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El Paso Electric Company (NYSE:EE)

Q1 2010 Earnings Conference Call

May 4, 2010 10:30 AM ET

Executives

Steven Busser – VP, Treasurer and Chief Risk Officer

David Stevens – CEO

George Williams – SVP and COO

Analysts

Brian Russo – Ladenburg Thalmann

Robert Howard – Prospector Partners

Maury May – Power-Insights

Paul Fremont – Jefferies & Company

Neil Mehta – Goldman Sachs

Operator

Good day ladies and gentlemen and welcome to the El Paso Electric Company First Quarter Earnings Conference call.

(Operator Instructions)

As a reminder this conference call is being recorded. I would now like to turn the call over to your host Steve Busser.

Steven Busser

Good morning everyone and thank you for tuning into the El Paso Electric Company first quarter 2010 earnings conference call. Also on the call with me today I have our CEO David Stevens; our Controller Nathan Hirschi; and our Chief Operating Officer George Williams.

Today we’ll provide an update on our first quarter 2010 financial performance including a discussion of our pertinent earnings drivers. We will also discuss the updates to our current ongoing Taxes rate case as well as our overall regulatory calendar. I would first like to cover some items that will be pertinent to our call today before we get started however. You should have a copy of our press release and if you do not, you can obtain one from our website on the Investor Relations page.

We currently anticipate that our first quarter 2010 Form 10-Q will be filed with the SEC by the end of this week. As for upcoming IR events, we are currently scheduled to joining power insights for Midwest investor tour during the week of June 14. We’ll provide further updates on any Investor Relations events on future conference calls. Please call our IR department if you have any inquiries or require further information. A replay of today’s call will be made available shortly after the call ends and we’ll run through May 18. The details as it relates to the replay are disclosed in our press release.

Let me cover the Safe Harbor provisions before I turn the call over to David Stevens. On page two of our presentation, you will see our Safe Harbor statement. In summary, our comments and answers to your questions may include forward-looking statements made pursuant to the Safe Harbor provisions of the Private securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and other factors, which may cause the Company’s actual results in future periods to differ materially from those expressed here.

Any such statement as qualified by reference to the risks and factors discussed in our SEC act filings, our 10-K and other SEC filings contain our forward-looking statements and also lay out the risk factors that should be considered. These filings may be obtained upon request from the company on our website or from the SEC. The Company cautions that the risk factors discussed in these filings are not exclusive and we do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

These statements, especially those made during the Q&A section of the call are subject to risks and uncertainties that are difficult to predict. Now I’d like to turn the call over to David Stevens.

David Stevens

Thank you Steve. Good morning and thank you to everybody for joining our call. This is David Stevens, the CEO of El Paso Electric Company. If you’ll look at page three of our presentation. I want to now go over our first quarter 2010 highlights. I’m excited about our quarterly earnings of $0.26 per basic share which represents a nickel per share increase over the results of the first quarter of 2010.

We are able to achieve this increase in earnings despite an $0.11 per share charge to earnings in the quarter. This charge was associated with the impact of the recent change eliminating the tax benefit of Medicare Part D subsidies which was included as part of the recent Healthcare Reform Bill signed into law by the President.

Our earnings are significant because they reflect the inherent strength in our core business as a result of growth in non-fuel based revenues and are above average customer growth. I’m also pleased to announce that during the first quarter of 2010, we repurchased approximately 205,000 shares at a cost of about $4.1 million. In mid February of this year, our Board of Directors authorized an additional share repurchase of up to two million shares.

We are focused on enhancing value for our shareholders and we are strongly committed to our share repurchase program. Finally as you had likely noted on April 23, Administrative Law judge granted our motion for an indefinite suspension of our procedural schedule in our Texas rate case. Due to the progress we have made in our ongoing settlement discussions, we will continue to work with all the parties in an effort to achieve a settlement that is both fair and reasonable for all.

