Q1 2020 Earnings Call
[music].
All participants will be in listen only mode should you need assistance. Please call for specialist Christian Storch key followed by zero.
After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I'd now like to turn the conference over to lease the Goodman. Please go ahead.
Thank you Jason. Thank you everyone for joining us this morning for the PNM resources first quarter 2014 conference call.
Even though the presentation for this call all.
Supporting documents are available on our web site at PNM resources Dotcom.
Joining me today, our PNM resources, Chairman, President and CEO Pensacola.
Chuck Eldred Executive Vice President of corporate development Empire.
And John Perry, our senior Vice President and Chief Financial Officer.
Before I turn the call over to Todd Hagerman My views on some of the information provided this morning should be considered forward looking statements pursuant to the private Securities Litigation Reform Act of 1995.
We caution you that all the forward looking statements are based upon current expectations estimates and that PNM resources assumes no obligation to update this information.
Andy telescopes and the factors affecting PNM 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 FTC with that I will turn the call over to Tom.
Thank you Lisa good morning, everyone and thank you for joining us today, our socially Dustin skeleton crew today.
Let's hear is safe and healthy and we sincerely hope that that is the case for you your teams and your loved ones.
I know it's unusual for me to start on such a serious note, but these are certainly unusual time.
One thing I've been told is that it helps to get some normalcy to hold on to any sense of routine. So not spirit, we're holding our previously scheduled earnings call today, even though we provided our earnings results earlier this month to provide transparency uncoated 19 impacts in the first quarter.
Today as my first which is obviously mayday, but I've also prepared a list of things that might help you out if you're continuing to stay at home in May.
I know a lot of do you have been cooking and more sops that menu planning options for you.
<unk> as national barbecue month.
National egg month.
Hamburger month salad month, salsa, Mark and Strawberry month, if I were you I'd spread it out and not try all those things in one meal.
So that is about the only thing that's going to be similar to our usual earnings call. This morning, nothing has changed in the earnings results that we reported on April 13th.
Our typical earnings slides are in the appendix, but we aren't planning to cover those today you can reach out to Lisa with any questions I know she enjoys hearing from you all.
Instead today, we will provide you with an update on the covered 90, <unk> cobot 19 impacts that we've seen across our service territory.
What we're doing to help manage those impacts for our customers our communities and our company and how we are moving forward on regulatory items and our key strategic initiatives.
So let's begin on slide four.
Carbonite team has reminded us just how essential electricity is to our lives whether we're talking about electricity a hospital or on our homes.
It's also reminded us as a company that our communities look to us for more than just not electricity.
We have been a proud partner of local economic development efforts and both the company and our employees have donated money and time to various nonprofit across new Mexico, and Texas, who need us now more than ever.
Our team has not disappointed not only how they transition to changing work environment. They continue to go above and beyond to help those didn't need.
They are truly our most important assets and this is why their safety is our top priority.
We know the power lines bring electricity to customers, but we rely on our team to do everything from maintaining those lines to working closely with customers to find the payment solution.
It's our team that develops creative solutions to bring before our regulators and that dives into resource modeling to figure out how we can achieve our environmental goals.
They remain focused on our central operations and move us forward, even when much of the world has paused.
There's no question why their safety is my top priority and not just during this pandemic.
You know we're doing a lot of the same things that other utilities across the country are doing and our utility network is a great resource for sharing best practices for business continuity plan and pandemic protocols that we all hope we would never have to use.
We're limiting access to critical control room staging backups and minimizing employee exposure.
In new Mexico, the Governor is looking to begin a gradual and safe reopening.
Three of our PNM team members are participating on subcommittees for the governors economic recovery Council to help determine the best approach for reopening our state.
In Texas, a phase reopening is already beginning.
Well many of our employees are considered critical for our central operations and our leaving their homes. Each day for work other employees are working from home, while trying to balance childcare and online education.
Regardless of the situation Weve recognized that our folks need flexibility to care for their families and we have made the necessary job arrangements to facilitate this right now.
We're extending that same flexibility to our customers also.
In Texas, we worked with regulators to develop a program the puts customer protections in place across the ERCOT market.
In new Mexico, we're working with customers individually to create more flexible payment plans, we're utilizing our foundation to provide grants to nonprofits.
And we're doing things like purchasing large takeout orders from local restaurants to deliver the first responders.
We have delivered masks and meals in specially in the areas of the state that have been hit the hardest.
And we're keeping the power on.
We're staying in close contact with vendors and suppliers to ensure that we'll have some materials, we need to maintain our own system reliability at the same time working to make sure efforts are coordinated regionally and across the entire industry.
Before I move on I have to say our teams have executed our business continuity plan perfectly I continue to stand in amazement as I watch what they have accomplished.
Turning to slide five we've also revisited our regulatory plans for filing a general rate review in the second quarter.
A full rate review would result in increases to customer rates to reflect our planned capital expenditures and rate base under a future test year inflationary costs and true up recoveries on our current investments.
However, given the challenges that customers are facing and this pandemic. This doesn't make a lot of sense right now for our customer focus business.
