Q3 2019 Earnings Call
Good day, and welcome to the Pea and resources Q3, 2019 conference call.
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Now, let's turn the conference over to lease the Goodman director of Investor Relations. Please go ahead.
Thank you Sarah and thank you everyone for joining us this morning for the PNM resources third quarter 2019 earnings Conference call. Please.
Please note that the presentation for this conference call and other supporting documents are available on our website at PNM resources Dotcom.
Joining me today our PNM.
Resources, Chairman, President and CEO , Pat been Satcon, and Chuck Eldred, our executive Vice President and Chief Financial Officer, as well as several other members of our executive management team.
Before I turn the call over to Pat I need to remind you that some of the information provided this morning should be considered.
Forward looking statement pursuant to the private Securities Litigation Reform Act of 1995.
We caution you that all the forward looking statements are based upon current expectations enough the mats and that PNM resources assumes no obligation to update this information.
For a detailed discussion of factors affecting piano.
I'm resources results. Please refer to our current and future annual reports on Form 10-K quarterly reports on Form 10-Q , as well as reports on form 8-K filed with the FCC.
With that I will turn the call over to Pat. Thank you Lisa and congratulations on your appointment to director of Investor Relations.
All very happy for you [laughter]. Good morning, everyone. Thank you for joining us today on our third quarter earnings call. It's also national Cook for your pets day to day and some website say its national men makes dinner day, others say National then make dinner day is next Thursday, so whatever day it is.
Gentlemen start preparing.
Let's begin on slide four.
GAAP earnings per share the third quarter of 29 team reflect earnings of $1.28.
Compared to earnings of a dollar nine in the third quarter of 28 team.
I'm doing earnings per share or dollar 29 compared.
To a dollar eight its third quarter last year, we are affirming our guidance of $2.05 to $2.11. Chuck will provide further details on the financials in a few minutes.
In terms of highlights of the corridor.
Higher temperatures increased our loads at both PNM.
And T N P. At 10 M.P. This reflects get another all time record system peak, reflecting the growth that continues across Texas.
On the regulatory front canopy filed its second Ti costs filing in 2019 for recovery of $22 million of transmission.
Lets across its system and this filing was approved in September . These rates were implemented on September 19th and will increase annual revenues by 3.3 million.
In New Mexico, PNM received approval from both FERC and the New Mexico Public Regulation Commission.
To acquire the Western Spirit transmission line in 2021.
This is not only a significant investment for PNM, but is a key project for further in the Mexico's plan to be a clean energy leader.
The line will have the capacity to me the 800 megawatts a wind energy investments.
Across the state and encourages further investment in renewables.
We continue our path to exit the San Juan generating station and replace it with cleaner energy resources.
The docket pretty abandonment of the plant and the financing of cost or securitization is continuing along.
The commission's procedural schedule.
Through this schedule parties in the case were asked to provide briefs on whether the energy transition Act the new state energy law should apply to this filing.
PNM and other parties petitioned the new Mexico Supreme Court to ask the court to weigh in on the applicability of a law.
Before these brief although the court decline to provide an opinion on the issue at this time.
[laughter] on slide five we've laid out the positions filed by Interveners in the case on whether or not the EPA should be applied.
You'll notice that there's a lot more green Checkmarks here then read access.
Groups, representing the San Juan area are concerned about the funds included in our securitization filing did benefit their community job trading severance and economic development funds.
Several environmental groups that were part of the legislative effort to pass the EPA and understand that it was clear.
Nearly intended to be used for the abandonment of San Juan and to provide financial results for the resource is pretty impact a community are supporting the filing.
The cases moving through the procedural schedule to a hearing examiner recommendation and ultimately a commission order if the order is not consistent with the energy.
The transition Act, we will take it back to the Supreme Court.
Turning to slide six.
I'll touch on a few other updates on the regulatory agenda.
At PNM the filing for our solar direct program, a voluntary solar subscription available to many municipalities.
