PNM Resources Inc. Q1 2023 Earnings Call
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Good day and welcome to the PNM resources first quarter 2023 conference call.
Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Lisa Goodman. Please go ahead.
Thank you Jason and thank you everyone for joining us this morning for the PNM resources first quarter 2023 earnings 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 and CEO , Pat Vincent <unk>.
And as Chief operating Officer, Donna Perry and senior Vice President Chief Financial Officer, and Treasurer, Lisa Eden.
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 obligation to update this information for a detailed discussion of 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 SEC with that I will.
I'll turn the call over to Pat.
Thank you Lisa good morning, everyone and thank you for joining us today on National Astronaut day, and National Astronaut day is a special day here for us at PNM resources, one of our board of Directors did good terrorists is the first U S. Born Hispanic astronaut and the first Hispanic space Mission Commander.
He commanded the space shuttle endeavor.
I'm going to start on slide four this morning, with our financial results and company updates.
Ongoing earnings increased during the first quarter compared to last year coming in at 55 cents.
We are affirming our guidance for 2023 with a continued focus on managing our Standalone business.
Lisa will cover the financials in more detail.
For strategic update let me start with our merger with oven grid.
On March eight the new Mexico Public Regulation Commission joined the company and requesting the new Mexico Supreme Court to dismiss and remand the case back to the commission.
The court called for responses to our motion by April seven.
There is no deadline for the court to respond to our promotion for broadband as a Supreme saying you can't Hurry love.
If our motion is granted the cases returned to the commission's jurisdiction the.
The company's would then need to file a motion for reconsideration to request the commission take up the case and establish a procedural schedule.
This process could include input from other intervening parties in the case and assigned that ever hearing examiner or it could be managed at the commission level.
Last month, we agreed with Harbin grid to the three month extension included in our merger agreement.
This additional time should provide clarity on the path forward and an expected timeframe for further regulatory proceedings.
You May also have seen from AEP that we have begun the sales process for our 50 50 joint venture New Mexico renewable development ore and M D.
This has not been a significant contributor of earnings within our corporate and other segment, but we have built an attractive portfolio of unregulated renewable assets and the sale proceeds will provide funding for our regulated investments with that I'm going to turn it over to Don. Thank you Pat and good morning, everyone I'll start on slide six.
With our low drilling by service area at PNM load grew at one 4% in the first quarter compared to the prior year residential and commercial customers provided the growth this quarter, while our annual estimate continues to include an expected, albeit slower ramp up from some of our larger industrial.
Customers.
New Mexico has experienced colder than normal temperatures in the first quarter, which were similar to the level of degree days experienced in first quarter of 2022.
At TNMP, we continue to see demand based growth from crypto mining customers that entered the market in the second half of 2022.
We will continue to see these type of double digit percentages year over year until we reach a comparable period in the third quarter otherwise. The first quarter is typically a low volume quarter in Texas, and we continue to expect growth this year across each part of our service territory.
Milder temperatures in the first quarter of 2023 reduced customer usage compared to colder than normal temperatures in the first quarter of 2022 now turning to slide seven I will cover a couple of our operational highlights for the quarter. This month is typically when things start to heat up for this summer and this year.
Here, we are bringing on new resources at PNM to help meet our summer load needs. The Royal Energy project is our first large scale battery storage facility and is one of the projects coming online. This year following the retirement of the San Juan generating station.
The 150 megawatt storage facility will be available in may with another 20 megawatt facility. Following soon after these batteries are connected to 350 megawatts of solar that will also come online this year and we expect our generation capacity to reach 62% carbon free at the end of this year.
Next year, we plan to add another 500 megawatts of solar paired with 400 megawatts of battery storage. The final projects that were approved to replace San-juan, along with our expired Palo Verde lease capacity, we are well on our way to meeting our goals for our clean energy transition along with new Mexico's renewal.
Portfolio standards and carbon free mandates in new Mexico because of the energy transition Act, we are able to do this while keeping customer rates affordable even during a period of high inflation you can see this in our current rate review, which I will talk more about in a few minutes. This week, we filed with the <unk>.
