Txnm Energy, Inc. · NYSE:TXNM
Txnm Energy — PNM Resources — Non-Deal Roadshow (March 2016)
53 slides from Txnm Energy's roadshow presentation, March 2016
Slide 1: Investor Meetings
Investor Meetings March 2016
Slide 2: Contact Information and Safe Harbor Statement
Contact Information and Safe Harbor Statement Investor Relations Contact Information Jimmie Blotter, Director, Investor Relations Lisa Goodman, Manager, Investor Relations U.S. 1‐505‐241‐2227 U.S. 1‐505‐241‐2160 Jimmie.Blotter@pnmresources.com Lisa.Goodman@pnmresources.com Safe Harbor Statement Stat
Slide 3: Strategic Overview
Strategic Overview
Slide 4: PNM Resources Overview
PNM Resources Overview PNM Resources is a regulated electric utility holding company focused NYSE Ticker PNM on providing environmentally responsible, affordable and reliable Market Cap $2.7B electricity to customers and above industry average earnings and Enterprise Value $5.0B dividend growth to s
Slide 5: PNM Resources Strategic Direction
PNM Resources Strategic Direction Strategic Financial Goals Business Principles Earn authorized return on regulated businesses Achieve industry‐leading Above industry average earnings growth safety performance and customer satisfaction Maintain solid investment grade credit ratings Above industry av
Slide 6: Earn Authorized Return on Regulated Businesses: Delivering Successful Regulatory Outcomes
Earn Authorized Return on Regulated Businesses Delivering Successful Regulatory Outcomes PNM: Received Commission approval of the future test year definition to be used in general rate case filings Obtained approval of Clean Air Act Revised State Implementation Plan for Best Available Retrofit T
Slide 7: Above Industry Average Earnings Growth: Rate Base Growth
Above Industry Average Earnings Growth: Rate Base Growth 2016 – 2019 Total Capital Plan: $1.7B Forecasted Capital Spending PNM 2015‐2019 Rate Base CAGR: 5 ‐ 7%(1) (In millions) TNMP 2015‐2019 Rate Base CAGR: 7 ‐ 9% $547 $36 Palo Verde Unit 3 added to rate base $115 $415 $398 $19 $14 $352 $99 $101 $1
Slide 8: Above Industry Average Earnings Growth: 2016-2019 Earnings Potential
Above Industry Average Earnings Growth: 2016 ‐ 2019 Earnings Potential 2016 Earnings Guidance 2019 Earnings Potential Allowed EPS Growth Avg Rate Avg Rate Return EPS Return / EPS Base Base Equity Ratio PNM Retail (1) $2.4 B 7.3% ‐ 8.4% $1.08 ‐ $1.24 $2.5 B 10% / 50% $1.58 $0.50 ‐ $0.34 PNM Renewable
Slide 9: Above Industry Average Earnings Growth: Pending PNM General Rate Case
Above Industry Average Earnings Growth: Pending PNM General Rate Case Requested revenue increase of $123.5 million • Based on Oct. 2015 – Sept. 2016 test year and 10.5% ROE • Average system impact of 5.4%, including the new coal supply agreement and other changes Rate Base • New Generation: Timeli
Slide 10: Above Industry Average Earnings Growth: Cleaner Regulated Generation Mix
Above Industry Average Earnings Growth: Cleaner Regulated Generation Mix Approved December 16, 2015 Additional 132 MW CCN with an initial book value of zero plus SNCR and other of San Juan Unit 4(1) capital investments CCN for 134 MW with an initial rate base value equal to book Palo Verde Unit 3(1)
Slide 11: Maintain Solid Investment Grade Credit Ratings
