Northwestern Energy Group Inc (NWE) Q2 2010 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the NorthWestern Corporation's Second Quarter 2010 Financial Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded. And I would now like to turn the conference over to your host, Mr. Dan Rausch. Please go ahead.

Good morning and welcome to NorthWestern Corporation's June 30, 2010 quarter-end financial results conference call and webcast. NorthWestern's results have been released and that release is available on our website at www.northwesternenergy.com. We also filed our 10-Q yesterday. Joining us today on the call are Bob Rowe, President and CEO; Brian Bird, Chief Financial Officer; Dave Gates, Vice President of Wholesale Operations and Kendall Kliewer, Controller. This presentation contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of this date. Our actual results may differ materially and adversely from those expressed in our forward-looking statements as a result of various factors and uncertainties, including those listed in our annual report on Form 10-K, recent and forthcoming 10-Qs, recent Form 8-Ks, and other filings with the SEC. We undertake no obligation to revise or publicly update our forward-looking statements for any reasons. Following our presentation today, those joining us by teleconference will be able to ask questions. A replay of today's call will be available beginning at Noon Eastern Time today through August 29, 2010. To access the replay, dial 1-800-475-6710 and then access code 163720. Those numbers again are 1-800-475-6701 and then the code is 163720. A replay of today's webcast is also going to be available on our website for about the next month. And with that, I'll turn it over to President and CEO, Bob Rowe.

Thank you, Dan. We're really quite please with our results for the second quarter and in addition to our financial results, we have several non-operational success that I will mention in just a moment. And we made significant progress on the Montana rate case since the last time we spoke. First, starting with the financial results, our net income improved to $11.7 million for the second quarter of 2010, and that's compared with 6.1 million for the second quarter of 2009. This was primarily due to improvement in income tax expenses and in operating, general and administrative expenses. We've announced our third quarter of $0.34 per share and that's payable on September 30 for shareholders, a record as of September 15. And during 2009, our quarterly dividends were $0.335 per quarter. Also, early in the quarter, we were added to the Standard and Poor's small cap group of 600 stocks. And finally, Forbes.com has included us on their list of 100 Most Trustworthy Companies. Both of these are good indications of the progress we have made of our future direction. And particularly, the Forbes.com recognition, I think, is a great testament of the integrity of our employees and our Board of Directors. Now, I am going to turn the call over to Mr. Brian Bird to discuss our 2010 financial results in more detail.

Thanks Bob. We reported diluted EPS of $0.32 a share during the second quarter of 2010 compared to $0.17 a share in the second quarter of 2009. So, basically earnings increased $0.15 per diluted share on year-over-year basis. Let me give you a quick overview of the largest drivers. Reduced operating costs, including benefits, legal costs, pension costs, and plant operations contributed about $0.08 per diluted share compared with second quarter 2009. Allowance for funds, used during construction or in other words, AFUDC, benefitted our earnings by about $0.06 a share, primarily, related to the Mill Creek Generating Station between decreasing interest expense and adding to other income. We expect to capitalize another 6 million of AFUDC related to Mill Creek through the remainder of the year. Release in valuation allowance against certain state net operating loss carry-forwards benefitted net income by approximately $0.06 per diluted share compared with the second quarter of 2009. Also, we had continued tax benefits for repair costs due to flow-through regulatory treatment, which contributed about $0.03 per diluted share compared with second quarter of last year. In the second quarter of 2010, we benefitted from the absence of a 2009 $0.02 per diluted share loss on a natural gas capacity contract. Offsetting those improvements or increases to second quarter 2010 earnings included higher qualifying facility supply costs of approximately $0.06 per fully diluted share compared to second quarter of '09. And a net decrease of about $0.06 per fully diluted share in our earnings due to the increase in property taxes caused by an increase in asset property values in Montana. And this is the net result of our property tax tracker which has reflected in gross margin. And you can tell from our press release and our 10-Q filing, there were other increases…

