TXNM Energy Inc (TXNM) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PNM Resources 2007 first quarter earnings results conference call. My name is Annie, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question and answer session towards the end of this conference. [OPERATOR INSTRUCTIONS.] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mrs. Gina Jacobi, Director of Investor Relations. Please proceed, ma'am.

Thank you. Thank you, everyone, for joining us this morning for a discussion of the Company's first quarter 2007 earnings. Please note that the presentation and accompanying materials for this conference call, as well as supporting documents are available on the PNM Resources website at www.pnmresources.com.

Joining me today are PNM Resources Chairman, President, and CEO, Jeff Sterba, our Chief Financial Officer, Chuck Eldred, as well as several members of our Executive Management Team.

Before I turn the call over to Jeff, I need to remind you that some of the information provided this morning should be considered forward-looking statements, pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward-looking statements are based upon current expectations and estimates, and that PNM Resources assumes no obligation to update the information. For a detailed discussions of factors affecting PNM Resources results, please refer to our current and future financial reports, annual reports on Form 10-K and the quarterly reports on Form 10-Q, as well as other current and future reports on Form 8-K filed with the SEC.

With that, I'll turn the call over to Jeff.

Thanks, very much, and welcome to each of you. Thanks for joining us this morning. We're going to do three things. I'm going to give a few highlights. Chuck will then walk through the financial detail of the performance for the first quarter and comment on our forecast going forward, and then I'll close with some issues that I think will be of interest relative to our future and relative to the environment with which we are working.

First, I would say that our, our first quarter performance was acceptable. It -- we had some very good points and some points that were not as good as we would like. We saw strong net earnings growth of over 14%, but it was offset by the increase in the shares issued to help finance the Twin Oaks acquisition and other business purposes, and so our net earnings on an ongoing basis, Earnings Per Share were level with what they were first quarter of last year.

On plant availability, if you flip to slide 4, you'll see both some good items and some items that are not quite as good. First, we saw Palo Verde return to good performance levels, in excess of top quartile performance, above 92%, and as it improved its performance, our coal units slipped a little bit. And recall that our coal units have run in excess of 89% for about the last three years, been effectively top quartile for three years in a row, and they slipped a little bit for a number of issues, nothing of significance with maybe the exception of Four Corners, where we did have a fairly significant turbine blade issue, which has now been resolved on the one unit, and the unit has been returned to service earlier this week, but it was out for an extended period of time. So we have a -- the coal units didn't do as well as we would like to see them, and we think that they will be able to do, for example at Twin Oaks, one of the units was down for a five- week outage which will improve its capability as we move forward, particularly going into the summer.

Let me also touch on the EnergyCo, our JV with Cascade, with -- relative to two items. As Chuck will talk about in more detail and we included in the release last night, we have reached an agreement where we will be contributing Twin Oaks on or about June 1st, 2007 to the Joint Venture. On page 5, you will see a structure that is one that you'll see pretty consistently that shows how EnergyCo currently looks. Twin Oaks will go into the generation assets under the generation and development arm of EnergyCo.

We also announced last night that we are adding a second senior person, Charles Kitowski, as President of Marketing and Trading, to help establish the marketing and trading operation of that business. Charles has served as Co-President of First Choice Power, basically running the outsourcing and trading operation, and will be moving over into the JV to help establish that marketing and trading operation.

With that, I'm going to turn it over to Chuck to go over first quarter earnings in more detail.

Thank you, Jeff, and good morning, everybody. Let me start with slide 6, which goes through the quarter walk-across, and I want to talk about some of the main drivers in the business. First, looking at the down side with the loss of the wholesale marketing, of $0.07, that was driven from last year in first quarter we had some forward sales where we lost $0.08 that wasn't repeated in first quarter of '07, but we did pick-up a cent from long-term contracts and the addition of Luna to our generation fleet. In addition to that, as Jeff pointed out, we lost $0.05 in dilution, this is from 8.7 million shares or a 12.6% increase in shares, from the impact of the common stock offering that was offered back in December, and the dribble program we used last year.

