Exhibit 99.01
| | |
El Paso Electric | |  |
NEWS RELEASE
| | | | |
For Immediate Release Date: October 28, 2010 | | Contact: Media Teresa Souza 915/543-5823 | | Investor Relations: Steve Busser 915/543-5983 Rachelle Williams 915/543-2257 |
El Paso Electric Announces Third Quarter Financial Results
Overview
| | • | | For the third quarter 2010, EE reported net income before extraordinary item of $49.9 million, or $1.16 and $1.15 basic and diluted earnings per share, respectively. In the third quarter of 2009, EE reported net income before extraordinary item of $33.9 million, or $0.76 basic and diluted earnings per share. |
| | • | | For the nine months ended September 30, 2010, EE reported net income before extraordinary item of $82.9 million, or $1.90 and $1.89 basic and diluted earnings per share, respectively. Net income before extraordinary item for the nine months ended September 30, 2009 was $59.0 million, or $1.31 basic and diluted earnings per share. |
“We were pleased with the increase in earnings during the third quarter of 2010,” said David W. Stevens, Chief Executive Officer. “The increase, which was primarily driven by higher revenues, reflected the implementation of newly approved seasonal rates in New Mexico and Texas as well as a significant increase in kilowatt-hour sales as we continue to see strong growth due to an expanding local economy.”
Page 1 of 15
El Paso Electric • P.O. Box 982 • El Paso, Texas 79960
Earnings Summary
The table and explanations below present the major factors affecting 2010 income relative to 2009 income before extraordinary item in 2010 (discussed below).
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | | Nine Months Ended | |
| | | Pre-Tax
Effect | | | After-Tax
Income | | | Basic
EPS | | | Pre-Tax
Effect | | | After-Tax
Income | | | Basic
EPS | |
September 30, 2009 | | | | | | $ | 33,932 | | | $ | 0.76 | | | | | | | $ | 58,972 | | | $ | 1.31 | |
Changes in: | | | | | | | | | | | | | | | | | | | | | | | | |
Retail non-fuel base revenue | | $ | 32,920 | | | | 20,739 | | | | 0.48 | | | $ | 47,766 | | | | 30,093 | | | | 0.70 | |
Deregulated Palo Verde Unit 3 revenues | | | 735 | | | | 463 | | | | 0.01 | | | | 3,091 | | | | 1,948 | | | | 0.04 | |
Off-system sales margin | | | (2,055 | ) | | | (1,295 | ) | | | (0.03 | ) | | | (2,786 | ) | | | (1,755 | ) | | | (0.04 | ) |
Depreciation and amortization | | | (1,489 | ) | | | (938 | ) | | | (0.03 | ) | | | (4,555 | ) | | | (2,870 | ) | | | (0.07 | ) |
Pension and benefits expense | | | (1,179 | ) | | | (742 | ) | | | (0.02 | ) | | | (2,522 | ) | | | (1,589 | ) | | | (0.04 | ) |
Interest and investment income | | | (55 | ) | | | (102 | ) | | | — | | | | 3,520 | | | | 2,977 | | | | 0.06 | |
Taxes other than income taxes | | | (2,530 | ) | | | (1,594 | ) | | | (0.04 | ) | | | (2,415 | ) | | | (1,521 | ) | | | (0.04 | ) |
Elimination of Medicare Part D tax benefit | | | — | | | | — | | | | — | | | | — | | | | (4,787 | ) | | | (0.11 | ) |
Other | | | | | | | (567 | ) | | | (0.01 | ) | | | | | | | 1,384 | | | | 0.03 | |
| | | | | | | | | | | | �� | | | | | | | | | | | | |
September 30, 2010 | | | | | | $ | 49,896 | | | | 1.12 | | | | | | | $ | 82,852 | | | | 1.84 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in weighted average number of shares | | | | | | | | | | | 0.04 | | | | | | | | | | | | 0.06 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2010 | | | | | | | | | | $ | 1.16 | | | | | | | | | | | $ | 1.90 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Third Quarter 2010
Income before extraordinary item for the quarter ended September 30, 2010 when compared to the same period last year was positively affected by:
| | • | | Higher retail non-fuel base revenues in 2010 primarily due to new non-fuel base rates in New Mexico and Texas reflecting seasonal rates that are higher in the summer months, and a 4.8% increase in kWh sales to retail customers partially as a result of 1.5% growth in customers served. |
| | • | | Increased revenues from retail sales of deregulated Palo Verde Unit 3 power due to higher proxy market prices in the third quarter of 2010 compared to the same period in 2009. |
Income before extraordinary item for the quarter ended September 30, 2010 when compared to the same period last year was negatively affected by:
| | • | | Decreased off-system sales margins due to increased sharing of off-system sales margins with customers (see 2009 Texas Rate Case discussion below). |
| | • | | Increased depreciation and amortization expense due to increased depreciable plant balances and increased depreciation rates. |
| | • | | Increased pension and benefits expense primarily due to changes in actuarial assumptions for our pension plan. |
| | • | | Increased taxes other than income taxes due to revenue-related taxes and increased property taxes. |
Page 2 of 15
El Paso Electric • P.O. Box 982 • El Paso, Texas 79960
Year to Date
Income before extraordinary item for the nine months ended September 30, 2010 when compared to the same period last year was positively affected by:
| | • | | Higher retail non-fuel base revenues in 2010 primarily due to new non-fuel base rates in New Mexico and Texas reflecting seasonal rates that are higher in the summer months, a 5.1% increase in kWh sales to retail customers as a result of colder winter weather, and a 1.7% growth in customers served. |
| | • | | Increased interest and investment income primarily due to a decline of $4.5 million in impairment losses on investments in our Palo Verde decommissioning trusts in 2010 when compared to the same period in 2009. |
| | • | | Increased revenues from retail sales of deregulated Palo Verde Unit 3 power due to increased generation at Palo Verde Unit 3 in 2010 and higher proxy market prices in 2010. In 2009, Palo Verde Unit 3 had a scheduled refueling and maintenance outage through most of April and May. In 2010, Palo Verde Unit 3 began a fall refueling and maintenance outage on October 2, 2010 which is scheduled to be completed by late November 2010. |
Income before extraordinary item for the nine months ended September 30, 2010 when compared to the same period last year was negatively affected by:
