NV Energy's CEO Discusses Q3 2011 Results - Earnings Call Transcript

| About: NV Energy, (NVE)

NV Energy, Inc. (NYSE:NVE)

Q3 2011 Earnings Call

November 2, 2011 10:00 am ET

Executives

Max Kuniansky - IR

Dilek Samil - SVP, CFO and Treasurer.

Michael Yackira - President and CEO

Analysts

Kevin Cole - Credit Suisse

Shar Pourreza - Citigroup

Steve Fleishman - Bank of America

Jay Dobson - Wunderlich Securities

Neil Mehta - Goldman Sachs

Andy Levy - Caris

Andy Bischof - Morningstar

John Alley - Decade Capital

Paul Patterson - Glenrock Associates

Operator

Ladies and gentlemen, thank you very much for standing by, ad welcome to the NV Energy Third Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions being given at that time. (Operator Instructions). And also as a reminder today’s conference is being recorded.

I would now like to turn the conference to our host, Max Kuniansky. Please go ahead.

Max Kuniansky

Good morning, everyone. Thank you for joining us to review NV Energy’s results for the third quarter of 2011. By now you have seen the press release we issued earlier today and the slides on our website, and we expect to file our Form 10-Q with the Securities and Exchange Commission within the week.

Comments we make during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the future performance of the company and its subsidiaries, Nevada Power Company and Sierra Pacific Power Company.

These statements are current expectations and as such are subject to a variety of risks and cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in our Form 10-Qs for periods ended March 31, 2011 and June 30, 2011 and the Form 10-K for the year ended December 31, 2010. You will also find reconciliations of certain non-GAAP financial information on our website at www.nvenergy.com.

With us this morning are Michael Yackira, President and Chief Executive Officer; and Dilek Samil, Senior Vice President, Chief Financial Officer and Treasurer.

I’ll now turn the call over to Dilek.

Dilek Samil

Thank you, Max, and good morning everyone. As we announced this morning, net income for the third quarter of 2011 was $174 million or $0.73 per diluted share, as compared with $178 million or $0.75 per share for the same period a year ago. For the first nine months of 2011 we earned $0.80 per diluted share compared with $0.90 in 2010.

Major drivers of our third quarter results are shown on slide 2. The two biggest factors effecting earnings were the Harry Allen plant and the reversal of a 2010 accrual. Both items were recorded below the gross margin line and I will explain them in more detail in just a moment.

As we've previously discussed, the Public Utility Commission of Nevada last year approved new regulation to allow for the recovery of marked revenues. The regulation also allows for more timely recovery of energy efficiency program cost.

We began recording the lost revenue portion in the third quarter of last year. The year-over-year change in lost revenue is not significant for the quarter and, therefore, it is not materially impact that change in margin. What does impact margin this quarter is the new rate to recover program cost. This rate became effective in July of this year and increased third quarter revenues by $23 million.

You will note that these increased revenues are matched by increased cost which are recorded in operating and maintenance expense and do not impact our bottom line earnings. So, the energy efficiency program cost revenue increased margin by $23 million. They were offset in decreases of $8 million for a net increase in margin of $15 million.

Turning to the other components of margin, megawatt-hour sales were down about 1% statewide. While our customer base grew by just under 1% compared to the year weather in the southern territory was milder than the third quarter of 2010. Cooling degree days were down about 4% in the south versus the prior year.

On the positive side, our northern utility benefited from the rate increase which was approved last year. The net effect of all these factors was a $5.5 million increase in retail margins for the third quarter.

As for the other items that affected our third quarter gross margin, the sale of our California operation which we completed in January 1 of this year reduced margin by $5 million compared to the third quarter a year ago. Also, revenues in the third quarter a year ago, included a one time benefit related to bonds issued to end the recovery. That benefit of $4.5 million did not recur this year.

Turning now to items below the gross margin line, we place the Harry Allen combined cycle plant in service in May of this year. This reduced AFUDC and increased both depreciation and operating and maintenance expense. The total impact of Harry Allen in the third quarter was a $17 million reduction in pre-tax income compared to last year.

Regulatory lag associated with the Harry Allen plant will affect our year-over-year earnings comparisons for the balance of this year. We expect to begin recovering our cost and earn a return on the plant beginning in January of next year as the result of the rate case now underway. Another factor affecting the quarter was the settlement with the vendor resulting in the reversal of an accrual made a year ago related to the termination of the generating plant service agreements. This favorably impacted the third quarter of 2011 by $16 million pre-tax year-over-year.

