El Paso Electric Company (NYSE:EE):
Overview
- For the third quarter of 2016, El Paso
Electric Company ("EE" or the "Company") reported net income of
$74.6 million, or $1.84 basic and diluted earnings per share. In
the third quarter of 2015, EE reported net income of $56.7 million,
or $1.40 basic and diluted earnings per share.
- For the nine months ended September 30,
2016, EE reported net income of $91.1 million, or $2.25 basic and
diluted earnings per share. Net income for the nine months ended
September 30, 2015 was $81.3 million, or $2.01 basic and diluted
earnings per share.
“The third quarter of 2016 was a pivotal quarter for the
Company. We completed our more than $1.4 billion construction
program, as we put the last unit of the Montana Power Station into
commercial operation. We also received rate relief in Texas and New
Mexico for Montana Units 1 and 2 and other plant added in the first
phase of that program,” said Mary Kipp, Chief Executive Officer.
“The August 25, 2016 final order from the Public Utility Commission
of Texas approving an unopposed settlement allowed us to
retroactively recognize revenues back to January 12, 2016. Also
during the third quarter of 2016, we completed the sale of Four
Corners, which means the Company no longer owns any coal-fired
generation. Looking ahead, we anticipate filing new rate cases in
Texas and New Mexico in the first half of 2017, primarily for the
recovery of costs associated with the second phase of our
construction program, including Montana Units 3 and 4, which are
helping meet continued customer growth."
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 Nine
Months Ended
Pre-TaxEffect
After-TaxEffect
BasicEPS
Pre-TaxEffect
After-TaxEffect
BasicEPS
September 30, 2015 $ 56,740 $ 1.40 $ 81,270 $ 2.01 Changes in:
Retail non-fuel base revenues $ 32,544 21,153 0.52 $ 36,568 23,769
0.59 Depreciation and amortization 6,428 4,179 0.10 3,983 2,589
0.06 Other revenues 1,275 829 0.02 714 464 0.01 O&M at
fossil-fuel generating plants 1,074 698 0.02 (2,029 ) (1,319 )
(0.03 ) Changes in the effective tax rate (5,288 ) (0.13 ) (5,952 )
(0.15 ) Investment and interest income (2,139 ) (1,719 ) (0.04 )
(2,271 ) (1,804 ) (0.04 ) Interest on long-term debt (1,859 )
(1,209 ) (0.03 ) (3,778 )
(2,455
) (0.06 ) Allowance for funds used during construction (698 ) (619
) (0.02 ) (3,751 ) (3,330 ) (0.08 ) Taxes other than income taxes
(912 ) (592 ) (0.01 ) (1,453 ) (944 ) (0.02 ) Other 717 464
0.01 (1,807 ) (1,176 ) (0.04 )
September 30, 2016 $ 74,636 $ 1.84 $ 91,112 $
2.25
Financial Effect of the Public Utility Commission of Texas
("PUCT") Final Order
On August 25, 2016, the PUCT issued its final order in the
Company's rate case in Docket No. 44941 (the "PUCT Final Order")
approving the Joint Motion to Implement Uncontested Amended and
Restated Stipulation and Agreement (the "Unopposed Settlement")
(See "2015 Texas Retail Case Filing" for a discussion of the PUCT
Final Order). Given the uncertainties regarding the ultimate
resolution of the case, the Company did not recognize the financial
effects of the Unopposed Settlement in the Company's Statement of
Operations prior to the issuance of the PUCT Final Order. The
increase in net income resulting from the PUCT Final Order was
approximately $23.3 million or $0.58 per basic earnings per share.
Approximately $10.7 million, after tax, of this impact relates to
the period from July 1, 2016 through September 30, 2016 and
approximately $12.6 million, after tax, relates to the period from
January 12, 2016 through June 30, 2016.
Regulatory Lag
The Company completed construction of Montana Power Station
("MPS") Units 3 and 4 and placed them into service on May 3, 2016
and September 15, 2016, respectively. The placement of these assets
into service are having and will continue to have a negative impact
on the Company's 2016 and 2017 financial results until new rates
are effective due to the regulatory lag associated with the
recovery of related costs. The primary impacts 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. The Company anticipates
filing new rate cases in Texas and New Mexico in the first half of
2017 to reflect MPS Units 3 and 4 in rate base.
