UNS Energy's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.29.13 | About: UNS Energy (UNS)

UNS Energy Corporation (NYSE:UNS)

Q1 2013 Results Earnings Call

April 29, 2013 12:00 PM ET

Executives

Chris Norman - Manager, Investor Relations

Paul Bonavia - Chairman and CEO

Kevin Larson - Senior Vice President and CFO

Dave Hutchens - President

Analysts

Kevin Cole - Credit Suisse

Michael Klein - Sidoti & Company

Paul Fremont - Jefferies

Brian Russo - Ladenburg Thalmann

Chris Ellinghaus - Williams Capital

Maurice May - Wellington Shields

Operator

Good morning, ladies and gentlemen. And welcome to the UNS Energy First Quarter 2013 Earnings Conference Call. Today’s call will be hosted by Paul J. Bonavia, UNS Energy Chairman and Chief Executive Officer. All lines have been placed on-mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded, Monday, April 29, 2013. Now, I’d like to turn the call over to Mr. Chris Norman, Manager of Investor Relations. Please go ahead, sir.

Chris Norman

Thank you all for joining us this morning as we review UNS Energy’s first quarter financial results. Joining me on the call today are, Paul Bonavia, UNS Energy’s Chairman and CEO; and Kevin Larson, Senior Vice President and CFO.

Before I turn the call over to Paul and Kevin, I would like to point out that our earnings release, supplemental materials and webcast slides are available on our website. Please refer to these materials for a reconciliation of non-GAAP measures.

In addition, it’s my responsibility to advise you that forward-looking statements made on this call are based on current expectations and may contain risks and uncertainties. Significant factors that could cause actual events and results to differ materially from expectations are described in our earnings release and in our 10-K and 10-Q filings.

All forward-looking statements are made as of today based on the information available to us today and except as required by law, we assume no obligation to update any such statements.

A replay of this call will be available on our website as well as by phone. At the end of Paul and Kevin’s remarks, we will open it up for Q&A.

Now, I’d like to turn the call over to Paul.

Paul Bonavia

Thank you, Chris, and thank you all for joining us today. This morning we reported that UNS Energy's net income for the first quarter of 2013 was $11.3 million or $0.27 per share on a fully diluted basis. By contrast in the first quarter of 2012, we reported net income of $6.5 million or $0.17 per diluted share.

Cold weather helped to push retail sales volumes higher than last year, which in turn benefited retail margins. This was partially offset by higher depreciation and amortization, and property taxes all of which reflected our ongoing investments in rate base.

UNS consolidated base O&M expense remained unchanged during the first quarter of 2013, compared with the first quarter of 2012. Although, we are still projecting full year 2013 base O&M to be approximately $273 million. This compares to 2012 base -- consolidated base O&M of $266 million.

The forecasted year-over-year increase is the accumulation of a number of items including an increase in labor costs as we fill job vacancies, the use of outside labor for legal and other services, as well as increases in O&M at UNS Electric and UNS Gas. Kevin will provide more details on our first quarter financial performance in a few minutes.

Turning to TEP's proposed rate case settlement agreement, hearings before an Arizona Corporation administrative law judge concluded in March. We are hopeful the judge will issue a recommended opinion and order within the next few weeks.

Once that is issued, parties will have the opportunity to submit comments in favor of or in opposition to the recommendation. The judge’s recommendation will then be considered by the commission in an open meeting, in which the commissioners can accept, modified or reject the proposed settlement. We believe the preceding is on a path that would allow for new rates to be affected by July 1.

Moving to environmental matters, there aren’t many updates to the information we provided on our last earnings call in February or in our 2012 Form 10-K. As a reminder, the State of New Mexico, EPA and PNM have reached a nonbinding agreement to pursue a different course than the federal plan to comply with the EPA's regional haze rules.

The revised plan includes the requirement of San Juan Units 2 and 3 by December 31, 2017, and the installation of selective non-catalytic reduction or SNCR technology on San Juan -- Units 1 and 4 by January 2016. The book value of TEP share of Unit 2 was approximately $115 million as of March 31, 2013. TEP estimates its share of capital to install SNCR in Unit 1 would be approximately $25 million.