| | • | | A one-time increase in tax expense to recognize a change in tax law enacted in the Patient Protection and Affordable Care Act to eliminate the tax benefit related to the Medicare Part D subsidies. |
| | • | | Increased depreciation and amortization expense due to increased depreciable plant balances and increased depreciation rates. |
| | • | | Decreased off-system sales margins due to increased sharing of off-system sales margins with customers effective July 1, 2010. (See 2009 Texas Rate Case discussion below.) |
| | • | | Increased pension and benefits expense primarily due to changes in actuarial assumptions for our pension plan. |
| | • | | Increased taxes other than income taxes due to revenue-related taxes and increased property taxes. |
Extraordinary Gain
As a regulated electric utility, we prepare our financial statements in accordance with the FASB guidance for regulated operations. FASB guidance for regulated operations requires us to show certain items as assets or liabilities on our balance sheet when the regulator provides assurance that these items will be charged to and collected from our customers or refunded to our customers. In the final order for Public Utility Commission of Texas (PUCT) Docket 37690, we were allowed to include the previously expensed loss on reacquired debt associated with the refinancing of first mortgage bonds in 2005 in our calculation of the weighted cost of debt to be recovered from our customers. In order to establish this regulatory asset, we recorded an extraordinary gain of $10.3 million, net of income tax expense of $5.8 million, in our 2010 income statements. This new regulatory asset will be amortized over the life of our 6% Senior Notes due in 2035. The extraordinary item of $10.3 million, net of tax, added $0.24 to the basic and diluted earnings per share in both the three month and nine month periods in 2010.
Retail Non-fuel Base Revenues
Retail non-fuel base revenues increased by $32.9 million, pre-tax, or 22.5% in the third quarter of 2010 compared to the same period in 2009 primarily due to (i) new non-fuel base rates in New Mexico and Texas; (ii) a 5.1% increase in kWh sales to residential customers reflecting 1.9% growth in the average number of customers served; (iii) a 1.4% increase in kWh sales to small commercial and industrial customers; (iv) increased retail non-fuel base revenues received from large commercial and industrial customers attributable to an increase of 8.2% in kWh sales and the implementation of higher rates in new contracts and tariffs with several large customers whose contracts had expired; and (v) a 7.5% increase in kWh sales to public authorities, including military bases. Most of the revenue increases related to new non-fuel base rates in Texas and New Mexico were realized in the third quarter of 2010 as the rate increases provided for higher summer peak rates
Page 3 of 15
El Paso Electric • P.O. Box 982 • El Paso, Texas 79960
and lower rates in the non-peak months. Summer rates for residential customers are effective May through October and summer rates for other customers are effective June through September. Both the third quarter of 2010 and 2009 experienced hotter summer weather conditions as compared to historical averages. Non-fuel base revenues and kilowatt-hour sales are provided by customer class on page 11 of the Release.
For the nine months ended September 30, 2010, retail non-fuel base revenues increased by $47.8 million, pre-tax, or 12.9% compared to the same period in 2009 primarily due to (i) new non-fuel base rates in New Mexico and Texas which are higher in the summer months; and (ii) a 6.6% increase in kWh sales to residential customers reflecting colder winter weather in 2010 and 1.8% growth in the average number of customers served. During the nine months ended September 30, 2010, heating degree days were 33% above the same period in 2009 and 13% above the 10-year average. Retail non-fuel base revenues also increased due to a 2.1% increase in kWh sales to small commercial and industrial customers primarily as a result of a 1.5% increase in the average number of small commercial and industrial customers served. Retail non-fuel base revenues from large commercial and industrial customers also increased due to an increase of 9.3% in kWh sales and the implementation of higher rates in new contracts and tariffs with several large customers whose contracts had expired. Revenues to public authorities also increased due to a 4.7% increase in kWh sales largely due to increased sales to military bases. Non-fuel base revenues and kilowatt-hour sales are provided by customer class on page 13 of the Release.
2009 Texas Retail Rate Case
On July 30, 2010, the PUCT approved a settlement in the 2009 Texas retail rate case in PUCT Docket No. 37690. The settlement called for an annual non-fuel base rate increase of $17.15 million effective for usage beginning July 1, 2010. Interim rates were placed in effect July 1, 2010 pending final approval by the PUCT. All additions to electric plant in service since June 30, 1993 through June 30, 2009 were deemed to be reasonable and necessary with the exception of one small addition. In addition, our new customer information system completed in April 2010 was also included in base rates with a ten-year amortization. The settlement provides for the reconciliation of fuel costs incurred through June 30, 2009 except for the recovery of final coal reclamation costs. The fuel reconciliation was bifurcated from the rate case (Docket No. 38361) to allow for litigation of the final coal reclamation costs. The PUCT also approved the use of a formula-based fuel factor which provides for more timely recovery of fuel costs. Consistent with a prior rate agreement, effective July 1, 2010, we share 90% of off-system sales margins with customers and retain 10% of such margins. Previously, we retained 75% of off-system sales margins. The PUCT approved a $19.7 million or 11% reduction in our fixed fuel factor as the initial rate under the approved fuel factor formula. The PUCT also approved an energy efficiency cost-recovery factor that includes the recovery of deferred energy efficiency costs over a three-year period.
