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Form 8-K EL PASO ELECTRIC CO /TX/ For: Aug 03

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August 3, 2016 6:09 AM EDT



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):
August 3, 2016
 


El Paso Electric Company
(Exact name of registrant as specified in its charter)

Texas
001-14206
74-0607870
(State or other jurisdiction of
incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
 
 
Stanton Tower, 100 North Stanton, El Paso, Texas
 
79901
(Address of principal executive offices)
 
(Zip Code)

(915) 543-5711
(Registrant’s telephone number, including area code)


N/A
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On August 3, 2016, the Company announced its financial results for the quarter ended June 30, 2016. A copy of the press release containing the announcement and a copy of the presentation at the Company's 2nd Quarter 2016 Earnings Conference Call is included as Exhibit 99.01 and Exhibit 99.02 to this Current Report and is incorporated herein by reference. The Company does not intend for this exhibit to be incorporated by reference into future filings under the Securities Exchange Act of 1934.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(d)
Exhibits

99.01    Earnings Press Release, dated August 3, 2016
99.02    Presentation at the 2nd Quarter 2016 Earnings Conference Call


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


EL PASO ELECTRIC COMPANY
(Registrant)

By:     /s/    NATHAN T. HIRSCH
Name:    Nathan T. Hirschi
Title:    Senior Vice President - Chief Financial Officer
    
    





Dated: August 3, 2016





EXHIBIT INDEX

Exhibit Number
Description of Exhibit
 
99.01
Earnings Press Release, dated August 3, 2016
 
99.02
Presentation at the 2nd Quarter 2016 Earnings Conference Call
 





Exhibit 99.01
 
 
 
www.epelectric.com
 
 
 
 
 
News Release
For Immediate Release
 
Date: August 3, 2016
 
 





El Paso Electric Announces Second Quarter 2016 Financial Results



Overview

•
For the second quarter of 2016, El Paso Electric Company ("EE" or the "Company") reported net income of $22.3 million, or $0.55 basic and diluted earnings per share. In the second quarter of 2015, EE reported net income of $21.1 million, or $0.52 basic and diluted earnings per share.

•
For the six months ended June 30, 2016, EE reported net income of $16.5 million, or $0.41 basic and diluted earnings per share. Net income for the six months ended June 30, 2015 was $24.5 million, or $0.61 basic and diluted earnings per share.



“We are pleased with our second quarter results and the progress that we have made. Although the impact of regulatory lag continues to adversely affect our operating results, our performance for the second quarter exceeded last year’s performance,” said Mary Kipp, Chief Executive Officer. “Our region continues to experience solid growth, and we set a new native system peak of 1,892 MW on July 14, 2016, which is 5.5%, or 98 MW, higher than the peak established in 2015. In fact, we have already experienced eight days this summer in which our peak exceeded last year’s peak. In addition, the recent sale of our interest in Four Corners means the Company no longer owns any coal-fired generation, and we expect to have final resolution of our pending Texas rate case soon."




 
Page 1 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


Earnings Summary
The table and explanations below present the major factors affecting 2016 net income relative to 2015 net income (in thousands except per share data):
 
 
Quarter Ended
 
Six Months Ended
 
 
Pre-Tax
Effect
 
After-Tax
Effect
 
Basic EPS
 
Pre-Tax
Effect
 
After-Tax
Effect
 
Basic EPS
June 30, 2015
 
 
$
21,072

 
$
0.52

 
 
 
$
24,530

 
$
0.61

Changes in:
 
 
 
 
 
 
 
 
 
 
 
 
Retail non-fuel base revenues
$
3,065

 
1,992

 
0.05

 
$
4,024

 
2,616

 
0.06

 
Investment and interest income
2,193

 
1,769

 
0.04

 
(132
)
 
(95
)
 
—

 
O&M at fossil-fuel generating plants
69

 
45

 
—

 
(3,103
)
 
(2,016
)
 
(0.05
)
 
Interest on long-term debt
(1,803
)
 
(1,171
)
 
(0.03
)
 
(1,919
)
 
(1,247
)
 
(0.03
)
 
Depreciation and amortization
(717
)
 
(466
)
 
(0.01
)
 
(2,445
)
 
(1,590
)
 
(0.04
)
 
Allowance for funds used during construction
(151
)
 
(148
)
 
—

 
(3,053
)
 
(2,712
)
 
(0.07
)
 
Deregulated Palo Verde Unit 3
(17
)
 
(12
)
 
—

 
(978
)
 
(636
)
 
(0.02
)
 
Other
257

 
167

 
—

 
(2,312
)
 
(1,503
)
 
(0.03
)
 
Changes in the effective tax rate
 
 
(964
)
 
(0.02
)
 
 
 
(871
)
 
(0.02
)
June 30, 2016
 
 
$
22,284

 
$
0.55

 


 
$
16,476

 
$
0.41

Regulatory Lag
The completion of Montana Power Station ("MPS") Units 1 & 2 (including common plant, transmission lines and substation) and the Eastside Operations Center ("EOC") continues to have a negative impact on the Company's financial results through June 30, 2016, due to regulatory lag associated with the placement in service of these assets without a corresponding increase in revenues. The placement in service of MPS Unit 3 in May 2016 and the anticipated completion of MPS Unit 4 in September 2016 will continue the negative impact of regulatory lag until new and higher rates become effective. As discussed in "2015 Texas Retail Case Filing" below, interim rates subject to refund or surcharge were implemented on April 1, 2016 in Texas. However, due to the uncertainties surrounding the rate case, the Company did not recognize the effects of the increased interim rates in our Statements of Operations. The Company believes rates reflecting the recovery of the investment in and related costs of MPS Units 1 & 2 and the EOC will be in place in the second half of 2016 in Texas and New Mexico. The Company anticipates filing new rate cases in Texas and New Mexico in early 2017 to reflect MPS Units 3 & 4 in rate base. The primary impact from these assets being placed in service include a reduction in amounts capitalized for allowance for funds used during construction ("AFUDC"), and increases in depreciation, operations and maintenance ("O&M") expense, property taxes and interest cost.
Second Quarter 2016
Income for the quarter ended June 30, 2016, when compared to the quarter ended June 30, 2015, was positively affected by:
•
Increased retail non-fuel base revenues, primarily resulting from a 5.9% and 1.1% increase in kWh sales from residential and small commercial and industrial customers, respectively. These increases were driven principally by a 1.5% increase in the average number of customers served and warmer weather.

 
Page 2 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


Partially offsetting the increases were decreased revenues from sales to public authorities and large commercial and industrial customers reflecting a 3.5% and 2.8% decrease in kWh sales, respectively.
•
Increased investment and interest income due to higher realized gains on securities sold from the Company’s Palo Verde decommissioning trust in the second quarter of 2016 compared to the second quarter of 2015.

