Second Quarter 2010 Earnings Presentation. August 6, 2010

Transcription

1 Second Quarter 2010 Earnings Presentation August 6, 2010

2 Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Statements made in this news release that relate to future events or PNM Resources', PNM's, or TNMP's (collectively, the "Companies") expectations, projections, estimates, intentions, goals, targets and strategies, are made pursuant to the Private Securities Litigation Reform Act of Readers are cautioned that all forwardlooking statements are based upon current expectations and estimates and the Companies assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, the Companies caution readers not to place undue reliance on these statements. The Companies' 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. These factors include conditions affecting the Company s ability to access the financial markets and negotiate new credit facilities for those expiring in 2011 and 2012, or Optim Energy s access to additional debt financing following the utilization of its existing credit facility, including actions by ratings agencies affecting the Company s credit ratings; the recession, its consequent extreme disruption in the credit markets, and its impacts on the electricity usage of the Company s customers; state and federal regulatory and legislative decisions and actions, including appeals of prior regulatory proceedings, and including provisions relating to climate change, reduction of greenhouse gas emissions, coal combustion byproducts, and other power plant emissions; the ability of PNM to meet the renewable energy requirements established by the NM Public Regulation Commission ( NMPRC ), including the resource diversity requirement, within the specified cost parameters; the ability of PNM to successfully utilize a future test year in its rate filing with the NMPRC, including PNM s ability to accurately forecast operating and capital expenditures and withstand challenges by regulators and intervenors; the performance of generating units, including the Palo Verde Nuclear Generating Station, the San Juan Generating Station, the Four Corners Plant, and Optim Energy generating units, and transmission systems; the risk that Optim Energy desires to expand its generation capacity but is unable to identify and implement profitable acquisitions or that PNMR and ECJV will not agree to make additional capital contributions to Optim Energy; the potential unavailability of cash from PNMR s subsidiaries or Optim Energy due to regulatory, statutory or contractual restrictions; the impacts of the decline in the values of marketable equity securities on the trust funds maintained to provide nuclear decommissioning funding and pension and other postretirement benefits, including the levels of funding and expense; the ability of First Choice Power to attract and retain customers and collect amounts billed; changes in ERCOT protocols; changes in the cost of power acquired by First Choice Power; collections experience; insurance coverage available for claims made in litigation; fluctuations in interest rates; weather; water supply; changes in fuel costs; availability of fuel supplies; uncertainty regarding the requirements and related costs of decommissioning power plants owned or partially owned by PNM and Optim Energy and coal mines supplying certain PNM power plants, as well as the ability to recover decommissioning costs through charges to customers; the risk that replacement power costs incurred by PNM related to not meeting the specified capacity factor for its generating units under its Emergency Fuel and Purchased Power Adjustment Clause will not be approved by the NMPRC; the risk that PNM may not be able to renew rights-of-way on Native American lands or that the costs of rights-of-way are not allowed to be recovered through rates charged to customers; the effectiveness of risk management and commodity risk transactions; seasonality and other changes in supply and demand in the market for electric power; the impact of mandatory energy efficiency measures on customer energy usage; variability of wholesale power prices and natural gas prices; volatility and liquidity in the wholesale power markets and the natural gas markets; uncertainty regarding the ongoing validity of government programs for emission allowances; changes in the competitive environment in the electric industry; the risk that the Company and Optim Energy may have to commit to substantial capital investments and additional operating costs to comply with new environmental requirements including possible future requirements to address concerns about global climate change, and the resultant impacts on the operations and economic viability of generating plants in which PNM and Optim Energy have interests; the risks associated with completion of generation, transmission, distribution, and other projects, including construction delays and unanticipated cost overruns; uncertainty surrounding the status of PNM s participation in jointly-owned projects resulting from the scheduled expiration of the operational documents for the projects beginning in 2015 and potential changes in the objectives of the participants in the projects; the outcome of legal proceedings; changes in applicable accounting principles; and the performance of state, regional, and national economies. Non-GAAP Financial Measures For an explanation of the non-gaap financial measures that appear on certain slides in this presentation (ongoing earnings, ongoing earnings per diluted share, ongoing EBITDA, and cash earnings), as well as a reconciliation to GAAP measures, please refer to the Company's website as follows: August 6, 2010: Preliminary & Unaudited 2

