TXNM Energy Q4 2021 Earnings Call Transcript

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Provided by Quartr
February 3, 2022

Key Takeaways

  • Positive Sentiment: Preliminary ongoing EPS of $2.45 for 2021, with 2022 guidance of $2.50–2.60 and 2023 guidance of $2.60–2.75 per share, alongside a 6% dividend increase and a 5% EPS growth target through 2025.
  • Positive Sentiment: Capital investments raised by $500 million to $3.5 billion, driving a forecast rate base growth of 7.7% for PNM retail, 21% for FERC transmission, and 16% for TNMP through 2025.
  • Neutral Sentiment: The merger agreement with Avangrid has been extended to April 2023 with a three-month option, pending final approval from the New Mexico Public Regulation Commission and backed by an estimated $300 million in customer and economic benefits.
  • Positive Sentiment: PNM increased its renewable capacity to over 30% and carbon-free capacity to over 40% in 2021, secured approval for its first transportation electrification program, and reaffirmed a target of 100% emissions-free energy by 2040.
  • Negative Sentiment: PNM has appealed to the New Mexico Supreme Court after the commission denied its planned early exit from the Four Corners coal plant, with the legal process expected to take 12–18 months.
AI Generated. May Contain Errors.
Earnings Conference Call
TXNM Energy Q4 2021
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good morning, and welcome to the PNM Resources Financial Update 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.

Operator

Please go ahead.

Speaker 1

Thank you, Kate, and thank you, everyone, for joining us this morning for the PNM Resources financial update with preliminary 2021 earnings and guidance for 20222023. 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 Quillan and Dom Terry, our Senior Vice President and Chief Financial Officer. 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.

Speaker 1

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. Good morning, and thank you all for joining us today. It's been some time since we've held an earnings call, but I can assure you it is all coming back to us now.

Speaker 1

You probably knew that yesterday was Groundhog Day, but since the day after Groundhog Day often gets overshadowed, you may not know that today is both National Optimist Day and National Carrot Cake Day. And when you start the day off eating carrot cake, it's easy to be an optimist. Of course, it's also easy to be an optimist when you have great team members like Lisa Goodman. Lisa was recently named a 2022 Woman of Influence by Albuquerque Business First. Lisa deserves this recognition and has been a great part of our PNM Resources family for more than 18 years.

Speaker 1

Congratulations, Lisa, and thank you for all that you do. I'm going to start on Slide 4 with our financial results and guidance. Preliminary ongoing earnings for 2021 are $2.45 per share, reflecting another strong year of delivering results. Growth in TNM's FERC transmission business and recovery of TNMP's capital investments through rate riders provided year over year utility earnings growth. We are also providing earnings guidance for 2022 at a range of $2.50 to $2.60 per share and for 2023 at a range of $2.60 to $2.75 We continue to be focused on running our business infrastructure needed to meet the growing demands of our customers and communities and providing shareholders a return for their investment.

Speaker 1

Tied to this increased earnings expectation is a 6% increase to our common dividend, keeping us in the middle of our targeted payout ratio for 2022 earnings. Don will cover each of these items in more detail in the financial slides. As our merger process with Avangrid continues, and I'll get to that in a minute, Our teams continue to build on the successes of years past and adapt and respond to changes in our business environment to move PNM and TNMP forward. At PNM, we are implementing plans to achieve our goal of providing 100% emissions free energy by 2,040. In the Q4 of 2021, our annual renewable plan and our first transportation electrification program were both approved by the commission.

Speaker 1

We are also continuing our efforts to exit from coal fired generation early with our appeal to the New Mexico Supreme Court following the commission's denial of our planned exit of the Four Corners coal plant. The early exit not only aligns with our Carbon Free goals, but it brings customer savings, including reduced fuel costs and provides the local communities financial support as they transition to a non fossil fuel economy. TNMP just completed its most significant year of capital expenditures to support growth in its service territory and it isn't slowing down. Last winter storm Yuri has increased interest in adding resource and storage capacity in ERCOT and we've seen more requests to interconnect to our system. The transmission and distribution capital rate riders in Texas ensure that our investments are recovered in a timely manner.

Speaker 1

We filed our 1st semiannual transmission cost of service adjustment for 2022 last week with a requested increase in annual revenues of $14,200,000 based on our investments in the second half of twenty twenty one. Let's turn to Slide 5 and talk more about the merger. We've extended the agreement with Avangrid through April of 2023 with a 3 month extension option to preserve the progress we have made over the last year. We obtained approval from the 5 required federal agencies and the Public Utility Commission of Texas, leaving only the New Mexico Public Regulation Commission. In our New Mexico application, we negotiated unprecedented customer and economic development benefits, which we conservatively estimate to be worth $300,000,000 That was all in a stipulation that has broad support with 23 out of the 24 intervening parties either supporting or not opposing it.