Maintain Solid Investment Grade Credit Ratings Rate relief, cost control, and tax benefits keep FFO to Debt well within Moody’s Baa investment grade target range of 13% to 22% No equity issuance required through 2019 PNM Resources FFO to Debt Credit Ratings 22% Moody’s S&P 19% 19% PNM Resources Baa3
Slide 12: Maintain Solid Investment Grade Credit Ratings: Liquidity and Capital Structure
Maintain Solid Investment Grade Credit Ratings: Liquidity and Capital Structure Target cap structures: 50/50 at PNM, 55/45 at TNMP Corporate/ PNM Resources PNM TNMP Other Consolidated Financing Capacity as of February 19, 2016 (In millions) Total Capacity(1) $450.0 $75.0 $300.0 $825.0 Less short‐ter
Slide 13: Above Industry Average Dividend Growth
Above Industry Average Dividend Growth The annual common stock dividend was raised by 10% in Dividend rate: December 2015 to $0.88 per share $0.88 (1) Expect above industry average dividend growth in the future Payout ratio: while targeting the 50% ‐ 60% payout ratio range 53% (2) Dividend yield
Slide 14: PNM Resources Summary
PNM Resources Summary Continued earnings and dividend growth make PNM Resources an attractive investment Potential earnings growth of 7% ‐ 9% through 2019 Expected rate base CAGR: • PNM: 5% ‐ 7% through 2019 • TNMP: 7% ‐ 9% through 2019 Other potential investments: • Renewable resources • Tran
Slide 15: PNM Resources Leadership Team: Proven Experience
PNM Resources Leadership Team: Proven Experience Pat Vincent‐Collawn Chairman, President, and CEO Previous Experience: Xcel Energy Public Service Company of Colorado Arizona Public Service Chuck Eldred Ron Talbot Ron Darnell Patrick Apodaca EVP and CFO SVP and COO SVP, Public Policy SVP, General Cou
Slide 16: PNM Overview
PNM Overview
Slide 17: PNM: Recent Accomplishments
PNM: Recent Accomplishments Progressing regulatory environment • Retail Renewable Rider implemented in August of 2012 with rates reset annually; 2015 revenue was $43M • Filed settlement on FERC Transmission formula rate case with 10% ROE; rates in effect, subject to refund • Approval of San Juan G
Slide 18: PNM: Load Growth and Economic Conditions
PNM: Load Growth and Economic Conditions Regulated Retail Energy Sales (weather‐normalized) PNM % of 2015 Q4 2015 vs. 2015 vs. Sales Q4 2014 2014 Average Customer Growth Residential 39% 0.0% 0.0% Q4 2015 vs. 2015 vs. 2016 Q4 2014 2014 Forecast Commercial 46% (1.9%) (2.2%) Industrial 12% (4.0%) (2.7%
Slide 19: PNM: Rate Affordability
PNM: Rate Affordability PNM's Residential Affordability Continues to be Among the Best in the Nation 5.0% 4.5% 4.0% Est. Average 2014 Residential Electric Bill 3.5% Est. 2014 Median Household Income 3.0% U.S. Average: 2.5% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Sources: EIA Form 826, US Census Bureau PNM rat
Slide 20: PNM: Investment in Renewable Energy
PNM: Investment in Renewable Energy • The New Mexico Renewables Portfolio Standard requires a percentage of retail sales to be generated from renewable resources • 15% by 2015, 20% by 2020 New Mexico renewable energy technical potential(1) within the United States: • 2nd highest concentrating solar
Slide 21: PNM: Energy Efficiency
PNM: Energy Efficiency NM Efficient Use of Energy Act • Requires cumulative savings of 5% of load (based on 2005) by 2014 and 8% by 2020 • 411 GWh is PNM’s required cumulative energy efficiency savings in 2014 and 658 GWh by 2020 • Approximately 498 GWh in savings has been achieved through the end o
