Txnm Energy, Inc. · NYSE:TXNM
Txnm Energy — PNM Resources — EEI Financial Conference 2014
52 slides from Txnm Energy's conference presentation, November 2014
Slide 1: EEI Financial Conference
EEI Financial Conference November 2014
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, Investor Relations Analyst U.S. 1-505-241-2227 U.S. 1-505-241-2160 Jimmie.Blotter@pnmresources.com Lisa.Goodman@pnmresources.com Safe Harbor Statement State
Slide 3: Strategic Overview
Strategic Overview
Slide 4: PNM Resources Overview
PNM Resources Overview PNM Resources is a regulated electric utility holding company NYSE Ticker PNM Market Cap $2.4B focused on providing a top quartile total return to shareholders Generation Resources and Service Territories •Energy holding company •Based in Albuquerque, New Mexico •Located in Ne
Slide 5: PNM Resources Strategic Direction
PNM Resources Strategic Direction Strategic Goals • Earn Authorized Return on our Regulated Businesses • Continue to Improve Credit Ratings • Provide Top Quartile Total Return Strategic Transition 2011 Repositioned as a pure-play electric utility through competitive business exit 2012 Execution of s
Slide 6: Delivering Top Quartile Returns
Delivering Top Quartile Returns 2016 goal: Provide top quartile total return to shareholders Total return is 5-year ongoing EPS growth + 5-year average dividend yield Top quartile total return currently equal (1) to an average annual rate of 10% - 13% over a 5 year period Earnings Growth •Invest
Slide 7: 5 Year Capital Forecast
Rate Base Growth: Capital Forecast 2014 – 2018 Total Capital Plan: $2.3B PNM Rate Base CAGR: 6 - 8%(1) 5 Year Capital Forecast TNMP Rate Base CAGR: 6 - 8% $558 (In millions) $14 $509 $499 $19 $101 $14 Palo Verde $443 Unit 3 $113 $14 added to $130 $78 rate base $94 $165 $48 $71 $302 $136 $72 $14 $153
Slide 8: Rate Base Growth: Investment in Renewable Energy
Rate Base Growth: Investment in Renewable Energy Renewable Rider Collection New Mexico Renewable Energy Act Methodology Portfolio Standards as a % of Retail Sales Streamlined proceedings for approval of Recovery of renewable investments utilities’ renewable energy procurement and REC purchases permi
Slide 9: Rate Base Growth: BART Settlement Update
Rate Base Growth: BART Settlement Update RSIP and BART Settlement Principle Components Other Proposed Power Retirement of San Juan Units 2 and 3 and recovery of half of the Resources(1) 12/31/17 undepreciated investments (expected to be ~$115M) 177 MW gas peaker ($189M) Installation of SNCR te
Slide 10: Earnings Growth: Potential Earnings Power
Earnings Growth: Potential Earnings Power Strong potential earnings growth 2014 to 2016 2014 2014 Mid Point of 2016 Allowed Allowed Average Guidance Expected Potential Earnings 2016 Potential Equity Return Rate Average Growth Earnings Power Ratio Return EPS Base Rate Base PNM retail 10% 50% $1.9 B 9
Slide 11: Dividend Growth: Continued Dividend Increases
Dividend Growth: Continued Dividend Increases Dividend rate: The annual common stock dividend raised by 12% in December 2013 to $0.74 (1) $0.74 per share Payout ratio: Long-term target: 50% - 60% payout ratio 50% (2) Dividend yield: • Expect above industry average dividend growth while staying i
Slide 12: PNM Overview
PNM Overview
Slide 13: PNM: Recent Accomplishments
PNM: Recent Accomplishments Increasing credit ratings Credit ratings raised by Moody’s to Baa2 with a positive outlook and S&P to BBB with a positive outlook Retail Renewable Rider implemented in August of 2012 with rates reset annually 2013 revenue was $22.9M; 2014 expected revenue is ~$35M
