2023 PNM Resources Inc Earnings Call
Elton John Lyrics: I'm still standing, better than I ever did Looking like a true survivor, feeling like a little kid I'm still standing, better all this time Thinking that the pieces of my life will light you on my mind I'm still standing, yeah, yeah, yeah [inaudible] You can never know what it's like Your blood's like winter, freezes just like ice There's a cold and lonely light that shines from you You wind up like the wreck you hide Behind that mask you use And did you think the stroke will never win? Well look at me, I'm a-coming back again I got a taste of love in a simple way And if you need to know why I'm still standing You just fade away Don't you know I'm still standing Better than I ever did Lookin' like a true survivor Feelin' like a little kid I'm still standing After all this time Thinkin' of the pieces of my life Without you on my mind I'm still standing Yeah, yeah, yeah I'm still standing Yeah, yeah, yeah What I never could have hoped to win Is startin' down the road and leavin' me again The threats you made were meant to cut me down And if my love was just a circus You'd be a clown by now No, I'm still standing Better than I ever did Lookin' like a true survivor Feelin' like a little kid I'm still standing After all this time Thinkin' of the pieces of my life Without you on my mind I'm still standing Yeah, yeah, yeah, Good morning and welcome to the PNM Resources 2023 earnings call. All participants will be in a listen-only mode.
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Speaker Change: Good morning, and welcome to the PNM resources 2023 earnings call all participants will be in a listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's 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 with Investor Relations. Please do so.
Speaker Change: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation there'll be an opportunity to ask questions.
Lisa Goodman: Thank you, Linnea, and thank you everyone for joining us this morning for the PNM Resources 2023 earnings call. Please note that the presentation for this conference call and other supporting documents are available on our website at pnmresources.com. Joining me today are PNM Chairman and CEO, Pat Vincent-Colan, President and Chief Operating Officer, Don Terry, and Senior Vice President, Chief Financial Officer, and Treasurer, Lisa Eden.
Speaker Change: Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Lisa Goodman with Investor Relations. Please go ahead.
Lisa Goodman: Thank you Vanessa and thank you everyone for joining us this morning for the PNM resources 2023 earnings call.
Lisa Goodman: Please note that the presentation for this conference call into other supporting documents are available on our website at PNM resources Dot com.
Lisa Goodman: Joining me today are PNM resources, Chairman and CEO, Pat Vincent <unk>, President and Chief operating Officer, Terry and Senior Vice President Chief Financial Officer, and Treasurer, Lisa Eden <unk>.
Lisa Goodman: 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 turn the call over to Pat. Thank you, Lisa. Good morning, everyone, and thank you for joining us today on Pay a Compliment Day.
Speaker Change: 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 1095.
Speaker Change: 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.
Patricia K. Vincent: 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.
Patricia K. Vincent: With that I will turn the call over to Pat.
Patricia K. Vincent: Thank you Lisa good morning, everyone and thank you for joining us today on pay a compliment day, so even though I can't see any of you. Let me just say that you are all looking really good this year.
Patricia K. Vincent: So even though I can't see any of you, let me just say that you are all looking really good this year. Now, I'm going to get started on slide four. Some of you may be joining us for the first time, or possibly the first time in a few years since we announced our merger. While we were disappointed with the outcome, we have continued to advance our standalone business strategy to invest in the infrastructure needed to meet customer needs, enable the clean energy transition, and diversify our rate base. Yes, we're still standing, and we're better than we've ever been.
Patricia K. Vincent: Now I'm going to get started on slide four some of you may be joining us for the first time or possibly the first time in a few years since we announced our merger while we were disappointed with the outcome. We have continued to advance our standalone business strategy to invest in the infrastructure needed to meet customer needs enable the clean energy transition.
Patricia K. Vincent: And diversify our rate base, yes.
Patricia K. Vincent: Yes, we're still standing and were better than we've ever been the energy transition along with customer needs for reliability and resiliency result in substantial growth for our utility businesses.
Patricia K. Vincent: The energy transition, along with customer needs for reliability and resiliency, results in substantial growth for our utility businesses. Continued increases in infrastructure needed to serve customers will more than double our rate base from 2020 to 2028. We have been improving the diversification of our rate base, prioritizing capital to make significant investments at TNMP to support the continued high growth in that service territory. These are recovered through the capital riders in place through the Public Utilities Commission of Texas.
Patricia K. Vincent: The continued increase in infrastructure needed to serve customers will more than double our rate base from 2020 to 2028.
Patricia K. Vincent: We have been improving the diversification of our rate base prioritizing capital to make significant investments at TNMP to support the continued high growth in that service territory.
Patricia K. Vincent: These are recovered through the capital riders in place through the public Utilities Commission of Texas.
Patricia K. Vincent: At PNM, an increase in transmission investments also benefits FERC customers and is recovered through the formula rate. As a result, more of our investments are recovered through these recovery mechanisms that were designed to encourage these investments. Over time, we've moved our TNMP and FERC rate base from a combined 31% back in 2018 to now more than 50%. And yes, you heard that right; TNMP and FERC rates are now over half of our consolidated rate base. Turning to slide 5, consistent execution of our plans has resulted in a strong track record of achieving our financial targets. We remain flexible, responding to changing conditions each year and making adjustments to stay on track. We hold ourselves accountable for delivering results.
Patricia K. Vincent: PNM and increase in transmission investments also benefits for customers and are recovered through the formula rate as a result more of our investments are recovered through these recovery mechanisms that were designed to encourage these investments over time, we've moved our TNMP and FERC rate base.
Patricia K. Vincent: From a combined 31% back in 2018 to now more than 50% and yes, you heard that right TNMP and FERC rate base are now over half of our consolidated rate base.
Patricia K. Vincent: Turning to slide five.
Patricia K. Vincent: Execution of our plans has resulted in a strong track record of achieving our financial targets we remain.
Patricia K. Vincent: Flexible responding to changing conditions, each year, and making adjustments to stay on track.
Patricia K. Vincent: We hold ourselves accountable to delivering results.
Patricia K. Vincent: We have achieved 6% earnings and dividend growth since 2019 and are positioned to continue this trajectory even in the current market environment. And lastly, I'm still here, and the team is still here, and we're focused on continuing to deliver our plans to customers, communities, and shareholders. Both Don and Lisa have been at the company for over 20 years and have helped shape the course we've been charting.
Patricia K. Vincent: We have achieved 6% earnings and dividend growth since 2019 and are positioned to continue this trajectory even in the current market environment.
Patricia K. Vincent: And lastly, I'm still here and the team is still here and we're focused on continuing to deliver our plans to customers communities and shareholders.
Patricia K. Vincent: Don Elisa has been at the company over 20 years and have helped shape. The course, we've been charting.
Patricia K. Vincent: We had a strong financial profile three years ago, and with our increased diversification, it is even stronger today. Now turning to slide 6, we are reporting ongoing earnings today of $2.82 for 2023, once again ahead of expectation. While some pieces of our recent PNM rate decision were disappointing, the questions around recovery of our legacy generation assets are resolved, and we now have a clear path going forward. From a 2024 base, we are targeting 6-7% earnings growth through 2028. This is based on a 10% rate-based growth over the same period, and Lisa will walk you through our financing assumptions in the earnings power slide. I know how much you have all missed that slide, and it's back.
Patricia K. Vincent: We had a strong financial profile three years ago, and with our increased diversification. It is even stronger today.
Patricia K. Vincent: Yeah.
Patricia K. Vincent: Now turning to slide six we are reporting ongoing earnings today of $2 82.
Patricia K. Vincent: For 2023, once again ahead of expectations.
Patricia K. Vincent: While some pieces of our recent PNM rate decision were disappointing the questions around recovery of our legacy generation assets are resolved and we now have a clear path going forward.
Patricia K. Vincent: From a 2024 base, we are targeting 6% to 7% earnings growth through 2028.
Patricia K. Vincent: This is based on a 10% rate base growth over the same period and Lisa will walk you through our financing assumptions in the earnings power Slide I know how much you have all missed that slide and its back.
Patricia K. Vincent: Our 2024 guidance incorporates the PNM rate decision in our range of 265 to 275. Don will talk more about our regulatory plans moving forward. But before that, let me provide a quick update on our sale of New Mexico Renewable Development, or NMRD. We are still on track to close this month. Our net proceeds are anticipated to be $115 million to reflect our 50% ownership share in the entity as we monetize the cash flows from this unregulated business. With that, Don, I'll turn it over to you. Thank you, Pat. And good morning, everyone.
