May 3, 2013
Executives
Rebecca L. Hickman - Director of Investor Relations Donald E.
Brandt - Chairman, Chief Executive Officer, President, Chairman of Arizona Public Service Company and Chief Executive Officer of Arizona Public Service Company James R. Hatfield - Chief Financial Officer, Senior Vice President, Chief Financial Officer of Arizona Public Service Company and Senior Vice President of Arizona Public Service Company
Analysts
Greg Gordon - ISI Group Inc., Research Division Kevin Cole - Crédit Suisse AG, Research Division Neil Mehta - Goldman Sachs Group Inc., Research Division Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division Julien Dumoulin-Smith Sarah Akers - Wells Fargo Securities, LLC, Research Division Paul Patterson - Glenrock Associates LLC Charles J.
Fishman - Morningstar Inc., Research Division Andrew Levi Kevin Fallon
Operator
Greetings, and welcome to the Pinnacle West Capital Corporation First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Becky Hittman, Director of Investor Relations. Thank you, Ms.
Hickman, you may begin.
Rebecca L. Hickman
Thank you, Kristine. I'd like to thank everyone for participating in this conference call and webcast to review our first quarter 2013 earnings, recent developments and operating performance.
Our speakers today will be our Chairman and CEO, Don Brandt; and our CFO, Jim Hatfield. Jeff Guldner, who is APS' Senior Vice President of Customers and Regulation, is also here with us.
Before I turn the call over to our speakers, I need to cover a few details with you. First, the slides to which we refer are available on our Investor Relations website, along with our earnings release and related information.
Please note that the slides contain reconciliations of certain non-GAAP financial information. Also, all of our references to per-share amounts will be after income taxes and based on diluted shares outstanding.
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.
Our first quarter 10-Q was filed this morning. Please refer to that document for forward-looking statements cautionary language, as well as the risk factors and MD&A sections, which identify risks and uncertainties that could cause actual results to differ materially from those contained in our disclosures.
A replay of this call will be available on our website for the next 30 days. It will also be available by telephone through May 10.
At this point, I'll turn the call over to Don.
Donald E. Brandt
Thanks, Becky, and thank you, all, for joining us on the call today. This year, so far, we have made progress in a number of key areas in our core electric utility business.
This progress includes, first, strategically adding generation resources; second, continuing collaboration on Arizona's regulatory environment and energy future; third, maintaining operational excellence; fourth, strengthening our financial outlook; and finally, positioning ourselves to benefit from economic recovery in Arizona. Jim and I will provide more information on these areas through our remarks today.
Looking first to our generation resources, today, I'll update you on 2 components of our generation resource program, utility-scale solar resource additions and the planned Four Corners acquisition. As you know, through AZ Sun, APS develops and owns utility-scale photovoltaic solar plants in Arizona.
In early April, we announced the 32-megawatt Gila Bend solar power plant, which will be located about 70 miles southwest of Phoenix. We now have projects in service or committed for a total of 150 megawatts with projected capital investments of $614 million.
To date, we’ve placed a total of 86 megawatts in the commercial operation at 5 plant sites. The most recent addition was a 17-megawatt first phase at the Yuma Foothills plant in Southwestern Arizona, which went into service on March 19.
Construction and other development activities are currently underway for another 64 megawatts at 3 sites in Arizona, Yuma Foothills Phase II, Hyder II and the newly announced Gila Bend site. We expect those facilities will go into operation in 2013 and 2014.
Also of note on the solar generation front, we expect the 250 megawatt Solana power plant near Gila Bend to go into commercial operation this summer. As a reminder, APS has a 30-year purchase power agreement for all the output in the Solana plant, which is being built and will be owned and operated by Abengoa Solar.
Solana is a concentrating solar trough plant with thermal storage capability for 6 hours after the sun goes down. We're continuing with our plan to acquire Southern California Edison's interest in the Four Corners coal-fired plant in Northwestern New Mexico.
I'll outline the major steps of our plan. Since late 2012, the Navajo Nation and BHP Billiton have been working on the sale of the coal mining operations serving the plant to the Navajo Nation from BHP.
On Monday, the Navajo Nation Tribal Council approved formation of a special-purpose corporation to enable the mining operation transfer. The tribal council bodes a significant positive milestone along the way here in our acquisition of the additional resources at Four Corners.
Negotiation between the Navajo Nation and BHP are still underway. Key terms of the new coal supply contract for Four Corners are being finalized by APS, the other Four Corners co-owners and the Navajo Nation.
We are targeting mid-2013 to close APS's Four Corners acquisition from SoCal Edison, following satisfactory completion of the coal supply contract and finalization of other typical closing conditions. Shortly after the acquisitions complete, APS will file an application with the Arizona Corporation Commission to put the Four Corners additions into retail rates as permitted by the 2012 retail regulatory settlement.