So instead, we've narrowed our current focus to the critical rate, making components that are important to the long term financial health of the utility.
Were planning to file in May for a full decoupling mechanism for residential and small commercial customers.
This will help to correct the fluctuations in recovery of our fixed cost and address the shortfalls inherent in our current rate making.
Assuming the commission works with us to address this critical rate making issue.
We can subsequently hold off and look to a more appropriate time to address the other components of a full rate review when there is greater certainty around cobot 19 impacts.
We've also joined with other utilities in New Mexico to ask the commission for me permission to track and defer Cobot 19 costs that are incurred this is consistent with orders from other commissions across the country.
Recovery of these cost would be determined in a future rate review.
At T.N. MP I've already mentioned the electricity relief program that supports the entire ERCOT system by creating an initial fund to keep retail electric provider solve it while providing bill reprise to customers in need.
We're also making use of the recovery mechanisms in Texas that encourage investment without the need for a full general rate review.
We received approval for our first 2020 transmission cost of service filing and implemented the approved rates in March.
We made our first distribution cost of service filing in early April with rates expected to be implemented in September.
On slide six we continue to focus on executing our strategic initiative to transform PNM generation to be emissions free by 2040.
A foundation of cost effective base load resources continues to be important to meet the amount of demand that is constant on our system.
Beyond that amount there is increasing value for flexible resources that can be adjusted upward down based on usage patterns.
As we work to transform our portfolio, we will be balancing that level of based slowed resources that are needed for reliability with the availability of low cost renewables and other flexible cleaner resources.
Our plans will not only meet the state's growing renewable portfolio. They will also have real savings for customers in real environmental benefits.
By utilizing the energy transition Act, we can further those customer savings through securitization financing.
And we can also provide some financial relief to the individuals and communities that are impacted by the closure of coal plants.
The New Mexico Commission approved to be abandonment and securitization of the San Juan generating station on April 1st and now they're working on determining the replacement power portfolio.
The hearing examiners have brought forth the proposal to separate the replacement power into two parts.
And then the first part they recommended approval for the two hybrid solar and storage PPA days that were included in our proposed replacement resource scenario.
While these contracts had overwhelming support from the parties. The commission determined that they should wait to consider a recommended decision from the hearing examiners on a full replacement power scenario.
The hearing examiners previously indicated they would have a recommended decision on the remaining proposed resources by the end of June.
Next we'll look to eliminate the last of our coal ownership by exiting the four corners power plant.
While the current ownership and coal supply agreements do not expire until 2031, we've made it clear that we are looking at opportunities to exit sooner.
The remaining lease capacity that we had at Palo Verde provides another opportunity to evaluate current base load generation resources against flexible lower cost resources.
We will look to decide on 114 megawatts of our remaining lease capacity in Palo Verde within the coming months.
Each of these items provides us with an opportunity provide benefits to our customers communities and the environment.
With that I'm going to turn the presentation over to chalk to talk about our scenario analysis and financial planning in light of Cobot 19, and then Don will provide some more information about how we're managing those impacts.
Chuck.
Thank you Pat and good morning, everyone.
Good.
Noted on slide eight.
With a reminder of the scenario analysis that we introduced back in March we're looking at Cobiz 19 through three different stages based on how long the environment last and the level of impacts that we're seeing so starting with stage one is where we currently are.
We certainly see some changes in low patterns across our customer class as theater, whom orders and other restrictions or employers.
We're not experience in any significant workforce disruptions due to absenteeism, nor any disruptions in our supply chain needed to keep our projects plans in place.
In stage, two we analyze the business under the assumption that the impacts of stage one continue to trend into the summer months of June and July when the largest portion of our earnings are generated about higher customer usage and also seasonal rates in new Mexico.
And of course in stage three we assume that after strict state restrictions are lifted the economy does not returned to a normal level and we're left with very slow recovery resulted in reduced usage across both our utilities and this stage. We believe that we could also see changes in our capital plan stemming from disruptions to our supply.
Okay.
Now, let's turn to slide 10 in March we provided transparency into scenario analysis and mid April we came out earlier with our Q1 results in March low trends associated recorded 19 now there were any in April our first full months under Cobot 19 restrictions were providing you with more recent trends and updates in our.
Now losses were lined out with some virtual investor conferences in early June so we expected to be back in another month, where the continued updates into what we're seeing in our business.
Summer temperatures were really be key to helping shape up over the coming months.
We phase in our cost contingency plans and we will continue to evaluate results and communicate with you. So it'll be alarmed if we're providing more updates unusual we believe that we can all benefit from frequent and transparent communication at this time.
Now moving on to slide Tim I want to emphasize that our business fundamentals continue to remain intact through this pandemic.
We are targeting 8.9% rate base growth through 2023 based on our capital investment plans.
Our typical capital slide is made appendix and while there have not been any significant changes I will note that PNM PND capital increase by small amount again this quarter to facilitate new customers still expected to come online this year.
We continually evaluate our capital needs to ensure safe.
And reliable service and balance those needs with the impacts on customer rates part of this process and allocation of capital between our generation and TNT business, if changes to our San Juan replacement power plans or any other items were to free up additional capital, we would be able to rebalance those priorities and allocate additional dollars to TV.
