Investor Meetings. September/October 2017

Transcription

1 Investor Meetings September/October 2017

2 Safe Harbor Statement This presentation includes statements that are forward-looking statements made pursuant to the safe harbor provisions of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This information may involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those expressed in forward-looking statements is contained in EE's most recently filed periodic reports and in other filings made by made by EE with the U.S. Securities and Exchange Commission (the "SEC"), and includes, but is 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, including distributed generation Unanticipated increased costs associated with scheduled and unscheduled outages of generating plant Unanticipated maintenance, repair, or replacement costs for generation, transmission, or distribution facilities and the recovery of proceeds from insurance policies providing coverage for such costs The size of our construction program and our ability to complete construction on budget and on time 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 of which we are currently unaware or deem immaterial EE s filings are available from the SEC or may be obtained through EE s website, Any such forward-looking statement is qualified by reference to these risks and factors. EE cautions that these risks and factors are not exclusive. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Forward-looking statements speak only as of the date of this news release, and EE does not undertake to update any forwardlooking statement contained herein. 2

3 EE Overview Traditional, vertically integrated electric utility serving west Texas and southern New Mexico Consistently increasing peak load growth and customer base Favorable environmental profile low carbon footprint EE LISTED NYSE The City of El Paso approved, in principle, the settlement terms for EE s rate case pending before the PUCT on September 19, 2017 Sizeable capital expenditures plan and resulting rate base growth for next several years Financially strong utility positioned well for future dividend growth 3

4 Service Territory Approximately 416,000 retail customers Service territory larger than the state of New Jersey Clean dependable generating capability 2,080 MW 30% nuclear 70% natural gas EE owns 1,834 miles of transmission lines Interconnected with WECC, not ERCOT, and Mexico Texas jurisdiction represents ~ 80% of non-fuel base revenues Fuel pass-through in Texas and New Mexico jurisdictions 4

5 Native System Peak Load Growth MW s 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,892 1,935 1,750 1,766 1,794 1,714 1,688 1,508 1,524 1,571 1,616 1,428 1, CAGR 2.88% Set a new native system peak record on June 22, 2017 of 1,935 MW The 2017 peak is 2.3% or 43 MW higher than the peak established in 2016 EE has set a new peak in 16 out of the past 17 years 5

6 Customer & Population Growth 1,100, , , , ,000 El Paso & Dona Ana County Population & EE Residential Customer Growth CAGR 1.15% CAGR 1.56% 100, EP & Dona Ana Pop 938, , , ,160 1,009,8 1,032,9 1,046,2 1,046,5 1,049,6 1,049,8 1,052,1 EE Res Customers 311, , , , , , , , , , ,987 Source: U.S. Bureau of Census EP & Dona Ana Pop EE Res Customers 6

7 Residential Customer Growth 360,000 Average Number of Residential Customers CAGR 1.62% 340, , , , , 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 1.24% -0.15% Customer Growth 1.62% 0.42% * Source EEI-2015 Statistical Yearbook 7

8 Retail Revenue and Sales Distribution Non-Fuel Base Revenues MWH Sales 6% 16% 46% 13% 20% 36% 32% 31% Year Ended June 30, 2017* Year Ended June 30, 2017 Residential C&I Small C&I Large Public Authorities 8 * Excludes approximately $17.2 million of retail non-fuel base revenues for the period from January 12, 2016 through June 30, 2016, which revenues were not recognized until the PUCT Final Order was approved in August 2016.

9 Regional Economic Development The El Paso region has benefited from an impressive list of capital improvement projects over the past several years: Approximately $473 million in Quality of Life bonds approved by voters in 2012 Construction of the $400 million Union Pacific intermodal rail yard in Santa Teresa The $800 million Loop 375 expansion project A new $60mm baseball stadium El Paso named the country s second safest city* 9 * Based on a recent study by SafeWise, a home security company

10 Present and Future Development The region will continue to benefit from several large projects that are either currently underway, or have been recently announced: $350 million Franklin Galleria Entertainment Complex $100 million West Towne Marketplace Several downtown projects including $70 million WestStar Bank & Tower 12,000 square foot Marriott hotel & resort to be located in the Montecillo urban development center 10

