El Paso Electric Company (NYSE:EE):
Overview
- For the first quarter of 2015, El Paso
Electric Company ("EE" or the "Company") reported net income of
$3.5 million, or $0.09 basic and diluted earnings per share. In the
first quarter of 2014, EE reported net income of $4.6 million, or
$0.11 basic and diluted earnings per share.
“We had a productive first quarter as seen in our financial
results, the increase in the number of customers served, and the
completion and commercial operation of the first two generating
units at the Montana Power Station,” said Tom Shockley, Chief
Executive Officer. “We have begun construction on Units 3 and 4 at
the Montana Power Station and these units are scheduled to be
completed in 2016. Montana Power Station will serve our customers
with dependable, cost-effective technologies that will help foster
the region's overall growth and modernization. We now begin the
process of requesting rate recovery for the significant
construction costs we have incurred. We continue to be excited
about our community's growth and as we strive for a modern 21st
Century utility we are dedicated to future advancements and
environmental resiliency in order to meet the region's expanding
energy needs.”
Earnings Summary
The table and explanations below present the major factors
affecting 2015 net income relative to 2014 net income:
Quarter Ended Pre-Tax
Effect
After-Tax
Net Income
Basic EPS March 31, 2014 $ 4,615 $ 0.11 Changes in:
Interest on long-term debt $ (1,904 ) (1,237 ) (0.03 ) Gain on the
sale of land in 2014 (1,499 ) (974 ) (0.02 ) Deregulated Palo Verde
Unit 3 revenues (1,281 ) (833 ) (0.02 ) Depreciation and
amortization expense (997 ) (648 ) (0.01 ) Allowance for funds used
during construction 2,306 1,978 0.05 Taxes other than income taxes
1,204 782 0.02 Retail non-fuel base revenues 718 466 0.01 Other
(691 ) (0.02 ) March 31, 2015 $ 3,458 $ 0.09
First Quarter 2015
Income for the quarter ended March 31, 2015, when compared to
the same period last year, was negatively affected by:
- Increased interest on long-term debt
due to the interest accrued on the $150 million senior notes issued
in December 2014.
- Decreased miscellaneous income due to
the gain on the sale of land in first quarter of 2014 with no
comparable activity in the current quarter.
- Decreased deregulated Palo Verde Unit 3
revenues, primarily due to a 35% decrease in proxy market power
prices reflecting a decline in the price of natural gas.
- Increased depreciation and amortization
due to an increase in depreciable plant.
Income for the quarter ended March 31, 2015, when compared to
the same period last year, was positively affected by:
- Increased allowance for funds used
during construction ("AFUDC") due to a higher average balance of
construction work in progress.
- Decreased taxes other than income
taxes, primarily due to an adjustment for Arizona property tax
during the first quarter of 2014, with no comparable adjustment in
the current period.
- Increased retail non-fuel base
revenues, primarily due to increased revenues from our residential
customers, reflecting colder winter weather in 2015 compared to
mild winter weather in 2014 and an increase in the average number
of customers served.
Retail Non-fuel Base Revenues
Retail non-fuel base revenues increased $0.7 million, pre-tax,
or 0.7% in the first quarter of 2015 compared to the same period in
2014. This increase reflects a $1.3 million increase from sales to
residential customers. KWh sales to residential customers increased
by 3.4% reflecting colder winter weather in 2015 compared to mild
winter weather in 2014 and a 1.3% increase in the average number of
residential customers served. Heating degree days increased 20.4%
for the first quarter of 2015, compared to the same quarter last
year, but was 2.3% below the 10-year average. The increase in
retail non-fuel base revenues was partially offset by a decrease of
$0.4 million from sales to public authorities. Retail non-fuel base
revenues to small commercial and industrial customers and large
commercial and industrial customers decreased 0.5% and 0.9% in the
first quarter of 2015, compared to the same quarter in 2014.
Non-fuel base revenues and kWh sales are provided by customer class
on page 8 of this release.
Commercial Operation of Montana Power Station Units 1 and
2
On March 19 and 20, 2015, the Company placed into commercial
operation the first two generating units at the Montana Power
Station ("MPS") and the related common facilities and transmission
systems at a cost of approximately $222.7 million. The two
state-of-the-art 88-MW simple cycle aero-derivative combustion
turbines are powered by natural gas and have quick start
capabilities which allow the units to go from off-line to full
output in less than 10 minutes, thus increasing overall power grid
stability, and work in concert with our renewable energy sources.
