investor meetings - s22.q4cdn.com · workforce per capita of any border region (1) 10th largest...
TRANSCRIPT
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Investor Meetings
December 2018
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Safe Harbor Statement
2
This presentation includes statements that are forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding 2018 earnings guidance
(including the anticipated impact of ASU 2016-01, Financial Instruments-Recognition and Measurement of Financial Assets and Financial Liabilities);
statements regarding the impact of the federal legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “TCJA”); statements regarding
legislative initiatives, current regulatory filings and anticipated regulatory filings; statements regarding meeting new environmental regulations; and
statements regarding the adequacy of our liquidity to meet cash requirements. 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 El Paso Electric Company’s (“EE” or the “Company”) 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:
➢ The impact of the TCJA and other U.S. tax reform legislation
➢ Increased prices for fuel and purchased power and the possibility that regulators may not permit EE to pass through all such increased costs to
customers or to recover previously incurred fuel costs in rates
➢ Full and timely recovery of capital investments and operating costs through rates in Texas and New Mexico
➢ Uncertainties and instability in the general economy and the resulting impact on EE’s sales and profitability
➢ Changes in customers’ demand for electricity as a result of energy efficiency initiatives and emerging competing services and technologies, including
distributed generation
➢ Unanticipated increased costs associated with scheduled and unscheduled outages of generating plant
➢ Unanticipated maintenance, repair, or replacement costs for generation, transmission, or distribution facilities and the recovery of proceeds from
insurance policies providing coverage for such costs
➢ The size of our construction program and our ability to complete construction on budget and on time
➢ Potential delays in our construction schedule due to legal challenges or other reasons
➢ Costs at Palo Verde
➢ Deregulation and competition in the electric utility industry
➢ Possible increased costs of compliance with environmental or other laws, regulations and policies
➢ Possible income tax and interest payments as a result of audit adjustments proposed by the Internal Revenue Service 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
➢ Actions by credit rating agencies
➢ 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 presentation, and EE does not undertake to update any forward-looking statement contained herein.
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3
El Paso Electric Company Overview
LISTED
Traditional, vertically integrated electric utility
serving west Texas and southern New Mexico
Consistently increasing peak load growth and
customer base
Sizeable capital expenditure plan and resulting
rate base growth for next several years
Continue to move towards achieving our
targeted dividend payout ratio
Focus on credit quality and capital structure
Favorable environmental profile – low carbon
footprint
EE
NYSE
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Service Territory
➢ Approximately 424,000 retail
customers
➢ Service territory larger than the
state of New Jersey
➢ Clean dependable generating
capability 2,082 MW
➢ 30% nuclear
➢ 70% natural gas
➢ < 1% renewables
➢ EE owns 1,848 miles of transmission lines
➢ Interconnected with WECC (not ERCOT) and Mexico
➢ Texas jurisdiction represents ~ 80% of non-fuel base revenues
➢ Fuel “pass-through” in Texas and New Mexico jurisdictions
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5
CAGR
2.87%
➢ Native system peak has increased by 66% since 2000
➢ EE has set 16 new peaks since 2000
800
1,000
1,200
1,400
1,600
1,800
2,000
1,1591,199
1,2821,308 1,332
1,376
1,4281,508
1,524 1,5711,616
1,714 1,688 1,750 1,7661,794
1,892 1,935 1,929MW’s
Native System Peak Load Growth
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Customer & Population Growth
100,000
300,000
500,000
700,000
900,000
1,100,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
EP & Doña Ana Pop 953,431 970,785 992,160 1,009,8 1,032,9 1,046,2 1,046,5 1,049,6 1,049,8 1,052,1 1,055,9
EE EOP Res Customers 317,091 322,618 328,553 334,729 339,860 345,567 349,629 353,885 358,819 363,987 370,054
El Paso County & Doña Ana County Population
& EE Residential Customer Growth
EP & Doña Ana Pop EE EOP Res CustomersSource: U.S. Census Bureau
* End of Period (EOP); Residential (Res)
CAGR
1.03%
CAGR
1.60%
*
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7
Residential Customer Growth
230,000
250,000
270,000
290,000
310,000
330,000
350,000
370,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Average Number of Residential
Customers
➢ Refrigerated air conditioning is being installed in 99% of new homes
➢ Majority of customers within our service territory utilize evaporative coolers
➢ Refrigerated air conditioning uses 85% less water and three times more electricity than evaporative coolers
➢ Usage per customer impacted by increased energy efficiency and conservation initiatives