Projects have been put on hold and bringing them into our plans.
In Texas, we continue to see no new service requests across the service toward the play into Urquhart regional planning groups assessment for future transmission system needs and we're not anticipating any changes to our capital plans at PMP.
In particular, we have received the number of questions about west, Texas due to oil and gas prices, we continue to monitor and evaluate the situation across our service territory in capital projects for the region are largely tied or cuts regional transmission planning groups that take a longer term view of the region.
We have very few capital projects.
There are specific to individual customers is those were to change we have the opportunity to utilize that capital across the business.
We have also targeted 5% to 6% earnings growth through 2023 earnings power Slide is included in the appendix without any changes since our last call.
We may see some adjustments in the earlier years that you would expect from the change in our rate case plans at PNM, which will be offset by some recovery of fixed cost through the coupling our plans continue to support our long term view and growth target.
With the current year, reaffirming 2020 guidance and Don will walk through those assumptions, we have a proven history of maintaining flexible financing plans that we can be respond to the changes in weather and are low changes like we are seeing and cobot night team.
We will walk and we'll talk through these plans we've moved through the year.
Our dividend growth is expected to mirror earnings growth, our board of director declares a dividend quarterly but they maintain a long term view of the business when considering changes to the annual dividend in December of each year, we do not anticipate any changes to our long term earnings growth or liquidity situations. So there's no need to evaluate the dividend.
Sufficient liquidity is important during times of the certainty and we have taken steps to secure a position to support the long term needs of the business. Our forward equity offered in January and the completion of our financing plans in April have contributed to our strong liquidity position.
Now turning to slide 11 shows 1.2 billion, we have available under our multiyear revolving credit facilities cash balances in the forward equity, which could be drawn down before December if necessary.
But assessing the capital market accessing the capital market in April it both PNM and TNMP IP, we were able to pay down our short term balances and fund capital investments with these new facilities, while keeping our 1 billion of liquidity available.
Turning to slide 12 highlights our financial areas of focus as we navigate the impacts of Cobot 19, Don will walk through each of these scenarios a little more detail for guidance, we will talk about how we're mitigated the impact so low trends as we work through each stage, we'll continue to monitor low trends and provide updates to what we're seeing and then.
The projected impacts to earnings will pursue appropriate regulatory has passed to account to account for incremental cobot 19 costs, along with the recovery investments in ways that support our customers.
These areas require attention and we'll continue to focus on ways to navigate the current environment without losing sight of a long term goals and strategic direction as supports customers and communities and provide shareholder value Don I'll turn it over to you. Thanks, Chuck and good morning, everyone I'll pick up on slide 14, with a discussion on how we're thinking about earn.
Earnings guidance for this year, we are affirming our guidance range of $2 in 16 cents to $2.26 per share based on the current state guidelines and the cobot 19 stage one impacts that we have assumed.
On the left hand side, you will see the monthly EPS impacts that we expect for changes in load from coal that 19, while we started to see some offsetting trends and how our different customer classes use energy in March the net impact only reflect part of the month and we earned and we're not significant to first quarter earnings April was.
The first full month under the stay at home orders in New Mexico and Texas.
And we began to see a better picture of low trends at PNM overall load is coming in lower wallet PMP, we're seeing increased volume metric load that largely offsets decreases from demand based customers based on these trends, we would expect to see a four cents impact over April and May.
On the right hand side, you can see some of the offsetting impacts that give us some comfort within the guidance range at this stage, we've been able to take advantage of lower interest rates in the market and overall reduced financing costs. We also have a relatively normal weather in the first quarter and we have begun to experience some warmer days in both new Mexico.
In Texas in April.
Which will also helped to offset the load impacts we've been able to hold our OEM costs flat through this period and built contingency plans to work from as we move throughout the year.
As we think about moving into stage to the expected EPS impact for load our bigger because customers use more energy as we get into warmer months and higher seasonal rates began in June at PNM as Chuck mentioned to monitoring the weather and the total impact solo during the second quarter will be key to our decision maker.
As a hotter summer can make a big difference will also consider any decisions that the new Mexico Because commission makes on our request to defer incremental covidien related cost to a regulatory asset based on these outcomes, we may need to actively move towards phasing and our cost contingency plans, obviously if all these.
Things work against us or we see more decreases to load beyond the trends we've identified it may be could become difficult to manage the low end of the guidance range on the other side of things, we would see load patterns that start to trend back up some businesses reopen and a hot summer could mean that we are able to balance these pickups against the any contingency.
Plans that we've developed.
We're not in a position to predict how things may progress with Covance 19. However, we have provided the transparency into our analysis and we will continue to continue to provide updates as we work through each month and additional trends develop turning to slide 15, I'll talk more about the low trends that we have seen in April we have already layered these end to the since.
Aerial analysis that I've covered on the last slide April was the first full month of the stay at home restrictions and business limitations.
In new Mexico, we saw low trending lower than our original stage, one projection residential customer showed higher usage as expected and so we have maintained the expert to expectation for their usage to remain at an increase of 5%.
