Pinnacle West Capital Corp (PNW) 2012 Q4 法說會逐字稿

Greetings, and welcome to the Pinnacle West Capital Corporation 2012 fourth quarter and full year earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rebecca Hickman, Director of Investor Relations for Pinnacle West Capital Corporation.

Thank you, you may begin.

Thank you, Christine.

I'd like to thank everyone for participating in this conference call or Webcast to review our fourth quarter and full year 2012 earnings, recent developments, and operating performance. Our speakers today will be our Chairman and CEO, Don Brandt, and our CFO, Jim Hatfield. Jeff Guldner, who is APS Senior Vice President of Customers and Regulation, is also here with us.

Before I turn the call over to our speakers I need to cover a few details with you. First, the slides to which we refer are available on our Investor Relations website along with our earnings release and related information. Please note that the slides contain reconciliations of certain non-GAAP financial information. Also, all of our references 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 and our slides 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.

Our 2012 Form 10K was filed this morning. Please refer to that document for forward-looking statements cautionary language as well as the risk factors and MD&A sections, which identify risks and uncertainties that could cause actual results to differ materially from those contained in our disclosures. A replay of this call will be available on our website for the next 30 days. It will also be available by telephone through March 1.

At this point, I'll turn the call over to Don.

Thanks, Becky, and thank you all for joining us today.

In 2012, we made progress in a number of key areas as we focused on our core Electric Utility business. This progress included demonstrating sustained improvement in Arizona's regulatory environment, making strategic capital investments, maintaining operational excellence, strengthening our financial profile, and positioning ourselves to benefit from economic recovery in Arizona.

Jim and I will provide more information on these areas through our remarks today. Looking first to Arizona regulation, early last month, the composition of the Arizona Corporation Commission changed as the commissioners elected in November. Bob Stump, Susan Bitter Smith, and Bob Burns were sworn in, and Bob Stump was elected Chairman of the Commission. With two new members and commissioner Stump, Brenda Burns, and Gary Pierce continuing in office, the Commission is now comprised of five Republicans.

In January, the commissioners unanimously approved APS's 2013 renewable energy standard implementation plan. The plan contains steps for continued compliance with the Commissions renewable energy standard and other APS commitments while balancing the need to moderate customer's bills and to support renewable energy. Given our history over the past several years, it is indeed a pleasant change for me not to be discussing a pending retail rate case.

APS's retail regulatory settlement that became effective July 1 of 2012 was progressive and contained broad ranging benefits for our customers, the communities we serve, and our shareholders. Among other things, it provides the financial support APS needs to meet our customer's energy needs while helping to achieve Arizona's energy goals. It also provides a measure of regulatory certainty for both customers and shareholders through at least mid-2016.

Third, it allows retail rates to change gradually over time through a number of rate adjustment mechanisms. Moderating rates this way will avoid the need for large base rate increases every several years while allowing reasonable recovery for APS's prudently incurred expenditures. And, finally, it allows APS the opportunity to earn a reasonable return on invested common equity during the four year settlement period.

With that settlement in place, we are continuing to work with the Arizona Corporation Commission and various stakeholders on a collaborative approach to the state's energy future. Our capital investments position us well to reliably serve the needs of APS's electric customers while addressing Arizona's energy goals and environmental compliance.

Today, I'll update you on two components of our capital expenditure program, the AZ Sun Program and the planned Four Corners acquisition. Our renewable energy initiatives, including the AZ Sun Program, taken together are an important part of a comprehensive resource plan designed to advance our state's energy future. Through AZ Sun, APS plans to develop and own utility scale, photovoltaic plants in Arizona. To date, we have commitments in place for a total of 118-megawatts with a projected capital investment of $502 million. So far, we have placed four plants in commercial operation, with a total capacity of 69-megawatts. The latest addition was 19-megawatts at the Chino Valley site in Northern Arizona that went into service on November 26th of last year.

Construction and other development activities are currently under way for another 49-megawatts at two sites in Southwestern Arizona called Yuma Hills and Hyder. We expect those facilities will go into operation later this year. We are continuing with our plan to acquire Southern California Edison's interest in the Four Corners coal fired plant in northwestern New Mexico.

The plan has substantial merits economically, environmentally, and socially and has already been approved by Arizona, California, and Federal regulators, as well as other government agencies. In mid-December, the Navajo Nation and BHP Billiton, the Parent Company of the operator of the coal mine serving that plant, announced that they had entered into a memorandum of understanding under which BHP plans to sell the coalmine operation to the Navajo Nation.