I would now like to take this opportunity to update you on the progress that we have made to-date on our 2010 report card which is on slide four of our presentation. We started out the year identifying several key goals that we needed to accomplish in order to strategically position the company for the future. A key milestone that we had obtained this year is the reengineering of our customer care and billing process which was successfully completed on April 5.

I’m also pleased to report that phase 2, the addition of two heat recovery steam generators and a steam turbine for our Newman 5 plant remains under budget and is on schedule for completion before the summer of 2011. Another critical initiative that we have planned for 2010 is our next New Mexico rate case filing which we currently plan to file on August 31 of this year. As a result of changes approved in New Mexico law in 2009, we currently anticipate using a future test year of April 2011 through March 2012 which will reflect Newman 5 phase 2 in base rates.

Finally a major accomplishment that we have made progress on is our Texas rate case. As I mentioned earlier, on April 23, the ALJ, the administrative law judge granted our motion for an indefinite suspension of the procedural schedule in our Texas rate case. Due to the significant progress it has been made in ongoing negotiations.

We continue to work diligently in order to obtain a settlement in this rate case and we remain hopeful that we can finalize a fair and reasonable settlement shortly. Before handing the call off, I personally want to thank the entire team of El Paso Electric employees for their significant contributions that they have made towards us attaining our goals and achieving our first quarter 2010 earnings results.

Also I want to explain that David Carpenter is unable to be with us today, as he is in the middle of testimony in a court case related to a personal matter. So filling in for David today will be Steve Busser, our Treasurer and Chief Risk Officer. So at this point, I’m going to turn it over to Steve.

Steve Busser

Thank you David. Now turning to page five of our presentation. For the first quarter of 2010, we reported net income of $11.4 million or $0.26 per basic share. This compares to our first quarter 2009 earnings of $9.6 million or $0.21 per basic share. Three factors had the most significant effect on our earnings in the first quarter of 2010, when compared to the first quarter of 2009.

First as David previously mentioned, our earnings for the first quarter of 2010 were reduced by a one-time non-cash charge of $4.8 million or $0.11 per share to recognize a change in the tax law included in the healthcare reform legislation. Under the new legislation, Federal tax reimbursements for retiree drug benefits beginning in 2013 will be taxable to the Company. Prior to the change in tax law, Federal reimbursement of retiree drug benefits was not accessible.

Under general accepted accounting principles, the impact of the tax law change must be reflected in earnings in the period of enactment. The second item that drove the results for the first quarter of 2010, was increased interest and investment income of $0.03 per share. In 2009, we recognized a $2.5 million pre-tax loss on impairment of equity securities in our Palo Verde decommissioning trust funds. No impairment losses were recognized in the first quarter of 2010.

Third we realized an $8.1 million pre-tax increase in non-fuel based revenues due primarily to our expanding customer base and colder winter weather. For the first quarter of 2010, our earnings increased $0.12 per share as a result of our higher retail non-fuel based revenues. Our retail megawatt hour sales and percentage increases over the first quarter of 2009, are shown on slide six. Residential sales increased 13.6% in the first quarter of 2010 compared to the first quarter of 2009.

This is reflective of the 1.8% growth in the average number of customers that we served as well as colder winter weather. During the first quarter of 2010, heating degree days were 36% above the same period in 2009 and were 13% above the 10 year average.

We are also pleased to see a 6.1% increase in our sales to large commercial and industrial customers in the first quarter of 2010, which reflects the continued improvement in the economic conditions in our service territory. Revenues from our large commercial and industrial customers increased 18% due to the increase of megawatt hour sales and due to higher rates in new contracts with several large customers whose contracts had previously expired.

Finally, megawatt hour sales to public authority customers grew by 3.3% during the quarter and this was primarily due to the ongoing expansion at Fort Bliss and White Sands Missile Range. I would now like to update you on operations at Palo Verde, which is on page seven of the presentation.

