PNM Resources' CEO Hosts Analyst Meeting (Transcript)

| About: PNM Resources, (PNM)

PNM Resources, Inc. (NYSE:PNM)

Analyst Meeting

December 07, 2012 10:00 am ET


Terry Horn - Vice President and Treasurer

Patricia K. Vincent-Collawn - Chairman, Chief Executive Officer and President

Ronald E. Talbot - Chief Operating Officer and Senior Vice President

Ronald N. Darnell - Senior Vice President of Public Policy

Charles N. Eldred - Chief Financial Officer and Executive Vice President


Timothy M. Winter - Gabelli & Company, Inc.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Justin C. McCann - S&P Equity Research

Kit Konolige - BGC Partners, Inc., Research Division

David E. Parker - Robert W. Baird & Co. Incorporated, Research Division

James Heckler

Terry Horn

Well, good morning, everyone, and welcome. I appreciate you being here today. I'm Terry Horn, Vice President and Treasurer for PNM Resources. I'd like to thank everyone for joining us today, as well as those on the webcast. We have Pat Vincent-Collawn, our Chairman, President and CEO, here today to give us a strategic overview. That's going to be followed by one of our newest management members, Ron Talbot, Senior Vice President and Chief Operating Officer, who is going to talk about a few operational matters. That will be followed by our other Ron, Senior Vice President of Public Policy Ron Darnell, who's going to talk about regulatory relationships and share -- or stakeholder engagement. And then we'll follow that with a short break, lunch. And then we all know Chuck Eldred, Executive Vice President and Chief Financial Officer. Chuck will present our 2013 guidance.

In addition to the speakers, we have Patrick Apodaca, Senior Vice President and General Counsel, as well as Lisa Eden, I think most of you know, Executive Director of Financial Planning and Business Analysis. And then our Investor Relations team, several members are here, Deanna Armijo and Allyson Beck. And then Jimmie Blotter couldn't join us today. She's home with her new baby. So any follow-up questions you might have, you're stuck with me. So please feel free.

I'd like to thank Jimmie, as well as Deanna and Allyson, for the work they've done putting this together.

So a little housekeeping is necessary. We are webcasting, and there will be a Q&A session at the end.

So Deanna and Allyson will have microphones. They will bring those around. So please hold all your questions until the end, after Chuck, and we'll take care of them then.

And of course, our usual cautionary language. Today's presentation will contain forward-looking statements based upon current expectations and estimates. PNM Resources assumes no obligation to update the information. For a detailed discussion of risk factors affecting PNM Resources' results, please refer to our current and future reports filed with the SEC. Today's presentation also contains non-GAAP financial measures. Reconciliations of these measures can be found on our website at

And with all that housekeeping out of the way, I'll turn it over to our Chairman, President and CEO, Pat Collawn.

Patricia K. Vincent-Collawn

Thanks, Terry. And I just learned how to make a lawyer smile: read a cautionary statement. Thanks to all of you for coming this week. I know that utility week is a long week for all of you and this is the last day. So we will be as efficient as possible in doing our presentation and answering your questions so you all can hopefully head back home.

We first started talking about our new strategic direction last fall. We have positioned PNM Resources as a very strong regulated utility by exiting the competitive business in Texas and by focusing for the last year solely on our core utility businesses. Through the hard work of all of our employees and management focus, we really changed the character of this company. We've taken much of the volatility out. We continue to manage and consider long-term solutions for Palo Verde 3, our only remaining unregulated generation source. And we do this in a manner which minimizes risks while bringing value to you, our shareholders. This allows us to keenly focus on our utility operations, stakeholder interactions, rate relief and managing costs.

We've greatly strengthened our financial position as a result of this strategic shift. The rating agencies have recognized this improvement by upgrading credit ratings and outlooks. We believe that going forward, our earnings will continue to be more predictable without the volatility from the competitive businesses, and predictable earnings with clear paths to growing those earnings will lead to sustainable and growing dividends.

I'm on Slide 8 now for those of you on the webcast. We've made a successful transition into a regulated utility model. We have better realized revenues and expenses so that we can earn our authorized return, and we are gaining timelier rate relief through both rate riders and rate cases. We are now positioned to continue seeing solid growth. And that's what we're here to talk about today: our focus on the basics of running a regulated utility and delivering on our goals.

If we look at managing the business, we're committed to serving our customers with reliable electricity, bringing value to our customers while always keeping the safety of our employees in mind. And we need to live within our means. Managing O&M is a 2012 checklist item and it will be on the 2013 checklist as well. We've brought along Ron Talbot, who is our new Chief Operations Officer, to talk about our focus on our core utility operations and how we're bring value to our utility customers.

Another key piece of focusing on the basics is engaging our stakeholders. As a utility, we know the value of constructive relationships with our regulators and the intervenors that participate in almost all of our regulatory cases. In addition, there are a lot of other stakeholders with whom we need constructive relationships as well: our legislators, other members of state government, the federal government, various special interest groups and the community in general. Now total alignment among those groups is probably never possible but engaging with them is absolutely critical and necessary. Ron Darnell, our Senior Vice President of Public Policy, is here today, and he's going to talk to you about some of our successes in the past few years in the regulatory arena and with our stakeholders. He's also going to give you a sense for the changes we've made so that we can continue that success.

By succeeding in these 2 areas, effectively and efficiently managing our businesses and stakeholder engagement, we will achieve our financial target of providing top quartile return to our shareholders. The strategic transition to a regulated utility helped us achieve what we had not done for a few years and that's earn our allowed returns at both PNM retail and TNMP. We've had a year of execution now under this new strategy. While we've really accomplished a lot and are seeing substantial results, we are most excited about how well we're positioned for the future. We are ready to deliver more good results.

Turning to Slide 9, I'm going to take a moment to review each of our 3 strategic goals in more detail. Our 3 strategic goals are earning our authorized return on our regulated businesses, continuing to improve our credit ratings and providing top quartile total return to shareholders. And as you can see on the slide and I mentioned earlier, it looks like 2012 will be a great example for success in earning our authorized return at both PNM retail and TNMP. Through robust cost management, alignment of cost with revenues and constructive regulatory outcomes, we're earning our allowed returns at PNM retail and TNMP. And as we've discussed, we still have a way to go before earning appropriate returns on our FERC transmission and FERC generation, but we're making good progress on those efforts. In fact, just this morning, our generation case with Navopache, the settlement was filed at the FERC, and Ron will talk more about that, and Chuck, later in the presentation.

