Apr 30, 2008
Executives
Rebecca L. Hickman - IR William J.
Post - Chairman and CEO Donald E. Brandt - President and COO
Analysts
John Kiani - Deutsche Bank Securities Paul Patterson - Glenrock Associates Jonathan Arnold - Merrill Lynch David Thickens - Deephaven Capital Management Edward Hinds
Operator
Good afternoon. My name is Kanisha, and I will be your conference operator today.
At this time I will like to welcome everyone to the Pinnacle West First Quarter Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].
Thank you. Ms.
Hickman you may begin your conference.
Rebecca L. Hickman - Investor Relations
Thank you, Kanisha. I would like to thank everyone for participating in this conference call to review our First Quarter Earnings, recent development and operating performance.
Today I have with me Bill Post, our Chairman and CEO and Don Brandt, who is our President and Chief Operating Officer and also President and CEO of Arizona Public Service. Before I turn the call over to our speakers I need to cover a few details with you.
First, I encourage you to check the quarterly statistics section of our website. It contains extensive supplemental information on our earnings variances and quarterly operating statistics.
Second, please note that all of our references today to per share amounts will be after income taxes and based on diluted shares outstanding. It is my responsible to advise you that this call will contain forward-looking statements, based on current expectations and the company assumes no obligations to update these statements.
Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Please refer to the caption entitled forward-looking statements contained in the Form-8K we filed this morning as well as the MD&A and risk factor sections of our 2007 From-10K, each of which identifies some important factors that could cause actual results to differ materially from those contained in our forward-looking statements.
A replay of this call will be available on our website, www.pinnaclewest.com, for the next 30 days. It will also be available by telephone through May 6th.
Finally, this call and webcast are the property of Pinnacle West Capital Corporation and any copying, transcription, redistribution, retransmission or rebroadcast of this call, in whole or in part, without Pinnacle West written consent is prohibited. At this point, I will turn the call over to Bill.
William J. Post - Chairman and Chief Executive Officer
Good afternoon. And I would also like to thank you for taking your time to join us today.
Don will discuss our financial results along with regulatory and operational developments, but before I turn the call over to him, I would like to address a few items. Our service territory continues to grow, albeit at a slower rate than in recent years.
This year our growth has continued the slowing trend we had in 2007 from the 4% plus pace experienced in 2005 and 2006. However, our growth still remains above the national average.
As such growth is evident throughout our business and continues to dominate our operations and strategies. In the first quarter our customer base grew 2%, compared with 2.6% in the fourth quarter of last year and 3.8% in the first quarter a year ago.
Based on today's economic outlook, we estimate that our customer account will grow about 1% by the end of 2008. Although we're currently experiencing a slowdown from our historical growth rates, growth in Arizona will continue over the long-term.
Consequently, we're aggressively focused on the future, our customers' growing energy needs and the financial strength that is critical to our success. We continue to peruse solutions to reduce our future capital needs.
Progress has been made on the regulatory treatment of growth and getting growth to help pay for itself. In February, the Arizona Corporation Commission approved amendments to APS's line extension schedule.
These changes provide for timely collection of part of our distribution construction cost, and as a result, will reduce the amount of future rate increases for APS's existing customers, as well as reduce the amount of new capital we will need to meet customer growth. The new line extension payments will offset a portion of APS's expenditures to construct distribution facility.
We estimate collections after tax in the range of $30 million for 2008, and $70 million for 2009, which will offset a part of the required distribution expenditures. Since the end of the last test year, we have spent nearly $2 billion on capital expenditures, primarily for customer reliability, and network expansion of our electric system.
Consequently in late March, we filed a request for retail rate increase to be effective on July 1st of 2009. The rate increase is needed to recover expenditures for our electric infrastructure, and to reflect increases in our other costs.
Don Brandt will provide the details of the Reg request and other regulatory developments in just a few minutes. Resource planning is a critical issue, with growth in both customers and energy consumption, APS faces a need for new capacity in the 2013 to 2016 timeframe.