Moving on to the balance sheet, consolidated liquidity was over $900 million as of September 30 including cash of about $135 million. In October, we took advantage of favorable interest rate when we announced plans to redeem $192 million with 6.75% note with lower cost bank debt. These are notes at the holding company I would add.

Capital expenditures remained at about $500 million per year for the period 2011 to 2013. As the reminder, this forecast includes about $100 million for a 25% ownership of the ON-line transmission project, about $130 million for our NV Energize smart grid project, and approximately $30 million already spent to complete the Harry Allen plant.

Turning now to the outlook, which is essentially unchanged since our last earnings call, projected lode for next year remains nearly flat. As the result, we continue to work hard to control cost and we've had some success in that effort. As shown in slide four O&M cost reflect $9 million of net cost reduction for this year-to-date. In addition, to the energy efficiency program cost and reversal of the accrual I mentioned earlier.

With the summer months now behind us, 2012 is just over the horizon and it should a pivotal year for NV Energy. We expect to get a decision on the current general rate case before the end of this year. In January, we will have new rates in effect and regulatory lag on the Harry Allen plant no longer affect us.

With that, I will not turn the call over to Michael.

Michael Yackira

Thanks Dilek. Good morning everyone, and thanks for joining us this morning. I am pleased with the company’s result in the third quarter. As I have reported to you before, in response to the economic issues in Nevada over the past few years our employees have done a remarkable job of finding new cost effective way to serve our customers and bring value to our shareholders, focused on our cost discipline and are identifying opportunities for reducing costs, while ensuring that we continue to provide our customers with safe and reliable service.

NV Energy customers statewide are benefiting further in the company’s investments in new power generation, primarily, efficient, combined cycle, generating units that are fueled with natural gas. These efficient plants coupled with recent stable fuel costs have lowered prices for our customers. For example, our customers in Southern Nevada received a rate decrease of nearly 6% effective October 1. At the same time, our customers of Northern Nevada received an electric rate decrease of almost 2.5%, and our natural gas customer saw a rate decrease of almost 11%.

While Nevada's economic indicators remain mixed, there have been some recent positive developments. In August Las Vegas saw 2% increase in visitor volume compared with the same period a year ago. And in addition, Nevada ranked first in export growth in a report released this summer by the US Chamber of Commerce, driven primarily by gold mining. Because of high gold prices, several of our mining customers have indicated that they have plans to expand their existing operations and open new mines in Northern Nevada. Yet, as we stated in the past, these recent developments do not necessarily translate into a turnaround which we continue to believe will be mostly in years rather than months.

As I am sure you know, and as Dilek motioned, we are in the middle of the general rate case for the Southern Nevada utility. Hearings before the Public Utilities Commission of Nevada began in October and are expected conclude soon. The PUCN and the interveners in our case are reviewing our request for annual revenue increase of $250 million, nearly half of the increased relates to the completion of the construction of the Harry Allen natural gas fuel combined cycle plant. We expect a decision from our commission next month with new rates take effect on January 1, 2012.

Let me now provide updates on two important ongoing projects: our new smart home initiative and our transmission line in Eastern Nevada. NV Energize, our smart home project, is on schedule for completion by the end of next year. To date over 500,000 small meters have been installed in Southern Nevada, and installation is scheduled to begin next month in our Northern Nevada service territory. Nearly 1.5 million meters will be installed when the project is complete. The key to the success of this project is the two way communication between customers and the company which will provide our customers with detailed information to help them make informed choices about the energy usage.

Our other major project is the One Nevada transmission line or ON-line, which will extend 235 miles from the Harry Allen Substation North of Las Vegas to a new Substation near Ely Nevada. It will connect our two utilities for the first time enabling energy exchanges between Northern and Southern Nevada. And in addition, ON-line will provide market access for a renewable energy projects throughout the state.

Construction crews are installing structures and stringing wire for the project right now, which we expect we will complete by the end of 2012. As many as 400 workers will be employed during the peak construction period, which is certainly good news for Nevada’s economy.

We are also evaluating the potential expansion of our transmission grid to serve numerous renewable energy projects that have been proposed to Nevada. I mentioned on our last call that we announced in June what we are calling Renewable Transmission Initiative. Through this process we will determine how much interest renewable energy developers have in obtaining transmission service to deliver renewable energy from Nevada to other markets in the desert southwest. We conducted workshops with interested parties in August, and we have received sufficient interest to warrant the next text, which is to seek participants' commitments to fund studies. If enough of them agree we will proceed with designing a transmission expansion plan. This expansion would require approvals from federal and state regulators before we could begin obtaining permits and rights of the way for any new transmission projects.