Our second strategic goal, on Slide 10, is credit metrics. And this is a critical metric for a utility. Being investment-grade gives us consistent access to capital markets at a reasonable cost. And this is an area where we have also made substantial progress in the last year. We've seen credit rating upgrades of debt at PNM, TNMP and at the holding companies. And we now have a stable outlook at each of these entities. Our next step is to move the holding company up a notch to investment-grade.

If we look at Slide 11, by focusing solely on the utility business, we see a great opportunity for us to deliver substantial shareholder value over the next few years. And as we've said, we have a goal of delivering a top quartile return through 2016, which we have defined as 10% to 13%.

And we have 3 levers to work to achieve this goal. The first one is rate base growth through investments made on our core utility infrastructure, renewables and environmental control equipment. We'll provide more detail on our environmental spend later in this presentation, but as you all know, for many in the industry, this is a key source of rate base growth and we're no different.

Our second lever is creating earnings growth by continuing to earn our allowed returns, further reducing regulatory lag and improving the returns on our FERC businesses and Palo Verde 3. Chuck will be talking about rate base growth and earnings growth in more detail in the presentation.

And the third leveler [ph] and help us achieve this return is above-average dividend growth. Growing a sustainable dividend is an important component in our value proposition. With our strong cash flow and relatively low payout ratio, we are well-positioned to deliver above-average dividend growth.

Now turning to Slide 12. Before I hand the presentation over to Ron Talbot, I'd like to touch on our strategy surrounding the EPA's requirement to put selective catalytic reduction on 4 of the units -- or all 4 of the units at the San Juan Generating Station. On November 29, the most recent stay expired without the State of New Mexico and the EPA reaching an agreement on an alternative plan. The compliance date specified for the installation of SCRs has not been extended, so we are moving ahead with preparations to comply with the federal plan. And as we have announced before, we signed the contract with Fluor and are beginning to move ahead on the designs and engineering. We're also continuing our appeal of the federal plan, although there is no clear timeline by which the 10th Circuit Court will rule.

I next want to introduce Ron Talbot and he's going to discuss some of the operational implications of installing the SCRs at San Juan. And then Ron Darnell will discuss the New Mexico PRC approval process for the project, and Chuck will provide some additional color around the expenditures at San Juan. Ron is going to talk -- Ron Talbot is going to talk about delivering on our new strategy from an operational perspective. Ron joined us in January of this year and he's our new Chief Operating Officer. Prior to that, he was the Chief Operating Officer for Indianapolis Power & Light and he was Vice President in the Chicago region for Commonwealth Edison. And prior to that, he was General Manager of Manhattan for Con Edison. So if any of you have questions about the wiring down here for Superstorm Sandy, please feel free to talk to Ron Talbot. With that, Ron?

Next time, just call and he'll come out and restore your power.

Ronald E. Talbot

Thanks, Pat. My name is Ron Talbot. And again, I'm responsible for T&D operations across Texas and New Mexico and for PNM's generation fleet and a number of operations support organizations as well. My portion of our presentation will cover our utility operations and how we are managing the business to improve operating and financial performance.

Slide 15, please. I'm going to start with our 2012 performance and provide you with a summary of the actions that we'll be taking over the next few years to further improve our performance. Finally, I will provide the status update on where we stand with our largest asset, San Juan, and its compliance to the federal implementation plan for regional haze.

Slide 16, please. Over the past 3 years, our safety performance has improved by over 50%. However, for 2012, our safety performance has been mixed. We've kind of stalled a little bit. PNM safety results are slightly worse than our 2011 record, whereas TNMP made great strides in 2012 with its safety culture and performance and has held onto those gains in 2012. TNMP is now solidly a first quartile performer with regard to safety and is setting the example to be followed across our PNM operating groups.

In terms of operating reliability, our overall performance for 2012 has been very good. Our key baseload generation metric equivalent availability factor, or EAF, has been better than target, led by strong performance at San Juan and Palo Verde. Our peaker plant has also performed very well in 2012, having met a 99% on-time plant start performance level.

Our New Mexico T&D business is on pace to have its best year in its past 3 years for SAIDI, or system average interruption duration index, which is a key metric for measuring wires business reliability, in New Mexico ops 2012 performance. That's saying a lot since over the prior 2 years, New Mexico operations was also on the top 25% of all investor-owned utilities for reliability.

TNMP has also historically been a top quartile T&D reliability performer. But for 2012, they're going to be slightly below first quartile due to a high number of thunderstorms that were experienced over the summer. We expect that TNMP will again be a top quartile performer in 2013.

2012 was also a union contract year for PNM. The company's negotiating team worked tirelessly over the first 6 months of the year, both on a work stoppage contingency plan and on developing and executing our negotiation strategy. I'm very happy to report that the parties agreed to a 3-year contract that includes a number of work rule changes that will allow management to more easily control costs and improve operational performance. This is another of our cost management strategies that will help keep us -- will help keep our O&M in check.

Slide 17, please. Here's a couple of pictures from Superstorm Sandy taken by our crews. And I would be especially remiss here in lower Manhattan if I didn't mention the devastating impact of Hurricane Sandy on the Northeast and the mid-Atlantic states. After human health and safety, the biggest priority was to get electric power restored safely and as quickly as possible. This was an enormous task, especially for the New York and New Jersey utilities. Our industry's response was as historic as the storm itself and qualified personnel were literally dispatched to the East Coast from across the entire country. PNM and TNMP sent over 80 qualified personnel for 3 weeks to participate in the restoration efforts. After driving more than halfway across the country, our crews worked in Baltimore for a few days before moving up to New Jersey. You can notice in the slide, in the lower left, that white has obviously become the color of choice for utility trucks.

Moving on to Slide 18, please. In terms of our objectives moving forward, we will continue to focus on utility operations fundamentals. Our plans will include safety improvement initiatives, as it will always be a top priority for our company and industry.

In terms of cost management, we have 3 key initiatives underway that will also drive further reliability improvements at San Juan and allow us to efficiently maintain first quartile performance in our T&D businesses well into the future.

Our generation business is taking the lead on installing a supervisor development program that will enable our supervisors in a very positive manner to better coach their people for improved performance, whether it be for safety, productivity or responsiveness.

New Mexico operations is already well under way in developing an improved project management process to increase the transparency and effectiveness of the many small to midsize capital projects that we execute annually.

Finally, TNMP is investigating how work management principles can be effectively deployed in our smaller field offices to complement a full-blown work management process at San Juan and in Albuquerque. As each of these processes is successfully installed, it will be replicated in the 2 other operating groups within the following 1 to 2 years.

