Txnm Energy, Inc. · NYSE:TXNM
Txnm Energy — PNM Resources — Investor Day (December 2012)
63 slides from Txnm Energy's investor day presentation, Dec 7, 2012
Slide 1: 2012 Analyst Day
2012 Analyst Day December 7, 2012
Slide 2: Introduction
Introduction Terry Horn Vice President, Treasurer
Slide 3: Agenda
Agenda Time Topic Presenter 10:00 – 10:05 Welcome/Introductions Terry Horn 10:05 – 10:25 Strategic Overview Pat Vincent-Collawn 10:25 – 10:55 Operations Ron Talbot 10:55 – 11:25 Regulatory Ron Darnell 11:25 – 11:55 Break/Lunch 11:55 – 12:25 2013 Guidance Chuck Eldred 12:25 – 12:30 Wrap Up Pat Vincen
Slide 4: Leadership Team
Leadership Team Pat Vincent-Collawn Chairman, President, and CEO Ron Talbot Ron Darnell Chuck Eldred Patrick Apodaca SVP and COO SVP, Public Policy EVP and CFO SVP, General Counsel 4
Slide 5: Safe Harbor Statement
Safe Harbor Statement Safe Harbor Statement Statements made in this presentation that relate to future events or PNM Resources’ (“PNMR”), Public Service Company of New Mexico’s (“PNM”), or Texas-New Mexico Power Company’s (“TNMP”) (collectively, the “Company”) expectations, projections, estimates, i
Slide 6: Strategic Overview
Strategic Overview Pat Vincent-Collawn Chairman, President and CEO
Slide 7: Repositioned as a Strong Regulated Utility
Repositioned as a Strong Regulated Utility Former hybrid business Strategic Goals model with competitive entities in Texas Earn Authorized Return on our Regulated Businesses Strengthened financial Management able to position as result of strategic efficiently execute strategic shift redirection of b
Slide 8: Focus on the Basics
Running a Regulated Utility Focus on the Basics Managing our Business Providing Top Quartile Total Return Engaging our Stakeholders 8
Slide 9: Earn Authorized Return on our Regulated Businesses
Earn Authorized Return on our Regulated Businesses Achieving Returns Return on Rate Base 2010 2012E Strategic Goals PNM Retail 4.4% ~10.0% Earn Authorized Return on our Regulated FERC Transmission 0.9% ~5.4% Businesses Continue to Improve FERC Generation (17.3%) ~(0.6%) Credit Ratings Provide Top Qu
Slide 10: Continue to Improve Credit Ratings
Continue to Improve Credit Ratings Credit Ratings Moody’s 2008 2012 Strategic Goals PNMR(1) Ba2 Ba1 Earn Authorized Return PNM (1) Baa3 Baa3 on our Regulated TNMP Baa3(1) A3(2) Businesses Outlook Negative Stable Continue to S&P Improve Credit 2008 2012 Ratings PNMR(1) BB- BB+ Provide Top Quartile PN
Slide 11: Provide a Top Quartile Total Return
Provide a Top Quartile Total Return Top Quartile Total Return Total return is 5-year ongoing EPS growth + 5-year average dividend yield Top quartile total return currently equal to an average Strategic Goals annual rate of 10% - 13% Earn Authorized Return on our Regulated Earnings Businesses Gro
Slide 12: EPA and Regional Haze Update
EPA and Regional Haze Update Administrative stay expired on November 29th • State of New Mexico and EPA did not reach an agreement in principle to move forward with state alternative plan Compliance date of September 2016 has not been extended • Preparations have begun to comply with Federal Pla
Slide 13: Operations
Operations Ron Talbot Senior Vice President and COO
Slide 14: Focus on the Basics
Running a Regulated Utility Focus on the Basics Managing our Business Providing Top Quartile Total Return Engaging our Stakeholders 14
Slide 15: Managing the Business
Managing the Business 2012 Operational Highlights 2013 – 2015 Operating Plan San Juan Generating Station Regional Haze/ BART Update 15
Slide 16: 2012 Operating Highlights
2012 Operating Highlights Reliability Union Contract Superstorm Sandy Relief Efforts 16
Slide 17: Superstorm Sandy Relief Efforts
Superstorm Sandy Relief Efforts 17
Slide 18: 2013 – 2015 Operating Plan
