EE Excelerate Energy Inc

El Paso Electric Company (NYSE:EE):

Overview

• For the second quarter of 2016, El Paso Electric Company ("EE" or the "Company") reported net income of $22.3 million, or $0.55 basic and diluted earnings per share. In the second quarter of 2015, EE reported net income of $21.1 million, or $0.52 basic and diluted earnings per share.
• For the six months ended June 30, 2016, EE reported net income of $16.5 million, or $0.41 basic and diluted earnings per share. Net income for the six months ended June 30, 2015 was $24.5 million, or $0.61 basic and diluted earnings per share.

“We are pleased with our second quarter results and the progress that we have made. Although the impact of regulatory lag continues to adversely affect our operating results, our performance for the second quarter exceeded last year’s performance,” said Mary Kipp, Chief Executive Officer. “Our region continues to experience solid growth, and we set a new native system peak of 1,892 MW on July 14, 2016, which is 5.5%, or 98 MW, higher than the peak established in 2015. In fact, we have already experienced eight days this summer in which our peak exceeded last year’s peak. In addition, the recent sale of our interest in Four Corners means the Company no longer owns any coal-fired generation, and we expect to have final resolution of our pending Texas rate case soon."

Earnings Summary

The table and explanations below present the major factors affecting 2016 net income relative to 2015 net income (in thousands except per share data):

          Quarter Ended Six Months Ended

Pre-TaxEffect

   

After-TaxEffect

   

BasicEPS

Pre-TaxEffect

   

After-TaxEffect

   

BasicEPS

June 30, 2015 $ 21,072 $ 0.52 $ 24,530 $ 0.61 Changes in: Retail non-fuel base revenues $ 3,065 1,992 0.05 $ 4,024 2,616 0.06 Investment and interest income 2,193 1,769 0.04 (132 ) (95 ) — O&M at fossil-fuel generating plants 69 45 — (3,103 ) (2,016 ) (0.05 ) Interest on long-term debt (1,803 ) (1,171 ) (0.03 ) (1,919 ) (1,247 ) (0.03 ) Depreciation and amortization (717 ) (466 ) (0.01 ) (2,445 ) (1,590 ) (0.04 ) Allowance for funds used during construction (151 ) (148 ) — (3,053 ) (2,712 ) (0.07 ) Deregulated Palo Verde Unit 3 (17 ) (12 ) — (978 ) (636 ) (0.02 ) Other 257 167 — (2,312 ) (1,503 ) (0.03 ) Changes in the effective tax rate (964 ) (0.02 ) (871 ) (0.02 ) June 30, 2016 $ 22,284   $ 0.55   $ 16,476   $ 0.41    

Regulatory Lag

The completion of Montana Power Station ("MPS") Units 1 & 2 (including common plant, transmission lines and substation) and the Eastside Operations Center ("EOC") continues to have a negative impact on the Company's financial results through June 30, 2016, due to regulatory lag associated with the placement in service of these assets without a corresponding increase in revenues. The placement in service of MPS Unit 3 in May 2016 and the anticipated completion of MPS Unit 4 in September 2016 will continue the negative impact of regulatory lag until new and higher rates become effective. As discussed in "2015 Texas Retail Case Filing" below, interim rates subject to refund or surcharge were implemented on April 1, 2016 in Texas. However, due to the uncertainties surrounding the rate case, the Company did not recognize the effects of the increased interim rates in our Statements of Operations. The Company believes rates reflecting the recovery of the investment in and related costs of MPS Units 1 & 2 and the EOC will be in place in the second half of 2016 in Texas and New Mexico. The Company anticipates filing new rate cases in Texas and New Mexico in early 2017 to reflect MPS Units 3 & 4 in rate base. The primary impact from these assets being placed in service include a reduction in amounts capitalized for allowance for funds used during construction ("AFUDC"), and increases in depreciation, operations and maintenance ("O&M") expense, property taxes and interest cost.

Second Quarter 2016

Income for the quarter ended June 30, 2016, when compared to the quarter ended June 30, 2015, was positively affected by:

• Increased retail non-fuel base revenues, primarily resulting from a 5.9% and 1.1% increase in kWh sales from residential and small commercial and industrial customers, respectively. These increases were driven principally by a 1.5% increase in the average number of customers served and warmer weather. Partially offsetting the increases were decreased revenues from sales to public authorities and large commercial and industrial customers reflecting a 3.5% and 2.8% decrease in kWh sales, respectively.
• Increased investment and interest income due to higher realized gains on securities sold from the Company’s Palo Verde decommissioning trust in the second quarter of 2016 compared to the second quarter of 2015.

