UNS Energy's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Jul.30.12 | About: UNS Energy (UNS)

UNS Energy Corporation (NYSE:UNS)

Q2 2012 Earnings Call

July 30, 2012 11:00 a.m. ET

Executives

Paul Bonavia - Chairman and CEO

Kevin Larson - SVP, CFO and Treasurer

Chris Norman - IR

Analysts

Kevin Cole - Credit Suisse

Brian Russo - Ladenburg Thalmann

Paul Fremont - Jefferies

Chris Ellinghaus - Williams Capital

Scott Senchak - Decade Capital

Michael Bates - D.A. Davidson

Operator

Thank you and welcome to the UNS Energy second-quarter 2012 earnings conference call. Today’s call will be hosted by Paul J. Bonavia, UNS Energy’s chairman and chief executive officer. (Operator Instructions) Now I would like to turn the call over to Chris Norman, manager of investor relations.

Chris Norman

Thank you all for joining us this morning as we review UNS Energy’s financial results for the second quarter and our outlook for the remainder of 2012. Joining me today on the call are Paul Bonavia, UNS Energy’s chairman and CEO, and Kevin Larson, senior vice president and CFO.

Before I turn the call over to Paul and Kevin, I’d like to point out that our earnings release, supplemental materials and webcast slides are available on our website. Please refer to these materials for a reconciliation of non-GAAP measures. In addition, it is my responsibility to advise you that the forward-looking statements made on this call are based on current expectations and may contain risks and uncertainties.

Significant factors that could cause actual events and results to differ materially from expectations are described in our earnings release and in our 10-K and 10-Q filings. All forward-looking statements are made as of today based on the information available to us today and except as required by law, we assume no obligation to update any such statements. A replay of this call will be available on our website as well as by phone. At the end of Paul and Kevin's remarks, we will open up the call for Q&A.

Now I'd like to turn the call over to Paul.

Paul Bonavia

Good morning. Thanks Chris and thank you all for joining us today. This morning we reported the UNS Energy’s net income for the second quarter of 2012 was $26.3 million or $0.64 per share on a fully diluted basis. By contrast, in the second quarter of 2011, we reported net income of $28.6 million or $0.71 per share on a diluted basis.

Year-to-date, our 2012 diluted earnings per share were $0.81 compared with $1.07 last year. The deterioration in our year-over-year performance was anticipated as we are in the last full year of TEP’s base rate freeze. Our first half results are tracking our expectations, and we’re maintaining our earnings guidance range of $2.05 to $2.35 per diluted share. As you all know the level of TEP and UNS Electric sales during the remaining summer months will be the primary driver for our full year financial performance.

Turning to regulatory activity, TEP filed the rate case on July 2 with the Arizona Corporation Commission based on the 2011 test year. There are five central themes to TEP’s rate application. The first theme is cost recovery. The request for a non-fuel base rate increase of approximately $128 million is the result of a significant passage of time since TEP’s last non-fuel base rate increase in December 2008.

The drivers of the $128 million revenue deficiency are very straightforward. First, $70 million relates to a return on and of invested capital for rate base additions. Since 2006, the test year using TEP’s last rate case, TEP's original cost rate base increased by $500 million from $1 billion to $1.5 billion. Second, $29 million of the revenue deficiency relates to the increase in operations and maintenance expense between 2006 and 2011 and about $20 million relates to the adjustment to reflect the fair value rate base increment which is an aspect of rate making prescribed by the Arizona constitution. There are various other puts and takes to get to the final number but these are the primary contributors and again we emphasize this is a straightforward rate case.

I should note there could be an opportunity to mitigate the overall bill impact to customers. TEP’s purchase power and fuel adjustment cause or the PPFAC is adjusted each year on April 1. If the change in the PPFAC rate can be tied with the implementation as new base rate, the lower PPFAC rate could reduce the overall customer bill impact. Based on current estimates, we think the reduction could offset the non-fuel base rate increase by a range of 2% to 4%.

