Thank you very much for coming today. That includes everybody listening to the webcast. We’re webcasting live today. My name is Max Kuniansky, I think I know most of you here. But I do want to introduce the other people we have on the podium today. Michael Yackira, our CEO; Dilek Samil, our Chief Financial Officer; Kevin Bethel, Chief Accounting Officer; and in the back of the room keeping everything running, we have Britta Carlson, and Jessica Lucero, from Investor Relations. Britta and Jessica are microphone handlers today. When we get the question-and-answer session, we want to sure everybody including the people listening to the webcast can hear your question. So when you have a question, raise your hand, wait for Jessica or Britta to get to you with the microphone and we will go from there.
So why don’t we go ahead and get started. Now I’ll introduce Michael Yackira, President and CEO of NV Energy.
Michael W. Yackira
Thank you, Max. Thanks everyone for coming and being on the webcast. We will have time for Q&A. I’m going to try to keep these remarks for about 30 minutes, and then have plenty of time for Q&A. So I’m very pleased to be here. Great to see the turnout that we have live, and very pleased that we’re doing this post the announcement we made on Monday, last week on the dividend increase and giving more color to what that dividend growth is going to be looking like, and providing earnings guidance for the first time, certainly in the company’s merge history, looking back on the record, so I didn’t see when we were giving earnings guidance last, but certainly since over the last 10 years or so.
Safe Harbor, I think I don’t need to review this. I’m sure you all have. I’m going to be, if I remember correctly make sure that everybody who is on the webcast knows who I am and the slides, because I think the slides are on the webcast too. Correct, Max?
Michael W. Yackira
Thank you. This is an overview on page four of the company. We have a $4 billion market cap. Right now, we serve about $2.5 million Nevadans throughout about 90% of the state, 93% of the load in the state is served by NV Energy, and we have about 40 million tourists who are coming to our state that will be likely high this year, an all-time high, the high before was slightly under 40 million in 2007, but the expectation is that it’s going to be above that this year.
Large service territory, about 45,000 square miles, you can see from the map that we do cover most of the populous areas of the state, Las Vegas, and Clark County are the most populous areas and the most compact, that’s about 4500 square miles with a 45,000 that we serve. So the rest of the state is quite remote, the other major concentration is Reno-Sparks area right on the western corner of the state that you can see, a statistic that’s not particularly important, but one that somebody reminds me of most of the time that Reno is actually west of Los Angeles, which sounds counterintuitive, but it really is.
Large transmission grid resulting from the time when we were importing power significantly in, as you know that’s changed a lot over the past several years, generating capacity of over 6000 megawatts, and we can meet that generating capacity statewide to the tune of about 85%, again quite significantly different from where we were just about five or six years ago. Peak demand last year was a little over 7000 megawatts, so we’re expecting to be a little bit higher than that this year, but of course that's all depended upon summer weather.
Slide five, we call these three timeframes that we’ve experienced since the merger, NV 1.0, 2.0 and 3.0. We try to come up with something a little clever really than that, but we keep think this is as bad as – as good as we could explain it. Sierra Pacific Resources and Nevada Power merged in 1999, and soon afterwards we experienced the throws of the western energy crisis. We all remember back to those days, we were very short on power. We were dependent upon the markets to produce energy for us.
Now it’s fine, during a period of time when there was sufficient capacity, when the markets were not fairly stable, when there was a lot of hydro in the northwest, and then with the recreation of the California markets and the so called perfect storm of very, very drought ridden northwest, as well as some unscrupulous players in the California market driving up the price.
We were detailed being wagged by the California dog, and we suffered through a couple of years of traumatic financial decline, when our regulator found our purchases of natural gas and power to be imprudent, and we lost well over $0.5 billion of our equity. We lost our credit rating, we stopped our dividend, a lot happened in 2002 and 2003. But we started on a new strategy in 2003, which was completed just last year to grow our generation base so that we wouldn’t be cut short, and wouldn’t be beholding on markets, and that’s proved to be beneficial for both customers and investors. I’ll talk about that in a few minutes.
But we’re recalling 2.0 for NV Energy now is, transitioning from a period of time when we were adding to rate base, a very lumpy earnings, we’re counting on our regulator to be fair, and they’ve been very fair in the treatment of our rate filing. And now we’re in a position where we have positive cash flow, and last week announced what part of the deployment of that cash flow will be both in dividend increase as well as debt reduction. And having the opportunity to be very prudent and patient in deploying capital for making investments, but I’ll talk about that again in a little bit it’s just an overview now.
Let me talk about near-term; near-term drivers on page six are fairly straight forward, we have less need to go into our regulators to ask for major rate increases, that’s certainly good for our customers, it puts less risk on our company. And we have a stable earnings pattern that we can foresee, improving ROE meaning improving our ability to earn our allowed ROE related to the position that we’ve been in having these lumpy years of major rate cases, and have free cash flow.
Page 7, this shows the lumpiness of the earnings, they were clearly driven by the rate cases that we filed, you can see on that chart, on the bottom left hand side of the chart that we had two major rate changes in a period of about 2.5 years, one was the completion of several power plants that we brought into rates in the middle of 2009, and the one that we just start at the beginning of this year was mainly the inclusion of the remainder of the Harry Allen Generating plant that was not in rates. That was completed just last year.
So you can see the saw tooth earnings that we had from 2007 to 2011 we feel much more confident in our ability to project earnings now that we’re not going to be before regulator often, as I was saying to somebody, it’s difficult to give earnings guidance if you have a $325 million rate increase before your regulator as we did in 2009, any guidance that we would have given, would have either been too meaningless or too specific for our regulator and for the investment community.
So we didn’t give guidance, but now we feel much more confident in being able to do this, and we started that just last Monday by saying we expect to be within a range of 115 to 125 for 2012 and that we project at the mid point of that range that our GAAP ROE, meaning consolidated ROE will be about 8%.
page eight shows the reason that we have less need for major rate release. this is a story that our company is very proud of. As I mentioned, if you look back to 2003, ‘04, ‘05 timeframe, we were producing about 35% to 40% of our customers energy needs through own generation, and most of that was fairly old generation and that we didn’t build power plants for about 25 years for a variety of reasons. One of them was the fact that the markets were fairly stable in California and elsewhere surrounding us. So we could buy power and we invested in transmission instead to assure that we could meet the load growth.
