El Paso Electric Company · 2017-12-21 · Financially strong utility positioned well for future...
Transcript of El Paso Electric Company · 2017-12-21 · Financially strong utility positioned well for future...
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El Paso Electric Company Marketing Tour
June/July 2015
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This presentation includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. This information may involve risks and uncertainties that could cause actual
results to differ materially from such forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to:
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
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
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
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 detailed by EE in its public filings with the Securities and Exchange Commission. EE’s filings are available from the
Securities and Exchange Commission or may be obtained through EE’s website, http://www.epelectric.com
Safe Harbor Statement 2
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EE Overview
Service
Territory
Rate Base
Growth
Environmental
Revenue
Growth
Financial
Traditional, vertically integrated electric utility serving west Texas
and southern New Mexico; rate regulated with fuel pass through
Strong long–term customer and revenue growth trends
Sizeable capital expenditures plan and resulting rate base growth
for the next several years
Financially strong utility positioned well for future dividend growth
Favorable environmental profile – low carbon footprint
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Service Territory
Approximately 400,000 retail
customers
EPE owns 1,829 miles of
transmission lines
Clean dependable generating
capability 2,010 MW (net) –
nuclear (34%), natural gas
(60%) and limited coal (6%)
Interconnected with WECC, not ERCOT
Interconnected with Mexico
Texas jurisdiction represents ~ 78% of MWh sales &
of non-fuel base revenues
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Residential Customer Growth
220,000
240,000
260,000
280,000
300,000
320,000
340,000
360,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Residential Customers at Year End
10 Year CAGR – Avg. No. Customers
EE Industry*
Usage per Customer 1.02% 0.60%
Customer Growth 1.85% 0.42%
Refrigerated air conditioning is being installed in 99% of new homes
Majority of customers within our service territory utilize evaporative coolers
Refrigerated air conditioning uses 85% less water and three times more electricity than evaporative coolers
Usage per customer impacted by increased energy efficiency and conservation initiatives
* Source EEI-2014 Statistical Yearbook
CAGR
1.85%
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Customer & Population Growth
100,000
300,000
500,000
700,000
900,000
1,100,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EP & Dona Ana Pop 902,591 917,294 938,496 953,431 970,785 992,160 1,009,8 1,032,6 1,045,3 1,045,0 1,047,1
EE Res Customers 296,435 304,031 311,923 317,091 322,618 328,553 334,729 339,860 345,567 349,629 353,885
El Paso & Dona Ana County Population & EE Residential Customer Growth
EP & Dona Ana Pop EE Res CustomersSource: U.S. Bureau of Census and Real Estate Center at Texas A&M University
CAGR
1.50%
CAGR
1.79%
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Economic Indicators
The Federal Reserve’s El Paso Business Cycle
Index continues to show positive growth since 2008
El Paso’s April
unemployment rate was
the lowest rate in 6 years
Single family building
permits increased by 39
percent in 1Q 2015
compared to 1Q 2014
Federal Reserve Bank of Dallas
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Native System Peak Load Growth
Set a new Native Peak record of 1,787* MW on
June 22, 2015
1,000
1,200
1,400
1,600
1,800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1,376 1,428
1,508 1,524 1,571 1,616
1,714 1,688 1,750 1,766 1,787 MW
Native System Peak CAGR
2.65%
* Pending Metering Certification
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Five Year Cash Capital
Expenditures
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E
EE Estimated Costs
Generation Transmission Distribution General
$277mm
$260mm
$203mm
$170mm
$199mm
$237mm
$202mm
$178mm $169mm
$254mm
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Generation Addition Schedule
2015 2016 2017 2018 2019
2,010 1,990 2,078 2,078 2,078
Generating Capacity at Summer Peak (MW)
Existing Generation Generation Additions
Projected Peak
(a) MPS Unit 3 will be commercially operational
for summer peak of 2016. MPS Unit 4 will
be commercially operational in December
2016, but will not impact peak generating
capability until 2017.