The second theme of the rate case is the need for rate reform to reflect the commission's policy on energy efficiency and distributed generation. What we proposed in this case is a long-term solution that will align rate making with policy making. TEP’s current rate design was adopted prior to the commission's energy efficiency policy. The rates do not reconcile the effects of that policy, which is mainly reduced kilowatt hour sales with the increasing demands for investment in infrastructure created by other policies at all levels of the government.

As a result, the current rate structure fails to consider the effect of escalating fixed costs on the company's financial condition. We’re therefore proposing a long-term solution through the lost fixed cost recovery mechanism or LFCR and the EE resource plan which I will discuss in just a minute.

The LFCR is assigned to allow TEP the ability to recover non-fuel costs related to loss sales attributed to energy efficiency or distributed generation. The LFCR is not a new concept for the commission as similar mechanisms were recently approved for UNS Gas and APS. In addition, the commission approved full decoupling for Southwest Gas late last year.

As I mentioned, we are proposing to treat energy efficiency as part of our overall resource plan. The energy efficiency resource plan which would span from 2014 through ’16 would allow TEP to capitalize energy efficiency program expenditures and recover these costs over a four-year amortization period. The ROE component of the return on these investments would be increased by 200 basis points over the proposed ROE in this case.

The surcharge for energy efficiency would moderately increase each year allowing TEP to deliver the most efficient and cost-effective solutions to customers. The plan also establishes definitions and methodologies for overall – about measuring overall cost-effectiveness. This is an innovative approach to energy efficiency that we believe warrants thoughtful consideration by the commission.

The third theme of TEP’s rate proposal addresses rate smoothing. Instead of large and frequent rate cases, we’re recommending rate mechanisms that will smooth out future rate impacts to our customers. The environmental cost adjustor would allow for a return on qualified environmental investments and for the recovery of additional costs like depreciation, O&M and taxes between rate cases. Other rate smoothing mechanisms include the LFCR, our proposed energy efficiency resource plan and the continuation of TEP’s solar buildout program through the renewable energy standard and tariff.

The fourth theme is rate modernization. We’re recommending streamlining our retail rate offerings to provide our customers with easier to understand choices. We are also proposing certain rate design changes in order more accurately to assign costs between our customer classes based on our cost of service study.

The final theme I will touch on is timing. We are requesting that new rates go into effect no later than August 1, 2013. This is consistent with the provisions of the 2008 settlement agreement in which the parties to the settlement agreed to use their best efforts to implement new rates no later than 13 months after the filing of TEP’s rate application. We are working very hard to streamline the entire process to bring this case to a prompt conclusion. We filed a notice ahead of our rate application to give staff ample time to hire consultants, and we already filed responses to the standard data request rather than wait to receive those requests.

Looking ahead, we expect to receive a sufficiency finding from the ACC’s staff within the next couple of weeks. In late August through September, we anticipate that the administrative law judge assigned to this case will establish a procedural schedule. We look forward to hosting a series of technical conferences over the coming weeks and months to help educate various stakeholder groups on the key issues in our rate filing.

Moving to other regulatory matters, a hearing was held earlier this month regarding TEP’s modified energy efficiency proposals. We’re awaiting a recommendation from the ALJ. As a reminder, this is a plan that would bridge the gap between now and the implementation of a permanent solution following TEP’s rate case.

Finally, I would like to touch briefly on our local economy. Tucson’s unemployment rate for May was 7.2%, that’s down from 7.8% last December. The economists at the University of Arizona believe Arizona's economic recovery is gaining momentum, albeit at a modest pace. Personal income is expected to grow by 3% in 2012, while local retail sales are expected to grow by 6%.

The Tucson housing market continues its recovery. Active inventories in June 2012 were 39% below June 2011, and months of inventory declined from 4.4 to 2.8. The commercial real estate market is also improving. According to local commercial real estate reports asking rent in the second quarter increased for the first time in 10 quarters.

