PNM Resources Inc (PNM) 2009 Q1 法說會逐字稿

Good day, and welcome to the PNM Resources conference call. Today's call is being recorded. At this time, I would like to turn the conference over to your host, Ms. Gina Jacobi. Go ahead, ma'am.

Thank you, everyone, for joining us this morning for a discussion of the Company's first quarter 2009 earnings. Please note that the presentation and accompanying materials for this conference call and supporting documents are available on the PNM Resources website at www.PNMResources.com. Joining me today are PNM Resources Chairman and CEO, Jeff Sterba. PNM Resources Chief Operating Officer, Pat Vincent-Collawn. And Chuck Eldred, our Chief Financial Officer, as well as several members of our executive management team.

Before I turn the call over to Jeff, 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 the information. For a detailed discussion of factors affecting PNM Resources results, please refer to our current and future annual reports on Form 10-K and quarterly reports on Form 10-Q, as well as other current and future reports on Form 8-K filed with the SEC. With that, I will turn the call over to Jeff.

Thanks, Gina. Welcome. Good morning. Thanks for joining us today. In spite of the challenging economic conditions that all of us face, not just our country, but the world. We have, frankly, had a very solid quarter across virtually all of the areas of operations, but particularly, at our New Mexico utility PNM and at First Choice Power. Starting on Slide four of the presentation, you can see that our ongoing earnings were $0.10 per share. This is compared to $0.05 per share for the same quarter last year. And keep in mind that we only had the gas operations this year for a little less than half of the period versus obviously, all of the period for 2008. As we talked before, we had faced a challenging year in 2008, and we took a number of difficult strategic actions that really are beginning to bear fruit. And I think the focus on operational efficiency and execution is allowing us to hit the numbers in the face of lower sales in both of our New Mexico and Texas markets.

Progress on critical regulatory, strategic, and financial initiatives have helped us position for continued financial performance improvement as we go through this year and head into 2010. Because as you certainly know, in the regulated world, it takes time for actions to translate into -- particularly when they are regulatory actions -- to translate into enhanced revenues. Moving on to Slide Five, we have delineated a number of the achievements that are -- that will help drive operations as we go forward. Just to touch on them quickly, as you know, we completed the gas sale, and it went very smoothly. I was very pleased, as was the buyer, in how smoothly the transaction went through. And there is still a few transitional elements that are still going on. But we are very pleased with that process. Obviously, the cash that was generated from the sale was used to buy down debt. As we have talked before, we reached an unopposed stipulation in the PNM rate case which has been heard before the Commission and is pending before the Commission for decision. Pat will touch on that in a few moments. As well as passage of some very important legislation for us this year that will enable us to use a future test year year and help mitigate the regulatory lag that has been a such chronic challenge in New Mexico.

I just want to reflect that we have now had two major pieces of legislation passed in the last two years with no negative legislation, frankly, passed that would impair us in New Mexico. Last year, it was the legislation that directed the Commission to provide us recovery of all disincentives plus an incentive greater than the value of building new generation for energy efficiency and this year on the future test year.

Relative to TNMP, we accomplished a couple of important financing efforts. One was to put in place about $315 million of long-term debt. We also entered into a two-year $75 million revolver. Between these two items, that secures sufficient liquidity for TNMP for the next two years. And we also have amended the TNMP rate case to enable full recovery of the higher interest expense associated with that long-term debt, as well as the timely recovery of the Hurricane Ike costs.

On the unregulated side, as you know, we have a project with NRG -- Cedar Bayou 4 -- in the Houston zone, which is already synchronized to the grid in start-up mode with testing. And we believe it's clearly on schedule to be turned over for operations in June. And it's slightly underrunning its budget. And as we will talk about in a little more detail, we have seen substantively improved performance at First Choice Power. In fact before I go into talking a little bit more about First Choice Power, let me have Pat talk about our regulated operations.

Thank you, Jeff. Good morning, everyone. I'm on Slide Seven right now, and as Jeff mentioned, we had spent significant amount of time concentrating on achieving appropriate regulatory treatment at PNM. And we are beginning to see the fruits of those labors. We reached an unopposed stipulation regarding our rate case. That stipulation calls for $77.3 million increase to base rates that would be implemented in two phases starting this year in July and 2009. It also allows us to bring in the some of the merchant assets Luna-Lordsburg, Valencia, and an ownership interest in PB2 in the rate base. Another very important component of the stipulation is a more conventional fuel and purchase power clause. One that is not capped and does not set a floor for power plant performance. As Jeff mentioned, the Commission has had public hearings, public comment hearings, and their hearings, and we expect a ruling on the stipulation later this month.

