Pinnacle West Capital Corp (PNW) 2004 Q1 法說會逐字稿

Good afternoon. My name is Brooke, and I'll be your conference facilitator today. At this time I would like to welcome everyone to the Pinnacle West first quarter 2004 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, press star then the number 2 on your telephone keypad. I would now like to introduce Ms. Becky Hickman, Director of Investor Relations. Thank you. Ms. Hickman, you may begin your conference.

Thank you, Brooke. I'd like to thank everyone for participating in this conference call to review our earnings for the first quarter and recent developments. This call is being webcast simultaneously on our website, www.pinnaclewest.com, and a replay will be available on the website for the next 30 days. A replay of the conference call will also be available through May 14th by calling 800-642-1687, and entering access code 6629019. This morning I have with me Bill Post, our Chairman and CEO, Jack Davis, who is our President and Chief Operating Officer, and also President and CEO of Arizona Public Service, and Don Brandt, CEO of both Pinnacle West and APS.

Here's an outline of our call's topics. Bill is going to provide an overview of some of our major accomplishments and challenges for the quarter, then Don will discuss the primary earnings variances and other financial topics. After that Jack will update you on the status of regulatory developments and some of our operational results. Finally, Bill will wrap up with a strategic summary.

Before I turn the call over to our speakers, I need to cover a few details with you. First, our 10-Q for the first quarter is available through the SEC's website via Edgar. Second, the quarterly statistics section of our website contains extensive supplemental information on earnings variances and quarterly operating statistics. The website also includes comparative information back to 2001 for your detailed analysis later. Third, please note that all of our references today are -- to per share amounts will be after income taxes and based on diluted shares outstanding.

It is also my responsibility to advise you that this call will contain forward-looking statements based on current expectations and the company assumes no obligation to update these statements. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Please refer to the MD&A in our March 2004 10-Q which identifies some important factors that could cause actual results to differ materially from those contained in our forward-looking statements. Finally, this call and webcast are the property of Pinnacle West Capital Corporation and any copying, transcription, redistribution, retransmission, or rebroadcast of this call in whole or in part without Pinnacle West's written consent is prohibited. At this point I'll turn the call over to Bill Post.

I'd also like to thank everyone for taking your time to join us today. Our earnings for the quarter were up from a year ago. We reported net income of $30 million, or 33 cents a share, compared with $25 million or 28 cents a share in the first quarter 2003. Don will give you the details of our financial results for the first quarter and then Jack is going to give you an update on our pending regulatory issues and the details of our operations. But first I'd like to discuss our guidance for 2004.

In short it doesn't change with the exception of the recently announced Phoenix Suns sales. Eldorado is a limited partner in the Phoenix Suns through which it holds an approximately 22% interest. In April the Phoenix Suns limited partnership approved the sale of the partnership's assets to a new investor group. The sale is expected to close by June 30th of this year, but it is subject to various approvals, including approval by the NBA. We currently estimate the transaction will result in an earnings gain of approximately $20 million after taxes.

Details on our earnings guidance and the major underlying assumptions and the sensitivities are described in the 8-K that we filed last October. The guidance established a target of $2.50 per share for 2004 and assuming -- that assumes no contribution from a rate case. We confirmed this previous guidance with the addition of the Phoenix Suns sales which will add approximately 22 cents per share. Now I'd like to turn it over to Don.

Thanks, Bill. I'll discuss our financial results for the first quarter and the significant changes from last year's comparable quarter. Whenever I refer to amounts in millions of dollars, I will be referring to amounts after income taxes unless I indicate otherwise. We reported consolidated net income of $30 million or 33 cents per share for the first quarter of this year. This represents an increase of $5 million or five cents per share compared with the same period a year ago. There were no significant, unusual or nonrecurring items that affect the comparison.

The earnings increase was driven by retail sales increases related to customer growth, usage, and weather and lower regulatory asset amortization. These increases were partially offset by the costs related to West Phoenix unit 5 which was placed in service in mid 2003. Replacement power costs related to unplanned power plant outage time and a rate decrease for our retail customers. I'll explain each of these factors in more detail.

Growth in our customer base and average customer usage added about 8 cents per share in the quarter. Our customer base grew 3.4% in the quarter compared with the quarter a year ago. This growth continues to be about three times the national average.

