Txnm Energy, Inc. · NYSE:TXNM
Txnm Energy — PNM Resources — Investor Day (December 2014)
61 slides from Txnm Energy's investor day presentation, Dec 15, 2014
Slide 1: 2014 Analyst Day
2014 Analyst Day December 15, 2014
Slide 2: Introduction
Introduction Jimmie Blotter Director, Investor Relations
Slide 3: Leadership Team
Leadership Team Pat Vincent-Collawn Chuck Eldred Chairman, EVP and President, CFO and CEO Ron Talbot Ron Darnell Patrick SVP and SVP, Apodaca COO Public Policy SVP, General Counsel Gerard Ortiz Terry Horn VP, PNM VP and Regulatory Treasurer Affairs 3
Slide 4: Agenda
Agenda 11:00 – 11:05 Welcome / Introductions Jimmie Blotter 11:05 – 11:25 Strategic Overview Pat Vincent-Collawn 11:25 – 11:45 PNM 2016 General Rate Case Gerard Ortiz 11:45 – 12:05 Stakeholder Engagement Ron Darnell 12:05 – 12:15 Q&A 12:15 – 1:00 Break / Lunch 1:00 – 1:40 2015 Guidance / Earnings Po
Slide 5: Contact Information and Safe Harbor Statement
Contact Information and 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, p
Slide 6: PNM Resources Website
PNM Resources Website ee poll | Tem | concacts O85 | Search Q, PNIMOResources AboutUs Investors CorporateGovernance Media Careers PNM Resources is an attractive investment ‘option because of our You are here: Home 1s Our am Businesses HITT | Through its regulated Utilities, PRIM and TMP, PNM Resourc
Slide 7: Strategic Overview
Strategic Overview Pat Vincent-Collawn Chairman, President and CEO
Slide 8: PNM Resources: Delivering on Strategic Goals
PNM Resources: Delivering on Strategic Goals Strategic Goals Earn Authorized Return on our Regulated Businesses TNMP continues to earn its allowed return PNM earned its allowed return in 2012 and 2013 Continue to Improve Credit Ratings Received three upgrades within two years Provide Top Quartile To
Slide 9: PNM Resources: Continuing the Momentum
PNM Resources: Continuing the Momentum Create enduring value for customers, communities and shareholders Build an Efficient, • Enhance the customer experience Customer-Focused • Focus on stakeholder relationships Organization • Continue to improve processes Continue to Gain • Secure approval of BART
Slide 10: Enhance the Customer Experience
Enhance the Customer Experience The PNM Customer Image Study shows that customers perceive PNM favorably Customer In July/August, PNM’s overall satisfaction Satisfaction index, as tracked by J.D. Power, reached the highest level in recent years High Residential Electric Affordability by State fo
Slide 11: Focus on Stakeholder Relationships
Focus on Stakeholder Relationships Our Currency is Our Credibility Continue to strengthen long-term relationships with stakeholders Maintain reputation as trusted information source Residential Industrial Commercial Commissioners Customers Customers Customers Attorney Environmental Low Income St
Slide 12: Continue to Gain Positive Regulatory Outcomes: Secure Approval of BART
Continue to Gain Positive Regulatory Outcomes: Secure Approval of BART December 20, 2013 RSIP and Proposed BART Settlement Key Components PNM submitted filing to Recovery in: NMPRC Installation of SNCR technology on San Juan 2016 Units 1 and 4 ($81M) 2014 - 2015 Retirement of San Juan Units 2 and
Slide 13: Improve Pricing Structure, Rate Design and Advance Regulatory Approach
Continue to Gain Positive Regulatory Outcomes: Improve Pricing Structure, Rate Design and Advance Regulatory Approach Address Evolving Regulatory Environment and Recover Capital Investments Improve fixed cost recovery Decrease revenue volatility Receive timely recovery of investments 13
