El Paso Electric Company Marketing Tour June/July 2015

Transcription

1 El Paso Electric Company Marketing Tour June/July 2015

2 Safe Harbor Statement 2 This presentation includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of This information may involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: Increased prices for fuel and purchased power and the possibility that regulators may not permit EE to pass through all such increased costs to customers or to recover previously incurred fuel costs in rates Recovery of capital investments and operating costs through rates in Texas and New Mexico Uncertainties and instability in the general economy and the resulting impact on EE s sales and profitability Changes in customers demand for electricity as a result of energy efficiency initiatives and emerging competing services and technologies Unanticipated increased costs associated with scheduled and unscheduled outages of generating plant The size of our construction program and our ability to complete construction on budget Potential delays in our construction schedule due to legal challenges or other reasons Costs at Palo Verde Deregulation and competition in the electric utility industry Possible increased costs of compliance with environmental or other laws, regulations and policies Possible income tax and interest payments as a result of audit adjustments proposed by the IRS or state taxing authorities Uncertainties and instability in the financial markets and the resulting impact on EE s ability to access the capital and credit markets Possible physical or cyber attacks, intrusions or other catastrophic events Other factors detailed by EE in its public filings with the Securities and Exchange Commission. EE s filings are available from the Securities and Exchange Commission or may be obtained through EE s website,

3 EE Overview 3 Service Territory Revenue Growth Rate Base Growth Traditional, vertically integrated electric utility serving west Texas and southern New Mexico; rate regulated with fuel pass through Strong long term customer and revenue growth trends Sizeable capital expenditures plan and resulting rate base growth for the next several years Financial Financially strong utility positioned well for future dividend growth Environmental Favorable environmental profile low carbon footprint

4 Service Territory 4 Approximately 400,000 retail customers EPE owns 1,829 miles of transmission lines Clean dependable generating capability 2,010 MW (net) nuclear (34%), natural gas (60%) and limited coal (6%) Interconnected with WECC, not ERCOT Interconnected with Mexico Texas jurisdiction represents ~ 78% of MWh sales & of non-fuel base revenues

5 Residential Customer Growth Residential Customers at Year End CAGR 1.85% 5 360, , , , , , , , Refrigerated air conditioning is being installed in 99% of new homes Majority of customers within our service territory utilize evaporative coolers Refrigerated air conditioning uses 85% less water and three times more electricity than evaporative coolers Usage per customer impacted by increased energy efficiency and conservation initiatives 10 Year CAGR Avg. No. Customers EE Industry* Usage per Customer 1.02% 0.60% Customer Growth 1.85% 0.42% * Source EEI-2014 Statistical Yearbook

6 Customer & Population Growth 6 1,100, , , , ,000 El Paso & Dona Ana County Population & EE Residential Customer Growth CAGR 1.50% CAGR 1.79% 100, EP & Dona Ana Pop 902, , , , , ,160 1,009,8 1,032,6 1,045,3 1,045,0 1,047,1 EE Res Customers 296, , , , , , , , , , ,885 EP & Dona Ana Pop Source: U.S. Bureau of Census and Real Estate Center at Texas A&M University EE Res Customers

7 Economic Indicators 7 The Federal Reserve s El Paso Business Cycle Index continues to show positive growth since 2008 El Paso s April unemployment rate was the lowest rate in 6 years Single family building permits increased by 39 percent in 1Q 2015 compared to 1Q 2014 Federal Reserve Bank of Dallas

8 Native System Peak Load Growth 8 MW 1,800 1,600 1,400 1,376 1,428 Native System Peak 1,616 1,508 1,524 1,571 1,714 1,688 1,750 1,766 1,787 CAGR 2.65% 1,200 1, Set a new Native Peak record of 1,787* MW on June 22, 2015 * Pending Metering Certification

9 Five Year Cash Capital Expenditures EE Estimated Costs 9 $300,000 $250,000 $200,000 $169mm $178mm $202mm $237mm $277mm $260mm $203mm $170mm $199mm $254mm $150,000 $100,000 $50,000 $0 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Generation Transmission Distribution General