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Montana Power Station
The first two generating units at the Montana Power Station
have been completed, and began providing electricity to our
customers in late March as scheduled
Construction of the second
phase of the project includes
Units 3 & 4 and is currently
underway
Once complete, the four LMS-
100 units at MPS will add 352
MW of efficient, clean burning
natural gas power
Montana Power Station Units 1&2
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Projected Rate Base and CWIP YE 2015
Including
MPS 1 & 2
YE 2016
Including
MPS 3 & 4
Beginning Rate Base (1)(2)
$1,633 $1,947
Plant Additions:
MPS Transmission and Substations 20 14
New Eastside Facility 41 -
Other 141 116
New Generating Units:
Montana Common Plant 53 12
Montana Unit 1 79 -
Montana Unit 2 74 -
Montana Unit 3 - 78
Montana Unit 4 - 78
Total 408 298
Depreciation Expense (90) (95)
Change in Deferred Income Taxes & Other (4) 22
Total Rate Base (3)
$1,947 $2,172
2015 2016
Ending CWIP Balances ($ in millions) $282 $178
Pro forma Rate Base Balances ($000)
(1) Excludes NM’s portion of PV Unit 3 rate base, net of ADIT, of approximately $26mm and $27mm for each pro-forma filing in 2015 and 2016, respectfully
(2) Beginning rate base is December 31, 2014 and year end balances exclude CWIP
(3) Represents a pro-forma rate base projection that is subject to change based on actual rate filings
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Favorable Financial Positioning
Rate base anticipated to increase due to load growth, not
environmental retrofits
Continue to target a regulatory equity/debt ratio (excluding
short-term and Rio Grande Resources Trust debt) of
approximately 50%
Goal is to preserve investment grade credit ratings in order
to finance capital additions with favorable terms
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Commitment to Credit Quality
Capital Structure
As of March 31, 2015 * (thousands)
Common Stock Equity $975,265
Long-term debt, net of RGRT 1,039,205
Total Capitalization Before RGRT $2,014,470
RGRT and RCF - LT & ST Debt 168,345
Total Capitalization After RGRT and RCF $2,182,815
* Capital structure includes current maturities and short-term
borrowings
Well positioned to finance planned
investments Investment grade credit ratings
S&P reaffirmed its BBB rating and Stable Outlook in March 2015
Moody’s reaffirmed EE’s credit rating to Baa1 in December 2014
Regulatory Capitalization** Book Capitalization
Debt
51.6%
Equity
48.4%
Debt
55.3%
Equity
44.7%
Moody's S&P
EE (unsecured) Baa1 BBB
Stable Stable
** Regulatory Capitalization excludes borrowings for NF by the Rio Grande
Resources Trust (RGRT), while book capitalization includes nuclear fuel
borrowings in the debt portion of capitalization.
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Increasing Cash Returns
Quarterly cash dividend has increased by 34% to $0.295
per share since 2011
Dividend payout ratio remains below the peer average,
which allows for future growth
Over the next several years
anticipate growing the dividend by
4% to 6% per year
Goal is to move closer to peer
average payout ratio after major
construction period and regulatory
lag subsides
$1.00
$1.06
$1.12
$1.18
2012 2013 2014 2015Annualized Dividend Per Share
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Diversified Energy Portfolio
and Low Carbon Footprint 2014 Energy Sources (by MWh’s)
Nuclear 47% Natural
Gas 35%
Purchased
Power 13%*
Coal
5%
*Renewable energy purchases represent 16.4% of total
purchased power
EE vs. U.S. Avg. Carbon Footprint (Short tons CO2 equivalent emissions/MWH)
2010 National
Average 0.62
2014 EE
0.31
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Well Positioned to Meet New
Environmental Regulations EE expects minimal impacts from the Environmental Protection
Agency’s proposed guidelines to reduce carbon dioxide
emissions from existing fossil fuel-fired power plants
EE will reduce its carbon footprint by ceasing participation in the
Four Corners coal plant in July 2016 when the 50-year
participation agreement expires
EE filed “Sale and Abandonment” proceeding in TX & NM
Costs associated with future retrofits required by
environmental regulation will be avoided
Planned additions of natural gas fired plants will meet growing