But after the debacle of 2002, we decided to go on a different path, and during the period from actually the beginning of 2006, which is what the chart on the right shows till 2011, we increased our position by almost 3100 megawatts adding mainly our combined cycle plants highly efficient anywhere from 7,000 to 7,200 heat rate plants and have had a good fortune of having the low gas prices, which is also kept our prices low. so when you take out the retirements, we added over 3,000 megawatts more than doubling the amount of capacity that we had in the system in a very short period of time. All this capacity is now in rates and that again is a reason that major rate relief is behind us at least for some period of time.
Page nine, shows that we have had a very flat actually this is the forecast, but if you look back to 2008 and beyond we have had very flat sales. We reached our peak of over 30 million megawatt hours of sales in 2007 when we had incredible heat I think we had 10 straight days of over 110 degrees in Las Vegas. I think that like last week noted that period of time just that 10 day period of time increased earnings per share by $0.05 in that year. So it shows how hot weather can really affect our cash flow and our earnings. But going forward we see rather flat earnings, excuse me rather flat sales growth and it is a little bit of an up tick but certainly not the kind of up tick that we are seeing in the 90s and the early part of last decade where we were growing about 5% to 6% per year.
So we don’t have any major new projects on the horizon, the only things of note that are not in rate base are online and we will talk about online in a minute and the completion of our smart home program, which we call NV Energize. We have been very good at controlling our O&M considering the fact that we have increased our generated capacity by more than two fold. We actually have fewer employees now in our generating plants than we had back in 2005. So we’ve done a good job of that we have told you that our plan is to keep O&M flat, and the while that becomes more and more difficult to do, because we’ve done such a good job, I believe that our employees are very motivated to reach those goals.
So while there are no specific plans about it for 2013 and 2014, I can tell you that for 2012, I’m very confident that we’re going to be able to meet that goal of keeping O&M flat.
We also going to have lower interest expense as a result of some of the refinancings we’ve done and some refinancings that we plan to do, and I’ll show a chart on that in a minute.
Page 10. This is depicting the regulatory ROEs and the consolidated ROE. It’s just to make sure you can see the legend, the yellow is the GAAP ROE, and the regulatory ROE is shown, this is not consolidated base of the utility, it’s shown in the two bars, black and grey. The GAAP ROE, I guess it is consolidated business.
The two utilities, obviously you’ve shown the ROEs for the two utilities separately?
Michael W. Yackira
Right. Well, we’ll continue to put a drag on our ROE, is the holdings, the things that are asking parent company, we think that are not earning a return as utilities, holding companies debt, which is not passed down to the utilities. Goodwill, while we are catering in cash, we’re not earning a return on that goodwill. So it does dampen the ROE, but it certainly is better than not collecting the cash. We have a long period of time to go back, where I think it’s something like another 30 or 40 years before we’re fully amortized, that if I’m right about that. We have a couple of other regulatory assets one of which again is a settlement of some of the Western Energy crisis, cases the Enron matter some of the disallowance that were found in 2002 that we got a chance to recover once we had Supreme Court decision for us to recover.
So those things will cause a drag on earnings, some of them will have a shorter life span like the last one, the Western Energy crisis stuff, I think that has about five years to run maybe four years to run, but the others will be around for a while. So we’ll have a drag, but we expect that overtime that differential between our earned return and our allowed return will shrink and get closer to our laboratory.
Page 11, one of the material differences with the company is that during the period from ’06, when back in ’06 we invested about $1 billion that year as well. For a company of our size we took out a very daunting financial plan especially considering that we were not a positive cash flow company, and raised debt and equity to support this material growth in our generation fleet.
It peaked in 2008 part of that was the result of buying the plant that was then called the Bighorn plant from Reliant at the end of 2008 now called the Walter Higgins, and you see that our cash flow excuse me our capital expenditures declined fairly significantly after that and we see after the completion of online and after the completion of NV Energize that except for unanticipated growth, which might mean additional capital expenditures to the utilities or investment opportunities that we might make that we now are just talking about, but haven’t come to fruition yet, that might number grow, but short of that we’re going to be living within our appreciable – a depreciation. So we do not anticipate rate based growing post 2015, significantly until the latter part of the next decade. But I’ll show a slide on those expected generation needs in a couple of minutes.
Page 12, talks about the reasons for the cash flow. I’ve talked about some of those, decreasing capital expenditures the fact that all of our generation, investments are now in rates, we have a fairly long NOL carry forward as a result of things like bonus deprecation, because of the capital we deployed, and we also have deferred energy. Deferred energy, just take a sip of water for those around the webcast, I didn’t just fall down. Deferred energy has, we’ve been very fortunate with deferred energy and gas prices. As gas prices have come down, that helped our customers, and it has also kept our cash flows stable.
During periods of time like 2008, using our liquidity and having a lot of liquidity was very important when we start actual gas prices spike through almost $13 a decatherm. Now at about $2 a decatherm, life is very different. And as you all know, projections are fairly stable for natural gas prices. So use of cash for deferred energy shouldn’t be all that great. And we’re changing our deferred energy pricing every quarter now, so that also helps in cash flow.
Youssef, talked about them all, but use deferred energy again just to keep, I think this is Kevin’s risk, risk appetite or risk desire for disclosure, it’s certainly possible that things could go differently with deferred energy. So we could see a spike but I think what this was geared for was the fact that we over collect because of the backward looking price setting, we are always looking backwards 12 months and what our prices were for fuel and purchase power. So even though we are changing the price every quarter, during the period of time we are over collecting, we are using that cash to credit our customers. So that can actually be a use of cash as well. I probably went into far more detail on deferred energy than I needed to, so I’ll go to the next slide, slide 13.
When we started the dividend once again after about a 4.5 years hiatus from not paying a dividend, we wanted to keep our dividend very low, and we explained why to Wall Street, we were in the process of raising equity, raising debt and we didn’t think that having a utility like payout ratio made a lot of sense, when we were in need of cash.
Now that we are in a period, starting a period of more positive cash flow, we felt that we needed to do two things to make us look like as I believe Dan Ford wrote a mainstream utility again. Dan, I know you are listening to the call, if you were here I would be looking at you. We raised the dividend by 31%, the quarterly dividend by 31% last Monday, effective with a payout in June.
Said that we expect to increase that dividend over the next few years by about 10% and targeted a payout ratio of between 55% and 65%. We did that considering the fact that we have been saying for several quarters now that we have three things that we want to do with our positive cash flow.
