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8-K - FORM 8-K - EL PASO ELECTRIC CO /TX/ | form8k06-30x16.htm |
EX-99.01 - EARNINGS PRESS RELEASE - EL PASO ELECTRIC CO /TX/ | exh99016-30x2016.htm |
Second Quarter 2016
Earnings Conference Call
August 3, 2016
2
Safe Harbor Statement
A
A
a
This presentation includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. This information often involves risks and uncertainties that could cause actual results to differ materially from such forward-
looking statements. The statements in this presentation that are not historical statements and any other statements regarding EE's future
expectations, beliefs, plans, objectives, financial conditions, assumptions or future events or performance that are not historical facts, are
forward-looking statements within the meaning of the federal securities laws. Additional information concerning factors that could cause
actual results to differ materially from those expressed in forward-looking statements is contained in EE's most recently filed periodic
reports and in other filings made by EE with the U.S. Securities and Exchange Commission (the "SEC"), and includes, but is not limited
to:
Uncertainty regarding the actions and timing of matters in the Company’s Texas rate case pending before the PUCT
Increased prices for fuel and purchased power and the possibility that regulators may not permit EE to pass through all such
increased costs to customers or to recover previously incurred fuel costs in rates
Full and timely recovery of capital investments and operating costs through rates in Texas and New Mexico
Uncertainties and instability in the general economy and the resulting impact on EE’s sales and profitability
Changes in customers’ demand for electricity as a result of energy efficiency initiatives and emerging competing services and
technologies, including distributed generation
Unanticipated increased costs associated with scheduled and unscheduled outages of generating plant
The size of our construction program and our ability to complete construction on budget and on time
Potential delays in our construction schedule due to legal challenges or other reasons
Costs at Palo Verde
Deregulation and competition in the electric utility industry
Possible increased costs of compliance with environmental or other laws, regulations and policies
Possible income tax and interest payments as a result of audit adjustments proposed by the IRS or state taxing authorities
Uncertainties and instability in the financial markets and the resulting impact on EE’s ability to access the capital and credit markets
Possible physical or cyber attacks, intrusions or other catastrophic events
Other factors of which we are currently unaware or deem immaterial
EE’s filings are available from the SEC or may be obtained through EE’s website, http://www.epelectric.com. Any such forward-looking
statement is qualified by reference to these risks and factors. EE cautions that these risks and factors are not exclusive. Management
cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or
present or prior earnings levels. Forward-looking statements speak only as of the date of this news release, and EE does not undertake
to update any forward-looking statement contained herein.
3
Recent Highlights
Became a coal-free utility on July 6, 2016, which will reduce one
billion pounds of carbon dioxide from our annual emissions
Addition of large-scale solar resources has prevented another one
billion pounds of carbon dioxide from being emitted into the
atmosphere
Set a new native peak record of 1,892 MW on July 14, 2016
Obtained a Final Order for the New Mexico Rate Case on June 8,
2016
Filed an unopposed settlement with the Public Utility Commission of
Texas (PUCT) for our Texas rate case on July 21, 2016
Construction of Montana Power Station Unit 4 remains on schedule
for September 2016 in-service date
Started working with the union to negotiate a new collective
bargaining agreement
4
On July 15, 2016, our region was hit
with a massive wind storm while also
experiencing triple digit temperatures
Wind gusts exceeding 60 miles per
hour caused damage to numerous
transmission and distribution poles
Recent Weather Event
El Paso Electric Company
employees worked
throughout the evening in
hazardous conditions to
restore power to thousands
of customers in a safe
manner within two hours
5 Texas Rate Case Update
(Docket No. 44941)
On July 21, 2016, EE filed an unopposed settlement with the PUCT
containing the following terms
A non-fuel base rate increase of $37mm
An additional non-fuel base rate increase of $3.7mm for Four Corners revenue
requirement
Lower annual depreciation expense of approximately $8.5mm
Return on Equity of 9.7% for AFUDC purposes
Substantially all new plant in service included in rate base
Recovery for most of the rate case expenses up to a date certain
Removal of the separate treatment for residential customers with solar generation
Non-fuel base rates will relate back to January 12, 2016
A proposed final order is scheduled to be considered by the PUCT on
August 18, 2016
Approval of the settlement by the PUCT would resolve the rate case,
including the revenue requirement issue for Four Corners and rate case
expenses
6 New Mexico Rate Case Update
(Case No. 15-00127-UT)
On June 8th the NMPRC issued a final order approving an annual
increase of approximately $1.1mm. Key terms include:
100% of plant in service deemed reasonable and necessary
Reduction in rate base for the pension & benefits liability*
Return on Equity of 9.48%
Disallowance of several smaller cost of service items
Non-fuel base rates were effective July 1, 2016
* Under a separate case number (Case No. 16-00138-UT), EE is required to provide
additional information on the unfunded liability for other post-employment benefits.