2013 – 2015 Operating Plan 1st Quartile safety performance Improve efficiency/reduce costs Reliability Transmission Prepare for technology inflection points Major environmental project controls • In-house controls • Partner with EPC and experts 18
Slide 19: Compliance With The Federal Implementation Plan
Compliance With The Federal Implementation Plan PNM Contract EPC Contract Fluor Enterprises Process • Engineering • Order Equipment • Procurement • Design • Installation Engineering • Testing • Construction • Training starts in July 19
Slide 20: Current Photo of San Juan Generation Station
Current Photo of San Juan Generation Station 20
Slide 21: San Juan Generation Station Retrofit with SCRs
San Juan Generation Station Retrofit with SCRs 21
Slide 22: Regulatory
Regulatory Ron Darnell Senior Vice President, Public Policy
Slide 23: Focus on the Basics
Running a Regulated Utility Focus on the Basics Managing our Business Providing Top Quartile Total Return Engaging our Stakeholders 23
Slide 24: Engaging Our Stakeholders
Engaging Our Stakeholders Customers Regulators Legislators Intervenors 24
Slide 25: TNMP Regulatory Environment and Solid Rate Recovery
TNMP Regulatory Environment and Solid Rate Recovery Stakeholder Engagement Recovery Mechanisms Commitment to continue to Base Rates build productive regulatory relationships Advanced Metering Surcharge (AMS) Demonstrated history of Interim Transmission Cost of Service timely filings and approval
Slide 26: PNM Retail Regulatory Environment and Notable Successes
PNM Retail Regulatory Environment and Notable Successes Stakeholder Engagement Recovery Mechanisms Commitment to improving and building relationships with the Commission, Staff, and case intervenors Fuel • Leads to frequent settlements Base Rates Clause and favorable outcomes Future NMPRC Outlook
Slide 27: 2012 PNM Regulatory Case Agenda
2012 PNM Regulatory Case Agenda Item Action Timing Docket No. PNM 2013 renewable energy plan Recommended decision Mid-December 2012 12-00131-UT pending approval Future-test-year rulemaking Final order issued November 29, 2012 12-00029-UT FERC Transmission case Settlement filed July 3; ALJ Awaiting F
Slide 28: 2013 PNM Resources Regulatory Initiatives
2013 PNM Resources Regulatory Initiatives PNM • PNM Retail Future Test Year General Rate Case • SCR BART Project Approval • FERC Transmission Formula Rates • FERC Generation - Gallup TNMP • TCOS Filings 28
Slide 29: Break/Lunch
Break/Lunch 30 minutes
Slide 30: 2013 Guidance
2013 Guidance Chuck Eldred Executive Vice President and CFO
Slide 31: Focus on the Basics
Running a Regulated Utility Focus on the Basics Managing our Business Providing Top Quartile Total Return Engaging our Stakeholders 31
Slide 32: Consolidated EPS
Consolidated Guidance (Ongoing) 2012 Guidance Range(1) $1.26 Consolidated EPS $1.32 2013 Guidance Range $1.32 Consolidated EPS $1.42 PNM TNMP Corp/Other $1.16 - $1.23 $0.32 - $0.34 ($0.16) – ($0.15) (1) Guidance range originally $1.20 - $1.32. Tightened to $1.26 - $1.32 on November 2, 2012. 32
Slide 33: Ongoing Earnings Per Share Improvement
Ongoing Earnings Per Share Improvement Guidance Range Guidance Range $1.32 - $1.42 $1.26 - $1.32 $1.37 Midpoint $1.29 Midpoint $0.32 - $0.34 $0.30 - $0.32 $0.91 $0.55 $0.29 $0.43 $0.17 $0.13 $1.12 - $1.15 $1.16 - $1.23 $0.76 $0.50 $0.58 ($0.20) ($0.20) ($0.14) ($0.16 - $0.15) ($0.16 - $0.15) 2009 20
Slide 34: Economic Conditions
Economic Conditions GWh PNM 9,000 2013 Load Growth 0% - 1% Modest PNM customer and 8,800 energy sales growth expected in 8,600 2013 8,400 8,200 Economic growth at TNMP (2) 2008 2009 2010 2011 2012E 2013E driven by strong Texas economy Unemployment rates remain GWh TNMP 5,600 below national lev
Slide 35: PNM Guidance (Ongoing)
PNM Guidance (Ongoing) PNM EPS $1.12 - $1.15 $1.16 - $1.23 $0.76 2011 2012E 2013E Year-over-Year 2012E – 2013E Key Performance Drivers ∆ EPS Outage costs $0.05 Renewable rider $0.02 Load growth $0.00 - $0.05 FERC Transmission rate relief (1) $0.00 - $0.02 FERC Generation rate relief (2) $0.01 - $0.0