Thank you Brian. We just concluded a very successful Board of Directors meeting in Brookings, South Dakota and that gave us, Board members, the opportunity to meet with more of our skilled employees and customers. It is always, the Board is extremely impressed with our employees and with the vibrancy and support that we receive in our communities. I'll start by giving update on the Montana rate case. As you all know, in October 2009, we filed a request with the Montana Public Service Commission for an annual electric transmission and distribution revenue increase of $15.5 million and an annual natural gas transmission, storage and distribution revenue increase of $2 million. And that request was based on a 2008 test year and included a return on equity of 10.9% and an equity ratio of 49.45% on a rate base of 632.2 million on the electric side and 256.6 million on the natural gas side. We've recently reduced our revenue increase request as part of rebuttal filing to 13.1 million electric and 1.5 million natural gas. This was due to known and measurable expense changes that had occurred since the end of the 2008 test year. So, we've decreased our total annual revenue request by about $2.9 million from the original request. In July, the Commission voted to approve an interim rate increase of 12.4 million electric, and 1.4 million natural gas, and that is subject to refund. Interim rates went into effect on July 8. We will defer recognition of the interim payments that are being received because of the payments are subject to refund and because of the Consumer Council's position actually was calling for a decrease of $2 million on the electric and $3 million on the gas side. So, based on those factors we concluded, the prudent…

Rachel, we're ready for questions whenever you are.

Okay. (Operator Instructions) Question comes from the line of Chris Ellinghaus of Wellington Shields. Please go ahead.

Hey, guys, how are you? Brian could you just refresh our memory in terms of how you see the repair benefit, tax benefit going forward? And have you updated your expectations at all for this year?

On the repair side, Chris we haven't updated our expectations. Obviously, we're seeing the benefit to the first two quarters because we did make an adjustment into the second half of last year. So, I would continue to see a similar benefit on a quarter-to-quarter basis.

From the second quarter?

Yes.

Okay. And just talk about how the tax benefit will affect the tax rate going forward in future years?

We've noted last because of the repairs itself that the tax rate would hover around 30% and overtime would increase. Because of the reserves, valuation allowance reserves released this year, our tax rate will be less than 30%.

Okay. And any clarification or color on how you see the tax benefit sort of devolving overtime?

Well, this year the valuation reserves release is a one-year item only and that's why it's not going to be included in guidance. We're not considering that. My expectation is we're going to see a tax rate that's going to be closer to 25% than 30% in 2010. And now I would tell you that back in 2011, our expectation is just you are back to around a 30% rate that increases overtime.

Okay. Also, relative to the earnings reconciliation, I didn't read anything in the press release or in the Q that sort of discussed any kind of insurance or legal recoveries for the second quarter. But the decrement or incremental impact of the insurance recoveries in the reconciliation said $1.8 million. But I thought last year you had something like a $3.5 million insurance recovery in the second quarter. What's the discrepancy between those two numbers?

I don't recall the second quarter item. I can tell -- let's speak to the 1.8 that's in the net income and that's on the six months number. And I think you're talking about, that's in the insurance reserves not in the recoveries, correct?

It's in the line that says insurance recoveries and settlements which is 1.8 million pre-tax. And I thought, last year, in the second quarter you had a more significant, I don't remember if it was a reserve or recovery, but I think it was a recovery last year. So, I was just wondering if the difference between those two numbers meant that there was any kind of insurance or legal issues benefits for this quarter.

Now, as you know, we have pointed out. We have a decrease in insurance recoveries on a pretax basis of 1.8 for the three months, correct?

Right.

In the second quarter, and as we pointed out in the Q, that decrease means that we had a recovery in the second quarter of 2010 but it was certainly less than the 4.4 million recovery that we had in the second quarter of 2009.

Okay, great. Thanks. All right, thanks guys.

Thank you.

Okay. Thank you. Next question comes from the line of Paul Ridzon of KeyBanc. Please go ahead.

