El Paso Electric CEO Discusses Q3 2010 Results - Earnings Call Transcript

Oct.30.10 | About: El Paso (EE)

El Paso Electric Co. (NYSE:EE)

Q3 2010 Earnings Call

October 28, 2010 10:30 a.m. ET

Executives

Steve Busser - VP, Treasurer & CRO

David Stevens – CEO

David Carpenter - SVP & CFO

Analysts

Brian Russo - Ladenburg Thalmann

Neil Mehta – Goldman Sachs

Scott Carroll – Goldman Sachs

Anthony Cordell

Operator

Ladies and gentlemen, and welcome to the El Paso Electric Company Third Quarter Earnings Call. (Operator Instructions)

I would now like to turn the call over to Steve Busser.

Steve Busser

Thank you, Jamie. Good morning everyone, and thank you for joining the El Paso Electric Company Third Quarter 2010 Earnings Conference call. Also on the call with me today I have our CEO, David Stevens; and our CFO, David Carpenter.

Today we’ll provide an update on our third quarter 2010 Financial Performance including a discussion of our pertinent earnings drivers. We will also update our earnings guidance for 2010.

I would first like to cover some items that will be pertinent to our call today before we get started. You should have a copy of our press release. If you do not, you can obtain one from our website on the investor relations page.

We currently anticipate that our third quarter 2010 Form 10-Q will be filed with the SEC in early November.

As for upcoming IR events, we are currently scheduled to attend the EEI conference next week. In early December 2010, we also have marketing tours plan with Ladenburg Thalmann and Argus Research. 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 our call ends, and will run through November 11th. The details as it relates to the replay are disclosed in our press release.

Also note that we have a change in the conduct of the call, and that you as a participant will be able to advance the slides on your own as we move through the presentation if you’re signed into the webcast.

Let me cover the Safe Harbor Provisions before I turn this 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 pursuit 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 is 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.

We caution that the risk factors discussed in these filings are not exclusive and we do not undertake to update any forward-looking statement that we may make from time to time, by or on behalf of the Company. These statements, especially those made during the question-and-answer session 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 for joining our call. This is David Stevens, the CEO of El Paso Electric Company. If you will turn to slide three, I will start by going over our third quarter 2010 highlights.

I’m extremely pleased with our third quarter earnings of $1.16 per basic share, even before we recorded a one-time extraordinary gain. Overall, our robust third quarter continuing operational earnings represent a $0.40 per share increase over the results of the third quarter of 2009.

A big reason was the third quarter 2010 increase in Retail Kilowatt hour’s sales growth of 4.8%. This was primarily due to an expanding customer base as a result of the strength of our local economy, and the tremendous growth at Fort Bliss.

During the quarter, our sales to large commercial and industrial customers grew by 8.2% compared to the same quarter in 2009. Sales to public authority customers, which include Fort Bliss and our other military based customers, expanded by 7.5%.

Another important accomplishment in the third quarter was the issuance of a final order by the Public Utility Commission of Texas on our Texas Right Case Settlement, which was provided on July 30th 2010. Another large revenue impact was the implementation of the new seasonal rate design from both our latest New Mexico, and our Texas rate cases.

I’m also excited to announce that during the third quarter of 2010, we repurchased almost 889,000 shares at total cost of $20.2 million and during the first nine months of 2010, we repurchase approximately 1.4 million shares at a total cost of $30.2 million.

We are and will remain strongly committed to identifying opportunities to enhance value for our shareholders.

Other major achievements that we attained during the quarter were the completion of the $110 million Private Placement Senior Note Debt Issuance, to finance nuclear fuel on August 17, 2010 with an average coupon of 4.6%. And the refinancing of our $200 million revolving credit facility on September 23, 2010.

Both of these transactions have significantly enhances our liquidity position and will provide additional financing flexibility in the future. They also allow us to continue to recover the cost of financing nuclear fuel, as a recoverable fuel expense.

Later in the call, David Carpenter will discuss the specific provisions related to the Private Placement Issuance and the refinancing of the RCS.