The weather variance was favorable for us this quarter, contributing about 7 cents per share. The variance reflects a return to more normal weather. This year's first quarter reflected fairly normal weather overall. However, there were variances from normal in the quarter. For instance, March was the hottest March on record. Last year's first quarter included the mildest winter on record.

Our intrinsic growth continues to underpin our performance. Our retail sales in the quarter grew 10.3% overall compared with the first quarter of 2003. Excluding the effects of weather, retail sales grew 5.3%. Looking at the growth by customer class on a weather normalized basis, residential sales increased 6.2%, and our business sales increased 4.6%. Indicating fairly strong growth for both customer classes. The decrease in regulatory asset amortization added about 8 cents per share.

As a reminder the 1999 settlement agreement provided for the accelerated amortization of substantially all of APS's regulatory assets. The amortization will be complete at the end of the second quarter of this year. Each of the first two quarters of 2004 will include amortization of $9 million per quarter, or 6 cents per share. Last year we recorded pretax amortization of $21.5 million or 14 cents per share in each quarter.

Unit 5 at our West Phoenix plant was placed in service last summer. The increased cost of the new plant such as depreciation and interest costs were apparent in this year's first quarter. The increased costs related to the new plant totaled approximately 7 cents per share. Replacement power costs attributable to unplanned plant outages reduced our earnings from 6 cents a share. The only significant unplanned outages were at Palo Verde units 2 and 3 in late February and early March. Jack will address these outages from operations perspective. Our final rate decrease under the 1999 settlement was implemented July 1, 2003. This 1.5% decrease reduced earnings in the quarterly comparison by 4 cents per share.

Our marking and trading segment did not contribute significantly to the quarterly comparison. The net increase in gross margin was only $1 million, or a penny a share. However, I will briefly review the primary changes in that segment. The mark to market transactions that will be delivered in future periods increased 7 cents per share because of higher forward prices for electricity. This favorable factor was significantly offset by a reduction in the unit margins on APS energy services retail contracts in California, which reduced our earnings about 5 cents per share.

SunCor's earnings decreased to $2 million in the quarter from $6 million in the year earlier quarter. This 5 cents per share decrease reflects the timing of transactions in each of the respective years. SunCor's accelerated asset sales program is well on track. We currently estimate that 10 to 20% of SunCor's earnings in 2004 will be reported as discontinued operations in accordance with generally accepted accounting principles for certain types of property dispositions.

Now I'll turn back to our marketing and trading business. As we have mentioned before, the primary focus of our marking and trading business is risk management. We emphasize hedging our natural gas and purchase power risks. To that end, we are currently 70% hedged for the balance of 2004.

In the first quarter of this year, the results from our marketing and trading business continued to reflect the difficult energy markets in the west. Spark spreads have continued to shrink. As shown in our quarterly statistics on our website, compared with a year ago, spot prices at Palo Verde are down 12% on peak and down 7% off peak. For these same periods, natural gas prices increased approximately 4%. Spark spreads at Palo Verde were extremely low during the first quarter this year averaging under $5 and dipping below 0 on numerous occasions. As a result, our gas plants were not presented with many market opportunities.

From a trading perspective, the volume of new deals we originated in the first quarter increased 34% compared with the first quarter of last year. While the volume is up significantly, the spreads are extremely narrow and the deals are of relatively short duration. About 90% of the new deals originated in the first quarter of this year will go to delivery in 2004.

Consistent with our October 2003 earnings guidance, we continue to believe that margin contributions from new trading volumes will be insignificant in 2004. Also consistent with our earlier earnings guidance, we continue to estimate that approximately $25 million of pretax gross margin will be realized this year on structured transactions initiated in prior years that will be delivered this year.

Now I'll turn to our recent financing activity and our discussions with the credit rating agencies. Following the filing of the ACC staff's testimony on February 3rd, both Moody's and S&P placed Pinnacle West and APS ratings on negative outlook. Based on our ongoing discussions with the rating agencies, I believe the negative outlook will continue until there is more clarity as to the resolution of the rate case.

During the first quarter of 2004, APS repaid $205 million of maturing debt and Pinnacle West repaid $215 million of maturing debt with available cash and short-term borrowings. There are no additional debt maturities in 2004. Earlier this week, we announced that we have repaid all of APS's first mortgage bonds and terminated the mortgage. We had two series of senior notes that had fall-away provisions which are now unsecured. As a result, all of APS debt is now unsecured. We believe this action gives us head room for ratings upgrades of the unsecured debt when the rate case is resolved and eliminates the cumbersome efforts required to administer the 1946 vintage mortgage. Now I'll turn the call back over to Jack.