During the first quarter of 2010, Palo Verde operated at 95.6% capacity factor. This compares to 100.7% capacity factor in the first quarter of 2009. During the current quarter, Palo Verde had 15 unplanned outage days at Palo Verde Unit 1, due to various mechanical issues. In comparison during the first quarter of 2009 Palo Verde experienced only two unplanned outage days. Also beginning on April 3 of this year Palo Verde Unit 1 began to refueling and maintenance outage which will also include the replacement of the reactor vessel heads. This outage is expected to last through at least mid May.

Now I would like to update you on the regulatory matter of Palo Verde. Currently the nuclear regulatory commission is reviewing the 20 year license extension application that was filed in December of 2008 and the plant operator, Arizona Public Service Company does not see any impediments to obtaining NRC approval by 2011. Going forward, we will continue to work closely with the plant operator and other owners in order to enhance the operating performance of Palo Verde.

I would now like to provide an update on our Texas rate case which is on slide eight of our presentation. Back on December 9, 2009 we filed our Texas rate case with the Public Utility Commission of Texas, the city of El Paso and other incorporated cities in our Texas service territory.

We updated our original rate request in response to a request for information that reduced our requested base rate increase to $46.4 million, which would still be offset by a $12.3 million reduction in fuel cost recovered through the fixed yield factor as a result of our agreement to increase customer share of all system sales margins from 25% to 90% effective July 1st of this year.

The revised overall net rate increase request is now approximately $34.1 million. The revised rate increase reflects an accounting change for federal income tax purposes filed in late December 2009 that will allow us to deduct some capital expenditures when incurred for tax purposes.

Currently as David Stephens had mentioned earlier in the call we are in settlement negotiations with the PUCT staff and other interveners and are hopeful that we can reach a settlement in the very near future. On April 23rd, we were granted a motion for indefinite suspension of the procedural schedule in the case due to the progress that we had made in our ongoing settlement discussions.

In addition, on April 30th we filed a report detailing the progress of our settlement discussions and we requested a pre-hearing conference be held for the purposes of reinstituting a procedural schedule in the event that we ultimately cannot reach a settlement in the case.

In light of the important upcoming regulatory proceedings and filings, I would now like to go over the timeline for future Texas and Mexico rate cases which is detailed on slide nine of the presentation.

Currently we anticipate filing rate cases in both Texas and New Mexico to reflect in rates the second phase of our Newman 5 plant, which is expected to be completed by June of next year 2011.

Our New Mexico rate case filing is currently planned for August 31, 2010. As a result of the changes approved in the New Mexico law in 2009, we anticipate using a future test year of April 2011 through March 2012 that will reflect Newman 5 phase II in rate base.

We anticipate the new rates in New Mexico resulting from this rate filing would be effective in the third quarter of 2011. We currently anticipate our second Texas rate case filing to reflect Newman 5 phase II end rates in mid 2011 using a historical test year ended December 31, 2010 or March 31, 2011.

The new rates from this rate case filing would likely go into effect in 2012. I would now like to update you on our liquidity position on slide 10 of our presentation. As of March 31, 2010 we had a cash balance of $56.4 million and our overall liquidity position is supplemented by a $200 million revolving credit facility that we have available to finance nuclear fuel and working capital needs.

As of March 31, 2010 we had $81.9 million of unused borrowing capacity under the revolving credit facility. Going forward we project having sufficient liquidity to meet our cash requirements through 2010 based on our current projections. We will be seeking regulatory approval to refinance the credit facility prior to exploration in April of 2011 and we will also seek regulatory approval to issue up to $110 million of private placement long-term debt from the real grand resources trust to finance nuclear fuel. We anticipate completing these transactions prior to the end of this year.

Turning now to 2010 earnings guidance on slide 11, as we have previously reported we are not providing a defined range of guidance and in the alternative are providing information relating to some assumptions that will drive our earnings performance in 2010.

