Txnm Energy, Inc. · NYSE:TXNM
Txnm Energy — PNM Resources — Investor Presentation (October 2014)
53 slides from Txnm Energy's investor presentation, October 2014
Slide 1: Investor Presentation
Investor Presentation October 2014
Slide 2: Contact Information and Safe Harbor Statement
Contact Information and Safe Harbor Statement Investor Relations Contact Information Jimmie Blotter, Investor Relations Director Allyson Beck, Investor Relations Analyst U.S. 1-505-241-2227 U.S. 1-505-241-4612 Jimmie.Blotter@pnmresources.com Allyson.Beck@pnmresources.com Safe Harbor Statement Statem
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 $2B focused on providing a top quartile total return to shareholders Service Territories •Energy holding company •Based in Albuquerque, New Mexico, USA •Located in New Mexico •509,879 cust
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
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 $18 $101 $14 $443 Palo Verde $113 $14 Unit 3 $130 $78 added to $94 rate base $48 $71 $302 $136 $72 $14 $154 $106 $301 $65 $263 $22
Slide 8: Investment in Renewable Energy
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 permitted plans. throug
Slide 9: Environmental Control Equipment Investment
Environmental Control Equipment Investment The U.S. Environmental Protection Agency’s (EPA) Clean Air Act requires regional haze reduction near national parks Compliance should be achieved through Best Available Retrofit Technology (BART) San Juan Generating Station’s alternative for BART compli
Slide 10: Environmental Control Equipment Investment: Assumed 2018 Generation Mix
Environmental Control Equipment Investment Capacity Capacity Assumed 2018 Generation Mix 2,572 MW Based on 12 months ending 12/31/13 Renewables 10% Renewables 16% Coal 26% Coal Natural 38% Gas 36% Natural Nuclear Gas 15% 43% Nuclear 16% 10
Slide 11: Potential Earnings Power
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% $1.02 $2.2 B $0
Slide 12: Strong Dividend Growth
Strong Dividend Growth 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 in the target payout 2.9
Slide 13: Leadership Team
Leadership Team Pat Vincent-Collawn Chairman, President, and CEO 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 Counsel University of New Mexico Keleher and McLeod, PA O
Slide 14: PNM Overview
PNM Overview
Slide 15: 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 Earning our allowed return at PNM Retail Retail Renewable Rider implemented in August of 2012 with rates reset annually 2013 revenue
Slide 16: 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% AK DC RI DE AZ AR AL IL PNM (2013) IA ID IN OR OK HI OH PA WA WY WI KS GA KY MA ME MN MI MD MT MO WV TX T
Slide 17: 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 18: PNM: Significant Strides with Historical Environmental Upgrades
PNM: Significant Strides with Historical Environmental Upgrades San Juan Generating Environmental Additional Estimated Station Major Upgrade Results Reduction Results Environmental Following RSIP Upgrade Reduction Since 2006 Implementation PNM completed a four-year, NOX Emissions: 44% NOX Emissions:
Slide 19: PNM Load Growth and Economic Conditions
PNM Load Growth and Economic Conditions Regulated Retail Energy Sales (weather-normalized) Unemployment Rate PNM % of FY Q2 2014 vs. YTD 2014 vs. 6.7%(1) 2013 Sales Q2 2013 YTD 2013 5.9%(2) Residential 39% 0.5% (2.0%) Commercial 46% (2.7%) (1.8%) NM U.S. Industrial 12% (11.5%) (8.4%) Total Retail (3
Slide 20: 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 21: PNM Regulatory Update
PNM Regulatory Update Filing Action Timing Docket No. NMPRC BART Filing Filed December 20, 2013 Settlement Filed 13-00390-UT October 1, 2014 Final Approval Expected Early 2015 NMPRC 2015 Renewable Plan Filed June 2, 2014 Settlement Filed 14-00158-UT September 25, 2014 Final Approval Expected by Year
Slide 22: 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 23: TNMP Overview
TNMP Overview
Slide 24: 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 25: 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. 25
