TXNM Energy, Inc. (TXNM) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to PNM Resources Fourth Quarter Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Jimmie Blotter, Investor Relations Manager. You may begin.

Thank you, Nicole, and thank you, everyone, for joining us this morning for the PNM Resources Fourth Quarter 2013 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 Chuck Eldred, our CFO; 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.

Thank you, Jimmie. And good morning, everyone. Thank you all for joining us on what is a beautiful New Mexico morning here. Let me start this morning on Slide 4 with the headlines. 2013 was a good year for PNM Resources. Ongoing earnings were up $0.08 in the fourth quarter compared to Q4 of 2012 and up $0.10 for the year. As a result, we came in at the top end of our guidance range. Further acknowledging our progress at the end of January, Moody's upgraded the ratings for PNM Resources, PNM and TNMP. As you know, the upgraded is a reflection of Moody's more favorable view of the financial strength of utilities in general, but this also marks an important milestone for the company, as all 3 entities are now rated investment-grade by both Moody's and Standard & Poor's. In addition, Moody's continues to have the company on positive outlook. Our ongoing success is due in large part to concerted efforts of our wonderful employees, watching costs, identifying ways to become more efficient and effectively executing on projects. I want to take this opportunity to thank them for everything they do. We believe the company is in a strong position as we move forward into 2014. Finally, today, we are affirming our 2014 consolidated ongoing earnings guidance range of $1.42 to $1.52 per diluted share. Let's move on to Slide 5. If we look at PNM, the fourth quarter, we again saw a decrease in load. Retail sales declined 2.9% from Q4 of 2012. This decrease in load was again primarily due to one large customer in the industrial class. The New Mexico economy remains sluggish and difficult to pin down. In particular, the Albuquerque Metropolitan area continues to lag the nation in economic recovery. We continue to see mixed signals. On one hand, we see encouraging signs coming from the housing industry, increased tax revenues in the Albuquerque Metro area and unemployment rates below the national average. In contrast, we see other indicators, such as flat population growth and low job growth. Overall, there's not a clear indication of when the economy will rebound more strongly. We believe that businesses have a major stake in the success of the communities they serve. We've strengthened our support of economic development efforts, local job growth initiatives and education to help support a more qualified workforce. As part of the commitment, we and other local businesses are stepping up funding for programs designed to help boost our economy. For example, one company in New Mexico, the New Mexico Educators Federal Credit Union, recently donated $3 million to innovate Albuquerque, which is a new tech transfer and business startup initiative. And we've made a $3.5 million contribution to the PNM Resources Foundation to increase the annual dollars available for deserving job growth and other community programs. Our foundation is highly respected and well-known for contributions to organizations for education and job training initiatives and provides badly needed resources for our economically challenged residents. And in the just completed session of the New Mexico legislature, lawmakers approved significant economic development funding, including money for the job-training initiative program, and they also have allocated money to create a badly needed closing fund to help seal the deal with companies looking to relocate. So you can see there's a lot of efforts being made on both the state and local level by both government and private businesses to help jumpstart our economy here in new Mexico. In Texas, the economy is a much better story. TNMP saw retail sales growth across the board, almost 5% in total for the quarter compared to 2012. The Texas economy continues to be strong. In fact, the Lone Star State led the nation in job growth in both the fourth quarter and for the year, according to the U.S. Bureau of Labor Statistics. Let's go to Slide 6 for our regulatory update. And I'll cover the items for which we have an update. There's one item that's not on the slide that I'd like to start with and that's the 2014 renewable energy plan. On December 18, the New Mexico Commission issued