eei presentation
DESCRIPTION
TRANSCRIPT
EL PASO ELECTRIC
EEI Conference November 2012
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 Reform 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 EE to pass through all
such increased costs to customers or to recover previously incurred fuel costs in rates The ability to increase rates to recover capital investments and operating costs 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 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 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, http://www.epelectric.com Any such forward-looking statement is qualified by reference to these risks and factors. EE cautions that these risks and factors are not exclusive. EE does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of EE except as required by law.
2
El Paso Electric Profile
3
ee 1 1,785 MW
1,711 MW
Approx 384,000
$2.28
S&P BBB
Moody’s
Baa2
~3.00%
$2.20 (Low) $2.40
(High)
NYSE Ticker Symbol
Net Dependable Generating Capability
2011 Native System Peak
Demand *
Retail Customers
12 Months Ended Sept
2012 EPS (Basic)
Credit Ratings
Estimated 2012
Dividend Yield
2012 EPS Guidance
(Basic)
* Did not set a new Native Peak in 2012
EE Overview
4
Regional electric utility serving west Texas and southern New Mexico
Rate regulated business – no retail competition – fuel “pass through” Above average customer and retail sales growth Sizable capital expenditure plan and resulting rate base growth for the next several years
Financially strong utility with good credit metrics
Favorable environmental profile
Service Territory
5
Approximately 384,000 retail customers
EPE owns 1,820 miles of transmission and distribution lines
Clean dependable generating capability 1,785 MW (net) - nuclear (36%), gas (58%) and limited coal (6%)
No interconnection with ERCOT
Interconnected with Mexico
* Represents revenues with no related kWh sales **Off-System Sales are sales made to power marketers and other utilities with the exception of the Rio Grande Electric Cooperative which is a full requirements customer. Effective July 1, 2010, 90% of off-system sales margins are shared with retail customers.
12 Months Ended 09/30/2012
Service Territory
Texas 6,015,130 77% $440,750 76%
New Mexico 1,694,757 22% 136,891 24%
FERC 63,673 1% 2,291 0%
Total Native Load
Sales 7,773,560 100.00% $579,932 100%
Other * 0 32,433
Off-System Margins ** 2,491,398 1,375
Total 10,264,958 $613,740
Operating Revenues, Net of
Energy Expenses ($000)MWH Sales
Regulatory Overview
Regulated in Texas by PUCT, in New Mexico by NMPRC and by FERC
No current plans for a Texas rate
case prior to 2013*
No current plans for a New
Mexico rate case prior to
2013*
FERC rates are formula
based
6
* Texas and New Mexico rate cases are likely to be deferred until 2014
EE continues to have above average growth as compared to the industry
Above Average Customer and Retail Sales Growth
7
Five Year Total Customer and KWh Sales Growth
8
1.82%
-0.12%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
EE Avg. Customer Growth (2006-2011)
Industry Avg. Customer Growth (2006-2011)
4.04%
2.35%
0.43%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Excluding Industrial (2006-2011)
EE (2006-2011)
Industry (2006-2011)
5 Year Retail Customer Growth 5 Year Retail KWh Sales Growth
Source: Industry data detailed in EEI-2011 Financial Review Report Source: Industry retail kWh sales data obtained from the Energy Information Administration website http://www.eia.doe.gov
Sales Growth by Class
9
Above-average customer and retail kWh sales growth exceeds the industry average; reflects the expansion at Fort Bliss and economic growth in the service territory
Fort Bliss currently represents approximately 67 MW’s of load
Current active duty soldier population of approximately 30,000
Single-family building permits – a leading indicator for the housing sector – increased 10% in 2011 over 2010
