Pinnacle West Capital Corp (PNW) 2009 Q1 法說會逐字稿

At this time I would like to welcome everyone to the first quarter 2009 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 session. (Operator Instructions). Thank you.

Now I would like to turn the call over to Ms. Rebecca Hickman, Director of Investor Relations. You may begin, ma'am.

Thank you, Jamaal. I would like to thanks everyone for participating in this conference call to review our first quarter earnings, recent developments and operating performance. Our speakers today will be our Chairman and CEO Don Brandt and our CFO Jim Hatfield. Don Robinson who is President and Chief Operating Officer of APS, is also here with us.

Before I turn the call over to our speakers, I need to cover a few details with you. First, I encourage you to check the quarterly earnings and statistics section of our website. It contains extensive supplemental information on our earnings variances and quarterly operating statistics. Second, please note that all of our references to per share amounts will be after income taxes and based on diluted shares outstanding. Third, we will be referring to slides today during this conference call and webcast. The slides are available on our Investor Relations website with the webcast and with the Form 8-K filed this morning.

During our prepared remarks, we will give you verbal cues as we move through the slides. Looking at slide two, it is my responsibility to advise you that this call and our slides will contain forward-looking statements, based on current expectations and the Company assumes no obligation to update these statements. Because the actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Please refer to the forward-looking statements and the MD&A sections contained in our first quarter 2009 Form 10-Q which was filed with the SEC this morning, as well as the risk factors section of our 2008 Form 10-K, all of which identify some important factors that could cause actual results to differ materially from those contained in our forward-looking statements.

Next, during this call, we will discuss certain non-GAAP financial measures. Our press release, the slides accompanying this webcast and our filings with the SEC all of which are posted on our Investor Relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. 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 May 12.

Finally, this call and webcast are the property of Pinnacle West Capital Corporation, and any coping, transcriptions, 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 Don.

Thanks, Becky. I would like to thank everyone for joining us on the call today. We have been focused on excellence in operations throughout the organization and optimizing the positioning and value of Pinnacle West and our subsidiaries for the future. Today I will discuss several major milestones we have achieved since our last earnings call with you. Two weeks ago, we announced we had reached an agreement in principal to settle APS's pending retail rate case and yesterday a term sheet outlining the proposed settlement was filed with the Arizona Corporation Commission.

In late March we completed a review of SunCor's strategies, markets, and properties. As a result, we announced a plan to restructure SunCor by disposing of a majority of its real-estate assets. Also in March the nuclear regulatory commission recognized that Palo Verde operations have improved significantly and returned the plant to routine inspection and oversight. I will discuss these and other operational and regulatory matters in some detail, then I will turn the call over to Jim to discuss our first quarter results and other financial updates.

I will begin with a proposed rate settlement. Yesterday APS, the ACC staff, and other parties to the pending retail rate case filed with the ACC a term sheet outlining the proposed settlement of the case, along with a recommended schedule for filing a definitive settlement agreement and for the commission's consideration of the settlement. Throughout the negotiation process, the discussions were open to all parties to the rate case. In fact, the vast majority of the parties did indeed participate. Through the settlement process, APS and the parties agreed to a rate and financial stability plan that provides benefits for APS, our customers, our investors, and other stakeholders. Additionally, many provisions of the settlement are focused on advancing Arizona's sustainable energy future. Of course to achieve all these benefits, it is essential the commission approve the settlement as proposed.

Slide four outlines the primary benefits of the settlement as we see them from an investor's perspective. Among other things, the plan strengthens APS's financial position, supports the common dividend, and improves APS's ability to attract capital for needed infrastructure additions. It provides a greater level of cost recovery and return on investment for APS while providing rate stability for our customers. Completing the settlement also allows the opportunity for us to help shape Arizona's energy future outside continual rate cases. Further, it continues APS's strong commitment to cost control and efficiency, and finally it provides for a significant increase in energy efficiency programs and expands upon the current scope and magnitude of renewable energy programs.