Tribal governments and large customers continues to move along the procedural schedule and we expect a decision in the first quarter of next year.
We also expect a decision in the first quarter on our 2020 renewable plan, which includes the there we're past the request for approval of the hundred and 40 megawatt wind.
P.P.A.
There are no other updates for the other pending docket, so with that I'll turn it over to a chunk for a detailed look at the numbers.
Thank you Pat and good morning, everyone I'll get started with a recap of results from this quarter before getting into our refresh capital plans [laughter], let's start with <unk>.
Slide eight as Pat mentioned earlier higher temperatures increased load in earnings at both PNM and TNMP Hey.
This was a welcome change following a record low temperatures in the second quarter. As a result, we were able to ease up on some of the cost reduction plans that we put into place a few months ago, we continue to target the midpoint of our guidance to away.
[laughter], although the detailed drivers are included in the appendix you'll note that PNM continue to benefit from the second phase or implementation of rates that began in January 2019, and it tends to be results increased from the implementation of base rates in Ti costs increases this year or.
Both businesses these.
These were partially offset by higher depreciation expense and property tax as a result or increased capital investments.
Corporate and other was up three cents as a result of our effective tax rate because we're a consolidated taxpayer taxes at the corporate segment are influenced by the timing of the earnings at PNM and TNMP [laughter].
Now turning to slide nine.
At PNM, we continue to see a steady increase in customer and job growth across PNM service territory.
Recent newspaper articles have touted new-mexico's job growth as being one of the top of the nation. These jobs are primarily in the private sector with the highest growth in the leisure and hospitality sector.
Followed by professional and business services, and then education and health services.
Whether and load increased third quarter U.P.S.P. them by five cents over last year.
Whether it was the primary driver for this increase as cooling degree days were 14% higher than last year.
Weather adjusted load increase in our industrial.
In residential classes, but was largely offset by the commercial class as companies implement energy efficiency programs. This is also the case on a year to date basis, and we have reduced our LOE guidance trichet range of.
Flat to 1% as we expect to come in around a half a percent.
As I indicated last quarter.
Sure we have already factored these load expectations in the midpoint of our guidance range it to away.
In Texas growth continues to lead the nation and we see evidence of this by the increased demand on our system.
Whether in load increased third quarter, two P.S. it Tempe by two cents over the prior year.
Cooling degree days.
Days were 10% higher than last year.
Demand base load is increased 4.3% on a year day basis, we reduced our expectations for full year results or range of 4% to 5% to account for the changes and the timing of some interconnections projected this year, but we'll still be expecting to bring these customers online to that.
How many months.
In any given quarter EPS is not significantly impacted by these types of changes in percentages because of the low TNT rate charged to customers, but we do monitor the demand base load percentage as an indicator that increase utilization of our system.
That's fair imagine tend to be hitting new system peak and as they.
They have for several consecutive years. This further demonstrates our neighbor continued infrastructure investment in Texas, but.
Let's turn to slide 10 to see how this impacts are updated capital investment plans.
Our five year capital plan through 2023 years increased to $3.9 billion. This is an increase of just over three.
800 million from our last previous plan and is driven by system reliability projects at TNMP <unk>.
For example in 2020, here's some key projects a group attained a piece transmission lines and Substations in North West, Texas, where we upgraded from 69 Kb to 138 JV to support growth in the region.
The Gulf Coast 130.
Hey, kv transmission line upgrade will be completed to help the transmission capacity or continue I continue to see issues and supportive interconnection of a new gas fired power plant.
And we'll begin in the replacement or am I meters to tweak compatible with a current network capabilities, which continue through 2021.
[noise].
Wrote beyond her service territory in Texas also drives the need for increased investments in 2022 and 2023.
Her caught has performed extensive regional studies that call for increased transmission infrastructure to support reliability in growth, particularly in West, Texas, We've increased our investments that CMP in response to those studies.
Over the last several years, we have increased our level of capital investment it tend to be significantly and we have made use of the ti costs mechanism to recover transmission investments twice a year.