Lastly, I want to state we have updated our earnings guidance, excluding the one-time extraordinary item to a range of $1.95 to $2.15 for 2010.

I would now like to take this opportunity to update you on the significant accomplishments that we’ve made on our 2010 report card on slide four. We have previously discussed the re-engineering of our customer care and billing process. As we have stated, we received the final order from the PUCT – the Public Utility Commission of Texas, on our Texas Rate Case on July 30th of this year.

Another very important achievement that we attained on September 24th is a new three-year contract with the International Brotherhood of Electric Workers 960. We are proud of our working relationship with the union, and all of our employees.

Also, Newman 5 Phase II, which is the addition of the two heat-recovery steam generators and a steam turbine, remains under budget and is on schedule for completion before the end of the first quarter of 2011.

Finally, with regard to our future rate case filings in Texas and New Mexico, we are revisiting all available options related to the timing of the next rate cases.

Now before I turn the call over to David Carpenter, I would like to personally thank the entire team of El Paso Electric employees for their hard work and for the significant contributions they have made towards attaining our goals and for achieving our third quarter 2010 and year-to-date earnings results.

We have accomplished a tremendous amount this year, and remain focused on all of our goals for the remainder of this year, and into the future.

Now let me hand the call over to David.

David Carpenter

Thank you, David. Now, turning to slide five of our presentation. For the third quarter of 2010, we reported net income before extraordinary item of $49.9 million, or $1.16 per share compared to our third quarter 2009 earnings of $33.9 million or $0.76 per basic share.

For the nine months ended September 30, 2010, we posted net income before extraordinary item of $82.9 million, or $1.90 per basic share compared to net income of $59 million or $1.31 per basic share for the nine months ended September 30, 2009.

During the third quarter of 2010, we also recognized a one-time extraordinary gain to reflect approval in Texas of the recovery of the loss on reacquired debt due to the refinancing of our first mortgage bonds in 2005.

When the company recognized regulatory assets in 2006 with the reapplication of Financial Accounting Standards Board’s guidance for regulated operations, it was unable to recognize this regulatory asset since it had never been included in base rates.

With approval of the rate recovery in the Texas rate order on July 30, 2010, we recognized this regulatory asset. The asset will be amortized over the life of our 6% senior notes due in 2035.

On slide six of the presentation, we list the main factors that affected our earnings of the third quarter of 2010 in comparison to the third quarter of 2009. The main factor by far affecting the third quarter of 2010 was the $32.9 million pre-tax, or $0.48 per share increase in retail non-fuel based revenues.

Retail non-fuel based revenues increased as a result of several factors. First, we realized a 4.8% increase in retail kilowatt-hour sales, which reflect 1.5% growth in the average number of customers served. I will discuss kilowatt-hour sales on the next slide.

Second, we implemented higher non-fuel base rates in New Mexico on January 1, 2010 and in Texas on July 1, 2010, which resulted in over $20 million of higher revenues in the third quarter of 2010.

The new rates in Texas and New Mexico are higher in the summer peak months, and lower in the off peak months. As a result, all of the 17.15 million rate increase in Texas and 5.5 rate increase in New Mexico occurs during the summer peak months of May through October for residential customers and June to September for other customers.

The third factor resulting in increased retail revenues in the third quarter of 2010 was higher rates to several large customers, whose discount rate contracts expired. When the contracts expired, these customers generally began paying tariffed rates under new contracts.

Approximately $5 million of increased revenues were realized under these new contracts in the third quarter of 2010. Earnings in the third quarter of 2010 compared to the third quarter of 2009 were also positively impacted by increased revenues of $0.7 million pre-taxed or $0.01 per share from the deregulated portion of Palo Verde Unit 3 due to higher proxy market pricing in the third quarter of 2010 compared to the same period in 2009.

Several items offset the earnings increase during the third quarter of 2010, including decreased off-systems sales margin due to the increase sharing of off-systems sales margins with customers, which reduced earnings by $0.03 per share.

During the third quarter of 2010, off-systems sales retained margins were $0.2 million compared to $2.3 million of the third quarter of 2009. Per prior rate agreements in Texas and New Mexico effective July 1, 2010, we shared 90% of all systems sales margins with customers and retain only 10% of these margins.