We also lost $0.03 in financing, this is $0.02 from an increase in short-term borrowings and also refinancing of pollution control bonds that was switched from variable to fixed, which cost us a penny. And also we lost $0.03 on coal costs, this is increases at San Juan and Four Corners, primarily from steel and other commodity price increases, and also the new safety acts that have resulted in additional cost to mine the plants themselves. In addition to that, we're seeing that San Juan Coal Company, we're looking to try to mitigate some of these impacts, but the impact of San Juan is $0.02 and Four Corners at $0.01.

We did pickup the up side, $0.02 from Twin Oaks, and this does include the bridge loan interest. Also, on the retail load growth, PNM Electric, PNM Gas and TNMP, we picked up $0.05. These are impacts on colder weather this year, particularly in the gas operations. We continue to send -- see a trend in conservation of our customers which reduces this impact.

If you refer to page -- slide 18 in the presentation, you'd see that since 1997 gas usage has decreased by 26%. We do continue to see load growth and customer growth both in electric and gas segments. The increased costs, however, to serve the load, that's the reason that why we've got the two rate increases filed for both PNM Electric and the gas side of the business.

On the customer growth side, we see a strong growth of slightly over 2% on PNM Electric and TNMP Texas. We also see about a 2.4% growth in PNM Gas. Overall, the load growth has been 5.8% for both PNM and TNMP Electric operations. We picked up $0.05 on plant availability, as Jeff pointed out, the improved performance at Palo Verde was $0.09. This was offset by a decrease of availability at San Juan from the extended maintenance outage, which cost us $0.02, and the increased outages at the Four Corners, which cost us another $0.02.

First Choice, we picked up $0.07 over first quarter of the last year. This is the result of about a 33% increase in sales volumes, 17% increase in customers, primarily both in residential and business sectors, and about 10.5% decrease in purchased power costs.

Now, if you take those drivers and move them over to the quarter, EPS by segment, I'm on page 7, as Jeff pointed out, the total dilution was $0.39 quarter-over-quarter, which is flat, but again we had 14.2% ongoing earnings increase, but it was offset by the additional shares that were issued, resulting in a flat performance, quarter-over-quarter.

Looking at each business segment, PNM Electric remained flat at $0.13 for the first quarter. And, once again, if you will recall, we transferred TNMP New Mexico operations to PNM, and beginning in 2007, while also with the load growth, the colder weather, the performance of Palo Verde, all of which were contributing to earnings but offset by the performance and the outage of San Juan and Four Corners, and an additional increase in interest charges, as well as dilution resulted in the flat earnings for this business segment.

PNM Gas increased $0.01 to $0.16. Again, this is the impact of colder weather, customer growth, and certainly we see some of the offsets of customer conservation and increased cost of repairs and maintenance to serve the customers.

In addition, TNMP Electric earnings fell $0.01 to a positive $0.01. This was largely due to the transfer at the New Mexico operation of PNM. In addition, we began collecting the CTC charges in December of 2006, which increased earnings for the quarter when compared to last year, but we offset that by the increased cost of serving transmission and distribution customers.

On the wholesale side, we -- EPS decreased $0.04 to $0.09 for the quarter. As I talked about, we had the benefit of the forward sales in first quarter last year, compared to '07. In addition to the up side the benefit of Twin Oaks adding $0.02 and the improved performance of Palo Verde, and then as I mentioned earlier, the decrease in the availability of San Juan and Four Corners, which offset in the earnings and gains in this particular segment.

First Choice increased $0.07 to $0.08 this year. Once again, as we talked about, the increased sales volume, customer growth, and lower purchase power prices, benefit to First Choice. And the corporate others, increased cost related to higher short-term borrowing.

If you turn to page 8, looking at the earnings guidance, we would affirm the guidance to be $1.80 to $2.00. This does include an impact of the Twin Oaks contribution to the EnergyCo, which will result in a $0.05 impact to EPS. We do have a slide in the appendix, slide 19, which addresses this in more detail, but we're comfortable with the direction we're going with the guidance because at this point, if you look forward, as Jeff pointed out, that we have some problems with the maintenance of the plants earlier in the first quarter, but we're anticipating improved performance of these plants throughout the remainder of the year, reducing debt which will be a result of moving, as we move over Twin Oaks to the EnergyCo, and the contribution of -- from Cascade to establish the 50% partnership will result in cash proceeds of $277 million, which will allow us to take those funds and use it to reduce debt, and we would anticipate about a $5 or $6 million savings as a result of that.

