Aug 4, 2009
Executives
Rebecca Hickman – Director, IR Jim Hatfield – SVP and CFO Don Brandt – Chairman and CEO Don Robinson – President and COO of APS
Analysts
Paul Ridzon - Keybanc Capital Markets Greg Gordon - Morgan Stanley Daniele Seitz - Dudack Research Group Paul Patterson - Glenrock Associates [Tom O'Neill] - Green Arrow Chris Shelton - Millennium Partners [Vedula Merti - CDP US]
Operator
Good afternoon. My name is Sarah and I will be your conference operator today.
At this time I'd like to welcome everyone to the second quarter 2009 earnings conference call. (Operator Instructions) Ms.
Hickman, you may begin your conference.
Rebecca Hickman
Thank you, [Sarah]. I'd like to thank everyone for participating in this conference call to review our second quarter earnings, recent developments and operating performance.
We know today is an especially busy day for you, with a number of conference calls. Our speakers today will be our Chairman and CEO, Don Brandt, and our CFO, Jim Hatfield.
Don Robinson, who is President and Chief Operating Officer of APS, is also here with us. 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 earnings and 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 to per share amounts will be after income taxes and based on diluted shares outstanding. Third, we will be referring to slides today during this conference call and webcast.
The slides are available on our Investor Relations website, with the webcast and with the Form 8-K filed this morning. During our prepared remarks we will give you verbal cues as we move through the slides.
Looking at Slide 2, it is my responsibility to advise you that this call and our slides contain forward-looking statements based on current expectations and the company assumes no obligation 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 Forward-Looking Statements and the MD&A sections contained in our second quarter 2009 Form 10-Q, which was filed with the SEC this morning, as well as the Risk Factors section of our 2008 Form 10-K, all of which identify important factors that could cause actual results to differ materially from those contained in our forward-looking statements. Next, during this call we will discuss certain non-GAAP financial measures.
Our press release, the slides accompanying this webcast, and our filings with the SEC, all of which are posted on our Investor Relations website, contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. 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 August 11th. 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's written consent is prohibited.
At this point I'll turn the call over to Jim.
Jim Hatfield
Thank you, Becky. As shown on Slide 3, the topics I will cover today are: The second quarter results for Pinnacle West and the main variances to 2008's second quarter, our earnings outlook for 2009 and 2010, and I want to briefly update you on our liquidity situation.
Beginning on Slide 4 with second quarter results, we reported on a GAAP basis consolidated net income attributable to common shareholders of $68 million or $0.68 per share in this year's second quarter as compared with $134 million or $1.33 per share in 2008's second quarter. I plan to focus my remarks on our ongoing earnings, which exclude results from the Real Estate segment for both quarters, as well as a $30 million second quarter 2008 income tax credit related to prior years.
Consolidated ongoing earnings in the second quarter, a non-GAAP measure, were $77 million or $0.77 per share, compared with $89 million or $0.88 per share in the prior year period. A reconciliation of our GAAP earnings per share to our ongoing earnings per share is available on Slide 5.
We've excluded the Real Estate segment from our ongoing earnings because of the major restructuring under way at SunCor and the implications for that business moving forward. We still expect a substantial majority of SunCor to move into discontinued operations for financial reporting purposes this year.
Ultimately we expect the restructuring to be complete around the end of this year as execution of this plan is under way. Don will provide a brief update on the SunCor restructuring in a few moments.
Moving to Slide 6, the variances that made up the ongoing earnings per share reduction of $0.11 per share were as follows: First, miscellaneous items added $0.04 per share; the lack of investment losses in this year's quarter and other miscellaneous items increased results by $0.06; however, this was partially offset by lower Marketing and Training gross margins, a business that is no longer active. As many of you are aware, we have not been actively pursuing Marketing and Training for some time.
The last two major contracts, which were negotiated earlier this decade, rolled off in 2008. This reduced gross margins by $0.02 per share.
Moving on to the Utility business, our regulated electricity gross margin's APS were up $0.02 per share. Embedded in this variance are several plusses and minuses, which I'll cover in more detail on the next slide.
O&M expense was up $0.10 per share. The increase was primarily due to the timing of planned maintenance and overhauls at our fossil plants; however, I want to emphasize that we are on target to achieve the O&M levels embedded in our 2009 guidance.