10 Year CAGR (2006-2016) – Avg. No.
Residential Customers
EE Industry*
Usage per Customer 1.24% -0.34%
Customer Growth 1.62% 0.86%
* Source EEI-2017 Statistical Yearbook for the years 2006-2016
CAGR
1.56%
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Retail Revenue and Sales Distribution
Residential C&I Small C&I Large Public Authorities
12 ME September 30, 2018 12 ME September 30, 2018
48%
31%
6%
15%
Non-Fuel Base Revenues
37%
30%
13%
20%
MWH Sales
* Month Ended (ME); Commercial & Industrial (C&I)
* *
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9
Economic Growth
➢ El Paso-based Hunt Companies and
WestStar Bank held a groundbreaking in
June to begin construction on an 18-story
$85 million office tower in Downtown El
Paso
➢ Number of downtown hotels and hotel
rooms is expected to double by year-end
2018 over 2015 levels
➢ El Paso area school districts have started
construction on approximately $500
million in planned capital improvements
➢ Texas Department of Transportation project review with the city of El
Paso includes approximately $430 million of planned transportation
improvement projects
➢ El Paso City Council voted in May to approve $94 million in capital
improvements
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10
Workforce and Rankings
Highest college student population by
workforce per capita of any border region (1)
10th Largest exporting city in the United States (2)
Largest bilingual workforce in the western
hemisphere (1)
Voted one of the News & World Reports 2017
Best Places to live in the U.S. for Quality of Life (2)
One of the largest international markets in
North America (1)
Population: 2.4 million *
Second largest international manufacturing
employment center on the U.S-Mexico border (1)
The Borderplex
3 States - 2 Nations - 1 Economy
Workforce Metrics Accolades & Rankings
#1 Lowest Crime Rate in the U.S. for a
population of 500,000 or more (2)
Young and Growing Population Median
Age: 31 (2)
* Approximately 1 million reside in EE’s service territory
Sources: (1) Borderplex Alliance (2) City of El Paso
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Sector Specific Competitive Assets
Defense and Aerospace
▪ Largest U.S. Military Installation
▪ Largest U.S Open-Air Land Test Range
▪ Largest U.S. Contiguous Airspace
▪ First All Drone Army Airport
▪ Extensive Runways and Shuttle Landings
Medical & Life Sciences
▪ Woody L. Hunt School of Dental
Medicine
▪ Paul Foster School of Medicine
▪ Burrell College of Osteopathic
Medicine in Las Cruces
▪ The Hospitals at Providence
Transmountain Campus
▪ Gayle Greve Hunt School of
Nursing
▪ Cardwell Collaborative Medical
Research Facility
▪ UTEP Graduate School of
Biomedical Sciences
▪ El Paso Children’s Hospital
▪ UTEP School of Pharmacy
▪ El Paso Veterans Affairs Health
Care System Community Clinics
Advanced Manufacturing & Logistics
▪ Well Established Manufacturing Hub
▪ Six International Ports of Entry
▪ El Paso International Airport
▪ Growing Cross Border Trade Volume
▪ Union Pacific Intermodal Rail Yard
▪ Foreign Trade Zone
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12
Smart Community Initiatives
➢ Engaging regional stakeholders on smart community
initiatives, including the possibility of investing in
Advanced Metering Infrastructure
➢ Initiatives will help:
➢ Improve visibility into the distribution grid
➢ Allow for the development of rate more responsive to
customer demands
➢ In Texas, hope to seek legislative clarification in the
first half of 2019 and then begin seeking required