Thanks, Don. Today I'm going to give you a brief update on regulatory developments with the Arizona Corporation Commission and a summary of our recent operations. I'll start with the regulatory front. APS's pending rate case is by far our most prominent regulatory activity. Since our last conference call at the end of January, there have been a lot of developments in the case. In a nutshell, the ACC staff intervenors filed their testimony on February 3rd. We filed APS's rebuttal testimony on March 30th and we have entered into settlement discussion with the ACC staff and all intervenors. I'll give you some color on each of these activities.

First the staff's and intervenor's testimony. As most of you know the ACC staff filed testimony recommending an 8% decrease in stark contrast to our request for a 9.8% increase. Many have described the staff's position as extremes and we certainly agree with that assessment. Regulatory Utility Consumer Office, or RUCO, recommended a 2.84% rate decrease. Other intervenors recommendations and their testimony were less dramatic but as in any rate case did not agree with all the facets of our request.

We mounted a substantial effort in rebuttal testimony. We filed some 1300 pages of testimony and exhibits for 22 witnesses. It is our position the rate increase we have requested is essential to ensure APS's continuing ability to reliably serve one of the fastest growing regions in the country. We also believe that the adoption of either staff's or RUCO's recommendations would result in downgrading of APS and the parent company's debt to junk levels. In short I believe we have presented a very strong case.

Finally, we have begun settlement discussions with the ACC staff and intervenors in the case. All of the parties have agreed that the content of these discussions are confidential. We and the other parties began meeting on April 19th and we expect the full group to meet at least once a week. The process to date actively involves all the 31 parties in the case.

The administrative law judge for the rate case has granted the stay in the traditional rate case procedure schedule beginning May 1st to allow the parties to focus on settlement discussions. She also vacated all the previously established dates for testimony filing and hearing. She has scheduled a procedural conference on May 26th for the parties to report to the commission on the status of the settlement discussions and determine whether to continue or stay the reestablished procedure schedule. At this point it is too early to tell whether we're able to make a settlement on these discussions. To wrap up my comments on rate case, we believe we have a very strong case that supports APS's ongoing ability to provide reliable service to our customers, and we will vigorously defend our position.

As you know we issued a request for proposals in December for long-term power supply resources beginning in the 2006-2007 time frame. On our last conference call, I provided a brief summary of the bid results. We filed an 8-K with the summary of proposals we received. Other than those summaries, the bid results are confidential. In early February we notified the bidders as to their status. Whether we found the bids to be worthy of further consideration, due diligence and negotiation, or whether we found their bids to be unacceptable. We're continuing to explore possibilities presented in some of the proposals but I am not able to comment further on the RFP at this time.

Now I will briefly review some of our operating activities during the first quarter. As Bill and Don have said growth in our retail service territory is remarkable. Therefore we maintain a steadfast focus on customer satisfaction and exceptional operational performance throughout our organization to serve our growing customer base.

Looking at out power plant performance, the capacity factor of our nuclear units was 88% in the first quarter. Major factors that affected our nuclear performance were unplanned outages at units 2 and 3, a total of approximately 4 weeks of outage time. We voluntarily took unit 2 out of service to check a miniscule leak in a tube in one of the new steam generators. After extensive inspections and testing, we determined that the leak was an isolated incident caused during the manufacturing process. Unit 2 was down for 19 days and has been running at full power since it was returned to service. In fact, unit 2 should become the top generating unit in our fleet because of the upgrade that resulted from the [INAUDIBLE] generator equipment.

Unit 3 was out of service for 9 days because of an electrical issue relate to the turbine generator and a boron residue on a pressurizer heater sleeve. Again has been running at full power since that outage. Also during the first quarter, unit 1 has run very well so far this year, although it was taken out of service for four days to repair a small leak in a one-inch drain line. We are currently completing regularly scheduled fueling and maintenance on unit 1 that began on April 3rd. We expect the unit to begin power ascension this weekend. Construction and testing at [INAUDIBLE] plant in southern Nevada are on schedule. Currently, we expect to place the unit in commercial operation this summer.