Income for the quarter ended June 30, 2016, when compared to the quarter ended June 30, 2015, was negatively affected by:
•
Increased interest on long-term debt due to the interest accrued on $150 million aggregate principal amount of senior notes issued in March 2016.
•
Increased depreciation and amortization related to an increase in depreciable plant, including MPS Unit 3, which was placed in service on May 3, 2016, partially offset by a change in the estimated useful life of certain intangible software assets.
•
Decreased AFUDC due to a reduction in the AFUDC rate effective January 2016, partially offset by AFUDC earned on construction costs related to MPS Units 3 and 4 in 2016.
•
Change in the effective tax rate largely due to the reduction of the domestic production manufacturing deduction and changes in state taxes.

First Six Months of 2016

Income for the six months ended June 30, 2016, when compared to the six months ended June 30, 2015, was negatively affected by:
•
Decreased AFUDC due to a reduction in the AFUDC rate effective January 2016 and lower balances of construction work in progress ("CWIP"), primarily due to MPS Units 1 & 2 and the EOC being placed in service in March 2015, partially offset by AFUDC earned on construction costs related to MPS Units 3 & 4 in 2016.
•
Increased O&M expenses related to our fossil-fuel generating plants, primarily due to maintenance outages on Four Corners Units 4 & 5 and Rio Grande Unit 7 during the first six months of 2016. These increases were partially offset by a maintenance outage at Newman Unit 5 in 2015, with no comparable expense in the same period in 2016.
•
Increased depreciation and amortization related to an increase in depreciable plant, primarily due to MPS Units 1 & 2 and the EOC being placed in service in March 2015 and MPS Unit 3 being placed in service on May 3, 2016, partially offset by a change in the estimated useful life of certain intangible software assets.
•
Increased interest on long-term debt due to the interest accrued on $150 million aggregate principal amount of senior notes issued in March 2016.
•
Decreased deregulated Palo Verde Unit 3 revenues, primarily due to a 21.8% decrease in proxy market prices reflecting a decline in the price of natural gas, partially offset by increased generation due in part to a Palo Verde Unit 3 planned 2015 spring refueling outage that was completed in May 2015 with no comparable outage in 2016.
•
Change in the effective tax rate largely due to the reduction of the domestic production manufacturing deduction and changes in state taxes.

Income for the six months ended June 30, 2016, when compared to the six months ended June 30, 2015, was positively affected by:
•
Increased retail non-fuel revenues, primarily resulting from a 3.8% and 1.5% increase in kWh sales from our residential and small commercial and industrial customers, respectively. These increases are driven principally by a 1.5% and 1.4%, respectively, increase in the average number of customers served and

 
Page 3 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


warmer weather. Partially offsetting the increases were decreased revenues from our large commercial and industrial customers and sales to public authorities reflecting a 3.0% and 1.5% decrease in kWh sales, respectively.
Retail Non-fuel Base Revenues
Retail non-fuel base revenues increased $3.1 million, pre-tax, or 2.1%, in the second quarter of 2016, compared to the second quarter of 2015. This increase includes a $3.3 million increase in revenues from residential customers and a $0.8 million increase in revenues from small commercial and industrial customers reflecting increases of 1.5% in the average number of customers served and warmer weather. Cooling degree days increased 3.9% for the second quarter of 2016, when compared to the second quarter of 2015. KWh sales to residential customers and small commercial and industrial customers increased by 5.9% and 1.1%, respectively, during the second quarter of 2016, when compared to the second quarter of 2015. Retail non-fuel base revenues from sales to public authorities and large commercial and industrial customers decreased $0.6 million and $0.4 million, respectively, reflecting a 3.5% and 2.8%, respectively, decrease in kWh sales during the second quarter of 2016, when compared to the second quarter of 2015. Non-fuel base revenues and kWh sales for the second quarter of 2016 and 2015 are provided by customer class on page 12 of this release.

For the six months ended June 30, 2016, retail non-fuel revenues increased $4.0 million, pre-tax, or 1.6%, compared to the six months ended June 30, 2015. This increase includes a $4.0 million increase in revenues from residential customers and a $1.0 million increase in revenues from small commercial and industrial customers reflecting increases of 1.5% and 1.4%, respectively, in the average number of customers served and warmer weather. KWh sales to residential customers and small commercial and industrial customers increased by 3.8% and 1.5%, respectively, during the first half of 2016, when compared to the first half of 2015. Retail non-fuel base revenues from large commercial and industrial customers and sales to public authorities each decreased by $0.5 million reflecting a 3.0% and 1.5%, respectively, decrease in kWh sales during the first half of 2016, when compared to the first half of 2015. Non-fuel base revenues and kWh sales for the first half of 2016 and 2015 are provided by customer class on page 14 of this release.

2015 Rate Cases
2015 New Mexico Rate Case Filing
On May 11, 2015, the Company filed with the New Mexico Public Regulation Commission ("NMPRC") in Case No. 15-00127-UT, for an annual increase in non-fuel base rates of approximately $8.6 million or 7.1%. The filing also requested an annual reduction of $15.4 million, or 21.5%, for fuel and purchased power costs. Subsequently, the Company reduced its requested increase in non-fuel base rates to approximately $6.4 million. On June 8, 2016, the NMPRC issued its final order approving an annual increase in non-fuel base rates of approximately $1.1 million and a decrease in the Company's allowed return on equity to 9.48%. The final order concludes that all of the Company's new plant in service was reasonable and necessary and therefore would be recoverable in rate base. The Company's rates were approved by the NMPRC effective July 1, 2016.
2015 Texas Retail Case Filing
On August 10, 2015, the Company filed with the City of El Paso, other municipalities incorporated in its Texas service territory and the Public Utility Commission of Texas ("PUCT") in Docket No. 44941, a request for an annual increase in non-fuel base revenues of approximately $71.5 million. On January 15, 2016, the Company filed its rebuttal testimony modifying the requested increase to $63.3 million. The Company invoked its statutory right to have its new rates relate back for consumption on and after January 12, 2016, which is the 155th day after the filing. The difference in rates that would have been billed will be surcharged or refunded to customers after the PUCT's final order in Docket No. 44941. The PUCT has the authority to require the Company to

