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spk04: Good day and welcome to the PNM Resources first quarter 2023 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Lisa Goodman. Please go ahead.
spk02: Thank you, Jason, and thank you, everyone, for joining us this morning. for the PNM Resources First Quarter 2023 Earnings Call. Please note that the presentation for this conference call and other supporting documents are available on our website at pnmresources.com. Joining me today are PNM Resources Chairman and CEO, Pat Vincent Kalon, President and Chief Operating Officer, Don Terry, and Senior Vice President, Chief Financial Officer and Treasurer, Lisa Eaton. Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward-looking statements are based upon current expectations and estimates, and that PNM Resources assumes no obligation to update this information. For a detailed discussion of factors affecting PNM Resources results, please refer to our current and future annual reports on Form 10-K, quarterly reports on Form 10-Q, as well as reports on Form 8-K filed with the SEC. With that, I will turn the call over to Pat.
spk03: Thank you, Lisa. Good morning, everyone, and thank you for joining us today on National Astronaut Day. And National Astronaut Day is a special day here for us at PNM Resources. One of our Board of Directors, Sid Gutierrez, is the first U.S.-born Hispanic astronaut and the first Hispanic space mission commander. He commanded the space shuttle Endeavor. So I'm going to start on slide four this morning with our financial results and company updates. Ongoing earnings increased during the first quarter compared to last year, coming in at 55 cents. We are affirming our guidance for 2023 with a continued focus on managing our standalone business. Lisa will cover the financials in more detail. For strategic updates, let me start with our merger with Aubin Grid. On March 8th, the New Mexico Public Regulation Commission joined the companies in requesting the New Mexico Supreme Court to dismiss and remand the case back to the Commission. The Court called for responses to our motion by April 7th. There is no deadline for the Court to respond to our motion for remand. as the Supreme saying, you can't hurry love. If our motion is granted, the case is returned to the Commission's jurisdiction. The companies would then need to file a motion for reconsideration to request the Commission take up the case and establish a procedural schedule. This process could include input from other intervening parties in the case and assignment of a hearing examiner, or it could be managed at the Commission level. Last month, we agreed with Avangrid to the three-month extension included in our merger agreement. This additional time should provide clarity on the path forward and an expected timeframe for further regulatory proceedings. You may also have seen from AEP that we have begun a sales process for our 50-50 joint venture, New Mexico Renewable Development, or NMRD. This has not been a significant contributor of earnings within our corporate and other segment, but we have built an attractive portfolio of unregulated renewable assets, and the sales proceeds will provide funding for our regulated investments. With that, I'm going to turn it over to Don.
spk09: Thank you, Pat, and good morning, everyone. I'll start on slide six with our load growth by service area. At PNM, load grew at 1.4% in the first quarter compared to the prior year. Residential and commercial customers provided the growth this quarter, while our annual estimate continues to include and expect an albeit slower ramp up from some of our larger industrial customers. New Mexico has experienced colder than normal temperatures in the first quarter, which were similar to the level of degree days experienced in first quarter of 2022. At TNMP, we continue to see demand-based growth from crypto mining customers, that entered the market in the second half of 2022. We will continue to see these type of double digit percentages year over year until we reach a comparable period in the third quarter. Otherwise, the first quarter is typically a low volume quarter in Texas, and we continue to expect growth this year across each part of our service territory. Milder temperatures in the first quarter of 2023 reduced customer usage compared to colder than normal temperatures in the first quarter of 2022. Now turning to slide seven, I will cover a couple of our operational highlights for the quarter. This month is typically when things start to heat up for this summer and this year. We are bringing on new resources at PNM to help meet our summer load needs. The Arroyo Energy Project is our first large-scale battery storage facility and is one of the projects coming online this year following the retirement of the San Juan Generating Station. The 150 megawatt storage facility will be available in May with another 20 megawatt facility following soon after. These batteries are connected to 350 megawatts of solar that will also come online this year. And we expect our generation capacity to reach 62% carbon free at the end of this year. Next year we plan to add another 500 megawatts of solar paired with 400 megawatts of battery storage the final projects that were approved to replace San Juan, along with our expired Palo Verde lease capacity. We are well on our way to meeting our goals for a clean energy transition, along with New Mexico's renewal portfolio standards and carbon-free mandates. In New Mexico, because of the Energy Transition Act, we are able to do this while keeping customer rates affordable, even during a period of high inflation. You can see this in our current rate review which I'll talk more about in a few minutes. This week, we filed with the New Mexico Commission to add 12 megawatts of utility-owned battery storage at two existing PNM-owned solar facilities. At each of these locations, our current distribution feeders are overloaded from solar production. In the past, this would have required adding a new feeder or performing more costly upgrades to the feeders. We are proposing an alternative option to install six megawatts of battery capacity connected to our distribution system at each site. This matches the lowest cost option