In addition, the performance of Palo Verde, if you recall, last year was out for the first six months, but given the performance at this point this year, we'd certainly look to continue to see up side there. And as I mentioned to the strong customer growth, and also I made a comment about mitigation at San Juan for the coal costs which are -- plans are underway to address that.

In addition, as Jeff pointed out, our plans on or before -- on, certainly by June 1 or thereabouts, we'll move over Twin Oaks to the EnergyCo. We will have purchase accounting that will be addressed once we make the actual transfer date, based on market conditions at that time. Our plans are we'll put out an 8-K and news release which will address in more detail the purchase accounting treatment at Twin Oaks as we go forward with this.

This does establish the base foundation of building the business. As Jeff pointed out, we've got a core management team that we're putting in place. Moving the asset over does set the basis and the foundation for us to begin to build the business and begin to look at opportunities and development of other acquisitions that we'd be planning going forward.

If you turn to page 9 and just a quick update on the rate case status, PNM gas case, we're waiting for a recommended decision. We would anticipate that by the end of May. The deadline to have this thing finalized is by the end of June.

But just a quick briefing of the gas case overview, you will recall, we filed in May of 2006, the amount was for $20 million, $20.5 million, that was about a 4.7% increase for residential, about a 2.7% increase for business, a rate base of $409 million. We asked for an ROE of 11%, and we did ask for a decoupling mechanism.

On the electric gas case, if you will recall, we filed that back in February 2007, asking for the increase of $68.9 million, a residential increase of about 13.7%, with a rate base of $1.2 billion and an ROE of 10.75%. We also did request a fuel adjustment clause, as well as an environmental rider to recover environmental improvements.

With that said, I'll turn it back over to Jeff for some other updates on the Company.

Just a couple of quick updates, first, ERCOT, in our Texas properties, the properties are doing well relative to both the T&D operations and the First Choice Power operations. Obviously, we are in the midst of a Texas legislative session, which has not come to conclusion yet. There are, in many ways, it is kind of the year for energy legislation in Texas. It's -- there's been a lot of movement around legislation, both in the House and the Senate. Bills have been passed out for both retail and wholesale, and on the House side, also, a bill relative to regulatory jurisdiction.

They've now gone to conference, and the conferees have been designated but there has been no outcome yet from those, from the conference discussions. Obviously, we're very focused on what the potential outcomes could be from there. As one of the smaller players, while we're the fourth largest, we're still the smaller player. We're obviously most focused on unintended consequences of legislation, and I think that the leadership in both the House and the Senate has been responsive and receptive to those concerns. There are a couple of items that came out of the House that caused us greater pause than others, but I am optimistic that we will end up getting something that will ensure the continued performance and operation of a competitive market in Texas, and will not do damage to that marketplace, and will not have significant adverse impacts on our business there.

Second, relative to Afton construction, it is on schedule. Remember, this is a -- we're taking a combined -- a combustion turbine, and making it a one-on-one combined cycle. It would be 235 megawatts. It's already approved for rate base, and it is included in the rate case that we have filed. It's targeted completion is mid summer.

We've also recently entered into a purchase agreement with Black Hills for 150 megawatt simple cycle facility that will be located about 30-40 miles from Albuquerque, and we expect it to be in service next summer. We've already moved through a lot of preliminary things that need to be done in addition to entering into the agreement.

You also have had a chance to at least meet by phone Gina Jacobi, who is taking over as the Director of Investor Relations. We are pleased to have her here, and I think you will be, too. One of the things you'll see is that Gina very much understands the planning and modeling process because she has been the Director of Modeling and Forecasting, and I think that that provides a great background to be able to communicate effectively with you on the issues of concern to investors.