a final order approving PNM's 2014 renewable plan as filed. The plan includes construction of 23 megawatts of company-owned solar photovoltaic facilities at a cost of $47 million; and a 20-year PPA for the output of an existing 100-megawatt wind energy center, and that would begin January 1, 2015. Both of these projects will go into the rate rider starting in 2015. We turn to the La Luz CCN. The regulatory process is moving forward for PNM's application to build the 40-megawatt La Luz gas-fired peaker. On February 20, we filed a notice of stipulation that would grant PNM a CCN to operate and build the plant and to include the cost in rate base up to $66 million. The filing request of the commission set a prehearing conference to discuss the schedule for testimony and a hearing on the stipulation. We anticipate this process will be completed by the third quarter of this year. Also, I have an update regarding our fuel clause continuation filing. In December, we reached the stipulated agreement with all of the parties. The agreement provides for the continuation of the fuel clause, including a quarterly reset of the fuel adjustment factor, which will improve the timely collection of cash and minimize large under- or over-collection balances going forward. The public hearing was held earlier this week. At the conclusion of the hearing, the hearing examiner stated that he will recommend that the Commission approve the stipulation without any modifications. A final order from the Commission is anticipated in either the second or third quarter of this year. On the BART filing, we are moving forward with the approval processes and I'll go into more detail on that in a moment. And there's one FERC-related item I'd like to mention. Gallup has notified us that we are not the highest ranked bidder in their RFP to provide power to the city. In other words, it appears that our bid was not the lowest. As we've said for some time, our focus remains on earning our allowed returns and fully recovering our costs. We can't say for certain that we will no longer serve this load, since the city's process is not complete. However, regardless of the outcome, we will consider -- continue to consider FERC generation opportunities that arise, and we will continue to make sure that we can earn an appropriate return on any business before we enter into long-term financial contracts. Chuck will go into more detail on the short-term effect that this will have in our financials. On January 21, TNMP filed with the Texas Public Utility Commission for a transmission cost of service increase. This would increase revenues by $2.9 million annually. We expect the commission to act on this request in March. Turn to Slide 7 now, and I'll go into a BART update. We continue toward gaining the final approval of the revised State Implementation Plan for San Juan. The process is moving forward on 2 tracks, one with the Environmental Protection Agency and the other with the New Mexico Commission. On December 17, the EPA deemed that our filing was complete, and they are now reviewing the revised SIP. The agency is expected to issue its proposed action regarding the filing by May 1, with the final action expected by September 29. In December, PNM submitted a comprehensive filing to the New Mexico Commission. The major components of that filing are listed on the left-hand side of this slide. On February 11, the hearing examiner determined that the filing was complete. Last week, the hearing examiner held a prehearing conference and outlined the schedule for the filing review. All staff and intervener testimony their testimony is due by July 7, with a hearing scheduled for August 19 through August 29. The hearing examiner stated that the schedule would accommodate a Commission decision by the end of December, and this is in line with our request that the Commission make its ruling no later than the end of the year so we can stay on track with the timeline needed to implement all of the many actions required under the revised SIP. And of course, settlement discussions can occur at any time. We've still got a lot to do -- work to be done here, but I'm very pleased with the progress we've made to this point. In regard to determining the ownership of San Juan going forward, negotiations are continuing. The owners have engaged a mediator to facilitate resolution of various matters, and we continue to make progress toward an agreement. As you can expect, the San Juan, having 9 owners, is a complicated process. Now I'll turn it over to Chuck to take an in-depth look at the numbers.