Now I will describe the major financial provisions of the settlement which are outlined on slides five through eight. APS's annual base rate revenues will increase $207 million under the settlement effective January 1st of 2010. This result compares with $278 million in APS's request. As you recall, we are currently collecting $65 million a year through our interim base rate surcharge that will continue until rates go into effect through a general rate case decision. Consequently, net base rate revenues would increase $142 million annually or about 5.4% when the settlement is implemented. The proposed increase includes the following components. A non-fuel related increase of $196.3 million and a net fuel related increase of 11.2 million. The proposed rates are based on allowed return on equity of 11% compared with the 11.5% originally requested by APS. Besides the rate -- excuse me, besides the base rate provisions, there are a number of other financial provisions.

In 2010 through 2012, or the earlier conclusion of APS's next general rate case, payments collected for line extensions and upgrades will be recorded as revenue instead of contributions in aid of construction as they are now. At this time, we estimate this change will add pretax revenue of $23 million in 2010, $25 million in 2011, and $49 million in 2012. These estimates are, of course, highly dependent upon the number and type of new customers added by APS during those years and are provided only to give you some idea of the relative significance of this change in accounting for such proceeds. In 2011 and 2012, APS will be allowed to defer for future rate recovery, increases in cost for pensions and other post retirement benefits above the 2007 test year amounts, subject to certain caps. A provision of the proposed settlement underscores APS's ongoing cost management and efficiency efforts.

In December 2008, interim rate decision, the Commission asked to us review APS's expenses, targeting reductions of at least $20 million. As a result of the proposed settlement, APS will identify an additional $10 million of pretax expense reductions to be implemented in 2010. The average annual expense reductions of $30 million, the previous 20 million plus the new 10 million are to continue through 2014. On March 18th we filed with the ACC a report stating we had identified annualized cost reductions of $25.9 million. Jim will discuss the cost reduction filing in a bit more detail.

Finally, APS is to obtain a total of at least $700 million of equity infusions in the five-year period from the date the definitive settlement agreement is filed through 2014. The parties have agreed to parameters for APS's filing of its next two general rate cases as summarized on slide eight. APS may file general base rate requests on or after January 1st of 2011 and June 1st of 2013. A base rate increase resulting from APS's next rate case may not become effective before July 1st of 2012 and the settling parties intend to process future cases within 12 months of sufficiency findings by the ACC staff. Those are the major provisions of the proposed settlement as outlined in the term sheet we filed yesterday.

As shown on slide nine, the parties have indicated the definitive settlement agreement will be filed on June 12th. We have asked the ACC Administrative Law Judge to establish a procedural schedule requiring filing of initial testimony by the supporting parties by July 1st with additional testimony by supporting and opposing parties in late July and early August, culminating with a hearing beginning August 17th. We expect a procedural order from the ALJ in the very near future. Under this schedule it is likely that the ALJ could issue her recommendation and turn the case over to the ACC Commissioners for their consideration sometime early in the fourth quarter of this year, thus allowing for a Commission decision which would permit new rates to become effective on January 1st of 2010 as proposed.

Next, I will discuss our restructuring plan for SunCor. We reviewed SunCor's strategies, markets, and assets because of current distressed conditions in the real estate and credit markets. Our expectation that such conditions will continue for some time and conditions imposed by SunCor's banks while reviewing -- excuse me, renewing an existing SunCor credit facility in early 2009. Based on the results of the review, the SunCor Board of Directors decided in late March to restructure SunCor by completing a series of strategic transactions to dispose of a majority of SunCor's assets and as a result, to reduce its outstanding debt. Through the restructuring, SunCor will sell its home building operations, master planned communities, and golf courses. We currently plan to complete the asset sales in 2009. The sale proceeds will be used to pay down SunCor's debt, substantially eliminating it by the end of the program.

