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El Paso Electric Company (NYSE:EE)

Q2 2014 Earnings Conference Call

August 6, 2014 11:00 AM ET

Executives

John Boomer – IR

Tom Shockley – CEO

Steve Buraczyk – SVP, Operations

David Carpenter – EVP

Nathan Hirschi – SVP and CFO

Analysts

Anthony Crowdell – Jefferies

David Arcaro – Sidoti

Maury May – Wellington Shields

Tim Winter – Gabelli Investments

Operator

Good day. And welcome to the El Paso Electric Company’s Second Quarter 2014 Earnings Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. John Boomer. Please go ahead, sir.

John Boomer

Thank you, Cassandra. Good morning, everyone. Thank you for joining the El Paso Electric Company’s second quarter 2014 earnings conference call. My name is John Boomer, and I’m the Vice President and Treasurer for El Paso Electric.

On the call today are El Paso Electric’s CEO, Tom Shockley; Executive Vice President, David Carpenter; Senior Vice President and CFO, Nathan Hirschi; and Senior Vice President of Operations, Steve Buraczyk.

Today, we’ll provide an update on our second quarter highlights, Montana Power Station construction and related infrastructure, capital expenditures, the probably timelines for our upcoming rate case filings, the corresponding rate based projections, our second quarter financial results and our revised guidance range.

You should have a copy of our press release and today’s presentation, and if you do not, you can obtain them from our website on the Investor Relations page.

We currently anticipate that our second quarter 2014 Form 10-Q will be filed with the Securities and Exchange Commission on or before August 8, 2014. We also would like to inform you that we would be attending Goldman Sachs, Power, Utilities, MLP and Pipeline Conference in New York on August 12, and also maybe participating in additional marketing events during the upcoming quarter. I encourage you to refer to our website for all upcoming Investor Relations events.

A replay of today’s call will be available shortly after our call ends and will run through August 20, 2014. The details as it relates to the replay are disclosed in our press release.

For forward-looking statements, on slide 2 of our presentation you will see our Safe Harbor provisions. 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 is qualified by reference to the risks and factors discussed in the company’s SEC filings.

Our 10-Q and other SEC filings contain our forward-looking Safe Harbor statement, 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 question-and-answer section of the call are subject to risks and uncertainties that are difficult to predict.

I would now like to turn the call over to Tom, to talk about some of our second quarter highlights.

Tom Shockley

Thank you, John. And thanks to all of you who have joined us this morning. Our quarter started in April with the receipt of a final EPA permit on our greenhouse gas permit. We had received the Texas TCEQ state permit previously, so we were able to begin all of the planning and start construction of the first two units at our Montana Power Station.

The mobilization and construction, beginning of the construction started in late May, and we’ve seen very good progresses even though we’re very early in that process.

The anticipated completion of the first two units, the station will have four identical units that are the aero-derivative very fast responding natural gas simple-cycle turbines. And the first two of these units would be online before our peak in 2015. And as a matter of fact, we think we might even beat that we will have a good chance of finishing those even before we had anticipated.

The – another aspect that fell into place in the second quarter that we were very pleased with was a very long-term fuel reconciliation that was settled in the second quarter. And that resulted in an increase in earnings as a consequence of a quality performance from Palo Verde of $2.1 million in the second quarter.

The board of directors approved a 5.7% increase in the quarterly cash dividend on May 29. The quarterly dividend has grown by 27% to $0.28 per share per quarter from the second quarter of 2011 when the quarterly dividend was reinitiated.

Another exciting completion during the quarter was the fact that we doubled our utility scale solar projects from 47 megawatts to 97 megawatts giving us a very, very strong position in the solar field. And by the end of 2014, we will have about 6% of our generation coming from solar.

So, with that, I will let Nathan, start or Steve rather start telling us a little bit about the operations to the quarter.

Steve Buraczyk

All right. Thank you, Tom, and good morning everyone. At this time, I would like to provide an update on the progress being made at the Montana Power Station. As detailed on slide 4, we mobilized equipment and crews and began construction late May 2014 on Montana units one and two.

