PNM Resources' (PNM) CEO Pat Vincent-Collawn on Q4 2016 Results - Earnings Call Transcript

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PNM Resources, Inc. (NYSE:PNM) Q4 2016 Earnings Conference Call February 28, 2017 11:00 AM ET

Executives

Jimmie Blotter - Director of IR

Pat Vincent-Collawn - Chairman, President and CEO

Charles Eldred - EVP and CFO

Analysts

Chris Ellinghaus - Williams Capital

Anthony Crowdell - Jefferies

Brian Russo - Ladenburg Thalmann

Lasan Johong - Auvila Research

Paul Ridzon - Keybanc

Paul Patterson - Glenrock Associates

Operator

Good morning and welcome to the PNM Resources Fourth Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jimmie Blotter, Director of Investor Relations. Please go ahead.

Jimmie Blotter

Thank you, Lora. And thank everyone for joining us this morning for the PNM Resources fourth quarter 2016 earnings conference call. Please note that the presentation for this conference call and other supporting documents are available on our website at pnmresources.com. Joining me today are PNM Resources Chairman, President and CEO, Pat Vincent-Collawn and Charles Eldred, our Executive Vice President and Chief Financial Officer as well as several other members of our executive management team.

Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward-looking statements pursuant to the private securities litigation Reform Act of 1995. We caution you that all of the forward-looking statements are based upon current expectations and estimates and that PNM Resources assumes no obligation to update this information. For a detailed discussion of factors affecting PNM Resources results please refer to our current and future Annual Reports on Form 10-K, quarterly reports on Form 10-Q as well as reports on Form 8-K filed with the SEC.

And with that I will turn the call over to Pat.

Pat Vincent-Collawn

Thank you, Jimmy. Good morning everyone and happy [indiscernible]. Thanks for joining us as we take one last look at 2016 results before moving on to 2017. I’ll start on slide 4 with the financial results and some key highlights from the year. On a GAAP basis earnings was $0.31 for the fourth quarter and $1.46 for the full year in 2016. On an ongoing basis, fourth quarter 2016 was $0.34, up from $0.23 in the fourth quarter of 2015. Full year earnings in 2016 were $1.65 compared to $1.64 in the prior year. Looking forward, we affirm our previously announced 2017 consolidated ongoing earning guidance of $1.77 to $1.87. Certainly the implementation of new rates in New Mexico was an achievement after the full 13 month ligation schedule but it also left us with some work to be done. I’ll discuss the stages of our appeal and other regulatory items in a minute. Before that though I want to revisit our discussion from our analyst day in December around staying focused in a changing environment. The New Year has bought a new federal administration and potential changes in policy including tax reform, energy and infrastructure. We don’t know exactly what the changes may entail and the devil is always in the detail but we know that we will navigate through these changes while keeping our focus on meeting our customers’ needs.

Our customers continue to rank reliability and affordability as the top of their list and we plan to build upon the successes of 2016 in both of these areas. We mentioned the accomplishments shown on the slide for both PNM and PNMP in December but I included these again to emphasize our efforts and the impacts from this customer focus. The results from PNM’s customer perception study last year were record high but we know that we can also be better so we will continue to look for ways to build trust and create innovative solutions for our customers. We will also continue to play a strong supporting role in the efforts around economic development and public policy. We have shown that we are willing to step up and play our parts in working creatively to come with solutions for customers. Facebook selection of New Mexico for its datacenter is just one example of how we work to develop a pricing structure that would support the state’s effort to attract this new customer. At the end of January, we announced that affordable solar, a local [indiscernible] solar company was awarded the $37 million contract for construction for 30 megawatt solar generation project for Facebook.

Another locally owned company is providing the tracking equipment for the panels. Construction will begin in 2017 with the first site operational beginning in January of 18 and the final site operational by May of 18.each site will create between 50 and 100 construction jobs and affordable solar is anticipated to be hiring 40 additional employees in connection with the project. We are supporting efforts in New Mexico’s current legislative session which began January 17 and runs through March 18 to protect customers against misleading sales pitches made by third-party solar companies. We are participating not only with the other utilities operating in New Mexico but with multiple chambers of commerce, realtor and trade associations and some of the more prominent local solar companies. It is our priority to participate in these types of partnerships with customer’s legislators and the community as we work together towards solving problems and creating growth in our state.

