El Paso Electric Company

Transcription

1 Wellington Shields & Company West Coast Seminar March 23-24, 2011 Company

2 Safe Harbor Statement Statements in this presentation, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation eform Act of 1995 (the act ). Such statements are intended to be made as of the date of this presentation, and the company does not undertake to update any such forward-looking statement. Forward-looking statements involve known and unknown risks and other factors that may cause actual results to differ materially from those expressed in this presentation. In connection with the safe-harbor provisions of the act, the company has set forth below a number of important risks and factors that could cause actual results to differ materially from forward-looking information. Factors that could cause or contribute to such differences include, but are not limited to: Increased prices for fuel and purchased power and the possibility that regulators may not permit El Paso Electric (EE) to pass through all such increased costs to customers or to recover previously incurred fuel costs in rates ecovery of capital investments and operating costs through rates in Texas and New Mexico Uncertainties and instability in the general economy and the resulting impact on EE s sales and profitability Unanticipated increased costs associated with scheduled and unscheduled outages The size of our construction program and our ability to complete construction on budget and on time The costs at Palo Verde (PV) Deregulation and competition in the electric utility industry Possible increased costs of compliance with environmental or other laws, regulations and policies Possible income tax and interest payments as a result of audit adjustments proposed by the IS Uncertainties and instability in the financial markets and the resulting impact on EE s ability to access the capital and credit markets Other factors detailed by EE in its public filings with the Securities and Exchange Commission. Please refer to EE s 2010 Form 10-K and other 1934 Act filings March 2011 Investor elations 2

3 Service Territory egional electric utility serving west Texas and southern New Mexico WECC Service Territory New Mexico Juarez Texas SEC ate regulated business no retail competition fuel pass through Clean dependable generating capability 1,643 MW (net) - nuclear (39%), gas (55%) and limited coal (6%) Mexico 12 Months Ended December 31, 2010 MWh Sales Operating evenues, Net of Energy Expenses ($000) No interconnection with ECOT Interconnected with Mexico 377,000 retail customers Texas 5,790,762 77% 418,535 72% New Mexico 1,643,411 22% 117,774 20% Other* 41,567 7% FEC 53,637 1% 1,943 <1% Total Native Load Sales 7,487, % 579, % Off-System Sales** 2,822,732 5,687 Total 10,310, ,506 *epresents revenues with no related kwh sales **Off-System Sales are sales made to power marketers and other utilities with the exception of the io Grande Electric Cooperative which is a requirements customer. Effective July 1, 2010, 90% of off-system sales margins are shared with retail customers. March 2011 Investor elations 3

4 Experienced Leadership Team Our senior executives are industry veterans who have over 200 years of combined experience in the energy industry and have a record of creating value for shareholders David Stevens CEO David Carpenter SVP & CFO ichard Fleager SVP Customer Care & External Affairs Hector Puente VP Transmission & Distribution Andy amirez VP Power Generation Steve Buraczyk VP System Operations and Planning Mary Kipp SVP, General Counsel and Chief Compliance Officer ocky Miracle SVP Corporate Planning & Development March 2011 Investor elations 4

5 2010 Accomplishments - Financial EE stock was the best performing investor-owned utility stock in 2010 with a total return of 36 percent Earnings per share increased by approximately 39 percent in 2010 when compared to 2009 EE satisfactorily settled the first Texas ate Case in more than 15 years providing clarity for shareholders and removing regulatory uncertainty EE implemented new rates in its New Mexico service territory During 2010, EE repurchased approximately 1.5mm shares at a total cost of $33.7mm, including commissions EE issued $110 million of private placement senior notes at an average rate of 4.6 percent and with an average tenor of 8 years to finance nuclear fuel On September 23, 2010, EE completed the refinancing of the $200 million revolving credit facility with a four-year term and an option to increase the size to $300 million Significantly enhanced the level of available liquidity for the Company from $185mm at December 31, 2009 to $275mm at December 31, 2010 March 2011 Investor elations 5

