News Details

EL PASO, Texas--(BUSINESS WIRE)--

El Paso Electric Company (NYSE:EE):

Overview

• For the third quarter of 2014, El Paso Electric Company ("EE" or the "Company") reported net income of $52.5 million, or $1.30 basic and diluted earnings per share. In the third quarter of 2013, EE reported net income of $50.6 million, or $1.26 basic and diluted earnings per share.
• For the nine months ended September 30, 2014, EE reported net income of $87.2 million, or $2.16 basic and diluted earnings per share. Net income for the nine months ended September 30, 2013 was $87.4 million, or $2.17 basic and diluted earnings per share.

"We were able to achieve several key milestones in our strategic plan for the future of El Paso Electric Company during the third quarter of 2014," said Tom Shockley, Chief Executive Officer. "Mary Kipp was named President of the Company on September 16, 2014, which is a significant step in our succession plan. Furthermore, we are pleased with the progress of the construction of our Montana Power Station during the quarter. We now expect the first two units to be placed in commercial operation during the first quarter of 2015. Overall, net income for the quarter ended September 30, 2014 increased by approximately 3.8%, compared to the same quarter last year, and was consistent with our expectations."

Earnings Summary

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

Third Quarter 2014

Income for the quarter ended September 30, 2014, when compared to the same period last year, was positively affected by:

• Income taxes, not reflected in other income items below, decreased primarily due to a domestic production activities deduction in 2014, whereas there was no such deduction in 2013.
• Increased allowance for funds used during construction ("AFUDC") due to higher balances of construction work in progress including the Montana Power Station.

Income for the quarter ended September 30, 2014, when compared to the same period last year, was negatively affected by:

• Increased operation and maintenance expense related to our fossil-fuel plants, primarily due to maintenance at the Rio Grande and Newman generating plants in 2014, with no comparable maintenance expense in the same period last year.
• Decreased retail non-fuel base revenues primarily due to a $3.0 million reduction in non-fuel base revenues from sales to public authorities, which reflects increased use of an interruptible rate at a military installation in our service territory, as well as other energy saving programs at military installations.

Other items impacting earnings included increased investment and interest income due to increased realized gains on equity investments in our Palo Verde decommissioning trust funds in 2014, and reduced taxes other than income taxes. These increases to income were partially offset by increased depreciation and amortization due to increased depreciable plant balances.

Year to Date

Income for the nine months ended September 30, 2014, when compared to the same period last year, was positively affected by:

• Increased AFUDC due to higher balances of construction work in progress, including the Montana Power Station.
• Income taxes not reflected in other income items below decreased primarily due to a domestic production activities deduction in 2014, whereas there was no such deduction in 2013.
• Increased investment and interest income primarily due to increased gains on the sales of equity investments in our Palo Verde decommissioning trust funds compared to the same period last year.
• Recognition of Palo Verde performance rewards associated with the 2009 to 2012 performance periods, net of disallowed fuel and purchased power costs related to the resolution of the Texas fuel reconciliation proceeding designated as PUCT Docket No. 41852.

Income for the nine months ended September 30, 2014, when compared to the same period last year, was negatively affected by:

• Decreased retail non-fuel base revenues, primarily due to a $3.5 million reduction in non-fuel base revenues from sales to our residential customers, reflecting a 2.4% decrease in kWh sales due to milder weather in 2014, primarily in the first quarter, when compared to the same period last year and a $2.8 million reduction in non-fuel base revenues from sales to public authorities which reflects increased use of an interruptible rate at a military installation in our service territory as well as other energy saving programs at military installations.
• Increased taxes other than income taxes, primarily due to higher property taxes, including a one-time adjustment to the 2013 Arizona property tax rate recorded during the first quarter of 2014.
• Increased operation and maintenance expense related to our fossil-fuel plants, primarily due to maintenance at the Rio Grande and Newman generating plants in 2014, with no comparable maintenance expense in the same period last year.
• Increased depreciation and amortization due to increased depreciable plant balances including Rio Grande Unit 9, which began commercial operation on May 13, 2013.

Retail Non-fuel Base Revenues

Retail non-fuel base revenues decreased $1.3 million, pre-tax, or 0.7% in the third quarter of 2014 compared to the same period in 2013. This decrease reflects a $3.0 million reduction in non-fuel base revenues from sales to public authorities, which is primarily due to increased use of an interruptible rate at a military installation in our service territory which is lower than the previous rate applied for those services, as well as energy savings from energy conservation and efficiency programs and use of solar distributed generation at military installations, and reduced sales to a local water utility primarily due to reduced ground water pumping in the third quarter of 2014. Cooling degree days decreased 2.0% for the third quarter of 2014, compared to the same quarter last year, and were 4.0% lower than the 10-year average. The decrease in retail non-fuel base revenues was partially offset by $1.3 million increase in non-fuel base revenues from sales to residential customers. KWh sales to residential customers increased by 1.6% due to a 1.3% increase in the average number of residential customers served. KWh sales to small commercial and industrial customers in the third quarter of 2014 increased 2.1%, compared to the same quarter in 2013, reflecting a 1.9% increase in the average number of customers served. Non-fuel base revenues and kWh sales are provided by customer class on page 10 of this release.