So, with that, we'll be happy to turn it over and take any questions that you may have.

[OPERATOR INSTRUCTIONS.]

And your first question comes from the line of Sam Brothwell with Wachovia.

Hi, good morning, everybody.

Hey, Sam.

Good morning.

Hey, Jeff and Chuck, you're looking at the numbers here, and you've talked about the accelerating growth that you're seeing in the New Mexico service territory, and we're maybe starting to see some cost pressure from that. Are you going to be in a position when you finally finish this electric rate case that you're going to have to turnaround and file another one just to keep up?

Well, Sam, I think you will not see us agree to a five-year rate path. I don't think you'll see us need to file an immediate rate increase, but probably a three-year cycle, a two-and-a-half, three-year cycle is not unrealistic. The -- I think the whole industry is under a tremendous amount of cost pressure because of the cost of new construction in virtually everything we do, and when we have copper and steel prices escalating the way in which they are, it, and you're in a build mode, it's a challenge.

We've been very successful at managing our O&M costs at well less than half the rate of inflation, but that's not enough to offset. And I think then the third piece for us really is the fuel cost. What happens on the fuel side in this rate case will have an awful lot to do with when we will have to go back into the New Mexico Commission for another rate increase.

Right. And in the electric case, are you using a forward-looking test year in this case?

Well, no, it's a historic test year with known immeasureables and, and, obviously, the known immeasureables are one of the things that gets focused on. But, for example, in this case, even though Afton doesn't come on until the middle of the summer, it was explicitly addressed by the Commission and allowed to be included. And we typically will also make other known immeasureables where there are clear changes, but usually for assets it's going to be plant and rate base as of the end of the period.

Okay. Thanks a lot guys.

Thank you.

Your next question comes from the line of Paul Patterson with Glenrock Associates.

Good morning, guys. How are you?

Good, Paul.

I wanted to touch base with you on the legislation that you, that you mentioned. What are the potential impacts if the House version were to be enacted as it's been, as it was set-up?

Well, if the House version as it was passed, and I think you have to understand the mood of that body on the -- late in the evening when this was done. It was almost, in fact, one of the participants described it as a feeding frenzy. It has a number of things that would be negative to us, for example, it has a 15% rate cut for all customers that are on what we used to call "PTB," price to beat. About -- we still have a little less than 100,000 price to beat customers, or what were price to beat customers, and price to beat, as you know, expired at the end of the year.

We have the lowest price to beat rate in Texas. In fact, if they, if they imposed the 15% rate reduction on everybody else, we would still have the lowest price to beat, in some instances, by quite a lot. I think we have gained a lot of understanding that it doesn't make sense in a marketplace to cause everyone to go down by X percent when everyone's rates aren't the same, at all.

So that's probably the most, it would be the most immediate impact, it would obviously affect every player in Texas. But we think it would be wholly unfair to impose it across the board, and I think we've received a pretty strong response in both the House and the Senate that that doesn't make sense.

Okay. So you don't think it'll showup, but if it did it would only be for a limited period of time, isn't that right, or?

That's correct. It would, it would be for a limited period of time, and, so that's one -- I mean a second one is they have this language that would cause the Commission to potentially re-regulate if rates in the future are less than a threshold specified price, which again, doesn't make any sense in a competitive market, and I don't believe survives, at all.

Okay. And so you feel in conference committee they'll fix that all up?

I, I think that those will be fixed. There's a bunch of other items, certainly there's some issues that all of us, as REP's, are concerned about in terms of collectability of revenues and, you know, the potential for moratoria. We saw the affect of moratoria last year, and really would -- those are not necessarily good things, even though they're well intentioned, they lead to abuse.

Okay. And then just finally on the turbine blade, is there anything noteworthy about that, or is it just one of those things that happens, the blade broke, and that's pretty much the story? Or is that something that causes you some concern with regard to other equipment, or?

