Preliminary Q4 2024 PNM Resources Inc Earnings Call
Participants
Lisa Goodman; IR; PNM Resources, Inc.
Pat Vincent-Collawn; Chairman & CEO; PNM Resources, Inc.
Don Tarry; President & COO; PNM Resources, Inc.
Lisa Eden; CFO & Treasurer; PNM Resources, Inc.
Julien Dumoulin-Smith; Analyst; Bank of America Corp
Anthony Crowdell; Analyst; Mizuho Securities USA LLC
Ryan Levine; Analyst; Citi Research
Paul Fremont; Analyst; Ladenburg Thalmann & Co.
Presentation
Operator
Good morning, and welcome to the PNM Resources 2023 earnings call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Lisa Goodman with Investor Relations. Please go ahead.
Lisa Goodman
Thank you, Elena, and thank you, everyone, for joining us. This morning for the PNM Resources 2023 earnings call. Please note that the presentation for this conference call and other supporting documents are available on our website at PNM Resources.com. Joining me today are PNM Resources, Chairman and CEO, Pat Vincent-Collawn, President and Chief Operating Officer, Dan Terry, and Senior Vice President, Chief Financial Officer and Treasurer, Lisa easy.
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 K, quarterly reports on Form 10 Q as well as reports on Form eight K filed with the SEC.
With that, I will turn the call over to Pat.
Pat Vincent-Collawn
Thank you, Lisa. Good morning, everyone, and thank you for joining us today on pay a compliment day. So even though I can't see any of you, let me just say that you are all looking really good this year. I'm going to get started on slide 4. Some of you may be joining us for the first time or possibly the first time in a few years since we announced our merger. While we were disappointed with the outcome. We have continued to advance our standalone business strategy to invest in the infrastructure needed to meet customer needs, enable the clean energy transition and diversify our rate base.
Yes, we're still standing and we're better than we've ever been in the energy transition, along with customer needs for reliability and resiliency results in substantial growth for our utility businesses. The continued increase in infrastructure needed to serve customers will more than double our rate base from 2020 to 2028. We have been improving the diversification of our rate base, prioritizing capital to make significant investments at TNMP to support the continued high growth in that service territory. These are recovered through the capital riders in place through the Public Utilities Commission of Texas at PNM, an increase in transmission investments also benefits for customers and are recovered through the formula rate. As a result, more of our investments are recovered through these recovery mechanism that were designed to encourage these investments over time. We've moved our TNMP and first rate base from a combined 31% back in 2018. So now more than 50%. And yes, you've heard that right, TNMP and for rig rates are now over half of our consolidated rate base.
Turning to slide 5, consistent execution of our plans has resulted in a strong track record of achieving our financial targets. We remain flexible, responding to changing conditions each year and making adjustments to stay on track. We hold ourselves accountable to delivering results. We have achieved 6% earnings and dividend growth since 2019 and are positioned to continue this trajectory even in the current market environment.
And lastly, I'm still here and the team is still here, and we're focused on continuing to deliver our plans to customers, communities and shareholders. Both Dan and Lisa have been at the company over 20 years and have helped shape the course we've been charting. We had a strong financial financial profile three years ago, and with our increased diversification, it is even stronger today.
Now turning to Slide 6. We are reporting ongoing earnings today of $2.82 for 2023, once again ahead of expectations. While some pieces of our recent PNM rate decision were disappointing. The questions around recovery of our legacy generation assets are resolved, and we now have a clear path going forward from a 2024 base. We are targeting 6% to 7% earnings growth through 2028. This is based on a 10% rate base growth over the same period. And Lisa will walk you through our financing assumptions in the earnings power slide. I know how much you have all missed that slide in it. Our 2024 guidance incorporates the PNM rate decision in our range of two 65 to 75. Dan will talk more about our regulatory plans moving forward. But before that, let me provide a quick update on our sales of New Mexico renewable development or NMRD. We are still on track to close this month. Our net proceeds are anticipated to be 150 million to reflect our 50% ownership share in the entity as we monetize the cash flows from this unregulated business.