Slide 14: PNM 2016 General Rate Case
PNM 2016 General Rate Case Gerard Ortiz Vice President, PNM Regulatory Affairs
Slide 15: PNM 2016 Future Test Year General Rate Case
PNM 2016 Future Test Year General Rate Case • Requested revenue increase of $107 million • Based on 2016 future test year and 10.5% ROE • Customer bill impact of 7.7% Rate Base Operations Rate Design New Generation: 50% Reduction of • 40 MW Solar Remaining Palo Verde Structural Rate Design • 40 MW L
Slide 16: General Rate Case Drivers
General Rate Case Drivers Revenue requirement driven by rate base additions and energy sales PNM 2016 General Rate Case Drivers Amount (in millions) Rate Base $99 Energy Sales 22 Other: 50% Reduction of Remaining Palo Verde Lease Payments (17) Change in ROE from 10% to 10.5% 6 Re-allocation of Gallu
Slide 17: General Rate Case Drivers – Rate Base
General Rate Case Drivers – Rate Base Rate Incremental Base Revenue Additions Requirement (Retail share, in millions) Solar (40 MW) $66 $11 La Luz Gas Peaker (40 MW) 50 9 Rio Bravo Generating Station (138 MW)(1) 33 - San Juan SNCR Equipment 57 11 Palo Verde Unit 2 Lease Purchase (64 MW)(1) 134 - Cor
Slide 18: General Rate Case Drivers – Energy Sales
General Rate Case Drivers – Energy Sales Compared to the last filed retail load forecast, load decline has contributed to a $22 million revenue requirement deficiency • Residential use per customer has declined, coupled with slow customer growth • Commercial customers’ average usage has decreased
Slide 19: Rate Design
Rate Design Structural Rate Design Changes Better alignment of fixed charges with fixed costs • Cost Allocation Changes • Improved Fixed Cost Recovery • Economic Development Rate DG Interconnection Fee • Fixed monthly charge of $6 per installed solar kW/month for new residential DG customers • Avg.
Slide 20: Customer Bill Impact
Customer Bill Impact Bill Impact for Major Customer Classes Customer Class Bill % Increase Residential 11.9% Small Power 9.3% General Power 3.7% Large Power 5.9% Large Power >= 8,000 2.0% Universities -1.5% Manufacturing -7.3% System Total 7.7% 20
Slide 21: PNM Rates Continue to Compare Favorably in the U.S.
PNM Rates Continue to Compare Favorably in the U.S. Residential Electric Affordability by State for 2013 (Including PNM) US Average Indicated by Dashed Line 4.0% 3.5% 3.0% Est. Average 2013 Residential Electric Bill Es.t 2013 Median Household Income 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% MI UT IL WI IA MD CT
Slide 22: PNM 2016 Future Test Year General Rate Case Timeline
PNM 2016 Future Test Year General Rate Case Timeline 12/11/2014 Rate Case Filed 12/11/2014 thru 10/12/2015 Statutory 9+1 Month Suspension Period 10/12/2015 thru 12/31/2015 Allowance for Additional Consideration by Commission 1/1/2016 Effective Date 22
Slide 23: Stakeholder Engagement
Stakeholder Engagement Ron Darnell Senior Vice President, Public Policy
Slide 24: Regulatory Agenda
Stakeholder Engagement Our Currency is Regulatory Agenda Our Credibility NMPRC PNM 2016 BART Customer Satisfaction Rate Case Approval Strong Relationships FERC TNMP Effective Formula TCOS Communications Rate Case Filings High Quality Regulatory Filings TNMP Rate PNM 2018 Case Rate Case 24
Slide 25: Focus on Our Customers
Customer Service Focus on Our Customers Provide Excellent Customer Service New pnm.com ranked top of benchmark group Based on post-call surveys in Customer satisfaction scores have been on 2014, customers that are the rise satisfied or completely Highest scores on customer service surveys sati