SunCor currently plans to retain commercial assets at its Hayden Ferry Lake site project in Tempe, Arizona, and about 2,000 acres of commercial land at its Palm Valley project in the western Phoenix Metropolitan area. Execution of this strategic restructuring plan will provide a number of benefits which include maximizing the value of SunCor's remaining assets, allowing SunCor to focus on key real estate segments in the Phoenix area, substantially eliminating SunCor's outstanding debt, producing at least $80 million of cash tax benefits and last but not least, eliminating real estate earnings volatility for Pinnacle West. Jim will discuss the financial impacts of the SunCor restructuring plan.

Turning to operating performance, Palo Verde continues to post very solid performance. The nuclear units ran at full power throughout the first quarter this year, compared with a 92% site capacity factor in last year's first quarter. Regarding Palo Verde's refueling outages, there are two each year. Unit 3 is currently in a refueling outage which is scheduled for completion in mid-May with a duration of 40 to 50 days. This fall, unit 2 is scheduled for an outage of about 60 days, which will be the first outage during which we will replace a unit's reactor vessel head and install a new rapid refueling package. We plan to make similar improvements in the other two units in 2010.

The NRC has formally recognized Palo Verde's significant operational improvements. On March 24th, the agency cleared the confirmatory action letter and moved Unit 3 to Column 1 from Column 4 of the NRC's reactor oversight matrix, thus returning Palo Verde to routine inspection levels and ending the heightened scrutiny under which the plant has been operating. Randy Edington and his team have done a tremendous job of improving Palo Verde's performance. Our focus is safe, long-term sustainable first quartile performance in all aspects of Palo Verde's operation.. We have established five-year targets to consistently achieve 88% site average capacity factors, 30-day refueling outages, and production costs under $0.02 per kilowatt hour. Certainly clearing the confirmatory action letter and returning to Column 1 in the shortest time ever for any nuclear facility, were very important steps in achieving our long-term goals.

Our coal fired plants continue to operate superbly. In the first quarter, the coal plants posted a 78% capacity factor which was comparable with their performance in the first quarter a year ago, and ahead of the latest available industry average of 75%. In the first quarter of both years, the capacity factors largely reflect normal seasonal overhauls in maintenance.

Now I will turn the call over to Jim who will cover our earnings and other financial updates.

Thank you, Don. Today the five topics I would like to touch upon as shown on slide 11 are; first quarter results, the financial impacts of the SunCor restructuring plan to which Don referred, earnings outlook for both 2009 and more importantly, 2010, our current liquidity situation, and the common dividend level. First, beginning with the first quarter results on slide 12, we reported on a GAAP basis a consolidated net loss attributable to common shareholders of 156.5 million, or $1.55 per share in the first quarter 2009, as compared to a net loss of 4 million, or $0.04 per share in 2008's first quarter. Earnings were down primarily due to the real estate impairment and related charges recorded in this year's first quarter as well as lower results at APS. I will cover the SunCor restructuring from a financial perspective later. Excluding the real estate impairment related charges, we recorded on an ongoing basis a net loss of 29 million or $0.29 per share in this year's first quarter as compared to a net loss of $4 million or $0.04 per share for the same period in 2009.

On slide 13, a reconciliation of our GAAP earnings to our ongoing earnings per share. The reconciliation is also available in the body of the earnings release and on our website. A couple of comments on the reconciliation before we move on. First, the difference between reported in ongoing earnings, as you can see on the slide, relates totally to SunCor. Second, we expect a majority of SunCor's operations to move into discontinued operations beginning in the second quarter. This will move most of the SunCor losses out of ongoing results and therefore reduce the drag on ongoing earnings.

Moving on to slide 14, we'll begin the discussion of earnings with a look at year to year variations to ongoing earnings per share. You can see the major drivers were gross margin at APS was off $0.09 per share. I will provide some detail on gross margin on the next few slides. Marketing and Trading contributions were off $0.04 per share due to the expiration of our large wholesale contract in 2008.. This was a contract entered into earlier in the decade. To clarify, we have not been actively pursuing marketing and trading for some time.