During our last call, I discussed a resource planning initiative we launched in January. Our goal is to build a public understanding of the options, and challenges we see, in planning for, and acquiring new energy resources.
Through this initiative, we are seeking broad input, from various stakeholders on APS's resource alternative and related issues. We've begun hosting a series of stakeholder workshops on resource alternatives, and today we've conducted three of these meetings, each of which has been attended by a wide variety of interested parties.
We anticipate conducting several more workshops from now through the middle of the year. And we expect to file our future resource plan incorporating this broad stakeholder input by the end of the year.
An integral component of our resource planning is our commitment to renewable energy resources. We believe renewables will provide a significant amount of the new generating resources we will need to meet our growing energy demand, capitalizing primarily, on Arizona's large solar potential.
To that end, in February we announced the Solana generating station. Solana is a large step towards making Arizona the solar energy capital of the world, a step that makes a lot of sense with our abundant sunshine.
The plant is planned to be operational in 2011. Here are a few facts about the plant.
If it were operating today, it would be the largest solar powered plant in the world. The plant will be a 280 Megawatt concentrating solar plan cited about 70 miles South West of Phoenix.
It will be constructed and operated by Abengoa Solar, and APS will purchase all the output of the plant through a 30-year purchase power agreement. We filed for regulatory approval of this agreement, which we believe will be addressed by the ACC this summer.
In addition to our interest in the Solana project, APS joined a multi-state consortium of South Western utilities to pursue development of a separate 250 Megawatt solar plant in the region. It is anticipated that each of the utilities would sign a purchase power agreement for their share of the output of the plant.
As many of you know, the composition of the Arizona Corporation Commission will change at the end of this year. In November three of the five commission seats will be up for election.
Commissioners Mayez and Pierce will continue on the commission. However Chairman Gleason and Commissioners Hatch-Miller and Mundell are termed limited.
Currently there are 13 announced candidates for these seats, eight Republicans and five Democrats. More candidates could announce their intention to run and all candidates must file their qualifying petitions with the Secretary of State by June 4.
I would like to make one final point. We are reaffirming our consolidated earnings guidance of a reasonable range around $2.50 per share for 2008.
However, some of the components of our guidance have changed, and Don will now provide the details of these changes. Don?
Donald E. Brandt - President and Chief Operating Officer
Thank you, Bill and good afternoon to all of you. As Bill said, we are reaffirming our consolidated earnings guidance for 2008.
We continue to expect that consolidated earnings will be within a reasonable range of $2.50 per share. We currently estimate that APS will contribute substantially all of the earnings and that SunCor's contribution will be minimal.
Our current estimate for APS is higher than our previous guidance for a number of reasons including improved wholesale revenues, the effects on retail sales in the first quarter of cooler than normal weather, favorable mark-to-market evaluations of our fuel hedges, favorable resolutions of various tax matters and a second transmission revenue increase that we assume will become effective in mid-2008. We expect these favorable factors to be partially offset by a lower expected customer growth, because of current economic conditions.
We had previously expected SunCor's 2008 earnings to be approximately $20 million. However, as a result of weak real estate market, we currently estimate that SunCor's contribution to earnings will be minimal.
Turning to earnings for the quarter, the first quarter of 2008, our earnings were down $0.20 per share versus the 2007 first quarter. We reported a consolidated net loss of $4 million or $0.04 per share compared with net income of $17 million or $0.16 per share in the prior year quarter.
In summary, rising cost with APS more than offset contributions from increased retail sales due to growth. The decline in APS's earnings combined with lower results from SunCor's real estate operations decreased our first quarter earnings.
Now I'll give you some additional details on these variances. Higher O&M cost decreased earnings $0.14 per share.
Almost two-thirds of the increase was due to a greater number of power plant overhauls and system maintenance, as we prepare for our summer peak demand season. The remainder was primarily related to higher customer service costs.
Increased depreciation and interest cost attributable to APS's ongoing investment in plant and facilities to support growth reduced earnings by $0.06 per share. SunCor's earnings were down $0.10 per share, again reflecting the weak real estate market.