 
Page 4 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


surcharge or refund such difference over a period not to exceed 18 months. On January 21, 2016, the Company, the City of El Paso, the PUCT Staff, the Office of Public Utility Counsel and Texas Industrial Energy Consumers filed a joint motion to abate the procedural schedule to facilitate settlement talks. This motion was granted.
On March 29, 2016, the Company and other settling parties to PUCT Docket No. 44941 filed a Non-Unanimous Stipulation and Agreement and motion to approve interim rates (the "Non-Unanimous Settlement") with the PUCT. Four parties to the rate case opposed the Non-Unanimous Settlement. Interim rates reflecting an annual non-fuel base rate increase of $37 million were approved by the PUCT effective April 1, 2016 subject to refund or surcharge. Subsequent to filing the Non-Unanimous Settlement, the rate case was subject to numerous procedural matters, including a May 19, 2016 ruling by the PUCT that the Company’s initial notice did not adequately contemplate the treatment of residential customers with solar generation contained in the Non-Unanimous Settlement.
At a June 10, 2016 pre-hearing conference, all parties to the case renewed discussions to attempt to reach a unanimous settlement of all issues and avoid further litigation. On July 21, 2016, the Company filed a Joint Motion to Implement Uncontested Amended and Restated Stipulation and Agreement with the PUCT, which was unopposed by parties to the rate case in Docket No. 44941 (the "Unopposed Settlement").
The terms of the Unopposed Settlement include: (i) an annual non-fuel base rate increase of $37 million, lower annual depreciation expense of approximately $8.5 million, a return on equity of 9.7% for AFUDC purposes, and including substantially all new plant in service in rate base; (ii) an additional annual non-fuel base rate increase of $3.7 million related to Four Corners Generating Station costs; (iii) removing the separate treatment for residential customers with solar generation; and (iv) allowing the Company to recover most of the rate case expenses up to a date certain. The Unopposed Settlement is subject to approval by the PUCT. The settlement documents were filed with ALJs assigned to oversee the Company's Texas Rate case, who have returned the settled case to the PUCT for approval. It is anticipated that the Unopposed Settlement will be considered by the PUCT at its meeting scheduled for August 18, 2016. The costs of serving residential customers with solar generation will be addressed in a future proceeding.
Given the uncertainties regarding the ultimate resolution of this rate case, the Company did not recognize the impacts of the Unopposed Settlement in the Statements of Operations for the second quarter of 2016. At this time, the Company believes the revenue and other impacts of the Unopposed Settlement for financial reporting purposes will be recognized during the second half of 2016. Regardless of the ultimate timing and amounts, new rates will relate back to consumption on and after January 12, 2016.
Commercial Operation of Montana Power Station Unit 3 and Construction of Unit 4
On May 3, 2016, the Company placed into commercial operation the third generating unit at MPS and the related common facilities and transmission systems at a cost of approximately $81.3 million. The 88-MW simple cycle aero-derivative combustion turbine is powered by natural gas and has quick start capabilities which allows the unit to go from off-line to full output in less than 10 minutes, thus increasing overall power grid stability, and work in concert with the Company's renewable energy sources. This unit will generate enough energy to power more than 40,000 homes in the Company's growing service territory. MPS Unit 4, identical to the other three MPS units, is expected to reach commercial operation September 2016.
Completion of the Sale of Four Corners
On February 17, 2015, the Company and Arizona Public Service Company ("APS") entered into an asset purchase agreement, providing for the purchase by APS of the Company's interests in Units 4 & 5 of the Four Corners Power Plant. On July 6, 2016, the closing of the transaction occurred, after which the Company no longer owns any coal-fired generation. At the closing, the Company received approximately $4.2 million in cash, subject to post-closing adjustments. No significant gain or loss was recorded upon the closing of the sale.

 
Page 5 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


Quarterly Cash Dividend
On May 26, 2016, the Board of Directors approved an increase to the quarterly cash dividend to $0.31 per share of common stock from our previous quarterly rate of $0.295 per share. This represents an increase in the annualized cash dividend from $1.18 to $1.24 per share. The dividend increase commenced with the June 30, 2016 dividend payment. On July 21, 2016, the Board of Directors declared a quarterly cash dividend of $0.31 per share payable on September 30, 2016 to shareholders of record as of the close of business on September 14, 2016.
Capital and Liquidity
In March 2016, we issued $150 million in aggregate principal amount of 5.00% Senior Notes due December 1, 2044 to repay outstanding short-term borrowings on our Revolving Credit Facility ("RCF") used for working capital and general corporate purposes, which may include funding capital expenditures. We continue to maintain a strong capital structure in which common stock equity represented 42.3% of our capitalization (common stock equity, long-term debt, current maturities of long-term debt and short-term borrowings under the RCF). At June 30, 2016, we had a balance of $9.6 million in cash and cash equivalents. Based on current projections, we believe that we will have adequate liquidity through our current cash balances, cash from operations and available borrowings under our RCF to meet all of our anticipated cash requirements for the next 12 months.
Cash flows from operations for the six months ended June 30, 2016 were $40.7 million, compared to $60.4 million for the six months ended June 30, 2015. The primary factors affecting the decrease in cash flows from operations were a reduction in earnings arising from regulatory lag and decreases in the net over-collection of fuel revenues. The growth in accounts receivable, primarily reflecting the implementation of interim rates in Texas, is offset by the deferral of the related revenues. A component of cash flows from operations is the change in net over-collection and under-collection of fuel revenues. The difference between fuel revenues collected and fuel expense incurred is deferred to be either refunded (over-recoveries) or surcharged (under-recoveries) to customers in the future. During the six months ended June 30, 2016, the Company had a fuel under-recovery of $2.0 million compared to an over-recovery of fuel costs of $10.8 million during the six months ended June 30, 2015. At June 30, 2016, we had a net fuel over-recovery balance of $2.0 million, including an over-recovery of $1.1 million in New Mexico and an over-recovery of $1.0 million in Texas and an under-recovery of $0.1 million in the Federal Energy Regulatory Commission ("FERC") jurisdiction.
During the six months ended June 30, 2016, our primary capital requirements were for the construction and purchase of electric utility plant, payment of common stock dividends, and purchases of nuclear fuel. Capital requirements for new electric utility plant were $102.8 million for the six months ended June 30, 2016 and $147.0 million for the six months ended June 30, 2015. Capital expenditures for 2016 are expected to be approximately $234 million. Capital requirements for purchases of nuclear fuel were $20.5 million for the six months ended June 30, 2016, and $22.4 million for the six months ended June 30, 2015.
On June 30, 2016, we paid a quarterly cash dividend of $0.31 per share, or $12.5 million, to shareholders of record as of the close of business on June 15, 2016. We paid a total of $24.5 million in cash dividends during the six months ended June 30, 2016. At the current dividend rate, we expect to pay cash dividends of approximately $49.6 million during 2016.
No shares of common stock were repurchased during the six months ended June 30, 2016. As of June 30, 2016, a total of 393,816 shares remain available for repurchase under the Company's currently authorized stock repurchase program. The Company may in the future make purchases of its common stock in open market transactions at prevailing prices and may engage in private transactions where appropriate.
We maintain the RCF for working capital and general corporate purposes and financing of nuclear fuel through the Rio Grande Resources Trust (the "RGRT"). The RGRT, the trust through which we finance our portion of nuclear fuel for Palo Verde, is consolidated in the Company's financial statements. The RCF has a term ending