We expect a decision and the related rate adjustments in early 2014. Turning to Arizona regulation, APS's 2012 retail regulatory settlement has positioned us well for the next several years.
However, there are still regulatory developments underway in our state. Several topics are currently in various stages of consideration and including, among others, the ACC's interest in, one, in understanding the impacts of the existing net metering policy for distributed renewables, that is rooftop solar, and this topic is being discussed in a series of APS-led technical conferences, and we expect it to be the subject of a filing later this year.
And second, examining the existing energy efficiency and renewable energy standards. These reviews are expected to be undertaken through individual utility dockets and broad policy processes.
On these and other issues, we're continuing to work with the commission and various stakeholders on a collaborative approach to the state's energy future. We realize these policy issues require careful study and consideration to ensure that strong service reliability and fair prices are available to all customers, that subsidies are both transparent and fair for all customers and that shareholder returns will support continuing needed investments in infrastructure.
Turning to our operational performance for a few minutes, excellence in day-to-day operations remains a top priority. Our baseload nuclear and coal fleet continues to turn in solid performance.
During the first quarter, our Palo Verde Nuclear Generating Station operated at a 99% capacity factor. This year's plant spring refueling outage began in Unit 1 on March 30 and was completed last Sunday afternoon, April 28.
The outage, which was completed in under 30 days, was the shortest in Palo Verde's history. More importantly, the outage was accomplished with 0 OSHA recordable injuries, and also, the outage set an industry-leading record for low-dose exposure.
My personal thanks for a job well done is going out to every member of the Palo Verde employee team. Our fossil plants have also operated well.
Our coal plants have increased generations to take advantage of the higher near-term natural gas prices. We continue to garner external recognition for our customer service and corporate initiatives.
Today, I'll highlight a few recent items. In February, J.D.
Power and Associates released the results of its most recent business customer survey. APS continues its record of top decile ratings for overall customer satisfaction.
In the most recent results and repeating its ranking from last year, APS ranked fourth nationally among 44 large investor-owned electric utilities. More specific to our region, we were once again rated second among the 10 investor-owned utilities in the West.
We're pleased that APS's accomplishments, installing and promoting solar power and promoting energy efficiency, have been recognized by a number of independent third parties. For example, in April, APS was again named one of the 10, ranking fourth, solar electric utilities in the United States by the Solar Electric Power Association.
This year makes the sixth consecutive year APS has been on the list. In addition, for the fourth consecutive year, APS was awarded the EPA's highest honor for continued leadership in protecting the environment through energy efficiency programs.
The ENERGY STAR Sustained Excellence Award recognized APS for its role as a regional leader in energy efficiency and its ongoing involvement in 2 energy-efficient home programs. And finally, for the third year in a row, Corporate Responsibility Magazine named Pinnacle West among its 100 Best Corporate Citizens based on the magazine's evaluation of U.S.
companies across a complete spectrum of environmental, social and governance criteria. To close my remarks, I am proud of where our company is today and very optimistic about our future.
We expect to continue achieving top-tier performance through planning and execution in key strategic and operational areas in our core utility business, areas in which our talented leadership team and workforce perform very well. Now, I'll turn the call over to Jim for a financial and economical overview.
Jim?
James R. Hatfield
Thank you, Don. Today, I'll discuss the following topics: First, I will review our first quarter results, including earnings and the primary variances from last year's corresponding quarter; second, I will provide a brief update on the status and outlook for the Arizona economy; third, I will review our 2013 earnings guidance and financial outlook; and finally, I will discuss a few other current financial topics.
Slide 6 summarizes our reported and ongoing earnings for the quarter. On a GAAP basis for this year's first quarter, we reported consolidated net income attributable to common shareholders of $24 million or $0.22 per share compared to a net loss of $8 million or $0.08 per share for the prior year's first quarter.
Our ongoing earnings increased $0.29 per share. For the 2013 first quarter, we had consolidated ongoing earnings of $24 million or $0.22 per share versus an ongoing loss of $7 million or $0.07 per share for the same quarter a year ago.
Slide 7 reconciles our first quarter GAAP earnings per share to our ongoing earnings per share. The amount for first quarter 2012 excludes results related to our discontinued operations.
My remaining comments on the quarter will focus on ongoing results. Moving to Slide 8, you see the variances that drove the change in quarterly ongoing earnings per share.
First, an increase in our gross margin added $0.28 per share compared with the prior year's first quarter. Several items comprised this positive net variance, and I will cover those items in more detail on the next slide.