customer demand as well as replace Four Corners and other
plant retirements
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Utility Scale Renewables
The 50 MW Macho Springs Solar Facility began commercial
operation in May 2014 and is now delivering safe, dependable, and
clean power to our system
EE entered into a purchased power agreement with Newman Solar,
LLC to purchase the entire output of a 10 MW solar facility
EE’s utility scale solar facilities represented more than 5% of
dedicated generation resources
EE is placing greater emphasis on utility scale renewables, reflecting
improved cost and economics
In April 2015, EE filed for a Certificate of Convenience and Necessity
in TX and NM for a 20 MW solar facility at Fort Bliss
In June 2015, EE filed for a new 3 MW Community Solar Pilot
Program in TX, which will be constructed at MPS
Additional solar projects are expected to be constructed in Las
Cruces and at Holloman Air Force Base
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Appendix
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New Mexico Rate Case Filing
EE filed a general rate case on May 11, 2015 with the New
Mexico Public Regulation Commission (NMPRC)
Summary of request included: Historical test year ended December 2014
Case filed primarily to reflect new plant in service Montana Power Station (MPS) Units 1& 2, common, substation &
transmission
Eastside Operations Center
Change in non-fuel base rates Non-fuel base rate increase of $8.6mm or 7.1%
Change in base fuel rates Forecasted base fuel decrease of $15.4mm* or 21.5%
100% of forecasted fuel and purchased power collected in base rates
Fuel Adjustment Clause trues-up collection to actuals * Base fuel decrease is currently flowing through to customers via the fuel adjustment clause
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New Mexico Rate Case Filing (cont’d)
ROE of 9.95%; Equity Ratio of 49.29%
Continuation of Palo Verde (PV) Unit 3 proxy market pricing
Average Non-Fuel
Base Change
Average Net Bill Impact
with Proposed Fuel
Residential Service 14.0% 9.0%
Partial Requirements 18.7% 9.0%
Small General Service 0.0% 0.0%
General Service 0.0% 0.0%
Irrigation Service 7.3% 4.5%
Water Pumping Service 0.0% 0.0%
Large Power Service 0.0% 0.0%
Military Research & Dev. Service 0.0% 0.0%
Street Lighting Service 26.0% 20.0%
Private Area Lighting Service 0.0% 0.0%
Seasonal Agricultural Processing 6.6% 4.5%
Outdoor Recreational Lighting 29.6% 20.0%
State University Service 5.0% 2.4%
Structural rate design
changes include:
Gradual approach to
moving customer classes
closer to the costs of
serving them
Combining similar classes
Proposing a new partial
requirement customer
class
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Rate Base Summary
Total Rate Base*
Total Company $1,809mm
New Mexico jurisdictional $436mm
Approximately $1,281mm of plant has been added since the
last rate case
Significant plant additions to rate base include:
Palo Verde Capital Improvements – $159.0mm
Phase II of Newman Unit 5 – $164.1mm
Rio Grande Unit 9 – $94.4mm
Transmission and Distribution - $413.3mm
MPS and Eastside Operations Center - $266.4mm**
* Rate Base and plant additions exclude PV Unit 3 and 1/3 of PV common
** MPS includes Units 1 & 2, common, substation and transmission lines
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New Mexico Rate Case Schedule
Procedural Schedule and Timeline *
General Rate Case Filing – May 11, 2015
Discovery Process - May/Sept. 2015
Deadline for Intervention – Aug. 3, 2015
Direct Testimony of NMPRC and Intervenors – Sep. 30, 2015
Rebuttal Testimony – Oct. 28, 2015
Hearing Begins – Nov. 16, 2015
New rates potentially become effective early in 2nd
quarter 2016
* Procedural schedule adopted on June 23, 2015
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Texas Rate Case Filing
New Mexico rate case filing should not be used to estimate
the level of rate relief that will be requested in Texas
EE anticipates filing a general rate case in July or August
2015
Historical test year ended March 2015
Anticipate new rates will become effective by early 2nd
quarter 2016
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Recent Regulatory Filings
Regulatory Filing Description Jurisdiction Docket No.
