepared remarks, but just I was curious about House Bill 5247, involving the Permian transmission projects. I just wanted to confirm that, you know, that would be in scope for that. Maybe you can kind of talk about how that impacts your earned ROEs in a normal rate year. Allows you to maybe accelerate some more capital and how that can impact what's assumed on the TNMP side? Thank you.

Yes. No, we see that as beneficial to TNMP. As you are probably very familiar with and others on the call, that allows you to group everything together. It kind of looks and smells a lot like the system resiliency recovery mechanism where you can defer pretty much everything to the balance sheet and earn on it, and then bring it in so you eliminate regulatory lag associated with it. I think the way to think about it is, it would be beneficial to TNMP from an EPS perspective. The timing of cash flows will be a little bit different because, you know, TCOS and specifically as it relates to the Permian Basin, you get filed twice a year. But here, you'd file it once a year.

Okay. That's great. Appreciate that. And then look, I just wanted to address that, you know, on prior calls, when you especially when you came out of the AGR process, you still seem to acknowledge the benefits of size and scale, mostly from a viewpoint of sourcing more efficient capital to finance what is a very large and growing rate plan or large and growing CapEx plan. So just maybe you can kind of give us an updated view on how you're thinking about that today and if anything's kind of changing your mind.

No, Nick. The board still holds the same views that they did, that going into an environment of large growth, that size and scale can really help with a large capital plan. So nothing has changed there.

Okay. And then just one last one, if I can. I know Lisa mentioned the retirement date, and the effective date was March 15. Or no sooner than March 15. So, you know, now that we're just in May, maybe just an update on how you're viewing that role as a team?

We are enjoying the fact that we still have Lisa Eden's services with us. And we are going to celebrate that. And when we have news on another CFO, we will let everybody know.

Okay. Thank you.

Thanks.

And the next question comes from Julien Dumoulin-Smith with Jefferies. Please go ahead.

Yes, hi, good morning. It's Brian Russo on for Julien.

Good morning, Brian.

Good morning, Brian.

Hey, just on the upcoming TNMP base rate case, what are the major drivers of the case? Is it kind of less about regulatory lag, more about rate design and cap structure? And can you remind us what is the actual balance sheet equity ratio for TNMP as of March?

Yeah. I think it will be a rate design primarily. Obviously, we'll look at capital structure as well too. Currently, the capital structure at G and A is 45% equity. And so those will be the factors. But a big part of this rate design, we haven't been in seven years. This is we're starting our seventh year here, so it's important to get that rate design adjusted.

Okay. Good. And then on the TNMP Permian Basin CapEx, it's $750 million but it seems heavily weighted towards 2030, or half of the CapEx is for that one year. Just curious what your confidence level is on the execution timeline? And then, secondarily, are there maybe indirect upside CapEx for the 765 kV projects that are approved, understanding that Canopy is not going to directly participate in the 765 but just curious if there's any ancillary type CapEx?

Yes. On the first part of your question, we are confident to be able to deliver on approximately $750 million capital. We'll file our CCNs. The commission has kind of staged those CCNs so that they can come in at times based on the overall design. Our first set of TPMs will be filed early part of next year. We're already down the path of getting in ordering all the equipment that we need associated with it. So on the 765 kV, not any indirect that we're aware of at this time, but we do look at the overall size of 765 when you look at the whole state of opportunities as we look forward in Texas.

Thank you. Is there still the plan to refinance the parent level debt later this year with equity-like securities or junior subordinated notes?

We have a term loan. The majority of the term loan is not expiring until mid of next year, and so we have ample time to refinance that holding company debt with equity-like security.

Alright. And then lastly, the RFP at PNM, you mentioned 500 megawatts, but is it up to several thousand megawatts by 2032? Just trying to book in what the CapEx upside might be at PNM the earliest in early 2026?

Yeah. No. Absolutely. So when you look at the 2029 to 2032 RFP, it was anywhere from 900 megawatts up to 2,900 megawatts depending upon the types of resources that we're selected.

Okay. Great. Thank you very much.

Thank you.

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

Hi, good morning. Thanks for taking my questions.

Good morning.

Good morning.

Just a follow-up on the New Mexico RFP process. Just wondering how is it progressing? Are tariffs making it more complicated? And I know, you talked about the size of megawatts, but can you talk about your targeted ownership there?

In New Mexico, we follow an independent evaluator that participates with us, you know, which is a good thing. Because as you kind of work through the process, they file their report with the commission. That helps justify the resources that are needed. I think that's important as we go through the RFP process and that's how it's been established. Our timeline is going as expected. There will be abilities for folks to identify based on May 1, so what their resources are and the prices and, you know, working with the independent evaluator if tariff prices change, those will probably be incorporated, but we'll work jointly with the independent evaluator. I don't want to get out in front of the process, because, again, it's working together. So we will do what's right for customers as it relates to the types of resources and who owns them and who doesn't own them.

Great. Thanks. And then, you know, on the topic of tariffs, what are you seeing as far as the impact as it relates to your capital plan?

Yes, Mike. I think Lisa said about 2%. It's in line with what other utilities are saying. It's not real large right now.

Okay. And then, you know, lastly, from me, in New Mexico, know, you've talked about pursuing transmission development to support the growing demand. And I know you have $185 million of transmission build in your current five-year CapEx plan. Just wondering what you see as the size of the incremental investment opportunity over the five-year period and beyond.

Over the five-year period, because transmission takes a little bit of time to develop probably just a little bit more. But when you get outside that five-year period to give you a feel of and these were transmission studies that were done that we presented to the commission last week. You know, when you kind of take into consideration statewide the transmission that needs to be built, it's in the roundabout $4 billion in transmission over that twenty-year period.

Thanks for taking my question.

Thank you.

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

Hey. Good morning, team. I can't believe, Nick really wants to get rid of Lisa that quick.

Just I guess I know. I know. Thank you, Anthony.

Yeah. I mean, remember that. Remember that. I will. I guess just actually following up on one of Nick's questions. Talking about the Texas legislation HB 5247, I believe, and it may have been changed. That to qualify for that legislation, you had to spend, I thought it was like three times of depreciation. Is that accurate as the bill stands now? Does TNMP qualify under that legislation?

Yes. That is correct, on the 300% above depreciation. And yes, TNMP would fit that.

Great. And now here's an off the beaten path question. Before most calls, you guys usually have like a message in the music that you select before the call. After the AGR deal, I think it was Elton John's 'I'm Still Standing.' And there was like a message there. This is 'Piano Man,' and I didn't get the message. I'm wondering, was there a message? Or just you guys are big Billy Joel fans?

We're big Billy Joel fans. No hidden messages today.

Okay. Thanks. Thanks for taking my questions. Congrats.

Thank you.

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

Thank you, Dave. Thank you all for joining us this morning. And as you raise a glass tonight, please raise one to Billy Joel for 76 and PNM 109. Thank you all. Stay safe.

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