With that, Dan, I'll turn it over to you.
Don Tarry
Thank you, Beth, and good morning, everyone. I'll pick up on Slide 8 with more on our investment strategy at TNMP. The continued high growth across our three service territories in Texas requires substantial infrastructure investments to support customer growth and grid reliability for existing customers. Economic growth across the state continues to push the demands on our system to new levels after steady new system peaks. Over the last few summers, TNMP has already seen a new peak in 2024 as cold temperatures in January have pushed the system demand beyond the record-setting levels of last August.
Additionally, in response to concerns about extreme weather events and grid conditions. The Texas legislature in 2023 passed a series of bills aimed at encouraging investments to enhance grid reliability and resilience, which I'll talk more about in a minute. Our service territory is scattered across three distinct areas of the state, North Central Texas, the Gulf Coast and West Texas. Each of these three areas has different industries in their economy, which means our growth is well diversified as the larger metropolitan areas in the state continue to grow. These economies have been extending out further into our service territory.
Turning to Slide 9. The regulatory framework in Texas also strongly encourages investments into the grid by providing timely recovery through rate mechanisms outside of general rate cases to minimize regulatory lag on the transmission side, the transmission cost of service or TI cost mechanism has allowed for CMI annual filings for several years. Tnmp has already made their first filing in 2024 in January request requesting recovery for an incremental 97 million of transmission rate base. We expect to follow our usual pattern and file again in the second half of the year.
On the distribution side, this will be the 1st year at TNMP expects to make two distribution cost recovery factor filings. Our DCRF filings after semi annual filings permitted where permitted through legislation last year. Recovery under the DCRF continues to require an earnings monitoring test to prevent over earning on the year end rate base, which we will file in the spring. We will then make our first filing in the second quarter and our second in the fourth quarter of this year. The regulatory clock on these filings has also been shortened to be similar to the transmission side with an advanced notice period for customers and then a 60 to 75 day period for commission review. We also expect to make our first resilience plan filing this year under the new rules implemented the legislature passed last year. An independent evaluation and development of a system resiliency plan covering three years is required in the filing under the rules, we may choose to recover the associated cost to capital investments under the existing T cost or DCRF. rules deferring depreciation on assets until recovery begins, we have estimated 450 million of projects in our current investment plan that could be part of our filing. The rules also allow for recovery of certain O&M costs like vegetation management expenditures that exceeds the amount authorized for recovery in our base rates. There is a 180 day clock for these filings, and we would make our filing this summer and expect recovery to begin in 2025. Some additional items that were passed in last year's legislative session are working their way through the PUCT rules, we continue to believe temporary mobile generation will play an important role across each region of our service territory, assisting TNMP and restoring power to distribution customers. After a significant event we have not included any potential amounts related to this need in our current capital plans.
In regards to the legislation on West Texas transmission planning, the PUCT has required Ercot to file a reliability plan no later than July of 2024. And after an opportunity for stakeholder feedback, we would expect the Commission to review and approve a reliability plan for the Permian Basin, which could lead to additional investment needs. Another law shortens the time frame to consider applications for certificates of convenience and necessity or CCN for the new transmission across the state to further encourage new transmission development. Tnmp recently gained approval for a couple of projects in December and January that were reviewed and approved under the shorter schedule than we've seen historically, as the commission moves closer to that six month clock legislation was also implemented to allow for recovery of total employee compensation. And while this is not material to TNMP's bottom line, we would plan to include these costs in the future under a general rate review filing. In total, these mechanisms provide TNMP the opportunity to earn our authorized return and we will likely see additional investment opportunities in the future currently not included in our capital plan.