regulatory approvals in Texas and New Mexico in
early 2020
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13
➢ Issued an all-source RFP on June 30, 2017 for 50 MW of
capacity by 2022 and an additional 320 MW of capacity by 2023
➢ Continue to evaluate the proposals received in response to the
RFP and anticipate reaching a final decision in late 2018
➢ Conducting additional analysis due to the complexities of options
and technological advances
➢ Additional analysis to assist with regulatory approvals and to
ensure we select the best resources to complement our current
generation fleet and benefit customers
➢ Deployment of resources should not be impacted by the change in
the timeline
➢ Capital expenditures are subject to change until a final decision
is made and regulatory approvals are obtained
All-Source Request for Proposals (“RFP”)
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14
Anticipated 2019 Regulatory Filings
➢ Texas
➢ Seek regulatory approval for new generation resource –
second half of 2019
➢ File Transmission and Distribution Cost Recovery
Factors – 1st quarter of 2019
➢ New Mexico
➢ Seek regulatory approval for new generation resource –
second half of 2019
➢ File New Mexico general rate case by July 31, 2019
➢ Federal Energy Regulatory Commission (“FERC”)
➢ File FERC general rate case – 3rd quarter of 2019
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15
Dividend Highlights
➢ EE made $42.9 million in cash dividend payments for
the nine months ended September 30, 2018
➢ On May 24, 2018, the Company announced that the
Board of Directors approved a 7.5% increase to the
quarterly cash dividend to $0.36 per share of
common stock from $0.335 per share.
➢ At the new rate, the indicated annualized cash dividend
would be $1.44 per share, up from $1.34 per share
paid in the last four quarters
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Increasing Cash Returns
➢ In Q2 2011, EE re-initiated a quarterly cash dividend of $0.22
per share, which has increased by 64% to $0.36 per share since
20117% CAGR
65%
55%
(1) The timing and amount of future dividend increases will be based on the Board’s continual review of our
return of capital policies in the context of our operating performance, financial condition, capital needs
and other relevant factors in the Board’s determination.
(2) EE’s goal is to achieve an annual 55% - 65% dividend payout ratio by 2020.
(3) On May 24, 2018, the Board approved an increase to the quarterly cash dividend to $0.36
per share from $0.335 per share.
Target Payout
Ratio (1) (2)
16
(3)
$0.88
$1.00 $1.06
$1.12 $1.18
$1.24 $1.34
$1.44
$0.50
$0.70
$0.90
$1.10
$1.30
$1.50
2011 2012 2013 2014 2015 2016 2017 2018
Annualized Dividend Per Share Actual Payout Ratio
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Commitment to Credit Quality
Capital Structure
As of September 30, 2018 *(thousands)
Common Stock Equity $1,197,200
Long-term debt, net of RGRT 1,275,254
Total Capitalization Before RGRT $2,472,454
RGRT and RCF - LT & ST Debt 129,362
Total Capitalization After RGRT and RCF $2,601,816
Regulatory Capitalization** Book Capitalization
Moody's S&P
Rating Baa1 BBB
Outlook Negative Stable
* Capital structure includes current maturities and short-term
borrowings
** Regulatory Capitalization excludes borrowings for nuclear fuel by the Rio
Grande Resources Trust II (“RGRT”) and all borrowings under the revolving
credit facility (“RCF”), while book capitalization includes nuclear fuel
borrowings in the debt portion of capitalization.