One is to increase the dividend, two is to improve the balance sheet and three is to keep dry powder for investment opportunities. And we took that into consideration when we set the dividend the way we did and provided the guidance that we did where we expect to go. So this is not to suggest that I raise the dividend as much as we did, we are limiting our ability to strengthen the balance sheet or make investments. We can do all three simultaneously and that gives us a very flexible position to be in which is different from what this company probably has ever experienced in its history either north or south.
Page 14, it shows our current capital structure and what our aspiration is, we expect that this will be done through both debt reduction, as well as retained earnings at the utilities to hopefully grow that capital structure to a more balanced more utility like 50/50 capital structure. And we believe that our commission is in favor of that and would like to see us do that to further improve the credit of the utilities. So that’s a nice position to be in when it’s something we want to do and it’s something our regulators would like to see us do as well.
Page 15, shows the debt maturities over the next several years and the coupons associated with those maturities, we expect that we will be doing some refinancing and some of the maturities will be met with cash, what that mix is will be determined at the appropriate time. But there are things that we can do to both improve the balance sheet as well as reduce our interest costs and allow us grow earnings. So those will be things that we will be focusing on as we get closer to 2013 and ‘14. But 2012 was a maturity that we already took out and expect I think we talked about that on the conference call. So I mean to go into that, but quite significant amount of debt coming up over the next several years. But the good position will be in for both strengthening the balance sheet and reducing our interest costs.
Page 16 looks at the long-term drivers of earnings and where we go from here. Page 17 talks about NV Energize. I’m very proud of NV Energize, we were the first invest around utility to reach an agreement with the Department of Energy for a fairly material grant, almost 50% of the amounts associated with the capital investment of NV Energize are being funded by the DOE. We are virtually complete on our smart meter deployment in Southern Nevada., and we expect be finished by the end of this year in Northern Nevada.
When we talk to our commission about receiving approval to do this we did not take into consideration any behavior changes in the part of our customers. We justified doing this based on the savings that we could attain from NV Energize. And we expect those savings will grow as NV Energize is deployed. We, for example before we started deploying NV Energize we’re rolling our trucks about a million times a year, which seems almost impossible for a company that has about a million and a half customers. But there is a lot of churn, there is a lot of movement, and we have had to deploy to connect and disconnect, have a physical presence to connect and disconnect.
Now that we can do that with a touch of a button, we can also provide demand control or demand response through these systems, ultimately price signals to our customers. but for a change in the way our customers think about, and I was talking to a few of you in the audience about this. I believe it’s the first time that we can provide the tools necessary for our customers to understand if it’s action that they take to create their bill, it’s nothing that we do to create the bill, things that they do.
They keep the thermostat too low in the summer time, they keep their windows open, if they run their TVs all the time, that drives the bill, and they’ll be able to see on 15-minute increments what their usage is, and what causes spikes. and while they’re only about actually 4,000 people have signed up for something that we call my account, which is on our website and provides the information on usage, and about 40,000 of them are using the tools themselves.
so without any education, without any advertising about it, our customers are seeing that there is more information that they’ve ever had before, and I’m hoping that, that improves our relationship with our customers and allows us to reduce our peak demand, which would certainly help all customers, because obviously peak demand costs are the highest that we produce.
We expect our 2013 O&M reduction to be $12 million – 12% would be too high, I got to make sure that I’m not giving the wrong signal to anybody, $12 million in 2013 in O&M expense reduction as a result of NV Energize.
Page 18 looks that our capacity needs, again a very different position from where we were several years ago. on the bottom of that chart, you can see where some of our purchase power contracts expire. A major one expires in 2017, when a 10 year contract that we have comes to a conclusion, and shows our short position by that time being above $500 million.
So because it takes a while to do some generation planning, we will be starting to look at some sites and you’ll see more about that when we file our IRP at the end of June. But over this next three year period of time, other than the capital that we are deploying for online and NV Energize, we don’t see any material capital need and don’t see a need for major power plan until the 2017 timeframe. We certainly would love to see growth come back more robustly in Nevada, but we are not planning that nor is anybody forecasting that, so this is our best forecast right now to what our generation needs are.
Page 19, this shows how we’ve done in controlling our O&M over the past several years. We have kept it flat in fact we’ve reduced it over this period of time. It gets more and more difficult to control, but as I said we find opportunities every year to do this either through process improvements, renegotiating contracts, consolidating of operations things like NV Energize, so I’m convinced that why we can’t predict exactly where it’s going to come from, we are going to control our O&M costs to be as flat as possible or certainly not grow any more than our load grows.
In this chart, you also see the things that I’ve been saying already reducing debt and returning capital and form the dividends to our shareholders things that we’ve talked about, and we also had and this might not be evident, we might have said this a couple of times, but probably very tangentially, that because of the fact that there have been a lot foreclosures, there have been a lot of vacant homes in Nevada, and they’re starting to be occupied now. We build the infrastructure necessary to meet that demand. And we don’t see a great need for capital to support demand growth from getting people occupying those homes that have not been occupied.
So we have the infrastructure necessary in the form of distribution and substations to meet that load, and we see that we have opportunities to again not add a lot, but get more to the bottom line through those investments that we’ve made that are not producing many kilowatt hours of sales right now.
Page 29, this shows the growth that we experienced and the flattening of that growth in terms of megawatt hours of sales. It’s no secret that we have a fairly high unemployment rate, but that unemployment rate has been dropping over the past several quarters.
The unemployment rate and the housing market really have to come together in order for us to start to see that growth return. Unemployment certainly is a key indicator, and as it drops, it becomes more of an imperative for people to be coming into the valley and start servicing in a higher level, the gaming institutions that are there. And they’re certainly doing well, but until we see that return of employment and the need for additional housing stock and a depletion of the inventory that’s there, that’s really going to be the driver for us for seeing growth return. But we are hoping for something greater than that, but we are planning for rather flat growth over the next several years, and it would be a good thing if it turned out, if it’s a high-class problem, if it turned out that, that growth return more substantially than we’re projecting.
Page 21, we’ve just talk about this for several years. We’ve done very well on our renewable commitments. We have increased our portfolio standard to a point wherein 2011 on a combined basis, we were at about 17% meeting the portfolio strength versus the requirement statutorily of being at about 15%. We expect to be about 20% in 2012, that requirement statutorily grows by 3% next year and the year after. So in ‘13 and ’14, we’re going to have to be at 18%.