Now I’d like to turn the call over to Kevin who will provide more detail on our second-quarter results and our outlook for the remainder of 2012. Kevin?

Kevin Larson

Thank you Paul. Thanks everyone for joining us. First, I will explain a few of the key drivers for UNS Energy’s second-quarter results, then I will discuss our outlook for the balance of the year.

If you’d like to follow along, please refer to slide two of the presentation which was furnished in the 8-K filed this morning posted on our website. The slide shows the factors that impacted earnings between the second quarter 2011 amount of $0.71 per share and the second quarter of 2012 amount of $0.64 per share.

Slide 3 shows change in earnings on a year-to-date basis from $1.07 per share in 2011 to $0.81 per share in 2012. First looking at retail sales, in the second quarter of 2012, TEP’s total retail kWh sales were 2440 gigawatt hours which was 4.6% above the second-quarter of 2011.

Second quarter weather, in particular June was hot and drove a sales increase. Cooling degree days in Tucson were 45% above last year and 25% above the 10-year average. TEP’s retail margin of $146 million was $7 million or $0.11 per diluted share above the second quarter of 2011. On a year-to-date basis, TEP’s retail margin of $252 million was $4 million or $0.06 per diluted share above the same period in 2011.

The UNS Electric retail sales increased by 1% when compared to the second quarter last year. As we mentioned in our previous call, one of UNS Electric’s mining customers installed the combined – combustion turbine last year and is itself sharing a portion of its electricity needs, which held down an increase of retail sales. This did not impact margin in the second-quarter due to the demand charge component of the mining customer’s bill.

Excluding mining customers, retail sales increased by 10.6%. Cooling degree days in UNS Electric service territory during the second quarter were 30% above last year and 19% above the 10-year average. Overall retail margins of UNS Electric were $2 million or $0.02 higher than the second-quarter of 2011.

Sales of UNS Gas decreased by 13.2% compared in the second-quarter of 2011, due in part to a 30% decrease in heating degree days. Retail margins were down $1.1 million compared to the same period last year.

Turning to our wholesale contracts – the two wholesale contracts that we have, one is the Navajo Tribal Utility Authority, which is primarily a fixed price contract, earned its margins of approximately $1 million for the quarter. Our Salt River Project contracts, which is more market-based pricing or moved to market based pricing in June of 2011, had losses of $1 million for the quarter. So on a net basis, this caused long term wholesale margin to be zero for the quarter. This was in line with our expectations and $4 million below the second quarter of 2011 which translates to a quarter over quarter earnings decrease of $0.06 per share.

On our Q1 earnings call in April, we gave a full year estimate of $6 million for our long-term wholesale margin. Based upon year-to-date results and current forward power prices, we expect to be in line with that estimate.

Looking at O&M, the TEP’s O&M in Q2 2012 was $3 million higher than the same period in 2011. The higher O&M is due in part to higher plant outages compared with last year. This is a $0.04 negative driver of diluted earnings per share. We still expect, however, on a full year UNS’s consolidated base O&Ms remain near the same level of 2011 of approximately $270 million. Also as expected, TEP’s depreciation and amortization expense was $3 million higher in the second-quarter of 2012 than the same period in 2011 due to an increase in plant-in-service.

Looking to our outlook, regarding our outlook, given the results year to date, also that we don’t expect to see any significant changes in the overall level of TEP retail sales for the full year, and we expect to hold base O&M expense at the $270 million.

And lastly, the importance of the third quarter to earnings, at this point we are maintaining our 2012 guidance range of $2.05 to $2.35 per diluted share. After we work through this in the third quarter we’ll probably narrow the guidance at that point.

Now I will briefly touch on some of our – one of our recent financing activities. As you may be aware, over the last seven months, UNS called all $150 million of its convertible bonds. We are pleased with the results. Of the $150 million calls, $147 million was converted into equity and the balance was redeemed at par. This transaction approved the consolidated capital structure. UNS consolidated equity is up 30% versus at year end 2011 it was 32%.

