Good day, and welcome to the PNM Resources Q3 2019 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Lisa Goodman, Director of Investor Relations.
Please go ahead.
Thank you, Sarah, and thank you everyone for joining us this morning for the PNM Resources Q3 2019 earnings conference call. Please note that the presentation for this conference call and other supporting documents are available on our website at pnmresources.com. Joining me today are PNM Resources' Chairman, President and CEO, Pat Vincent Calant and Chuck Eldred, our Executive Vice President and Chief Financial Officer, as well as several other members of our executive management team. Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward looking statements pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward looking statements are based upon current expectations and estimates and that PNM Resources assumes no obligation to update this information.
For a detailed discussion of factors affecting PNM Resources results, please refer to our current and future annual reports on Form 10 ks, quarterly reports on Form 10 Q as well as reports on Form 8 ks filed with the SEC. With that, I will turn the call over to Pat. Thank you, Lisa, and congratulations on your appointment to Director of Investor Relations. We're all very happy for you. Good morning, everyone.
Thank you for joining us today on our Q3 earnings call. It's also National Cook For Your Pets Day today and some websites say it's National Men Make Dinner Day. Others say National Men Make Dinner Day is next Thursday. So whatever day it is gentlemen, start preparing. But let's begin on Slide 4.
Our GAAP earnings per share in the Q3 of 2019 reflect earnings of $1.28 compared to earnings of $1.09 in the Q3 of 2018. Ongoing earnings per share are $1.29 compared to $1.08 in the Q3 of last year. We are affirming our guidance of $2.05 to 2 $0.11 Chuck will provide further details on the financials in a few minutes. In terms of highlights of the quarter, higher temperatures increased our loads at both PNM and TNMP. At TNMP, this reflects yet another all time record system peak reflecting the growth that continues across Texas.
On the regulatory front, TNMP filed its 2nd TCOS filing in 2019 for recovery of $22,000,000 of transmission investments across its system and this filing was approved in September. These rates were implemented on September 19 and will increase annual revenues by $3,300,000 In New Mexico, Pan Am received approvals from both FERC and the New Mexico Public Regulation Commission to acquire the Western Spirit transmission line in 2021. This is not only a significant investment for PNM, but is a key project for furthering New Mexico's plans to be a clean energy leader. The line will have the capacity to move 800 megawatts of wind energy investments across the state and encourages further investment in renewables. We continue on our path to exit the San Juan generating station and replace it with cleaner energy resources.
The docket for the abandonment of the plant and the financing of costs through securitization is continuing along the commission's procedural schedule. Through this schedule, parties in the case were asked to provide briefs on whether the Energy Transition Act, the new state energy law should apply to this filing. PNM and other parties petition the New Mexico Supreme Court to ask the court to weigh in on the applicability of the law before these briefs, although the court declined to provide an opinion on the issue at this time. On Slide 5, we've laid out the positions filed by intervenors in the case on whether or not the ETA should be applied. You'll notice that there's a lot more green checkmarks here than red Xs.
Groups representing the San Juan area are concerned about the funds included in our securitization filing benefit their community, job trading, severance and economic development funds. Several environmental groups that were part of the legislative effort to pass the ETA and understand that it was clearly intended to be used for the abandonment of San Juan and to provide financial resources for the impacted community are supporting the filing. The case is moving through the procedural schedule to a hearing examiner recommendation and ultimately a commission order. If the order is not consistent with the Energy Transition Act, we will take it back to the Supreme Court. Turning to Slide 6.
I'll touch on a few other updates on the regulatory agenda. At PNM, the filing for our solar direct program, a voluntary solar subscription available to municipalities, tribal governments and large customers continues to move along the procedural schedule and we expect a decision in the Q1 of next year. We also expect a decision in the Q1 on our 2020 renewable plan, which includes the request for approval of 140 Megawatt wind PPA. There are no other updates for the other pending dockets. So with that, I'll turn it over to Chuck for a detailed look at the numbers.
Thank you, Pat, and good morning, everyone. I'll get started with a recap of results from this quarter before getting into our refreshed capital plans. Let's start with Slide 8. As Pat mentioned earlier, higher temperatures increased load in earnings at both PNM and TNMP. This was a welcome change following our record low temperatures in the Q2.
As a result, we were able to ease up on some of the cost reduction plans that we put into place a few months ago. We continue to target the midpoint of our guidance at 208. All of the detailed drivers are included in the appendix. You'll note that PNM continued to benefit from the 2nd phase or implementation of rates that began in January 2019 and the TNMP results increased from the implementation of base rates and T cost increases this year. At both businesses, these increases were partially offset by higher depreciation expense and property tax as a result of our increased capital investments.