Income for the quarter ended June 30, 2016, when compared to the quarter ended June 30, 2015, was negatively affected by:

• Increased interest on long-term debt due to the interest accrued on $150 million aggregate principal amount of senior notes issued in March 2016.
• Increased depreciation and amortization related to an increase in depreciable plant, including MPS Unit 3, which was placed in service on May 3, 2016, partially offset by a change in the estimated useful life of certain intangible software assets.
• Decreased AFUDC due to a reduction in the AFUDC rate effective January 2016, partially offset by AFUDC earned on construction costs related to MPS Units 3 and 4 in 2016.
• Change in the effective tax rate largely due to the reduction of the domestic production manufacturing deduction and changes in state taxes.

First Six Months of 2016

Income for the six months ended June 30, 2016, when compared to the six months ended June 30, 2015, was negatively affected by:

• Decreased AFUDC due to a reduction in the AFUDC rate effective January 2016 and lower balances of construction work in progress ("CWIP"), primarily due to MPS Units 1 & 2 and the EOC being placed in service in March 2015, partially offset by AFUDC earned on construction costs related to MPS Units 3 & 4 in 2016.
• Increased O&M expenses related to our fossil-fuel generating plants, primarily due to maintenance outages on Four Corners Units 4 & 5 and Rio Grande Unit 7 during the first six months of 2016. These increases were partially offset by a maintenance outage at Newman Unit 5 in 2015, with no comparable expense in the same period in 2016.
• Increased depreciation and amortization related to an increase in depreciable plant, primarily due to MPS Units 1 & 2 and the EOC being placed in service in March 2015 and MPS Unit 3 being placed in service on May 3, 2016, partially offset by a change in the estimated useful life of certain intangible software assets.
• Increased interest on long-term debt due to the interest accrued on $150 million aggregate principal amount of senior notes issued in March 2016.
• Decreased deregulated Palo Verde Unit 3 revenues, primarily due to a 21.8% decrease in proxy market prices reflecting a decline in the price of natural gas, partially offset by increased generation due in part to a Palo Verde Unit 3 planned 2015 spring refueling outage that was completed in May 2015 with no comparable outage in 2016.
• Change in the effective tax rate largely due to the reduction of the domestic production manufacturing deduction and changes in state taxes.

Income for the six months ended June 30, 2016, when compared to the six months ended June 30, 2015, was positively affected by:

• Increased retail non-fuel revenues, primarily resulting from a 3.8% and 1.5% increase in kWh sales from our residential and small commercial and industrial customers, respectively. These increases are driven principally by a 1.5% and 1.4%, respectively, increase in the average number of customers served and warmer weather. Partially offsetting the increases were decreased revenues from our large commercial and industrial customers and sales to public authorities reflecting a 3.0% and 1.5% decrease in kWh sales, respectively.

Retail Non-fuel Base Revenues

Retail non-fuel base revenues increased $3.1 million, pre-tax, or 2.1%, in the second quarter of 2016, compared to the second quarter of 2015. This increase includes a $3.3 million increase in revenues from residential customers and a $0.8 million increase in revenues from small commercial and industrial customers reflecting increases of 1.5% in the average number of customers served and warmer weather. Cooling degree days increased 3.9% for the second quarter of 2016, when compared to the second quarter of 2015. KWh sales to residential customers and small commercial and industrial customers increased by 5.9% and 1.1%, respectively, during the second quarter of 2016, when compared to the second quarter of 2015. Retail non-fuel base revenues from sales to public authorities and large commercial and industrial customers decreased $0.6 million and $0.4 million, respectively, reflecting a 3.5% and 2.8%, respectively, decrease in kWh sales during the second quarter of 2016, when compared to the second quarter of 2015. Non-fuel base revenues and kWh sales for the second quarter of 2016 and 2015 are provided by customer class on page 12 of this release.

For the six months ended June 30, 2016, retail non-fuel revenues increased $4.0 million, pre-tax, or 1.6%, compared to the six months ended June 30, 2015. This increase includes a $4.0 million increase in revenues from residential customers and a $1.0 million increase in revenues from small commercial and industrial customers reflecting increases of 1.5% and 1.4%, respectively, in the average number of customers served and warmer weather. KWh sales to residential customers and small commercial and industrial customers increased by 3.8% and 1.5%, respectively, during the first half of 2016, when compared to the first half of 2015. Retail non-fuel base revenues from large commercial and industrial customers and sales to public authorities each decreased by $0.5 million reflecting a 3.0% and 1.5%, respectively, decrease in kWh sales during the first half of 2016, when compared to the first half of 2015. Non-fuel base revenues and kWh sales for the first half of 2016 and 2015 are provided by customer class on page 14 of this release.

2015 Rate Cases

2015 New Mexico Rate Case Filing

On May 11, 2015, the Company filed with the New Mexico Public Regulation Commission ("NMPRC") in Case No. 15-00127-UT, for an annual increase in non-fuel base rates of approximately $8.6 million or 7.1%. The filing also requested an annual reduction of $15.4 million, or 21.5%, for fuel and purchased power costs. Subsequently, the Company reduced its requested increase in non-fuel base rates to approximately $6.4 million. On June 8, 2016, the NMPRC issued its final order approving an annual increase in non-fuel base rates of approximately $1.1 million and a decrease in the Company's allowed return on equity to 9.48%. The final order concludes that all of the Company's new plant in service was reasonable and necessary and therefore would be recoverable in rate base. The Company's rates were approved by the NMPRC effective July 1, 2016.