Now turning to PNM on Slide 10. Our investments at P & M are similar in that they're focused on customer driven T&D projects to strengthen the grid. Pnm hit a new system peak in 2022 and in 2023 after not seeing one in nearly a decade. Clean energy mandates in New Mexico over the next 20 years will require additional transmission resources to integrate a growing amount of intermittent renewable resources on the system the transition to clean energy has also led to some economic development wins for this date, including Maxeon Solar first US manufacturing facility being built in Albuquerque, grid modernization investments for utilities across the state are also being considered at the commission level.
Now under rulemaking prompted by legislation, we have reduced the amount of capital investments into generation resources substantially over the last decade to support lower cost for our customers. The renewable resources chosen to replace our San Juan coal plant and our power already leased capacity were secured through renewable and storage purchase agreements. We do think there is an operational advantage to having utility ownership of battery storage on our system as we have more control and how the resources cycled to support our customers' patterns of use with the passage of the IRA utility ownership on a cost basis has become more competitive. And we currently have a proposal in front of the commission for storage through utility ownership and the capital for their own storage is in our plan. Otherwise, our generation capital supports our existing fleet of resources that provides overall system or a liability to our customers.
Turning to slide 11, the rate-making structure in New Mexico provides the opportunity to earn our authorized return through the use of a future test year and specific riders such as the fuel clause generation and distribution system costs are completely tied to serving our retail customers and are recovered through a general rate review mechanism. Our transmission system is used to serve both retail customers and for transmission customers that are moving energy across our system. And those costs are allocated between the different sets of customers based on utilization of the system. First, transmission costs are recovered through a formula rate, which allows for an annual filing to update the system utilization and corresponding rates for the customer. In the past several rate filings. The most controversial issue has been recovery of our generation resources in the general rate review decided last month the commission resolve the remaining generation transitional issues that date back to decisions made by the prior commission in 2016. The decision in this case resolved those issues and allows the focus to turn towards a forward-looking solution of grid modernization and resiliency investments that are required as we transition to carbon-free while providing value to our customers. Our application for distribution level battery storage did not have any opposition from an intervenors and was approved by the commission for recovery in 2024 rate change. We received recovery in this case for over 2 billion of incremental investments and approval for 97% of our requested O&M costs. Our fuel clause was also approved for continuation. Another application currently in front of the Commission proposes grid modernization investments, including smart meters and other distribution level projects designed to empower customers and laid the groundwork for a more resilient grid. We expect a decision on this case by the third quarter. We also expect a decision this summer on our proposal for new resources in 2026, we have put for 350 megawatts of solar and storage purchases, along with a 60 megawatt utility-owned battery recovery for any new resources approved in this docket that cannot be included in our fuel clause would be also part of our next rate case filing. We have a couple of upcoming filings on our agenda, we will make our annual filing associated with our first formula where we expect to see increased utilization of transmission system by first customers based on new contracts. We also plan to make our next rate retail rate filing this summer for rates that would become effective in the third quarter of 2025 so far, and we'll use a future test year ending partway through 2026, and we assume a 13 month regulatory clock on Slide 12. After taking into account these changes, the average residential bill at PNM is significantly lower than both our regional and national average. The Energy Transition Act is achieving its goals for customer benefits as we exit coal, we are seeing load growth to reduce the pre for customer impacts and our fuel costs have been significantly reduced by our participation in the Western Energy Imbalance Market and its optimization of renewable resources. We have also exercised discipline in our O&M costs and are focused on initiatives that provide direct benefits to customers.
With that, I will turn the time over to Lisa to walk through the financials.
Lisa Eden
Thank you, Don, and good morning, everyone. Outside of the slide 14, with a summary of the year-over-year changes in 2023 earnings. As Pat reported earlier 2023, ongoing earnings are $2.82 per share, a 13% increase from 2020 to load growth and weather added to PNM and TNMP combined earnings on a year-over-year basis at PNM lower operating costs as we transition our generation portfolio to carbon-free energy and higher transmission margins, driven by increased usage of our system, increased earnings year over year, continued rate recovery of transmission and distribution investments at T & MPRT. costs and DCRF filings increased earnings. These increases were partially offset at both utilities by expenses for depreciation, property tax and interest associated with new rate base investments. Lower earnings at corporate reflect higher interest rates year over year, partially mitigated by the hedges we've previously put in place detailed segment-level drivers can be found in the appendix of today's presentation.