We currently anticipate that these two units will be in service prior to the summer peak of 2015. Our construction schedule will potentially allow completion of the units one and two by the end of March 2015.

In addition, we have received final orders approval for the Certificates of Convenience & Necessity or CCN for Montana units three and four in New Mexico and Texas on June 11, 2014 and July 11, 2014 respectively.

With the primary regulatory milestones for the construction of the Montana Power Station behind us, we can now focus our efforts on the timely completion of these units. Once complete, the four elements, 100 units at Montana will have 352 megawatts of efficient clean burning natural gas to our already low carbon-emitting generation portfolio.

Slide 5, provides a brief update on the status of the transmission line CCN applications related to the Montana Power Station, which were filed in 2013. Approval to build the transmission lines were sought to connect the Montana Power Station to the electric grid so that we can meet the expected customer growth and demand and improve system reliability.

The company has received a final order on the Montana Power Station to Caliente line on March 10, 2014 and settlements have been reached on the Montana in and out connection to the Caliente – to Coyote transmission line and the Montana to Montwood transmission line. Also a proposal for decision has been issued to recommend the approval of lines.

The Public Utility Commission of Texas has scheduled both settlements for consideration at their open meeting on August 7, 2014.

Finally, the company has been working on the construction of a new Eastside Distribution Operations Center, directly adjacent to the Montana Power Station.

Construction began on this facility in October 2013, this will consolidate many of our El Paso warehousing fleet, line crew and engineering personnel into one location which will allow us to improve the efficiency of operation including outage response times. This facility is currently projected to be completed by early 2015.

The cash capital expenditures that are projected to be spent over the next five years are shown on slide 6. The company anticipates mainly approximately $1.3 billion through 2018. A substantial portion of these dollars is attributable to the construction of the Montana Power Station and related transmission infrastructure required to interconnect the power stations to the grid.

The current construction program anticipates that the first two units at Montana will be completed in 2015. Montana units three and four are projected to be completed in 2016 and 2017 respectively. We anticipate spending on average $253 million per year from 2014 through 2018.

And I will now turn the call over to David Carpenter.

David Carpenter

Thank you, Steve. If you turn to slide 7, we have provided a graphic of probable rate case timelines for rate case filings in both Texas and New Mexico. As Steve Buraczyk just discussed, we’re projecting that the Montana Power Station units one and two maybe completed as early as March 2015 but no later than June 1, 2015, the start of our summer peak season.

In Mexico, timeline is the same as was presented to you last quarter regardless of when the Montana Power Station units one and two began commercial operation. We currently expect the power rate cases in both Texas and New Mexico using historic test years.

However, in New Mexico, the rules for post test year adjustments will allow us to follow rate case using a historic test year ended December 31, 2014 and reflect both Montana Power Station units one and two in rate base through a pro forma adjustment.

Assuming, we follow the rate case in May 2015, we would expect rates to be effective by April 2016. New Mexico has the ability to suspend the effective date another three months. But we believe that by using a historic test year, it will allow the rate case to be completed in the initial 10-month suspension period.

In Texas, our original timeline reflected the use of a historic test year ended June 30, 2015 after the units are placed in service. The orange timeline illustrates the original scenario in which we assume that the rate case would be filed in November 2015 and that rates would subsequently become effective in Texas by July 2016.

While we are currently on track to bring Montana Power Station units one and two online in time to file for new rates in Texas, in November 2015, if Montana Power Station units one and two are completed by the end of March 2015, we would be able to file the Texas rate case earlier.

Therefore, an alternative scenario in green has been provided to show the timeline if the earlier in-service date is achieved. If the units were to go into service by March 2015, a Texas rate case filing could then be made in August 2015 and rates would become effective by April 2016.