2015 Texas Retail Case Filing

On August 10, 2015, the Company filed with the City of El Paso, other municipalities incorporated in its Texas service territory and the Public Utility Commission of Texas ("PUCT") in Docket No. 44941, a request for an annual increase in non-fuel base revenues of approximately $71.5 million. On January 15, 2016, the Company filed its rebuttal testimony modifying the requested increase to $63.3 million. The Company invoked its statutory right to have its new rates relate back for consumption on and after January 12, 2016, which is the 155th day after the filing. The difference in rates that would have been billed will be surcharged or refunded to customers after the PUCT's final order in Docket No. 44941. The PUCT has the authority to require the Company to surcharge or refund such difference over a period not to exceed 18 months. On January 21, 2016, the Company, the City of El Paso, the PUCT Staff, the Office of Public Utility Counsel and Texas Industrial Energy Consumers filed a joint motion to abate the procedural schedule to facilitate settlement talks. This motion was granted.

On March 29, 2016, the Company and other settling parties to PUCT Docket No. 44941 filed a Non-Unanimous Stipulation and Agreement and motion to approve interim rates (the "Non-Unanimous Settlement") with the PUCT. Four parties to the rate case opposed the Non-Unanimous Settlement. Interim rates reflecting an annual non-fuel base rate increase of $37 million were approved by the PUCT effective April 1, 2016 subject to refund or surcharge. Subsequent to filing the Non-Unanimous Settlement, the rate case was subject to numerous procedural matters, including a May 19, 2016 ruling by the PUCT that the Company’s initial notice did not adequately contemplate the treatment of residential customers with solar generation contained in the Non-Unanimous Settlement.

At a June 10, 2016 pre-hearing conference, all parties to the case renewed discussions to attempt to reach a unanimous settlement of all issues and avoid further litigation. On July 21, 2016, the Company filed a Joint Motion to Implement Uncontested Amended and Restated Stipulation and Agreement with the PUCT, which was unopposed by parties to the rate case in Docket No. 44941 (the "Unopposed Settlement").

The terms of the Unopposed Settlement include: (i) an annual non-fuel base rate increase of $37 million, lower annual depreciation expense of approximately $8.5 million, a return on equity of 9.7% for AFUDC purposes, and including substantially all new plant in service in rate base; (ii) an additional annual non-fuel base rate increase of $3.7 million related to Four Corners Generating Station costs; (iii) removing the separate treatment for residential customers with solar generation; and (iv) allowing the Company to recover most of the rate case expenses up to a date certain. The Unopposed Settlement is subject to approval by the PUCT. The settlement documents were filed with ALJs assigned to oversee the Company's Texas Rate case, who have returned the settled case to the PUCT for approval. It is anticipated that the Unopposed Settlement will be considered by the PUCT at its meeting scheduled for August 18, 2016. The costs of serving residential customers with solar generation will be addressed in a future proceeding.

Given the uncertainties regarding the ultimate resolution of this rate case, the Company did not recognize the impacts of the Unopposed Settlement in the Statements of Operations for the second quarter of 2016. At this time, the Company believes the revenue and other impacts of the Unopposed Settlement for financial reporting purposes will be recognized during the second half of 2016. Regardless of the ultimate timing and amounts, new rates will relate back to consumption on and after January 12, 2016.

Commercial Operation of Montana Power Station Unit 3 and Construction of Unit 4

On May 3, 2016, the Company placed into commercial operation the third generating unit at MPS and the related common facilities and transmission systems at a cost of approximately $81.3 million. The 88-MW simple cycle aero-derivative combustion turbine is powered by natural gas and has quick start capabilities which allows the unit to go from off-line to full output in less than 10 minutes, thus increasing overall power grid stability, and work in concert with the Company's renewable energy sources. This unit will generate enough energy to power more than 40,000 homes in the Company's growing service territory. MPS Unit 4, identical to the other three MPS units, is expected to reach commercial operation September 2016.

Completion of the Sale of Four Corners

On February 17, 2015, the Company and Arizona Public Service Company ("APS") entered into an asset purchase agreement, providing for the purchase by APS of the Company's interests in Units 4 & 5 of the Four Corners Power Plant. On July 6, 2016, the closing of the transaction occurred, after which the Company no longer owns any coal-fired generation. At the closing, the Company received approximately $4.2 million in cash, subject to post-closing adjustments. No significant gain or loss was recorded upon the closing of the sale.

