Excelerate Energy Inc

NYSE:EE

Earnings Call Transcript 2019-Q1

[Operator]

Good day, and welcome to the El Paso Electric Company's First Quarter 2019 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Lisa Budtke. Please go ahead.

[Lisa Budtke]

Thanks, Travis. Good morning, everyone. Thank you for joining the El Paso Electric Company's First Quarter 2019 Earnings Call. My name is Lisa Budtke, and I am the Director of Treasury Services and Investor Relations. On the call today are: CEO, Mary Kipp; CFO, Nathan Hirschi; and other members of senior management. You should have a copy of our press release and today's presentation. And if you do not, you can obtain them from our website.

We currently anticipate that our first quarter Form 10-Q will be filed with the Securities and Exchange Commission by the end of today. A replay of today's call will be available shortly after our call ends and will run through May 22, 2019. The details as they relate to the replay are disclosed in our press release. For forward-looking statements, please refer to Slide 2 of our presentation. In summary, our comments and answers to your questions may include forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution you that forward-looking statements involve known and unknown risks and are based on management's current expectations.

Actual results could differ materially based upon various factors, including among others, weather, regulatory actions, economic conditions and growth in our service territory. Our forward-looking statements are qualified by reference to the risks and factors identified in our 2018 Form 10-K and other SEC filings, which are available on our website. During today's call, we will also be disclosing GAAP and non-GAAP financial results to describe our performance. The appendix in our presentation contains a description of our use of certain non-GAAP measures and a reconciliation of them to the most comparable GAAP measures.

Now I'll hand the call over to Mary.

[Mary Kipp, President and Chief Executive Officer]

Thanks, Lisa, and good morning, everyone. Turning to Slide 3 for the first quarter of 2019. We reported a GAAP net income of $6.1 million or $0.15 per share. This compares to a net loss of $7 million or $0.17 per share for the first quarter of 2018. After removing the net gains in our Palo Verde nuclear decommissioning trust funds, we reported an adjusted net loss of $6.7 million or $0.17 per share for the first quarter of 2019. In the first quarter of 2018, we reported an adjusted net loss of $5 million or $0.12 per share.

The results for the quarter were in line with our expectations and largely due to regulatory lag and the seasonality of our business. The increase in kilowatt-hour sales demonstrates that we continue to see positive economic growth in our region and in the number of customers served. Turning to Slide 4, I will now discuss our recent highlights. To mitigate the impact of regulatory lag, we filed applications in Texas for our first Transmission and Distribution Cost Recovery Factors, the baselines for which were established in our last Texas rate case.

We anticipate obtaining approvals for both cost recovery factors during the second half of this year. Between these 2 filings, we are seeking to recover approximately $16 million of revenue requirements that are not currently being recovered in the company's Texas-based rates. On March 27, we received approval from the New Mexico Commission to issue shares of common stock, including the reissuance of treasury shares and in amount up to $200 million. On April 18, we deceive similar approval from the Federal Energy Regulatory Commission.

We have previously expressed our intent to issue common stock equity in order to help fund our capital construction program and to maintain a balanced capital structure. We're still evaluating the exact timing and amount of equity, but our current projections indicate that we may issue up to $100 million of common stock equity during the first quarter of 2020. I am pleased to share some positive progress from the Texas legislature, regarding the deployment of advanced metering infrastructure for non-ERCOT utilities.

A substantial majority of the house voted to approve the legislation without opposition on April 5, and the bill was then referred to the Senate Committee for business and commerce. On April 29, the Senate -- Texas Senate Business and Commerce Committee voted the legislation without opposition to the full Senate for consideration. Another highlight for the first quarter is that we were experiencing strong margins in our off-system sales. These margins benefits our customers because they are offset against fuel cost.

This resulted in an over collection balance of $19.4 million as of March 31, 2019. As a result, on April 29, we filed a petition with the Public Utility Commission of Texas for approval to implement an interim fuel refund. We have asked to refund the fuel cost over recoveries to our customer over a 4-month period, beginning in June. I'm pleased to share some good news regarding our 3-megawatt Texas Community Solar Program. You'll recall, it was fully subscribed within 1 month after enrollment began and we quickly realized that the strong demand by our El Paso customers required us to evaluate the possibility for expanding the program.

Our application to expand the program by 2 megawatts received the recommendation for approval by the administrative lodger, assigned [ph] to the case in March. And we anticipate receiving final approval from the PUCT at tomorrow's open meeting. Now turning to Slide 5, I will discuss our New Mexico rate case filing. We've provided a potential time line for our New Mexico general rate case that will be filed using its historical test year ending December 31, 2018. We filed a request to extend the regulatory requirement that requires a filing within 155 days of the test year end date. And the commission approved our request on May 1.