 
Page 6 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


January 14, 2019. The maximum aggregate unsecured borrowing currently available under the RCF is $300 million. We may increase the RCF by up to $100 million (up to a total of $400 million) during the term of the agreement, upon the satisfaction of certain conditions, more fully set forth in the agreement, including obtaining commitments from lenders or third party financial institutions. The total amount borrowed for nuclear fuel by the RGRT, excluding debt issuance costs, was $129.6 million at June 30, 2016, of which $34.6 million had been borrowed under the RCF, and $95.0 million was borrowed through the issuance of senior notes. Borrowings by the RGRT for nuclear fuel, excluding debt issuance costs, were $128.1 million as of June 30, 2015, of which $18.1 million had been borrowed under the RCF and $110.0 million was borrowed through the issuance of senior notes. Interest costs on borrowings to finance nuclear fuel are accumulated by the RGRT and charged to us as fuel is consumed and recovered through fuel recovery charges. At June 30, 2016, $67.0 million was outstanding under the RCF for working capital and general corporate purposes, which may include funding capital expenditures. At June 30, 2015, $110.0 million was outstanding under the RCF for working capital and general corporate purposes. Total aggregate borrowings under the RCF at June 30, 2016 were $101.6 million with an additional $197.9 million available to borrow.
We received approval from the NMPRC on October 7, 2015, and from the FERC on October 19, 2015, to issue up to $310 million in new long-term debt and to guarantee the issuance of up to $65 million of new debt by the RGRT to finance future purchases of nuclear fuel and to refinance existing nuclear fuel debt obligations. We also requested approval from the FERC to continue to utilize our existing RCF without change from the FERC’s previously approved authorization. The FERC authorization is effective from November 15, 2015 through November 15, 2017. The approvals granted in these cases supersede prior approvals. Under this authorization, on March 24, 2016, the Company issued $150 million in aggregate principal amount of 5.00% Senior Notes due December 1, 2044. The proceeds from the issuance of these senior notes, after deducting the underwriters' commission, were $158.1 million. These proceeds include accrued interest of $2.4 million and a $7.1 million premium before expenses. The effective interest rate is approximately 4.77%. The net proceeds from the sale of these senior notes were used to repay outstanding short-term borrowings under the RCF. These senior notes constitute an additional issuance of the Company’s 5.00% Senior Notes due 2044, of which $150 million was previously issued on December 1, 2014, for a total principal amount outstanding of $300 million.
2016 Earnings Guidance
As discussed above, the Company filed rate cases in New Mexico and Texas on May 11, 2015 and August 10, 2015, respectively. The Company received a final order in the New Mexico rate case on June 8, 2016 and filed the Unopposed Settlement with the PUCT on July 21, 2016 for the Texas rate case. Therefore, the Company has decided to provide earnings guidance for 2016 with a range of $2.20 to $2.50 per basic share. The middle of the range assumes normal weather for the remainder of the year and that the PUCT approves the Unopposed Settlement during the second half of 2016.
The Company's guidance assumes normal operating conditions for the remainder of 2016. Other key factors and assumptions underlying the guidance can be found in the second quarter 2016 earnings presentation slides on the Company's website at http://www.epelectric.com.
Conference Call
A conference call to discuss the second quarter 2016 financial results is scheduled for 10:30 A.M. Eastern Time, on August 3, 2016. The dial-in number is 888-337-8198 with a conference ID number of 6337142. The international dial-in number is 719-325-2494. The conference leader will be Lisa Budtke, Director Treasury Services and Investor Relations. A replay will run through August 17, 2016 with a dial-in number of 888-203-1112 and a conference ID number of 6337142. The replay international dial-in number is 719-457-0820. The conference call and presentation slides will be webcast live on the Company's website found at http://www.epelectric.com. A replay of the webcast will be available shortly after the call.

 
Page 7 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


Safe Harbor
This news release 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 EE with the U.S. Securities and Exchange Commission (the "SEC"), and include, but is not limited to: (i) uncertainty regarding the actions and timing of matters in the Company's Texas rate case pending before the PUCT; (ii) 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; (iii) full and timely recovery of capital investments and operating costs through rates in Texas and New Mexico; (iv) uncertainties and instability in the general economy and the resulting impact on EE's sales and profitability; (v) changes in customers' demand for electricity as a result of energy efficiency initiatives and emerging competing services and technologies, including distributed generation; (vi) unanticipated increased costs associated with scheduled and unscheduled outages of generating plant; (vii) the size of our construction program and our ability to complete construction on budget and on time; (viii) potential delays in our construction schedule due to legal challenges or other reasons; (ix) costs at Palo Verde; (x) deregulation and competition in the electric utility industry; (xi) possible increased costs of compliance with environmental or other laws, regulations and policies; (xii) possible income tax and interest payments as a result of audit adjustments proposed by the IRS or state taxing authorities; (xiii) uncertainties and instability in the financial markets and the resulting impact on EE's ability to access the capital and credit markets; (xiv) possible physical or cyber attacks, intrusions or other catastrophic events; and (xv) 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.



Media Contacts
 
Eddie Gutierrez
 
915.543.5763
 
 
 
 
Investor Relations
 
Lisa Budtke
 
915.543.5947
 
 


 
Page 8 of 16
 
 
El Paso Electric Ÿ P.O.Box 982 Ÿ El Paso, Texas 79960
 


El Paso Electric Company
Statements of Operations
Quarter Ended June 30, 2016 and 2015
 (In thousands except for per share data)
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
2016
 
2015
 
Variance
 
 
 
 
 
 
 
 
 
Operating revenues
$
217,865

 
$
219,508

 
$
(1,643
)

Energy expenses:


 


 

 
 
Fuel
43,143

 
49,813

 
(6,670
)
 
 
Purchased and interchanged power
13,610

 
11,742

 
1,868

 
 
56,753

 
61,555

 
(4,802
)
 
Operating revenues net of energy expenses
161,112

 
157,953

 
3,159

 
Other operating expenses:
 
 
 
 
 
 
 
Other operations
56,817

 
57,656

 
(839
)
 
 
Maintenance
20,426

 
19,857

 
569

 
 
Depreciation and amortization
23,852

 
23,135

 
717

 
 
Taxes other than income taxes
15,320

 
15,433

 
(113
)
 
 
 
116,415

 
116,081

 
334

 
Operating income
44,697

 
41,872

 
2,825


Other income (deductions):
 
 
 
 
 
 
 
Allowance for equity funds used during construction
2,133

 
2,268

 
(135
)
 
 
Investment and interest income, net
3,591

 
1,398

 
2,193

 
 
Miscellaneous non-operating income
145

 
507

 
(362
)
 
 
Miscellaneous non-operating deductions
(890
)
 
(1,271
)
 
381

 
 
 
4,979

 
2,902

 
2,077

 
Interest charges (credits):
 
 
 
 
 
 
 
Interest on long-term debt and revolving credit facility
18,298

 
16,495

 
1,803

 
 
Other interest
272

 
354

 
(82
)
 
 
Capitalized interest
(1,253
)
 
(1,261
)
 
8

 
 
Allowance for borrowed funds used during construction
(1,375
)
 
(1,391
)
 
16

 
 
