Pinnacle West Capital Corp (PNW) 2006 Q4 法說會逐字稿

Good morning. My name is Valerie, and I will be your conference operator today. At this time I would like to welcome everyone to the 2006 earnings conference call. [OPERATOR INSTRUCTIONS]

Thank you.

Ms. Hickman, you may begin your conference.

Thank you, Valerie. I'd like to thank everyone for participating in this conference call to review our 2006 earnings, recent regulatory developments, and our operating performance.

Today I have with me Bill Post, our Chairman and CEO, Jack Davis, who is our President and Chief Operating Officer, and also CEO of Arizona Public Service, and Don Brandt, Executive Vice President and CFO of Pinnacle West and also President and CFO of APS.

Before I turn the call over to our speakers, I need to cover a few details with you. First, the quarterly statistics section of our website contains extensive supplemental information on our earning's variances and quarterly operating statistics. I encourage you to check the current quarter's section. Second, please note that all of our references today to per-share amounts will be after income taxes and based on diluted shares outstanding.

It is 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 caption entitled Forward-Looking Statements contained in the MD&A in our third quarter 2006 Form 10-Q and the risk factors in our 2005 Form 10-K. Each of which identifies some important factors that could cause actual results to differ materially from those contained in our forward-looking statements.

Also, during the course of this call, we will be discussing our ongoing earnings, which is a non-GAAP financial measure as defined by the SEC. Our earnings release, which is available on our website, is accompanied by a reconciliation of our ongoing earnings for our net income.

A replay of this call will be available on our website, www.pinnaclewest.com, for the next 30 days. It will also be available by telephone through February 6th.

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 will turn the call over to Bill.

Good morning, and I would also like to thank you for taking your time to join us today.

2006 was marked by a number of accomplishments and challenges, and I'd like to highlight a few items for you before I turn the call over to Don and Jack to discuss our financial results and operations in some detail.

Growth in our service territory remains remarkable. Arizona is now the fastest growing state in the United States, and that growth is evident through our business and continues to dominate our operations and our strategies.

In 2006 we added more than 44,000 customers. That translates into a growth rate of 4.4% compared with 2005, continuing a pace three times the national average.

Our peak load set a new record at 7,652 megawatts, which represented an increase of more than 9% over the previous year. Our peak load has had an annual growth of more than 9% in three out of the last four years. J.D. Power and Associates again recognized APS for superior customer satisfaction.

APS was ranked number one among western investor-owned electric utilities by business customers and number two by residential customers. In the first half of 2006 we resolved a very complex engineering challenge associated with the vibration issue in a shutdown cooling line at Palo Verde Unit 1. Units 2 and 3 ran very well throughout the year.

Our coal plants operated at a combined capacity factor of 87%, setting an all-time record for our fleet and far exceeding the industry average of 72%.

Over the years we have consistently planned for and met our customers' rapidly growing energy needs. We are aggressively focused on the future and the financial strength we need to meet that growth. We have invested more than $4 billion in our electric infrastructure over the last five years, an estimated investment of some $5 billion in the next five years to meet Arizona's growing energy needs.

On the regulatory front, the Arizona Corporation Commission focused on reliably meeting Arizona's future energy demand and the importance of having a financially sound utility to do so. During 2006, the Commission recognized and quickly responded to the challenges of APS's rising fuel costs by granting APS increases in our emergency requests and for the first time in our new power supply adjuster totaling 14%.

The Commission also heard testimony in the fourth quarter related to APS's pending 20.4% retail rate request which Jack will discuss in more detail. We expect the ACC to complete the rate case process in the second quarter of this year.

Our real estate subsidiary, SunCor, earned $60 million, posting its best year ever. We increased our dividend for the 13th consecutive year, recognizing the importance of dividends and dividend growth as components of total return for our shareholders.

In the last month or so we have announced some important management changes. In December Don Brandt was named President of APS, recognizing his contributions to the Company and his considerable experience in the utility industry. In that capacity, Don now reports to Jack and has responsibility for all operating areas except for Generation, which continues to report to Jack, giving him the opportunity to focus on our nuclear operations.