Jeff also mentioned Senate Bill 477 which is the future test year legislation. This is a very progressive piece of legislation passed by the State of New Mexico and signed into law by the governor. The bill actually goes into effect on July 1st. And we are currently working our processes internally to prepare for a future test year filing.

We also continue to be successful in streamlining our capital deployment and managing our costs, as Jeff said. San Juan has completed its environmental upgrades. The outage on Unit Two was finished, and that was the last of our four environmental upgrades. And Palo Verde has been recognized by the NRC for the work that they have done, and they have been removed off of the Watch List.

We also continue to not lose sight of our T&D business. Public Service of New Mexico has long had a history of having top quartile reliability, and it achieved that mark again last year and is on track this quarter to achieve that again.

If you turn to Slide Eight, I'll spend a moment also on TNMP. Our focus there is also on achieving appropriate regulatory return. Jeff mentioned, we amended our 2008 -- August 2008 -- filing to put in the higher interest costs for refinancing and the restoration costs from Hurricane Ike. I will point you to Slide A3 in the Appendix, and there is a slide in there that provides the details of the amended case along with the current procedural hearing that the ALJ approved yesterday. We are working with parties to reach a settlement in that case. However, if we cannot, we will be prepared to go to hearing which would be June 16th through the 26th.

We have also so far had a good legislative season over in Texas. The governor signed a bill that permits electric utilities to obtain timely recovery of system restoration costs without having to file a general rate case. So that helps us in this current rate case and in future rate cases in terms of recovering any kind of system restoration costs. That bill has already gone into law. It went into law on April 16th when the governor signed the bill.

Similar to PNM, we continue to streamline our capital deployment, focus on the fundamentals, and manage costs. We are closely monitoring our capital budgets to see if there are any reductions we can take due to reduced meter sets and other slowdowns. We are also piloting a 10,000 meter Smart Meter pilot in our TNMP territory to continue to focus on the technology and to see what kind of customer benefits we can get out of that pilot, and TNMP is also on track to keep its top quartile reliability.

I want to turn now to Page Nine and spend a moment talking about the current economy. The current economy has added a layer of complexity and uncertainty to our business. So I wanted to spend this time updating you on the economic conditions in both New Mexico and Texas. If you can see from the upper left hand corner of your slide, the unemployment rate in New Mexico and Texas are significantly below the national average. The unemployment rate in Texas is about two points below the national average and almost three points below the national average in New Mexico. We hope it stays that way. New Mexico and Texas tend to not run up as fast as the rest of the economy or go down as significantly in recession. If you look at the bottom left hand corner of that slide, you can also see that the employment growth rates, or in this case, the climb rates in New Mexico and Texas are also significantly better than the economy as a whole. While modest, we have continued to see customer growth. If you look at the upper right hand corner of Slide Nine, you can see that Quarter One of last year to Quarter One of this year, we have seen almost a 1% growth in customers in New Mexico, and about a 1.2% growth in customers in Texas, which is not much of a decrease from our historical growth rate of 2% in Texas.

Those of you that did have a chance news release this morning will notice that we have seen some decrease in our load. And if you look at it on the bottom of Slide Nine, you can see that we are seeing a decrease in our use per customer. If you go to the last column and focus on the leap year adjusted, you can see that our residential is down 3.2%, and our commercial is down about 5.8% in Texas. Our industrial load overall is down about 7.2% but half of that was expected. We had one company who had notified us last year that they were shutting down operations which is well in advance of the recession, and then part of this is Intel.

Intel is in the midst of retooling its fab. In February, they announced that they were spending $7 billion in the United States. $2.5 billion of that is in their facility at Rio Rancho. They are retooling that fab to make their latest generation of chips.

In TNMP, we are seeing about a 5.2% decline in residential use per customer, and a 3% in commercial decrease when you look at it on a leap year adjusted base. We believe what's going on here is a matter of consumer confidence. Even while our unemployment rates here are good, customers are just keeping that thermostat a little warmer and trying to conserve while the economy is in the shape that it is in. Despite that, and Chuck will talk about this later, we are still on track with our earnings, given our cost reduction efforts.