Corporate and other was up $0.03 as a result of our effective tax rate. Because we are consolidated taxpayers, taxes at corporate segment are influenced by the timing of the earnings at PNM and TNMP. Now turning to Slide 9. At PNM, we continue to see a steady increase in customer and job growth across PNM service territory. Recent newspaper articles have touted New Mexico's job growth as being one of the top in the nation.
These jobs are primarily in the private sector with the highest growth in the leisure and hospitality sector followed by professional and business services and then education and health services. Weather and load increased 3rd quarter EPS at P and M by 0 point 0 $5 over last year. Weather was the primary driver for this increase as cooling degree days were 14% higher than last year. Weather adjusted load increased in our industrial and residential classes, but was largely offset by the commercial class as companies implement energy efficiency programs. This is also the case on a year to date basis and we have reduced our load guidance to a range of flat to 1% as we expect to come in around 0.5%.
As I indicated last quarter, we have already factored these load expectations in the midpoint of our guidance range at 208. In Texas, growth continues to lead the nation and we see evidence of this by the increased demand on our system. Weather and load increased 3rd quarter EPS at TNMP by $0.02 over the prior year. Cooling degree days were 10% higher than last year. Demand based load has increased 4.3% on a year to date basis.
We reduced our expectations for full year results to a range of 4% to 5% to account for the changes in the timing of some interconnections projected this year, but we will still be expecting to bring these customers online in the coming months. In any given quarter, EPS is not significantly impacted by these types of changes in percentages because of the low T and D rate charged to customers, but we do monitor the demand based load percentage as an indicator of the increased utilization of our system. As Pat mentioned, TNMP hit a new system peak and as they have for several consecutive years. This further demonstrates our need for continued infrastructure investment in Texas. Let's turn to Slide 10 to see how this impacts our updated capital investment plans.
Our 5 year capital plan through 20 3 has increased to $3,900,000,000 This is an increase of just over $300,000,000 from our last previous plan and is driven by system reliability projects at TNMP. For example, in 2020, here are some key projects. A group of TNMP's transmission lines and substations in Northwest Texas will be upgraded from 69 kV to 138 kV to support growth in the region. In the Gulf Coast, 138 kV transmission line line upgrade will be completed to help the transmission capacity or contingency issues in support of interconnection of a new gas fired power plant. And we'll begin in the replacement of AMI meters to be compatible with the current network capabilities, which continue through 2021.
Growth beyond our service territory in Texas also drives the need for increased investments in 20222023. ERCOT has performed extensive regional studies that call for increased transmission infrastructure to support reliability and growth, particularly in West Texas. We have increased our investments at TNMP in response to those studies. Over the last several years, we have increased our level of capital investment at TNMP significantly and we have made use of the TCOS mechanism to recover transmission investments twice a year. Now that we have completed the general rate case TNMP allowing for a 9.65 percent ROE and 45% capital structure, we'll now look to use the TCOS and DCOS mechanism to earn our allowed return on both sides of the business.
PNM Capital remains consistent with our plans shown last quarter with $298,000,000 for San Juan replacement power and $285,000,000 for the Western Spirit transmission line that was recently approved by both FERC and the New Mexico Commission. In addition to investments at PNM and TNMP, we continue to allocate resources to physical and cybersecurity along with other technological investments that allow our business to run smoothly and provide enhanced services to our customers. Under this plan, rate base grows at a compound annual growth rate of 9.6%. Now turning to earnings power on Slide 11. TNMP reflects the increased investments shown in our 5 year plan.
Equity issuance have increased by $140,000,000 to fund the additional $317,000,000 of capital in TNMP and maintain a balanced capital structure. This brings our total equity needs up to $290,000,000 in addition to the $300,000,000 of mandatory converts that we have been projecting for mid-twenty 21. We are currently looking at 4 block sale options and exact timing and type of instrumented amounts will be optimized. As we continue to keep our focus on delivering a successful outcome of the San Juan abandonment and replacement power dockets, we're planning to delay the December general rate case filing to early in Q2 of 2020. The additional investments at TNMP strengthen our earnings potential support our 5% to 6% earnings growth target.
We continue to focus on executing our plan and preserving our investment credit rates while balancing the need of equity and creating shareholder value. Pat, I'll turn it back over to you.
Thanks, Chuck. Before I open it up for questions, I want to wrap up with some of the great things the company has been doing. Our plans to replace San Juan have garnered support from those who see the value in moving to a cleaner generation portfolio. Last week, we celebrated the completion of the San Miguel Solar Energy Center that adds 20 megawatts of solar to our portfolio to serve retail customers along with boosting tax revenues for the county that can be used to support infrastructure and education. The PNM Resources Foundation awarded 3 quarters of a $1,000,000 in grants this quarter that supports STEM education, energy efficiency and economic vitality.