 
15,942

 
14,197

 
1,745

 
Income before income taxes
33,734

 
30,577

 
3,157

 
Income tax expense
11,450

 
9,505

 
1,945

 
              Net income
$
22,284

 
$
21,072

 
$
1,212

 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.55

 
$
0.52

 
$
0.03

 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.55

 
$
0.52

 
$
0.03

 
 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
0.310

 
$
0.295

 
$
0.015

 
Weighted average number of shares outstanding
40,345

 
40,270

 
75

 
Weighted average number of shares and dilutive
 
 
 
 
 
 
 
potential shares outstanding
40,399

 
40,303

 
96

 
 
 
 
 
 
 
 
 



Page 9 of 16


El Paso Electric Company
Statements of Operations
Six Months Ended June 30, 2016 and 2015
 (In thousands except for per share data)
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
2016
 
2015
 
Variance
 
 
 
 
 
 
 
 
 
Operating revenues
$
375,674

 
$
383,254

 
$
(7,580
)

Energy expenses
 
 
 
 
 
 
 
Fuel
77,462

 
87,542

 
(10,080
)
 
 
Purchased and interchanged power
23,256

 
22,917

 
339

 
 
 
100,718

 
110,459

 
(9,741
)
 
Operating revenues net of energy expenses
274,956

 
272,795

 
2,161

 
Other operating expenses:
 
 
 
 
 
 
 
 Other operations
115,204

 
113,255

 
1,949

 
 
 Maintenance
37,941

 
35,417

 
2,524

 
 
 Depreciation and amortization
47,145

 
44,700

 
2,445

 
 
 Taxes other than income taxes
30,132

 
29,591

 
541

 

230,422

 
222,963

 
7,459

 
Operating income
44,534

 
49,832

 
(5,298
)
 
Other income (deductions):
 
 
 
 
 
 
 
 Allowance for equity funds used during construction
4,469

 
6,543

 
(2,074
)
 
 
Investment and interest income, net
6,520

 
6,652

 
(132
)
 
 
Miscellaneous non-operating income
801

 
687

 
114

 
 
Miscellaneous non-operating deductions
(1,356
)
 
(1,762
)
 
406

 
 
10,434

 
12,120

 
(1,686
)

Interest charges (credits):
 
 
 
 
 
 
 
Interest on long-term debt and revolving credit facility
34,897

 
32,978

 
1,919

 
 
Other interest
834

 
517

 
317

 
 
Capitalized interest
(2,495
)
 
(2,550
)
 
55

 
 
Allowance for borrowed funds used during construction
(3,033
)
 
(4,012
)
 
979

 
 
 
30,203

 
26,933

 
3,270

 
Income before income taxes
24,765

 
35,019

 
(10,254
)
 
Income tax expense
8,289

 
10,489

 
(2,200
)
 
             Net income
$
16,476

 
$
24,530

 
$
(8,054
)
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.41

 
$
0.61

 
$
(0.20
)
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.41

 
$
0.61

 
$
(0.20
)
 
 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
0.605

 
$
0.575

 
$
0.030

 
Weighted average number of shares outstanding
40,335

 
40,257

 
78

 
Weighted average number of shares and dilutive
 
 
 
 
 
 
 
potential shares outstanding
40,381

 
40,285

 
96

 


Page 10 of 16




El Paso Electric Company
Cash Flow Summary
Six Months Ended June 30, 2016 and 2015
 (In thousands and Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
2015
 
Cash flows from operating activities:
 
 
 
 
 
Net income
$
16,476

 
$
24,530

 
 
Adjustments to reconcile net income to net cash provided by operations:
 
 
 
 
 
 
Depreciation and amortization of electric plant in service
47,145

 
44,700

 
 
 
Amortization of nuclear fuel
21,957

 
21,379

 
 
 
Deferred income taxes, net
6,695

 
8,789

 
 
 
Net gains on sale of decommissioning trust funds
(3,498
)
 
(3,563
)
 
 
 
Other
4,422

 
2,588

 
 
Change in:
 
 
 
 
 
 
Accounts receivable
(39,117
)
 
(20,782
)
 
 
 
Net over-collection (under-collection) of fuel revenues
(1,990
)
 
10,833

 
 
 
Accounts payable
(9,345
)
 
(15,528
)
 
 
 
Other
(2,052
)
 
(12,571
)
 
 
 
 
Net cash provided by operating activities
40,693

 
60,375

 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
Cash additions to utility property, plant and equipment
(102,785
)
 
(147,040
)
 
 
Cash additions to nuclear fuel
(20,478
)
 
(22,424
)
 
 
Decommissioning trust funds
(4,225
)
 
(3,871
)
 
 
Other
(2,161
)
 
(6,480
)
 
 
 
 
Net cash used for investing activities
(129,649
)
 
(179,815
)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
Dividends paid
(24,474
)
 
(23,220
)
 
 
Borrowings under the revolving credit facility, net
(40,124
)
 
113,540

 
 
Proceeds from issuance of senior notes
157,052

 
—

 
 
Other
(2,040
)
 
(1,020
)
 
 
 
 
Net cash provided by financing activities
90,414

 
89,300

 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
1,458

 
(30,140
)
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at beginning of period
8,149

 
40,504

 
 
 
 
 
 
 
 
 
Cash and cash equivalents at end of period
$
9,607

 
$
10,364

 
 
 
 
 
 
 
 
 



Page 11 of 16



El Paso Electric Company
Quarter Ended June 30, 2016 and 2015
Sales and Revenues Statistics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease)
 
 
 
 
 
 
 
2016
 
2015
 
Amount
 
Percentage
 
kWh sales (in thousands):
 
 
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
 
 
 
Residential
679,035

 
640,940

 
38,095

 
5.9
 %
 
 
 
Commercial and industrial, small
633,714

 
626,968

 
6,746

 
1.1
 %
 
 
 
Commercial and industrial, large
270,908

 
278,822

 
(7,914
)
 
(2.8
)%
 
 
 
Public authorities
405,277

 
419,882

 
(14,605
)
 
(3.5
)%
 
 
 
 
Total retail sales
1,988,934

 
1,966,612

 
22,322

 
1.1
 %
 
 
Wholesale:
 
 
 
 
 
 
 
 
 
 
Sales for resale
20,668

 
20,504

 
164

 
0.8
 %
 
 
 
Off-system sales
450,801

 
517,752

 
(66,951
)
 
(12.9
)%
 
 
 
 
Total wholesale sales
471,469

 
538,256

 
(66,787
)
 
(12.4
)%
 
 
 
 
 
Total kWh sales
2,460,403

 
2,504,868

 
(44,465
)
 
(1.8
)%
 
Operating revenues (in thousands):
 
 
 
 
 
 
 
 
 
Non-fuel base revenues:
 
 
 
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
62,679

 
$
59,422

 
$
3,257

 
5.5
 %
 
 
 
 
Commercial and industrial, small
54,707

 
53,864

 
843

 
1.6
 %
 
 
 
 
Commercial and industrial, large
9,489

 
9,879

 
(390
)
 
(3.9
)%
 
 
 