6 2010 Accomplishments Operating EE attained a record native system peak of 1,616 MW on August 23, 2010 and surpassed the 2009 native system peak of 1,571 MW set on July 15, 2009 EE and the IBEW Local 960 successfully negotiated a new 3-year agreement EE completed the Customer Care & Billing System installation on time and underbudget March 2011 Investor elations 6

7 2011 Initiatives Continue to enhance long term value, maximize cash returns to shareholders, and maintain an appropriate regulatory capital structure through Quarterly dividend payments Ongoing share repurchase program Anticipate completion of Phase II of Newman 5 before summer 2011 Project is on track and remains under-budget Obtain regulatory approval in 2011 for 87MW aero derivative peaking unit at the io Grande site; on-line date of 2013 No rate cases are anticipated for 2011 at this time in either Texas or New Mexico March 2011 Investor elations 7

8 Distinguishing Investment Considerations Favorable Growth Dynamics Stable Customer Base Solid Credit Profile egulatory/ Financial Stability Operational Excellence Exceptional historical customer and retail kwh sales growth Strong growth potential due to growing military presence which is providing substantial economic support to the area Stable and predictable earnings stream going forward 76% of non-fuel revenues comprised of residential and small commercial customers Solid rate base growth etail competition indefinitely delayed in Texas and repealed in New Mexico Healthy balance sheet and solid liquidity position Investment grade debt ratings Utilize dividends and share repurchases to balance capital structure Sound regulatory relationships Earning allowed returns under current rate construct Effectively managing expenses Low carbon footprint Diversified energy portfolio Service reliability in top quartile March 2011 Investor elations 8

9 Distinguishing Investment Considerations Favorable Growth Dynamics Exceptional historical customer and retail kwh sales growth Strong growth potential due to growing military presence which is providing substantial economic support to the area Stable and predictable earnings stream going forward March 2011 Investor elations 9

10 Above-Average Growth 5- Year etail Customer Growth 5- Year etail KWh Sales Growth 4.00% 3.50% 3.00% 2.50% 2.00% 5-Year etail Customer Growth 2.27% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 3.81% 2.25% 1.50% 1.00% 0.50% 0.92% 1.50% 1.00% 0.50% 0.42% 0.00% EE Avg. Customer Growth ( ) Industry Avg. Customer Growth ( ) 0.00% Excluding Industrial ( ) EE ( ) Industry ( ) Source: Industry customer data detailed in EEI-2009 Financial eview eportobtained from EEI Business Information Group Source: Industry retail kwh sales data obtained from the Energy Information Administration website: March 2011 Investor elations 10

11 Expanding Customer Base Above-average customer and retail kwh sales growth exceeds the industry average reflecting the expansion at Fort Bliss and economic growth in the service territory Fort Bliss currently represents approximately 60 MW s of load; and is expected to grow to over 90 MW s by 2012 Over 35,000 military personnel are expected to be stationed at Fort Bliss by 2013, along with the addition of 48,000 family members Current active duty soldier population of approximately 23,000 Fort Bliss officials estimate that 8,000 new apartments will be needed to accommodate the influx of new soldiers Other Growth - C&I ebound Large C&I customers grew by 6.2 percent in 2010 due to the economic recovery GWH Sales 2,900 2,700 2,500 2,300 2,100 1,900 1,700 1,500 1,300 1, ,159 2,114 1,343 2,216 2,255 2,233 2,228 1,205 1,195 GWH Sales by Class 1,102 2,362 2,509 2,251 2,296 1,384 1,449 1,482 1,542 1,024 1, esidential C&I Small C&I Large Sales to Other Public Authorities The decline in sales to C&I Large customers is primarily related to the effects of the recession which reduced production at oil, steel and copper refinery customers Sales to Other Public Authorities are sales made to state and local government agencies, military installations, and universities CAG CAG 3.72% CAG 1.54% CAG 3.96% CAG -1.39% March 2011 Investor elations 11