Turning to slide 8, we have included the projected rate base schedule presented during our first quarter 2014 earnings release presentation. This schedule illustrates our anticipated rate base additions for Montana units one and two in 2015 which will be included in our upcoming rate case filings in Texas and New Mexico, as well as our anticipated rate base after the completion of Montana Power Station units three and four, which will require subsequent rate case filings.

The majority of the rate base growth illustrated on the chart is necessary to meet the growth in our service territory and not for environmental retrofit. We remain focused on working with our regulators to communicate the timing of and the need for future rate adjustments to incorporate new plan additions into our rate and minimize the impact of regulatory lag.

Our CFO, Nathan Hirschi will now discuss our first quarter financial results.

Nathan Hirschi

Thank you, David. As you can see on slide 9, for the second quarter of 2014 we reported net income of $30.1 million or $0.75 per share compared to the second quarter of 2013 net income of $29.2 million or $0.73 per share. For the first half of the year, we reported 2014 net income of $34.7 million or $0.86 per share compared to the 2013 net income of $36.8 million or $0.92 per share.

Turning to slide 10, we list the key earnings drivers for the second quarter of 2014 compared to the second quarter of 2013.

Beginning with the positive drivers, net income for the second quarter of 2014 compared to the same period last year was positively affected by the recognition of the Palo Verde performance rewards associated with the 2009 to 2012 performance periods, net of disallowance of fuel and purchased power costs related to the resolution of our Texas fuel reconciliation proceeding, which resulted in increased earnings per share of $0.04.

Increased allowance for funds used during construction resulted from higher construction balances including the Montana Power Station benefited earnings per share by $0.03. In addition, earnings for the second quarter of 2014 increased by $0.03 per share as a result of increased miscellaneous income primarily due to gains recognized on the sale of assets in 2014 and decreased donations.

Turning to the negative drivers, we experienced a decline in earnings per share of $0.03 resulting from increased taxes other than income taxes primarily due to higher property taxes.

Earnings also declined by $0.03 per share during the quarter due to increased depreciation and amortization expense resulting from higher depreciable plant balances including Rio Grande Unit 9, which began commercial operations in May, 2013.

Finally, earning declined during the second quarter of 2014 by $0.02 per share resulting from decreased retail non-fuel based revenues, primarily due to less favorable weather conditions.

On slide 11, we have provided a comparative analysis of the changes in retail non-fuel based revenues and megawatt hour sales by customer class for the first six months of 2014 compared to the same period in 2013. Total retail megawatt hour sales declined by 3.2% while total retail non-fuel based revenues declined by 2.2% during the first six months of 2014.

As a result of milder weather in the first quarter and due to a 3.8% reduction in the heating – in cooling degree days in the second quarter. For the first six months of 2014 heating degree days decreased by 26.6% and cooling degree days decreased by 4.4% compared to the same period in 2013.

On slide 12, we have provided the same comparative for the second quarter of 2014 as compared to the same period of 2013, the total megawatt hours, total megawatt hours sales declined by 1.1% while retail non-fuel based revenues declined by less than 1% during the second quarter of 2014, as a result of milder weather and a challenging comparison with a hot second quarter of 2013.

The number of cooling degree days during the second quarter of 2014 was 3.8% below the level experienced in the same period of 2013.

The residential customer class experienced a decline of megawatt hour sales of 1.5% and a decline in non-fuel based revenues of 1.3%, while the commercial and industrial small class declined – experienced a decline in megawatt hour sales of 1.7% in spite of the reduced megawatt hour sales non-fuel based revenues only declined by 0.1% in this class.

Similarly, the public authorities-class experienced 0.5% decline in megawatt hour sales but increased non-fuel based revenues by 0.1%. Weather significantly impacts the usage of these customer classes.

We continue to see solid growth in the number of customers served as we experienced a 1.4% increase in the average number of retail customers during the second quarter of 2014.

On slide 13, we have provided a couple of charts to illustrate the mild weather that has been experienced in our service territory during the first six months of 2014. As we discussed last quarter, we experienced 958 heating degree days in the first quarter of 2014, which was 28% lower than the same period in 2013, and 19% lower than the 10-year average.