11 Recent Additions to the El Paso Region Opened August 2016 Opened May 2016 Opened June 2016 Opened September 2017 Opened April 2016 Opened October 2016 Opening Expected

12 Sector Specific Competitive Assets Defense and Aerospace Largest U.S. Military Installation Largest U.S Open-Air Land Test Range Largest U.S. Contiguous Airspace First All Drone Army Airport Extensive Runways and Shuttle Landings Advanced Manufacturing & Logistics Well Established Manufacturing Hub Six International Ports of Entry El Paso International Airport Growing Cross Border Trade Volume Union Pacific Intermodal Rail Yard Medical & Life Sciences Woody L. Hunt School of Dental Medicine (Announced September 6, 2016) Paul Foster School of Medicine Burrell College of Osteopathic Medicine in Las Cruces The Hospitals at Providence Transmountain Campus Gayle Greve Hunt School of Nursing Cardwell Collaborative Medical Research Facility UTEP Graduate School of Biomedical Sciences El Paso Children s Hospital 12

13 Health & Medical Industry Growth The health services cluster has grown significantly in El Paso accounting for more than 10 percent of employment Significant additions include: a medical school, a dental school, a biomedical research facility, a new William Beaumont Army Medical Center, a new Providence Hospitals Teaching Campus, a new Pharmacy School at UTEP Woody L. Hunt School of Dental Medicine Paul L. Foster School of Medicine Cardwell Collaborative Biomedical Research 13

14 Diversified Energy Portfolio and Low Carbon Footprint 2016 Energy Sources (by MWh s) Coal 2% ** EE vs. U.S. Avg. Carbon Footprint (Short tons CO 2 equivalent emissions/mwh) Nuclear 49% Natural Gas 34% Purchased Power 15%* * Renewable energy purchases represent 19% of total purchased power ** Coal will be zero in 2017 due to the sale of EE s interest in the Four Corners Plant in July National Average EE

15 Well Positioned to Meet New Environmental Regulations EE s current generating portfolio provides for minimal exposure to the Environmental Protection Agency s guidelines to reduce carbon dioxide emissions EE became a coal-free utility on July 6, 2016, which will reduce one billion pounds of carbon dioxide from our annual emissions Costs associated with future retrofits required by environmental regulation will be avoided Addition of large-scale solar resources has prevented another one billion pounds of carbon dioxide from being emitted into the atmosphere 15

16 Large Scale Solar Projects EE s Texas Community Solar Facility (3MW) became operational during Q and is the largest utility-owned community solar project in Texas The Holloman Air Force Base (HAFB) Solar Project (5MW) is anticipated to be completed in the first half of 2018 Currently exploring additional projects 16

17 2017 Year End Projected Load and Resources 2017 YE Company Owned Generation 2,088 MW Solar Purchased Power 74 MW Palo Verde Newman Montana Rio Grande Copper Four Corners Renewables Solar Nuclear Natural Gas Coal Solar Solar Power 633 MW 752 MW 354 MW (1) 64 MW 0 MW (2) 9 MW (3) 74 MW (4) 276 MW 2017 YE Total Net Resources 2,162 MW (1) Montana Power Station ( MPS ) includes Units 1 & 2 (88 MW per unit), Units 3 & 4 (89 MW per unit). (2) In July 2016, EE became coal free following the sale of its 7% minority ownership interest in Four Corners Units 4 & 5 and common facilities (3) Upon completion in 2018, Texas Community Solar Project and Holloman Air Force Base will represent 8 MW of output (4) Solar purchased power represents approximately 70% of capacity during the summer peak period 17

18 Five Year Cash Capital Expenditures ($000s) Estimated Costs of ~ $1.1 billion * $250,000 $200,000 $215mm $185mm $203mm $240mm $242mm $150,000 $100,000 $50,000 $0 2017E 2018E 2019E 2020E 2021E Generation Transmission Distribution General * Issued an all-source RFP for generation resources on June 30, Estimates are subject to change including the acceleration and/or postponement of projects. As a placeholder, the current estimate includes early construction costs for a 320 MW generating resource, to be placed in service in 2023, although the results of the RFP will not be known for some time. Includes approximately $20mm of large scale solar (5 MW for HAFB and 3 MW for TX Community). 18 FOOTER