12 East Ft. Bliss Before FY 05 March 2011 Investor elations 12

13 East Ft. Bliss Now FY 10 March 2011 Investor elations 13

14 Growth at Fort Bliss From 2006 to 2013, the growth at Fort Bliss will have a cumulative economic impact of over $25 billion and after 2013 the economic output is estimated at $6.3 billion annually 1) Statistical Summary of Ft. Bliss Growth 2012 Net Projected % 2005 Authorized Gain/Loss of Growth Soldiers 9,330 33,469 24, % Military Students 2, ,432 Family Members 15,330 47,869 32, % Civilian 3,621 6,962 3,341 92% Total 30,413 89,000 58,587 1) Source: Economic Impact of Growth at Fort Bliss June 2009, El Paso egional Economic Development Corporation-Institute for Policy and Economic Development Overview of Ft. Bliss Growth. March 2011 Investor elations 14

15 Local Growth El Paso, Texas El Paso County expanded by 18 percent to 800,647 people, adding 121,000 new residents in the past 10 years 1) Brookings Institution has ranked El Paso s economy among the strongest in the nation 2) The Milken Institute ranked El Paso s economy as the ninth best performing economy among 200 large metro areas and the Las Cruces economy ranked as the eighth best performing economy of 179 small metro areas 3) Apartment boom continues as demand is fueled by influx of soldiers 4) More than 900 new apartments opened in 2010; approximately 1,600 units are expected to be completed this year and an additional 1,900 units are planned for early 2012 Juarez, Mexico Despite the violence, there are approximately 343 maquilas in Juarez, Mexico and the industry employs approximately 200,000 people 5) The Maquiladora industry added 28,000 new jobs from July 2009 to August 2010 Every 10 percent increase in maquila production in Juarez results in a 3 percent increase in non-farm employment and a 1.4 percent increase in retail trade in the El Paso economy 6) (1) Source: Gomez Licon, Adriana. More Hispanics check white on Census, El Paso Times, February 21, 2011 (2) Source: Brookings Institution s MetroMonitor. - El Paso Times. 16 Sept (3) Source: Kolenc, Vic. El Paso s economic performance makes lists. - El Paso Times. 31 Oct Source: Kolenc, Vic. El Paso ranks 9 th in economic index.. - El Paso Times. 31 Oct (4) Source: Kolenc, Vic. Apartment Boom Continues, El Paso Times, January 9, 2011 (5) Source: Kolenc, Vic. Maquilas ebound.. - El Paso Times. 3 Oct (6) Source: Federal eserve. Crossroads Economic Trends in the Desert Southwest. Federal eserve Bank of Dallas El Paso Branch-Issue1, May 2010 March 2011 Investor elations 15

16 Local Growth Continued In 2009, the fully accredited Paul L. Foster School of Medicine opened at the Texas Tech University Health Sciences Center on the Medical School of Americas campus; the first 4-year medical school in 30 years in Texas 1) Estimated economic impact of initial phase of medical school in 2015 is $612.8mm, employment impact (full time employees) estimated at 6,288, and government revenue impact of $27.5mm A $120mm Children s Hospital of El Paso will be completed in the spring of 2012 and is El Paso s first and only separately licensed free-standing non-profit children s hospital 1) University Medical Center of El Paso is undergoing a $154mm campus expansion and renovation 1) The University of Texas at El Paso is constructing $175mm in new facilities to expand its health and life sciences areas 2) Currently, the Medical Center of Americas is in the preliminary stages of working on a 50-year plan that would have a world class biomedical business park in El Paso that would be developed on 140 acres of land and that would partner with local universities in Texas and New Mexico, medical facilities, the city and county, as well as Fort Bliss and White Sands Missile ange 2) In 2010 at Fort Bliss, lawmakers authorized $300mm in construction, including $147mm for the Ft. Bliss eplacement Hospital that is estimated to have a total cost of $950mm with GSF supporting a population of 90,000 beneficiaries. Also in 2010, a 146,000-sq ft Soldier Family Care Center opened and Ft. Bliss broke ground on a 52,000-sq ft emergency services headquarters 3) 1) Source: oberts, Chris. Medical Center of the Americas Plan Envisions World-Class BioMed Hub. - El Paso Times. February 4, ) Source: Medical Center of the Americas Foundation. March 2, ) Source: Ft. Bliss/WBAMC Semi-Annual Medical Luncheon briefing documents. December 15, 2010 March 2011 Investor elations 16