These two units will generate enough energy to power more than
80,000 homes.
Capital and Liquidity
We continue to maintain a strong capital structure in which
common stock equity represented 44.7% of our capitalization (common
stock equity, long-term debt, current maturities of long-term debt,
and short-term borrowings under the revolving credit facility). At
March 31, 2015, we had a balance of $8.0 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 the RCF to meet all
of our anticipated cash requirements for the next 12 months
including the $15 million maturity of our Series A 3.67% Senior
Notes (due August 2015). We may also issue long-term debt in the
capital markets to finance capital requirements in late 2015 or
early 2016.
Cash flows from operations for the three months ended March 31,
2015 were $26.5 million compared to $31.3 million in the
corresponding period in 2014. 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 three months ended March 31,
2015, the Company had a fuel over-recovery of $15.7 million
compared to an over-recovery of fuel costs of $2.0 million during
the three months ended March 31, 2014. At March 31, 2015, we had a
net fuel over-recovery balance of $6.4 million, including $3.6
million in Texas, $2.7 million in New Mexico, and $0.1 million for
our FERC regulated customer. On April 15, 2015, we filed a request
to lower our Texas fixed fuel factor by approximately 24% to
reflect reductions in fuel expense. This decrease was effective
with May 2015 billings.
During the three months ended March 31, 2015, 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 the new
electric plant were $73.9 million for the three months ended March
31, 2015 and $48.3 million for the three months ended March 31,
2014. Capital expenditures for 2015 are expected to be $259.5
million. Capital requirements for purchases of nuclear fuel were
$10.2 million for the three months ended March 31, 2015 and
$11.8 million for the three months ended March 31, 2014.
On March 31, 2015, we paid a quarterly cash dividend of $0.28
per share, or $11.3 million to shareholders of record on March 16,
2015. We expect to continue paying quarterly cash dividends during
2015 and we expect to review the dividend policy in the second
quarter of 2015.
No shares of common stock were repurchased during the three
months ended March 31, 2015. As of March 31, 2015, a total of
393,816 shares remain available for repurchase under the currently
authorized stock repurchase program. The Company may repurchase
shares in the open market from time to time.
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 aggregate unsecured borrowing 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 amounts we
borrow under the RCF may be used for working capital and general
corporate purposes. The total amount borrowed for nuclear fuel by
the RGRT was $127.3 million at March 31, 2015, of which $17.3
million had been borrowed under the RCF, and $110 million was
borrowed through senior notes. Borrowings by the RGRT for nuclear
fuel were $130.0 million as of March 31, 2014, of which $20.0
million had been borrowed under the RCF and $110 million was
borrowed through 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
March 31, 2015, $41.0 million was outstanding under the RCF for
working capital and general corporate purposes. At March 31, 2014,
$26.0 million was outstanding under the RCF for working capital and
general corporate purposes.
2015 Earnings Guidance
We are reiterating our earnings guidance for 2015 within a range
of $1.75 to $2.15 per basic share.
Conference Call
A conference call to discuss first quarter 2015 financial
results is scheduled for 10:30 A.M. Eastern Time, on May 6,
2015. The dial-in number is 888-466-4462 with a conference ID
number of 5619633. The international dial-in number is
719-457-2697. The conference leader will be Lisa Budtke, Assistant
Treasurer. A replay will run through May 20, 2015 with a dial-in
number of 888-203-1112 and a conference ID number of 5619633. 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 may constitute
forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
This information may involve risks and uncertainties that could
cause actual results to differ materially from such forward-looking
statements. Factors that could cause or contribute to such
differences include, but are 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) 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; (v) unanticipated
increased costs associated with scheduled and unscheduled outages
of generating plant; (vi) the size of our construction program and
our ability to complete construction on budget; (vii) potential
delays in our construction schedule due to legal challenges or
other reasons; (viii) costs at Palo Verde;
(ix) deregulation and competition in the electric utility
industry; (x) possible increased costs of compliance with
environmental or other laws, regulations and policies;
(xi) possible income tax and interest payments as a result of
audit adjustments proposed by the IRS or state taxing authorities;
(xii) uncertainties and instability in the financial markets
and the resulting impact on EE's ability to access the capital and
credit markets; (xiii) possible physical or cyber attacks,
intrusions or other catastrophic events; and (xiv) other
factors detailed by EE in its public filings with the Securities
and Exchange Commission. EE's filings are available from the
Securities and Exchange Commission 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. EE does not undertake to update any
forward-looking statement that may be made from time to time by or
on behalf of EE except as required by law.