Thank you, Pat, and good morning. I'd like to reiterate that 2013 was a good year for PNM Resources. We have been targeting a 5-year goal, providing a top quartile total return of 10% to 13%. 2013 had nearly 8% growth in ongoing earnings EPS and our average dividend yield for 2012 and 2013 was about 3%, for a total return of 11%. So we're on track towards meeting the goal. Let's begin the financial review of the fourth quarter results, beginning on Slide 9 of the presentation. Fourth quarter ongoing earnings improved $0.08 compared to the fourth quarter of 2012. Each of our segments increased for the quarter. PNM was up $0.05, TNMP was up $0.01 and Corporate and Other was up $0.02. The drivers are on Slide 10. Beginning with PNM, outage costs were the biggest contributor for the quarter. Lower forced outage have just improved earnings. There was also a large plant outage at San Juan Unit 3 in the fourth quarter of 2012 that did not reoccur. Cost control efforts also added to earnings. We had higher O&M expenses in the fourth quarter of 2012 that did not repeat in 2013, resulting in $0.01 improvement. AFUDC was another contributor. This was due to lower short-term borrowings relative to debt balances, which resulted in higher AFUDC rates in the fourth quarter 2013. Weather also added $0.01. Heating degree days were up 18% compared to the fourth quarter 2012 and 9% compared to normal. There are a few items offsetting the improvements. The first of these is transmission, which was down $0.01. As I talked about last quarter, this was driven by a number of small items, including the transmission contract that expired and the transmission customer who reduced their usage earlier this year. The 2.9% decline in PNM's load for the quarter represented a decrease in $0.02. For the year, it was down 1.8% compared to 2012, or $0.08 in total. Finally, as Pat indicated, the contribution that we made to the PNM Resources Foundation affects both PNM and TNMP. PNM was down $0.02 compared to last year's result. Now moving to TNMP, in total, we're up $0.01. Rate relief and TCOS filings added $0.01, and higher demand charges from large commercial customers also contributed $0.01. Pat described the continued strength that we're seeing in the Texas economy. Load added $0.01 as a result. Weather was an improvement of $0.01, heating degree days were up 48% compared to Q4 2012 and 35% compared to normal. The items offsetting these include the Foundation contribution of $0.01 and an increase in O&M spending compared to the fourth quarter of 2012. Now turning to Slide 11. As Pat mentioned, we are reaffirming our 2014 guidance range of $1.42 to $1.52. As expected, we've provided notice in January that we will exercise the purchase option of 64 megawatts of calibrated 2 leases since the maximum lease renewal period only extends for 2 years. Today, we're announcing that we have reached an agreement with one lessor, Citibank, to buy back their 31 megawatts of leases in January 2016 at a price of $2,500 a kW, or $78 million. We'll file an 8-K on this later today. We continue to work with the other lessor on negotiations for the remaining 33 megawatts of leases. We are updating our 5-year capital forecast to include the purchase of the Palo Verde 2 leases for $160 million in 2016. This information is in the Appendix in today's presentation. For the remaining 10 megawatts, Unit 2 lease, we provided notice that we will extend it to 2024, and the lease payments will drop by 50% beginning in 2016. Pat talked about earlier concerning the Gallup third-generation contract. As we look forward, we will identify ways to mitigate the potential loss of this contract. We will consider other wholesale opportunities as they arise as long as we can earn an appropriate return on the business. We are not adjusting 2014 guidance for the Gallup contract, as we plan to make up the potential shortfall and still achieve our guidance range for the year. The rate base related to this contract is about $24 million. The cost allocations between wholesale and retail jurisdictions will be adjusted in the next PNM rate case, which is expected to be filed by the end of this year, with rates effective at the beginning of 2016. Regardless of whether we ultimately serve wholesale or retail customers with this load, we will continue to proactively and efficiently manage our business to make sure that we achieve appropriate shareholder returns. Moving to Slide 12, let's review our potential earnings power. Over the next couple years, we're seeing the potential earnings growth in our business at $0.34 to $0.42, which brings the potential earnings power to $1.81 to $1.89. Looking at the slide, you see the column that represents the midpoint of our 2014 guidance, which totals a $1.47. The potential earnings power is presented as growth from that number. Starting with PNM retail, you can see that by the beginning of 2016, we expect to have new rates in effect at PNM, based on the $2.2 billion of rate base. Assuming a 10% ROE, this would add $0.27 to earnings in 2016. The rate base assumes the purchase of the Palo Verde 2 leases for $160 million. We expect rate base to increase by $90 million for renewables because of the 23 megawatts of solar that will be built in 2014 and the 40 megawatts of solar expected to be built in 2015. This would result in an additional $0.06 of earnings growth. FERC should continue to add into our earnings power with an additional contribution of about $0.02 and $0.05. As you know, we are pursuing the use of formula-based rates with annual updates for all of our FERC contracts, and this growth assumes the use of that methodology. The 2014 midpoint assumes that Palo Verde 3 is fully hedged at $37 a megawatt-hour. Since Palo Verde 3 is not assumed to go into rates until 2018, based on the time of the revised SIP, the 2016 earnings power is based on market price assumptions, which we assume to be $37. At 2016, it will take a market price of $43 to break even. Moving to TNMP, we expect to keep making TCOS filings each year to recover our incremental transmission investments. It's important to note that depreciation and property tax will also continue to rise, which leads to a net increase in earnings, powered by a couple of cents during this time frame. The remaining $119 million of 9 1/4% holding company debt is due May 15, 2015. The savings represented in Corporate and Other relates to the balance of this debt being paid off. We do not have plans to issue more long-term debt at the holding company. We will, however, use our revolvers at the holding company and our operating companies to support liquidity during this time of higher capital expenditures. The cap structure is expected to remain at 50-50 for PNM and 55-45 for TNMP. In summary, you can see the value that we have developed in our business by our increased focus on the regulated utilities. As a result, the potential earnings power provides for solid growth that keeps us on track to meet the total return goal of 10% to 13% by 2016. So with that, I'll turn this back over to Pat.