Slide 22: PNM: Emission Reductions Continue
PNM: Emission Reductions Continue San Juan Generating Environmental Additional Estimated Station Major Upgrade Results: Reduction Results Environmental Reduction Following BART Upgrade since 2006 Implementation PNM completed a four‐year, $320M environmental upgrade NOX Emissions: 44% NOX Emissions:
Slide 23: PNM: New Mexico Public Regulation Commission
PNM: New Mexico Public Regulation Commission NMPRC Districts and PNM Service Areas District Name Term Ends Party Karen Montoya, District 1 2016 Democrat Vice Chair District 2 Patrick Lyons 2018 Republican Valerie Espinoza, District 3 2016 Democrat Chairman District 4 Lynda Lovejoy 2018 Democrat Dist
Slide 24: PNM: Regulatory Accomplishments
PNM: Regulatory Accomplishments Subject Matter Accomplishments • NMPRC approved plan to retire San Juan Units 2 and 3 at December 31, 2017 and install BART SNCR on San Juan Units 1 and 4 2011 General Rate Case • NMPRC approved $72.1 million rate increase; 10.0% ROE (Aug. 2011) • NMPRC approved Renew
Slide 25: PNM: Pathway to Continued Success
PNM: Pathway to Continued Success Earn allowed return • Minimize regulatory lag through timely rate case filings • Synchronize revenues and expenses • Use future test year Continue to maintain strong investment grade credit metrics Continue to control costs 25
Slide 26: TNMP Overview
TNMP Overview
Slide 27: TNMP: Recent Accomplishments
TNMP: Recent Accomplishments TCOS and DCOS filings provide the ability to recover transmission and distribution cost of service investments on a timely basis • TCOS filing requesting additional revenue of $1.4M was approved with rates effective September 10, 2015 Energy efficiency program costs
Slide 28: TNMP: Rate Affordability in Texas
TNMP: Rate Affordability in Texas Residential Total Wires Charge for 1,000 kWh $60 $50 $40 $30 $20 $10 $‐ Oncor TNMP AEP North Centerpoint AEP Central Source: TDU tariffs for retail delivery service expected March 1, 2016 28
Slide 29: TNMP: Energy Efficiency
TNMP: Energy Efficiency Public Utility Regulatory Act • Establishes annual demand and energy savings goals for electric utilities • TNMP’s goal is to achieve: • 0.4% of its summer weather‐adjusted peak demand savings, subject to customer rate caps • energy savings using a 20% conservation load facto
Slide 30: TNMP: Load Growth and Economic Conditions
TNMP: Load Growth and Economic Conditions Regulated Retail Energy Sales (weather‐normalized) TNMP % of 2015 Q4 2015 vs. 2015 vs. Sales Q4 2014 2014 Average Customer Growth Residential 51% 6.8% 4.2% Q4 2015 vs. 2015 vs. 2016 Commercial 46% (1.0%) 1.4% Q4 2014 2014 Forecast Total Retail 2.4% 2.6% TNMP
Slide 31: TNMP: Public Utility Commission of Texas
TNMP: Public Utility Commission of Texas Term Name Term Began Party Ends Donna Nelson Aug. 2008 Sep. 2021 Republican Chairman Kenneth Anderson Sept. 2008 Aug. 2017 Republican Brandy Marty Marquez Aug. 2013 Aug. 2019 Republican Commissioners are appointed by the Governor of Texas. Length of term is d
Slide 32: TNMP: Regulatory Accomplishments
TNMP: Regulatory Accomplishments Subject Matter Accomplishments PUCT: 2016 • Filed $4.3M increase in January, expected to be effective March 2016 2015 • PUCT approved $1.4M increase, effective September 2015 • PUCT approved $4.4M increase, effective March 2015 Transmission Cost of Service 2014 (TCOS