Speaker 1

Our reasons for the merger have not changed. As we look out into the future and see the capital needed to navigate the transition to clean energy and meet growing demand, we knew that a combination with a larger company would provide benefits of scale, regulatory diversity and a stronger credit profile. We also looked for a partner who would align strategically with our goals. Avangrid and Ibadrola have an impressive ESG profile on the national and global level and are willing to make commitments on important items to stakeholders in New Mexico and Texas, maintaining local control of the utilities, following through on the clean energy commitments we've made in New Mexico, supporting economic development efforts and continuing to be strong partners in our community. Our combination makes sense.

Speaker 1

In December, New Mexico PRC rejected the stipulated agreement with parties. And at the beginning of January, we filed our notice of appeal with the New Mexico Supreme Court. Yesterday, we jointly filed with Avangrid and Ibadrola our statement of issues in the appeal, and they can be summarized into 3 key issues. 1st, was the PRC decision improperly based on inadmissible hearsay evidence and information outside the evidentiary record? 2nd, did the commission determine the merger was contrary to the public interest by opposing arbitrary standards, improperly weighing benefits and risks and ignoring the weight of the admissible evidence.

Speaker 1

The benefits and protections we proposed were far beyond the level required in the approval of other mergers. These added benefits and protections were then weighed against perceived risks, including a fear that PNM would begin ignoring its obligation to provide quality service to customers as the result of Avangrid's ownership. These were not real risks supported in the record and were contrary to the stipulated commitment made by PNM and Avangrid. The third issue is around the commissioner further acting unreasonable and unlawfully and in violation of due process in their handling of matters concerning the discovery process. We think the commission fails to follow its own rules in withholding its approval.

Speaker 1

The next step is for the Supreme Court to assign the case to its calendar, which will trigger a 45 day deadline for PNM and Avangrid to file their detailed arguments in the appealed issues in the brief, followed by 45 days for the PRC to file an answer brief. We will then have 20 days to file a response to the PRC's brief. In the briefs, we can request oral argument, which will be at the court's discretion. We expect the appeal process to take 12 to 18 months. If the court agrees with our arguments, the case will be remanded back to the PRC.

Speaker 1

Our appeal of the PRC's rejection of the stipulation maintains the progress we have made and retains our negotiated agreements with parties, which was an important consideration in filing the appeal and extending the merger agreement. The merger would create a stronger financial profile, but it does not change our strategic direction. My leadership team and I remain in place and are focused on the tasks at hand. During the appeal process, we will continue to manage our business successfully and deliver results. Dom will walk you through our financial plan, but I first want to touch base on some ESG highlights for 2021 on Slide 6.

Speaker 1

PNM's resource portfolio capacity moved to more than 30% renewable and 40% carbon free in 2021 with the addition of new wind resources. We are well on our way to achieving the renewable portfolio standards laid out in the Energy Transition Act. We also joined the Western Energy Imbalance Market in April of 2021. The regional coordination is designed to balance fluctuations in supply and demand by automatically finding lower cost resources to meet real time power needs. It maximizes the potential for renewable resources across the market by making excess renewable energy available to utilities at low cost rather than curtailing the resource to balance the grid.

Speaker 1

In Cal ISO's 3rd quarter report of Western EIM Benefits, the total avoided renewable curtailment volume for the 2nd and third quarters was calculated at over 132,000 Megawatt hours. Under the assumption that these avoided curtailments displaced production from other resources, the estimated result in carbon dioxide reduction is over 56,000 metric tons. And PNM's participation also provided $12,500,000 in customer savings over the 1st 9 months. As I mentioned earlier, we continue to advance support for electric vehicles with the approval of our first transportation electrification program for PNM customers. This comes on the heels of our announcement to shift more of our own fleet to EVs and we've also joined a number of our EEI peers to partner with the National Electric Highway Coalition to bring more charging stations to our nation's roadways so that the public can drive EVs with confidence across the country by the end of 2023.

Speaker 1

To continue our tradition of environmental stewardship, we have named our 1st Chief Environmental Officer at PNM. Maureen Gannon, who has been with PNM for 25 years, possesses an incredible knowledge base of the environmental challenges, achievements, regulations impacting our industry and importantly, the future opportunities being explored. She will continue to represent us at a state, national and global level as we work to achieve our goal for emissions free energy by 2,040 and will expand our ESG reporting. Lorraine will also lead our work on adjust transition, incorporating into our decision making the impact of the clean energy transition on workers and communities, particularly tribal communities. New Mexico's Energy Transition Act and PNM's plans to exit coal we're uniquely designed to consider these elements and we feel strongly that our core values of safety, caring and integrity are embedded within our business plans for this critical transition.

Speaker 1

Our communities depend on this and we take this responsibility seriously. Our community support extends throughout our business. Our teams in Texas demonstrated this support through several challenges in 2021. Winter Storm Yuri created a significant disruption in February when the storm hit. And in August, Hurricane Ida hit Texas and our TNMP crews assisted in the restoration efforts only to return home in time for Hurricane Nicholas hit our own service territory in September.