Page 4 of 15
El Paso Electric • P.O. Box 982 • El Paso, Texas 79960
Off-system Sales
We make off-system sales in the wholesale power markets when competitively priced excess power is available from our generating plants and purchased power contracts. The Company shared 25% of off-system sales margins with customers and retained 75% of off-system sales margins through June 30, 2010 pursuant to rate agreements in prior years. Effective July 1, 2010, we share 90% of off-system sales margins with customers and retain 10% of off-system sales margins. For the quarter and nine months ended September 30, 2010, retained margins from off-system sales decreased approximately $2.1 million and $2.8 million, respectively, over the corresponding period in 2009. The table below shows off-system sales in MWh and the pre-tax margins realized and retained by us from sales during the quarter and nine months ended September 30, 2010 and 2009:
| | | | | | | | | | | | | | | | |
| | | Quarter Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
MWh sales | | | 804,558 | | | | 715,641 | | | | 2,163,766 | | | | 2,408,122 | |
Total margins (in thousands) | | $ | 2,102 | | | $ | 3,035 | | | $ | 8,992 | | | $ | 10,900 | |
Retained margins (in thousands) | | $ | 223 | | | $ | 2,278 | | | $ | 5,392 | | | $ | 8,178 | |
The table below shows on a per MWh basis, pre-tax revenues, costs and margins from off-system sales for 2010 and 2009.
| | | | | | | | | | | | |
Quarter Ended | | Average
Revenue
Per MWh | | | Average
Cost of Energy
Per MWh | | | Pre-Sharing
Average Margin
Per MWh | |
March 31, 2009 | | $ | 36.49 | | | $ | 30.13 | | | $ | 6.36 | |
June 30, 2009 | | $ | 35.43 | | | $ | 33.63 | | | $ | 1.80 | |
September 30, 2009 | | $ | 39.61 | | | $ | 35.37 | | | $ | 4.24 | |
| | | |
March 31, 2010 | | $ | 45.65 | | | $ | 38.76 | | | $ | 6.89 | |
June 30, 2010 | | $ | 34.63 | | | $ | 32.57 | | | $ | 2.06 | |
September 30, 2010 | | $ | 35.08 | | | $ | 32.46 | | | $ | 2.61 | |
Patient Protection and Affordable Care Act
On March 23, 2010, the Patient Protection and Affordable Care Act was signed into law. A major provision of the law is that, beginning in 2013, the income tax deductions for the cost of providing certain prescription drug coverage will be reduced by the amount of the Medicare Part D subsidies received. We were required to recognize the impacts of the tax law change at the time of enactment and recorded a one-time non-cash charge to income tax expense of approximately $4.8 million in the first quarter of 2010.
Capital and Liquidity
We continue to maintain a strong capital structure to ensure access to capital markets at reasonable rates. At September 30, 2010, common stock equity represented 47.8% of our capitalization (common stock equity, long-term debt and the current portion of long-term debt, and financing obligations). At September 30, 2010, we had a balance of $66.9 million in cash and cash equivalents, most of which was in funds invested in United States Treasury securities. We believe that we will have adequate liquidity through our current cash balances, cash from operations, and our revolving credit facility to meet all of our anticipated cash requirements through 2011 based on current projections.
Page 5 of 15
El Paso Electric • P.O. Box 982 • El Paso, Texas 79960
Cash flows from operations for the nine months ended September 30, 2010 were $163.6 million compared to $213.5 million in the corresponding period in 2009. The primary factor affecting the decreased cash flow was reduced collection of deferred fuel revenues in 2010. 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 nine months ended September 30, 2010, the Company had an under-recovery of deferred fuel revenues, net of refunds, of $1.3 million as compared to an over-recovery, including surcharges, of $74.7 million during the nine months ended September 30, 2009. At September 30, 2010, we had a net fuel over-recovery balance of $16.7 million, including $12.6 million in Texas and $4.1 million in New Mexico. Cash flows from operations also decreased due to an increase of $42.7 million in accounts receivable for the nine months ended September 30, 2010 compared to a $2.5 million increase for the same period in 2009. The increase in accounts receivable is primarily due to increased kWh sales and higher revenues in both Texas and New Mexico.
During the nine months ended September 30, 2010, our primary capital requirements were for the construction and purchase of electric utility plant, purchases of nuclear fuel, and the repurchase of common stock. Capital requirements for new electric plant were $124.8 million for the nine months ended September 30, 2010 compared to $145.5 million for the nine months ended September 30, 2009.
On August 17, 2010, Rio Grande Resources Trust (RGRT) completed the sale of $110 million aggregate principal amount of senior notes. EE guarantees RGRT’s payment of principal and interest on the senior notes. RGRT is the trust through which we finance our portion of nuclear fuel for Palo Verde and is consolidated in the Company’s financial statements. The proceeds from the sale of the senior notes were used by RGRT to repay amounts borrowed under the then existing revolving credit facility and enable future nuclear fuel financing requirements of RGRT to be met with a combination of the senior notes and amounts borrowed under the revolving credit facility.
On September 23, 2010, we, along with RGRT, entered into a new credit agreement for a $200 million revolving credit facility. The revolving credit facility has a term of four years, and EE may request that the facility be increased up to $300 million during the term of the facility. The terms of the agreement provide that amounts we borrow under the facility may be used for working capital and general corporate purposes. Any amounts borrowed by RGRT may be used to finance the acquisition and processing of nuclear fuel. EE guarantees the amounts borrowed by RGRT. This revolving credit facility replaces the $200 million revolving credit facility that was due to expire on April 11, 2011. Total amount borrowed for nuclear fuel by RGRT was $124.1 million at September 30, 2010 of which $14.1 million had been borrowed under this new facility and $110 million was borrowed through the senior notes discussed above. Borrowings by RGRT for nuclear fuel were $113.0 million as of September 30, 2009, including accrued interest and fees. Interest costs on borrowings to finance nuclear fuel are accumulated by RGRT and charged to EE as fuel is consumed and recovered through fuel recovery charges. No borrowings were outstanding at September 30, 2010 for working capital or general corporate purposes.