In closing, let me reiterate that I am pleased with our results with our current investment initiatives and with our continued cost control. We look forwarded to seeing many of you next week in Orlando at the Edison Electric Institute Conference.

Now, Dilek and I are ready to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Kevin Cole with Credit Suisse. Please go ahead.

Kevin Cole - Credit Suisse

Kevin, are you able to add any more color around your near term capital allocation priorities, I guess meaning that do you find better shareholder value from significantly raising of a dividend or paying off the (inaudible) debt or saving cash for a future growth opportunities, may be combination of that?

Dilek Samil

As we have said on earlier calls and discussions, we are going to look at the potential avenues to use our cash and we are going to prioritize them based on where we think the best long-term benefit and return will be our investors. But a critical part of that decision is going to be what we get from this rate case that we’re in the middle of it at this point. So still I guess the short answer it’s still a bit early to exactly say how we’re going to prioritize the use of our cash.

Kevin Cole - Credit Suisse

Okay I guess the rate case goes as expected. Looks like your pay out ratio would fall to mid 40s. Should we deem it I guess rather we certain that if that occurs that you will give them back up to at least about 50% to 55% pay out ratio?

Michael Yackira

I’ll take that, Kevin. I’m not about to suggest that we’re going to second guess what the board of directors is going to do with respect to the dividend pay out. We just recently as you now last week announced an increase of a penny for this quarter and we’ll continue to review pay out ratios as we go forward and come to a conclusion about where we go in 2012 at the appropriate time. But the board will make its deliberations and we will report accordingly when the deliberations are completed.

Kevin Cole - Credit Suisse

Does the board have a targeted pay out ratio in mind?

Michael Yackira

We do not.

Operator

Our next question comes from the line of Shar Pourreza with Citigroup. Please go ahead.

Shar Pourreza - Citigroup

Good morning. A little bit of noise coming out Nevada surrounding the smart meters. Is there any updates on the TUC’s open investigation. Is it something we should worry about with NV Energize? And two, is there any potential for settlement in the rate case? Saw some modestly strong comments coming out of the hearings from Commissioner Wagner.

Michael Yackira

I’ll take them both. The investigatory docket that was opened by the commission I think is to be expected simply because there has been, throughout the country, expressions about smart meter, smart grid initiative. So I think we have done a very good job in educating our customers as to what the benefits of smart meter are. We’re getting very good response so far by looking at the people who are connected with smart meters and how they’re utilizing (inaudible) with what we call My NVE whether that is not too correct, what do we call our ON-line, My Account, right and we expect that kind of response will continue to provide the information to a lot of customers to take control of their energy used. The commission wants to see what the avenues are for the education process and other things and I see nothing negative about that whatsoever. Our story at that time that the commission approves the project through its IRP process years ago.

And the second piece, we’re late in a case. I again would not suggest that we know of any potential settlement, but so late in the case that I would doubt a settlement would be --

Shar Pourreza - Citigroup

Okay and just one last question. While customer growth trends were flat from Q2, can you remind us what’s driving that modest uptick that we saw in Q2 and flat from Q3 in the South?

Dilek Samil

Well, the customer growth number for the last several quarters now has seen a little positive trend. We’ve been saying that they’re right around 1% year-over-year for the past several quarters and that was the case again for this quarter. Perhaps where I confused you is that sales were down despite the fact that customer count was slightly up and sales were down relative to last year because we had less hot weather this summer than we did last summer.

Operator

Our next question comes from the line of Steve Fleishman with Bank of America. Please go ahead.

Steve Fleishman - Bank of America

Just I know in the last quarter you had a very bad weather. Could you maybe take that in and where you saw weather this quarter? How would say weather has impacted results year-to-date? Is it about neutral, negative, positive versus normal, net-net?

Dilek Samil

Let me take you through the quarter first, Steve, and I’m going to share some numbers with you to suggest that I’m not sure of any more what’s the normal. So if we look at the southern territory and we look at cooling degree days for the last three years, for example, and again this is third quarter. Cooling degree days 23,67 in '09, 24,12 in '10. so 10 was a strong summer and 23,12 in 11. So down relative to last year but normal for the third quarter as we calculate it is 20, 77 degree days. So consistently over the last three years we’ve had warmer than normal weather. And in fact this third quarter in the South was also warmer than normal. But the year-over-year comparison was negative. But that’s for the quarter.