Third Quarter 2016
Income for the quarter ended September 30, 2016, when compared
to the quarter ended September 30, 2015, was positively affected by
(presented on a pre-tax basis):
- Increased retail non-fuel base revenues
primarily due to the recognition of $33.7 million related to the
PUCT Final Order. The components of the increase are: (i) $26.0
million related to interim rate increases effective April 1, 2016;
(ii) $4.8 million of relate back revenues from January 12, 2016
through March 31, 2016; and (iii) $2.9 million related to
additional Four Corners costs. Approximately $17.2 million of this
impact relates to the period from January 12, 2016 through June 30,
2016, which includes $10.8 million related to interim rate
increases, $4.8 million of relate back revenues from January 12,
2016 and $1.6 million related to Four Corners additional costs.
Approximately $16.5 million of this impact relates to the period
from July 1, 2016 through September 30, 2016, which includes $15.2
million related to interim rate increases and $1.3 million related
to Four Corners additional costs.
- Decreased depreciation and amortization
primarily due to a $7.4 million reduction approved by the PUCT and
$0.3 million reduction approved by the New Mexico Public Regulation
Commission ("NMPRC") in their final orders. The decrease was
partially offset by an increase in depreciation due to an increase
in plant, including MPS Units 3 and 4 which were placed in service
in May and September 2016, respectively.
- Increased other revenues primarily due
to the recognition of miscellaneous service charges of $1.1 million
related to the PUCT Final Order.
- Decreased O&M expenses related to
the Company's fossil-fuel generating plants primarily due to the
sale of the Company's interest in Four Corners in July 2016. This
decrease was partially offset by increased O&M expenses
primarily due to an outage at Newman Unit 4 beginning in June
2016.
Income for the quarter ended September 30, 2016, when compared
to the quarter ended September 30, 2015, was negatively affected by
(presented on a pre-tax basis):
- Increase in effective tax rate
primarily due to the change to normalize state income taxes in
accordance with the PUCT's and NMPRC's most recent rate cases and
the loss of the domestic production activities deduction.
- Decreased investment and interest
income primarily due to lower realized gains on securities sold
from the Company’s Palo Verde decommissioning trust in the third
quarter of 2016 compared to the third quarter of 2015. The Company
experienced increased investment and interest income due to the
Company's efforts to further diversify its Palo Verde
decommissioning trust fund investments during the third quarter of
2015.
- Increased interest on long-term debt
due to the $150 million senior notes issued in March 2016.
- Decreased AFUDC due to lower balances
of construction work in progress ("CWIP"), primarily due to MPS
Units 3 and 4 being placed in service in May and September 2016,
respectively, and a reduction in the AFUDC rate effective January
2016 as a result of the PUCT Final Order.
- Increased taxes other than income taxes
primarily due to increased billed revenues in Texas.
First Nine Months of 2016
Income for the nine months ended September 30, 2016, when
compared to the nine months ended September 30, 2015, was
positively affected by (presented on a pre-tax basis):
- Increased retail non-fuel base revenues
primarily due to the recognition of $33.7 million related to the
PUCT Final Order. The components of the increase are: (i) $26.0
million related to interim rate increases effective April 1, 2016;
(ii) $4.8 million of relate back revenues from January 12, 2016
through March 31, 2016; and (iii) $2.9 million related to
additional Four Corners costs.
- Decreased depreciation and amortization
primarily due to (i) a $7.4 million reduction approved by the PUCT
and $0.3 million reduction approved by the NMPRC in their final
orders and (ii) the change in the estimated useful life of certain
intangible software assets. These decreases were partially offset
by increased depreciation and amortization related to an increase
in plant, primarily due to MPS Units 1 and 2 and the Eastside
Operations Center ("EOC") being placed in service in March 2015 and
MPS Units 3 and 4 being placed in service in May and September
2016, respectively.
- Increased other revenues primarily due
to the recognition of miscellaneous service charges of $1.1 million
related to the PUCT Final Order.
Income for the nine months ended September 30, 2016, when
compared to the nine months ended September 30, 2015, was
negatively affected by (presented on a pre-tax basis):
- Increase in effective tax rate
primarily due to the change to normalize state income taxes in
accordance with the PUCT's and NMPRC's most recent rate cases and
the loss of the domestic production activities deduction.
- Decreased AFUDC due to lower balances
of CWIP, primarily due to MPS Units 1 and 2 and the EOC being
placed in service in March 2015, partially offset by AFUDC earned
on construction costs related to MPS Units 3 and 4 in 2016 and a
reduction in the AFUDC rate effective January 2016 as a result of
the PUCT Final Order.