Slide 26: 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 27: TNMP Load Growth and Economic Conditions
TNMP Load Growth and Economic Conditions Regulated Retail Energy Sales (weather-normalized) TNMP Unemployment Rate % of FY Q2 2014 vs. YTD 2014 vs. 2013 Sales Q2 2013 YTD 2013 5.9%(2) 5.3%(1) Residential 51% 2.5% 2.5% Commercial 44% (0.1%) 6.5% U.S. Total Retail 0.9% 4.1% TX 2014 Load Forecast 1% -
Slide 28: 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 29: 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 29
Slide 30: Financial Overview
Financial Overview
Slide 31: Remain on track for 10–13% total return by 2016
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 32: 2014 Guidance (Ongoing) Consolidated EPS
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 32
Slide 33: 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 July 25, 2014 Total Capacity(1) $450.0 $75.0 $300.0 $825.0 Less short-term debt(1) and LOC balances 45.4 0.1 7.7 53.2 Plus invested cash -
Slide 34: Credit Ratings
Credit Ratings Rate relief, cost control, and tax benefits keep FFO to Debt within 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) TNMP BB+(1)
Slide 35: 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 Delta $3 M $434 $450 $462 Pension and benefits $3 M $397 Renewable rider $3 M $349 $120 $124 $134 DOE Nuclear Fuel Disposal Fee
Slide 36: 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 37: Appendix
Appendix
Slide 38: Q2 2014 Financial Summary
Q2 2014 Financial Summary Ongoing EPS $0.02 $0.01 ($0.02) $0.38 $0.39 Corporate PNM TNMP Q2 2013 Q2 2014 38
Slide 39: PNM and TNMP: Q2 2014 vs Q2 2013 EPS (Ongoing)
PNM and TNMP: Q2 2014 vs Q2 2013 EPS (Ongoing) PNM $0.30 $0.28 Q2 2014 Key Performance Drivers ∆ EPS Rate Relief $0.01 PV3 Market Prices $0.01 Outage Costs $0.01 Off System Sales Sharing $0.01 Load ($0.02) Weather ($0.02) 2003-2008 IRS Settlement ($0.02) Q2 2013 Q2 2014 TNMP $0.12 $0.10 Q2 2014 Key
Slide 40: 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 - 40
Slide 41: 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 42: 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 43: 2014 Elections
2014 Elections NM Governor’s Race TX Governor’s Race Candidate Party Current Office Candidate Party Current Office Susana Martinez Republican Governor (NM) Attorney General Incumbent Greg Abbott Republican (TX) Attorney General Gary King Democrat Wendy Davis Democrat State Senator (TX) (NM) NMPRC Ra
Slide 44: PNM Historical Rate Cases
PNM Historical Rate Cases PNM Retail Rate Cases • 8% base rate • Renewable Energy increase • 6% base rate Rider • $77M rate increase • 9% base rate • $6.4M revenue in 2008 2009 2011 2012 increase • $33M rate increase 2012 increase • Permanent fuel • $72.1M rate • $22.9M revenue clause • Temporary fu
Slide 45: TNMP Historical Rate Cases
TNMP Historical Rate Cases TNMP Rate Cases •7% rate •6% base rate •4% base rate increase increase •AMS Case increase 2009 •General rate case 2010 •TCOS case •$6M rate 2011 •General rate case 2011 •$12M annual revenue •$13M rate •$10M rate increase increase increase increase •TCOS Case •TCOS Case •TC
Slide 46: PNM Service Territory and Generation Facilities
PNM Service Territory and Generation Facilities 46
Slide 47: Current PNM Fuel Mix
Current PNM Fuel Mix Capacity Energy 2,572 MW 10,947 GWh Based on 12 months ending 12/31/13 Based on 12 months ending 12/31/13 Renew Renew ables ables Renewables Renewables 9% 5% 10% 5% Natural Gas 9% Coal Natural 38% Coal Gas Nuclear 56% 36% 30% Nuclear 16% 47
Slide 48: 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 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 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 • 2024 for 1 lease of Unit 2 Notice Dates Unit 1 Unit 1 Decision Unit 2 Unit 2 Decision 1st Janu
Slide 51: 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 (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 Jua
Slide 52: 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 53: 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