Slide 15 provides an overview of our financial outlook. Our guidance for 2024 is a range of $2.65 to $2.75. I'll walk through the drivers of 2024 earnings compared to 2023, along with our estimated quarterly earnings distribution.
I'll then move into our capital investment plan, which has been carried out through 2028 and reflects rate base growth of 10% and our financing plans to support these investments.
And then I'll carry those assumptions forward into our earnings power slide showing the earnings potential of our business through 2028.
Lastly, I'll recap our dividend and payout ratio based on the increase announced in December.
Let's get started on slide 16. With 2024 guidance, we are introducing a range of $2.65 to $2.75 for 2024. At PNM, our recent rate case outcome has $0.12 to year-over-year earnings. Keep in mind that going into this case, PNM was able to earn its return by offsetting the regulatory lag on new investments made since 2018 through the energy transition, we expect that we expect to earn our authorized return in 2024 since new rates have trued up our investments in costs at TNMP rate relief through the peaker and DCRF mechanism increases earnings, including our 1st year of implementing two DCRF filings, along with the recently approved resiliency will higher transmission margins and income from our decommissioning trust also adds to earnings at PNM in 2024. These increases at both utilities are offset by the depreciation, property tax and interest costs associated with new investments at corporate. The increase in debt balances to fund future growth are partially offset by the equity issued in 2023 and the proceeds from the sale of NMRD. expected in February. We continue to have 600 million of hedges in place in 2024. So hold the underlying interest rate at 3.5%. Our guidance reflects the additional shares issued through our ATM program in 2023 to support capital investments. We issued a total of 4.4 million shares we have, which has a $0.14 impact on year-over-year earnings per share. As for our quarterly distribution of earnings, we remain a summer peaking utility with a third quarter being our largest quarter. From an earnings perspective, the remaining three quarters are fairly evenly split.
Turning to slide 17, we have updated and rolled out our capital plan through 2020 for a total of $6.1 billion over five years. But in large part, it remains the same as the capital plan that we shared with you on our third quarter earnings call last year. Tnmp continues to be our largest category of investments as we supported increased system demands across our service territories, while also benefiting from a supportive legislative and regulatory environment. As Dan discussed earlier, based on the new legislation, there may be additional opportunities beyond the current plan for things like temporary mobile generation or additional transmission investments in West Texas P & MGND. includes nearly 300 million in 2024 through 2028 for the grid modernization investments that are currently being considered by the commission. Approximately 175 million of those costs are associated with automated meters, which we believe is a priority for customers and especially to implement more advanced rate structures. Pnm on battery storage includes 135 million for the 60 megawatt utility owned battery included in our 2026 resource filing. We expect a decision this summer. Our plans also include another 30 megawatts of the smaller distribution level battery storage that will be required that will require a separate commission approval, and we see potential for that lead to growth. We do not have any other new utility owned generation included in our plans. But but as economic development efforts continue in New Mexico, we will see a need for additional resources beyond 2026 in this circumstance, regardless whether they are utility owned or PPS., we would need to put forth a filing with those resources for commission approval. The bottom of this slide shows that this investment plan translates into 10% rate base growth for 2024 through 2028. Tnmp is our fastest growing area of 13% and surpasses the level of rate base at and M. retail by 2020.