The revised plan would require several actions by third parties before moving forward, including approval by our Board of Directors. Any associated changes to our retail rates would require approval by the Arizona Corporation Commission.

Finally, I would like to touch briefly on our local economy. The local housing market continues to show signs of recovery, active inventories in March were 21% below last year, months of inventory declined from 4.1% to 3.3%, and the median prices sold homes increased by 14%.

In March, the University of Arizona's Economic Research Center published a report that project a strong growth forecast for Arizona, predicated on the continuation of the momentum in the housing market recovery.

Tucson population is expected to grow by 1.1% in 2014, while non-farm job growth is expected to be 2% in 2014. These figures compare favorably for projections for the U.S. economy for 2014 population and job growth are expected to be 0.8% and 1.6%, respectively.

Now, I would like to turn the call over to Kevin, who will provide more detail on our first quarter results.

Kevin Larson

Thank you, Paul. Thanks everyone for joining us today. Again, a few of the key drivers for UNS Energy’s first quarter results before we get into Q&A. If you’d like to follow on, please refer to slide two of the presentation that was furnished in an 8-K we filed this morning and posted on the website.

Slide shows the factors that impacted earnings between the first quarter of 2012 level of $0.17 per share and the first quarter of 2013 level of $0.27 per share. In the first quarter of 2013, TEP's total retail kWh sales were 1,995 gegawatt hours, 4% above the first quarter of 2012.

As a result of the sales increase, TEP’s first quarter retail margin of $110 million was $4.5 million or $0.06 per share above the first quarter of 2012. And as Paul mentioned, we had a relatively cold winter for the first three months, heating degree days in Tucson were 29% above last year and 16% above the 10-year average. We estimate the coal weather benefited TEP by $3.5 million in the first quarter relative to normal weather patterns. This translates to roughly $0.05 on diluted share basis.

Turning to our gas company, UNS Gas retail margins were $2.5 million or $0.04 per diluted share above the first quarter of 2012. In Q1 2013, UNS Gas earned $0.18 and in Q1 of 2012 it earned $0.14.

There are few different components driving this increase, like TEP UNS Gas benefited from the cold weather during the first three months of this year. We estimate the colder than normal weather in 2013 and milder than normal weather in 2012 was worth about $1 million or $0.2 per diluted share for UNS Gas.

In addition, the base rate increase went in effect in May of 2012 for UNS Gas Company. We estimate this accounted for approximately $1 million or $0.02 per diluted share when compared to the first quarter of 2012. We estimate the remaining roughly $500,000 of margin was related to weather normalized sales growth of approximately 4%.

Back to Tucson Electric Power Company and our long-term wholesale margins, long-term wholesale contract margins on our two contracts were in line with our expectations for the quarter at $2 million. These margins were at the same level in the first quarter of 2012.

Couple of the other -- few of the other quarter-over-quarter drivers, TEP's depreciation and amortization expense was $700,000 higher in the first quarter of 2013 than the same period in '12 was expected due to increase in plant and service. TEP's property taxes were $1.5 million in the first quarter of 2013 than the same period in 2012 due to increase in plant and service and higher tax rates. And finally, TEP's interest expense was $2 million lower in the first quarter of 2013 than the same period in '12 due to expected decreases in capital lease interest expense.

I'd like to briefly touch on some recent financing activity before we do our Q&A. In March, approximately $91 million of fixed rate unsecured taxes and industrial development bonds were issued on behalf of Tucson Electric Power Company.

The coupon was 4% and the bonds mature in September 2029. The proceeds will be used to redeem approximately 91 million of unsecured taxes exempt bonds with an interest rate of 6.375%. We expect the annual interest expense savings of approximately $2 million resulted from this transaction.

And then on the rating agency front, S&P on April 16th put TEP on a positive outlook. They moved this to positive outlook based on the improving regulatory relationship of the Arizona Corporate Connection and the proposed rate settlement, as well as our ability to closely manage O&M.