O&M expense is lower in this year's quarter to the tune of $0.01 per share. This is primarily due to lower levels of expenses across the board, partially offset by higher expenses in fossil generation related to planned outages at units. This is net of Res related expenses which are collected through surcharge. Expenses related to our capital program, which includes infrastructure additions and improvements, are up approximately $0.07 per share in this year's quarter. The expenses are primarily depreciation, property tax, and interest. Other expenses net of other income increased $0.04 per share in this year's quarter. And lastly, you can see the $0.02 miscellaneous items net at the bottom of the chart. If you add all of that up, you see the components of the $0.25 per share ongoing earnings variance.

On slide 15, you see the drivers of gross margin variances in the first quarter 2009 as compared to the first quarter 2008. This also excludes the impact of Res as previously mentioned.

On slide 14, APS gross margin was down by $0.09 on a comparative basis from the first quarter 2008. On the positive side, we have the benefits of the pretax 65.2 million interim decision, which was effective with the first billing cycle in 2009. The impact of that on the first quarter was $0.08 per share.

Additionally, we had the transmission rate increase by FERC of our formula rates and the subsequent operation of our retail transmission cost adjuster which improved gross margins by $0.04 per share. Conversely, with a precipitous drop in natural gas prices, we had a non-cash mark-to-market valuation of APS's fuel and purchase power hedges net of the PSA deferrals of $0.12 per share on a comparative basis from last year. We had a small negative mark-to-market in this year's first quarter of $0.03 per share compared with a large positive mark-to-market gain of $0.09 per share in 2008's first quarter consistent with the large run-up of natural gas in the first half of 2008. Milder weather and lower customer usage combined for a $0.10 detriment to the first quarter 2009. I use the two categories together for a reason because it's sometimes hard to distinguish what is weather and what is usage pattern in shoulder periods.

Slide 16 shows that this year's first quarter was a second mildest on record beaten only by 2003. Heating degree days recorded, a proxy for weather temperature in the first quarter was 383 as compared to a 10-year average of 571, or 33% fewer heating degree days than normal. As importantly, variations in the weather day to day were volatile, so pure weather statistics, based on averages, may not completely capture the weather impact.

Back to the gross margin drivers on slide 17, I want to address lower customer usage column. APS's customer base increased a modest 0.8% in this year's first quarter compared with a 2% increase in 2008's first quarter. However, weather normalized usage was down, lowering gross margin by $0.02 per share. We believe this downturn in customer consumption likely will be short lived and has more to do with extremely mild weather conditions than people's pocketbooks. As stated earlier, during the first quarter, Phoenix had a particularly mild weather with an average temperature of 62 degrees. We have seen nothing that would indicate a change in customer consumption habits at this point.

Looking forward, we continue to expect moderate growth over the next couple of years, albeit at a slower rate than historical averages. We still expect 1% customer growth in 2009 through 2011. As we've said on past calls, over the longer-term, we remain confident of the fundamentals of Arizona's future and expect to see customer growth return to stronger levels as the national and state economic environments improve.

On slide 18, I want to discuss briefly the financial impacts of the SunCor restructuring process that Don discussed earlier. As a result of the Board agreeing to a plan to divest assets to pay off bank debt, we recorded a non-cash impairment charge of approximately 202 million pretax or $1.22 per share in this year's first quarter. Additionally, SunCor recorded other impairment related charges of approximately 8 million pretax or $0.04 per share. The execution of the plan is to be kicked off later this week for a majority of the assets. We intend to apply the proceeds from the asset sales and the associated tax benefits which we expect to be approximately 80 million to accelerate repayment of SunCor's debt.

As we mentioned in the last call, SunCor's secure revolver required SunCor to reduce its outstanding borrowings at date certain through August 2010. As of March 31st, SunCor had approximately 175 million of total long-term debt of which approximately 108 million was outstanding under the revolver. SunCor is discussing with the banks and the revolver our waiver so they can execute the sales process. Please keep in mind that there is no cross of faults or any other ties that Pinnacle West or APS with the SunCor debt. When we are done with the process at the end 2009, the ongoing pretax G&A burn at SunCor will be substantially reduced from the 44 million recorded in 2008 and future real estate volatility will be eliminated for Pinnacle West shareholders.