On February 19, 2010, the Board of Directors authorized repurchases of up to 2 million additional shares of the Company’s outstanding common stock (2010 Authorization). During the nine months ended September 30, 2010, we repurchased 1,391,049 shares of common stock in the open market at an aggregate cost of $30.2 million under both the previously authorized program and under the 2010 Authorization. During the third quarter of 2010, we repurchased 888,557 shares of common stock in the open market at an aggregate cost of $20.2 million. As of September 30, 2010, 809,933 shares remain available for repurchase under the 2010 Authorization. The Company currently intends to continue to repurchase shares in the open market from time to time.
The combination of the issuance of senior notes by RGRT and the refinancing of the revolving credit facility provides additional liquidity to the Company. We expect to have sufficient liquidity to finance construction expenditures and other capital requirements through 2011. In addition, we may seek to issue debt in the capital markets to finance capital requirements.
Page 6 of 15
El Paso Electric • P.O. Box 982 • El Paso, Texas 79960
2010 Earnings Guidance
We are providing updated earnings guidance for 2010 of a range of $1.95 to $2.15 per basic share excluding the extraordinary gain related to Texas regulatory assets.
Conference Call
A conference call to discuss third quarter 2010 earnings is scheduled for 10:30 a.m. Eastern Time, October 28, 2010. The dial-in number is 866-243-8959 with a conference ID of 1487581. The conference leader will be Steven P. Busser, Vice President – Treasurer and Chief Risk Officer of EE. A replay will run through November 11, 2010 with a dial-in number of 866-837-8032 and a conference ID of 1487581. The conference call and presentation slides will be webcast live on EE’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) recovery of franchise fees and taxes through tax surcharges in New Mexico; (iv) uncertainties and instability in the general economy and the resulting impact on EE’s sales and profitability; (v) unanticipated increased costs associated with scheduled and unscheduled outages; (vi) the size of our construction program and our ability to complete construction on budget and on time; (vii) costs at Palo Verde; (viii) deregulation and competition in the electric utility industry; (ix) possible increased costs of compliance with environmental or other laws, regulations and policies; (x) possible income tax and interest payments as a result of audit adjustments proposed by the IRS; (xi) uncertainties and instability in the financial markets and the resulting impact on EE’s ability to access the capital and credit markets; and (xii) 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.
Page 7 of 15
El Paso Electric • P.O. Box 982 • El Paso, Texas 79960
El Paso Electric Company and Subsidiary
Consolidated Statements of Operations
Quarter Ended September 30, 2010 and 2009
(In thousands except for per share data)
(Unaudited)
| | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | Variance | |
Operating revenues, net of energy expenses: | | | | | | | | | | | | |
Base revenues | | $ | 179,641 | | | $ | 146,828 | | | $ | 32,813 | (a) |
Off-system sales margins, net of sharing | | | 223 | | | | 2,278 | | | | (2,055 | ) |
Deregulated Palo Verde Unit 3 proxy market pricing | | | 3,891 | | | | 3,156 | | | | 735 | |
Other | | | 8,064 | | | | 6,807 | | | | 1,257 | |
| | | | | | | | | | | | |
Operating Revenues Net of Energy Expenses | | | 191,819 | | | | 159,069 | | | | 32,750 | |
| | | |
Other Operating Expenses: | | | | | | | | | | | | |
Other operations and maintenance | | | 49,189 | | | | 45,474 | | | | 3,715 | |
Palo Verde operations and maintenance | | | 21,722 | | | | 21,710 | | | | 12 | |
Taxes other than income taxes | | | 16,125 | | | | 13,595 | | | | 2,530 | |
Other income (deductions) | | | 1,210 | | | | 876 | | | | 334 | |
| | | | | | | | | | | | |
Earnings Before Interest, Taxes, Depreciation and Amortization | | | 105,993 | | | | 79,166 | | | | 26,827 | (b) |
| | | |
Depreciation and amortization | | | 20,685 | | | | 19,196 | | | | 1,489 | |
Interest on long-term debt | | | 12,936 | | | | 12,194 | | | | 742 | |
AFUDC and capitalized interest | | | 4,744 | | | | 3,791 | | | | 953 | |
Other interest expense | | | 48 | | | | 67 | | | | (19 | ) |
| | | | | | | | | | | | |
Income Before Income Taxes and Extraordinary Item | | | 77,068 | | | | 51,500 | | | | 25,568 | |
| | | |
Income tax expense | | | 27,172 | | | | 17,568 | | | | 9,604 | |
| | | | | | | | | | | | |
Income Before Extraordinary Item | | | 49,896 | | | | 33,932 | | | | 15,964 | |
Extraordinary gain related to Texas regulatory assets, net of income tax expense of $5,769 | | | 10,286 | | | | — | | | | 10,286 | |
| | | | | | | | | | | | |
Net Income | | $ | 60,182 | | | $ | 33,932 | | | $ | 26,250 | |
| | | | | | | | | | | | |
Basic Earnings per Share: | | | | | | | | | | | | |
