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Executives

Paul Bonavia - Chairman and CEO

Kevin Larson - SVP, CFO and Treasurer

Dave Hutchens - President

Chris Norman - Manager, IR

Analysts

Paul Fremont - Jefferies

Maury May - Wellington Shields

Brian Russo - Ladenburg Thalmann

Kevin Cole - Credit Suisse

Robert Howard - Prospector Partners

UNS Energy Corporation (UNS) Q3 2012 Results Earnings Call November 2, 2012 1:00 PM ET

Operator

Good afternoon and welcome to the UNS Energy Third Quarter 2012 Earnings Conference Call. Today’s call will be hosted by Paul J. Bonavia, UNS Energy’s Chairman and Chief Executive Officer. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Chris Norman, manager of investor relations. Please go ahead.

Chris Norman

Thank you, all for joining us today as we review UNS Energy’s financial results for the third quarter and our outlook for the remainder of 2012. Joining me on the call today, 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’s 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’ll open up the call up for Q&A.

Now, I’ll turn it over to Paul.

Paul Bonavia

Thanks, Chris and thank you all for joining us today. This morning we reported the UNS Energy’s net income for the third quarter of 2012 was $51 million or $1.21 per share on a fully diluted basis. By contrast, in the third quarter of 2011, we reported net income of $60 million or $1.46 per diluted share.

I’d like to highlight two items that affect the comparability of third quarter results between 2012 and 2011. First in July of 2012 this year Springerville Unit 3 had an unplanned outage. As you know, TEP operates that unit on behalf of Tri-State, we can earn operating fees and performance bonuses for doing so. The unplanned outage will cause TEP to miss certain performance targets in the agreements during 2012. And as a result, third quarter earnings per share reflects the reduction of $0.03 per diluted share.

Second, I’d like to remind you that our third quarter results last year 2011 included a gain of approximately $0.11 per diluted share relating to the settlement of a transmission dispute between TEP and El Paso Electric. Excluding these items, earnings for the third quarter of 2012 were $1.24 per diluted share compared with a $1.35 last year.

The decline in our quarterly earnings reflects the challenges of managing through a rate freeze and the current economic conditions. TEP’s rates do not reflect the increase in operating cost including depreciation on rate base investments that occurred between the last test year of 2006 and 2011 the test year that’s used in our pending rate application. Despite these challenges, we once again expect to keep our annual O&M spending, not only flat compared with last year, but also flat to 2009.

Our success in containing O&M is not affecting our ability to deliver safe and reliable service to our customers, we’re once again on track to meet our annual operational and safety goal. Summer availability of our generating fleet exceeded 93% and our safety record is equally notable in each of the past three years, we have improved our OSHA incident rate between 10% and 25% per year and we’re on a track to do that again this year through October our recordable incident were 17% below last year, we’re proud of that.

Turning to regulatory activities in August, ACC staff issued a letter of sufficiency for TEP’s rate case application and in September, the Administrative Law Judge preceding over the case issued a procedural order, which mainly adopted or schedule jointly filed by TEP, ACC staff, and RUCO, our residential consumer advocate. The schedule establishes a deadline with intervener testimony due on December 21, 2012, settlement discussions to commence on January 15, 2013, hearing before the ALJ that commence on March 6, 2013.

We’re confident this schedule allow TEP to implement new rates on or before August 1, 2013. Moving onto other regulatory matters earlier this week we filed a notice with the AEC, that UNS Electric intends to file a rate case by the end of this year. This filing is to fulfill a requirement in UNS Electric’s last rate order of September 2010. We expect UNS Electrics’ rate application will include, among other things 12 months test year, which concluded June 30, 2012, a non fuel base rate increase and finally, but importantly, a lost fixed cost recovery mechanism. And other regulatory activity, TEP’s modified energy efficiency proposal is still pending approval by the ACC.

As a reminder, this is a plan to bridge the gap between now and the implementation of a permanent rate structure for energy efficiency that would be adopted in TEP’s rate case. We can’t predict if or when the commission will consider this proposal. Moving to environmental matters, I’m sure many of you are following events surrounding the San Juan generating station.

As a reminder, TEP is a 50% owner of Units 1 and 2 with approximately 340 megawatts of capacity. The current federal plan from the EPA requires installation of selective catalytic reduction - SCRs on all four San Juan units by September 2016. TEP’s share of those expenditures for units 1 and 2 is estimated to be a $180 million to $200 million.