On Slide 18, I'll share the financing assumptions in our plan in 2023, we raised 200 million of equity through our ATM program to support investments made at both utilities and issued those shares. In December, we expect $115 million of proceeds from our D. sale in February, and we issued 343 million in securitization bonds in November. I also noted earlier that we continue to have $600 million of hedges in place for 2024 and 300 million for 2025. As we move forward, we continue to see an equity need of $100 million per year on average through 2028 for a total of 500 million to support our 10% rate base growth. We currently have two term loans at the holding company totaling 1 billion with half maturing in 2025 and the other half maturing in 2026. We previously talked about our intention to refinance this amount on a longer-term basis. As we do this, we will look to utilize debt instruments that provide equity credit to benefit our metrics and support our ratings. We believe this provides an efficient way of financing growth while also refinancing the business more permanently. As we have done in the past, we are being transparent about our modeling assumptions upfront but we have not made any firm commitments to these instruments for timing. We will evaluate market conditions as they evolve in order to optimize our financing over our longer term plans before we leave this slide, S&P recently moved our outlook from positive to stable at all three entities and move up to a positive outlook was done following the 2020 announcement of our merger based on the benefit of being part of a larger entity, stable outlook brings us back to the same rating and outlook held prior to the merger announcement. Now let's turn to Slide 19 for the highly anticipated return of our potential earnings power slide. This view incorporates our capital investment plans, new financing assumption, and it supports our targeted earnings growth of 6% to 7% through 2028 from our 2024 guidance midpoint of $2.70. We have rolled forward our rate base to incorporate the CapEx plan that we just work walk through for PNM retail, P & M for MT. and MP., we are assuming that we earn our authorized return on rate base with the currently authorized equity capitalization. I'll note that PNM retail incorporates the newly authorized ROE of 9.26% and equity capitalization of 50% for all years. As for, we've been able to offset regulatory lag and earn our 10% authorized return these last few years after acquiring the Western Spirit transmission line in 2021, total PNM also includes items not in rates which accounts for any short-term interest expense and offset through AFUDC decommissioning and reclamation trust income and certain incentive compensation that is not recovered in rates P & MP. earns its return earns its return in each year. Any regulatory lag stemming from the use of a historical test year is largely offset by load growth. The addition of a second DCRF filing and improved recovery under the resiliency rider short time. Interest expense is offset by AFUDC and the incentive provided by the energy efficiency will fill in any remaining gap.
The corporate and other and equity financing line reflects the financing assumptions by I covered on the previous slide. Again, these are modeling assumptions in the range of impacts we're showing on this slide allow for flexibility as we optimize these financing plans based on market conditions, consolidated EPS is a range supporting our target of 6% to 7% growth through 2020. This is an update from our previous target, which incorporates various outcomes impacting PNM and our overall financing. The resolution of PNM's rate case gives us increased confidence in our plan when comparing to our rate base growth of 10% over the same period of 2024 through 2028. The difference is primarily financing costs. We feel confident in our plan and ability to execute on our growth targets as we move forward. We will continue to update this slide to provide transparency into our plans and reflect any material changes.
Before I hand things back to Pat's.
Slide 20 shows our dividend. We increased our annual dividend to $1.55 in December of 5.4% increase. We maintain dividend growth throughout the merger process and look to grow the dividend to stay within our targeted payout ratio as we manage the business over a long-term horizon with that, I'll turn it back over to Sam.
Pat Vincent-Collawn
Thank you, Lisa. Before we open it up for questions, let me acknowledge all of our teams here at PNM Resources. Everyone here plays a part in executing our business strategy, whether it's working on infrastructure, construction from start to finish answering customer calls, restoring power or supporting our teams and the customers that are the core of our purpose.
Thank you. Your efforts are both seen and appreciated. And I hope that you all agree that we are still standing better than we've ever been linear. Let's please open it up for questions.
Question and Answer Session
Operator
(Operator Instructions) Julien Dumoulin-Smith, Bank of America.
Julien Dumoulin-Smith
Hey, good morning and thank you guys, very much. I appreciate it. And thankfully, we have our wonderful slides back here. So appreciate all the added disclosure renewed disclosure.