The Nation would retain BHP as the mine manager and operator until July 2016. It's currently expected that the Navajo Nation tribal council will consider approval of their transaction in the second quarter. APS has been negotiating a new coal supply contract for Four Corners. Key terms of the new contract are being finalized by APS, the other Four Corners co-owners, and the Navajo Nation.

We expect that this agreement would be executed upon completion of negotiations and following the transfer of ownership of the stock of BHP's mine operation subsidiary to a new Navajo Nation commercial entity. We are targeting mid this year to close APS's Four Corners acquisition from Southern California Edison following satisfactory completion of the new coal supply contract and finalization of other typical closing conditions.

Turning now to our operational excellence. Excellence in day-to-day execution remains a top priority. Our performance in 2012 reflected this focus. I'll highlight just a few examples. First, Pinnacle West stock outperformed our industry. We're pleased that our total return to shareholders comprised of stock price appreciation plus dividends was 10.3% for the year, which compares very favorably with US Electric Utility average of just 0.1%.

Second, our industrial safety record is one of our top accomplishments. I'm proud to report that in 2012, we had the lowest number of recordable injuries in our Company's history, bettering our record performance in 2011. However, every member of our team and I will continue to drive safety performance toward our goal of zero injuries.

Third, our base load nuclear and coal fleet continues to turn in solid performance. For the full year 2012, our Palo Verde nuclear facility operated at a site average capacity factor above 92%. Palo Verde had its best production year ever, topping its site record from 2011 and generating almost 32 million-megawatt hours. Additionally, in 2012, Palo Verde was the top US power producer of any kind for the 21st consecutive year. Furthermore, Palo Verde is the only US generating facility of any kind to ever exceed 30 million-megawatt hours in a single year, and, it did so last year for the eighth time. Our fossil plants also have operated well, When appropriate, we took advantage of low, near term natural gas prices by reducing output by our coal plants and increasing gas plant production.

And fourth, top tier reliability and other customer focused efforts allowed APS to again achieve top decile customer satisfaction, as evidenced by the company being ranked third highest nationally among 55 large investor-owned electric utilities by JD Power & Associates. In addition, APS's system reliability continued to be in the best quartile of our industry on almost every reliability metric.

To close my remarks, I'm very pleased with where our Company is today and very optimistic about our future. With the retail settlement behind us, we expect we will continue to achieve top tier performance through our day-to-day focus on excellence in execution, cost management, strategic forward thinking, and continuous improvements, areas in which our talented leadership team and workforce perform very well.

Now, I'll turn the call over to Jim for the financial and economic overview. Jim?

Thank you, Don.

Today, I will discuss the following topics. First, I will review our fourth quarter results including earnings and the primary variances from last years corresponding quarter. Second, I will discuss our 2012 full year results. Third, I'll provide an update on the status and outlook for the Arizona economy. And fourth, I will review recent upgrades of our credit ratings and our financing plans. And finally, I'll discuss our earnings guidance and our financial outlook for the next few years.

Slide 6 summarizes our reported and ongoing earnings for the quarter. On a GAAP basis, for 2012's fourth quarter, we reported consolidated net income attributable to common shareholders of $23 million, or $0.20 per share, compared with a net income of $13 million, or $0.11 per share, for the prior year's fourth quarter. Our ongoing earnings increased $0.13 per share. For the 2012 fourth quarter, we had consolidated ongoing earnings of $27 million, or $0.24 per share, versus ongoing earnings of $12 million, or $0.11 per share, both for the same quarter a year ago.

Slide 7 reconciles our fourth quarter GAAP earnings per share to our ongoing earnings per share. The amount for both quarters exclude results related to our previously discontinued operations. My remaining comments on the quarter will focus on ongoing results.

Slide 8 displays the variances that drove the change in quarterly ongoing earnings per share. First, an increase in our gross margin added $0.22 per share compared with the prior year's fourth quarter. Several pluses and minuses comprised this positive net variance, and I will cover those items in more detail on the next slide.

Second, lower infrastructure related costs improved earnings by $0.06 per share, reflecting lower interest charges and lower depreciation and amortization associated with the 20 year license extension granted for Palo Verde in 2011 by the US Nuclear Regulatory Commission. These cost reductions were partly offset by higher property tax related to tax rate increases.

