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Q4 2016 Earnings Review February 28, 2017
Safe Harbor Statement
2
Statements made in this presentation that relate to future events or PNM Resources, Inc.’s (“PNMR”), Public Service Company of New Mexico’s (“PNM”), or Texas-New Mexico Power Company’s (“TNMP”) (collectively, the “Company”) expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. PNMR, PNM, and TNMP assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR's, PNM's, and TNMP's business, financial condition, cash flow, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. For a discussion of risk factors and other important factors affecting forward-looking statements, please see the Company’s Form 10-K and 10-Q filings with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein.
Non-GAAP Financial Measures For an explanation of the non-GAAP financial measures that appear on certain slides in this presentation (ongoing earnings and ongoing earnings per diluted share), as well as a reconciliation to GAAP measures, please refer to the Company’s website as follows: http://www.pnmresources.com/investors/results.cfm.
http://www.pnmresources.com/investors/results.cfm
Opening Remarks and Overview Pat Vincent-Collawn
Chairman, President and CEO
Q4 2016 Financial Results and Key Highlights
4
Q4 2016 Q4 2015 2016 2015
GAAP EPS $0.31 ($1.15) $1.46 $0.20
Ongoing EPS $0.34 $0.23 $1.65 $1.64
• 2017 Ongoing EPS Guidance of $1.77 - $1.87 affirmed
Financial Results:
2016 Key Highlights: • Continued achievements in reliability and customer service
PNM: 2016 ReliabilityOneTM Award recipient for second consecutive year, record-high customer perception survey results
TNMP: continued record of high reliability, 100% deployment of AMS has increased billing accuracy
• PNM: Economic development rate, special renewable energy rate for new customers
Note: EPS is presented on a diluted basis other than Q4 2015, which is on a non-diluted basis due to the GAAP net loss. For a reconciliation of GAAP EPS to Ongoing EPS and a description of adjustments made, please refer to the fourth quarter earnings release issued February 28, 2017.
Regulatory Update
5
Filing Action Timing Docket No.
PNM 2018 General Rate Case Filing
Filed December 7, 2016
Settlement agreement (if applicable) to be filed March 27, 2017
16-00276-UT
PNM Advanced Metering Infrastructure (AMI)
Hearings began February 27, 2017
Decision expected in May 2017 15-00312-UT
PNM Integrated Resource Plan
Public input process ongoing
To be filed no later than July 3, 2017 N/A
PNM Appeal of August 2015 General Rate Case to New Mexico Supreme Court
Appeal filed September 30, 2016 No statutory timeline S-1-SC-36115
TNMP TCOS Filed January 20, 2017 Rates expected to be effective in March 2017 46786
TNMP General Rate Case N/A To be filed no later than September 2018 N/A
Financial Overview Chuck Eldred
Executive Vice President and CFO
Load and Economic Conditions
7
Regulated Retail Energy Sales and Customers (weather-normalized, leap-year adjusted)
PNM % of 2016
Sales Volumes
Q4 2016 vs.
Q4 2015
2016 vs.
2015
Retail Load: Residential 40% 1.3% 0.1%
Commercial 47% (1.0%) 0.5% Industrial 11% (8.7%) (8.8%)
Total Retail Load (1.1%) (0.7%) 2017 Load Growth Forecast: (1%) – 0%
Avg. Customers 0.7% 0.7% 2017 Customer Growth Forecast: 0.7%
(1) Volumetric load is billed on per-kWh usage (2) Demand-based load is billed on monthly kW peak (3) U.S. Bureau of Labor Statistics, December 2016
TNMP % of 2016
Sales Volumes
% of 2016 Sales
Revenues
Q4 2016 vs.
Q4 2015
2016 vs.
2015
Volumetric Load(1): Residential 51% 3.0% 3.4%
Commercial 46% 2.7% 2.9% Total Volumetric Load 52% 2.6% 3.0%
2017 Load Growth Forecast: 2% – 3%
Avg. End Users 1.4% 1.5% 2017 End User Growth Forecast: 1.6%
Demand-Based Load(2) 48% 2.7% 2.4%
1.0%
3.5%
1.7%
0.0%
2.0%
4.0%
2014 2015 2016
% C
hang
e
Employment Growth(3) 12-Month Rolling Average
Albuquerque Dallas U.S.