 
Public authorities
24,672

 
25,317

 
(645
)
 
(2.5
)%
 
 
 
 
 
Total retail non-fuel base revenues
151,547

 
148,482

 
3,065

 
2.1
 %
 
 
 
Wholesale:
 
 
 
 
 
 
 
 
 
 
 
Sales for resale
826

 
689

 
137

 
19.9
 %
 
 
 
 
 
Total non-fuel base revenues
152,373

 
149,171

 
3,202

 
2.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fuel revenues:
 
 
 
 
 
 
 
 
 
 
Recovered from customers during the period
26,219

 
28,949

 
(2,730
)
 
(9.4
)%
 
 
 
Under collection of fuel
6,096

 
4,855

 
1,241

 
25.6
 %
 
 
 
New Mexico fuel in base rates
16,602

 
16,437

 
165

 
1.0
 %
 
 
 
 
Total fuel revenues (a)
48,917

 
50,241

 
(1,324
)
 
(2.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Off-system sales:
 
 
 
 
 
 
 
 
 
 
Fuel cost
8,398

 
10,419

 
(2,021
)
 
(19.4
)%
 
 
 
Shared margins
852

 
2,316

 
(1,464
)
 
(63.2
)%
 
 
 
Retained margins
213

 
164

 
49

 
29.9
 %
 
 
 
 
Total off-system sales
9,463

 
12,899

 
(3,436
)
 
(26.6
)%
 
 
Other (b)
7,112

 
7,197

 
(85
)
 
(1.2
)%
 
 
 
 
Total operating revenues
$
217,865

 
$
219,508

 
$
(1,643
)
 
(0.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Includes deregulated Palo Verde Unit 3 revenues for the New Mexico jurisdiction of $1.9 million in each period.
(b)
Represents revenues with no related kWh sales.
 
 


Page 12 of 16


El Paso Electric Company
Quarter Ended June 30, 2016 and 2015
Other Statistical Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease)
 
 
 
2016
 
2015
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
 
 
Average number of retail customers: (a)
 
 
 
 
 
 
 
 
Residential
361,812

 
356,495

 
5,317

 
1.5
 %
 
Commercial and industrial, small
40,832

 
40,213

 
619

 
1.5
 %
 
Commercial and industrial, large
49

 
50

 
(1
)
 
(2.0
)%
 
Public authorities
5,274

 
5,273

 
1

 
—

 
 
Total
407,967

 
402,031

 
5,936

 
1.5
 %
 
 
 
 
 
 
 
 
 
 
Number of retail customers (end of period): (a)
 
 
 
 
 
 
 
 
Residential
362,417

 
356,932

 
5,485

 
1.5
 %
 
Commercial and industrial, small
40,901

 
40,356

 
545

 
1.4
 %
 
Commercial and industrial, large
49

 
49

 
—

 
—

 
Public authorities
5,251

 
5,298

 
(47
)
 
(0.9
)%
 
 
Total
408,618

 
402,635

 
5,983

 
1.5
 %
 
 
 
 
 
 
 
 
 
 
Weather statistics: (b)
 
 
 
 
10-Yr Average
 
 
 
Cooling degree days
965

 
929

 
1,031

 
 
 
Heating degree days
75

 
53

 
72

 
 
 
 
 
 
 
 
 
 
 
 
Generation and purchased power (kWh, in thousands):
 
 
 
 
Increase (Decrease)
 
 
 
2016
 
2015
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
 
 
 
Palo Verde
1,165,459

 
1,203,902

 
(38,443
)
 
(3.2
)%
 
Four Corners
82,143

 
173,427

 
(91,284
)
 
(52.6
)%
 
Gas plants
1,032,440

 
1,025,980

 
6,460

 
0.6
 %
 
 
Total generation
2,280,042

 
2,403,309

 
(123,267
)
 
(5.1
)%
 
Purchased power:
 
 
 
 
 
 
 
 
 
Photovoltaic
88,765

 
87,655

 
1,110

 
1.3
 %
 
 
Other
239,329

 
164,194

 
75,135

 
45.8
 %
 
 
Total purchased power
328,094

 
251,849

 
76,245

 
30.3
 %
 
 
Total available energy
2,608,136

 
2,655,158

 
(47,022
)
 
(1.8
)%
 
Line losses and Company use
147,733

 
150,290

 
(2,557
)
 
(1.7
)%
 
 
Total kWh sold
2,460,403

 
2,504,868

 
(44,465
)
 
(1.8
)%
 
 
 
 
 
 
 
 
 
 
 
Palo Verde capacity factor
85.8
%
 
88.6
%
 
(2.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
(a)
The number of retail customers is based on the number of service locations.
 
 
 
 
 
 
 
 
 
 
(b)
A degree day is recorded for each degree that the average outdoor temperature varies from a standard of 65 degrees Fahrenheit.
   

Page 13 of 16


El Paso Electric Company
Six Months Ended June 30, 2016 and 2015
Sales and Revenues Statistics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease)
 
 
 
 
 
 
 
2016
 
2015
 
Amount
 
Percentage
 
kWh sales (in thousands):
 
 
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
 
 
 
Residential
1,248,120

 
1,202,593

 
45,527

 
3.8
 %
 
 
 
Commercial and industrial, small
1,133,940

 
1,117,034

 
16,906

 
1.5
 %
 
 
 
Commercial and industrial, large
515,834

 
531,942

 
(16,108
)
 
(3.0
)%
 
 
 
Public authorities
751,512

 
762,975

 
(11,463
)
 
(1.5
)%
 
 
 
 
Total retail sales
3,649,406

 
3,614,544

 
34,862

 
1.0
 %
 
 
Wholesale:
 
 
 
 
 
 
 
 
 
 
Sales for resale
32,509

 
32,449

 
60

 
0.2
 %
 
 
 
Off-system sales
1,029,474

 
1,201,281

 
(171,807
)
 
(14.3
)%
 
 
 
 
Total wholesale sales
1,061,983

 
1,233,730

 
(171,747
)
 
(13.9
)%
 
 
 
 
 
Total kWh sales
4,711,389

 
4,848,274

 
(136,885
)
 
(2.8
)%
 
Operating revenues (in thousands):
 
 
 
 
 
 
 
 
 
Non-fuel base revenues:
 
 
 
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
110,422

 
$
106,362

 
$
4,060

 
3.8
 %
 
 
 
 
Commercial and industrial, small
86,847

 
85,834

 
1,013

 
1.2
 %
 
 
 
 
Commercial and industrial, large
17,582

 
18,128

 
(546
)
 
(3.0
)%
 
 
 
 
Public authorities
42,072

 
42,575

 
(503
)
 
(1.2
)%
 
 
 
 
 
Total retail non-fuel base revenues
256,923

 
252,899

 
4,024

 
1.6
 %
 
 
 
Wholesale:
 
 
 
 
 
 
 
 
 
 
 
Sales for resale
1,195

 
1,129

 
66

 
5.8
 %
 
 
 