No significant changes have occurred since we originally provided guidance on key earnings drivers in February 2010. We continue to project increases in retail customer growth and sales with a range of expectations between zero and 3% depending on weather factors and the local economy, which will potentially have a large impact on overall revenue growth.

In addition to underlying base revenue growth, the change in base rates for New Mexico retail customers will add approximately $5.5 million of revenues and we also expect to see an approximate $6 million increase in annual revenues due to new contracts with various Texas industrial customers.

Deregulated Palo Verde resales and off-system sales margins are both largely influenced by natural gas prices and output from our generating unit. Furthermore, our share of off-systems sales margins decreases from 75% to 10% effective July 1, 2010 in accordance with rate agreements we have entered into in each of our jurisdictions.

Going forward, we will continue to focus our efforts on limiting our non Palo Verde operations and maintenance expenses and the increases in such for 2010 to 2% or less increase over 2009 levels.

In addition, we are working to manage our construction program to meet our customer’s needs while seeking to limit the overall amount of construction expenditures. We are currently projecting construction expenditures of approximately $189 million in 2010. At this point I would like to turn the call back over to the operator to open up the question-and-answer portion of the call. Thank you.

Question-and-Answer session

Operator

(Operator Instructions) Our first question comes from Brian Russo with Ladenburg Thalmann.

Brian Russo – Ladenburg Thalmann

Could you just remind us the $189 million of 2010 CapEx, has that been revised down or is that consistent with what you last updated us with?

Steve Busser

Brian, this is Steve Busser. I’m pretty sure, I’m just checking here, yes, on slide 11 or I’m sorry on page 11 of our 2009 Form 10-K, we have disclosed $189 million. So that number is the same.

Brian Russo – Ladenburg Thalmann

Okay and could you remind us how the PV3 deregulated pricing works? Is it based on a regional gas hub and is it updated daily or monthly?

Steve Busser

This is once again Steve Busser. There’s three components to the pricing of Palo Verde III, Brian. There’s a capacity component which is at this point is about $9.25 a KW a month and then there’s an energy component, which is a Permian Gas Index times the heat rate of 7.6 and then the third piece is an O&M matter of $3.50 a MW hour.

Brian Russo – Ladenburg Thalmann

Okay, great. And then how long is this BRAC initiative supposed to last for, maybe you could just give us a sense of how many troops have relocated to the area?

Steve Busser

Brian, this is Steve once again. The BRAC initiative started back in 2005 and up to this point – at that time Fort Bliss had between 9000 and 10,000 soldiers and our most recent data, which is about the end of the quarter actually, the first quarter of 2010 indicates that there are about 23,000 active duty soldiers at Fort Bliss and they expect that to increase still more to 34,000 upon completion of this, which we believe will be in about 2013.

Brian Russo – Ladenburg Thalmann

Okay. And the progress report that you guys filed I believe on April 30th, can you elaborate on what that included?

David Stephens

Brian, this is David Stephens. You’re talking about the progress report with the PUCT and ALJ?

Brian Russo – Ladenburg Thalmann

Yes.

David Stephens

What that is for is related to the fact that we’ve been in negotiations with all the parties and we’ve made some significant progress. The fact that it’s truly a progress report is indicative of the fact that we don’t have say a final consensus but we’re close. And at this point in time what we have to do is keep the ALJ in the loop because we did suspend the procedural schedule and then there becomes the question of whether or not you need to reinstitute a procedural schedule in the event you can’t get to the final settlement. And as you’re well aware there are a litany of moving parts in these settlements, everything from revenue requirements to rate design to a lot of other pieces. And at this point in time it’s too early to kind of talk about anything because until it’s all documented and actually written up in paper and filed with the ALJ, it would be premature because things can move at the last minute significantly.

Suffice it to say that we’ve made a lot of progress and that we’re very hopeful that we will get to a settlement in a very short amount of time, in other words not too much longer from the day. But at the same time it’s always subject to all the other parties agreeing to the final information and then obviously it’s subject to both the City Council in El Paso as well as the PUCT Commissioners ratifying any settlement.