Slide 14: PNM Diversified Generation Portfolio
PNM Diversified Generation Portfolio Capacity Capacity Assumed RSIP with PV3 2,572 MW Based on 12 months ending 12/31/13 2018 Generation Mix Renewables 10% Renewables 16% Coal 26% Coal Natural 38% Gas 36% Natural Nuclear Gas 15% 43% Nuclear 16% 14
Slide 15: PNM Load Growth and Economic Conditions
PNM Load Growth and Economic Conditions Regulated Retail Energy Sales (weather-normalized) Unemployment Rate PNM % of FY Q3 2014 vs. YTD 2014 vs. 2013 Sales Q3 2013 YTD 2013 6.6%(1) 5.8%(2) Residential 39% 1.7% (0.6%) Commercial 46% 0.1% (1.1%) NM U.S. Industrial 12% (6.4%) (7.7%) Total Retail (0.2%
Slide 16: PNM Load Including Impact of EE and DG
PNM Load Including Impact of EE and DG o The economy in New Mexico has been sluggish with customer growth through Q2 2014 at 0.6%. PNM Retail Energy Sales by Component PNM supports state and local economic development efforts to make New Mexico more business-friendly, which has resulted in an incr
Slide 17: PNM Regulatory Update
PNM Regulatory Update Filing Action Timing Docket No. NMPRC BART Filing Filed December 20, 2013 Proposed settlement filed October 1, 2014 13-00390-UT Final approval expected Q1 2015 NMPRC 2015 Renewable Plan Filed June 2, 2014 Proposed settlement filed September 25, 2014 14-00158-UT Final approval e
Slide 18: PNM 2016 Future Test Year General Rate Case
PNM 2016 Future Test Year General Rate Case Potential Rate Design Rate Base Additions Operating Expenses Changes New Generation: ½ Priced Palo Verde Lease • 40 MW Solar Solar Access Charge Payments • 40 MW La Luz Gas Peaker Depreciation Rate Fixed Cost Recovery Changes SNCR Equipment Decoupling Load
Slide 19: PNM Rates Compare Favorably in the United States
PNM Rates Compare Favorably in the United States 4.5% 4.0% 3.5% Est. Average 2013 Residential Electric Bill Est. 2013 Median Household Income 3.0% US Average: 2.55% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% UT VT NY AK WY TN DC MI PA AL WA MN KS OH NM VA OK AZ AR KY LA IA SD FL NC CO MD CT MO TX NH ME RI WI OR
Slide 20: PNM: Pathway to Continued Success
PNM: Pathway to Continued Success Continue to earn allowed return • Minimize regulatory lag through timely rate case filings • Synchronize revenues and expenses • Use future test year • Balance future rate increases for customers while ensuring the appropriate return is earned for our shareholders
Slide 21: TNMP Overview
TNMP Overview
Slide 22: 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 • TNMP’s latest TCOS filing requesting additional revenue of $4.2M was approved with rates in place September 8, 2014 • Energy efficiency pr
Slide 23: TNMP Load Growth and Economic Conditions
TNMP Load Growth and Economic Conditions Regulated Retail Energy Sales (weather-normalized) TNMP Unemployment Rate % of FY Q3 2014 vs. YTD 2014 vs. 2013 Sales Q3 2013 YTD 2013 5.2%(1) 5.8%(2) Residential 51% 0.4% 1.6% Commercial 44% 3.8% 5.5% U.S. Total Retail 1.8% 3.2% TX 2014 Load Forecast 1% - 3%
Slide 24: TNMP Load Including Impact of EE and DG
TNMP Load Including Impact of EE and DG o The economy in Texas continues to be strong with TNMP Energy Sales by Component 6,000 customer growth through Q2 2014 at 1.1%. o Programs supporting energy efficiency and solar 5,000 distributed generation initiatives have negligible sales growth impacts at