As a result of completing the redemption, UNS Energy shares outstanding now totaled approximately 41.3 million shares. With that, I will turn it back to Paul for Q&A.

Paul Bonavia

Thanks Kevin. Do we have questions?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Kevin Cole with Credit Suisse.

Kevin Cole - Credit Suisse

I see your non-fuel rate request is really I guess less than 3% in inflation since your 2006 cost base, which I guess is pretty lower (ph) given the five year rate freeze and the 50% increase in rate base. But nonetheless it is a pretty hefty number. Do you foresee any ability beyond the fuel savings to I guess less than the customer rate shock, and could you bump back the rate request outside of the summer months or maybe spread over to heating seasons but with better tracking mechanisms?

Paul Bonavia

Well, first of all, we love the fact that you’ve characterized this for Rolick (ph). We appreciate that, we don’t get – we don’t hear terms like that often but – as I empathized in describing the case, this is a really straightforward case. There is not a lot in this case that is new or different other than below its lost fixed cost recovery and the environmental cost adjustor. The bulk of the increase is based on the rate base additions that have already been spent. Yes, we do -- we are hoping to have some fuel offset to use perhaps in settlement.

And you know when you get into settlement negotiations, all kinds of possibilities present themselves. And you've touched on a couple of things that could happen. You’ve seen what happened in other cases in Arizona, APS’ case where they left open the rate case to pick up some expenses of a later time. So there are various structures you can use if you build them into a settlement that help mitigate that rate impact. They're the kind of things that you do in settlement more likely than litigation.

Kevin Cole - Credit Suisse

Then I guess one more question that’s probably to lay down the settlement talks, is that – so I think I fully understand the Springerville units 3 and 4 lease synergy risk. But with the unit 1 with the possible purchase, would you expect that with this rate case, you’d likely leave that portion of the case open until you exit the certificate or do the purchase or not, or given single rate making issue problems, would you consider this to be taken up to the next rate case whenever that is?

Paul Bonavia

Most likely the next rate case, we’d have to leave this case open a long time. The sale is not the sale date or rather purchase or lease extension if we take either of those options is January 1 of ’15. So you’d have to leave the case open and off a long time to pick that up. Therefore what we are proposing in the case is to continue the rate treatment of Springerville 1 that the commission approved in the last case, which was based on levelized cost.

Kevin Cole - Credit Suisse

Is there procedural schedule –

Paul Bonavia

Not yet. The staff will send us a sufficiency letter declaring the filing complete which they are in the process of working on right now. And when that's done, then the commission will assign an administrative law judge. We’ve already had obviously lots of conversations with staff about scheduling and about matters to expedite. But there's no order yet.

Operator

Your next question comes from the line of Brian Russo with Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Just to follow up on that, that last question. So to recover the possible Springerville 1 purchase, I guess which is in the base case scenario of your IRP. To recover that beginning in 2015 that would imply that you would file a rate case in mid ‘14 obviously contingent on all the moving parts in this current rate case?

Paul Bonavia

Yeah that could be the case. Remember though as you know there is a lease cost -- there is a cost associated with Springerville 1 built into current rate, which we would propose to continue through this case. So it is not like a brand-new rate base addition that has no revenue stream associated with it we’re coming online. This case is decided in accordance with the way the commission decided the last one and the way we think is the right way. There'll already be a revenue stream for Springerville 1.

Brian Russo - Ladenburg Thalmann

But that revenue stream, would that be higher than the revenue stream if you just rate based it?

Paul Bonavia

It well could. We don’t have all of the final numbers yet but it’s certainly possible.

Brian Russo - Ladenburg Thalmann

And under that scenario, how much accumulated net plant would you have to recover in addition to the purchase of Springerville, should we assume like a year-end ‘13 test year?