19 Request For Proposal (RFP) to Meet Future Power Generation Needs EE anticipates that a total of approximately 370 MW of additional resources will be needed by the summer of 2023 Approximately 50 MW of capacity will be needed by 2022 and an additional capacity of 320 MW by 2023 EE issued an All-Source RFP on June 30, 2017 Bids must be submitted by October 4, 2017 Anticipate a final decision in Q All sources of generation will be considered in order to provide the most cost effective and reliable electric service to our customers 19

20 2017 Texas Rate Case Update Filed general rate case on February 13, 2017, Docket No , based on a historical test year ended September 30, 2016 Request included: Non-fuel base revenue increase of $42.5 million Revised on July 21, 2017 to $39.2 million, primarily due to separating out $3.0 million of rate case expenses Rate case expenses will be reviewed under Docket No Final rates will relate back to July 18, 2017 Terms for a settlement agreement were approved, in principle, by the City of El Paso on September 19, Currently pending approval from other intervening parties A Final Order is anticipated to be issued by the PUCT in the fourth quarter of

21 Key Terms of the Rate Case Settlement Annual non-fuel base rate increase of $14.5 million Return on Equity of 9.65% A determination that all new plant in service was prudent and used and useful and therefore, is included in rate base Establishment of baseline revenue requirement for Transmission and Distribution Cost Recovery Factors The first filing to be made no earlier than January 1, 2019 Recovery of reasonable rate case expenses, subject to Commission Staff s review and currently estimated to be approximately $3.0 million, over a 3 year period through a separate surcharge All new residential customers with distributed generation will be subject to a $30.00 monthly minimum bill to recover the cost of grid and customer-related services* 21 * New charge is only applicable to customers that apply for interconnection after the date of the issued Final Order

22 Shareholder Return MARKET PRICE PER SHARE ANNUAL VALUE OF SHARE REPURCHASES AND DIVIDENDS (1) 6/30/2017 $51.70 LTM 6/30/2017 $ /31/2016 $ /31/2016 $ /31/2015 $ /31/2015 $ /31/2014 $ /31/2014 $ /31/2013 $ /31/2012 $ /31/2011 $ /31/2013 $ /31/2012 $ /31/2011 $113.7 $200 $180 $160 $140 $120 $100 $80 Total Return Comparison $100 Investment on December 31, 2011 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Jun. 30, 2017 EEI $182 EE $178 NYSE $157 EE EEI NYSE 22 (1) EE Initiated a quarterly cash dividend in 2011 distributing a total of $27.2mm in addition to $86.5mm in share repurchases.

23 Refined Dividend Policy EE s goal is to move closer to a peer-average payout ratio after major construction period and regulatory lag subsides. Specifically, EE s goal is to achieve an annual 55% - 65% dividend payout ratio by The exact timing and amount of future dividend increases will be based on the Board s continual review of our return of capital policies in the context of our operating performance, financial condition, capital needs and other relevant factors in the Board s determination. On May 26, 2017, the Company announced that the Board of Directors approved an increase to the quarterly cash dividend to $0.335 per share of common stock from $0.31 per share. 23

24 24 Appendix

25 2 nd Quarter Key Earnings Drivers Q2 Basic EPS June 30, 2016 $ 0.55 Changes In: Retail non-fuel base revenues 0.30 Palo Verde performance rewards, net 0.08 Investment and interest income 0.06 Depreciation and amortization 0.02 Description Increased primarily due to the non-fuel base rate increase related to the final order in the 2015 Texas rate case, warmer weather and a 1.8% growth in the average number of retail customers. Recognition of performance rewards associated with the 2013 to 2015 periods, net of disallowed fuel and purchased power costs related to the resolution of the Texas fuel reconciliation proceeding. Increased primarily due to higher realized gains on securities sold from EE's Palo Verde decommissioning trusts. Decreased primarily due to reductions resulting from changes in depreciation rates as approved in our 2015 Texas and New Mexico rate cases and the sale of EE's interest in Units 4 and 5 of the Four Corners Power Plant. These decreases were partially offset by increases in plant, including MPS Units 3 & 4, which were placed in service in May and September 2016, respectively. AFUDC (0.05) Administrative and general expense (0.04) Taxes other than income taxes (0.03) June 30, 2017 $ 0.89 Decreased primarily due to lower construction work in progress balances, primarily due to MPS Units 3 & 4 being placed in service in May & September 2016, respectively and a reduction in the AFUDC rate effective January Increased due to timing of the accrual of employee incentive compensation and an annual merit increase. Increased due to increased revenue related taxes and increased property valuations in Texas as a result of MPS Units 3 & 4 being placed in service in