10 Generation Addition Schedule 10 Generating Capacity at Summer Peak (MW) 2,010 1,990 2,078 2,078 2, (a) MPS Unit 3 will be commercially operational for summer peak of MPS Unit 4 will be commercially operational in December 2016, but will not impact peak generating capability until Existing Generation Generation Additions Projected Peak

11 Montana Power Station 11 The first two generating units at the Montana Power Station have been completed, and began providing electricity to our customers in late March as scheduled Construction of the second phase of the project includes Units 3 & 4 and is currently underway Once complete, the four LMS- 100 units at MPS will add 352 MW of efficient, clean burning natural gas power Montana Power Station Units 1&2

12 Projected Rate Base and CWIP 12 Pro forma Rate Base Balances ($000) YE 2015 Including MPS 1 & 2 YE 2016 Including MPS 3 & 4 Beginning Rate Base (1)(2) $1,633 $1,947 Plant Additions: MPS Transmission and Substations New Eastside Facility 41 - Other New Generating Units: Montana Common Plant Montana Unit Montana Unit Montana Unit 3-78 Montana Unit 4-78 Total Depreciation Expense (90) (95) Change in Deferred Income Taxes & Other (4) 22 Total Rate Base (3) $1,947 $2, Ending CWIP Balances ($ in millions) $282 $178 (1) Excludes NM s portion of PV Unit 3 rate base, net of ADIT, of approximately $26mm and $27mm for each pro-forma filing in 2015 and 2016, respectfully (2) Beginning rate base is December 31, 2014 and year end balances exclude CWIP (3) Represents a pro-forma rate base projection that is subject to change based on actual rate filings

13 Favorable Financial Positioning 13 Rate base anticipated to increase due to load growth, not environmental retrofits Continue to target a regulatory equity/debt ratio (excluding short-term and Rio Grande Resources Trust debt) of approximately 50% Goal is to preserve investment grade credit ratings in order to finance capital additions with favorable terms

14 Commitment to Credit Quality 14 Capital Structure As of March 31, 2015 * (thousands) Common Stock Equity $975,265 Regulatory Capitalization** Book Capitalization Long-term debt, net of RGRT 1,039,205 Total Capitalization Before RGRT $2,014,470 Debt 51.6% Equity 48.4% Debt 55.3% Equity 44.7% RGRT and RCF - LT & ST Debt 168,345 Total Capitalization After RGRT and RCF $2,182,815 * Capital structure includes current maturities and short-term borrowings Well positioned to finance planned investments Investment grade credit ratings S&P reaffirmed its BBB rating and Stable Outlook in March 2015 Moody s upgraded EE s credit rating to Baa1 in December 2014 Moody's S&P EE (unsecured) Baa1 BBB Stable Stable ** Regulatory Capitalization excludes borrowings for NF by the Rio Grande Resources Trust (RGRT), while book capitalization includes nuclear fuel borrowings in the debt portion of capitalization.

15 Increasing Cash Returns 15 Quarterly cash dividend has increased by 34% to $0.295 per share since 2011 Dividend payout ratio remains below the peer average, which allows for future growth Over the next several years anticipate growing the dividend by 4% to 6% per year Goal is to move closer to peer average payout ratio after major construction period and regulatory lag subsides $1.00 $1.06 $1.12 $ Annualized Dividend Per Share

16 Diversified Energy Portfolio and Low Carbon Footprint Energy Sources (by MWh s) EE vs. U.S. Avg. Carbon Footprint (Short tons CO 2 equivalent emissions/mwh) Coal 5% Natural Gas 35% Nuclear 47% Purchased Power 13%* *Renewable energy purchases represent 16.4% of total purchased power 2010 National Average EE 0.31

17 Well Positioned to Meet New Environmental Regulations EE expects minimal impacts from the Environmental Protection Agency s proposed guidelines to reduce carbon dioxide emissions from existing fossil fuel-fired power plants EE will reduce its carbon footprint by ceasing participation in the Four Corners coal plant in July 2016 when the 50-year participation agreement expires EE filed Sale and Abandonment proceeding in TX & NM Costs associated with future retrofits required by environmental regulation will be avoided Planned additions of natural gas fired plants will meet growing customer demand as well as replace Four Corners and other plant retirements 17