What drove the decision to release the reserves on the NOLs? Was there an event or just something that made you feel better about the credibility of those?

Yeah, the thought process is when we initially setup our reserves, we weren't sure in terms of what amount of taxable income we would have from Montana business as we evaluated our earnings for 2010, we looked closely at the reserve and we are comfortable with releasing portions of that.

And where did that flow through the income statement?

It flows right into tax expense line.

Okay. So that $0.06 is going to fully manifest itself, just through a lower tax rate.

That is correct.

Okay. And can you just discuss -- when do customers start to see the benefit of the change in tax methodology? Will that be January 1, or is that July of 2010 when interim rates hit?

I think you may remember, Paul, that we reduced our ask, if you will, from the rate increase as a result of the tax benefits flowing through the customers. So, it's already being reflected in the interim rates.

Okay, so --

Yeah, in fact, we actually delayed the filing to revise the initial application, in order to capture that benefit up front for customers

And when do you expect the next update on just how open season's going? Is that going to be the third-quarter call?

We'll certainly give you an update in each call. But for the reasons I discussed, I think the sensible thing to do is to leave the open season open for an extended period just to get more clarity in the market.

Okay. Thank you very much.

Thank you.

Thank you.

Thank you. Next question comes from the line Ryan Rosenthal with Sidoti & Company. Please go ahead. Ryan Rosenthal - Sidoti & Company: Good morning. My question concerns going back to the NOL valuation balance release. In the release, you guys discussed that it is not included in your earnings guidance for the full year. Is that inclusive of the $0.06 benefit during the second quarter, so essentially you're excluding any benefit from that for the full-year guidance?

Yeah, we are excluding that benefit. So, that's $0.06. As we looked at our results and reaffirmed our guidance, we concluded that $0.06 would be excluded. Ryan Rosenthal - Sidoti & Company: And turning to the $0.06 tracked in the qualifying facility supply cost, can you address the short-term trends for your qualifying facilities and how you see that moving from here?

Yeah, it's difficult to say on a year-over-year basis. I can't tell you in the going forward basis, but our expectations and we had -- for this year, we recorded the first half of the year. We do that every June and we get the higher prices and higher volumes from our QFs, we didn't have an adjustment this year. Ryan Rosenthal - Sidoti & Company: And turning to the MSTI project and the Collector system, would you suggest that carbon legislation's been slower than you initially anticipated and that it might require some certainty in terms of legislation before you'll get sufficient commitments to move forward with MSTI?

Federal legislation around carbon and around transmission is certainly one of the important factors for anyone committing their capital to build their plant. At the start of the Congress, I certainly recognized that uncertainty is the name of the game. But that has absolutely been one of the factors affecting the ability and decision making of the perspective developers. Ryan Rosenthal - Sidoti & Company: Okay. And --

If you have any thoughts as to where Federal legislations might be heading, we would certainly welcome those too of course. Ryan Rosenthal - Sidoti & Company: I'm sure you're more knowledgeable about it than I am. And then one final question concerning the gas reserves -- is there any timing in terms of when you might be able to add something to your rate base there? And also if you'd give us a sense of what the scope or scale might be?

Sure, we can't comment on any specific negotiations. What I can say is that we're actively looking at opportunities, I thought is we would probably bring on incremental resources, layering in probably relatively small additions overtime. And those would be layered in basically on top of existing supply contract in our portfolio. And then that would, again, transition from pass-through expense into rate base supply with earnings. Ryan Rosenthal - Sidoti & Company: Thanks for your time.

Thank you.

Thanks Ryan.

Alright, thank you. And the next question comes from the line of Brian Russo of Ladenburg Thalmann. Please go ahead.

Hey, good morning guys.

Brian.

Just can you maybe comment a little bit on the recent [IRT] filings and when you expect to need any additional meaningful generation in Montana? And then maybe just comment on maybe the support for NorthWestern to own steel in the ground versus reliance on PPAs, and then, lastly, discuss the contract you have with PPL Montana that expires in 2014?

