Txnm Energy, Inc. · NYSE:TXNM
Txnm Energy — PNM Resources — Investor Presentation (June 2016)
47 slides from Txnm Energy's investor presentation, June 2016
Slide 1: Investor Meetings
Investor Meetings June 2016 PNV(C Resources’
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 NYSE Ticker PNM PNM Resources is a regulated electric utility holding company focused on providing environmentally responsible, affordable and Market Cap $2.7B reliable electricity to customers and above industry average Enterprise Value $5.2B earnings and 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
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 PNM 2015-2019 Rate Base CAGR: 5 - 7%(1) TNMP 2015-2019 Rate Base CAGR: 7 - 9% (In millions) $547 $36 Palo Verde Unit 3 added to rate base $115 $415 $398 $19 $14 $353 $107 $101 $15 $114 $117 $132 $102 $289
Slide 8: Above Industry Average Earnings Growth: BART Implementation
Above Industry Average Earnings Growth: BART Implementation Rate Base Growth Approved December 16, 2015 (in millions) CCN with an initial book PVNGS Unit 3 $113 Additional 132 MW value of zero plus SNCR and of San Juan Unit 4 other capital investments SNCR and Balanced Draft $63 on San Juan Units 1
Slide 9: 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 10: 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 contract and other changes Rate Base • New Generation: Timeline • 40
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: 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 13: PNM Overview
PNM Overview
Slide 14: 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 • Approval of San Juan Generation Station Plan (BART) by FER
Slide 15: PNM: Load and Economic Conditions
PNM: Load and Economic Conditions Regulated Retail Energy Sales and Customers (weather-normalized, leap-year adjusted) Load forecast remains in line with % of 2015 Q1 2016 vs. guidance PNM Sales Volumes Q1 2015 Albuquerque employment growth Residential 39% (2.5%) continues to improve; March year
Slide 16: 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 17: 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 18: 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 18
Slide 19: TNMP Overview
TNMP Overview
Slide 20: 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 $4.3M was approved with rates effective March 23, 2016 Energy efficiency program costs coll
Slide 21: TNMP: Load and Economic Conditions
TNMP: Load and Economic Conditions Regulated Retail Energy Sales and End Users (weather-normalized, leap-year adjusted) % of 2015 % of 2015 Q1 2016 vs. TNMP Volumes Revenues Q1 2015 Load forecast remains in line with Volumetric Load(1): guidance Residential 51% (2.7%) Strong, diverse Texas econo
Slide 22: TNMP: Regulatory Accomplishments
TNMP: Regulatory Accomplishments Subject Matter Accomplishments PUCT: 2016 • PUCT approved $4.3M increase, 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) • PUCT approved
Slide 23: 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 24: Financial Overview
Financial Overview
Slide 25: 2016 Guidance and Quarterly Distribution (Ongoing)
Financial Overview: 2016 Guidance and Quarterly Distribution (Ongoing) 2016 Guidance $1.55 Consolidated EPS $1.76 PNM TNMP Corp/Other $1.12 - $1.30 $0.49 - $0.51 ($0.06) – ($0.05) 2016 Quarterly Ongoing Earnings Distribution Q1 8% - 9% Actual: $0.13 Q2 20% - 22% Q3 45% - 49% Q4 22% - 24% 25
Slide 26: Financial Overview: PNM Rate Case Assumptions
Financial Overview: PNM 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 requirement)
Slide 27: Financial Overview: Liquidity and Capital Structure
Financial Overview: 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 April 22, 2016: (In millions) Total Capacity(1) $450.0 $75.0 $300.0 $825.0 Less short-term debt(1) and LOC balances 141
Slide 28: Financial Overview: PNM Resources Summary
Financial Overview: 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: • Renewa
Slide 29: Appendix
Appendix
Slide 30: 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 31: 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 32: 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 33: PNM Customer Rate Impact as of July 1, 2016
PNM Customer Rate Impact as of July 1, 2016 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)%
Slide 34: Regulatory Update
Regulatory Update Filing Action Timing Docket No. NMPRC: General Rate Case Filing Filed August 27, 2015 Rates suspended through August 31, 2016; 15-00261-UT additional hearing scheduled June 27 – June 30, 2016 limited to Palo Verde Unit 2 lease purchases San Juan Generating Station Filed April 26, 2
Slide 35: NMPRC Commissioners and Districts
NMPRC Commissioners and Districts NMPRC Districts and PNM Service Areas District Name Term Ends Party Karen Montoya, District 1 2016(1) Democrat Vice Chair District 2 Patrick Lyons 2018 Republican Valerie Espinoza, District 3 2016(1) Democrat Chairman District 4 Lynda Lovejoy 2018 Democrat District
Slide 36: PUCT Commissioners
PUCT Commissioners 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 determined by the Gover
Slide 37: TNMP Rates Compare Favorably in Texas
TNMP Rates Compare Favorably in Texas Residential Total Wires Charge for 1,000 kWh $60 $50 $40 $30 $20 $10 $- Oncor TNMP Centerpoint AEP North AEP Central Source: TDU tariffs for retail delivery service expected March 1, 2016 37
Slide 38: 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% 38
Slide 39: 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% 39
Slide 40: PNM Investment in Renewable Energy
PNM Investment in Renewable Energy New Mexico Renewable Energy Act Renewable Rider Collection Portfolio Standard as a % of Retail Sales Streamlined proceedings for approval of Methodology utilities’ renewable energy procurement Recovery of renewable investments 15% 20% plans and REC purchases permit
Slide 41: PNM Plant EAF and Outages
PNM Plant EAF and Outages 2016 - 2017 Outage Schedule Duration Time Unit in Days Period 91.8% 92.5% San Juan 4 15 Q2 2016 72.9% 69.8% 72.3% 68.1% Four Corners 91 Q1-Q2 2016 5 95 Q3-Q4 2017 4 42 Q1-Q2 2016 Palo Verde 34 Q2 2016 1 34 Q4 2017 3 34 Q4 2016 2 34 Q2 2017 San Juan Four Corners Palo Verde 1
Slide 42: 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 43: 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 44: PNM Environmental Control Equipment at Coal Units
PNM 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
Slide 45: PNM Impact of Environmental Regulation: SJGS
PNM Impact of Environmental Regulation: SJGS Estimated Compliance Costs San Juan Generating Station Comments (PNM Share) Clean Air Act – Regional Haze (State Installation of SNCR technology on Units 1 and 4 completed in 2016; retirement of Minimal remaining costs Alternative) – SNCR Units 2 and 3 sc
Slide 46: PNM Impact of Environmental Regulation: Four Corners
PNM 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
Slide 47: Clean Power Plan
Clean Power Plan Summary of Clean Power Plan • On October 23, 2015, EPA published in the Federal Register the final Clean Power Plan (CPP) under section 111(d) of the Clean Air Act to regulate GHGs from fossil fuel generation. • Projected outcome = 32% reduction in CO2 in the U.S. from 2005 levels