This past weekend, our employees volunteered in droves at our largest annual low income assistant event where customers not only received financial support from the PNM Good Neighbor Fund to pay their electric bills, but also a variety of other services from more than 40 agencies. This week, some of our crews in New Mexico headed out to California to aid in restoration efforts. And in Texas, our TNMP crews assisted Encore restoration efforts following the tornado that swept through Dallas last month. This type of service is invaluable to our industry and speaks so well of our public service mantra. It's our committed employees across New Mexico and Texas that are making these things happen and earning recognition for PNM and TNMP.
I'm proud to be a part of this team and my role in making our company and our communities a better place to live, work and play. So Sarah, let's please open it up for questions.
We will now begin the question and answer session. Our first question comes from Julien Dumoulin Smith with Bank of America Merrill Lynch. Please go ahead.
Hi, good morning. This is Alex Morgan calling in for Julian.
Good morning, Alex.
Good morning. Thanks for taking my question. My first question is actually about rate cases. I was wondering if you're planning on going in for a rate case at PNM in New Mexico at the end of this year?
Yes, Alex, as I mentioned in my comments that we would look to delay that rate case until the early part of Q2.
Okay. Thank you so much. And then I was just hoping for potentially a little bit of clarity around the block issuance versus the ATM. Is that something that we should be thinking about incrementally for 2020? I know you said the timing is not exactly out yet, but I was just looking for a little more clarity there.
Yes. If you look at if you reference our potential earnings power slide that we have in our deck in the appendix, you'll see in Foot Note number 8, we show you what the equity amount is for each year. And you can think about the Ford Block sale is that if we continue on this plan, we would draw down the equity needs to be reflected of each of those years. So just go to Page 17 and the earnings power slide and reference the earnings power in footnote 8 and you'll get your details.
Okay, great. Thank you. That's all the questions that I have today.
Thank you, Alex.
The next question comes from Ali Agha with SunTrust. Please go ahead.
Thank you. Good morning.
Good morning, Ali. Good
morning. First question, Pat or Chuck, the incremental CapEx at TNMP, are you looking at any are there any constraints in terms of dialing that up? Are those projects all locked in, customer rate impacts, any of that factoring in? Is this all fairly comfortably within all those parameters as you look at those numbers?
Yes, we're very comfortable. They're all built into studies that ERCOT has provided and demands and requests we have of customers. So no concerns or issues. It's locked into our plans and we'll file through the TCOS and TCOS mechanisms in order to recover our investments.
Okay. And then with regards to the EPA applicability, any further discussions or clarity from where the commissioners currently stand? I know there have been some public statements back and forth, and you laid out where all the other interveners are. But what's the latest thought on how commissioners are thinking about it?
Ali, it's Pat. I think that they're waiting until all the briefs are filed, until the hearing examiner comes out with the recommendation. So until then, we really don't have line of sight until into what they're thinking it, which is as it should be.
I see. And finally, Chuck, with regards to the equity, is there a particular regulatory approval or any triggering event that you're looking to have completed before you embark on that program or how are you sort of thinking about that right now?
No, we have all the Board authorizations and SEC statements already filed. So it's just a matter of when we decide to issue the equity.
Right. I was thinking from more from a regulatory point of view.
No, there's no issues on the regulatory front at all.
I see.
Thank you. No additional steps at all.
No, actually. Yes,
yes, thanks.
Our next question comes from Paul Fremont with Zoho Securities USA. Please go ahead.
Thank you very much. Can you discuss at all, I guess, there's an article in the Albuquerque Journal that there are some people in the legislature that are opposed to the Energy Transition Act, and there are also hearings scheduled, I think, next week in the Senate, sort of just bring us up to date with what their concerns are with the Energy Transition Act and what your thoughts are?
Yes, Ali, there's a group called Powering the Future or something like that. That's pretty small. It's composed of a few folks that are kind of revive the coal industry and don't like some of the environmental regulations. And as you know, the main reason that San Juan Generating Station is shutting down is because of the compelling low natural price of low natural gas and renewables. So, we're not particularly concerned about any of that.
Great. And then has there been any reaction to the staff proposal that you adopt carbon capture technology at the San Juan plant?
I think the best reaction that I've seen one is in the write up you had Paul about it. I think that summarizes it pretty well. There really has not been a lot of reaction to what everybody understands that this technology is not
proven at scale.
It's expensive. We looked at the as a matter of fact and came to the same conclusions and we're updating the numbers on it now as we go through and file our resource plan. So, really no reaction.