In October of this year, the State of New, Mexico released a proposed modified plan that if presented to the EPA as an alternative to the federal implementation plan. The modified plan includes among other things the retirement of San Juan Units 1 and 2 by December 31, 2017. And the installation of selective non-catalytic reduction technology on San Juan Units 3 and 4.

Also in October of 2012, the EPA extended the previously created 90 days stay until November 29, 2012 to allow for further discussion on the modified state plan. The modified plan would require several actions by third parties before it can move forward as well as approval by our Board of Directors and the Arizona Corporation Commission. If San Juan Units 1 and 2 are retired by December 31, 2017, TEP would request Commission approval to recover over a reasonable term, all cost associated with the early retirement of those units.

In September 30, 2012, the book value of TEP share of San Juan Units 1 and 2 was $216 million. If the Federal plans compliance day is not extended or the decision to retire San Juan Units 1 and 2 is not made by the end of 2012. TEP may begin funding its share of the capital expenditures to install SCR technology in 2013.

We’re evaluating various replacement service resources in the event San Juan 1 and 2 are retired early. That includes a possibility of exchanging part of TEP’s ownership in San Juan one and two for a portion of San Juan 3 or San Juan 4 or or both.

Our resource strategy focuses on achieving a generating mix that promotes long term rate stability for our customers, assuring inappropriate level of costs recovery and a return on investment. Also on mitigating the environmental impacts complying with all the regulatory requirements and affecting using our existing infrastructure.

Finally, I’d like to touch briefly on our local economy. TEP’s unemployment rate or Tucson’s rate for August was about 7.6% down slightly from 7.8% at the end of last year. The economists at the University of Arizona believe Arizona’s economic recovery will continue to be slow through next year. A long term outlook though is still bright, Arizona is expected to rank among the fastest growing states as migration flows resume and improve with national economic growth.

Active inventories in Tucson’s housing market in September 2012 were 26% below 2011 same month, and the months of the inventory declined from 4.8 to 4.2. Median prices sold homes increased by 25%, so all signs of some building strength in the housing market.

Now I’ll turn the call over to Kevin who’ll provide more detail on our third quarter results and our outlook for the remainder of 2012. Kevin?

Kevin Larson

Thank you, Paul. Thanks to everyone for joining us today. First, I’ll explain a few of the key drivers for UNS Energy’s third quarter, and then I’ll discuss our outlook for the balance of the year. If you’d like to follow along, please refer to slide two of the presentation, that was furnished on our 8-K this morning posted on our website. The slide shows the factors that impacted earnings between the third quarter of 2011 level of $1.46 per share and the third quarter of 2012 level of $1.21 per share.

In the third quarter of 2012 TEP’s total retail sales were 2,878 gigawatt hours, that’s 3.6% below the third quarter of 2011, 2012 third quarter weather was mild relative to Q3 of 2011. Cooling degree days in Tucson were 12.2% below last year and 3.3% below the 10-year average.

As a result of the lower sales TEP’s retail margin of $177 million was $7 million or $0.11 per diluted share below the third quarter of 2011. We estimate $6.5 million of the $7 million was due to the milder weather. On a year-to-date basis, TEP’s retail margin of $429 million was $4 million or $0.05 per diluted share below the same period in 2011.

The UNS Electric’s retail sales decreased by 7.3% when compared with third quarter last year. As we mentioned on our last call, one of its mining customers installed the combustion turbine last year and is self-generating a portion of its electric needs. That did not impact margin in the Q3 due to the rate structure, which includes the demand charge.

Excluding mining customers, retail sales decreased by 2.4%. Cooling degree days in UNS Electric service territory during the third quarter were 5.5% below last year and 0.5% below the 10-year average. Overall retail margins at UNS Electric were flat when compared to the third quarter of 2011.

Turning to TEP’s two wholesale contracts, our NTUA contract, that provided us margins of approximately $1 million for the quarter. We broke even for the quarter on our SRP contract which moved to market pricing in June of 2011. Therefore total long term wholesale margin were $1 million. This was $400,000 above the third quarter of 2011 which translates to a quarter-over-quarter earnings increase of about $0.01 per share. Based on year-to-date results and current forward power prices, we expect full year long term wholesale margins to be approximately $4 million.