Speaker 1

But our team throws to meet these challenges. EEI recently recognized TNMP for their exceptional response to these events with both an emergency assistance award and an emergency response award. And in New Mexico, we have continued to provide financial assistance for customers impacted by COVID-nineteen and help them access partnership funding. More than $7,000,000 in cumulative assistance has been provided through these efforts. We care about our customers and our communities and we continuously walk the talk and demonstrate our core values in our business practices.

Speaker 1

So now let me turn it over to Don to walk through our financial updates.

Speaker 2

Thank you, Pat, and good morning, everyone. I'm going to pick up on Slide 8 and briefly touch on our earnings results for 2021. For those of you who are following us at Q3, you'll remember that we were ahead of expectations through September based on our original guidance provided for the year of $2.27 to $2.37 We continue that trend and finished off the year strong in the Q4 and are reporting preliminary earnings of $2.45 for 2021. Our increase in 2021 earnings was based on growth at the utilities. At TNM, FERC transmission margins increased due to the addition of new customers and higher utilization of our transmission system by third parties.

Speaker 2

Earnings also increased due to interest savings and higher realized gains from our decommissioning and reclamation trust. These increases were partially offset by planned increases in operational spending, higher depreciation and property tax expense, resulting from additional capital investments and milder temperatures in the second half of the year compared to 2020. At TNMP, T cost and D cost rate rider recovery was partially offset by higher depreciation and property tax expense from additional capital investments and planned increases in operational spending. At corporate, we had interest savings from the pay down of debt with the proceeds from the additional shares issued at the end of 2020 as well as lower interest rates in 2021. All of our detailed drivers are included in the appendix.

Speaker 2

Looking forward, I'll turn to Slide 9. As Pat mentioned, the merger process has not changed our strategic direction. And today, we are providing guidance for both 20222023 to give more detail around our projections while the merger is extended. 2022 earnings guidance is a range of $2.50 to $2.60 with a midpoint of $2.55 2023 earnings guidance is a range of $2.60 to $2.75 with a midpoint of $2.68 Both of these ranges are consistent with our expectations prior to the merger announcement and reflect continued execution of our plans. On a long term basis, we are targeting 5% EPS growth from 2020 to 2025.

Speaker 2

There is a growing need for T and D infrastructure to support safe and reliable growth on our systems and to integrate more renewables on P and E systems as New Mexico transitions to clean energy. Most of this rate base growth is recovered through FERC transmission rates and TNMP rate riders. Our 5% target assumes additional equity in our plans to fund this infrastructure growth, while maintaining our investment grade credit metrics. We also announced a dividend increase, which maintains our 55% targeted payout ratio on higher level of earnings, resulting in a 6.1% increase. Let's get into the details starting on Slide 10.

Speaker 2

We continue to see strong economic development activities in New Mexico in 20222023. VINAM will see the impact of industrial customers' expansion that we've shared in the past. An Amazon Distribution Center and Kairos Power, an engineering company focused on advanced reactor technology, both came online in 2021 and will provide a full benefit in 2022. Intel and the Meta Facebook data center previously announced expansions that are playing into our load projections, the offsetting fluctuation in PNM residential and commercial load due to COVID related business restrictions are expected to fully return back to pre COVID levels in 2022. In Texas, we also saw COVID trends reverse in 2021 as volumetric load decreased and demand based load increased.

Speaker 2

Moving forward, we expect volumetric load from residential customers to increase 1% to 2% in 20222023 consistent with customer growth. We continue to see good levels of new service requests and interconnections for new resources in Texas, and we expect demand based load to increase 2.5% to 3.5%. Now turning to Slide 11 for our capital investment plan. We continually evaluate our capital needs to ensure safe and reliable service for our customers. We have increased our capital plan by $500,000,000 to $3,500,000,000 with additional T and D investments required to serve economic growth we are seeing in both our PNM and TNMP service territories.

Speaker 2

At PNM, this incorporates the investments that are designed to deliver clean energy, enhance customer satisfaction and increase grid resilience. Far beyond replacing aging infrastructure, we'll reconfigure substations and lines to accommodate growing amounts of intermittent and distributed generation and expand capacity in areas where they have been approaching maximum capacity. These investments will directly serve customers with a focus on growth, reliability and outage restoration and will integrate evolving technology to provide long term customer value. In Texas, the concepts are the same and we continue to see strong growth in our service territory. Load growth and new ERCOT resources drives the need for investments to ensure safe and reliable service.

Speaker 2

These investments include distribution feeder extensions, transmission interconnections and future transmission expansion. TNMP has interconnected 13 battery storage facilities through 2021 with several more inquiring about interconnection service along with inquiries from large scale solar developers. On Slide 12, these investments result in a 7.7% growth in rate base from 2020 to 2025. At PNM Retail, growth in these new investments offset the reduction in rate base over the 5 years from our exit of coal generation. The transition to clean energy will result in customer savings that help offset the impact of these new investments and keep customers' rates affordable.