Brian Russo – Ladenburg Thalmann

Are you required to file another progress report on any specific date in the future?

David Stephens

The only specific date at this point in time that we have is there has been a prehearing conference schedule that just came out today on May 11th and that will at that point in time, if we have not reached settlement and filed it with the ALJ before that date that is when they would re-establish a procedural schedule. So my guess is there will not be another progress report. It will either be a filed statement that we’ve reached settlement or it will be that we will meet on a May 11th and reset the procedural schedule because we’re unable to get to the final consensus.

Brian Russo – Ladenburg Thalmann

Right. So we should expect you to reach a settlement within the next week or move forward and reset the procedural schedule?

David Stephens

That would be an accurate statement.

Brian Russo – Ladenburg Thalmann

Okay. And then just lastly, if you don’t mind, on the share buyback you mentioned about 200,000 shares in the first quarter. When looking out to the remainder of the year, I mean how should we look at – is there any seasonality to your share buyback meaning other times of the year where you’ve got better seasonal cash flows that you feel more comfortable buying back stock or is that kind of like the quarterly run rate that we should expect?

David Stephens

I don’t know that we have nor do I think we’ve ever intimated that there’s a quarterly run rate and there is obviously a seasonality to our cash flow. However, we’re also blessed to have cash in the bank right now. So I think it’s going to be more driven by all of the factors that we have periodically informed all of the market to which relates to our liquidity and where we sit and what we look at the debt markets and how we’re looking at those. And so I think there’s going to be a lot of factors that we will keep looking at on a routine basis. I think suffice it to say that we’re committed to the program. I think we’ve shown that in the last year and for that matter since the program initiated but I don’t think we have any specific type of run – for an amount that we would be willing to divulge at this point in time.

Operator

Thank you. Our next question comes from Robert Howard from Prospector Partners.

Robert Howard – Prospector Partners

I just wanted to ask, you talked a bunch about the new industrial contract kind of getting reset and maybe they’re all different but do they sort of have a fixed price or do they have sort of obviously different rates than what you get through rate cases but sort of a fixed component and a fuel component or is it just one flat rate?

David Stephens

Rob, this is David Stephens. I may let somebody else to add a little more color. Let me kind of walk you through the process on all of these particular contracts. And what occurred in those contracts was a number of years ago for a variety of reasons it was a very logical move to have discounted tariff contracts with certain parties pursuant to where we stood relative to excess generation etcetera. A lot of these contracts actually terminated in the timeframe or actually the end of their contract term ended around the timeframe of which the next rate case we would have which was the one we’re currently prosecuting in Texas came up.

So these are primarily parties going to full tariff rate pursuant to the requirement in Texas for us to do that associated with the rate case, and so that’s the primary factor on that. They will still flow through with the same fuel factor that they’ve always had. These are purely related to the contractual rate that we charge for the service that we provide. Steve, any other color on that that I’m missing?

Steve Busser

No, actually I think you did a very good job there, David.

Robert Howard – Prospector Partners

So really everybody – are you going to have – still have some customers that are kind of have their own special contracts or…

David Stevens

Those will be limited but the majority of these were setup specifically knowing that we would have, that we were coming off the rate freeze on July 1, of 2010 and so they had specific timeframe. There maybe I can’t guarantee they’re on a few scattered contracts that maybe out there that are still passed to state by short amount of time, but they’re not going to be very material from the standpoint of size. They would not be material, let me say it that way.

And so there maybe some contracts that maybe coming up shortly post the rate case at which point then we would have to adjust those contracts but these were the larger contracts that we had and we have been diligently working with these parties to come to a fair agreement, but to get them back to a full tariff rate so that pursuant to the rate the shareholders aren’t disclosed to or hopefully the allowed return that we ultimately negotiate.

Robert Howard – Prospector Partners

And going forward that sort of where you’d like to keep?

