q3 2016 earnings review - pnm resources/media/files/p/pnm...q3 2016 earnings review october 28, 2016...
TRANSCRIPT
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Q3 2016 Earnings Review October 28, 2016
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Safe Harbor Statement
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Statements made in this presentation that relate to future events or PNM Resources, Inc.’s (“PNMR”), Public Service Company of New Mexico’s (“PNM”), or Texas-New Mexico Power Company’s (“TNMP”) (collectively, the “Company”) expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. PNMR, PNM, and TNMP assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR's, PNM's, and TNMP's business, financial condition, cash flow, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. For a discussion of risk factors and other important factors affecting forward-looking statements, please see the Company’s Form 10-K and 10-Q filings with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein.
Non-GAAP Financial Measures For an explanation of the non-GAAP financial measures that appear on certain slides in this presentation (ongoing earnings and ongoing earnings per diluted share), as well as a reconciliation to GAAP measures, please refer to the Company’s website as follows: http://www.pnmresources.com/investors/results.cfm.
http://www.pnmresources.com/investors/results.cfm
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Opening Remarks and Overview Pat Vincent-Collawn
Chairman, President and CEO
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Q3 2016 Financial Results and Company Updates
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Q3 2016 Q3 2015 YTD 2016 YTD 2015
GAAP EPS $0.68(1) $0.76 $1.15(1) $1.34 Ongoing EPS $0.78 $0.76 $1.31 $1.41
2016 Ongoing EPS Guidance of $1.55 - $1.65 affirmed EPS shown on a diluted basis
Financial Results:
Company Updates:
PNM August 2015 General Rate Case New Mexico Supreme Court appeal process
Economic development update
(1) GAAP earnings also reflect $11.3 million of pre-tax regulatory disallowances associated with the rate case final order, including an estimated fifteen months of the disallowed recovery of Palo Verde and balanced draft investments pending appeal with the New Mexico Supreme Court, and $5.2 million of pre-tax restructuring costs based on revised estimates of the unrecoverable costs in the approved plan for San Juan Generating Station to meet the EPA’s regional haze rules
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Financial Overview Chuck Eldred
Executive Vice President and CFO
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Load and Economic Conditions
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Regulated Retail Energy Sales and Customers (weather-normalized, leap-year adjusted)
PNM % of 2015
Sales Volumes
Q3 2016 vs.
Q3 2015
YTD 2016 vs.
YTD 2015
Retail Load:
Residential 39% 0.2% (0.2%)
Commercial 46% 1.8% 1.0%
Industrial 12% (12.1%) (8.9%)
Total Retail Load (0.4%) (0.6%) 2016 Load Growth Forecast: (2%) – 0%
Avg. Customers 0.7% 0.7% 2016 Customer Growth Forecast: 0.5%
(1) Volumetric load is billed on per-kWh usage (2) Demand-based load is billed on monthly kW peak (3) U.S. Bureau of Labor Statistics, September 2016
TNMP % of 2015
Sales Volumes
% of 2015 Sales
Revenues
Q3 2016 vs.
Q3 2015
YTD 2016 vs.
YTD 2015
Volumetric Load(1):
Residential 51% 4.1% 3.5%
Commercial 46% 3.7% 3.0%
Total Volumetric Load 53% 3.7% 3.0% 2016 Load Growth Forecast: 2% – 3%
Avg. End Users 1.5% 1.5% 2016 End User Growth Forecast: 1.0%
Demand-Based Load(2) 47% 4.2% 2.9%
1.2%
3.6%
0.5%
1.8%
-2.0%
0.0%
2.0%
4.0%
6.0%
2013 2014 2015 2016% C
hang
e
Employment Growth(3) 12-Month Rolling Average
Albuquerque Dallas Houston U.S.
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Q3 2016 Financial Summary
7
$0.76 $0.78 $0.00 $0.01
$0.01
Q3 2015 Q3 2016
Ongoing EPS
PNM TNMP Corporate/ Other
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Q3 2016 vs Q3 2015 EPS (Ongoing): PNM and TNMP
$0.60 $0.60
Q3 2015 Q3 2016
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PNM Q3 2016 Key Performance Drivers ∆ EPS
Lower operations and maintenance costs $0.04
Elimination of Palo Verde Unit 2 lease costs, net of depreciation $0.03
Customer mix and load $0.02
Retail rate relief, net of renewable rider $0.01
AFUDC ($0.04)
Depreciation and property tax ($0.02)
Palo Verde Unit 3 market prices ($0.02)
Interest expense ($0.01)
FERC Generation Navopache contract ($0.01)
$0.17 $0.18
Q3 2015 Q3 2016
TNMP Q3 2016 Key Performance Drivers ∆ EPS Load $0.01
TCOS rate relief $0.01
Depreciation and property tax ($0.01)
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$198 $221$238 $243
Capital Forecast
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2016 – 2019 Total Capital Plan: $1.9B
PNM 2015-2019 Rate Base CAGR: 4 - 6%(1) TNMP 2015-2019 Rate Base CAGR: 8 - 10%
(1)Includes the addition of PV3 to rate base in 2018, which does not have associated capital spending. (2)The additional 65 MW ownership of San Juan Unit 4 included in the December BART approval is part of Corporate/Other for 2016-2017 and PNM beginning in 2018. Does not include PNM’s application for Advanced Metering Infrastructure Project; suspension was granted August 9, 2016. Beginning in October 2016, depreciation rates reflect the rate change approved September 28, 2016 in PNM’s general rate case filing. Amounts may not add due to rounding.