Paul Bonavia

We’re really focused on the current case, so I don't know – we haven’t dedicated on a future test year or a test year for a future rate case rather. But again you’ve got to look at all the moving parts to determine what our rate filing strategy will be. The first moving part being the outcome of this case, the current case. Second moving part being sales levels and the possibility of mining customers expanding or rather revenue creators and then the third piece among other things – I guess the third would be Springerville 1 decision, which we haven't made. We have put purchase as a baseline option in our resource plan. But we’re maintaining our optionality to decide how we go on that one and until we need to make the decision.

And then you've got all the other elements of CapEx, happens with San Juan and selective catalytic reduction, all those things will have to play out and some of them tend to offset one another. Some tend to create the need for a case, others tend to mitigate the need. So it's really hard for us to pin that down to a schedule, but we're going to be very focused on the current case and getting that piece right.

Brian Russo - Ladenburg Thalmann

Just your five year capital budget, it’s fairly large, maybe 60% to 70% of year end ’11 net plan, assuming you’ve purchased Springerville 1. Can you just maybe talk about your longer-term external capital needs to help finance that in addition to your operating cash flow trends?

Paul Bonavia

Well first on the CapEx and then let me look at Kevin to talk about financing plan. But with respect to the CapEx, we do have a good bit out there. And the closer end years the big item that's driving it is finishing are 500 KV transmission project to fully link us into the Palo Verde hub and give us all of that optionality. Beyond that we get into the environmental spending that could result as we have to put FCRs on San Juan and we'll see what happens with Navajo and Four Corners that are out there as well.

We are very mindful of that Brian, and we know it is a lot and one of our primary efforts and subject of internal focus is managing the CapEx in a way that preserves our financial health. And normally rate base route is a good thing but you can have too much of a good thing. So we’re going to be very mindful of trying to bring in the balance in the right place – balance between growth and versus not overloading our balance sheet in our financing capacity and with that prelude, Kevin, do you want to comment on financing plans?

Kevin Larson

Sure. Brian, I think as Paul indicated, our CapEx budget over the next few years and as you know too, our CapEx budget continues to step up and a lot of it’s being driven by, as you pointed out, high voltage transmission, we also have environmental requirements that may need to be met, there’s been (ph) little regulation and then the question is Springerville Unit 1 asset, are we successful in ultimately purchasing that at a reasonable price?

So lot of moving parts there. But I think on balance between covering our CapEx as well as the large amount of lease payments that we have to make over the next two, three years. As you come to the tail end of these leases, for the large teams that are made, basically to pay off the debt is buried in the lease obligations. And given those two components, I would probably a rough number is probably we are looking at new money financing on the debt side, maybe $100 million an average over the next couple of years. And then as you step in closer to that 2015 it’d be dependent upon or late 2014 in the possible purchase Springerville Unit 1, that could push that amount up to a higher amount.

And I guess related to that, I think we mentioned before we’re also going to be monitoring and see if it’s appropriate for us to issue some equity in some point in time. Again that will be dependent upon a lot of moving parts but we also want to continue to improve our balance sheet. And so given our CapEx needs that we have, I think we will have to step into the equity markets in some fashion. It could be a small amount but in some fashion here over the next few years.

Brian Russo - Ladenburg Thalmann

And could one strategy be to kind of finance some of these CapEx that are greater than 43.5% equity ratio to help support higher equity ratios at the utility get you something more closer to some of your state peer utility equity ratios?

Kevin Larson

Yeah that’s certainly the case. And I think in particular Springerville Unit 1 is a very good example. I mean that asset in the current face value that we’d be purchasing for -- that all plays out is around $160 million. So we could take that as an opportunity to issue more than our existing equity to improve our balance sheet, at the same time that we finance that asset.