Q4 2016 Financial Summary
8
$0.23
$0.34 $0.10 $0.01
Q4 2015 Q4 2016
Ongoing EPS
PNM
TNMP
Q4 2016 vs Q4 2015 EPS (Ongoing): PNM and TNMP
$0.13
$0.23
Q4 2015 Q4 2016
9
PNM Q4 2016 Key Performance Drivers ∆ EPS
Retail rate relief, net of renewable rider $0.08 Outage costs $0.05 Lower operations and maintenance costs $0.03 Elimination of Palo Verde Unit 2 lease costs, net of depreciation $0.03 Exploration of alternative San Juan fuel supply contracts in 2015 $0.02
AFUDC ($0.03) Weather ($0.03) Palo Verde Unit 3 market prices ($0.02) Depreciation and property tax ($0.02) FERC Generation Navopache contract ($0.01)
$0.11 $0.12
Q4 2015 Q4 2016
TNMP Q4 2016 Key Performance Drivers ∆ EPS
Load $0.01 TCOS rate relief $0.01 Weather $0.01
Depreciation and property tax ($0.01) Other ($0.01)
10
Business Segments
Key Tax Reform Considerations Reduced Tax Rate Interest Non-deductibility 100% Bonus Depreciation
PNM & TNMP
Decreases the tax expense flowing through rates;
Increases rate base as excess deferred taxes
are returned to customers over
normalization period
Increases the tax expense flowing through rates
In rate base, decreases from higher ADIT liability are offset by
increases from higher NOL carryforward in the near term;
Increases to long-term cash flow could be used to fund additional
capital investments and/or reduce outstanding debt
Corporate/ Other
Decreases the tax benefit from Holding
Company losses
Increases tax expense • Debt is short-term in
nature • Interest income may
offset expense (i.e. Westmoreland financing)
Increases to long-term cash flow could be used to fund additional
capital investments and/or reduce outstanding debt
PNM Resources well-positioned for tax reform, customers benefit
Tax Reform Considerations
$1.31 $1.41 $1.49 $1.77
$1.64 $1.65
2012 2013 2014 2015 2016 2017E 2018E 2019EOngoing EPS
$1.87 7% - 8% Growth
supported by 2019 Potential Earnings
Power of $2.05 - $2.23(2)
$0.58 Feb ‘12
$0.66 Feb ‘13
$0.74 Dec ‘13
$0.80 Dec ‘14
$0.88 Dec ‘15
$0.97 Dec ‘16
Indicated Annual Dividends
Earnings and Dividend Growth
11 (1) Assumes mid-point of 2017 guidance (2) Potential Earnings Power detailed on slide 16 2012 – 2016 Ongoing EPS represents actual results, 2017E Ongoing EPS represents ongoing earnings guidance of $1.77 - $1.87 per diluted share
• PNM growth achieved through recovery of capital investments: Rates implemented October 2016 bring rates forward from levels set in previous 2010 filing,
accounting for significant capital investments 2018 General Rate Case filing aligns rates with lower-carbon resource portfolio agreed to in
BART settlement, including replacement of coal capacity with Palo Verde Unit 3 nuclear capacity Potential recovery of NMPRC disallowed assets through New Mexico Supreme Court appeal
• TNMP growth achieved by continuing capital investment and recovery through TCOS and general rate case filings
53%(1) payout ratio
Questions and Answers
Appendix
2017 EPS and Quarterly Distribution Guidance (Ongoing)
14
$1.77 Consolidated EPS $1.87
PNM $1.30 - $1.37
TNMP $0.51 - $0.53
Corp/Other ($0.04) – ($0.03)
2017 Guidance
16% 24%
47%
13%
Q1 2017E Q2 2017E Q3 2017E Q4 2017E
2017 Quarterly Ongoing Earnings Distribution
$223 $242 $244
Depreciation
$138 $112 $119
$170
$119 $163
$151
$134
$137
$58
$30
$15
2017 2018 2019
(In millions)
PNM Generation PNM T&D TNMP Corporate/Other
$517
$395 $435
Palo Verde Unit 3 added to rate base
$96
$157
$136
$15
2020
$404
$251
Capital Forecast
15
2017 – 2020 Total Capital Plan: $1.7B
PNM 2016-2020 Rate Base CAGR: 4 - 6%(1) TNMP 2016-2020 Rate Base CAGR: 8 - 10%
(1) Includes the addition of PV3 to rate base in 2018, which does not have associated capital spending. Amounts may not add due to rounding.