Speaker 2

FERC rate base grows at a compound rate of 21% during this period with the recent addition of Western Spirit. TNMP grows at a rate of 16%, more than doubling its 2020 rate base by 2025 and approaching the same level as PNM Retail at $2,500,000,000 As FERC continue to grow, we improve and diversify the regulatory risk across our business. Turning to Slide 13, let's look at 2022 guidance. At PNM, the addition of Western Spirit Transmission Line is a significant year over year earnings driver as we begin to recover on this investment through an incremental rate on day 1. Growth from other transmission investments recovered through our FERC formula rate and load growth will also increase earnings over 2021 levels.

Speaker 2

These will be offset by higher depreciation, property tax and interest supporting new capital investments. Our reclamation and decommissioning trust benefited in 2021 from strong market conditions and we have assumed those return to prior levels in our 2022 guidance. At TNMP, 2022 guidance increases primarily from rate relief with our 2 semi annual transmission filings and our annual distribution filing to recover capital investments. The depreciation, property tax and interest expense from those investments partially offset those revenue increases. Corporate is flat as higher interest expense is offset by the benefit of a higher effective tax rate on losses in this segment.

Speaker 2

These drivers result in an overall increase to our expected earnings in 2022 to a midpoint of $2.55 compared to $2.45 earned in 2021. Now let's turn to Slide 14 for 2023 guidance considerations. As we invest in T and D infrastructure, approximately 75% of growth in our rate base is recovered through our existing FERC Formula rates or TNMP rate riders. These rate regulatory mechanisms provide for increased earnings in 2023. At the end of retail, we will look to file a rate case before the end of the year to recover T and D investments and reflect our transition out of coal generation with the retirement of the San Juan coal plant.

Speaker 2

20222023 guidance includes our plan to issue up to $200,000,000 of equity financing over the 2 years, which we could do in different ways. We will look to implement an ATM program to have this option available and this helps preserve flexibility around timing and the pending merger, while funding capital investments and maintaining our investment grade credit metric. We will provide the segment breakdown of 2023 guidance and the detailed EPS drivers as we near the end of this year. On Slide 15, I'll wrap up with our dividend. As you can see on the slide, we continue to grow the dividend to reflect growth in earnings and also move up into the midpoint of our 50% to 60% payout ratio.

Speaker 2

Our Board increased the common dividend to a target of 55 percent payout ratio on our guidance midpoint for 2022 earnings. That first quarterly dividend will pay out later this month, and the Board will address the annual dividend again in December of 2022. With that, I'll turn it back over to Beth.

Speaker 1

Thank you, Don. I'll wrap things up on Slide 16 before turning it over to questions. We remain in the merger agreement with Avangrid and will continue to pursue this path. At the same time, our teams remain focused on carrying out our business plans and achieving our goals and financial targets as a standalone entity. Our goal to achieve emissions free energy by 2,040 continues to be one of the most progressive goals in the country, and we are not taking our foot off the electric vehicle pedal as we leave New Mexico in its clean energy transition.

Speaker 1

Critical infrastructure is required to support this transition, reliably support growth and improve grid resilience. We will continue to focus on T and D investments in our business plan, while being mindful of customer affordability. And we will continue to focus on earning our authorized returns and financing these investments to maintain investment grade ratings and a strong corporate profile, enabling us to carry out our values as a trusted partner in our communities and continue to enhance customer satisfaction. Thank you for being here with us this morning as we continue on yet another chapter of our journey. And we hope you agree that it did all come back to us now.

Speaker 1

With that, Kate, let's open it up for questions.

Operator

We will now begin the question and answer session. The first question is from Julien Dumoulin Smith of Bank of America. Please go ahead.

Speaker 3

Hey, team. It's fun to connect again.

Speaker 4

I hope you

Speaker 3

guys are doing

Speaker 4

well. Thanks,

Speaker 1

Glenn. Thanks.

Speaker 4

Yes. Absolutely. Always a pleasure. Listen, just on the financing plan, as we think about the standalone business for the time being, how are you guys thinking about the couple of 100,000,000 here in terms of converts or block. And then thinking about just timeline relative to the deal, it seems as if perhaps a little bit of a step down in the earlier equity financing quantum you contemplated earlier, if I'm reading the messaging correctly.

Speaker 4

But I just wanted to understand sort of how this fits with the time line for the deal and to what extent that the deal would impact us?

Speaker 2

Hey, good morning, Julian. This is Don. Yes, I mean, we will look to issue up to $200,000,000 in 2022 or 2023. We'll continue to optimize that. Part of that could be an ATM program.

Speaker 2

We would also look at a potential block of selling common equity or forward common equity to facilitate that. So but the timing, I mean, obviously, we'll look to optimize that between 2022, 2023. We've built that into the ranges that we've provided.

Speaker 4

Got it. Okay, fair enough. And then just as we think about the near term here with FIN1, can you comment on just the backdrop on resource adequacy? How do you think about the timeline for that plant's closure against the wider hit story in the West? And perhaps you can maybe recap, there's probably a better way to ask it, your resource planning through the course of

Speaker 5

this summer and

Speaker 4

onwards against the planned retirement?