Let’s turn into some other year-over-year drivers, TEP’s based on O&M Q3 2012 was $1 million lower than the same period in 2011. The lower O&M is due in part to unscheduled maintenance outages occurring in Q3 of 2011. This is a $0.02 positive driver in diluted earnings per share. At this point, we expect full year UNS consolidated base O&M to be slightly below $270 million, $270 million was our budget at the beginning of this year and it is also the level of base O&M in 2011. As expected, TEP’s depreciation and amortization expense was $2 million higher in the third quarter of 2012 than the same period in 2011 due to an increase in the plant-in-service.

As Paul mentioned, results of the third quarter of 2012 were negatively affected by an unplanned outage at Springerville Unit 3 which eliminated our operating fee and performance bonus. As a result TEP recorded a pre-tax loss of $2 million in July 2012 or $0.03 per diluted share.

Lastly, in Q3 of 2011 TEP recognized $7.4 million pre-tax gain related to the settlement of - a transmission dispute between TEP and El Paso Electric, this equates to a negative year-over-year driver of $0.11 per share on a diluted basis. With the important third quarter earnings period behind us, we don’t see manufacturers that can cause big swings in our earnings for the fourth quarter and for the balance of the year. Therefore we’ve narrowed our 2012 earnings guidance from $2.05 to $2.35 down to, or to range of $2.15 to $2.30 per diluted share to reflect our year-to-date performance and our expectations for the balance of the year.

Now briefly touching some of our recent financing activities in September TEP took advantage of attractive capital markets and issued $150 million of 10.5 year unsecured notes with a fixed rate of 3.85%. We’re very pleased with pricing and the execution of this transaction proceeds were used to repay borrowings under TEP’s revolving credit facility and for general and corporate purposes.

Also in September Fitch upgraded TEP’s secured, unsecured and issuer ratings by one notch. For example, the unsecured rating went from BBB minus to BBB flat. Fitch indicated the upgrade recognizes in part Arizona’s constructive regulatory environment and the potential improvement in TEP’s credit profile it could result in TEP’s pending rate case.

Lastly, I’d like to touch on earnings guidance for 2013. We typically provide guidance during our investor call in February. The timing of our February 2013 call will be in the middle of TEP’s rate case. Due to the limited amount of information we expect to have a debt time regarding final outcome of TEP’s rate case we are evaluating our disclosure options for February of 2013. We plan on certainly providing earnings drivers and sensitivities as we have in past years may shy away from providing an earnings per share range due to the uncertainty of surrounding TEP’s rate case.

With that, I’ll turn it back to Paul for Q&A.

Paul Bonavia

Thanks, Kevin. Do we have questions?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Paul Fremont of Jefferies. Please go ahead.

Paul Fremont - Jefferies

All right, thank you very much. I guess the first question would be that are you expecting the New Mexico alternative plan to be acceptable to the EPA and for those parties to basically move forward on that basis or would you expect something other than that?

Paul Bonavia

Well, our base line case is still the installation of selective catalytic reduction. We feel we have to know we’re ready to move forward with some course of action and there’s a lot of people who have to agree starting with the EPA. That said we’re also reasonably optimistic that an alternative proposal could be attractive. I mean, it’s just so uncertain now we’ve got to be ready to go forward with any of the cases. And I think the idea of shutting down two units and adding selective non-catalytic reduction to the other two is a serious proposal clearly the State of Mexico, means business here and there is a reasonable chance it will be agrees and we’re ready to proceed on any outcome.

Paul Fremont - Jefferies

And you talked about a possible exchange, I mean is that a most likely option or is that just one many alternatives with sort of equal probabilities.

Paul Bonavia

Well, it’s one of many alternatives for some of the parties who have ownership interest in Units 3 and 4 to agree they might want to blend down their megawatts. In other words, if PNM and TEP who own Units 1 and 2, went from 340 megawatts a piece to zero. That might be a difficult outcome for some of the other parties, so there’s discussion around who might take up some of that slack, who might take an interest in some of the megawatts and units 3 and 4. We’re open to discussion, but we’re only going agree to what we think is in the best interest of our customers and obviously to our company as well.

It’s one of the options, Paul. And it’s a serious one but where there’s a lot of potential outcomes there.

Paul Fremont – Jefferies

And I guess lastly can you provide us any type of an update on the commissioner, elections I guess the three, that are up for potential reelection?

Paul Bonavia

We can certainly give you the update that they’re working hard, and they have a great number of signs strewn about the state of Arizona, but that’s really all we know. We’re not privy to any polling data or inside information other than what we read in the newspapers. As you know, there’s three seats up for election, three republicans are running, three democrats are running, of those two are incumbent democrats, one is an incumbent republican, but we’re prepared to work with whosever [lever] is on the commission.