for solving the overloaded feeders, plus it provides the benefits of adding battery storage capacity to our system. The battery accommodates more renewable energy, supporting our clean energy transition, and it also supports enhanced reliability and resilience. This alternative is one way that we are using available technology to provide new, cost-efficient T&D solutions to meet evolving grid needs and reach our carbon-free goals. These proposed batteries are already part of our capital plan. We've asked for the commission decision before the end of the year and expect the facilities to be operational in June of next year. I also wanted to talk about our announced sale of NMRD. The 50-50 joint partnership was created in 2017 to allow us to compete in non-regulated space to provide renewable resources in New Mexico. Over the last six years, we've built a portfolio of 135 megawatts of contracted renewables with another 50 megawatts coming online this summer, along with other development opportunities. These renewable projects will continue to operate in New Mexico and support the state's clean energy goals. This portfolio is attractive in today's market, and with the increased investment needed to support our regulated utilities, it makes sense to sell this portfolio and put the funds to work on the regulated side. We would expect to close the transaction by the end of the year. On slide eight, I'll walk you through recent updates on the key regulatory proceedings at PNM and TNMP. The New Mexico Supreme Court heard oral arguments at the end of March on our proposed abandonment and securitization of the Four Corners plant. We also completed hearings on our grid modernization application with the New Mexico Commission in March. As a reminder, we requested approval of our project plans by July, but delayed the timing of our requested recovery until September after the peak summer season. We anticipate the hearing examiner issuing a recommended decision in the coming months and a final order from the Commission in the third quarter. And lastly, at P&M, the hearings for our 2024 rate change were rescheduled from June to September. The overall suspension period had previously been expanded to the typical 13 months, and we anticipated the hearings would be moved accordingly. We continue to expect to implement new rates in January of 2024 with the projected impact to customer bills of less than 1%. The Western Energy Imbalance Market continues to be a program providing substantial cost reductions to customers. The annual savings to customers from EIM in 2022 total $35 million, and the first quarter of 2023 has already provided another $22 million of customer benefits. These savings flow through to customers along with the clean energy transition are keeping our rates reasonable and affordable. At TNMP, we expect to receive approval from our first 2023 transmission recovery filing this month to recover an increased $150 million of rate base. We filed our annual distribution recovery filing at the beginning of April for another $157 million of rate base and expect rates to be implemented in September. We typically make our second transmission filing in July and also expect these rates to be implemented in September. With that, I'll turn it over to Lisa.
spk00: Thank you, Don, and good morning, everyone. I'll start on slide 10 with a summary of the year-over-year changes in the first quarter earnings. Earnings per share in the first quarter of 2023 were $0.55 compared to $0.50 in the first quarter of 2022. At P&M, transmission margins continue to reflect higher system demand and higher market power prices seen during Q1 particularly in the colder months of January and February. Lower costs from our generation portfolio changes offset the regulatory lag associated with new investments over the last several years that are not yet in rates. TNMP also increased from higher transmission and distribution investments recovery. Usage was up at both PNM and TNMP due to load growth. As Don mentioned, at PNM, residential and commercial load drove our increase, and weather for the quarter was similar to last year. At PNMP, higher load growth due to crypto mining customers was mostly offset by milder temperatures. These increases were partially offset by expenses at the utility for depreciation, property tax, and interest associated with our new rate-based investments along with increases to our planned O&M spending. Market performance on our decommissioning trust also reduced earnings in the first quarter compared to last year, in addition to higher interest rates at corporate. Turning to slide 11, I'll provide an update on our assumptions for the rest of the year. We're affirming our 2023 guidance range of $2.65 to $2.75. Higher earnings in the first quarter were largely driven by the increase in transmission margins, which can fluctuate with market demand. We have also provided an updated quarterly earnings distribution, reflecting our expectations for the rest of the year. We entered into additional interest rate hedges for 2023 to lock in more favorable rates when yields fell in March. We added $150 million of swaps through September 2023 and now have a total of a billion dollars hedged through this period. We have also added swaps to 2024 for a total of $600 million to further reduce our variable interest rate exposure. We also took the next steps to be able to issue equity later this year by entering into forward sales agreements under our ATM program. We can settle these agreements later this year by issuing stocks or we can have the option for cash settlement without the issuing of shares. The current forward sales agreements reflect approximately $50 million of equity, equating to about 1 million shares. We will not see any dilution impact on EPS until those shares are actually issued later in the year. We have the ability to sell another $150 million under the ATM program to meet our equity needs for 2023. or we could consider accessing the market through more traditional means. Overall, remain in a good financial position to support growing capital investment needs and navigate the current interest rate environment to support our targeted 5% earnings growth. With that, I'll turn it back over to Pat. Thanks, Lisa.