Thanks, Chuck. Taking a brief look at our list of key goals for 2013, I am pleased to see all of the checkmarks reinforcing that it was a year of progress for the company. We have another busy and challenging year in front of us. We plan to continue to focus on delivering strong customer service, responsibly and effectively managing the business and working to achieve constructive regulatory outcomes. And as I said when we began the call, the company is on track to have another successful year. That's our formal presentation this morning. Operator, we're ready to open it up for questions.

[Operator Instructions] Our first question comes from the line of Ali Agha of SunTrust.

A couple of questions. One, housekeeping. Chuck, I noticed this big charge you took in the quarter and for the year, for the regulatory disallowance. Can you just elaborate a little bit more on that? And when were those costs incurred? And is there something we should think about going forward that may incur as well?

No, the regulatory disallowance you see in the reconcilement that we have in the press release reflects the -- mostly the settlement we had on the fuel clause continuation filing that we worked through with the various staff and other members that were involved with this. It really just allows us to work through the issues that were related to concerns that were brought up from the San Juan fire and the settlement regarding around that, to the extent that we decided that it was best to go ahead and resolve any issues and work through settlement that provided some additional benefits for us going forward. For example, we have now a quarterly reset fuel factors, where before, we have annual reset factors, so the cash flow certainly improves. We also were able to retain 10% of offsets from sale margins, which began retro-ly [ph] back to July 1 of 2013 and will go through 2016. That would be anywhere from $1 million to $1.5 million a year as a result of picking up that. And it also allows us to begin collecting the deferred balance, which, as of the end of this -- 2013, was about $45 million. We can start collecting that deferred balance over an 18-month period. And there's a few other minor tweaks that really result in what we feel was a very fair, reasonable settlement but resulted in us writing-off some of the portion of that deferred fuel in order to get to the resolution of the fuel continuation filing. There's also a little bit, on an after-tax basis, about $1.1 million on some transmission rate case expenses that we took out of the formula base rates and took that write-off in order to continue the negotiations for reaching the settlement on that as well.

And that was -- Chuck, this was accumulated over a number of years, this amount, or was this just a [indiscernible] market?

Well, the transmission part goes back to when we had the filing back in 2010 and so this is the various expenses associated as we work through the last rate case. And the fuel, really, is just a result of the overall deferred balance and the fact that we were required last year to provide the continuation filing, and this worked itself into the settlement and agreement to take the write-off.

Okay. And separately, when would the Gallup contract, if it goes away -- actually go away? And if my math is right, based from the rate case, just under $0.02 of annual earnings, is that a fair number for that?

For the Gallup contract for this year?

Yes.

Roughly about $0.03 for this year.

Okay, and if you...

I want to reiterate, as we affirm guidance, we certainly are aware of the impact of that but we still target the midpoint of our guidance range this year. So we're very focused on meeting that target at the midpoint of the range.

Right. And if this does go away, when would that occur?

If it goes away, it would be in the mid part of this year. July 1 was when the interim contract expired.

Okay. And, Pat or Chuck, either one, how concerned are you about this negative load growth? I know in the past you've talked about keeping a track on that and that may cause you to accelerate the timing of your next rate case filing. Where do you stand on that, and how are you looking at load growth so far this year?

Yes, actually, we can't comment on load growth so far this year. We are concerned about the softness here in our economy. But I think with the things that the government has done both last year in terms of changing our tax structure here, this year with getting the job credits and the much-needed economic development fund with local businesses stepping up with dollars and help, I think that we're going to start to see some turnaround here, and I'd say we're starting to see it in housing starts. Right now, it's not impacted, we're still planning on filing the case, end of this year. We'll obviously keep an eye on it. We don't see anything this year that we can't manage through and, as Chuck said, we reaffirm guidance. So we keep a close eye on it, we wish it looked like Texas. But we think it's manageable.