This change in O&M excludes expenses related to the renewable energy standard or RES and are our demand-side management and energy efficiency programs. These costs are offset through respective rate surcharges.
You may find it helpful to refer to the appendix in today's slides to find the amount of RES and DSM revenues recorded by quarter over the last couple of years. And lastly, expenses related to infrastructure additions and improvements were up approximately $0.07 per share in this year's quarter.
Interest net of capitalized financing costs and depreciation were the primarily contributing factors. Turning to Slide 7 and the drivers of the net increase in regulated electricity gross margin, the regulated gross margin was up $0.02 on a comparative basis from the second quarter a year ago.
In terms of positive contributions, we had the benefit of the interim rate decision, which became effective at the beginning of this year. This increase had a favorable impact of $0.10 per share or $16 million on a pre-tax basis.
The timing of transmission rate increases associated with our formula rates and the subsequent operation of our retail transmission cost adjuster improved gross margin by $0.02 per share or $3 million on a pre-tax basis. Lastly, weather affects added $0.07 per share.
This year's second quarter was relatively normal on average, but contained a number of swings since May was hotter than normal. But most importantly June was cooler than normal.
However, 2008's second quarter was much cooler [break in audio] energy efficiency efforts already under way. We are not seeing a change in customer usage in the residential class.
Looking forward we continue to expect customer growth to average about 1% annually from 2009 through 2011. Additionally, we currently expect weather-normalized retail sales to be relatively flat from 2009 through 2011 on a year-over-year comparison due to the effects of the national economy, the housing situation in Arizona, and APS's energy efficiency program.
All of this is reflected in our 2009 and 2010 guidance. In the near term the Arizona economy still has to deal with a substantial excess inventory of homes and apartments which must be reduced in order to allow sustained recovery in construction and the broader economy.
This is the principal reason for our moderate outlook on near-term growth. Over the longer term we remain confident of Arizona's fundamentals and expect customer growth and usage to return to stronger levels as the national and state economic environments improve.
Returning to the variances, our net cash marked-to-market valuation of APS's fuel and purchased power hedges net of PSA deferrals was lower by $0.05 per share. Specifically, we had a relatively small positive marked-to-market in this year's second quarter of $0.03 per share compared with a large positive marked-to-market of $0.08 per share in last year's second quarter, which was driven by the dramatic run up of natural gas in the first half of 2008.
For your reference we have included our marked-to-market amounts by quarter for the past couple of years in the slide appendix. Lastly, a few miscellaneous factors made up the remaining $0.04 of the variance.
Turning to our earnings outlook on Slide 8, we are reaffirming earnings guidance for 2009 and 2010. We continue to expect that our earnings for 2009 will be within a reasonable range around $2.30 per share and in 2010 we continue to estimate that our consolidated earnings will be within a reasonable range around $3.00 per share.
This projection reflects implementation of the retail rate settlement that's currently proposed effective January 1, 2010. Further detail reconciling our 2008 results to our 2009 estimates and our 2009 estimates to 2010 guidance is available on our website and in the 8-K we filed this morning.
Lastly, although I don't have a slide, I want to give you a quick update on our liquidity. At Pinnacle West and APS we have adequate liquidity.
We have previously demonstrated that in prior calls. On June 30th Pinnacle West and APS collectively had about $765 million in available cash and available credit capacity after considering short-term debt outstanding and cash on hand.
We have completed our planned refinancings for 2009. In May and June of this year we refinanced $343 million of auction rate pollution control bonds.
These new bonds have a fixed interest rate with initial terms of three to seven years. We do not now have any auction rate securities outstanding.
Additionally, we have no long-term debt maturities outside of SunCor until 2011 and or revolving lines of credit mature in late 2010 and 2011. That concludes my prepared remarks.
I'll turn the call over to Don.
Don Brandt
Thanks, Jim, and thank you all for spending time with us this morning on this call. Today I'll discuss several issues that I believe are at the top of investors' minds.
Jim's already touched on our intrinsic growth and the Arizona economy. I'll update you on these items: The pending rate settlement, our renewable resource announcements, our recent operating performance, the SunCor restructuring, and my key priorities as the company's Chief Executive Officer.
Regarding our pending retail rate settlement, APS's proposed settlement demonstrates positive movement in Arizona's regulatory environment; however, it is critical for this settlement to be approved as proposed so that our customers, investors, APS and other stakeholders may realize the settlement's benefits. The terms of the settlement were released just before our last earnings conference call.