With that, I will turn it back to Paul for Q&A.

Paul Bonavia

Thanks Kevin. Do we have questions?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Kevin Cole of Credit Suisse. Please proceed.

Kevin Cole - Credit Suisse

Good morning.

Paul Bonavia

Good morning, Kevin.

Kevin Cole - Credit Suisse

I guess and I guess once we get the rate case finalized, how are you going to approach dividend policy going forward?

Paul Bonavia

Well, normally our Board has our dividend policy meeting once a year usually at the February meeting. So, if we keep to that practice, the next major relook at the dividend would be February of 2014, and Kevin we've reaffirmed the Board policy of a 60% to 70% payout ratio target. So, again, you can do the math, I don't think I can’t say what the Board will actually decide, but it would give us headroom if this rate case is approved.

Kevin Cole - Credit Suisse

Okay. It's helpful. Thank you. And then Kevin, could I ask couple like balance sheet questions.

Kevin Larson

Sure.

Kevin Cole - Credit Suisse

So, I see the year end 2012 UniSource Corp. was at around 37% equity and then I guess as I look forward, you provided CapEx program I think is around $1.8 billion. How should -- how would you like us to think about your flexibility to drop at 37%, a little bit lower versus need for block equity?

Kevin Larson

Yeah. I think, Kevin, we’ve indicated to investors really over the last 18 months or so that given the CapEx needs of the business and again, we expect to have close to $1 billion -- additional CapEx of $1.4 billion between 2012 and 2015. And we will -- rather than focusing so much on the equity level of UNS parent company, I would look at Tucson Electric Power Company and we want to continue to improve the balance sheet of Tucson Electric Power Company. It's a part of the proposed rate settlement they were -- it includes 43.5% equity ratio.

I think certainly we want to maintain at least 43.5% equity ratio as we work through the financing needs of this CapEx budget that we see and then to the extent that we can maybe step that up some over time as well.

As we improve TEP's equity ratio, at least stabilize TEP's equity ratio, the parent company, I think, we will move along with that as well. So you should see our equity ratio improved versus step back.

Kevin Cole - Credit Suisse

Okay. Then I guess, shall I look at the CapEx program, not assuming Unit 1 purchase, is it correct to think about roughly, you're going to need about $150 million of incremental debt annually?

And then on the equity side, are you just going to continue or maybe accrue the equity at TEP for finalization of the Unit 1 decision and then once the Unit 1 purchases had then say in late '14 or late '15 then you'd make a decision to do to block equity to fund it?

Paul Bonavia

Yeah. I think, Kevin, on the first question in terms of the amount of debt, we will be having at Tucson Electric Power Company that's really where the financing needs are. You should assume, it's going to be about $100 million for 2014 and $100 million for 2015, how we stage it, roughly $100 in each of those years.

And then the equity timing for Tucson Electric Power Company going to be done at the parent company UNS, but the proceeds will essentially be put into Tucson Electric Power Company, I think there as you point out that we need decision at Springerville Unit 1 we have to have decision by the end of August of this year, that's potential investment of $150 million. So that will be a key driver in terms of the level of equity that we need.

So, I think that will be a key driver. But that actual purchase doesn't occur until the first part of 2015. However, we may enter the equity markets in advance of that time, again given all the issues that we have, the capital financing needs that we have in the company and I intent to continue to maintain if not improve the balance sheet over time.

Kevin Cole - Credit Suisse

Okay. Then I guess a similar approach for the $100 million of incremental debt needs, is that incremental equity needs alongside of the static debt program or the CapEx program should be about $50 million a year? And then the math, right, so for the Unit 1 purchase I would take that 159 and you'd add the coal facilities as well of $73 million?

And then so take the 232 and then carry the 43.5% equity layer and so then I should assume that in 2014, or 2015 you're going to require around $131 million of equity just for that plus the three years of $50 million-ish for the normal CapEx program for 2013, '14, '15, is that roughly in the ballpark?