Earlier this month we announced that Randy Edington will succeed Jim Levine as Chief Nuclear Officers for APS. In December Jim announced his plans to retire following a transition period with his successor, and we thank Jim for the contributions he has made to APS. Randy is also a highly respected nuclear executive and one who brings more than 20 years of experience with Entergy and the U.S. Navy.

We are very serious about, and as you will hear from Jack, are aggressively pursuing our plan to return our nuclear units to their exceptional operating record as the energy cornerstone for our Company and the southwest.

Turning to 2007, we issued earnings guidance for the year in the 8-K we filed this morning. In short, we estimate that our base level of earnings, that is earnings before considering any potential impacts from the decision in APS's retail rate case be within a reasonable range of around $2.45 per share. Assuming the ACC grants APS this rate request, effective May 1st we estimate that our earnings will continue to be within a reasonable range, around $3 per share.

Don will address our guidance in more detail. Now, Don is going to give you the pertinent details on our financial results and earnings guidance and then Jack will update you on regulatory developments and our operating performance.

Thanks, Bill.

For the fourth quarter of 2006, we reported consolidated net income of $18 million, or $0.18 per share, compared with $21 million or $0.22 per share in the prior year quarter. In summary, earnings contributions from increased retail sales and income tax credits were more than offset by higher O&M, increased depreciation in interest expense, lower real-estate results, and milder weather.

Now, to provide more detail for each of these factors. First, retail sales growth increased earnings $0.10 per share. APS's customer growth has been at or above 4% for eight consecutive quarters. Despite a softening housing market, the underlying economy in Arizona is still strong. Job growth was 5% in 2006, compared with 1.4% nationally, and Arizona's 4.2% unemployment rate was below the national average of 4.6%.

Income tax credits related to prior years, which were recorded in the fourth quarter of 2006, added $0.04 per share to earnings. Increased O&M costs reduced earnings $0.07 per share. The changes in O&M were primarily driven by planned Generation maintenance and outage costs.

Higher depreciation expense, in large part due to continued investment in plant and facilities at APS, decreased earnings $0.04 per share. Higher interest costs, primarily due to higher debt balances at APS, reduced earnings $0.03 per share. Weather in the 2006 fourth quarter was milder than normal, reducing earnings by about $0.02 per share, but by comparison, weather in 2005's fourth quarter was essentially normal.

While SunCor results were down $0.02 per share for the quarter, this quarter's earnings of $0.11 per share reflect an unexpectedly strong quarter. The majority of the earnings in the fourth quarter of 2006 were linked to an opportunistic sale of the commercial property in Phoenix.

Now, looking at the year as a whole, consolidated ongoing earnings were $313 million, or $3.13 per share in 2006, down 3.5% from the $325 million, or a $3.35 per share in 2005. The ongoing earnings reduction was driven by higher fuel and purchase power costs, increased O&M, lower results from our marketing and trading activities, and higher depreciation expense. These negative factors were substantially offset by the favorable effects of customer growth, fuel cost deferrals, and higher earnings at SunCor.

Bill outlined our earnings guidance for 2007. Allow me to add some additional detail and perspective. First, a very brief recap of the guidance. Before considering any rate case impact, we estimate that our base level of consolidated earnings will be within a reasonable range, around $2.45 per share.

Assuming the Arizona Corporation Commission grants APS's full retail rate request effective May 1st and the 7 mill interim adjuster continues until that date, we estimate our consolidated earnings will be within a reasonable range, around $3 per share.

With the rate decision, the APS component of 2007 earnings is estimated to be within a reasonable range around $2.70 per share, reducing a return on equity of approximately 8%. Such amount includes earnings of $55 million, or $0.55 per share, related to the May 1st rate increase assumption.

We currently -- excuse me, we currently estimate that SunCor's net income in 2007 will be between $30 million and $35 million. This estimate is down from the $40 million to $50 million range we provided in November 2005 before any indications of a slowdown in western United States residential real-estate markets.