And I think for the year… If I look at the year-to-date numbers, I don’t have the normal numbers for year-to-date. But in looking at the comparison of 2010 to 2011, again this is for the south, we were down relative to last year about 2.6%.

Steve Fleishman - Bank of America

Year-to-date?

Dilek Samil

Year-to-date.

Steve Fleishman - Bank of America

Okay, and then the weaker industrial sales, I know industrial is not a big part of your mix, but what’s causing that? Is that one of the mines?

Dilek Samil

In the north it was I think it was one of the mines but in the north we did have a better margin notwithstanding the sales.

Operator

Our next question comes from the line of Jay Dobson from Wunderlich Securities. Please go ahead.

Jay Dobson - Wunderlich Securities

Just following from the last question, Dilek, when I look at the south utility it actually looks like industrial sales were down and obviously not a lot of mining in the southern part of the state. So just wondering if you could help us understand what was going on there?

Dilek Samil

We don’t see anything specific that’s impacting it in the south, Jay. The only thing I can point to again is that weather year-over-year.

Jay Dobson - Wunderlich Securities

And I guess the casino level you might see a little impact tot hat. I guess the two-and-a-half percent is sort of what’s throwing me a little bit. But what your saying is there is nothing that you can sort of point to singularly.

Dilek Samil

No, no, and I fact if you look at all the economic statistics with respect to what’s going on down on the strip. Its visitor counts are up, so it’s not like we’re not seeing the customers or the people are there. I think its more weather related than anything else.

Michael Yackira

And we don’t see a lot of volatility with energy use based on tourist count anyhow. It is primarily weather driven, Jay. So I think that’s mainly what we’re seeing year-over-year.

Jay Dobson - Wunderlich Securities

Got you. And then, Michael, on the cost reduction you said you are pleased and obviously I think when you get to the granularity the numbers its good support for how you feel, but as you look forward obviously with now well not now but continuing to be a slow sales growth outlook, how are you feeling about continuing to keep those costs flat into ’12 and dare I say even into ’13 if necessary?

Dilek Samil

Jay, it maybe I can start with that and Michael will chime in. If we go back to ’11 for just a second because that’s not over yet, well, let me back up from there . We have said that we want to maintain operating expense even with sales. So, to the extent that we are looking at flat sales we want to keep our (inaudible) flat. As we look at the first nine months of this year and the remaining quarter to full year ’11 I think we are going to do better than that. And I think we are going to do better than that even without this reversal of the accrual we had related to the generation plant service agreement.

And its all over the company as we have talked about before our ongoing discussions with all our employees at every meetings about cost control, cost reduction, continuous improvement, and so we did pretty good this year. Next year, given how well we are going to think come out in ’11, next year is that much more of a challenge to hold it flat but that’s our goal.

One thing that we will continue to help us is the NV Energize project that Michael talked to. If you will recall there is real operating savings that we expect coming out of that project. That should equally complete by the end of ’12 and we hope to begin realizing savings as early as ’12 and going into ’13. So, as we've said before while we can’t be specifics on where we are going to see this savings we our goal is to continue to hold the line and our employees have come through on that consistently.

Michael Yackira

The only thing I'd to add to that is make sure that slide number four is taken out of consideration when anybody is looking at our O&M cost that when we look at our energy efficiency program cost they are part of O&M and we have offsetting revenue in the other side of equations. So the net effect is marginal but O&M remaining meaning is O&M that is controlled by us. And we do think look at ways to improve processes, improve efficiency and improve our operating performance. Now, we wont ever forego the things that are important to our customers and to the values of the company, namely, safety, reliability and compliance. And we have been able to accomplish that we can't point to anything specific but it seems like every time we start doing process improvement initiative we find ways to become more efficient and more productive. I'm confident that our employees will continue to do that.

Jay Dobson - Wunderlich Securities

That’s great, that’s, that’s very helpful. And then to the renewable transmission line on the west side of the state, it sounded like you were I had understood that this might take you a little bit of time to look at the indications of interest but I think if I understood your comments you are sort of got through those pretty quick and realize there is enough interest to sort of take it to the next level and though I appreciate this is a like a 2014 or 2015 project if I recall, can you give us a little fair idea of what the process would be coming forward?