Paul Bonavia

Kevin, at this point we really haven't given an indication of just how much equity we may be in the market for. But I think if you focus on that 43.5% equity at Tucson Electric Power Company, and then the CapEx needs that we have and I pointed out the amount of debt we expect to issue during that time period or rough number, I think then you can probably back into at least some range of the equity levels.

But at this point we haven't indicated really the amount of equity we're going to come into the marketplace because at this point we don't know. It's still dependent upon some major decisions we've got to make in the next few months. But as that gets firmed up then we will give a better direction to the street in terms of the timing as well as the potential size of equity that we want to support Tucson Electric Power Company.

Kevin Cole - Credit Suisse

Okay. And then last question. I’m just sorry. And so once rates are implemented later this year, are there any mechanisms to recover the incremental debt or equity cost beyond AFUDC?

Paul Bonavia

No.

Kevin Cole - Credit Suisse

Okay. Great. Thank you, guys.

Paul Bonavia

It would be trued up in some future rate proceeding.

Kevin Cole - Credit Suisse

Right, right. Okay. Thank you. See you on AGM.

Operator

Our next question comes from the line of Michael Klein of Sidoti & Company. Please proceed.

Paul Bonavia

Hi, Mike.

Michael Klein - Sidoti & Company

Hey. Good morning, guys.

Paul Bonavia

Good morning.

Michael Klein - Sidoti & Company

Just looking at the CapEx plans, and the flexibility that you have I guess given the reduced spending at San Juan now going forward, I’m just trying to gauge the timing of when maybe you might look to I guess put that capital to work at somewhere else. And with Springerville Unit 1 coming up, is that going to be too much on your plate all at once? Should we really think about Springerville Unit 1 kind of dealing with that first before looking beyond that, or can you have multiple projects on your plate at once?

Paul Bonavia

Well, I think that we can certainly handle multiple projects on our plate at once, and as well as our ability to finance whatever the needs are for Tucson Electric Power Company and UNS on a consolidated basis.

Michael Klein - Sidoti & Company

Okay. And looking at O&M costs going forward, obviously you outlined your expectation for this year. Beyond this year with new rates going into place, is it reasonable to assume sort of a normalized run rate above where we've been in the past couple of years, or is that kind of a good proxy to still use going forward?

Paul Bonavia

A big question in answering that is the rate at which sales play out. If we really see some strong economic growth, then that's going to have us out doing new construction and there's O&M associated with that. So that's a key factor we don't know. Generally speaking, we are talking about holding our O&M close to the rate of increase of our sales and it's really just a lot of little things that will push it up 2% a year or something like that.

Michael Klein - Sidoti & Company

Okay.

Paul Bonavia

One of the things that people ask us about is aging workforce in the utility for example. We want to make sure we protect the long-term value of the company. So we will bring in some new people, make sure we've got the right folks in place. It is things like that that are really part of just managing the long-term enterprise.

Michael Klein - Sidoti & Company

Right. Right. Okay. And last question. At what point do you think you'll feel comfortable to issue formal 2013 guidance?

Paul Bonavia

Sometime -- well, it will certainly be after the rate case order and then as we get into the second half of the year depending on the timing of that order, we will probably come out with something. But it's going to look more like 2014 guidance than 2013 at that point.

Michael Klein - Sidoti & Company

Okay. Great. Thanks a lot.

Operator

Our next question comes from the line of Paul Fremont of Jefferies. Please proceed.

Paul Fremont - Jefferies

All right. Thank you very much. I noticed that you guys stopped giving long-term wholesale sales volumes. Can you give us a sense of what they were this quarter versus last year? And why would you discontinue giving out that number?

Paul Bonavia

Yeah. I'm sorry, Paul. I guess -- I think you can find it certainly in our 10-Q and our 10-K disclosure. You're talking about the long-term wholesale contracts.

Paul Fremont - Jefferies

Right.

Paul Bonavia

It’s going to be roughly 500,000 megawatt hours on an annual basis. And then NTUA is roughly 220,000 megawatt hours on an annual basis.

Paul Fremont - Jefferies

The core volumes, where they roughly equivalent or --?