These negative factors were partially offset by higher retail sales related to customer growth of $0.04 per share. A number of other factors added to a net $0.06 per share including increased wholesale revenues, favorable mark-to-market on fuel hedges, and the transmission rate increases that became effective March 1st of this year.
Now turning to regulatory development and operations. As Bill mentioned, APS filed an application for a retail rate increase on March 24th.
The filing requests an 8.1% net rate increase for existing retail customers, plus establishment of a new impact fee for new connections to APS's system. We have asked that the requested rate changes become effective no later than July 1st of 2009, a full two years after our last base rate increase went into effect.
The requested net increase totals $265.5 million and consists of a $252.6 million non-fuel related increase and a $12.9 million net-fuel related increase. APS proposes to collect up to $53 million of these increases from new connections, resulting in a net increase to existing customers of $212.5 million.
The significant non-fuel increase components include, a $127 million related to rate base increases, $48 million related to updates of APS's cost of capital, and $86.5 million for attrition adjustment. APS also proposes to increase the base fuel rate to $3.66 per kilowatt hour from the current $3.25, which would increase base revenues by approximately $119.1 million.
However, the base rate increase would be offset by a decrease of a $106 million in revenues that would have been collected through the Power Supply Adjustor. The result would be a net-fuel related increase of $12.9 million.
The filing is based on a test year, ended September 30th, 2007. The key financial provisions of the request include, a rate base of $5.3 billion and 11.5% return on common equity and a 46%/54% debt to equity capital structure.
The proposed attrition adjustment would provide a mechanism to recover changes in APS's cost between the end of the test year and the time when new rates go into effect, thereby, providing the company with the opportunity to earn a fair [ph] rate of return. The proposed impact fee would take another step toward having growth pay for itself.
The impact fee would be in addition to the line extension payments, the ACC approved earlier this year. The payments APS receives for line extensions under the newly approved line extension policy will recover a portion of the distribution capital expenditures necessary to serve customer growth.
What will not be recovered however are the carrying costs of the tax asset created by APS, receiving the line extension payments, and the increases in operating expenses related to customer growth. The proposed impact fee would cover these costs.
The ACC staff is performing its customary sufficiency review of the filing to determine whether it complies with the ACC's procedural requirements for rate case filings. On April 22nd, we and the ACC staff agreed to extend the 30 day review period by an additional 15 days, until May 8th.
During these 15 days extension period, we and staff will continue to discuss and resolve any issues, which resolution could involve an update of certain financial information to its staff in its review of our case. Thereafter, we expect the procedural schedule will be issued, which will established a timeline for addressing our request.
In addition, on April 25th, we responded to a written request for information on the sufficiency issue from Commissioner Mayes. In our letter we demonstrated that the test period used in our filing was fully consistent with the Commission's rules, Commission practice, and past APS rate filings, and relevant Commission orders.
There have been other regulatory developments since the beginning of the year. First, our transmission rate case is pending before the Federal Energy Regulatory Commission.
The filing requested a $37 million increase in annual transmission revenues, and it includes a proposal for the FERC to approve a formula of rate setting methodology to allow APS to adjust wholesale transmission rates on June 1st, of each year. The FERC allowed APS's proposed transmission rates to become affective on March 1st, of this year, subject to refund, pending the ultimate outcome of the case.
A number of settlement meetings have been held and we believe progress has been made. Approximately $30 million of the transmission rate increase relate to transmission to serve APS's retail customers.
In February, the ACC approved an increase in APS's retail rates to recover that amount beginning March 1st, subject to adjustment, based on the final outcome at the FERC. The increase was implemented using the Transmission Cost Adjustor or TCA that the ACC approved in the 2005 rate decision.
The TCA provides a mechanism through which changes in FERC approved transmission charges for retail service can be reflected in APS's retail rates in a timely manner. We plan to update the FERC formula calculations in mid-May.
We expect that formula will result in an annual increase in wholesale transmission revenues that would become affective June 1st, of this year. After we update the first calculations, we plan to file an application with the ACC to increase the Transmission Cost Adjustor to reflect the new calculations under the formula.