Heating degree days have more of an impact on the sales during the first quarter than on the second quarter, therefore only the first quarter is provided for heating degree days.

In terms of cooling degree days, the second quarter of 2014 experienced 1,095 cooling degree days, sorry, which was approximately 4% below the same period of 2013. However, cooling degree days during the second quarter of 2014 were approximately 4% higher than the 10-year average.

Although the weather was slightly warmer than the 10-year average during the second quarter of the year, the level of cooling degree days experienced in 2013 was considerably higher, that’s making a difficult comparative period.

Now turning to slide 14, we’ve provided the number of heating and cooling degree days that have been observed in El Paso, during the first six months of each of the last 10 years.

As you can see, the first six months heating degree days were 17% below the 10-year average and 27% below these first six months of 2013. The 1,042 heating degree days observed in the first six months of 2014 was the lowest level observed, since 2006.

It’s also important to point out that not only was the first six months of 2014 a mild period as compared to the 10-year average and recent compared to period, the first six months of 2013 last year had very favorable weather conditions and experienced the same – and experienced the second highest level of heating degree days recorded over that 10-year period.

The recent variability of weather during the first six months of 2014 versus 2013 had made the comparison across the two periods somewhat challenging. The good news is that, for the month of July, last month, the cooling degree days increased by 14.1% or 5.4% compared to the prior year and the 10-year average respectively. So we’ve had a good July, we had a good July.

On slide 15, we have provided a chart to illustrate our system peak since 2003. Although weather recently has been rather mild in comparison to recent years, our native system peak continues to grow.

We set a new native system peak on June 4, 2014. It’s also impressive to note that since 2003, our system territory has set new native system peaks every year except for 2012. Over that same period or peak load has grown at a compelled rate of almost 3%.

Turning to slide 16, we are illustrating that the population of El Paso and Dona Ana Counties in Texas and New Mexico has grown at a similar rate as our number of residential customers. Since 2014, our residential customer class has grown at a compound annual rate of 1.9% while the population of the two most populous states in our service territory has grown by 1.6%. We continue to see consistent growth in a number of customers served.

Now turning to slide 17, we are narrowing our 2014 earnings guidance range to $2.15 to $2.40 per share from our previous guidance of $2.10 to $2.50. Six months of actual results has allowed us to narrow our range and reflects the decline and base revenues resulting from mild weather in the first half of the year, offset by various positive variances in net income categories.

Turning to slide 18, I would briefly discuss our capital requirements and liquidity. As we have previously indicated, we anticipate long-term debt to provide sufficient liquidity to meet our anticipated cash requirements including construction expenditures. However, we’re evaluating market conditions and refining the amount and timing of our financing needs. Therefore, we now anticipate that we will issue long-term debt later in 2014 or early in 2015.

During the first six months of 2014, our capital expenditures for additions to electric utility plant were $106 million. In total, we expect to spend approximately $316 million for capital expenditures in 2014.

In terms of dividends we paid $22 million during those first six months of 2014 and on June 30, we had $13 million of cash balance on hand and had liquidity of approximately $215 million which includes the cash and the borrowing capacity available on our line of credit.

At this time, I would like to hand the call back to John and open up for questions.

John Boomer

Thanks Nathan. This concludes our second quarter 2014 earnings presentation. At this time, we will open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). We’ll take our first question from Anthony Crowdell of Jefferies.

Anthony Crowdell – Jefferies

Hi, good morning. I have hopefully three easy questions. My first question is related to I guess the revision and guidance. If I think of the old guidance which I assume was based on normal weather.

The mid-point is roughly $2.30. The new guidance is downward about $2.23. But if I look at this quarter’s performance where I guess, cooling degree days and especially since I guess rates are more summer skewed, the summer months are much more important to you, heating degree day – I’m sorry, cooling degree days for this quarter were above where they would be normally.