Patricia K. Vincent: Our 2024, our guidance incorporates the PNM rate decision and a range of $2 65 to $2 75.
Patricia K. Vincent: Don will talk more about our regulatory plans moving forward.
Patricia K. Vincent: But before that let me provide a quick update on our sale of new Mexico renewable development R and M. R. D. We are still on track to close this month, our net proceeds are anticipated to be $115 million to reflect our 50% ownership share in the entity as we monetize the cash flows from this.
Patricia K. Vincent: Regulated business with that Don I'll turn it over to you. Thank you Pat and good morning, everyone I'll pick up on slide eight with more on our investment strategy at TNMP. The continued high growth across our three service territories in Texas requires substantial infrastructure investments to support customer growth.
Don Terry: I'll pick up on slide eight with more on our investment strategy at TNMP. The continued high growth across our three service territories in Texas requires substantial infrastructure investments to support customer growth and grid reliability for existing customers. Economic growth across the state continues to push the demand on our system to new levels after setting new system peaks. Over the last few summers, TNMP has already seen a new peak in 2024, as cold temperatures in January pushed the system demand beyond the record-setting levels of last August. Additionally, in response to concerns about extreme weather events and grid conditions, the Texas Legislature in 2023 passed a series of bills aimed at encouraging investments to enhance grid reliability and resilience, which I'll talk more about in a minute. Our service territory is scattered across three distinct areas of the state, North Central Texas, the Gulf Coast, and West Texas.
Don Elisa: And grid reliability for existing customers economic growth across the state continues to push the demands on our system to new levels. After setting new system peaks over the last few summers TNMP has already seen a new peak in 2024 as cold temperatures in January pushed the system demand.
Don Elisa: Beyond the record setting levels of last August. Additionally, in response to concerns about extreme weather events and grid conditions. The Texas legislature in 2023 passed a series of bills aimed at encouraging investments to enhance grid reliability and resilience, which I'll talk more about in a minute.
Don Elisa: Our service territory is scattered across three distinct areas of this state North Central Texas, The Gulf Coast and West, Texas. Each of these three areas has different industries and their economy, which means our growth is well diversified.
Don Terry: Each of these three areas has different industries in their economy, which means our growth is well diversified. As the larger metropolitan areas in the state continue to grow, these economies have been extending out further into our service territory. Turning to slide nine.
Don Elisa: As the larger metropolitan areas in the state continue to grow these economies have been extending out further into our service territory.
Don Elisa: Turning to slide nine.
Don Terry: The regulatory framework in Texas also strongly encourages investments in the grid by providing timely recovery through rate mechanisms outside of general rate cases to minimize regulatory lag. On the transmission side, the Transmission Cost of Service, or TCoS, mechanism has allowed for semi-annual filings for several years. TNMP has already made its first filing in 2024, in January, requesting recovery for an incremental $97 million of transmission rate base. We expect to follow our usual pattern and file again in the second half of the year. On the distribution side, this will be the first year TNMP expects to make two distribution cost recovery factor filings, or DCRF filings, after semi-annual filings were permitted through legislation last year. However, recovery under the DCRF continues to require an earnings monitoring test to prevent over-earning on the year-end rate base, which we will file in the spring.
Don Elisa: The regulatory framework in Texas also strongly encourages investments into the grid by providing timely recovery through rate mechanisms outside of general rate cases to minimize regulatory lag on the transmission side the transmission cost of service or T cost mechanism has allowed for semi annual filings for.
Don Elisa: Several years TNMP has already made their first filing in 2024 and January Rick.
Don Elisa: Requesting recovery for an incremental $97 million of transmission rate base, we expect to follow our usual pattern and file again in the second half of the year on the distribution side. This will be the first year TNMP expects to make to distribution cost recovery factor filings are <unk>.
Don Elisa: Wings after semiannual filings permitted where permitted through legislation last year recovery under the <unk> F continues to require an earnings monitoring test to prevent over earning on the year end rate base, which we will file in the spring. We will then make our first filing in the second quarter and our.
Don Terry: We will then make our first filing in the second quarter and our second in the fourth quarter of this year. The regulatory clock on these filings has also been shortened to be similar to the transmission side, with an advance notice period for customers, and then a 60 to 75 day period for commission review. We also expect to make our first resilience plan filing this year under the new rules implemented by the legislature passed last year. An independent evaluation and development of a system resiliency plan covering three years is required in the filing.
Don Elisa: Second in the fourth quarter of this year.
Don Elisa: The regulatory clock on these filings has also been shortened to be similar to the transmission side with an advance notice period for customers and then a 60 to 75 day period for Commission review.
Don Elisa: We also expect to make our first resilience plan filing this year under the new rules implemented the legislature passed last year and independent evaluation and development of our system resiliency plan covering three years as required in the filing under the rules, we may choose to recover the associated cost.
Don Terry: Under the rules, we may choose to recover the associated cost of capital investments under the existing TCOS or DCRF rules, deferring depreciation on assets until recovery begins. We have estimated 450 million projects in our current investment plan that could be part of our filing. The rules also allow for recovery of certain O&M costs, like vegetation management expenditures that exceed the amount authorized for recovery on our base rates.
Don Elisa: Capital investments under the existing T cost R D CRF rules.
Don Elisa: Deferring depreciation on assets until recovery begins we have estimated $450 million of projects and our current investment plan that could be part of our filing.
Don Elisa: The rules also allow for recovery of certain O&M costs like vegetation management expenditures that exceeds the amount authorized for recovery in our base rates. There is a 180 day clock for these filings and we would make our filing this summer and expect recovery to begin in 2025.
Don Terry: There is a 180-day clock for these filings, and we would make our filing this summer and expect recovery to begin in 2025. Additionally, some additional items that were passed in last year's legislative session are working their way through the PUCT rules. We continue to believe temporary mobile generation will play an important role across each region of our service territory, assisting TNMP in restoring power to distribution customers after a significant event. However, we have not included any potential amounts related to this need in our current capital plan.
Don Elisa: Some additional items that were passed in last year's legislative session are working their way through the PUC T rules. We continue to believe temporary mobile generation will play an important role across each region of our service territory assisting TNMP in restoring power to distribution customers after a significant event.
Don Elisa: We have not included any potential amounts related to this need in our current capital plans.
Don Terry: Regarding the legislation on West Texas transmission planning, the PUCT has required ERCOT to file a reliability plan no later than July of 2024, and after an opportunity for stakeholder feedback, we would expect the commission to review and approve a reliability plan for the premium basin, which could lead to additional investment needs. Another law shortens the time frame to consider applications for Certificates of Convenience and Necessity, or CCNs, for new transmission across the state to further encourage new transmission development. TNMP recently gained approval for a couple of projects in December and January that were reviewed and approved under a shorter schedule than we've seen historically, as the commission moves closer to that six-month clock. Legislation has also been implemented to allow for the recovery of total employee compensation.
In regards to the legislation on West, Texas transmission planning the PUC has required ERCOT to file a reliability plan no later than July of 2024, and after an opportunity for stakeholder feedback we would expect the commission to review and approve our reliability plan for the Permian basin, which could lead.
Don Elisa: Two additional investment needs.
Don Elisa: Another law shorten the timeframe to consider applications for certificates of convenience and necessity or CCN for the new transmission across the state to further encourage new transmission development GMP recently gained approval for a couple of projects in December and January that were reviewed and approved under the shorter scare.
Don Elisa: Jill than we've seen historically as the commission moves closer to that six month clock legislation was also implemented to allow for recovery of total employee compensation and while this is not material to tnmp's bottom line. We would plan to include these costs in the future under a general rate review filings.
Don Terry: And while this is not material to TNMP's bottom line, we would plan to include these costs in the future under a general rate review filing. In total, these mechanisms provide TNMP with the opportunity to earn its authorized return, and we will likely see additional investment opportunities in the future currently not included in our capital plan. Now turning to PNM on slide 10, our investments at PNM are similar in that they are focused on customer-driven T&D projects to strengthen the grid. PNM will hit a new system peak in 2022 and in 2023. After not seeing one in nearly a decade, clean energy mandates in New Mexico over the next 20 years will require additional transmission resources to integrate a growing amount of intermittent renewable resources on the system.
Don Elisa: In total these mechanisms provide TNMP the opportunity to earn our authorized return and we will likely see additional investment opportunities in the future. Currently not included in our capital plan now turning to P&L on slide 10, our investments at PNM are similar and that they are focused on customer drill.
Don Elisa: T&D projects to strengthen the grid PNM hit a new system peak in 2022 and in 2023.
