El Paso Electric Company Marketing Tour September 2015

Transcription

1 El Paso Electric Company Marketing Tour September 2015

2 Safe Harbor Statement 2 This presentation includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of This information may involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. 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 EE to pass through all such increased costs to customers or to recover previously incurred fuel costs in rates Full and timely recovery 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 Changes in customers demand for electricity as a result of energy efficiency initiatives and emerging competing services and technologies Unanticipated increased costs associated with scheduled and unscheduled outages of generating plant The size of our construction program and our ability to complete construction on budget Potential delays in our construction schedule due to legal challenges or other reasons Costs at Palo Verde 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 IRS or state taxing authorities Uncertainties and instability in the financial markets and the resulting impact on EE s ability to access the capital and credit markets Possible physical or cyber attacks, intrusions or other catastrophic events Other factors detailed by EE in its public filings with the Securities and Exchange Commission. EE s filings are available from the Securities and Exchange Commission or may be obtained through EE s website,

3 3 El Paso Electric Company (EE) Overview Profile General Rate Cases Rate Base Growth Load Growth Dividend Growth Environmental Traditional, vertically integrated electric utility serving west Texas and southern New Mexico Filed rate cases in Texas and New Mexico to reflect new plant in service Sizeable capital expenditures plan and resulting rate base growth for the next several years Consistently increasing peak load growth and customer base Financially strong utility positioned well for future dividend growth Favorable environmental profile low carbon footprint

4 Service Territory 4 Approximately 400,000 retail customers Clean dependable generating capability 2,010 MW (net) nuclear (34%), natural gas (60%) and limited coal (6%) EE owns 1,834 miles of transmission lines Interconnected with WECC, not ERCOT, and Mexico Texas jurisdiction represents ~ 78% of MWh sales & nonfuel base revenues Fuel pass-through in Texas and New Mexico jurisdictions

5 Texas Rate Case Filing Requests 5 EE filed a general rate case, Docket No , with the Public Utility Commission of Texas (PUCT) on August 10, 2015 Summary of request included: Historical test year ended March 31, 2015 Case filed primarily to reflect new plant in service Generation plant including Montana Power Station Units 1 & 2 and related substation & transmission lines Eastside Operations Center Requested non-fuel base revenue increase of $71.5mm Average Texas residential bill will increase by approximately $8.41 Total residential revenue will increase by 11.78% Return on Equity of 10.1% with equity ratio of 49.52%

6 Texas Rate Base Summary 6 Total Rate Base Total Company $1,931.6mm Texas jurisdictional $1,476.6mm Approximately $1,341mm of plant has been added since the last rate case in Texas (July 2009) Significant plant additions to rate base include: Palo Verde Capital Improvements - $234.7mm Phase II of Newman Unit 5 - $164.1mm Rio Grande Unit 9 - $94.3mm Transmission and Distribution - $418.0mm MPS and Eastside Operations Center - $261.6mm* * MPS includes Units 1 & 2, common, substation and transmission lines.

7 Texas Proposed Structural Rate Design Changes 7 Reduce/Eliminate rate class subsidies Gradual approach to moving customer classes closer to full cost of service Increase fixed charges Expand use of seasonal and Time Of Use (TOU) charges to promote conservation Combine similar rate classes and create new partial requirements class for residential DG customers Total Revenue Impact for Selected Rate Classes Residential Service 11.78% Small General Service 11.78% Partial Requirements Service 23.56% Government Street Lighting Service 23.56% Municipal Pumping TOU 3.72% Electrolytic Refining Service 2.07% Irrigation Service 11.78% General Service 11.78% Large Power Service 7.28% Petroleum Refinery Service 10.47% Area Lighting Service 8.02% Military Reservation Service 8.27%