New Mexico Commission to add 12 megawatts of utility owned a battery storage at two existing PNM bold solar facilities at each of these locations are current distribution feeders are overloaded from solar production in the past this would've required, adding a new theater or performing more costly upgrades.
To the theaters.
We are proposing an alternative option to install six megawatts of battery capacity connected to our distribution system at each site. This matches the lowest cost option for solving the overloaded theaters theaters plus or provides the benefits of adding battery storage capacity to our system. The battery accommodates more renewable energy.
<unk>, our clean energy transition and it also supports enhanced reliability and resilience.
This alternative is one way that we are using available technology to provide new cost efficient T&D solutions to meet evolving grid needs and reach our carbon free goals.
These proposed batteries are already part of our capital plan. We've asked for the commission decision before the end of the year and expect the facility to be operational in June of next year. I also wanted to talk about our announced sale of <unk>. The 50 50 joint partnership was created in 2017 to allow us to compete and not.
Unregulated space to provide renewable resources and new Mexico over the last six years, we've built a portfolio of 135 megawatts of contracted renewables with another 50 megawatts coming online. This summer along with other development opportunities. These renewable projects will continue to operate in new Mexico and support.
The state's clean energy goals. This portfolio is attractive in today's market and with the increased investment needed to support our regulated utilities. It makes sense to sell this portfolio and put the funds to work on the regulated side.
We would expect to close the transaction by the end of the year on slide eight I'll walk you through recent updates on their key regulatory proceedings at PNM and TNMP, the new Mexico Supreme Court heard oral arguments at the end of March on our proposed abandonment and securitization of the four corners plant.
We also completed hearings on our grid modernization application with the New Mexico Commission in March as a reminder, we requested approval of our project plans by July but delayed the timing of our requested recovery until September after the peak summer season, we anticipate the hearing examiner issuing a recommended decision and.
In the coming months and a final order from the commission in the third quarter and lastly at PNM. The hearings for our 2024 rate change were rescheduled from June to September . The overall suspension period had previously been expanded to the typical 13 months and we anticipated that hearings would be moved accordingly.
We continue to expect to implement new rates in January of 2024, with the projected impact to customer bills of less than 1%.
The western energy imbalance market continues to be a program, providing substantial cost reductions to customers the annual savings to customers for <unk> in 2022 totaled $35 million.
And the first quarter of 2023 has already provided another $22 million of customer benefits. These savings flow through to customers along with the clean energy transition or keeping our rates reasonable and affordable at TNMP, we expect to receive approval from our first 2023 transmission recoveries.
Filing this month to recover and increased $150 million of rate base, we filed our annual distribution recovery filing at the beginning of April for another $157 million of rate base and expect rates to be implemented in September we typically typically make our second transmission filing in July and also.
These rates to be implemented in September with that I'll turn it over to Lisa.
Thank you Don and good morning, everyone I'll start on slide 10, with a summary of the year over year changes in the first quarter earnings.
Earnings per share in the first quarter of 2023 were <unk> 55, compared to <unk> 50 in the first quarter 2022.
At PNM transmission margins continue to reflect tighter system demand and higher market power prices seen during Q1 particular in the colder months of January and February .
Lower costs from our generation portfolio changes offset the regulatory lag associated with new investments over the last several years that are not yet in rates.
<unk> also increased from higher transmission and distribution investment recovery.
Usage was up at both PNM and TNMP due to load growth as Don mentioned at PNM residential and commercial load drove our increase and weather for the quarter was similar to last year.
At TNMP higher load for due to crypto mining customers was mostly offset by milder temperatures.
These increases were partially offset by expenses at the utility for depreciation property tax and interest associated with our renewal rate based investments along with increases to our planned O&M spending.
Market performance on our decommissioning Trust also reduced earnings in the first quarter compared to last year. In addition to higher interest rates at Cortland.
Turning to slide 11, I'll provide an update on our assumptions for the rest of the year, we're affirming our 2023 guidance range of $2 65 to.
To $2 75.