Our current guidance for 2007 is consistent with our previous guidance except for the following changes. The decrease in expectations for SunCor, which I just described, is reduced our earnings expectations $0.10 to $0.15 per share. Increased projections for costs other than fuel to serve the growth in our retail service territory have lowered our earnings estimates by about $0.10 per share.

And changes related to the rate occasions including a delay in the assumed effective date for the rate case decision to May 1, 2007, from December 31st, 2006, have reduced our expectations for 2007 by approximately $0.50 per share.

Now let me address APS's PSA deferrals and fuel hedge positions. As of December 31st, APS carried a $160 million balance of accumulated PSA deferrals. The quarterly statistics on our website detail the changes in the he deferral balance.

During 2006 we deferred $244 million and recovered $265 million of fuel costs through various PSA adjusters and surcharges, a dramatically positive change in our cash flow fortune is attributable to the timely constructive regulatory support granted by the ACC. The ACC authorized 7 mill interim adjuster alone provided $146 million in cash from May 1st through December 31st of last year.

As most of you are aware, the deferral recovery positively impacts cash flow but does not affect earnings, because the amount recovered through revenue is also amortized as fuel expense. In 2006, our hedge program substantially mitigated natural gas and power price volatility while saving APS retail customers at least $15 million.

As of today we have hedged 85% of our 2007 exposure to purchase power and natural gas price risk for native load requirements. Similarly, we have hedged 60% of our 2008 price risk and 40% of our 2009 price risk. These hedge positions are generally at or below current forward-market prices.

Turning now to financing and liquidity situation, at year end APS had no outstanding commercial paper or any short-term borrowings outstanding under its $900 million revolving credit facilities that mature in 2010 and 2011. The Parent had $30 million of commercial paper outstanding with a $300 million backup revolver that matures in 2010. Neither APS nor the Parent has any long-term debt maturing prior to 2011.

I will now turn the call over to Jack.

Thank you, Don.

The topics I will cover are related to regulatory issues and operating performance. That's assuming my voice holds out.

I will start with regulatory issues. These include rate case, the continuation of a 7-mill interim PSA adjuster, and a 2007 annual PSA adjuster rate rate reset.

Clearly the most significant regulatory item pending is the retail rate case. As a reminder, APS's current request is for an increase of $435 million or 20.4%. As the case has progressed, we have upgraded our request to reflect changes in forward prices for fuel and purchase power and changes in certain non-fuel items. Increased fuel and purchase power costs represent 14.8 percentage points of increase for about three quarter percent of the total request. We are proposing to increase the base fuel rate to $3.25 per kilowatt hour from $2.07 per kilowatt hour.

While the tremendous growth in Arizona's -- in Arizona provides significant opportunities, it carries with it a burden of higher costs and increased investment to serve that growth. Our price has to reflect that higher cost and infrastructure investment on a more current basis. These messages were among the key themes we presented to the ACC during the rate case.

A constructive outcome from the rate case proceeding is essential for APS to maintain its investment grade credit ratings. Such an outcome must allow APS to recover its fuel and other operating costs, as well as provide APS the opportunity to earn a reasonable rate of return when these new rates are in effect. In addition, it would position the Company to continue to reliably serve the energy needs of our rapidly growing customer base.

In August the ACC staff and interveners filed direct testimony in the case. Through subsequent testimony they have modified their position. The staffs and certain interveners recommendations can be summarized as follows: The staff recommends a total increase of 9.1% or $193 million, consisting entirely of fuel-related expenses. It also recommends that 10. -- 2. -- 10.25% return on equity. APS has requested capital structure and miscellaneous other items. Further, staff also suggests changes to our PSA that would accelerate fuel cost recovery.

Residential Utility Consumers Officer or RUCO recommends an increase of 10% or $212 million with a 9.25% ROE and a 50/50 cash structure. Among the other interveners, a business coalition recommends that the ACC decrease our request by at least $134 million.