8 New Mexico Rate Case Filing 8 EE filed a general rate case, Case No UT, with the New Mexico Public Regulation Commission (NMPRC) on May 11, 2015 Summary of request included: Historical test year ended December 31, 2014 Case filed primarily to reflect new plant in service Generation plant including Montana Power Station Units 1 & 2 and related substation & transmission lines Eastside Operations Center Requested non-fuel base revenue increase of $8.6mm Total residential revenue will increase by 9.0% (net of fuel) Return on Equity of 9.95% with equity ratio of 49.29%

9 New Mexico Rate Base Summary 9 Total Rate Base* Total Company $1,809mm New Mexico jurisdictional $436mm Approximately $1,281mm of plant has been added since the last rate case Significant plant additions to rate base include: Palo Verde Capital Improvements $159.0mm Phase II of Newman Unit 5 $164.1mm Rio Grande Unit 9 $94.4mm Transmission and Distribution - $413.3mm MPS and Eastside Operations Center - $266.4mm** * Rate Base and plant additions exclude PV Unit 3 and 1/3 of PV common. ** MPS includes Units 1 & 2, common, substation and transmission lines.

10 New Mexico Rate Case Filing 10 ROE of 9.95%; Equity Ratio of 49.29% Continuation of Palo Verde (PV) Unit 3 proxy market pricing Average Non-Fuel Base Change Average Net Bill Impact with Proposed Fuel Residential Service 14.0% 9.0% Partial Requirements 18.7% 9.0% Small General Service 0.0% 0.0% General Service 0.0% 0.0% Irrigation Service 7.3% 4.5% Water Pumping Service 0.0% 0.0% Large Power Service 0.0% 0.0% Military Research & Dev. Service 0.0% 0.0% Street Lighting Service 26.0% 20.0% Private Area Lighting Service 0.0% 0.0% Seasonal Agricultural Processing 6.6% 4.5% Outdoor Recreational Lighting 29.6% 20.0% State University Service 5.0% 2.4% Structural rate design changes include: Gradual approach to moving customer classes closer to the costs of serving them Combining similar classes Proposing a new partial requirement customer class

11 Expected Timeline - Current Rate Cases New Mexico Dec 31 Historical Test Year End May 11 File Rate Case (1) Aug 3 Intervention Deadline Nov 16 Hearing Begins Early 2Q 2016 Final Order Dec Feb 2015 Apr Jun Aug Oct Dec Feb 2016 Apr Jun 2016 Historical Test Year End Texas Mar 31 File Rate Case Aug 10 Intervention Deadline Sep 25 Effective Date of Rates (2) Jan 12 Hearing Begins Jan 26 Final Order May 11 (1) NM Rate Case filing would use a historical test year end of December 2014 and, via a post test year adjustment, include MPS units 1 & 2 in requested rate base. (2) House Bill 1535 allows for rates to relate back to the 155 th day after a rate case is filed.

12 Potential Timeline - Next Rate Cases 12 May 2016 MPS Unit 3 In-Service New Mexico Dec 2016 MPS Unit 4 In-Service Sep Q 2017 Historical Test Year End File Rate Case Q Final Order 2016 May Jul Sep Nov Jan 2017 Mar May Jul Sep Nov Jan MPS Unit 3 In-Service May 2016 Texas Historical Test Year End File Rate Case Sep Q 2017 MPS Unit 4 In-Service Dec 2016 Effective Date of Rates 3Q 2017 Final Order 4Q 2017 (1) NM Rate Case filing would use a historical test year end of September 2016 and via a post test year adjustment, include MPS units 3 & 4 in requested rate base. (2) TX House Bill 1535 allows for the TX Rate Case filing to reflect a historical test year end September 2016 and include MPS units 3 & 4 in requested rate base. (3) TX House Bill 1535 allows for rates to relate back to the 155 th day after a rate case is filed.