Next I'll spend a minute reviewing the status of our Power Supply Adjustor or PSA and the various adjustors and surcharges. As of March 31, APS had $50 million of accumulated PSA deferrals.
With the enhancements to our PSA approved by the ACC last year, we're in a much better position with respect to fuel cost this year than in past years. We expect to recover almost all of this deferral balance through annual PSA adjustors and surcharges by the end of 2008.
The 4 mills per kilowatt hour of PSA adjustors that took effect on February 1st of last year, will remain in effect through mid-2008 to allow APS to collect $46 million of 2007 cost, deferred as a result of the mid-2007 implementation of the new base fuel rate. APS has been collecting approximately $34 million through a PSA surcharge over the 12 month period that ends June 30.
This amount represents PSA cost deferrals related to 2005 replacement power cost for Palo Verde outages. Effective February 1 of this year, as of 2008 annual PSA adjustor rate of 4 mills per kilowatt hour became effective for the 12 month period.
On April 8th, the ACC approved an implementation plan for APS to meet the States' Renewable Energy Standard for 2008. The plan provides for $34 million of renewable energy projects and customer incentives.
These expenditures will be recorded in O&M expense, and purchased power cost, but will be offset by revenues collected through a renewable energy surcharge. Finally turning to our recent operating performance.
The Palo Verde units have been running well. The combined capacity factor for the Palo Verde units was 93% during the first quarter of this year.
Currently units 1 and 3 are operating at full power. Unit 1, is in its 151st consecutive day online, while Unit 3, is in its 101st consecutive day online, since returning from its refueling outage in mid-January.
Unit 2 operated for 167 consecutive days before it was taken out of service, for its refueling outage that began March 29. Palo Verde has two refueling outages each year, the other outage this year is scheduled for Unit 1 in the fall.
Each of the 2008 refueling outages is expected to last 40 days to 50 days. We are continuing to implement our Site Improvement Plan, and we are working closely with the Nuclear Regulatory Commission at various levels, to ensure that all issues are addressed and Palo Verde returns to top-tier performance as soon as practicable.
Our coal-fired plants have been operating exceptionally as well. In the first quarter of this year, the units operated at 76% capacity factor, which was slightly better than our plan.
The capacity factor was lower than a year ago, because the timing of planned major overhauls at Four Corners, Unit 5 and Cholla Unit 2. As is typical for our operations, planned overhauls and maintenance were performed at the plants during the first quarter in preparation for the summer peak.
The coal plants have consistently run substantially above the industry average and we expect them to do so again this year. That concludes my remarks, and I'll turn the call back to Bill.
William J. Post - Chairman and Chief Executive Officer
Thanks Don. As many of you know, Jack Davis retired March 1st.
Effective upon Jack's retirement, our Board of Directors named Don Brandt to be President and Chief Operating Officer of Pinnacle West and Chief Executive Officer of APS. Don has been with APS for five years and President of APS since January 2007.
He's done an excellent job and his financial focus will lead us well into the future. That concludes our prepared remarks, and we'd be very happy to answer your questions.
Question and Answer
Operator
[Operator instructions]. Your first question comes from John Kiani.
John Kiani - Deutsche Bank Securities
Good morning.
Donald E. Brandt - President and Chief Operating Officer
Hi, John.
William J. Post - Chairman and Chief Executive Officer
Hi, John.
John Kiani - Deutsche Bank Securities
Don, I know you touched on this in your opening remarks, but can you give a little bit more color around some of the benefits that APS is going to realize or do you now expect APS will realize, like for example how much earnings contribution is associated with the favorable mark on the fuel hedges maybe the wholesale revenues piece and also the tax pieces, as well please?
Donald E. Brandt - President and Chief Operating Officer
Sure. I will maybe go a little backwards here, John.
The taxes are about $0.16 a share.
John Kiani - Deutsche Bank Securities
Okay.
