PNM Resources Inc (PNM) 2012 Q3 法說會逐字稿

Good day ladies and gentlemen, and thank you for standing by. Welcome to the PNM Resources third quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).

As a reminder, today's conference may be recorded. It is now my pleasure to turn the call over to Jimmie Blotter, Investor Relations Manager. Please go ahead.

Thank you, Hughie. Thank you everyone for joining us this morning for the PNM Resources third quarter 2012 earnings conference call. Please note that the presentation for this conference call and other supporting documents are available on our website at www.pnmresources.com. Joining me today are PNM Resource's Chairman, President and CEO, Pat Vincent-Collawn, and Chuck Eldred, our CFO, as well as several other members of our executive management team.

Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward-looking statements,pursuant to the Private Securities and 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 Resource's 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 8-K filed with the SEC.

With that, I will turn the call over to Pat.

Thank you, Jimmie. Good morning everyone, and let me add my thanks to you for joining us this morning.

Before talking about our Company performance this past quarter, I want to say that our thoughts are with all of you who are on the East Coast in the wake of Hurricane Sandy. I want to acknowledge the 87 crew members that we currently have deployed to various points along the East Coast to assist with restoration efforts, and just as importantly, the men and women who remain in our service territory to ensure that our reliability isn't affected during this critical time. These are experienced workers, many of whom have worked storm restorations in the past. We have asked that they keep safety the primary focus for everything they do. We, as I know everyone back east is, are extremely appreciative of the work they are doing and wish them safe work and a safe return.

I will start our presentation this morning on slide four, and review our third quarter performance and provide some Company updates. I am sure you all have seen our news release issued this morning. As we expected given our new business strategy the third quarter was strong, resulting in ongoing earnings of $0.69 per diluted share, compared with 2011 third quarter results of $0.61. On a GAAP basis, we ended the third quarter at $0.72 per diluted share, compared with $0.48 last year.

For PNM we are continuing to see improved performance year-over-year. This is a result of a number of factors. First this quarter again saw benefits of increased retail rates from both the general rate increase that went into effect in August of 2011, and from the renewable energy rider that was approved in August of this year. Related to the renewable energy rider, we are pleased with its approval by the Commission, and view this as another indication of constructive progress in the regulatory environment here in New Mexico. Our ongoing focus to align costs with revenues and the efforts of our employees to continually improve processes, also led to better earnings this quarter. The performance at TNMP was less dramatic year-over-year, strong weather normalized retail load growth was offset by more normal weather in Texas this year than we saw in that very hot summer of 2011.

If we turn to slide five, we will have an overview discussion on load growth, economic conditions, and unemployment. Starting with PNM, we continued to see very modest load growth at PNM. Two-tenths of a percent year-to-date on a weather-normalized basis, and for the quarter load growth declined three-tenths of a percent. The rolling 12-month average is holding up better at 0.6%. PNM's residential use per customer is flat for both the quarter and the year-to-date, the trend of flat usage is due to a combination of factors, including energy efficiency and the recession. PNM continues to experience only modest residential customer growth. Residential customer growth of 0.3% year-to-date is linked to the lack of employment growth in the state.

For TNMP the quarter again resulted in strong weather-normalized load growth. TNMP's third quarter weather-normalized load growth of 3.7% shows that Texas' economy is doing very well. Employment growth there has consistently outpaced the nation. Texas surpassed its 2008 pre-recession employment peak late in 2011, and continues to expand. Year-to-date TNMP has seen 4.1% weather-normalized retail energy sales growth. 12-month average for TNMP load growth also shows strength at 3.2%. The year-to-date average customer growth rate at TNMP is 0.6%.

If we look at unemployment, Texas and New Mexico continue to fare better than the nation as a whole, but we recognize the numbers, especially in New Mexico may be artificially low, due to people dropping out of the work force. The unemployment rate in New Mexico is currently at 6.4%, and for Texas at 6.8% and I am sure you saw this morning that the US rate has changed to 7.9%.