800
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
2007 2008 2009 2010 2011 2012
GW
H S
ale
s
GWH Sales by Class
Residential C & I Small C & I Large Public Authorities
12 ME 9/30/12
CAGR 3.6% CAGR 1.3% CAGR -2.1% CAGR 2.5%
Residential Customer and Usage per Customer Growth
10
6,694 6,761 6,769 6,936 6,852
7,085 6,955
7,244 7,560 7,641
7,814
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
200,000
220,000
240,000
260,000
280,000
300,000
320,000
340,000
360,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Residential customers at end of year Avg annual kWh use per residential customer
Number of Customers
Usage per Customer
Refrigerated air conditioning is being installed in 99% of new homes; approximately 35% of El Paso residences have refrigerated air conditioning
Refrigerated air conditioning uses 85% less water and 3 times more electricity than evaporative coolers
12 ME 9/30/12 2011 Customer
usage is weather normalized
* Source EEI-2011 Financial Review Report
10 Year CAGR
EE Industry
Usage per Customer 1.59% 0.47%
Customer Growth 2.07% 0.21%
El Paso Economic Base
11
74.1%
25.9%
Gross Metropolitan Product
Private Sector Government
17.8%
34.3%
47.9%
Government
Federal Civilian Federal Military
State and Local
5.3%
12.3%
8.6%
28.0% 9.0%
36.8%
Private Sector
Construction Manufacturing
Retail Trade Real Estate
Health Care All Other
Source: Bureau of Economic Analysis data for 2009
El Paso Economic Environment
The El Paso Electric service territory is well insulated against national economic downturns
Key El Paso service area economic indicators experienced growth over the 2008 to 2011 period
12
2008 2011 CAGR
Per Capita Income $ 27,332 $ 29,268 2.3%
Retail Sales $ 8,514 $ 8,894 1.5%
SFR Building Permits 2,897 3,280 4.2%
Gross Metropolitan Product $ 25,600 $ 28,800 4.0%
(Retail Sales and GMP $ in millions)
Several key growth areas - Children’s hospital, University Medical Center and a new hospital at Fort Bliss
Expanding Rate Base
Capital requirements are being driven by the need to build infrastructure to meet customer
demand
13
Load and Resources
Newman
•Natural Gas
•752 MW
Palo Verde
•Nuclear
•633 MW
Rio Grande
•Natural Gas
•229 MW
Four Corners
•Coal
•108 MW
Copper
•Natural Gas
•62 MW
Hueco Mountain
•Wind
•1 MW
Solar Power
47 MW’s
Includes Purchases
Resource Purchases
•105 MW’s
14
Company Owned Generation 1,785 MW’s Solar & Purchases
152 MW’s
2012 Total Energy Resources 1,937 MW’s
Record Native Peak 1,711 MW’s set in 2011
Generation Additions Schedule
15
1,788 1,875
1,963 2,006
2,094
2012 2013 2014 2015 2016
Generating Capacity (MW)
Existing Generation Generation Additions
Existing Capacity 1785 MW Additions
2012 Newman Solar (2.5 MW) 2013 Rio Grande 9 (87 MW) 2014 LMS Unit 1 (88 MW) 2015 LMS Unit 2 (88 MW) 2016 LMS Unit 3 (88MW) Unit Retirements (a) (b)
2014 Rio Grande 6 (45 MW) 2016 Four Corners (FC) 4 & 5 (104 MW) (a) Unit retirements occur in December and impact
capacity available in the following year (b) EPE is seeking to retire or sell FC by the end of 2016
Financial Stability
EE has solid credit metrics, which should allow continued access to capital markets, while at the
same time providing cash for common dividends and construction expenditures
16
Capital Requirements and Liquidity
At September 30, 2012, EE had liquidity of $246.7mm including a cash balance of $8.7mm and the revolving credit facility which was upsized to $300 mm early in 2012
Capital expenditures in 2012 are anticipated to be $220.7mm (previously $232.1mm)
EE dividend payments expected to be $38.9mm in 2012
Increased the quarterly cash dividend 13.6% from $0.22 per share to $0.25 per share in the 2nd Quarter of 2012
Completed refinancing of Pollution Control Bonds on August 28, 2012 in the aggregate amount of $92.5mm; annual savings of approximately $1.1mm