3 Opening Remarks & Overview Pat Collawn President and CEO August 6, 2010: Preliminary & Unaudited 3

4 Q Highlights Ongoing EPS: $0.21 $0.21 GAAP EPS: $0.25 $(0.02) Utility rate cases improve regulated results; more progress needed on several regulatory fronts First Choice Power down quarter-over-quarter as expected; bad debt expense continues to improve Low-price ERCOT market continues to challenge Optim Energy; offset by strong power plant performance August 6, 2010: Preliminary & Unaudited 4

5 2010 Regulatory Activity Update PNM Case Status 2010 Renewable Energy Plan Hearing examiner recommended rejection of stipulation; NM PRC to rule by Aug Renewable Energy Plan Energy Efficiency Disincentives Program Future-Test-Period Rate Case FERC Transmission Rate Filing Filed in July; Status conference on Sept. 16; Public hearing begins Oct. 25 Filed in May; Public hearing on Sept. 14 Supplemental filing made with NM PRC and petition filed with NM Supreme Court Aug. 5 On track for Q4 filing TNMP Transmission Cost of Service Implemented in May General Rate Case On track for Q3 filing; Estimated decision: Q Advanced Metering System Rider Filed in May; Estimated decision: Q August 6, 2010: Preliminary & Unaudited 5

6 PNM Future Test Period Filing Update: Filed supplemental budget documents on Aug. 5 Filed petition with NM Supreme Court on Aug. 5 asking court to: Vacate NMPRC s July 27 order Return to 9-month suspension period starting July 1 Upcoming Milestones: NMPRC decision to restart suspension period Establishment of new procedural schedule NM Supreme Court s ruling on petition August 6, 2010: Preliminary & Unaudited 6

7 Economic Conditions The recession s grip is slowly loosening Unemployment Rate (1) Utility Customer Growth NM 9.5% 8.2% 8.2% NM TX U.S. TX U.S. Q vs. Q Q Avg. Retail Customer Count PNM 0.5% 501,280 TNMP 0.4% 229,390 (1) U.S. Bureau of Labor Statistics, June 2010 August 6, 2010: Preliminary & Unaudited 7

8 Retail Load Retail load is rebounding from 2009 Regulated Retail Energy Sales (weather-normalized) NM NM TX U.S. Q vs Q YTD 2010 vs YTD 2009 PNM TNMP PNM TNMP Residential 0.5% 3.4% 1.3% 1.8% Commercial 1.8% 1.7% 1.9% 3.4% TX U.S. (1) (2) (1) Industrial 3.9% 1.6% 1.2% 0.8% Total Retail 1.5% 2.5% 1.6% 2.4% (2) (1) Excluding Economy Service customers (2) Excluding Transmission Service customers August 6, 2010: Preliminary & Unaudited 8

9 Competitive Businesses First Choice Power Bad debt expense reduction continues $6.1M (5.1% of revenue) in Q $10.1M (7.3% of revenue) in Q Increased commercial sales partially offset residential decline EBITDA guidance range increased Optim Energy Sustaining strong power plant commercial availability Continued focus on cost control, liquidity management, and cash flow Maximizing gross margin through ancillary services sales, plant operations EBITDA guidance range narrowed August 6, 2010: Preliminary & Unaudited 9

10 Financial Overview Chuck Eldred Executive Vice President & CFO August 6, 2010: Preliminary & Unaudited 10

11 Q Financial Summary (Ongoing) Ongoing EPS of $0.21; flat with last year YTD cash earnings of $151M; above expectations Fav/(Unf) 2009 Ongoing Earnings $ 0.21 Utility Load & Weather 0.04 Rate Relief 0.07 Outage Costs (0.04) FCP Margin (0.06) FCP Bad Debt 0.03 Optim Energy (0.02) Other (0.02) 2010 Ongoing Earnings $ 0.21 August 6, 2010: Preliminary & Unaudited 11