Donald E. Brandt - President and Chief Operating Officer
The mark-to-market is about $0.04. And the improved wholesale revenues are about $0.04.
John Kiani - Deutsche Bank Securities
And what was the tax associated with, the tax benefit?
Donald E. Brandt - President and Chief Operating Officer
Just some resolutions of some outstanding tax matters, principally income tax.
John Kiani - Deutsche Bank Securities
Okay. And then, from a long term forecasting perspective, should we expect something like that to recur in '09 or that's just more of a near term benefit?
Donald E. Brandt - President and Chief Operating Officer
More of a near term benefit.
John Kiani - Deutsche Bank Securities
Okay. And then as far as SunCor is concerned, I mean, I think, you laid out pretty clearly your near term expectation for SunCor, how should we think about SunCor a little bit longer term from an earnings contribution perspective?
Do you have a view on when you think that business will eventually turn around?
Donald E. Brandt - President and Chief Operating Officer
I think our sense is, at the earliest, towards the end of 2009.
John Kiani - Deutsche Bank Securities
So, then we should think then more about kind of the similar level of contribution perhaps into '09 and then maybe something better beyond that?
Donald E. Brandt - President and Chief Operating Officer
Well, we haven't gotten into that today, but we have within the level of earnings at SunCor, which I said is minimal.
John Kiani - Deutsche Bank Securities
Right.
Donald E. Brandt - President and Chief Operating Officer
We do have a number of transactions. Home sales are relatively low, almost half of what we thought going into the year.
But on the commercial side, we've got one very large transaction that we expect to close in the second quarter of this year. And next year will be depended on, to some extend on our success at closing some of these commercial transactions.
And the real estate market, both residential and commercial, is weak, but one of the issues we've run into that I know everyone has is the liquidity issue in the credit markets, and in trying to put financing packages together. There are buyers out there, they just can't finance or they are having a difficult time.
So, well the real estate market per say, we don't expect that to turn around till at least towards the end of '09. Some improvement in the credit markets could provide some impetus but --
John Kiani - Deutsche Bank Securities
Yes, it's helpful Don. Thanks a lot.
Donald E. Brandt - President and Chief Operating Officer
Okay.
Operator
The next question comes from Paul Patterson.
Paul Patterson - Glenrock Associates
Good afternoon guys. Can you hear me?
William J. Post - Chairman and Chief Executive Officer
Hi, Paul.
Paul Patterson - Glenrock Associates
Hi. On the mark-to-market change there, I know it's only $0.04, but how does that work, I mean when does that get realized, I guess?
William J. Post - Chairman and Chief Executive Officer
How does it work? That's the, essentially --
Paul Patterson - Glenrock Associates
How does it flow through, if you follow me? Right, I mean it's going to be recognized I guess when...
I guess, is that the first quarter that you guys recognized it already or -- ?
Donald E. Brandt - President and Chief Operating Officer
Yes. To answer your question, we recognized it in the second quarter.
And it relates to fuel price movements in the years beyond 2008. And what happens is, how we designate the hedges, cash flow hedges flow through as OCI, and the non-cash flow hedges, the 10% sharing mechanism, under the fuel clause, that is the portion that gets recognized currently in income or expense.
Paul Patterson - Glenrock Associates
Okay. So, it will reverse itself past 2008?
Donald E. Brandt - President and Chief Operating Officer
Correct.
Paul Patterson - Glenrock Associates
Okay. And then, some of the discussions with the rate proceeding, I know that the pervious rate cases is a little bit different and that it was… Had been some time and what have you.
Do you think there is a greater possibility for settlement or I mean I know it's early in the process, but you know what I am saying?
Donald E. Brandt - President and Chief Operating Officer
Well it's very early in the process, and we are always open to settlement. And I think we will be exploring that, we are in the very first stage… Literally the first stage of the rate case.
But I think generally settlements are good thing, and we will be approaching that subject further down the road.
William J. Post - Chairman and Chief Executive Officer
And then along that line this case is much more straightforward. The last case we had was very complex, as it dealt with many more issues.
This one is much more straightforward.