Slide 36: TNMP Guidance (Ongoing)
TNMP Guidance (Ongoing) TNMP EPS $0.32 - $0.34 $0.30 - $0.32 $0.29 2011 2012E 2013E Year-over-Year 2012E – 2013E Key Performance Drivers ∆ EPS TCOS rate relief $0.04 Load growth $0.01 - $0.03 CTC ($0.01) Depreciation and property tax ($0.02) 36
Slide 37: Total Capital Spending
Rate Base Growth 2013 – 2017 Total Capital Plan: $2.1B PNM Rate Base CAGR: 5% - 7% 2013 Expected Depreciation: $157M TNMP Rate Base CAGR: 7% - 9% Total Capital Spending (In millions) $501 $486 $14 $45 $62 $427 $416 $15 $14 $98 $22 $50 $355 $21 $129 $106 $13 $84 $91 $13 $150 $102 $129 $93 $80 $27 $17
Slide 38: Liquidity and Capital Structure
Liquidity and Capital Structure No plans for issuing equity with current capital expenditure plans In October 2012, extended PNM and PNM Resources revolver credit facilities one year to 2017 Targeting cap structure of: 50/50 at PNM and 55/45 at TNMP Approximately $100 million tax refund expect
Slide 39: PNM Rate Base
PNM Rate Base Avg. Rate Base Growth in rate base is (In billions) offset by tax benefits of $3 $2.1 B bonus depreciation and $2.0 B $2.1 B $2 utilization of NOLs • NOLs are expected to last $2 through 2013 $1 Focus is on closing rate base return gap for FERC $1 Capital investment will $0 provi
Slide 40: TNMP Rate Base
TNMP Rate Base Avg. Rate Base (In millions) Transmission and $600 distribution investments $500 to maintain reliability under favorable regulatory $400 construct $300 $609 $561 • Rebuild, replace and $508 upgrade existing $200 transmission $100 • Install and upgrade substations $0 2012E 2013E 2014
Slide 41: 2013 Earnings Potential
2013 Earnings Potential Minimizing regulatory lag, improving market prices, and reducing Corporate debt could improve current EPS by $0.20 to $0.25 without growing rate base % of Mid Point Guidance Potential Earnings Power Rate Range Growth Potential Base Potential EPS Achievement Allowed Return EPS
Slide 42: Strong Dividend Growth
Strong Dividend Growth 2012 Dividend: The annual common stock dividend was raised by 16% on February 29, 2012 $0.58 Payout ratio: Long-term target: 50% - 60% payout ratio 46% (1) • Above average dividend growth expected near term Dividend yield: 2.8% (2) The Board will continue to evaluate the
Slide 43: Goal: Top Quartile 5-Year Total Return (2012E Base)
Goal: Top Quartile 5-Year Total Return (2012E Base) 2014+ Key Performance Drivers Sales growth Guidance PNM Retail rate increase implemented(2) Guidance Midpoint FERC Transmission formula rates(3) Midpoint $1.37 $1.29 FERC Generation – Gallup rate increase(4) TNMP TCOS filings Holding Company debt E
Slide 44: Wrap Up
Wrap Up Pat Vincent-Collawn Chairman, President and CEO
Slide 45: Key Strategic Goals and 2012 Checklist
Key Strategic Goals and 2012 Checklist 2012 Checklist Strategic Goals Earn Authorized Return on Achieve successful outcomes in: our Regulated Businesses PNM future test year rulemaking PNM FERC Transmission rate case Continue to Improve Credit Ratings PNM FERC Generation rate case PNM rene
Slide 46: Key Strategic Goals and 2013 Checklist
Key Strategic Goals and 2013 Checklist 2013 Checklist Strategic Goals Earn Authorized Return on File rate cases our Regulated Businesses PNM future test year general rate case PNM FERC Generation – Gallup rate case Continue to Improve Credit Ratings Achieve favorable regulatory outcomes in F
Slide 47: Questions & Answers
Questions & Answers
Slide 48: Appendix
Appendix
Slide 49: Operations Appendix
Operations Appendix
Slide 50: PNM Plant EAF and Outages
PNM Plant EAF and Outages 92.4% 93.4% 2013 Outage Schedule 85.7% 86.7% 83.7% 82.6% Duration Time Unit in Days Period San Juan 4 54 Q1 – Q2 2013 Four Corners 4 21 Q2 2013 Palo Verde 1 40 Q1 – Q2 2013 3 40 Q4 2013 San Juan Four Corners Palo Verde YTD 2011 YTD 2012 Annual Top Quartile Numbers(1) Coal 9