Third, higher operations and maintenance expense reduced earnings by $0.08 per share. The expense increase primarily consisted of the effects of amortization in this year's fourth quarter of pension and other post-retirement benefit costs compared with deferral of such costs in 2011 pursuant to APS's retail regulatory settlements, an increase in other employee benefit costs, and higher information technology costs primarily related to software. These increases were partially offset by lower fossil generation costs because of less planned maintenance being completed in the 2012 quarter than the same quarter a year ago. This O&M variance excludes expenses related to the Renewable Energy Standard, or RES, energy efficiency, and similar regulatory programs.

Fourth, the net impact of other miscellaneous items decreased earnings by $0.07 per share. Turning to Slide 9, and the components of the net increase in our gross margin, total gross margin increased $0.22 per share compared with last year's fourth quarter. The main components of that increase were as follows. APS's retail regulatory settlement, which became effective July 1, improved gross margin by $0.13 per share, almost all of which was comprised of a non-fuel-based rate increase. The Company also stopped recording line extension fees received as revenues when the 2012 settlement became effective.

The retail transmission revenue increase that became effective last summer improved earnings by $0.06 per share. Higher weather normalized kilowatt hour sales, after the effects of customer conservation energy efficiency programs and distributed renewable generation, increased our earnings by $0.06 per share. The variance was primarily driven by modest customer growth of 1.4% in the quarter compared to the same quarter a year ago. The net effect of miscellaneous items improved our gross margin by $0.03 per share.

Increased fuel and purchase power costs, net of lower off system sales and higher mark-to-market valuations, reduced earnings by $0.03 per share. This variance is the result of the power supply adjustor modification effective mid-2012 with the implementation of the regulatory settlement that changed the PSA to 100% pass through as compared to the 90/10 sharing mechanism that was previously in effect. The effects of milder weather reduced earnings by $0.03 per share. The 2012 fourth quarter was near normal while the prior years fourth quarter was favorably cooler than normal.

Putting all this in context, let's look at our full year comparison on Slide 10. On a GAAP basis, for the year 2012 as a whole, we reported consolidated net income attributable to common shareholders of $382 million, or $3.45 per share, compared with net income of $339 million, or $3.09 per share for 2011. Our ongoing earnings for 2012 were $3.50 per share, compared to $2.99 per share for 2011. Our 2012 ongoing earnings were at the top of our guidance range of $3.35 to $3.50 per share. The performance was due largely to stronger than expected gross margin growth in the fourth quarter and continued cost management efforts.

Turning to Slides 11 & 12 and looking at our fundamental growth outlook in the Arizona economy. Economic growth in Arizona continues to improve in the fourth quarter, although the growth remains modest as has been the case for the last several quarters. As shown on Slide 11, growth in non-farm jobs continues to show improvement. The rate of overall job growth is increasing steadily and has been consistently positive for the last two years. Nearly all of the major industrial sectors are experiencing some growth.

In 2012, Arizona job growth was one half times higher than the national rate. The sustained growth in jobs has been helpful in supporting gradual growth in incomes in consumer spending and has pushed the unemployment rate down, generally in parallel with national trends. While these trends are positive, we believe that we still have a few more quarters to go before we see local markets returning to more normal conditions.

On Slide 11, you can see our estimate of the amount of vacant homes and apartments that presently exist in our service territory in Metro Phoenix. The reduction in vacancies in 2012 was the greatest since vacancies peaked in late 2009 and early 2010. The absorption has sparked some renewed interest in single family housing market. Permit activity has increased in each of the last six consecutive quarters and finished the fourth quarter 72% higher than in the fourth quarter of last year. Year-over-year permits were 56% higher than 2011 levels. We believe we are on pace to further reduce those vacancies by the end of this year to a level where existing home resale pricing will be more supportive of new home construction.

On Slide 12 you can see the recent trends in Metro Phoenix home prices as reflected in the Case Shiller repeat sales index. Throughout 2012, we saw an uptick in existing home prices as the number of foreclosure sales has declined and the level of housing demand improved. Even with the rebound in pricing, affordability of single family housing remains high by historical standards and, combined with an improving economy, is a key support for the current housing demand.

The decline in vacancies and foreclosures and increases in prices is evidence of the continuing progression of the housing market back to more normal conditions. This slide also shows that similar conditions are present in the commercial real estate market. As you can see on the slide, vacancy rates for office and retail space have begun to fall from their peak levels but remain quite high while those for industrial space have fallen more dramatically. Again, we view this as a positive trend, but believe that the extent of vacant space in office and retail markets means that the recovery for new office and retail construction will likely lag after new homes.