We presented extensive testimony rebutting the staff's, RUCO's and other intervener'spositions. Neither the staff's or RUCO's recommendation would result in seriously inadequate outcome of this rate case. Our witnesses testified that the ACC adoption of either staff's or RUCO's position will result in a downgrade of APS's credit rating to non-investment rate.

APS's request for a $45 million PSA surcharge related to Palo Verde unplanned outages in 2005 will also be decided as part of the rate case decision. The Company's request is designed to be a temporary increase in and urging about 1.9% over a 12-month period. The ACC staff has recommended the ACC disallow approximately $15.8 million or $9 million after income taxes of the request. We continue to believe the expenses in question were prudently incurred and therefore are recoverable.

Here's a summary of the remaining procedural steps in the rate case. Post hearing briefs were filed January 22nd and reply briefs are currently due next Monday, February 5th. However, the ACC staff has requested the deadline for reply briefs be extended to February 16th. After the briefs have been filed, the administrative law judge will prepare her recommended order. The parties to the rate case will have ten days to file their exceptions or comments on the recommended order after it is issued.

Thereafter, the commissioners will consider the ALJ's recommended order and their acceptance. We anticipate that ACC will vote on the rate case in the second quarter of this year. As Don explained, for purposes of 2007 earnings guidance, we assumed May 1st as the effective date for the decision. In December the ACC approved our request to allow APS to continue collecting the 7 mill-interim PSA adjuster until rates go into effect pursuant to the decision in this.

Assuming May 1st as the effective date for the rate decision, we estimate that the continuation of the 7 mill adjuster would allow APS to collect approximately 55 million of the 2007 pre-tax PSA deferrals. In addition, with the 7 mill extension the actual price increase in May would be 11.7% rather than the 20.4%. Through the decision to allow a continuation of the 7 mill adjuster and other decisions related to the PSA adjuster and surcharges increases during 2006, the ACC commissioners, along with the ACC staff and certain interveners have taken positive steps to accelerate fuel-cost recovery and to improve APS's financial strength.

The final ACC item I will review is the reset of the annual PSA adjuster rate for the 12-month period beginning February 1st, 2007. Based on calculations we filed with the ACC this month, the annual adjust rate will be reset to 3.99 mills per kilowatt hour this amount is designed to recover $109 million of 2006 PSA deferrals that were not recovered in 2006 for the 7 mill adjuster.

Now I will return to growth in our market. Solid growth in our service territory continues. Arizona's population continues to grow at three times the national average. That growth is the foundation of our customer growth which was 4.4% for 2006 compared to the prior year.

Customer growth translates to sales growth. Our retail sales increased 5.6% for the year on a weather -- for the year. On a weather-normalized basis retail sales grew 5.5%.

Customer growth also translates into peak load growth. On July 22nd we set our system peak for this year of 7,652 megawatts, this peak was 9.3% above last year's peak. On a weather-normalized basis, our peak grew 2.9% compared to the prior year of which was consistent with our expectations.

Now turning to our recent operating performance. Looking at our nuclear plant performance, the combined capacity factor for Palo Verde Units was 75% during the fourth quarter of this year, compared to 61% in the comparable quarter a year ago. The capacity factor in both quarters were primarily affected by planned refueling outages, Unit 2 in 2006, and Unit 1 in 2005. Additionally, the 2005 refueling outage of Unit 1 includes a planned replacement of steam generators which require a longer than normal outage.

There were about 20 unplanned outage days in the fourth quarter of both years. On last quarter's conference call I discussed the unplanned outage time on -- at Unit 1 to replace the pressurizer heaters that extended through October 16th. That outage comprised of the unplanned outages in the fourth quarter.

Combined capacity factors for Palo Verde Units for the full year 2006 was 71%, compared to 77% in 2005. The shutdown cooling line vibration issue in Unit 1 in the first half 2006 decreased to 2006 capacity factor by approximately 16%. Stated a different way, without the vibration issue, the combined capacity factor would have been about 87% in 2006.