Recently, I appointed an experienced director to oversee FERC policy and to pursue sensible transmission development projects in New Mexico and Texas. Given the difficulty in siting new transmission lines, our New Mexico business has increasingly relied on load side generation to maintain a reliable and NERC-compliant transmission system.

In Texas, we believe that there will be many -- there will be -- there may be transmission project opportunities for TNMP to leverage to further improve grid reliability and capacity. By having a key individual on point, I believe that we will be able to better pursue appropriately-sized transmission projects that will benefit our customers and shareholders.

While it would be inappropriate for a company -- for our company to be a first mover on new technologies, PNMR will continue to stay plugged in on technology developments that will likely impact our industry. Battery technology is one area that we will pay particular attention to, as it's likely to have an impact on our industry within the next 5 to 10 years. We will continue to learnage [ph] leverage -- we will continue to leverage learning from our Prosperity Energy Storage Project near Mesa Del Sol and work with others to stay abreast of the latest battery technology developments.

Interestingly, I believe that a vertically integrated utility will be able to better monetize battery technology efficiencies and reliability improvements versus its unbundled and unregulated counterparts. I want PNM to be in a position to be among the first utilities to realize any battery-related benefits if and when the technology hits an economic tipping point.

As a large plant operator, PNM needs to be able to effectively and efficiently install new environmental controls from time to time. Given that we operate a single coal plant, San Juan, it would be inefficient for PNM to have all of the expertise needed to execute a large environmental project or build a large plant solely with in-house personnel. With the SCR project looming, we have been working to contract with experienced firms and individuals to put together a robust project team to work and provide oversight of our EPC contractor. We recently hired a new VP and a director in our generation business, and both have extensive experience in overseeing large environmental control projects.

Now let's talk about the contract we recently entered into with Fluor and the regional haze federal implementation plan, Slide 19. With the expiration of the most recent EPA stay, we are moving full steam ahead with selective catalyst reduction for the SCR project. PNM has contracted with Fluor Enterprises to engineer, procure and construct the SCRs on a turnkey date-certain basis. Fluor will also train our San Juan personnel on the operation and maintenance of the new equipment. We will be working with Fluor on the open-book pricing process portion of the contract through early June of 2013.

Early next year, we will begin to order long-lead-time equipment, begin the SCR design engineering and lock down the outage schedule needed to support SCR construction to meet the Sept. 2016 compliance date. If we receive a favorable court ruling, PNM has the right to terminate the contract with Fluor at any time and without incurring penalties.

Moving to Slide 20. This is a picture of San Juan with no SCRs. Unit 1 on the far -- Unit 1 is on the far left, and Unit 4 is on the far right. And you can see it's pretty packed in.

I wonder if we can go to the next slide. You can see that's a rendering of what the SCRs will look like and where they'll be placed.

Can we go back to the prior slide? And you can see that there is lots of stuff in that place where the SCR has to go and there's not a whole lot of room between the back end of the boiler and the stacks to begin with.

So we can go ahead to the forward slide. So the yellows are the SCRs. Note the cramped quarters. The space limitations is one of the factors that drive the cost and complexity of our SCR project. After this project is completed, San Juan will be one of the lowest emitters for SO2, NOx particulate matter and mercury for any similarly-sized coal plant in the nation.

This concludes my remark on operations. And now I'll turn the mic over to our other Ron, Mr. Darnell.

Patricia K. Vincent-Collawn

Are the SCRs going to be yellow?

Ronald E. Talbot

No, they won't be yellow, but they look nice though in yellow...

Patricia K. Vincent-Collawn

But they look nice in yellow.

Ronald E. Talbot

It's kind of like the white trucks. The colors cost extra. Coloring them.

Ronald N. Darnell

Thanks, Ron, and good morning. Beginning with Slide 23. In order to deliver top quartile returns, we must successfully manage our regulatory relationships and achieve favorable outcomes in our regulatory proceedings across all jurisdictions. While our New Mexico regulatory environment is oftentimes challenging, we have established a successful track record over the past several years. This has continued into 2012. I will spend the next few minutes describing the regulatory strategy and tactics we have used to deliver these results and briefly preview significant upcoming regulatory efforts.

Slide 24. Collaborating with the wide variety of parties is a critical element in achieving successful regulatory outcomes for our shareholders. In the normal course of our business, we must deal with parties with widely divergent and often diametrically-opposing views. Nonetheless, we have reached out to all parties to forge compromises on as many issues as possible. This simplifies rate cases and reduces the number of issues which the commission must decide. Obviously, we cannot always reach agreement but we always put forward balanced positions that reflect the many considerations that exist in every issue we face, recognizing that customer interest is foremost. This has allowed us to develop constructive relationships with the usual parties to our cases. In fact, we now routinely discuss our upcoming filings with other parties very early in the development of those filings.

Slide 25, please. The regulatory and legislative environment in Texas is constructive regarding the recovery of costs. TNMP has continued to build a productive relationship with commissioners, commission staff and intervenors. This is evident by TNMP, in just the last 3.5 years, having successfully completed an AMS case and 2 general rate cases, which together amounted to approximately $40 million in rate relief. TNMP is also able to recover significant portions of their revenues through riders, which provide timely recovery of certain expenses and rate-based additions, and minimizes the regulatory lag. For all of these riders, the allowed ROE is what was authorized in the last general rate case, which is 10.125%.

First, we are able to take advantage of the interim transmission cost of service filing commonly called TCOS. This filing enables us to apply semiannually to recover the costs of incremental transmission-related capital investments. This is a great way for TNMP to timely recover its transmission investments without having to file a general rate case. TNMP's most recent TCOS increase went into effect in September of this year with annual recovery -- with an annual recovery amount of $2.5 million. Looking forward, we plan to make 2 TCOS filings in 2013.

In 2011, the Texas commission also instituted a similar mechanism for distribution capital investments through the distribution cost recovery factor, DCOS, filing. This annual filing enables us to recover the cost of incremental distribution investments. Since TNMP has had sufficient load growth in recent years, we have not had a need to take advantage of this tariff.

In addition to these 2 mechanisms, TNMP is able to update the transmission cost recovery factor, or TCRF, twice each year. The TCRF passes the cost associated with using other transmission service providers' transmission lines onto customer bills. This pass-through ensures recovery of any wholesale transmission cost changes that the commission has approved. As we did in 2012, we expect to make a TCRF filing in mid-2013.

On the energy efficiency front, the commission allows us to recover energy-efficiency-related costs through the energy efficiency cost recovery factor. Our next annual filing occurs in June 2013.