Slide 26: Strong Relationships
Strong Relationships Leverage stakeholder relationships to: Communicate our approach to affordability, reliability and environmental leadership Reinforce our role as a trusted information source Focus on engaging customers 26
Slide 27: Effective Communications
Effective Communications The customer is key • Community-level focus and presence • Enhanced information channels PNM.com Proactive outage notification • Integrated communication featuring employees and customers Proactively share our story • Power for Progress • Social media • Employees as
Slide 28: High Quality Regulatory Filings
High Quality Regulatory Filings Comprehensive filing process lays the foundation for successful settlements File robust documents Limit errors within the filings Preview filings and/or concepts with Staff and other key intervenors Manage the discovery process 28
Slide 29: PNM Resources: Continuing the Momentum
PNM Resources: Continuing the Momentum Create enduring value for customers, communities and shareholders Build an Efficient, • Enhance the customer experience Customer-Focused • Focus on stakeholder relationships Organization • Continue to improve processes Continue to Gain • Secure approval of BART
Slide 30: Questions & Answers
Questions & Answers
Slide 31: Break/Lunch
Break/Lunch 45 minutes
Slide 32: 2015 Guidance
2015 Guidance Chuck Eldred Executive Vice President and CFO
Slide 33: PNM Resources: Continuing the Momentum
PNM Resources: Continuing the Momentum Create enduring value for customers, communities and shareholders Build an Efficient, • Enhance the customer experience Customer-Focused • Focus on stakeholder relationships Organization • Continue to improve processes Continue to Gain • Secure approval of BART
Slide 34: Invest in the Business: 5-Year Capital Forecast
Invest in the Business: 5-Year Capital Forecast 2015 – 2019 Total Capital Plan: $2.2B PNM Rate Base CAGR: 5 - 7%(1) TNMP Rate Base CAGR: 5 - 7% $569 (In millions) $24 $514 $19 $121 $444 Palo Verde Unit 3 $93 $15 added to rate base $79 $93 $165 $95 $337 $300 $15 $63 $14 $122 $105 $106 $308 $65 $121 $
Slide 35: Consolidated EPS
Consolidated Guidance (Ongoing) 2014 Guidance Range(1) $1.44 Consolidated EPS $1.51 2015 Guidance Range $1.50 Consolidated EPS $1.62 PNM TNMP Corp/Other $1.14- $1.21 $0.45 - $0.48 ($0.09) – ($0.07) (1) Guidance range originally $1.42 - $1.52. Tightened to $1.44 - $1.51 on August 1, 2014. 35
Slide 36: New Mexico Economic Conditions
New Mexico Economic Conditions PNM Customer Counts and Retail Energy Sales(1) NM and Albuquerque Metro 600,000 10,000 Employment moves back into positive territory 500,000 Employment Growth Rates Energy Sales (GWh) (Year-end measurement, except 2014) 400,000 8,000 Total Customers 3% 300,000 1% 200,0
Slide 37: PNM Guidance (Ongoing)
PNM Guidance (Ongoing) PNM EPS $1.14 - $1.21 $1.16 $1.11 - $1.15 2013 2014E 2015E Year-over-Year 2014E – 2015E Key Performance Drivers ∆ EPS Palo Verde Unit 1 leases at half price $0.13 2014 Weather $0.04 AFUDC $0.04 Refined coal $0.02 - $0.03 2003-2008 IRS Settlement $0.02 Palo Verde Nuclear Decomm
Slide 38: Texas Economic Conditions
Texas Economic Conditions TNMP Customer Counts and Retail Energy Sales(1) Strong Employment Growth 6,000 Continues in Texas 240,000 220,000 5,000 200,000 Energy Sales (GWh) 180,000 Total Customers 4,000 160,000 140,000 3,000 120,000 100,000 2,000 Energy Sales Customers 2015 load projection 2-3%(2) 2
Slide 39: TNMP Guidance (Ongoing)