And also you’ve booked between first quarter gains of nuclear decommissioning trust and also this quarter you had the one-time Palo Verde performance and then you also had some miscellaneous in there of asset sales at roughly total of somewhere between like $0.10 and $0.14. It seems like that is made up for the poor weather you had in the first quarter.

So, I guess my question is related to the downward revision in guidance. It doesn’t seem like it’s related to weather because this weather was – this quarter was above normal?

Nathan Hirschi

Well, maybe we didn’t timed up the range at the end of the first quarter which was really the worst quarter in weather than the second quarter was, second quarter was about average weather as you kind of point out. But it’s just that we timed up for the first six months now, understanding that we – the majority of their earnings and the majority of the – well, majority of the earnings comes into the second half of the year.

Anthony Crowdell – Jefferies

I mean, about so far when I look July, whatever six days in August. I mean, is that trending normal or is that trending above normal. And I know it’s only one month out of entire summer?

Nathan Hirschi

July was a good month. July we had above normal, above prior year weather. August is starting off a little bit below normal but it’s been a good start to the quarter.

Tom Shockley

Anthony, this is Tom. I think that your mid-point maybe a little bit higher than you suggested.

Anthony Crowdell – Jefferies

The old number or the new number?

Tom Shockley

The new number.

Anthony Crowdell – Jefferies

The new number is 2 it’s really early for math here?

Steve Buraczyk

2.27, mid-point…

Anthony Crowdell – Jefferies

2.27.

Steve Buraczyk

Yes.

Anthony Crowdell – Jefferies

So, you’ve come down in the mid-point there I guess what $0.03?

Steve Buraczyk

Right $0.03.

Anthony Crowdell – Jefferies

$0.03 but also you probably had between first quarter nuclear decommission trust gains, second quarter Palo Verde performance and also some asset sales, that’s probably been more offset with those gains. I guess that was what I was trying to understand?

Nathan Hirschi

Yes, some of that was already reflected in guidance. So, the guidance already included the resolution of the fuel reconciliations so some of that was factored in.

Anthony Crowdell – Jefferies

Okay. And I guess, with your ability maybe to speed up the construction of Montana and this I guess is related to David Carpenter, I don’t want to let him get off easy here.

How much more revenue do you capture for the year if you’re able to accelerate new rates in ‘16, do you go from maybe capturing 60% of those revenues with if the plan went on at your normal expectation and did that – so it’s like 85% of revenues if you get in your rates in there by April or something. What’s the delta in the change?

David Carpenter

Yes. I haven’t calculated it quite that way Anthony. But I think that it probably, I guess one way to put it is it probably might at least $15 million increase in revenue in 2016, which is probably – we probably estimate around 25%, in the – somewhere in that range of the annual amount of. So, it probably increases. Again, picking up a quarter, it takes up about 25% of an annual rate increase that specific quarter.

Anthony Crowdell – Jefferies

Could we change or shorten now Montana units three and four construction. And it seems that you’re getting these two units in, I’m guessing, was it nine months construction cycle. Can I now assume between units three and four shrink that and get those done quicker? And then, when you file the rate case for I guess unit four, that also accelerates the recovery of adding rates?

David Carpenter

Steve is looking at me, I was looking at him.

Steve Buraczyk

We’re all looking at you.

David Carpenter

Right. I think the schedule for three and four really hasn’t changed. I think so, what we’ll do is still plan on getting those in by the start of the summer peak. And that schedule really hasn’t changed. So I think our second and our third rate case filing, whichever, however it works out is probably going to stay on a – probably June test year right now.

We don’t see a lot of benefit in those construction schedules are speeding it up. But we did see a benefit in getting started on Montana one and two and going ahead and getting those completed.

Anthony Crowdell – Jefferies

Do you have the ability, this I guess, since that you’re building one and two pretty much same time, do you have the ability to do the three and four at the same time? And then getting four in service by I think the peak of ‘16?

Steve Buraczyk

Anthony, this is Steve. Based on our loads and resources document as we sit today, Montana three is needed in 2016 Montana four is not needed until 2017. So that’s where we’re at, at this point with the plan as far as the construction goes.