I think it's fair to say that there is strong support in Montana for own resources given the experience with the deregulation experiment. And that obviously is reflected initially in legislation on the electric side than on the gas side several years ago, reflected in good forward-looking decisions from the Montana Commission, both considering Colstrip 4 and then concerning Mill Creek. We're in, Montana, really pretty unique situation as a utility looking at, again, moving from pure purchase to much greater ownership or resources. And that makes the entire resource planning process, I think, just different from us than other utilities there, really looking more at dealing with low growth and plant retirements. For example, the supply plan that we filed in Montana. You can think of it as kind of a roadmap. Its focus is going to include in the near-term, much more detailed analysis of needs around a gas plant. The specific need would be certainly by 2014, possibly earlier. We're very interested in the idea of kind of project banking so that as the need becomes more imminent, the lead time is shorter. I've already talked about our goals for 2011 in terms of bringing on some significant incremental win, trying to clarify risks around carbon, again, will be another important aspect for next year and then dealing with heavy load needs in particular. We like in many ways, where we said because, you know, the PPL contracts roll off, we've got a good systematic approach to looking at those and other resources in the regions as well. But we're not in any way dependent on any one particular supplier over the long-term with opportunities to purchase from other resources and then obviously, most importantly opportunities to invest directly.

In terms of the PPL Montana contract, when you looked at kind of the forward curves in 2014 or '15, is that contract above or below market? Hello?

Right now, the contracts appears to be really pretty close to market.

Okay, are there any environmental upgrades necessary on Colstrip?

No.

Okay, great. And then just -- it seems as if the MSTI project, the advancement of the development stages, some of which are in your control, others seem to be more reliant on forces that are out of your control, and I guess I understand the importance of pushing through the permitting stage. So if and when that project does potentially be harvested, you've got all the permits in place. But is there a way maybe you can prioritize the projects that you laid out earlier as the most likely to succeed down to the least likely to succeed, or earliest timing to latest timing?

I would say timing is probably the better way to look at them. And I discussed them more or less in sequence. And that would be, again, the Colstrip upgrade first, the north Collector line second, MSTI third. And you're completely right, that we're focusing on the parts of the projects that are really the heavy lifting, and that is particularly the siting process. What I like about the project -- I think MSTI is, I suppose, the most visible. We have a lot of ability to control our capital commitments and to layer that project on top of things or other things we're doing in our system. Again, depending ultimately, when the market actually develops. But, in terms of critical path, the things we're focusing on now at really pretty modest capital commitments are the key activities.

Okay, great. Thank you very much.

Thank you.

Thank you. Next question comes from the line James Bellessa of DA Davidson & Company. Please go ahead. James Bellessa - DA Davidson & Company: Good morning.

Good morning.

Morning, Jim. James Bellessa - DA Davidson & Company: Going back to the release of the reserve valuation, you've indicated that it took -- it added $0.06 per share to the first half, and you're also indicating in your narrative in the Q that the amount could be about the same in the second half. So if I'm understanding correctly, your guidance range of $1.95 to $2.10, if your forecast is correct, will be exceeded by roughly $0.12 a share by the end of the year.

It's exceeded that, but I'd rather say it this way. The $1.95-2.10 will exclude $0.12, again, if that reserve is equal to the $0.06 in the first half. That $0.12 will be excluded from that range. That answered your question, Jim? James Bellessa - DA Davidson & Company: Yes. And Jefferson County, if their NIMBY attitude prevails, what are your alternatives for the MSTI line?