Pat Vincent-Collawn
Thank you, Julian. You're welcome.
Julien Dumoulin-Smith
Thank you very much. Indeed. It look, I mean a bunch of different things stemming off that if we can. I maybe just first off, just what are you saying here vis a vis 2027 here? I mean, just obviously you're talking about a new rate case here mid-part of this year. I mean, implicitly, are we to kind of think that you don't get back to the full earnings power by until 27 or how do you think about sort of the cadence of earned returns in New Mexico in the interim here? And then also, just maybe you can speak a little bit to the dynamics around the Corporate and Other as there's some gyrations there as well through the forecast period.
Pat Vincent-Collawn
Okay, Duncan. And I think that the rate case and the case in Mexico and in the corporate and other?
Don Tarry
Yes, good morning, Julien. On the rate case, we will, as we talked about this summer, while our mix of forward looking test year in New Mexico. And what you're going to see is you're going to see rate cases likely every couple of years. It's a 13 month window that allows us the rates to stay affordable allows our cost to get recovered in a timely manner. And again, these are smaller rate increases and these are forward-looking test periods as well, too. So I think you're going to see that on the cadence as we kind of work our way through that earnings power through 2027.
Lisa Eden
Yes. And I would also say at TNMP for we really are earning our allowed return there, especially in Texas when you have added another DCRF filing in terms of the corporate and other and financing in drilling, we have really thought about this in two ways, right? We have put for $500 million of equity to fund growth through the time period. And then we're also thinking about our term loans. And so we will refinance those more permanently, which we've talked about before, and we will use on debt instruments with equity content to refinance those. And all those are assumptions, though we have included in our earnings power back to the India.
Julien Dumoulin-Smith
Maybe just to follow up where you picked it up last, I left it out there just on the balance sheet where you talk about 100 million in equity, but then some amount of the $1 billion being refinanced with equity linked. I mean, what portion are you expecting there? And then just more specifically here. I think that's what has changed. What specific FFO-to-debt metric are you guys targeting at this point? And maybe even within that, how the latest conversations post deal break how have they gone with the rating agencies during post rate case resolution?
Pat Vincent-Collawn
Yes, Julien, we went back and see both rating agencies. I mean Lisa and her team have been keeping up with the Motorola deal. And then Dan and I joined the team to visit both rating agencies. They were very constructive on and they understand where we are in 2023 because of the San Juan credit write off and they all agree, it was the appropriate decision to get rid of those like that same one credit and bring everybody on board, but they have been very, very constructive with us. They know our commitment to investment grade credit rating. I think we're the only utility actually have it in our long-term incentive plan. So I'll let Lisa give you more color, but we have had some robust discussions with them.
Lisa Eden
Yes, and doing that one of the things that we did during while we were under the merger is that we really pushed out the maturities of those term loans rises 25 and 26, which has given us more time to think about what how we're refinancing and $1 billion at the holdco, what we're looking at as junior subs and particularly and especially since Moody's changed there guidance recently and it provides equity credit for and junior yourself?
Julien Dumoulin-Smith
Yes. Okay. Wonderful. The juniors on that piece. And then lastly, if I can just come back to what's included in the plan or what have you I mean just to clarify earlier. So the reason for the jump in 27 is what exactly how do you think about that versus, as you say, like several smaller rate cases here. I mean, I would have thought there would have been more of a steady increase versus kind of a more more of a slight step function there from 2016 to 27, if you will, is that Julianna derivative planning on on how are returns look or what is that?