The definitive agreement is supported by 22 of the 24 parties to the rate case. Only one party filed opposing testimony and that testimony was limited to objections to the lack of free footage allowances in APS's line extension policy as it was approved by the Arizona Corporation Commission in 2008.
The settlement offers a wide variety of benefits for our customers, our communities and other Arizona stakeholders. From an investor's perspective, the primary benefits of the settlement are as follows: First, the settlement strengthens APS's financial position, supports the current common dividend, and improves APS's ability to attract capital for infrastructure additions needed to sustain Arizona's energy future.
Second, it provides a greater level of cost recovery and return on investment for APS while providing a measure of rate stability for our customers. We estimate that approval of the settlement as proposed would improve APS's earned return on equity to between 9% and 9.5% in 2010, up from about 7% in 2009.
The earned return will still be well below the 11% allowed ROE included in the settlement and we will continue to work to close that gap. Third, the proposed settlement demonstrates a high level of cooperation among APS, the ACC staff, and other interveners which we see as a distinct positive.
Fourth, completing the settlement also will allow the opportunity for us to help shape Arizona's energy future outside continual rate cases through dialogues and workshops with the ACC Commissions, the ACC staff, and various other stakeholders. And finally, in a significant move to decrease the time it takes to process future rate filings, the settlement supports process efficiencies that will streamline how future APS rate cases are managed and the parties intend to use good faith efforts to process future APS rate cases more quickly.
In addition, the next APS general base rate request may be filed on or after June 1, 2011 with any rate changes to go into effect on or after July 1, 2012. On our last call I described the major financial provisions of the settlement.
In summary, the settlement provides incremental revenues totaling $230 million in 2010. It also includes provisions that help stabilize APS's financial condition until the next rate case decision.
Rather than prepare remarks on those details again, we've outlined them on Slides 16 through 20 in the appendix section of our quarterly slides. We will be pleased to answer any questions you may have regarding the settlement terms during the Q&A session.
The next key event on the procedural schedule is the hearing which will begin on August 19th. The full procedural schedule is outlined on a slide in the appendix.
Under this schedule it is possible for the administrative law judge to issue her recommendation and turn the case over to the ACC Commissioners for their consideration some time during this year's fourth quarter. Consequently, new rates could become effective on January 1, 2010 as proposed in the settlement.
Also on the regulatory front we have implemented transmission rate adjustments. In accordance with FERC formula rates, APS's annual transmission revenues increased by $23 million effective June 1 of this year.
Of that amount $21 million relates to transmission charges for retail customers. Last week the Arizona Corporation Commission approved an increase in the transmission cost adjuster - or, as we call it, TCA - to adjust retail rates for the new transmission rates beginning in early August.
Now turning to our resource acquisition and operations, we've added significantly to our renewable resource portfolio during the quarter. On May 22nd APS announced a utility scale solar plant - Starwood Solar 1.
The plant will be a 290 megawatt facility about 75 miles west of Phoenix. Starwood Solar 1 will be developed and built by Starwood Energy Group and Lockheed Martin.
With Starwood Solar 1 and the previously announced Solana generating station and other contractual commitments, APS expects to have 800 megawatts of energy in its renewable energy portfolio by 2013, enough energy for nearly one quarter of a million customers. Solana and Starwood Solar 1 also will help APS provide more solar electricity per customer than any utility in the country, and they will also allow the company to exceed the requirements of the renewable energy standard established by the Arizona Corporation Commission.
Earlier in May we announced a proposed community power project in Flagstaff, Arizona, about 140 miles north of Phoenix, and completed installation of a solar system at the Grand Canyon Visitors Center. In Flagstaff, through a distributed solar project, APS would own and receive the energy from solar panels installed on about 300 customers' rooftops and will integrate that system with a smart grid pilot project.
At the Grand Canyon, 84 solar panels are now operational and provide enough energy to offset 30% of the Canyon Visitors Center's electricity use. Looking at our operating performance for a few minutes here, our organization is intently focused on operational excellence.
We are recognized for top notch customer service and continually strive to raise the bar even higher, constantly improving performance in every facet of the company. At our power plants the Palo Verde units have been running well.