- Increased interest on long-term debt
due to the $150 million senior notes issued in March 2016.
- Decreased investment and interest
income primarily due to lower realized gains on securities sold
from the Company’s Palo Verde decommissioning trust in the nine
months ended September 30, 2016 compared to the nine months ended
September 30, 2015. The Company experienced increased investment
and interest income due to the Company's efforts to further
diversify its Palo Verde decommissioning trust fund investments
during the nine months ended September 30, 2015.
- Increased O&M expenses related to
our fossil-fuel generating plants, primarily due to outages at
Newman Unit 4 and Rio Grande Unit 7 and other maintenance
activities. These increases were partially offset by a maintenance
outage at Newman Unit 5 and Unit 2 in the nine months ended
September 30, 2015, with no comparable expense in the nine months
ended September 30, 2016.
- Increased taxes other than income taxes
primarily due to increased property tax rates and valuations in
Texas as a result of MPS Units 1 and 2 and the EOC being placed in
service during the first quarter of 2015 and increased billed
revenues in Texas. These increases were partially offset by
decreased property taxes in Arizona due to decreased property
values.
Retail Non-fuel Base Revenues
Excluding the $33.7 million PUCT Final Order impact, for the
third quarter of 2016, retail non-fuel base revenues decreased $1.2
million, pre-tax or 0.6% compared to the third quarter of 2015.
This decrease was primarily due to decreased revenues from large
commercial and industrial customers of $1.9 million due to a 6.2%
decrease in kWh sales, due primarily to reduced demand by the steel
manufacturing industry, and an interruptible rate surcharge to a
large customer in 2015. In addition, the negative effect on overall
kWh sales due to milder weather during the third quarter of 2016
compared to the third quarter of 2015 more than offset the positive
effect on kWh sales due to customer growth of 1.5% and the increase
in rates in New Mexico. This reduction was partially offset by an
increase of $0.9 million in revenues from small commercial and
industrial customers resulting from a 1.9% increase in the average
number of customers. Non-fuel base revenues and kWh sales for the
third quarter of 2016 and 2015 are provided by customer class on
page 12 of this release.
Excluding the $33.7 million PUCT Final Order impact, for the
nine months ended September 30, 2016, retail non-fuel base revenues
increased $2.9 million, pre-tax or 0.6% compared to the nine months
ended September 30, 2015. This increase was primarily due to
increased revenues from residential customers of $3.6 million due
to a 1.6% increase in kWh sales and increased revenues from small
commercial and industrial customers of $1.9 million due to a 0.7%
increase in kWh sales. Increased kWh sales from residential
customers and small commercial and industrial customers were driven
by a 1.5% increase in the average number of customers offset in
part by milder weather during the nine months ended September 30,
2016 compared to the nine months ended September 30, 2015. Revenues
decreased $2.5 million from large commercial and industrial
customers during the nine months ended September 30, 2016 compared
to the nine months ended September 30, 2015 due to a 4.1% decrease
in kWh sales, due primarily to reduced demand by the steel
manufacturing industry, and an interruptible rate surcharge to a
large customer in 2015. Non-fuel base revenues and kWh sales for
the nine months ended September 30, 2016 and 2015 are provided by
customer class on page 14 of this release.
2015 Rate Cases
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 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.
On August 25, 2016, the PUCT issued the PUCT Final Order, as
proposed, approving the Unopposed Settlement that was filed with
the PUCT on July 21, 2016. The PUCT Final Order provides for the
following: (i) an annual non-fuel 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, all as
specified in the uncontested Stipulation and Agreement filed with
the PUCT; (ii) an additional annual non-fuel base rate increase of
$3.7 million related to Four Corners Generating Station costs,
which will be collected through a surcharge terminating on July 12,
2017; (iii) removing the separate treatment for residential
customers with solar systems; (iv) allowing the Company to recover
$3.1 million in rate case expenses through a separate surcharge;
and (v) allowing the Company to recover revenues associated with
the relate back of rates to consumption on and after January 12,
2016 through March 31, 2016 (aggregating $4.8 million) through a
separate surcharge. The costs of serving residential customers with
solar generation will be addressed in a future proceeding.
Interim rates, associated with the annual non-fuel rate increase
of $37 million, became effective on April 1, 2016. The additional
surcharges associated with the incremental Four Corners Generating
Station costs, rate case expenses and the relate back of rates to
consumption on and after January 12, 2016 through March 31, 2016
were implemented on October 1, 2016.