Now moving onto the updates or our current regulatory items on Slide 5. IN December, we filed a general rate case based on 2018 future test year which we cover in depth in our Analyst Day. The requested revenue increase is $99 million with 44% of this increase reflecting the items included in the New Mexico, public regulation commission’s approval of our BART settlement in December of 2015 and the installation of FCRs at the four quarters power plant. Our filing is based on a 10.125% return on equity with an expected implementation date of January 1, 2018. That lines up with the retirement of the two units at San Juan and the addition of Palo Verde Unit 3 capacity to meet our customers’ needs. The commission set a date of March 7 for a settlement conference and March 27 for a settlement agreement to be filed if one can be reached. We continue to work toward achieving settlement in this case especially considering that so many of the parties were also parties in the BART settlement and agreed in that case not to oppose the BART related components on this case. Now admittedly, this is aggressive timeline especially for many parities’ that are involved in other cases at the commission. But it encourages all parties to get to a settlement and plenty of time to work through all of the necessary approvals before rates are represented on January 1, 2018.

Our filing to implement advanced metering infrastructure for AMI in New Mexico has resumed and the earnings began yesterday. As a reminder, our application is clear that we will only proceed with AMI if the commission approvals recovery of the underpriceded investments in our current meters. If approved, we would spend $87 million over 2017, 2018, and 2019. We estimate a net benefit to customers over 20 years of just over $20 million. Following the hearing we expect a recommendation from the earning examiner in March or early April and then it should come before the commission in May for a vote. As you will remember from last year, we talked quite a bit about the importance of our integrated research plan that is to be filed in July of this year. We kicked off the process in 2016 and have held several public meetings to get influence into this 20 year plans. In those public meetings we not only review our existing power resources but also explore issues around transmission, various regulations, integrating renewable resources with traditional energy sources, impacts on the environment and the need to deliver affordable and reliable power.

Between now and July 3, we will sharing more in-depth information including the various resource portfolios we are modeling. This information is all preliminary and enables the public to provide comments on the plan giving it in-depth look at how we work to balance reliability and affordability while minimizing impacts on the environment. For the IRP, keep in mind that the plan will identify the most cost effective portfolios in two different scenarios. One scenario includes the continued operation of San Juan Units 1 and 4 after 2022 and a second portfolio that does not include those two units past 2022. This facilities a filing to be made by July 2018 to determine the future for the San Juan generating station. The parties in our BART stipulation agreed to resolve this particular filings within six months of the filing day which is important for us the other participants in San Juan and Westmoreland Coal Company so that we can all appropriate plan for future operations. We are on track to file the integrated resource plan by July 3.

I mentioned earlier that we continue to pursue recovery of our investments that will disallowed by the commission in the august 2015 general rate case. We filed our notice of appeal with the New Mexico Supreme Court on September 30, 2016. As a remainder, we are appealing the commissions’ decisions to disallow three key items. Recovery of the full purchase price for 64 megawatts of previously leased capacity at Palo Verde. The unrecovered value of past leasehold improvements in this capacity and the disallowance of the Balanced Draft Technology installed at the San Juan generating station. We are currently in the briefing period of the appeal. Briefing will be complete by June of this year. The [indiscernible] a decision. There is no required timeframe for the port to act on this appeal although utility appeals do have priorities under New Mexico law. As we discussed in our October, we have estimated that it will take about 15 months for this proceedings to be resolved. Turning to Texas, TNMP made its latest [indiscernible] filing on January 20, we anticipate the new rates will go into effect in March and will increase revenue by approximately $4.8 million annually. We also began talking with you last year about our plans to file for a general rate case at TNMP.

Our last general rate case at TNMP was in 2010. While we’ve been utilizing the [indiscernible] mechanism twice a year to update rates for transmission investments. Our rates do not reflect any changes to the remainder of our rate base or O&M costs. We have agreed with PUCT to file a rate case by September of 2018. As we’ve mentioned before, it is likely that we look at filings based on a 2017 calendar test year period and make that filings in the spring of 2018 with rates expected to be effective by January of 2019. As we move through the year, we will providing you updates on each of these items.