spk03: Before I open it up for questions, I'd like to recognize our teams in New Mexico and Texas who are moving our utilities forward every day. completing projects to bring service to new and expanding customers, repairing equipment after spring wind storms, preparing for summer peak season, and bringing new programs to customers. Thank you all for everything you do. Jason, let's please open it up for questions.
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble a roster. Our first question comes from Anthony Crowdell from Mizuho. Please go ahead.
spk06: Good morning, team. Happy Astronaut Day.
spk02: Thank you. Good morning, Anthony. Thank you.
spk06: Well played with the hold music. Ken Harry Love and also the Supreme Court, you know, it didn't go unnoticed. But if I could just ask two quick questions, Pat. One is, you know, I think the extension right now for the transaction is until July 20th. And so... you know, obviously depends on when the Supreme Court remands the case back. But if you thought of the bookends of once the case gets remanded back, the time that it could take if maybe there was a process that involved no hearings or with the quickest approval, and then something that maybe was more extended with hearings or something, what do those look like, you know, from a calendar perspective?
spk03: You know, Anthony, right now we're just focused on getting it back and then seeing what the Commission does because, you know, they can do this at their level alone without sending it to the hearing examiner. So we're just going to wait and see what happens when we get it back from the Supremes.
spk06: But then if I could cheat and maybe reword the question, do you believe that the current extensions of the July 20th date is achievable right now from where you're standing?
spk03: We're going to wait until we get it back from the Supremes. I'm not even going to cheat and reward my answer.
spk06: Perfect. And then if I take another shot at a question, which just when you talk about a non-merger scenario, can I think of a non-merger scenario and a delayed approval of the same thing, meaning if the transaction is still viable but it's maybe extended? Like, what point would you make the decision to do the equity in 2023?
spk03: Since I've used my witty repartee this morning, I'm going to let Don Terry answer that.
spk09: Anthony, good morning. Happy Friday. You know, we're focused on continuing to manage the business like it's a standalone business, and we'll continue to operate it that way and continue to fund it that way, too. You know, what we've put out there is, you know, $200 million by the end of the year, and we've executed on $50 million of that. And we'll continue to look at those opportunities as they exist. But, again, we're focused on managing and delivering the results that you would expect us to.
spk06: Great.
spk04: Thanks for taking my question, and I'll jump back in the queue.
spk03: Okay. Thanks, Anthony.
spk04: Our next question comes from Julian Dumoulin-Smith from Bank of America. Please go ahead.
spk08: Hey, good morning, team. Thank you, guys. I'm surprised Anthony referenced the hold music instead of Cinco de Mayo Friday here. But with that said, let me try this again. Let me hit a little bit more stage subject here. Just on NMRD here, obviously AEP talked about it as well. What's the current book value of that, just where it stands today, and what's your sense of timeline? And then related to that, as you talked about in your prepared remarks about issuing stocks, Is there any limitation within the pending deal on doing so? And any commentary about timeline to pursuing that given the asset sale here first?
spk03: Well, Julian, before I turn it over to Don, I thought you'd like National Astronaut Day because that is like the only place you have not been is outer space.
spk08: You said it.