Yes, this is, this is -- these are old units, these are not spring chickens. And it looks like, they're still doing the root cause, but it looks like it was corrosion fatigue. There is an identical unit to it which is coming down for an outage fairly quickly, and because of this instance that we found on one of the Four Corners units, those blades will be inspected. It would not have the kind of impact on schedule as it did on the, on this other unit, because that was unanticipated. We had no equipment on site, in this instance we will have a pressure plate on site. We'd probably see something less than a week extension in the outage, but we'll go -- well, APS, they operate the unit, will do a full inspection on that unit when it comes down. So I, I think this is just one of the things that can happen with, when you're operating 40-year-old plants.

Okay, great. I really appreciate it.

You bet.

Your next question comes from the line of Scott Thomas with Lehman Brothers.

Good morning, folks. How are you?

Good, Scott.

Excellent. Two questions. One just in relation to the gas case. You know, we -- you guys have sort of guided towards a March or early April outcome, and now we're in May, and now we're talking about, you know, latest in June. Can you give us any sense of maybe what the, what the snags have been and what the outlook is there, and if we should draw some conclusions about the parallel developments in the electric case, as that goes on?

Well, in the gas case, the Commission formally accepted a request to extend for three months, which they have the statutory ability to do. That same request has been made on the electric case already and it has not been granted. They continue to indicate that they will hold fire. There were some things that happened, and this is, this is one of the things that just frustrates you in a regulatory process, relative to transcripts that delayed the arrival of transcripts to the interveners by weeks.

And , you know, you can pull your hair out and go nuts, and the Commission says, "Well, but we're trying to use our small and minority vendor side." And they didn't have any back-up and they lost the materials. And so I mean that really was one of the major causes, and you ripple that through the briefing schedule, and it had an impact on the schedule,

So just to be clear, the extension goes through June then?

It goes until the end of June, June 29th, I believe.

And your sort of outlook is it's probably going to take up until around then to get that sort of sorted out?

Well, I hope it doesn't. I really hope it doesn't, but it might. You know, right now it's not -- May is not exactly a big gas month. Unless you have a pool, I'm not sure what you -- and, obviously, for hot water heat, I'm not sure what else natural gas is really being burned, at least in our residential sectors, but it does have an impact.

Now, I am hoping we would see something in the next two weeks as a recommended decision, and then it'll take about 30 days for the Commission to act on that recommended decision. I'm a little disappointed in how long it's taking to get a recommended decision out.

And you mentioned that the, the request for an extension in the electric case -- has that been denied or just not responded to?

Not responded to.

Okay.

And my expectation is that they won't respond to it. They'll hold everybody's feet to the fire on the existing schedule.

Okay. Switching gears a little bit, just looking at the decisions you guys have made regarding EnergyCo and putting Twin Oaks in there, I think the way you categorized your strategy previously was to talk about, I'm trying to time it at least to the extent possible so that you could have sort of a parallel investment from Cascade to put in there, about the same time to sort of mitigate any dilutive affects you might have.

Can you just talk about maybe the background of the decision to go ahead and put it in now and then draw the equity from Cascade and pay-down debt? You know, what conclusion should we draw about the sort of acquisition environment and opportunity set that you guys are seeing now?

Well, let me make some general comments, and Chuck may want to add a little more specific -- We are continuing to pursue aggressively acquisitions but, as I've told you all before, we will not get into a feeding frenzy of paying prices that we cannot justify just so we can say that we won something. It has got to be beneficial and accretive to the overall business. So we will continue to work on asset acquisitions, as well as green field, and you'll hear more about that as we go forward through the course of this year.

The Twin Oaks decision to go on and go forward with Twin Oaks certainly has, has something to do with this is a way to go on and get the debt refinanced, debt paid down, that we needed to get done. I'm comfortable with the things that we're doing in the joint venture, that we're establishing it to be very successful in the long run, and we'll continue to look for both acquisitions in Greenfield, but we're just not going to get in a position of overpaying. And I think some of the transactions that we've seen go recently, they're at a little higher price than we'd be willing to go. But I, I -- we'll have to see how that market continues to shape-up. That's why we're also aggressively pursuing Greenfield.

Chuck, anything you want to add?