David Stevens

That is correct. There was a law passed or actually it was part of a PUCT provision when they were under sunset the last time, where in Texas on the electric side of the business you cannot discount a customer unless, there are so hurdles that in effect you might as well say you can’t discount a customer because if you file it in the rate case as a discount tariff then you will eat the difference and so we will be continuing to keep our customers on rates that are associated with the cases.

Robert Howard – Prospector Partners

Okay, great. That’s it from me. Thanks guys.

Steven Busser

Thanks Rob.

Operator

Thank you. Our next question comes from Maury May with Power-Insights.

David Stevens

Good morning Maury.

Maury May – Power-Insights

Yes good morning folks. Congratulations on a very good quarter from a operating basis.

David Stevens

Thank you.

Maury May – Power-Insights

Couple of questions on Palo Verde, first of all what level of O&M do you have baked into the Texas rate case filing?

David Stevens

The Texas rate case filing Maury would have had the O&M from the actual test year filed and so I’m trying to remember on the top of my head if I know that, Steve do you remember that number?

Steven Busser

No I’m thinking of a couple of different numbers David, because I’m not exactly sure we filed it with the payroll taxes and all those other things in there.

David Stevens

Yes it would be in the filing itself Maury and I don’t have it in front of me unfortunately but it would have been the filing for the actual test year for the Texas rate case and if you recall, we filed that case in December of this year and so you would have to go back to the 12 months prior to when we closed out the quarter booked before we filed the case.

Maury May – Power-Insights

Okay.

David Stevens

So if you look at that, or if you look at the rate case filing itself, it would have that number, it is probably in fairness to your question, it’s probably slightly below the current rate, but not significantly below the current rate which is a way I’ll board it.

Maury May – Power-Insights

Okay. So what happens if O&M goes down, think O&M starts going down and is projected to start going down in 2011 and should continue going down in 2012, 13, or 14. What happens then, does the earnings benefit in Texas until the next Texas rate case?

David Stevens

That would be correct. The way the rates are set in Texas are always done on at least as up today they’re always done on a historical test year and pursuant to that whatever we have set in rate to the extent is I think I said a minute ago we probably are a little bit higher today than what we were in our actual test year. However if they were to drop and do remember we do have another Texas case coming up so we will reset those cost again pursuant to the case to get Newman 5 phase 2 in rate and whatever rate that gets set if the cost were declined from that rate unless we were pulled back in or we needed to file a case for some other specific reasons. The differential would be a benefit term.

Maury May – Power-Insights

Okay and then the next one would have the same benefit, in another words if you filed again in 2011. You probably filed on 2010 and if O&M kept going down and 12, 13, 14, you continued to benefit from that, would you?

David Stevens

That would be correct.

Maury May – Power-Insights

Okay. And the second question on Palo Verde is capacity factor, when do you all return – hope to return that unit to 91, 92% capacity factor?

George Williams

David, would you like me to take that?

David Stevens

Yes, George, please.

George Williams

Okay. This is George Williams. I would say that this year is probably the last year that we have few big outages replace the reactor vessel heads. So that’s the biggest impact on capacity factor. I think starting in 2011, 2012 timeframe that’s when you start seeing the capacity factor go over 90%.

Maury May – Power-Insights

Okay. And just one follow-up question. There were lot of questions earlier on the Texas rate case but I was under the impression that April 30, was kind of a key date for the Texas rate case settlement, because it was on that date that either the staff or other interveners had to file rebuttal testimony to your testimony, that day passed without a settlement and now we have a new period here, I guess when efficient for is are you a little less hopeful for a settlement than you were say a week ago.

David Stevens

Maury, this is David again. I would say the answer to that is no. What occurred is as follows and these are always unfortunately a lot of moving parts, but on April 23 the ALJ agreed to basically an indefinite extension in the rate case and the reason that you do that is all parties join together and say we have made significant progress and we believe that we will get to a settlement. If you didn’t have that kind of consensus that we believed we would get to a settlement, we would have never have supported an indefinite suspension of the procedural schedule.