Slide 51: PNM Diversified Fuel Mix
PNM Diversified Fuel Mix Capacity Generation (1) 2,548MW 11,507 GWh Based on 12 months ending 12/31/11 Renewables Renewables 8% 5% Natural Gas 9% Nuclear Coal 16% 38% Nuclear Coal 28% 58% Natural Gas 38% (1) Includes PNM generation and PPAs 51
Slide 52: San Juan Ownership and Participants
San Juan Ownership and Participants PNM Total PNM Unit Other Participants/Ownership Ownership MW MW 1 50% Tucson Electric 50% 340 170 2 50% Tucson Electric 50% 340 170 Southern California Power Authority 41.8% 3 50% 497 249 Tri-State 8.2% M-S-R Public Power Agency 28.8% City of Anaheim 10.04% 4 38.4
Slide 53: San Juan Generating Station BART
San Juan Generating Station BART The U.S. Environmental Protection Agency’s (EPA) Clean Air Act requires regional haze reduction at national parks and wilderness areas Compliance should be achieved through Best Available Retrofit Technology (BART) San Juan Generating Station’s alternatives for B
Slide 54: Regulatory Appendix
Regulatory Appendix
Slide 55: Public Utility Commission of Texas
Public Utility Commission of Texas Donna Nelson Kenneth Anderson Rolando Pablos • Term began • Term began • Term began August 2008 September 2008 September 2011 • Term ends • Term ends • Term ends August 2015 August 2017 August 2013 • Republican • Republican • Republican • Chairman Commissioners are
Slide 56: NMPRC Commissioners and Districts
NMPRC Commissioners and Districts NMPRC Districts and Term PNM Service Areas Name District Party Ends Jason Marks(1) District 1 2012 Democrat Patrick Lyons District 2 2014 Republican Chairman Douglas Howe(2) District 3 2012 Independent Theresa Becenti-Aguilar District 4 2014 Democrat Vice Chair Ben
Slide 57: 2012 New Mexico Election
2012 New Mexico Election Elected PRC Commissioners • District 1 • Karen Montoya (D) won the seat with 55% of the popular vote • Seat has been held by Jason Marks • District 3 • Valerie Espinoza (D) ran unopposed • Seat has been held by Doug Howe (appointed to replace Jerome Block) Passed Constitutio
Slide 58: PNM Renewables
PNM Renewables New Mexico Renewable Energy Act •Streamlined proceedings for approval of Wind utilities’ renewable energy procurement • New Mexico Wind Energy Center plans • 136 turbines •Provides for recovery of program costs • 200MW under approved procurement plan • Purchase power agreement with FP
Slide 59: Financial Appendix
Financial Appendix
Slide 60: PNM Assumptions
PNM Assumptions 2012 2013 amounts shown are before tax Assumptions Assumptions Renewable rate rider $2.6M $3.8M FERC Generation rate increase $0.0M - $6.5M $0.0M - $13.0M FERC Transmission rate increase $3.0M $0.0M - $3.0M Weather $7.7M - Nuclear Decommissioning Trust $3.9M - 0.0% - 1.0% Load growth
Slide 61: TNMP Assumptions
TNMP Assumptions 2012 2013 amounts shown are before tax Assumptions Assumptions Incremental TCOS increase $0.6M $5.0M(1) 1.0% - 3.0% Load growth 0.5% - 1.5% 1% = $0.01 Pension expense ($1.1M) ($0.3M) Pension contributions $5.0M $1.0M Average PNM Resources diluted shares outstanding 80.5M 80.5M (1) A
Slide 62: EBITDA and Quarterly Earnings Distribution Guidance (Ongoing)
EBITDA and Quarterly Earnings Distribution Guidance (Ongoing) Ongoing EBITDA (In millions) 2012E 2013E Consolidated PNMR $437 - $445 $452 - $465 PNM $312 - $316 $327 - $336 TNMP $116 - $119 $120 - $123 2013 Quarterly Earnings Distribution 47% 23% 14% 16% Q1 2013 Q2 2013 Q3 2013 Q4 2013 62
Slide 63: Palo Verde Leases
Palo Verde Leases Lease Expiration •Unit 1: January 15, 2015 •Unit 2: January 15, 2016 •Optional renewal lease periods extend to: •2023 for 4 leases of Unit 1 •2018 for 3 leases of Unit 2 •2024 for 1 lease of Unit 2 Notice Dates Unit 1 Unit 2 1st Notice January 2012 January 2013 2nd Notice January 2