The combined capacity factor for the nuclear units was 81% in the second quarter compared with 74% in the same quarter a year ago. Both periods reflect planned refueling and maintenance outages.
Currently all three units are operating at full power. The Palo Verde team is doing a tremendous job improving Palo Verde's performance and we remain focused on long-term safe, sustainable, first quartile performance in all aspects of Palo Verde's operations.
We're on track to meet our established five-year targets to consistently achieve 88% annual site average capacity factors, 30-day refueling outages and production costs below $0.02 per kilowatt hour. On the fossil side of our business our coal-fired plants and our gas-fired plants are performing well, helping meet our customers' energy needs.
Regarding our customer service, last month J.D. Power and Associates released the result of its 2009 survey of residential utility customers.
APS continues its record of strong performance in customer satisfaction, ranking in the top quartile nationally. More specific to our region of the country, we were rated third among the 10 largest investor-owned utilities in the West.
In addition to the overall customer satisfaction index, APS ranked in the top quartile nationally in four of the six components of customer satisfaction as defined by J.D. Power.
Those top quartile performance areas are power quality and reliability, customer service, communications and corporate citizenship. Next I'll turn to the status of our SunCor restructuring plan.
On our last earnings call we announced a restructuring plan for SunCor that is focused on optimizing proceeds from asset sales while minimizing risk going forward and substantially eliminating SunCor's debt. Execution of this plan is under way.
While operating under a forbearance agreement that expires on August 15th, SunCor is in discussions with their banks to resolve certain covenant defaults. Looking ahead, I have previously indicated the top goals on my personal agenda as Pinnacle West's new CEO and I want to take this opportunity to reinforce these fundamental priorities: First, building superior investor and customer value; two, demanding safety as a top priority; three, maintaining operational excellence and disciplined cost management; four, building a sustainable energy future; five, building and leveraging our high performance work force; and six, promoting a culture of respect, integrity and trust.
Through commitment to an exception execution of these goals we will continue to move this company forward while helping Arizona recover economic vitality and attract new businesses and residents. Additionally, we are committed to improving our earnings and financial metrics and thereby sustaining our dividend.
We are keenly aware of the vital importance of the dividend to our investors and thus to our ability to attract capital in the future. That concludes our prepared remarks this morning.
Operator, at this time we'd be pleased to take any questions.
Operator
(Operator Instructions) Your first question comes from Paul Ridzon - Keybanc Capital Markets.
Paul Ridzon - Keybanc Capital Markets
One thing that we have seen is that large reductions in C&I tend to have a smaller-than-expected earnings impact because a lot of the revenues are structured more as capacity reservation. Are you less than others in that regard?
I was surprised by the $0.08 degradation of earnings.
Jim Hatfield
Well, if you look at where we've had our reduction, it's really been manufacturing, 17%, warehouse, about 10%, and really retail and office and that category. In terms of contribution we saw, like I said, over 80% of that sales reduction in the C&I.
So in terms of the $0.08 degradation relative to C&I, I'm not sure the rate designs of others but our rate design is structured so that we're trying to levelize those more across the board with residential. Don, do you have anything specific on rate design you want to add to that?
Don Brandt
I don't.
Paul Ridzon - Keybanc Capital Markets
How hot has July been?
Jim Hatfield
Well, we had the hottest July on record. We had several days in July where the average temperature was 100, so just from a relative basis, significantly above normal.
I don't have degree days in front of me, Paul, but the fact that it was the hottest on record I think gives the magnitude of the heat in July. And August is sort of starting off the same as July ended up, at least through the first four or five days.
Paul Ridzon - Keybanc Capital Markets
So that should be a nice tailwind.
Jim Hatfield
Well, we're hoping.
Paul Ridzon - Keybanc Capital Markets
And then just lastly just an update on potential tapping the equity markets. Is that still a '10 event?
Jim Hatfield
Correct, no change in terms of equity plans at this point.
Operator
Your next question comes from Greg Gordon - Morgan Stanley.
Greg Gordon - Morgan Stanley
So the degradation you saw in sales, that might have been partly from weak weather in the second quarter. Would it be fair to say that the four or five weeks you've had in July and August have sort of put you back on track?
Jim Hatfield
Yes, just a couple things. You know, I talked about this at length in the first quarter, you know, the role of weather and what's usage.