Now that we have completed the general rate case that tend to be allowing for a 9.65% or are we at 45% capital structure when I look to use.
The ti costs and the cost mechanism to earn are allowed return on both sides of the business.
PNM capital remains consistent with our plan shown last quarter were 298 million for San Juan replacement power and 285 million for the Western Spirit transmission line that was recently approved by both Burke and into Mexico.
In addition to investments at PNM and TNMP, Hey, we continue to allocate resources to physically physical and cyber security along with other technological investments that allow our business to run smoothly and provide enhanced services to our customers.
This plan rate base grows at a compound annual growth rate of 9.6.
Now turning to the two earnings power on slide 11.
Peter pay reflects the increase investment shown in our five year plan.
Equity issuance have increased by 140 million to fund the additional 317 million of capital in Tempe, and maintain a balanced capital structure.
This brings our total equity needs up to 290 million.
In addition to the 300 million of mandatory converts that we have been projecting permit mid 2021.
We're currently looking at 40.
For block sale options, and an exact timing and type of instrument and amounts will be optimize.
As we continue to keep our focus on delivering a successful outcome of the San Juan abandonment and replacement power.
Dockets, we're planning to delay the December general rate case filing to early in the second quarter 2020.
Addition, assessments that tend to be strengthen our earnings potential support our 5% to 6% earnings growth target. We continue to focus on executing our plan and preserving our investment grade credit raise while balancing the need of equity.
And creating shareholder value [noise].
I will turn it back over to you. Thanks, Chuck before I open it up for questions I want to wrap up with some of the great things the company has been doing.
Our plans to replace San Juan have garnered support from those who see the value in moving to a cleaner generation portfolio.
Last week, we celebrated the.
One of the San Miguel Solar Energy Center, that's 20 megawatts of solar to our portfolio, just or retail customers along with boosting tax revenues for the county that can be used to support infrastructure and education.
The PNM resources Foundation awarded three quarters of $10 million in grants this.
After that supports stem education energy efficiency and economic fatality.
This past weekend, our employees volunteered into rose at our largest annual low income assistant event, where customers not only received financial support from the PNM good neighbor fun to pay their electric bills.
But also a variety of other services for more than 40 agencies.
This week some of our crews in new Mexico headed out to California to aid in restoration efforts and in Texas are 10, M.P. crews assisted encore restoration efforts following the tornado that swept through Dallas.
Last month. This type of service is invaluable to our industry and speaks so well have our public service mantra.
It's our committed employees across new Mexico, and Texas that are making these things happen and earning recognition for PNM and TNMP Pete I'm proud to be.
Part of this team and my role in making our company and our communities a better place to live work and play so Sarah let's please open it up for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if you are using a.
Good phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.
My first question comes from Julien.
Dumoulin Smith with Bank of America Merrill Lynch. Please go ahead.
Hi, good morning.
This is Alex Morgan, calling in for Julien warning Alex.
Good morning, Thanks for taking my question. My first question and actually about rate cases, I was wondering if you're planning on going in for rate case at PNM, New Mexico at the end of this year.
[noise].
Yeah, Alex as I mentioned in my comments that we would look to delay that rate case until the early part of second quarter.
Okay. Thank you so much and then I was just hoping for potentially a little bit of clarity around the block issuance versus <unk>.
And if that's something that we should be thinking about incrementally for 2020, I know you said the timing not exactly out yet, but I'm actually looking for a little more clarity there. Yeah. If you look at a if you reference or potential earnings power side that we have an IR deck in the appendix you'll see in footnote number eight.
We.
Joe you what the equity amount is for each year and you can think about the forward block sale is that if we continue on this plan, we would draw down the equity needs to be reflected of each of those years. So just go to page 17 and earnings power Slide and reference the earnings power and footnote eight and you'll get your details.
Okay great.
Thank you.
Thanks, that's all the questions that I have today.
Thank you Alex.