However saying that, I do believe that having some sort of deadline out there is what kind of gets people to the table and make sure everybody gets a resolution done and that’s why there is another pre-hearing conference that has been scheduled because we haven’t done it as fast as maybe we would have liked to, but that’s sometimes is subject to everybody’s calendar, getting everybody together and getting everybody to the final finish line. I would tell you that I’m still confident, we can get to a settlement, I don’t think the issues that are outstanding are great enough to keep us from that, but at the same time I don’t get to talk for everybody else just purely the position of El Paso Electric, and we’re confident to deal that we can get there.

Maury May – Power-Insights

Okay, good. Thank you David.

David Stevens

Thank you.

Operator

Our next question comes from Paul Fremont with Jefferies & Company.

Paul Fremont – Jefferies & Company

Hi, it’s Paul Fremont actually. In looking at the improvement in large commercial and industrial sales, can you give us an idea of how much of that is the cold weather during the quarter and how much you think is essentially due to the recovery of a local economy?

Steven Busser

Paul, this is Steven Busser. And I probably couldn’t put an exact number on what’s attributed to weather and what’s attributed to the local economy. I think more importantly though as we previously mentioned some of the increase that you’re seeing there and I would say probably a majority of the increase that you’re actually seeing on the revenues are related to the rate increases for the customers that David previously mentioned that we talked about earlier on the call.

I think those customers are in general a little bit less weather sensitive and more probably economic sensitive. One of those customers is a large copper smelter, we have seen some rebound in the copper market and another of those customers is a steel remanufacturing facility who has increased the number of shifts that they are working on. So I would say primarily probably related to rate increases that we’re seeing with those customers secondarily economic related and probably even more remotely related is the weather.

Paul Fremont – Jefferies & Company

Yes, my focus is more of the megawatt hours, so should we assume that the two customers that you talked about the copper smelter and the steel company account for a lot of the pickup in the actual megawatt hours?

Steven Busser

I think that’s a fair statement Paul and that’s mainly due to economic recovery.

Paul Fremont – Jefferies & Company

Okay. Thank you very much.

Operator

Thank you. Our next question comes from Michael Lapides with Goldman Sachs.

Neil Mehta – Goldman Sachs

Hi David and Steve, this is Neil Mehta here with Goldman Sachs Research. There was a rate case by Texas gas service for $7 million, I believe where the City of El Paso voted down the rate case unanimously last month. What is the read over from that rate case if any to your ongoing case?

David Stevens

Neil I don’t there is much translation to, this is David Stevens, I’m sorry. I don’t think there is much translation to our case and there is a couple of reasons for that.

Neil Mehta – Goldman Sachs

Okay.

David Stevens

One in our particular – I mean if you recall in Texas, Texas being somewhat unusual because it’s a home rule state, but on the gas side of the business where I used to be, the case is almost always heard at the city level first and then only on appellant goes to the rural commission and the rural commission does have primary jurisdiction on in (inaudible) whereas on the electric side, in this particular arrangement that we’re working on its all the parties together, it’s the CD, the PUCT, staff obviously, the office of public counsel, the industrial, everybody who is intervened in our case is involved in our settlement discussions and there won’t be one party, if everybody agrees there really is no one party that should be able to then stop a settlement and so I don’t see – I’m not saying that, I’m talking about if we did to a settlement.

So I don’t see this ruling by the City Council relative to the Texas gas case to have a direct correlation to us at all.

Neil Mehta – Goldman Sachs

Alright. Thank you very much, David.

David Stevens

Alright, thank you Neil.

Operator

(Operator Instructions) I am showing no further questions at this time.

Steven Busser

Thank you. And thank you everybody for joining us. Have a nice day.

David Stevens

Thanks.

Operator

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the conference and you may now disconnect.

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Source: El Paso Electric Company Q1 2010 Earnings Call Transcript

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