TNMP Guidance (Ongoing) TNMP EPS $0.43 - $0.45 $0.45 - $0.48 $0.36 2013 2014E 2015E Year-over-Year 2014E – 2015E Key Performance Drivers ∆ EPS TCOS rate relief $0.05 - $0.07 Load $0.02 - $0.03 Depreciation and property tax ($0.06) - ($0.05) Interest expense ($0.01) O&M increases ($0.01) 39
Slide 40: PNM Resources Projected Earnings Growth
PNM Resources Projected Earnings Growth On track to meet Total Return goal by 2016 $1.91 7%-10% Earnings Growth $1.72 + 2.8% Dividend Yield $1.62 10%-13% Total Return $1.51 $1.50 $1.44 $1.41 $1.31 2012 2013 2014 2015 2016 40
Slide 41: PNM Resources Projected Earnings Growth
PNM Resources Projected Earnings Growth Earnings growth of 7% - 9% from 2014 through 2019 7%-9% Earnings Growth $1.51 $1.62 $1.44 $1.50 2014 2015 2019 41
Slide 42: Liquidity and Capital Structure
Liquidity and Capital Structure Target cap structures: 50/50 at PNM, 55/45 at TNMP PNM Corporate/ Resources PNM TNMP Other Consolidated Financing Capacity as of November 28, 2014 Total Capacity(1) $450.0 $75.0 $300.0 $825.0 Less short-term debt(1) and LOC balances (28.2) (0.1) (7.7) (36.0) Plus inve
Slide 43: Dividend Growth: Continued Dividend Increases
Dividend Growth: Continued Dividend Increases Dividend rate: The annual common stock dividend raised by 8% in December 2014 to $0.80 (1) $0.80 per share Payout ratio: Long-term target: 50% - 60% payout ratio 51% (2) Dividend yield: • Expect above industry average dividend growth while staying in
Slide 44: Wrap Up
Wrap Up Pat Vincent-Collawn Chairman, President and CEO
Slide 45: PNM Resources: Continuing the Momentum
PNM Resources: Continuing the Momentum Create enduring value for customers, communities and shareholders Build an Efficient, • Enhance the customer experience Customer-Focused • Focus on stakeholder relationships Organization • Continue to improve processes Continue to Gain • Secure approval of BART
Slide 46: PNM Resources Summary
PNM Resources Summary Continued earnings and dividend growth make PNM Resources an attractive investment Expect to meet 2016 total return target of 10% - 13% Annual earnings growth of 7% - 9% through 2019 Potential investments beyond 2018: • Renewable resources • Transmission investments • Gri
Slide 47: Questions & Answers
Questions & Answers
Slide 48: Appendix
Appendix
Slide 49: 2016 Potential Earnings Power
2016 Potential Earnings Power 2015 Guidance Mid Point 2016 Earnings Potential Allowed Return / Equity Ratio Avg Rate Avg Rate Return EPS Growth EPS Base Base PNM Retail (1) 10% / 50% $2.0 B 8.4% $1.02 $2.39 B $0.47 $1.49 PNM Renewables 10% / 50% $105 M 10.0% $0.07 $100 M ($0.01) $0.06 PNM FERC (2) 9
Slide 50: 2018 Potential Earnings Power
2018 Potential Earnings Power 2016 Earnings Potential 2018 Earnings Potential Avg Rate Base EPS Avg Rate Base Growth EPS PNM Retail (1) $2.39 B $1.49 $2.5 B $0.07 $1.56 PNM Renewables $100 M $0.06 $85 M ($0.01) $0.05 PNM FERC (2) $235 M $0.07-$0.09 $270 M $0.01 $0.08-$0.10 PV3 (3) ($0.05) Included i
Slide 51: EBITDA and Quarterly Earnings Distribution Guidance (Ongoing)
EBITDA and Quarterly Earnings Distribution Guidance (Ongoing) Ongoing EBITDA (In millions) 2014E 2015E Consolidated PNMR $467 - $477 $492 - $508 PNM $326 - $332 $338 - $347 TNMP $132 - $135 $141 - $146 2015 Quarterly Earnings Distribution 47% 26% 12% 15% Q1 2015E Q2 2015E Q3 2015E Q4 2015E 51
Slide 52: PNM Assumptions
PNM Assumptions 2015 amounts shown are before tax Assumptions 2015 Weather - (2.0%) to 0% Load 1% = $0.05 Palo Verde Unit 3 sales price ($/MWh) ~$38 O&M increase $3M - $5M Palo Verde Unit 1 leases at half price $16.5M Outage costs $21M PV3 Nuclear Decommissioning Trust gains $12M - $15M Tax rate 35.