Slide 33: TNMP: Pathway to Continued Success
TNMP: Pathway to Continued Success Continue to earn allowed rate of return through timely execution of transmission cost of service and general rate case filings • Additional investments in the business to support strong growth Continue to maintain strong investment grade credit metrics Contin
Slide 34: Appendix
Appendix
Slide 35: FY 2015 Financial Summary
FY 2015 Financial Summary Ongoing EPS $0.02 $1.64 $0.08 $0.05 $1.49 TNMP Corporate PNM 2014 2015 35
Slide 36: PNM and TNMP: 2015 vs 2014 EPS (Ongoing)
PNM and TNMP: 2015 vs 2014 EPS (Ongoing) 2015 Key Performance Drivers ∆ EPS PNM Palo Verde Unit 1 leases at half price $0.12 AFUDC $0.09 Palo Verde Nuclear Decommissioning Trust gains $0.05 Refined coal $0.03 $1.10 $1.18 El Paso natural gas tariff $0.03 Renewable rate relief $0.02 Weather $0.02 2003
Slide 37: PNM Resources 2016 Guidance
PNM Resources 2016 Guidance 2016 Earnings Guidance Avg Rate Base Return EPS PNM Retail (1) $2.4 B 7.3% ‐ 8.4% $1.08 ‐ $1.24 PNM Renewables (2) $100 M 10.0% $0.06 PNM FERC Transmission (3) $180 M 8.1% ‐ 9.0% $0.09 ‐ $0.10 PV3 (4) ($0.14) Items not in rates (5) $0.03 ‐ $0.04 Total PNM $2.7 B $1.12 ‐ $
Slide 38: PNM 2016 Guidance General Rate Case Assumptions
PNM 2016 Guidance General Rate Case Assumptions 2016 PNM Rate Case Assumptions Rate case filed with 10.5% ROE Each 25 bps difference in ROE (annually) +/‐ $0.04 Rate implementation could occur anytime between July 1 and Oct. 1 (assumes 10.5% ROE and $123.5M Up to $0.40 increase in revenue requiremen
Slide 39: PNM Guidance (Ongoing)
PNM Guidance (Ongoing) PNM EPS $1.12 ‐ $1.30 $1.18 2015 2016E Year‐over‐Year 2015 – 2016E Other Key Performance Drivers ∆ EPS Elimination of Palo Verde Unit 2 lease costs $0.12 2015 Weather $0.03 Outage costs $0.00 ‐ $0.02 Palo Verde Unit 3 ($0.12) Load ($0.10) ‐ $0.00 AFUDC ($0.07) ‐ ($0.06) Deprec
Slide 40: TNMP Guidance (Ongoing)
TNMP Guidance (Ongoing) TNMP EPS $0.52 $0.49 ‐ $0.51 2015 2016E Year‐over‐Year 2015 – 2016E Key Performance Drivers ∆ EPS TCOS rate relief $0.03 ‐ $0.04 Load $0.02 ‐ $0.03 O&M increases ($0.02) ‐ $0.00 Depreciation and property tax ($0.03) ‐ ($0.02) Interest expense ($0.02) 40
Slide 41: Corporate and Other Guidance (Ongoing)
Corporate and Other Guidance (Ongoing) Corporate and Other EPS ($0.06) ($0.08) – ($0.07) 2015 2016E Year‐over‐Year 2015 – 2016E Key Performance Drivers ∆ EPS Interest savings on retired 9.25% debt $0.03 Interest expense on higher short‐term debt levels ($0.02) ‐ ($0.01) San Juan Unit 4 restructuring
Slide 42: 2017 and 2018 Potential Earnings Power
2017 and 2018 Potential Earnings Power Allowed 2017 Earnings Potential 2018 Earnings Potential Return / Equity Ratio Avg Rate EPS Avg Rate EPS Base Base PNM Retail (1) 10% / 50% $2.4 B $1.50 $2.6 B $1.59 PNM Renewables (2) 10% / 50% $95 M $0.06 $90 M $0.06 PNM FERC Transmission (3) 10% / ~50% $180 M
Slide 43: PNM General Rate Case Drivers and Other Impacts to Customer Rates
PNM General Rate Case Drivers and Other Impacts to Customer Rates Revenue requirement driven by rate base additions and energy sales Amount (in millions) Rate Base $95 Energy Sales 31 Other: 50% Reduction of Remaining Palo Verde Lease Payments (17) Change in ROE from 10% to 10.5% 6 Re‐allocation of
Slide 44: PNM General Rate Case Drivers: Rate Base