Quarterly Cash Dividend

On May 26, 2016, the Board of Directors approved an increase to the quarterly cash dividend to $0.31 per share of common stock from our previous quarterly rate of $0.295 per share. This represents an increase in the annualized cash dividend from $1.18 to $1.24 per share. The dividend increase commenced with the June 30, 2016 dividend payment. On July 21, 2016, the Board of Directors declared a quarterly cash dividend of $0.31 per share payable on September 30, 2016 to shareholders of record as of the close of business on September 14, 2016.

Capital and Liquidity

In March 2016, we issued $150 million in aggregate principal amount of 5.00% Senior Notes due December 1, 2044 to repay outstanding short-term borrowings on our Revolving Credit Facility ("RCF") used for working capital and general corporate purposes, which may include funding capital expenditures. We continue to maintain a strong capital structure in which common stock equity represented 42.3% of our capitalization (common stock equity, long-term debt, current maturities of long-term debt and short-term borrowings under the RCF). At June 30, 2016, we had a balance of $9.6 million in cash and cash equivalents. Based on current projections, we believe that we will have adequate liquidity through our current cash balances, cash from operations and available borrowings under our RCF to meet all of our anticipated cash requirements for the next 12 months.

Cash flows from operations for the six months ended June 30, 2016 were $40.7 million, compared to $60.4 million for the six months ended June 30, 2015. The primary factors affecting the decrease in cash flows from operations were a reduction in earnings arising from regulatory lag and decreases in the net over-collection of fuel revenues. The growth in accounts receivable, primarily reflecting the implementation of interim rates in Texas, is offset by the deferral of the related revenues. 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 six months ended June 30, 2016, the Company had a fuel under-recovery of $2.0 million compared to an over-recovery of fuel costs of $10.8 million during the six months ended June 30, 2015. At June 30, 2016, we had a net fuel over-recovery balance of $2.0 million, including an over-recovery of $1.1 million in New Mexico and an over-recovery of $1.0 million in Texas and an under-recovery of $0.1 million in the Federal Energy Regulatory Commission ("FERC") jurisdiction.

During the six months ended June 30, 2016, our primary capital requirements were for the construction and purchase of electric utility plant, payment of common stock dividends, and purchases of nuclear fuel. Capital requirements for new electric utility plant were $102.8 million for the six months ended June 30, 2016 and $147.0 million for the six months ended June 30, 2015. Capital expenditures for 2016 are expected to be approximately $234 million. Capital requirements for purchases of nuclear fuel were $20.5 million for the six months ended June 30, 2016, and $22.4 million for the six months ended June 30, 2015.

On June 30, 2016, we paid a quarterly cash dividend of $0.31 per share, or $12.5 million, to shareholders of record as of the close of business on June 15, 2016. We paid a total of $24.5 million in cash dividends during the six months ended June 30, 2016. At the current dividend rate, we expect to pay cash dividends of approximately $49.6 million during 2016.

No shares of common stock were repurchased during the six months ended June 30, 2016. As of June 30, 2016, a total of 393,816 shares remain available for repurchase under the Company's currently authorized stock repurchase program. The Company may in the future make purchases of its common stock in open market transactions at prevailing prices and may engage in private transactions where appropriate.

We maintain the RCF for working capital and general corporate purposes and financing of nuclear fuel through the Rio Grande Resources Trust (the "RGRT"). The RGRT, the trust through which we finance our portion of nuclear fuel for Palo Verde, is consolidated in the Company's financial statements. The RCF has a term ending January 14, 2019. The maximum aggregate unsecured borrowing currently available under the RCF is $300 million. We may increase the RCF by up to $100 million (up to a total of $400 million) during the term of the agreement, upon the satisfaction of certain conditions, more fully set forth in the agreement, including obtaining commitments from lenders or third party financial institutions. The total amount borrowed for nuclear fuel by the RGRT, excluding debt issuance costs, was $129.6 million at June 30, 2016, of which $34.6 million had been borrowed under the RCF, and $95.0 million was borrowed through the issuance of senior notes. Borrowings by the RGRT for nuclear fuel, excluding debt issuance costs, were $128.1 million as of June 30, 2015, of which $18.1 million had been borrowed under the RCF and $110.0 million was borrowed through the issuance of senior notes. Interest costs on borrowings to finance nuclear fuel are accumulated by the RGRT and charged to us as fuel is consumed and recovered through fuel recovery charges. At June 30, 2016, $67.0 million was outstanding under the RCF for working capital and general corporate purposes, which may include funding capital expenditures. At June 30, 2015, $110.0 million was outstanding under the RCF for working capital and general corporate purposes. Total aggregate borrowings under the RCF at June 30, 2016 were $101.6 million with an additional $197.9 million available to borrow.