I’d to turn it over now to Charles Eldred for a detailed look at the numbers.

Charles Eldred

Thank you Pat and good morning everyone. Beginning of Slide 7, at PNM we’re continuing to see improvement in weather normalized residential load which was 40% of our total 2016 retail sales volumes. We are up 1.3% quarter-over-quarter which brought our total year number to a positive 0.1%. Commercial was up for the year at one half of one percent, industrial however continues to decline, down 8.8% year-over-year. This brings our total weather-normalized retail loads for 2016, down 0.7% compared to 2015. As you recall, our guidance for the 2016 was flat to down 2%. So this is slightly above the mid-point of the guidance for the year. We continue to see some good news coming as a result of economic development efforts in the area. For example, [indiscernible] announced as they plan to invest $36 million to expand and renovate an existing facility in [indiscernible] this is expected to bring about 175 new jobs to the area.

Flow has also announced earlier this month that they plan to hire an additional 500 people to their Albuquerque call center by October of this year. As a result of news like this, they implement growth in Albuquerque has growth 1% in a rolling 12 month period. Our customer growth is holding steady at 0.7%. As we look forward, we continue to expect 2017 low to be in the range of flat to down 1% compared to 2016. TNMP continues to perform well. The volumetric load was up 3% for 2016, which is at the top end of our guidance range of 2% to 3% growth. Demand base load also continues to show strength at 2.4% for the year. The economic outlook in Texas continues to be strong as shown as Dallas continuing its trend of rolling 12 month [indiscernible] growth. In December of 2016, [indiscernible] issued a press release reiterating the continued strength stated that it is expected to be higher than previously forecasted in 2017. As a result we expect TNM P’s low growth 2% to 3% above 2016.

Now moving to Slide 8, we had ongoing earnings of $0.34 for the fourth quarter for 2016 compared to $0.23 in fourth quarter of 2015. PNM was up $0.10 and TNMP was $0.01. Corporate and other was flat year-over-year as the increased interest from the Westmoreland Financing was partially offset by additional interest expense at the holding. Turing to Slide 9 for our earnings drivers. At PNM, I’ll begin with the impact of the rate release that was implemented in October 1, now that the renewable writer impacts. Quarter increase was $0.08 we continue to expect the year-over-year increase in 2017 to be $0.26. We have $0.05 of savings in our outage costs in the fourth quarter of 2016 compared to fourth quarter of 2015. This is primarily driven by no planned outages occurring at San Juan generating station and we also had better performance than Q4 2015 at several of our other facilities including our largest gas fire generator. As you saw last quarter, we have successfully implemented cost savings. This contributed $0.03 education in O&M cost compared to the fourth quarter of last year. As expected the elimination of the Pablo Verde unit 2 lease cost net of operation results in increase of $0.03. We also have some expenses in 2015 for the write-off of the exploration of alternative fuel supply contracts for San Juan that resulted in a in a pickup of $0.02 in the fourth quarter of 2016. FUDC continues to be a reduction as expected due to lower constructions balances after last year’s higher capital spending levels.

This reduced earnings by $0.03. Mexico experienced very mild weather in Q4 of 2016 as a result earnings were reduced by $0.03. Heating degree days were 13% lower than the fourth quarter of 2015, a 15% lower than normal. Pablo Verde Unit 3 sales were hedged for 2016 at a lower market price than 2015 which caused the result to be $0.02 lower. We also have higher depreciation of property tax expense of $0.02 due to the increased planned balances. The Navopache third generation contract was also $0.01 lower than fourth quarter 2015. Moving to TNMP, the increases in logos discussed earlier added a $0.01 compared to the fourth quarter of 2015 and [indiscernible] added another $0.01. Weather in our Texas service territory increased earnings $0.01. Our heating degree days were essentially flat compared to fourth quarter 2015 cooling three days or 32% between the periods, these increases were partially offset by higher depreciation expense and property tax of $0.01 on the increased planned investments that supported this growing load.