Slide 26. Now let me add some detail on the recovery mechanisms we have in New Mexico. We have filed 3 rate cases since 2007 that have resulted in base rate increases totaling $184 million. In addition, we have received approval for and implemented a fuel clause. Earlier this year, we filed and received approval to recover our RPS compliance costs through a renewable rider, which was implemented this past August. Lastly, like TNMP, PNM has an energy efficiency rider that enables us to recover energy efficiency program costs directly on our customer bills.

Now the renewable rider is particularly noteworthy. PNM was the first New Mexico utility to propose and receive approval of such a rider. This will provide PNM with nearly contemporaneous recovery of RPS compliance costs.

In line with our stakeholder engagement focus, we have a great opportunity to continue building relationships in New Mexico, as 2 new commissioners will be joining the New Mexico Public Regulatory Commission in January. While it will take some time for the new commissioners to come up to speed on utility matters, we will continue to develop constructive relationships that help to create positive outcomes. We have also continued to develop a relationship with the commission staff. This relationship has allowed us to achieve successful results in our cases very early in the process, so that we are able to limit the number of issues in dispute and achieve case settlements.

As you may know, there are now -- there are 3 new constitutional amendments that will take effect in the next NMPRC election cycle. The new amendments help to simplify and streamline the commission's workload, which will lead to positive outcomes. As I said, we have been able to achieve some very good regulatory results over the past several years and believe we have established a solid track record of success because of the focus on stakeholder relationships.

Let's take a look at the next slide to update our progress on our 2012 agenda, Slide 27. We have had a very successful 2012 on the New Mexico regulatory front in addition to the approval and implementation of our renewable rider. Our past renewable procurement plans have been contentious. This was certainly not the case in this year's plan. We've developed a plan that will result in PNM being fully compliant with the 10% RPS and the diversity targets by 2014, all within the reasonable cost threshold. The hearing examiner recommended full approval of the plan and we expect a decision to be made before the end of the year.

A final issue was ordered -- or a final order was issued on November 29 that establishes the filing requirements for a rate case based upon a future test year. We are in progress of evaluating the final rule, which will apply to our next general rate case filing.

Finally, we have reached settlement in our FERC generation case with Navopache Electric Cooperative. In fact, we filed a settlement yesterday after hours, so it will be dated today, December 7.

Okay, moving to Slide 28, please. We look to continue achieving successful regulatory outcomes in 2013 through a number of proceedings. First, we expect to file a general rate case in the second or third quarter next year. We do not expect this rate request to be as large as our last few rate cases, but it's still an important filing in that it will serve to align expenses with recovery, thus allowing us to continue to earn our allowed return.

With respect to our FERC business, we are preparing both a transmission formula rate case and a FERC generation case. We will file transmission formula rate case by the end of the month. A formula-based approach makes sense as a way to reduce regulatory lag. This will assure that we get timely recovery of our transmission revenue requirements without regularly filing full-blown rate cases. The FERC generation case will address the contract we have in place with the City of Gallup, which expires July 1, 2013. We have held preliminary discussions with Gallup on this contract. Further down the road, we will likely seek a formula approach for all of our FERC-regulated generation agreements as well.

Next, as Pat and Ron have discussed, PNM is facing a 2016 compliance deadline with the federal implementation plan at San Juan. Given the 2016 deadline of the SCR project, PNM is proceeding with the installation of SCRs. This project represents a significant additional investment in San Juan Generation Station. And PNM is in the progress -- it's in the process of preparing a filing that will seek NMPRC approval of that project, which will assure cost recovery. Our intention is to establish a record with the commission, addressing the prudence and reasonableness of the project. We will make this filing in late December. Importantly, PNM will also propose for the commission's approval the rate-making treatment for the SCR project, namely that the SCR project be recovered through base rate cases -- or through base rates and future rate cases.

Finally, as I mentioned before, we intend to take advantage of our TCOS rate rider mechanism at TNMP in 2013.

We are pleased with the progress we have made on our regulatory front over the recent past, and we have laid the foundation for continued success. We have been able to influence the regulatory framework through our participation in rulemakings and work to build more constructive relationships with regulators and parties, with whom we routinely work.

And with that, I will turn it over to Chuck.

Charles N. Eldred

So I guess we can break for 1.5 hours for lunch and then I'll take this after lunch.

So let me just -- we talked -- Pat talked about describing our utility strategy and our goal to deliver top quartile returns. And Ron Talbot has talked about how we're managing our business. And Ron Darnell discussed our stakeholder engagement, creating constructive regulatory interactions and positive rate outcomes. So let me discuss how our strategy translates into financial performance and specifically, the upcoming year 2013.

Before I talk about this, I want to make a comment about the total return goal. As we transition to a regulated utility model, we have eliminated much of the risk and volatility in our earnings. In addition, as we have demonstrated over the past few years, we can deliver solid results with this new strategy. We expect to continue to deliver top quartile returns over the next several years with substantially lower risks.

So let's talk about 2013 guidance, moving to Slide 32. As you can see in today's press release, we are affirming the 2012 guidance range of $1.26 to $1.32. We're also initiating guidance for 2013 at $1.32 to $1.42. The midpoint of the 2012 guidance range to the midpoint of the 2013 range represents a 6% EPS growth. We expect PNM to contribute $1.16 to $1.23 of the total; and TNMP, $0.32 to $0.34 next year. Corporate and other is expected to be a reduction of $0.15 to $0.16.

So on Slide 33, ongoing earnings have been steadily growing since 2009. This slide clearly shows a substantial growth over the 5-year period for the regulated utilities, TNMP and PNM. We have been able to deliver this growth by doing the basic block and tackling, and working with our stakeholders to improve our regulatory outcomes. This is a great track record and we expect to continue delivering solid earnings growth at both PNM and TNMP.

When we look into the future, we expect our businesses to continue to earn their authorized returns. We intend to achieve these both through execution of timely rate filings, as well as continued attention to the details of our business, making sure they're running as efficiently as possible.

Now let's look at some details that we're seeing in 2013, moving to Slide 34. Customer load growth is, of course, one of the main drivers for utility earnings growth. So I'd like to start our guidance discussion with economic information. I'll start with New Mexico. At PNM, we continue to see only modest load growth. We expect the load to be relatively flat, with the potential to see an up to 1% growth. The dynamics of the New Mexico economy are not expected to change significantly in the near term. The economies of the key metropolitan areas, Albuquerque in particular, remain stalled. For New Mexico, between October 2013 and October 2012, employment decreased 0.7%. As you know, employment growth is a key driver for growth in any economy. We know that decreased employment opportunities, in the near term, are not conducive to commercial and residential customer growth. Thus, our expectation of flat to 1% sales growth is a direct result of weakness in underlying employment growth for New Mexico's economy. We have seen some recent improvement in residential building permit activity within PNM service territory. This is an indicator of potential upside growth in the residential customer class.