Paul Bonavia

Yeah. They were roughly equivalent. I’m sorry, Paul. On your specific question, it was roughly equivalent between Q1 of this year versus Q1 of last year and we kind of expected it to play out on a similar pattern under in 2013.

Paul Fremont - Jefferies

Okay. It looks like if obviously you’ve got a much higher peak price in the first quarter of this year versus last. I think your guidance seem to equate to something like a $35 peak number for the year. And if I look at sort of the remaining three quarters of the year and add the first quarter, and it looks like the year could come in about $5 higher than what your guidance was based on. Is that a fair assumption?

Paul Bonavia

Yeah. That is correct, Paul. I think at the beginning of the year, we indicated at least in the power markets that we were seeing at that time. We expected margins of about $7 million and now as power prices we are seeing a peak, power prices around 35 bucks megawatt hour and it has stepped up a little bit. So, maybe we do have some headroom that I think can help us out into Q.

Paul Fremont - Jefferies

Okay. And can you provide any type of update on Rosemont and what’s happening at the Forest Service and whether a decision potentially happens this year or not?

Paul Bonavia

Yeah. Paul. We only know what we learn from Rosemont. Obviously, we don’t have any special information there. But if you remember at the end of last year, the Forest Service which is the key entity year on the federal levels said, we don’t know when we are going to actually issue a record or decision but our work is substantially completed. We know that in this year, they have been working very hard. They have been meeting with everybody they can find to meet with, to go through the comments that were filed

That doesn't translate into any very specific answer to your question. But the Rosemont, people are optimistic that they might see a record decision somewhere this summer. They are still talking in their Investor Presentations about commencing construction midyear this year. So that’s what we get from them.

Paul Fremont - Jefferies

So earliest, I mean, would it be reasonable for us to potentially look at -- I mean if it were to be approved the earliest at that, would potentially come into service. Is it reasonable to think in terms of like 2016?

Paul Bonavia

Well, what -- here is what they say. They say it’s about 22 month construction process. So if you had mid year this year, you would be in service midyear ‘15 -- 2015. I suppose the question is what further margin of conservatism you want to place on that. But that's what they are saying.

Paul Fremont - Jefferies

Okay. I think that's it for me. Thank you very much.

Paul Bonavia

Thank you, Paul.

Operator

Our next question comes from the line of Brian Russo of Ladenburg Thalmann. Please proceed.

Brian Russo - Ladenburg Thalmann

Hi. Good afternoon or good morning.

Paul Bonavia

Hey Brian. Good afternoon where you are.

Brian Russo - Ladenburg Thalmann

The sensitivity on the wholesale sales, is that $5 a megawatt hour equates to about $0.04 of EPS. That still applies, correct?

Paul Bonavia

That is correct. That’s an annual number, isn’t it?

Kevin Larson

That’s an annual number, 12-month basis.

Brian Russo - Ladenburg Thalmann

Okay. And the $500 million of net rate base additions between 2012 and ‘15, is that still good -- a good number to be using?

Paul Bonavia

Yeah. It is.

Brian Russo - Ladenburg Thalmann

Okay. And then the TEP retail sales outlook that you had provided some time last year, 9.21 million megawatt hours. Is that still a good assumption for TEP sales?

Kevin Larson

Yeah. I think it’s still a pretty decent number. We’ve probably step it up a little bit just as the results of the first quarter of this year.

Brian Russo - Ladenburg Thalmann

Okay. And last one, maybe you could just talk a little bit more about your longer term capacity scenarios or strategies assuming that the San Juan settlement goes through as is in Unit 2 is retired in ‘17?

Paul Bonavia

I invite Dave Hutchens to answer that one.

Dave Hutchens

Hey, Brian, how are you doing?

Brian Russo - Ladenburg Thalmann

Good. How are you David?

Dave Hutchens

Good. I know, we’ve talked about a little bit of this in the past but we’re actually right now doing a lot of work trying to figure out exactly what we’re doing for our capacity needs San Juan specifically. And we’re going to be doing a lot of work over the next couple of months trying to decide exactly how we fill that capacity. As you know, the SNCR has really reduced the CapEx need that we need to put into that plant which we think gives us more than enough capital headroom for replacement opportunities here in Arizona.