The 18% comes from a combination of renewable energy, and one quarter of that amount can come from conservation and demand reduction – energy reduction. That makes it so far very a cost-effective to meet the portfolio standard. We worked hard with our legislature back in 2007 to have included in the portfolio standard conservation. Because of belief in our legislature and our utility commission believe that the rationale for the portfolio standard was to reduce the use of fossil fuels in making energy, and whether you’re reducing it by reducing consumption or using renewables, you have the same effect, and in fact reducing consumption is a positive thing for customers. And now we have the ability to the recover those lost revenues and rates, so our shareholders are not negatively impacted by that energy reduction.
But back to the portfolio standard, we expect to meet it over the next several years. We have carry forwards for excess that we can use to meet the portfolio standard. but there is still a hope for desire on the part of adjacent states to accept the fact that Nevada has abundant renewable resources, and because of the size of our state, more resources than we can possibly use within the state, which does have the potential of export to California and Arizona and other fairly close places with the addition of transmission.
I was talking to somebody during the breakfast, saying that, I think that it will take some work on the part of the local states, the government entities within the states in order to assure that there is and understanding as to how much exports the states are willing to take. But because Nevada has the ability to build these plants probably faster than other states and has truly the strongest solar radiance in the desert southwest, we think there is capability for us to invest in transmission and renewable projects, but we can’t force that.
We’re doing it patiently, and when the opportunity presents itself, we will make sure to explain to our investors and the analysts to follow us, why we’re doing it, and how we produce good earnings to the bottom line.
The split is shown on the right hand side of the chart, predominantly geothermal. To us that’s the best form of renewable energy and that it doesn’t need a climate or the sun or the wind to produce electricity it’s available to us 24x7, and it can be dispatched like any other plant. So we have a lot of it, and maybe we’ve had it since the mid-1980s. so we were ahead of the curve before we’re statutorily required to do so.
Page 22 shows the mix that we have in fuel sources, if you look at the left side of that chart this is what we own in natural gas plants and as I said before other than some Peekers that we’ve added, these are mainly combined-cycle natural gas plants, low heat rate plants. The yellow part of the slide on the right-hand side of that, that circle are the purchases that we make, which are also mainly natural gas plants or from natural gas plant priced energy.
So, about 75% of our total portfolio is coming from natural gas. And at the time as I said that natural gas price is very low that's great for our customers. Renewables and coal make up the rest with coal being about 15%. The thing about of our coal plants that’s different from most is that we are not going to require much in environmental capital in order to meet the EPA requirements and other requirements on emissions.
Eight of our nine plants are scrub, we have plant to scrub the ninth of the nine plants and we use mostly low mercury PRB coal. We are not dispatching our coal plants much. The first time in my history in the utility industry that spans almost 25 years now for two years running because of natural gas prices we have not been dispatching coal ahead of natural gas. So even less emissions from those plants but having at least some balance and some coal in the mix I think is important for having more balance than we would have otherwise without that coal.
Page 23, we’re boasting here a little bit. The company doesn’t do a lot of boasting, but I’m very proud of the fact that we are top ranked in reliability EEI’s survey that came out, always comes out about a year late. In 2010, the utility in the south ranked number one in the U.S., and we were in the top decile of performance, quartile of performance in the northern utility.
So combined we were in the top decile, very strong performance and continues to be so. You can see we improved even more from 2010 to 2011. So that is extremely important in Southern Nevada, I’ve said this several times, but if you have a disruption in your neighborhood, you’re not happy. If you have a disruption on the strip, it’s international news. So having reliability, this is strong as it is in – Southern Nevada is very important for our reputation.
Page 24, we start to look at where we’re going from here, and what we’re focused on as a company. And starting on 25, our customer focus becomes more and more important. Again some dialog that we were having at the beginning of the breakfast, I was saying that one of the issues that we deal with as an industry is that, there is very little valued proposition that is created between customer and company, especially when you have 115 degrees in Southern Nevada, and the bill comes in August and the customer is not particularly happy even though it’s nothing that we did, the fact that we live in a desert that caused the billed. But irrespective of that, I think that having safe realizable and affordable energy, and when we say affordable we mean having stable prices. And what we’ve found over and over again is that, stability in our price is an imperative.
Having the ability to have predictability in the price rather than having sawtooth is much more pleasing to the customer, while you don’t have – you don’t get used to paying $4 at the gasoline pump, you adjust yourself accordingly and if you know that your price of the product is going to be X, you can adjust your usage and get comfortable with it. But the more information as I said before, that we supply to our customers about usage and how much they are spending, I think will have more of a connection with our customers than ever before and that’s why I’m so excited about the full deployment of NV Energize.
We have very reasonable and constructive regulation. I’m very happy that we will have, we hope for the next several years, three people who understand utility regulation very, very well they all came up through the commission. They had different perspective and that’s good, but it’s a very balanced commission and one that I think if you look at the decisions that they’ve made, they have been very thoughtful decisions and I’m happy that we’ve been able to communicate our strategy well to our commissioners and they understand it and they have treated us fairly. And both of those will lead to continuing to improve our shareholder value.
On page 26, I think this is something that again I’m proud of some of it is circumstance, but some of it is strategy. When we embarked on our strategy to build a base of generating units, the rational was to keep the customers at about the same place that they were, if not lower and as far as their rate was concerned, while improving the bottom line for our investors. And from 2007 to 2012, you can see that our price in Southern Nevada is virtually flat, but the mix between the pass through cost namely fuel and purchase power and the things that are in our general rate case has shifted so that in the order of 65% of our rates are now earning rates, rates that do contribute to the bottom line.
Northern Nevada, a little bit better story our rates have actually declined for 2007 to 2012 and in fact they are at a level that is equal to where they were in 2004. And as far as our natural gas customers in Northern Nevada, we don’t talk about natural gas much. We have about 150,000 natural gas customers up there. Our cost of delivery are at about where they were 10 years ago.
So this strategy has worked for both our customers and our investors and again I think that’s one of the reasons that our commission has been favorably disposed to treating the company fairly well keeping their balance and needing the customers to be satisfied as well in check.
Page 27, I already covered most of these, so I needn’t review this, but I am very proud of the work that our employees have done. I found that as the employee group has come down and I found this in other companies as well, there is more and more of a focus on the things that make a difference and the employees have the sense that what they do they can take responsibility for taking action. That’s empowering. And we expect that over the next several years that’s going to continue and while we can identify as I said, are certain things we can’t identify some. We have for NV Energies, as far as O&M costs are concerned and other costs that we think will come from having deployed NV Energies, online related savings is talking about joint dispatch, because of the fact that we can’t joint dispatch in our plants right now.