12 Regulated Operations: Q EPS (Ongoing) PNM Electric $0.11 $0.12 Q2 Key Performance Drivers Rate relief EPS $0.06 Weather and load $0.03 Outage costs ($0.04) Interest expense ($0.01) Q Q Pension and retiree medical costs ($0.01) Other ($0.02) TNMP $0.02 $0.04 Q2 Key Performance Drivers EPS Rate relief $0.01 Load $0.01 Q Q August 6, 2010: Preliminary & Unaudited 12

13 Competitive Operations: Q EBITDA (Ongoing) $21.1 $17.3 First Choice Power (In millions) Q2 Key Performance Drivers EBITDA Lower bad debt expense $3.9 Lower O&M $1.0 Lower margins ($8.5) Q Q $16.2 $17.8 Optim Energy (1) (100%) (In millions) Q2 Key Performance Drivers EBITDA Sale of ancillary services $3.0 Altura Cogen/Lyondell $2.4 Lower O&M $2.0 Q Q Market and fuel prices ($6.6) August 6, 2010: Preliminary & Unaudited 13 (1) PNM Resources has 50% ownership interest in Optim Energy; gains and losses of Optim Energy are equally shared by the owners.

14 2010 Revised Guidance Ongoing EPS Consolidated PNM Resources: $ $0.75 (1) Regulated Businesses: $ $0.72 Unregulated Businesses: $ $0.25 Corp/Other: $(0.18) - $(0.16) Ongoing EBITDA First Choice Power: $40M - $50M Optim Energy (100%): $60M - $65M Cash Earnings Consolidated PNM Resources: $305M - $325M August 6, 2010: Preliminary & Unaudited 14 (1) Business segment guidance ranges are not additive

15 2010 Checklist File rate cases PNM: Future-test-period by June 30 Filed June 1 TNMP: TCOS in Q2 Approved and implemented in May TNMP: General rate case in Q3 On track to be filed in Q3 FERC: PNM transmission rates in Q4 On track to be filed in Q4 Achieve favorable regulatory outcome in PNM Renewable Resource Plan case Hearing examiner recommended to deny stipulation; Commission to address by Aug. 31 Maintain strong electric reliability and power plant availability Reliability on track; power plant performance forecasted to be lower than 2009 Achieve profitable customer growth from First Choice Power Despite a decline in customers, current forecast exceeds initial ongoing EBITDA estimate Achieve Optim Energy ongoing EBITDA growth of 5% to 10% Given current natural gas price environment, EBITDA target might not be met Continue to improve credit metrics Moody s revised outlook from Negative to Stable (S&P revised outlook in December 2009) August 6, 2010: Preliminary & Unaudited 15

16 Questions & Answers August 6, 2010: Preliminary & Unaudited 16

17 Appendix

18 2010 EPS Revised Guidance by Segment (Ongoing) Ongoing EPS E Regulated Operations PNM $0.50 $ $0.55 TNMP $0.13 $ $0.17 PNM Gas Sub-total Unregulated Operations First Choice Power Optim Energy (PNMR Share - 50%) (0.01) (0.10) - (0.07) Sub-total Corp/Other (primarily interest expense) (0.20) (0.18) - (0.16) Total EPS $0.94 $ $0.75 (1) August 6, 2010: Preliminary & Unaudited A-2 (1) Business segment guidance ranges are not additive

19 2010 EBITDA Revised Guidance by Segment (Ongoing) Ongoing EBITDA (In millions) E Consolidated PNMR (1) $408 $365 - $385 Regulated Operations PNM $236 $240 - $245 TNMP $85 $95 - $97 PNM Gas $16 N/A Unregulated Operations First Choice Power $69 $40 - $50 Optim Energy (100%) $64 $60 - $65 August 6, 2010: Preliminary & Unaudited A-3 (1) Business segment guidance ranges are not additive

20 PNM Plant EAF and Outages 89.7% 88.3% 79.7% 78.7% 79.0% 69.9% San Juan Four Corners Palo Verde 2010 & 2011 Outage Schedule Unit Duration (days) Time Period San Juan 1 49 Q Q Q Four Corners 21 Q Q Palo Verde 3 66 Q Q Q Q Q Annual Top Quartile Numbers* Coal 88% Nuclear 92% August 6, 2010: Preliminary & Unaudited A-4 * Annual top quartile numbers from the North American Electricity Reliability Council