If we turn to slide six for a summary regulatory update. As I mentioned earlier, the PNM renewable energy rider was approved, and rates were implemented on August 20th. We are very pleased with the outcome of this case, and believe that recent decisions from the New Mexico Commission indicate an improvement in our regulatory environment in New Mexico. We are awaiting a final decision from the New Mexico Public Regulation Commission on PNM's 2013 renewable energy plan. A hearing was held in September, and we expect a decision by the end of this month. As a reminder, the plan calls for an additional approximately 20 megawatts of PNM owned solar. It also includes a 20 year purchase power agreement for the output of a 10 megawatt geothermal facility that should be in service by January of 2014, and we would also have some wind and solar rec purchases in 2013.

These amounts if approved would be recovered through the renewable rider beginning in 2014. And you may remember that in 2014 when the plant's components are all operational, PNM expects to achieve full quantity and diversity compliance with the state mandates, and to be beneath the state's reasonable cost threshold.

Regarding the decoupling rulemaking in New Mexico, the Commission decided not to issue a NOPR based on the results of the first two workshops, since consensus had not been reached on all of the issues. Another rulemaking we are following concerns the use of a future test year in New Mexico retail rate cases. The Commission issued an order closing the record on the rulemaking, and the next anticipated step is for the Commission's General Counsel to draft an order that establishes rules for utilities to use when filing future test year cases. We are hopeful that the Commission will proceed with this rulemaking soon.

As you recall, in early July we announced a settlement in PNM's transmission case with FERC. The settlement was filed with FERC, and calls for a $2.9 million increase to transmission revenues. We continue to await FERC approval of the settlement, but do not have a timeline for that action. As we discussed on our second quarter earnings call, an important aspect to the settlement is that the parties agreed not to oppose the concept of a formula-based transmission rate filing, as long as we make that filing within a year of the pending case's approval by FERC.

The formula-based rates will be key in helping PNM to achieve close to its allowed return on equity for transmission. And we will file for formula rates prior to the year-end 2012. The FERC generation case with the Navopache Electric Co-op is also continuing toward a settlement. PNM and Navopache are making positive steps towards a resolution, and have reached a settlement in principal. However, the terms are confidential until we file the settlement, and we hope to be able to share these results of this case in the fourth quarter.

Let's take a look at slide seven to discuss the PRC candidates and the Constitutional amendments that are on the ballot in New Mexico. Commissioner Jason Marks is term limited in District 1, which is the Albuquerque area. There are two candidates running for his position, Republican Christopher Ocksrider, is an attorney in Albuquerque, and his opponent is Democrat Karen Montoya, who is the current Bernalillo County Assessor. Commissioner Doug Howe is not seeking re-election in District 3, which spans the northeast portion of New Mexico including Santa Fe. There is an unopposed candidate running for his position, and that is Democrat Valerie Espinoza, who is the Santa Fe County Clerk.

In addition to the PRC candidates there are three constitutional amendments on the ballot that are the result of Think New Mexico's reform, the PRC campaign. Amendment 2 on our ballot establishes minimum qualifications regarding the education, and/or relevant work experience for Commissioners. Amendment 3 would move administrative oversight of corporations to the Secretary of State's Office and finally, Amendment 4 removes the Insurance Division from the New Mexico Public Regulation Commission, and places it under and appointed Superintendent of Insurance. We look forward to working with the new Commissioners, and continuing to deliver constructive outcomes for both our customers and shareholders.

Let's turn to slide eight for an update on the BART situation at our San Juan plant. We are moving forward on three paths simultaneously to address the BART issues at San Juan. The three pathways are number one, the Federal implementation plan to install SCRs on all four units, and as reminder, this is the path that we are currently mandated to follow. Number two, New Mexico's alternative plan that was announced in October, and the final path is a litigation in the 10th Circuit Court of Appeals.

The first path or the FIP has a tight timeline for compliance. In order to meet this we have signed a contract with an EPC contractor for the SCRs. Our current estimate for the total project for the entire plant is $824 million to $910 million. We have also been working with the contractor to back-end load capital spending for SCRs as much as possible. We have provided revised capital amounts on the potential capital addition slide that is included in the Appendix to the earnings slides. These amounts shown reflect our current estimates of the SCR spending. Assuming that we continue with FIP compliance, we will make a filing by year-end to ask the PRC to grant prior approval of the SCR project, even though technically prior approval is not required. This prior approval would state that the estimated cost of the SCR project is reasonable and prudent, and establish the rate making treatment for the recovery of the actual costs that are incurred.

