TXNM Energy Inc (TXNM) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PNM Resources' third quarter conference call. (Operator Instructions). As a reminder, today's conference is being recorded. I would now like to turn the conference over to Jimmie Blotter, Investor Relations Director. Ma'am you may begin.

Thank you, Candice, and thank you, everyone, for joining us this morning for the PNM Resources third quarter 2014 earnings conference call. Please note that the presentation for this conference call and other supporting documents are available on our website at www.pnmresources.com. Joining me today are PNM Resources Chairman, President and CEO, Pat Vincent-Collawn and Chuck Eldred, our CFO, as well as several other members of our executive management team.

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.

Finally, let me say that we are looking forward to seeing everyone in Dallas next week. With that, I will turn the call over to Pat.

Thank you, Jimmie. Good morning, everyone. It's another beautiful day here in New Mexico and I hope wherever you are, you're also having a beautiful day.

We'd also would like to wish you a Happy Halloween from everyone here at PNM Resources, and I promise, no tricks today, only treats; at least on my portion of the call. We'll begin on slide four with the headlines from the third quarter.

We remain on track financially as ongoing earnings for the quarter increased $0.04 over the third quarter in 2013. GAAP earnings were up $0.01 per share compared to the same period. Today we're affirming our 2014 consolidated ongoing guidance to the range of $1.44 to $1.51 per diluted share.

I'm pleased to say that there has been a lot of progress regarding PNM's San Juan BART filings. The EPA issued it's final approval of the revised state implementation plan for San Juan Generating Station, and the Company also reached a settlement agreement with several of the parties involved in the San Juan BART case that was filed with the New Mexico Public Regulation Commission. PNM has filed a proposed stipulation for approval by the commission, and I'll discuss that in more detail in a moment.

We turn to slide five, and take a look at the individual utilities. In the third quarter, load at PNM was flat from the same period in 2013.

Residential load increased for the second quarter in a row, up 1.7% in the third quarter over the third quarter last year. And remember, last quarter was up 0.5% compared to the second quarter in 2013. We are encouraged by these numbers which could indicate that load is stabilizing, although, I think it's still too soon to know definitely.

Economic development efforts at the state and local level has intensified over the past twelve months, and interest from businesses looking to expand or relocate has increased. This is likely a result of business friendly changes to New Mexico's tax code, more aggressive recruiting and the targeting of specific tax friendly industries that is starting to gain traction. In recent weeks, several companies have announced they are locating operations in New Mexico and bringing hundreds of jobs to the area.

S&P Data is expected to hire up to 425 people when its new facility is fully ramped up; Flagship Foods, a food manufacturing and distribution company is hiring 125 people; Comcast just announced plans to hire 450 people for a call center and a textile manufacturing company announced plans for 300 new jobs. We are also working with more businesses to locate in our service territory. The unemployment rate here in New Mexico is 6.6% compared to the 5.9% national unemployment rate.

Over in Texas, the strong economy continues to fuel growth at TNMP. Year over year, load at TNMP is up 3.2%, driven by increases in both the commercial and residential classes. Unemployment in Texas remains at 5.2%, well below the national average.

We're very pleased to see that consistent growth continues in Texas. And in New Mexico, we are pleased to see the load decline flatten out and some indication that business is beginning to pick up. Let's go now to slide six for more details on our BART filing.

PNM achieved a major milestone on October 9 when the Environmental Protection Agency published in the federal register it's final approval of the revised state implementation plan for San Juan Generating Station and formally withdrew the federal plan. I'm especially proud of our PNM team for their leadership, hard work, and perseverance they demonstrated throughout the process. We're also grateful for the leadership of Governor Susana Martinez and the support of Navajo Nation President, Ben Shelly.

There's work yet to do regarding the BART filing with the New Mexico Public Regulation Commission. However, we took a big step forward by reaching a settlement agreement with several of the parties involved in the case.

The settlement is joined by a broad and diverse group of stakeholders, including the commission staff, the New Mexico Attorney General's Office, as well as business and environmental advocacy groups. The settlement proposes recovery of 50% of the un-depreciated values of San Juan Units 2 and Unit 3, which at the end of 2017 is expected to be $115.5 million.

The settlement also proposes approval of SNCR technology on San Juan Units 1 and Unit 4, and the authorization of CCN to bring Palo Verde Unit 3 into rate base at a valuation of $1,650 per kilowatt and the acquisition of 132 megawatts of Unit 4 at a transfer value of $26 million. We are working under a new procedural schedule with various filings due within the next two months, and a hearing in front of the hearing examiner scheduled to begin on January 5. We expect the commission will take final action on the case in the first quarter of 2015.

Reaching a settlement with the major stakeholders in this case is an important achievement, again, due to the excellent work of our team. As we have discussed on these calls, an important priority for the Company is to achieve constructive regulatory outcomes.