As to earnings guidance, which is addressed on slide 19, we are reaffirming 2009 and 2010 guidance at reasonable ranges around $2.30 and $3 per share respectively. The key assumptions for 2009 include the following. SunCor is not a material component for this year because the majority of the real estate operations will be recorded as discontinued operations beginning in the second quarter. The current interim base rate surcharge will remain in effect throughout 2009, and the effects of milder weather are offset throughout the year with cost savings identified with our filings with the ACC in March. The key assumptions for 2010 include the following. Rate settlement implemented 1/1/2010 and the identified cost savings are included. Further details reconciling our 2008 results to our 2009 and 2010 estimates are available on our website and in the 10-K we filed this morning.

I wanted to provide a quick update of our liquidity as of March 31, 2009, as shown on slide 20. We did complete a $500 million unsecured note offering in late February, which has greatly benefited our overall liquidity position. Simply stated, we have ample liquidity to execute on our capital programs. At quarter end we had about 760 million in available credit capacity after considering short-term debt levels and cash on hand. Additionally, we have no maturities of long-term debt outside of SunCor until 2011. In terms of equity, we see no need to issue until 2010.

In closing, on slide 21, you see the yield of Pinnacle West common stock compared to the electric utility average. We remain committed to the common dividend, which is currently $2.10 per share annually. We are keenly aware that it is a very important to our investors to provide some attractive yield and is an important part of the value proposition.

That concludes my prepared remarks. I'll turn the call back over to Don Brandt for a wrap-up. Don.

Thanks, Jim. In summary, our organization is intensely focused on operational excellence as well as improving earnings and financial metrics. We work hard to maintain top-notch customer service. We continually strive to raise the bar even higher, constantly improving efficiency and effectiveness in every facet of the Company. APS's proposed rate settlement demonstrates positive improvement in Arizona's regulatory environment. However, it is critical for the settlement to be approved as proposed, for APS, our customers and other stakeholders to realize benefits of the settlement. The SunCor restructuring plan optimizes the assets and related financial results while minimizing risks going forward. And finally, our current common dividend is supported by our strategies, operations, and the retail rate settlement. Overall, our employees possess a drive for excellence to improve value for our shareholders, our customers and the communities we serve.

That concludes our prepared remarks. Jamaal, at this time we would be pleased to take any questions.

Yes, sir. (Operator Instructions). We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Greg Gordon from Citigroup. Your line is open.

Good afternoon.

Hey, Greg.

Hi, Greg.

Congratulations on the settlement. I hope the commission approves it. They should. But anyways, on the point of the settlement, couple questions to clarification. Are there any time limits or sort of milestones in terms of when you have to meet certain minimum equity infusion requirements between now and 2014?

There are not, Greg. With all the parties together and discussing all the issues they understand the timing needs to be left to the company to sort of address the marketplace at the appropriate time.

So is it still your expectation, assuming the settlement is approved, that you would not need to issue equity in 2009?

That's correct.

Thank you. Next question is related to Palo Verde. You are currently looking for a license extension there. Where are you in the process and at what point might we get a decision from the NRC?

I believe it was in December we filed for license extension. We're looking at probably a two-year process.

So it was December of '09 --

8.

I'm sorry, December '08, sorry, so you wouldn't get a decision until December 2010, most likely?

18 months to two years, something like that.

So under the terms of the settlement if they was a change in the depreciation expense due to the ;license extension that wouldn't be reconciled into rates until the next base rate case?

Correct.

That's right.

Okay. Thank you, guys.

Thank you.

Your next question or comment comes from the line of Paul Patterson from Glenrock Associates. Your line is open.

Good morning, guys.

Good morning.

Just to sort of go over the settlement we've got the additional $23 million from [Seact] going to revenues, correct, on top of the 196?