The next question comes from Ali Agha Ho with Suntrust. Please go ahead.
Thank you good morning.
Early.
Morning.
First question.
Chuck the incremental capex at that NMT.
Are you looking at any of that any constraints in terms of you know nodding that up a those projects all locked in customer rate impacts any of that factoring in this all solid comfortably within all those.
As you look at those numbers yeah, we're very comfortable there all built into studies that are caught it's provided and demands and request we have a customer so no concerns or issues. It's a it's it's locked into our plans and and we'll file through the Ti costs in the cost mechanisms in order to Rick.
Cover investments.
Okay, and then with regards to the EPA.
Ah applicability and need for them.
Crushing better do from Bad The commission those currently stand I know there being some public statements back and forth.
And then you laid out but all the other thing.
We know, but what's the latest talked on how commissioners are thinking about it.
You know Ali it's Pat I think that they're waiting until all the briefs were filed until the hearing examiner comes out with the recommendation. So until then we really don't have line of sight Intel into what they're thinking it would just as it should be.
I see.
And finally, just with regards to the equity.
Instead, its predicted regulatory approval not any any put distributing event. That's you're looking to have completed before you embark on that program or are you sort of thinking about that right. Now now we have all the.
Board authorizations, and a assay say regimens spatial statements already filed so.
It's just a matter of when we decide to issue equity.
Right I was thinking from more from a regulatory ER point of view no. There's no there's no issues on the regulatory front at all.
No no. Thank you, but no additional steps.
At all.
Oh, sorry, yeah, yeah. Thanks.
Our next question comes from Paul Fremont with Mizuho Securities USA. Please go ahead.
Thank you very much.
Can you discuss it all I guess there's.
An article on the Albuquerque Journal that there are some.
People on the reference in the legislature that are opposed to the energy transition Act and they're also hearing scheduled I think next week.
In the Senate and Ah Servanda days committee on the EPA can you sort of just.
Bring us up today.
What their concerns are with the energy transmission Acton and what your thoughts are.
Yeah, I'll leave there, there's a group called powering the future or something like that that's a pretty small it's composed of a few folks that are kind of the trying to provide the coal industry.
Don't like some of the environmental regulations and as you know the main reason that San Juan generating station is shutting down is because at the compelling low natural gas prices low natural gas and renewables. So I'm, we're not particularly concerned about any of that.
Great and then has there been any reaction to the staff proposal.
That you adopt carbon capture technology at the San Juan plant.
I think the best reaction that I've seen one isn't the right up you had Paul about it I think that summarizes it pretty well there really has not been a lot of reaction to it everybody understands that this technology is not [noise].
Pro.
Proven at scale, it's expensive we looked at the technology back in 2010 as a matter of fact and came to these same conclusions and we're updating the numbers on it now as we go through and file our resource plan. So I'm really know reaction.
And then my last question would you need a clarity on.
Issues before the Nm PRC before going forward with equity or do you see the two is not necessarily oh being when Craig.
I'd say, they're not linked we don't need any other.
Regulatory.
Rules.
No I didn't mean regulatory I'm talking about in terms of the spending dollars in new Mexico. So in other words they are different options in terms Oh, a replay on power portfolio. There's no no I I see would you say I know you know it if you're suggesting we're timing the equity.
The around what decisions are made I'd say no because we have other pipeline projects that are needed for the business there that need to be prioritized and worked and so we need the equity to maintain our cap structure in our.
Credit metrics and we'll plan it was some flexibility and timing to meet where we think as appropriate.
To provide shareholder value, but certainly it's not driven by those kinds of decisions.
Great. Thank you very much thanks, Paul.
Our next question comes from Greg Gordon with Evercore ISI. Please go ahead.
Hey, guys.
Hi.
Okay.
I already Cook on a regular basis for my wife, So I don't need to have a special holiday for that [laughter], well well congratulations to you that.
[laughter] say that great [laughter], but as you might as all look bad [laughter]. So so so let's be I know that does this you're in a complex complicated.