Michael Yackira

It is an iterative process, Jay, and we have been saying this consistently that its one thing to express interest its another thing to start funding, the studies that are necessary to get to the next level. And I think as we cull the process down to the developers who will see projects coming to fruition and will need transmission the reality of this transmission lines, the size of it, scope of it, the location of it and the timing of it will become clearer but its really impossible to say at this stage what the investment opportunity would be for us. It certainly could be great, but its way too early to be able to judge that at this stage but the process is continuing as we expected it to and it will probably take upward to the year to be able to conclude what exactly the opportunities are for additional transmission investment.

Jay Dobson - Wunderlich Securities

Okay great. And then just last question, Michael, on the dividend, you did just increase and it was largely in line with what you have done in years past at least in the absolute cent per share increase. As you look out to next year and appreciate Dilek's comments that you are going to be considering all of your alternatives, is there reason to think that you would consider a change in dividend policy outside of the normal sort of fourth quarter cycle that you have done it or maybe just said in a different way is the board against something out of cycle understanding that the third quarter is a large earnings quarter for you and historically I think you wanted to visit in the fourth quarter because you have the third quarter behind you, but just as you sort of think about that, that’s something we should think about out of the cycle or would be held for fourth quarter decision next year.

Michael Yackira

Right. I hope you don’t find this in anyway negative, Jay, but it’s the same answer that I get last time. I’m not about to comment on board deliberations about dividend policy or timing but there is nothing that compels us in one way or the other to make an announcement on any dividend change. You remember very well, Jay, that the institute of the dividend and just four years ago it happened to be in the third quarter and since then we have looked at the dividend every third quarter but there’s nothing that says that we would look at the dividend at an earlier time. But the Board has made decisions I don’t want to deliberate on that for 2012 as yet.

Operator

And next from Goldman Sachs will go to the line of Neil Mehta. Please go ahead.

Neil Mehta - Goldman Sachs

When are you targeting the merger of the two utilities to close? I know NV North was planning on filing in 2013 and the south was planting on filing in 2014. so, if the two utilities do merge before the rate case timing, before those rate case are filed, how do you think about timing for the next rate case?

Dilek Samil

So let’s talk about the merger first. Our current timetable is to file the merger application the end of this year and the two big applications are one with the PUCN and the other with the FERC. And we are hopeful that we’ll get a positive order from both of those agencies early enough in 2012 so that we can put into place all of the things that we need to in order to effect the merger by the end of '12. The rationale for that that end of '12 target date is that when we expect ON-line to completed. ON-line again being the transmission line that will physically connect the two utilities. So that’s what drives the date of the merger.

And our current thinking with respect to the mechanics of the merger is that we would fold the northern utility into our southern facility. The dates you stated are correct. Absent the merger the north would file in '13 and the south would be mandated to file in '14, right every three years. Given that the surviving entity would be the facility it looks to us like the distant merger completed at the end of '12, the next mandated filing would be in '14. But we always have the option of filing earlier than what we're require to do, and that’s something that we’ll have to think about whether we want to file sooner rather than later to start the process of bringing the rates of the two utilities together.

We do anticipate that once the merger happens at the end of '12 there will be a blended field rate that will be applicable to both sets of companies. But I think as we’ve talked about before there’s lots of other issues to work out with respect to the other portions of our rates. There’s subsidies in the south that don’t exist in the north and so, we suspect that for some period of time we’ll have separate rates. But those are rate design issues as opposed to the benefits of actually merging legally the two utilities and putting in one bucket that is being able to manage the capital structure more efficiently and other such streamlining.

Neil Mehta - Goldman Sachs

And the rate case at least post 2012 isn’t much growing that much $500 million run rate for CapEx so if you were to pull that rate case forward a little bit and reach out would you be filing not so much for return on incremental capital but potentially for a higher equity layer?

Dilek Samil

I think it’s way too early to speculate on what exactly the filing would look like. But there would be different major projects that are in it ON-line and NV Energize and then we’ll have to see how all of the other check out.

Neil Mehta - Goldman Sachs

When are you guys going to roll out post 2013 CapEx titles?

Michael Yackira

We normally do that when we issue the 10-K. We get a forward look as to capital but what we’ve been saying all along really I don’t think it will be surprising to you when we do that in the spring of 2012.

Neil Mehta - Goldman Sachs

And then finally on NV Energize, I just wanted to make sure I get the numbers right that you are guiding to operating savings of $25 million related to that program?