More recently all three power units have been running very well. Unit 1 has been at full power for 99 consecutive days and Unit 2 for 77 days since it returned from its refueling outage. Unit 3 ran at full power for 97 consecutive days until we took it it out of service this last weekend to perform required testing of safety related batteries. We expect the return of Unit 3 to be full power early Friday morning.

The refueling outages at Palo Verde in 2007 will be in -- will be at Unit 1 in the spring and Unit 3 in the fall. The Unit 3 refueling will include replacement of its steam generators, the last set to be replaced at Palo Verde, low-pressure steam turbines, and core protection calculators. Unit 3 will be the final unit to receive the replacements.

The nuclear regulatory commission is currently evaluating the safety significance of an issue related to one of our two emergency diesel generators at Unit 3. These generators boost electricity for safety systems at components in the event of a loss of outside power in and emergency and are tested monthly.

An emergency diesel generator failed to activate during monthly testing in July and in September of last. We took corrective actions and have met with the commission regarding those actions an our support finding that issue was of low significance -- low safety significance. The NRC performed a special inspection of Palo Verde related to the issue in October. We expect to receive the NRC's final safety significance decision in the next few weeks.

If the NRC were to find that the issue presented greater than low safety significance, the Palo Verde may be subjected to additional inspections and scrutiny by the NRC outside its core inspection program. It is premature at this time to try to determine what impact that might have on Palo Verde only in costs.

In 2005 we implemented a performance improvement plan at Palo Verde. The plan emphasizes safety, standards, accountability, leadership, human performance, corrective actions and equivalent reliability. Further, as Bill mentioned, Randy Edington became chief -- APS's Chief Nuclear Officer last week bringing with him some 25 years of nuclear experience. I am confident the plant's performance will return to its historical, stellar levels.

Our coal-fired plants continue to operate superbly. During 2006, the coal plants posted an 87% capacity factor, a new all-time fleet record, slightly ahead of the record set a year ago, and well ahead of industry average of 72%. This achievement led by Four Corners and Cholla plants, which both set new site production records in 2006. Four Corners posted a capacity factor of 87% and generated almost 16 million megawatt hours. APS's Cholla units also recorded a capacity factor of 87% while generating almost 5 million megawatt hours.

The accessible performance in 2006 by the fossil plants reduced APS's pretax replacement power costs by $42 million compared with normally expected levels.

That concludes my prepared remarks and I will return the call back to Bill.

In 2007, we will continue to focus on high levels of operating performance, improving our efficiency and innovation, providing reliable top-tier service to our customers at reasonable prices, managing the risks and costs of our business and providing a fair return to our investors.

That concludes our remarks, and we would be happy to answer your questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from David with deep haven.

Good morning.

Good morning.

My first question is just housekeeping to make sure I heard you correctly. Did you say that the delay in the effective date for the rate case decision being pushed back to May 1 from December 31st was 50, 5-0 cents, or 15, 1-5 cents per share?

$0.50, 5-0 cents. And it was changes in the rate case including the delay from January 1 to May 1st.

What were the other changes besides the delay that made up --

Well, a combination of the delay, which was the largest significant one, in addition to that there is issues that were in our original case and it was -- as it was refiled a few months later, and basically issues that we chose not to contest.

Okay.

And the other question is, in your guidance for customer and sales growth baked into the current guidance, am I correct in that the retail sales the megawatt hour sales growth on a normalized-basis that you've baked is consistent with what you showed in that bar graph in the slide deck from EEI?

Yes.

My question relates, then, to, you've got a fairly significant divergence in 2007 from customer growth to retail sales growth over the past four or five years in that slide deck you have had retail sales growth probably -- looking at this 100 basis points or so better than your customer growth, it's been right around 4%, or just a little bit below 4% on average.

However, you've got projected for 2007 just over 2% retail sales growth while your customer growth is still -- is moderating some what from '06 but still up in the 4% range. Why such a big drop in sales growth, which I would assume is just price elasticity assumptions, compared to what we have seen in the past? It just seems quite marked change.