El Paso Electric Company
Statements of Operations Quarter Ended March 31, 2015 and
2014 (In thousands except for per share data)
(Unaudited) 2015 2014 Variance
Operating revenues, net of energy expenses: Base revenues $
104,857 $ 104,147 $ 710 (a) Deregulated Palo Verde Unit 3 revenues
3,127 4,408 (1,281 ) Other 6,858 7,460
(602 )
Operating Revenues Net of Energy Expenses
114,842 116,015 (1,173 ) Other
operating expenses: Other operations and maintenance 49,311 49,064
247 Palo Verde operations and maintenance 21,848 21,356 492 Taxes
other than income taxes 14,158 15,362 (1,204 ) Other income
4,943 5,339 (396 )
Earnings Before
Interest, Taxes, Depreciation and Amortization 34,468
35,572 (1,104 ) (b) Depreciation and
amortization 21,565 20,568 997 Interest on long-term debt 16,483
14,579 1,904 AFUDC and capitalized interest 8,185 5,836 2,349 Other
interest expense 163 173 (10 )
Income Before Income Taxes 4,442 6,088
(1,646 ) Income tax expense 984
1,473 (489 )
Net Income $
3,458 $ 4,615 $
(1,157 ) Basic Earnings per Share
$ 0.09 $ 0.11 $
(0.02 ) Diluted Earnings per Share
$ 0.09 $ 0.11 $
(0.02 ) Dividends declared per share of common
stock $ 0.280 $ 0.265 $ 0.015 Weighted
average number of shares outstanding 40,243
40,149 94
Weighted average number of shares and
dilutive potential shares outstanding
40,267 40,149 118
(a)Base revenues exclude fuel recovered through New Mexico base
rates of $16.1 million and $16.1 million, respectively.
(b)Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a non-generally accepted accounting principles
("GAAP") financial measure and is not a substitute for net income
or other measures of financial performance in accordance with GAAP.
El Paso Electric Company Cash Flow
Summary Quarter Ended March 31, 2015 and 2014 (In
thousands and Unaudited) 2015 2014 Cash
flows from operating activities: Net income $ 3,458 $ 4,615
Adjustments to reconcile net income to net cash provided by
operations: Depreciation and amortization of electric plant in
service 21,565 20,568 Amortization of nuclear fuel 11,392 11,476
Deferred income taxes, net 6,255 761 Net gains on sale of
decommissioning trust funds (3,745 ) (2,865 ) Other 356 (210 )
Change in: Accounts receivable 5,828 6,600 Net over-collection of
fuel revenues 15,687 2,011 Accounts payable (24,230 ) (8,958 )
Other (10,114 ) (2,686 )
Net cash provided by
operating activities 26,452
31,312 Cash flows from investing
activities: Cash additions to utility property, plant and
equipment (73,865 ) (48,255 ) Cash additions to nuclear fuel
(10,183 ) (11,822 ) Decommissioning trust funds (2,319 ) (2,415 )
Other (4,140 ) (876 )
Net cash used for investing
activities (90,507 ) (63,368
) Cash flows from financing activities:
Dividends paid (11,303 ) (10,676 ) Borrowings under the revolving
credit facility, net 43,813 31,599 Other (985 )
(1,067 )
Net cash provided by financing activities
31,525 19,856 Net
decrease in cash and cash equivalents (32,530 )
(12,200 ) Cash and cash equivalents at
beginning of period 40,504
25,592 Cash and cash equivalents at end of
period $ 7,974 $ 13,392
El Paso Electric Company
Quarter Ended March 31, 2015 and 2014 Sales and Revenues
Statistics Increase (Decrease) 2015
2014 Amount Percentage kWh sales (in
thousands): Retail: Residential 561,653 543,030 18,623
3.4 % Commercial and industrial, small 490,066 493,919 (3,853 )
(0.8
)
%
Commercial and industrial, large 253,120 226,552 26,568 11.7 %
Public authorities 343,093 343,028
65 — % Total retail sales 1,647,932
1,606,529 41,403 2.6 % Wholesale: Sales
for resale 11,945 12,392 (447 ) (3.6
)
%
Off-system sales 683,529 697,014
(13,485 ) (1.9
)
%
Total wholesale sales 695,474 709,406
(13,932 ) (2.0