Anthony Crowdell – Jefferies

Okay, great. And just the last question is, there has been talk and I guess the city council and also the newspapers and I’ll pass on about potentially raising the franchisee? And just, and I know what’s going back in water company, electric company, I want to know your comments?

And is it fair to say that if it is raised on the electric utility that you don’t recover that until you file your rate case which would be at the completion of Montana one and two, where there is an ability to get this single-item rate treatment sooner?

David Carpenter

That’s not correct Anthony. What we’ve done is we have already filed a surcharge with the City of El Paso that to the extent they approved a surcharge. It would reflect the increase in the franchise fee. And we would not agree to increase the franchise fee until the surcharge is in place.

So, basically we would franchise fee and the surcharge would be simultaneous and there would be no impact on our earnings.

Anthony Crowdell – Jefferies

Great. Thanks again for taking my questions guys.

Tom Shockley

Thanks Anthony.

Operator

We’ll take our next question from David Arcaro of Sidoti.

David Arcaro – Sidoti

Hi, thanks for taking the question. Wondering what are, I think this is for Steve. What are the key variables for accelerating the Montana construction timing? I guess what are some of the variables that are in your control, what is out of your control?

Steve Buraczyk

Well, I’ll start with the ones that are really out of control at this point is primarily the weather. As we sit here today, the plan has units coming online prior to March of 2015. But, as you know that we get into the spring and sometimes we have some fairly windy days and of course we can have some winter days as well that could potentially delay the construction.

But currently as we see here today, a lot of the things that are certainly within our control such as the natural gas and the water, hookups to the facility, we think those are on-pace to be completed so that the construction can be done by the end of the first quarter.

David Arcaro – Sidoti

Sorry, did I catch that right? Did you say, is the current plan is ahead of schedule, is it currently tracking toward being completed by March 31?

Steve Buraczyk

That’s correct, that’s the construction plan that we have in place today.

David Arcaro – Sidoti

Got it. Thanks. That’s the only question I had.

Tom Shockley

Thanks David.

Operator

(Operator Instructions). And we’ll take our next question from Maury May of Wellington Shields.

Maury May – Wellington Shields

Good morning, gentlemen.

Tom Shockley

Good morning.

Steve Buraczyk

Hello May.

Maury May – Wellington Shields

I just have a few small questions on a few small things. First of all, what are your actual investments in the Montana-related transmission lines, and on the new Eastside Distribution Operation Center?

David Carpenter

Yes, Maury, this is David Carpenter. If you look at slide 8 that we had in our presentation, I think that lays it out fairly well on slide 8.

Maury May – Wellington Shields

Okay, yes. Yes, I missed that 38 and 40, I’m sorry, yes.

David Carpenter

Okay.

Maury May – Wellington Shields

Okay. Moving right along to my second question, sale of assets in the second quarter, what were those assets, and how much did you sell them for?

Steve Buraczyk

Maybe we’re just some excess vehicles or used vehicles a week about $600,000 of vehicle sales.

Maury May – Wellington Shields

Okay. And third, can you review the history of franchise fees in the city of El Paso? I remember that the franchise fee was an issue in the 2005 settlement, at which time it did go up. Can you tell us, give us a history on the franchise fees for like the last decade and what is the city asking for now?

David Carpenter

Yes, Maury. The franchise fee as you remember correctly was increased roughly from 2% to 3.25%. And 2005 we extended the right fees for five years. And then, after and I’m trying to remember the year, I believe it was in 2011, I could be off on the year. We increased the franchise fee by another 75 basis points from 3.25% to 4%.

Now, that increase was specifically for economic development. And so, it would basically – it set aside in the city’s budget or in their accounting. And is used specifically to support economic development projects that probably right now are the primary project, they’re supporting is the medical center of Americas.