Brian Russo - Ladenburg Thalmann

And lastly just on the -- Paul, you mentioned earlier the improving economy. Are you seeing any of that economic improvement in your weather normalized sales growth, because I think I recall you saying earlier that the full year is expected to be flat?

Paul Bonavia

Yeah, we are looking at flat. I think weather normalized which as you know is not a precise science. Weather normalized, our core sales for the quarters were up but very slightly. So we don't take that as signaling a major economic trends. But we’re still thinking flat for this year.

Operator

Your next question comes from the line of Paul Fremont with Jefferies.

Paul Fremont - Jefferies

First question would be, can you give us the weather impact relative to last year and relative to normal for the quarter?

Kevin Larson

Yeah we mentioned earlier in terms of the cooling degree days – in cents per share. Well, I mentioned TEP’s retail margin was up $7 million, which was $0.11 increase over the second-quarter in 2011 and essentially all of that is being driven all by the sales increase.

Paul Fremont - Jefferies

So all $0.11 is weather?

Kevin Larson

Yeah, essentially all of it is.

Paul Fremont - Jefferies

And relative to normal?

Kevin Larson

Relative to normal, in June of 2011 actually sales were below the 10-year average. So I guess of the $0.11 just look at some material that’s handed me. Q2 weather normalized is what – I guess of the $0.11 I’d say probably about $0.08 -- $0.07 to $0.08 was related to an increase above the normalized weather pattern for June or for the second quarter.

Paul Fremont - Jefferies

And then can you guys provide an update of the discussions that are taking place right now between I guess it’s primarily the governor of New Mexico and obviously the owners and the EPA on possible compromises for the San Juan plant and where you think that may end up?

Paul Bonavia

Right, you know as the background the question is selective catalytic reduction, which is what the EPA has in the federal implementation plan versus some other alternatives either persuading them that they were hasty in reaching that conclusion and selective non-catalytic reduction much cheaper alternative would do. That’s point number one.

But as a compromise, there is the possibility to put selective catalytic reduction on some of the plants and possibly look at things like a shutdown schedule for others. All those things are open to discussion. PNM as you know is in the lead that they are the operator of the plant, and I will say, I don't envy them to task because there are a lot of owners at this site. And the owners all have their own imperatives to take into account.

But you're right. It’s the state of New Mexico is really in the first chair in dealing with EPA and in trying to put forward a solution. I know PNM is working closely with them and we’re working closely with PNM to try and get there. But base case is still the federal implementation plan which is SCRs.

Paul Fremont - Jefferies

If as part of a compromise, there would be a shutdown of one or two units at the San Juan plant, what would be -- how would you propose to replace that power?

Paul Bonavia

We’re pretty confident, Paul that we could replace the power probably with resources in Arizona at a price that's pretty competitive certainly yeah compared to San Juan with selective catalytic reduction as the comparator. That we could make that part if it worked, we believe.

Well, it would be natural gas fired combined cycle and not a secret that there is some secondary market capacity in Arizona out there. We've had conversations with those owners. We've also looked into our own building alternatives at some of our own sites. So we’re pretty confident we could replace the capacity at a reasonable cost. And if we blend it down our exposure to uncertainty of future coal regulation by adding natural gas to the fleet in place of San Juan coal, that's actually -- helps us balance our portfolio a little more favorably we think on a risk-adjusted basis.

So, we’re certainly part of the discussions, we’re open to the discussion, but there is a long way to go from here to there to reach any conclusion. Because it’s got to be agreeable to the owners, it’s got to be agreeable to the state of New Mexico, got to be agreeable to the EPA and then you've got federal litigation against the EPA brought by environmentalists out there. So there is a lot of hurdles to get across. But if it looked like those hurdles could be crossed reasonably promptly, we’re pretty confident that securing capacity at the right price in Arizona is something we can handle.

Paul Fremont - Jefferies

And then I think the last piece of that would be if units were shut down, you’d have to reach some sort of an agreement with the Arizona regulators on recovery of your net book value investment?