Another piece of the economy, as you all know, is the stimulus. We are starting to see some of the stimulus funds that go to individuals trickle into New Mexico and Texas. And on the opportunities for the Company, we have a team together that is looking at various packages from the stimulus. Specifically, we are looking at funds generated by loan guarantees and grants that we could possibly use to upgrade our transmission system. We are looking at deploying additional Smart Meters. We are planning for additional wind and solar development. And we're looking to enhance our specific energy efficiency programs. No program has been launched yet, and we have not applied for funds. But those are the general areas in which we are looking. With that, I will turn it back over to Jeff for some discussion on our unregulated operations.

Thanks, Pat. Let me spend a minute on First Choice Power, and flip to Slide 11, if you will. Brian Hayduk, who joined us at the end of December last year, and his team have been hard at work. Redirecting FCP to some extent but really focusing on the things that can be done to improve the execution of the marketing strategy, and particularly, focused on bad debt. The specific areas that they have focused on, and I think are having good success in, involve first increasing the number of our customers at the percent of our customers that are on term contracts and not on month-to-month transactions. They are now up to about 75% of our residential customers are under term contracts, and they've had a lot of success taking some of those contracts that were entered into in the summer at high prices and modifying them such that they are extended and could have more competitive terms. So we don't aggravate the situation -- one of the situations that we have with bad debt which is people on high contracts [rep], skip, and leave you hanging with a bill.

The second major initiative has been to obviously focus -- continue to focus on customer retention because it's a lot less costly to keep a customer than it is to try to attract a new one. And certainly that's price-based, but it's also very heavily affected by service and service quality. A third area has been to grow the commercial segment ,and they have had good success in that. In fact in the first quarter of 2009, the signed margin, if you will, is up about almost double of what it was the same quarter in 2008.

Probably the biggest area though that we have been concerned about has been on the bad debt side, and it remains a concern. It remains a key area focus, and there are a number of things that our folks have done to address it. Frankly, it isn't going to be adequately addressed until the Commission makes some rule changes that keep the [rep] skipping without payment of bills from being the kind of problem that it is today. You will see that the bad debt as a percent of revenue is, in fact, higher in the first quarter. That's largely because revenues are down due to lower energy prices. But even when you normalize that out, because that's bad debt that was largely incurred during higher energy price periods, it's still too high. And continued effort will go forward on that.

But they had a solid year, and on the basis of that, while we feel good about what they have done. It's largely been driven by increased margins. We are going to, at this point, indicate that we believe they will still be within the guidance range that we have provided before of $20 million to $35 million. Sure, there are things that could drive it up. As obviously in this market, there are things that could drive it down, too. We are comfortable staying in the guidance that we provided so far.

Moving briefly over to Optim on Page 12. Obviously, low energy prices are not Optim's favorite thing to see. But in spite of really low prices in the Texas marketplace, they are continuing to hit their numbers and are on track to hit their $55 million to $70 million of EBITDA for the year. They have had very good performance out of all of the operating units. And as I mentioned to you before Cedar Bayou 4 is coming online in fine shape. Because of its efficiency and being in the Houston market, it will certainly add value to the -- to Optim this summer. With that, let me turn it over to Chuck to go into a little more detail on the numbers.

Thanks, Jeff, and good morning, everyone. I am going to begin on Slide 14. As mentioned in this morning's news release, we earned $0.10 per share, which is up from $0.05 per share from last year's results. Keep in mind, the results reflected three months contribution from the gas business which was sold on January 30 of this year. So 2009 reflects only one month of contribution of the gas business. As you can see without the gas business, ongoing earnings per share increased $0.22 from last year, largely due to the improved performance of PNM Electric.

We are extremely pleased with our performance this quarter. Because of the sale of the gas company, we had expected a shift in quarterly earnings distribution and had been anticipating a relatively weak first quarter. However, continued focus on the regulatory activities, efforts to delever the business itself are focused on process improvement and cost management at the utilities, coupled with better than expected performance at First Choice Power drove our favorable results. Our goal is to keep our O&M as flat as possible year-over-year. At PNM Electric, O&M costs were actually down 1% quarter-over-quarter, despite increased pension, medical, and labor costs. Clearly, our initiatives are delivering results, and we expect them to be sustainable in the future.

Now turning to the individual business units. On Slide 15, this lists the major drivers of our quarter-over-quarter improvements in our regulated businesses. PNM Electric and TNMP. Starting with PNM. Last year, the last utility lost $0.19, while this year's significant improvement brought PNM to break-even. The implementation of the new base rates, and the fuel and purchase power adjustment clause added $0.08 cents to earnings per share. Lower fuel and purchase power prices increased earnings by $0.20 per share. This $0.20 improvement primarily reflects the cost of energy that we weren't able to recover last year.