Prior to July 1st, we shared 25% of off-systems margins with customers and retained 75% of margins.

Other offsets to the quarterly results included higher depreciation expense, increase pension and benefits expenses, and higher revenue related in property taxes. Which had a combined effect of reducing the quarterly earnings per share by approximately $0.09.

On slide seven of the presentation, for the nine months ended September 30, 2010, our earnings, also, were primarily impacted by increased retail non-fuel based rate revenues. Which increase by $47.8 million pre-tax, or $0.70 per share.

As in the third quarter of 2010, retail non-fuel base rate revenues increased due to a 5.1% increase in kilowatt hour sales reflecting colder winter weather in the first quarter of 2010 compared to the first quarter of 2009, and 1.7% growth in the number of customers served.

Increased revenues from the new non-fuel based rates in New Mexico and Texas, and increased revenues from large customers whose discount rate contracts expired also contributed to the increase.

Several other factors affected net income to a lesser extent for the nine months ended September 30, 2010 compared to the same period ended September 30, 2009. Investment and interest income increased by $3.56 million pre-tax or $.06 per share, due primarily to a $4.5 million decline in 2010 and impairment losses on equity securities in the de-commissioning trust funds compared to the same period in 2009.

We also add increased revenues from the deregulated portion of Palo Verde Unit 3 due to increased generation and higher proxy market prices during 2010, which contributed $3.1 million or $0.04 per share.

In 2009, Palo Verde Unit 3 had a scheduled refueling outage from April 3 to May 28, and in 2010 Palo Verde Unit 3 was operational from January through September.

An offset to our year-to-date earnings included a one-time cash charge of $4.8 million or $0.11 per share in the first quarter of 2010 to recognize a change in tax law including in the Healthcare Reform legislation which eliminated the tax benefit of Medicare Part D subsidies.

Other offsets for the year-to-date 2010 earnings included lower off-systems sale margins due to the change in margin sharing, higher depreciation expense, higher pension and benefits expenses, and higher revenue related and property taxes, which had a combined effect of reducing the year-to-date in 2010 earnings by $0.19 per share.

Now turning to slide eight, we detail our 2010 retail megawatt hour sales for the third quarter and nine-month period and the percentage increases over the comparable periods in 2009.

We continue to see strong growth in both the number of customers served and kilowatt-hour sales, which is attributable to the growth in our local economy and the ongoing expansion at Fort Bliss.

In the third quarter of 2010, our residential sales increased by 5.1% reflecting both customer growth and increased usage per customer. We also an 8.2% increase in sales to large commercial and industrial customers which demonstrates the strengths of the economic recovery in our region.

The 7.5% increase in sales to Public Authority customers is reflected from the continued growth at Fort Bliss. Currently Fort Bliss represents approximately 60 megawatts of loads, and we anticipate that the overall load at Fort Bliss will continue to grow significantly as a result of the 35,000 military personnel that are expected to be stationed at Fort Bliss by 2013.

The current active duty population at the base is approximately 23,000 soldiers. In terms of cooling degree days, the third quarter of 2010 was similar to the third quarter of 2009 and was 11% above the ten-year average.

Kilowatt-hour sales for the first nine months of 2010 increased 5.1% as the same factors, customer growth, economic recovery in our service territory, and expansion of Fort Bliss impacted year-to-date sales as they did in the third quarter of 2010.

In addition, we realized increased sales in the first quarter of 2010 due to the colder winter weather. Heating degree days in the first quarter of 2010 were 36% above the same period in 2009 and were 13% above the ten-year average.

Our cooling degree days for the first nine months of 2010 were 2% below the comparable period in 2009 and were 6% above the ten-year average.

I would now like to update you on our liquidity position on slide nine of our presentation.

As of September 30, 2010 we had a cash balance of $66.9 million. During the third quarter of 2010, we completed several activities that will enhance our overall liquidity position.