Expect future refinements
Future refinements
include:
• Outcome of Integrated Resource Plan
• Resources for
potential data center customers
• Additional
transmission opportunities to support renewable growth
Chart1
2017
2018
2019
Depreciation
223
242
244
Sheet1
20162017201820192020
PNM Generation
PNM T&D
PNM Renewables
TNMP
Other
Total
Depreciation198223242244249
Check
Chart1
2020
$251
Depreciation
251
Sheet1
2020
PNM Generation
PNM T&D
PNM Renewables
TNMP
Other
Total
Depreciation251
Check
2017 - 2019 Potential Earnings Power
16
Allowed Return /
Equity Ratio
2017 Guidance Midpoint 2018 Earnings Potential 2019 Earnings Potential Avg Rate
Base Return EPS Avg Rate
Base EPS Avg Rate
Base EPS
PNM Retail (1) 9.575% / 50% $2.3 B 9.3% $1.33 $2.4 B $1.42 $2.4 B $1.41
Supreme Court Appeal (2) $0 - $150 M $0.00 - $0.09
PNM Renewables (3) 9.575% / 50% $95 M 9.575% $0.06 $90 M $0.05 $85 M $0.05
PNM FERC (4) 10% / ~50% $180 M 7.9% $0.09 $245 M $0.11 - $0.14 $275 M $0.12 - $0.16
PV3 (5) ($0.12) Included in PNM Retail Included in PNM Retail
Items not in Rates (6) ($0.03) ($0.03) - $0.00 ($0.03) - $0.00
Total PNM $2.6 B $1.33 $2.7 B $1.55 - $1.61 $2.7 - $2.9 B $1.55 - $1.71
TNMP (7) 10.125% / 45% $815 M 10.125% $0.52 $890 M $0.53 $965 M $0.56
Corporate/Other (8) ($0.03) ($0.06) - ($0.04) ($0.06) - ($0.04)
Total PNM Resources $3.4 B $1.82 $3.6 B $2.02 - $2.10 $3.7 - $3.9 B $2.05 - $2.23
(1) Recently authorized 9.575% ROE has been used for all forecasted years. (2) Reflects a range of outcomes for the New Mexico Supreme Court appeal of the August 2015 General Rate Case final order. For purposes of writing down the value of the
assets under appeal at Sept. 30, 2016, a minimum 15-month appeal timeframe was used. Potential average rate base presented in 2019 to be conservative includes: PV2 64MW Acquisition Adjustment (~$75M), PV2 Leasehold Improvements (~$25M) and Balanced Draft Technology (~$50M).
(3) PNM Renewables reflect assets collected through the Renewable Rate Rider. (4) PNM FERC earnings potential reflects a return of 7-9% versus the allowed return of 10%, as FERC formula rate methodology uses prior year average rate base and provides
for mid-year rate increases. (5) 2017 Guidance Midpoint assumes a forward market price of $29/MWh; a price of $44/MWh is required to break even. PV3 is included in PNM rates beginning in 2018. (6) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, certain incentive compensation, earnings in 2017 associated with the assets
previously allocated to the Navopache contract, and the 65MW ownership of San Juan Unit 4 beginning in 2018. (7) TNMP EPS includes $0.02 of Competitive Transition Charge recovery in 2017 Guidance Midpoint and 2018 Earnings Potential and $0.01 in 2019 Earnings Potential. (8) Corporate/Other includes earnings associated with the 65MW ownership of San Juan Unit 4 before PNM assumes ownership in 2018,
short and intermediate term bank debt, and the net impact of Westmoreland financing through NM Capital Utility Corporation.
This table is not intended to represent a forward-looking projection of 2018 - 2019 earnings guidance.