Paul Patterson - Glenrock Associates
So, maybe it's more of a possibility to settle it sooner rather than what happened in the previous case?
William J. Post - Chairman and Chief Executive Officer
I think that's true.
Paul Patterson - Glenrock Associates
Okay. And then just finally, on SunCor.
Is there a possibility or I mean what are the chances that things could be worse in 2009 than 2008, when you look out to that? I mean I understand you don't expect the situation to improve until late 2009, but is there anything that we might want to thing about with respect to 2009 and that outlook?
Donald E. Brandt - President and Chief Operating Officer
I don't think it can get much materially worse. We have got… We were coming off, if you back up a couple of years, the pace we were going on home building was close to 800 to a 1000, and we are looking at about a 150 homes this year.
Condo sales were closer to 50 to 100, and we're looking at it, 25 or 30, and commercial transactions at a relative minimum.
Paul Patterson - Glenrock Associates
Okay. Great, thanks for the color.
William J. Post - Chairman and Chief Executive Officer,
Thanks Paul.
Operator
Next question comes from Jonathan Arnold.
Jonathan Arnold - Merrill Lynch
Good afternoon guys.
William J. Post - Chairman and Chief Executive Officer
Good afternoon.
Jonathan Arnold - Merrill Lynch
Follow-up on the SunCor question, I mean you said that, you expect minimum earnings in 2008 with a fairly sizeable commercial deal expected to close in the second quarter. So, as we look into kind of Q3 to Q4 and have some - the lumpy commercial transactions, do you think the run-rate of loss that we had in Q1 is about where it stabilizes or could the business slip to a larger loss assuming, or is that already reflecting I guess the current pace of slow sales you just referenced.
Donald E. Brandt - President and Chief Operating Officer
Yeah, I think that reflects the current pace, Jonathan.
Jonathan Arnold - Merrill Lynch
Okay. And then secondly just wondering, Bill you mentioned that large number of candidates running for the ACC election, any that we should be particularly focused on that could have the most traction of seem to be front runners out there.
Any color you could add around that would help.
William J. Post - Chairman and Chief Executive Officer
Sure Jonathan, I really don't have much, as it's very early in the process. And as I mentioned that it's still opened in terms of new candidates and their entry into the process.
I would say this; I don't think we've ever had at least in my experience recalling back in terms of the elections, we've never had as many candidates as are interested in the Commission as we have today, approximately half of them or so maybe a little bit more are either current legislators or ex-legislators. And I think the interest in terms of the Commission is positive thing.
But as far as individual candidates, I don't have comments on that.
Jonathan Arnold - Merrill Lynch
How does the Chairman do…who was the eligible for its Chairmanship. How about that one?
Donald E. Brandt - President and Chief Operating Officer
Well, there isn't a formal process that, and so, there isn't a set time nor a set term in terms of the Commission or the Chair. So, I would expect to… my guess is that it would probably stay the way it is.
But that's literally a guess.
Jonathan Arnold - Merrill Lynch
Okay, thank you.
Operator
Your next question comes from David Thickens.
David Thickens - Deephaven Capital Management
Good morning. Most of my questions about SunCor have been asked, but I am just going to beat this horse, a touch more.
Just trying to focus on what the earnings drag could get to if the remaining sales that are on the table fall off, or maybe put another way. What is kind of the minimum earnings burn level you can maintain SunCor at to keep the human capital in place that would allow you to ramp thing up, if and when the real estate markets turned.
Does that make sense?
Donald E. Brandt - President and Chief Operating Officer
I will try.
David Thickens - Deephaven Capital Management
I mean no one knows really how bad this real estate market is going to get. So, what I am trying to figure out is, if its worst than expected, what kind of ongoing loss are we going to see out of SunCor until thing get better.
Donald E. Brandt - President and Chief Operating Officer
Okay. Even this year, let me trying it this way.
If we pull the commercial transaction the one large commercial transaction out of the, that I was talking about in the second quarter, that's roughly about $15 million. Going forward we've reduced staffing levels substantially, by about… they weren't large but somewhere in the range of 30% to 40%.