18 Utility Scale Renewables 18 The 50 MW Macho Springs Solar Facility began commercial operation in May 2014 and is now delivering safe, dependable, and clean power to our system EE entered into a purchased power agreement with Newman Solar, LLC to purchase the entire output of a 10 MW solar facility EE s utility scale solar facilities represented more than 5% of dedicated generation resources EE is placing greater emphasis on utility scale renewables, reflecting improved cost and economics In April 2015, EE filed for a Certificate of Convenience and Necessity in TX and NM for a 20 MW solar facility at Fort Bliss In June 2015, EE filed for a new 3 MW Community Solar Pilot Program in TX, which will be constructed at MPS Additional solar projects are expected to be constructed in Las Cruces and at Holloman Air Force Base

19 Appendix 19

20 New Mexico Rate Case Filing 20 EE filed a general rate case on May 11, 2015 with the New Mexico Public Regulation Commission (NMPRC) Summary of request included: Historical test year ended December 2014 Case filed primarily to reflect new plant in service Montana Power Station (MPS) Units 1& 2, common, substation & transmission Eastside Operations Center Change in non-fuel base rates Non-fuel base rate increase of $8.6mm or 7.1% Change in base fuel rates Forecasted base fuel decrease of $15.4mm* or 21.5% 100% of forecasted fuel and purchased power collected in base rates Fuel Adjustment Clause trues-up collection to actuals * Base fuel decrease is currently flowing through to customers via the fuel adjustment clause

21 21 New Mexico Rate Case Filing (cont d) ROE of 9.95%; Equity Ratio of 49.29% Continuation of Palo Verde (PV) Unit 3 proxy market pricing Average Non-Fuel Base Change Average Net Bill Impact with Proposed Fuel Residential Service 14.0% 9.0% Partial Requirements 18.7% 9.0% Small General Service 0.0% 0.0% General Service 0.0% 0.0% Irrigation Service 7.3% 4.5% Water Pumping Service 0.0% 0.0% Large Power Service 0.0% 0.0% Military Research & Dev. Service 0.0% 0.0% Street Lighting Service 26.0% 20.0% Private Area Lighting Service 0.0% 0.0% Seasonal Agricultural Processing 6.6% 4.5% Outdoor Recreational Lighting 29.6% 20.0% State University Service 5.0% 2.4% Structural rate design changes include: Gradual approach to moving customer classes closer to the costs of serving them Combining similar classes Proposing a new partial requirement customer class

22 Rate Base Summary 22 Total Rate Base* Total Company $1,809mm New Mexico jurisdictional $436mm Approximately $1,281mm of plant has been added since the last rate case Significant plant additions to rate base include: Palo Verde Capital Improvements $159.0mm Phase II of Newman Unit 5 $164.1mm Rio Grande Unit 9 $94.4mm Transmission and Distribution - $413.3mm MPS and Eastside Operations Center - $266.4mm** * Rate Base and plant additions exclude PV Unit 3 and 1/3 of PV common ** MPS includes Units 1 & 2, common, substation and transmission lines

23 New Mexico Rate Case Schedule 23 Procedural Schedule and Timeline * General Rate Case Filing May 11, 2015 Discovery Process - May/Sept Deadline for Intervention Aug. 3, 2015 Direct Testimony of NMPRC and Intervenors Sep. 30, 2015 Rebuttal Testimony Oct. 28, 2015 Hearing Begins Nov. 16, 2015 New rates potentially become effective early in 2 nd quarter 2016 * Procedural schedule adopted on June 23, 2015

24 Texas Rate Case Filing 24 New Mexico rate case filing should not be used to estimate the level of rate relief that will be requested in Texas EE anticipates filing a general rate case in July or August 2015 Historical test year ended March 2015 Anticipate new rates will become effective by early 2 nd quarter 2016

25 Recent Regulatory Filings 25 Regulatory Filing Description Jurisdiction Docket No. Fort Bliss Solar CCN TX Fort Bliss Solar CCN NM UT Four Corners Sale NM UT Four Corners Sale TX Holloman Solar CCN NM UT El Paso MPS Community Solar TX Las Cruces Community Solar NM