Speaker 1

Yes, absolutely. The plan was the San Juan plant was scheduled for retirement on June 30 this year. The replacement power that the commission approved was all purchase power agreements. Our developers actually last year started providing notice that they could not meet the deadline. As you all know, there's supply chain issues, etcetera, etcetera.

Speaker 1

So we gave notice to the commission that we're working to fill the resource gap. We've got several options. We could keep the plant open a few months longer. We are looking at market purchases. I have an 11x17 sheet of every option that we are going over and we are close to finalizing that and then we'll make an announcement on what we're going to do in the next couple of weeks.

Speaker 1

But I could assure you, we do have the resources covered for the summertime. But you got it right. It's a West wide problem. And actually, if you look at what's going on globally, it's a global problem. But we are fortunate that we're going to be able to cover.

Speaker 4

Got you. Thank you for that. And then if I can, this is probably a trickier question. Just how do you think about next steps on 4 quarters here? Again, I guess that there's a lot of interlapping issues here.

Speaker 4

But how do you think about just maybe the timeline on that plant at this point, maybe the best way to tackle that?

Speaker 2

Yes, Julian. So I mean, obviously, the commission went against the hearing examiner's recommended decision to abandon that on December 15. Under the EPA, we have 10 days to file a notice of the bill. We filed that on December 22. We provided our statement of issues on January 21.

Speaker 2

And we're really waiting for the Supreme Court to kind of set the timetable and it will follow the similar timetable that Pat laid out for the merger, which is the 45 days brief in chief and then we'll kind of run through the process. We would expect an appeal process to take 12 to 18 months to work its way through that process. I mean there were 2 issues in there. We feel strongly that the ETA supports those. One of them was requiring specific replacement resources.

Speaker 2

We addressed that clearly and the EPA allows the ability to be able to bring those in a little bit later and we provided a good plan in that. The second element was a preensure review. And if you remember back, we ended up, as part of the hearing examiner's order, moved the filing from January 2021 to March to specifically address Brundancy in that arena. So that's the path it will go. The EnTech agreement, which is kind of the underlying agreement that you're referring to, will stay in place.

Speaker 1

And the seasonal operations agreement remain in effect during the appeal also. So it will keep running, so.

Speaker 4

Right. Yes. Sort of you've got a lot of balls in the air around this and hopefully get some resolution here. I mean, just if I can, on this rate case, just to make sure I understand what how that fits as well. You're saying that you're going to file potentially at the end of '22 here.

Speaker 4

How does that fit again with this deal approval that I suppose will be coming subsequent to that. Again, I get it sort of a tricky backdrop to operator, but what's the expectation here given the stipulation requires staying out till the beginning of December? Considerably, you'd be filing them.

Speaker 2

Yes. I think the concept, Julian, is we will look to file a rate case before the end of the year, which is aligned with the stipulation that you're referring to, which had a December 1 time table. But we will look to file that. If you remember, we haven't been in we haven't filed a rate case since 2016 and grades went into effect in 2018. So there's a window there.

Speaker 2

We delayed it in 2020 due to COVID and also delayed it because of COVID. So we're at a point we need to move forward with the rate case.

Speaker 1

Julian, where's the full employment act for lawyers around here? So we're keeping everybody busy.

Speaker 4

No kidding. And it's been an impressively long time to see out of a trade too. So I hear you. It's about time. Anyway, best of luck.

Speaker 4

We'll see you soon.

Speaker 2

Thanks, Julian. Thanks, Julian.

Operator

The next question is from Ryan Levine of Citi. Please go ahead.

Speaker 5

Good morning.

Speaker 2

Good morning, Ryan. Good morning,

Speaker 5

Ryan. Given the pending merger agreement, what are the options for the Board to address the dividend in December 2022? And can you provide some color around how the pending merger agreement would factor in to this decision making process?

Speaker 1

Yes. Actually, the merger agreement now allows us to issue or to increase the dividend in December of 2022 if the Board shows if the Board so chooses, which you saw, we just increased it for this year and the Board has that option for 2022 to increase it for 2023. Don talked about equity issuance and financing. So we have all of the things that we need to run our business as a standalone. As I said, we still think the merger is absolutely the right thing strategically for the company and our customers and our employees and our communities.

Speaker 1

But we are able to run the business. And so if for heaven's sake something happens and the merger wouldn't go through, we'd be in a good shape as a standalone.

Speaker 5

Great. And then on the merger itself, is the Supreme Court required to hear the appeal and assign it to the general calendar? And if so, is there any timeline around when the decision would be made to decide when the process would start?

Speaker 1

There's no requirement that any Supreme Court take a case. But I'm trying to remember, I can't remember a case that they haven't taken on the utility side. And this one is obviously one of the biggest decisions that the commission has made and impacting the state. So while I never want a front run-in court, it seems likely that they will take it. There's no time frame for them to stick it on their calendar, but I would imagine it will go on pretty quickly.