Well, a couple of things. I think you're exactly rate, as we talked back at EEI. We have factored in some price elasticity. Frankly, in the last several years we have exceeded our growth expectations, so there's probably an element of conservatism built into the forecast going forward.

Okay.

But wouldn't -- I would think that if there was going to be price elasticity on the demand side we would have seen it in 2006, which really doesn't seem to be the case. Is there anything special about 2007 that would make you think it's going to show up suddenly other than just the healthy dose of conservatism?

No.

Okay. Thank you, much.

Okay.

Your next question comes from Ted with Citigroup.

Good morning

Good morning.

Good morning, Ted.

I had a few quick questions on your guidance.

The first is, you assume in the guidance that you continue with the 90/10 sharing with the PSA. I wanted to see if there was any -- would -- if there would be any material impact if some of staff's recommendations to do away with the sharing mechanism at all would affect your guidance.

And then, secondly, just wanted to get a little more detail on the O&M increases, the $0.10 to $0.15 relative to prior guidance and what's really driving that.

Okay. First, on the sharing, basically the 90/10 sharing continues. The sharing in '07 would be about $3 million, so I'm guessing that's relatively negligible for your purposes.

Yes.

And then on the drivers to O&M, again, it's the cost to serve the growth and the impact we have seen on growth is continued very strong, and the cost of materials that go into supplying that growth. Steel, for example, prices there, and prices of land.

Okay.

And is any kind of increased scrutiny at the Palo Verde units causing an increase in O&M?

Somewhat but not a big number.

Okay. Great. Thank you.

Your next question comes Jaro Chung with Banc of America Securities.

Hello, I have. Can you hear me?

Yes.

Okay. Hi.

My question is related to SunCor. I was wondering if you could share with us how much of CapEx you spent on real estate investment and how much you are projecting to spend for '07. And given your guidance, I'm just wondering if the CapEx amount will be lower than what you have shared with us previously.

I don't know Becky if you've got CapEx. I don't have the CapEx handy on SunCor, but basically SunCor's self financing. The decline in SunCor earnings is largely driven from previous guidance by the softening of the residential housing market in the western states where we -- where SunCor operates, and basically the home building side of the business.

Jaro -- excuse me -- Jaro, the latest CapEx numbers we have available for SunCor are in the third quarter 10-Q.

Okay. Is that the 142 million?

I don't have it in front of me, but if you have it, that's what it was.

Okay.

And, actually, if you don't mind telling me how much you guys are hedged again in '07 in terms of the pricing and whatnot. I got '08 for 60 and '09 for 40.

85% for '07.

Okay. Great. Thank you very much.

You're welcome.

Your next question comes from the line of David Grumhaus with Copia Capital.

Good morning, guys.

Good morning, David.

Don, question for you on the ROE. I think you said that if you get the full rate increase you are going to be at about 8%. Obviously still having a lot of troubles with the lag. I know you've put forth a couple of things on the rate case to try and take care of that.

Can you give us your thoughts about the willingness of the staff and the commission to look at some of those, and is that just going to be an ongoing project, or can we be hopeful that you might see some benefits from that in this rate case?

Okay. Well, first, the 8% reflects the rates only being in effect from May 1. If it were for the full year, it might be a little closer to 9%.

Okay.

Far short of the rates reflect our request of 11.5%.

That brings to the point, good question, the three proposed alternatives we gave to the commission to consider was an attrition allowance and that would range from 1.7% to 4.1%, if my memory serves me right, to make up for the difference the fact that based on an historical test year, there's virtually no possibility that APS would have any opportunity whatsoever to earn its allowed rate of return.

And some of evidence we presented, a large part that I and a few other witnesses presented that increase in growth is almost offset by a 2:1 ratio by the cost to serve that growth on a lagged basis, so an attrition adjustment would make up for that shortfall in earnings.

The other two items we have proposed, both of which would be earnings neutral but cash flow drivers, which is also important is quip and rate the construction work in progress in rate base, which in our proposed -- the proposed example we use would add about $33 million, and the other one was accelerated depreciation of about $50 million per year.