Don Elisa: They're not seen one in nearly a decade clean energy mandates in new Mexico over the next 20 years, we will acquire additional transmission resources to integrate a growing amount of intermittent renewable resources on the system. The transition to clean energy has also led to some economic development wins for this state.
Don Terry: The transition to clean energy has also led to some economic development wins for the state, including Maxion Solar, the first U.S. manufacturing facility being built in Albuquerque. Grid modernization investments for utilities across the state are also being considered at the commission level now under rulemaking prompted by legislation. We have reduced the amount of capital investments into generation resources substantially over the last decade to support lower costs for our customers.
Don Elisa: Including Maxion solar first U S manufacturing facility being built in Albuquerque grid modernization investments for utilities across the state are also being considered at the commission level now under rulemaking prompted by legislation.
Don Elisa: We have reduced the amount of capital investments into generation resources substantially over the last decade to support lower cost for our customers. The renewable resources chosen to replace our San Juan coal plant and our Palo Verde lease capacity were secured through renewable and storage purchase agreements, we do think there.
Don Terry: The renewable resources chosen to replace our San Juan coal plant and our Palo Verde lease capacity were secured through renewable and storage purchase agreements. We do think there is an operational advantage to having utility ownership of battery storage on our system, as we have more control over how the resource is cycled to support our customers' patterns of use. With the passage of the IRA, utility ownership on a cost basis has become more competitive, and we currently have a proposal in front of the Commission for storage through utility ownership, and the capital for the own storage is in our plan. Otherwise, our generation capital supports our existing fleet of resources that provides overall system reliability to our customers. Turning to slide 11, the ratemaking structure in New Mexico provides the opportunity to earn our authorized return through the use of a future test year and specific riders such as the fuel clause. Generation and distribution system costs are completely tied to serving our retail customers and are recovered through a general rate review mechanism. Our transmission system is used to serve both retail customers and for transmission customers that are moving energy across our system, and those costs are allocated between the different sets of customers based on the utilization of the system.
Don Elisa: There is an operational advantage to have in utility ownership of battery storage on our system as we have more control in how the resources cycled to support our customers' patterns of use.
Don Elisa: With the passage of the IRA utility ownership on a cost basis has become more competitive and we currently have a proposal in front of the commission for storage through utility ownership and the capital for the own storage is in our plan otherwise our generation capital supports our existing fleet of resources that provides.
Don Elisa: Overall system or our liability to our customers.
Don Elisa: Turning to slide 11, the ratemaking structure in new Mexico provides the opportunity to earn our authorized return through the use of a future test year and specific riders such as the fuel clause generation and distribution system costs are completely tied to serving our retail customers and are recovered through a general rate review mechanism.
Don Elisa: Our transmission system is used to serve both retail customers and FERC transmission customers that are moving energy across our system and those costs are allocated between the different sets of customers based on utilization of the system for.
Don Terry: FERC transmission costs are recovered through a formula rate, which allows for an annual filing to update the system utilization and corresponding rates for the customer. In the past several rate filings, the most controversial issue has been recovery of our generation resources. In the general rate review decided last month, the Commission resolved the remaining generation transitional issues that date back to decisions made by the prior Commission in 2016. The decision in this case resolves those issues and allows the focus to turn towards a forward-looking solution of grid modernization and resiliency investments that are required as we transition to carbon-free while providing value to our customers. Our application for distribution-level battery storage did not receive any opposition from interveners and was approved by the Commission for Recovery in 2024.
Don Elisa: Transmission costs are recovered through a formula rate, which allows for an annual filing to update the system utilization and corresponding rates for the customer.
Don Elisa: In the past several rate filings. The most controversial issue has been recovery of our generation resources in the general rate review decided last month. The commission resolve the remaining generation transitional issues that date back to decisions made by the prior commission in 2016 the decision in this case.
Don Elisa: Resolved those issues and allows the focus to turn towards a forward looking solution of grid modernization and resiliency investments that are required as we transition to carbon free while providing value to our customers our application for distribution level of battery storage did not have any opposition from an inner.
Don Elisa: <unk> and was approved by the commission for recovery in 2024 rate change we received recovery in this case for over $2 billion of incremental investments and approval for 97% of our requested O&M costs or fuel costs was also approved for continuation.
Don Terry: We received recovery in this case for over $2 billion of incremental investments and approval for 97% of our requested O&M costs. Our fuel costs were also approved for continuation. Another application currently in front of the commission proposes grid modernization investments, including smart meters and other distribution-level projects designed to empower customers and lay the groundwork for a more resilient grid.
Don Elisa: Another application currently in front of the commission proposals grid modernization investments, including smart meters and other distribution level projects designed to empower customers and laid the groundwork for a more resilient grid. We expect a decision on this case by the third quarter. We also expect a decision this summer.
Don Terry: We expect a decision on this case by the third quarter. We also expect a decision this summer on our proposal for new resources in 2026. We have put forth 350 megawatts of solar and storage purchases along with a 60 megawatt utility-owned battery.
Don Elisa: <unk> on our proposal for new resources in 2026, we have put forth 350 megawatts of solar and storage purchases along with a 60 megawatt utility owned battery recovery for any new resources approved in this docket that cannot be included in our fuel clause would be also part of our next rate case filing.
Don Terry: Recovery for any new resources approved in this docket that cannot be included in our fuel clause would also be part of our next rate case file. We have a couple of upcoming filings on our agenda. We will make our annual filing associated with our FERC formula, where we expect to see increased utilization of the transmission system by FERC customers based on new contracts. We also plan to make our next retail rate filing this summer for rates that would become effective in the third quarter of 2025. The filing will use a future test year ending partway through 2026, and we assume a 13-month regulatory clock. On slide 12, after taking into account these changes, the average residential bill at PNM is significantly lower than both our regional and national average.
Don Elisa: <unk>.
Don Elisa: We have a couple of upcoming filings on our agenda, we will make our annual filing associated with our FERC formula where we expect to see increased utilization of transmission system by FERC customers based on new contracts. We also plan to make our next rate retail rate filing this summer for rates that would become effective in the third quarter.
Don Elisa: <unk> of 2025, the father, and we'll use a future test year, ending partway through 2026, and we assume a 13 month regulatory o'clock on slide 12 after taking into account. These changes the average residential bill at PNM is significantly lower than both our regional and national average.
Don Terry: The Energy Transition Act is achieving its goals for customer benefits as we exit coal. We are seeing load growth to reduce the per-customer impacts, and our fuel costs have been significantly reduced by our participation in the Western energy imbalance market and its optimization of renewable resources. We have also exercised discipline in our O&M costs and are focused on initiatives that provide direct benefits to customers. With that, I will turn the time over to Lisa to walk through the financial... Thank you, Don. And good morning, everyone.
Don Elisa: The energy transition act is achieving its goals for customer benefits as we exit coal, we're seeing load growth to reduce the per customer impacts and our fuel costs have been significantly reduced by our participation in the western energy imbalance market and its optimization of renewable resources. We have also.
Don Elisa: Exercise discipline in our O&M costs and are focused on initiatives that provide direct benefits to customers with that I will turn the time over to Liza to walk through the financials. Thank you Don and good morning, everyone. I'll start on slide 14, we Don Murray over that year over year changes in 2023 earnings.
Lisa Goodman: I'll start on slide 14 with a summary of the year-over-year changes in 2023 R&D. As Pat reported earlier, 2023 ongoing earnings are $2.82 per share, a 13 cent increase from last year. Load growth and weather added to PNM and TNMP's combined earnings on a year-over-year basis. At PNM, lower operating costs as we transition our generation portfolio to carbon-free energy and higher transmission margins, driven by increased usage of our system, increase earnings year over year. Additionally, continued rate recovery of transmission and distribution investments at TNMP through RRT costs and DCRS filings increases earnings. These increases were partially offset at both utilities by expenses for depreciation, property tax, and interest associated with new rate-based investments. Lower earnings at corporate reflect higher interest rates year over year, partially mitigated by the hedges we previously put in place. Detailed segment level drivers can be found in the appendix of today's presentation.
Liza: As Pat reported earlier 2023 ongoing earnings are $2 82 per share.
Liza: 13th increase from 2022.
Liza: Good growth in weather added to PNM and Tnmp's combined earnings on a year over year basis.
At PNM lower operating costs as we transition our generation portfolio to carbon free energy and higher transmission margins driven by increased usage of our system increased earnings year over year.
Liza: Great recovery of transmission and distribution investments at TNMP.
Liza: <unk> costs in the Trs filing increased earnings.
Liza: The increases were partially offset at both utilities by expenses for depreciation property tax and interest associated with new rate base investments.