On the second option the New Mexico Environment Department is working to construct an alternative agreement between the federal and state regulators regarding BART at San Juan. The New Mexico Environment Department's proposed alternative appears to be an important step in meeting the objectives of addressing the environmental needs of the Regional Haze program at a lower cost to customers, while balancing the economic impact to the Four Corners region. If the proposal moves forward, it could become the new state plan. Under the proposal the smallest and oldest units at San Juan, Units 1 and 2 would be retired by year-end 2017. PNM owns 50% of these two units. And SNCR's would then be installed on the other two units at San Juan Units 3 and 4.

We would consider different options for replacement power, including gas-fired generations located in the Four Corners region. The State's proposal is not final, and if it progresses, it will go through further rounds of discussions before a structure is settled on. The EPA has extended the stay by another 45 days in order to provide additional time for the State and EPA to consider this alternative.

This new stay expires on November 29th. However, it is important to note that although the EPA has issued and extended the stay, it currently does not impact the final compliance date for SCR implementation of September 21st, 2016. If a new State plan is approved, PNM would make a filing with the PRC seeking abandonment of San Juan's Units 1 and 2. The filing would also generally describe the replacement power resources, demonstrate that the new SIP is the best alternative for meeting BART, and show that the costs are reasonable and prudent. We would anticipate making this filing within four months of the new SIP being approved by the EPA.

In the interim, we are moving forward on the third path, which is litigation in the 10th Circuit Federal Court of Appeals. Oral arguments were held on October 23rd, and we are awaiting the Court's ruling. As a reminder there is no particular timeline that the 10th Circuit must follow for the issuance of its decision. The lack of clarity around BART and the additional filings that we expect to make with the PRC, coupled with our success at PNM in earning our allowed return, causes us to delay the filing that we were planning in December that we had talked about previously. Chuck will give more color around the timing of the general rate case filing in his remarks. We will keep you posted as the issues around BART continue to develop, and with that, I will turn the call over to Chuck for the financial details.

Thank you Pat, and good morning to everyone. Beginning on slide ten, as Pat discussed, ongoing earnings were $0.69 for the quarter 2012, which is up $0.08 year-over-year. The majority of the improvement came from PNM with $0.16 that was largely driven by rate relief and the effect of last year's recapitalization. TNMP continues to be a solid contributor and was up $0.01 for the quarter. Corporate and other was $0.01 lower, the exit from First Choice Power and Optim caused a combined $0.08 decrease.

Now turning to slide eleven. Quarterly drivers for PNM include the retail rate increase that was implemented in August 2011, and the renewable rider that was implemented in August 2012. These were a combined $0.04 improvement for the quarter. The costs control efforts we discussed when we issued 2012 guidance resulted in O&M reductions, representing a $0.03 increase. These cost reductions were driven by items such as labor reductions, benefit plan savings, revised IT contracts, and other process efficiencies.

There are a number of other small drivers listed on the slide that also contributed positively to PNM. Included in the list is the FERC generation rate relief that we began collecting in April of this year. The PNM resources share repurchases associated with the recapitalization from last year's exit of the competitive businesses, improved PNM results by $0.08. As expected lower Palo Verde 3 prices were a negative driver causing a $0.01 decrease compared to 2011.

Interest expense increased due to the debt issuance at PNM in October 2011 for a $0.01 change. Weather accounted for $0.02 decrease, due to the higher temperatures in 2011. Cooling degree days for PNM were 10% lower than last year, but we are still9% higher than normal for the third quarter 2012. TNMP was up $0.01. As Pat mentioned TNMP has continued to see strong load growth contributing $0.02 over last year. The PNM Resources recapitalization improved TNMP's results by $0.01. Weather had a negative impact at $0.02 compared to last year, cooling degree days were down 17% from last year's record breaking heat, but we are up $0.02 compared to normal.

