financial & operational overview for local financial advisors · statement is qualified by...
TRANSCRIPT
Financial & Operational Overview
For Local Financial Advisors
June 7, 2017
2
Safe Harbor Statement This presentation includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
This information often involves risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.
The statements in this presentation that are not historical statements and any other statements regarding EE's future expectations, beliefs,
plans, objectives, financial conditions, assumptions or future events or performance that are not historical facts, are forward-looking statements
within the meaning of the federal securities laws. 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 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, 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. 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 forward-
looking statement contained herein.
3
Introduction to Management Team
Mary Kipp CEO and President
Steve Buraczyk
SVP, Operations
Nathan Hirschi
SVP, Chief Financial
Officer
John Boomer
SVP
Rocky Miracle
SVP, Corporate
Services & Chief
Compliance Officer
Bill Stiller
SVP, Public & Customer
Affairs & Chief Human
Resources officer
Eddie Gutierrez
VP, Public Government
& Customer Affairs
June 7, 2017
Adrian Rodriguez
VP, General Counsel
4
Long-Term Vision
Continue to provide safe, clean, reliable and affordable
service to our customers
Expand and replace long-term assets to meet the needs
of our growing communities
Adapt to changing environmental landscape
Invest in technologies that benefit our customers and
communities
Maintain strong financial position and investment grade
credit ratings
June 7, 2017
5
EE Overview EE Overview
EE
NYSE
LISTED
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
Filed for new rates in Texas on February 13,
2017
Sizeable capital expenditures plan and resulting
rate base growth for next several years
Financially strong utility positioned well for
future dividend growth
June 7, 2017
Obligation to serve – in exchange allowed to
earn a regulated rate of return
6
El Paso Electric Company (EE) History
Started as the El Paso Electric Railway
Company on August 30, 1901 with a 500
kW generating capacity
Filed for Bankruptcy in 1992 and emerged
with a reverse stock split in 1996
S&P announced in 1999 that EE had once
again attained investment grade status
In 2011, reinitiated a quarterly cash dividend
to common stockholders
Increased the dividend paid every year since
2011
Now own over 2,000 MW of electric
generation capacity and have over 411,000
retail customers
June 7, 2017
7
Service Territory
Approximately 411,000 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
June 7, 2017
8
Low Carbon Footprint
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
EE vs. U.S. Avg. Carbon Footprint (Short tons CO2 equivalent emissions/MWH)
2015 EE
0.33
2015 National
Average 0.55
June 7, 2017
9
Large Scale Solar Projects
EE’s large scale solar purchased power represented more
than 5% of dedicated generation resources
EE is placing greater emphasis on large scale renewables
EE will own and operate it’s first large scale solar projects in
2017:
EE’s Texas Community Solar Facility
(3MW) became operational during Q2
2017 and is the largest utility-owned
community solar project in Texas
The Holloman Air Force Base Solar
Project (5MW) is anticipated to be
completed in Q4 2017 or early 2018
June 7, 2017
10
Customer & Population Growth
100,000
300,000
500,000
700,000
900,000
1,100,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
EP & Dona Ana Pop 938,496 953,431 970,785 992,160 1,009,8 1,032,9 1,046,2 1,046,5 1,049,6 1,049,8 1,052,1
EE Res Customers 311,923 317,091 322,618 328,553 334,729 339,860 345,567 349,629 353,885 358,819 363,987
El Paso & Dona Ana County Population & EE Residential Customer Growth
EP & Dona Ana Pop EE Res CustomersSource: U.S. Bureau of Census
CAGR
1.15%
CAGR
1.56%
June 7, 2017
11
Residential Customer Growth
260,000
280,000
300,000
320,000
340,000
360,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Average Number of Residential
Customers
CAGR
1.62%
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
June 7, 2017
12
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
A new $60mm baseball stadium
expansion project
June 7, 2017
13
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 renovation
projects
12,000 square foot Marriott hotel &
resort to be located in the
Montecillo urban development
center
June 7, 2017
14
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 teaching hospital at the Hospitals of
Providence Transmountain Campus
Paul L. Foster School
of Medicine
Woody L. Hunt School
of Dental Medicine Cardwell Collaborative
Biomedical Research
June 7, 2017
15
Analyst Coverage
Ladenburg Thalmann "We reiterate our BUY rating on EE Shares." 5/3/17
Jefferies "El Paso Electric continues to experience robust load growth." 5/4/17
"…the company's return to a back to basics vertically integrated electric
utility focus has transformed El Paso into one of the true pure traditional
widows and orphans utility stocks." 5/4/17
"Dividend growth should be the fastest growing element for El Paso's
fundamentals due to a low current dividend payout ratio. In this yield driven
market, perhaps it is the absolutely most important growth rate relevant for
EE shareholders to consider." 5/4/17
"The utility continues to experience strong retail customer growth." 5/4/17
"We continue to view EE as a quality growth-oriented utility." 5/4/17
Value Line"The utility is benefiting from strong customer growth, which is a byproduct
of the healthy economy in El Paso and environs." 4/28/17
Argus
"We believe that El Paso's solid financial strength, limited risk profile, visible
forward earnings stream, and attractive integrated structure are positives."