I can tell you that even through sort of normal weather residential sales were down 3% and humidity was 10% below normal. What's that do vis-à-vis normal?
I'm not sure. But certainly July, we feel good about the 230 and about sales and don't think that anything so far is off track to achieve our numbers.
Greg Gordon - Morgan Stanley
Don, I know you're trying to keep things extremely positive when you talk about the dependency of the vote on the rate settlement, as you should. What would you guys have to do in terms of changing the financial strategy of the company to react to either a rejection of the settlement or a material modification of the settlement?
Don Brandt
Well, we're focused now on getting the settlement approved, Greg. As I mentioned, we've got 22 out of the 24 parties supporting it; only one party objecting and that's on a very limited aspect.
We've had, I think, a level of spirit of cooperation in this settlement process that we have not had before. The settlement addresses a wide variety of factors other than earnings and rate issues relative to environmental aspects, renewable energy, low income customers.
I think once it's explained and reviewed by the Commission in detail the Commissioners will find it a very attractive result of the settlement process.
Operator
Your next question comes from Daniele Seitz - Dudack Research Group.
Daniele Seitz - Dudack Research Group
Could you give us some details on the cost of the solar plant and is there a special regulatory treatment for these types of plants in Arizona?
Jim Hatfield
In terms of solar, Daniele?
Daniele Seitz - Dudack Research Group
Yes, yes. And if you could give us an idea of the cost and how will you recover those costs?
Jim Hatfield
Well, the cost is confidential according to our agreements. We'll enter into PSAs with the two large ones and those will be passed through the PSA 100%.
And right now I guess I would characterize it as the state is very positive on solar. We have all the attributes for solar that you would want.
We're planning on continuing to increase our renewable energy and under the framework of Arizona regulation that is passed through the PSA at 100% and through the RES. So there's really no net costs from a shareholder perspective because that's all being recovered.
Daniele Seitz - Dudack Research Group
Okay, so it's pure purchased power cost? You're not involved in the investment?
Jim Hatfield
Correct.
Operator
Your next question comes from Paul Patterson - Glenrock Associates.
Paul Patterson - Glenrock Associates
Just on the customer growth outlook and weather-normalized sales, looking at your release if I'm reading it correctly it appears that you guys have had about 0.7 of 1% customer growth yet a decline weather normalized. And you mentioned, as you guys did previously, that you still expect 1% growth.
Jim Hatfield
In customers, that's correct.
Paul Patterson - Glenrock Associates
How shall we think about the outlook for actual kilowatt hours through this 2009 through 2011 period?
Jim Hatfield
As I said when I was talking about that issue, we're planning on flat sales year-over-year really driven by the economy as well as energy efficiency efforts.
Paul Patterson - Glenrock Associates
That's this year.
Jim Hatfield
And that would be a statement that we see it through 2011 at this point.
Paul Patterson - Glenrock Associates
Oh, really, through 2011 you don't expect any significant growth in kilowatt hour sales?
Jim Hatfield
That's correct.
Paul Patterson - Glenrock Associates
Is that because of the economy or is that efficiency? How do we think about that?
I mean, that seems like a pretty less-than-robust outlook from what you guys have traditionally have.
Jim Hatfield
Well, I think you have to look at it in two ways. One of the things we're doing - and we filed this with the Commission - we're getting about 0.4 of 1% reduction in sales just through our energy efficiency efforts so far, so, for your thinking, that's where that's going.
The other is just, like we said, an economy that needs to absorb these 30,000-plus houses that are available out there before we see any meaningful pickup. From a C&I perspective the only growth year-to-date has been in hospitals and schools, which have been very modest sales growth.
So we're just seeing that pattern continue until we get back to what we believe will be more traditional growth in customers and kWh sales.
Paul Patterson - Glenrock Associates
So basically it's real estate dependent, I guess, is the way to think about the big driver in Arizona?
Jim Hatfield
It's real estate dependent and tourism driven, and that's been our drivers. We expect we'll continue to see robust growth once economic factors point to a positive direction.
But keep in mind with the 30,000-plus homes here, we have a lot to absorb before we get back on that growth track.
Operator
Your next question comes from [Tom O'Neill] - Green Arrow.
Tom O'Neill - Green Arrow
I have a longer-term question just on how you're evaluating rate-based opportunities in solar. I guess A) your thoughts on that, and then B) what filing you might need to do to address the self-build moratorium that I think would keep you from that.