We received approval from the NMPRC on October 7, 2015, and from the FERC on October 19, 2015, to issue up to $310 million in new long-term debt and to guarantee the issuance of up to $65 million of new debt by the RGRT to finance future purchases of nuclear fuel and to refinance existing nuclear fuel debt obligations. We also requested approval from the FERC to continue to utilize our existing RCF without change from the FERC’s previously approved authorization. The FERC authorization is effective from November 15, 2015 through November 15, 2017. The approvals granted in these cases supersede prior approvals. Under this authorization, on March 24, 2016, the Company issued $150 million in aggregate principal amount of 5.00% Senior Notes due December 1, 2044. The proceeds from the issuance of these senior notes, after deducting the underwriters' commission, were $158.1 million. These proceeds include accrued interest of $2.4 million and a $7.1 million premium before expenses. The effective interest rate is approximately 4.77%. The net proceeds from the sale of these senior notes were used to repay outstanding short-term borrowings under the RCF. These senior notes constitute an additional issuance of the Company’s 5.00% Senior Notes due 2044, of which $150 million was previously issued on December 1, 2014, for a total principal amount outstanding of $300 million.

2016 Earnings Guidance

As discussed above, the Company filed rate cases in New Mexico and Texas on May 11, 2015 and August 10, 2015, respectively. The Company received a final order in the New Mexico rate case on June 8, 2016 and filed the Unopposed Settlement with the PUCT on July 21, 2016 for the Texas rate case. Therefore, the Company has decided to provide earnings guidance for 2016 with a range of $2.20 to $2.50 per basic share. The middle of the range assumes normal weather for the remainder of the year and that the PUCT approves the Unopposed Settlement during the second half of 2016.

The Company's guidance assumes normal operating conditions for the remainder of 2016. Other key factors and assumptions underlying the guidance can be found in the second quarter 2016 earnings presentation slides on the Company's website at http://www.epelectric.com.

Conference Call

A conference call to discuss the second quarter 2016 financial results is scheduled for 10:30 A.M. Eastern Time, on August 3, 2016. The dial-in number is 888-337-8198 with a conference ID number of 6337142. The international dial-in number is 719-325-2494. The conference leader will be Lisa Budtke, Director Treasury Services and Investor Relations. A replay will run through August 17, 2016 with a dial-in number of 888-203-1112 and a conference ID number of 6337142. The replay international dial-in number is 719-457-0820. The conference call and presentation slides will be webcast live on the Company's website found at http://www.epelectric.com. A replay of the webcast will be available shortly after the call.

Safe Harbor

This news release includes statements that are forward-looking statements made pursuant to the safe harbor provisions of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This information may involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those expressed in forward-looking statements is contained in EE's most recently filed periodic reports and in other filings made by EE with the U.S. Securities and Exchange Commission (the "SEC"), and include, but is not limited to: (i) uncertainty regarding the actions and timing of matters in the Company's Texas rate case pending before the PUCT; (ii) 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; (iii) full and timely recovery of capital investments and operating costs through rates in Texas and New Mexico; (iv) uncertainties and instability in the general economy and the resulting impact on EE's sales and profitability; (v) changes in customers' demand for electricity as a result of energy efficiency initiatives and emerging competing services and technologies, including distributed generation; (vi) unanticipated increased costs associated with scheduled and unscheduled outages of generating plant; (vii) the size of our construction program and our ability to complete construction on budget and on time; (viii) potential delays in our construction schedule due to legal challenges or other reasons; (ix) costs at Palo Verde; (x) deregulation and competition in the electric utility industry; (xi) possible increased costs of compliance with environmental or other laws, regulations and policies; (xii) possible income tax and interest payments as a result of audit adjustments proposed by the IRS or state taxing authorities; (xiii) uncertainties and instability in the financial markets and the resulting impact on EE's ability to access the capital and credit markets; (xiv) possible physical or cyber attacks, intrusions or other catastrophic events; and (xv) other factors of which we are currently unaware or deem immaterial. EE's filings are available from the SEC or may be obtained through EE's website, http://www.epelectric.com. Any such forward-looking statement is qualified by reference to these risks and factors. EE cautions that these risks and factors are not exclusive. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. Forward-looking statements speak only as of the date of this news release, and EE does not undertake to update any forward-looking statement contained herein.