Staff opposed those, as did RUCO. I think we had some relatively healthy discussion around the facts, both while I and other witnesses like Steve Wheeler were on the witness stand with the commissioners. I think the commission understands the issue at hand and these are certainly, particularly the attrition allowance would be a vehicle they could consider to remedy that -- the shortcoming of using an historical test year.

And so you're still hopeful that you may be able to get the commission to bite on one of those?

Yes.

Okay.

Second question, back to David's question, you talked about the $0.50. You seem to be saying in this year going from the $2.40 to the $2.70 that the rate case is worth about $0.30 for the seventh month -- for the eight months that you're projecting to have it. Is there a reason that if you had it the full year it would be proportionally greater than that? Because obviously you're saying if you had it the full year it would have been another $0.50. Or when you say the delay is the largest one, is the delay only a third or a half of that $0.50?

Okay the first, the earlier statement I think you said $0.30. The rate impact that's baked into the May 1 through December 31st is $0.55.

All right. Oh, it's $0.55, yes, I was using the full versus just the APS. Okay.

And then the $0.50, which is both the global change and the non-fuel component of the rate case, including the timing, is $0.50 a share, of which the timing is the single largest item by far.

And lastly, the tax credits, the benefit in the quarter, how much was that?

$0.04.

Great. Thanks for all the time.

Okay.

Your next question comes from the line of Jeff Coviella with Duquesne capital.

I had a quick question.

When you were mentioning the change, the base level of guidance, is $2.45, in the guidance including rate relief was $3 a share, what was -- could you please just reiterate what the exact assumptions were for the outcome of the rate case and that $3 a share in terms of revenue increase and ROE, I think it was 8% ROE, but just what the revenue increase was?

Well, so we're not misunderstood, the return on equity would be the earned ROE for APS in calendar 2007, and that would be assuming the rates were only effective beginning in May 1. So it would be four months without rate relief. Otherwise the ROE would be slightly higher than that. And that produces -- the rate increase beginning May 1 produces $0.55 a share.

And what was the revenue side of that rate increase, the revenue increase? Have you said that?

No, I didn't cover that.

Okay. You didn't say that. Okay.

Jeff, stated another way, it basically is an assumption that APS gets its full rate request effective May first. It's just a part of a year should.

Got it. That's what I was looking for. Thank you, very much.

[OPERATOR INSTRUCTIONS]

Your next question comes from [Reza Atessi] with Polygon.

One quick. A couple of quick questions. How many acres do you still own at Palm Valley at year end 2006?

Around 3200, I think.

Oh, so it's basically the same as it was at year end '05.

Yes.

Okay.

And your year-end 2006 book value for SunCor?

I think it's around 200 -- the shareholders equity is around 250, 270. I'm not sure. We haven't seen the SunCor balance sheet yet.

Okay.

Just high of $500 million.

Okay.

And just one more point of clarification on a couple of the previous questions. The $0.50 that you were talking about earlier, that also includes your assumption for the lower load growth and in addition to the timing effect of the rate case, it also includes the load growth going down a bit from previous guidance?

A bit, but that's not a major factor, either.

Okay. Thank you, very much.

Your next question comes from the line of Stephen Huang with Citadel.

Hi. Good morning.

I just wanted to clarify one thing in regards to the guidance, again.

If we just -- if you had gone back and assumed that you got the rate case on 1/1/07, taking out all the changes for the ones that you are not going to contest, what would the earnings be for 2007 if it had started on 1/1/07? And not May 1st?

Oh, in the $0.20 to $0.30 more range.

Okay.

So of the timing issue, then, it's about $0.30 then?

$0.20 to $0.30.

Okay. Great. Thank you, very much.

Okay.

At this time, there are no further questions.

Okay.

Well, again, thank you very much for your time. We know this is very busy. We appreciate it, and thank you.

We thank you all for calling in, and if you have any follow-up questions, please call me or Lisa. Thank you.

This concludes today's conference call. You may now disconnect.