Paul Fremont - Jefferies

Paul, thank you very much.

Operator

Thank you. Our next question comes from Maury May of Wellington Shields. Please go ahead.

Paul Bonavia

Hi, Maury.

Maury May - Wellington Shields

Yeah, good morning, folks. A couple questions, more on San Juan, here. First of all, you said your book value as of – you gave us a book value as of now, but what would the book value be at the end of 2017. I’ll put another way what’s your depreciation rate per year on your San Juan investment?

Paul Bonavia

I’m looking at Kevin here who’s - our general depreciation rates is around 3% so, but I don’t know the exact number off the top of my head, Maury.

Maury May - Wellington Shields

Okay. Well I can ballpark that. Yeah, and-

Paul Bonavia

I’m sorry, Maury remember that you have depreciation but there are always some capital addition offsets, every time you overhaul a unit or do work on it, you wind up adding some back to the capital balance.

Maury May - Wellington Shields

Yeah, I’m just trying to get some regulatory exposure number that would be subject to a recovery filing of some kind. Anyway the second thing is can you elaborate a little bit more, I know that Paul Fremont just asked about the exchange of some of units 3 and 4, but I guess you and PNM own all of Units 1 and 2, so both of you would be out those units and so you would seek – you would find it attractive to add some of 3 and 4 if you could buy it?

Paul Bonavia

We might find it attractive to take some of the megawatts from 3 and 4, but it would depend on the cost. We won’t agree without knowing what the EPA would require. And Maury, we would expect in any outcome to blend down our number of megawatts in coal.

Maury May - Wellington Shields

Okay.

Paul Bonavia

Which is we might take some of those megawatts to facilitate an agreement with EPA and a resolution among all the partners. But we would only do it if - if the cost forecast – if the outlook were favorable based on what the EPA is willing to commit to. And we’re going to have fewer coal megawatts when we’re done than we have right now. So that would be the basis on which we’d consider it.

Maury May - Wellington Shields

Okay, so if you lost up to of – 300 plus megawatts at San Juan, what would you do, would you try to repower the [Sant] Unit in to San Juan, or what would you do?

Paul Bonavia

There is secondary market combined cycle capacity in Arizona there is a number of merchant plans, some of which has struggled over the last decade or so. So we would expect that we could replace the capacity and again we’ll what produces the best result for our customers whether that would mean buying some capacity in the secondary market if the price were favorable, we could just look at PPAs for a period of time to bridge us. Certainly we have the option to repower Sant but we would do that only if we saw that as the best outcome for our customers.

Maury May - Wellington Shields

Okay, we’re not too far, not too far away from Juan, so in Arizona, that’s like 2200 megawatts of Gila River?

Paul Bonavia

Yeah.

Maury May - Wellington Shields

What’s the status on that, is that still owned by the banks?

Paul Bonavia

We’ve got Gila River, (Inaudible) Maury how about if I asked Dave Hutchens who is in contact with these folks, pretty regularly, he’ll take us through the latest position (Inaudible) ownership?

Dave Hutchens

Maury this is Dave Hutchens, to your question, the Gila River plant, is currently owned by banks and (Inaudible) who’s basically a infrastructure investment fund, Harquahala is also in process of getting to (Inaudible) as well. So there’s a lot of megawatt change in hands, at pretty decent prices. But we’re not seeing any of that finding a home yet.

Maury May - Wellington Shields

Okay, good enough.

Dave Hutchens

Just another piece, Maury, is that we also have the capability transmission wise to import from those units.

Maury May - Wellington Shields

Okay. Good, thank you, folks.

Operator

Thank you. Our next question comes from Brian Russo of Ladenburg Thalmann. Please go ahead.

Brian Russo - Ladenburg Thalmann

Yes, hello.

Paul Bonavia

Hey, Brian.

Brian Russo - Ladenburg Thalmann

I think there’s also a capacity contract on the Griffith Plant located in Arizona that’s rolling off right around that time?

Dave Hutchens

Yes, you’re exactly right, you guys know this market very well. There is a capacity contract rolling off of Griffith, right at that timeframe there is a long-term PPA form APS from one of the units that’s owned – still owned by the banks and anti-grid generating company, at Gila River. There’s also (Inaudible) has a plan out there as well, (Inaudible) the contracts have rolled off, all in all there’s plenty of combined cycle capacity, specifically in that timeframe, where there is a lot now. There’s probably about 6000 uncommitted currently and that will grow to probably closer to 7000 uncommitted by the time you get in our timeframe. Now that’s obviously if nothing else happens.