spk03: Yeah, so, okay, you can come down here and buy a ticket on Virgin Galactic. So, Don, go ahead.
spk09: Hey, good morning, Julie. And on NMRD, currently we have an equity value of $100 million on those assets. And I would tell you we would expect a gain on that based on what our anticipation in the market would be. We would expect it to close likely by the end of the year.
spk08: Got it. Okay, and then considering where that comes out, that would probably – drive your timing for any future equity needs? I mean, maybe you can speak to that a little bit, just the timing there and then any considerations around the deal.
spk09: We would look at, like I mentioned when we kind of walked through it, we look at it to fund some of our capital program as we look forward past 2023 and into 2024 and beyond. So I think that's the way to think about it is, you know, it's a great mechanism to be able to monetize and be able to then utilize it in the regulated side of the business.
spk08: Got it. And speaking of the renewable investments, you guys have this fairly modestly sized, I think it was 12 megawatts you said, that you're pursuing on the battery side. But that seems like it would be owned by you all. Can you talk about – sorry, go for it.
spk09: No, Julian, it is. It's utility-owned. It's on the distribution side of the business. You know, it really helps us accomplish several different non-wire type opportunities that helps us, you know, for grid resilience, helps us, you know, to the solar saturation that exists, helps us to overcome some of that as well, too. And then, you know, it's capacity when you need it.
spk08: Indeed. In fact, if I can, I mean, to what extent is this 12 megawatts perhaps a leading indicator of having a broader strategy therein? in having that owned within utility infrastructure and rate base, especially considering a lot of the changes on the regulatory front?
spk09: We would see this as kind of a pilot program. There's other feeders that run into the same problem. We prioritize the feeders that have the biggest challenges and so forth. So we would see this as an opportunity as a non-wire solution to both provide capacity to our grid at a cost that's reasonable to customers, on a going forward basis. So, yeah, we'll continue to explore that.
spk08: Excellent. And then if I can close on this, look, I understand there's not much you want to say about July 20th, et cetera, and my pal Cordell tried. But just vis-a-vis your expectations on rehearing and process, right, an emphasis on that word process, anything that you would offer up? I mean, I suppose there's several different permutations that could materialize here, but to the extent to which that there is, some sort of – I use the word rehearing again, but you interject how you see this playing itself out to the extent to which – or how you see it being remanded.
spk09: Yeah, so I think, Julian, the first step in the process is it's at the Supreme Court right now, and we need to wait for their decision. And I think that's – their decision is not based on any timeline. I think that's what alludes to Pat trying to answer that bookend question. I think once it comes back, if remanded from the Supreme Court, you know, we would expect those proceedings, and we don't want to get in front of the commission, we would expect those proceedings to be developed by the commission, and, you know, we would expect input on due process from all the different parties in that case. And so it will work its way through.
spk08: All right, fair enough. And the same dynamic exists for the four corners as well, right? That's just out there pending, and there's no real ability to talk about that.
spk09: um uh in tandem yeah then we had oral arguments uh this quarter and uh in four corners and now it's in the supreme court's uh area and uh we will wait for their ruling and there is no timetable on their ruling as well so okay fair enough thank you guys let us know when you come to spaceport
spk04: Our next question comes from Ryan Levine from Citi. Please go ahead.
spk07: Hi, everybody. Hi. In terms of the asset sales strategy, why now, and maybe more strategically, are there any other assets within your portfolio that could be monetized to offset capital equity issuances in a non-deal scenario as as a possibility.
spk09: You know, on the NMRD, it's a joint venture, and so both parties found AEP, as you heard yesterday, and us as well. It was a great opportunity to monetize those and invest in our regulated side of the business. So, you know, when you're in a JV, it's a partnership, and so you both come to the decision the same way. And monetizing 100% of the JV is a lot better than monetizing 50% of the JV. for partners. So I think that kind of answers that question. You know, I think when those are gone, really what we have is we have a regulated business, one in Texas and one in New Mexico, and both of them are operating quite well. So we don't see us monetizing any assets there. I mean, that's core to our business.
spk07: In recognizing it's core to the business, you know, there's been a lot of other kind of minority regulated utility sales, in the marketplace, is that something that you would consider as a way to help fund growth on a go-forward basis if the courts and commission move against you?