On August 17, 2010 we completed the private placement of $110 million of senior note debt by Rio Grande Resources Trust or RGRT, which finances our nuclear fuel until it’s consumed.

We utilized the proceeds too – from this issuance to pay transaction costs and to pay down borrowings by RGRT from our revolving credit facility. This transaction consisted of three charges with an average coupon rate of 4.6%, and an average tenure of eight years.

In addition, on September 23, we completed the refinancing of our revolving credit facility, which was scheduled to expire in April 2011. The new revolving credit facility has a four-year term with an option to increase the size of the facility to $300 million.

Our revolving credit facility finances nuclear fuel and other working capital and capital requirements. Both of these transactions will be advantageous to the company as they provide us with additional capability for capital expenditures and general corporate purposes, and enable us to continue to recover the cost of financing nuclear fuel through fuel causes in Texas and New Mexico.

In addition, the increased financial capability will allow us more flexibility in timing future long-term debt issuances.

Going forward, we anticipate having sufficient liquidity through cash balances and the revolving credit facility to meet our cash requirements, as well as to finance construction and other capital expenditure requirements through 2011 based on our current projections.

On slide ten, I would like to update you on our share re-purchase program. Currently, we are reviewing our strategy of how to most appropriately return value to shareholders be it either share re-purchases, or dividends or some combination of the two strategies.

With regards to this analysis, we are taking into account potential changes in income taxes on dividends as the current tax rate on dividends is set to expire at the end of 2010. The impact of a dividend or a stock’s evaluation in volatility are capital requirements and any effects on our corporate credit ratings.

In addition, we have to weigh the impact of any strategy on our capital structure. Specifically, we have to manage our equity ratio for financial and regulatory purposes. After considering all these factors, we had to determine which of these strategies will provide the most value for our shareholders.

Once we complete our analysis, we will update you on our strategy going forward.

In terms of our current re-purchase program, we re-purchased approximately 889,000 shares at a total cost including commission of $20.2 million during the third quarter of 2010.

From January 1st through September 30 2010 we re-purchased approximately 1.4 million shares at a cost of $30.2 million. And our overall stock re-purchases have averaged 3.5% annually of outstanding shares since the inception of our buy-back program.

Currently, we have approximately 810,000 shares remaining available for re-purchase under our current 2 million share authorization.

We remain committed to our share re-purchase program and to our near-term buy-back activity will be dependent on maintaining adequate liquidity to fund capital expenditures, having an appropriate equity ratio for financial and regulatory purposes, and insuring that cash generated from our operations is consistent with our expected performance.

On slide 11, we are providing updated 2010 earnings guidance of $1.95 to $2.15 per basic share before the extraordinary gain related to Texas Regulatory Assets. The updated guidance for 2010 reflects actual income and earnings per share before extraordinary item for the nine months ended September 30 2010, plus earnings expectations for the fourth quarter.

The primary factors that are expected to impact our earnings in the fourth quarter are retail non-fuel based rate revenues, the change in off-systems sales margin sharing, operation and maintenance expenses at both Palo Verde and Active Company, and the impact of the Palo Verde Unit 3 refueling outage in the fourth quarter of 2010 on our deregulated Palo Verde Unit 3 revenues.

While we continue to expect increased retail non-fuel based rate revenues due to the growth in our number of customers served and from rate changes from certain large customers as previously discussed, these increases are likely to be largely offset by the lower off-peak seasonal rates approved in Texas and New Mexico.

Retail non-fuel based rates in the fourth quarter will also be impacted by the weather.

At this time, Operator, we will take any questions from participants on the call.

Question and Answer Section

Operator

(Operator instructions) The first question comes from Brian Russo.

Brian Russo – Ladenburg Thalmann

Hi, good morning.

Steve Busser

Good morning, Brian.

Brian Russo – Ladenburg Thalmann

It just looks like year-to-date you guys earned $1.89 and the guidance range is $1.95 to $2.15. And it looks like – correct me if I’m wrong, but you earned $0.18 in the fourth quarter of 2009. So that kind of already gets you to – even if we have a flat fourth quarter 2010 versus 2009, which probably we won’t, it’ll be much higher. You’re already at the mid-point so I guess, all else equal, it looks like your probably pushing the top end of that revised 2010 guidance. Is that accurate?