Brian Russo - Ladenburg Thalmann

Okay, that’s helpful. And I’m just trying to get a sense for, you mentioned a $180 million to $200 million potential environmental spend at San Juan, under [BART]. What type of environmental spend do you have elsewhere. I’m just trying to get a sense of how important this environmental cost recovery rider is in this current case, if the spend gets pushed out a little bit or is decreased or just changes from your base case? Assuming you could by a plant and you wouldn’t need to seek annual recovery of cost?

Paul Bonavia

Yeah, very well. You know the environmental cost adjuster, is an important part of rate reform and it’s going to remain important to us, irrespective of the outcome of the BAR issue at San Juan, but that’s a lot of money that comes off the table if we’re not paying our share of SCRs. Otherwise you know that we are, the sole owner in effect of Units 1 and 2 at Springerville, and you know that our forecasted environmental spending there is relatively low. Those plants are not currently in the BART process, we get to spend like $5 million to comply with [HAPS] rule, we’re going to have to put some onliners in, but the Springerville 1 and 2 spending level is quite low in our forecast don’t have anything significant at Sant.

We are small owners in the four corners units, which as you know are in the process of trying to reach final resolution of the ownership structure as well as at the settlement with the EPA. We would pick up, I think it’s something like, $40 million in SCR cost there, not a huge number for us, because we’re a small owner and that’s if APS is successful in getting a settlement done.

The other big unit we have to think about is Navajo. If Navajo were required to install SCRs again somewhere about $40 million to $45 million would be our share, but the installation of SCRs might well also require a bag house to be added and bag house, and there’s another something like $40 million. If you add all that up, it’s a significant amount of money but the big item is still San Juan 1 and 2.

Brian Russo - Ladenburg Thalmann

Okay, that’s helpful. And the Springerville outage that you experienced in the third quarter, that plant is back up and running on the first day of the fourth quarter right, so there’s no risk of those operating payments correct, in 4Q?

Paul Bonavia

You’re right, it is.

Brian Russo - Ladenburg Thalmann

Okay. And then just lastly, the potential turnover at the commission, with the elections, would that at all complicate a settlement opportunity if there was three new commissioners that would need to review this settlement but didn’t have any prior experience with the case?

Paul Bonavia

Yeah, hard to read that one, Brian, that gets pretty speculative. There’s a school of thought that says, new commissioners are -- understand the process less and are maybe less inclined to buy into a settlement, but there’s also a school of thought that says new commissioners are more inclined to rely on staff, and the staff gives them agreement and RUCO is in agreement it might make settlement easier. But we don’t know, and no one will ever know the real answer to that question, but I think we’re well prepared to enter into settlement discussions, with staff, RUCO and the other parties and forge ahead and – we don’t really look at the election is changing the course of action very much. Our job is to deal with whoever sits on that commission constructive and that’s what we plan to do.

Brian Russo - Ladenburg Thalmann

And just your strategy in this rate case, that – San Juan BART compliance, seems to complicate things a little bit. I’m just wondering what your thoughts are if this – I guess it could be resolved by the end of November, and then you could roll that BART conclusion into the case. I guess that’s accurate, right?

Paul Bonavia

It could be concluded by them and it could at some point come in late in the case, but that’s outside the test year, it’s so far from being known and measurable right now, but it seems unlikely it comes in to this case. Yet another reason why an environmental cost adjuster makes so much sense because of the uncertainty both of timing and outcome and all these environmental things, and we’re going to look to have settlement discussions based on what’s in this case. If somehow those conversations point us toward a multi-year settlement with different variations on the theme, we’re ready to have that conversation too but job one is to settle what’s in this case and in this test year.

Brian Russo - Ladenburg Thalmann

Okay, understood, thank you.

Operator

Thank you. (Operator Instructions) And our next question comes from Kevin Cole of Credit Suisse. Please go ahead.

Kevin Cole - Credit Suisse

Good morning, gentlemen. How are you?

Paul Bonavia

Doing great, Kevin. How about you, are you guys all nice and dry?

Kevin Cole - Credit Suisse

No, still out of power, so it’s exciting.

Paul Bonavia

We’d like to point out, we have plenty of power here, and there’s sun’s out its lovely.