Debt51.6%
Equity48.4%
Debt54.0%
Equity46.0%
➢ Well-positioned to finance planned investments
➢ Investment grade credit ratings
➢ S&P reaffirmed its BBB rating and Stable
Outlook in May 2018
➢ Moody’s reaffirmed its Baa1 rating and changed
Outlook to Negative in March 2018
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18
Capital Requirements and Liquidity
➢ On September 30, 2018, EE had liquidity of $346.5 million, including
cash and cash equivalents of $16 million and unused capacity under the
revolving credit facility (“RCF”)
➢ Expended $171.4 million for new electric utility plant during the nine
months ended September 30, 2018
➢ Capital expenditures for utility plant in 2018 are expected to be
approximately $266 million
➢ For the nine months ended September 30, 2018, credited approximately
$22.6 million to customers for the reduction in the federal corporate
income tax rate
➢ On July 19, 2018, the Board approved a quarterly cash dividend of
$0.36 per share of common stock payable on September 28, 2018 to
shareholders of record as of the close of business on September 14,
2018
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1919
➢ On June 28, 2018, EE:
➢ Issued $125 million of 4.22% senior notes due August 15,
2028
➢ Guaranteed the issuance by Rio Grande Resources Trust of
$65 million of 4.07% senior notes due August 15, 2025
➢ The net proceeds were used to repay borrowings under the
RCF
➢ On September 13, 2018, EE entered into a $350 million
amended and restated credit agreement
➢ The term of the RCF ends on September 13, 2023
➢ The RCF includes the option to extend the maturity date up to two
additional times, in each case for an additional one year period
➢ EE has the ability to increase the RCF by up to $50 million
Capital Requirements and Liquidity (Cont’d)
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20
2017 Year End Load and Resources
2017 YE Company Owned Generation 2,082 MW Solar Purchased
Power
74 MW
Palo Verde MontanaNewman Copper Four Corners Renewables SolarRio Grande
Natural GasNuclear Coal Solar Solar Power
633 MW 752 MW 354 MW (1) 64 MW 0 MW (2) 3 MW 74 MW (3)276 MW
2017 YE Total Net Resources 2,156 MW
(1) Montana Power Station (“MPS”) includes Units 1 & 2 (88 MW per unit), Units 3 & 4 (89 MW per unit).
(2) In July 2016, EE became coal free following the sale of its 7% minority ownership interest in Four Corners Units 4 & 5 and common facilities
(3) Solar purchased power represented approximately 70% of their capacity during the summer peak period
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21
Diversified Energy Portfolio and
Low Carbon Footprint
EE vs. U.S. Avg. Carbon Footprint(Short tons CO2 equivalent emissions/MWH)
2016 EE
0.28
2016 National
Average 0.51
36%
15%
49%
EE 2017 Energy Sources (by MWh)
* Renewable energy purchases represent 19% of total
purchased power
Nuclear
Natural
Gas
Purchased
Power
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Corporate Sustainability Report
22
➢ EE released it’s first Corporate
Sustainability Report
➢ Demonstrates commitment to
transparency and improvement
with regard to environmental,
social, and governance
sustainability performance
➢ Part of a collaborative effort
designed to support the
transition to a lower carbon
and increasingly sustainable
energy future
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Large Scale Solar Projects
➢ Texas Community Solar Facility (3
MW) became operational during Q2
2017
➢ The Holloman Air Force Base Solar
Facility (5 MW) became commercially
operational on October 18, 2018
➢ Recent regulatory filings:
➢ Seeking expansion of the Texas
Community Solar Facility (2 MW)
➢ New Mexico Community Solar
Facility (2 MW)
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2424
➢ EE’s coal-free generating portfolio minimizes exposure to
Federal and State proposals to reduce carbon dioxide
emissions
➢ EE became a coal-free utility on July 6, 2016, which has
reduced one billion pounds of carbon dioxide from annual
emissions
➢ Costs associated with future retrofits required for coal
generation by environmental regulation will be avoided
➢ Addition of large-scale solar resources has prevented
another one billion pounds of carbon dioxide from being
emitted into the atmosphere
Well-Positioned to Meet New
Environmental Regulations
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25
Appendix
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26
In addition to disclosing financial results that are determined in accordance
with U.S. generally accepted accounting principles (GAAP), EE has
provided adjusted net income, which is a non-GAAP financial measure.