26 June YTD Weather Summary 1,600 1,400 1,200 1,000 1,478 1,419 1,305 1,274 1,210 1,215 1,209 1,171 1,120 1,112 1,032 1,050 1,004 1,042 1,206 1, , YR HDD Average 1, YR CDD Average 1, HDD CDD 10-YR CDD Avg 10-YR HDD Avg June YTD CDD s 8.0% Above 10-YR Average 19.4% Above YTD 2016 June YTD HDD s 28.9% Below 10-YR Average 24.3% Below YTD

27 Q2 Retail Sales and Customers Average No. of Customers Percent Change (1) MWH Percent Change (1) Residential 367, % 724, % C&I Small 41, % 647, % C&I Large 48 (2.0%) 276, % Public Authorities 5, % 423, % Total Retail 415, % 2,071, % Cooling Degree Days 1, % Heating Degree Days 45 (40.0%) (1) Percent Change expressed as change in Q from Q

28 Commitment to Credit Quality Capital Structure As of June 30, 2017 * (thousands) Common Stock Equity $1,085,826 Regulatory Capitalization** Book Capitalization Long-term debt, net of RGRT 1,184,016 Total Capitalization Before RGRT $2,269,842 Equity 47.8% Debt 52.2% Equity 42.7% Debt 57.3% RGRT and RCF - LT & ST Debt 273,884 Total Capitalization After RGRT and RCF $2,543,726 * Capital structure includes current maturities and short-term borrowings Well positioned to finance planned investments Moody's EE (unsecured) Baa1 Stable S&P BBB Stable Investment grade credit ratings S&P reaffirmed its BBB rating and Stable Outlook in April 2017 ** 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. Moody s reaffirmed its Baa1 rating and Stable Outlook in December

29 Texas Renewables 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 29

30 New Mexico Renewables 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% other (e.g. biomass, geothermal) and 3% renewable distributed generation Reasonable cost threshold will limit future requirements for EE Compliance Purchase Power Agreements for solar generation and associated REC s EE has reached the reasonable cost threshold EE s 2017 and 2018 RPS plans are approved Cost Recovery Renewable energy with RECs recovered through fuel clause; RECs without energy deferred and recovered through base rates 30

31 Regulatory Overview Public Utility Commission of Texas - Appointed by Governor Name Term Ends Party DeAnn Walker (Chair) 8/31/2021 Republican Kenneth W. Anderson 8/31/2017* Republican Brandy Marty Marquez 8/31/2019 Republican * Currently serving at the pleasure of the Governor New Mexico Public Regulation Commission - Elected Name Term Ends Party District Cynthia Hall (Vice-Chair) 12/31/2020 Democrat 1 Patrick Lyons 12/31/2018 Republican 2 Valerie Espinoza 12/31/2020 Democrat 3 Lynda Lovejoy 12/31/2018 Democrat 4 Sandy Jones (Chair) 12/31/2018 Democrat

32 El Paso City Council Overview El Paso City Council Name Term Ends District Dee Margo (Mayor) 6/27/2021 Peter Svarzbein 1/1/ Alexsandra Annello 6/27/ Cassandra Hernandez 6/27/ Sam Morgan 6/27/ Dr. Michiel Noe 1/1/ Claudia Ordaz 1/1/ Henry Rivera 6/27/ Cissy Lizarraga 1/1/

33 EE Contact Information Nathan Hirschi Senior Vice President Chief Financial Officer (915) Lisa Budtke Director - Treasury Services and Investor Relations (915) lisa.budtke@epelectric.com El Paso Electric Headquarters Stanton Tower 100 North Stanton El Paso, Texas (800) Richard Gonzalez Manager Cash Management and Investor Relations (915) richard.gonzalez@epelectric.com 33