Liza: Lower earnings at corporate reflect higher interest rates year over year, partially mitigated by the hedges, we previously put in place.
Liza: <unk> segment level drivers can be found in the appendix of today's presentation.
Lisa Goodman: Slide 15 provides an overview of our financial outcomes. Our guidance for 2024 is a range of $2.65 to $2.75. I'll walk through the drivers of 2024 earnings compared to 2023, along with our estimated quarterly earnings numbers. I'll then move into our capital investment, which has been carried out through 2028 and reflects rate-based growth of 10% and our financing plans to support these investments. And then I will carry those assumptions forward into our earnings power slide, showing the earnings potential of our business through 2020. Lastly, I'll recap our dividend and payout ratio based on the past and now in. Let's get started on slide 16 with 2024. We are introducing a range of $2.65 to $2.75 for 2025. At PNM, our recent rate case outcome adds 12 cents to year-over-year earnings.
Liza: Slide 15 provides an overview of our financial outlook.
Guidance for 2024 is a range of $2 65.
To $2 75.
Speaker Change: I'll walk through the drivers of 2024 earnings compared to 2023, along with our estimated quarterly earnings distribution.
Speaker Change: I'll then move into our capital investment plan, which has been carried out through 2028 and it reflects rate base growth of 10% and our financing plans to support these investments.
Speaker Change: And then I will carry those assumptions forward into our earnings power slide showing the earnings potential of our business through 2028.
Speaker Change: Lastly, I'll recap, our dividend and payout ratio based on the increase announced in December.
Speaker Change: Let's get started on slide 16, with 2024 guidance, we are introducing a range of $2 65.
Speaker Change: To $2 75 for 2024.
Speaker Change: At PNM, our recent rate case outcome at 12 two.
Speaker Change: The year over year, I mean keep in mind that going into this case PNM was able to earn its return by offsetting the regulatory lag on new investments made since 2018 through the energy transition.
Lisa Goodman: Keep in mind that going into this case, PNM was able to earn its return by offsetting the regulatory lag on new investments made since 2018 through the Energy Transition Fund. We expect to earn our authorized return in 2024 since new rates have trued up our investments in. At CNMP, rate relief through the TCOP and DCRF mechanisms increases earnings, including our first year of implementing two DCRF filings along with a recently approved refilling plan. Higher transmission margins and income from our decommissioning trucks will also add to earnings at PNM in 2020. These increases at both utilities are offset by the depreciation, property tax, and interest costs associated with new investments.
Speaker Change: We expected we expect to earn our authorized return in 2024 since new rates have true that our investments and costs.
Speaker Change: At TNMP rate relief through the T cost in D. C. R. S mechanisms increases earnings, including our first year of implementing two D. C. R. S filings along with the recently approved Risa Lindsay rules.
Speaker Change: Higher transmission margins and income from IRA Decommissioning Trust also adds to earnings at PNM in 2024.
Speaker Change: These increases at both utilities are offset by the depreciation property tax and interest costs associated with new investments.
Lisa Goodman: As corporates, the increase in debt balances to fund future growth is partially offset by the equity issued in 2023 and the proceeds from the sale of NMRB expected in February. We continue to have 600 million hedges in place in 2024 to hold the underlying interest rate at $3.5 billion. Our guidance reflects the additional shares issued through our ATM program in 2023 to support capital investment. We issued a total of 4.4 million shares, which had a $0.14 impact on year-over-year earnings. As for our quarterly distribution of earnings, we remain a summer-peaking utility, with the third quarter being our largest quarter from an earnings perspective. The remaining three quarters are fairly evenly distributed.
Speaker Change: At corporate the increase in debt balances to fund future growth are partially offset by the equity issued in 2023 and the proceeds from the sale of MRV expected in February.
Speaker Change: We continue to have $600 million hedges in place in 2024 to hold the underlying interest rate at three 5%.
Speaker Change: Our guidance reflects the additional shares issued through our ATM program in 2023 to support capital investments, we issued a total of $4 4 million shares, which has which has a 14th impact on year over year earnings per share.
Speaker Change: As for our quarterly distribution of earnings we remain as summer, peaking utility with its third quarter being our largest quarter from an earnings perspective, the remaining three quarters are fairly evenly split.
Lisa Goodman: Turning to slide 17, we have updated and rolled out our capital plan through 2028 for a total of $6.1 billion over five years. But, in large part, it remains the same as the capital plan that we shared with you on our third quarter earnings call last week. CNMP continues to be our largest category of investment, as we support the increase in system demand across our service territory while also benefiting from a supportive legislative and regulatory environment, as Don discussed earlier, based on the new legislation. There may be additional opportunities beyond the current plan for things like temporary mobile generation or Additional Transmission Investments in Wisconsin. PNM T&D includes nearly $300 million in 2024 through 2028 for the grid modernization investments that are currently being considered by the committee. Approximately $175 million of those costs are associated with automating meters, which we believe is a priority for customers and a necessity to implement more advanced regulations.
Turning to slide 17, we have updated and rolls out our capital plan through 2020 for a total of $6 $1 billion over five years, but in large part it remains the same as the capital plan that we shared with you on our third quarter earnings call last year.
Speaker Change: TNMP continues to be our largest category of investments as we support the increase in system demands across our service territory. While also benefiting from a supportive legislative and regulatory environment as Don discussed earlier.
Speaker Change: Based on the new legislation there may be additional opportunities beyond the current plan for things like temporary mobile generation or additional transmission investments in west Texas.
Speaker Change: PNM T&D includes nearly $300 million in 2024 through 2028, but the grid modernization investments. They are currently being considered by the commission.
Speaker Change: Approximately $175 million of those costs are associated with automating meters, which we believe is a priority for customers and necessity to implement more advanced rate structures.
Lisa Goodman: PNM-owned battery storage includes $135 million for the 60-megawatt utility-owned battery included in our 2026 Resource File. We expect a decision this summer. Our plans also include another 30 megawatts of the smaller distribution-level battery storage that will be required. That will require separate commission approval, and we see potential for that need to grow. We do not have any other new utility-owned generation included in our plans, but as economic development efforts continue in New Mexico... We will see a need for additional resources beyond 2020. In this circumstance, regardless whether they are utility-owned or PPS, we would need to put forth a filing with those resources for commission approval.
PNM on battery storage includes $135 million.
60 megawatt utility on battery included in our 2026 research filing we.
Speaker Change: We expect a decision this summer.
Speaker Change: Our plans also include another 30 megawatts of the smaller distribution level battery storage that will be required.
Speaker Change: That will require separate commission approval and we see potential for that needs to grow.
Speaker Change: We do not have any other new utility owned generation included in our plan.
Speaker Change: But as economic development efforts continue in new Mexico, we will see a need for additional resources beyond 2026.
Speaker Change: In this circumstance, regardless, whether they are utility owned or PPS.
Speaker Change: We would need to put forth a filing with those resources for commission approval.
Lisa Goodman: The bottom of the slide shows that this investment plan translates into 10% rate-based growth for 2024 through 2028. TNMP is our fastest growing area at 13% and surpasses the level of rate base at PNM Retail by 2020. On slide 18, I'll share the financing assumptions in our plan. In 2023, we raised $200 million of equity through our ATM program to support investments made at both utilities and issued those shares in December.
Speaker Change: The bottom of this slide shows that this investment plan translate into 10% rate base growth for 2024 through 2028.
Speaker Change: TNMP is our fastest growing area at 13% and surpasses the level of rate base at PNM retail by 2020.
Speaker Change: On slide 18, I'll share the financing assumptions in our plan in 2023, we raised 200 million of equity through our ATM program to support investments made at both utility and issued those shares in December.
Lisa Goodman: We expect $115 million in proceeds from our NMRD sale in February, and we issued $343 million in securitization bonds in November. I also noted earlier that we continue to have $600 million of hedges in place for 2024 and $300 million for 2025. As we move forward, we continue to see an equity need of $100 million per year, on average, through 2028, for a total of $500 million to support our 10% rate-based. We currently have two term loans at the holding company, totaling $1 billion, with half maturing in 2025 and the other half maturing in 2026. We previously talked about our intentions to refinance this amount on a longer-term basis. As we do this, we would love to utilize debt instruments that provide equity credit to benefit our metrics and support our rates.
Speaker Change: We expect $115 million of proceeds from our anymore detail in February and we issued $343 million in securitization bonds in November.
Speaker Change: I also noted earlier that we continue to have $600 million of hedges in place for 2024 and $300 million for 2025.