Yes, just, Scott, to add a couple of points on that, as we stated before, as we build the business and look forward to establishing EnergyCo, there's, you know, timing is everything and it's not optimal that we at this point are not announcing any additional acquisitions, but building the base business with Twin Oaks going over there does trigger some other situations. One, the credit facility that we will be putting in place for Cascade is driven by the contribution of Twin Oaks going over there. And in addition to that, we've always said that we're trying to lower the business risk and create some financial flexibility for PNM Resources by reducing debt.

So at this point we really feel it makes a lot of sense to go ahead and begin the process of building the business. This is also driven by the fact that we put a core management team in place with the announcement of Mark Kubow, over the generation and development side, and also establishing the trading business.

So we continue to move forward, to take the necessary steps to get the business built, begin to reduce the debt, gaining resources, lowering our business risk profile there, and also begin to set-up the necessary provisions that gives us flexibility for financing and supporting trading activities from the credit facility that will trigger this once Twin Oaks goes over there.

Okay. Thanks a lot, fellows. Appreciate it.

Your next question comes from the line of Paul Fremont with Jefferies.

Just to sort of follow-up along the lines of sort of new build versus, versus buying an existing project. Geographically are you still focusing primarily on the New Mexico, Texas area? And what -- are there any recent sales transactions that you can point to in the general area to give us a sense of sort of where recent sales have been, have been priced at?

Well, I'll, I'll expand it to the west, the southwestern market and Texas, and particularly for green build at this side, stage, you would probably see us moving there. We are looking, certainly, at other parts of the country for acquisitions, particularly of multiple units, but for a green build, we're going to, we would first look to those territories where we've got good familiarity and certainly those markets are growing quite rapidly.

Relative to transactions, you all will know those better, I think the most recent one that I saw was the MDU assets, which were kind of a mixed bag of assets involving coal, wind, and gas scattered through parts of the -- really all in the west, Colorado, California, Montana. That, that's one that was recently announced. But there's obviously a number that are, that are in various stages today for potential sale.

Chuck, anything you'd add?

No, I think that addresses the question.

Okay.

And then just as a quick follow-up, in terms of, in terms of the Twin Oaks site, what would be sort of the milestones to look for in terms of whether or not you would want to move forward with an expansion with new build on that site?

Well, we're in the licensing process today. And, obviously, with all the things that have happened in Texas, it's changed the environment fairly significantly, and we're positioning ourselves within that environment so that that site can continue to be built-out for another 600 megawatts. And there's, I'm not going to go into detail on the things that we're specifically looking at, but I would say through the course of this calendar year, you will see progress made, or you'll hear us talking about why progress wasn't made by the end of the year.

Thank you.

[OPERATOR INSTRUCTIONS.]

And your next question comes from the line of Maura Shaughnessy with MFS.

Good morning.

Good morning, Maura.

Good morning.

Just in terms of the rate case and just stepping through that. First, on the gas side, where are we in terms of the decoupling discussion, would you say? And I appreciate it's a little bit of a sensitive time, but what were the recommendations from the staff, et cetera?

This is Tom Sategna. The staff actually, of the Commission, supported decoupling. The other interveners, the attorney general, the industrial group, and the group that is on behalf of the air base here in town actually were against that.

Uh-huh.

And so, again, we did have staff support but there was considerable opposition from the other interveners.

And one of the things that the attorney general, just to explain that, the attorney general, frankly, has a -- the person that runs that office at this stage, or has run the energy office, has a concern about frankly all of the energy efficiency side because of the concern that it'll help some but not all. And they look at decoupling in the same way as they step toward implementing energy efficiency. I think the new attorney general who has come in as of the first of this year has a different thought process relative to energy efficiency, and will probably become a little more active personally on this issue. But, but the gas rate cases, the gas, I mean the record is closed, obviously.

Right. And just the trailing 12-months' returns out of your gas business are what?

I think that the rate base was about a little over 6%.

Okay.

On the, on the electric side.

On the gas side.

On the gas side, okay. And in terms of on the electric side what was the trailing 12 months' returns on the electric business?

About 6.5%.