This will allow us additional time to evaluate the impact of the recently passed Energy Transition Act legislation on our rate filing package. We now plan to file with the NMPRC on July 31, and we anticipate that a final order could be issued sometime late in the second quarter or early third quarter of 2020. One of the main items that will be addressed in the case will be the inclusion of Montana Power Station Units 3 and 4 and the removal of the Four Corners coal plan, which we exited in 2016 from rate base. We are still finalizing our rate filing package and cannot predict the amount of rate relief at this time.

I will now turn the call over to Nathan.

[Nathan Hirschi]

Thank you, Mary. Beginning on Slide 6, our GAAP earnings increased by $0.36 per share during the first quarter due to the net realized and unrealized gains on security held in our nuclear decommissioning trust portfolio. The reason for the increase was primarily due to a $16 million net gain for the first quarter of 2019 compared to a net loss of $2.5 million for the same period last year.

The 2019 performance represents the significant positive returns in the equity markets, which occurred during the first quarter. Earnings were also positively impacted due to the increase in retail nonfuel-based revenues, which increased earnings for $0.02 per share and was primarily driven by an increase in the number of customers served and favorable weather.

Turning to the negative drivers. Earnings declined by $0.03 per share due to higher income tax expense, primarily due to differences in the annual effective tax rate and lower values of stock incentives. Earnings also declined by $0.03 per share due to an increase in depreciation and amortization expenses, primarily due to an increase in plant balances. Earnings declined by $0.02 per share due to an increase in interest charges, primarily related to the 2 -- $125 million of senior notes issued in June of 2018 and an increase in the interest cost component of net periodic benefit cost of the company's benefit plans.

The increase was partially offset by the repurchase of the $63.5 million of 2009 Series A pollution-control bonds in February of 2019. We have also provided a bar chart that displays a quarter-over-quarter comparison of GAAP and non-GAAP earnings. This chart provides a good example of just how volatile earnings can be after the adoption of an accounting standard related to unrealized gains on equity securities, and while we believe it is important to include earnings on a GAAP as well as non-GAAP basis going forward.

Turning to Slide 7, we have provided a 10-year comparative analysis of historical weather for the first quarter. As you can see on the chart, weather was very close to normal during the first quarter of 2019. However, first quarter sales did benefit as compared to the mild winter weather experiences in our service territory during the first quarter of 2018. Heating degree days were 17.5% higher in 2019 as compared to the same period last year.

On Slide 8, we've provided an analysis of the changes in megawatt-hour sales by customer class for the first quarter of 2019 compared to the same period in 2018. We can -- we continue to experience solid sales growth in our residential customer class. During the quarter sales for residential customers increased by 2.6%. We also continue to experience consistent growth in the average number of customers served. The average number of total retail customers served during the quarter increased by 1.6%, which is consistent with recent trends.

Turning to Slide 9. Earlier this year, we repurchased all of the 2009 Series A and B pollution-control bonds, utilizing funds borrowed under the revolving credit facility. The company is currently holding the bonds and we anticipate remarketing these bonds at a lower interest rate. As Mary mentioned earlier, we received a final order from the New Mexico commission and FERC to issue share of common stock in order to fund our construction program and to balance our capital structure. We are still evaluating the exact timing and the amount of the equity that will be issued.

However, we currently believe that we may issue up to $100 million of additional equity during the first quarter of 2020. On March 31, 2019, we had liquidity of approximately $155 million including cash balances and the borrowing capability available to us on our credit facility. The company's current credit ratings are also provided on this slide. Moody's reaffirmed its BAA 1 rating with a negative outlook in March 2019. If you now turn to Slide 10, I will walk you through some earnings guidance.

We are adjusting our 2019 GAAP guidance range to $2.25 to $2.95 per share from $2.25 to $2.80 per share. The increase in the guidance range relates primarily to the strong performance in the equity markets, which we have experienced so far in 2019. The guidance range assumes normal operations, considers significant variables that may impact new earnings, such as weather, expenses, capital expenditures, nuclear decommissioning, trust gains and losses and the recovery of transmission and distribution investments in Texas.

We are also reaffirming our non-GAAP guidance range at $2.10 and $2.45 per share. As previously mentioned, we believe that providing non-GAAP guidance is useful to investors and more clearly describes our core operating performance.

This concludes our prepared remarks. And we will now open the call up for questions. Travis, could you please help us out and pick up any questions?

[Lisa Budtke]

Okay. That's great, Travis. Then we'd like to thank everyone for joining today's call. Please be safe.

[Operator]

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.