21 Optim Energy Plant Performance 90.9% 94.9% 99.3% 95.3% 89.7% Twin Oaks Altura Cogen Cedar Bayou 4 Q Q Annual Top Quartile Numbers* Twin Oaks 92.0% Altura Cogen 93.7% Cedar Bayou % August 6, 2010: Preliminary & Unaudited A-5 * Annual top quartile numbers from the North American Electricity Reliability Council

22 Optim Energy EBITDA (In millions) Q Q GAAP Net Earnings $ (6.5) $ (14.1) Interest expense Income tax 0.0 (0.1) Depreciation and amortization expense Mark-to-market impact of economic hedges Purchase accounting amortizations Ongoing Optim Energy EBITDA percent of Ongoing EBITDA (PNMR share) $ 8.9 $ 8.1 August 6, 2010: Preliminary & Unaudited A-6

23 Optim Energy Amortizations Amortization for out of market contracts, emission allowances, and the impact on PNMR earnings is as follows: (1) Twin Oaks Contract Amortization (2) Altura Cogen Contract Amortization (3) Emission Allowance Amortization (In millions) (1)+(2)+(3) * 50% PNMR's 50 percent share of Optim Energy Amortizations PNMR's Basis in Amortizations PNMR Net Earnings Impact 2009 $ 12.8 $ (19.5) $ (4.7) $ (5.7) $ (1.7) $ (7.4) (16.3) (7.2) (10.4) (2.7) (13.1) (14.7) (4.7) (9.7) * (9.7) (9.4) (3.6) (6.5) * (6.5) (8.8) (3.6) (6.2) * (6.2) (8.3) (3.3) (5.8) * (5.8) 2015 and beyond - (42.9) (37.1) (40.0) * (40.0) Total $ 15.5 $ (119.9) $ (64.2) $ (84.3) $ (4.4) $ (88.7) In the table presented above, emission allowance amortization for is forecasted based on estimated usage and sales. Since actual usage and sales will vary from this assumption, future year s amortization expense may be different than presented. Note: Schedule is updated annually. August 6, 2010: Preliminary & Unaudited A-7

24 Optim Energy 5-Year Capital Plan (In millions) $25 $22 $17 $11 $ August 6, 2010: Preliminary & Unaudited A-8

25 PNMR 5-Year Capital Plan (In millions) $465 $15 $280 $23 $3 $196 $317 $48 $17 $251 $256 $13 $11 $254 $254 $252 $238 $ Core Renewables TNMP Advanced Metering System August 6, 2010: Preliminary & Unaudited A-9

26 Components of Revised Cash Earnings 2010E (In millions) Net cash flows from operating activities $300 - $325 +/- adjustments in arriving at cash earnings Changes in certain current assets & liabilities (1) (75) - (85) Return of principal on Palo Verde lessor notes 30 Payments received from Palo Verde firm-sales contracts 30 PNMR share of Optim Energy cash earnings (2) Total Cash Earnings $305 - $325 Drivers of $15M - $10M increase are as follows: Disposition of Litigation $5M FCP Earnings $10M - $5M (1) Including bad debt expense and settlement of legal proceedings (2) Optim Energy cash earnings defined as net cash flows from operating activities less changes in certain current assets & liabilities August 6, 2010: Preliminary & Unaudited A-10

27 Liquidity PNM Resources (1) PNM Separate (In millions) TNMP Separate PNM Resources Consolidated Financing Capacity: (2) Revolving credit facility $ $ $ 75.0 $ 1,043.0 Local lines of credit (LOC) Total Capacity ,053.0 As of 7/29/10: Short-term debt & LOC balances Remaining availability Invested cash Available Liquidity as of 7/29/10 $ $ $ 74.7 $ (1) Includes First Choice Power (2) The PNMR Facility and the PNM Facility will reduce by $26.0 million and $14.0 million in August 2010 and by an additional $25.0 million and $18.0 million in August 2011 according to their terms. August 6, 2010: Preliminary & Unaudited A-11