Speaker 1

As you know, they're pretty busy with cases. El Paso Electric has one there, SPS has one there and we've got a couple there. So they've got a busy docket, but I think it's highly likely that they will hear this one.

Speaker 4

In the 12 to 18 month guidance

Speaker 5

around that process, does that incorporate an estimate of when the process would really start? Or if you sense that this gets delayed given the demands on the calendar for the Supreme Court, kind of how does that play into this?

Speaker 1

Yes. The 12 to 18 months is based on historical timelines and how long it takes the Supreme Court to get to things. So that would that timeline does incorporate sort of a time estimate of how long it would take to get to the calendar. We don't break that out specifically because it can vary, but 12 to 18 months is the historical range it would take for a case.

Speaker 5

Okay. And then on the capital investment plan in the prepared slides, you've highlighted additional $500,000,000 to the investment plan. What is that comprised of? And is there a way to provide a little more color or granularity

Speaker 4

on what that additional 500,000,000

Speaker 2

dollars Yes. Some of it relates to the additional industrial type customers that we have coming on, plays a part of it. Part of it is kind of moving in our grid modernization elements and dealing with our substations and improving those. We continue to get more and more DG on the system and our systems were designed back in the 1960s 70s. So some of these substations need to be told to really help and support the liability related to the intermittent cycle of renewables.

Speaker 5

Okay. And on the financing plan, the up to $200,000,000 of equity content, Kind of what's the determinant factors on where in that range you could see yourself falling, consuming that the company into the standalone business?

Speaker 2

Yes. Ryan, I'd leave it at I'll say about 200 $1,000,000 So I mean, I think that's really what our focus is, is we could go up to that $200,000,000 Okay.

Speaker 5

And then last question for me. Maybe just to provide some context around what prompted me engaging the investment community in an earnings call and guidance? And should we expect more regular earnings calls as this as the transaction process proceeds?

Speaker 1

Yes, Ryan. We were missing our opportunity to celebrate days and put funds in our earnings script. Now I'm being facetious. But as we said, we believe that the merger will ultimately consummate, but we want to make sure that everybody is informed of our business plans and that we are running this as a standalone entity during this process, so that no matter what happens, we're a strong healthy company in good shape and we think that communicating with our investors and our analysts and our other stakeholders is a great way to be transparent about what's going on.

Speaker 2

I appreciate it. Thank you. Thank you. Thanks, Ryan.

Operator

The next question is from Ashar Khan of Varitian. Please go ahead.

Speaker 6

Hi, good morning. How are you guys doing? Good morning. Good. So my first question is on the financing side.

Speaker 6

So if I'm right, the share count in your assumption for 20 22 is the same as for 2021, right? You gave the share count, correct?

Speaker 2

Yes, we did.

Speaker 6

Okay. And then so my question is why would you do straight equity? Why wouldn't you do a convert? Because a convert would give you the ability, if the merger happens and all that, to buyback or something like that. And so from an investor point of view, I don't understand the rationale of doing claim equity as we are in this uncertain period and where you have full faith that the merger will close.

Speaker 6

I just don't understand why dilute your current shareholders by doing this. Why not do a convert, which you can buy back and have more optionality in it if the merger does go through?

Speaker 2

Yes, a couple of things. I'm not sure I fully follow the diluted to dilute the additional shareholders because the mandatory would flow through anyway and the price, the fixed price on the merger set to pay that price would be one element, Asher. The second element is, we're always very focused on our investment grade credit metrics and the importance to keep the company able to continue to grow. And so the common equity provides 100 percent equity credit versus mandatory convertibles that oftentimes only give you 25% equity credit. So it's a combination of both, continuing to look to grow our investment portfolio from that perspective, as well as ensuring that we have the investment grade.

Speaker 6

Okay. I hope you as you said, you really require it over a 2 year period that this decision is taken to the latest rather than earlier, right? It should really be a 2023 event unless you have some liquidity concerns this year. So I hope you are mindful not to dilute us and do anything until we are much further along in the process to have some more, I think. 2nd, if I want to get on the regulatory side of the approval of the merger.

Speaker 6

So as you kind of pointed out that we have 18 months for the Supreme Court to come up with a decision. So what is the how are you preparing so if they come up with and go against us, are we planning to file a new approval process in front of the new commission next year? Can you elaborate how do we get through the merger approval process in case the Supreme Court denies or goes against us in that decision?

Speaker 1

Well, I think the first thing we would have to do is see why the Supreme Court denied it and see what the record is. And then based upon that, we would make a decision. So I think it's too early to speculate what we would do if that happened. If it would happen, we'll get right back to you with what we do, but I don't want to speculate.

Speaker 6

Okay. So you're going to wait till the Supreme Court decision and then form us what the next step is. And of course, we will have a new commission by then. Okay. And then Pat, my last question, if I may ask is, if you look at the takeout price and we look at our $2.55 we are still trading at a discount to the average multiple.