If you recall, the fuel adjustment clause didn't go into effect until second quarter, and last year during the first quarter, we had high energy costs which were driven by multiple planned outages that were -- cost us 20% more in purchasing power in the market. And purchase power prices were about 40% to 50% higher. Offsetting the fable, drivers were at 3.7% decrease in load which lowered earnings $0.04. Milder weather, which reduced earnings by another $0.02, and higher interest expense and lower pension income. At TNMP, earnings were down $0.03 per compared with last year, due to a 3% load decrease and higher pension, medical, and other costs. Now, I'm going to turn to Slide 16 and walk you through the unregulated operations.

First Choice Power generated ongoing EBITDA of $12 million in the quarter, which is up $4.6 million last year. A major driver of the improved performance was an increase in gross margins. Realized margins were up $22 million. Largely due to lower purchase power cost. This year, purchase power prices averaged about $62 a megawatt hour, compared with 2008 prices of $85 per megawatt hour.

Quarter-over-quarter, we did see a reduction in sales volumes due to lower average customer usage and a 4% decrease in customer account. However, I do want to reiterate that we do expect margins to tighten over the next couple of quarters as rates become more aligned with market costs. However, we have built this into our 2009 outlook.

Quarter-over-quarter, bad debt expense was up$10.7 million this year, reflecting the current economic environment and the impact of last year's high power prices. However, as Jeff mentioned earlier, First Choice is aggressively addressing the bad debt issue and has undertaken a number of initiatives designed to reduce default rates and target new customers who are more likely to demonstrate good payment behavior. First Choice marketing costs are also up as the Company continues to implement its targeted marketing strategy.

At the bottom of the slide, Optim Energy generated EBITDA of $8.5 million, which is down from last year's results of $15.1 million. One major reason for the decrease in EBITDA was a planned outage at Twin Oaks which reduced margins by $2 million. Another factor affecting Optim EBITDA was lower power prices, which although beneficial to First Choice, were detrimental to Optim Energy. The depressed prices reduced the Company's EBITDA by $1.5 million, However, the effect was mitigated by Optim Energy's hedge positions and its fixed contracts. O&M increased $3.2 million from last year as Optim completed implementation of its organizational and system plans.

Now turning to Slide 17, I want to talk about our outlook for 2009. Because we have not yet received the Commission's rulings on our stipulation, we are not changing our outlook for 2009. For those of you who want to update your projections for the year, we provided information on this slide and in the appendix regarding our rate case filings, as well as the stipulation that was heard by the Public Service Commission in early April. Pat reviewed how both PNM and TNMP have experienced a decline in load, as have many utilities in the nation. As a result, we have revised our load forecast for the year and have included a 3.5% decline. If you recall, the outlook we had provided in February assumed a load growth of a negative 0.7% to a positive 1.3%. However, even with a low decline, we are maintaining our 2009 EPS outlook of $0.25 to $0.40. Keep in mind, this range assumes no rate relief at PNM or TNMP, both of which are pending cases this year.

Outlooks for First Choice Power and Optim Energy also remain unchanged. We still expect First Choice to generate EBITDA of between$20 million to $35 million, and Optim Energy to generate EBITDA of $55 million to $70 million, and that's at 100%.

I do want to point out that we face a number of risks that could potentially impact our performance for the year. The biggest is the economy. We have reduced our load forecast from our original projection based on what we saw in Q1. At this point, we feel comfortable to achieve our target. However, it's still early in the year to project the full impact of the economy on all of our service territories. As a result, we are watching our load closely and continue to manage our O&M cost for possible offsets.

The other major factor that could affect our earnings for the year is performance at First Choice Power. The Company is off to a good start, and management's initiatives are beginning to show some success. First quarter performance was also better than expected. However, as Jeff mentioned, First Choice is a work in progress, but we are seeing clear results of restoring the profitability this year.

I would like to turn to the next slide, 18. In an effort to provide more transparency and insight into our Company's performance, we are enhancing our guidance practices and will be providing an annual cash earnings outlook along with our traditional EPS guidance. I want to quickly walk you through the calculation or a cash earnings measure. The metric starts with net cash flows from operating activities, excluding changes in working capital. All these amounts are straight off the statement of cash flows. We also make a few adjustments to better reflect our true operating cash flow.