So we’re going to be evaluating that, probably over the next several months. And you'll probably see some regulatory filings associated with that. We’re also in the process of finalizing our Springerville decision. We have to make that decision here in just a couple of months.

And one of the things that we’re going to be doing here very shortly is to do an RFP to test out the market in -- probably within the next one or two weeks and that will allow us to get some really good price point and see how anxious some of these IPPs are selling some capacity and/or plants out in the Palo Verde area.

Brian Russo - Ladenburg Thalmann

Okay. And it is a potential acquisition of an asset, does it necessarily have to coincide with the retirement date of Unit 1 or I mean, could you be more opportunistic in what seems to be a low but yet rising gas price environment?

Dave Hutchens

Brian, boy, you should come over here and help us at resource planning process. That’s exactly the tough decision we’re making. Because we have staggered needs both with when the Springerville lease expires on 01/01/2015 when San Juan shuts down at the existing tentative agreement holds that would be at the end of 2017.

We think we can get a pretty darn good deal purchasing one of these plants right now. Obviously, those prices are going to change as we go forward in time. So it really has taken a good hard look in evaluating purchasing a cheap plant now versus possibly purchasing one later or building one later. And then there's a bunch of options in between there on PPAs and options to purchase on those kind of things that we’re going to evaluate as well.

So that's what it’s going to come down to. It’s trying to figure out what that that long-term solution will be for our customers with a little bit in the back of our minds want to reduce some of our dependency on coal in our portfolio and diversify that a little bit. So all those things come into play.

Of course, who knows what gas price will do between now and even when we’re done with our evaluation. That’s one of the other things that keeps moving the numbers around. But all of those options are on the table and we’re going to be spending a lot of time here evaluating those.

Brian Russo - Ladenburg Thalmann

Okay. Great. Thanks for the insight. Appreciate it.

Dave Hutchens

You bet.

Operator

(Operator Instructions) Our next question comes from the line of Chris Ellinghaus, Williams Capital. Please proceed.

Chris Ellinghaus - Williams Capital

Hey guys. How are you?

Paul Bonavia

Doing good. Chris, how are you?

Chris Ellinghaus - Williams Capital

I’m good. Kevin, can we go back to the equity question for a minute? You sort of have some ongoing needs. But you also have a specific timetable for Springerville 1. So just going by my guess, what it might be. It's not a huge number. Is that something that you might consider doing it dribble and see starting in ‘15 and continuing into ‘16. Is that an option for you?

Kevin Larson

Yeah. Chris, certainly, that is an option. The company is looking at a lot of different alternatives in terms of the method that we issue some equity. I think a dribble program is used by a lot of different utilities. And it can match up currently with your capital financing needs, use of the cash at the time that you receive the cash as a result of the issuance.

And so that -- could be, we based up in market at some point in time as you get closer to assuming we purchase Springerville Unit 1 and again that purchase would occur in the first half of 2015. We could do a large transaction at that point in time.

I just -- I pointed out before that timing of when we stepping at the equity market. I mean, it could be any time in the next 18 months. It is not certainly late in 2014. We may step into a bit sooner, again when you look at the CapEx needs that the company has.

I think the key driver on the decision when we ultimately step in to the market will be tied into when we decide our final decision on Springerville Unit 1. Again, we have of to make that decision over the next few months. Once be we can pin down that capital requirement need in 2015, then we can start to set up when we’re going to finance the level of CapEx.

Chris Ellinghaus - Williams Capital

Okay. And as far as purchase of some generating capacity, you guys have been talking about a combine cycle asset for a number of years. And now you’re talking about an RFP coming up in the short term. Can you talk about how the timing might delay from an RFP response to a decision? And can you also give us a little color of what kind of talks you had throughout maybe the rate making process? In this case, how you’ve had discussions about needing additional assets particularly with the San Juan 1 sort of behind you decision-wise?