Higher earnings in the first quarter were largely driven by the increase in transmission margins, which can fluctuate with market demand. We have also provided an updated quarterly earnings distribution, reflecting our expectations for the rest of the year.
We entered into additional interest rate hedges for 2023 to lock in more favorable rates when yields fell in March we added $150 million of swaps through September 2023, and now have a total of $1 billion hedged through this period. We have also added swaps to <unk>.
<unk> 24 for a total of $600 million.
To further reduce our variable interest rate exposure.
We also took the next steps to be able to issue equity later this year by entering into forward sales agreements under our ATM program. We can settle these agreements later this year by issuing stock or we can have the options for cash settlement without the issuance of shares.
The current forward sales agreements reflect approximately $60 million of equity equating to about 1 million shares.
We will not see any dilution impact on EPS until those shares are actually issues later in the year, we have the ability to sell another $150 million under the ATM program to meet our equity needs for 2023, or we could consider accessing the markets through more traditional.
Overall, we remain in a good financial position to support growing capital investment needs and navigate the current interest rate environment to support our targeted 5% earnings growth.
With that I'll turn it back over to Pat.
Before I open it up for questions I'd like to recognize our teams in new Mexico, and Texas, who are moving our utilities forward everyday completing projects to bring service to new and expanding customers repairing equipment. After spring windstorms preparing for summer peak season, and bringing new.
Graham to customers.
You all for everything you do Jason 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 youre 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 the roster.
Yeah.
Our first question comes from Anthony crowd L. From Mizuho. Please go ahead.
Good morning team happy astronaut day.
Good morning, Thank you.
Okay, well played with the hold music.
Ken Henry Love and also the Supreme Supreme Court.
It didn't go unnoticed, but if I could just ask two quick questions patch one is.
I think the extension right now for the.
Transactions until July 20th and so.
Obviously it depends on when the Supreme Court remanded the case back, but if you thought of the bookends of once the case gets remanded back.
The time that it could take if maybe there was a process that involve no hearings or was the quickest approval and then something that maybe was more extended with hearings or something what do those look like.
From a calendar perspective.
You know Anthony right now, we're just focused on getting it back and then seeing what does.
Commission does because they can do this with it at their level alone without sending it to the hearing examiners. So we're just going to wait and see what happens when we get it back from the Supreme.
But.
Then if I could cheat and maybe reword the question.
Do you believe that the current extension to the July 20th date is.
<unk> right now.
Where do you stand.
We're going to wait until we get it back from the Supreme.
I'm not even going to reward the answer.
Perfect and then if.
If I can take another shot at the question.
Just when you're talking about a non merger scenario can I think of a non merger scenario and the delayed approval is the same thing, meaning if the transaction is still viable but its may be extended.
Yes.
What point would you make the decision to do the equity in 2023.
I haven't noticed since I've use my where the Revpar K. This morning, and I'll, let Don Tarry answer that Anthony Good morning Happy Friday.
We're focused on continuing to manage the business like like its a standalone business and we will continue to operate it that way.
We continue to fund it that way too so what we've put out there is $200 million by the end of the end of the year and we've executed on $50 million of that and we'll continue to look at those opportunities as they exist, but again, we're focused on managing and delivering the results that you would expect us to.
Great. Thanks for taking my question and I'll jump back in the queue.
Okay. Thank you Anthony.
Our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.
Hey, good morning team. Thank you guys.
Anthony referenced the hold music instead of a cinco de Mayo Friday here, but with that said.
Well, let me try and let me try this again.
Let me, let me they had a little bit more stage subject here just.
And then more D. Here, obviously AEP talked it about it as well what's the current book value of that just where it stands today and.
What's your sense of timeline and then related to that as you talked about in your prepared remarks about issuing stock.
Is there any limitation.
Within the pending deal on doing so.
Any commentary about timeline to pursuing that given the asset sell here first.
Well Julian before I turn it over to Don I thought you'd like national after not day, because that is like the only place you have not been as outer space.
You said.