13 Projected Rate Base & CWIP Pro forma Rate Base Balances ($000) YE 2015 Including MPS 1 & 2 YE 2016 Including MPS 3 & 4 Beginning Rate Base (1)(2) $1,642 $1,935 Plant Additions: MPS Transmission and Substations New Eastside Operations Center 41 - Other New Generating Units: Montana Common Plant Montana Unit Montana Unit Montana Unit 3-78 Montana Unit 4-79 Total Depreciation Expense (91) (94) Change in Deferred Income Taxes & Other (18) 20 Total Rate Base (3) $1,935 $2, Ending CWIP Balances ($ in millions) $306 $167 (1) Includes Palo Verde Unit 3 rate base of approximately $26mm and $27mm for each pro-forma filing in 2015 and 2016, respectively. (2) Beginning rate base is December 31, 2014 and year end balances exclude CWIP. (3) Represents a pro-forma rate base projection that is subject to change based on actual rate filings.

14 Generation Schedule 14 Generating Capacity at Summer Peak (MW) 2,010 1,990 2,078 2,078 2, Existing Generation Generation Additions (a) MPS Unit 3 will be commercially operational for summer peak of MPS Unit 4 will be commercially operational in December 2016, but will not impact peak generating capability until (b) EE expects to sell 7% interest in Units 4&5 of Four Corners by July Projected Peak

15 Native System Peak Load Growth 15 MW 1,800 1,600 1,400 1,376 1,428 Native System Peak 1,616 1,571 1,508 1,524 1,714 1,688 1,750 1,766 1,794 CAGR 2.69% 1,200 1, EE set two new Native Peak records in 2015 A native peak record of 1,787 MW was achieved on June 22, 2015 On August 6, 2015, a second native peak record was set at 1,794 MW EE set a new peak in 10 out of 11 years

16 Residential Customer Growth Residential Customers at Year End CAGR 1.85% , , , , , , , , Refrigerated air conditioning is being installed in 99% of new homes Majority of customers within our service territory utilize evaporative coolers Refrigerated air conditioning uses 85% less water and three times more electricity than evaporative coolers Usage per customer impacted by increased energy efficiency and conservation initiatives 10 Year CAGR Avg. No. Customers EE Industry* Usage per Customer 1.02% 0.60% Customer Growth 1.85% 0.42% * Source EEI-2014 Statistical Yearbook

17 Economic Indicators 17 The Federal Reserve s El Paso Business Cycle Index continues to show positive growth since 2008 El Paso s unemployment rate remains to be lower than the national unemployment rate through July El Paso s Foreign Trade Zone was ranked # 1 in exports in 2014 by the Federal Reserve Bank of Dallas U.S. Foreign Trade Zone Board

18 Increasing Cash Returns 18 Quarterly cash dividend has increased by 34% to $0.295 per share since the dividend was re-initiated in 2011 Dividend payout ratio remains below the peer average, which allows for future growth Over the next several years anticipate growing the dividend by 4% to 6% per year $1.00 $1.06 $1.12 $1.18 Goal is to move closer to peer average payout ratio after major construction period and regulatory lag subsides Annualized Dividend Per Share

19 Diversified Energy Portfolio and Low Carbon Footprint Energy Sources (by MWh s) EE vs. U.S. Avg. Carbon Footprint (Short tons CO 2 equivalent emissions/mwh) Coal 5% Natural Gas 35% Nuclear 47% Purchased Power 13%* *Renewable energy purchases represent 16.4% of total purchased power 2010 National Average EE 0.31

20 Well Positioned to Meet New Environmental Regulations EE expects minimal impacts from the Environmental Protection Agency s proposed guidelines to reduce carbon dioxide emissions from existing fossil fuel-fired power plants EE will reduce its carbon footprint by ceasing participation in the Four Corners coal plant in July 2016 when the 50-year participation agreement expires EE filed Sale and Abandonment proceeding in TX & NM Costs associated with future retrofits required by environmental regulation will be avoided Planned additions of natural gas fired plants will meet growing customer demand as well as replace Four Corners and other plant retirements 20