Now in Texas, we're seeing a healthier economy. We're expecting load growth of 1% to 3% compared to 2012. The Texas economy remains one of the strongest in the nation, providing both customer growth as well as load growth. The Texas Workforce Commission's December 2011 employment statement reported Texas added more than 200,000 jobs in 2011. The 2-year recovery, to this point, puts Texas well ahead of the national job market. For Texas, between October 2011 and October 2012, employment increased 2.6%.

Although we are disappointed with the economic outlook for New Mexico, we expect the growth outlook to improve over time. We're confident in our load growth prediction, up to 1% growth. We're pleased to see the economy in Texas rebounding so well.

Now turning to Slide 35. It has additional detail on the key performance drivers between the midpoint of 2012 guidance and the midpoint of 2013 guidance for PNM. The first driver is outage cost. In 2013, we're expecting outage cost to be lower by $0.05. Outage costs are projected to be lower due to San Juan having 1 planned outage compared to 2 in 2012. The next driver is the renewable energy rider of $0.02. The renewable rider was approved and implemented in August of this year, and we'll see a full year benefit in 2013.

Regarding load growth next year, we are projecting that PNM could experience up to $0.05 improvement in 2013. 1% of load growth is equal to about $6.8 million of revenue at PNM.

FERC generation and transmission assets make up 10% of PNM's rate base. We are filing for formula rates for our FERC transmission customers before year end. The annual rate increase is expected to be up to $5 million. The formula rates, if approved, will boost that business and would improve earnings up to $0.02 for 2013, assuming rates are in effect August of 2013. The 2013 range on FERC generation is $0.01 to $0.05. This amount assumes a full year increase from the Navopache contract and a partial year increase for Gallup, which is assumed to be implemented in July. The annual rate increase for Gallup is expected to be up to $9 million.

Palo Verde 3, unit 3, is expected to be up $0.01 compared to 2012. Our 2013 fully hedged price of $32 per-megawatt-hour is slightly up compared to the 2012 price of $31 per megawatt-hour. In addition, for 2013, we expect lower fuel and operating costs. If you recall, we don't forecast realized gains and losses for the PV Nuclear Decommissioning Trust in our guidance. When comparing 2013 to the first 9 months of 2012, you'll see a decrease of $0.03 for the 2012 realized gain.

Lastly, as always, our earnings guidance assumes normal weather. Assuming normal weather, we would be down $0.06 year-over-year.

Now turning to Slide 36. This slide has additional detail on the key performance drivers between the midpoint of 2012 guidance and the 2013 guidance for TNMP. Transmission rate relief, through TCOS filings, will improve 2013 EPS by $0.04 compared to 2012. This includes $0.02 related to the TCOS increase implemented in October of this year, as well as $0.02 for anticipated TCOS filings in 2013. Load growth is the next positive driver. We are projecting that TNMP will experience $0.01 to $0.03 improvement in 2013 for load growth. As I mentioned before, in our economic conditions outlook, this represents growth rates of 1% to 3%. 1% load growth is equal to about $1.2 million of revenue at TNMP.

We anticipate lower earnings of about $0.01 from our competitive transition charge rider as the principal balance continues to decrease. We also see an increase in our depreciation and property tax expense of about $0.02 as we continue to invest in the business. This increase in depreciation and property taxes is recoverable through both TCOS and DCOS filings. However, there is a lag in that recovery until such filings are made.

Now turning to Slide 37. We expect solid rate base growth over the next 5 years. Total capital expenditures from 2013 to 2017 are forecast at approximately $2.2 billion, and with current depreciation, this means a compound annual growth rate of PNM rate base of 5% to 7%, and at TNMP, 7% to 9%. These amounts include the BART environmental control expenditures, renewables and peaking units. As Pat mentioned, we are proceeding with the installation of SCRs in all 4 units at San Juan plant as required by FIP. PNM's share of the total expenditures under the FIP are projected to be $425 million. In addition, we anticipate spending $62 million related to SCRs at the Four Corners plant for a total $488 million of SCRs-related capital expenditures.

We are planning to add additional renewable generation in 2014 and '15 to ensure we meet the renewable portfolio standards of 15% in 2015. In addition, we plan to build a couple of peaking facilities, with the majority of the spending in 2017.

Now turning to Slide 38. As reflected on this slide, we are well positioned to enter into this major construction program. We have no plans to raise any long-term capital in 2013, due to substantial liquidity available of our -- on our credit facilities, but we'll always look for opportunities to reduce our cost of capital. Also, we remain committed to keep our regulatory capital structure, which is 50-50 at PNM and 55% debt and 45% equity at TNMP. At this time there are no plans to sell equity. We're also expecting a $100-million tax refund in 2013.

Now turning to Slide 39. This provides some additional detail on PNM's rate base growth. Tax benefits from bonus depreciation largely offsets growth from 2013 to 2014. However, the addition of the SCR project, as well as renewable and peaking facilities, will contribute to strong rate base growth beginning in 2015. As a result, we expect 5% to 7% rate base growth over the 5-year period from 2012 to 2017.

Our expectation is that PNM will continue to earn close to its allowed return, and our future test year rate case filings will support that objective. Our ability to mitigate regulatory lag at PNM will be accomplished through the forward test year filings. As Ron Darnell mentioned earlier, the SCRs project will be handled under a separate application filed in December. A small portion of this investment will be included in the next rate case. However, the majority of the capital will be included in subsequent rate cases. In the meantime, we'll be booking AFUDC as we go through construction.

On Slide 40, provides some additional detail on TNMP's rate base growth. We expect to make TCOS filings next year, which will bolster earnings and enable the company to continue to earn close to its allowed returns. While Texas has recently implemented a rule allowing utilities to file for distribution, plant recovery or DCOS, Load growth at TNMP has been robust and there is no immediate need to file for this recovery.

Now turning to Slide 41. This slide shows that we have earnings potential of $1.57 to $1.62. As I mentioned earlier, with the filings of our FERC transmission formula rates, we expect earnings growth of up to $0.02 for this segment of our business. Once we execute our strategy to move our FERC generation customers to cost-based rates, this would add $0.02 to $0.03 of potential earnings growth.