Don Robinson
The self-build moratorium doesn't apply to renewable resources, so we have the ability to build renewable resources and that is one of the things that we are looking at as we go forward and what should our investment in those be. And we're evaluating different structures right now because clearly, as we go long term, we are going to be a large player in the solar development in the state and I think ownership of a portion of those plants are where we're going.
Jim, you want to anything?
Jim Hatfield
I would just say from a financial perspective we're not opposed to PPAs; however, without any ability to earn on those commitments we're seeing a negative impact to the capital structure through imputed debt and I think that's something that we have to keep in mind as we address this issue going forward.
Tom O'Neill - Green Arrow
And just along those lines, how would you envision a regulatory compact that you would get comfortable with just to avoid some of the lag problems of the past?
Jim Hatfield
I think we would go out to the Commission in the front end just like we would for any new baseload generation that we would be looking at and get an agreement from them on how we would be paying for this and when we would recover costs along the way as [WIP] or some other innovative process so we are not waiting until the end of the period to recover our total costs. We're not going to do that.
Operator
Your next question comes from Chris Shelton - Millennium Partners.
Chris Shelton - Millennium Partners
I just wanted to clarify, actually. It seems like there's a couple of moving parts in the guidance for '09.
I guess you're ahead on weather - it sounds like July was pretty warm - but usage is tracking a little bit behind, and I just wanted to see which of those or if any was kind of assumed in the 230 for '09?
Jim Hatfield
I want to just clarify your first point. I don't think we're ahead on weather; I think July sort of brought us back to close the gap.
As I said earlier, even though second quarter was normal it was a hot May and a cool June and we saw residential cooling degree days off 3%. So I think July just was more of a catch-up.
From a usage pattern what July told us, I mean, we understand the C&I industrial pattern and we have planned for that. July residential sales, we saw robust residential sales which is consistent with the weather pattern, so I don't think there's any real impact on usage that we're seeing today.
Energy efficiency's been built into the outlook. And weather, we look at sort of normal weather over the course of the year and I think July is bringing us back to that bogey.
Chris Shelton - Millennium Partners
The usage, I guess, is tracking for flat for the year still? Is that fair?
Jim Hatfield
Usage is tracking or weather adjusted would track more toward a flat '09 over an '08.
Chris Shelton - Millennium Partners
And then also to clarify, July bringing weather back to normal, that was assumed in the 230 also, right?
Jim Hatfield
Exactly. We did get the benefit of July behind us when we looked at that.
I also want to point out there is a lot of unsold homes in the service territory and those homes count as customers although their usage is de minimis at best at this point. And that's also a factor when we look at usage, but we believe we've built all of those things into the 2009 guidance.
Chris Shelton - Millennium Partners
Don, when you were talking about not earning a 9% ROE under the settlement, do you have the rate base on the equity layer that you were assuming in that or maybe which year you were assuming?
Don Brandt
I was talking about actual reported earnings for 2010, those levels of return on equity.
Jim Hatfield
And we've provided CapEx updates for the utility as well and we're assuming a 54% equity at APS, which is consistent with the cap structure in the settlement.
Chris Shelton - Millennium Partners
Okay, so just to clarify, the rate base would be a projected 2010 rate base not the rate base in the settlement or 2009?
Jim Hatfield
Correct.
Chris Shelton - Millennium Partners
Who's objecting to the settlement at this point?
Don Brandt
Just one party relative to our line extension agreement, where the Commission two years ago changed it. There was generally a 1,000-foot free allowance for new residential development and that was eliminated.
Chris Shelton - Millennium Partners
And who's the party objecting, I guess, or is that the only objection.
Jim Hatfield
It's a group basically representing development. I don't have a name, but [Barbara Wylie] is the person whose name it is.
Chris Shelton - Millennium Partners
It's the developers, though? That makes sense.
Operator
(Operator Instructions) Your next question comes from Paul Ridzon - Keybanc Capital Markets.
Paul Ridzon - Keybanc Capital Markets
What have we seen out of the Commission as far as data points to how the new Commissioners think about the world?
Don Brandt
Relative to our case, Paul, they really haven't had an opportunity to comment on it. We have the hearings starting.