26 Impact of Mexico 26 Cross Border trade between El Paso and Juarez totaled approximately $89 billion in 2014 (1) A new port of entry linking El Paso and Juarez, the Tornillo-Guadalupe International Bridge, will add to the capacity for cross border trade and will be one of the largest in the nation and is expected to be operational in September 2015 Maquiladora plants employed roughly 273,000 workers in the Juarez area as of April 2015; maquiladora employment increased 14.7% from April 2014 to April 2015 (2) A 10 percent increase in maquiladora output leads to a 2.8 percent increase in El Paso total employment (3) (1) Source: Texas A&M International (2) Source: Juarez Maquiladora Association (INDEX) (3) Source: Mexican National Institute of Statistics and Geography and the Federal Reserve Bank of Dallas

27 Union Pacific Intermodal Rail 27 Construction of the $400 million Union Pacific intermodal rail yard was completed in 2014 (one year ahead of schedule) and is projected to add approximately 600 jobs and added $500 million to the local economy during construction The strategic positioning of the Intermodal Rail Yard, located just minutes away from maquiladora plants in Mexico, will make the Santa Teresa, NM / El Paso, TX area a focal point for rail shipments in the southwestern United States

28 Other Local Growth Summary 28 El Paso s hotel revenue and occupancy rate hit an all-time high in March of this year Projects associated with $473 million in Quality-of-Life bonds approved by voters in 2012 are under construction including parks, pools, museums, and libraries The Charles Schwab Corp. plans to open a new operations center in west El Paso, which is expected to add approximately 445 new jobs to the city by early 2015 Prudential Financial Inc. announced a new technology and call center to be located on the City s east side which will employ 300 people over the next several years Schneider Electric plans to invest $7 million to expand its El Paso manufacturing facility, adding an additional 193 full-time permanent jobs Automatic Data Processing (ADP) plans to double its current El Paso workforce adding 1,100 new positions by 2020 Starwood Hotels has announced plans to restore the historic O.T. Basset Tower in downtown El Paso for its Aloft-brand hotel, a project estimated at over $10 million

29 2015 Load and Resources 29 Company Owned Generation 2,010 MW Solar Purchased Power 107 MW Palo Verde Newman Rio Grande Montana Copper Four Corners Renewables Solar Nuclear Natural Gas Coal Wind/Solar Solar Power 633 MW 752 MW 276 MW 176 MW 64 MW 108 MW 1 MW 107 MW 2015 Total Energy Resources 2,117 MW s Record Native Peak 1,787 MW s set in June 2015 * * Pending Metering Certification

30 Shareholder Return (all data as of 12/31) MARKET PRICE PER SHARE 2014 $ $ $ $ $ $ $20.28 ANNUAL VALUE OF SHARE REPURCHASES AND DIVIDENDS (1) 2013 $ $ $ $ $24.1 Total Return Comparison $100 Investment on December 31, 2009 $240 $220 $200 $180 $160 $140 $120 $100 $80 Dec. 31, 2009 Dec. 31, 2010 Dec. 31, 2011 Dec.31, 2012 Dec. 31, 2013 Dec. 31, 2014 EE EEI NYSE (1) EE Initiated a quarterly cash dividend in 2011 distributing a total of $27.2mm in addition to $86.5mm in share repurchases EE $219 EEI $191 NYSE $151 30

31 Capital Requirements and Liquidity 31 Expended $73.9mm for additions to utility plant for the three months ended March 31, 2015 Board declared quarterly cash dividend of $0.295 per share on May 28, 2015 payable on June 30, 2015 EE made $11.3mm in dividend payments for the three months ended March 31, 2015 At March 31, 2015, EE had liquidity of $249.3mm including a cash balance of $8mm and unused capacity under the revolving credit facility Capital expenditures for utility plant in 2015 are anticipated to be approximately $259.5mm Received DOE settlement of $6.6mm related to spent nuclear fuel storage reimbursement May issue long-term debt in late 2015 or early 2016