Situation here in new Mexico, the regulators seem to.
Wants to not follow the guidelines that the legislature and the governor is set for them.
It sounds like the governor and the legislature also might be contemplating taking some action and the.
Early next year with regard to.
That's what can you talk about what you're hearing from them and then.
In a worst case scenario, where they did the the commission does in fact go against.
The.
Strictures of the law I mean, one way or another you're going to move ahead with the shutting down the plant and deploying the.
Doable, so what would the alternative financing plan b.
Yeah, Greg I'll start with the first part and let Chuck talked about on the second part.
There's some discussion around the governance on the legislators have of.
Trying to do a couple of things maybe in that some some PRC reform that they can do legislatively as opposed to.
Thing that needs to be done constitutionally they aren't ready to go public with anything but they are on discussing that there's also the discussion of making sure that theres legislation out that truly defines exactly what the qualifications for the commissioners will be how they are appointed said it wouldn't that initiative comes on the.
Ballot in 2020, it will be very clear to people on how that's going to be structured and we think that would be very helpful to that resolution passing.
Oh, yes, ultimately at the commission decides that they don't think that the energy transition Act applies as we said we would go to the Supreme Court.
Caused the question of whether or not the act applies turns on the timing it wouldn't be application was filed in some parties have argued that when the commission bifurcated, our consolidated application and put the abandonment and financing into a previously open docket.
You know a constitutional provision that a change unlock not affecting Ken.
Pending case prevents the new law firm being fly, but that's really a miss application.
That position in our position has been that since there was no application until July 1st on the EPA applies to all parts of our consolidated filing so we'd go back to the court on that and we're confident that the law does apply to it.
So that's not part of let Chuck talked about.
Yeah, so and greater we don't like talking about other than downside scenarios because its to pass point, we feel very comfortable that we have the right position, but if you were thinking the sensitivities. Obviously, you think about securitization wouldn't apply so we'd have to issue.
Additional capital debt and equity in order to support the reinvestment into.
The replacement power and if you look at the earnings power, We did show kind of a a timing of some flexibility of how we the issue equity and we have other capital projects that were prioritizing and considering so there's a lot of different ways too.
Think about achieving their earnings potential the business and securitization a if it doesn't apply we'll just address it did the appropriate time, but we feel very strongly that.
Our view is reflected well within our plans and we continue to think of it that way.
Thank you guys take care.
Thanks, Greg we're looking forward.
Report on what you made for dinner at <unk>.
[laughter].
[laughter] you can cook for all of Us Greg [laughter].
Our next question.
As a follow up from Ali Agha again, if you'd like to ask a question. Please press Star then one.
Thanks.
Just one clarification as you mentioned in your comments that you have pushed back the.
New Mexico, Rick is from year end to middle or sometimes in the second quarter of next year.
How should we think about regulatory lag.
2020, as a result.
Of that.
Pushback.
Well the effective date, if we found in December for the new rate case would have been January 2021. So we just look at the fact that if we file and early.
Second quarter of 2020, then we'd have at a rate case effective and.
Early second quarter 2020.
22, so 2021 or another so it from our standpoint, it's just a timing and we don't think it's appropriate at this point given all the focus we have an EPA and and the replacement power in the pending cases, we have for the commission that we.
Hey to pile on another rate case, so the timing of this is really just more towards making sure that we allow for some early approach to our.
Rate case planning.
Gotcha, so the impact a little bit temporary, but we'll see that in 21, just timing issue and then by 22, you should be back on.
Back on the ending truck.
That's right.
Thank you.
Welcome.
This concludes the question and answer session I would like to turn the conference back over to Pat Vincent Co on Chief Executive Officer. Please go ahead.
Thank you Sarah and again thank you.
For joining us this morning, I enjoy making your dinner, whether you make it for someone or your pets. Please feel free to bring us pictures.
I have a safe weekend, and we will see you all Eddie I. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.