Q3 2020 PNM Resources Inc Earnings Call

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Good morning, and welcome to the PNM resources third quarter 2020 conference call.

Participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note that this event is being recorded I would now like to turn the conference.

But to Lisa Goodman director of Investor Relations. Please go ahead ma'am.

Thank you Chuck.

And thank you everyone for joining us this morning for the PNM resources third quarter 2020 conference call.

Please note that the presentation for this conference call and other supporting documents are available on our website at PNM resources Dot Com. Joining me today are PNM resources, Chairman, President and CEO, Pat Vincent Colon, and Ontario, Our senior Vice President and Chief Financial Officer, along with other members.

Senior management.

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 statements pursuant to the private Securities Litigation Reform Act of 1995, we caution you that all of the forward looking statements are based upon current expectations and estimates and that PNM resources assumes no.

Jason to update this information. These forward looking statements also include statements regarding the potential business combination transaction between PNM resources and haven't grid for.

For a detailed discussion of 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 FCC additional information with respect to the proposed business combination transaction can be found in the.

Forthcoming proxy statement, which we will file with the SEC.

Information regarding the intercept participants in the solicitation of proxies in connection with the proposed transaction will be included in the proxy statement and other relevant materials PNM resources intends to file with the FTC.

With that I will turn the call over to Pat.

Thank you Lisa good morning, everyone and thanks to each of you for joining us today.

And yes. It is the day before Halloween and I'm sure. All of you are wondering what costumes. We are in this year.

We've been political characters World leaders chalk, who is here with US today was an incredibly convincing Kim Jong won and.

And we were watching characters character one of my thoughts this year was posing for the pairing back to the future poster showing docs, telling Marty whatever happens don't go to 2020.

But you know we argued over who got to be docked and who got to be Marty who got to be Einstein. So this year, we ended up being the scariest characters, we could think of and yes that is ourselves. So now let's begin on slide four.

Our GAAP earnings per share in the third quarter of 2020 or $1.52.

Ongoing earnings per share or $1.48 compared to $1.31 in the third quarter of last year.

Higher summer temperatures increased earnings again, this quarter, including the hottest August in new Mexico in more than a century.

We set aside a portion of those earnings to fund additional customer release programs and I'll talk more about that in a minute.

When we updated our earnings guidance range to reflect our revised expectation for 2020.

We are targeting the midpoint of this range of 223 to 231 per share stock.

I'll provide more on the financial details.

Last week, we announced a strategic merger with often grid those companies are focused on E.S.G.

He had the infrastructure growth and the transition to clean energy.

This combination creates a larger more diverse entity that provides PNM and TNMP happy with the resources to take their next steps forward.

We structured a transaction that provides benefits to customers communities employees and shareholders. We.

We expect to close in the fourth quarter of next year.

In the meantime, we're focused on executing our business plan and delivering safe reliable affordable and sustainable energy to customers.

We have carried forward our investment plan to 2024 with a continued focus on TNT infrastructure that supports a reliable resilient grid in new Mexico and Texas.

Turning to slide five I'll walk through the steps for approval of the merger.

We expect to file our proxy in the latter part of December with the shareholder meeting and vote in February.

On the regulatory side, we are currently working on our filings for the New Mexico, and Texas Commission, which should be submitted in November this.

This will be followed soon after by the other remaining filings.

In new Mexico, we will delay our general rate review and decoupling until after we receive transaction approval from the New Mexico Public Regulation Commission.

We still have the ability to continue with rate, making filings under the annual FERC formula rate filing and Ti cost and de cost filings at PNM peak.

Turning to slide six all commerce I'll cover some of our environmental social and governance highlights for the third quarter.

We continue to provide environmental leadership and lead by example, with our own goal. In addition to partnering with communities and customers to make a more meaningful impact.

We announced an agreement to partner with Sandia National Laboratory in R&D projects focused on energy resiliency clean energy and National security.

Our combined expertise well advanced new Mexico, as a clean energy leader and to help fill the technology gap in providing emissions free energy.

Caring for our communities is part of our core values and we are committed to finding big and small ways to drive positive change in the world around us.

We continue to foster our relationships with tribal communities throughout new Mexico.

Included with our new PNM tribal fiber plan to support online learning economic development healthcare and public safety.

Our team stands ready to assist its.

It's how we operate.

Our strongest highlight for the quarter relates to customer support me.

Many of our customers have been staying at home during the pandemic and record high August temperatures led to increased customer bills.

Yeah, I'm set aside $2 million of shareholder money to create its covert customer relief programs.

To provide additional assistance to residential and small business customers, who are behind on their electric bill.

We also found a nonprofit partner that could match our donations with cares Act funding to make this program go twice as far.

Even before this program our focus on providing an excellent customer experience has not gone unnoticed.

In recent industry ranking by JD power Pam was among the top electric utilities for improvement in our scores based on our response.