A detail of the impacts of the PUCT Final Order on the quarter
and nine months ended September 30, 2016, is provided on page 17 of
this release.
2015 New Mexico Rate Case Filing
On May 11, 2015, the Company filed with the NMPRC in Case No.
15-00127-UT, for an annual increase in non-fuel base rates of
approximately $8.6 million or 7.1%. 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 and implemented
at such time.
Commercial Operation of Montana Power Station Unit 3 and Unit
4
The Company has completed construction of the MPS placing into
service Units 3 and 4 on May 3, 2016 and September 15, 2016,
respectively, and the related common facilities and transmission
systems at a cost of approximately $152.8 million for the two
units. Similar to Units 1 and 2, each unit is an 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. Each of the four units will work in
concert with the Company's renewable energy sources and will
generate enough energy to power more than 40,000 homes in the
Company's growing service territory.
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 and 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. No significant gain or loss was recorded
upon the closing of the sale.
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 44.6% of our capitalization (common stock equity,
long-term debt, current maturities of long-term debt and short-term
borrowings under the RCF). At September 30, 2016, we had a balance
of $10.0 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 including the upcoming
maturities of long term debt.
Cash flows from operations for the nine months ended September
30, 2016 were $176.8 million, compared to $176.4 million for
the nine months ended September 30, 2015. The primary factors
affecting the change in cash flows from operations were increases
resulting from increased revenues due to the PUCT and NMPRC rate
orders and increases in accounts payable, and deferred income
taxes. Offsetting the increases in cash flows were increases in net
under-collection of fuel revenues, deferred charges and credits and
accounts receivable. 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 nine months ended September 30, 2016, the
Company had a fuel under-recovery of $11.8 million compared to an
over-recovery of fuel costs of $10.9 million during the nine months
ended September 30, 2015. At September 30, 2016, we had a net fuel
under-recovery balance of $7.7 million, including an under-recovery
of $8.9 million in Texas and an under-recovery of $0.1 million in
the Federal Energy Regulatory Commission ("FERC") jurisdiction,
offset by an over-recovery of $1.3 million in New Mexico.
During the nine months ended September 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 $168.8 million for the nine months ended
September 30, 2016 and $211.5 million for the nine months ended
September 30, 2015. Capital expenditures for 2016 are expected to
be approximately $233 million. Capital requirements for purchases
of nuclear fuel were $29.9 million for the nine months ended
September 30, 2016, and $30.5 million for the nine months
ended September 30, 2015.
On September 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 September 14, 2016. We paid a total of
$37.0 million in cash dividends during the nine months ended
September 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 nine
months ended September 30, 2016. As of September 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
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 $131.2 million at
September 30, 2016, of which $36.2 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 $128.7 million as of September 30, 2015,
of which $33.7 million had been borrowed under the RCF and $95.0
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 September 30, 2016, $19.0 million was
outstanding under the RCF for working capital and general corporate
purposes, which may include funding capital expenditures. At
September 30, 2015, $85.0 million was outstanding under the RCF for
working capital and general corporate purposes. Total aggregate
borrowings under the RCF at September 30, 2016 were $55.2 million
with an additional $244.3 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
included 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
We are adjusting and narrowing our earnings guidance for 2016 to
a range of $2.25 to $2.40 per basic share from the previous range
of $2.20 to $2.50 per basic share. The middle portion of guidance
assumes normal weather for the remainder of the year.
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 third quarter 2016 earnings
presentation slides on the Company's website at http://www.epelectric.com.
Conference Call
A conference call to discuss the third quarter 2016 financial
results is scheduled for 10:30 A.M. Eastern Time, on November
2, 2016. The dial-in number is 888-481-2844 with a conference ID
number of 3100623. The international dial-in number is
719-457-2604. The conference leader will be Lisa Budtke, Director
Treasury Services and Investor Relations. A replay will run through
November 16, 2016 with a dial-in number of 888-203-1112 and a
conference ID number of 3100623. 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.
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) 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; (ii) full and timely
recovery of capital investments and operating costs through rates
in Texas and New Mexico; (iii) uncertainties and instability in the
general economy and the resulting impact on EE's sales and
profitability; (iv) changes in customers' demand for electricity as
a result of energy efficiency initiatives and emerging competing
services and technologies, including distributed generation; (v)
unanticipated increased costs associated with scheduled and
unscheduled outages of generating plant; (vi) 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;
(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.