Correct.

Okay. Then there's another $30 million in terms of savings that you will be able to have when I read the settlements that it seems that that was not included in the 196 calculation.

That would be correct. It is only 10 million incremental from what we've already reported to the commission.

Okay. So we should think about it as more of a 10 million increment as opposed to 30?

Correct.

Okay. Going back to the $700 million of -- one final thing on the settlement. The 54% equity ratio is that what we should be thinking about here?

Yes.

Okay. Then the $700 million equity issuance, or equity infusion, what timing do we have associated with this I know you have flexibility with this, when we look at the 2010 guidance, what should we be thinking about with respect to that?

I think we addressed this on the last call. Again, based on sort of the schedule of getting the order, we don't anticipate the need to issue equity until any earlier than sometime in 2010. I think in our $3 guidance we have about $0.07.5, $0.08 of dilution based on a new equity issuance and we've just, for simplicity, made the assumption that it's middle of the year, just to make the math easier. Going forward, based on the return to normal growth, I -- to support that we will have to issue equity on a periodic basis to support the capital structure, anyway. So I didn't look at that provision as anything that we wouldn't to have do to main taken credit ratings anyway. Whether it's 700 or not, who knows, based on what happens in the future but some level of equity will be needed past '10 just to support your $ 1 billion a year CapEx program.

Sure, so in terms of 2010, when we look at the SunCor impact, I wasn't completely clear on the restructuring tax benefit. Does that go to the pay down of debt or how should we think about that benefit that shows up from the tax benefit from the restructuring?

I think our first and foremost our goal is to get the banks paid off to allow SunCor to operate without restrictions of the bank. Beyond that, that can be used for various things. And anything after that would just be cash that could be used to run the business.

And how much, I guess I'm wondering, so would there be -- I'm just trying to get a sense of how much of that benefit of, the tax benefit, could we see show up I guess. Outside of -- we'd be part of the discontinued operations. I'm wondering how that works.

I think the benefit we're calculating today is 80 million, but that's, of course, assuming sales prices and other things that we won't really know the exact amount until really at the end of 2009. And wouldn't be realized until sometime in '10, since those are 2009 calendar year, which typically you see the benefit in 20 10.

Would that be part of discontinued operations, or is that something as a corporation you benefit from? Do you follow me?

It wouldn't be part of discontinued operations. It would be additional cash flow for the corporation as whole.

Okay.

During this, as Jim indicated, we expect to complete the sales processes during 2009 while the values are depressed from what they might have been regardless, we still expect to generate substantial cash proceeds from these transactions.

Okay. And then marketing and trading for 2010, is that in the 2010 guidance? Is there any benefit from that?

No. I mean, as we've stated earlier, we're essential out of that business. We did have a longer-term contract that rolled off in '08, so you will see in the first half of the year some sort of negative benefit, but that's incorporated in our 230 but, no, nothing in 2010.

Thanks a lot.

Paul, one other thing that I want to clarify, you asked about the 196 million plus the 23 million with respect to the settlement. There's another 11 million that you need to consider. The 196 is the non-fuel rate based increases. The 11 million is the fuel related base rate increases, and the 23 million is the estimated 2010 impact of the schedule 3 or line extension collections. So it's a total of 230 million.

I really appreciate. That thank you.

Thanks.

Your next question comes from the line of Paul Ridzon from Keybanc. Your line is open.

Good afternoon or good morning, wherever you are. First of all, congratulations on the settlement. It looks pretty balanced. Just had a couple questions. There's been some noise around changing the line extension methodology to funding some of it. Where do you see that going?

Paul, I think a couple of things on that. Obviously, that has been somewhat controversial, especially in development community. I do think the parties to the settlement know the importance of Kayak and understand it would be very unfair to put in that as the settlement, then take away the line extension. I think there's some things we can do around the line extension fee that would benefit people but would not hurt the impact to APS, and so I think that's where we'll ultimately end up.