PNM and TNMP: 2016 vs 2015 EPS (Ongoing)
17
PNM
TNMP
$1.18 $1.14
2015 2016
2016 Key Performance Drivers ∆ EPS Elimination of Palo Verde Unit 2 lease costs, net of depreciation $0.12 Retail rate relief, net of renewable rider $0.09 Lower operations and maintenance costs $0.07 Outage costs $0.04 Exploration of alternative San Juan fuel supply contracts in 2015 $0.02 Interest income from IRS, net of fees $0.02 Customer mix and load $0.01
AFUDC ($0.09) Palo Verde Unit 3 market prices ($0.09) Depreciation and property tax ($0.08) Interest expense ($0.05) FERC Generation Navopache contract ($0.04) El Paso Natural Gas FERC tariff refund in 2015 ($0.03) Weather ($0.01) Palo Verde spent fuel in Q1 2015 ($0.01) Other ($0.01)
2016 Key Performance Drivers ∆ EPS Load $0.04 TCOS rate relief $0.04
Depreciation and property tax ($0.03) O&M increases ($0.02) Weather ($0.01) Interest expense ($0.01)
$0.52 $0.53
2015 2016
Weather Impact
18
PNM Q4 2016 Q4 2015 2016 Normal(1)
Heating Degree Days 1,354 1,560 1,596
Cooling Degree Days 21 43 15
Net EPS Impact compared to normal
($0.02) $0.01
TNMP Q4 2016 Q4 2015 2016 Normal(1)
Heating Degree Days 491 492 694
Cooling Degree Days 405 306 263
Net EPS Impact compared to normal
$0.00 ($0.01) (1) 2016 normal weather assumption reflects the 10-year average for the period 2005 - 2014.
PNM Scheduled Plant Outages and Retirements
19
2017-2018 Planned Outage Schedule
Scheduled Unit Retirements
San Juan
Unit Duration in Days Time
Period
1 29 Q1 2018
4 29 Q2 2018
Palo Verde
Unit Duration in Days Time
Period
2 33 Q2 2017
1 33 Q4 2017
3 33 Q2 2018
2 33 Q4 2018
Four Corners
Unit Duration in Days Time
Period
4 11 Q2 2017
5 11 Q2 2017
5 95 Q3-Q4 2017
4 95 Q1-Q2 2018
San Juan
Unit Retirement Date
2 12/31/2017
3 12/31/2017
Balance Sheet and Credit Metrics
Liquidity as of February 21, 2017
21
PNM TNMP Corporate/
Other
PNM Resources
Consolidated
Financing Capacity(1): (In millions)
Revolving credit facilities $450.0 $75.0 $300.0 $825.0
As of 2/21/17:
Short-term debt and LOC balances $58.8 $8.1 $150.5 $217.4
Remaining availability 391.2 66.9 149.5 607.6
Invested cash - - 1.5 1.5
Total Available Liquidity $391.2 $66.9 $151.0 $609.1
(1) Excludes intercompany debt and term loans
Selected Balance Sheet Information
22
(1) Net of unamortized debt issuance costs (2) Excludes intercompany debt Amounts may not add due to rounding
(In millions) Dec 31, 2015 Dec 31, 2016
Long-Term Debt (incl. current portion) (1)
PNM $1,580.7 $1,631.4
TNMP 361.4 420.9
Corporate/Other 149.9 340.5
Consolidated $2,091.9 $2,392.7
Total Debt (incl. short-term) (2)
PNM $1,580.7 $1,692.4
TNMP 420.4 420.9
Corporate/Other 341.5 566.6
Consolidated $2,342.5 $2,679.8
Credit Ratings
23
PNMR S&P Moody’s
Credit rating BBB+(1) Baa3(1)
Issuer outlook Stable Stable
(1) Issuer/Corporate rating (2) Senior unsecured (3) Senior secured
PNM S&P Moody’s
Credit rating BBB+(2) Baa2(2)
Issuer outlook Stable Stable
TNMP S&P Moody’s
Credit rating A(3) A1(3)
Issuer outlook Stable Stable
Slide Number 1Safe Harbor StatementSlide Number 3Q4 2016 Financial Results and Key HighlightsRegulatory UpdateSlide Number 6Load and Economic ConditionsQ4 2016 Financial SummaryQ4 2016 vs Q4 2015 EPS (Ongoing): PNM and TNMPTax Reform ConsiderationsEarnings and Dividend GrowthSlide Number 12Slide Number 132017 EPS and Quarterly Distribution Guidance (Ongoing)Capital Forecast2017 - 2019 Potential Earnings PowerPNM and TNMP: 2016 vs 2015 EPS (Ongoing)Weather ImpactPNM Scheduled Plant Outages and RetirementsSlide Number 20Liquidity as of February 21, 2017Selected Balance Sheet InformationCredit Ratings
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