Speaker 6

So can you tell me how the Board came up decision to continue this merger because there's a lot of PV value lost by engaging in a suitor for such long period of time and also taking out options. And the price doesn't seem to be very attractive if we look at it on where multiples are trading this way and you kind of like to the takeout, you basically floored the expectations of people. So I just want to ask apart from the strategic that you mentioned and all that, from a financial perspective, how did the Board justify this as being fair and reasonable to extend the

Speaker 1

strategic. I know you only want to talk about the financial, but you've also got to think about the strategic benefits and the Board unanimously believes that the merger agreement continues to have significant benefits for shareholders and we can't forget about our customers and our communities and our employees. The transaction price still represents a significant premium at this point and shareholders are also continuing to receive a dividend at a higher dividend rate. And we also wanted to retain the progress that we already made in the other approvals received in the agreement with the parties in New Mexico. Changing the transaction price would have been immaterial, could change as construed and the new merger agreement would have required approval in Texas.

Speaker 1

And we need to start the process over and the commissioners. So, both strategically, it made sense and financially, it's still an attractive price and you get a higher dividend. So that was their thinking.

Speaker 6

Okay. Okay. Appreciate it. Thank you so much.

Speaker 2

Thank you, Asher.

Operator

The next question is from Vedula Murti of Hudson's Bay Capital. Please go ahead.

Speaker 3

Hello, good morning.

Speaker 2

Good morning.

Speaker 3

A lot of what I've been asking, I guess, is there any way for you to engage the regulatory process to address the issues that are contained within the appeal, independent of the green band or having to wait for the Supreme Court to come back to you like on an individual topic basis or it's all like one big package?

Speaker 1

No, you once that you filed the case at the Supreme Court, the commission loses jurisdiction over it. And we couldn't talk to them about a case that might come back because it would be considered ex parte. There is a time in the Supreme Court process where you can ask for a mediation, and we might be able to do it then. But we can't violate the asparte rule, so.

Speaker 3

So you can't like cherry pick items and basically start a pocket of some type to try to resolve those while the appeals pending? No. Okay. In the extension to April of 'twenty three, you came up about the dividend. Can you tell us any other changes that were made as part of the extension that benefits either the company or the stakeholders such that it helps justify in addition to all the factors you listed to continue the process?

Speaker 2

Yes. The amendments that we made were driven primarily by allowing us to run the standalone business. So they were dividend financing elements that we would need to facilitate the standalone business. So a lot of that flexibility.

Speaker 3

So it really does come down to their spring quarter remains it or if they reject it, you let them decide whether to come up with a brand new agreement and start all over it?

Speaker 1

Yes. With that, the Supreme Court remains it or if we decide, we would have to decide whether or not that was the right thing to do for the company at that time.

Speaker 3

And can you remind me, you did come up with this as any breakup fees or whether it was simply lack of regulatory approval, so there is nothing and the amendments that you made to extend this, there is nothing tied to the or to any of the rates like that?

Speaker 1

No. Well, regulatory related breakup fee is only attainable if the merger agreement were to be terminated and Avangrid was in breach of its obligations under their merger agreement with respect to obtaining that approval. Regulatory related breakup fee is not solely payable due to the failure to get regulatory approval.

Speaker 3

Okay. Thank you very much.

Speaker 1

And Kate, before you give me the next question, Ryan or Julian, whoever I answered your question about whether or not the Supreme Court has to hear the case, The reason they've heard them all is because they do have to hear them. So my apologies, I gave you a wrong answer on that. My great team corrected me. Katie, go ahead with the next question.

Operator

Okay. The next question is from Andy Levi of Hite Hedge. Please go ahead.

Speaker 4

Hi. Can you guys hear me? Yes, Andrew. Good.

Speaker 1

No problem.

Speaker 4

So just to kind of piggyback on some of this other stuff. So I guess what I'm just trying to figure out, Pat, is so you extend the agreement. There's not a higher price. We could debate back and forth if we're not going to I'm not thank you if you want to call today, whether the deal itself is better for customers or not. But if we were a shareholder, I'd be pretty upset because basically, you put a top on the stock.

Speaker 4

And based on the guidance that you gave today and where the group is trading and what the group has done since you announced the merger, the stock is a $50 stock kind of standalone, give or take $0.60 Again, that's my valuation, but looking at pure values and everything on a relative basis. So stock is trading 45. How can you kind of justify how can you or the Board justify this deal for shareholders and the timeframe that needs to wait? I mean, we really quite honestly, the unlikely word that the Supreme Court's going to amend it back to the commission. I understand that we'll have a new commission in January, and maybe that's the ultimate play, but that still gets you 2 years out almost.

Speaker 4

So it's a long time to wait to capture value that probably if there was no deal, the value would be there tomorrow?

Speaker 1

Well, and just remember the Board, we're all shareholders. Probably the largest individual shareholder in the company. So, we obviously think it makes sense for shareholders. You're right, we could debate on a price, but we won't do it here. It has those benefits.