21 Second Quarter Results & Earnings Guidance 21 2nd Quarter 2015 net income of $21.1 million or $0.52 per share, compared to 2nd Quarter 2014 net income of $30.1 million or $0.75 per share YTD 2015 net income of $24.5 million or $0.61 per share, compared to YTD 2014 net income of $34.7 million or $0.86 per share On August 5, 2015, we narrowed our earnings guidance range for 2015 to $ $2.05 per share from $ $2.15

22 Appendix 22

23 2015 Load and Resources 23 Company Owned Generation 2,010 MW Solar Purchased Power 107 MW Palo Verde Newman Rio Grande Montana Copper Four Corners Renewables Solar Nuclear Natural Gas Coal Wind/Solar Solar Power 633 MW 752 MW 276 MW 176 MW 64 MW 108 MW 1 MW 107 MW 2015 Total Energy Resources 2,117 MW s Record Native Peak 1,794 MW s set on August 6, 2015

24 Regulatory Overview 24 Public Utility Commission of Texas - Appointed by Governor Name Term Ends Party Donna L. Nelson (Chair) 5/29/2017* Republican * Kenneth W. Anderson 8/31/2017 Republican Brandy Marty 8/31/2019 Republican interim appointment subject to senate confirmation New Mexico Public Regulation Commission - Elected Name Term Ends Party District Karen Montoya (Chair) 12/31/2016 Democrat 1 Patrick Lyons 12/31/2018 Republican 2 Valerie Espinoza (Vice Chair) 12/31/2016 Democrat 3 Lynda Lovejoy (Vice-Chair) 12/31/2018 Democrat 4 Sandy Jones 12/31/2018 Democrat FERC Rates are Formula Based

25 Five Year Cash Capital Expenditures EE Estimated Costs 25 $300,000 $250,000 $200,000 $169mm $178mm $202mm $237mm $277mm $276mm $203mm $170mm $199mm $254mm $150,000 $100,000 $50,000 $0 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Generation Transmission Distribution General

26 Impact of Mexico 26 Cross Border trade between El Paso and Juarez totaled approximately $89 billion in 2014 (1) A new port of entry linking El Paso and Juarez, the Tornillo-Guadalupe International Bridge, will add to the capacity for cross border trade and will be one of the largest in the nation and is expected to be operational in September 2015 Juarez area maquiladora employment increased 11.4% from May 2014 to May 2015 (2) A 10 percent increase in maquiladora output leads to a 2.8 percent increase in El Paso total employment (3) (1) Source: Texas A&M International (2) Source: Mexican National Institute of Statistics and Geography (INEGI) (3) Source: INEGI and the Federal Reserve Bank of Dallas

27 Union Pacific Intermodal Rail 27 Construction of the $400 million Union Pacific intermodal rail yard was completed in 2014 (one year ahead of schedule) and is projected to add approximately 600 jobs and added $500 million to the local economy during construction The strategic positioning of the Intermodal Rail Yard, located just minutes away from maquiladora plants in Mexico, will make the Santa Teresa, NM / El Paso, TX area a focal point for rail shipments in the southwestern United States

28 Other Local Growth Summary 28 El Paso s hotel revenue and occupancy rate hit an all-time high in March of this year Projects associated with $473 million in Quality-of-Life bonds approved by voters in 2012 are under construction including parks, pools, museums, and libraries The Charles Schwab Corp. plans to open a new operations center in west El Paso, which is expected to add approximately 445 new jobs to the city by early 2015 Prudential Financial Inc. announced a new technology and call center to be located on the City s east side which will employ 300 people over the next several years Schneider Electric plans to invest $7 million to expand its El Paso manufacturing facility, adding an additional 193 full-time permanent jobs Automatic Data Processing (ADP) plans to double its current El Paso workforce adding 1,100 new positions by 2020 Starwood Hotels has announced plans to restore the historic O.T. Basset Tower in downtown El Paso for its Aloft-brand hotel, a project estimated at over $10 million