I think, Greg Gordon kind of asked this question, but I saw some settlement language around maintaining a 52% debt-to-cap ratio how much vary accident is there around that? Are they going to look at that every quarter and force equity?

No, it's really -- I would like that it way, Paul. I think it's more of an ongoing reporting requirement, and to monitor that we're obviously comfortable in the context of a settlement with meeting those provisions, or we wouldn't agree to it. But again, they understand running the business that issuance equity and timing is a decision the company has to make, so they will just be watching that from the sidelines in terms of where we are, according to that metric.

How do you think about in the event that we see the return very quickly of robust growth, let's hope it happens, but to what extent do you think you've kind of locked yourself out of filing to get relief? What provisions are there, if any, in the settlement that could kind of give you the opportunity for emergency relief?

Well, I think if you look at it, the timing of our ability to file, we are not able to file any sooner than 6/1/11, so frankly, based on the settlement, we'll have the opportunity to file with the 2010 test year, and frankly, that's not a whole lot different than we would have had anyway.

I guess it's pretty much status quo. I see your point.

I think that the big thing with that, Paul, I think is certainly the staff is committed to trying to process a case in 12 months, and we've talked about some things we can do to try to make that happen so I think from being locked out it doesn't seem to be anything significant. I think once we file again to whenever that is I think we'll see an accelerated process on the other end.

That would be very welcome. Then from a bookkeeping perspective of the 230 '09 guidance what have we done so far in the first quarter? How are you doing that accounting?

I am not sure of the question Paul.

How much of the 230 is now under your belt? What are you counting as the APS piece versus other pieces?

APS in the quarter was about a $0.15 loss.

Basically to your 230 guidance we are at $0.15 loss?

Right. I don't think the loss was unexpected based on where we headed into the year.

Thanks.

Your next question or comment comes from the line of Danielle Seitz from [Dodatt] Research Group.

(Inaudible). Is that how you recover the $0.15?

That's correct.

The refueling schedule, do you have a sense of when the refueling are taking place, roughly?

I'm sorry, could you repeat that?

The refueling for Palo Verde. Do you have a sense of the timing for that?

Yes, we're on -- we plan a 44-day outage. May 17, is expected breaker closure. All the reports we've gotten is we're on track with that, so it looks like from a capacity and fuel perspective, knock on wood, as we sit here today, we're on track to meet our target.

And this is -- do you have another one, or this is it for the year?

No, we refuel a unit because there's a three units, and they're on the 18-month cycle, so you end up with one every spring and fall, and we're expecting the next unit to take it down for refueling right around the first of October of 2009.

Okay. And because of future rate filings, since you are restricted, have you changed anything in your CapEx schedule, or is it the same one as the one you presented in March?

It's the same one that we highlighted in March, at this point.

Okay.

We look to adjust that going for it will be dependent upon growth and other things that we see in the service territory.

Okay. For the time being, no change?

Correct.

Great. And just -- maybe I missed it. How much debt would be left on SunCor when you're done with your program at this point?

There will be -- our expectation is there will be no debt at SunCor when we're through with the asset divestitures.

Great, thanks a lot.

Thanks.

Your next question comes from the line of Kevin Fallen from Blenheim Capital Management.

On the 700 million in equity infusions are you guys required to put down $700 million of cash or do retained earnings or anything like that get calculated against that figure?

Well, I think the expectation of the parties is that's not sort of retained earnings that you keep in the business, but I think most importantly, as we look out, and a lot of the filing we're doing and the monitor having to do with where are we FFO to debt and what are the credit metrics, that sort of thing. Obviously you get three great weather years in a row, and you don't need to issue equity. I don't think that's the intent of this thing to issue equity when it's not needed.

But it doesn't require to you issue $700 million wort of new equity or debt at the level and put it down, is that correct?

That's correct.

Okay. And in terms of the dividend from Arizona Public Service to the parent you guys have paid out 170 million a year for the last couple years. Does the settlement allow to increase that payment up to the parent now?

Yes, there's no restriction on dividend after 2009.