  El Paso Electric Company Statements of Operations Quarter Ended June 30, 2016 and 2015 (In thousands except for per share data) (Unaudited)               2016 2015 Variance   Operating revenues $ 217,865   $ 219,508   $ (1,643 ) Energy expenses: Fuel 43,143 49,813 (6,670 ) Purchased and interchanged power 13,610   11,742   1,868   56,753   61,555   (4,802 ) Operating revenues net of energy expenses 161,112   157,953   3,159   Other operating expenses: Other operations 56,817 57,656 (839 ) Maintenance 20,426 19,857 569 Depreciation and amortization 23,852 23,135 717 Taxes other than income taxes 15,320   15,433   (113 ) 116,415   116,081   334   Operating income 44,697   41,872   2,825   Other income (deductions): Allowance for equity funds used during construction 2,133 2,268 (135 ) Investment and interest income, net 3,591 1,398 2,193 Miscellaneous non-operating income 145 507 (362 ) Miscellaneous non-operating deductions (890 ) (1,271 ) 381   4,979   2,902   2,077   Interest charges (credits): Interest on long-term debt and revolving credit facility 18,298 16,495 1,803 Other interest 272 354 (82 ) Capitalized interest (1,253 ) (1,261 ) 8 Allowance for borrowed funds used during construction (1,375 ) (1,391 ) 16   15,942   14,197   1,745   Income before income taxes 33,734 30,577 3,157 Income tax expense 11,450   9,505   1,945   Net income $ 22,284   $ 21,072   $ 1,212     Basic earnings per share $ 0.55   $ 0.52   $ 0.03     Diluted earnings per share $ 0.55   $ 0.52   $ 0.03     Dividends declared per share of common stock $ 0.310   $ 0.295   $ 0.015   Weighted average number of shares outstanding 40,345   40,270   75  

Weighted average number of shares and dilutivepotential shares outstanding

40,399   40,303   96       El Paso Electric Company Statements of Operations Six Months Ended June 30, 2016 and 2015 (In thousands except for per share data) (Unaudited)               2016 2015 Variance   Operating revenues $ 375,674 $ 383,254 $ (7,580 ) Energy expenses Fuel 77,462 87,542 (10,080 ) Purchased and interchanged power 23,256   22,917   339   100,718   110,459   (9,741 ) Operating revenues net of energy expenses 274,956   272,795   2,161   Other operating expenses: Other operations 115,204 113,255 1,949 Maintenance 37,941 35,417 2,524 Depreciation and amortization 47,145 44,700 2,445 Taxes other than income taxes 30,132   29,591   541   230,422   222,963   7,459   Operating income 44,534   49,832   (5,298 ) Other income (deductions): Allowance for equity funds used during construction 4,469 6,543 (2,074 ) Investment and interest income, net 6,520 6,652 (132 ) Miscellaneous non-operating income 801 687 114 Miscellaneous non-operating deductions (1,356 ) (1,762 ) 406   10,434 12,120 (1,686 ) Interest charges (credits): Interest on long-term debt and revolving credit facility 34,897 32,978 1,919 Other interest 834 517 317 Capitalized interest (2,495 ) (2,550 ) 55 Allowance for borrowed funds used during construction (3,033 ) (4,012 ) 979   30,203     26,933     3,270   Income before income taxes 24,765 35,019 (10,254 ) Income tax expense 8,289   10,489   (2,200 ) Net income $ 16,476   $ 24,530   $ (8,054 )   Basic earnings per share $ 0.41   $ 0.61   $ (0.20 )   Diluted earnings per share $ 0.41   $ 0.61   $ (0.20 )   Dividends declared per share of common stock $ 0.605   $ 0.575   $ 0.030   Weighted average number of shares outstanding 40,335   40,257   78  

Weighted average number of shares and dilutive potential shares outstanding

40,381   40,285   96       El Paso Electric Company Cash Flow Summary Six Months Ended June 30, 2016 and 2015 (In thousands and Unaudited)               2016 2015 Cash flows from operating activities: Net income $ 16,476 $ 24,530 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization of electric plant in service 47,145 44,700 Amortization of nuclear fuel 21,957 21,379 Deferred income taxes, net 6,695 8,789 Net gains on sale of decommissioning trust funds (3,498 ) (3,563 ) Other 4,422 2,588 Change in: Accounts receivable (39,117 ) (20,782 ) Net over-collection (under-collection) of fuel revenues (1,990 ) 10,833 Accounts payable (9,345 ) (15,528 ) Other (2,052 ) (12,571 ) Net cash provided by operating activities 40,693   60,375     Cash flows from investing activities: Cash additions to utility property, plant and equipment (102,785 ) (147,040 ) Cash additions to nuclear fuel (20,478 ) (22,424 ) Decommissioning trust funds (4,225 ) (3,871 ) Other (2,161 ) (6,480 ) Net cash used for investing activities (129,649 ) (179,815 )   Cash flows from financing activities: Dividends paid (24,474 ) (23,220 ) Borrowings under the revolving credit facility, net (40,124 ) 113,540 Proceeds from issuance of senior notes 157,052 — Other (2,040 ) (1,020 ) Net cash provided by financing activities 90,414   89,300     Net increase (decrease) in cash and cash equivalents 1,458 (30,140 )   Cash and cash equivalents at beginning of period 8,149   40,504     Cash and cash equivalents at end of period $ 9,607   $ 10,364       El Paso Electric Company Quarter Ended June 30, 2016 and 2015 Sales and Revenues Statistics             Increase (Decrease) 2016 2015 Amount     Percentage

kWh sales (in thousands):