Income before extraordinary item | | $ | 1.16 | | | $ | 0.76 | | | $ | 0.40 | |
Extraordinary gain related to Texas regulatory assets, net of tax | | | 0.24 | | | | — | | | | 0.24 | |
| | | | | | | | | | | | |
Net Income | | $ | 1.40 | | | $ | 0.76 | | | $ | 0.64 | |
| | | | | | | | | | | | |
Diluted Earnings per Share: | | | | | | | | | | | | |
Income before extraordinary item | | $ | 1.15 | | | $ | 0.76 | | | $ | 0.39 | |
Extraordinary gain related to Texas regulatory assets, net of tax | | | 0.24 | | | | — | | | | 0.24 | |
| | | | | | | | | | | | |
Net Income | | $ | 1.39 | | | $ | 0.76 | | | $ | 0.63 | |
| | | | | | | | | | | | |
Weighted average number of shares outstanding | | | 42,921 | | | | 44,588 | | | | (1,667 | ) |
| | | | | | | | | | | | |
Weighted average number of shares and dilutive potential shares outstanding | | | 43,104 | | | | 44,637 | | | | (1,533 | ) |
| | | | | | | | | | | | |
| (a) | Base revenues exclude fuel recovered through New Mexico base rates of $22.3 million and $21.2 million, respectively. |
| (b) | EBITDA is a non-GAAP financial measure and is not a substitute for net income or other measures of financial performance in accordance with GAAP. |
Page 8 of 15
El Paso Electric Company and Subsidiary
Consolidated Statements of Operations
Nine Months Ended September 30, 2010 and 2009
(In thousands except for per share data)
(Unaudited)
| | | | | | | | | | | | |
| | | 2010 | | | 2009 | | | Variance | |
Operating revenues, net of energy expenses: | | | | | | | | | | | | |
Base revenues | | $ | 420,863 | | | $ | 373,212 | | | $ | 47,651 | (a) |
Off-system sales margins, net of sharing | | | 5,392 | | | | 8,178 | | | | (2,786 | ) |
Deregulated Palo Verde Unit 3 proxy market pricing | | | 13,240 | | | | 10,149 | | | | 3,091 | |
Other | | | 19,645 | | | | 17,746 | | | | 1,899 | |
| | | | | | | | | | | | |
Operating Revenues Net of Energy Expenses | | | 459,140 | | | | 409,285 | | | | 49,855 | |
| | | |
Other Operating Expenses: | | | | | | | | | | | | |
Other operations and maintenance | | | 133,064 | | | | 126,256 | | | | 6,808 | |
Palo Verde operations and maintenance | | | 69,724 | | | | 70,641 | | | | (917 | ) |
Taxes other than income taxes | | | 41,038 | | | | 38,623 | | | | 2,415 | |
Other income (deductions) | | | 2,413 | | | | (2,040 | ) | | | 4,453 | |
| | | | | | | | | | | | |
Earnings Before Interest, Taxes, Depreciation and Amortization | | | 217,727 | | | | 171,725 | | | | 46,002 | (b) |
| | | |
Depreciation and amortization | | | 60,136 | | | | 55,581 | | | | 4,555 | |
Interest on long-term debt | | | 37,378 | | | | 38,314 | | | | (936 | ) |
AFUDC and capitalized interest | | | 13,578 | | | | 12,872 | | | | 706 | |
Other interest expense | | | 113 | | | | 319 | | | | (206 | ) |
| | | | | | | | | | | | |
Income Before Income Taxes and Extraordinary Item | | | 133,678 | | | | 90,383 | | | | 43,295 | |
| | | |
Income tax expense (c) | | | 50,826 | | | | 31,411 | | | | 19,415 | |
| | | | | | | | | | | | |
Income Before Extraordinary Item | | | 82,852 | | | | 58,972 | | | | 23,880 | |
Extraordinary gain related to Texas regulatory assets, net of income tax expense of $5,769 | | | 10,286 | | | | — | | | | 10,286 | |
| | | | | | | | | | | | |
Net Income | | $ | 93,138 | | | $ | 58,972 | | | $ | 34,166 | |
| | | | | | | | | | | | |
Basic Earnings per Share: | | | | | | | | | | | | |
Income before extraordinary item | | $ | 1.90 | | | $ | 1.31 | | | $ | 0.59 | |
Extraordinary gain related to Texas regulatory assets, net of tax | | | 0.24 | | | | — | | | | 0.24 | |
| | | | | | | | | | | | |
Net Income | | $ | 2.14 | | | $ | 1.31 | | | $ | 0.83 | |
| | | | | | | | | | | | |
Diluted Earnings per Share: | | | | | | | | | | | | |
Income before extraordinary item | | $ | 1.89 | | | $ | 1.31 | | | $ | 0.58 | |
Extraordinary gain related to Texas regulatory assets, net of tax | | | 0.24 | | | | — | | | | 0.24 | |
| | | | | | | | | | | | |
Net Income | | $ | 2.13 | | | $ | 1.31 | | | $ | 0.82 | |
| | | | | | | | | | | | |
Weighted average number of shares outstanding | | | 43,370 | | | | 44,709 | | | | (1,339 | ) |
| | | | | | | | | | | | |
Weighted average number of shares and dilutive potential shares outstanding | | | 43,505 | | | | 44,739 | | | | (1,234 | ) |
| | | | | | | | | | | | |
| (a) | Base revenues exclude fuel recovered through New Mexico base rates of $55.9 million and $53.0 million, respectively. |
| (b) | EBITDA is a non-GAAP financial measure and is not a substitute for net income or other measures of financial performance in accordance with GAAP. |
| (c) | Income tax expense for the nine months ended September 30, 2010 includes a charge of $4,787 related to the Patient Protection and Affordable Care Act which required the elimination of the tax benefit associated with the Medicare Part D subsidies beginning in 2013. |
Page 9 of 15
El Paso Electric Company and Subsidiary
Cash Flow Summary
Nine Months Ended September 30, 2010 and 2009
(In thousands and Unaudited)