Management believes that providing this additional information is useful to
investors in understanding EE’s core operating performance because it
removes the effects of variances that are not indicative of fundamental
changes in the earnings capacity of EE. Adjusted net income is calculated
by excluding the impact of changes in fair value from EE’s equity securities
and realized gains (losses) from the sale of both equity and fixed income
securities.
Adjusted net income is not a measure of financial performance under
GAAP and should not be considered as an alternative to net income.
Further, EE’s presentation of adjusted net income may not be comparable
to similarly titled measures used by other companies. Please refer to slide
29 of this presentation for a reconciliation of adjusted net income to the
most directly comparable financial measure, net income, prepared in
accordance with GAAP.
Use of Non-GAAP Financial Measure
26
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27
3rd Quarter and YTD Financial Results➢ GAAP – 3rd Quarter 2018 net income of $73.3 million (or $1.80 per
basic share), compared to 3rd Quarter 2017 net income of $59.7
million (or $1.47 per basic share)
➢ Non-GAAP – 3rd Quarter 2018 adjusted net income of $66.0 million
(or $1.62 per basic share), compared to 3rd Quarter 2017 adjusted
net income of $58.3 million (or $1.44 per basic share)(1)
➢ GAAP – 2018 YTD net income of $99.6 million (or $2.45 per basic
share), compared to 2017 YTD net income of $91.8 million (or
$2.26 per basic share)
➢ Non-GAAP – 2018 YTD adjusted net income of $91.9 million (or
$2.26 per basic share), compared to 2017 YTD adjusted net
income of $84.5 million (or $2.08 per basic share)(1)
(1) Adjusted net income and adjusted basic earnings per share are non-GAAP financial measures that reflect net
income and basic earnings per share, respectively (the most comparable GAAP financial measures) adjusted to
exclude the impact of changes in fair value of EE’s equity securities and realized gains (losses) from the sale of
both equity and fixed income securities held in the nuclear decommissioning trust funds. Refer to slide 29 for a
reconciliation of adjusted net income and adjusted basic earnings per share (non-GAAP) to net income and basic
earnings per share, respectively (the comparable GAAP financial measure).
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3rd Quarter Key Earnings Drivers (GAAP)
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Q3 Basic EPS Description
September 30, 2017 1.47$
Changes In:
Effective tax rate, other 0.26Decreased primarily due to the TCJA that reduced the federal corporate income tax rate from 35% to
21%, excluding the tax impact of other items listed in this table, partially offset by a reduction in state tax
reserves in 2017.
Investment and interest income,
NDT0.15
Increased primarily due to an increase in realized and unrealized net gains on securities held in the
Company's Palo Verde nuclear decommissioning trust funds ("NDT").
Retail non-fuel base revenues 0.11
Excluding the impact of rate changes, increased primarily due to (i) increased revenues from residential
customers of $7.9 million caused by a 7.3% increase in kWh sales driven by favorable weather and a
1.7% increase in the average number of residential customers served, (ii) increased revenues from
small commercial and industrial customers of $2.4 million caused by a 3.7% increase in kWh sales
driven by favorable weather and a 1.6% increase in the average number of small commercial and
industrial customers served, and (iii) increased revenues from sales to public authorities customers of
$0.9 million caused by a 1.7% increase in kWh sales driven by favorable weather. In addition, rate
changes include the refunds in 2018 of approximately $10.8 million to customers for the reduction in the
federal corporate income tax rate due to the TCJA. The reduction in rates due to the TCJA was offset by
non-fuel base rate increases of approximately $5.6 million approved by the PUCT in its final order in the
Company's 2017 Texas retail rate case.