Now turning to slide twelve. As you see in our press release this morning, we are narrowing our 2012 guidance range to $1.26 to $1.32, from the previously announced range of $1.20 to $1.32. Our performance for the first nine months of 2012 has been strong,with year-to-date ongoing earnings ever $1.18. There are a number of factors that will be affecting fourth quarter performance.

So far this year we have been running under our guidance for outage expenses, but by year end we expect to be line with the annual guidance of an additional $0.03 of expense compared to 2011. We will be incurring some additional operating in the fourth quarter that will help ensure that we are able to maintain strong electric reliability and power plant availability. PNM has had top-quartile reliability for the past ten years, and TNMP has been top-quartile in six of the last seven years. We have also had strong power plant performance. We expect these fourth quarter expenditures that we are making will help keep these trends going in the future.

The increased spending will offset some of the fourth quarter O&M reductions that we discussed when we originally issued 2012 guidance. These adjustments will also cause the quarterly distribution of earnings that we provided in our with 2012 guidance materials to be lower for the fourth quarter. When we issued guidance, we anticipated that PNM's load growth would contribute about $0.03 to $0.07 in 2012 compared to 2011. As Pat mentioned earlier, year-to-date load growth is at 0.2%, and we now expect 2012 to come in roughly flat compared to 2011. Although we will provide 2013 guidance and indicators for 2014 on December 7th, we currently see only a slight load improvement in 2013.

As I mentioned earlier, so far in 2012 PNM has experienced weather that had more cooling degree days than normal, which has helped to make up the difference generated by the lower than expected load. We continue to expect Palo Verde 3 pricing to be lower than it was in 2011. As we mentioned at last quarter's earnings call we were well hedged,now about 93% for 2012. At an average price of $31. We are also effectively fully hedged for 2013 at an average price of $32, which is the current market price. These are the primary factors that will cause our total year to be in the range of $1.26 to $1.32, making our fourth quarter earnings between $0.08 and $0.14.

We also want to note that we continue to expect to earn our allowed return in 2012 for PNM retail. TNMP is also expected to come in very close to their allowed return this year. Pat indicated earlier that we will be delaying the timing of our PNM rate case filing. We have continued to manage our business well, and our allowed retail return trajectory at PNM is remaining stable. This combined with the uncertainties related to the BART issue at San Juan, and the other BART related regulatory filings that Pat discussed has prompted us to delay our PNM general rate case filing until next year. We currently anticipate filing it in either the second or third quarter in 2013, as we gets more clarity we will solidify those dates.

As you are aware, we have a strategic goal of earning a total return of 10% to 13% over a five year period. 2012 is the base year for that measurement. Our return to a regulated utility model with a more predictable earnings path, and our strong performance gives us continued confidence that we will meet that five year total return goal. We are making sure that our decisions will support the achievement of that goal.

Now looking to slide thirteen, we have extended the revolving credit facilities at PNM Resources and PNM for another year until October 2017, to support our future liquidity needs. As of last Friday the availability of liquidity for the consolidated Company was $660 million. And with that, I will turn the comments back over to Pat.

Thanks, Chuck. I will wrap up today's call as usual, with a checklist for 2012 on slide fourteen. Earning our allowed returns as top priority for us, and I am pleased to be able to demonstrate continuous progress on the goal, with the strong earnings for the quarter and the approval and implementation of the renewable rate rider at PNM. On the other regulatory matters we are making progress as I discussed earlier. As Chuck discussed, we are making investments today, to ensure we continue to meet our strong electrical liability and power plant availability.

Operator, with that we can start the question-and-answer portion of the call.

Yes, ma'am. (Operator Instructions). One moment for questioners to queue. Our first question comes from Justin McCann with S&P Capital, please go ahead, your line is now open.

Good morning. I have two questions. One related to BART, the other the significance of the next week's ballot proposals. When the Court of Appeals rejected Casper, I mean they kind of specifically stated that while the EPA could set overall guidelines, that it was basically up to the State to decide how to implement it as long as it met those guidelines. How has that affected your own negotiations with the EPA, or your own potential litigation? And two, assuming that you would have to, that the EPA, you would have to go with the $824 million to $910 million, how would you get the, what kind of accelerated cost recovery would you get for that, and with the fact that would be added to your rate base, kind of make the expenditure say more economic than otherwise? And regarding the ballot proposals, given the improved relations you have with the regulators, or the improved regulatory environment in New Mexico, how much significance would there be if all of these proposals went through?