 
 
Total non-fuel base revenues
258,118

 
254,028

 
4,090

 
1.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fuel revenues:
 
 
 
 
 
 
 
 
 
 
Recovered from customers during the period
48,753

 
63,371

 
(14,618
)
 
(23.1
)%
 
 
 
Under (over) collection of fuel (a)
1,993

 
(10,832
)
 
12,825

 
—

 
 
 
New Mexico fuel in base rates
32,828

 
32,550

 
278

 
0.9
 %
 
 
 
 
Total fuel revenues (b)
83,574

 
85,089

 
(1,515
)
 
(1.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Off-system sales:
 
 
 
 
 
 
 
 
 
 
Fuel cost
16,890

 
23,284

 
(6,394
)
 
(27.5
)%
 
 
 
Shared margins
3,407

 
6,252

 
(2,845
)
 
(45.5
)%
 
 
 
Retained margins
573

 
520

 
53

 
10.2
 %
 
 
 
 
Total off-system sales
20,870

 
30,056

 
(9,186
)
 
(30.6
)%
 
 
Other (c)
13,112

 
14,081

 
(969
)
 
(6.9
)%
 
 
 
 
Total operating revenues
$
375,674

 
$
383,254

 
$
(7,580
)
 
(2.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Includes Department of Energy refunds related to spent fuel storage of $1.6 million and $5.8 million, respectively.
(b)
Includes deregulated Palo Verde Unit 3 revenues for the New Mexico jurisdiction of $4.0 million and $5.0 million, respectively.
(c)
Represents revenues with no related kWh sales.
 
 


Page 14 of 16


El Paso Electric Company
Six Months Ended June 30, 2016 and 2015
Other Statistical Data
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease)
 
 
 
2016
 
2015
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
 
 
Average number of retail customers: (a)
 
 
 
 
 
 
 
 
Residential
360,929

 
355,625

 
5,304

 
1.5
 %
 
Commercial and industrial, small
40,684

 
40,127

 
557

 
1.4
 %
 
Commercial and industrial, large
49

 
50

 
(1
)
 
(2.0
)%
 
Public authorities
5,324

 
5,245

 
79

 
1.5
 %
 
 
Total
406,986

 
401,047

 
5,939

 
1.5
 %
 
 
 
 
 
 
 
 
 
 
Number of retail customers (end of period): (a)
 
 
 
 
 
 
 
 
Residential
362,417

 
356,932

 
5,485

 
1.5
 %
 
Commercial and industrial, small
40,901

 
40,356

 
545

 
1.4
 %
 
Commercial and industrial, large
49

 
49

 
—

 
—

 
Public authorities
5,251

 
5,298

 
(47
)
 
(0.9
)%
 
 
Total
408,618

 
402,635

 
5,983

 
1.5
 %
 
 
 
 
 
 
 
 
 
 
Weather statistics: (b)
 
 
 
 
10-Year Average
 
 
 
Cooling degree days
988

 
963

 
1,061

 
 
 
Heating degree days
1,129

 
1,206

 
1,255

 
 
 
 
 
 
 
 
 
 
 
 
Generation and purchased power (kWh, in thousands):
 
 
 
 
Increase (Decrease)
 
 
 
2016
 
2015
 
Amount
 
Percentage
 
 
 
 
 
 
 
 
 
 
 
Palo Verde
2,545,956

 
2,566,096

 
(20,140
)
 
(0.8
)%
 
Four Corners
163,149

 
310,645

 
(147,496
)
 
(47.5
)%
 
Gas plants
1,669,870

 
1,694,555

 
(24,685
)
 
(1.5
)%
 
 
Total generation
4,378,975

 
4,571,296

 
(192,321
)
 
(4.2
)%
 
Purchased power:
 
 
 
 
 
 
 
 
Photovoltaic
156,529

 
146,714

 
9,815

 
6.7
 %
 
Other
444,486

 
405,907

 
38,579

 
9.5
 %
 
 
Total purchased power
601,015

 
552,621

 
48,394

 
8.8
 %
 
 
Total available energy
4,979,990

 
5,123,917

 
(143,927
)
 
(2.8
)%
 
Line losses and Company use
268,601

 
275,643

 
(7,042
)
 
(2.6
)%
 
Total kWh sold
4,711,389

 
4,848,274

 
(136,885
)
 
(2.8
)%
 
Palo Verde capacity factor
93.7
%
 
95.0
%
 
(1.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
(a)
The number of retail customers presented is based on the number of service locations.
 
 
 
 
 
 
 
 
 
 
(b)
A degree day is recorded for each degree that the average outdoor temperature varies from a standard of 65 degrees Fahrenheit.


Page 15 of 16



El Paso Electric Company
Financial Statistics
At June 30, 2016 and 2015
(In thousands, except number of shares, book value per common share, and ratios)
 
 
 
 
 
 
Balance Sheet
 
2016
 
2015
 
 
 
 
 
 
Cash and cash equivalents
 
$
9,607

 
$
10,364

 
 
 
 
 
 
Common stock equity
 
$
1,010,940

 
$
984,678

Long-term debt (a)
 
1,278,301

 
1,122,264

 
Total capitalization
 
$
2,289,241

 
$
2,106,942

 
 
 
 
 
 
Current maturities of long-term debt
 
$
—

 
$
15,000

 
 
 
 
 
 
Short-term borrowings under the revolving credit facility
 
$
101,614

 
$
128,072

 
 
 
 
 
 
Number of shares - end of period
 
40,520,871

 
40,425,884

 
 
 
 
 
 
Book value per common share
 
$
24.95

 
$
24.36

 
 
 
 
 
 
Common equity ratio (b)
 
42.3
%
 
43.8
%
Debt ratio
 
57.7
%
 
56.2
%
 
 
 
 
 
 
(a)
In accordance with ASU 2015-03 (Subtopic 835-30), Interest- Imputation of Interest, debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The Company implemented ASU 2015-03 in the first quarter of 2016, and retrospectively to all periods presented.
 
 
 
 
 
 
(b)
The capitalization component includes common stock equity, long-term debt and the current maturities of long-term debt, and short-term borrowings under the RCF.
 