Speaker Change: As we move forward, if we continue to see an equity need of $100 million per year on average through 2028 for a total of 500 million to support our 10% rate base growth.
Speaker Change: We currently have two term loans at the holding company totaling $1 billion, we'd have maturing in 2025 and the other half maturing in 2026.
Speaker Change: You've previously talked about our intention.
To refinance this amount on a longer term basis as we do this we will look to utilize debt instruments that provide equity credit to benefit data metrics and support our a rating.
Lisa Goodman: We believe this provides an efficient way of financing growth but also refinancing the business more permanently. As we have done in the past, we are being transparent about our modeling assumptions up front, but we have not made any firm commitments to these instruments or timings. We will evaluate market conditions as they evolve in order to optimize our financing over our longer-term future. Before we leave this slide, S&P recently moved our outlets from positive to stable at all three ends.
Speaker Change: We believe this provides an efficient way of financing growth, but also refinancing the business more permanently.
Speaker Change: As we have done in the past, we're being transparent about our modeling assumptions upfront, but we have not made any firm commitments to these instruments or timing.
Speaker Change: We will evaluate market conditions as they evolve in order to optimize our financing over our longer term plan.
Speaker Change: Before we leave this slide S&P recently moved our outlet from positive to stable at all three entities.
Lisa Goodman: The move up to a positive outlet was done following the 2020 announcement of our emergency, based on the benefits of being part of a larger company. The stable outlook brings us back to the same rating and outlook held prior to the merger announcement. Now, let's turn to slide 19 for the highly anticipated return of our potential earnings power. This view incorporates our capital investment plan and financing assumptions, and it supports our targeted earnings growth of 6-7% through 2028 from our 2024 guidance mid-term of $2.75. We have rolled forward RATEBASE to incorporate the CAPEX plan that we just walked through. For PNM Retail, PNM FERC, and TNMP, we are assuming that we earn our authorized return on RATEBASE with the currently authorized equity capital.
Speaker Change: They move up to a positive outlet was done following the 2020 announcement of our merger.
Speaker Change: Just on the benefits of being part of a larger entity.
Speaker Change: The stable outlook brings us back to the same rating and outlook held prior to the merger announcement.
Speaker Change: Now, let's turn to slide 19 for the highly anticipated return of our potential earnings power slide.
Speaker Change: View incorporates our capital investment plan and financing assumptions and it supports our targeted earnings growth of 6% to 7% through 2028 from our 2024 guidance midpoint of $2 70.
Speaker Change: We have rolled forward rate base to incorporate the Capex plan that we just walked through for PNM retail PNM FERC and TNMP. We are assuming that we earn our authorized return on rate base with the currently authorized equity capitalization I'll note that piece.
Lisa Goodman: I'll note that PNM Retail incorporates the newly authorized ROE of $9.23 million and presents an equity capitalization of 50% for all. At first, we were able to offset regulatory lag and earn our 10% authorized return for the last few years after acquiring the Western Spirit Transmission Line in 2021. Total PNM also includes items not in rate, which accounts for any short-term interest, and AFSAT through AFEDC.
Speaker Change: M retail incorporates the newly authorized ROE of 926.
Speaker Change: Percents and equity capitalization of 50% for all years.
Speaker Change: At first we have been able to offset the regulatory lag and earn our 10% authorized return. These last few years after acquiring the western spirit transmission line in 2021.
Speaker Change: Total PNM also includes items not in rates, which accounts for any short term interest expense and offset through <unk> <unk>.
Lisa Goodman: Decommissioning and Reclamation Trust Income and Certain Incentive Compensation that is not recovered in lieu. PNMP earns its return on investment, and earns its return in each year. Any regulatory lag stemming from the use of a historical test gear is largely offset by load.
Speaker Change: Decommissioning and reclamation trust income and certain incentive compensation that is not recovered in rates.
Speaker Change: TNMP earn its return.
Speaker Change: <unk> return in each year any regulatory lag stemming from the use of a historical test year is largely offset by lower.
Lisa Goodman: The addition of a second DCRS filing and improved recovery under the resiliency right. Short-term Interest Expense is offset by AFUDC, and the incentives provided by the Energy Efficiency Rules fill any remaining gaps. The Corporate and Other and Equity financing line reflects the financing assumptions that I covered on the previous slide. Again, these are modeling assumptions, and the range of impacts we are showing on this slide allow for flexibility as we optimize these financing plans based on market conditions. The Consolidated EPS is a range supporting our target of 6% to 7% growth through 2028. This is an update from our previous target, which incorporated various outcomes impacting PNM and our overall financing needs. The resolution of PNM's rape case gives us increased confidence in our ability to. When comparing to our rate-based growth of 10% over the same period of 2024-2028, the difference is primarily financial. We feel confident in our plans and the ability to execute on our growth targets. As we move forward, we will continue to update this slide to provide transparency into our plans and reflect any material changes. Before I hand things back, Slide 20 shows our dividends. We increased our annual dividend to $1.55 in December, a 5.4% increase.
Speaker Change: The addition of a second <unk> filing and improved recovery under the resiliency rider.
Speaker Change: Short term interest expense is offset by AFDC.
The incentives provided by the energy efficiency rules sales Amy any remaining gaps.
Speaker Change: The corporate and other and equity financing lines reflect the financing assumptions that I covered on the previous slide.
Speaker Change: Again these are modeling assumptions in the range of impacts we're showing on this slide allows for flexibility as we optimize these financing plans based on market conditions.
Speaker Change: The consolidated EPS is a range supporting our target of 6% to 7% growth.
Speaker Change: Through 2028. This is an update from our previous target, which incorporate as various outcomes impacting PNM and our overall financing needs.
Speaker Change: The resolution of Pnm's rate case gives us increased confidence in our plan.
Speaker Change: When comparing to our rate base growth of 10% over the same period of 2024 through 2028.
Speaker Change: One is primarily financing costs.
Speaker Change: Feel confident in our plans and ability to execute on our growth targets as well.
Speaker Change: We move forward, we will continue to update this slide to provide transparency into our plans and reflect any material changes.
Speaker Change: Before I hand things back to Pat Slide 20 shows our dividend, we increased our annual dividend to $1 55 in December a five 4% increase we maintain dividend growth throughout the merger process and look to grow the dividend and to stay within our targeted payout ratio.
Lisa Goodman: We maintain dividend growth throughout the merger process and look to grow the dividends to stay within our targeted payout range as we manage the business over a long-term horizon. With that, I'll turn it back over to you. Thank you, Lisa. Before I open it up for questions, let me acknowledge all of our teams here at PNM Resources. Everyone here plays a part in executing our business strategy, whether it's working on infrastructure construction from start to finish, answering customer calls, restoring power, or supporting our teams and the customers that are the core of our purpose. Thank you.
Speaker Change: As we manage the business over a long term horizon with that I'll turn it back over to Pat.
Patricia K. Vincent: Thank you Lisa before I open it up for questions. Let me acknowledge all of our teams here at PNM resources, everyone. Here plays a part in executing our business strategy, whether it's working on infrastructure construction from start to finish entering customer calls restoring power or supporting our teams and the customers that are the key.
Patricia K. Vincent: Core of our purpose. Thank you your efforts are both seen and appreciated.
Patricia K. Vincent: Your efforts are both seen and appreciated. And I hope that you all agree that we are still standing better than we've ever been. Linnea, please open it up for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.
And I hope that you all agree that we are still standing better than we've ever been linear let's please open it up for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Operator: If you're using a speakerphone, please pick up your handset before pressing. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question is from Julian Domelin-Smith of Bank of America. Please go ahead. Hey, good morning team.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: And our first question is from Julien Dumoulin Smith of Bank of America.
Speaker Change: Please go ahead.
Julian Domelin: Thank you guys very much. I appreciate it. And thankfully, we have our wonderful slides back here.
Speaker Change: Hey, good morning team. Thank you guys very much I appreciate it.
Speaker Change: Thankfully, we have our wonderful slides back here. So I appreciate all the.
Patricia K. Vincent: So I appreciate all the added disclosure, and renewed disclosure. Thank you, Julie, and you're welcome. Indeed. Thank you very much indeed.
Those are renewed disclosure.
Speaker Change: Thank you Joanna.
Joanna: Thank you very much indeed, but look I mean, there are a bunch of different things stemming off that if if if if we can maybe just first off just what are you, saying here vis vis 2027 here I mean, just obviously you're talking about a new rate case here mid part of this year I mean implicitly or are we just kind of think that you don't get back to the full earnings power bi until 'twenty seven.