Kevin Cole - Credit Suisse

I’ll think of that when I climb my 17th stories up to my apartment. And so a little more on the rate case. Since the last earnings call, have you find any more levers or anything more obvious ways to bring down the rate impact to the customer?

Paul Bonavia

We think what we put in the case was very well balanced, I mean this is not a case where there are a lot of items in there that are breach or a questionable or in some way – anything other than a good conservative estimate of our cost to of service. We put in things like, the energy efficiency regime with the energy efficiency resource plan, which we think takes some of the volatility and mitigates the rate shock for customers, and the environmental cost adjusters same thing.

So from the beginning in this case we’ve structured it and put it forward in a way that we think is very responsible and reasonable and helps the commission manage these cost increases in a way that’s beneficial to customers. We’re going to find out, when we get to staff and intervener testimony on the 21st of December, what they think of all that and the next couple of months are going to tell. We’re prepared to discuss the whole range of proposals that we’ve got in there and whatever else they throw at us.

Kevin Cole - Credit Suisse

Is it too early to have the conversation of what it does – the treatment of the Unit 1 purchase, or likely be the like the rate case stay open until 2015, just that one sliver of the rate case stay open or could that be I guess deferred, or is it before deferred, or are you fully confident that it will be deferred till the next rate case, or is it just too early to have the conversation now?

Paul Bonavia

As you know under the lease we elect an option in September of next year and we’re hoping to have rates in effect by September. So base line case on this one is because Arizona is a – an historic test year state that will settle the case or resolve the case via commission order, and be done by the time we make that election. That said, could a discussion in settlement bring us to the kind of multiyear rate path that I talked about just a minute ago, sure that could happen. But right now we don’t know, we haven’t heard from the other parties yet.

We’re always ready to talk about rate path that the staff, or RUCO would consider constructive. I think right now the base case is we have a cost that’s embedded in our current rates for Springerville 1, it’s based on the levelized cost of the lease through expiration, we expect that we’ll continue in the next rate order and then it would be the rat case subsequent where the effect of whatever option we elect will be dealt with.

Kevin Cole - Credit Suisse

Okay, thanks for the – actually it’s one last question on the election. Given it’s the presidential election season it seems [rebuild] at the republicans might have an advantage here, (Inaudible), did the two republicans that are looking to be seated, are they running on a specific platform, or anything unique that we should be aware of?

Paul Bonavia

Well, there’s three republicans running, because there three open seats, and two of them are – or one of them rather, commissioner Stump and he’s running on his record, he’s an incumbent who is entitled to a second term if he’s elected. The other two are, their positions are pretty well public they’ve been out campaigning they’re both conservative, republican candidates but I don’t think there’s anything truly unusual, surprising or notable in their platform. And they’re running on being tough overseers of cost and advocates for economic in Arizona and quite honestly so are the democrats.

So I mean this is the theme from all the candidates on both sides.

Kevin Cole - Credit Suisse

Great, thank you guys. Have a good day.

Paul Bonavia

Thanks, we’ll know more in a week.

Operator

Thank you. Our next question comes from Robert Howard of Prospector Partners. Please go ahead.

Robert Howard - Prospector Partners

Hi, there.

Paul Bonavia

How are you doing, Rob?

Robert Howard - Prospector Partners

Brian, touched on this, in his questions, so just want to clarify with Springerville 3, I guess you said it’s back up and running, but are the performance metrics that are based on what you can the payments you receive, are those just a quarterly basis as opposed to maybe an annual metric that’s you’re going to have this unplanned outage impacting a little bit going forward, if it’s on a rolling 12 months or something like that?

Paul Bonavia

I think it’s an annual metric and its equivalent availability really, it’s the availability of the unit and because of the time it was down, we know that it’s not going to hit the availability target. And that’s why we took a charge in the third quarter. Plants back up and running, and our there is a – I don’t know if it’s called liquidated damages or just a limitation on the remedy to the owner but what we’ve done is essentially maxed that out, it’s capped. So we don’t expect any further impact on our financials.

Robert Howard - Prospector Partners

Okay. So that’s basically it’s a 2012 issue and yeah, you don’t have a rolling thing going into ‘13 that would –

Paul Bonavia

Yeah, that’s right.

Robert Howard - Prospector Partners

Okay, great. That’s it from me, thanks, guys.

Operator

Thank you. (Operator Instructions) And gentlemen, we have no further questions at this time.

Paul Bonavia

Thank you all very much.

Operator

Thank you, ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect all lines.

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