Last question. As you alluded to the BART process, et cetera, a lot of that kicks in, in 2018, potentially the PV3 transfer, et cetera, have you all thought about kind of revisiting your returned expectations? I mean, if you take '13 as a starting point and, based on your CapEx plans, look out to the next 5 years, would the same TSR still apply over that '13 to '18 period like you're doing right now for '12 through '16?

So really -- I think the focus, Ali, is really between the period now, as we've talked about in the earnings power slide, of midpoint this year and working and focusing on 2016. And because we do have the BART filing of various and sundry of things that are going on that we think that's really the strong growth potential of the business. And beyond that, we'll continue to focus on maintaining solid returns of the business and achieving results that we certainly feel are reflective of what we've been able to progress so far, with the focus on the regulated business, and we'll continue that out in the future years as well. But I think I've commented before, we have no equity plans with the current 5-year capital programs. So again, I think the real emphasis is really achieving the expectations of the potential growth of the business for 2016.

Our next question comes from the line of Paul Fremont from Jefferies.

I guess my first question is you talk about a schedule that would accommodate a final NMPRC order by the end of this year, but I think that the hearing examiner found that there is no statutory requirement or time frame for where the NMPRC is required to issue a decision. So what could potentially delay a decision in this proceeding beyond the end of the year?

Well, Paul, I think you're right there, the hearing examiner did find that there was no statutory clock. We're pretty comfortable that it should get done this year. The Commission had said that they would like to get this done quickly. One commissioner specifically said he doesn't want the Commission to be the reason to not have this go forward timely. With the EPA being on time and on schedule, I think the Commission wants to get this done. Obviously, if there's a lot of opposition and the Commission feels uncomfortable, they can delay it, but we think they -- and obviously, the hearing examiner stated they want to get this done by the end of this year.

And then on the FERC revised transmission ROEs, does the company plan on taking any action to basically either file a new case with the FERC? Or is there something that you can do to try and improve those returns?

Well, right now, Paul, we're still in settlement discussions on our case and those are continuing actively, so we're going to wait and see until that gets done.

Okay. And then sort of a -- one quick technical question. The PNM assumptions for 2014 sort of give you levels for outage costs and NDT gains. Can you give us what the 2013 actual was for NDT gains and outage cost?

Yes, the NDT gains were about $0.05. Since we talked about going forward, we would look at additional contributions into the Palo Verde 3 NDT fund in order to rebalance that portfolio to get it to what is today about 65% equity to about 50-50, which is equal to what Palo Verde 1 and 2 is. So that will probably result in a couple of million dollars contribution as we rebalance the portfolio. I think we showed you guidance, $6 million to $9 million, so maybe an incremental $0.02 above what we had in 2013.

And Paul, if you give Jimmie a call, she can give you the exact outage cost for 2013.

Our next question comes from the line of Brian Russo of Ladenburg Thalmann. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Just -- it looks like 3 to 5 commissioners are up for reelection this year, and I was just curious any thoughts on how that kind of plays into the whole approval process of the revised BART SIP?

Yes, I think Commissioner Lyons is up, and Commissioner Lyons is running unopposed. So I think that, that makes no difference for him. Theresa Becenti-Aguilar is obviously running and she has some opposition up in that part of the world, but the Navajo Nation, which is the primary population up in her district, President Shelly has been a very supportive of the San Juan agreement. We have worked with them very closely. He has supported it with our delegation and in front of the states. So I think that given that the settlement is pop -- well, I don't know if it's popular, but accepted and the Navajo Nation is supporting it, I think that whoever takes that seat would be supportive of it. Commissioner Hall, down in that district, he does have some opposition. We know all his opposition; they're very fair. It doesn't affect him really that much because he does not have any customers down there. So I don't think it will play into the politics of this particular election. The commissioners from Albuquerque and Santa Fe are not running, which is where the majority of our service territory is. So we hope it doesn't become an election issue, and we really don't see any reason for it to become an election issue. It's also very popular. The media has opined in favor of the settlement. So, it should be -- it should be okay. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay, great. And that kind of ties into my next question, which is going to be, what's kind of the overall reaction to the BART SIP, both by -- obviously, the governor is supportive of it? But any color on any other politicians that maybe wrote some op-Ed pieces or have voiced their support for it?