Speaker 1

It's a premium at this point. You get a higher dividend. And we still believe, Andy, that this is the right thing to do for the company in the long term. We need that bigger balance sheet. We need access to technology expertise that as a company we are just too small to have.

Speaker 1

They're going to enhance our cybersecurity abilities. There's just a lot of benefits in there that make it a good deal. Think about employees, for example, right? A lot of our employees are really excited for the opportunity to rotate around in a bigger company. And in a time when keeping employees is difficult for everybody, having that excitement and that optionality for employees is key when you're running a business.

Speaker 1

So there are just there are lots of factors in there, and I understand you disagree, and that's the great thing about America. But it just makes sense financially and strategically.

Speaker 4

Financially, someone who could be a potential shareholder, it makes you a investment because you try and value the money. Yes, I understand the dividend. But I think the main point that I'm just going to leave it alone, but I want to get it out there. The stock would be a $50 stock without the deal. So you should have taken a higher price.

Speaker 4

If you turn it, you would have taken a higher price, then with no argument, right? Because it's time value of money. So we didn't take a higher price. It just makes an estimate. But I just want to get that out there, but something that will be positive and I want to leave it out there publicly.

Speaker 4

But I appreciate your comments and I appreciate your view. Thank you very much.

Speaker 1

And thank you, and I appreciate you not being shy and bringing it out. So we do appreciate that.

Operator

And the last question is from Paul Fremont of Mizuho. Please go ahead.

Speaker 7

Thank you very much. I actually want to go back to one of your older slide presentations. You had initially planned on issuing a convert of between $250,000,000 $300,000,000 in the Q4 of '21 that would have converted in 'twenty four. So when I look at the $200,000,000 of equity that you're issuing in 2022 and 2023, how should I think of that as being a part of what you would have issued under the convert through 'twenty four? Should I think of that as incremental to that equity that you talked about in 2024?

Speaker 7

Or should I think of it as you now defining a lower equity need than what you would have otherwise issued?

Speaker 2

Thanks, Paul, and appreciate the question. Yes, the original $250,000,000 mandatory convert was to facilitate the Western Spirit transaction. We did close on that transaction. And I think the way to think about it is, it's 200,000,000 dollars between 2022 and 2023. We did add additional capital in, dollars 500,000,000 over the full year window as well too.

Speaker 2

So that's what our equity need is in 2022 and 2023. So I think you can take the mandatory convertible that was assumed in the previous slide off and that's the equity we'd be looking to issue in 2022 and 2023 is up to $200,000,000

Speaker 7

So if you were not to merge with Avangrid, you would have no equity need in 2024?

Speaker 2

No, we haven't specifically identified needs beyond 2023, but of course, the outcome of the merchant will play into that, Paul. We do remain committed to investing in the business while maintaining our investment grade credit rating, which is absolutely critical. And our commitment to hit the 5% long term target in 2022 to 2020 to 2025 factors what we will need in during that period of time.

Speaker 7

Okay. And then I think if you go back to sort of that timeframe, you would initially talk about a 5% to 6% targeted EPS growth rate. Is the equity issuance that you're planning to do in 2022 and 2023 the principal driver of that now being 5% instead of 5% to 6%?

Speaker 2

Correct, Paul. The underlying plan has continued. In fact, we've added capital associated with it. But the underlying plan, the business model that's there is Jade, so it's driven by the equity itself.

Speaker 7

Great. And then I guess what based on sort of what you need the hoops that you need to jump through, what type of a timeline are you assuming that the merger would ultimately be consummated in if it were to be approved?

Speaker 1

Well, we extended the agreement until April next year, Paul, with the 3 month optionality. So that would be our hope.

Speaker 7

And is that I mean, I guess from what you're saying, if the courts decide in your favor, it gets remanded back to the commission and then you would hope in other words, I guess, I'm trying to figure out what would be sort of the best case outcome in terms of merger scenario. That the court rules in your favor and then then the commission basically adopts an amended decision that approves the deal. Is that sort of the is that the best case?

Speaker 1

Yes. I'd say it's a Paul, because we would hope it would be on the shorter side. And if you get the chance to read the statement of issues, it's pretty clear what they are, and they're all based on really points of law. And then the reason that we're keeping the merger agreement intact, right, with the stipulation is that, that could be approved easily. The record is already there, so you don't have to establish a new record.

Speaker 1

And that makes it simpler and quicker.

Speaker 7

Okay. And then conversely, last question for me. If the court were to decide not in your favor, then what would be your options?

Speaker 1

Well, but as Paul said earlier, what we have to do is take a look at why the court decided and what their record was. And then we would have to assess whether or not we felt it made sense to renegotiate and file again. We just have to wait and see on that one. Okay, great. That's it.

Speaker 1

Thank you. Thank you, Paul.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Pat Vincent Callan for closing remarks.

Speaker 1

Thank you, Kate, and thank you all for joining us this morning. We hope that you all remain healthy and safe and that we're actually able to visit with you in person in investor conferences and other events in 2022. Thank you all so much.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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