(2)
$292
$138 $112 $119
$120
$170
$119 $163
$125
$151
$134
$137
$36
$57
$30
$15
2016 2017 2018 2019
(In millions)
PNM Generation PNM T&D TNMP Corporate/Other Depreciation
$573
$516
$395 $435
Palo Verde Unit 3 added to
rate base
(2)
Chart1
2016
2017
2018
2019
Depreciation
197.601
220.966
237.566
242.764
Sheet1
20162017201820192020
PNM Generation
PNM T&D
PNM Renewables
TNMP
Other
Total
Depreciation198221238243231
Check
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2017 - 2019 Potential Earnings Power
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Allowed Return / Equity Ratio
2017 Earnings Potential 2018 Earnings Potential 2019 Earnings Potential
Avg Rate Base EPS
Avg Rate Base EPS
Avg Rate Base EPS
PNM Retail (1) 9.575% / 50% $2.3 B $1.36 $2.4 B $1.42 $2.4 B $1.41
Supreme Court Appeal (2) $0 - $150 M $0.00 - $0.09
PNM Renewables (3) 9.575% / 50% $95 M $0.06 $90 M $0.05 $85 M $0.05
PNM FERC (4) 10% / ~50% $180 M $0.08 - $0.10 $245 M $0.11 - $0.14 $275 M $0.12 - $0.16
PV3 (5) ($0.13) Included in PNM Retail Included in PNM Retail
Items not in Rates (6) $0.00 - $0.03 ($0.03) - $0.00 ($0.03) - $0.00
Total PNM $2.6 B $1.37 - $1.42 $2.7 B $1.55 - $1.61 $2.7 - $2.9 B $1.55 - $1.71
TNMP (7) 10.125% / 45% $815 M $0.48 $890 M $0.53 $965 M $0.56
Corporate/Other (8) ($0.05) - ($0.03) ($0.06) - ($0.04) ($0.06) - ($0.04)
Total PNM Resources $3.4 B $1.80 - $1.87 $3.6 B $2.02 - $2.10 $3.7 - $3.9 B $2.05 - $2.23 (1) Newly authorized 9.575% ROE has been used for all forecasted years. (2) Reflects a range of outcomes for the New Mexico Supreme Court appeal of the August 2015 General Rate Case final order. For purposes of writing down the value of the
assets under appeal at Sept. 30, 2016, a 15-month appeal timeframe was used. 2019 average rate base includes: PV2 64MW Acquisition Adjustment (~$75M), PV2 Leasehold Improvements (~$25M) and Balanced Draft Technology (~$50M).
(3) PNM Renewables reflect assets collected through the Renewable Rate Rider. (4) PNM FERC earnings potential reflects a return of 7-9% versus the allowed return of 10%, as FERC formula rate methodology uses prior year average rate base and
provides for mid-year rate increases. (5) 2017 Earnings Potential assumes a forward market price of $29/MWh; a price of $44/MWh is required to break even. PV3 is included in PNM rates beginning in 2018. (6) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, certain incentive compensation, earnings in 2017 associated with the assets
previously allocated to the Navopache contract, and the 65MW ownership of San Juan Unit 4 beginning in 2018. (7) TNMP Earnings Potential includes $0.02 of Competitive Transition Charge recovery in 2017 and 2018 and $0.01 in 2019. (8) Corporate/Other includes earnings associated with the 65MW ownership of San Juan Unit 4 before PNM assumes ownership in 2018,
short and intermediate term bank debt, and the net impact of Westmoreland financing through NM Capital Utility Corporation.
This table is not intended to represent a forward-looking projection of 2017 - 2019 earnings guidance.