Slide 25: 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 Invest in the business Retain solid credit metrics Continue to control costs 25
Slide 26: Financial Overview
Financial Overview
Slide 27: PNM Resources Financial Goals
PNM Resources Financial Goals Remain on track for 10 – 13% total return by 2016 2016 Potential Earnings Power $1.81 - $1.89 Guidance Midpoint $1.47 $1.41 $1.31 2012 2013 2014E Continue to expect above industry average dividend increases o Dividend increased 12% to $0.74 in December 2013 o Next div
Slide 28: Consolidated EPS 2014 Guidance (Ongoing)
2014 Guidance (Ongoing) 2014 Guidance Range: $1.44 Consolidated EPS $1.51 PNM TNMP Corp/Other $1.11 - $1.15 $0.43 - $0.45 ($0.10) – ($0.09) 2015 Guidance expect to be issued on December 15, 2014 28
Slide 29: Liquidity and Capital Structure
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 October 24, 2014 Total Capacity(1) $450.0 $75.0 $300.0 $825.0 Less short-term debt(1) and LOC balances 3.2 0.1 7.7 11.0 Plus invested cash
Slide 30: Credit Ratings
Credit Ratings Rate relief, cost control, and tax benefits keep FFO to Debt toward upper end of Moody’s Baa investment grade target range of 13% to 22% Credit Ratings Moody’s S&P 2008 2014 2008 2014 PNM Resources(1) Ba2 Baa3 PNM Resources(1) BB- BBB- PNM(1) Baa3 Baa2 PNM(1) BB+ BBB TNMP Baa3(1) A2(2
Slide 31: Ongoing EBITDA Improvement
Ongoing EBITDA Improvement EBITDA Growth Primarily Driven by Rate Relief 2013 – 2014 EBITDA Drivers (In millions) PNM PNM TNMP PV3 pricing $4 M AFUDC $3 M Cost control $3 M Rio Bravo (formerly Delta) $3 M $434 $450 $462 Pension and benefits $3 M $397 Renewable rider $3 M $349 $120 $124 $134 DOE Nucl
Slide 32: 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%. • Rate base CAGR of 6% - 8% through 2018. • Potential investments beyond 2018: o Renewable resources o Transmission investments o Grid enh
Slide 33: Appendix
Appendix
Slide 34: Q3 2014 Financial Summary
Q3 2014 Financial Summary Ongoing EPS $0.02 $0.01 $0.01 $0.68 $0.64 TNMP PNM Corporate Q3 2013 Q3 2014 34
Slide 35: PNM and TNMP: Q3 2014 vs Q3 2013 EPS (Ongoing)
PNM and TNMP: Q3 2014 vs Q3 2013 EPS (Ongoing) PNM $0.54 $0.55 Q3 2014 Key Performance Drivers ∆ EPS Rio Bravo (Formerly Delta) Purchase $0.01 PV3 Market Prices $0.01 NDT Gains $0.01 Navajo Workforce Training Initiative $0.01 Depreciation & Property Tax ($0.01) Gallup Contract ($0.01) Weather ($0.02
Slide 36: 2015 Earnings Drivers
2015 Earnings Drivers Earnings Impact PNM Renewable rider rate increase + PV1 half-priced lease payments + Outage expenses - Expiration of Gallup contract - TNMP TCOS rate increase + Corporate/Other Retirement of holding company 9¼% debt + Increase in short-term debt - 36
Slide 37: NMPRC Commissioners and Districts
NMPRC Commissioners and Districts NMPRC Districts and Term PNM Service Areas Name District Party Ends Karen Montoya District 1 2016 Democrat Patrick Lyons District 2 2014 Republican Valerie Espinoza District 3 2016 Democrat Vice Chair Theresa Becenti-Aguilar District 4 2014 Democrat Chairman Ben Hal
Slide 38: Public Utility Commission of Texas Commissioners
Public Utility Commission of Texas Commissioners Term Term Name Party Began Ends Donna Nelson Aug. 2008 Aug. 2015 Republican Chairman Kenneth Anderson Sept. 2008 Aug. 2017 Republican Brandy Marty(1) Aug. 2013 Aug. 2019 Republican Commissioners are appointed by Governor of Texas. Length of term is de
Slide 39: 2014 Elections