Second, lower infrastructure related costs improved earnings by $0.06 per share primarily because of the lower interest rates of the current year. Third, the net effect of miscellaneous items improved earnings by $0.02 per share.
Fourth, higher operations and maintenance expense reduced earnings by $0.07 per share. The expense increase consisted largely of higher performance-based compensation cost resulting from improvements in the company's stock price and estimated full-year performance; higher employee benefit costs related primarily to the effects of the amortization in this year's first quarter of certain pension and other postretirement benefit costs, compared with the regulatory deferral of such cost in 2012; and higher information technology costs.
These O&M increases were partially offset by lower generation costs as a result of less plant maintenance being completed early in this year compared with 2012. This O&M variance excludes expenses related to the Renewable Energy Standard, or RES, energy efficiency and similar regulatory programs, all of which were essentially offset by comparable revenue amounts under adjustment mechanisms.
Turning to Slide 9, and the components of our net increase in our gross margin, total gross margin increased $0.28 per share compared with last year's first quarter. The main components of that increase were as follows.
APS's regulatory settlement, which became effective July 1, 2012, improved gross margin by $0.13 per share, almost all of which was comprised of a nonfuel base rate increase. When the 2012 settlement became effective in July, the company also began recording revenues from the new Lost Fixed Cost Recovery mechanism, or LFCR, and stopped recording the line extension fees as revenues.
Higher weather-normalized kilowatt hour sales after the effects of customer conservation energy efficiency programs and distributed renewable generation increased our earnings by $0.06 per share. This variance was primarily driven by customer growth of 1.4% in the quarter compared to the same period 1 year ago.
In addition, this variance reflects the effects of customers' usage patterns and related pricing. The effects of weather variations improved earnings by $0.06 per share.
This year's first quarter was cooler or more favorable than normal, while the 2012 first quarter was milder or warmer than normal. In the first quarter, residential heating degree days were 24% above normal and 47% higher than the comparable quarter last year.
The retail transmission revenue changes that became effective last summer improved earnings by $0.06 per share. The net effect of other miscellaneous items increased our gross margin by $0.01 per share, and an increased fuel and purchased power cost, net of the higher off-system sales and lower mark-to-market valuations, reduced earnings by $0.04 per share.
Turning to Slides 10 and 11, and looking at our fundamental growth outlook in the Arizona economy. Economic growth in Arizona continued to improve in the first quarter 2013, although the growth remains modest and has been the case for the last several quarters.
As shown on Slide 10, the rate of overall job growth has been positive for the last 2 years and appears to be currently stabilizing around the 2% level. Nearly all of the major industrial sectors are experiencing some growth.
The sustained growth in jobs has been helpful in supporting gradual growth in incomes, in consumer spending and has pushed the unemployment rate down generally and parallel with national trends. While these trends are positive, we believe that we still have, at a minimum, a few more quarters to 1 year to go before we see local markets returning to more normal conditions.
On Slide 10, you can see our estimate of the amount of vacant homes and apartments that presently exist in our Metro Phoenix service territory. In the first quarter of 2013, the number of vacancies has continued to fall such that we are currently at levels not seen since 2007.
These absorptions have sparked renewed interest in the single-family housing market. We believe we are on pace to further reduce these vacancies throughout the remainder of 2013 to a level where existing home resale pricing will be more supportive of new home construction.
However, homebuilders will need to acquire and develop land, attract skilled labor and control building material costs. On Slide 11, you can see the recent trends in Metro Phoenix home prices as reflected in the Case-Shiller repeat sales index.
Throughout 2012, we saw an uptick in existing home prices, which has continued into 2013. Even with the rebound in pricing, affordability of single-family housing remains high by historical standards, and combined with an improving economy, is the key support for current housing demand.
The decline in vacancies, coupled with the increase in prices, is evidence of the continuing progression of the housing market back to more normal conditions. This slide also shows that similar conditions are present in the commercial real estate market.
As you can see on this slide, vacancy rates for office and retail space have begun to fall from their peak levels but remain quite high, while those for the industrial space have fallen more dramatically. Again, we view this as a positive trend but believe that the extent of vacant space in the office and retail markets means that the recovery for new office or retail construction will likely lag after new homes.
On balance, we see signs of improvement in all economic indicators, which paint a picture of continuing, steady recovery. But it will still be about 1 year before the Arizona economy has returned to normal levels of economic activity and growth.
Reflecting the steady improvement in economic conditions, APS's customer base grew 1.4% in this year's first quarter compared with the same quarter 1 year ago. Over the long-term, we believe the fundamentals that have been important to Arizona's growth are still here and our growth rate in customers will return to more typical levels.