Having the ability to more efficiently use the fleet of power plants that we have throughout the state will be beneficial for our customer. So there are certain things that we can do to improve the rates as well as improve the bottom line contribution for investors.
Page 28, this is more detail and support of the comment that we reasonable and constructive regulation. You can see that our rate base is about $7.3 billion, and what the make up of that is, we’re hoping to increase the amount of equity in the capital structure as we set to about 50%. We have an IRP process that is one of the best in the country from a lot of my constituents’ perspective. And then when you go in for an IRP, and you get approval, if you meeting the commitment that you have of delivering on time and on budget, you’ll get those costs in rates, and that has proved time and time again to be the case.
In the last legislative session that we had in 2011, we changed the way we handle our deferred energy accounting adjustment, which is the true up between the collection of fuel and purchase power costs and the actual costs, and we’re doing that quarterly now.
So we’re matching the base tariff energy rate, which adjust the going forward fuel and purchase power costs, and the true up, so we’re matching them up and it provides better price signal for our customers and stabilizes cash flow. So we’ve improved that for the past several sessions of the legislature, and I think we’re in a good position now to have more of a matching of current prices with current costs.
I mentioned the lost revenue recovery, while we had some discussion about that last year, I think going forward we have a clear signal as to how the commission is going to be treating us, and we’ve accounted for those in the filings that we’ve made no our demand side programs.
Page 29, looks at the corporate governance, I know a lot of you are interested in that and I’m proud of what we’ve done. I think we’ve been ahead of the curve on several things, not necessarily in the first board. I think there were a lot of companies who have incentive based paper performance compensation, but I think if you look at the response that we got at our Annual Meeting just last week, where I believe 98% of our investors voted in favor of the so-called the say-on-pay. I think there’s an expectation or an understanding that we do pay based on performance especially at the executive level, but actually throughout the company, incentive pay goes from me down to some of the bargaining unit employees as well.
Our stock ownership guidelines are in place and are very, very strong and stringent to both the board as well as the senior officers of the company. Nine of the 10 directors are independent; I’m the only non-independent board member on the board. starting at 2008, we separated the role of CEO and Chairman and that works very well.
For the first time this year, we have the full board elected in one slate, it happened over several years over a three-year period of time post a shareholder proposal that was voted in. and we had a very good turnout for voting for the directors of this company, everyone getting about more than 80% of the vote. We adopted certain other voting rights, we respond to all shareholder proposals. So I think we do a good job from most people’s perspective in corporate governance.
Turning to Page 30, I mentioned what earnings guidance is 115 to 125 we will, as most people do when you provide guidance. Give further guidance come quarter to quarter, unless there is some event that happens where we would have to disclose that we expect the change. But we wanted to make sure that people understand what is in that prediction. Normal weather, lord knows what normal weather means, but if looking at a 20 year projection backward of what degree days are and things that drive, our usage. We expect some improvement in gross margins through customer growth of about 1%. We are expecting O&M to be flat.
We have higher depreciation from Harry Allen and capital expenditures, because we didn’t have those included in rates last year. We now have them included in rates this year, but there is a difference between last year and this year. And we expect decrease from our interest expense from prior years, due to the debt reduction that we just experienced recently. So as I said if there are things that happen we’ll provide guidance for a validation of the guidance that we’ve already given certainly in a quarterly basis.
Page 31, the title of the slide is why invest in NV Energy? I think is several reasons to do that, but this is just a short description of why we believe, this is a good place to be. While we do have slow growth right now, there is a certainly a possibility of that growth improving. We’ve a higher dividend payout ratio and more color on really going with the dividend payout. We expect debt to be, being reduced.
We have an aspiration of having 50% capital structure at the utilities, we are narrowing the difference between our allowed ROE and our earned ROE. We have less need for major rate release and we gave earnings guidance. So we listened very carefully to what our investors were telling us, and I hope you believe that what we provided to you last Monday is in line with what your expectations were, and maybe even more than what your expectations were.
So that’s that story, and I’m very – I have to tell you, and I’ll just say this personally, I’ve been at this company for about 9.5 years and I’ve been the CEO for about five, and I’ve never had more fun than I’ve had, it’s a job that is a pleasure to come to everyday. I work with the best group of people that I’ve ever worked with in my life in a state that I never in a million years that I want to live in. And Britta excuse me for that, Britta is a native Nevadan.
But I can tell you that, 10 years ago and somebody said to me, what are the five states you’re not going to live in, Nevada probably would have been one of them, and it’s one of the best places in the U.S., it’s the jewel of the place to live, the jewel of the place to do business. And I think we’re going to be attracting more and more people to our state to do business there.
So I just feel very honored and blessed to be here running this company at this time. Thanks for your attention, and we’ll take questions.
Neil Mehta – Goldman Sachs
Neil Mehta, Goldman Sachs. On the equity layer here, your goal is to get 50% equity layer. How should we be thinking about the potential timeline for that, and ultimately the regulatory appetite to get that into rate?
Michael W. Yackira
Dilek, do you want to take that?
Sure, the timeline is going to be a function of our cash availability, and how much of that cash we used to retire debt as opposed to refinancing the debt. You saw that we have ample opportunity over the next three to five years, and we expect that will probably stay three to five years based on what we know to-date. Incremental investment opportunity may change that, but that’s what it looks like right now.
As for the Commission reaction, I think it will be well received. We’ve talked to our regulators about our capital structure, which is currently not inline with our peers. We carry a lot more debt than other utilities that look like us too.
And I think they understand the benefits of stronger capital structure, stronger utility, it’s very natural for utility to build out debt during the construction cycle, and then bring it down post the investment going into rates. And that’s exactly what we’re doing, preparing the balance sheet for the next investment cycle.
So I think they have a good appetite for reducing debt.
Hi, great quarter. So if I think about the earnings growth opportunities in different stages perspectively, I guess is it fair to characterize it as in the next several years and you pay down debt, get the equity ratios incrementally higher, then we get out to the middle of the decade, you’ll start to see opportunities with a need for capital investment again as your capacity needs grow.
So there is sort of discrete stages of 4.0 and 5.0 the one that – in terms of the getting the equity ratio higher, and then setting stage for further investment in this latter part of the decade, at least as this plan looks today, is that kind of a fair synopsis of how you think about the stages of earnings growth opportunity.