To cope at 19.

Before I hand things over to dawn to take a look at the numbers I want to give a special recognition to our customer experience team for the work they have done to show our best talk to our customers and live our core values with that I will turn the presentation over to Don for the financial details.

Thank you Pat and good morning, everyone I'll start on slide eight with an overview of our dollar 40 of ongoing EPS for the third quarter compared to last year, we went into the quarter expecting a decrease due to the 10 cents of weather impact in the third quarter of 2019, instead, we saw an increase at PNM.

Residential usage grew higher as more customers are staying home in response to kobin related business restrictions and as summer temperatures Pete the cooling degree days for the quarter in total were very similar to prior year, but a greater portion of the degree days and usage fell into August this year when you.

Customers usage is particularly sensitive to hot temperatures and higher seasonal rates are in effect. This decrease more than offset the decline in September when temperatures drop below prior year levels and came in closer to normal.

And it was also benefiting year over year from the refinancing of debt at lower interest rates that we discussed last quarter T.N.P. hit a new all system peak during the third quarter, but an overall decrease in cooling degree days compared to 2019, offset this increase rate relief from Ti cost and D.

Cost filings were offset by an increase in planned operational spending and higher depreciation and property taxes from new capital investments.

Turning to slide nine I'll cover the cobot related load trends that we saw in the third quarter as well as what we have seen in October.

At PNM residential usage continues to be around 5% higher while commercial usage continues to be down around 10% at Ti and MP increases from volume metric load continue to offset decreases in demand based load.

On slide 10, we have increased our 2020 guidance at the beginning of the month and are affirming this range of $2.23 to $2.31 with a target at the midpoint of $2.27.

The increased guidance reflects the higher load and weather experienced through Q3 debt refinancings, and lower interest rates and a reduced level of property tax increases based on settlements with the state.

As we finish out the year planned increases in operational spending will reduce fourth quarter earnings below prior levels. We will focus on completing plant maintenance that was deferred from earlier this year along with work on vegetation management system outage prevention and restoration and incident response planning.

Now turning to slide 11, we have rolled out our investment plan to 2020 for the five year 4.1 billion plan continues to focus on transmission and distribution infrastructure investments.

That are necessary to Maine maintain a reliable secure and resilient grid and support the transition to clean energy.

PNM is wired for the future investment continue as well as tenant fees investment to expand its transmission system as supported by Urca in factoring in peace investment increased by 30 million in 2021, primarily to support the interconnections of several new energy storage facilities.

Throughout the service territory as well as relieved transmission congestion in North Texas.

We previously communicated that we will be returning 114 megawatts of lease capacity Palo Verde in 2023, and we'll look to propose a plan for replacement power for those megawatts in the first quarter of 2021.

We have also been transparent about our intention to exit the four corners power plant before the contract expires in 2031, we have seen significant progress on this front and we'll announce the plans soon that will bring customer savings from an earlier exit while allowing PNM to execute on its plan to be coal free.

On slide 12, with the announcement of our merger that is expected to close next year, we are showing our earnings power for 2020, and 2021 that reflects our business until the close of the acquisition the.

The earnings power after that point will be realized through having grits business flows.

2020 has been updated to reflect our new guidance range at a midpoint of $2.27.

As we move into 2021 remember that EPS is calculated on an increased number of shares to reflect the December drawdown of our forward equity offering from earlier this year rate base at PNM FERC and Tempe grows as a result of the investments in PND infrastructure, we have revised the financing.

Plans to reflect the acquisition of the Western Spirit transmission project with short term debt until we close the merger.

I'll wrap up on slide 13, with our credit metrics, both S&P and Moody's reported last week. Following our announcement that the transaction would be credit positive S&P raised their outlook to positive for PNM resources PNM and TMT.

The comments from the rating agencies demonstrate that the new entity will be much better equipped to provide low cost funding that will support investment growth and ultimately benefit the customers of PNM and TNMP be the larger company also provides other benefits such as greater purchasing power for our supply chain and procure.

But the ability to share best practices and other knowledge sharing opportunities, having a broader view of the fundamental transformation that is happening with electric utilities can only help PNM and TNMP be provide better service to customers with that ill turn the time back over to Pat.

Thanks, Don before I open it up for questions. Let me take one more opportunity to thank the team here at PNM resources for continuing to perform brilliantly through these unique times.

Our merger announcement adds to our special circumstances for this year and I'm excited to provide new and bigger opportunities to our team has proven their expertise and dedication in serving our customers. So chalk. Please let's open it up for question yes.

Yes, ma'am, 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 speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.

Again, if you have a question. Please press Star then one.

Well all right everyone to quiet group. This morning. So thank you for joining us this morning.

We look forward to seeing you all virtually during our meetings in November please stay healthy stay safe and remember to vote. Thank you all.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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