O&M at fossil-fuel generating plants (0.06)Increased operations and maintenance expenses ("O&M") primarily due to maintenance and outage
costs related to Newman Power Station Unit 2, and maintenance costs at the Montana Power Station.
Transmission and distribution O&M (0.04)Increased primarily due to increases in payroll costs and subcontractor expenses related to vegetation
management.
Depreciation and amortization (0.03) Increased primarily due to increased plant balances.
Administrative and general expense (0.03) Increased primarily due to the timing of the accrual of employee incentive compensation.
Other (0.03)
September 30, 2018 1.80$
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Reconciliation of Net Income (GAAP) and Basic EPS
(GAAP) to Adjusted Net Income (Non-GAAP) and
Adjusted Basic EPS (Non-GAAP)
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➢ Financial Instruments – Overall (Topic 825-10) – unrealized gains and losses on equity securities that historically
have been recorded through Accumulated Other Comprehensive Income will be immediately recognized in the
Statements of Operations.
➢ Upon adoption of this standard, EE recorded as of January 1, 2018 a cumulative effect adjustment to retained earnings of $41
million, net of tax, for the unrealized gains (losses) related to equity securities held in the nuclear decommissioning trust
funds.
➢ The adoption of this standard added the potential for significant volatility to EE’s reported results of operations as changes in
the fair value of equity securities may occur.
➢ Equity investments included in the nuclear decommissioning trust funds are significant and are expected to increase
significantly during the remaining life of Palo Verde.(1) Accordingly, EE is providing adjusted net income (a non-GAAP
financial measure) and adjusted basic EPS (non-GAAP), both of which are reconciled below to net income and basic EPS
(the most comparable GAAP financial measures):
2018 2017 2018 2017
Net Income (GAAP) 73,271$ 59,684$ 99,600$ 91,761$
Adjusting items before income tax effects
Unrealized gains, net (6,528) - (3,730) -
Realized gains, net (2,562) (1,765) (5,953) (9,122)
Total adjustments before income tax effects (9,090) (1,765) (9,683) (9,122)
Income taxes on above adjustments 1,818 353 1,937 1,824
Adjusting items, net of income taxes (7,272) (1,412) (7,746) (7,298)
Adjusted net income (non-GAAP) 65,999$ 58,272$ 91,854$ 84,463$
Basic EPS(GAAP) 1.80$ 1.47$ 2.45$ 2.26$
Adjusted basic EPS (non-GAAP) 1.62$ 1.44$ 2.26$ 2.08$
Three Months Ended
September 30,
(In thousands except for per share data)
Nine Months Ended
September 30,
(In thousands except for per share data)
(1) As of September 30, 2018, the EE nuclear decommissioning trust portfolio was
comprised of 53% equity securities and had a market value of $297 million.
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Q3 Customers and Retail Sales
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Average No.
of Retail
Customers
Percent
Change (1)MWH
Percent
Change (1)
Residential 375,410 1.7% 1,059,193 7.3%
C&I Small 42,508 1.6% 729,414 3.7%
C&I Large 48 - 262,052 (1.2%)
Public Authorities 5,770 3.7% 447,280 1.7%
Total Retail 423,736 1.7% 2,497,939 4.3%
Cooling Degree Days 1,702 11.1%
(1) Percent change expressed as change in Q3 2018 from Q3 2017
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Q3 2018 Weather Summary
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10-YR CDD
Average – 1,591
Q3 2018 CDD’s
• 7.0% Above 10-YR Average
• 11.1% Above Q3 2017
1,601 1,603
1,787
1,497
1,444 1,415
1,732
1,596 1,532
1,702
500
700
900
1,100
1,300
1,500
1,700
1,900
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Q3 Cooling Degree Days ("CDDs") 10-YR Average
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2018 Earnings Guidance➢ EE adjusted and narrowed guidance on November 1, 2018:
➢ GAAP earnings guidance range to $2.25 - $2.50 per basic share from
$2.25 - $2.55 per basic share
➢ Non-GAAP earnings guidance range to $2.20 - $2.35 per basic share
from $2.05 - $2.30 per basic share
2017 Basic EPS Actual 2018 Basic EPSGuidance
GAAP
$2.42 $2.50
$2.25
2017 Adjusted BasicEPS Actual
2018 Adjusted BasicEPS Guidance
Non - GAAP
$2.21$2.35
$2.20
Earnings guidance assumes normal operations and considers significant variables that may impact earnings, such
as weather, expenses, capital expenditures, nuclear decommissioning trust gains/losses, and the impact of the
TCJA. The mid-point of the guidance range assumes ten-year average weather (cooling and heating degree days)
for the remainder of the year. The GAAP guidance range includes $2.0 million or $0.05 per share to $6.0 million or
$0.15 per share, after-tax, of unrealized gains (losses) on equity securities and realized gains (losses) from the
sale of both equity and fixed income securities from the Palo Verde decommissioning trust funds.