spk03: You know, right now we're under a merger agreement with Avangrid, and that's what we're focused on getting done. So that's where we're going.
spk07: Okay. And then back to the core business, in terms of the low growth forecast, you highlight the crypto demand. How material is that for 23 earnings or 24 outlook? And how much better are you positioned on that front relative to maybe plan?
spk00: So, Ryan, hi, this is Lisa. We are, in terms of load growth at TNMP, we really are within our guidance range that we put forth before. And as you know, going forward on the 24, crypto is a large load, but from an earnings impact, it's a much smaller impact. And then remember, in the DCRF filing, you do update for load.
spk07: Great.
spk04: Thanks for taking the question.
spk05: Thank you. Thanks, Ryan.
spk04: Again, if you have a question, please press star, then 1. Our next question comes from Jonathan Reeder from Wells Fargo. Please go ahead.
spk05: Hey, good morning, team. A lot of my questions have already been answered, but I just wanted to be clear. The planned sale of NMRD, it doesn't displace then any of the $200 million of equity needs in 23, but rather just helps fund needs in 24 and beyond. Is that accurate?
spk00: Yes, Jonathan. Our objective is still to issue up to $200 million this year.
spk05: Okay.
spk00: Even with that asset sale.
spk05: Okay, great. Just wondering, Pat, do you have any insight as to why the Supreme Court remand request is taking so long? I mean, it kind of seemed fairly straightforward, to be honest, but does it have anything to do with New Energy Economy's ex parte complaint?
spk03: No, I think it has more to do with the fact that the court really wants to focus on due process. and making sure they're thoughtful in considering this. If you look at where they have criticized the commission, it is about due process. I don't know if you saw the El Paso case that came back this week, but they really criticized the commission for lack of due process. I think they want to make sure that they carefully consider everybody's filings and think about when they remand it back, do they remand it back under a specific statute, et cetera, et cetera. I think they recognize that the new energy economy is, in general, noise.
spk05: Sorry, you cut out there at the end on my line.
spk03: I think that the court recognizes that the new energy economy is just noise.
spk05: Okay. Great. And then to try to take another bite at the apple that others have, any sense, like, once the PRC – you know, hopefully has it back in its hands, like how long it would take for them to maybe issue at least a procedural schedule?
spk03: That one I'll answer. I think they'll probably issue a procedural schedule relatively quickly to get things started. When the court issues the remand, you have to wait 15 days. But I think the procedural schedule will come quickly. Okay.
spk05: Okay. And then I guess based on having that schedule in hand, hopefully by the July 20th, you know, kind of date, that's what the board will kind of look like when they consider whether or not to extend it further.
spk03: Can't hurry love, Jonathan, or mergers.
spk05: All right. Great. Appreciate you taking my questions today.
spk09: Take care, Jonathan.
spk04: The next question comes from Paul Fremont from Mizuho. Please go ahead.
spk03: Paul, is there something you want to tell us? Like what? You said the next question was from Paul Fremont at Mizuho.
spk01: Well, you know, old habits die hard. I just thought maybe you were going to break some news on our call. No, no, Bladenburg. Real quick question on NMRD. Is there an EBITDA number that you can share with us that you realized in 2022?
spk00: You know, we haven't put out the EBITDA number. There is net income associated with this, and it's $1.5 million. So it's about a penny to the bottom line, $12.
spk09: And then I would add to you, Paul, that there's six development sites as well that have opportunities as well, too. So it's kind of a whole package deal. So it's the sites that are currently – those that are under development, and then there's some development sites as well.
spk00: And last year earnings did not reflect the additional 50 megawatts that's coming on this summer as well.
spk01: And then the other question that I have is that you had previously had a settlement agreement in place – in the merger proceedings in 22. If the Supreme Court were to remand the case back to the commission, would you seek to try and put a settlement agreement in place? You know, Paul, we're not going to comment on that until we get it back from the court. Great. That's my only other question. Thanks. Thank you, Paul. Thanks, Paul. Thanks, Paul.
spk04: This concludes our question and answer session. I would like to turn the conference back over to Pat Vincent Colon for any closing remarks.
spk03: Thank you, Jason, and thank you all for joining us this morning. And please, as you have your Cinco de Mayo margaritas or beer, be safe. Talk to you all soon. Bye.
spk04: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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