Moving to Slide 10 I want to spend a few minutes exploring our potential tax reform could impact us. As we all would agree it will probably take some time before tax reform become reality. But based on how we think about it today, given resources well positioned and customer build should be lower because of tax reform. The key elements that we think about in tax reform are the tax rate, interest non-deductibility and 100% bonus depreciation. Starting with the tax rate, this will lower tax expenses of utilities which is good for us. Normalization rules are important as they spread the change over several years to smooth the rate impacts across periods. At the holding company, the reduced rate would result in reduced tax benefit from holding company losses, however this amount this expected to be small. The next item is interest on deductibility. At the utilities, this higher tax expense included in customer rates. However the decrease in tax rates would more than offset this. At the holding company we do have some outstanding debt that is short term in nature if the interest expense is no longer deductible this would be a slight exposure there. We also have interest income at the holding company, if you assume the net interest expense would be nondeductible than this it will help to reduce that exposure. 100% bonus depreciation would be beneficial at both at the utilities and the holding company from a cash flow perspective. Bonus depreciation paired with a lower tax rate was lower the utilization of net operating loss carry forwards and the delay future cash tax expense. The additional funds could be used to invest in system infrastructure and reduce debt. This aspect of tax reform is the most attractive and provides a lot of flexibility to our company.

Now moving to Slide 11. I want to reaffirm our five-year ongoing earnings growth goal of 7% to 8% to 2019. The potential earnings power of the company in 2019 is 205 to 223. This is achieved through recovery continued investments in the system to serve our customers. Addition of Pablo Verde Unit 3 to rate base is the high end of that target is affected by the ultimate outcome of the Supreme Court appeal. We have [indiscernible] with a 10% increase in December; this puts us at the 53% payout for 2017 which is still in the lower half of our 50% to 60% target payout range. Earnings growth of the company paired with our ability to grow the dividend continues to provide above industry average returns for shareholders while we maintain affordable rates, high reliability and service levels for our customers. To wrap it up today I want to emphasize what Pat said earlier about the rate case, we will work hard towards achieving the seven our current rate with many of the parties or signatories to the board participate in this proceeding we believe that we have a lot of common ground to start with.

Thanks for your time this morning, now I'll turn the call back to Pat.

Pat Vincent-Collawn

Thanks, Chuck. I also want to reiterate some of the comments you’ve heard from other companies on industry efforts related to tax reform. We have been actively involved with EEI in analyzing the impacts of potential reform measures and determining the priorities of the electric utility industry for engagement with policymakers. Retaining the deductibility of interest expense and securing normalization rules are certainly a focus for the industry. We all have more questions than answers right now, but like everything else, we will be working toward the objective of balancing the interest of both customers and investors.

As we wrap up the call today, we've laid out another full year of activities for 2017. As always, it’s our team of employees in both New Mexico and Texas that deserve the credit for showing our core values of safety, integrity and caring as they serve our customers every day and work towards finding creative solutions to meet their needs. As we navigate through regulatory agenda for the year and any policy changes, it's this continued focus on our customer that will be the basis for success in our future.

Thanks again for joining us today. Operator, let's open it up for questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Chris Ellinghaus of Williams Capital.

Chris Ellinghaus

Hey, good morning, everybody. Chuck, can you talk about the process improvement initiatives and give us a little color on what you’re doing and the duration that you anticipate that will take?

Charles Eldred

Yes. We have been, for the last couple of years, have been working on process improvements throughout the company and operations in the service company as well and continue to find ways in which we can reduce our O&M costs. If you look at this current rate case that we filed, year over year, we’re pretty flat in our O&M direct costs and really the only inflation is really driven by labor increases, both at the union and the non-union employees. We've also instituted a hiring freeze, so that certainly motivates all the business units to look carefully at those processes and ensure if it is necessary to fill employees, but that's also driven the opportunity for us to avoid incremental cost as employees retire and as attrition occurs, particularly at San Juan, which is beginning to rightsize the generation unit to support the [indiscernible]. So this is an ongoing part of our culture, the part of what Pat instituted when she took over as CEO and has been a very robust and very thorough process to ensure that we capture every savings we can to benefit our customers and also to manage our businesses as well as we can, while maintaining reliability and ensuring affordability to customers through rate cases.