A number of analysts have asked about our exposure to coal price increases, so I'll provide a brief overview. Our plants use low sulfur western coal. We have contracts to supply all the coal requirements for our plants. These contracts extend through 2016 for Four Pointers, 2007 for Showia, and 2011 for Navajo. The excalation clauses relate to national or local economic factors depending on the contact. Our weighted average cost of coal in 2003 were $1.23 a million BTU. Over the next five years we currently expect those costs to escalate on an average annual growth rate of less than 3% per year.

In addition to the regulatory activities in Arizona I have already described. we're actively participating in regulatory developments on the federal level including energy legislation, standard market design, regional transmission organization and market power tests. In summary we continue our emphasis on exceptional customer service and operational performance throughout the country and we are focused on constructively addressing regulators at the state and federal levels. At this point I'll turn the call back over to Bill.

Our rate case outcome is clearly the most significant single factor affecting our outlook. We are fully committed to achieving an outcome that will cover the cost of providing reliable service to our fast-growing customer base while provide a fair return to our shareholders for their investment in our company and our state. In addition to the rate case our employees focus intently every day on the -- on all of the facets of our business, providing exceptional customer service, improving our operations, managing the risks of our business, controlling costs, and planning for the future. I continue to believe that our underlying customer growth and the related potential for earnings and dividend growth are distinguishing characteristics for our company. Our goal is to continue capitalizing on these advantages.

That concludes our prepared remarks. And we would be very happy to answer all of your questions.

At this time I would like to remind everyone if you would like to ask a question please press star then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q and A roster. Your first question from Dan Eggers with CSFB.

Good morning. Yeah, good morning still I guess for you guys. Question number one. You said that the first quarter was tough for California power exports, the market wasn't there. What did you guys see in April as you continue to hear about warnings as far as power availability in California and what are your expectations for the remainder of the year?

Well, there were, Dan, Don Brandt speaking, couple isolated instances. This last Monday we saw California prices on SP15 go to $185 a megawatt hour but Palo Verde prices stayed at $73, principally due to some transmission limitation on SP15. Again a very isolated instance but I think it does kind of give an indication of the potential certainly for the summer. We are cautiously optimistic about it but we're not factoring any of that into our guidance at this point.

So you're expecting still kind of a loss position for 2004 out of those assets?

Yes.

Next question, I guess, Jack, maybe you can answer this, but with the FERC's SMA standards and the tests there, have you taken any time to look at those and figure out how I guys would fall within those rules if you were to include all of the assets into rate base as proposed with your filing?

This is Jack. Yes, we have. The new test is the pivotal supplier test and the market power test and looking at each one of those we're still in preliminary looking at that because the critical question is what is the deaf news of the market area and the second test and so we have actually hired a third-party kind of look at our analysis to see where it all sits but I don't -- so I don't have any answer right now for that particular test.

When do you guys -- when would you expect to hear something back from that?

Well, probably when the next month or so.

In the midst of settlement talks, could be presented as a conversation point?

In the middle of several talks, yes.

Thank you, guys.

Your next question comes from Tom O'Neil with Lehman Brothers.

Good morning. How ya doing?

Hi, Tom.

Clarify a question on the earnings guidance. You were staying Phoenix Suns gain is on top of the 250 guidance?

Yes.

Question on the transmission. Just curious what sort of export capacity you have to California currently and then any update that you could give on the Devers line into California over time.

This is Jack. The export capability into California is very small because the export capability we have actually serves our load in the Yuma area which is in the southwest part of the state. All of our transactions we deal with California are transacted at the Palo Verde hub or the Four Corners hub but we -- or the beat hub in southern Nevada. We don't own any transfer capability into California.

Okay.

You had a second question.

Devers line.

Oh, Palo Verde Devers number 2 line. We are participating in the planning of that line and it's still in the, should I say, planning and discussion process. So I don't see any great revelation coming from that yet.

Couple years out?

Oh, yes. Making decision is a couple years out.

Thank you.

Your next question comes from Terry Shoe, JP Morgan.

The clarification of your guidance has been answered already. I guess the critical point right now is the rate case and settlement talks. I gather that there's no particular time frame, that it can go on for awhile, and if it continues to all parties want to continue you could extend it. I mean, can it go past the election somehow should we view as far as the time frame? Does it just go on until something happens, and at some point is the two sides -- or the various sides are too far apart then the decision is made to discontinue? How does that kind of work?

Well, as Jack described to you there's check points in the process.

Right, right. The next date is May --

26th, I think. And, so you know, I can't predict, and as Jack said, we can't really predict that other than as he described to you the discussions continue, and we would expect there to be some public discussion about that on the 26th of May.