28 Selected Balance Sheet Information (1) Dec 31, Jun 30, (In millions) Long-Term Debt (incl. current portion) PNM $ 1,055.7 $ 1,055.7 TNMP PNMR Consolidated $ 1,567.3 $ 1,567.7 Total Debt (incl. short-term) PNM $ 1,173.7 $ 1,247.7 (2) TNMP PNMR Consolidated $ 1,765.3 $ 1,852.7 August 6, 2010: Preliminary & Unaudited A-12 (1) Debt balances are not additive due to rounding (2) Excludes intercompany borrowings

29 Credit Ratings Senior Unsecured Debt S&P PNM Resources BB- PNM BB+ Outlook: Stable Moody s PNM Resources Ba2 PNM Baa3 Outlook: Stable TNMP First Mortgage Bonds S&P BBB- Outlook: Stable Moody's Baa1 Outlook: Stable August 6, 2010: Preliminary & Unaudited A-13

30 NMPRC Commissioners and Districts Name District Term Ends Party NMPRC Districts and PNM Services Areas Jason Marks District Democrat David King (1) Chairman District Republican Jerome Block Vice Chair District Democrat Theresa District Democrat Becenti-Aguilar (2) Sandy Jones (3) District Democrat August 6, 2010: Preliminary & Unaudited A-14 (1) Two-term limit reached (2) Appointed to replace Carol Sloan and is seeking election to the Commission (3) Did not run for re-election to the NMPRC

31 Timeline of PNM Rate Cases January 2003 Global Settlement reached: 5-year rate freeze, move toward deregulation in NM stops Case: UT February 2007 Filing Requesting: - $76.9M rate increase - Institute fuel clause Case: UT April 2008 NMPRC Decision: $33M rate increase Case: UT September 2008 Filing Requesting: -$123.3M rate increase - Traditional fuel clause Case: UT May 2009 NMPRC Decision: - $77M rate increase - Traditional fuel clause Future Test Year Filing Case: UT Aug. 5, 2010 Supplemental filing made PNM voluntarily gives up fuel clause to keep offsystem sales revenues Case: UT March 6, 2008 Recommended Decision: - $24.2M rate increase - Fuel clause denied Case: UT March 20, 2008 Filing Requesting: Emergency Fuel Clause Case: UT May 2008 NMPRC Decision: Emergency fuel clause granted Case: UT March 2009 Settlement Filing: -$77M rate increase -Traditional fuel clause Future Test Year Filing Case: UT June 2010 Filing Requesting $165.2M rate increase August 6, 2010: Preliminary & Unaudited A-15

32 PNM Rate Case Drivers Total Requested Rate Increase = $165.2M PNM North $152.9M PNM South $12.3M Fuel $12.8M Lost Load $28.0M PNM South $12.3M Rate Base Recovery $60.0M Other $3.9M Benefits $12.1M Pension $16.9M Production O&M $19.2M August 6, 2010: Preliminary & Unaudited A-16

33 PNM Rate Increase Drivers Requested Rate Increase $165.2M PNM North (In millions) Rate Base Recovery $60.0M Return on Rate Base $39.9 Increase in ROE $17.1 Requested ROE of 11.75% 10.5% ROE implied in current rates Increase in rate base of $213M $22.8 $1,702M filed rate base $1,489M previously filed rate base Return of Rate Base $20.1 Increase in depreciation expense due to higher rate base $ 9.0 Increase in depreciation rates $11.1 Total $60.0 August 6, 2010: Preliminary & Unaudited A-17

34 PNM Rate Increase Drivers Requested Rate Increase $165.2M PNM North (In millions) Non-fuel Operating Expenses (1) Pension $16.9 Market performance $7.9 Modified method $9.0 Benefits $12.1 Production O&M (primarily outages) $19.2 Other $ 3.9 Other $3.9M Benefits $12.1M Pension $16.9M Production O&M $19.2M Total $52.1 (1) Excludes depreciation August 6, 2010: Preliminary & Unaudited A-18

35 PNM Rate Increase Drivers Requested Rate Increase $165.2M Lost Load $28.0M Fuel $12.8M (In millions) PNM North Lost Load $28.0 7,869 GWh projected in % decrease from 8,317 GWh projected in last filed case Fuel $12.8 Total $40.8 August 6, 2010: Preliminary & Unaudited A-19