Dilek Samil

We are guiding to net $25 million of savings. That $25 million of savings is composed of several different types of savings about half of it is savings that would impact our O&M. The balance are savings that we expect to realize in the form of for example higher sales because we expect to eliminate some of the steps that occurs on any system. We expect to see some working capital, some cash flow benefits but of the net $25 million half is about O&M related.

Neil Mehta - Goldman Sachs

And you’ve yet to realize any of that $25 million, the rights of this, these are benefits that will come through in 2012 and 2013.

Dilek Samil

I think that’s the other bulk of them, yes.

Operator

The next question comes from the line of Andy Levy with Caris. Please go ahead.

Andy Levy - Caris

Hi guys. I’m all set actually. All my questions have been asked and answered.

Operator

Very good. Then we’ll move to Morningstar, Andy Bischof. Please go ahead.

Andy Bischof - Morningstar

Hi. Good morning. Most of my questions have been answered as well. But just a quick follow-up on the industrial sales. As you're looking to your customer base, especially within industrials, are you seeing any expectation of demand over the next 3 to 6 months, and if there's a trend we can perceive?

Dilek Samil

Other than the mine issue that Michael spoke of earlier, we don’t see anything in the south to contradict what we’ve been saying flat sales across the board.

Operator

Then next to the line of John Alley with Decade Capital. Please go ahead.

John Alley - Decade Capital

A couple of quick questions for you. You guys have given us the gross margin impact of the California sale. I was wondering if you could just tell us what the entire impact for 2010 was, the contribution on a net income basis?

Dilek Samil

I don’t have the 2010 contribution but here’s how I look at it for 2011. There’s a portion that’s in gross margin so, obviously that’s the negative. But to the extent that we don’t have the assets, we also don’t have the expense associated with those assets. And I think you’ll probably remember when we started the year we said that part of our ability to hold O&Ms flat in ‘11 despite the fact that we had Harry Allen coming online in the middle of ’11 and the increased O&M associated with that was the reduction in expense as a result of the California sale, so minus revenues minus O&M, and there is also a little bit of depreciation. So, when you net all of that out and then you think about either of the reduction in interest expense of the result of the additional cash that we got or realized from the sale or the avoidance of common stock, we think its about net neutral.

John Alley - Decade Capital

So there was basically no net income affect in 2010. Is that kind of how we should think about it?

Dilek Samil

2010 to 2011 if you put aside the issue of the avoided shares its may be penny or so negative.

John Alley - Decade Capital

I got you. Okay great. And that is including the interest savings from the cash coming in?

Dilek Samil

Yes.

John Alley - Decade Capital

And then just a couple house cleaning items. You said CapEx running about $500 million a year. Is that your cash requirement, because I know you guys sometimes present it in different ways, excluding AFUDC and including AFUDC? What is your actual cash construction budget?

Dilek Samil

That is the cash requirement.

John Alley - Decade Capital

That is the cash requirement, okay great. And then lastly just trying to clear up, what is the -- I guess the weather impact on gross margin for the third quarter? Can you guys give that?

Dilek Samil

I am not going to give an earnings number, but I can tell you that if you look -- hang on, I just have sheet one second. Sorry for the shuffling. So if you look at in the south, I mentioned these number earlier to Steve. Normal cooling degree days were 27, 77 and we had 23, 12 in this year. The north is a little bit more bizarre, if you will, because we had mixture of both cooling degree days and heating degree days. And the variations to normal on a percentage bases are pretty big, but you will remember that our earnings for the third quarter are really driven by the south. That not withstanding I will give the numbers for the north as well. We had three hearting degree days in the north in an '11 were as normal is typically 164. So was much (inaudible) --

John Alley - Decade Capital

Is there any way to link those heating or cooling degree days up with gross margin? Any type of dollar?

Dilek Samil

I am going to skip to the chase here. If you at consolidated sales, consolidated sales were 6% over weather normalized results for the third quarter.

John Alley - Decade Capital

But I imagine the gross margin isn’t a linear relationship right?

Dilek Samil

No not necessarily. That's why I am reluctant to give you EPS number.

John Alley - Decade Capital

Got you. Well, I was just hoping for gross margin, but okay thank you.

Operator

Then will goes to line of Paul Patterson with Glenrock Associates. Please go ahead.