Thank you, Justin. I will answer the last question first. The ballot proposals I think would be helpful in a couple of ways. First of all, our Public Regulation Commission has an absolutely incredible work load, in terms of the fact that they oversee many industries, and one of the ones that takes a long time is insurance. So moving insurance out under a separate Insurance Superintendent, really just helps the PRC be able to focus more on what are the traditional Public Regulation Commission functions of utilities, water, waste water, telephone, and same with moving the corporations into the Secretary of State's office.

In terms of the minimum requirements for the PRC, as long as Commissioners are fair and willing to learn, which we see with our Commissioners, we are happy to work with any Commissioner, and we have as you said have gotten very constructive regulatory outcomes with our Commissioners, so we have not had an opinion actually on those ballot amendments, because we think that our job is to work with regulators no matter who they are. In terms of BART, negotiations with the State and the EPA are confidential, so we can't reveal the details of that.

In terms of the Casper argument, the argument that the State made in the hearings at the 10th Circuit was about the State's rights here, and the State's ability to have the plan, and that the EPA should respect the State's plan. So that was a key piece of our argument that we feel obviously was bolstered by the Casper decision, but from listening to the judges ask questions, it is hard to read Judge's tea leaves I think, as it is sometimes to read election polls, so we are just going to have to wait to see the outcome of that decision.

Okay. Thank you.

Okay.

Thank you. Our next question comes from Kit Konolige with BGC. Please go ahead,your line is now open.

Good morning guys. Thank you. In terms of the election of the Commissioners, in particular the folks running for the Marks seat have, first of all have you seen any polls, speaking of reading tea leaves, are there polls indicating who is going to win that in your view, and secondly, have the candidates said anything while they are campaigning about how they feel about utility regulation or PNM in particular?

Kit, there have been no polls done on the down ballot race, including the Commission races, so we don't know from that who is likely to win. Probably Karen Montoya has the edge because she is the current Bernalillo County Supervisor, and has very good name recognition, and the district that she is in is expected to go for President Obama, and Martin Heinrich, the Democrat fore Senate, and the Democrat for Congress, so there is probably momentum swinging to the Democratic Party in this district, but again we haven't seen any polls.

Each candidate fills out a questionnaire for the Albuquerque Journal when they run, and they have both been I think, very measured in what they have said, and that they want to learn the facts, and they want to be fair, and they want to balance interests, so we have not heard anything from either of those candidates, or from the unopposed candidate in Santa Fe that gives us pause, and they have been very open about wanting to learn and understand the issues. So we feel comfortable with whoever ends up winning that seat.

Very good. Okay. And secondly, on the timing of the next rate case, Chuck I think you said there are a couple of factors that the business is being managed well. I am taking that to mean maybe you are earning better allowed returns at this point than you thought you might be, but if you can follow up on that. And secondly, you said the uncertainty over BART makes you want to delay. Can you be more specific about what it is, that the BART negotiations would result the outcome there, are we looking at you asked the Commission to put CWIP in rate base, or other items that would likely be part of a rate case?

I will answer the second part of that, and have Chuck answer the first part. What we really would like before we file the rate case is to know whether or not we are going to have the alternative or the FIP, and if we end up with the FIP, with the four SCRs, we will have established a very good prudence record that we tried to come up with an alternative, and were not able to do so. With the EPA we really want to make sure that we have that, because the SCRs are expensive to our customers, that will help we believe in rate recovery of those SCRs. If we come up with an alternative it is a very different looking rate case because it as abandonment of two of the San Juan units in there, along with some replacement generation. So we would look at depending upon which plan we get, what kind of rate making treatment we want, and if we put a rate case out there with a lot of work, and then have to switch in midstream, we know our intervener group would rather us wait, and have a more settled path on the capital spending.