It's impossible to answer that question directly without an awful lot of speculation. I'll say a couple of things. First, do we have confidence in the Q process? There will be, at some point, a recommended route coming out of that. Secondly, we absolutely acknowledge concerns and interests of landowners adjacent to any of the potential routs. As you know, Jim, we had over 60 community meetings so far. We continue to be active trying to provide information and do what we can to address landowner concerns when there is a recommended route of there'll be a comment period. At that point, we'll be able to speak much more specifically to concerns about an identified route. So, that would be an important next step in the process. James Bellessa - DA Davidson & Company: Correct me if I'm wrong. Is Townsend in Jefferson County or right next to Jefferson County, and so anything going westward has to go through Jefferson County, or can you go around Jefferson County?

Townsend is in fact in Broadwater County. There are a number of routes on the table. Not all of which are would be affected by the litigation at all. And again, with the County, they're asking for, at this point, is really a question of interpretation of the Siting Act, having to do with the nature and extent of consultation with the County. They effectively are saying that they want a larger role in the process. They're not speaking so much to a particular route. James Bellessa - DA Davidson & Company: In your narrative, you talked about property taxes going up and claiming that the Mill Creek facility's tax was part of that -- that factored in. Do the State of Montana charge property taxes before you complete a project?

Yeah, there is an assessment for it. The plants in construction, there will be an assessment for that portion of it that was completed during the year. James Bellessa - DA Davidson & Company: So you're reserving for the portion of the plant that's completed up to now? Is that what's happened?

That's correct. James Bellessa - DA Davidson & Company: This peaking facility in Iowa, I think you said 50 megawatts -- what was the date that you might be able to have that completed? And is it earlier than previously expected?

Jim, the Neal plant is the plant in Iowa. The peaking we are talking about is in South Dakota. James Bellessa - DA Davidson & Company: Okay, South Dakota, I'm sorry.

No problem. And I think that's pretty much in line with our expectations that we provided in the past. James Bellessa - DA Davidson & Company: And what is the date that it would be completed?

2012 is the time period because we have a capacity contract that expires at approximately the same time that the speaker would come online. James Bellessa - DA Davidson & Company: Thank you very much.

Okay, thank you. And the next question comes from the line of Jonathan Reeder, Wells Fargo. Please go ahead.

Good morning, gentlemen. A couple more clarifications, if you don't mind. First off, on the NOL valuation allowance release, was that the full reason for the effective tax rate dropping from 30% to 25%?

Well, yes. We had repairs, tax benefits in line with our expectations. So, the drop was as a result of the reserved valuation.

Right, I'm just making sure there's not anything else in there besides that causing that 5% drop.

No.

Okay. Then on MSTI, if I heard you correctly, Bob, the pushback is now to the end of 2015 at the earliest. And is that just purely reflective of the draft EIS delay?

Primarily, and, again, the big health warning is that the project or other major projects will be constructed when it makes sense in the market and the continuing to focus on the key siting and related activities now really will provide us that flexibility to meet the market when it's ready.

Right, so assuming the market's ready and everything and you get the draft EIS now and you're expecting the earliest kind of could be at the end of 2015, right?

Yes.

Okay. And then lastly, if you don't mind, could you kind of discuss in the Montana rate case the decoupling mechanism proposal and kind of what the prospects are for getting one approved?

Sure, little additional flavor there. Of course, in the rate case, there are basically three buckets of issues, revenue requirements, allocated cost of service, rate design. Interveners in the rate case as part of the third bucket proposed decoupling, and the idea there is to essentially make the utility neutral as to efficiency investments. Now, it's important to note that we actually already have a lost revenue adjustment mechanism, which provides some of the benefits of decoupling. Individual commissioners, obviously, haven't prejudged the issue, but as they look at policy they've been interested in seeing some kind of a decoupling mechanism presented to us. We think that the proposal of the interveners have put forward, has a lot of merit. As are other utilities, we're doing an awful lot around energy efficiency. What we continue to say is the three basic things a company needs are first of all confidence about Reg cost recoveries. Second, being kept neutral to loss revenues associated with volumes, and then third, something to make the efficiency program an attractive business to be in, so, some kind of an incentive or a return. And decoupling mechanisms speaks particularly to the second part of that. Again, the Commission hasn't weighed in on a particular mechanism, but this case provides a good opportunity for them to really take a sharp look at this specific proposal.