I think that'll give us a reasonable perspective. Again, both in the settlement and part of the aim of the parties putting together the settlement was to address the issues that we thought were important to all the parties and to the Commission and the state as a whole and our customers, most importantly, again, besides the rate and earnings issues for APS and our investors, but also renewable energy, environmental benefits, low income assistance for customers, rate design issues.
Again, I think when they have the opportunity to review with all the parties the aspects of the case they'll find it's a very attractive proposal before them.
Jim Hatfield
I think, Paul, most recently we had our implementation of the retail rates of the TCA; that was approved. That went into impact in August.
That's probably the latest data point as it relates particularly to APS.
Paul Ridzon - Keybanc Capital Markets
Have there been cases outside of APS where they've looked more or less constructive than historically?
Jim Hatfield
Well, I mean, Tucson got their settlement last year. They're [inaudible].
Southwest Gas was late last year. I haven't really seen anything as it relates to a rate.
Don Robinson
They just had a rate case regarding a company called Trico that was approved in the last opening meeting, I believe.
Jim Hatfield
Right. And that was July.
And that's been about it; most of the others have been more normal course - renewable energy, energy efficiency, demand-side management type programs.
Operator
Your next question comes from [Vedula Merti - CDP US].
Vedula Merti - CDP US
A couple things I just want to make sure I have clarified. The time period for the rate base that constitutes settlement is, again, which time period?
Jim Hatfield
It's 2007 with some pretty much what's in service in 2008.
Vedula Merti - CDP US
Now, the next opportunity you would have under the settlement to go in would be during I it's 2011. Is that correct?
Jim Hatfield
June 1, 2011. And we would do that on a 2010 test year, so we would pick up '09 and '10 in that timeframe.
Vedula Merti - CDP US
If one takes a look at the CapEx less DD&A and everything like that, would we be talking like somewhere in the range of about $1 billion of incremental rate base between the two periods in terms of the rate cases?
Jim Hatfield
Yes, roughly in that area. Our CapEx that we previously talked about as an estimation for '10 has not really changed and it is down from 2009.
Vedula Merti - CDP US
Okay, so then the period in which you would then be able to realize hopefully a reasonable rate of return on that incremental rate base would then be some time during 2012, 2013, so this period while you're in the reasonableness range of $3 give or take and your other cost management efforts and things of that nature to manage things, your next potential increment in terms of realizing better returns on your rate base would then become 2012 basically?
Jim Hatfield
That's correct, yes. Again, because the parties are going to use their best efforts to try to get that process in '12, which would imply potentially a mid-year 2012 increase.
Vedula Merti - CDP US
And is there any opportunity do you think as part of that process that even though you'd have a 2010 test year that things that are fairly known or measurable or significant that would be 2011 items could be reflected as well?
Jim Hatfield
It could be. It really depends upon the framework going forward, and we've talked about that before.
But at this point we're looking at the schedule that's in front of us.
Operator
Your final question comes from Daniele Seitz - Dudack Research Group.
Daniele Seitz - Dudack Research Group
Could you give us update on the restructuring of SunCor? What are your goals and timing?
Jim Hatfield
Yes, great question. First of all, we stated before our goal is really to optimize the assets and to pay down debt and be left with sort of a de minimis impact from SunCor.
Where we are in the process is the Hayden Ferry Lakeside Condos is in escrow and will close this month. Homebuilding, we have LOIs and we're working that sales process; we still expect a 2009 close.
Golf course bids are due on Friday; still expect a 2009 close. We have various Palm Valley partials that are in escrow or LOIs and we're still working that process for a 2009 close.
And the Hayden Ferry Lakeside development project is in process at this point. We still appear to be on track for around a year end 2009 completing the restructuring and the goal is to pay the banks down to zero.
And, as we said before, there's some consolidated tax benefit. But nothing at this point tells us that the restructuring won't be what we've planned all along in terms of sort of assets and timing and dollars.
Daniele Seitz - Dudack Research Group
And no estimates in terms of potential write-offs or anything like that?
Jim Hatfield
No, we had about $6 million of additional impairment charge in the second quarter but, like I said, everything right now is sort of meeting expectations, with some things still ahead of us to go at this point.
Operator
There are no further questions at this time.
Rebecca Hickman
Thank you, again, for joining us today. Meanwhile, if you need any additional information or further details about earnings please contact me or Lisa Malagon.
This concludes our call.