Chris Ellinghaus

Okay. Have you also gotten any material feedback vis-a-vis the Supreme Court case?

Charles Eldred

No, nothing.

Chris Ellinghaus

Okay. How about as far as AMI issue goes, what have you learned, how do you feel about that at this point?

Pat Vincent-Collawn

Chris, they just started the hearings yesterday, so I think it is kind of too soon to tell. So later this week or early next week, we'll probably have a better feel.

Chris Ellinghaus

Okay. One more thing. Can you give us a little color on how you feel about the rate case settlement potential at this point, are you feeling like the BART signatories are still on board?

Pat Vincent-Collawn

Well, again, we just got started. I think they had their first meeting on Friday and so we don't have any real feedback yet. The BART, we are hopeful because of the fact that all of the BART signatories have agreed not to oppose the BART elements in this case, but again, kind of too soon to tell, because we’re just getting started on that process.

Operator

And our next question comes from Anthony Crowdell of Jefferies.

Anthony Crowdell

Hey, good morning. I wanted to follow up on Chris’s question with the O&M savings or the cost initiatives, will those be included in - are those costs assumed in the current rate filing?

Charles Eldred

Yes, assumed in that.

Anthony Crowdell

So just to make sure, I shouldn't carry them through in 2018?

Charles Eldred

Well, at 2018, you just assume that those costs are built into the rate case and that would be the right assumption.

Anthony Crowdell

Great, okay. There was a couple of legislative, I don't know, they became bills or they’re made it out of committee that we’re proposing maybe early in February, just wanted to know if you could give us any update, particularly the one about rate change request frequency and I think that was, I'm not sure what it was?

Pat Vincent-Collawn

Yes. Sure. I mean one to think about just overall for legislation is legislators often have something on their mind on something on a constituent’s mind and they introduced the bill, and if you look back to 2015, which was the last 60 day legislative session here in New Mexico, only 14% of the bills introduced actually were approved and sent to the governor's desk and then after the government got done, only 11.6% of the bills got passed. So the likelihood of a bill getting passed is not real high in New Mexico, probably in Washington, too.

The utility rate change frequency request is before committee today and just as a side note, somebody introduced one on water utilities too. So - and then I think if any, there was one on the renewable requirements for utilities that would have 80% utilities, that's the committee today also. And then the other one is maybe we're thinking about was the appointed three-member PRC which goes to committee on tomorrow actually. And our bill on distributed generation consumer protection legislation has already passed the Senate and it is waiting to pass the house.

Anthony Crowdell

So other than your bill. I guess on the, is it called solid protection, you call it, but every other bill that we just talked about has not left committee and this session ends March 18, is that correct?

Pat Vincent-Collawn

That's correct.

Anthony Crowdell

Okay. And the change of the PRC going from elected to an appointed committee, does that require any change to the state constitutions for that to happen?

Pat Vincent-Collawn

Yes, it does.

Anthony Crowdell

Okay. Last question, I just wanted to follow up on the Supreme Court, I’m trying to make sure I heard correctly, so that there may be hearing held or I just may have not heard you correctly on it.

Pat Vincent-Collawn

We have requested oral argument and the Supreme Court has never denied an oral argument request that we have made, but we just haven't heard back from them yet about if we would have oral arguments and when they would be. We are still in the briefing process right now.

Operator

And the next question comes from Brian Russo of Ladenburg Thalmann.

Brian Russo

Good morning. Just curious back to the general rate case and possibility of settlement, were there any elements outside of the BART that would kind of be an impediment to a settlement, rate design or separate class for distributed generation, et cetera?

Pat Vincent-Collawn

Well, if you look at, we didn't make any major rate design changes, we're trying to change the fixed charge to better reflect the fixed cost elements of the business, but we didn’t ask for a separate class for solar, we didn’t ask for solar access fee and that the fixed cost mechanism that would help us recover energy efficiency cost is exactly what the hearing examiner in the last case told us we should file. So those kind of things shouldn't be particularly controversial. I'm sure there also have been some discussion about four quarters, but other than that, there is nothing that I would consider a lightning rod in this case.