Retail: Residential 679,035 640,940 38,095 5.9 % Commercial and industrial, small 633,714 626,968 6,746 1.1 % Commercial and industrial, large 270,908 278,822 (7,914 ) (2.8 )% Public authorities 405,277   419,882   (14,605 ) (3.5 )% Total retail sales 1,988,934   1,966,612   22,322   1.1 % Wholesale: Sales for resale 20,668 20,504 164 0.8 % Off-system sales 450,801   517,752   (66,951 ) (12.9 )% Total wholesale sales 471,469   538,256   (66,787 ) (12.4 )% Total kWh sales 2,460,403   2,504,868   (44,465 ) (1.8 )%

Operating revenues (in thousands):

Non-fuel base revenues: Retail: Residential $ 62,679 $ 59,422 $ 3,257 5.5 % Commercial and industrial, small 54,707 53,864 843 1.6 % Commercial and industrial, large 9,489 9,879 (390 ) (3.9 )% Public authorities 24,672   25,317   (645 ) (2.5 )% Total retail non-fuel base revenues 151,547 148,482 3,065 2.1 % Wholesale: Sales for resale 826   689   137   19.9 % Total non-fuel base revenues 152,373   149,171   3,202   2.1 %   Fuel revenues: Recovered from customers during the period 26,219 28,949 (2,730 ) (9.4 )% Under collection of fuel 6,096 4,855 1,241 25.6 % New Mexico fuel in base rates 16,602   16,437   165   1.0 % Total fuel revenues (a) 48,917   50,241   (1,324 ) (2.6 )%   Off-system sales: Fuel cost 8,398 10,419 (2,021 ) (19.4 )% Shared margins 852 2,316 (1,464 ) (63.2 )% Retained margins 213   164   49   29.9 % Total off-system sales 9,463 12,899 (3,436 ) (26.6 )% Other (b) 7,112   7,197   (85 ) (1.2 )% Total operating revenues $ 217,865   $ 219,508   $ (1,643 ) (0.7 )%   (a) Includes deregulated Palo Verde Unit 3 revenues for the New Mexico jurisdiction of $1.9 million in each period. (b) Represents revenues with no related kWh sales.     El Paso Electric Company Quarter Ended June 30, 2016 and 2015 Other Statistical Data                   Increase (Decrease) 2016 2015 Amount Percentage  

Average number of retail customers: (a)

Residential 361,812 356,495 5,317 1.5 % Commercial and industrial, small 40,832 40,213 619 1.5 % Commercial and industrial, large 49 50 (1 ) (2.0 )% Public authorities 5,274   5,273   1   — Total 407,967   402,031   5,936   1.5 %  

Number of retail customers (end of period): (a)

Residential 362,417 356,932 5,485 1.5 % Commercial and industrial, small 40,901 40,356 545 1.4 % Commercial and industrial, large 49 49 — — Public authorities 5,251   5,298   (47 ) (0.9 )% Total 408,618   402,635   5,983   1.5 %  

Weather statistics: (b)

10-Yr Average Cooling degree days 965 929 1,031 Heating degree days 75 53 72  

Generation and purchased power (kWh, in thousands):

Increase (Decrease) 2016 2015 Amount Percentage   Palo Verde 1,165,459 1,203,902 (38,443 ) (3.2 )% Four Corners 82,143 173,427 (91,284 ) (52.6 )% Gas plants 1,032,440   1,025,980   6,460   0.6 % Total generation 2,280,042 2,403,309 (123,267 ) (5.1 )% Purchased power: Photovoltaic 88,765 87,655 1,110 1.3 % Other 239,329   164,194   75,135   45.8 % Total purchased power 328,094   251,849   76,245   30.3 % Total available energy 2,608,136 2,655,158 (47,022 ) (1.8 )% Line losses and Company use 147,733   150,290   (2,557 ) (1.7 )% Total kWh sold 2,460,403   2,504,868   (44,465 ) (1.8 )%

 

 

Palo Verde capacity factor

85.8

%

88.6

%

(2.8

)%

   

(a)

The number of retail customers is based on the number of service locations.

(b)

A degree day is recorded for each degree that the average outdoor temperature varies from a standard of 65 degrees Fahrenheit.

    El Paso Electric Company Six Months Ended June 30, 2016 and 2015 Sales and Revenues Statistics                         Increase (Decrease) 2016 2015 Amount Percentage

kWh sales (in thousands):

Retail: Residential 1,248,120 1,202,593 45,527 3.8 % Commercial and industrial, small 1,133,940 1,117,034 16,906 1.5 % Commercial and industrial, large 515,834 531,942 (16,108 ) (3.0 )% Public authorities 751,512   762,975   (11,463 ) (1.5 )% Total retail sales 3,649,406   3,614,544   34,862   1.0 % Wholesale: Sales for resale 32,509 32,449 60 0.2 % Off-system sales 1,029,474   1,201,281   (171,807 ) (14.3 )% Total wholesale sales 1,061,983   1,233,730   (171,747 ) (13.9 )% Total kWh sales 4,711,389   4,848,274   (136,885 ) (2.8 )%