Michael W. Yackira
It is a new win, because there was an (inaudible) at the MGM sports book on who would be the first one to ask about 4.0. So you are the winner number two.
Good. So, the follow on question for that is, where are the gross margin drivers, if you are battling the equity layer at the utility in an environment where there is not very much sales growth, where is the opportunity that actually drive incremental margin such as you could earn on that equity. I’m just – I’m wondering you know if you flatten the equity ratio, but there is not top line growth. How do you get the earnings to the bottom line, up to on that incremental slug of equity that you get in over the next three to five years?
Michael W. Yackira
Let me just answer that first question for those being 2Q, certainly we can see investment opportunity just from that there is a lot of research table, but with the shortfall between peak demand and generation ownership were under contract, I just don’t want to take off the radar screen the possibility that we’ll have opportunities to investment maybe at about the same timeframe, if indeed there is a better understanding of what’s going to happen with renewable energy in our state and what it means to be able to export it from our state. So while we would like to be able to say here is an opportunity, we can explain it to you, right now we just don’t have too much color to add to that. But I think Dilek will give you a better answer than I, but I think one of the things that’s going to drive our gross margin is perhaps a little span recovery than anticipated, but we are seeing some up tick in customers accorded does not a year make, but we have seen more meters set in the first quarter of this year than we did last year.
now, maybe that’s just pent-up demand on the part of developers to build on acreage that they bought that were sitting idle, we don’t know exactly, but we’re certainly hoping that’s the beginning of some, even if it’s modest recovery, some recovery, and maintaining the ROE, excuse the O&M discipline, and having it actually come down over time would also be beneficial to margin, anything you want to add to that, Dilek?
The only thing I would add is that, we do have $300 million of investment over and above depreciation, that’s the total of NV Energize and online, that’s not yet in rates. So there’s potential there as we put those investments in rate base for that investment to generate additional gross margin.
Stepping back from the gross margin question, I think one of the factors that we want to highlight about our company is, with long been link to the Nevada economy, and specifically the Las Vegas economy, and there is a reason for that. You saw the sales chart, as Las Vegas was booming, sales growth was way over the national averages. And that had a huge impact on our company. we were struggling to keep up with that growth.
So we saw gross margin go up, but we were spending a lot of capital to keep up with that. Not necessarily the best results from a bottom line or investor perspective right? So now that growth has stopped, it’s not that we’ve lost customers that we’ve seen a big decline in sales, what’s happened is, growth has gone away, and if this economy stays sideways then national economy doesn’t recover and the Las Vegas economy, the Nevada economy doesn’t recover. We are well-positioned to continue to provide value to shareholders because of this investment that we’ve made and the returns that we’re going to harvesting from it.
So we’re a great defensive way if you’re pessimistic about no more – about a period of continued flat growth. On the other hand, as Michael talked about, we do believe that eventually the economy will recover Las Vegas will be the, Nevada will be the beneficiary of that. So we’ve got leveraged to that upside. We’re a great play if you’re pessimistic, we’ve got limited CapEx, limited need for rate increases on the other hand we’ve got upside, if things get better.
Just a final question on that point, so your online project is in delay because of problems you had subsequent to some storms, right. So can you just give us the regulatory timeline vis-à-vis when you are going to make the filings to merge the northern and the southern utilities, then when the next rate case will be, and so when you would see this $300 million get put into rates and then what would the ratemaking cycle look like subsequent to that?
Sure, let me start with where we are today. We’ve got a mandate for each of our utilities to file every three years. So it’s nothing changes that mandate continue the next required filing is for our northern utility, and that’s the summer of next year. And then the next required filings for the southern utility is summer of 2014. We have thought about what our environment looks like going forward, and the need for these mandated filings, and we’ve had conversations not only internally, but with our regulators about whether it makes sense to either do away with that mandate or to lengthen it. And quite frankly it’s a matter of work load right, appropriate use of resources, and we view the example of our last Northern Utilities rate increase, it produced about a $15 million rate increase. So that’s good, but when you think about the time and effort it took to litigate that case, it would be much less burdensome for both the commission and the company if we had the flexibility not to file, if we don’t need to file.
So that’s one thing to think about. It would take legislative actions to change that requirement, the next legislative session in Nevada is spring of next year, so we’ll prepare our Northern Utility rate case, that we’ll think about whether it makes sense to ask for a change in that regulation.
So then to tie it back to ON Line, originally the in-service date for ON Line as you know was December of this year, our plan was to file a merger application about six to nine months ahead of the in service date of ON Line, so that we could get the necessary approvals and do everything we need to do in order to have the two utilities be merged in time for the in service date of that transmission line.
Again that was December of ’12 to the extent that ON Line is delayed, we’ll think of again that merger application to coincide with the in service date for ON Line. The merger application and the merger itself doesn’t necessarily have any or it doesn’t have a financial impact. So the next question is, when will we file the rate case with the combined entities, and that decision has not yet been made. but if you think about the timetable that I just laid out, mandated filings, to the extent, online comes into service sometime in the second half of ‘13, the next required case would be June of ‘14.
So that’s something that we would think about and decide whether we want to, if nothing has changed with that date or maybe file a little bit earlier. I should have said that once the companies are combined, our plan is to merge the northern utility into the southern utility, so that the surviving entity would be the southern utility. And so the mandate to file would be dictated by the southern utilities calendar. So probably, way too long an answer. But hope that addressed the question.
Kit Konolige – Konolige Research, LLC
Hi, Kit Konolige, Konolige Research. So thinking in terms then of the allowed versus earned return, by my calculation, I think your suggestion would be that the earned return at the utilities in 2012 should be roughly at the allowed level. Is that correct that there wouldn’t be a whole lot of gap to close on the earned return for regulatory purposes?
With the slide that we put together on allowed versus earned return on equity. Page 10, you can see that for the north where our CapEx slowed down ahead of the south. In ’11, our earned return on equity from a regulatory basis was very close to our allowed. So you can see the catch up that’s going on there. And we expect the same thing to happen in the south as the effect of this less rate case focus into our financial results over the year. Whether it’s this year or next, how quickly we catch up, it’s going to be driven by the additional CapEx that we’re spending over and above what’s included in rate. So again, I’ll remind you that we still have two major projects ON Line and NV Energize.
Kit Konolige – Konolige Research, LLC
Right. Okay, and then the discussion kind of to follow-on that of the redeployment of free cash flow, it would appear, say on the debt pay down part that most of the debt that’s maturing is at the operating company level, and not the parent so that, retiring that debt is not going to time the utility that is not going to change the earnings ROE except to raise that arguably too high or else equal, correct?