As we think about Palo Verde 3, you're aware that we are now pursuing the addition of Four Corners, SCRs at San Juan, rather than shutting down a couple of units. This obviously changes the dynamics of the interested parties requesting Palo Verde 3 and rate base in the immediate future. However, we're continually looking at other options for Palo Verde 3. With so much movement to close coal plants, there are many utilities that are in need of some clean energy resources. We're investigating the potential for longer-term PPAs for the output of Palo Verde 3 to obtain more favorable pricing in the future and improve earnings. The output for Palo Verde 3 is fully hedged for all of 2013 at a price of $32.15 per megawatt-hour. We continue to sell the output short-term, so we maintain the option to enter into longer-term positions if the opportunity arises.

As you're aware, we're facing some milestone decisions related to Palo Verde Units 1 and 2 leases. For Unit 1, we will be notifying the lessors in January '13 as to whether we intend to extend the leases or pursue the fair market value buyout option embedded in the leases. If we extend the leases, our lease payment will drop by 50% in 2015. For Unit 2, also in January 2013, we will be notifying the lessors of whether we intend to continue using the asset or will be returning the asset to the lessors. As we've discussed before, we will pursue acquisition of some leases. Any purchase of a lease would require a successful negotiation with a lessor and the commission approval.

For corporate and other, we'll be paying off the 9.25% debt of PNM Resources in May of 2015. That, along with some fully-amortized software and hardware costs, will provide an increase in EPS of $0.12 in 2016, which would be the first full year of all those savings.

On Slide 42, the board raised the dividend 16% last February to $0.58. This was a substantial increase, which put our payout ratio at approximately 46%. Our strong cash flow gives us room to grow the dividend further, as well as flexibility needed for our capital expenditure program. Our long-term target is 50% to 60% payout ratio. We intend -- we anticipate above-average dividend growth in the next several years as we raise our payout ratio. Of course, dividend growth is important, but we believe the certainty of the dividend is equally important. That again is part of delivering our goals. We will be thoughtful with our dividend growth trajectory, given the substantial capital expenditure program facing PNM in the next few years. The board continues to evaluate the dividend annually, with the review historically occurring each February.

Lastly, to conclude on Slide 43. We're very pleased with the earnings track of the utilities and seeing that continuing in 2013. However, delivering a top quartile total return is a strategic goal, and we believe we having a line of sight to deliver on that commitment. As you have seen, we are expecting solid rate base growth over the upcoming years. Looking forward to the next few years, to continue to earn our allowed return, we will file a PNM future test year rate case in 2013 that should yield a rate increase in mid-2014. Our goal for PNM retail would be to have the modest rate increases timed to ensure upcoming capital expenditures are recovered timely and appropriately.

PNM's FERC transmission and generation assets are still lagging in returns, but we'll have additional partial year rate increases in 2013 with Gallup and formula rates for transmission. This will have full year benefits in 2014. At TNMP, we'll continue to make investments and take advantage of TCOS filings.

Let me see -- excuse me just a second.

Although we'll see some variability in our growth rate for year-to-year, depending on the rate case schedules and timing of capital investments, we will have substantial earnings growth over the next few years and beyond. The earnings growth would be accompanied by dividend growth, which will enable us to deliver 10% to 13% total return.

At this point I'd like to turn it back over Pat for her closing remarks.

Patricia K. Vincent-Collawn

Thanks, Chuck. You've seen our checklist for 2012 many times before, and we've made a lot of progress on all of this. Rather than counting our chickens, though, before we before we cross -- before they cross the road, and since our lawyer is here, we're going to wait until we do 2012 final earnings to check all the boxes off there, but I think you've heard on the future test making (sic) [year] rulemaking, we've got the rule, we're looking at it, but as best we can tell, we're generally happy with it. Our FERC transmission rate case, hopefully that will actually get certified this year, and then we will be filing our case -- our formula case by the end of this year. And on the generation rate cases, you just saw -- Ron said that it got filed effective today, and we got our renewable rider. So, and Mr. Talbot's doing a great job on power plant and distribution reliability.

But now I want to turn to our 2013 checklist on Slide 46. Again, a lot of this is familiar to you, and it really builds on those strategic goals of earning our authorized returns, continue to improve our credit ratings and providing top quartile returns. We'll have a future test year general rate case next year in the second or third quarter, our Gallup generation on the FERC side, continue to get favorable outcomes in both FERC and in Texas, and continue that great operational job that Ron Talbot's doing along with controlling our O&M and capital costs.

Now, we were very efficient in getting through that. So it's 11:00 so we'll do Q&A now and then we will go to lunch. Since there are people listening on the webcast, we ask you to say that your name and your firm before you ask your question, and I believe Deanna and Allyson are going to come around with mics. So we'll do Q&A now.

Question-and-Answer Session

Patricia K. Vincent-Collawn

Mr. Winter's hand was up first.

Timothy M. Winter - Gabelli & Company, Inc.

Pat and Chuck, I was wondering if you could talk a little bit about what's going to go into the thinking of the timing of the New Mexico forward-looking rate filing and how the SCR will be included or not included in that filing.

Charles N. Eldred

The rules are -- we're still reviewing the final rules of the commission. But as we talked about before, as far as timing is concerned, it would be the mid part of next year was when we'd actually make the filing. So there'll be a -- and the rules -- and we'll give you more color around this when we actually make the filings, but there'll be a base year, historical test year, likely the end of 2012. Then there's a linkage period to the test year, and in the forward test, we will cover 12 months from the effective day of when the rates go in to place. So we'd expect a decision by mid part of 2014, with new rates in place that would cover that forward test year, which would be through first part of the quarter of 2015. So that's kind of the general guideline, to give you some idea as far as the time frame, but we'll give you more details as we really get close to settling on that period.

Timothy M. Winter - Gabelli & Company, Inc.

The spending on the SCR...

Charles N. Eldred

Yes, the spending on the SCR, that's -- there'll be very minimal impact on the SCRs, for that first forward test year. There'll be some, certainly, because we'll cover early part of 2015, but not significant. And the reason for the application in the end of, in fact, this month, is to really make sure that the prudency and the reasonableness of cost associated for the work that's been done, to project the cost for the SCRs, that the commission is fully aware of that and understanding of that. Not concerned about the getting the recovery. We certainly have that as a mandate and required to be in compliance. But just to make sure the prudency piece of that is clearly understood by the commission, and through that application in December. So we think that is a very proactive step for us to take, that will fit nicely into the rate path that will be necessary to get the full cost recovery on the SCRs.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

A couple of questions, one...

Patricia K. Vincent-Collawn

Paul, if you wouldn't mind, your name and your firm for the webcast folks, thanks.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Paul Fremont, Jefferies. First question would be, do you anticipate any type -- any potential opportunity to earn on CWIP part of your rate filing?