Yes. I don't think I can really add to that, just to say that you are trying to look ahead and prioritize what flow of information and requests we demand of the Commission to address some of these issues, that we think it is prudent to delay the rate case. We are very comfortable with our performance this year, and as we think about even the six or seven month type delay, that the outlook towards the business going forward to still meet our total return commitments that we have been making.

So there are a number of items that just need to be prioritized and the flow of the information, but we are very comfortable with where we stand, and just a six month delay would allow us to get some time to see where the four test year, and the rules come out, and where some of the information that would provide some clarity for us into how we can adequately go forward with our plans for the next rate case.

Great. Thank you.

Thank you, sir. Our next question comes from Brian Russo with Ladenburg Thalmann, please go ahead. Your line is now open. Your questions, please.

Good morning.

Morning, Brian.

Early on I think you have expressed confidence in earning close to your allowed ROE at PNM Electric, and part of that confidence was the cost cutting efforts you have implemented, as well as over 1% annual load growth, and it seems that you are now becoming more conservative on the load growth side, yet you still express confidence in earning your allowed ROE. I was just wondering if you could just add a little insight into the confidence level?

Yes. I mean I think that some of which we all know that when you look at weather and the economy and energy efficiency and trying to work through adequate load projections it is a little more challenging. So we are just trying to be reasonable and reflective of what we think is probably our outlook going forward to be a little more conservative in our thinking about that growth, but certainly we continue to manage the costs of the business, align the revenues and expenses, to work towards meeting the allowed returns. So at this point Brian, we don't see even with the load projections, any reason to be concerned that we won't manage the business well enough to ensure that we are comfortable with meeting those long-term objectives.

Okay. And assuming you guys file a PNM Electric general rate case in the second or third quarter of next year, what would the forward test year be?

Technically if we did it the middle of next year, it would be mid-June of 2014 to 2015,June of 2015.

Okay. And correct me if aim he wrong but it seems like the total costs range ever the BART expenditures have declined?

They have declined a little bit. We have said $750 million to $1 billion, and that range has narrowed as we have gone through, we had four bids from four contractors, and then selected one, so as we have gone through the process and refined it, the range has narrowed and declined. Yes you are correct.

And the State alternative plan could you give us a rough estimate of what those total costs would be, relative to your 46% share of the revised BART costs?

We can't at this time because we are still in negotiations with the Environmental Protection Agency and the State, but overall it would be a less costly plan to customers.

Okay. And also in the last rate case settlement, did you get some sort of environmental rider approved, or am I totally off on that?

No. What we got in the last rate case was when we agreed to stay out of rate cases until January, or new rates until January of 2014, the one exception to that was in any environmental expenditures that were mandatory for us to do. So we could go ahead and file for that, but given that we have managed to put off spending any significant capital until now, we really don't need that environmental carve-out or exception.

Okay. And any thoughts on how the Commissioner how you would file to recoup the book values of the San Juan's Units 1 and 2 plants that you plan on retiring in the SIP?

I think we will wait on that until we come up with, know which plan we are going to have.

But I would imagine it would be critical for you to recover that book value, right?

Yes. Correct.

Okay. And then lastly any update on the Palo Verde lease expiration? What your strategy is with that?

No. At this point because we don't have a requirement to give notification to the lessors until January 2013, we are not disclosing what our notifications would be, but we can talk probably more clearly about that in December when we give the guidance information, and some of the outlook towards the business.

Okay. Thank you very much.

Thank you. Our next question comes from Ali Agha with SunTrust. Please go ahead. Your line is open.

Thank you. If the State alternative plan does go forward and you do retire those units, just remind us what the incremental capacity need you would have to make up the difference, and is the plan to build and own that difference? Would you need PPAs with Palo Verde 3 coming into the mix? Can you just prioritize to us what realistically would be the alternative that you would need to make up for that difference?

Yes. We would, we like to own our own generation here, and our Commission likes us to own our generation here, so we would end up looking at we have said publicly looking at some possible now gas-fired generation at the Four Corners region, looking to see if there is any existing generation around, we would need about 340-megawatts replacement for the two units that would be shut down there, so we are looking at a combination of things, but the new gas in the Four Corners to help that region deal with the impact of the shut down of two units, and looking at existing generation is as much detail as we have given publicly right now.