And to keep folks relative to on the residential side, the plant unit development, the management teams in place it was principally the sales force, because home just aren't selling. That's not a difficult proposition to bring that back up to levels when the market comes back.
So I think going forward, we've really cut our expenses back and we'll continue to look at that to keep the number…I don't see if there is a likelihood of it getting measurably worse than it is this year.
William J. Post - Chairman and Chief Executive Officer
Yeah, if I could add something to that. As many of you know, we were on a program for four years to change the portfolio of SunCor, and we were successful at that.
And as result, it has really given us an opportunity to deal with this kind of a swing in a much, much more positive way. Now certainly not positive in terms of decline of the residential market, but our capability to be able to manage this process has improved very significantly.
And even at the current levels or even at levels that we see that could potentially worse, we don't see any impairment in the assets at SunCor.
David Thickens - Deephaven Capital Management
Okay. And one question, just kind of following up on the filing with… comparing the fuel increase of roughly $13 million.
Am I correct, and that that presumes you get the 100 and some odd million from new connections to offset that and you're presenting the two together to the Commission [ph]?
William J. Post - Chairman and Chief Executive Officer
Those are really not related. We gave you the impression those were related, they're really not related.
David Thickens - Deephaven Capital Management
Okay. So I mean, if you don't get the connections that doesn't change the fuel increase?
William J. Post - Chairman and Chief Executive Officer
Not, necessarily.
David Thickens - Deephaven Capital Management
Okay. Thank you very much.
William J. Post - Chairman and Chief Executive Officer
Thank you.
Operator
Your next question comes from Edward Hinds [ph].
Edward Hinds
Good afternoon.
Donald E. Brandt - President and Chief Operating Officer
Good afternoon.
Edward Hinds
I had one quick question, you mentioned just… Just a little color on the transmission writer. It sounds like you're going to file for another rate increase with that this summer, and is that in addition to I think the $37 million that you have already announced that is going to be the revenue increase that you filed with FERC?
Donald E. Brandt - President and Chief Operating Officer
You are correct.
Edward Hinds
Okay. And have you quantified how much you expect that part of the portion that's offsetting some of the SunCor weakness?
Donald E. Brandt - President and Chief Operating Officer
No, we have not.
Edward Hinds
Okay. And I guess the other question Don, was just on the O&M.
I think on the last call you talked about O&M being about $40 million for the year.
Donald E. Brandt - President and Chief Operating Officer
That's correct.
Edward Hinds
And it looks like there was a big chunk in this quarter. And is that really just related to timing, I think it was up $23 million this quarter, is that still a good $40 million.--
Donald E. Brandt - President and Chief Operating Officer
Yes, it is. Plus or minus of $1 million or $2 million, we just looked at that again yesterday.
And yes, it was very much skewed. Typically the O&M would be skewed towards the first and fourth quarter of the year, because of the maintenance activities.
And with the large overhauls going on at units at Four Corners and Cholla, it's a little more exacerbated towards the first quarter. So, the answer to your question the $40 million plus or minus of couple million is still good.
Edward Hinds
Great. Okay.
And just lastly just on, can you give us some updated thoughts on the financing in particularly, and with regards to equity needs in this current market environment?
Donald E. Brandt - President and Chief Operating Officer
Well, as I said in the past, a number of times, as over the intermediate term we'll have to access both the debt and equity markets. And we really haven't talked about the timing specifically of either one yet.
Edward Hinds
Okay. Good enough.
Thanks a lot.
Donald E. Brandt - President and Chief Operating Officer
Okay. Thank you.
Operator
There are no further questions at this time.
William J. Post - Chairman and Chief Executive Officer
All right. Well thank you very much for taking your time.
We know it's a very, very busy time and we thank you for your attendance.
Rebecca L. Hickman - Investor Relations
And as always, if you have any follow-up questions please give me or Lisa Malagon a call. Thank you very much.
Operator
This concludes today's teleconference. You may now disconnect.