Paul Bonavia

We would. We would. And again we modeled that in all of our cost estimates for every alternative. We always consider that as part of the overall cost picture.

Operator

Your next question comes from the line of Chris Ellinghaus with Williams Capital.

Chris Ellinghaus - Williams Capital

I’ve got three questions all sort of related to the rate case and the ACC. So I will just shoot them out there. One, what have you seen – the issue, you did a pretty good job with APS’ case, what have you seen – can you give us a little color in terms of their efforts to expedite? Can you remind us what happened with the legislature in terms of funding and staffing for the ACC? And lastly, do you anticipate presuming a settlement in the case?

Paul Bonavia

Let’s start with the color on getting the case decided promptly. That really starts with the commissioners as you know. A couple of years back commissioner Kennedy sent around a letter to colleagues and stakeholders of inquiring into how the commission can expedite the process. Chairman Pierce has been very energetic and very outspoken about the need to get these cases decided more expeditiously in a more business-like way. So you’ve got – you have a real strong direction from the top.

In our conversations with staff, they're all for it. Clearly it makes their life better and it’s better performance on their part to get these things done. We had a lot of conversations with them about what we can do to help. As far as their staffing levels, they did get their additional budget. It is signed into law and that would allow them to add some additional staff and also a hearing room which becomes a bottleneck resource at the commission. So that is a green light in the effort to streamline the process.

As I mentioned, we filed the notice well ahead of time so they could get out with their RFP to hire their consultants and they did that promptly and in a very diligent way. We have the standard data request. Well you don’t really want to wait to get the request. You already know what they are going to ask for. So we went ahead and prepared the answers to that and got it to them. There is lot of things going on. There is lot of direction to try and get these cases done promptly and we’d love to see if it could time up with the PPFAC reset date but that would require a settlement and that leads us to the last part of your question. Don’t really know if the case will settle.

There are some big policy issues in there and I think the commission is going to be interested in having its say in deciding major policy issues but the commission has also made it clear that as to the vast amount of detail in the case, they are looking to the staff and various parties to work together and resolve that stuff. We certainly anticipate having the discussions. We will see what actually appears in the administrative law judge's procedural order, but they've been incorporating time for settlement into the main procedural schedule. In other words, they have not in recent cases treated it as a separate item but has incorporated settlement discussion time right into the calendar. And that's a good step, we hope the administrative law judge does that in our case.

So a long way of saying we're prepared to discuss any issue in the case. We think the staff in commission has signaled that they want to move efficiently and expeditiously. So let’s see how we do.

Operator

You next question comes from the line of Scott Senchak with Decade Capital.

Scott Senchak - Decade Capital

Hi my question was actually asked and answered. Thank you.

Operator

We have one more question, that comes from the line of Michael Bates with D.A. Davidson.

Michael Bates - D.A. Davidson

I was just hoping to get a little bit of color as we are wrapping up on – how you're viewing your mining load, what your expectations are looking through the end of this year and into 2013?

Paul Bonavia

The mines given their current capacity are running pretty well flat out. I mean we’ve had some doing scheduled maintenance and that sort of thing. But particularly at TEP, our large mines are -- they're running round-the-clock and copper prices have come off since their historic highs, but not so far that they're not well in the money. So they are highly motivated.

That means the next question is will they expand? Lots of conversation, we know going on within our biggest mining customers about how to deploy their capital with the most efficient capital allocation for them to increase production. And we monitor it closely. We don't have any announcements that are new from other conversations we've had but we know they're working on it. So I think the baseline cases copper sales continue strong through this year and on into the coming years and the possibility as we have some step increases in their capacity if they do decide to commit capital. And then of course there's Rosemont out there which everyone is well aware of.

Operator

We have no further questions at this time.

Paul Bonavia

Well, thank you all for joining us. We appreciate your questions and your interest, and we will keep you informed.

Operator

This concludes today’s conference call. You may now disconnect.

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