Julian Domelin: But look, I mean, a bunch of different things stemming off that if we can. Maybe just first off, just what are you saying here vis-a-vis 2027? I mean, obviously you're talking about a new rate case here, in the mid part of this year. I mean, implicitly, are we to kind of think that you don't get back to full earnings power by until 27?
Joanna: Or how do you think about sort of the cadence of earned returns in new Mexico in the interim here and then also just maybe you can speak a little bit to the dynamics around.
Julian Domelin: Or how do you think about sort of the cadence of earned returns in New Mexico in the interim year? And then also, maybe you can speak a little bit to the dynamics around the corporate and other as there's some gyrations there as well through the forecast period. Okay, Don's gonna talk about the rate case and the cadence in New Mexico, and then Lisa will talk about the corporate and other stuff. Yeah, good morning, Julian.
Joanna: Corporate and other there is some gyrations there as well through the forecast period.
Speaker Change: Okay. So I'm going to talk about the rate case, and the case in new Mexico, and Lisa will talk about the corporate and other yeah. Good morning, Julien on the rate case, we will as we talked about this summer file our next forward looking test year in new Mexico, and what Youre going to see is youre going to see rate cases likely every couple of years.
Don Terry: On the rate case, we will, as we talked about this summer, file our next forward-looking test year in New Mexico. And what you're gonna see is you're gonna see rate cases likely every couple of years. It's a 13-month window.
Speaker Change: <unk> 13 month window that allows us.
Don Terry: That allows the rates to stay affordable, and allows our costs to get recovered in a timely manner. And again, these are smaller rate increases, and these are forward-looking test periods as well. So I think you're gonna see that on the cadence as we kind of work our way through that earnings power through 2027. Yeah, and I would also say at TNMP and FERC that we really are earning our allowed return there, especially in Texas when you have added another DGRS file. In terms of the corporate and other and financing. You know, Julene, we have really thought about this in two ways, right? We have put forth $500 million of equity to fund growth through this time period.
Speaker Change: The rates to stay affordable allows the our cost to get recovered in a timely manner and again. These are smaller rate increases and these are forward looking test periods as well too. So I think youre going to see that on the cadence as we kind of work our way through that earnings power through 2027.
Speaker Change: Yeah, and I would also say at TNMP FERC, we really are earning our allowed return there.
Especially in Texas, where and you have added another <unk> filing in terms of the corporate and other and financing them.
Speaker Change: Julie we have really think thought about this end and in two ways right we have put forth.
Speaker Change: $500 million of equity to fund growth through the time period and then we're also thinking about our term loans and so we will refinance those more permanently which we've talked about before and we will use them.
Lisa Goodman: And then we're also thinking about our term loans. And so we will refinance those more permanently, which we've talked about before. And we will use debt instruments with equity content to refinance those.
Speaker Change: Debt instruments with equity content to refinance those and all of those are assumptions that we have included in our earnings power.
Lisa Goodman: And all those are assumptions that we have included in our earnings. Excellent. And maybe just to follow up where you picked it up, left it off there, just on the balance sheet, where you talk about 100 million in equity, but then some amount of the billion dollars being refinanced with an equity link. I mean, what portion are you expecting there?
Speaker Change: Okay excellent and then maybe just a follow up where you picked it up like I left it out there just on the balance sheet or are you talking about 100 million in equity, but then some amount of the $1 billion being refinance with equity linked I mean, what portion are you expecting there and then just more specifically here I think you know not as much as change, but what specific if I go to that metric are you guys targeting at this point.
Julian Domelin: And then just more specifically here, I think, you know, not too much has changed, but what specific FVO2 debt metric are you guys targeting at this point? And maybe even within that, how have the latest conversations post deal break gone? Have they gone with the rating agencies here in post-rate case resolution? Yeah, Julian; we went back to see both rating agencies. I mean, Lisa and her team had been keeping up with them all during the deal.
Speaker Change: Maybe even within that how are the latest conversations post deal break how have they gone with the rating agencies during post rate case resolution.
Speaker Change: Yeah, Julian we went back see both rating agencies, I mean, Lisa and her team has been keeping up with the milder in the deal and then Don and I joined the team to visit both rating agencies they were very constructive.
Patricia K. Vincent: And then Don and I joined the team to visit both rating agencies. They were very constructive. They understand where we are in 2023 because of the San Juan credit write-off, and they all agree it was the appropriate decision to get rid of those, like that San Juan credit, and bring everybody on board. But they have been very, very constructive with us. They know our commitment to investment credit ratings. I think we're the only utility that actually has it in our long-term incentive plan.
Speaker Change: They understand where we are at in 2023 because of the San Juan credit right off and they all agree it was the appropriate decision to get rid of those like that San Juan credit and bring everybody onboard, but they have been very very constructive with us they know our commitment to investment grade credit.
Speaker Change: I think we're the only utility actually had it in our long term incentive plan. So all that leads to give you more color, but we have had some real good discussions with them and doing that one of the things that we did during <unk>. While we were under the merger is that we really pushed out the maturities of those term loans right. So the 25 and 20 states, which has given us.
Patricia K. Vincent: So I'll let Lisa give you more color, but we have had some really good discussions with them. Yeah, and Julian, one of the things that we did while we were under the merger is that we really pushed out the maturities of those term loans, right, to 25 and 26, which has given us more time to think about how we're refinancing the billion dollars across the code, what we're looking at, at junior subs, in particular, and especially since Moody's changed their guidance recently, and it provides equity credit for juniors. Yeah, okay, wonderful. The juniors on that piece.
Speaker Change: More time to think about what how we are refinancing the $1 billion at the Holdco, what we're looking at at junior subs, and particularly and especially.
Speaker Change: <unk> since Moody's changed there.
Speaker Change: Guidance on recently and it provides equity credit for a junior yourself.
Speaker Change: Yeah, Okay wonderful the juniors on that piece and then lastly, if I can just to come back to what's included in the plan or what have you I mean, just to clarify earlier. So the reason for the jump in 2007 is what exactly how how do you think about that versus as you say like several smaller rate cases here I mean, I would've thought it would've been more.
Lisa Goodman: And then lastly, if I can just come back to what's included in the plan or what have you, I mean, just to clarify earlier, so the reason for the jump in 27 is what exactly? How do you think about that versus, as you say, several smaller rate cases here? I mean, I would have thought that there would have been more of a steady increase versus kind of a more, more of a slight step function there from 26 into 27, if you will. Is that just a conservative planning on how our returns look? Or what is that?
Speaker Change: Or have a steady increase versus kind of a more.
Speaker Change: A slight step function there from 26 to 27. If you will is that just answered or planning on on how your returns look or what is that.
Don Terry: You know, I think it's a combination of a couple of different factors. You know, this is an earnings power slide to start with, so it's based on what your rate base is. I will tell you, the great legislation that we've seen in Texas allows us to file a grid resiliency filing. If you kind of think about that, that's a three-year filing. We'll file ours mid-year.
Speaker Change: I think it's a combination of in a couple of different factors.
Speaker Change: This is an earnings power slide to start with so it's based on what's your rate base is I will tell you the great legislation that we've seen in Texas.
Speaker Change: <unk> allows us to file a grid resiliency filing as you kind of think about that that's a three year filing.
Speaker Change: We will file ours mid year, we paid $450 million in that as you kind of think of the timing that's coming in over that space and period of time in 'twenty six 'twenty 728, so it kind of fits into that arena I will tell you that $450 million because you have to do with study is a conservative number we'll do this study and file at midyear and expect rates to go into effect.
Don Terry: We've baked $450 million into that. If you kind of think of the timing, that's coming in over that space and period of time in 26, 27, 28. So it kind of fits into that arena.
Don Terry: I will tell you that $450 million, because you have to do a study, is a conservative number. We'll do the study and submit it mid-year and expect rates to go into effect in 2025. I think there's some other things out there, you know, as we kind of think about our rate case cadence in New Mexico and that forward-looking element associated with it and kind of head down that path. You know, and then, you know, one of the questions you always ask is, "What's the upside to the upside?"
Speaker Change: In 2025, I think there are some other things out there as.
As we kind of think about our rate case cadence in new Mexico in that forward looking element associated with it.
Speaker Change: And kind of head down that path.
Speaker Change: And then.
Speaker Change: One of the questions you always ask us what's upside did outside in in Texas, I mean, theres things that we kind of hit on in our as we kind of talked when we were going through the presentation, but the temporary mobile generation isn't in our capital plan that would be a potential that's out there as well as the west, Texas planning process, which is where in the hardcore.