Fort Bliss Solar CCN TX 44637
Fort Bliss Solar CCN NM 15-00099-UT
Four Corners Sale NM 15-00109-UT
Four Corners Sale TX 44805
Holloman Solar CCN NM 15-00185-UT
El Paso MPS Community Solar TX 44800
Las Cruces Community Solar NM
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Impact of Mexico Cross Border trade between El Paso and Juarez
totaled approximately $89 billion in 2014(1)
A new port of entry linking El Paso and Juarez, the
Tornillo-Guadalupe International Bridge, will add to
the capacity for cross border trade and will be one
of the largest in the nation and is expected to be operational in September 2015
Maquiladora plants employed roughly 273,000 workers in the Juarez
area as of April 2015; maquiladora employment increased 14.7% from
April 2014 to April 2015(2)
A 10 percent increase in maquiladora output leads to a 2.8 percent
increase in El Paso total employment(3)
(1) Source: Texas A&M International
(2) Source: Juarez Maquiladora Association (INDEX)
(3) Source: Mexican National Institute of Statistics and Geography and the Federal Reserve Bank of Dallas
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Union Pacific Intermodal Rail
Construction of the $400 million Union Pacific intermodal rail yard was
completed in 2014 (one year ahead of schedule) and is projected to add
approximately 600 jobs and added $500 million to the local economy
during construction
The strategic positioning of the
Intermodal Rail Yard, located just
minutes away from maquiladora
plants in Mexico, will make the
Santa Teresa, NM / El Paso, TX
area a focal point for rail
shipments in the southwestern
United States
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Other Local Growth Summary
El Paso’s hotel revenue and occupancy rate hit an all-time high in March of this
year
Projects associated with $473 million in Quality-of-Life bonds approved by voters in
2012 are under construction including parks, pools, museums, and libraries
The Charles Schwab Corp. plans to open a new operations center in west El Paso,
which is expected to add approximately 445 new jobs to the city by early 2015
Prudential Financial Inc. announced a new technology and call center to be located
on the City’s east side which will employ 300 people over the next several years
Schneider Electric plans to invest $7 million to expand its El Paso manufacturing
facility, adding an additional 193 full-time permanent jobs
Automatic Data Processing (ADP) plans to double its current El Paso workforce
adding 1,100 new positions by 2020
Starwood Hotels has announced plans to restore the historic O.T. Basset Tower in
downtown El Paso for its Aloft-brand hotel, a project estimated at over $10 million
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2015 Load and Resources
2015 Total Energy Resources 2,117 MW’s
Record Native Peak 1,787 MW’s set in June 2015 *
Company Owned Generation 2,010 MW Solar Purchased
Power
107 MW
Natural Gas Nuclear Coal Wind/Solar Solar Power
Palo Verde Rio Grande Newman Copper Four Corners Renewables Solar Montana
633 MW 752 MW 276 MW 64 MW 108 MW 1 MW 107 MW 176 MW
* Pending Metering Certification
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Shareholder Return (all data as of 12/31)
2012 – $31.91
2011 – $34.64
2010 – $27.53
2009 – $20.28
2013 – $35.11
2012 – $38.9
2011 – $113.7
2010 – $33.7
2009 – $24.1
2013 – $42.0
MARKET PRICE PER SHARE ANNUAL VALUE OF SHARE
REPURCHASES AND DIVIDENDS(1)
$80$100$120$140$160$180$200$220$240
Dec. 31, 2009 Dec. 31, 2010 Dec. 31, 2011 Dec.31, 2012 Dec. 31, 2013 Dec. 31, 2014
Total Return Comparison $100 Investment on December 31, 2009
EE EEI NYSE(1) EE Initiated a quarterly cash dividend in 2011 distributing a total of $27.2mm in addition to $86.5mm in share repurchases
2014 – $40.06 2014 – $44.6
EE $219
EEI $191
NYSE $151
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Capital Requirements and Liquidity
Expended $73.9mm for additions to utility plant for the three months
ended March 31, 2015
Board declared quarterly cash dividend of $0.295 per share on May 28,
2015 payable on June 30, 2015
EE made $11.3mm in dividend payments for the three months ended
March 31, 2015
At March 31, 2015, EE had liquidity of $249.3mm including a cash
balance of $8mm and unused capacity under the revolving credit facility
Capital expenditures for utility plant in 2015 are anticipated to be
approximately $259.5mm
Received DOE settlement of $6.6mm related to spent nuclear fuel
storage reimbursement
May issue long-term debt in late 2015 or early 2016