 
 
 
 
 


Page 16 of 16
Second Quarter 2016 Earnings Conference Call August 3, 2016

 
2 Safe Harbor Statement A A a 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:  Uncertainty regarding the actions and timing of matters in the Company’s Texas rate case pending before the PUCT  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  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 Recent Highlights  Became a coal-free utility on July 6, 2016, which will reduce one billion pounds of carbon dioxide from our annual emissions  Addition of large-scale solar resources has prevented another one billion pounds of carbon dioxide from being emitted into the atmosphere  Set a new native peak record of 1,892 MW on July 14, 2016  Obtained a Final Order for the New Mexico Rate Case on June 8, 2016  Filed an unopposed settlement with the Public Utility Commission of Texas (PUCT) for our Texas rate case on July 21, 2016  Construction of Montana Power Station Unit 4 remains on schedule for September 2016 in-service date  Started working with the union to negotiate a new collective bargaining agreement

 
4  On July 15, 2016, our region was hit with a massive wind storm while also experiencing triple digit temperatures  Wind gusts exceeding 60 miles per hour caused damage to numerous transmission and distribution poles Recent Weather Event  El Paso Electric Company employees worked throughout the evening in hazardous conditions to restore power to thousands of customers in a safe manner within two hours

 
5 Texas Rate Case Update (Docket No. 44941)  On July 21, 2016, EE filed an unopposed settlement with the PUCT containing the following terms  A non-fuel base rate increase of $37mm  An additional non-fuel base rate increase of $3.7mm for Four Corners revenue requirement  Lower annual depreciation expense of approximately $8.5mm  Return on Equity of 9.7% for AFUDC purposes  Substantially all new plant in service included in rate base  Recovery for most of the rate case expenses up to a date certain  Removal of the separate treatment for residential customers with solar generation  Non-fuel base rates will relate back to January 12, 2016  A proposed final order is scheduled to be considered by the PUCT on August 18, 2016  Approval of the settlement by the PUCT would resolve the rate case, including the revenue requirement issue for Four Corners and rate case expenses

 
6 New Mexico Rate Case Update (Case No. 15-00127-UT)  On June 8th the NMPRC issued a final order approving an annual increase of approximately $1.1mm. Key terms include:  100% of plant in service deemed reasonable and necessary  Reduction in rate base for the pension & benefits liability*  Return on Equity of 9.48%  Disallowance of several smaller cost of service items  Non-fuel base rates were effective July 1, 2016 * Under a separate case number (Case No. 16-00138-UT), EE is required to provide additional information on the unfunded liability for other post-employment benefits.

 
7 Potential Timeline – Next Rate Cases New Mexico Texas May Jul Sep Nov Jan 2017 Mar May Jul Sep Nov Jan 2018 2018 Final Order Q1 2018 Final Order 4Q 2017 Effective Date of Rates(2) 3Q 2017 File Rate Case(1) 1Q 2017 File Rate Case (1) 1Q 2017 MPS Unit 4 In-Service MPS Unit 4 In-Service Historical Test Year End Sep 2016 Historical Test Year End Sep 2016 MPS Unit 3 In-Service May 2016 MPS Unit 3 In-Service May 2016 2016 (1) New Mexico and Texas Rate Case filings will use a historical test year ended September 2016 and include MPS units 3 & 4 in requested rate base. (2) Section 36.211 of the Texas Utilities Code, which was added by House Bill 1535 in 2015, allows for rates to relate back to the 155th day after a rate case is filed. For financial reporting purposes the revenues and other impacts will be recognized when a resolution is reached in the Texas rate case.

 
8 2nd Quarter Financial Results  2nd Quarter 2016 net income of $22.3 million or $0.55 per share, compared to 2nd Quarter 2015 net income of $21.1 million or $0.52 per share

 
9 2nd Quarter Key Earnings Drivers Basic EPS Description June 30, 2015 0.52$ Changes In: Retail non-fuel base revenues 0.05 Increased primarily due to an increase in residential and small commercial customers served and warmer weather. Investment and interest income 0.04 Increased due to higher realized gains on securities sold from EE's Palo Verde decommissioning trust fund portfolio. Interest on long-term debt (0.03) Increased due to the interest accrued on $150 million aggregate principal amount of senior notes issued in March 2016. Depreciation and amortization (0.01) Increased primarily due to an increase in depreciable plant, including MPS Unit 3 which was placed in service in May 2016, partially offset by a change in the estimated useful life of certain software assets. Changes in the effective tax rate (0.02) Increased due to the reduction of the domestic production manufacturing deduction and changes in state taxes. June 30, 2016 0.55$

 
10 2nd Quarter Retail Revenues and Sales Non-Fuel Base Revenues (000's) Percent Change * MWH Percent Change * Residential 62,679$ 5.5% 679,035 5.9% C&I Small 54,707 1.6% 633,714 1.1% C&I Large 9,489 (3.9%) 270,908 (2.8%) Public Authorities 24,672 (2.5%) 405,277 (3.5%) Total R t il 151,547$ 2.1% 1,988,934 1.1% Cooling Degree Days 965 3.9% Average Retail Customers 407,967 1.5% * Percent Change expressed as change from Q2 2016 over Q2 2015

 
11 Historical Weather Summary 824 1,008 1,013 995 1,169 1,178 1,138 1,095 929 965 0 200 400 600 800 1,000 1,200 1,400 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2nd Quarter Cooling Degree Day’s (CDD’s) 10-Yr CDD Average – 1,031 2nd Quarter CDD’s • 6.4% Below 10-Year Average • 3.9% Above 2nd Quarter 2015

 
12 Capital Requirements & Liquidity  Expended $102.8mm for additions to utility plant for the six months ended June 30, 2016  On July 21, 2016, the Board declared a quarterly cash dividend of $0.31 per share payable on September 30, 2016 to shareholders of record as of September 14, 2016  EE made $24.5mm in dividend payments for the six months ended June 30, 2016  On June 30, 2016, EE had liquidity of $207.5mm including a cash balance of $9.6mm and unused capacity under the revolving credit facility  Capital expenditures for utility plant in 2016 are anticipated to be approximately $234mm

 
13 2016 Earnings Guidance 2015 EPS Actual 2016 Earnings Guidance Earnings Guidance $2.03 $2.50 $2.20 The middle of the range assumes normal weather and rate relief for:  Texas - based on unopposed settlement in Docket No. 44941 (rates relate back to January 12, 2016)(2) : • $40.7mm non-fuel base rate increase, which includes $3.7mm for Four Corners revenue requirement • $8.5mm lower annual depreciation expense • ROE of 9.7% for AFUDC purposes  New Mexico - $1.1mm non-fuel base rate increase based on final order in Case No. 15-00127-UT (effective July 1, 2016) Initiating an earnings guidance range of $2.20 to $2.50 per share (1) Assumes normal operating conditions for the remainder of 2016 (2) Assumes PUCT approves the unopposed settlement during the second half of 2016 (1)

 
14 2016 Earnings Drivers Positive Year over Year Impact on EPS Drivers Negative Year over Year Impact on EPS Rate relief Customer growth Depreciation (1) Effective Tax Rate (estimated to be ~ 36% in 2016) Return to normal weather Property Taxes (1) Investment and interest income Interest expense (1) O&M (1) AFUDC (1) Other (1) YOY decreases related to regulatory lag for MPS Units 3 & 4 equate to approximately $0.15 per share. $0.15 per share estimate includes $0.09 per share for interest related to $150mm of 5.0% Senior Notes issued on March 24, 2016.  In Texas, new rates will relate back to January 12, 2016  We believe we can record the revenue and other impacts of the unopposed settlement for financial reporting purposes during the second half of 2016

 
15 Q & A

 

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