17
Commitment to Credit Quality
18
Well positioned to finance planned investments
Investment grade credit ratings S&P reaffirmed its BBB rating and Stable
Outlook in July 2012 Moody’s reaffirmed its Baa2 rating and
Stable Outlook in August 2012
** 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.
* Capital structure includes current maturities and short-term borrowings
As of 09/30/2012 * (thousands)
Capital Structure Regulatory Capitalization** Book Capitalization
Moody's S&P
EE (unsecured) Baa2 BBB
Stable Stable
Common Stock Equity $830,274
Long-term & short term debt, net of RGRT 771,838
Total Capitalization Before RGRT $1,602,112
RGRT - LT & ST Debt 139,542
Total Capitalization After RGRT $1,741,654
Debt 52.3%
Equity 47.7%
Debt 48.2%
Equity 51.8%
Stock Performance
19
MARKET PRICE PER SHARE CUMULATIVE SHARE PURCHASES *
9/30/12 – $34.25
2011 – $34.64
2010 – $27.53
2009 – $20.28
2012 – 25.41
2011 – 25.41
2010 – 22.62
2009 – 21.10
80%90%
100%110%120%130%140%
EE S&P Electrics S&P 500 Utilities
Relative Price Performance El Paso Electric vs. S&P Electric and S&P 500 Utilities Indices 12/31/10-9/30/12
(in millions)
* EE Initiated a quarterly cash dividend in 2011 distributing a total of $27.2 mm in 2011 and expected $38.9mm during 2012
Earnings Per Share Performance
20
$1.50
$2.07
$2.48 $2.28
2009 2010 2011 2012
2012 EPS Guidance Range is $2.20 to $2.40
12 ME 9/30/12
Favorable Environmental Profile
EE has a favorable environmental profile and is well-positioned to comply with proposed
environmental regulations
21
Diversified Energy Portfolio and Low Carbon Footprint
22
EE vs. U.S. Carbon Footprint (Short tons CO2 equivalent emissions/MWH)
2009 National Average 0.61 2011 EE 0.32
2012 Energy Sources (by MWh’s) (As of September 30, 2012)
Nuclear 46% Natural Gas 27%
Purchased Power 21%
Coal 6%%
Renewable energy purchases represent 5% of total purchase power
Environmental Regulations
Recent Environmental Rulemaking Cross State Air Pollution Rule (CSAPR) was vacated by the D.C.
Circuit Court of Appeals on August 21, 2012
Any possible replacement rule will likely take several years before utilities would have to comply
EE’s exposure to possible cross state air pollution rules are minimal due to natural gas-fired generation in Texas
Mercury and Air Toxics Standards (Utility MACT) requires significant reductions in emissions of mercury and other air toxics
EPA estimates the cost to U.S. utilities could reach $35 billion
EE will not have any costs associated with MACT requirements Rule will not apply to EE’s local generation due to natural gas-fired units; fuel
oil for back-up/emergency usage will be below rule applicability levels
No modifications expected at Four Corners due to this rule
23
Texas Renewables
Requirements
EE must obtain approximately 2% of Texas energy sales from renewables through renewable generation or purchase of Renewable Energy Credits (REC’s)
24
Compliance
EE primarily purchases REC’s
CCN for 2.5MW’s of Texas solar is pending PUCT approval
Cost Recovery
REC costs recovered through base rates
EE capital investments included in rate base
Purchased energy costs (including REC’s) recovered through fuel
New Mexico Renewables
25
Requirements
EE is required to meet 10% of its current retail energy sales in New Mexico via renewables; escalates to 15% in 2015 and to 20% in 2020
Must be from diverse sources – at least 20% solar, 20% wind, 10% other and 1.5% renewable distributed generation (increases to 3% in 2015)
Compliance Purchase of wind RECs from PNM Resources (PNM) and Southwestern Public
Service (SPS)
Purchase 47MW of solar PV energy as of July 2012
Cost Recovery Renewable energy with RECs recovered through fuel clause; RECs without
energy recovered through base rates
26
Appendix
Cooling Degree Days (CDD)
27
2009 2010 2011 12 ME 9/30/2012
Average for Previous 10 Calendar Years 2,503 2,556 2,562 2,616
Actual CDD 2,768 2,738 3,141 2,856
Percent Change in CDD from 10 Year Average 10.59% 7.12% 22.60% 9.17%
Year over Year Change 3.20% -1.08% 14.72% -9.07%
• Cooling Degree Days are calculated on a base temperature of 65°F • Daily average temperatures above 65°F are aggregated to CDD
A 1% change in either cooling or heating degree days over/under the 10 year normal equates to a $0.010 - $0.015 change in EPS
State Regulatory Commissioners
28
Public Utility Commission of Texas - Appointed by Governor
Name Position Term Ends Party
Donna L. Nelson Chair 08/31/2015 Republican
Kenneth W. Anderson Commissioner 08/31/2017 Republican
Rolando Pablos Commissioner 08/31/2013 Republican
New Mexico Public Regulation Commission - Elected
Name District Term Ends Party
Jason Marks 1 12/31/2012 Democrat
Patrick Lyons (Chair) Chair 2 12/31/2014 Republican
Dr. Doug Howe Commissioner 3 12/31/2012 Independent
Theresa Bencenti-Aguilar Commissioner 4 12/31/2014 Democrat
Ben Hall Commissioner 5 12/31/2014 Republican
EE Contact Information
Tom Shockley El Paso Electric Headquarters Chief Executive Officer Stanton Tower (915) 521-5721 100 North Stanton [email protected] El Paso, Texas 79901 (800) 592-1634 David G. Carpenter Senior Vice President - Chief Financial Officer (915) 543-5945 [email protected] Steven P. Busser Vice President –Treasurer (915) 543-5983 [email protected] Lisa D. Budtke Assistant Treasurer (915) 543-5947 [email protected]
29