Paul Patterson - Glenrock Associates

I'm glad you got that sheet of paper out, because I'm a little slow on this, so I apologize. Year-to-date, what were the weather normalized sales again for the nine months?

Dilek Samil

Okay, I don’t have the year-to-date numbers, Paul. But for the quarter consolidated sales actual was 97-57 okay?

Paul Patterson - Glenrock Associates

All right.

Dilek Samil

Weather normalized was 91-92, so 6% over normal. But about a percent for low last year.

Paul Patterson - Glenrock Associates

Okay. So on a normalized basis we're seeing a decline in sales, is that the way to…?

Dilek Samil

No, normalized on normalized bases we were up, but compared to last year we were down because last year was even hotter the normal.

Michael Yackira

I think what Dilek said earlier is the real question here what is normal. We look at its 20 years of history and we have been seeing recently trend that is higher every year '08, '09, '10, and '11 third quarter has been higher then normal quite substantially. So I think the most relevant question is what is it in comparison to last year because if this trend might – might continue to might not. But year-over-year we are doubt.

Paul Patterson - Glenrock Associates

Okay. But just to understand, if we were to say that -- if we were to basically adjust for heating degree or cooling degree days, basically, your sales growth has gone up or down vis-à-vis the period, outside of weather impacts, I guess what I'm trying to figure out is whether or not we are actually seeing a decline in sales. Obviously, your customers are growing, or if we are seeing an increase. Do you follow me?

Dilek Samil

Okay so let’s take this one step at a time. So compared to last year sales were down. So customers were a little bit up but sales were a little bit down. That’s year over-year third quarter, but if you look at weather normalized last year with hotter than normal. This year was hotter than normal. So weather normalized we got a benefit this year.

Paul Patterson - Glenrock Associates

Okay great, now 2012, I think you guys thought that load growth was going to stay sort of flat, if I heard you correctly. And I guess what I'm wondering is is that because of a concept of normal weather or is that because of something else?

Dilek Samil

Yeah, when we put together our projections in those are all available because we file them for regulatory purposes, but our projections of weather normalized. So when we look at '12 and when we say flat it assumes normal weather in '12.

Paul Patterson - Glenrock Associates

So as a result because you guys had better than normal weather this year, you're seeing flattish growth, which would indicate that on a weather normalized basis, you actually are going to be seeing growth. It's just that you got so much hot weather this year, that projecting for normal weather, is that the way to think about it?

Dilek Samil

Well, the way to think about it is because this quarter we were a little better than normal. And if we’re wet and if we’re exactly normal next year third quarter, then we’ll be a little bit lower.

Paul Patterson - Glenrock Associates

So that is why load growth, (inaudible) load growth, because basically you had a better than normal weather. Is that the way to think about it this year?

Dilek Samil

I think that’s a reasonable way to think about it.

Operator

With the last person currently in the queue Shar Pourreza with Citigroup. Please go ahead.

Shar Pourreza - Citigroup

Yeah, is there any synergies we can expect to capture following the conclusion of the merger by year end 2012, or have the utilities for intents and purposes been operating as one entity from a back up?

Dilek Samil

Yeah, for all intents and purposes we have been running the company as one, and we have talked about this before. For example, we’ve got one Head of Generation who is in charge of all the power plants whether it’s in the south or the north. We’ve tried to pick the best working practice system of the north and the south with respect to our T&D operation. So from an operational perspective, I think we’ve realized the synergies and those are going to be the dollars right.

But having said that we do think that as soon as the some benefit coming from more streamlined regulatory process. That’s probably going to take a little while, because of a rate case to go us through that’s been put together these two utilities. But for example, today to the extent that we have got two sets of general rate cases, we have got two sets of integrated resource planning filing, we have got two sets of field filings, deferred energy filing, all of that will at some point be reduced by one, it will be reduced by, what is it, 50%? So we do expect to get to that benefit in our regulatory operation.

Michael Yackira

But most as you said and Dilek said, most of the material savings have already been realized.

Operator

And with that there are no further questions in the queue, please continue.

Michael Yackira

Thanks everybody for joining us. And as I said next week in Orlando look for most of you. Thanks for listening in.

Operator

And ladies and gentleman, that does conclude our conference for today. The replay may be available for access after 9:00 a.m. Eastern today through December 2 at midnight. You may access the replay by dialing 1-800-475-6701 and entering the code of 219842, international participates dial 1-320-365-3844, using access code of 219843.

Thank you very much for your participation and for using the AT&T executive teleconference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!