On balance, we see signs of improvement in all economic indicators which paint a more -- a picture of continuing study recovery. But, will still be 12 to 18 months before the Arizona economy has returned to normal levels of economic activity and growth. Reflecting this modest steady improvement in economic conditions, APS's customer base grew 1.4% in 2012's fourth quarter compared with the same quarter a year earlier and represents the strongest growth we've seen in four years.

Over the long term, we believe the fundamentals that have been important to Arizona's growth are still there and that our growth rate and customers will return to more typical levels. Looking at the next several years, we currently expect the annual customer growth to average about 2% for 2013 through 2015, with growth rates higher at the end of the period than in the near term for the reasons I've just discussed. Additionally, we expect our average annual weather normalized retail sales and kilowatt hours to be relatively flat from 2013 through 2015 primarily due to customer conservation in energy efficiency and distributed renewal generation initiatives offsetting the modest recovery in the economy.

Slide 13 displays our investment grade credit ratings. In November, Standard & Poor's raised its corporate credit and other ratings on Pinnacle West and APS to Triple-B plus from Triple-B. As you recall, after approval of the retail rate settlement in May, both Moody's and Fitch raised Pinnacle West and APS's credit ratings, including APS's long term credit ratings, to the Triple-B plus level. We are pleased that the rating agencies recognize the constructive regulatory outcome and our improving financial performance.

Regarding our planned financing activity, we do not have any long term debt maturing in 2013. We do plan to issue debt to fund the acquisition that Don discussed of Southern California Edison's interest in the Four Corners plant later this year if the transaction is consummated. Following successful completion of the retail rate settlement, we currently project we will not need to raise additional common equity capital until 2014 at the earliest. The timing and amount of any equity issuance would facilitate rebalancing APS's capital structure and provide support for the company's credit metrics.

Finally, I will discuss our earnings guidance and financial outlook. As shown on Slide 14, we continue to expect Pinnacle West's consolidated ongoing earnings for 2013 to be in the range of $3.45 to $3.60 per share. The key factors and assumptions that under pin our guidance are listed in the appendix to our slides.

Slide 15 depicts our longer term financial outlook. Last October, our Board of Directors increased the indicated annual dividend by $0.08 per share, or about 4%, to $2.18 per share effective with the December 2012 payment. In addition, we currently plan to grow the dividend by approximately 4% annually. Of course, future dividends are subject to declaration at the Board of Directors discretion.

Pinnacle West consolidated earned return on average common equity was 9.9% in the year 2012 compared with 8.8% in 2011. The company's goal was to achieve an annual consolidated earned return on average common equity of at least 9.5% through 2015. This level represents another step change in earned returns demonstrating the benefit to shareholders from the combination of our rate settlement with our operational excellence and cost management initiatives.

This goal reflects a financial support initiatives and the key factors and assumptions in the appendix. While I am discussing longer term factors, I'd like to touch upon a few earnings and cash flow hot topics in the industry. Our costs for pension and other post retirement medical benefits included in O&M were up $12 million pre-tax in 2012 compared with 2011, including the effects of the deferrals prior to July 1, 2012, and amortization since then pursuant to APS's retail regulatory settlements.

We expect the related O&M costs to remain relatively steady, if not decline somewhat, over the next few years. Our expectations also reflect a discount rate of 4.01% for 2012 versus a 2011 discount rate of 4.42%. Since bonus depreciation was extended for 2013 by the new tax act at the beginning of this year, many of you have asked about the impact of the extension. We estimate that as a result of the combination of provisions of the 2012 and 2010 tax acts total cash tax benefits from bonus depreciation could be up to $400 million to $500 million. We anticipate these tax benefits will be fully realized by APS by the end of 2013 with the majority of the benefit having been realized by year-end 2012.

In terms of capital expenditures, we anticipate APS's spend to average around $1.1 billion annually for 2013 through 2015, as shown on the Form 10K. However, approximately 40% of this amount will be recovered through rate adjustment mechanisms and approximately 35% will be covered through depreciation in cash flow. That leaves minimal annual spend exposed to regulatory lag. With this capital spending level, we continue to expect our rate base to grow at an average annual rate of 6% in 2013 through 2015.

In closing, we are confident in our expectations to achieve our financial objectives through 2015, that is during the base rate stay out period. Our confidence is supported by the gross margin mechanisms contained in the retail rate settlement coupled with our demonstrated operational execution and cost management abilities. Additionally, our outlook conservatively assumes a modest economic recovery. Accelerated return to economic growth should provide upside to our outlook.

And, this concludes our prepared remarks. Operator, we would be pleased to take questions at this time.