And then my last question, would you need clarity on any of the issues before the NMPRC, before going forward with equity or do you see the 2 as not necessarily being linked right now?
I'd say they're not linked. We don't need any other regulatory approvals.
Yes, I didn't mean regulatory. I'm talking about in terms of the spending dollars in New Mexico. So in other words, there are different options in terms of replacement power portfolio?
There's No, no, I see what you're saying. No, if you're suggesting that we're timing the equity around what decisions are made, I'd say no, because we have other pipeline projects that are needed for the business that need to be prioritized and worked in. So, we need the equity to maintain our cap structure and our credit metrics and we'll plan it with some flexibility and timing to meet what we think is appropriate to provide shareholder value, but certainly it's not driven by those kinds of decisions.
Great. Thank you very much.
Thanks, Paul.
Our next question comes from Greg Gordon with Evercore ISI. Please go ahead.
Hey, guys. Hey.
Good morning.
I already cook on a regular basis for my wife, so I don't need to have a special holiday for that.
Well, congratulations to you. That's yay.
You didn't say that, Greg. But you made us all look bad.
So look, I know that you're in a complicated situation here in New Mexico. The regulators seem to want to not follow the guidelines that the legislature and the governor has set for them. It sounds like the governor and the legislature also might be contemplating taking some action in the early next year with regard to that. So can you talk about what you're hearing from them? And then in a worst case scenario where they the commission does in fact go against the strictures of the law.
I mean, one way or another, you're going to move ahead with shutting down the plant and deploying the renewables. So what would the alternative financing plan be?
Yes, Greg, I'll start with the first part and then let Chuck talk about the second part. There's some discussion around the governance and the legislators of trying to do a couple of things, maybe enact some PRC reform that they can do legislatively as opposed to anything that needs to be done. Constitutionally, they aren't ready to go public with anything, but they are discussing that. There is also the discussion of making sure that there's legislation out that truly defines exactly what the qualifications for the commissioners will be, how they are appointed so that when the initiative comes on the ballot in 2020, it will be very clear to people, how that's going to be structured and we think that would be very helpful, to that resolution passing. Ultimately, if the commission decides that they don't think that the Energy Transition Act applies, as we said, we would go to the Supreme Court because the question of whether or not the act applies turns on the timing of when the application was filed.
And some parties have argued that when the commission bifurcated our consolidated application and put the abandonment in financing into a previously open docket, a constitutional provision that a change in law cannot affecting pending case prevents the new law from being applied. But that's really a misapplication of that position. And our position has been that since there was no application until July first, the ETA applies to all parts of our consolidated filings. So we would go back to the court on that and we're confident that the law does apply to it. So that's that part I'll let Chuck talk to you about.
Yes. So Greta, we don't like talking about other downside scenarios because it's to Pat's point, we feel very comfortable that we have the right position. But if you were thinking of sensitivities, order to support the reinvestment into the replacement power. And if you look at the earnings power, we did show kind of a timing of some flexibility of how we'd issue equity and we have other capital projects that we're prioritizing and considering. So there's a lot of different ways to think about achieving the earnings potential of the business and securitization.
If it doesn't apply, we'll just address it at the appropriate time, but we feel very strongly that our view is reflected well within our plans and we continue to think of it that way.
Thank you guys. Take care.
Thanks Greg. We're looking forward to a report on what you made for dinner at EEI.
You can cook for all of us, Greg.
Our next question is a follow-up from Ali Agha.
Thanks. Chuck, just one clarification. As you mentioned in your comments that you pushed back the New Mexico rate case from year end to middle or sometimes in the Q2 of next year. How should we think about regulatory lag for 2020 as a result of that pushback?
Well, the effective date if we filed in December for the new rate case would have been January 2021. So we just look at the fact that if we file in early Q2 of 2020, then we'd have a rate case effective in early Q2 of 2020, 2021 rather. So from our standpoint, it's just timing and we don't think it's appropriate at this point given all the focus we have on ETA and the replacement power in the pending cases we have for the commission that we need to pile on another rate case. So the timing of this is really judged more towards making sure that we allow for some orderly approach to our rate case planning.
Got you. So the impact will be temporary, but we'll see that in '21, just timing issue. And then by 'twenty two, you should be back on the annual track.
Correct. That's right.
Got you.
Thank you.
You're welcome.
This concludes the question and answer session. I would like to turn the conference back over to Pat Vincent Colon, Chief Executive Officer. Please go ahead.
Thank you, Sarah. And again, thank you all for joining us this morning. Enjoy making your dinner, whether you make it for someone or your pets. Please feel free to bring us pictures at EEI. Have a safe