First of all, we had the principle paid to us on the Palo Verde lesser note, as this reflects a return of a portion of Palo Verde lease payments as a result of us purchasing the debt some years ago. We also had the payment received on the Palo Verde 3 toll. Last year, we received a total of $89 million from our toll arrangement. $71 million of which was a prepayment. Both of these items are itemized on the cash flow statement but reside below net cash flow from operating activities. Lastly, we had P&L Resources' share of Optim Energy's cash earnings to ensure the measure reflects cash generated from all business activities.

Now turning to the next page, let me give you a walk-through of our cash earnings outlook for 2009. Starting with last year's cash earnings of $267 million, as I mentioned $71 million of last year's cash earnings were associated with a prepayment received on our Palo Verde toll agreement, and was a one-time in nature. Excluding the prepayment, we generated a total of $196 million of cash earnings in 2008. This year, we expect to generate a total of $250 million to $270 million of cash earnings. If you go from left to right, I will walk you through the drivers of our growth.

The sale of PNM Gas was reduced cash earning by $26 million this year. Last year, the business generated $35 million. Prior to its sale in January, it generated $9 million of cash earnings. The improved performance at First Choice Power is expected to increase cash earnings by $50 million to $58 million. Last year, First Choice had negative cash earnings of $39 million. While this year, we project the Company will generate cash earnings in the range of $11 million to $19 million. Keep in mind, that this is not an EBITDA metric, and cash earnings is net of interest and taxes. Bonus depreciation is expected to generate $18 million to $22 million in cash earnings, and higher margins at our utilities add another $8 million to $14 million. Note the increase in cash earnings resulting from utility margins includes a 3.5% decline in load and no incremental rate relief. Last, Optim Energy is expected to provide $2 million to $8 million more in cash earnings year-over-year. As a result of the first quarter, our cash earnings were on target. And as we go through the year, we will continue to update you regarding progress in our outlook. Now, I would like to turn it back over to Jeff for his concluding remarks.

Thanks, Chuck. If you go to Slide 21, you will see the checklist which we have used over the last set of years as an annual check on the things that you can hold us accountable for. And you can see that in each of the items -- at least through the first quarter, we are making good progress. Pat talked about the status of the two rate cases, and I have talked about FCP. We believe it's very much on track. Optim Energy, even in spite of the tough market, is on track. On the capital deployment at managing costs, obviously, this is a major element of focus starting with our ABI initiative where we drove $35 million out of our operating costs. But the capital side, as Pat mentioned, is also still under high scrutiny. We turned about $350 million out of the five-year. Frankly, we will trim some more, both out of this year and next year. But we are very cognizant of those capital costs that will be affected by the stimulus. Or their investment can be improved by the stimulus provisions. Both the bonus depreciation, as well as in ITC and the like.

Through this process, one of the things we have wanted to make sure is that we don't let our service quality and our reliability slip. I think the folks are doing a good job in maintaining tough quartile reliability and a very strong focus on service quality. The base load units are doing well. Obviously, the removal of Palo Verde from the multiple, degraded cornerstone was a significant step. But we are seeing very good performance out of San Juan as it comes out of these very extended environmental-related outages, and the environmental performance of the units has been exceptionally strong. All of this helps improve our financial performance, and obviously, our credit metrics.

In summary, we are pleased with the first quarter. But we also know that we have got a lot of work ahead of us to continue that path toward restoring the financial performance of the Company to where it should be. With that, Operator, we will be happy to move into questions.

Thank you. (Operator Instructions) We will take our first question from Paul Fremont with Jefferies .

Thank you very much. The first question would be, in terms of the First Choice gross margin, what was the gross margin first quarter in '09? And what was it in first quarter of 2008?

Hey, Paul. Listen. Welcome back. We hope you are feeling well and recovered well from your accident.

Thank you very much.

We know that was pretty serious. Glad to hear your voice again. We have certainly expressed that we have received higher margins from the first quarter that carried from last year with the higher energy prices. We are reluctant to give out margin information for some sensitivities, given the market conditions within Texas right now. As I mentioned, going forward, we expect the margins to return to more traditional levels, which puts us around the low- to mid-$20 per megawatt hour. First quarter was obviously significantly higher. Again, we are factoring into our projections a more traditional margin returning over the year into that lower range.

Will bad debt expense be also part of why the first quarter is unlikely to be replicated in the remaining three quarters of the year? Is that something that potentially reduces the out-year quarters?