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1st Quarter Financial Results
1st Quarter 2015 net income of $3.5 million or $0.09 per
share, compared to 1st Quarter 2014 net income of $4.6
million or $0.11 per share
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Financial Highlights
Basic EPS Description
March 31, 2014 0.11$
Changes In:
Interest on long-term debt (0.03)Increased due to $150 million of 5.0% senior notes
issued in December 2014
Gain on the sale of land in 2014 (0.02)Decreased due to sale of land in 1Q 2014 with no
comparable activity in the current quarter
Deregulated Palo Verde Unit 3 revenues (0.02)Decreased due to 35% decrease in proxy market prices
reflecting a decline in natural gas prices
Depreciation and amortization expense (0.01) Increased due to an increase in depreciable plant
Allowance for funds used during construction 0.05 Increased due to higher average construction balances
Taxes other than income taxes 0.02
Decreased due to Arizona property tax adjustment in 1Q
2014 with no comparable adjustment in the current
quarter
Retail non-fuel base revenues 0.01Increased due to colder winter weather in 1Q 2015 and
customer growth
Other (0.02)
March 31, 2015 0.09$
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1st Quarter Retail Revenues
and Sales Non-Fuel Base
Revenues
(000's)
Percent
Change *MWH
Percent
Change *
Residential 46,940$ 3.0% 561,653 3.4%
C&I Small 31,970 (0.5%) 490,066 (0.8%)
C&I Large 8,249 (0.9%) 253,120 11.7%
Public Authorities 17,258 (2.3%) 343,093 -
Total Retail 104,417$ 0.7% 1,647,932 2.6%
Heating Degree Days (HDD's) 1,153 20.4%
Average Retail Customers 400,063 1.4%
* Percent change expressed as change from Q1 2015 over Q1 2014
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Historical Weather Analysis
1,024
1,288 1,191
1,030
1,396
1,265 1,159
1,338
958
1,153
0
200
400
600
800
1,000
1,200
1,400
1,600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
March YTD HDD
10-Yr HDD
Average – 1,180
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2015 Estimated Regulatory Lag Impacts
Estimated Impact on EPS due to Regulatory Lag
for MPS T&D, Common, Units 1&2, and the East Side Distribution
Operations Center
Overall 2015 EPS Impact ($0.31 to $0.37) ($0.19)
($0.08)
($0.07)
AFUDC
Depreciation
Property Tax & O&M
Other
Note: Individual components represent mid-point of the range of estimated impact
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Texas Renewables
Requirements EE must obtain renewables through renewable generation or
purchase of Renewable Energy Credits (REC’s). The amount is based on the ratio of EE’s Texas sales compared to total sales in the state. This number has averaged approximately 5%.
Compliance
EE primarily purchases REC’s
Cost Recovery
REC costs recovered through
base rates
EE capital investments included
in rate base
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New Mexico Renewables
Requirements
EE is required to meet 15% of its current retail
energy sales in New Mexico via renewables;
escalates to 20% in 2020
Must be from diverse sources – at least 20% solar, 30% wind, 5% biomass and 3% renewable distributed generation
Reasonable cost threshold will limit future requirements for EE
Compliance
Purchase of wind RECs from Southwestern Public Service (SPS) through 2015
Cost Recovery
Renewable energy with RECs recovered through fuel clause; RECs without
energy deferred and recovered through base rates
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Regulatory Overview
Name Term Ends Party
Donna L. Nelson (Chair) 08/31/2015 Republican
Kenneth W. Anderson 08/31/2017 Republican
Brandy Marty 08/31/2019 Republican
Name Term Ends Party District
Karen Montoya (Chair) 12/31/2016 Democrat 1
Patrick Lyons 12/31/2018 Republican 2
Valerie Espinoza (Vice Chair) 12/31/2016 Democrat 3
Lynda Lovejoy (Vice-Chair) 12/31/2018 Democrat 4
Sandy Jones 12/31/2018 Democrat 5
Public Utility Commission of Texas - Appointed by Governor
New Mexico Public Regulation Commission - Elected
FERC Rates are Formula Based
1
2
3
4
5
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EE Contact Information
Nathan Hirschi Richard Gonzalez
Senior Vice President – Chief Financial Officer Supervisor Investor Relations
(915) 521-4456 (915) 543-2236
[email protected] [email protected]
John Boomer El Paso Electric Headquarters
Vice President, General Counsel Stanton Tower
(915) 543-4347 100 North Stanton
[email protected] El Paso, Texas 79901
(800) 592-1634
Lisa Budtke
Assistant Treasurer
(915) 543-5947