Brian Russo

Got it. Okay. And then just back on the legislative proposal or the proposed bill to switch to move from an elected commission to an appointed commission, can you give us a sense what's the motivation behind that by whoever proposed it and what are you trying to achieve?

Pat Vincent-Collawn

This is not the first time that we've seen this bill come up in our legislature and I think there has always been some longing by some to go back to the way it was in New Mexico before when we had appointed commissioners. I think that sometimes this actually - the legislature that introduced us from the north-western part of the state and that's the San Juan part of the state, so I haven’t talked to this individual, but maybe they think that they would get different treatment or better treatment if they had appointed commissioners, but this one has got a tough slog because it's got to get through the legislature, and then you have to put it on the ballot and it is tough for people to give up voting for something. It’s like, we all did for judges, and if you asked us if we would stop loading for judges, we probably would all say no. So I think this one faces a tough slog, but it is not the first time at the rodeo for this.

Operator

Next question will come from Lasan Johong of Auvila Research.

Lasan Johong

Thank you. Pat, I’m sorry, but you cut out when you were talking about the AMI spending, how much is it per year ‘17 through ‘19?

Pat Vincent-Collawn

And my apologies for cutting out. Lasan, what we said was, we would spend $87 million over 2017, 2018 and 2019.

Lasan Johong

Okay. For the whole project?

Pat Vincent-Collawn

Yes. And then the net benefit to customers is $20 million.

Lasan Johong

Okay. And this is not SmartMeter. This is not automated meter reading, right?

Pat Vincent-Collawn

It's automated meter reading, but it is - some people call it different things, it does have a component of smart meters in it. So it's not full grid automation, it's not full real-time pricing, et cetera, et cetera, but it is the gateway for smart grid.

Lasan Johong

So you can turn off customers remotely, turn them on remotely?

Pat Vincent-Collawn

Correct.

Lasan Johong

Okay. So it's not just the meter reading? Okay.

Pat Vincent-Collawn

No. You can provide all the customer benefits, two-way communication, so they can have more control over their usage, et cetera.

Lasan Johong

Perfect, perfect. In terms of the San Juan 1 and 4 generation past 2022, does PNM have a preference or is that something you don't want to discuss openly?

Pat Vincent-Collawn

We will let the numbers speak, I mean, there are a couple of factors. One is, we have to see what the numbers are, and then two, you have to see what the effects on the local economy is. So our preference will be whatever the number say and then the PRC approves?

Lasan Johong

Let me see if I can purchase for more taxable manner, environmental considerations have a bearing on this aspect?

Pat Vincent-Collawn

Well, one of the things that the IRP process does take into account is environmental rules and regulations. The one caveat I would say to that right now is a lot of that is in flux with the new administration and the new EPA administrator, but all of the known rules and regulations, and we will also take a look at what we think could be coming that will all be part of that process.

Lasan Johong

And by 2022, if the current administration remains in place, that might save San Juan staying in place.

Pat Vincent-Collawn

Well, if we go back to the claim power plant, which does have a high likelihood I think of going away, New Mexico would have still been in good shape with just the shutdown of units 2 and 3 and all the renewables we had, the state was very close to meeting what was set out for it in the clean power plant. So having a clean power plant really doesn't change the results.

Charles Eldred

Yeah. And to add to that Lasan, obviously, we're shutting two units down in 2018 as you know. So fixed costs are running the remaining two units, it is certainly a factor kind of capital that goes in to maintaining the continued operation of the units, there is just a number of components, the market prices for gas is certainly a driver too as alternative resources are considered. If we were to shut the two units down for replacement power, so there is just a lot of variability that goes into trying to come up with an assumption that maintain the reliability, the integrity of the system and the affordability of customers and all that is a very rigorous and robust process as Pat pointed out, and that has been going on since July of last year, but the information will start to work itself through the public advisory groups to gain their input, which will begin here in April, as we file a draft to the latest information.