Commercial customers on the other hand saw greater impacts as the state restrictions reduced operations for certain businesses and resulted in full closures for others.
We have updated the our expectations for the commercial class usage, and our analysis to 15% reduction compared to the 10%. We were previously assuming in stage one.
The rule of thumb furloughed impacts in new Mexico is that a 10% change in either in residential or commercial load equates to a two cents monthly impact in April and May this increases two or three to four cent impact in the months of June through September based on the higher volumes and rates during these months.
You can find this information in the appendix.
In Texas data coming out of ERCOT supports our analysis that overall load has not been impacted as strongly as we anticipated we've updated our assumptions for demand base load to reduction of only 5% versus the 10%. We previously we were previously assuming as we've not seen as large a decline in demands in April.
We've maintained our assumption for a 5% increase in volume metric load, which is primarily residential customers. The rule of thumb for Texas load is that a 10% change in either volume metric or demand base load equates to one penny of monthly as the volume metric amount increases to two cents per months during June.
Through September due to high volumes during the summer months.
We would expect that the load impacts at TNMP. He will remain steady where improved slightly as the phased reopening of businesses began as we work through the following slides I'll provide some additional color on how to think about impacts for each region of our service territory.
We will continue to monitor the trends in load and incorporate any changes into our analysis as we communicate with you around current year guidance warmer temperatures could provide some additional comfort to our range and we would have better visibility on this in the latter part of stage two.
Now, let's turn to slide 16 for look at peak New-mexico's profile.
The state's largest employers include government and healthcare industry and the economy also for includes a large presents a small and local businesses as you might expect this means lower load coming from certain customers and steady load coming from others.
As Pat mentioned earlier, the Governor is planning for a gradual unsafe reopening so we will see different stages of reopening for different sectors I do want to point out that the construction industry has been considered essential business from the start allowing for building permits to be issued in projects to move forward.
Our residential customers comprise the largest percentage of our revenues at 46% and have increased their usage based on the stay at home order commercial customers, especially our small business are the ones, who low whose load has been negatively impacted by restrictions as businesses across the state of been limited operations are close their doors.
Doors. During this time industrial load only provides 10% of our revenues as they have significant lower rates tied to their higher usage per customer and we have not identified any impacts to their usage based uncoated 19. These customers include semiconductor manufacturing and datacenter operations that are considered essential services and if not.
Had to reduce operations.
As Pat mentioned earlier fluctuations on load at PNM can lead to challenges in recovery in the fixed costs of the business, while our filing for decoupling will not address the immediate impacts of changes in low due to covert 19. It is important to address this issue for the long term and work to remove some uncertainty from our business.
Now turning to slide 17, our Texas service territory is well diversified and geographic location.
Hi, both customer as well as the type of rate mechanisms that are used to recovery our investments our transmission recovery mechanism reduces the exposure to changes in load and demand.
45% of the teen MP revenue in 2019 were related to recovery of our transmission investments and expense.
Wholesale transmission revenues are approved through Ti costs filings and recovery over transmission investments.
Any changes in demand would be included in the next Ti cost filing therefore, minimizing load impacts and overall regulatory lag the remaining portions of the transmission revenue provides for recovery of transmission expense build the TMT by other TNT providers. This revenues collected under a rate rider, which is trued up twice a year.
Or eliminated any regulatory lag.
The remaining 55% 15 abuse revenue represents non transmission charges from retail customers. These customers are split about equally between those that are bills per kilowatt hour and the other half that is build based on peak demand usage. The majority of customers build on peak demand also have a billing ratchet within there.
Rates.
And they are built on the greater of their demand for the current month or 80% of the peak over the previous 11 months, which helps ensure our fixed costs are being recovered also as Pat mentioned, we filed our first de cost filing in Texas in April the filing requested an increase to our distribution rates of 14.7 million. This.
Great mechanism allows us to true up our distribution rates for new investments and load impacts related to the previous year, we expect those rates to go into effect in September.
These considerations and rate Mick mechanisms tell us that changes in load in Texas don't necessarily equate to the same change in revenues.
The regional breakout on the map shows that 35% of our revenues come from the North and Central region of Texas with 50% coming from the Gulf Coast region, and only 15% from West Texas I also wanted to note that the stay at home order in Texas expired yesterday and business was will begin to reopen add limited capacity.
Texas also deemed construction business is essential allowing for projects across the state to continue over the last several weeks.
Now, let's turn to slide 18, and I'll walk you through the load and economic considerations for each of these regions beginning with West Texas.
This region has been in the headlines lately and is known for its oil and gas productions I wanted to emphasize that of the 15% of revenues that come from this region half of that amount comes from transmission recovery that is trued up semi annually. In addition, 25% of the revenues from West, Texas, our from customers, taking high voltage service and we can.
When you to see their peak demands trend higher than 2019 levels.
Recent oil recent oil and gas prices have dropped to record lows and we've seen the headlines from companies that are making changes to their plans for the year. While much of this regions is tied to oil and gas industry not all of our customers are producers for those that are in the Delaware basin specific area within the Permian Basin continue.