And then, they’re also and that is, we’ve already discussed they’re proposing an additional 1% increase in this budget cycle. And at this point in time, we will wait and see whether that’s approved or not. If it is approved, it could be effective as early as September or depending on as we discussed the timing of the rate approval, it could be at a later date.

Maury May – Wellington Shields

Okay, and this is, okay. So this would take the franchise fee from what, 4% to 5%?

David Carpenter

Yes.

Maury May – Wellington Shields

Okay, and you would keep the 75 basis points for economic development in place?

David Carpenter

Yes, that’s correct.

Maury May – Wellington Shields

Okay. Did part of that economic development money go for your new baseball stadium?

David Carpenter

No, that was not one of the projects that’s like funded with the economic development fees.

Maury May – Wellington Shields

Okay, alright. And this would be 5% of gross retail revenues within the city limits, which are about 60% of corporate revenues, is that correct?

David Carpenter

Yes.

Maury May – Wellington Shields

Okay, great. Thank you, David.

Operator

We’ll take our next question from Tim Winter of Gabelli Investments.

Tim Winter – Gabelli Investments

Good morning. David, I was wondering if you could talk about the logic of filing for a historical test year in New Mexico versus a forward-looking test year, where perhaps you could get all of the units into rate base?

David Carpenter

Well, there are several things there Tim. When we look at the forward test year versus the historical test year, we did not feel like it really provided any significant difference in the amount of rate relief that we could justify.

Yet, as we have followed the companies that have filed the forward test years in New Mexico, their regulatory lag period has generally increased to at least the maximum 13-month period that’s allowed on the New Mexico statue.

While it adds when we’ve used the historic test year, we’ve generally been able to get the rate cases completed well within the nine-month kind of original our 10-month original suspension period provided by statues. So, we really felt like that we didn’t get any additional rate relief from the future test year yet we probably increased the regulatory lag.

And then because of the timing of kind of the uncertainty that we had in the short construction period for the month, and again, we really couldn’t start future gesture any much earlier than any then we could do a historic test year. So, we really felt like the regulatory lag offset any benefit that we could get from the future test year.

Tim Winter – Gabelli Investments

Okay, okay. And then just one follow-up question on slide 15, the load growth slide, as you are building your forecast for the next five years, what sort of load growth are you carrying, are you expecting?

David Carpenter

Yes.

Steve Buraczyk

I mean it’s…

David Carpenter

I think it’s more in – we haven’t got then numbers for 2015, I believe it’s more in the 2.5% or about 2.7%, maybe down just like 2.5% to 2.7%.

Steve Buraczyk

Yes, slightly below what we’ve seen here historically which is.

Tim Winter – Gabelli Investments

But not materially below?

David Carpenter

No.

Tim Winter – Gabelli Investments

Okay. Thank you.

Steve Buraczyk

Thanks.

Operator

We’ll take our next question from David Arcaro of Sidoti.

David Arcaro – Sidoti

Hi, thanks, just had one really quick follow-up. You had a sale of land last quarter. You had a sale of I think you said used vehicles this quarter. Wondering if we should expect to see further asset sales kind of moving the EPS needle a penny or two here and there, are there other assets on the books that you would characterize that are up for sale?

Steve Buraczyk

No, I don’t think that’s – those are probably too isolated situations. We do have the nuclear decommissioning trust that has a fair amount of assets in it to generate some gains or losses just as we reallocate that portfolio. But I don’t think that’s a trend that really see, just a couple of isolated transactions.

David Arcaro – Sidoti

Got it. Thanks very much.

Operator

And there are no further questions in the phone queue at this time.

John Boomer

Okay. I want to thank everybody for participating in our call. And we look forward to communicating with you at the end of the next quarter or in the interim, if you can meet up with us at the Goldman Sachs Conference or out on the road somewhere else, we look forward to that as well. So, thank you very much. And appreciate your time today.

Operator

This concludes today’s conference. Thank you for your participation.

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Source: El Paso Electric Company's (EE) CEO Tom Shockley on Q2 2014 Results - Earnings Call Transcript
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