No. In fact, we expect to see bad debt expense continue to decline, Paul. We are still having rolloff of bad debt that was associated with the flare-up in energy prices. So the higher quantities, we are still working through. We do expect to see bad debt come down. Our concern is as a percentage of revenue, it's still going to stay too high compared to where it needs to be. There are only so many things -- a lot of which we have got in place today -- that we can take -- actions we can take -- to help mitigate that. We are obviously doing that in terms of the kind of customers that we are cultivating, et cetera. Some of this piece really is going to have to take a change on the regulatory side because of this pattern of a certain group of customers that are doing [rep]-hopping in a way in which they are leaving you with two months of debt -- bad debt -- and the entity picking it up has no idea what they are picking up. And in fact, the Commission in Texas has started a process to investigate two of the -- a couple of the alternatives, and I think look favorably to it. We don't expect to see results of that affect performance during the course of 2010. So we expect bad debt will start -- will continue to trend down. But it is going to stay too high for our liking.

Last question, is just a point of clarification. The annual guidance this year includes the $0.08 ongoing contribution which is your share of the PNM gas?

Yes, that's right, Paul.

Okay. Thank you.

(Operator Instructions) And we will take our next question from Brian Russo with Landenburg Thalmann.

Good morning. I'm sorry if I missed this earlier. Did the customer count increase or decrease at First Choice Power in the first quarter?

The customer count slightly decreased in the first quarter.

Okay. And also in terms of the Optim sub, can you just remind us of the contract terms you have on the assets -- the generating assets.

The primary contract is a layoff contract that runs through September of 2010. And it's -- that's on Twin Oaks, and it's for 75% of the capacity of Twin Oaks. And that rolls off at that point, we today take 25%. And then there is no real contract on power out of the other units. There are hedges in place, obviously.

Okay. What is the hedge profile like on the other assets?

We are about 50%. I mean, one of the things that we do believe is that gas is bottoming out. And a lot of this obviously is tied to the economy. We are careful about hedging too much in a period of time when the economy is in the recession mode it is today. We think that market prices will move up as the economy moves up. So we are careful about hedging too much long-term. Even out nine, 12 months at this stage because of that. But we are carrying about 50% hedge.

With the recent stip on the PNM electric case, what type of ROE do you think you can earn in say 2010?

Brian, it's Pat. The stipulation had a $1.5 billion rate base with a 10.5% ROE. And then obviously the next case that we file will be a future test year which, virtually, it's a very progressive future test year. It can virtually eliminate regulatory lag.

We should see about maybe couple hundred basis point delta between the allowed and actual due to the regulatory lag?

Absolutely.

When do you expect to file your next rate case?

We are going to wait and see when we get the outcome of this one which should be some time this month. And then, we will go ahead and make that decision.

Sure. And in terms of your pursuit to get back to investment-grade? Are we going to have to see another rate case, and see that forward test year to alleviate the regulatory lag? Before the rating agencies would really consider bringing you back up to investment grade?

Brian, we have learned not to speak for rating agencies at all. But, we have a tendency to think that we are going to have to show numbers for a period before they will take the action. We certainly expect as we have said before, that as we move into 2011, which does mean in all probability another rate case coming into effect in 2011. Remember, that under the stipulation we have signed the next rate case can't go into effect before March of 2011.

March 31st.

March 31st. So really April 1. That it's really going to be in that window.

Brian, this is Chuck. Obviously, they look at it very favorably that we are working to take any initiative necessary to restore the investment grade credit of the utility. And then they take each decision by the Commission, the more recent one of the stipulation is critical to their outlook toward our regulatory success. We just take it one decision at a time. And we continue to look to pursue a strategy to get us back to investment grade. I do want to add one more comment on the earlier question regarding some of the contracts. If you recall with [Liondale], we do have a steam host contract with [Liondale] which gives us some additional -- and they continue to use that even despite some of the economic conditions and concerns with their operations. But that particular facility is very solid within their operations. Keep that in mind. And then we have excess power on that, too, that gets sold into ancillary market in Texas.

And then just lastly, assuming you get back to investment grade. Are there any step-downs on your debt? Or do you have an ability to refinance or call some of the high cost debt?

There are no step-downs in regards to the existing debt. PNM Utility, we issued the [700, 795] last year. And then at the holding company, the issuance there we have bought back at a discount about $157 million. And then the TNMP that issuance we did earlier this year does have a [maycoal] provision, but no call option.

Okay. Thank you very much.

And there are no further questions in queue. At this time, I would like to turn the conference back to Jeff Sterba for any additional or closing comments.

Well, again, thank you very much for joining us. If you have any follow-up questions, feel free to call Gina or any of her folks with them. And we look forward to talking with you at the next quarter, and hope that it is as good as this one. Thank you.