17 Distinguishing Investment Considerations Stable Customer Base 76% of non-fuel revenues comprised of residential and small commercial customers Solid rate base growth etail competition indefinitely delayed in Texas and repealed in New Mexico March 2011 Investor elations 17

18 Base evenue & kwh Sales Mix 120% 12-Mos Ended December 31, % 16% 21% 80% 8% 14% 60% 40% 35% 76% 31% 65% 20% 41% 34% 0% etail Non-Fuel Base evenues etail KWh Sales esidential C&I Small C&I Large Sales to Public Authorities March 2011 Investor elations 18

19 Distinguishing Investment Considerations Solid Credit Profile Healthy balance sheet and solid liquidity position Investment grade debt ratings Utilize dividends and share repurchases to balance capital structure March 2011 Investor elations 19

20 New Generation New resources are needed to meet future load growth and to replace older gas-fired units Filed for regulatory approvals for an aero derivative peaking unit (87MW s) at the io Grande site; on-line date of 2013 Anticipate obtaining regulatory approvals in 2011 Next 288 MW combined cycle unit currently expected to be in the 2015 time frame Construction of Newman 5, the 288 MW combined cycle unit, is on time and under-budget First phase completed May 2009 Second phase on schedule for completion before summer of 2011 Native peak record of 1,615 MW s set on July 19, 2010; 2009 native peak was 1,571 MW s March 2011 Investor elations 20

21 Cash Capital Expenditures Construction work in progress of $285mm at December 31, 2010 Capital Expenditures are expected to average approximately $209mm annually through 2014 Primary additions to rate base through 2014 include: Completion of generation plant additions T&D construction necessary to meet customer growth $250 $200 $150 $100 $50 $0 EE Actual and Estimated Costs $208 $227 $220 $170 $ Est 2012 Est 2013 Est 2014 Est Production Transmission Distribution General (1) Does not include acquisition costs for nuclear fuel (2) Includes $289mm for new generating capacity of which $19mm is allocated for the completion of Newman 5, $73mm for an 87 MW peaking unit at the io Grande Station, $174mm for a new 290 MW combined cycle unit, $11mm for anticipated renewable projects, and $12mm for other generation projects March 2011 Investor elations 21

22 2010 Liquidity Sufficient Liquidity to Fund Capital Expenditures $170 $204 $ $34 0 Share Buybacks Cap Ex Share Buybacks and Cap Ex Cash from Operations Anticipate having adequate liquidity to fund capital expenditures through 2011 without having to access capital markets March 2011 Investor elations 22

23 Commitment to Credit Quality Capital Structure As of December 31, 2010 (millions) Book Capitalization egulatory* Capitalization Common Stock Equity $ 810,375 Long-term debt, net of GT $ 739,745 GT $ 114,704 Total Capitalization $ 1,664,824 Debt 51% Equity 49% Debt 48% Equity 52% Well positioned to finance planned investments Investment grade bond ratings S&P reaffirmed its BBB rating and Stable Outlook in September 2010 Moody s reaffirmed its A3 rating and Stable Outlook in August 2010 *egulatory Capitalization excludes borrowings for NF by the io Grande Trust (GT), while book capitalization includes NF borrowings in debt and equity calculations. Moody's S&P EE A3 BBB EE (Unsecured) Baa2 BBB- ** Stable Stable ** S&P has assigned a BBB rating to the $150mm and $400mm senior note issuances as EE has no secured obligations outstanding. March 2011 Investor elations 23