It's been very popular. There are, obviously, a few people that want us shutting down any coal. I think you'd find those in any states. And there are a few people that would like us to shut down all of San Juan and replace it with renewables. I think everybody understands neither of those positions is continuous. Pretty much every politician is jumping on it because it is popular. And it when the state's largest newspaper opines in favor of it, that's always helpful. So we haven't seen any opposition, we haven't even seen much discussion of it by the politicians. I mean, it's an election year in November for the Governor's race. I think though it would be difficult for some of the Democratic candidates to pick on something that shuts down 2 units of a coal plant. So we haven't seen anything that makes us nervous. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay, that's great. And along with this procedural schedule that was recently, are there any dates earmarked for settlement discussions, or can that just occur throughout the schedule?

That can occur any time throughout the schedule. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And then, just the potential earnings power on Slide 12. Is there anything incremental to that?

Yes. Brian, as I mentioned in the PNM retail, the addition, $160 million for Palo Verde 2 leases, we -- as we -- we'll send out an 8-K today, $78 million of that $160 million has been settled with Citibank, and the balance of that would be -- we're assuming to be at $2,500 a kW to -- worth roughly about $80-more million. So we assume that to be reflected into the $2.2 billion 2016 expected average rate base. The only other assumption is the $250 million on FERC. If we had -- if we were unable to fulfill the equity component of what Gallup represents today, that's only about $24 million, or about $0.01, so that could be a slight adjustment. But as I mentioned, in the 2016 rate case, we'd reallocate costs between wholesale and retail jurisdictions in order to make up for the revenue loss on that contact. So other than that, I think it's pretty consistent and transparent to what we provided in the past, and it shows you what we're doing to focus on executing the full potential of the business. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. Just to clarify the $2.2 billion of PNM retail rate base, does that include the entire $160 million or only the $78 million?

The entire $160 million.

Our next question comes from the line of Kit Konolige of BGC.

On the forward look on earnings again then, what -- Chuck, can you describe just what I'm seeing change here from the prior? We rolled it just kind of a 3-year forward look, rolled that forward by a year, is that what's going on here?

Yes, and like I said it's -- and Jimmie can go over any details with you, too. But the biggest are the PNM retail, adding the Palo Verde 2 leases, you still got the continued growth on the TNMP for the TCOS filings. The renewable continues to reflect the solar additions that we put in place. So there's nothing, really, that significant other than the Palo Verde 2 leases. But Corporate and Other, we talked a little bit about. We paid off the 9 1/4% high coupon debt but then we'll have some short-term balances that will support the capital expenditures of business as we begin to build a new generation and replacing for San Juan. So there's a little of a tweaking going on, but basically it still is well within line and it should give you added comfort if you go back to the last earnings power slide that we provided until where we are today. Jimmie can show you clearly and any other details that you might need. But it should be very transparent when you get into it.

Sure. And obviously, that makes assumptions that the next rate case is done and what the ROE will be there and that the rate base is in there and that the Palo Verde is included in that?

Palo Verde doesn't go until 2018. So keep that in mind. That's really replacing the San Juan generation that would reflect the shutdown of the 2 units by the end of 2017. So this really -- this does pick up the Palo Verde leases as the biggest driver from the standpoint of that asset. And again, it does assume that our current allowed returns remain at 10%. So we continue to have a focus on what we need to achieve the results in the business, but you can use your own assumptions relative to how you think about the business, but this should give you some good guidelines from that standpoint.

Good. And just to a return to the low growth a little bit. What -- I mean, are there any indications that you are picking up of why Albuquerque is lagging and/or are you seeing any issues with the separation of load growth from economic activity? Is there something unusual going on compared to past recoveries where load growth isn't growing or is growing significantly less or at a lower percentage than you've seen in the past for recoveries?