David Carpenter

Brian, this is David Carpenter. Let me just kind of briefly mention a couple of things there that will affect the fourth quarter. First, we changed our margin sharing on off-system sales and so we clearly won’t achieve the earnings from off-systems sales margins that we achieved in the fourth quarter of 2009.

Second, during the fourth quarter of 2010 we have a re-fueling outage for Palo Verde Unit 3 whereas we did not have a re-fueling outage in 2009. The re-fueling outage [inaudible] in 2101. I may have said in 2009. But because of that, we’ll have a pretty good reduction in our revenues from the deregulated Palo Verde Unit 3.

Also, we expect that we probably will be, at best, flat on revenues simply because while the rate increase lowers the rates during the winter period which really runs from November through April.

And so those items, and I guess one last thing we had was we had some gains on decommissioning assets, equity marketing sales in the fourth quarter of last year that we probably would not expect to have this year. So we have several items that are likely to reduce the earnings per share in the fourth quarter of 2010 compared to 2009.

Brian Russo – Ladenburg Thalmann

Okay, that’s very helpful. But just to clarify, the rate increase – the increase will still be higher than what was in rates in fourth quarter of 2009, just seasonally lower than what you see in new rates during the summer months?

David Carpenter

No, that’s not correct. Literally, if you took the rate increase and split it between months, in those winter months, you actually see a decrease, a small decrease compared to the rates that were in effect prior to the rate change.

Brian Russo – Ladenburg Thalmann

Okay that’s helpful. And can you quantify the year-to-date impact of weather?

David Carpenter

You know, we’ve got a rough estimate of the year-to-date impact of weather and basically if you compare third quarter compared to last year, there’s basically no impact because we had a pretty good third quarter last year. If you look at year-to-date, the weather – if you looked at it on normalized basis, it was probably about $3 million on the quarter and around $6 to $6.5 million on the year-to-date period.

Brian Russo – Ladenburg Thalmann

Okay so $6 to $6.5 million year-to-date 2010 of positive weather impact.

David Carpenter

That’s correct.

Brian Russo – Ladenburg Thalmann

Okay. And then just in terms of the dividend policy, I think this is kind of the first time you’ve kind of laid out in more detail options and assumptions you’ll look at when considering a dividend. Is it safe to assume that you want to complete this remaining 800,000-plus shares on the authorized share re-purchase plan before considering implementation of a dividend?

David Stevens

Brian, this is David Stevens, let me take that one. I don’t think that it’s necessary that we complete the remaining shares. Not to say that we won’t, but I don’t think it’s necessary. I think the timing of the dividend is going to run concurrent with our current repurchase program. And when I say timing of it, timing of the decision as to whether we change from doing a share repurchase program or go to some sort of a dividend program.

So I wouldn’t say that we would have to complete the remaining shares before we make some decision. I think it’s going to be driven much more by the finality of our analysis, and what happens with tax policy on the federal level.

Brian Russo – Ladenburg Thalmann

Okay. And just lastly, I just happened to notice that Palo Verde hub power prices have come down considerably and actually are only like $1 or $2 above your system costs. And I was just wondering if you had any thoughts just on the southwest power prices and the impact of low gas prices and any kind of demand impact, and if you have any kind of outlook on regional commodity prices.

David Carpenter

Well certainly, I think if you look at the third quarter the gross margins that we received from off-system sales were also down, which is reflective of the lower power prices. And until those power prices come up, I don’t think we can expect to see any real increase in the amount of sales that we have off-system compared to the prior year.

So certainly it’s going to impact, and I don’t have a specific price estimate for the market, but clearly the market prices are down and they’re going to as a result, we’re probably not going to achieve the sales we’ve achieved in the past.

Brian Russo – Ladenburg Thalmann

Got you. Okay, thank you.

Operator

(Operator Instructions) Our next question comes from Neil Meta

Neil Mehta – Goldman Sachs

Hi team, Neil Mehta here, Goldman Sachs. A handful of questions; one, do you expect more contract pricing step-ups for large industrial and commercial customers in the upcoming quarters?