24 Capital Allocation EE is committed to enhancing long term value and cash returns to shareholders through quarterly dividend payments and share repurchases Preserve investment grade credit ratings Target a regulatory equity ratio of approximately 50% On March 21, 2011, EE s Board of Directors approved a common stock dividend policy as follows: The intent to pay a quarterly cash dividend of 22 per share payable for the first time at the end of June 2011 Would result in an initial dividend yield based on the current share price of approximately 3% Also on March 21, 2011, EE s Board of Directors authorized an additional 2.5mm shares under the share repurchase program Since the beginning of the repurchase program in 1999, annual stock repurchases have averaged 3.38% of outstanding shares epurchased 587,000 at a cost of $16.7 million in 2011; 89,000 shares remaining under February 2010 authorization March 2011 Investor elations 24

25 Distinguishing Investment Considerations egulatory/ Financial Stability Sound regulatory relationships Earning allowed returns under current rate construct Effectively managing expenses March 2011 Investor elations 25

26 2010 Earnings Summary Twelve Months Ended Pre-Tax Effect After-Tax Income Basic EPS December 31, 2009 $ 66,933 $ 1.50 Changes in: etail non-fuel base revenue $ 53,009 33, O&M (5,597) (3,527) (0.09) Off-system sales margin (5,116) (3,224) (0.08) Deregulated Palo Verde Unit 3 revenues 1,960 1, Elimination of Medicare Part D tax benefit - (4,787) (0.11) Other (6,065) December 31, 2010 $ 90, Change in weighted average number of shares 0.06 December 31, 2010 $ 2.08 March 2011 Investor elations 26

27 2010 Year End Financial Drivers etail non-fuel base revenues increased $53.0mm pre-tax or $0.77 per share due to new rates in NM and TX and a 4.4 percent increase in kwh sales O&M increased $5.6mm pre-tax or $0.09 per share primarily due to increased pension and benefits costs and expenses related to the transition to our new customer billing system offset by decreased maintenance costs at Palo Verde etained off-system sales margins were lower by $5.1mm pretax or $0.08 per share as retained margins declined from 75% to 10% effective July 1, 2010 Deregulated PV3 revenues increased by $2.0mm pretax or $0.03 per share due to increased PV3 generation and higher proxy prices in 2010 Income tax expense increased by $0.11 per share due to the elimination of the Medicare Part D subsidy March 2011 Investor elations 27

28 evenues and MWh Sales by Class 2010 Year End Non-Fuel etail Base evenues ($000) % Change MWh Sales % Change esidential $ 217, % 2,508, % C&I Small 188, % 2,295, % C&I Large 43, % 1,087, % Other Public Authorities* 86, % 1,542, % Total 2010 $ 536, % 7,434, % Heating Degree Days 2, % Cooling Degree Days 2, % Average Number of etail Customers 373, % Year-end etail Customers 376, % *Sales to Other Public Authorities are sales made to state and local government agencies, military installations, and universities March 2011 Investor elations 28

29 2011 Earnings Guidance On February 22, 2011, EE initiated a 2011 Earnings Guidance range of $2.00 to $2.40 per basic share Key Variables: etail non-fuel base revenues are projected to grow between 0.5% and 2.5% reflecting continued customer growth evenue growth includes a weather-related reduction due to 2010 weather being hotter than normal etained off-system sales margins will decrease in 2011 due to change in offsystem sales margin sharing from 75% to 10% effective July 1, 2010 Operation and maintenance expenses at Palo Verde and the Company are expected to be flat in 2011 Palo Verde Unit 3 deregulated revenues are expected to increase in 2011 due to no scheduled refueling outage at Unit 3 March 2011 Investor elations 29

30 Distinguishing Investment Considerations Operational Excellence Low carbon footprint Diversified energy portfolio Service reliability in top quartile March 2011 Investor elations 30