29 1,100, , , , ,000 Customer & Population Growth El Paso & Dona Ana County Population & EE Residential Customer Growth 29 CAGR 1.50% CAGR 1.79% 100, EP & Dona Ana Pop 902, , , , , ,160 1,009,8 1,032,6 1,045,3 1,045,0 1,047,1 EE Res Customers 296, , , , , , , , , , ,885 EP & Dona Ana Pop Source: U.S. Bureau of Census and Real Estate Center at Texas A&M University EE Res Customers

30 Commitment to Credit Quality 30 Capital Structure As of June 30, 2015 * (thousands) Common Stock Equity $984,678 Regulatory Capitalization** Book Capitalization Long-term debt, net of RGRT 1,039,231 Total Capitalization Before RGRT $2,023,909 Debt 51.3% Equity 48.7% Debt 56.5% Equity 43.5% RGRT and RCF - LT & ST Debt 238,072 Total Capitalization After RGRT and RCF $2,261,981 * Capital structure includes current maturities and short-term borrowings Well positioned to finance planned investments Investment grade credit ratings S&P reaffirmed its BBB rating and Stable Outlook in March 2015 Moody s reaffirmed EE s credit rating to Baa1 in December 2014 Moody's S&P EE (unsecured) Baa1 BBB Stable Stable ** Regulatory Capitalization excludes borrowings for NF by the Rio Grande Resources Trust (RGRT), while book capitalization includes nuclear fuel borrowings in the debt portion of capitalization.

31 Shareholder Return (all data as of 12/31) MARKET PRICE PER SHARE 2014 $ $ $ $ $ $ $20.28 ANNUAL VALUE OF SHARE REPURCHASES AND DIVIDENDS (1) 2013 $ $ $ $ $24.1 Total Return Comparison $100 Investment on December 31, 2009 $240 $220 $200 $180 $160 $140 $120 $100 $80 Dec. 31, 2009 Dec. 31, 2010 Dec. 31, 2011 Dec.31, 2012 Dec. 31, 2013 Dec. 31, 2014 EE EEI NYSE (1) EE Initiated a quarterly cash dividend in 2011 distributing a total of $27.2mm in addition to $86.5mm in share repurchases. EE $219 EEI $191 NYSE $151 31

32 Utility Scale Renewables 32 The 50 MW Macho Springs Solar Facility began commercial operation in May 2014 and is now delivering safe, dependable, and clean power to our system EE entered into a purchased power agreement with Newman Solar, LLC to purchase the entire output of a 10 MW solar facility EE s utility scale solar facilities represented more than 5% of dedicated generation resources EE is placing greater emphasis on utility scale renewables, reflecting improved cost and economics In June 2015, EE filed for a new 3 MW Community Solar Pilot Program in TX, which will be constructed at MPS In June 2015, EE filed for a 5 MW Solar Generation Project to be located at Holloman Air Force Base EE expects an additional solar project will be constructed in Las Cruces, New Mexico

33 Texas Renewables 33 Requirements EE must obtain renewables through renewable generation or purchase of Renewable Energy Credits (REC s). The amount is based on the ratio of EE s Texas sales compared to total sales in the state. This number has averaged approximately 5%. Compliance EE primarily purchases REC s Cost Recovery REC costs recovered through base rates EE capital investments included in rate base

34 New Mexico Renewables 34 Requirements EE is required to meet 15% 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, 30% wind, 5% biomass and 3% renewable distributed generation Reasonable cost threshold will limit future requirements for EE Compliance Purchase of wind RECs from Southwestern Public Service (SPS) through 2015 Cost Recovery Renewable energy with RECs recovered through fuel clause; RECs without energy deferred and recovered through base rates

35 EE Contact Information 35 Nathan Hirschi Richard Gonzalez Senior Vice President Chief Financial Officer Supervisor Investor Relations (915) (915) John Boomer El Paso Electric Headquarters Vice President, General Counsel Stanton Tower (915) North Stanton El Paso, Texas (800) Lisa Budtke Assistant Treasurer (915)