Due to have one of the lowest breakeven points in the country. Many operators here do not have utility service and efforts to electrify the area will further reduce their production costs as Chuck mentioned earlier capital projects for this region are mostly tied to earn cuts regional transmission planning initiatives that take a longer term view of the reagent.
We've had very few capital projects that are specific to individual customers and if those were to change we have other opportunities to utilize those resources across the business.
Moving on to slide 19 in the region of GMP service territory, and North and Central Texas, We have a very different customer mix the city of Dallas and Fort worth Didnt do not fall within our service territory, but those cities have grown so large overtime that we have seen significant sprawl from people moving out to the surrounding cities, which.
Do fall within our service territory as those communities have built out we have a pretty even mix of revenues from residential customers and revenue revenues from communities in businesses that support these residents.
From a cobot nineteena perspective, we see offsetting impacts as volume metric increases as people stay at home and demand low decline as some businesses are restricted.
The Gulf Coast region is shown on slide 20 is often tied to the Houston oil refinery economy, not all of our largest customers. Our refinery. So the region also has several large petrochemical companies that ultimately lead to the production of everything from chewing gum and cleaners to plastic and surfboards.
The team MP region actually has our largest portion of residential customers as sprawl from Houston has moved into our service territory similar to the situations around Dallas, 60% of the regions revenues come from residential customers, who have been staying at home and using more energy. The rest are mostly large larger businesses saw net.
All into the rate classes that are trending down in some that are trending at a steady level. For example, the petrochemical companies have boosted their production of chemicals used in medical TV and hand, Sanitizers, we hope that in detail. We hope that this detailed provides you with a better picture of what makes up our team MP business in each of the reagents and how.
Now there are offsetting factors that keep us from experiencing an immediate negative impact on the business in the current environment.
Now, let's turn to slide 21, we're all address bad debt considerations PNM was part of a joint filing on Monday with other utilities in new Mexico to request the incremental costs related to cope with 19 being tracked and deferred into a regulatory assets at the Commission's open meeting on Wednesday commissioners recognize that there would be a financial impact from the ongoing.
And for utilities that they regulate and noted that other states, we're taking action to track in account for additional costs.
Bad debt expense and lost revenues they express support for taking action to ensure that utilities are able to provide support to customers. So that more flexible payment arrangements could be offered so we will be watching that docket over the next month.
We have been reaching out to customers to ensure that they know how to excess access any support that is available to them and for the customers that are impacted by the pandemic to talk with them about the type of payment arrangements that fits their individual situations.
In the event that we do ultimately see increases to bad debt expense at PNM. We currently estimate them to be in the range of one to two cents on an annual basis for stage, one and two as our percentage of bad debt has been under a half a percent of revenue and historically years.
In Texas, the risk of bad debt at TNMP. He has been mitigated by Cobot 19 electricity relief program that the Pete PCT quickly implemented in late March keep in mind that TPS customers are technically the retail electric providers, who receive payments from end users under a PCT order TMT is also tracking into.
Referring other cost related to code at 19.
Ill wrap up on slide 22 at the decoupling filing that premium plans to make in may in lieu of a general rate case this year.
This would be a full revenue decoupling for residential and small commercial customers, meaning that any change in usage is trued up tube at two predetermine levels, we would request an order by the end of the implementation at the beginning of 2021, which we believe is reasonable under the proposal the difference between the authorized.
As revenues needed to recover our fixed costs based on a cost per customer and the actual revenues collected based on customer usage will be trued up this better aligns rates with fixed costs of our business and provide some separately separation of our revenues from the fluctuating amount customers use each month.
Currently over 90% of the cost to serve PNM residential customers is fixed but only about 12% of the fixed cost is collected through a customer charge with the remainder collected under a volume metric rate. Similarly for PNM small power customers over 90% of the cost of fixed but only 10% of the fixed cost is collected through customer.
Charge the decoupling proposal addresses this disparity and ensures that the fixed cost portion of these customer bills are recovered.
Our other classes opinions customers already have a demand component in in their rates. So they already are covering a large portion of their fixed costs.
By ensuring that our fixed costs will be recovered we will be in a better positioned to promote energy efficiency or conservation programs that reduced customers variable cost that would otherwise impact our ability to earn our authorized return to emphasize passed earlier point, we are opting to make this filing instead of a full rate review because it's a much better.
Better solution for customers in light of the challenges created by coated 19 as Chuck indicated this will obviously creates some fluctuations in the trajectory of our earnings growth in the near term, but it does not change our focus our ability to meet our targeted earnings growth of 5% to 6% through 2020 with that I'll turn it over to you that thanks Don.
But it up for questions I want to again, thank all of our team members here at PNM resources, PNM and TNMP fee for the resilience and dedication that they have shown through all of this.
It will be brighter days ahead, and we'll get through all these challenges and come out even stronger.
There was certainly be some lasting impacts and changes to the way we work, but eventually we will return to our offices stores restaurants and bars, So Jason let's open it up for questions.