So for now the next check point is May 26th.

Right.

Okay. Thank you.

Thanks, Terry.

Your next question comes from Michael Goldenburg with Luminous Management. Mr. Goldenburg your line is open.

Just had a question on your 2004 guidance. I think you mentioned that you were about 70% hedged for gas in 2004.

Yes.

Would it be possible to let us know about like approximately gas price or anything like that?

It's hedged at -- won't give you the specific price, but about 10 to 15% below forward market prices for each of the next three-quarters.

And for your 2004 guidance do you assume the other 30% at whatever today's prices are or today's curve is?

Yes.

Okay. Is it possible to just toll us approximately what you averaged in 2003 for the gas prices?

Not off the top of our head.

Becky can get back to you with the number.

Just more conceptually, maybe if you can talk about sparks. -- spark spread. I understand you have unregulated generation that would obviously benefit from better spark spreads, but given the utility's fixed rate current structure, would that be negative, and if so, which side wins out? The overall to Pinnacle is it better to have bigger spark spreads or smaller spark spreads, given the current rate schedule?

Bigger spark spreads would be better.

So amount of generation outweighs the amount of needed capacity to seven the utility?

Yes.

Thank you very much.

Your next question comes from Steve Fleishman with Merrill Lynch.

Hey, guys.

Good morning, Steve.

Couple questions, and I may have missed this, butt seems like some of the Four Corners units have been down a lot, or down now. How long is that that plant going to be down?

Steve this is Jack. Four Corners unit is down today for a tube leak, probably be down for the weekend, Four Corners 4, and it was down earlier in the year for a planned outage which was more than a month long to replace part of the bottom of the boiler, but right now, quite frankly. The first quarter this year, the coal plants in total actually ran better than we had expected.

Great. Okay. Then also I think one of your co-owners mentioned that one of the fall Palo Verde outages could potentially get extended. Could you discuss that?

In a conservative measure we discussing on extending our fall outage to replace the sleeves in the pressurizer.

How long would that get extended?

My estimate right now would be somewhere between 18 and 20 days.

And that's in the guidance?

Yes.

Okay. And finally, I'm curious, maybe Bill could answer this question, with respect to, you know, whether there's been some increasing recognition party in the state to the fact that it's already starting to get tight again in the west. And that this is obviously an, you know, important issue. Just any flavor on, you know, are they reacting to anything they've seen even so far this year?

Well, Steve, I think -- let me answer that generally, in terms of infrastructure for the state. I think there is a strong feeling here. We're in the press today as one of the -- in fact, the sixth highest in terms of cities across the state in terms of gas prices. What happened a year ago in terms of shortage of gasoline prices still remains high from a general standpoint in the public's mind. Along with that, we continue to see movement on the part of both the legislature and governor to deal with what they describe as infrastructure issues which include gasoline as well as electricity and natural gas. So there is continuing attention to the issues of having sufficient infrastructure to meet the kind of growth that Don talked about. If you look at our growth, both in terms of number of customers and the increase in use per customer, that continuing pressure, which is seen in Arizona, as very, very positive to improving the economy, and in dealing with from a public standpoint today, the deficit that the state faces. That deficit is being solved literally by one thing, and that's growth in the state. So anything that's antigrowth is seen as very, very negative. I don't know if that answered your question, Steve. That was kind of a high level -- was that what you wanted, kind of a high-level tone?

That's helpful. I guess maybe in another way, we've already had some periods of stress on the California system, you know, in April, I know a lot of plants were down, but is there any sense of people watching and reacting to that?

I think that's just beginning, Steve. As you know, we've said for sometime that these spreads and the pressure in terms of reserves are going to increase, and that's not in our guidance, as Don described, but we do believe that's going to occur.

Thank you.

Thanks, Steve.

Your next question comes from Shar Acon from SAC Capital.

When I was following the proceedings leading to the settlement talks and the hearings, I think the expectations were that when the LGS set these dates that was that we have some kind of a settlement, you know, early in the summer, and as part of our expectation in terms of delaying the whole proceedings. Am I missing something that we should be, if there is a settlement, we should be looking for something in the June-July time frame to hear a settlement about?