El Paso Electric Company Statements of
Operations Quarter Ended September 30, 2016 and 2015
(In thousands except for per share data) (Unaudited)
2016 2015
Variance Operating revenues $ 323,225 $
289,713 $ 33,512
Energy expenses: Fuel 54,355
60,798 (6,443 ) Purchased and interchanged power 24,459
19,520 4,939 78,814
80,318 (1,504 )
Operating revenues
net of energy expenses 244,411 209,395
35,016
Other operating expenses: Other
operations 64,373 65,360 (987 ) Maintenance 14,064 14,355 (291 )
Depreciation and amortization 15,952 22,380 (6,428 ) Taxes other
than income taxes 20,165 19,253
912 114,554 121,348
(6,794 )
Operating income 129,857
88,047 41,810
Other income
(deductions): Allowance for equity funds used during
construction 1,398 1,874 (476 ) Investment and interest income, net
3,773 5,912 (2,139 ) Miscellaneous non-operating income 272 850
(578 ) Miscellaneous non-operating deductions (1,312 )
(1,015 ) (297 ) 4,131 7,621
(3,490 )
Interest charges (credits): Interest
on long-term debt and revolving credit facility 18,324 16,465 1,859
Other interest 268 424 (156 ) Capitalized interest (1,243 ) (1,208
) (35 ) Allowance for borrowed funds used during construction
(1,131 ) (1,353 ) 222 16,218
14,328 1,890
Income before
income taxes 117,770 81,340 36,430
Income tax expense
43,134 24,600 18,534
Net income $ 74,636 $
56,740 $ 17,896 Basic
earnings per share $ 1.84 $
1.40 $ 0.44 Diluted
earnings per share $ 1.84 $
1.40 $ 0.44 Dividends
declared per share of common stock $ 0.310 $ 0.295
$ 0.015
Weighted average number of shares
outstanding 40,364 40,289 75
Weighted average number of shares and
dilutive potential shares outstanding
40,426 40,330 96
El Paso Electric Company Statements of
Operations Nine Months Ended September 30, 2016 and 2015
(In thousands except for per share data) (Unaudited)
2016 2015
Variance Operating revenues $ 698,899 $
672,967 $ 25,932
Energy expenses Fuel 131,817 148,340
(16,523 ) Purchased and interchanged power 47,715
42,437 5,278 179,532
190,777 (11,245 )
Operating revenues net of
energy expenses 519,367 482,190
37,177
Other operating expenses: Other
operations 179,577 178,615 962 Maintenance 52,005 49,772 2,233
Depreciation and amortization 63,097 67,080 (3,983 ) Taxes other
than income taxes 50,297 48,844
1,453 344,976 344,311 665
Operating income 174,391 137,879
36,512
Other income (deductions):
Allowance for equity funds used during construction 5,867 8,417
(2,550 ) Investment and interest income, net 10,293 12,564 (2,271 )
Miscellaneous non-operating income 1,073 1,537 (464 ) Miscellaneous
non-operating deductions (2,668 ) (2,777 ) 109
14,565 19,741 (5,176 )
Interest charges (credits):
Interest on long-term debt and revolving credit facility 53,221
49,443 3,778 Other interest 1,102 941 161 Capitalized interest
(3,738 ) (3,758 ) 20 Allowance for borrowed funds used during
construction (4,164 ) (5,365 ) 1,201
46,421 41,261 5,160
Income before income taxes 142,535 116,359 26,176
Income
tax expense 51,423 35,089
16,334
Net income $ 91,112
$ 81,270 $ 9,842
Basic earnings per share $ 2.25
$ 2.01 $ 0.24
Diluted earnings per share $ 2.25
$ 2.01 $ 0.24
Dividends declared per share of common stock $ 0.915
$ 0.870 $ 0.045
Weighted average number of shares
outstanding 40,345 40,268 77
Weighted average number of shares and
dilutive potential shares outstanding
40,396 40,300 96
El Paso Electric Company
Cash Flow Summary Nine Months Ended September 30, 2016
and 2015 (In thousands and Unaudited)
2016 2015 Cash flows from operating