31 Diversified Energy Portfolio and Low Carbon Footprint 2010 Energy Sources 2009 Carbon Footprint Coal 7% Purchased Power 27% Natural gas 22% Nuclear 45% National Average 0.67 EE 0.29 Sources: s ( EE ) carbon footprint intensity was calculated from information found in its K filing and as collected by its Environmental Department. The national average intensity was calculated from information found at the Carbon Monitoring for Action website ( Both listed intensities are inclusive of CO 2 emissions only. March 2011 Investor elations 31

32 Texas enewables equirements Texas mandates EE to obtain renewable energy proportionate to its market share of Texas energy sales or approximately 2% of energy sales; renewable energy requirement can be met through renewable generation or purchase of enewable Energy Credits (EC s) Compliance EE primarily purchases EC s Cost ecovery EC costs recovered through base rates EE capital investments included in rate base Purchased energy costs (including EC s) recovered through fuel March 2011 Investor elations 32

33 New Mexico enewables equirements EE is required to meet 10% of its current retail energy sales in New Mexico via renewables; escalates to 20% in 2020 Must be from diverse sources - at least 20% solar, 20% wind,10% other and 1.5% renewable distributed generation Compliance Have historically met requirement via purchasing wind EC s from PNM esources (PNM) and Southwestern Public Service (SPS) Biomass purchase and other renewable distributed generation purchases as well Purchase of 20 MW s of solar Photovoltaic enewable Energy from NG will begin by the end of 2011 Other solar providers will provide 29MW s of photovoltaic energy in , subject to approval of New Mexico Public egulation Commission Cost ecovery enewable energy with EC s recovered through fuel clause; EC s without energy recovered through base rates March 2011 Investor elations 33

34 ecent egulatory Activities $5.5mm rate increase in NM effective January 1, 2010 Established pricing for deregulated PV3 sales to NM customers $17.5mm rate increase in TX effective July 1, 2010 Termination of discount rate contracts Approval of formula fuel factor OE for AFUDC at % No rate increases anticipated in 2011 March 2011 Investor elations 34

35 EE System eliability For 11 out of 12 years since 1999, EE s distribution system has ranked No. 1 or No. 2 for system reliability indices as tracked by the PUCT SAIFI 2010 SAIFI - System Average Interruption Frequency Index 0.97 SAIDI 2010 SAIDI - System Average Interruption Duration Index EE Avg of all TX Electric Utilities Number of Interruptions On average, EE customers experienced 0.45 interruptions in 2010 EE Avg of all TX Electric Utilities Minutes of Interruption On average, EE customers experienced minutes of interruption in 2010 March 2011 Investor elations 35

36 Appendix March 2011 Investor elations 36

37 Commissioners Public Utility Commission of Texas Appointed by Governor Barry T. Smitherman () Chairman Term Expires Sept 30, 2013 Donna L. Nelson () Commissioner Term Expires Aug 31, 2015 Kenneth W. Anderson () Commissioner Term Expires Aug 31, 2011 New Mexico Public egulation Commission - Elected Jason Marks (D) Commissioner Term Expires Dec 31, 2012 Patrick Lyons () Commissioner Term Expires Dec 31, 2014 Jerome Block (D) Commissioner Term Expires Dec 31, 2012 Ben Hall () Commissioner Term Expires Dec 31, 2014 Theresa Becenti-Aguilar ( D) Commissioner Term Expires Dec 31, 2014 March 2011 Investor elations 37

38 EE Contact Information David Stevens Headquarters Chief Executive Officer Stanton Tower (915) North Stanton El Paso, Texas David G. Carpenter Senior Vice President - Chief Financial Officer (915) david.carpenter@epelectric.com Steven P. Busser Vice President -Treasurer (915) steve.busser@epelectric.com Lisa D. Budtke Assistant Treasurer (915) lbudtk1@epelectric.com achelle Williams Supervisor Investor elations (915) rwilli5@epelectric.com March 2011 Investor elations 38