)
%
Total kWh sales 2,343,406 2,315,935
27,471 1.2 %
Operating revenues (in
thousands): Non-fuel base revenues: Retail: Residential
$ 46,940 $ 45,594 $ 1,346 3.0 % Commercial and industrial, small
31,970 32,121 (151 ) (0.5
)
%
Commercial and industrial, large 8,249 8,328 (79 ) (0.9
)
%
Public authorities 17,258 17,656
(398 ) (2.3
)
%
Total retail non-fuel base revenues 104,417 103,699 718 0.7 %
Wholesale: Sales for resale 440 448
(8 ) (1.8
)
%
Total non-fuel base revenues 104,857 104,147
710 0.7 % Fuel revenues: Recovered from
customers during the period 34,422 31,173 3,249 10.4 % Over
collection of fuel (a) (15,687 ) (2,010 ) (13,677 ) — % New Mexico
fuel in base rates 16,113 16,095
18 0.1 % Total fuel revenues (b) 34,848
45,258 (10,410 ) (23.0
)
%
Off-system sales: Fuel cost 12,865 21,463 (8,598 ) (40.1
)
%
Shared margins 3,936 6,744 (2,808 ) (41.6
)
%
Retained margins 356 802 (446 )
(55.6
)
%
Total off-system sales 17,157 29,009 (11,852 ) (40.9
)
%
Other (c) 6,884 7,102 (218 )
(3.1
)
%
Total operating revenues $ 163,746 $ 185,516 $
(21,770 ) (11.7
)
%
(a)2015 includes a DOE refund related to spent fuel storage
of $5.8 million. (b)Includes deregulated Palo Verde Unit 3
revenues for the New Mexico jurisdiction of $3.1 million and $4.4
million, respectively. (c)Represents revenues with no
related kWh sales.
El Paso Electric Company
Quarter Ended March 31, 2015 and 2014 Other Statistical
Data Increase (Decrease)
2015 2014 Amount Percentage
Average number of retail customers: (a)
Residential 354,758 350,334 4,424 1.3 % Commercial and industrial,
small 40,040 39,218 822 2.1 % Commercial and industrial, large 49
49 — —
%
Public authorities 5,216 5,047 169 3.3
% Total 400,063 394,648 5,415 1.4 %
Number of retail customers (end of period):
(a) Residential 355,563 350,967 4,596 1.3 % Commercial
and industrial, small 40,052 39,417 635 1.6 % Commercial and
industrial, large 49 49 — — % Public authorities 5,209 5,072
137 2.7 % Total 400,873 395,505
5,368 1.4 %
Weather statistics:
(b) 10-Yr Average Heating degree days 1,153 958
1,180 Cooling degree days 34 25 29
Generation and
purchased power (kWh, in thousands): Increase
(Decrease) 2015 2014 Amount
Percentage Palo Verde 1,362,194 1,364,077 (1,883 )
(0.1
)
%
Four Corners 137,218 134,236 2,982 2.2 % Gas plants 668,575
567,744 100,831 17.8 % Total generation
2,167,987 2,066,057 101,930 4.9 % Purchased power: Photovoltaic
59,059 28,799 30,260 105.1 % Other 241,713 333,318
(91,605 ) (27.5
)
%
Total purchased power 300,772 362,117 (61,345 )
(16.9
)
%
Total available energy 2,468,759 2,428,174 40,585 1.7 % Line losses
and Company use 125,353 112,239 13,114
11.7 % Total kWh sold 2,343,406 2,315,935 27,471
1.2 %
Palo Verde capacity factor
101.4
%
101.5
%
(0.1
)
%
(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.
El Paso Electric Company Financial
Statistics At March 31, 2015 and 2014 (In thousands,
except number of shares, book value per share, and ratios)
Balance Sheet 2015 2014 Cash and
cash equivalents $ 7,974 $ 13,392 Common stock
equity $ 975,265 $ 948,990 Long-term debt 1,134,205
999,643 Total capitalization $ 2,109,470 $
1,948,633 Current maturities of long-term debt $
15,000 $ — Short-term borrowings under the
revolving credit facility $ 58,345 $ 45,951
Number of shares - end of period 40,392,608
40,303,763 Book value per common share $ 24.14
$ 23.55 Common equity ratio (a) 44.7 % 47.6 % Debt
ratio 55.3 % 52.4 %
(a) 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 ElectricMedia Relations:Eddie Gutierrez,
915-543-5763eduardo.gutierrez@epelectric.comorInvestor
Relations:Lisa Budtke,
915-543-5947lisa.budtke@epelectric.com
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