Slide 53: TNMP Assumptions
TNMP Assumptions 2015 amounts shown are before tax Assumptions 2015 Weather - 2.0% - 3.0% Load 1% = $0.01 O&M increase $1M Tax rate 36.4% Average PNM Resources diluted shares outstanding 80.2M 53
Slide 54: Corporate and Other Guidance (Ongoing)
Corporate and Other Guidance (Ongoing) Corporate and Other EPS ($0.11) ($0.10) – ($0.09) ($0.09) – ($0.07) 2013 2014E 2015E Year-over-Year 2014E – 2015E Key Performance Drivers and Assumptions ∆ EPS Interest savings on retired 9.25% debt $0.05 Interest expense on higher short-term debt levels ($0.02
Slide 55: PNM Plant EAF and Outages
PNM Plant EAF and Outages 2015 - 2016 Outage Schedule Duration Time Unit in Days Period 91.3% 89.5% San Juan 75.2% 77.0% 77.4% 1 46 Q1 2015 67.3% 4 44 Q4 2015 3 14 Q4 2015 Four Corners 5 75 Q4 2015 4 21 Q1-Q2 2016 5 10 Q4 2016 Palo Verde 3 30 Q2 2015 2 30 Q4 2015 San Juan Four Corners Palo Verde 1 3
Slide 56: Credit Ratings
Credit Ratings S&P PNMR PNM TNMP Issuer debt rating BBB-(1) BBB(1) A-(2) Outlook Positive Positive Positive Moody’s PNMR PNM TNMP Debt rating Baa3(1) Baa2(1) A2(2) Outlook Positive Positive Positive (1) Senior unsecured debt (2) Senior secured debt 56
Slide 57: Elected Officials and Commissioners – New Mexico
Elected Officials and Commissioners – New Mexico Name Office Party Current Office Susana Martinez New Mexico Governor Republican Governor Hector Balderas New Mexico Attorney General Democrat Auditor New Mexico Commissioners and Districts NMPRC Districts and PNM Service Areas Term District Name Party
Slide 58: Elected Officials and Commissioners – Texas
Elected Officials and Commissioners – Texas Name Office Party Current Office Greg Abbott Texas Governor Republican Attorney General PUCT Commissioners Term Name Term Began Party Ends Donna Nelson Aug. 2008 Aug. 2015 Republican Chairman Kenneth Anderson Sept. 2008 Aug. 2017 Republican Brandy Marty Ma
Slide 59: Regulatory Update
Regulatory Update Filing Action Timing Docket No. PNM: BART Filing Filed December 20, 2013 Proposed settlement filed October 1, 2014 13-00390-UT Final approval expected Q1 2015 2015 Renewable Plan Filed June 2, 2014 Final approval received November 26, 2014 14-00158-UT 2016 Future Test Year Filed De
Slide 60: EPA’s Proposed Clean Power Plan
EPA’s Proposed Clean Power Plan The goal of the plan is an estimated 30% reduction in CO2 emissions from the U.S. electric power sector in 2030, 10 New Mexico Facilities Affected relative to 2005 levels. Coal Plants Requires each state to develop and implement a state plan to San Juan (PNM) reduce
Slide 61: Investor Relations Contact Information
Investor Relations Contact Information Jimmie Blotter Director, Investor Relations U.S. 1-505-241-2227 Jimmie.Blotter@pnmresources.com Lisa Goodman Investor Relations Analyst U.S. 1-505-241-2160 Lisa.Goodman@pnmresources.com Cathy Martinez Investor Relations Analyst U.S. 1-505-241-4536 Cathy.Martine