Thank you.

(Operator Instructions)

Kevin Cole, Credit Suisse.

Good morning, gentlemen.

Good morning.

I have a broad question about 2013 guidance. I have a tough time keeping my numbers down towards the midpoint, given that I really only see upward movement, given the rate case, the TCA, the LFCR true-up, Four Corners, and the assumption of normal weather. Is there any unknown risk that maybe I'm just not seeing that could possibly get you towards the bottom end of your guidance range?

No, I think we've laid out our story pretty effectively.

Just a couple points, Kevin. One, we performed very well in 2012 and was able to get to the top end of our guidance. We set our guidance range last November. And we got a lot to execute throughout the year, and it's a little early to be changing guidance when we have all summer ahead of us, which is really where we make our money.

So, weather aside, if I just assume normal weather I should be towards the top end?

I always plan to be in the middle of a range.

Okay, great. Thank you, guys.

Neil Mehta, Goldman Sachs.

Good morning.

Good morning, Neal.

So, I'm taking a look at the appendices here and there's some moving pieces in the guidance relative to the Analyst Day. Gross margin was down, but it looks like O&M operating expenses offset that as well as interest. Can you talk about some of the assumptions that drove the changes to the appendix?

Yes, it's really just the delay in the Four Corners transaction. Assuming a mid-year close and then the six-month shortened rate cycle, as opposed to getting the rate increase July 1, '13, it will be more like January 1, '14. So, it really reflects nothing but Four Corners; nothing else has really changed.

Got it. And then, wanted to confirm on bonus depreciation -- the number, Jim, you cited was $400 million to $500 million?

Yes, its impact this year of about somewhere between $50 million and $100 million.

Okay, got it. All right. Thank you, very much.

Ali Agha with SunTrust Robinson Humphrey.

Thank you, good morning.

Good morning, Ali.

The slide where you talked about dividend growth of about 4% expected over the next three years or so -- Jim, should we assume that, that basically moves in line with EPS growth? Or how should we be thinking about that, relative to EPS growth?

Well, what we've been talking about is rate-based growth of 6% should lead to net income growth somewhere lower than 6%. And that, if you will, the dividend growth is the floor, so to speak, on what we think is possible over the next few years.

Okay, because if EPS growth is any greater than that, then you're implying that your payout ratio would be coming down.

Slightly. Very slightly.

Okay. And more near term -- coming back to '13, the Four Corners delay rate increase going into, let's say, beginning of '14 -- if my math is right, it's about a $0.07, if you will, delay in earnings in '13. And I'm wondering is that a direct offset to that? Or is that within the band of the range that you've laid out? How should I think about that?

That's within the band of the range that we laid out.

Okay, but my math makes sense to you?

Yes, it makes sense.

Okay. And then my last question is, essentially the load growth assumption that you've made out there, relatively flat going forward -- can you remind us the earnings sensitivity to, let's say, a 1% change in load growth?

1% change in customer growth is about $0.10 per share, as a rule of thumb.

That's customer growth -- should I equate that to sales growth as well, weather normalized?

Yes.

Okay, got it. Thank you.

Sarah Akers, Wells Fargo.

Hey, good morning.

Good morning, Sarah.

With the new makeup of the Commission, do you think there's any chance that the Commission may reconsider the aggressive energy efficiency standards that are currently in place?

Sarah, this is Jeff Guldner.

They are certainly asking questions about the standard. And so one of the discussions we've had at open meetings has been around how you do the performance -- or how you manage cost effectiveness. And so, as they look at that, that has the potential to impact it. There's also some things they're looking at with respect to how large customers, like a mine, is impacted by energy efficiency. So, there may be some changes from that, but there's certainly discussion going on.

Great. And then, are there any other potential regulatory issues or regulatory initiatives on your part that we should keep an eye on over the next 9, 12 months or so?

No, I think probably the biggest thing is, Sarah, is we have some technical workshops now on the impact of net metering. And that will be ongoing through the first half of the year. Other than that, they are like any Commission who's looking at the impact to consumers of everything that's going on.

Got it. Thanks a lot.

Paul Ridzon, KeyBanc Capital Markets.

Jim, could you just repeat something you said around the $1.1 billion of annual CapEx?

Sure.

You said 40% had right of recovery and 35% had what?

It's covered by cash from depreciation.

Okay, thank you.

Yes.

Chris Ellinghaus, Williams Capital.

Hey, guys, how are you?

Hey, Chris, how are you?

Good, Chris.

I'm good.