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Tax Reform Regulatory Update (1)
(1) On December 22, 2017, the President signed into law the TCJA, which
reduced the federal corporate income tax rate from 35% to 21%, among
other things.
➢ In Texas, in compliance with the final order in the 2017 rate case:
➢ Beginning January 1, 2018, EE recognized the reduction in revenues
equivalent to the expected annual decrease of $22.7 million in federal
income tax expense resulting from the tax law changes
➢On March 1, 2018, EE filed a proposed refund tariff with the PUCT
(Docket No. 48124), the City of El Paso and other municipalities for the
expected annual decrease
➢On March 27, 2018, the PUCT approved the proposed refund tariff on an
interim basis, subject to refund or surcharge for customer billings effective
April 1, 2018
➢ The refund tariff will be updated annually until new base rates are
implemented in EE’s next general rate case
➢No party requested a hearing and on April 18, 2018, the PUCT Staff filed
its final recommendation supporting approval of the refund tariff
➢ The PUCT will consider a proposed order at an open meeting on
December 7, 2018
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(1) EE is required to file a general rate case in New Mexico by July 31, 2019
➢ In New Mexico, the NMPRC initiated a proceeding into the impact of the
TCJA on New Mexico utilities (Case No. 18-00016-UT)
➢ On April 4, 2018, the NPMRC issued an order requiring EE to:
➢ File a proposed interim rate rider reflecting the decrease in the federal income tax
expense and consult with the New Mexico Attorney General on the rate rider
➢ Record and track a regulatory liability for the change in federal corporate income tax rate
on the ADIT and its excess ADIT, corresponding with the effective date of the TCJA, and
subject to amortization determined by the NMPRC in the next general rate case (1)
➢ On April 16, 2018, in consultation with the New Mexico Attorney General, EE filed
an interim rate rider with a proposed effective date of May 1, 2018
➢ The annualized credits expected to be refunded to New Mexico customers are
approximately $4.9 million
➢ On April 25, 2018, the NMPRC approved EE’s interim rate rider
➢ On March 15, 2018, the Federal Energy Regulatory Commission (FERC)
issued orders directing 48 public utilities, including EE, to:
➢ Propose revisions to their transmission rates for the reduction in the federal income
tax rate, or show cause why they should not be required to do so
➢ On May 14, 2018, EE demonstrated that no rate reduction is justified
➢ EE is preparing for a future filing under Section 205 of the Federal Power Act in which EE
will seek to put into effect revised Open Access Transmission Tariff rates
Tax Reform Regulatory Update (Cont’d)
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Tax Reform
➢ The impact of the lower federal income tax rate is based on
pre-tax earnings
➢ The reduction to customers is based on kWh sales
➢ The table below displays EE’s typical seasonal pre-tax
earnings and kWh sales patterns (1):
Q1 Q2 Q3 Q4
Pre-Tax Earnings 1% 31% 65% 3%
Kilowatt Hour Sales 21% 26% 31% 22%
(1) Based on historical five-year average
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12/31/2012 – $31.91
12/31/2013 – $35.11
12/31/2012 – $38.9
12/31/2013 – $42.0
12/31/2014 – $40.06 12/31/2014 – $44.6
12/31/2015 – $38.50 12/31/2015 – $47.1
12/31/2016 – $46.50
12/31/2017 – $55.35 12/31/2017 – $53.3
MARKET PRICE PER SHARE
ANNUAL VALUE OF SHARE REPURCHASES AND DIVIDENDS
EE $200
EEI $184
NYSE $152
12/31/2016 – $49.6
$80
$100
$120
$140
$160
$180
$200
$220
Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017
Total Return Comparison$100 Investment on December 31, 2012
EE EEI NYSE
Shareholder Return
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Texas Renewables
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➢ Requirements➢ EE must obtain renewables through renewable generation or
purchase of Renewable Energy Credits (RECs). The amount is based on the ratio of EE’s Texas sales compared to total sales in the state. This number has averaged approximately 5%.