3/31/17
The Williams Capital
Group
Gabelli & Company
June 7, 2017
16
Native System Peak Load Growth
Set a new native system peak record on July 14, 2016 of 1,892 MW
The 2016 peak is 5.5% or 98 MW higher than the peak established in
2015
The 2016 system peak surpassed the previous peak established in 2015
on 37 separate hours over a period of 13 days
EE has set a new peak in 15 out of the past 16 years
CAGR
2.94%
June 7, 2017
17
Responding to Regional Growth
El Paso Electric must be prepared to meet the growing
needs of our communities
The Company has invested in approximately $444.3
million in new plant since the 2015 Texas rate case
A rate case was filed on February 13, 2017 in order to
bring the additional capital expenditures into rate base
The 2017 rate case request includes:
Non-fuel base revenue increase of $42.5 million
Return on Equity of 10.50% with an equity ratio of
48.35%
Average monthly residential bill increase anticipated to
be $ 8.25
June 7, 2017
18
2017 Year End Projected Load and
Resources 2017 YE Company Owned Generation 2,088 MW
Solar Purchased
Power
74 MW
Palo Verde Montana Newman Copper Four Corners Solar Solar Rio Grande
Natural Gas Nuclear 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 2017, Texas Community 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
June 7, 2017
19
Five Year Cash Capital Expenditures
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2017E 2018E 2019E 2020E 2021E
Estimated Costs of ~ $1.1 billion *
Generation Transmission Distribution General
$215mm
$185mm
$203mm
$240mm $242mm
($000s)
* Anticipate issuing an all-source RFP for generation resources in 2017; therefore,
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).
20
Earnings Performance
$2.26
$2.20 $2.27
$2.03
$2.39
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
2012 2013 2014 2015 2016
Earnings per Common Share
June 7, 2017
21
Retail Revenue and Sales Distribution
Residential C&I Small C&I Large Public Authorities
Year Ended March 31, 2017* Year Ended March 31, 2017
46%
32%
6%
16%
Non-Fuel Base Revenues
36%
31%
13%
20%
MWH Sales
* Excludes $5.9 million of relate back revenues in
Texas, January 12, 2016 through March 31, 2016,
which were recorded in August 2016.
22
Price Performance
$25
$30
$35
$40
$45
$50
$55
5/2/2012 5/2/2013 5/2/2014 5/2/2015 5/2/2016 5/2/2017Daily Stock Price
YTD
Return
1 Year
Return
Annualized
Return
Total 5-Yr
Return
9.6% 12.0% 14.1% 70.5%
In March 2017, EE’s market cap exceeded $2 billion
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 2020. 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.
June 7, 2017
24
Dividend Performance
$0.88
$1.00
$1.06
$1.12 $1.18
$1.24
$1.34
$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
$1.20
$1.30
$1.40
2011 2012 2013 2014 2015 2016 2017
Annualized Dividends
7.3%
CAGR
June 7, 2017
25
Shareholder Return
12/31/2012 – $31.91
12/31/2011 – $34.64
12/31/2013 – $35.11
12/31/2014 – $40.06
12/31/2015 – $38.50
12/31/2016 – $46.50
3/31/2017 – $49.50
ANNUAL VALUE OF SHARE
REPURCHASES AND DIVIDENDS(1) MARKET PRICE PER SHARE
$80
$100
$120
$140
$160
$180
Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016
Total 5-Year Return $100 Investment on December 31, 2011
(1) EE Initiated a quarterly cash dividend in 2011 distributing a total of
$27.2mm in addition to $86.5mm in share repurchases. June 7, 2017
12/31/2012 – $38.9
12/31/2013 – $42.0
12/31/2014 – $44.6
12/31/2015 – $47.1
12/31/2016 – $49.6
LTM 3/31/2017 – $50.2
12/31/2011 – $113.7
26
Book Value per Common Share
$20.57
$23.44
$24.39 $25.13
$26.52
$18.00
$20.00
$22.00
$24.00
$26.00
$28.00
2012 2013 2014 2015 2016
EE has historically traded at a price-to-book ratio between
1.5x to 2.0x
June 7, 2017
27
Commitment to Credit Quality
Capital Structure
As of March 31, 2017 * (thousands)
Common Stock Equity $1,063,062
Long-term debt, net of RGRT 1,183,836
Total Capitalization Before RGRT $2,246,898
RGRT and RCF - LT & ST Debt 229,178
Total Capitalization After RGRT and RCF $2,476,076
Regulatory Capitalization** Book Capitalization
Moody's S&P
EE (unsecured) Baa1 BBB
Stable Stable
* 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
April 2017
Moody’s reaffirmed its Baa1 rating and Stable Outlook
in December 2016
Our goal is to maintain a balanced capital structure
We currently do not plan to issue equity
** 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.
June 7, 2017
Debt 52.7%
Equity 47.3% Debt
57.1%
Equity 42.9%
28
Q & A
June 7, 2017
29
EE Contact Information
Lisa Budtke
Director - Treasury Services and Investor Relations
(915) 543-5947
Richard Gonzalez
Manager – Cash Management
and Investor Relations
(915) 543-2236
El Paso Electric Headquarters
Stanton Tower
100 North Stanton
El Paso, Texas 79901
(800) 592-1634
June 7, 2017