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Above Industry Average Earnings and Dividend Growth
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7% - 8% Earnings Growth
2015 - 2019
2012 – 2015 actual results represent ongoing earnings per diluted share 2016E represents the ongoing earnings guidance range of $1.55 - $1.65 per diluted share
$1.31 $1.41 $1.49 $1.55
$1.64 $1.65
2012 2013 2014 2015 2016E 2017E 2018E 2019EOngoing EPS
$0.58 Feb ‘12
$0.66 Feb ‘13
$0.74 Dec ‘13
$0.80 Dec ‘14
$0.88 Dec ‘15
Indicated Annual Dividends
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Sustainability Portal
12 http://www.pnmresources.com/about-us/sustainability-portal.aspx
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Questions and Answers
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Appendix
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2016 EPS Guidance (Ongoing)
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$1.55 Consolidated EPS $1.65
PNM $1.08 - $1.16
TNMP $0.50 - $0.51
Corp/Other ($0.03) – ($0.02)
2016 Guidance
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PNM General Rate Case Final Order
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Key Rate Case Elements (PNM Retail Share, net of ADIT)
Commission Order
Recommended Decision
Original Request
Impact to Rate Increase
ROE 9.575% 9.575% 10.5% ($17) M
Rate Base:
Palo Verde Unit 2 lease purchase (64 MW) $55 M Disallowed $153 M ($15) M
Leasehold improvements and common plant associated with the 64 MWs of previously leased Palo Verde Unit 2 capacity
Disallowed $26 M $26 M ($4) M
Balanced Draft Technology Disallowed Disallowed $39 M ($5) M
Five months of CWIP $55 M $55 M $55 M No adjustment
Pre-Paid pension asset $83 M $83 M $83 M No adjustment
Other Revenue Requirements:
Depreciation Rates $14 M $20 M $20.6 M ($6.4) M
Palo Verde Lease and Property Tax Expense (remaining 114 MW of leased capacity) $19.5 M Disallowed $19.5 M
No adjustment
• Approved Sept. 28, 2016; New Mexico Supreme Court appeal filed Sept. 30, 2016: • Non-fuel revenue increase of $61.2M versus $121.5M request • Retail rate base of $2,263M versus $2,458M request
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Weather Impact
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PNM Q3 2016 Q3 2015 2016 Normal(1)
Heating Degree Days 13 0 15
Cooling Degree Days 991 1,090 1,013
Net EPS Impact compared to normal
$0.00 $0.00
TNMP Q3 2016 Q3 2015 2016 Normal(1)
Heating Degree Days 0 0 0
Cooling Degree Days 1,795 1,827 1,745
Net EPS Impact compared to normal
$0.00 $0.00 (1) 2016 normal weather assumption reflects the 10-year average for the period 2005 - 2014.
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PNM Plant Outages
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2016 - 2017 Planned Outage Schedule
Palo Verde
Unit Duration in Days Time
Period
3 34 Q4 2016
2 34 Q2 2017
1 34 Q4 2017
Four Corners
Unit Duration in Days Time
Period
4 10 Q2 2017
5 10 Q2 2017
5 95 Q3-Q4 2017
San Juan
Unit Duration in Days Time
Period
2 Retirement 12/31/2017
3 Retirement 12/31/2017
Scheduled Unit Retirements
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Balance Sheet and Credit Metrics
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Liquidity as of October 21, 2016
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PNM TNMP Corporate/
Other
PNM Resources
Consolidated
Financing Capacity(1): (In millions)
Revolving credit facilities $450.0 $75.0 $300.0 $825.0
As of 10/21/16:
Short-term debt and LOC balances $32.5 $0.1 $199.6 $232.2
Remaining availability 417.5 74.9 100.4 592.8
Invested cash - 0.3 1.5 1.8
Total Available Liquidity $417.5 $75.2 $101.9 $594.6
(1) Excludes intercompany debt and term loans
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Selected Balance Sheet Information
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(1) Net of unamortized debt issuance costs (2) Excludes intercompany debt Amounts may not add due to rounding
(In millions) Dec 31, 2015 Sept 30, 2016
Long-Term Debt (incl. current portion) (1)
PNM $1,580.7 $1,631.6
TNMP 361.4 420.8
Corporate/Other 149.9 256.0
Consolidated $2,091.9 $2,308.3
Total Debt (incl. short-term) (2)
PNM $1,580.7 $1,674.0
TNMP 420.4 420.8
Corporate/Other 341.5 569.5
Consolidated $2,342.5 $2,664.2
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Credit Ratings
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PNMR S&P Moody’s
Credit rating BBB+(1) Baa3(1)
Issuer outlook Stable Stable
(1) Issuer/Corporate rating (2) Senior unsecured (3) Senior secured
PNM S&P Moody’s
Credit rating BBB+(2) Baa2(2)
Issuer outlook Stable Stable
TNMP S&P Moody’s
Credit rating A(3) A1(3)
Issuer outlook Stable Stable
Slide Number 1Safe Harbor StatementSlide Number 3Q3 2016 Financial Results and Company UpdatesSlide Number 5Load and Economic ConditionsQ3 2016 Financial SummaryQ3 2016 vs Q3 2015 EPS (Ongoing): PNM and TNMP Capital Forecast 2017 - 2019 Potential Earnings PowerAbove Industry Average Earnings and Dividend GrowthSustainability PortalSlide Number 13Slide Number 142016 EPS Guidance (Ongoing)PNM General Rate Case Final OrderWeather ImpactPNM Plant Outages Slide Number 19Liquidity as of October 21, 2016Selected Balance Sheet InformationCredit Ratings