Operating revenues (in thousands):

Non-fuel base revenues: Retail: Residential $ 110,422 $ 106,362 $ 4,060 3.8 % Commercial and industrial, small 86,847 85,834 1,013 1.2 % Commercial and industrial, large 17,582 18,128 (546 ) (3.0 )% Public authorities 42,072   42,575   (503 ) (1.2 )% Total retail non-fuel base revenues 256,923 252,899 4,024 1.6 % Wholesale: Sales for resale 1,195   1,129   66   5.8 % Total non-fuel base revenues 258,118   254,028   4,090   1.6 %   Fuel revenues: Recovered from customers during the period 48,753 63,371 (14,618 ) (23.1 )% Under (over) collection of fuel (a) 1,993 (10,832 ) 12,825 — New Mexico fuel in base rates 32,828   32,550   278   0.9 % Total fuel revenues (b) 83,574   85,089   (1,515 ) (1.8 )%   Off-system sales: Fuel cost 16,890 23,284 (6,394 ) (27.5 )% Shared margins 3,407 6,252 (2,845 ) (45.5 )% Retained margins 573   520   53   10.2 % Total off-system sales 20,870 30,056 (9,186 ) (30.6 )% Other (c) 13,112   14,081   (969 ) (6.9 )% Total operating revenues $ 375,674   $ 383,254   $ (7,580 ) (2.0 )%   (a) Includes Department of Energy refunds related to spent fuel storage of $1.6 million and $5.8 million, respectively. (b) Includes deregulated Palo Verde Unit 3 revenues for the New Mexico jurisdiction of $4.0 million and $5.0 million, respectively. (c) Represents revenues with no related kWh sales.     El Paso Electric Company Six Months Ended June 30, 2016 and 2015 Other Statistical Data               Increase (Decrease) 2016 2015 Amount     Percentage  

Average number of retail customers: (a)

Residential 360,929 355,625 5,304 1.5 % Commercial and industrial, small 40,684 40,127 557 1.4 % Commercial and industrial, large 49 50 (1 ) (2.0 )% Public authorities 5,324   5,245   79   1.5 % Total 406,986   401,047   5,939   1.5 %  

Number of retail customers (end of period): (a)

Residential 362,417 356,932 5,485 1.5 % Commercial and industrial, small 40,901 40,356 545 1.4 % Commercial and industrial, large 49 49 — — Public authorities 5,251   5,298   (47 ) (0.9 )% Total 408,618   402,635   5,983   1.5 %  

Weather statistics: (b)

10-Year Average Cooling degree days 988 963 1,061 Heating degree days 1,129 1,206 1,255  

Generation and purchased power (kWh, in thousands):

Increase (Decrease) 2016 2015 Amount Percentage   Palo Verde 2,545,956 2,566,096 (20,140 ) (0.8 )% Four Corners 163,149 310,645 (147,496 ) (47.5 )% Gas plants 1,669,870   1,694,555   (24,685 ) (1.5 )% Total generation 4,378,975 4,571,296 (192,321 ) (4.2 )% Purchased power: Photovoltaic 156,529 146,714 9,815 6.7 % Other 444,486   405,907   38,579   9.5 % Total purchased power 601,015   552,621   48,394   8.8 % Total available energy 4,979,990 5,123,917 (143,927 ) (2.8 )% Line losses and Company use 268,601   275,643   (7,042 ) (2.6 )% Total kWh sold 4,711,389   4,848,274   (136,885 ) (2.8 )%  

Palo Verde capacity factor

93.7

%

95.0

%

(1.3

)%

 

(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 June 30, 2016 and 2015 (In thousands, except number of shares, book value per common share, and ratios)         Balance Sheet 2016 2015   Cash and cash equivalents $ 9,607   $ 10,364     Common stock equity $ 1,010,940 $ 984,678 Long-term debt (a) 1,278,301   1,122,264   Total capitalization $ 2,289,241   $ 2,106,942     Current maturities of long-term debt $ —   $ 15,000     Short-term borrowings under the revolving credit facility $ 101,614   $ 128,072     Number of shares - end of period 40,520,871   40,425,884     Book value per common share $ 24.95   $ 24.36     Common equity ratio (b) 42.3 % 43.8 % Debt ratio 57.7 % 56.2 %   (a)

In accordance with ASU 2015-03 (Subtopic 835-30), Interest - Imputation of Interest, debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The Company implemented ASU 2015-03 in the first quarter of 2016, and retrospectively to all periods presented.

  (b) The capitalization component includes common stock equity, long-term debt and the current maturities of long-term debt, and short-term borrowings under the RCF.  

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El Paso Electric CompanyMedia ContactsEddie Gutierrez, 915-543-5763eduardo.gutierrez@epelectric.comorInvestor RelationsLisa Budtke, 915-543-5947lisa.budtke@epelectric.com