Q1 2024 PNM Resources Inc Earnings Call
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Speaker Change: Good day and welcome to the PNM resources quarter, one 'twenty 'twenty four conference call.
Speaker Change: Participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw a question you May Press Star then two.
Speaker Change: Note. This event is being recorded.
Speaker Change: And now like to turn the conference over to Lisa Goodman Investor Relations. Please go ahead.
Lisa Goodman: Thank you Megan and thank you everyone for joining us this morning for the PNM resources first quarter 2024 earnings call.
Lisa Goodman: Please note that the presentation for this conference call and other supporting documents are available on our website at PNM resources Dotcom.
Lisa Goodman: Joining me today are PNM resources, Chairman and CEO, Pat Vincent colon.
Speaker Change: Didn't and Chief operating Officer, Dan, Terry and senior Vice President and Chief Financial Officer, Lisa Eden <unk>.
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 1995.
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 for.
Speaker Change: 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.
Patricia K. Vincent: Thank you Lisa good morning, everyone and thank you for joining us today on National Bugs Bunny day love It as a fan favorite here in Albuquerque, and not because of his what's up Doc but for admitting he should've made a left turn in Albuquerque.
Patricia K. Vincent: I'll get started on slide four with our financial results and company updates to beat does go on our ongoing earnings for the first quarter or 41.
Speaker Change: Exceeding expectations.
Speaker Change: We are affirming our guidance for 2024 at a range of $2 65 to $2 75.
Speaker Change: We're also affirming our long term rate base growth and earnings growth targets.
Speaker Change: Alicia will cover the financials in more detail.
Speaker Change: Don will cover a number of operational updates at T. N M. P. M. P N M, where we're making progress on our goals and it has already been shaping up to be a busy year.
Speaker Change: Before I hand things off I have one quick update we closed the sale of an M. R. D. In February and received the expected proceeds of $117 million with that I'll turn it over to Don. Thank you Pat and good morning, everyone. Yes, it's shaping up to be a busy year for both Texas and new.
Don: Mexico will start with JMP on slide six growth in Texas continues to drive our business last week, ERCOT announced a new planning effort and its board of directors meeting in response to the electric demand growth expected in the next five to seven years.
Don: <unk> recognized the forecast pace of load growth exceeds the pace of transmission capacity to supported this reflects what we've been seeing in our service territory, particularly in West, Texas in the Permian Basin, where transmission has been working to catch up to demand for several years now.
Don: At the end of February the ERCOT Board approved $100 million reliability project, and our West Texas Service territory. The project involves new construction, a rebuilding of higher rated transmission lines, along with a new substation. This is one of the larger individual projects in our capital investment plan.
Speaker Change: Construction of the new line requires a CCN approval from the commission, we expect to receive this approval in early 2025 and plan to put the project in service for customers in 2027.
Speaker Change: Looking ahead, our expectations for increased expansion in West, Texas has been part of the ERCOT planning process.
Speaker Change: Last year's legislation for West, Texas transmission planning called for updated assumptions and these new projections are showing substantial growth beyond the levels seen in previous studies, particularly for load that is not tied to oil and gas aircraft final assessments is expected to be considered by the PUC T. This summer and good.
Speaker Change: Results in additional projects needed in this part of our service territory we.
Speaker Change: We do not have any incremental spending for this in our current investment plans and will await the final ERCOT and PUC assessments.
Speaker Change: Also this summer we expect to make our system resiliency plan finally during the third quarter. This plan will be based on an independent evaluators assessment and.
Speaker Change: And we will initially look forward three years to determine what is needed to ensure reliable and resiliency of our grid with the potential for large system wide investments.
Speaker Change: As a reminder, we have already included $450 million and our capital investment plans. When the assessment is complete and we make our filing we will adjust our capital plans to include any incremental amounts included in the filing.
Speaker Change: Under the rules for these filings depreciation for projects included in the plan may be deferred until recovery begins eliminating the regulatory lag on these investments wildfire mitigation will also be a key piece of these plans we have been increasing our spending for vegetation management as part of our mitigation plans over the last year.
Speaker Change: Oral years under the legislation these increased expenses as well as other wildfire mitigation expenses can be recovered outside of a general rate case as part of an approved resiliency plan.
Speaker Change: Turning to slide seven I'll cover updates for PNM.
Speaker Change: <unk> been working for some time on formalizing, our public safety power Shutoff plan for the higher wildfire risk areas in new Mexico as we've neared completion on our plan, we have been holding community meetings in different parts of our service territory to talk about the mitigation plans and what we're already doing we are working to create awareness.
Speaker Change: And preparedness for their circumstance that would cause us to consider proactively turning off power and to build coordination with emergency management personnel and first responders and tribal and community leaders in these areas. This is a topic that has been at the forefront of our industry and we are participating in discussions.
Speaker Change: <unk> wise and regional levels, along with national level through <unk>.
Speaker Change: We are focused on doing the right thing for the safety of our customers and taking steps to mitigate the risk associated with our infrastructure, we will file our plan with the new Mexico Public Regulatory Commission tomorrow.