After 2009 you can set to the whatever you need.

Yes.

And in terms of the SunCor, the $80 million tax gain, that's going to be realized in calendar year 2010, the actual cash?

That's correct.

And it's 80 million of cash? It's not a tax affected 80 million?

That's correct.

And under the settlement, the transmission hicks that you get for your FERC formula rates, are those incremental to whatever you get in the settlement here?

Correct.

And does the settlement allow for automatic pass-through on the retail section, or do you have to go and seek recovery in the process that you currently do?

Well, I think we're going to have to go through the process that we've gone through in the past, but if you remember, sort of the 2007 and '08, it was a pretty perfunctory process at the commission.

That's right. But there's nothing -- in other words, the stay-out, or what have you, in no way shape or form precludes the FERC hikes?

Correct. All the other surcharges will go on as sort of normal.

And the 11 million of the net fuel related increase that's just basically increasing the fuel component and base rates, is that a earnings impact, or is that a cash flow impact?

That's a pretax earnings impact?

So earnings are actually increased by pretax 11 million, I think it was, from that.

Right.

Excellent, thank you very much.

Thank you. Your next question comes from the line of Andrew Levy from Incremental Capital.

I guess you save $3 in 2010, assuming you get the full settlement which you probably will. As you look into 2011, and I know you're not making a forecast for 2011, but everything else equal, are you able to grow earnings off the 2010 base, or you're not sure or --

Andrew, we're not going to talk about guidance for 2011 today.

No, I understand not guidance, but can you grow earnings the next couple years with this settlement off your $3 base or not?

Well, we're just not going to go into 2011 today. I mean, if I were to indicate one way or the other, that's effectively guidance, and I can't do that today.

Okay, thank you.

Your next question comes from the line of Reza Hatefi from Decade. Your line is open.

I just wanted to confirm an earlier question. The 700 million of equity, that's just infusions into utility, but otherwise you can still continue with your normal 170 million outflow from the utility to the parent level, correct?

That's correct.

Oh, great, thank you very much.

Okay, Reza, thanks.

Your next question comes from the line of Chris Shelton from Millennium. Your line is open.

Chris, are you there.

Mr. Shelton, your line is open.

Hello. Sorry, I was on mute. I had aI had a quick question on the expense savings that are earmarked in the settlement, and I know for the filing did you for the commission this year some of those expenses were capitalized, and some were expensed. Is that the same -- is that the same for the 150 over the five years, or are those more kind of expense savings?

Well, it's expense -- let's go back. The 20 million was expense which could be reduction in working capital, O&M, and the 30 million is no different in characterization from the 20.

Okay. So kind of all income statement effect?

Sure, yes.

Okay. And then I guess the second thing, in the past you guys had kind of been running pretty lean at the utility, think, on the cost side, and I'm curious where you guys are thinking you can really make an effort to control costs going forward.

We'll give Don Robinson a chance to talk here.

Oh, perfect.

They always give me the fun ones. We're actually looking at all of the costs, you're right, we have run very lean and will continue to do. That we're going to look at improving some of the efficiencies and some of the operating areas of the plant as well as the operational areas, and we're going look at reducing some of our back office costs.

I will say this, Chris, back to your point, we follow statistics, we follow fossil capacity factors, customer sat, reliability, O&M per customer, customers per employee. Those last two statistics show us very favorably our own is lower than the average in the western states. Customers per employee continues to rise. That said, we're going to continue on our hunt for -- it's really about efficiency and productivity, the and we'll continue to try to overturn stones to try to find where there may be some opportunity.

Got it. So maybe some opportunities going forward that you may not have had in the past. I guess the -- I guess that's it. Thanks, guys.

Thank you.

Once again, if would you like to ask a question you can press star, then the number 1 on your telephone keypad. At this time, there are no further questions in queue.

Okay. Well, let me just extend a very sincere thank you for all your time today, and obviously if you have any questions, give any of us a call, we'd be happy to talk to you. And have a great day.

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