Just a couple of things. One, we see some glimmers of hope in the economy when you start looking at housing permits and sales tax -- or here, we have gross receipts tax revenues. So we do see some glimmers of hope. We've seen some announcements of new companies and job growth. They're still small but they're starting to come. We see -- probably, folks are a little more into energy efficiency and energy efficient conscious. We do lighting standards; we see them making a difference. But the big driver, I think, here in the economy is we're a very government-dominated economy and have been a government-dominated economy and that has been good for New Mexico, but on a macro level, the slowing growth in the Federal government is good for all of us. On a micro level, it's having a bit of an impact on New Mexico, and the private sector is starting to fill in. So we don't necessarily see anything that's going to permanently hold it down. It's just a bit slower than we would like, and I think it's because of the tax in most recessions. The government never really went down and now the government is going down.

Our next question comes from John Alley [ph] at Decade Capital.

I apologize, but I missed the front half of the call; there's 2 other things going on this morning. Could you just walk me through the recovery process on the lease purchase?

Yes. For the Palo Verde 2, as we said in the past, that we've got the 64 megawatts so that we have the ability to negotiate once we've given notice as we've done in January to purchase the leases. The fact that we were able to settle with Citibank on a portion of that 64 megawatts, 31 megawatts, then we will begin to continue negotiations, which are under way, for the other lessor that involves the balance of those leases. And so the timeline could result in eventually going to a fair market value analysis and third-party involvement in resolving any information around what those market values would reflect. But I will say that lessors seem to be encouraged to want to negotiate and settle on prices. So for the time being, we're going to pursue that -- those discussions and see if we can't reach an agreement with the other lessor. But we are pleased with the fact that we were able to reinforce the Palo Verde 3 fair market value that we've put in our filing for San Juan replacement power, and also the fact that we were able to settle something with Citibank at the same price.

Great. And then just in terms of the revenue requirement, is this just a clean swap from lease to rate base or is it more involved?

No, it's basically adding to a rate base the total amount that we agreed to repurchase.

So it would be part of 2016?

Yes, 2016 rate case is when we would reflect that. So if you look at the earnings power slide, the $2.2 billion assumes $2,500 a kW for the full amount of 64 megawatts for Palo Verde 2 leases, and we'd get a return of off that.

[Operator Instructions] Our next question comes from the line of Eli Kraicer of Millenium.

Chris Shelton. John asked most of the questions I was going to ask. I also wanted to add on that question, though. Is there -- I mean, the $2,500 a kW, is that a pretty good public marker also for any of the units of Palo Verde?

What do you mean by that? Do you mean the...

Well, as far as -- obviously, they also need, for Palo Verde 3, also -- any difference, inherent differences between units 3 and 2?

Oh, no, no, no. It's very consistent and that's when we were -- again, the testimony is, if you go back and you get -- if you want to get into the details a little, it was supporting the fair market of Palo Verde 3. It's very consistent to helping us work through negotiations of the Palo Verde 2 leases. And so Citibank agreed to the $2,500, and we're working on the other piece of it as we talk.

And our next question comes from Brian Russo of Ladenburg Thalmann. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Just to follow up on John's question earlier. It's -- is it kind a wash, meaning the return on the rate base of the PV 2 leases, just, it's comparable to the leased expense that currently gets passed through to the customer?

No. The amount that we actually end up purchasing for the leases will go into rate base and we'll get a return on that, and that's -- and then the balance of the leases that we've talked about in the past, and, again, we can give you the details offline, but will result in the half price. And that O&M, until we file for rate case we get the benefit of that, but when we file for the 2016 rate case then those reduce prices will be absorbed within the revenue requirements in the current settlement or whatever we do in that 2016 rate case. So this is an actual return on the business that we get. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: No, I understand that, but let me rephrase the question. The revenue requirement, if you could isolated the PV 2 lease of $160 million that you're adding to rate base, is that comparable to what the customer is currently paying in the leases?

Oh, it's a little bit higher than what the customers would pay today. I see your question. Sorry about that, Brian.

Thank you. I am showing no further questions in the queue. I'd like to hand the call back over to Pat Vincent-Collawn for any further remarks.

Thank you. And thank you all for joining us today. We look forward to another successful year, and we look forward to visiting with you all during the course of the year. Have a great day. Thanks.