Charles N. Eldred

Yes, we're still taking a look at that, Paul. But we do have AFUDC as a mechanism to recover noncash earnings through the capital that we have projected. We haven't made a decision as to whether we'll actually file for CWIP. It'll be more of a cash flow issue. But cash flow is very strong in the business right now. Liquidity is very strong. There's some risks associated when you do file for CWIP because you could give up on the carrying costs associated with that, versus -- which could be a cost of debt versus the blended rate we get for AFUDC. So we'll just have to take a closer look at that as we kind of go through the process. But at this point we're comfortable AFUDC will give us adequate non-book earnings, and the cash flow of the business is satisfactory enough that we can -- and given the time frame of getting this project done, that we're comfortable that we don't necessarily need the CWIP in rate base.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Second question would be, for 2014 drivers, you're talking about holding company debt. What -- would you be issuing debt? Or what's the...

Charles N. Eldred

No, if you recall, we have $142 million of debt that's still outstanding at the holding company, the 9 1/4% debt. And certainly we'll be looking to pay that off in May of 2015 when it terms out. And so that would be clearly in our sights of what we'd expect to get. Get that paid off and then we'll pick up the earnings as a result of that.

Patricia K. Vincent-Collawn

And, Paul, the slide said 2014 plus.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Okay, and that's a plus, okay.

Patricia K. Vincent-Collawn

Yes. It would more likely occur in '15, actually.

Charles N. Eldred

Yes, it's early -- May of 2015.

Patricia K. Vincent-Collawn

But that's not callable, so it'd be 2015.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

And then when I think about accelerated depreciation and the cash effect of that, is that the $100-million tax benefit that you're looking for in 2013? Or is there more sort of...

Charles N. Eldred

The tax refund that we're referring to, that's really based on a previous tax year filing for just the NOLs and the position of the company from the previous tax filings. That we expected a refund, actually, this year and we just haven't received it yet. So we're looking for it in early next year.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

So what type of incremental accelerated depreciation benefit should we be looking for in cash, in '13?

Charles N. Eldred

For going forward?

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Just I think you said it's mostly '13, right?

Charles N. Eldred

Yes, that's the -- the cash refund is in '13. Maybe I'm not following your question, but this isn't a refund that we'll receive cash-wise in 2013. It's from a previous tax filing position we've had in prior years.

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Right, but is there additional cash coming in from accelerated depreciation?

Charles N. Eldred

No. No, there's not. No, no. And we'll look at that. I'm sorry. We'll look at any kind of accelerated depreciation as a consideration in the next rate case filing. But, no, that does not reflect any of that.

Patricia K. Vincent-Collawn

The Feds are just -- if it makes you all feel good, the Feds are slowing down cash disbursements. And then Justin after that.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Brian Russo, Ladenburg Thalmann. Can you talk a little bit more about your long-term financing options to support your capital budget?

Patricia K. Vincent-Collawn

All yours.

Charles N. Eldred

Yes. As I mentioned, one, the tax refund, the $100 million, certainly prevents us -- keeps us from having to go to the capital markets or any debt issuance in 2013. We'll maintain a solid capital structure, but there's no plans to issue equity over the period of time that we are showing you through this capital period. If that were to ever come up, that would be the latter part of the period of time, but at this point we don't see any need to issue equity. Cash flow is very strong, and as long as we continue to stay on the rate path and continue to have the successes we've had in the rate filings, then we don't anticipate that there'll be much in the way of debt or even equity required for the business.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. So, in summary, you can finance the EPA spend and the base CapEx with no block equity.

Charles N. Eldred

That's correct. That's correct.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

And on -- with the load growth and the slowdown, a little sluggishness in the New Mexico service territory, are there any incremental cost cuts that you plan in 2013 and beyond? Or how should we look at the growth in your O&M relative to load growth?

Patricia K. Vincent-Collawn

Yes, if you look at the growth in our O&M, it's less than inflation. So we've really kept that down. There is no huge cost cuts to come. I mean, we're always doing process improvement and looking at things. For example, the largest thing, going into next year, is we're out of our building. And so that saves a couple of million dollars a year. We've consolidated into one building. So we're confident, in 2013, we can continue to control costs. But the big stuff is done. And the union contract that Ron Talbot mentioned produced some pretty significant savings for us, for our 2013 budget, by some overtime elimination at the power plants. So nothing big there but very -- or nothing big left, but very confident that we've been able to cut the costs to do the load growth. And I think we're being conservative on our load growth projections. What you see in New Mexico is there's a real overhang on sequestration because we are so dominated by the federal government in our economy, with Air Force bases and national laboratories. And as the talk of the fiscal cliff comes, everybody obviously worries about their jobs. And assuming our politicians get over the fiscal cliff, we think there'll be some confidence restored by customers and their usage, so. Justin?

Justin C. McCann - S&P Equity Research

Yes, first -- Justin McCann, S&P Capital IQ. Chuck, can you quantify the NOLs for this year and expected for next year?

Charles N. Eldred

Well, they actually go through 2014, and I don't have the numbers with me. But just call the IR folks and they can help you with that.

Justin C. McCann - S&P Equity Research

And then either Pat or Chuck, you talk about the government potential impact on the economy in New Mexico. What is the -- what potential is there for nongovernmental growth in the economy in New Mexico over the next several years?

Patricia K. Vincent-Collawn

Yes, the state is working very hard to diversify its economy, and the silver lining in this, for New Mexico, is they realize how government-dominated we are. And the governor is pushing tax reform very hard. Our tax structure makes us noncompetitive to manufacturers. And so we hope that she has a successful legislative session and we get our tax structure changed, because -- the folks in California are helping us a lot with their increase on the personal income tax rate and the fact that they no longer have to have a supermajority to increase taxes. The number of business inquiries that Texas and Arizona and New Mexico are getting is pretty astounding. So, number one is fixing that tax structure; and then two, some pretty aggressive business recruitment. We have, as you know, a great climate, low-cost workforce, educated workforce. So we think we'll see some upside there. Kit?

Kit Konolige - BGC Partners, Inc., Research Division

Kit Konolige of BGC. Can you address -- on the SCRs, I think I've read that some of the state folks seem to think that there's still a possibility of further meeting of the minds with the Feds over alternative plans. Can you give us your view on whether any change is likely? Or should we just be assuming it's 95% SCR for the...

Patricia K. Vincent-Collawn

Well, I've learned never to say never in this business. But there's no talks going on right now between the state and the EPA, and so we are moving forward with the SCRs.

Kit Konolige - BGC Partners, Inc., Research Division

Right. And can you give us a little more detail on the kind of filing that you would be making with the state on the prudence? Is there a precedent for this kind of filing? And what should we be looking for?