Okay. But net/net looking at how depreciated those units are, is it fair to assume there would be a net increase in rate base when all is said and done here, if that is the path you go down?

Yes. That is a fair assumption.

Okay. And then secondly, I guess you are indicating that December 7th you are going to have a separate call like I think you did last year, but as I look at 2013 given the timing of the rate case, et cetera, is it fair to assume that there is no significant rate increase that is going to be in effect in 2013, that the deltas year-over-year are really going to be load growth driven, or is there AFUDC, or anything else that compensates for that, or am I right in my thinking there?

You are right in your thinking. There are no rate increases, and just the continued costs cutting initiatives that we have in place, the fact that even load growth is slightly off, we will still be able to communicate strong performance when we have that meeting December 17. So it is too early for us to discuss any details, but certainly we are confident that you will continue to see improvement in PNM.

And remember that renewable rider that went into effect this year on August 20th, is in effect for the full year next year, so that is the one rate impact that you would get.

Right. And then Chuck, if I heard you right, I think you said you are now fully hedged for Palo Verde 3 next year at around that $32 level, and if I recall, the all-in cost for that unit is probably more in the low-$40 range, so fair to say that we are looking at losses at least in 2013 to continue for Palo Verde 3?

Yes. That is correct. That is correct.

Okay. Thank you.

Thank you. (Operator Instructions). Our next question comes from Paul Fremont with Jefferies. Please go ahead. Your line is now open.

Thank you very much. First question would be, would you expect that the State and the EPA will be able to reach an agreement before the stay expires, or are you anticipating another extension of the stay?

Paul, we would expect that they would be able to reach and agreement before the stay expires, or shortly thereafter. For us the reason we signed that EPC contract is we are now to the point where we have to start spending money to comply with the FIP, so that window is going to close pretty much around the time of November 29th, plus or minus a little bit of time.

So that would mean that when you talk about sort of four months after a final agreement was reached that you would potentially file a rate case within that window, right?

No. What we talked about filing within four months was the approval of the plan, not the rate case for the plan. And when we talked about our next general rate case, we talked about filing that in June of next year, so two separate filings.

Okay. And approval of the plan by who? Would that be by the EPA?

Well, there is a whole series of plan approvals. This particular filing we have to have the State Environmental Improvement Board approve a new State Implementation Plan that then has to be approved by the EPA. We would also like to have the Commission approve sort of in general that it is the right plan, without specifying necessarily the amounts in it, but get some pre-approval from them on the plan also to help cost recovery.

Okay.

And if we are doing new construction you need a CCN, so you get that as part of it.

And I take it by your earlier comment that you have been in discussion with some of the major intervener parties, and your thought process of delaying the GRC, and combining these all meet with, all basically they agree with sort of your strategy, right?

In general all of the interveners would rather deal with one case than two, and so we have been keeping then up to speed on where we are with BART.

Okay. And then in the quarter you guys experienced an increase in AFUDC contribution, it looked like CWIP through the second quarter was nearly flat to what it was last December. Was there a large increase in CWIP in the third quarter, or what is driving the AFUDC higher?

Paul, it is really driven by a higher AFUDC rate,because we have lower short-term balances, so it is just the way the accounting works to have the appropriate rate applied against CWIP.

Okay. So CWIP, there was no major change in CWIP in the third quarter?

No. No. Not at all. No. Just a higher rate. If you maintain lower short-term balances, then you are going to get the benefit of the higher rate, whereas if you have the higher short-term balances, you have to use the short-term rate.

Thank you very much. That is itfor me.

Thanks, Paul.

Thank you, sir. And presenters, others, at this time I'm showing no additional questioners in the queue. I would like to take the program back over to Pat Vincent-Collawn for any additional or closing remarks.

Thank you. And again, thank you all very much for joining us. We hope all of you on the East Coast are warm and dry and have your power back on, and just want to salute the whole industry for their effort to try to restore everyone after Sandy. And we look forward to seeing many of you at EEI the week after next. Thank you.

Thank you. Again ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. Attendees, you may disconnect at this time.