activities: Net income $ 91,112 $ 81,270 Adjustments to
reconcile net income to net cash provided by operations:
Depreciation and amortization of electric plant in service 63,097
67,080 Amortization of nuclear fuel 33,088 32,864 Deferred income
taxes, net 48,457 32,090 Net gains on sale of decommissioning trust
funds (5,570 ) (7,887 ) Other 6,561 4,656 Change in: Accounts
receivable (46,371 ) (33,156 ) Net over-collection
(under-collection) of fuel revenues (11,766 ) 10,934 Accounts
payable 6,994 (14,397 ) Other (8,822 ) 2,976
Net cash provided by operating activities
176,780 176,430 Cash
flows from investing activities: Cash additions to utility
property, plant and equipment (168,830 ) (211,516 ) Cash additions
to nuclear fuel (29,929 ) (30,483 ) Decommissioning trust funds
(6,298 ) (6,240 ) Other (1,268 ) (9,106 )
Net cash
used for investing activities (206,325 )
(257,345 ) Cash flows from financing
activities: Dividends paid (37,021 ) (35,138 ) Borrowings under
the revolving credit facility, net (86,546 ) 104,161 Payment on
maturing RGRT senior notes — (15,000 ) Proceeds from issuance of
senior notes 157,052 — Other (2,045 ) (1,039 )
Net
cash provided by financing activities 31,440
52,984 Net increase
(decrease) in cash and cash equivalents 1,895
(27,931 ) Cash and cash equivalents at
beginning of period 8,149
40,504 Cash and cash equivalents at end of
period $ 10,044 $ 12,573
El Paso Electric Company Quarter
Ended September 30, 2016 and 2015 Sales and Revenues
Statistics
Increase (Decrease) 2016 2015 Amount
Percentage
kWh sales (in
thousands):
Retail: Residential 990,989 1,000,997 (10,008 ) (1.0 )% Commercial
and industrial, small 715,678 718,897 (3,219 ) (0.4 )% Commercial
and industrial, large 253,591 270,240 (16,649 ) (6.2 )% Public
authorities 448,355 459,212 (10,857 )
(2.4 )% Total retail sales 2,408,613 2,449,346
(40,733 ) (1.7 )% Wholesale: Sales for resale 19,861 22,126
(2,265 ) (10.2 )% Off-system sales 422,245 711,934
(289,689 ) (40.7 )% Total wholesale sales
442,106 734,060 (291,954 ) (39.8 )% Total kWh
sales 2,850,719 3,183,406 (332,687 )
(10.5 )%
Operating
revenues (in thousands):
Non-fuel base revenues: Retail: Residential $ 113,596 $ 90,803 $
22,793 25.1 % Commercial and industrial, small 67,810 62,966 4,844
7.7 % Commercial and industrial, large 13,037 13,327 (290 ) (2.2 )%
Public authorities 34,785 29,588 5,197
17.6 % Total retail non-fuel base revenues (a) 229,228
196,684 32,544 16.5 % Wholesale: Sales for resale 791
936 (145 ) (15.5 )% Total non-fuel base revenues
230,019 197,620 32,399 16.4 %
Fuel revenues: Recovered from customers during the period
58,614 39,614 19,000 48.0 % Under (over) collection of fuel 9,775
(101 ) 9,876 — New Mexico fuel in base rates 451
23,215 (22,764 ) (98.1 )% Total fuel revenues (b)
68,840 62,728 6,112 9.7 %
Off-system sales: Fuel cost 12,289 17,920 (5,631 ) (31.4 )% Shared
margins 273 2,446 (2,173 ) (88.8 )% Retained margins 287
435 (148 ) (34.0 )% Total off-system sales
12,849 20,801 (7,952 ) (38.2 )% Other (c) (d) 11,517
8,564 2,953 34.5 % Total operating revenues $
323,225 $ 289,713 $ 33,512 11.6 % (a) Includes
$33.7 million increase resulting from the PUCT Final Order. (b)
Includes deregulated Palo Verde Unit 3 revenues for the New Mexico
jurisdiction of $2.6 million and $2.5 million, respectively. (c)
Represents revenues with no related kWh sales and includes $1.1
million increase resulting from the PUCT Final Order. (d) Includes
energy efficiency bonus of $0.5 million in 2016.