When you're referring to the interveners, are you including the MCC in that bucket as well? Because I was thinking I read in the MCC testimony that they're -- it appeared they were kind of against the decoupling mechanism for the reasons you mentioned, that you have somewhat of a similar mechanism for recovering some of those DSM and efficiency investments already. And then I thought they proposed that if it was approved, that they would want a reduction in the allowed ROE.

That's, I think, a good summary of the Consumer Council position. The proposal was offered by -- from District XI Human Resource Council, which is a long-standing participant in Montana rate cases on behalf of customers as well as Natural Resources Defense Council. And again, I noted, we have an existing lost revenue adjusted mechanism. We support the idea of the decoupling pilot. We think it's a step forward. But we would not be able to accept decoupling, if that were associated with a reduction in ROE. We think that is inappropriate and would really be a step away from the goals that the interveners are proposing decoupling are attempting to achieve.

All right, thank you for the additional insight.

Thank you.

Thank you. And the next question comes from the line of Kyle Henderson of Praesidis Asset Management. Please go ahead.

Good morning.

Good morning.

I wanted to get a couple questions in about your natural gas reserve rate base opportunity. Presumably these would be proven reserves that you'd be targeting?

Yes absolutely.

Okay. And so I guess then the cost of these would be capitalized and then added -- put in the rate base.

Right.

What kind of a magnitude are we talking on these?

We looked at opportunities of a variety of sizes. Montana power typically had about 50% of its overall gas demand met from own resources. We're looking at projects substantially smaller. And I think can't really discuss specific project or dollar amounts. We're taking, as we should, a very caution approach to that. But, overtime, we would hope to see really a gradual transition from pass-through to owned supply. And again, given the anticipated future role of gas generation, that's another attractive way to potentially provide some price stability to our electric customers as well.

Yes, I don't really want to get you too far out there into the future. But if it's 50% or perhaps even substantially smaller than that, is that something you'd just be in the market for every year, sort of looking at small opportunities here and there?

Yeah, our participation in the market would certainly be ongoing until, at least at some point in the future we reached somewhere in the mid-50% range.

Okay. And you mentioned that because of some degree of history that you and your employees have had with this. Do you have sort of a sense of what might be an indicative ROE or capital structure on these, for rate-making purposes?

We would presume the history of the -- I think we would basically want to get some more ROEs and capital structure and everything else that we are involved and as we would proposed to all those projects into our ongoing operations.

Okay, great. And with the reserves capitalized but the costs of extracting, processing, and delivering, would that be a pass-through kind of expense, or how would that be managed?

Yes.

Okay. And do you have sort of a timeline of when we could start to look for this?

Well, since we're out in the market, the timeline is going to be really driven more than anything else by when we were actually able to strike agreements. Again that makes sense not only for the company but for our customers in the long-term. Just to reinforce one thing that you touched on, Montana Power, really was, quite unique in owning gas production and reserves, fuels. We're looking at a typically reasonably adjacent. And again, we do have an awful lot of depth of experience within the company and we're trying to take advantage of that. We're not in anyway launching off into terra incognito in going after this.

Okay, very good. Thank you for your help

Okay, thank you. (Operator Instructions) And we have a follow-up from Paul Ridzon of KeyBanc. Please go ahead.

Brian, you said you had an expectation how much more AFUDC was going to flow in the year. What was the number?

Is that a pre-tax number?

That is a pre-tax number.

How much have we done year to date?

I think it's around 4, Paul.

And the peaker in South Dakota, that's still about a $50 million investment?

Yeah, between 60 and 50.

60? And any way to triangulate on how big the CapEx opportunity could be for gas reserves?

Can you say that again, Paul? I am sorry.

How much potential capital could you deploy for natural gas reserves?