7
Potential Timeline – Next Rate Cases
New Mexico
Texas
May Jul Sep Nov
Jan
2017
Mar May Jul Sep Nov
Jan
2018 2018
Final Order
Q1 2018
Final Order
4Q 2017
Effective Date of Rates(2)
3Q 2017
File Rate Case(1)
1Q 2017
File Rate Case (1)
1Q 2017 MPS Unit 4 In-Service
MPS Unit 4 In-Service
Historical Test Year End
Sep 2016
Historical Test Year End
Sep 2016
MPS Unit 3 In-Service
May 2016
MPS Unit 3 In-Service
May 2016
2016
(1) New Mexico and Texas Rate Case filings will use a historical test year ended September 2016 and include MPS units 3
& 4 in requested rate base.
(2) Section 36.211 of the Texas Utilities Code, which was added by House Bill 1535 in 2015, allows for rates to relate back
to the 155th day after a rate case is filed. For financial reporting purposes the revenues and other impacts will be
recognized when a resolution is reached in the Texas rate case.
8
2nd Quarter Financial Results
2nd Quarter 2016 net income of $22.3 million or $0.55
per share, compared to 2nd Quarter 2015 net income
of $21.1 million or $0.52 per share
9
2nd Quarter Key Earnings Drivers
Basic EPS Description
June 30, 2015 0.52$
Changes In:
Retail non-fuel base revenues 0.05
Increased primarily due to an increase in residential and small
commercial customers served and warmer weather.
Investment and interest income 0.04
Increased due to higher realized gains on securities sold from
EE's Palo Verde decommissioning trust fund portfolio.
Interest on long-term debt (0.03)
Increased due to the interest accrued on $150 million aggregate
principal amount of senior notes issued in March 2016.
Depreciation and amortization (0.01)
Increased primarily due to an increase in depreciable plant,
including MPS Unit 3 which was placed in service in May 2016,
partially offset by a change in the estimated useful life of certain
software assets.
Changes in the effective tax rate (0.02)
Increased due to the reduction of the domestic production
manufacturing deduction and changes in state taxes.
June 30, 2016 0.55$
10
2nd Quarter Retail Revenues and Sales
Non-Fuel Base
Revenues
(000's)
Percent
Change *
MWH
Percent
Change *
Residential 62,679$ 5.5% 679,035 5.9%
C&I Small 54,707 1.6% 633,714 1.1%
C&I Large 9,489 (3.9%) 270,908 (2.8%)
Public Authorities 24,672 (2.5%) 405,277 (3.5%)
Total R t il 151,547$ 2.1% 1,988,934 1.1%
Cooling Degree Days 965 3.9%
Average Retail Customers 407,967 1.5%
* Percent Change expressed as change from Q2 2016 over Q2 2015
11
Historical Weather Summary
824
1,008 1,013 995
1,169 1,178 1,138
1,095
929
965
0
200
400
600
800
1,000
1,200
1,400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2nd Quarter Cooling Degree Day’s (CDD’s)
10-Yr CDD
Average – 1,031
2nd Quarter CDD’s
• 6.4% Below 10-Year Average
• 3.9% Above 2nd Quarter 2015
12
Capital Requirements & Liquidity
Expended $102.8mm for additions to utility plant for the
six months ended June 30, 2016
On July 21, 2016, the Board declared a quarterly cash
dividend of $0.31 per share payable on September 30,
2016 to shareholders of record as of September 14, 2016
EE made $24.5mm in dividend payments for the six
months ended June 30, 2016
On June 30, 2016, EE had liquidity of $207.5mm
including a cash balance of $9.6mm and unused capacity
under the revolving credit facility
Capital expenditures for utility plant in 2016 are
anticipated to be approximately $234mm
13 2016 Earnings Guidance
2015 EPS Actual 2016 Earnings Guidance
Earnings Guidance
$2.03
$2.50
$2.20
The middle of the range assumes
normal weather and rate relief for:
Texas - based on unopposed settlement in
Docket No. 44941 (rates relate back to
January 12, 2016)(2) :
• $40.7mm non-fuel base rate increase,
which includes $3.7mm for Four
Corners revenue requirement
• $8.5mm lower annual depreciation
expense
• ROE of 9.7% for AFUDC purposes
New Mexico - $1.1mm non-fuel base rate
increase based on final order in Case No.
15-00127-UT (effective July 1, 2016)
Initiating an earnings guidance range of $2.20 to $2.50 per share
(1) Assumes normal operating conditions for the remainder of 2016
(2) Assumes PUCT approves the unopposed settlement during the second half of 2016
(1)
14
2016 Earnings Drivers
Positive
Year over
Year
Impact on
EPS
Drivers
Negative
Year over
Year
Impact on
EPS
Rate relief
Customer growth
Depreciation (1)
Effective Tax Rate (estimated to
be ~ 36% in 2016)
Return to normal weather
Property Taxes (1)
Investment and interest income
Interest expense (1)
O&M (1)
AFUDC (1)
Other
(1) YOY decreases related to regulatory lag for MPS Units 3 & 4 equate to
approximately $0.15 per share. $0.15 per share estimate includes $0.09 per share
for interest related to $150mm of 5.0% Senior Notes issued on March 24, 2016.
In Texas, new rates
will relate back to
January 12, 2016
We believe we can
record the revenue
and other impacts
of the unopposed
settlement for
financial reporting
purposes during
the second half of
2016
15
Q & A