Speaker Change: Another highlight at PNM is the integration of an additional 300 megawatts solar PPA in the first quarter, bringing our portfolio to 60% carbon free as we integrate the solar and storage resources that have already been approved.
Speaker Change: Including the 12 megawatt megawatts of distribution battery storage planned for this summer we will continue to move closer to our goal of carbon free generation by 2040.
Speaker Change: As it relates to our participation in four corners coal plant, we are not seeing a cost benefit to our customers by exiting the plant earlier than what our agreement expires in 2031 as a result, 6% of our current capacity as it related to this plan and we will retain those 200 megawatts until 2031.
Speaker Change: I also wanted to highlight some of the activities taking place at the New Mexico Commission over the last year with the New Commission.
Speaker Change: We have increased our number of workshops and outside presentations on various topics tied to potential rulemaking and other important issues workshops are a hopeful tool for the commission utilities and other stakeholders to engage on various topics. They help us understand how commissioners are seeing various issues, where they might have a concern.
Speaker Change: How they want to address change.
Speaker Change: The topics have varied from items, such as resource adequacy reliability metrics grid modernization distribution planning and regional transmission planning. We appreciate the commission's leadership and direction on these workshops and the opportunity to engage with all stakeholders turning to slide eight I'll cover some regulatory up.
Speaker Change: Gates at both utilities in Texas, our first T cost filings for the year has already been approved it was implemented in March of $13 million increase recovery nearly a $100 million of incremental transmission rate base. We plan to follow our typical schedule and make our second filing early in the third quarter.
Speaker Change: On the distribution side, our first in DC RF for the year was filed at the beginning of April 1st an incremental $200 million of rate base.
Speaker Change: The amendment passed last year calls for a 60 day clock, although we've seen some other dockets running a little longer we plan to make our second filing in the third quarter for rates effective before the end of the year as.
Speaker Change: As I previously mentioned, we also plan to make our resiliency plan filing in the third quarter.
Speaker Change: At PNM, we have a couple of key proceedings already in progress with the commission that should reach decisions in the coming months first is our proposal for additional solar and battery resources. In 2026, we proposed a 100 megawatts of solar Ppas 250 megawatts of storage agreements and 60 Mega.
Speaker Change: What's a utility owned a battery storage, we expect a decision on this case in the second quarter grid modernization is our other ongoing proceeding with the New Mexico Commission carried over from an initial filing in 2022, we were asked to provide a supplemental cost benefit analysis and hearings are wrapping up today, we expect.
Speaker Change: The decision on this docket by the third quarter looking.
Speaker Change: Looking forward, we still plan to make our next retail rate filing in early June our filing will be based on a 13 month regulatory process for rates that would become effective in July of 2025 and reflect cost for a future test year running from July 2025 through June of 2026.
Speaker Change: Looking forward to working with parties on this filing with some of the other more challenging legacy issues that have been part of the prior cases behind us.
Speaker Change: With that Lisa I'm going to turn it over to you to talk to the numbers. Thank.
Lisa: Thank you Don and good morning, everyone I'll start on slide 10, with a summary.
Lisa: Of the key year over year changes in the first quarter earnings earnings per share.
Lisa: In the first quarter of 2024 were <unk> 41.
Lisa: <unk>, our expectation of 37 to 39.
Lisa: Rate relief from the T cost in D. C. R. S mechanism increased year over year earnings at TNMP.
Lisa: At PNM, we implemented new retail rates in the first quarter. These rates were based on 2020 for a future test year and incorporate our expected year over year cost increases, enabling us to earn our authorized return in 2024.
Lisa: Income from our PNM decommissioning and Reclamation Trust also increased earnings.
Lisa: Load growth at PNM, primarily from industrial customers increased year over year. This was offset by a return to normal weather compared to colder temperatures in the first quarter of 2023.
Lisa: PNM transmission margins were unusually high in the first quarter of 2023 as a result of spikes in market power prices in January and February a return to more normal pricing, what's the biggest driver of PNM expected decrease in the first quarter.
Lisa: Depreciation and interest has been associated with new rate base investments at both utilities reduced earnings.
Speaker Change: Turning to slide 11, I'll cover our guidance assumptions for the rest of the year.
Speaker Change: We are affirming our annual guidance range for 2024 of $2 65.
Speaker Change: To $2.75.
Speaker Change: I mentioned, our first quarter earnings were a few cents ahead of expectations and we have adjusted the quarterly earnings distribution to reflect these mom and.
Speaker Change: The third quarter continues to account for about half of our earnings as low load at both utilities.
Speaker Change: <unk> in the hot summer months.
Speaker Change: We have not made any changes to our capital investment plans or rate base growth on slide 12, we continue to expect 10% rate base growth overall with TNMP growth leading to utilities as nearly 13%.
Speaker Change: As we work through regulatory filings at PNM and TNMP. This summer, we will give consideration to any shifting between project our growth and our investments.