Dave Hutchens

Sure. This is David Hutchen again. I think for the first part of your question. We have been looking at these combined cycle plants as you know for years. And I think now it’s -- we're finally getting to a point where we’re up against some decision timelines. And you mentioned the Springerville will have time for the RFP to get the answer and we think yes. There is plenty of time and remember the ability to purchase Springerville and the deadline in September is just for us to trigger that option at the appraised value.

So we feel that we have plenty of time and options related to Springerville that this RFP is coming right at the right time. Now, we’ve been talking about resource decisions both with San Juan and Springerville with the commission for at least a couple of years. As you know, we’ve put some information in our IRP that was filled last year and is before the commission right now. We’re already starting to get ready to do our next IRP. And in the interim period, we have been discussing and we feed this up in our last IRP that there are or maybe other economic options.

We’ve just been waiting for triggering events. And one of the triggering events right now for us to look at additional capacity replacement capacity is that tentative agreement with the San -- at San Juan. And with that shutting down Unit 2, now is the time for us to really start looking at some of these options very closely.

Chris Ellinghaus - Williams Capital

And discussing it with the commission, did you talk about the opportunistic sort of timing you have now as opposed to maybe matching it up exactly with resources needs?

Dave Hutchens

Yeah. We have and it’s all going to come down with the economics of those, the timing differences. Now it’s very difficult to estimate what you can purchase the plant for four or five years from now. It’s very easy to put in a self-build option in there because we have a pretty decent idea of what that would cost. But the market prices of those assets and the market price specifically out in that timeframe is one of the things that we’re going to be testing in this RFP.

So hopefully, we’ll get -- this is really simplified but ideally we would get a price we could buy an asset for in 01/01/2018 after San Juan shuts down. And of course, the price right now that we could buy those assets for. And then we look at it from an entire resource portfolio perspective and see what that impact between those two purchases would be on our customer’s rates. And we’d pick the one that’s best.

Chris Ellinghaus - Williams Capital

Okay. So the result of the RFP is going to really help you a lot with your planning?

Paul Bonavia

Yeah. To be frank, we have a pretty down good idea about what this plans have been so well, some of had been published and what they’ve been sold for recently. So it’s not like we're going into this, off by some factor of 10 or something. We’re very close already in our analysis and what we think those prices will be. So it’s just a matter getting people to commit to those prices, and also testing to see what they would willing to enter into an agreement for a couple of years from now.

Chris Ellinghaus - Williams Capital

Okay. Great. Thanks so much. We’ll see you next week.

Operator

(Operator Instruction) We have a question from the line of Maurice May of Wellington Shields. Please proceed.

Maurice May - Wellington Shields

Yeah. Good afternoon, folks. On the RFP, can you give us some details? Is it going to be like a long-term RFP?

Dave Hutchens

Hey, Maurice, Dave Hutchens again. By long-term, do you mean are you looking for, in likelihood I don’t want to get into much details because we haven’t submitted it yet. We haven’t finalized the exact product et cetera. But for the most part, we are going to be looking for plant purchases.

Maurice May - Wellington Shields

Okay. Okay. So it’s an RFP for plant purchases as well as PPAs?

Dave Hutchens

Probably right now plant purchases, I think is what we’re really leaning towards. PPAs, we can always do that later and those obviously move around quite a bit. But the major emphasis is resource acquisitions. PPAs, we can always fill in the short-term basis and look at that again, a couple years down the road.

Maurice May - Wellington Shields

Well, that's the thing. I wasn't really thinking about short-term PPAs. I was thinking about long-term PPAs and the implication of long-term PPA prices for the value of an asset. But you’re actually going directly for the asset. Okay. I understand. Okay. Good enough. Thank you, folks and I’ll see you next week.

Dave Hutchens

Thanks, Maury.

Operator

Mr. Bonavia, there are no further question at this time. Please continue with your presentation or closing remarks.

Dave Hutchens

I believe we’ve covered everything that we can think of to cover. We appreciate very much you all participating in the call, and our team looks forward to seeing a number of you next week. Thanks again for your interest.

Operator

Ladies and gentlemen, that does conclude the conference call for today. Have a great day, everyone.

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