Don Tarry
And I think it's a combination of a couple of different factors on it. This is an earnings power slide to start with. So it's based on what your rate base is. I will tell you the great legislation that we've seen in Texas on allows us to file a grid resiliency filing and to kind of think about that. That's a three year filing and we'll file ours midyear. We booked 450 million in that as you kind of think of the timing that's coming in over that space in a period of time in 26, 27, 28. So it kind of fits into that arena. I will tell you that Florida and 50 million because you have to do a study is a conservative number. We'll do this study and file its mid-year and expect rates to go into effect in 2025. I think there's some other things out there as we kind of think about our rate case cadence in New Mexico and that forward-looking element associated with it and kind of head down that path. And then one of the questions you always ask is what's the upside to the upside and in Texas. I mean, there's things that we kind of hit on in our as we kind of talked when we were going through the presentation, but to the temporary mobile generation isn't in our capital plan. That would be a potential that's out there as well as the West Texas planning process, which is wherein the hard-core center of that West Texas planning process are caught in the process of designing what's needed at this point and then we'll have the opportunity to weigh in associated with that.
Julien Dumoulin-Smith
So Got it. And the upside of the upside here, especially with the mobile, Jan, et cetera. I mean, is that's a 24 item that you would expect to kind of come more into view?
Don Tarry
You would see a lot of these that they kind of ramp up as they get later in the period. And I think that's the important piece. But the mobile generation, the rules probably will be defined. They haven't been defined yet. They'll probably be defined by the end of the year and then you'll be able to see kind of what's added at that point in time.
Julien Dumoulin-Smith
Wonderful. Thank you so much. Appreciate it. Best of luck. We'll see soon.
Pat Vincent-Collawn
Thank you. You too, Julien.
Operator
Anthony Crowdell, Mizuho.
Anthony Crowdell
Hey, good morning. I'm just going to. Great. Great. You guys are back. I just want to jump on some of Julian's questions, if I could take apart. One, if I think if you move the earnings growth from five to six or seven rate base growth stay the same and no change in equity needs.
What was the driver from going from 5% growth to six to seven is just a roll forward to one of the outer years that I guess Julie was hitting on or is it an improved earnings or ROE in the plan?
Pat Vincent-Collawn
Well, I'll let Louis go through the details, Anthony, but part of it was just we reset to 2024, right? Finally, we were able to optimize some of the regulatory lag and some of the rate cases and the ROEs in there. So I'll let Lisa talk a little bit more of it. That was really the main couple of drivers.
Lisa Eden
Yes, I agree, the impact is the main driver is the rebasing of 2024, but we've also gotten more certainty on after the PNM rate case. And so we're on be able to put forth a plan both in terms of financing and an office solidified as a rate base growth that you see here. And that's really where we arrive to the 6% to 7%.
Anthony Crowdell
Great. And then I know you guys are focused on the balance sheet. I know you have a targeted payout ratio. I'm just wondering, do you have a targeted FFO-to-debt ratio?
Pat Vincent-Collawn
Yes, that they have other vessel, I mean versus the 13% that Moody's and 14% the S&P.
Anthony Crowdell
Great. And then just lastly, Pat, if I could put you on the hot seat here. But when we roll back the clock a couple of years and think of the driver of maybe what I've got the Company and the Board to maybe seek a larger platform in that merger to mean it if those conditions still exist today, I mean, the company has a great plan that they've unveiled and it really highlights the growth in Texas. But just wondering when you think about what the drivers that maybe cause the company to look for a bigger platform, a bigger balance sheet.
Pat Vincent-Collawn
And then when you look at it today initially, what we're sort of here in our immunology, deep breath phase because it's been about what, five weeks and since the deal broke and but what I would tell you that I believe and the Board believes in the management team believes is that the size is still important in this world and the opportunity to access to cheaper capital to access in a material supplies. Employee opportunities is still there. And we frame that strategic rationale up against market conditions, right? We look at where interest rates are and equity values are. And then we need to see I think anybody would need to see a back pattern from the commission in New Mexico that they're kind of changing the way that they are thinking. So when the Board when the Board talks about it, that's what we're balancing.
Anthony Crowdell
Great. Thanks so much for taking my questions and appreciate the detail.
Pat Vincent-Collawn
Thank you, Anthony.
Operator
Ryan Levine, Citi.