32 1 st Quarter Financial Results 32 1st Quarter 2015 net income of $3.5 million or $0.09 per share, compared to 1 st Quarter 2014 net income of $4.6 million or $0.11 per share

33 Financial Highlights 33 Basic EPS March 31, 2014 $ 0.11 Changes In: Interest on long-term debt Gain on the sale of land in 2014 Deregulated Palo Verde Unit 3 revenues (0.03) (0.02) (0.02) Description Increased due to $150 million of 5.0% senior notes issued in December 2014 Decreased due to sale of land in 1Q 2014 with no comparable activity in the current quarter Decreased due to 35% decrease in proxy market prices reflecting a decline in natural gas prices Depreciation and amortization expense (0.01) Increased due to an increase in depreciable plant Allowance for funds used during construction 0.05 Increased due to higher average construction balances Taxes other than income taxes 0.02 Retail non-fuel base revenues 0.01 Decreased due to Arizona property tax adjustment in 1Q 2014 with no comparable adjustment in the current quarter Increased due to colder winter weather in 1Q 2015 and customer growth Other (0.02) March 31, 2015 $ 0.09

34 1 st Quarter Retail Revenues and Sales Non-Fuel Base Revenues (000's) Residential 46,940 Percent Change * MWH Percent Change * $ 3.0% 561, % C&I Small 31,970 (0.5%) 490,066 (0.8%) C&I Large 8,249 (0.9%) 253, % Public Authorities 17,258 (2.3%) 343,093 - Total Retail $ 104, % 1,647, % 34 Heating Degree Days (HDD's) 1, % Average Retail Customers 400, % * Percent change expressed as change from Q over Q1 2014

35 Historical Weather Analysis 35 March YTD HDD 1,600 1,400 1,200 1, ,396 1,338 1,288 1,265 1,191 1,159 1,153 1,024 1, Yr HDD Average 1,180

36 Estimated Regulatory Lag Impacts Estimated Impact on EPS due to Regulatory Lag for MPS T&D, Common, Units 1&2, and the East Side Distribution Operations Center ($0.19) Overall 2015 EPS Impact ($0.31 to $0.37) ($0.08) ($0.07) AFUDC Depreciation Property Tax & O&M Other Note: Individual components represent mid-point of the range of estimated impact

37 Texas Renewables 37 Requirements EE must obtain renewables through renewable generation or purchase of Renewable Energy Credits (REC s). The amount is based on the ratio of EE s Texas sales compared to total sales in the state. This number has averaged approximately 5%. Compliance EE primarily purchases REC s Cost Recovery REC costs recovered through base rates EE capital investments included in rate base

38 New Mexico Renewables 38 Requirements EE is required to meet 15% of its current retail energy sales in New Mexico via renewables; escalates to 20% in 2020 Must be from diverse sources at least 20% solar, 30% wind, 5% biomass and 3% renewable distributed generation Reasonable cost threshold will limit future requirements for EE Compliance Purchase of wind RECs from Southwestern Public Service (SPS) through 2015 Cost Recovery Renewable energy with RECs recovered through fuel clause; RECs without energy deferred and recovered through base rates

39 Regulatory Overview 39 Public Utility Commission of Texas - Appointed by Governor Name Term Ends Party Donna L. Nelson (Chair) 08/31/2015 Republican Kenneth W. Anderson 08/31/2017 Republican Brandy Marty 08/31/2019 Republican New Mexico Public Regulation Commission - Elected Name Term Ends Party District Karen Montoya (Chair) 12/31/2016 Democrat 1 Patrick Lyons 12/31/2018 Republican 2 Valerie Espinoza (Vice Chair) 12/31/2016 Democrat 3 Lynda Lovejoy (Vice-Chair) 12/31/2018 Democrat Sandy Jones 12/31/2018 Democrat 5 FERC Rates are Formula Based

40 EE Contact Information 40 Nathan Hirschi Richard Gonzalez Senior Vice President Chief Financial Officer Supervisor Investor Relations (915) (915) John Boomer El Paso Electric Headquarters Vice President, General Counsel Stanton Tower (915) North Stanton El Paso, Texas (800) Lisa Budtke Assistant Treasurer (915)