Thank you asked a question you May Chris Star then one on your Touchtone phone, if we use any speakerphone. Please pick your handset before proceeding the keys to withdraw your question. Please press Star then too.
First question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.
Hi, good morning.
You are doing well good morning July and hopefully you are too.
Thank you Andy.
So if I could start out.
What you purely.
Mission with respect to toppling.
Can you give us a little bit contact.
As you have the background for filing for decoupling President and then subsequently perhaps from the same time, how do you think about this.
Feeding into a wire eventual rate case.
Hey around San Juan.
Yes, Andrew I'll give you a little history here and then I'll, let Don talked about decoupling.
The efficient use of Energy Act was passed and then amended it called for.
They use of decoupling to help encourage us to.
Energy efficiency and conservation and it actually had language in there specifically, saying that we couldnt have an ROI we did that.
For that and so that's the basis on which were looking at it and we've talked about decoupling before with the commission, but we've never really had with staff. We've never really had any evidence of load loss because there was a little bit after the financial crisis and then we grew again and now we have the situation staffing always said wallets.
Let's see some load loss. So it's kind of the background of it and then gas company has a modified decoupling here. So they do have experience with it. So we have done sort of talk to you about how this fits in with a wider rate filings, yes, good morning Julien.
We're still in the process of developing a filing as we've talked about and we will file that at the end of may but to give you kind of a little bit of an example, I mean as Pat alluded to the legislation does provide that the commission not reduce our OE for decoupling, which is a good thing.
To kind of give you a fill of impacts of this flows through in kind of give you. An example.
We would seek approval to happen by January Onest, if you kind of think a little bit about the rate case that approval would have been have happened in rates would have gone into effect to mid year 2021.
And a little bit of filling of how to work is if you look back at our 2015 rate case, which was last fully litigated cost of service. So we've seen a decrease in our use per customer on the residential front from there to now of about 4% to 5% and this is driven by energy efficiency and rooftop solar so if you.
Got to try to get a or modelers mindset to this and you kind of look at that decline that would be about a two to three dollar impact.
Per our month per our residential customers and so if you take our 470000 customers you'd look at a range of decoupling in the range of about 11 million to $17 million, just looking at how that shifted due to use per customer.
Since 2015.
Got it.
If I can follow up a little bit how do you think about this.
You've always had been very thoughtful and a leader in providing exposure across the industry.
Frankly.
But how do you think about be toppling 80, 21 relative to the different ages that you could load loss in 2000 feet here I see.
What that would that help roll back some of the more acute impact.
In one year and limit them from the ongoing impact how would you bring that.
If you will given the timeline for implementation.
And some great index.
I think generally and then and if I don't answer. Your question. Please let me now is that obviously the decoupling in 2021 doesn't do anything for us.
In in 20, and we will work to manage if we have impact in terms of Oh nm cuts.
I can tell you Chuck is doing his part has expense report for for April was only $36 a 99 cents.
Our set for the rest of the on cost reduction.
But it will allow us to keep investing as we go forward and to keep our capital plans up and recover what we're putting in our system just because of the way that.
On fixed and variable costs, our status as Don said and we are still seeing a fair amount of construction here. So we will still have new customers coming online, but it will protect us against that but I think as a permanent decrease in use per customer that started long before cobot 19, just given stronger buildings and codes and better.
Our appliances and energy efficiency programs is that what you're looking for.
Yes.
Some level of Providence on on earned return in 21 is while the Congress is that right. So as that as we could get into warning phase two stage three you could see some of that rollback employee one based on.
You raised under decoupling mechanism potentially again.
The exact details.
Yes on the digital and kind of walk through a little bit on earned returns and EPS we havent.
Come up with guidance or came out with guidance for 2021, yes, we usually do that in December but again as you kind of think of the frame of reference you would think if.
Decoupling is approved and goes into place in January the rate case, when it came in at mid year.
There is some there's some benefits as you kind of look at the timing of those those elements associated with it so.
Got it Super quick last question again.
There's obviously been a lot of.
We're always about your replacement power.
Docket.
Pending.
What's your confidence as it stands right now that say by October we get clarity about your ownership he.
Whatever is to be John.
And I'll I'll leave it as Bob probably.
Okay.
And were.
I'm very confident about getting that decision.
In one could argue.
For looking at the portfolio as a whole which is what the commissioners decided they wanted to do or pulling those two ppt days out.
But from where we set a PNM perspective.
Looking at it as a whole makes a lot of sense.
Hearing examiners have talked about having that second piece out in in June, which but now that will also include us PPA. So that gives the commission plenty of time to take a look at that portfolio and one of the things that we were.
Pleased about into commissions discussion is that they were talking about potentially reopening in rebidding. The case and that would have harmed our ability to get those replacement power in on time, and they decided not to do that and so we think that is a very good sign that they're going to look at the portfolio.
The different portfolios that we have submitted as we submitted multiple portfolios.
And decide on one of those in the appropriate timeframe I think I just wanted to look at the whole picture at one point in time as opposed to bifurcate it.
Excellent. Thank you.
Thank you gentlemen.
The next question comes from Durgesh Chopra from Evercore ISI. Please go ahead.