The retirement of the operating company debt as I think about it will reduce interest expense of the operating companies, right? And in between rate cases, that will go to the bottom line and help our earnings.
I don’t know that I would necessarily conclude that it results in a higher ROE, because the equity layer will go up, so as to offset the higher income. So I think you need to think about all of the factors that are impacting.
Kit Konolige – Konolige Research, LLC
So potentially, the way to think about it is that an increase in invested equity at the utilities that is earned on through lower interest expense?
I think that’s the fair way to think about it.
Kit Konolige – Konolige Research, LLC
Fair enough, okay great. Thank you.
I have two questions, one a very specific debt related question. When you do merger, the two op cos what are the inventor issues you have? Or you have to do consents or have you looked into what you need to do on the fixed income side?
We’ll have a fair amount of work [Barbara], but we think it’s very doable to fold the northern company debt into the indenture of the south.
And then second question, there’s been a lot of buzz recently in the oil and gas industry, of that Nevada being the next oil play. So if you could comment on it, like how realistic is it and does it present any opportunities for you, because we have seen utilities in other states where they have had development phase. Now it’s been significant whether it would be even building a regional headquarters for companies and also just low for gas, oil, electricity for their equipment?
Michael W. Yackira
I have not heard robust discussion around the near-term opportunities for that. So I’m afraid, I’m not unless anybody else say, I’m not aware of the specificity around something like that. Certainly it would be nice upside for us, but nothing that we thought about in terms of billing and allow forecast.
Okay, so you put it far away from it being developed and it sounds like…
And feel free to encourage buzz that you’re hearing.
Michael W. Yackira
You like the buzz as long as the buzz trends up to be a reality.
Kevin L. Cole – Credit Suisse Securities, LLC
Kevin Cole, Credit Suisse back of the room. So I believe you carry the option to rate base renewables currently under PPA, I guess what is the timing of that, and what do you think the reality is of being able to pull in some of the PPAs into rate base?
Michael W. Yackira
There are options we’ve talked about this in the past, there are options within some of the PPAs that allow us to invest. But in order to do that we’d have to go back to the Commission and ask for the right to do that through an IRP amendment or an IRP if it’s being filed at that time. But there is nothing on the horizon right now that we’re ready to talk about.
Kevin L. Cole – Credit Suisse Securities, LLC
Okay. And then, I guess Dilek, with I guess priority of cash between whole field and op co, I guess it’s priority number one bringing down the whole (inaudible) and then priority number two at the op cos?
Everything else being equal, and to the extent that we can earn on it, I think it would be good to reduce the debt at the operating company, but nothing is ever equal, and that’s why we wanted to show you the list of debt maturities over the next five years.
Because we have refinanced a much of their higher cost debt, and there is make whole provisions that are existing that really the best, the most economic way to retire the debt is as it matures. So you can see that most of the debt in at least the next three years, the debt maturities are at the operating company, but there is about 200 million maturing at the holding company in 2014 that we’ll have to take a look at.
Kevin L. Cole – Credit Suisse Securities, LLC
Okay. so how should we think about the make-up of the Commission given that two out of three commissioners I guess will be up for reappointment, before the big next 2014 invitation of 15 rate case?
Michael W. Yackira
Well we have cycles where there each appointment for four years, the way it works in our state is the appointment lasts though any change in the governor. The governor has the opportunity to appoint a Chair person. He took advantage of that last year, when he became the governor when Chairman Bernard Shaw became the Chairman. But we have no foresight into whether or not the commissioners today, want to continue right. I have no reason to believe that they won’t continue and as I said I think the first time in a while we have a mission that is very savvy because they all work in the commission and I understand working with the commissions. So our hope is to keep that team in place because it’s a good balance, but I can’t comment on their desire nor our governor’s desire to reappoint them.
Maurice May – Wellington Shields
Hi, Maurice May, Wellington Shields. Kind of a two part question, can you first of all give us some color on the PPA the 10 year PPA that’s expiring in 2017 and secondly are there any power plant IPPs left in Southern Nevada that you’ll capacity buying.
Michael W. Yackira
Well, I will address the second one, first. We possibly buy question obviously would be based on a willing seller or a willing buyer and a commission who is willing to approve. There isn’t one, there were four independent power plants that were either operating or being constructed when we started on our strategy to own more generation, and we own three of those four. The Moapa plant which was owned by Duke we purchased half constructed completed in 2006 we bought clinical west piece of the Silverhawk plant, which was 75% of that plant. And we purchased the Bighorn plant from Reliant, which is now the Higgins plant. So we’ve three of the four, the fourth was owned originally by Marantz. It was then owned I believe by LS, and LS then sold it and I’m not sure who owns it now.
But that’s the only remaining power plant that’s in the belly, except for some of the co-gens, which certainly could also provide opportunity. But there is nothing to, as my starting point there is nothing to suggest at this stage that there’s a willing buyer, willing seller or a willing commission to do that. The 2007 team contract was also a contract with LS, for an outer state power plant, I believe it’s in Arizona or Utah I forget which, but one of the adjacent states.
We it was a 10 year contract, the contract expires in 2017, so we’ve enough time to determine how that will be replaced. But no plans for them at this stage.
Maurice May – Wellington Shields
Okay, what’s the name of the power plant? Or the IPP still in Southern Nevada?
Michael W. Yackira
I don’t know what they call it now, it was originally called the Apex plant.
Maurice May – Wellington Shields
Okay, thank you.
Two different questions, one is the number of companies talk about earnings growth, in terms of investing in renewables, and also in transmission projects. You didn’t mention much about that, a) can you do it and b) would you do it with some of your excess cash flow, now that you are in a better position.
Michael W. Yackira
For those of you on the webcast I’m sure you all recognize that (inaudible) voice. We have an initiative let me get one I’m not getting emotional I’m losing my voice. Okay, I’m back. We announced something about a year or so ago, called the renewable transmission initiative where we said that, we wanted to determine the level of interest or from developers in various zones of renewable energy within Nevada to support the building of a transmission line likely into California or elsewhere. we’ve been through an iterative process that process continues in which first, we ask for initial request for desired interconnection. we received those requests that we called the list, we then said this is how much it’s going to cost to do the studies and the list shrunk as you could imagine.
So we’ll know more later on this year as to the viability of the RTI but as I said before, I think it’s going to take some discussion especially in California as to how much California is willing to take in the form of import into their state to meet their portfolio standard.