Patricia K. Vincent-Collawn

Yes. I mean, technically you don't need a CCN for an environmental construction project, but I'll have Ron Darnell give you a little color on why we're doing the filing and the -- sort of the form and nature of it.

Ronald N. Darnell

Yes, we're not seeking CCN approval, but it will have elements of CCN, in that we will establish the prudency of the project, will explain how it works. For example, Ron Talbot will be our policy witness. And then we will explain and propose our rate case -- or ask for how it would be recovered, which will be through the future rate case rules that currently exist.

Kit Konolige - BGC Partners, Inc., Research Division

And what would you be expecting the commission to say in response?

Ronald N. Darnell

We're expecting project approval and approval to file in our rate cases, again pursuant to the future test year rules, which were just completed in November.

Kit Konolige - BGC Partners, Inc., Research Division

Right. And so, in the regulation in New Mexico, people are always concerned about how well these guys deliver on their promises. And so, I mean, what kind of promise is this if they approve the project?

Patricia K. Vincent-Collawn

You always end up going in it, and as Chuck mentioned, it will be in our general rate cases. But I think we feel pretty comfortable about this for a couple of reasons. One -- I mean, I can't tell you how hard everybody has worked to try to find an alternative. So when people start talking about a cost of the SCRs, we've looked very hard and tried to come up with an alternative. And second, because of the end of the day, these are mandated environmental expenditures, and Commissioner Howe and Commissioner Marks, while they won't commissioners anymore, have said, "We get that this is cost recovery for you guys because it's mandated," and they actually congratulated on us on looking for another solution, because this was -- the cost recovery on this, nothing's ever a slam dunk, but environmental mandates are usually pretty good for cost recovery.

Kit Konolige - BGC Partners, Inc., Research Division

And then finally, on the next general rate case, the filing midyear next year. What would be some of the main elements that you're looking for there, that are eroding your ability to earn the allowed return, that you're looking to change?

Patricia K. Vincent-Collawn

Well, mostly what we would have in the next rate case, other than a little piece of the SCRs, is normal transmission and distribution growth, and some nuclear fuel. We haven't had any major expenditures, so it's just really the catch-up of that capital expenditure.

Kit Konolige - BGC Partners, Inc., Research Division

So this is even though the CapEx -- the rate base stays the same, but...

Patricia K. Vincent-Collawn

Well, but it's -- again, remember it's a forward-looking test year. So as Chuck said, it would go to 2015 and rate base goes into -- rate base goes up a couple of hundred million, and plus, the last case was set in 2010. So we've got that catch-up to do. So that's why we said it's not going to be a huge case, but you really want to get into the habit of those frequent smaller rate increases to make sure you earn your allowed return. And the other thing is obviously, we're not seeing huge load growth, so that's the other piece you would address. I think Dave had one.

David E. Parker - Robert W. Baird & Co. Incorporated, Research Division

Dave Parker with Robert Baird. For '12, you gave us kind of guidance on what you thought earned ROEs were going to be at the New Mexico and Texas operations. Do you expect to get close to that level in '13?

Charles N. Eldred

Dave, we -- as you know, we target 10% at PNM and 10.125% is what we have at TNMP. And even though there's a decline and a trend of moving -- ROEs moving down, we're still very comfortable that we will be able to substantiate and support those levels of ROEs going forward. So we're not anticipating any reduction lower than the 10% that we have now.

David E. Parker - Robert W. Baird & Co. Incorporated, Research Division

So it sounds like it's an easier job in Texas because of load growth, but New Mexico, will that be the biggest challenge? To hit that...

Charles N. Eldred

That would be the area that would be -- if there's any concern, it would be in New Mexico, but again, we really feel like the cases support that, and the testimony is very reasonable and our expectation is to continue to focus and achieve that level of return.

David E. Parker - Robert W. Baird & Co. Incorporated, Research Division

Great. So I can understand the timing of the filing for the FERC settlements, and formulaic rates on transmission and generation. When we look at Slide 41, and you looked at the -- or was that data-fied [ph] today and in the past, what the earnings potential there is? When we get to '14, is that when we expect we'll get close to that full earnings potential? Is that being realized today, of the $0.08 to $0.09 and the $0.04 to $0.05 for the transmission and generation? Or how should I think about that for '14?

Patricia K. Vincent-Collawn

If you look at the FERC transmission, the settlement cases there, and the rates are already being collected and it's just waiting to be signed. I think it got stuck on somebody desk. And then we filed a formula case this year in December, so before the end of the year. So rates go into effect, what, about 7 months afterwards, so you'd get -- that would be in 2013, so you'd get the full effect on transmission in 2014. And then the Gallup contract, it's expected in 2014. We would get that in there. So you should have almost the full on Gallup, in 2014. Because having filed the Navopache settlement has been a great step towards that.

David E. Parker - Robert W. Baird & Co. Incorporated, Research Division

Great. And one last question. It's a follow-up to Kit's. So the pre -- or the approval -- or the filing, I should say, with the New Mexico commission on the SCRs, is a better way to look at it that it's sort of an informative -- I don't think -- if they say go ahead, they're not really obligating a decision or recovery of that in the future.

Patricia K. Vincent-Collawn

It's not quite as nice as a CCN, right? Because a CCN, you pretty much get project approval if you meet the form and the budget and the rate-making. So it's not quite as official as a CCN, and again, you've always got to put things in rate case. But it's going to be the -- these commissioners will be the same ones that hear the rate case. So it's just really sort of a comfort for all of us that they understand where we're going with this project. And sort of our no-surprise relationship with them. We just want to keep them informed and have them say yes.

James Heckler

James Heckler with Levin Capital. With regard to the $100-million tax refund expected in '13, could you comment on what tax years that refund is associated with?

Charles N. Eldred

Yes, it's the last tax period. I think it's around 2008, in that time frame. So it's really the last tax position we've had, so it's carried -- carries that far back.

James Heckler

Is there an expectation, going forward, that there are more refunds within your...

Charles N. Eldred

Well, we still have the NOLs, so we still have that through 2014. So don't expect any tax positions, and could be some potential refunds.

Patricia K. Vincent-Collawn

Especially since we're going to do tax reform, right? Any other questions?

Well, lunch, Terry? Lunch should be out there, so we hope you can stay and join us for lunch and we will all be around. And again, thank you for coming today in this very, very busy week. For those of you we don't talk to before the holidays, we hope you all have a very safe and happy holiday season, and we'll talk to you when we do earnings next year. Thank you.

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