| | | | | | | | |
| | | 2010 | | | 2009 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 93,138 | | | $ | 58,972 | |
Adjustments to reconcile net income to net cash provided by operations: | | | | | | | | |
Depreciation and amortization of electric plant in service | | | 60,136 | | | | 55,581 | |
Extraordinary gain on Texas regulatory assets, net of tax | | | (10,286 | ) | | | — | |
Deferred income taxes, net | | | 17,088 | | | | (2,257 | ) |
Other | | | 27,701 | | | | 22,348 | |
Change in working capital items: | | | | | | | | |
Net recovery (deferral) of fuel revenues | | | (1,323 | ) | | | 74,656 | |
Accounts receivable | | | (42,661 | ) | | | (2,494 | ) |
Other | | | 19,811 | | | | 6,706 | |
| | | | | | | | |
Net cash provided by operating activities | | | 163,604 | | | | 213,512 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Cash additions to utility property, plant and equipment | | | (124,839 | ) | | | (145,465 | ) |
Cash additions to nuclear fuel | | | (33,889 | ) | | | (34,613 | ) |
Decommissioning trust funds | | | (8,271 | ) | | | (4,600 | ) |
Other | | | (5,877 | ) | | | (3,906 | ) |
| | | | | | | | |
Net cash used for investing activities | | | (172,876 | ) | | | (188,584 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Repurchase of common stock | | | (30,217 | ) | | | (12,854 | ) |
Financing obligations | | | (92,898 | ) | | | 19,365 | |
Proceeds from issuance of long-term private placement notes | | | 110,000 | | | | — | |
Other | | | (2,455 | ) | | | (1,546 | ) |
| | | | | | | | |
Net cash provided by (used for) financing activities | | | (15,570 | ) | | | 4,965 | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (24,842 | ) | | | 29,893 | |
Cash and cash equivalents at beginning of period | | | 91,790 | | | | 91,642 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 66,948 | | | $ | 121,535 | |
| | | | | | | | |
Cash interest payments | | $ | 33,474 | | | $ | 33,941 | |
| | | | | | | | |
Page 10 of 15
El Paso Electric Company and Subsidiary
Quarter Ended September 30, 2010 and 2009
Sales and Revenues Statistics
| | | | | | | | | | | | | | | | |
| | | | | | | | | Increase (Decrease) | |
| | | 2010 | | | 2009 | | | Amount | | | Percentage | |
MWh sales: | | | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | | | |
Residential | | | 819,294 | | | | 779,282 | | | | 40,012 | | | | 5.1 | % |
Commercial and industrial, small | | | 676,894 | | | | 667,321 | | | | 9,573 | | | | 1.4 | % |
Commercial and industrial, large | | | 300,845 | | | | 278,158 | | | | 22,687 | | | | 8.2 | % |
Sales to public authorities | | | 450,895 | | | | 419,487 | | | | 31,408 | | | | 7.5 | % |
| | | | | | | | | | | | | | | | |
Total retail sales | | | 2,247,928 | | | | 2,144,248 | | | | 103,680 | | | | 4.8 | % |
| | | | | | | | | | | | | | | | |
Wholesale: | | | | | | | | | | | | | | | | |
Sales for resale | | | 17,019 | | | | 18,215 | | | | (1,196 | ) | | | (6.6 | %) |
Off-system sales | | | 804,558 | | | | 715,641 | | | | 88,917 | | | | 12.4 | % |
| | | | | | | | | | | | | | | | |
Total wholesale sales | | | 821,577 | | | | 733,856 | | | | 87,721 | | | | 12.0 | % |
| | | | | | | | | | | | | | | | |
Total MWh sales | | | 3,069,505 | | | | 2,878,104 | | | | 191,401 | | | | 6.7 | % |
| | | | | | | | | | | | | | | | |
Operating revenues (in thousands): | | | | | | | | | | | | | | | | |
Non-fuel base revenues: | | | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | | | |
Residential | | $ | 75,411 | | | $ | 64,833 | | | $ | 10,578 | | | | 16.3 | % |
Commercial and industrial, small | | | 61,857 | | | | 50,017 | | | | 11,840 | | | | 23.7 | % |
Commercial and industrial, large | | | 13,126 | | | | 9,358 | | | | 3,768 | | | | 40.3 | % |
Sales to public authorities | | | 28,601 | | | | 21,867 | | | | 6,734 | | | | 30.8 | % |
| | | | | | | | | | | | | | | | |
Total retail non-fuel base revenues | | | 178,995 | | | | 146,075 | | | | 32,920 | | | | 22.5 | % |
Wholesale: | | | | | | | | | | | | | | | | |
Sales for resale | | | 646 | | | | 753 | | | | (107 | ) | | | (14.2 | %) |
| | | | | | | | | | | | | | | | |
Total non-fuel base revenues | | | 179,641 | | | | 146,828 | | | | 32,813 | | | | 22.3 | % |
Fuel revenues: | | | | | | | | | | | | | | | | |
Recovered from customers during the period (a) | | | 52,600 | | | | 59,373 | | | | (6,773 | ) | | | (11.4 | %) |
Under (over) collection of fuel | | | (9,703 | ) | | | (23,038 | ) | | | 13,335 | | | | (57.9 | %) |
New Mexico fuel in base rates | | | 22,312 | | | | 21,171 | | | | 1,141 | | | | 5.4 | % |
| | | | | | | | | | | | | | | | |
Total fuel revenues | | | 65,209 | | | | 57,506 | | | | 7,703 | | | | 13.4 | % |
Off-system sales | | | 28,221 | | | | 28,349 | | | | (128 | ) | | | (0.5 | %) |
Other | | | 7,271 | | | | 8,215 | | | | (944 | ) | | | (11.5 | %) |
| | | | | | | | | | | | | | | | |
Total operating revenues | | $ | 280,342 | | | $ | 240,898 | | | $ | 39,444 | | | | 16.4 | % |
| | | | | | | | | | | | | | | | |
Off-system sales (in thousands): | | | | | | | | | | | | | | | | |