Ryan Levine
Morning. Hey, everybody. In terms of the $6.1 billion CapEx outlook, I mean, clearly you're pursuing a number of incremental investment opportunities that could bring that higher spending way, provide some color around how big that number can be in the backdrop of the regulatory and commercial opportunities you're pursuing?
Don Tarry
You know, I mean, I'm not going to throw a number out, but I will tell you kind of the categories that are associated with it and they're primarily in Texas and there around the temporary mobile gen that we talked a little bit about. Again, we need to see that the plan defined or the rules defined, and then we'll we'll have a better feel the system resiliency right now we have 450 million in the capital budget. I will tell you that's a conservative number based on what we think that grid resiliency study will come out to be West Texas planning. It's kind of in that process of the way that works as customers provide their what they anticipate their load to be to Ercot and then Ercot kind of has to develop what is what is needed. The great thing about that is that's in West Texas, in the core of our area.
And then on the New Mexico side, because we really haven't addressed that. Lisa alluded to this a little bit, but you know, we always tried to balance rates, customer rates with our capital budget, but we see low growth associated with new customers. That's where I think you would see additional capital that was invested both on the resource side, but definitely on the transmission and distribution side as we kind of look at it, that. So those are the factors that we look at as we kind of look at our capital budget.
Ryan Levine
Thanks. And then a couple more modeling questions. In terms of '24, was there any one-time gains included in near '24 guidance around decommissioning trust or anything related to that.
Pat Vincent-Collawn
And no, I mean, there's no one-time included in our forecast and then the guidance appreciate the clarity there.
Ryan Levine
In terms of the junior sub opportunity on $1 billion credit or $1 billion refi. How much incremental EPS do you think that opportunity presents in terms of your financial modeling or are or I guess on the flip side to the extent you're not a you don't go in that period. Would you how would that impact your EPS outlook?
Pat Vincent-Collawn
It's Ryan. I think the junior subs for us is really a great vehicle and efficient way too, reach both our objective for earnings growth and also support our credit metrics. And with the potential earnings power slide, we really put out a lot of details for you on to model. So I think that that answers your question.
Don Tarry
There's actually there's a range of numbers in there, so you can model. So we've put some bookends in there for you is how I'd say it. Yes.
Ryan Levine
Okay. Great. Appreciate the questions and the answers. Thank you.
Pat Vincent-Collawn
Thanks, Ryan.
Operator
Paul Fremont, Ladenburg Thalmann & Co.
Paul Fremont
Hey. Good morning. Congratulations on a on a good print. I kick off really two questions. One on incremental investment income over and above what's in your current forecast? What should we assume is the equity percent to finance that?
Lisa Eden
We really think about equity to supporting our growth. So if we do have additional investments, we will finance that in a balanced way. And we're probably looking at that 40% to 50% equity as we add incremental capital.
Paul Fremont
Okay. And that would be above your current CapEx guidance range, right?
Lisa Eden
That would be above our current equity or planned equity issuance yet.
Paul Fremont
And then just to follow up on on a on another question that was asked earlier with respect to considering strategic options, is there a point at which sort of the Board needs to decide whether that is going to be sort of an ongoing effort or whether that effort is terminated? How should we think about?
Pat Vincent-Collawn
You know, if I if I had always been kind of an ongoing effort and we reassess every year the the the market outlook, the landscape of the industry, our positions, the boards of directors that have fiduciary duty are looking at it constantly on if the time is right, the time is right. And it's not right, it's not right, but you always look.
Paul Fremont
Great. That's it for me. Thank you so much.
Pat Vincent-Collawn
Thanks, Paul.
Operator
And this will conclude our question and answer session. I would like to turn the conference back over to Pat Vincent-Collawn for any closing remarks.
Pat Vincent-Collawn
Thank you, Linda, and thank you all for joining us this morning, and we're looking forward to seeing many of you in the coming weeks. Please stay safe and remember to everyone a complement today. Thank you.
Operator
Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