Speaker Change: Turning to slide 13, we're also affirming our long term earnings growth target.
Lisa: Supported by our earnings growth earnings power calculation is shown here.
Lisa: The rate base growth on the previous slide as shown in the PNM retail CRC and TNMP Road.
Lisa: And we have calculated EPS for each year using rate base math, assuming our currently authorized return in our current shares outstanding.
Lisa: We have also included the modeling estimates of our financing plan, which include the refinancing of current debt at the holding company and the issuance of new equity to support our strong rate base growth.
Lisa: The 600 million hedges, we have in place largely mitigate the potential risk of continued higher interest rate rates. This year on the parent level terminal.
Lisa: We have continued we have talked about our plans to refinance the holding company debt with more permanent instrument that also provide equity credit and we're continuing down this path.
Lisa: In terms of new equity, we continue to assume the total of 500 million or $100 million per year on average through 2020.
Lisa: Based on what we're seeing in the market, we remain confident with our earnings guidance for this year, along with our long term earnings growth target of 6% to 7% with that I'll turn it back over to Pat. Thank you Lisa before I open it up for questions I'd like to thank our teams for their continued cause.
Patricia K. Vincent: <unk> to serving our customers. It takes a steady beat to deliver consistent reliable power and excellent customer service and our teams haven't missed a beat.
Patricia K. Vincent: Megan let's open it up for questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad and Youre using a speakerphone. Please pick up your handset before pressing the keys.
Lisa: Any time your question has furnished dressed and you would like to withdraw your question. Please press Star then two.
Lisa: Our first question comes from Ryan Levine with Citi. Please go ahead.
Ryan Michael Levine: Good morning good.
Ryan Michael Levine: Morning, Ryan up more of their eyes.
Ryan Michael Levine: What's the current amount of wildfire insurance that the company has in Texas and New Mexico.
Ryan Michael Levine: Are you able to share what the cost that you paid to procure that insurance it when it expires.
Ryan Michael Levine: Ryan we're actually right in the midst of renegotiating our insurance that will expire this summer so giving kind of information publicly during that negotiating period, probably isn't a good idea. So.
Speaker Change: We're not talking about that right now.
Ryan Michael Levine: Okay.
Ryan Michael Levine: In the prepared remarks, it was mentioned an opportunity to potentially increase vegetation management.
Ryan Michael Levine: To the extent that that were to be supported.
Ryan Michael Levine: Any sense around the impact of O&M outlook in your plan.
Ryan Michael Levine: Is it accurate to cause to harden the system or reduce risk.
Speaker Change: Yes, no absolutely Ryan.
Ryan: Just a little bit of background, we continuously increased our our vegetation management, both in Texas, and new Mexico up over the last several years the resiliency of filing in Texas allows you to take any amount over year last rate case in our last rate case within the 2018 time period and be able to collect.
Ryan: That through our rider along with what other plans you put in place for Virgin additional bench management that you would you would look at doing so.
Ryan: That will be part of our resiliency filing that we file in the third quarter.
Ryan: Okay, and then any update around the capex opportunity for multiple generations.
Ryan: Or the legislative processor or a regulatory process to pursue that.
Speaker Change: Thanks, Ryan let me hit a few of those legislative factors, because I think they are important.
Ryan: We've checked that box and we filed our first one and we'll look to file.
Ryan: Other one in the September timeframe. If you go to the system resiliency, we've talked about that we plan to file that in the third third quarter. The mobile Gen. We expect a proposed rule in June.
Ryan: But that will then that will take.
Ryan: <unk> comments.
Ryan: Place from all the different intervenors, and so forth and so we expect to.
Ryan: Roll by the end of the year, so I'm not going to get in front of where that Capex would come into but we would expect that to.
Ryan: The final rule at the end of the year and then the West, Texas planning I talked a little bit about that with you.
Ryan: In ERCOT, just released some pretty strong.
Ryan: Strong information about they expect to file their plan with the PCT in July.
Ryan: And what kind of work through the process to see what comes out of that.
Speaker Change: Okay and then last question for me in terms of some of the.
Speaker Change: A recent disclosure around new potential load in Texas.
Speaker Change: It came out of ERCOT or any implications for your business.
Speaker Change: Absolutely so as we've talked before one of the areas that we serve in Texas kind of that.
Ryan: West Texas area.
Ryan: If you look at that.
Ryan: ERCOT presentation I think.
Ryan: One of the bullet said they recommend transmission projects to meet large loads starting in the Permian basin, and that's where we operate at so I think we have to wait to see what comes out in July and then how the PUC T bills with it but they are there are opportunities for incremental investments as you look at the load.
Ryan: As expected in that area.
Speaker Change: Thanks for taking my questions.
Speaker Change: Thank you Ryan Thanks, Ryan in time.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to CEO, Pat Vincent <unk> with any closing remarks.
Patricia K. Vincent: Thank you Megan and thank you all for joining US. This morning remember to take that left turn and come see us when you get to Albuquerque stay safe.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.