El Paso Electric Company Quarter Ended September 30, 2016
and 2015 Other Statistical Data
Increase
(Decrease) 2016 2015 Amount
Percentage
Average number of
retail customers: (a)
Residential 362,992 357,913 5,079 1.4 % Commercial and industrial,
small 41,121 40,368 753 1.9 % Commercial and industrial, large 49
49 — — Public authorities 5,279 5,240
39 0.7 % Total 409,441 403,570
5,871 1.5 %
Number of retail
customers (end of period): (a)
Residential 363,247 358,421 4,826 1.3 % Commercial and industrial,
small 41,162 40,385 777 1.9 % Commercial and industrial, large 49
49 — — Public authorities 5,264 5,232
32 0.6 % Total 409,722 404,087
5,635 1.4 %
Weather
statistics: (b)
10-Yr Average Cooling degree days 1,596 1,732 1,533 Heating
degree days 5 — 1
Generation and
purchased power (kWh, in thousands):
Increase (Decrease) 2016 2015 Amount
Percentage Palo Verde 1,312,350 1,374,274 (61,924 )
(4.5 )% Four Corners (c) 12,109 162,771 (150,662 ) (92.6 )% Gas
plants 1,115,188 1,351,775
(236,587 ) (17.5 )% Total generation 2,439,647 2,888,820 (449,173 )
(15.5 )% Purchased power: Photovoltaic 78,412 77,104 1,308 1.7 %
Other 514,456 421,571 92,885
22.0 % Total purchased power 592,868
498,675 94,193 18.9 % Total available energy
3,032,515 3,387,495 (354,980 ) (10.5 )% Line losses and Company use
181,796 204,089 (22,293 ) (10.9
)% Total kWh sold 2,850,719 3,183,406
(332,687 ) (10.5 )% Palo Verde capacity factor 95.4 %
100.1 % (4.7 )% Palo Verde O&M expenses $ 21,123 $
22,016 $ (893 ) (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. (c) The Company closed on the
sale of its interest in Four Corners on July 6, 2016.
El Paso Electric Company Nine Months Ended September 30,
2016 and 2015 Sales and Revenues Statistics
Increase
(Decrease) 2016 2015 Amount
Percentage
kWh sales (in
thousands):
Retail: Residential 2,239,109 2,203,590 35,519 1.6 % Commercial and
industrial, small 1,849,618 1,835,931 13,687 0.7 % Commercial and
industrial, large 769,425 802,182 (32,757 ) (4.1 )% Public
authorities 1,199,867 1,222,187
(22,320 ) (1.8 )% Total retail sales 6,058,019
6,063,890 (5,871 ) (0.1 )% Wholesale: Sales for
resale 52,370 54,575 (2,205 ) (4.0 )% Off-system sales
1,451,719 1,913,215 (461,496 ) (24.1 )%
Total wholesale sales 1,504,089 1,967,790
(463,701 ) (23.6 )% Total kWh sales 7,562,108
8,031,680 (469,572 ) (5.8 )%
Operating
revenues (in thousands):
Non-fuel base revenues: Retail: Residential $ 224,018 $ 197,165 $
26,853 13.6 % Commercial and industrial, small 154,657 148,800
5,857 3.9 % Commercial and industrial, large 30,619 31,455 (836 )
(2.7 )% Public authorities 76,857 72,163
4,694 6.5 % Total retail non-fuel base
revenues (a) 486,151 449,583 36,568 8.1 % Wholesale: Sales for
resale 1,986 2,065 (79 ) (3.8 )%
Total non-fuel base revenues 488,137 451,648
36,489 8.1 % Fuel revenues: Recovered
from customers during the period 107,367 102,985 4,382 4.3 % Under
(over) collection of fuel (b) 11,768 (10,933 ) 22,701 — New Mexico
fuel in base rates 33,279 55,765
(22,486 ) (40.3 )% Total fuel revenues (c) 152,414
147,817 4,597 3.1 % Off-system
sales: Fuel cost 29,179 41,204 (12,025 ) (29.2 )% Shared margins
3,680 8,698 (5,018 ) (57.7 )% Retained margins 860
955 (95 ) (9.9 )% Total off-system sales
33,719 50,857 (17,138 ) (33.7 )% Other (d) (e) 24,629
22,645 1,984 8.8 % Total operating
revenues $ 698,899 $ 672,967 $ 25,932 3.9 %
(a) Includes $33.7 million increase resulting from the PUCT
Final Order. (b) Includes Department of Energy refunds related to
spent fuel storage of $1.6 million and $5.8 million, respectively.
(c) Includes deregulated Palo Verde Unit 3 revenues for the New
Mexico jurisdiction of $6.6 million and $7.5 million, respectively.
(d) Represents revenues with no related kWh sales and includes $1.1
million increase resulting from the PUCT Final Order. (e) Includes
energy efficiency bonus of $0.5 million in 2016.