Gross margins | | $ | 2,102 | | | $ | 3,035 | | | $ | (933 | ) | | | (30.7 | %) |
Retained margins | | | 223 | | | | 2,278 | | | | (2,055 | ) | | | (90.2 | %) |
Average number of retail customers: | | | | | | | | | | | | | | | | |
Residential | | | 332,920 | | | | 326,816 | | | | 6,104 | | | | 1.9 | % |
Commercial and industrial, small | | | 36,150 | | | | 36,158 | | | | (8 | ) | | | — | |
Commercial and industrial, large | | | 48 | | | | 50 | | | | (2 | ) | | | (4.0 | %) |
Sales to public authorities | | | 4,420 | | | | 4,938 | | | | (518 | ) | | | (10.5 | %) |
| | | | | | | | | | | | | | | | |
Total | | | 373,538 | | | | 367,962 | | | | 5,576 | | | | 1.5 | % |
| | | | | | | | | | | | | | | | |
Number of retail customers (end of period): | | | | | | | | | | | | | | | | |
Residential | | | 333,162 | | | | 327,178 | | | | 5,984 | | | | 1.8 | % |
Commercial and industrial, small | | | 36,592 | | | | 36,319 | | | | 273 | | | | 0.8 | % |
Commercial and industrial, large | | | 49 | | | | 48 | | | | 1 | | | | 2.1 | % |
Sales to public authorities | | | 4,803 | | | | 4,942 | | | | (139 | ) | | | (2.8 | %) |
| | | | | | | | | | | | | | | | |
Total | | | 374,606 | | | | 368,487 | | | | 6,119 | | | | 1.7 | % |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | 10 Yr Average | | | | |
Weather statistics: | | | | | | | | | | | | | | | | |
Heating degree days | | | — | | | | 2 | | | | — | | | | | |
Cooling degree days | | | 1,603 | | | | 1,601 | | | | 1,448 | | | | | |
| (a) | Excludes $11.5 million refund in 2010 related to prior periods Texas deferred fuel revenues. |
Page 11 of 15
El Paso Electric Company
Quarter Ended September 30, 2010 and 2009
Generation and Purchased Power Statistics
| | | | | | | | | | | | | | | | |
| | | | | | | | | Increase (Decrease) | |
| | | 2010 | | | 2009 | | | Amount | | | Percentage | |
Generation and purchased power (MWh): | | | | | | | | | | | | | | | | |
Palo Verde | | | 1,375,883 | | | | 1,379,943 | | | | (4,060 | ) | | | (0.3 | %) |
Four Corners | | | 173,298 | | | | 168,755 | | | | 4,543 | | | | 2.7 | % |
Gas plants | | | 957,079 | | | | 782,861 | | | | 174,218 | | | | 22.3 | % |
| | | | | | | | | | | | | | | | |
Total generation | | | 2,506,260 | | | | 2,331,559 | | | | 174,701 | | | | 7.5 | % |
Purchased power | | | 768,878 | | | | 726,433 | | | | 42,445 | | | | 5.8 | % |
| | | | | | | | | | | | | | | | |
Total available energy | | | 3,275,138 | | | | 3,057,992 | | | | 217,146 | | | | 7.1 | % |
Line losses and Company use | | | 205,633 | | | | 179,888 | | | | 25,745 | | | | 14.3 | % |
| | | | | | | | | | | | | | | | |
Total | | | 3,069,505 | | | | 2,878,104 | | | | 191,401 | | | | 6.7 | % |
| | | | | | | | | | | | | | | | |
Palo Verde capacity factor | | | 100.2 | % | | | 100.6 | % | | | (0.4 | %) | | | | |
Four Corners capacity factor | | | 75.5 | % | | | 83.3 | % | | | (7.8 | %) | | | | |
Page 12 of 15
El Paso Electric Company and Subsidiary
Nine Months Ended September 30, 2010 and 2009
Sales and Revenues Statistics
| | | | | | | | | | | | | | | | |
| | | | | | | | | Increase (Decrease) | |
| | | 2010 | | | 2009 | | | Amount | | | Percentage | |
MWh sales: | | | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | | | |
Residential | | | 1,958,670 | | | | 1,837,915 | | | | 120,755 | | | | 6.6 | % |
Commercial and industrial, small | | | 1,762,224 | | | | 1,726,286 | | | | 35,938 | | | | 2.1 | % |
Commercial and industrial, large | | | 826,553 | | | | 756,333 | | | | 70,220 | | | | 9.3 | % |
Sales to public authorities | | | 1,180,222 | | | | 1,126,864 | | | | 53,358 | | | | 4.7 | % |
| | | | | | | | | | | | | | | | |
Total retail sales | | | 5,727,669 | | | | 5,447,398 | | | | 280,271 | | | | 5.1 | % |
| | | | | | | | | | | | | | | | |
Wholesale: | | | | | | | | | | | | | | | | |
Sales for resale | | | 43,534 | | | | 47,173 | | | | (3,639 | ) | | | (7.7 | %) |
Off-system sales | | | 2,163,766 | | | | 2,408,122 | | | | (244,356 | ) | | | (10.1 | %) |
| | | | | | | | | | | | | | | | |
Total wholesale sales | | | 2,207,300 | | | | 2,455,295 | | | | (247,995 | ) | | | (10.1 | %) |
| | | | | | | | | | | | | | | | |
Total MWh sales | | | 7,934,969 | | | | 7,902,693 | | | | 32,276 | | | | 0.4 | % |
| | | | | | | | | | | | | | | | |
Operating revenues (in thousands): | | | | | | | | | | | | | | | | |
Non-fuel base revenues: | | | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | | | |
Residential | | $ | 170,399 | | | $ | 153,097 | | | $ | 17,302 | | | | 11.3 | % |
Commercial and industrial, small | | | 148,294 | | | | 133,569 | | | | 14,725 | | | | 11.0 | % |
Commercial and industrial, large | | | 33,947 | | | | 25,926 | | | | 8,021 | | | | 30.9 | % |
Sales to public authorities | | | 66,703 | | | | 58,985 | | | | 7,718 | | | | 13.1 | % |
| | | | | | | | | | | | | | | | |
Total retail base revenues | | | 419,343 | | | | 371,577 | | | | 47,766 | | | | 12.9 | % |
Wholesale: | | | | | | | | | | | | | | | | |
Sales for resale | | | 1,520 | | | | 1,635 | | | | (115 | ) | | | (7.0 | %) |