Yeah. So okay, you can come out and thereby a ticket on Virgin Galactic. So Don go ahead, Hey, good morning, Julien <unk> currently we have an equity value of $100 million on those assets and I would tell you. We would expect the gain on that based on what our anticipation in the market would be.
Would expect it to close likely by the end of the year.
Got it Okay, and then considering where that comes out that would probably.
Drive your timing for any future equity needs I mean, maybe you can speak to that a little bit just the timing there and then any.
Considering around the deal.
We would look at so I like I mentioned, when we kind of walk through it we look at look at it to fund our some of our capital program as we look forward past 2023, and then into 2024 and beyond so I think thats the way to think about it as you know.
Great mechanism to be able to to monetize and be able to then utilize it in the regulated side of the business.
Got it and speaking of renewable investments that you guys have this fair.
Modestly sized I think it was 12 megawatts, you said that youre pursuing on the battery side, but.
But that seems like it would be owned by you all.
You talked about I'm.
Sorry go for it.
Julian It is its utility owned it's on the distribution side of the business.
Helps us accomplish several difference in non wire type opportunity that helps us for grid resilience helps us to the solar.
Saturation that exists helps us to overcome some of that as well too and then it's capacity when you need it.
Indeed in fact, if I can I mean to what extent is this 12 megawatts, perhaps a leading indicator of having a broader strategy there in and.
And having that owned within the.
Owned within utility infrastructure rate base.
Especially considering a lot of the changes on the regulatory front.
We would see this as kind of a pilot program. There is other theatres that run into the same problem. We prioritize the theaters that had the biggest challenges and so forth. So we would see this as an opportunity as a non wire solution to both provide capacity to our grid at a cost that's reasonable to customers on a going forward.
Basis. So yes, we will continue to explore that.
Excellent and then if I can close on that look I understand there's not much you want to say about July 20th et cetera, and in my Pal Cordell tried, but just vis vis your expectations on rehearing and in process or the emphasis on that process.
Anything that you would offer up I mean, I suppose it's several different permutations that that could materialize here, but to the extent to which that there is some sort of.
Reed.
Use the word rehearing again, but you put you interject how you see this playing itself out to the extent to which or how you see it being remanded.
So I think Julien the first step in the process as it's at the Supreme Court right now and we need to wait for their decision and I think thats. Their decision is not based on any timeline and I think I think thats, what <unk> tried to answer that book in question I think once it comes back.
<unk> from the Supreme Court.
I would expect those proceedings and we don't want to get in front of the commission. We would expect those proceedings to be developed by the commission and we would expect input on due process from from all the different parties in that case and so it will work its way through.
Alright fair enough in this same dynamic exists for the four quarters as well right. That's just out there pending and Theres no real ability to talk about that.
In tandem.
Then we had oral arguments this quarter and four corners and now it's in the Supreme courts.
Area and.
We will wait for their ruling and there is no timetable on their ruling as well so.
Okay fair enough. Thank you guys.
Yes.
Okay. When you, let us know when you come to spaceport.
Yes.
Our next question comes from Ryan Levine from Citi. Please go ahead.
Hi, everybody.
Sure.
Hey in terms of the asset sales strategy, why now and maybe more strategically are there any other assets within your portfolio that could be monetized to offset capital.
Equity issuance is in a non deal scenario as is.
That's a possibility.
<unk>, it's a joint venture and so both parties found AEP as you heard yesterday and us as well as a great opportunity to.
Monetize those and invest in our regulated side of the business. So when you're in a JV, it's a partnership with <unk>.
Under the decision the same way and monetize in a 100% of the JV is a lot better than monetizing 50% of the JV.
For partners, so I think that kind of answers.
That question I think when those are going on really what we have is we have a regulated business one in Texas and one in new Mexico and both of them are operating quite well. So we don't see us monetizing any any assets, though there that's core to our business.
And recognizing it's core to the business.
And theres been a lot of other kind of minority regulated utility sales.
In the marketplace.
That is something that you are.
What would consider as a way to help fund growth on a go forward basis.
If the courts in commission move against you.