Hey, good morning team.
I want to complement you the detail on TN MPS just super Thanks for thanks for putting putting that out there can I just ask you and I appreciate the peak charge and and minimal impact revenue, but in terms of just the demand trends can you quantify what are you seeing in terms of demand drag or demand destruction in Wes.
Texas and the Gulf Coast areas.
Sure and good morning, I guess I'll have Don take that before you, yes, so our demand categories and west, Texas, our large demand customers, we call him our primary customers and we've seen no demand.
Decreases there in fact, they're continuing to produce though produced well and low continues to get to go up our demand continues to go up in those it's really been those small small.
Commercial type demand customers and thats been in that that range that we quantified in about 5% that's being offset by.
Factors associated with the on the residential side. So we've seen a pretty direct offset between the residential and the the smaller demand and I think are caught set a record peak this last week.
Yeah.
Got it. Thank you and then maybe can ask you in terms of obviously, if you get into stages, two or three here and it looks like and weakness might get delayed how are you thinking about the impacts in your credit metrics and if you've had any conversations with the credit agencies would love any color from those.
Conversations.
Yes, yes.
We're not following the rate case, we're moving to the decoupling mechanism that we've talked a little bit about we have ongoing discussions or with the rating agencies in the walk them through our financial metrics. We just completed a significant amount of financings that to.
Lifted our our liquidity or positions us well that Chuck alluded to on our liquidity. So we're in good shape from that perspective.
Okay. Thanks, guys. That's all I had thank you. Thank you.
The next question comes from Paul Fremont from Mizuho. Please go ahead wondering if all morning.
During the Nm PRC sort of deliberation on your bifurcation request I mean, it sounded like they were giving more weight to the energy transition act requirement that replacement resources be built in in the San Juan District.
So if we sort of rule out the gasified coal as being really expensive really environmentally unfriendly and also not necessarily financeable wouldn't that imply.
Today, the only alternative that would sort of fit that scenario would be your scenario, two which is to build essentially all gas. So.
Wouldn't the alternative potentially result in more rate base and more investment from the company you Paul I think I think from their discussion it sounded like they were describing a scenario I would say similar to scenario too.
There could be some tweaks on it and maybe a little more solar.
There, but yes I think.
Our take a discussion is that they were putting more weight, while the energy transmission access up to and that Theres a preference for I think what I heard the three commissioners expressing was a strong preference for.
Okay and then.
Assuming that the modified W.R., hey proposal or could be adopted what would be the effect on your capital spend and also sort of on your rate base.
If I want.
On the modified W are a proposal that has.
It's more gas in some more solar Don yes, So I think it to modify the proposal decreases a couple of units of LM six thousands I think the way to think about those Ellen 6000 that they're about 25 million.
A per LM 6000.
You know as it related to that so I mean that would kind of be the balance you'd see the adjustment that Chuck Chuck alluded to that we always balancing customer rates with the additional transmission and distribution projects that we could oh, we can align as well to fill the gap associated with that that they're there they are ready to go.
And then I guess last question that sort of confusing with.
Earnings Power chart at that sort of the distribution of the numbers in the numbers keep changing from quarter to quarter.
Can you sort of discussed that at all like in 22, it looks like your numbers are down a little that.
Relationship between corporate and the financing are are completely their friends and chart that you put out sort of at the.
At the fourth quarter.
Paul maybe this is Chuck MRV better just to.
Talk to take that offline that yeah, because its reconciling some numbers and that.
We want to be sure were clear on what you're looking at and how we can get to an understanding so let's just take that offline and then if theres any no problem no problem, Okay, and also I want to add to that in scenario to talk about the rate base piece of it just checking the numbers here. It does have a you know the all gas scenario 440 megawatts a gas.
This is the combination of gasoline battery storage. This scenario one that we recommended as a $298 million rate base added in the all gas in one location, a 440 megawatts or gases three or four so it's still very close because the battery storage cost or higher so I think it doesn't have a whole lot of difference in the stand.
I want to rate base I don't want to give any perspectives that they had a great base is going to be that significantly if they go down that path got it. Okay. Thank you. Thanks, Lisa needs the company so.
Given our call.
Okay.
The next question comes from Jonathan Reeder from Wells Fargo. Please go ahead.
Hey, almost in line and answer but just wanted.
Things are the monthly impacts in the stage two and three on slide 14.
Okay.
On board.
Thanks, Jonathan It's Pat Good morning, you broke up kind of on the last part would you address your last sentence.
Yes, I just wondering.
Yes.
Orders stage, two and three.
Monthly impacts on slide 14 manager, so you're asking if the full stay at home orders are in ins.
Scenarios, two and three.
Good grief.
Sensitivity slide 14 is that assuming a full stay at home order for first Jonathan Good morning for stage two it would assume a false.
As Dan home order and stage three and would assume that we go more into a recession mode and businesses are slow to open all the way through the end of the year end stage three also kind of.
Envisioned.
Second wave I mean, we all know I think we're going to have a little bit of on.
That uptick in cases, when it opens but stage three would envision the fact that it's a significant uptick in cases.