For the nine months ended September 30, 2014, retail non-fuel base revenues decreased $7.0 million, pre-tax, or 1.6%, compared to the same period in 2013. This decrease reflects milder weather in 2014, primarily in the first quarter, which impacted sales to residential, small commercial and industrial, and to a lesser extent public authority customers. Heating degree days decreased 26.6% for the nine months of 2014, compared to the same period last year, and were 17.0% below the 10-year average. Cooling degree days decreased 3.1%, compared to the same period last year, and were relatively unchanged from the 10-year average. Non-fuel base revenues from sales to residential customers decreased $3.5 million reflecting a decrease of 2.4% in kWh sales to residential customers despite a 1.3% increase in the average number of residential customers served. Non-fuel base revenues from sales to public authorities decreased $2.8 million, which reflects increased use of an interruptible rate at a military installation in our service territory, as well as other energy savings from energy conservation and efficiency programs and use of solar distributed generation at military installations, and reduced sales to a local water utility in the third quarter of 2014. Non-fuel base revenues from sales to small commercial and industrial customers increased slightly, when compared to the same period in 2013, due to a 2.0% increase in the average number of customers served partially offset by milder weather. KWh sales to large commercial and industrial customers decreased 2.2%, and non-fuel base revenues decreased 2.5% as several customers ceased operations. Non-fuel base revenues and kWh sales are provided by customer class on page 12 of this release.

Capital and Liquidity

We continue to maintain a strong capital structure to ensure access to capital markets at reasonable rates. At September 30, 2014, common stock equity represented 48.3% of our capitalization (common stock equity, long-term debt, current maturities of long-term debt, and short-term borrowings under the revolving credit facility (the "RCF")). At September 30, 2014, we had a balance of $13.4 million in cash and cash equivalents. We expect to issue long-term debt in the capital markets in late 2014 or early 2015 to repay short-term borrowings and finance capital requirements. Based on current projections, we believe that we will have adequate liquidity through the issuance of long-term debt, 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.

Cash flows from operations for the nine months ended September 30, 2014 were $174.6 million compared to $184.9 million in the corresponding period in 2013. The primary factors affecting the decreased cash flow from operations were a decrease in deferred income taxes and an increase in accounts receivable due to the timing of certain non-trade receivables offset by a decrease in the 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 nine months ended September 30, 2014, the Company had a fuel under-recovery of $1.2 million compared to an under-recovery of fuel costs of $8.4 million during the nine months ended September 30, 2013. At September 30, 2014, we had a net fuel under-recovery balance of $7.4 million, including an under-recovery balance of $10.7 million in Texas and an over-recovery balance of $3.3 million in New Mexico. Effective with May 2014 billings, we increased our Texas fixed fuel factor by 6.9% to reflect increases in prices for natural gas.

During the nine months ended September 30, 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 $189.3 million for the nine months ended September 30, 2014 and $165.3 million for the nine months ended September 30, 2013. Capital expenditures for 2014 are expected to be $306.0 million as we construct the Montana Power Station and related transmission facilities. Capital requirements for purchases of nuclear fuel were $28.8 million for the nine months ended September 30, 2014 and $19.9 million for the nine months ended September 30, 2013.

On September 30, 2014, we paid a quarterly cash dividend of $0.28 per share, or $11.3 million, to shareholders of record on September 15, 2014. We paid a total of $33.3 million in cash dividends during the nine months ended September 30, 2014. At the current dividend rate, we expect to pay cash dividends of approximately $44.6 million during 2014.

No shares of common stock were repurchased during the nine months ended September 30, 2014. As of September 30, 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 (the "RGRT"). The RGRT, the trust through which we finance our portion of nuclear fuel for Palo Verde, is consolidated in the Company's financial statements. The RCF has a term ending January 14, 2019. The aggregate unsecured borrowing available under the RCF is $300 million. We may increase the RCF by up to $100 million (up to a total of $400 million) during the term of the agreement, upon the satisfaction of certain conditions, more fully set forth in the agreement, including obtaining commitments from lenders or third party financial institutions. The amounts we borrow under the RCF may be used for working capital and general corporate purposes. The total amount borrowed for nuclear fuel by the RGRT was $127.5 million at September 30, 2014, of which $17.5 million had been borrowed under the RCF, and $110 million was borrowed through senior notes. Borrowings by the RGRT for nuclear fuel were $125.5 million as of September 30, 2013, of which $15.5 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 September 30, 2014, $72.0 million was outstanding under the RCF for working capital and general corporate purposes and we expect to refinance the working capital and general corporate borrowings on the RCF with long-term debt in late 2014 or early 2015. No borrowings were outstanding at September 30, 2013 under the RCF for working capital and general corporate purposes.

2014 Earnings Guidance

We are narrowing our earnings guidance for 2014 to $2.20 to $2.35 per basic share from the previous range of $2.15 to $2.40 per basic share.

Conference Call

A conference call to discuss third quarter 2014 financial results is scheduled for 10:30 A.M. Eastern Time, on November 5, 2014. The dial-in number is 888-312-3048 with a conference ID number of 5393015. The international dial-in number is 719-325-2354. The conference leader will be Lisa Budtke, Assistant Treasurer. A replay will run through November 19, 2014 with a dial-in number of 888-203-1112 and a conference ID number of 5393015. 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 Contact:
Eddie Gutierrez, 915-543-5763
eduardo.gutierrez@epelectric.com
or
Investor Relations:
Lisa Budtke, 915-543-5947
lisa.budtke@epelectric.com

Source: El Paso Electric Company

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