Lasan Johong

Is it possible for you to revise the [indiscernible] go away?

Charles Eldred

Well, you’re saying one and four go away, we'll see what the integrated resource plan says about renewables, because obviously we if San Juan 1 and 4 go away, we will need new generation baseload and generations.

Operator

The next question comes from Paul Ridzon of Keybanc.

Paul Ridzon

Good morning. Just sorry if I missed this. When is the window for settlement discussions?

Pat Vincent-Collawn

We are starting, we actually had a discussion, but the commission set the time from March 7 to March 27.

Operator

[Operator Instructions] Our next question will come from Paul Patterson of Glenrock Associates.

Paul Patterson

Good morning. So just to sort of follow up on the legislation, SB 260 which is a lease cost procurement, let me ask the question this way, other than the solar consumer protection bill, if I gather from listening to the Q&A and what have you, it doesn't look like much of this legislation is going to probably move the session, is that right?

Pat Vincent-Collawn

I think that's a fair assumption.

Paul Patterson

Okay. And then you also were talking support the smart meters and I guess the level of smartness, can you do voltage detection, is there any voltage reduction benefit that’s associated with this type of meter?

Pat Vincent-Collawn

There can be some, but you want to be careful when you do the business case for this that you don't promise what's not proven. But we will take a look at that.

Paul Patterson

Okay. So you aren’t forecasting any decrease in load or anything as a result of the SmartMeter deployment?

Pat Vincent-Collawn

No, because the SmartMeter deployment is really just sort of the turn on, turn off remotely, the two-way communication, the elimination of the four meter readers, because those are pretty dangerous jobs. It will enable you to do real-time pricing and other things, but we would have to get that preapproved by the commission and at that time, we would forecast any energy loss and remember part of this rate case is loss fixed cost mechanism to help us recover lost energy sales to energy efficiency. So that helps us going forward, also.

Paul Patterson

Okay. And then you also mentioned that Washington legislation. I think correctly, so often has a difficult time passing, are you referring to tax legislation or do you have any outlook on potential for tax legislation or was that just a passing statement?

Pat Vincent-Collawn

That was me being cynical, having spent some time in DC, two weeks ago. So it wasn't anything particular on tax reform or anything. So it was just little cynicism coming from me. Sorry about that.

Paul Patterson

That's cool. I can understand it. And I think I actually think just one final thing, so with the SmartMeter deployment back to that, you did see that there was some concern about job losses that was being voiced by some of the parties, is that how should we think that in context of your calls initiatives and everything else of this apparent concern in the environment that you guys are operating in?

Pat Vincent-Collawn

Well, we obviously did some wells last year, there were no customer facing employees in that layoff. So I think that that made attrition feel better that we were not going to harm customer service and reliability and that we were doing the reductions at a staff level, and a lot of what we've done is to tax point is we have a hiring freeze, little things like everybody here in this room can tell you what the trash day is on the 12th floor because we only get our trash picked up once a week, so all sorts of little things that add up to big savings.

I think the concern on the meter reading jobs where that those are union jobs, they are customer facing jobs and one of the things that we would do is make sure we have some sharp trading money in there and because the union meter readers know it is coming, they will have a chance to find other jobs whether they bid here in [indiscernible]. When we did the automatic meter reading in Texas, we actually didn’t have to let anybody go. We actually had the higher temporary meter readers towards the end because the folks there knew it was coming and we’re able to get other position. So there is always a little bit of concern about job loss, but I think we've managed to temper it.

Charles Eldred

Paul, just to add to that, just to refresh everyone's memory, we don't have AMS in our capital budget, nor the cost savings that Pat alluded to, built-in to our projection. So the economics of what would ultimately come out of a full implementation of investing the capital and going forward with it is now built into our numbers.

Operator

And this concludes our question-and-answer session. I would like to turn the conference back over to Pat Vincent-Collawn for any closing remarks.

Pat Vincent-Collawn

Thank you. And again, everyone, thank you for joining us this morning. Stay safe, especially if you are planning to celebrate [indiscernible] and we’ll talk to you again later this spring. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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