A key part of this process is engaging stakeholders and collaborating to find solutions that work, and the settlement agreement is an excellent example. We sincerely appreciate the cooperation of all the parties involved in the stipulation and their willingness to work with us to successfully resolve the major issues to everyone's benefit.

Turn to slide seven for a quick update on the other pending regulatory filings. There's just a few other updates in addition to the filings regarding San Juan. On the renewable plan, on September 25, PNM filed a settlement agreement in the 2015 renewable plan.

The settlement recommends approval of PNM's procurement proposals, including a CCN to build and operate 40 megawatts of Company-owned solar which is part of a replacement power strategy for BART. The cost for the solar facility estimated to be approximately $79 million, will be recovered through base rates set in our upcoming general rate case. At the conclusion of the hearing, the hearing examiner requested a draft certification of stipulation by next Friday, and we anticipate a final order from the commission in late November or early December.

Over in Texas, TNMP's latest TCOS filing was approved with rates in place on September 8. This increase will increase revenues by $4.2 million annually.

And in New Mexico, we have been discussing for some time that we continue to expect to file a general rate case at PNM later this year. As you know, this will be a future test year filing with rates expected to be in place on January 1, 2016. Now I'll turn things over to Chuck for an in-depth look at the numbers.

And thank you, Pat, and good morning everyone. Let's begin the financial review with the third quarter results beginning on slide nine of the presentation.

Third quarter ongoing EPS was $0.68, up $0.04 compared to the third quarter 2013. TNMP was up $0.02, and both PNM and Corporate and Other were each up $0.01. Corporate and Other benefited from the lower interest expense.

Now for more detail on PNM and TNMP drivers on slide ten. Starting with PNM, we closed on the Delta generating station in July of this year.

We have renamed this asset the Rio Bravo Generating Station and it contributed $0.01 to the earnings this quarter. We continue to expect this to add $0.02 on an annualized basis to earnings.

Palo Verde Unit 3 market prices and nuclear decommissioning trust gains were each up $0.01 compared to Q3 of 2013.

In relation to the BART negotiations for San Juan, last year we made a contribution to the Navajo workforce training initiative that was not repeated this year. This added $0.01.

Higher capital spending resulted in higher depreciation and property taxes this year, bringing earnings down by $0.01. The termination of the Gallup FERC generation contract caused results to be $0.01 lower compared to the third quarter of last year. We continue to expect to be down a total of $0.03 this year compared to last year for Gallup.

Weather at PNM was also down $0.02, cooling degree days were 9% below normal and 5% below Q3 2013. At TNMP we saw an improvement for the rate relief from the semi-annual TCOS filings of $0.01. Load is up $0.01 and we also had a $0.01 from the $1.5 million 2013 energy efficiency bonus which was approved this quarter.

After changes in the energy efficiency rule in 2008 that allowed utilities a bonus for exceeding goals, TNMP has consistently met and exceeded our energy efficiency goals. This is the fourth consecutive annual bonus we have received in recognition of these efforts. Offsetting these items is weather, which was down $0.01, cooling degree days were 3% lower than normal and 4% lower than Q3 2013.

Now turning to slide 11, we are affirming our guidance range of $1.44 to $1.51. TNMP continues to deliver strong results and is expected to be at the upper end of the range at $0.43 to $0.45 driven by low growth and TCOS rate recovery.

At PNM, we expect to be at the lower end of the range. Fourth quarter load is expected to be seasonably lower. This and the mild weather we have experienced in October will temper the fourth quarter results. In total, however, we remain confident that we will end out the year in the middle of the guidance range. With that, I'll turn it back over to Pat.

Thanks, Chuck. To wrap things up, we are working on the rate case filing for later this year and we remain focused on successfully completing the important regulatory cases already underway. We're cautiously optimistic about the load numbers and economic activity in New Mexico, although I as I mentioned, it's too soon to know if things are stabilizing.

In the meantime, we continue to effectively manage the business and we expect to be at the midpoint of our guidance. Operator, we'll now open it up for any questions.

Thank you. (Operator Instructions). Our first question comes from line of Ali Agha of SunTrust. Please go ahead.

Thank you. Good morning.

Good morning.

Good morning.

As you mentioned on the load trends at New Mexico is still too early to tell how things are going to play out, but can you remind us for planning purposes as you budget out the next few years, what kind of load growth assumptions do you bake into your budgeting and planning for New Mexico?

Ali, we haven't given any numbers out past this year, 2014, where we expected to have a 2% to 3%, down in New Mexico and up in Texas. So when we give guidance on our Analyst Day, we'll give them to you then.

Okay, fair enough. I'll come back to that. Then also, you got the rate case filing coming up later this year, and then the BART settlement set you up for the next rate case for filing in 2017, right, rates in effect 2018. Can you give us some sense of what kind of upside, what kind of rate increases roughly we should be thinking about as these rate cases are coming up now?