Can you give us any detail on what the loss from discontinued operations was in the fourth quarter? That's a more substantial number than normal.

Yes, it's specific to SunCor, and it really is part of the final wind down through bankruptcy of SunCor.

Okay. And, as far as the rating changes have transpired over the last couple years, are you satisfied where you're at now? And I'm really thinking in terms of future equity needs. Do you have greater aspirations for credit ratings or can you give a little color?

No, we obviously always have aspirations for higher credit ratings, but we're very happy the BBB level. It's probably at or slightly above average for the industry as a whole. And, with the BBB-plus we have more room, so to speak, than we had when we were a BBB or BBB-minus. So, certainly would not issue equity with the stated goal of trying to raise the credit rating.

Okay, great. Thanks, a bunch.

Yes.

(Operator Instructions)

Charles Fishman, Morningstar.

Good morning.

You achieved 9.9% consolidated ROE in 2012. Can I assume that it is likely that will fall to the 9.5% range for '13? And is that -- can I equate that to about the midpoint of your guidance?

No, Charles -- Don Brandt here.

No, I don't think you can equate that or assume that it will fall to 9.5%. As we've communicated in the past, we believe during this period that we're out of the regulatory environment, or at least base rate cases, we're looking at greater than a 9.5% return.

Okay, and then declining as you get farther along in the stay-out?

No, it will be more than 9.5% each of those years.

Okay. And then, on the financial outlook, the bullet points you list, I think the second to last one for 2013, the decrease in interest expense -- that is all due to the delay in Four Corners?

Yes, primarily.

Okay. That's it. Thank you, very much.

Thank you, Charles.

Paul Patterson, Glenrock Associates.

Good morning. Can you hear me?

Yes, Paul.

The AZ Sun -- I'm sorry if I missed this -- how many megawatts did you put in, in 2012? And what's now the forecast for 2013 through 2015?

Well, we have 118 megawatts under development, 69 of which were in service at the end of the year. And, we're in development currently of another 49 megawatts, as Don mentioned. And then, beyond '13, we'll continue to work on the renewable energy plan which needs to be approved by the Commission.

Okay. And then, on the retail customer sales growth, it looks like it's 1.5%, and before it was 1%; but the longer term growth you still are projecting 2%.

That's right. And, we expect that you'll get acceleration throughout the '13 to '15 period with higher growth at the end to get to an average.

That's right. You guys mentioned that last time. Just on the offset -- the 2.5% growth offset that you guys are projecting -- with renewables, how much is the distributed renewable element of that? I'm sorry, how much -- I know there's energy conservation and efficiency, but what's the renewable distributed impact on that?

It's about 1%.

Okay. And, does anything -- I know that it's early, and the previous question on what the ACC is looking into, but is there -- do you have any -- do you guys feel more or less confident about -- or let me put it this way, do you think that there's more upside potential in terms of sales growth, given the tone of conversation and discussion that you're seeing at the ACC versus perhaps last quarter?

No, not where we sit today.

Okay. Thanks a lot.

Kevin Fallon, SIR Capital Management.

Yes, hello. I just had a question on the Four Corners milestones to the transaction actually closing. What are the steps that need to occur between now and when it actually closes?

Primarily the transaction between BHP and the Navajo Nation transferring the coal mine -- the coal mine operations.

And they have to reach an agreement first and then there needs to be a vote by the Navajo Nation, is that correct?

Essentially, and then the Navajo Nation Council has to approve it.

And after that occurs, does the transaction just consummate at that point? Or is there an incremental step that needs to be done?

We'll need to sign a coal contract with the Nation now that they have the mine, and then it will be normal closing preparation and then closing.

Okay; and once the transaction is actually completed what's the process that it moves into rate? And in particular, is it purely a single issue of moving into the rates? Or is there any kind of a reopener or look at earned returns or anything like that?

Well, our settlement kept the docket open for the treatment of Four Corners upon acquisition. And that calls for the deferral during a period of time where we filed and get rates into effect. I wouldn't call it a single issue rate case, but there's already been an adjudication of the Four Corners purchase prior to that. So, it will be focused on just bringing the Four Corners in.

Okay. So as long as your equity ratio and earned returns are in line with expectations, there's no reason to see those being revisited?

I would not think so.

Okay, and just the last thing -- any update on the potential for transmission investments?

Still working on it.

Okay, great. Thank you, very much.

Miss Hickman, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you, Christine, and thank you again for joining us today. As always, if you need further information about our earnings or other information about our Company, please contact us. This concludes our call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.