Don Terry: And in Texas, I mean, there's things that, you know, we kind of hit on in our – because we kind of talked when we were going through the presentation, but the temporary mobile generation isn't in our capital plan. That would be potential that's out there, as well as the West Texas planning process, which is that we're in the hardcore center of that West Texas planning process. ERCOT is in the process of designing what's needed at this point, and then we'll have the opportunity to weigh in associated with that. And the upside of the upside here, especially with the mobile gen, etc. I mean, is that that's a 24 item that you would expect to kind of come more into view?
Speaker Change: Center of that West Tex planning process ERCOT is in the process of designing whats needed at this point and then we will have the opportunity to weigh and associated with that so.
Speaker Change: Got it and then I'd say to the upside here with especially with the mobile Jan et cetera, I mean does that that's a 24 item that you would expect to kind of come more into view.
Don Terry: You would see a lot of these that they kind of ramp up as they get later in the period. And I think that's the important piece. But for the mobile generation, the rules probably will be defined. They haven't been defined yet.
You would see a lot of these that they kind of ramp up as they get later in the period and I think that's the important piece, but the mobile generation. The rules probably will be defined there haven't been defined yet there'll probably be defined by the end of the year and then youll be able to see kind of what's added at that point in time.
Don Terry: They'll probably be defined by the end of the year, and then you'll be able to see kind of what's been added at that point. Wonderful. All right, guys. Thank you so much.
Speaker Change: Wonderful alright, guys. Thank you so much appreciate it best of luck, we'll see you soon.
Julian Domelin: Appreciate it. Best of luck. We'll see you soon. Thank you. The next question is from Anthony Crowdell of Misoho. Please go ahead. Hey, good morning.
Speaker Change: So you can do it.
Speaker Change: The next question is from Anthony crowd out of Mizuho. Please go ahead.
Anthony: Hey, good morning, I'm, just going to great. Great. You guys are back Ah just wanted to jump on some of Julians questions. If I could take a part one if I think of your moves earnings growth from five to 6% to 7% rate base growth stayed the same and no change in equity needs. What was the driver from going from 5% growth is 6% to seven is just a roll.
Anthony Crowdell: Just going to great. Great. You guys are back.
Patricia K. Vincent: Just want to jump on some of Julian's questions. If I could take part one, if I think of you moved earnings growth from five to six or seven percent rate based growth, stay the same, and no change in equity needs. What was the driver from going from five percent growth to six or seven?
Lisa Goodman: Is it just a roll forward to one of the outer years that I guess Julian was hitting on, or is it an improved earnings, or are we in the plan? Well, I'll at least go through the details, Anthony, but part of it was just that we reset to 2024, right? And then we were able to optimize some of the regulatory lag and some of the rate cases and the ROEs in there. So I'll let Lisa talk a little bit more, but that was really the main driver.
Anthony: Forward to one of the outer years that I guess Julien was hitting on or is it an improved earnings.
Anthony: In the plan.
Speaker Change: I'll, let these guys are the details Anthony but part of it was just we reset to 2024 right.
Speaker Change: And then we were able to optimize some of the regulatory lag in some of the rate cases, and the ROE is in there. So I'll, let Lisa talk a little bit more but that was really the main couple drivers yeah I agree path. It's the main driver is is the rebating of 'twenty to 'twenty four but we've also gotten more certainty.
Anthony Crowdell: Yeah, I agree, Pat. The main driver is the rebasing of 2024, but we've also gotten more certainty after the PNM rate case, and so we'll be able to put forth a plan, both in terms of financing and also solidifying the rate-based growth that you see here, and that's really where we arrive at the 6-7. Great. And then I know you guys are focused on the balance sheet. I know you have a targeted payout ratio. I'm just wondering, do you have a targeted FFO to debt ratio? Yeah, so our objective is to stay above our threshold. Anthony, our threshold is 13% at Moody's and 14% at S&P.
Speaker Change: After that PNM rate case, and so we're be able to put forth a plan. Both in terms of financing and also solidified as the rate base growth that you see here and that's really where we arrived at a 6% to 7%.
Speaker Change: Great and then I know you guys are focused on the balance sheet I know you have a targeted payout ratio.
I'm just wondering do you have a targeted <unk> to debt.
Ratio.
Speaker Change: Yeah. So our objective is to stay above or a threshold I'm, Anthony and our thresholds as 13% at Moody's and 14% at S&P.
Speaker Change: Great and then just lastly, Pat if I could put you on the hot seat here.
Lisa Goodman: And then, just lastly, Pat, if I could put you on the hot seat here. When, you know, we roll back the clock a couple of years and think of the driver of maybe what got the company and the board to maybe seek a larger platform in that merger, I mean, do those conditions still exist today? I mean, the company. It's a great plan that they've unveiled, and it, you know, really highlights the growth in Texas. But I was wondering what the drivers that maybe caused the company to look for a bigger platform, maybe a bigger balance sheet, and then when you look at it today.
Speaker Change: But when we roll back the clock a couple of years and think of the driver of maybe what.
Patricia K. Vincent: <unk> got the company and the board to maybe seek a larger platform.
Patricia K. Vincent: In that merger.
I mean, it does those conditions still exist today I mean, the company. It's a great plan that they've unveiled in it you know really highlights the growth in Texas, but just wondering when you think about what.
Patricia K. Vincent: The drivers that maybe caused the company to look for a bigger platform, maybe bigger balance sheet.
Anthony Crowdell: Yeah, and Anthony, we're sort of here in our, you know, deep breath phase because it's been about, what, five weeks since the deal broke. But what I would tell you that I believe, and the board believes, and the management team believes, is that size is still important in this world, and the opportunity to access cheaper capital, to access, you know, material, supplies, employee opportunities, is still there. We frame that strategic rationale against market conditions, right? We look at where interest rates are and equity values are.
Patricia K. Vincent: And then when you look at it today.
Patricia K. Vincent: Yeah, and Anthony what we're starting to hear it.
Patricia K. Vincent: Deep breaths phase because it's been about what five weeks.
Patricia K. Vincent: Since the deal broke and I would tell you that I believe and the board believes and the management team believes is that the size is still important in this world and the opportunity to access cheaper.
Patricia K. Vincent: <unk> capital to access in a material supplies employee opportunity is still there.
Patricia K. Vincent: We frame that strategic rationale up against market conditions right. We look at where interest rates are and and equity values are and then we.
Patricia K. Vincent: And then we need to see, I think anybody would need to see a fact pattern from the commission in New Mexico that they're kind of changing the way that they are thinking. So when the board talks about it, that's what we're balancing. Great. Thanks so much for taking my questions, and I appreciate the detail.
Patricia K. Vincent: We need to see I think anybody would need to see a fact pattern from the commission in new Mexico.
Patricia K. Vincent: Kind of changing the way that they are thinking so when the board and the board talks about it that's what we're balancing.
Speaker Change: Great. Thanks, so much for taking my questions and I appreciate the detail.
Ryan Levine: Thank you, Anthony. Our next question is from Ryan Levine of Citi. Please go ahead. Good morning.
Speaker Change: Thank you Anthony.
Speaker Change: Our next question is from Ryan Levine of Citi. Please go ahead.
Ryan Levine: In terms of the, hi everybody, in terms of the $6.1 billion CapEx outlook, clearly you're pursuing a number of incremental investment opportunities that could bring that number higher. Is there any way to provide some color around how big that number is, in the backdrop of the regulatory environment? Thank you so much for this special opportunity to be presenting. You know, I'm not going to throw a number out, but I will tell you kind of the categories that are associated with it. And they're primarily in Texas.
Ryan Levine: Good morning.
Ryan Levine: Hi, everybody in terms of the $6 $1 billion Capex outlook clean clearly you're pursuing a number of incremental investment opportunities that could bring that higher is there any way to provide some color around how big that number can be in the backdrop of the regulatory and commercial opportunities you're pursuing.
Speaker Change: You know I'm not going to throw a number out but I will tell you kind of the categories that are associated with it and theyre, primarily in Texas and they are around the temporary mobile Jim that we talked a little bit about again, we need to see the the plan defined are the rules defined and then we'll have a better feel the system resiliency right now we have $450 million.
Don Terry: And they're around the temporary mobile gym that we talked a little bit about. Again, we need to see the plan defined or the rules defined. And then we'll have a better feel for the system resiliency. Right now, we have four hundred fifty million in the capital budget.
Speaker Change: In the in the capital budget.