This is Jack. Yeah, when we -- when the schedule was set aside, there wasn't any expectation of any timing of a settlement. For the purpose of the 26th of May meeting is to kind of discuss where we are, and each party will be able to express their view as to whether the settlement discussion should continue. There has not been any expectations or any timeline or any date predicted or assumed for any settlement discussion to resolve any settlement.

But isn't there an expectation that if you're not hearing something palpable or strong until June or July then we are going nowhere?

Well, I guess there's all kinds of ways to look at that but the purpose of the 26th of May meeting is to take a look and say should we continue with the discussions or should we go back to the procedural schedule for the hearing? But I might add, even if we do that, there's always the opportunity somewhere down the line to have discussions again.

Thank you very much.

Your next question comes from David Grumhouse with Copia Capital.

Good morning. How are you?

Good morning.

Don, quick question for you on the weather. I think you had indicated this was a more normal quarter versus last year but I guess when I look at the cooling degrees statistics it looks like it was up a lot. Did I miss hear you on that or can you clarify your comments?

I think you got it right. It was pretty -- the quarter as a whole pretty close to normal, whereas the first quarter of '03 was substantially below normal.

I guess when I'm looking at that time cooling degrees it was 273 in this quarter versus an 80 average cooling day.

I could just add one thing to that, it's unusual to have cooling degree days really in the first quarter. So one of the things that is difficult to predict because this continues to start to fall apart, is having a cooling effect in the first quarter. I mean, if you think about that across the country there aren't many places that have cooling effect in the first quarter.

So the fact that the heating was much more normal versus last year which was well below normal that's really where you're getting to this as a more normal quarter?

That's correct. And to be honest with you it's very difficult for us to quantify the effect.

Okay. Thanks for the clarification there.

Your next question comes from Paul Patterson with Glenrock Associates.

Good afternoon, guys, or good morning.

Hi, Paul.

Most of my questions have been asked but I wanted to sort of touch base on the trading and marketing gross margin segment. Seems like you guys have broken it out between the marketing and trading in the regulated electricity business versus marking, trading in the rest of the business. Is that correct?

Right.

Yes. Okay. And I guess -- I know you gaze went over it and I'm sorry, I just got a little distract. Why the big increase in the regulated business versus the non reg you laces sentence is that because of non-gas-fire?

In terms of the M&T segment?

Talking about 11 cents that you guys got from that.

From M&T?

Yeah, from marketing and trading, regulated electric business.

Hold on just a minute. Paul give me your question again.

It looks like the regulated electric -- electricity marking and trading did much better than the non-regulated trading and marketing. Is that correct?

Well, for one thing, Paul, if you're looking at APS, marketing and trading is at APS now where it wasn't a year ago.

Okay. So the whole business is there, is that correct?

Yes.

I gotcha.

Separating residual contracts.

Most of our structured contracts that are -- that were originated before '03 are up at Pinnacle West.

Okay.

Virtually everything else is at APS.

Thanks a lot, guys.

Again, I would like to remind everyone, in order to ask a question please press star 1 on your telephone keypad. Your next question is from John Hanson with [INAUDIBLE].

Most of my questions have been well answered but just a couple of clarification. On the outages for fall you mentioned Palo Verde. Are there any major fossil outages for the fall or not?

My recollection and I'm commenting on my recollection, but my recollection is there any major overalls in the fall of this year.

The other clarifying item was around this May 26th meeting. There is no -- necessarily statutory drop-dead date that comes out of that meeting necessarily in terms of you can still continue to have discussion talks or settlement talks and discussion?

Yeah that meeting, we can still have talks and discussion and we could also reestablish the hearing in that meeting or do both?

Good. Thanks.

Your next question is from Michael GoldenBurg with Luminous Management.

Quick follow-up question. I missed the part you've been talking about SunCor and the discontinued operation. Could you please repeat that? Something about percent.

Yeah, about 20% of SunCor's 2004 earnings are expected to be reported as discontinued operations. But keeping within previous year, it's in your guidance, this is purely just appear accounting thing then? Exactly.

No change from previous year, the way you account for in the

Yeah.

Okay. Excellent. Thank you very much.

At this time there are no further questions. Ms. Hickman, are there any closing remarks?

I think that in terms of my part I want to thank everybody for being with us and certainly if you have any follow-up questions please give me a call. I think everybody's got my number. Bill, do you have any this

Just to say thanks. Thanks for all your time and thanks for your attention.

Thank you everybody.

Thank you. This concludes the Pinnacle West first quarter 2004 earnings conference call. You may now disconnect.