And where do you think we are in terms of the discussion on the fuel cost? I mean how --

We've had ongoing discussions, frankly, we started those discussions even before we filed the case. We've reached no agreement. This is obviously for our industrial customers and a number of others, a very big issue. They've loved the notion of having completely fixed prices. We're continuing to work with them. We have not reached any agreement as to whether we end up using a fuel clause, or we end up with some forward-looking fuel mechanism that fixes it for a period of time, but it's subject to adjustment.

We're staying open-minded. I mean, we don't -- we're not fixated on only having a traditional fuel recovery mechanism. We are more than willing to look at incentive mechanisms or things that help provide some predictability and hedge for customers, but not at the expense that we are incurring, given volatile gas prices.

Okay.

So we'll continue those discussions, and my guess is they will continue through the case. I, I don't think we will end up with settling one piece of an issue. It'll be a package deal.

This is Chuck. Let me just correct -- on the gas, ROE was around 3%.

3?

3% on the gas, and around 6.5% on the electric.

Okay. In terms of TNMP in Texas, the rates are frozen through May? What's the rate case strategy from here?

This is Doug Hobbs with TNMP. We're going to be looking at the earnings monitoring report, which should be out on May the 15th. We're going to also review the PUCs' workload and what they're doing there, and we'll be making a decision later on this year about whether to file a rate case there in Texas.

Now, are you materially under earning there, too?

Not materially under earning. We are slightly under earning. We'll be watching the other rate cases, and how the PUC treats the other people that are there in a rate case. They've actually called in Texas Utilities and are asking them to file a rate case now. We're going to be watching very closely how the PUC is going to treat the, the earnings in Texas.

Okay. Getting back to the gas case, assuming you're allowed what you file, do you think you'd actually ever be able to earn it?

Well,that's a good question on the gas side. That's where I think some mechanism, like a decoupling mechanism, is an issue that has to be addressed. And I think without it, given that we see residential use per customer declining, now there's a point at which it, I think it can only go down so far, but it certainly has declined over the last 10 years or so, that you've got to have a decoupling mechanism or something like that.

I think what we want our, want to make sure our Commission understands is that what mechanism you may adopt for gas doesn't necessarily make the same amount of sense for electric, because they're in different situations. When you've got a growing load and you're trying to slow the rate of growth versus you've got a declining use per customer situation, with volatile weather, you may want to have different mechanisms.

So I think the gas business still can be a healthy business. We are through a lot of the shocks caused by some of the safety retrofits or safety regulations that have been, that have added on some additional costs, to that business, but gas businesses in general will always be, particularly from a cash perspective, will always have that hill to climb about growth versus replacement of bare main and those things that wear out where you don't have incremental revenue to offset their costs.

Okay, great. Thanks a lot.

You bet.

Your next question comes from the line of Maurice May with Power Insights.

Good morning, folks.

Hi, Maury.

Good morning.

I want to return to EnergyCo, if I could, because the -- you're contributing Twin Oaks at a fair market value of $554 million, and I guess Cascade has contributed approximately or will be contributing approximately $277 million, which you'll be taking out. So in the end what you have is a company with, with an asset of $554 million, which is all equity. And I assume that can be leveraged to 50 to 55%.

Yes, Maury, this is Chuck. That's correct. We'd look at, as I mentioned earlier, the financing will be driven by the credit facility that gets in place as Twin Oaks has moved over there, and then we'd be looking at some leveraging affect of the JV that would result in 50% proceeds going back to each partner as a result of that leverage.

Okay. So in the second half of this year, you really have $600 million of buying power in that entity; don't you?

Well, we've, we've certainly got a very substantial credit facility and a strong asset in place that will provide support to financing.

Okay, but you're thinking big, in other words.

Well, we always think big and look more --

Yes, I know you do. Okay, thanks, folks. The other questions have been answered.

Great. Thanks, Maury.

At this time, there are no further questions. I would like to turn the call back over to Jeff Sterba for closing remarks.

Well, I would like to thank you for joining us this morning. We, I know Chuck will be going to the B of A session and the AGA session coming up -- I'm sorry, the EEI Finance Committee, so I'm sure he will see some of you there. Have a great day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.