Ali, this is Chuck. Obviously, we don't really want to get into a detailed discussion of our rate case that we haven't filed at this point.

Given the fact that we intend to discuss the details and the rationale behind our intent of that 2016 rate case at the analyst meeting in December, I think it's really best not to get ahead of ourselves in discussions that others might not be informed, particularly staff and others at the commission. So at this point, we're going to not really focus on questions regarding the 2016 rate case until we have a discussion after we've filed and at the analyst meeting in December.

Okay. But if I recall correctly, Chuck, just for the BART settlement alone, I believe in the past you guys have talked about the increases that would go with that. Am I correct?

That's correct, Ali. What we've talked about is the entire price tag for BART is 7%. But that's over two rate cases, and it also doesn't include the other things that we would be including in the rate case.

And as Chuck said, it's never good to get out in front of your stakeholders in the case, with the staff, and the Attorney General and the commissioners. So we'll file in December, and then when we have our Analyst Day, we'll go through it in excruciating detail.

Understood. Last question. Given that the rate increases are going to be in effect in 2016 in New Mexico right now, how much support do you need from load generally back to on your authorized retail ROE at this point?

Or should we assume there will be lag this year and next, and then you true it up in the rate cases? Is that the way to think about the ROE trend then?

Ali, I think again, Pat was pretty clear that we feel like we're beginning to see some indications of improvement in load, but we're not at a point yet until we get through the end of the year to really internalize what we think of the projections going forward. It's also evident that we're probably getting to the lower end in the bottom of what we think would be the recent trends that we've had over the last couple years in load. So we'll just kind of wait and see how things go for the fourth quarter this year, and again, discuss our views in December at the Analyst Day.

Ali, you always true up volumes in a rate case, so wherever we end up, we'll true up in 2016.

Right. Thank you.

Our next question comes from the line of Brian Russo of Ladenburg Thalmann. Your line is now open.

Hey, Brian.

Hi. I know you don't want to get into specifics on the 2016 rate case, but maybe you can talk more broadly as to what the key components or drivers of the case will be.

Sure. Obviously, as we just discussed, we'll true up volume in the case from wherever we come in. Your Palo Verde leases also go into half-price at that point in time. The 40 megawatts of solar comes in at that point in time.

We also have the Palo Verde lease buybacks that we've mentioned, $160 million that we'll look to purchase 64 megawatts that goes into rate base in 2016. We'll address fundamentals of the business such as depreciation, rate change, the continuation of the renewable rider.

We also have a stipulation on the La Luz gas turbine, which is a 40-megawatt peaking station. That will be included in the 2016 rate case.

Everything is really mostly the fundamentals of the business, and address load, as Pat pointed out as well. That's pretty much it, Brian.

That seems pretty straight forward. I think in the past, you contemplated maybe filing for decoupling, is that still a possibility?

Brian, we're still in the process of taking a look at decoupling, other rate design issues and also the issues around net metering, which you guys are all too familiar with. So those are the rate design issues we're looking at. And again, we'll have our announcement in December, but we're studying all of those issues.

Okay. Just what is your level of confidence in your weather normalized modeling in the third quarter? Sometimes you see anomalies one way, or the other. Just curious what your thoughts are on that.

Well as much as the forecasters don't like it when I say this, there is some art in weather normalizing, but we don't really see any anomalies in this quarter. There have been other quarters where something stood out where there was an anomaly. We don't see anything in this quarter, but take weather normalization with a grain of salt.

Okay. Great. Thank you very much.

Thank you.

Thank you. (Operator Instructions). Our next question comes from the line of Paul Fremont of Jefferies. Your line is now open.

Thank you. Can you quantify year-to-date what the nuclear decommissioning trust gains are?

Yes, Paul. Year-to-date is $0.08.

Okay. So that was -- your annual guidance for the gains was-- in other words, have you realized all that's in your guidance in terms of NDT gains?

Yes. We talked about guidance having $0.00 to $0.02, so some of that includes the additional year-over-year increase in NDT, and we'll just see how fourth quarter goes in realized earnings off of the fund to see whether or not there's an additional contribution or not.

Okay. It sounds like the case you're about to file will not include the gas peaker, so the gas peaker we should assume is going to be part of the 2016 case?

Yes, the gas peaker would not go into rates until 2018, so it would be in a case that's filed either in December of 2016 or January of 2017.

Okay, great. I think that's it for me. Thank you.

Thanks, Paul.

Thank you. I'm showing no further questions at this time. I would like to turn the call back over to Pat Vincent-Collawn for any further remarks.

Thank you. And thank you, everyone, for joining us today. We look forward to seeing many of you face-to-face in Dallas at the EEI meeting, then again in New York on Analyst Day on December 15. We hope you have a very safe and very Happy Halloween. Thank you all.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.