Last September, we had Governor Brown and our Governor Sandoval on a panel at Senator Reid’s Clean Energy Summit. and they both said the same thing. they said that each state has enough renewables for themselves plus for export. I think most would find it more easier to build renewables in Nevada, and export than it would be to build renewables in California. But over time perhaps that will become more solidified. But it’s not for lack of desire or lack of trying on our part. We think we’re in the right place, being in the desert south west and as I said before being in the most radiant solar belts in the U.S. gives us a leg up. And we have a lot of desire in our state to have economic developments or our governor certainly very supportive of that as are we. But time will tell that and I think it’s really going to take some political will in order to make that more robust for us to be able to invest, but we have a desire to invest.
The other question I have is, for a while the casinos had some really big projects on the drawing board and some of them were half completed or three quarters completed. Does it look like going forward over the next couple of years. As I guess gambling continues to pick up, will those – do you think those skeletons will actually get a sort of a body around them and you’ll be able to pick those up in terms of load growth, which will then move back to the residential also.
Michael W. Yackira
There is only one really major project that was (inaudible), and that was the one that board gaming was doing. It was supposed to be occurring as the city center project that MGM completed as of the end of 2009, I’m forgetting ’09 or ’10 maybe it was ’10, it was ’09. That project was high cost, we’ve done a good job in managing that project, the type of (inaudible), but post that there is some development, the (inaudible) opened up right across the street from MGM, it was the year or so ago, little bit more than a year ago.
There’s been discussion of renovation of projects. Caesars is talking about in fact they just announced that they’re breaking ground on, retail space and a huge Ferris wheel, which might sound somewhat funky in Las Vegas. But if the London Eye can work, I think a Ferris wheel in Las Vegas can work. There is talk about building and arena, hopefully attracting the MDA. But there are no major projects. Last week on the news, which surprised me because I had lost track of this, there is several timeshares that are south of the strip. I think there are five or six buildings that are about 15 stories tall. And there’s been no construction on that site for five years. They broke ground on a new fully subscribed building; now will that drive a lot of load, probably not.
But the other major think not in southern Nevada, but in northern Nevada and this will all be dependent upon the price of gold is mining, mining load. There are a lot of predictions, none of which are really as robust to some of the predictions are within our load forecast for continuing to expand mines or dig for new mines. You would never know that there is a recession or unemployment in Elko Nevada, where I think the unemployment rate is about 2%.
They can’t get enough housing there, they can’t get enough people to work in McDonalds there, it’s our equivalent of what’s going on in the Dakota’s in oil and gas development. But again time will tell, if prices are sustained at $1,600 plus announced, there probably will be more mining growth. But those of you who know this management team, we make sure that we will not talk about things that we don’t have real clarity on. So while there’s discussion about that, is just not part of our forecast today in any real material plan, if it happens that’s great thing, but there is no plan for major expansion on this trip, but for a couple of things that I mentioned right now, and the [S-1] place, which was approximately $4 billion project has no restart time. Brian, we’ll get you microphone?
Brian Russo – Ladenburg Thalmann & Co.
Hi, Brian Russo, Ladenburg Thalmann. In anticipation of your upcoming rate cases, are there any adjustments to the current rate base that we should be aware of in terms of bonus depreciation or deferred taxes?
My favorite question, now I’ll put all of you to sleep for sure. We were the beneficiaries in ‘11 of a significant amount of bonus depreciation as we put a less power plant into service. So we have a 700 million plus power plant that’s a lot of bonus depreciation right, and even without that we had been in a net operating loss position. so the bonus depreciation in ‘11 extended that NOLs for several more years.
So part of that cash flow story is the fact that we don’t expect to be paying cash taxes for quite some time. But we do collect from our customers, a growth on our return on equity right, so even though, we don’t pay the cash taxes, we do collect that, the customers then get the benefit of that in the form of deferred taxes, which we do is rate base. For us that deferred tax reduction of rate base is further complicated by the NOL situation. So had we not been in an NOL, all the bonus depreciation that we received on Harry Allen would have increase deferred – in fact it did increase deferred taxes, so that would have been a big reductions to rate base, but the NOL position does off that some of that. So it’s going to work itself into rate base overtime. So as we look forward with the deferred taxes increase as that NOL is used up. It’s a very simplistic description of what’s happening, but I think it’s directionally correct.
Brian Russo – Ladenburg Thalmann & Co.
In my last question, it referred to the On Line project, when would we get clarity on the construction timeline and commercial availability of that?
Michael W. Yackira
We have nothing further to say about On Line. We’re continuing to work on the engineering changes that need to be made to the structures. We’re working with several consultants in various places. This is done as you know in partnership with a rate base in transmission, which is subsidiary of LS Power. So we’re working diligently on trying to find the fixes and once we do know what those fixes are and what the ramifications are, timetable we’ll disclose it, but right now we’re still in the process of assessing it. But nothing has changed with respect to our expectations that will be the latter part of 2013 before the line is completed.
Brian Russo – Ladenburg Thalmann & Co.
And just sticking on, On Line, who is driving the board and that as said, LS Power, I mean obviously they’re the bigger investment, but who is kind of running the project?
Michael W. Yackira
We’re the operating and constructor – operating party and the constructor for the project. But because it’s in joint venture, we have an operating agreement, which requires the partnership to approve the activities that go on, while this certainly wasn’t contemplated nor expected, this is something that the management committee is working on jointly. But we have the responsibility for carrying out the – well the operating committee.
Brian Russo – Ladenburg Thalmann & Co.
Got that. And just on the deferred taxes, Dilek, that you mentioned, is there any type of numbers you can kind of put behind that for the next two, three, four years just for our cash flow statement and rate base?
We do have a note in our 10-K that you might want to refer to that talks about the size of that NOL, and based on that and your earnings projections over the next several years you can put together a schedule that shows how long it’s going to take to work that off, but our estimate and this will change as tax legislation changes obviously. But our estimate right now is, it’s going to be probably about another three years or so before we are a cash taxpayer.
Similar type of timeframe, Andy, again the customer gets the benefit of deferred taxes and the reduction to rate base, but because we’re in an NOL, and we’re not getting the cash benefit of the bonus depreciation, that’s going to work itself into deferred taxes and into a reduction in rate base as we work through the NOL.
Michael W. Yackira
Any other questions? If not thanks very much for joining us this morning, and look forward to seeing you again soon.
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