Right now we are under a merger agreement with Avon grid and that's what we're focused on getting done so.
That's where we're going.
Okay, and then back to the to.
The acquired business in terms of the load growth forecast you highlight the crypto demand how material is that.
For 'twenty three earnings are 24 outlook and.
How bad how much better are you positioned on that front relative to maybe plan.
So Bryan Hi, this is Lisa.
We are in terms of load growth at TNMP, we really are within our guidance range that we put forth. This award and as you know going forward on the 24 crypto it is a.
A large load it but from an earnings impact it's a much smaller impact than and then remember in the D. C. R. S filing you do update for <unk>.
Good.
Great. Thanks for taking the question.
Thank you thanks Ryan.
Again, if you have a question. Please press Star then one.
Our next question comes from Jonathan Reeder from Wells Fargo. Please go ahead.
Hey, good morning team a lot of my questions have already.
But I just wanted to be clear.
The planned sale of <unk>, it doesn't displace than any of the $200 million of equity needs in 'twenty, three but rather just helps fund needs in 'twenty four and beyond is that accurate.
Yes, Jonathan.
Total issue up to $200 million this year.
Okay, even the death.
That's it.
Okay great.
Just wondering Pat do you have any insight as to why the Supreme Court remained request is taking so long I mean, it kind of seemed fairly straightforward to be honest, but does it have anything to do with.
New energy economies ex parte complaint.
No I think it has more to do with this asset.
The court really wants to focus on new process.
And making sure they're thoughtfully considering this I mean, if you look at where they have criticized the commission is about the process and on if you saw the El Paso case that came back this week, but they really criticize the commission for a lack of due process. So I think they want to make sure that they can.
Carefully consider everybody's filings and think about when they remanded back do.
Do they remanded back under specific statute et cetera et cetera. So.
I think they recognize that the new energy economy is in general.
Sorry, you cut out there at the end of my work.
I think that the court recognizes that the new energy economy is just noise.
Okay.
Great and then.
Okay to try to take another bite at the Apple that others have any sense like once the PRC.
Hopefully has it back in its hands like how long it would take for them to maybe issue at least the procedural schedule.
I will let I'll answer I think.
They will probably issue a procedural schedule relatively quickly.
To get things started right you have to when the court issues. The reman you have to wait 15 days, but I think the procedural schedule will come quickly.
Okay.
I guess based on having that schedule in hand, hopefully by the July 20th.
Kind of date.
That's what the board will kind of look like when they consider whether or not to exceed.
And it further.
<unk> heard a lot of Jonathan our mergers.
Alright.
I appreciate you taking my questions today.
Thank you Jonathan.
The next question comes from Paul Fremont from Mizuho. Please go ahead.
Paul is there something you want to tell us.
Like what.
The next question was from Paul Fremont at Mizuho.
Well you know alternative.
Okay.
Maybe youre going to break some news on our call now now Ladenburg.
Real quick question on <unk>.
Is there an EBITDA number that.
That you can share with us.
Hey.
That you.
Realized in 2022.
You know, we haven't put out EBITDA number there.
And net income associated with it is and it's $1 5 million so.
It's about a penny to the bottom line.
And then I would add to ball that Theres six development sites as well.
Opportunities as well too so it's kind of a whole package deals. So at the sites that are currently those that are under development and that there is some development sites as well and last year earnings did not reflect the additional 50 megawatts coming on this summer as well.
And then the other question that I have is that.
You had previously had a settlement agreement in place.
In the <unk>.
Mercury proceedings in 'twenty two.
If the Supreme Court were to remand the case back to the commission would you seek to try and put a settlement agreement in place.
You know Paul we're not we're not going to comment on that until we get it back from the court.
Great.
That's my only other question. Thanks. Thank.
Thank you Paul Thanks, Paul Thanks, Paul.
This concludes our question and answer session I would like to turn the conference back over to Pat Vincent <unk> for any closing remarks.
Thank you Jason and thank you all for joining US this morning, and please as you have your Cinco de Mayo Margarita is our gear.
<unk> talked to you all soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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David.
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