➢ Compliance
➢ EE primarily purchases RECs
➢ Cost Recovery
➢ REC costs recovered through
base rates
➢ EE capital investments included
in rate base
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New Mexico Renewables
➢ Requirements
➢ EE is required to meet 15% of its current retail
energy sales in New Mexico via renewables;
escalates to 20% in 2020
➢ Must be from diverse sources – at least 20% solar, 30% wind, 5% other (e.g. biomass, geothermal) and 3% renewable distributed generation
➢ Reasonable cost threshold will limit future requirements for EE
➢ Compliance➢ Power Purchase Agreements for solar generation and associated RECs
➢ EE has reached the reasonable cost threshold
➢ EE’s 2017 and 2018 RPS plans are approved
➢ Cost Recovery➢ Renewable energy with RECs recovered through fuel clause; RECs without energy
deferred and recovered through base rates
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El Paso City Council Overview
Name Term Ends District
Dee Margo (Mayor) 6/27/2021
Peter Svarzbein (1) 1/1/2019 1
Alexsandra Annello 6/27/2021 2
Cassandra Hernandez 6/27/2021 3
Sam Morgan 6/27/2021 4
Dr. Michiel Noe (2) 1/1/2019 5
Claudia Ordaz 1/1/2023 6
Henry Rivera 6/27/2021 7
Cissy Lizarraga (3) 1/1/2019 8
(1) Facing runoff election against Veronica Frescas
(2) Isabel Salcido won Distirct 5 seat
(3) Facing runoff election against Nicholas Vasquez
El Paso City Council
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Name Term Ends Party
DeAnn Walker (Chair) 8/31/2021 Republican
Arthur C. D' Andrea 8/31/2023 Republican
Shelly Botkin 8/31/2019 Republican
Name Term Ends Party District
Cynthia Hall (Vice-Chair) 12/31/2020 Democrat 1
Patrick Lyons (1) 12/31/2018 Republican 2
Valerie Espinoza (Chair) 12/31/2020 Democrat 3
Lynda Lovejoy (2) 12/31/2018 Democrat 4
Sandy Jones (3) 12/31/2018 Democrat 5
(1) Jefferson Byrd won District 2, term begins 1/1/2019
(2) Theresa Becenti- Aguilar won Distric 4, term begings 1/1/2019
(3) Stephen Fischmann won Distric 5, term begins 1/1/2019
Public Utility Commission of Texas - Appointed by Governor
New Mexico Public Regulation Commission - Elected
1
2
3
4
5
Regulatory Overview
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Lisa Budtke
Director - Treasury Services and Investor Relations
(915) 543-5947
Richard Gonzalez
Manager – Cash Management
and Investor Relations
(915) 543-2236
El Paso Electric Headquarters
Stanton Tower
100 North Stanton
El Paso, Texas 79901
(800) 592-1634
EE Contact Information
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