David Carpenter

Not that much Neil, we do have one customer whose contract is expiring in November and we’ll be seeing a step up in their prices. But I think after that customer, there may be a few, but I don’t think it will be as significant as we’ve seen in the past.

Neil Mehta – Goldman Sachs

David, could you quantify how much of a step up that might be?

David Carpenter

You know, it’s probably going to be in the range of $1 million per year. You also are going to see, Neil, some customers where we’ve changed their contracts this year. You will see them having some carry over effect into 2011. Then let me mention one other customer, which is Fort Bliss, which we changed their contract really effective July 1st with the new rates in Texas, but as Fort Bliss continues to grow, you will see kind of a – the growth will be at a higher rate than we were assuming in the past.

Neil Mehta – Goldman Sachs

Thanks very helpful. You rattled off a list of different factors that might influence your decision to lean towards a dividend versus a share buy-back; can you help prioritize those different factors? What are you – what should we think of as the most important of those decision factors as you think about the dividend versus the buy-back. Is it tax policy or is it something else?

David Carpenter

You know Neil, I don’t think that I could prioritize the factors. I think it’s going to be a global analysis. And it may be that once we’ve completed the analysis, one factor may be – has a bigger impact than we expect. But at this point in time, I just couldn’t quantify. I couldn’t say that one factor is going to be more important than another.

Neil Meta

Okay, fair enough. And finally, on O&M, we’ve seen O&M increase a bit this year. We would have expected the trajectory to be a little flatter given some of the efficiencies that Palo Verde. What have been some of the biggest drivers of O&M increases and how should we think about that line item going forward?

David Carpenter

I think we may see a slight increase in O&M in 2011. We certainly will seek to keep it below the kind of our expected growth in number of customers. I think we can certainly say that we’ll be at that level. We’ve had a few things that really kind of say – somewhat government requirements and other factors that are probably putting some upward pressure on our expenses, NURC requirements going forward, having to meet those is some of the things we’re having to do to meet those NURC requirements.

We also, as we’ve stated, we’ve put in a new customer information system in 2010, and there’s always whenever you put in a very large system like that, you always see a little bit a spike in your expenses as you kind of work through the transition issues. And we’ve seen some of that in 2010 and we may see that continue over into 2011 until we really get the system operating like we want it to.

Neil Mehta – Goldman Sachs

Okay great, we’ll see you next week guys.

David Carpenter

Thanks Neil.

Operator

(Operator Instructions) The next question comes from Scott Carroll.

Scott Carroll – Goldman Sachs

Hi, Scott Carroll, Goldman Sachs. This is just a little bit of follow up to Neil’s question on the dividend. Can you maybe talk a little bit about what factors you are using and sort of any other data points which might be influencing the analysis? When I looked at your guidance for 2010, relative to just sort of the peer small-cap group – it looks like you’re trading at a 2 to 2 1/2 multiple-point discount.

So to what extent is evaluation that the mark is putting on your stock impact the way you think about re-deploying the cash flow that the business generates? Thanks very much.

David Stevens

Scott, this is David Stevens. That’s a great question, and it obviously has an impact. Anytime you trade at a discount on a multiple basis to the balance of the market, you have to look and try to determine what’s driving that discount to the point that we decide that’s being driven because of the dividend, that will have an impact on it.

But as David said very eloquently a minute ago, there’s so many factors that are going into this. And ultimately this is a Board decision, so we’re going to have to take a full analysis that we do plan on taking to the Board more than likely sometime early next year once tax policy is known and at that point in time, then we will have the ability to kind of discern and discuss all of these factors. But the one you brought up is definitely an important one we have to look at.

Scott Carroll – Goldman Sachs

All right, thanks a lot and congratulations on a good quarter and a good year.

David Stevens

Thank you Scott.

Operator

The next question comes from Brian Russo.

Brian Russo – Landenburg Thalmann

Hi, thanks for taking my followup. Just curious, when can we expect you to file your next New Mexico rate case? I think the previous expectations were earlier this past summer, but it seems like it’s been pushed back.