I mean, obviously, we're talking about, Paul; this is going to be a wide range. I mean, if you have approximately 20 Bcf of total needs and our expectation is to try to overtime to do half of that. That could be a very broad range. And we're looking at both small opportunities and large opportunities to Bob's point. It depends on what we're actually successful and actually agreeing to prices on many cases. These are bidding processes and we have to win and we're looking at a varied group of opportunities. So, to give you a range it would be quite difficult. But if half of that, the 20 Bcf as you know is 10 and you have to kind of gauge anywhere between 1 to 10 Bcf of the opportunities that we'd be looking at.

What was the Iowa project that was mentioned?

That's a Neal plant and there is environmental upgrades it maybe needed to that plant. And that Neal plant provides -- in our rate base, our ownership is in our rate base in South Dakota.

And how much could that --

That could be -- it's relatively small. We have an 8.6% ownership in that plant and the amount is rather small. At this point in time, we don't have an idea what the cost would be. Just to give you an idea that that's potentially coming.

And then in the second quarter of 2010, you had insurance recoveries of 4.4 million, less 1.8 million. Is that a pre-tax number?

Actually -- yeah, the one point is the net. It's the pre-tax number. It was 4.4 million in 2009 versus 2.6 in 2010. So, the 1.8 is the net pre-tax number.

Okay. Thank you very much.

Okay. Thank you. And the next question is a follow-up from the line of James Bellessa of DA Davidson & Company. Please go ahead. James Bellessa - DA Davidson & Company: Yes, it's about your tax rate going forward. You've indicated on this call and previously that in your current rate case, you reduced it for the tax benefit that you were receiving for the new accounting that -- for repairs that the IRS is allowing you. Why does your tax rate in future years stay down at the 30% level? Why doesn't it go higher than that?

We noted, Jim, that overtime as we make investments into growth projects, less of our capital would be going towards repairs projects. It's the repairs projects that helps keep your tax rate lower, right? Because that's what you're going to need the deduction for. So, our expectation is we make investment into growth projects, that percentage of capital going to repairs would be less. And so we'd expect to see our tax rate increase over time. James Bellessa - DA Davidson & Company: But in the near term, you're calling for it only being at 30%, even if the rate decision goes your way this year, at the end of the year, next year you're calling for a 30% tax rate. Why isn't it going to 35%?

Well, ultimately, overtime, it can creep back up to towards 35% overtime, Jim. But again, the deductions themselves are a $1 amount itself. It's not a rate issue. It's a $1 amount issue. So, again, if those repairs, which are pretty consistent on a year-over-year basis, but again, as portion of your capital is going to become a smaller portion of your capital on a going forward basis. So, ultimately that tax rate will increase up and ultimately, I think, we said in an earlier call, our expectation is it would be above 30% and would climb back up around 35% over the next five years. James Bellessa - DA Davidson & Company: Thank you very much.

Okay, thank you. We have a follow-up from the line of Paul Ridzon of KeyBanc. Please go ahead.

Thanks again, guys. What was the weather impact on this quarter?

The weather, in fact, was pretty benign. Actually, we had about a $0.01 favorable impact in our gas business. Electric was flat. But on year-to-date basis, that was a favorable impact for the second quarter on a year-to-date basis, we had about a $0.05 unfavorable impact on the first quarter also on the gas business. It was mild during the first quarter. So, hopefully, that gives you a number for both the second quarter and year-to-date.

Is that versus normal or versus prior-year?

That's versus normal.

Okay, thanks again.

Okay, thank you. (Operator Instructions) There are no further questions. Please continue.

Okay, well, thank you all very much. Again, it was a good quarter. We look forward to visiting with you again next quarter.

Okay, thank you. And ladies and gentlemen, this conference will be made available for replay after 12 P.M. today until August 29 at midnight. You may access AT&T Executive Playback service at any time by dialing 1-800-475-6701, entering the access code 163720. International participants dial 1-320-365-3844 and again that access is 163720. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.