El Paso Electric Company Nine Months Ended September 30,
2016 and 2015 Other Statistical Data
Increase (Decrease)
2016 2015 Amount
Percentage
Average number of
retail customers: (a)
Residential 361,617 356,388 5,229 1.5 % Commercial and industrial,
small 40,830 40,207 623 1.5 % Commercial and industrial, large 49
49 — — % Public authorities 5,309 5,243
66 1.3 % Total 407,805 401,887
5,918 1.5 %
Number of retail
customers (end of period): (a)
Residential 363,247 358,421 4,826 1.3 % Commercial and industrial,
small 41,162 40,385 777 1.9 % Commercial and industrial, large 49
49 — — Public authorities 5,264 5,232
32 0.6 % Total 409,722 404,087
5,635 1.4 %
Weather
statistics: (b)
10-Year Average Cooling degree days 2,584 2,695 2,594
Heating degree days 1,134 1,206 1,256
Generation and
purchased power (kWh, in thousands):
Increase (Decrease) 2016 2015 Amount
Percentage Palo Verde 3,858,306 3,940,370 (82,064 )
(2.1 )% Four Corners (c) 175,258 473,416 (298,158 ) (63.0 )% Gas
plants 2,785,057 3,046,330
(261,273 ) (8.6 )% Total generation 6,818,621 7,460,116 (641,495 )
(8.6 )% Purchased power: Photovoltaic 234,941 223,818 11,123 5.0 %
Other 958,942 827,478 131,464
15.9 % Total purchased power 1,193,883
1,051,296 142,587 13.6 % Total available
energy 8,012,504 8,511,412 (498,908 ) (5.9 )% Line losses and
Company use 450,396 479,732
(29,336 ) (6.1 )% Total kWh sold 7,562,108
8,031,680 (469,572 ) (5.8 )% Palo Verde
capacity factor 94.4 % 96.7 % (2.3 )% Palo Verde O&M
expenses $ 67,514 $ 67,702 $ (188 ) (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. (c) The Company closed on the sale of its interest in
Four Corners on July 6, 2016.
El Paso Electric
Company Financial Statistics At September 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 $ 10,044 $ 12,573 Common
stock equity $ 1,075,075 $ 1,020,795 Long-term debt (a)
1,195,397 1,122,465 Total capitalization $
2,270,472 $ 2,143,260 Current maturities of
long-term debt $ 83,081 $ — Short-term
borrowings under the revolving credit facility $ 55,192 $
118,693 Number of shares - end of period
40,522,246 40,426,668 Book value per
common share $ 26.53 $ 25.25 Common equity
ratio (b) 44.6 % 45.1 % Debt ratio 55.4 % 54.9 % (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.
El Paso Electric Company
Nine Months Ended September 30, 2016 PUCT Final Order
On August 25, 2016, the PUCT issued its final order
in the Company's rate case in Docket No. 44941 (the "PUCT Final
Order"). See "2015 Texas Retail Case Filing" for a discussion of
the PUCT Final Order. The
increase (decrease) in earnings resulting from the PUCT Final Order
is categorized as follows and identified by the period to which it
relates: (in thousands)
Category
Six Months EndedJune 30,
2016
Three Months EndedSeptember 30,
2016
Nine Months EndedSeptember 30,
2016
Retail non-fuel base rate increase: Relate Back $ 4,782 $ — $ 4,782
Interim Rates 10,874 15,138 26,012 Additional non-fuel base rate
increase for Four Corners 1,575 1,328
2,903 Retail non-fuel base rate increase, total $
17,231 $ 16,466 $ 33,697 Miscellaneous service revenues 753 390
1,143 Revenue taxes (455 ) (643 ) (1,098 ) Depreciation 5,001 2,412
7,413 Rate case expense — (600 ) (600 ) AFUDC (193 )
(72 ) (265 ) Pre-tax increase $ 22,337 $ 17,953 $ 40,290
Income tax expense (a) 9,781 7,221
17,002 After-tax increase $ 12,556 $ 10,732
$ 23,288 (a) In the third quarter of
2016, the Company changed its accounting for state income taxes
from the flow-through method to the normalization method in
accordance with the Company's regulators in its most recent final
orders from the PUCT and the NMPRC. The impact of the change was
additional deferred income tax expense of $2.8 million for the
three months ended September 30, 2016.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161102005448/en/
El Paso Electric CompanyMedia:Eddie Gutierrez,
915-543-5763eduardo.gutierrez@epelectric.comorInvestor
Relations:Lisa Budtke,
915-543-5947lisa.budtke@epelectric.com
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