Don Terry: I will tell you that's a conservative number based on what we think that grid resiliency study will come out to be for West Texas planning. And it's kind of in that process. And the way that works is customers provide their what they anticipate their load to be to ERCOT, and then ERCOT kind of has to develop what is what is needed. The great thing about that is that it's in West Texas, in the core of our area. And then on the New Mexico side, because we really haven't addressed that.
Speaker Change: Tell you that's a conservative number based on what we think that grid resiliency study will come out to be West, Texas planning, it's kind of in that process of and the way that works is customers provide their what they anticipate their load davita ERCOT in ERCOT kind of has to develop what is what is needed. The great thing about that is that's in west, Texas in the quarter of <unk>.
Speaker Change: Area and then on the new Mexico side, because we really havent address that Lisa alluded to this a little bit, but you know, we always try to balance rates customer rates with our capital budget, but we see load growth associated with new customers, That's where I think you would see.
Don Terry: Lisa alluded to this a little bit. But, you know, we always try to balance rates and customer rates with our capital budget, but we see low growth associated with new customers. That's where I think you would see additional capital that is invested both on the resource side but definitely on the transmission and distribution side as we kind of look at it that way. So those are the factors that we look at as we kind of look at our capital.
Speaker Change: Additional capital that was invested both on the resource side, but definitely on the transmission and distribution side as we kind of look at it that so those are the factors that we look at as we kind of look at our capital budget.
Speaker Change: Thanks, and then a couple more modeling questions in terms of 24 was there any one time gains included in your 24 guidance around.
Ryan Levine: Thanks. And then a couple more modeling questions in terms of 24, were there any one-time gains included in your 24 guidance around decommissioning, trust, or anything related?
Speaker Change: Decommissioning trust or or anything related to that.
Speaker Change: No I mean, there is no one time are included in our forecast.
Lisa Goodman: No, Ryan, there's no one-time opportunity included in our forecast. I appreciate the clarity there. In terms of the junior sub opportunity on the billion dollar credit or billion dollar refi,
Speaker Change: Okay.
And then our guidance.
Speaker Change: Appreciate the clarity there in terms of the junior sub opportunity on the $1 billion credit or billion dollar refi you know how much.
Ryan Levine: How much incremental EPS do you think that opportunity..., www.pnm.org or, on the flip side, to the extent you're not a, you don't go. How would that impact your, Ryan? I think that the junior subs for us are really a great vehicle and efficient way to reach both our objective for earnings growth and also support our credit metrics. With the potential earnings power slide, we really put out a lot of details for you to model, so I think that answers your question. And there's obviously a range of numbers in there.
Incremental EPS do you think that opportunity presents in terms of your financial modeling or or.
Speaker Change: Or I guess on the flip side to the extent, you're not you don't going that route.
Speaker Change: How would that impact your EPS outlook.
Speaker Change: Right.
Speaker Change: It did juniors subs for us is really a great day.
Speaker Change: Vehicle and efficient way to reach both our objective for earnings growth and also support the credit metrics.
Speaker Change: With the potential earnings power slide we really put out a lot of details for us to model. So I think that that answers your question.
Speaker Change: There's absolutely is a range of numbers in there. So you can model that we've put some bookends in there for you is how I'd say it yeah.
Lisa Goodman: So you can model, so we'll put some bookends in there for you, is how I'd say it. Okay, great, appreciate the questions. Thanks Ryan. Thanks Ryan. As a reminder, if you would like to ask a question, please press star then 1. We do have a question from Paul Fremont of Lamberg, Salmon and Company. Please go ahead. Hey, good morning.
Speaker Change: Okay, Great I appreciate the questions and answers thinking.
Speaker Change: Thanks Ryan.
Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one.
Speaker Change: We do have a question from Paul Fremont of Landberg Salmon and company.
Paul Patterson: Please go ahead.
Paul Patterson: Congratulations on a good print. Thank you, Paul. Really, two questions. One, on incremental investment over and above what's in your current forecast, what should we assume is the equity percent to finance? We really think about equity to support our growth, and so if we do have additional, we will finance that in a balanced way, and we're probably looking at that 40-50% equity as we add incremental capital. And that would be above your current CapEx guidance range, right? That would be above our current equity...
Paul Patterson: Hey, good morning, congratulations on a good print.
Paul Patterson: Thank you Paul.
Paul Patterson: Really two questions one on incremental investment.
Paul Patterson: Over and above what's in your current forecast what should we assume as the equity per cent to finance that.
Paul Patterson: We really think about equity to supporting our growth and so if we do have additional investments.
Paul Patterson: Investments, we will finance that in a balanced way and we're probably looking at that 40% to 50% equity as we add incremental capital.
Paul Patterson: Okay and that would be above your current capex guidance range right that would be above our current equity planned equity issuance yes.
Lisa Goodman: Planned Equity, Issue M. And then just to follow up on another question that was asked earlier, you know, with respect to... considering strategic options, is there a point at which the board needs to decide whether that is going to be sort of an ongoing effort or whether that effort is terminated? How should we do it? You know, Paul? I think it's always been kind of an ongoing effort. We reassess the market outlook, the landscape of the industry, our position every year. So I think boards of directors that have a fiduciary duty are looking at it constantly.
Paul Patterson: And then just a follow up on it on a on another question that was asked earlier with respect to.
Paul Patterson: Considering strategic options is there a point at which a sort of a board.
Paul Patterson: Needs to decide whether that is going to be sort of an ongoing effort or whether that effort is is terminated how should we think about that.
Speaker Change: You know Paul.
Paul: It's always been kind of an ongoing effort.
Paul: We reassessed every year that the.
Paul: The market outlook the landscape in the industry our positions.
Paul: And boards of directors around fiduciary duty are looking at it constantly.
Paul Patterson: And if the time's right, the time's right. If it's not right, it's not right. But you always are. Great. That's it for me.
And if the times right the Time's right, if it's not right, it's not right, but you always look.
Speaker Change: Oh, great. That's it for me. Thank you so much.
Patricia K. Vincent: Thank you so much. Thank you, Paul. Thanks, Paul. And that will conclude our question and answer session. I would like to turn the conference back over to Pat Vincent Colon for any closing remarks. Thank you, Linnea, and thank you all for joining us this morning. We're looking forward to seeing many of you in the coming weeks. Please stay safe and remember to pay everyone a compliment today. Thank you. The conference has now concluded. Thank you for attending today's presentation.
Speaker Change: Thanks, Paul.
And this will conclude our question and answer session I would like to turn the conference back over to Pat Vincent <unk> for any closing remarks.
Patricia K. Vincent: Thank you Lynn and thank you all for joining US. This morning, we're looking forward to seeing many of you in the coming weeks, please stay safe and remember to pay everyone complement today. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Elton John Lyrics: You may now disconnect. You can never know what it's like Your blood's like winter, freezing just like ice There's a cold and lonely light that shines from you You wind up like the wreck you hide Behind that mask to you And did you think the smoke will never win? Well look at me, I'm coming back again I got a taste of love in a simple way And if you need to know while I'm still standing You just fade away Don't you know I'm still standing? Better than I ever did Looking like a true survivor Feeling like a little kid And I'm still standing After all this time Making lots of pieces of my life Without you on my mind I'm still standing Yeah, yeah, yeah I'm still standing Yeah, yeah, yeah What I never could have hoped to win Is starting down the road and leaving me again The threats you made were meant to cut me down And if my love was just a circus You'd be a clown by now No, I'm still standing Better than I ever did Looking like a true survivor Feeling like a little kid And I'm still standing After all this time Making lots of pieces of my life Without you on my mind I'm still standing Yeah, yeah, yeah I'm still standing Yeah, yeah, yeah
Speaker Change: Okay.
Speaker Change: No.
Speaker Change: You're probably not willing to predict the timing.
Speaker Change: They are holding on to that John.
Speaker Change: Do the math.
Speaker Change: The rig.
Speaker Change: We have that.
Speaker Change: Yes.
Speaker Change: Okay. Thank you probably never will.
Speaker Change: On the back of that.
Speaker Change: Yourself.
Speaker Change: And it didn't even know I'll ask Dan if you reach out.
Speaker Change: They.
Speaker Change: We don't do enough.
Speaker Change: Adam.
Speaker Change: Got it.
Speaker Change: Thank you.
Speaker Change: Thank you.
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Speaker Change: Yes.
Speaker Change: Rick.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Now.
Speaker Change: Yes.
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Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Hum.
Speaker Change: We want them to have a part of them do when it's up and down the road.
Speaker Change: Got it.
Speaker Change: We made tremendous company down in there.
Speaker Change: John and fill up their business.
Speaker Change: Bye now.
Speaker Change: No.
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Speaker Change: And with that.
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