News Details

EL PASO, Texas--(BUSINESS WIRE)-- El Paso Electric Company (NYSE:EE):

Overview

• For the first quarter of 2014, El Paso Electric Company ("EE") or (the "Company") reported net income of $4.6 million, or $0.11 basic and diluted earnings per share. In the first quarter of 2013, EE reported net income of $7.6 million, or $0.19 basic and diluted earnings per share.

"Financial results for the first quarter in 2014 reflect a reduction in revenues when compared to the first quarter of 2013 due to milder weather in our service area; however, we continue to be encouraged by our growth in the number of customers served," said Tom Shockley, Chief Executive Officer. "We are looking forward to a productive year, highlighted by the construction of the first two units of the Montana Power Station, which are scheduled to be in commercial operation in time to meet our summer 2015 peak. Because our EPA air permit became effective on April 25, 2014, we will be able to commence construction on Units 1 & 2 in early June. These units are designed to work in concert with our renewable energy sources including 107 MW of solar energy, of which 60 MW of utility-scale solar will be added this year. This combination of clean-burning natural gas and solar generation will efficiently provide sufficient power to meet the anticipated growing needs and interests of our region."

Earnings Summary

The table and explanations below present the major factors affecting 2014 net income relative to 2013 net income.

First Quarter 2014

Income for the quarter ended March 31, 2014, when compared to the same period last year, was negatively affected by:

• Decreased retail non-fuel base revenues primarily due to a $4.0 million reduction in non-fuel base revenues from sales to our residential customers reflecting a 9.3% decrease in kWh sales due to milder winter weather in the first quarter of 2014 compared to the same period last year.
• Increased taxes other than income taxes primarily due to an adjustment to the 2013 Arizona property tax rate during the first quarter of 2014 which resulted in increased Arizona property taxes of $1.5 million.
• Increased fossil-fuel plant operations and maintenance expense primarily due to an increase in maintenance expense of $2.7 million due to an increase in the level of maintenance activity at Four Corners and Newman Units 1 and 2.
• Increased depreciation and amortization due to increased depreciable plant balances including Rio Grande Unit 9, which began commercial operation on May 13, 2013.

Income for the quarter ended March 31, 2014, when compared to the same period last year, was positively affected by:

• Increased investment and interest income primarily due to increased realized gains on equity investments in our Palo Verde decommissioning trust funds compared to the same period last year.
• Increased miscellaneous income and deductions primarily due to the sale of land in the first quarter of 2014 with no comparable activity in the same period last year.
• Increased deregulated Palo Verde Unit 3 revenues in the first quarter of 2014 primarily due to a 29.8% increase in proxy market power prices when compared to the same period last year.

Retail Non-fuel Base Revenues

Retail non-fuel base revenues decreased $4.8 million, pre-tax, or 4.4% in the first quarter of 2014 compared to the same period in 2013. This decrease reflects milder winter weather in the first quarter of 2014 which impacted sales to residential, small commercial, and to a lesser extent public authority customers. Heating degree days decreased 28.4% for the first quarter of 2014 compared to the same quarter last year and were 19.2% below the 10-year average. KWh sales to residential customers decreased by 9.3% despite a 1.2% increase in the average number of residential customers served. KWh sales to small commercial and industrial customers in the first quarter of 2014 decreased 1.6% compared to the same quarter in 2013 despite a 2.1% increase in the average number of customers served. KWh sales to large commercial and industrial customers decreased 7.4% and non-fuel base revenues decreased 2.6% largely due to discontinued operations by several customers. While kWh sales to public authorities in the first quarter of 2014 decreased approximately 4.5% compared to the same quarter in 2013, non-fuel base revenues increased slightly due to demand charges. Non-fuel base revenues and kWh sales are provided by customer class on page 8 of this release.

Capital and Liquidity

We continue to maintain a strong capital structure to ensure access to capital markets at reasonable rates. At March 31, 2014, common stock equity represented 47.6% of our capitalization (common stock equity, long-term debt, and short-term borrowings under the revolving credit facility (the"RCF")). At March 31, 2014, we had a balance of $13.4 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 twelve months. We may also issue long-term debt in the capital markets to finance capital requirements in 2014.

Cash flows from operations for the three months ended March 31, 2014 were $31.3 million compared to $7.7 million in the corresponding period in 2013. The primary factors affecting the increased cash flow were the funding of $17.5 million for employee pension and other post-retirement benefit plans in the first quarter of 2013 compared to $3.5 million in the first quarter of 2014, a decrease in accounts receivable due to the timing of customer payments, and a smaller decline in accounts payable. These increases in cash flows from operations were partially offset by a decrease in the collection of deferred 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, 2014, the Company had a fuel over-recovery of $2.0 million compared to an over-recovery of fuel costs of $3.8 million during the three months ended March 31, 2013. At March 31, 2014, we had a net fuel under-recovery balance of $4.2 million, including an under-recovery balance of $3.9 million in Texas, $0.2 million in New Mexico, and $0.1 million for our FERC customer. In October 2013, we implemented an increased fixed fuel factor in Texas which was based upon a formula that reflects projected prices for natural gas. Additionally, on April 15, 2014, we filed a request to increase our Texas fixed fuel factor by 6.9% to reflect increases in prices for natural gas. This increase received interim approval on April 28, 2014 and was effective with May 2014 billings.

During the three months ended March 31, 2014, 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 plant were $48.3 million for the three months ended March 31, 2014 and $55.4 million for the three months ended March 31, 2013. Capital expenditures for 2014 are expected to be $316.4 million as we construct the Montana Power Station and related transmission facilities. Capital requirements for purchases of nuclear fuel were $11.8 million for the three months ended March 31, 2014 and $9.9 million for the three months ended March 31, 2013.

On March 31, 2014, we paid a quarterly cash dividend of $0.265 per share, or $10.7 million to shareholders of record on March 14, 2014. We expect to continue paying quarterly dividends during 2014 and we expect to review the dividend policy in the second quarter of 2014.

No shares of common stock were repurchased during the three months ended March 31, 2014. As of March 31, 2014, 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 ("RGRT"). 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 $130.0 million at March 31, 2014 of which $20.0 million had been borrowed under the RCF and $110 million was borrowed through senior notes. Borrowings by the RGRT for nuclear fuel were $135.0 million as of March 31, 2013, of which $25.0 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, 2014, $26.0 million was outstanding under the RCF for working capital and general corporate purposes. No borrowings were outstanding at March 31, 2013 under the RCF for working capital or general corporate purposes.

2014 Earnings Guidance

We are reiterating our earnings guidance for 2014 within a range of $2.10 to $2.50 per basic share.

Conference Call

A conference call to discuss first quarter 2014 earnings is scheduled for 10:30 A.M. Eastern Daylight Time, on May 7, 2014. The dial-in number is 888-438-5519 with a conference ID number of 7311191. The international dial-in number is 719-325-2393. The conference leader will be Lisa Budtke, Assistant Treasurer. A replay will run through May 21, 2014 with a dial-in number of 888-203-1112 and a conference ID number of 7311191. 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; and (xiii) 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
Media Contacts
Eddie Gutierrez, 915-543-5763
eduardo.gutierrez@epelectric.com
or
El Paso Electric Investor Relations
Lisa Budtke, 915-543-5947
lisa.budtke@epelectric.com

Source: El Paso Electric Company

News Provided by Acquire Media