2014 Elections New Mexico Texas Governor Party Current Office Governor Party Current Office Attorney General Susana Martinez Republican Governor (NM) Greg Abbott Republican (TX) NMPRC Race District Name Party District 2 Patrick Lyons Republican District 4 Lynda Lovejoy Democrat District 5 Sandy Jone
Slide 40: PNM Historical Rate Cases
PNM Historical Rate Cases PNM Retail Rate Cases • 8% base rate • Renewable Energy increase • 6% base rate Rider increase • $77M rate • 9% base rate • $6.4M revenue in increase 2008 • $33M rate increase • Temporary fuel 2009 • Permanent fuel clause 2011 increase • $72.1M rate increase 2012 2012 • $22
Slide 41: TNMP Historical Rate Cases
TNMP Historical Rate Cases TNMP Rate Cases •7% rate •6% base rate •4% base rate increase increase •AMS Case increase •General rate •General rate 2009 case 2010 •TCOS case •$6M rate 2011 case 2011 •$12M annual revenue •$13M rate •$10M rate increase increase increase increase •TCOS Case •TCOS Case •TC
Slide 42: 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 AEP North Centerpoint AEP Central Source: TDU tariffs for retail delivery service, as of July 1, 2014. 42
Slide 43: 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 347 GWh in savings has been achieved through the end of
Slide 44: TNMP Energy Efficiency
TNMP Energy Efficiency Public Utility Regulatory Act • Establishes annual demand savings goals for electric utilities • TNMP’s goal is to achieve: • a 30% reduction in peak demand growth, subject to customer rate caps • energy savings using a 20% conservation load factor • TNMP’s 2014 goals are to a
Slide 45: PNM Diversified Fuel Mix
PNM Diversified Fuel Mix Energy Energy 10,947 GWh RSIP w/ PV3(1) Based on 12 months ending 12/31/13 Renew ables Renewables Renewables 11% 11% 5% 5% Natural Gas Natural 10% Gas 9% Coal Coal Nuclear 56% 46% 30% Nuclear 33% (1)Assumes BART implementation on a base period of 12 months ending 12/31/13. 4
Slide 46: PNM Service Territory and Generation Facilities
PNM Service Territory and Generation Facilities 46
Slide 47: PNM Plant EAF and Outages
PNM Plant EAF and Outages 90.9% 89.5% 2014 - 2015 Outage Schedule 80.2% Duration Time 77.0% 78.3% Unit in Days Period 67.0% San Juan 1 46 Q1 2015 4 46 Q4 2015 Four Corners 4 13 Q4 2014 5 73 Q1 – Q2 2015 Palo Verde 1 34 Q4 2014 San Juan Four Corners Palo Verde 3 34 Q2 2015 12 months ending 6/30/13 2
Slide 48: 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 49: 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 4.6% 60 MW Leased 7.9% 104 MW Leased 5.6% 74 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 •Unit 2:
Slide 50: Environmental Control Equipment at Coal Units
Environmental Control Equipment at Coal Units PNM Share Low NOx Activated Coal Unit Capacity Burners/ Carbon SNCR (2) SCR (2) Baghouse (3) Scrubbers (MW) Overfired Air Injection (1) San Juan Unit 1 170 X X Expected X X 2016 San Juan Unit 2 170 X X X X San Juan Unit 3 248 X X X X Expected San Juan Un
Slide 51: Impact of Proposed Environmental Regulation
Impact of Proposed Environmental Regulation Estimated Compliance Costs Comments (PNM Share) San Juan Generating Station Clean Air Act – Regional Haze(1) (State Alternative) – SNCR $91M SNCR technology on 2 units; Retire 2 units. Included in SNCR and SCR(1) Balanced Draft , which has been included in
Slide 52: 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 o Requires each state to develop and implement a state plan to San Juan (PNM) reduce