| | | | | | | | | | | | | | | | |
Total base revenues | | | 420,863 | | | | 373,212 | | | | 47,651 | | | | 12.8 | % |
Fuel revenues: | | | | | | | | | | | | | | | | |
Recovered from customers during the period (a) | | | 135,881 | | | | 157,281 | | | | (21,400 | ) | | | (13.6 | %) |
Under/(over) collection of fuel | | | (21,795 | ) | | | (59,679 | ) | | | 37,884 | | | | (63.5 | %) |
New Mexico fuel in base revenues | | | 55,894 | | | | 52,975 | | | | 2,919 | | | | 5.5 | % |
| | | | | | | | | | | | | | | | |
Total fuel revenues | | | 169,980 | | | | 150,577 | | | | 19,403 | | | | 12.9 | % |
Off-system sales | | | 84,634 | | | | 89,430 | | | | (4,796 | ) | | | (5.4 | %) |
Other | | | 20,430 | | | | 21,764 | | | | (1,334 | ) | | | (6.1 | %) |
| | | | | | | | | | | | | | | | |
Total operating revenues | | $ | 695,907 | | | $ | 634,983 | | | $ | 60,924 | | | | 9.6 | % |
| | | | | | | | | | | | | | | | |
Off-system sales (in thousands): | | | | | | | | | | | | | | | | |
Gross margins | | $ | 8,992 | | | $ | 10,900 | | | $ | (1,908 | ) | | | (17.5 | %) |
Retained margins | | | 5,392 | | | | 8,178 | | | | (2,786 | ) | | | (34.1 | %) |
Average number of retail customers: | | | | | | | | | | | | | | | | |
Residential | | | 331,210 | | | | 325,300 | | | | 5,910 | | | | 1.8 | % |
Commercial and industrial, small | | | 36,479 | | | | 35,946 | | | | 533 | | | | 1.5 | % |
Commercial and industrial, large | | | 49 | | | | 49 | | | | — | | | | — | |
Sales to public authorities | | | 4,695 | | | | 4,935 | | | | (240 | ) | | | (4.9 | %) |
| | | | | | | | | | | | | | | | |
Total | | | 372,433 | | | | 366,230 | | | | 6,203 | | | | 1.7 | % |
| | | | | | | | | | | | | | | | |
Number of retail customers (end of period): | | | | | | | | | | | | | | | | |
Residential | | | 333,162 | | | | 327,178 | | | | 5,984 | | | | 1.8 | % |
Commercial and industrial, small | | | 36,592 | | | | 36,319 | | | | 273 | | | | 0.8 | % |
Commercial and industrial, large | | | 49 | | | | 48 | | | | 1 | | | | 2.1 | % |
Sales to public authorities | | | 4,803 | | | | 4,942 | | | | (139 | ) | | | (2.8 | %) |
| | | | | | | | | | | | | | | | |
Total | | | 374,606 | | | | 368,487 | | | | 6,119 | | | | 1.7 | % |
| | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | | 10 Yr Average | | | | |
Weather statistics | | | | | | | | | | | | | | | | |
Heating degree days | | | 1,478 | | | | 1,114 | | | | 1,306 | | | | | |
Cooling degree days | | | 2,607 | | | | 2,651 | | | | 2,453 | | | | | |
| (a) | Excludes $23.3 million refund in 2010 and a $16.3 million surcharge in 2009 related to prior periods Texas deferred fuel revenues. |
Page 13 of 15
El Paso Electric Company and Subsidiary
Nine Months Ended September 30, 2010 and 2009
Generation and Purchased Power Statistics
| | | | | | | | | | | | | | | | |
| | | | | | | | | Increase (Decrease) | |
| | | 2010 | | | 2009 | | | Amount | | | Percentage | |
Generation and purchased power (MWh): | | | | | | | | | | | | | | | | |
Palo Verde | | | 3,748,164 | | | | 3,826,096 | | | | (77,932 | ) | | | (2.0 | %) |
Four Corners | | | 461,332 | | | | 554,711 | | | | (93,379 | ) | | | (16.8 | %) |
Gas plants | | | 2,276,456 | | | | 1,796,812 | | | | 479,644 | | | | 26.7 | % |
| | | | | | | | | | | | | | | | |
Total generation | | | 6,485,952 | | | | 6,177,619 | | | | 308,333 | | | | 5.0 | % |
Purchased power | | | 1,924,621 | | | | 2,168,446 | | | | (243,825 | ) | | | (11.2 | %) |
| | | | | | | | | | | | | | | | |
Total available energy | | | 8,410,573 | | | | 8,346,065 | | | | 64,508 | | | | 0.8 | % |
Line losses and Company use | | | 475,604 | | | | 443,372 | | | | 32,232 | | | | 7.3 | % |
| | | | | | | | | | | | | | | | |
Total | | | 7,934,969 | | | | 7,902,693 | | | | 32,276 | | | | 0.4 | % |
| | | | | | | | | | | | | | | | |
Palo Verde capacity factor | | | 92.0 | % | | | 94.0 | % | | | (2.0 | %) | | | | |
Four Corners capacity factor | | | 68.4 | % | | | 85.7 | % | | | (17.3 | %) | | | | |
Page 14 of 15
El Paso Electric Company and Subsidiary
Financial Statistics
At September 30, 2010 and 2009
(In thousands, except number of shares, book value per share, and ratios)
| | | | | | | | |
Balance Sheet | | 2010 | | | 2009 | |
Cash and temporary investments | | $ | 66,948 | | | $ | 121,535 | |
| | | | | | | | |
Common stock equity | | $ | 790,763 | | | $ | 754,921 | |
Long-term debt, net of current portion | | | 849,733 | | | | 739,686 | |
Financing obligations, net of current portion | | | — | | | | 75,175 | |
| | | | | | | | |
Total capitalization | | $ | 1,640,496 | | | $ | 1,569,782 | |
| | | | | | | | |
Current portion of long-term debt and financing obligations | | $ | 14,100 | | | $ | 37,842 | |
| | | | | | | | |
Number of shares - end of period | | | 42,612,026 | | | | 44,236,250 | |
| | | | | | | | |
Book value per common share | | $ | 18.56 | | | $ | 17.07 | |
| | | | | | | | |
Common equity ratio | | | 47.8 | % | | | 47.0 | % |
Debt ratio | | | 52.2 | % | | | 53.0 | % |
Page 15 of 15