PNM General Rate Case Drivers: Rate Base Rate Incremental Base Revenue Additions Requirement (Retail share, in millions) Solar (40 MW) $65 $11 La Luz Gas Peaker (40 MW) 50 8 Rio Bravo Generating Station (138 MW)(1) 32 ‐ San Juan SNCR Equipment & Balanced Draft 58 9 Palo Verde Unit 2 Lease Purchase (
Slide 45: PNM General Rate Case Customer Impact
PNM General Rate Case Customer Impact Rate % Increase Rate % Increase per Major Customer Class Including Fuel and Request Other Changes (1) Residential 15.8% 7.9% Small Power 14.4% 7.0% General Power 14.5% 5.2% Large Power 14.2% 2.8% Large Power >= 8,000kW 9.4% (2.6)% Universities 9.3% (2.4)% Manufa
Slide 46: PNM Diversified Generation Portfolio: Capacity
PNM Diversified Generation Portfolio: Capacity Capacity Capacity 2,787 MW 2018 Forecasted As of 12/31/2015 Generation Mix Renewables Renewables 15% 16% Coal Coal 27% 35% Natural Gas Natural Gas 35% 37% Nuclear Nuclear 20% 15% 46
Slide 47: PNM Diversified Generation Portfolio: Energy
PNM Diversified Generation Portfolio: Energy Energy Energy 10,763 GWh 2018 Forecasted Based on 12 months ending 12/31/15 Generation Mix Renewables 7% Renewables 10% Natural Gas 12% Coal Natural Gas 50% Coal 17% 42% Nuclear 31% Nuclear 31% 47
Slide 48: PNM Plant EAF and Outages
PNM Plant EAF and Outages 2016 ‐ 2017 Outage Schedule Duration Time Unit in Days Period 91.8% 92.4% San Juan 76.5% 78.1% 1 7 Q1 2016 65.8% 66.8% 3 13 Q1 2016 2 16 Q1 2016 4 15 Q2 2016 Four Corners 72 Q1‐Q2 2016 5 94 Q4 2017 4 21 Q1‐Q2 2016 Palo Verde 34 Q2 2016 1 San Juan Four Corners Palo Verde 34
Slide 49: PNM San Juan Generating Station Ownership and Participants
PNM San Juan Generating Station Ownership and Participants Total PNM PNM Unit Other Participants/Ownership MW MW Ownership 1 340 170 50% Tucson Electric 50% (170 MW) 2 340 170 50% Tucson Electric 50% (170 MW) Southern California Power Authority 41.8% (208 MW) 3 497 248 50% Tri‐State 8.2% (41 MW) M‐S
Slide 50: PNM Palo Verde Nuclear Generating Station Unit 1 and 2 Leases
PNM Palo Verde Nuclear Generating Station Unit 1 and 2 Leases MW Owned vs. Leased Unit 1 Unit 2 Owned 2.3% 30 MW Owned 9.5% 124 MW(1) Leased 7.9% 104 MW Leased 0.7% 10 MW Total 10.2% 134 MW Total 10.2% 134 MW Lease Expiration • Unit 1: January 15, 2015; exercised option to extend leases to 2023 • Un
Slide 51: Environmental Control Equipment at Coal Units
Environmental Control Equipment at Coal Units PNM Share Low NOx Activated Coal Unit Capacity Burners/ Carbon SNCR (3) SCR (3) Baghouse (4) Scrubbers (MW) Overfired Air Injection (2) San Juan Unit 1 170 X X X X X San Juan Unit 2 (1) 170 X X X X San Juan Unit 3 (1) 248 X X X X San Juan Unit 4 195 X X
Slide 52: Impact of Environmental Regulation- SJGS
Impact of Environmental Regulation‐ SJGS Estimated Compliance Costs San Juan Generating Station Comments (PNM Share) Clean Air Act – Regional Haze(1) $78M SNCR technology on 2 units; Retire 2 units. (State Alternative) – SNCR Balanced draft will assist with NAAQS compliance. On October 1, 2015, EPA
Slide 53: Impact of Environmental Regulation- Four Corners
Impact of Environmental Regulation‐ Four Corners Estimated Compliance Costs Four Corners (Units 4 and 5) Comments (PNM Share) Final BART determination filed with EPA on December 30, 2013. Impact to PNM: Clean Air Act – Regional Haze – SCR $94M SCR controls for NOx on Units 4 & 5 by July 31, 2018. On