Okay, Yes, I mean, obviously now at Texas doing a partial reopening in new Mexico talking about it seems like you're kind of ahead of anything contemplated in like a stage two scenarios.
Yeah, and I think you know the governor here is doing a slow reopening.
She's reopening the greater parts of the state faster. Unfortunately concentration of the cases here in new Mexico or in the northwest corner.
Where the nation and some of the levels in the tribe as and I think as Don mentioned, we've still been doing construction here and.
When I go out for a drive there's a lot of construction going on here. So I think it when we open again and people can move in bases it'll be very helpful for us so.
Okay and then the other thing just the modified load impact assumptions relative to the original expectations essentially the higher commercial reductions and new Mexico, essentially being offset by the Texas fan base load not being down as much.
Like those to almost trade off from what you originally thinking.
Yes, So Texas came down aligned on the residential side in Texas. So we see we see almost a direct offset in Texas between residential and commercial on the on the PNM side on the new Mexico side, we did.
An increase of about 5% up to 15% total 15% on the small commercial and commercial sector.
And.
And our residential stated at 5% in New Mexico, That's what we're seeing in April.
Okay, but the net net impact to like consolidated fusion.
Thats, a little bit of the headwind overall, but not much yes, it's aligned with the numbers that you have on 14 Jonathan.
Yes, okay.
Alright, great. Thanks, so much of it as needed I appreciate it thanks Jonathan.
Yes.
Again, if you have any questions. Please press Star then one the next question comes from Paul Patterson from Glenrock Associates. Please go ahead.
Good morning warning Paul.
Okay. So just I wanted to.
Follow up on.
I'll pull primo questions with respect to Capex just on the how much of this.
Might be economically sensitive I guess and.
How do you see the economy being impact I know, it's early days, it's unprecedented so [laughter] take it with the grain of salt, but but just sort of the senses to what you guys are fueling there on the ground in terms of the.
The the economic outlook and just if you could sort remind us.
Through what the sensitivity to capex might be.
That that might be economically sensitive development.
Yeah and Paul.
Cap ex really isn't economically sensitive.
The replacement power is mostly for that nice flexible resources, the renewable resources in the stuff that replaces San Juan and the day, San Juan goes into rate base, and the new resources coming in customers see a decrease in the built because were securitizing San Juan our construction.
Here in new Mexico is for new customers and there is still economic development going on out here on this and projects have started just haven't been announced and replacing of aging infrastructure here and building some of that transmission in Texas as Don said.
Our most of our capital there is because of our caught and its reliability.
Last time I was out in.
For this I'll start with the commission in Texas, you know they encourage us to keep building in doing that because they want to make sure that when customers come they've got it ready and then as Don said a lot of it in West, Texas is folks that want to electrify. So it's really not sensitive to the economy.
Okay, Great and then.
With respect to I know you guys looking for deferrals and everything but when you start to look your experience so far on sort of Arrearages and stuff could you give us a little bit of a flavor with respect to customer abuses excuse me commercial and residential.
The building active so for yes. So I mean were no disconnect at this point in New Mexico again, you alluded to it and we talked about it we filed.
The commission with all the other utilities the publicly hail utilities in the state to be able to defer those those costs as well as other costs associated with it and listening to the commission hearing they seem to very receptive to that because what that allowed this flexible payment arrangements as we work with customers and our customer service group is outreaching on a on a day.
Only basis to to line folks up with the with payments we have seen an increase in and are you.
In the utility we break it down to 30 69, and you don't write off until 120, because you have the ability to.
Turned off and a lot of times folks will pay during that window. So we have seen an increase associated with that which we expected and it's an aligned with our assumptions that we've been monitoring so and we've talked a little bit about if it goes through stage one in stage two we'd see a penny hit impact.
For stage, one and another penny impact for stage, two so thats kind of give yes, bill of how we're monitoring and working through the bad debt.
Just in general how many like residential customers or what percentage would you say have now or not paying their bills that were as opposed to what the normal rate would be can you give us the flavor for them.
No I don't have that number on me I, we've seen it we seem to go up and my guess would be five or 6% would be the kind of the range that we would we would see and again I mean, the good thing about working in the utility and why utilities has such low bad debt is you know they'll eventually once we were able to migrate into being able to disconnect folks will will.
Good.
Working towards making payment arrangements and make their payments and historically you know in new Mexico, We've had very low bad debt to give you fill of our bad debt ranges every year and total about $3 million, which is about <unk>, 0.3% of our total revenues and thats because you have the ability to be able to work with the customers have initially they will.
As you as you move to disconnect and told in the commission discussion around that tracker in setting it up it's a regulatory asset was very positive because I think the commission sees that not only is strengthening utilities financing that giving us even more flexibility to work with our customers. So it was that well. They haven't act again it was a very good discussed.
Brian.
Great good to hear thanks, so much thank you.
There are no more questions in the Q. This concludes our question and answer session I would like to turn the conference back over to pets Vincent code on for any closing remarks.
Thank you Jason and thank you all again for joining US. This morning, please stay healthy and safe and we look forward to the time when we can see you all in person again. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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