David Carpenter

Yes Brian, really what we’re doing at this time is reviewing kind of our rate situation on a quarterly basis. And really as we go forward and if we analyze this, we’ve had a pretty good year this year, and we’re really analyzing how much customer growth are we receiving and is that offsetting our need for rate increases. And how well we’re kind of managing our operation and maintenance expenses, and it may be that if we continue to see the customer growth that we’ve been seeing and the sales growth, and we can kind of hold our expenses down, that maybe we can put off filing a rate case for another period of quarters at least.

Brian Russo – Landenburg Thalmann

Okay. And then, if I heard you correctly, you commented that the growth, the customer growth related to Fort Bliss is expected to accelerate through 2013?

David Carpenter

Yes, basically what you have – as we see it right now, we’ve been told that there’s probably 1,000 troops that will be coming in the fourth quarter of 2010, and probably 3,000 troops that will come in the first six months of 2011. And so, then if you really think about it, you’ve got another couple of years to bring in the full 12,000 troops that we’re expecting. And so, you’re probably looking at – we can’t give you exact timing, but around 4,000 troops a year in 2012 and 2013.

Brian Russo – Landenburg Thalmann

So that kind of growth just in that customer class alone seems like that’s – you know 1.5% customer growth you experienced in the third quarter of 2010 is likely sustainable over the next few years. So is that kind of accurate?

David Carpenter

Yeah, I think we can assume that we will probably continue to see 1.5% to 2% growth in our number of customers served. And then on top of that, what we have been seeing is that the usage per customer has been growing at about .5% to 1% per year.

Brian Russo – Landenburg Thalmann

Okay and just last question on the dividend. There’s another way to kind of look at it is – if you look at your year-to-date total share buy-back of about $30.2 million worth. I mean if you divide that by your shares outstanding, it’s like close to a $.70 dividend. I mean, is that one way to look at it? Kind of annualize what your share buy-backs have been maybe historically as kind of a get a sense of kind of the excess cash that you generally have, and possibly that would be available in the absence of a future share buy-back that could be available for the dividend payment?

David Carpenter

Well, there’s a lot of factors that will go into kind of determining if we move to a dividend, at what level that dividend should be. And part of that would be, what is the payout that our peers are paying, and what do we think that we really need to pay out to make the market – to meet market expectations may be a way to say that. And if you remember what we said in our presentation, we said that there could be a combination of a dividend and share buy-back program. But a lot of what will drive the total amounts of any kind of payoffs to shareholders, will be maintaining our equity ratios at a level that meets, you know, helps us maintain our bond ratings and a good strong capital structure, and also is not so high that our regulators penalize us for having too much equity. So there’s a lot of factors that go into it, I don’t think I could say right now what level of dividend we would be looking at going forward.

Brian Russo – Landenburg Thalmann

Understood. Thanks a lot, guys.

Operator

The next question comes from Anthony Cordell.

Anthony Cordell

Hey good morning, just a quick question on I guess the timing. You had mentioned that the board will determine what policy you pursue, whether a dividend policy or a share re-purchase or a combination of both. And I think you mentioned maybe the first quarter of 2011, is that accurate, is there any scheduled board meetings during that time?

David Stevens

Yeah Anthony this is David Stevens. Yeah, we always have one to two board meetings in the early part of the quarter – of the first quarter of the year. And so there already are scheduled board meetings which we will more than likely have the factors we need and the analysis we need to at least make a presentation to the board. I don’t want to speak for the board though obviously for a lot a reason. But the expectation would be – we would be holding those discussions during the first quarter of 2011.

Anthony Cordell

Okay, great. Thank you.

Operator

At this time, no further questions.

There appear to be no further questions.

David Stevens

Thanks to everybody for joining the call today and we look forward to seeing those of you who will be at EEI this coming weekend and next week, and we look forward to our next earnings call early next year. Thank you.

Operator

Ladies and Gentlemen, that does conclude the conference for today. Again thank you for your participation, you may disconnect. Have a good day.

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