Looking at the next several years, we currently expect annual customer growth to average about 2% for 2013 through 2015, with growth rates higher at the end of the period than in the near-term for the reasons I just discussed. Additionally, we expect our annual weather-normalized retail sales in kilowatt hours to increase by less than 1% on average from 2013 through 2015, primarily due to customer conservation and energy efficiency and distributed renewable generation initiatives offsetting the modest recovery in the economy and customer growth.
Next, I will discuss our earnings guidance and financial outlook. As shown on Slide 12, we expect Pinnacle West consolidated ongoing earnings for 2013 will be near the top end of our guidance range of $3.45 to $3.60 per share.
The key factors and assumptions that underpin our guidance are listed in the appendix to our slides. Our first quarter 2013 earnings benefited by $0.05 per share for more favorable than normal weather and from changes in customer usage patterns and related pricing.
As we do every quarter, we will review our earnings guidance when we report second quarter results. Further effects of weather, customer usage factor, continued execution on our cost initiatives and lower interest rates could cause us to adjust our guidance later this year.
Slide 13 illustrates our long-term financial outlook. We continue to expect to grow our dividends by approximately 4% annually.
Of course, future dividends are subject to declaration at the Board of Directors' discretion. The company's goal continues to be an annual estimated -- annual consolidated earnings return on average common equity of at least 9.5% through 2015.
And finally, I'd just like to discuss a few other financial topics. Our recent financing activities include 3 transactions.
In March, APS issued 100 million of 4.5% unsecured senior notes that mature on April 1, 2042. Net proceeds from sales of these notes were used to repay short-term commercial paper borrowings.
In April, APS refinanced its $500 million revolving credit facility that would have matured in February 2015 with a new $500 million facility that extends through April 2018. On May 1, APS purchased all 32 million of the Maricopa County 2009 Series C pushed control bonds, which are expected to be remarketed within the next 12 months.
Looking ahead, we still expect to issue debt to fund the acquisition of Southern California Edison's interest in the Four Corner's plant later this year if the transaction is consummated. We also continue to project we will not need to raise additional common equity until 2014 at the earliest.
The timing and amount of any equity issuance would facilitate rebalancing APS's capital structure and provide support for the company's credit metrics. Since bonus depreciation was extended for 2013 by the new tax act, many of you have asked about the impact of the extension.
We estimate that as a result of the combination of the provisions of the 2012 and 2010 tax acts, total cash benefits from bonus depreciation could be up to $400 million to $500 million. We anticipate these tax benefits will be fully realized by APS by the end of 2013, with the majority of them have been realized by the end of 2012.
So in closing, we're confident in our expectations to achieve our financial objectives through 2015, that is during the base rate stay-out period. Our confidence is supported by the gross margin mechanisms contained in the retail rate settlement, coupled with our demonstrated operational execution and cost management abilities.
Additionally, our outlook conservatively assumes a modest economic recovery, and accelerated return to economic growth should provide upside to our outlook. And this concludes our prepared remarks.
So operator, we'd be pleased to take questions at this time.
Operator
[Operator Instructions] Our first question comes from the line of Greg Gordon with ISI Group.
Greg Gordon - ISI Group Inc., Research Division
So I'm just looking at Slide 17 of your presentation where you lay out the drivers for the medium-term earnings outlook, and to me, there seems to be a modest but notable change there in that your prior guidance presumes relatively flat retail electricity sales volume growth through '13 to '15, and now, you're assuming that you will actually see some modest growth. So I just wanted to make sure I'm seeing that correctly, that you have revised up your sort of net kilowatt hours sales growth assumptions?
James R. Hatfield
Yes, Greg, that's exactly right. And we've seen now, for 2 quarters, positive sales growth.
And while we were assuming flat, in the shoulder quarters for us, which are the fourth quarter and first quarter, it's hard to read a long-term pattern. But at this point, we do see very modest growth where we saw flat previously.
Greg Gordon - ISI Group Inc., Research Division
Well, would you still -- with your base case still assuming that you earn under your authorized ROE, wouldn't that give you the operating leverage to potentially close the GAAP towards the 10% growth aspiration?
James R. Hatfield
Oh, absolutely.
Greg Gordon - ISI Group Inc., Research Division
10% ROE aspiration, sorry.
James R. Hatfield
Yes, absolutely.
Greg Gordon - ISI Group Inc., Research Division
The other thing that I'm wondering is whether you have any more refinancing opportunities that could further reduce your interest costs. You commented on the potential for lower interest rates later in the year causing you to further revise your outlook.
Are you looking at opportunities for big maturities coming due that you could refinance lower?
James R. Hatfield
We don't have anything for the rest of the year other than what I talked about in my remarks, Greg. And I don't think we have another opportunity until '14.
Greg Gordon - ISI Group Inc., Research Division
And then where do you stand on sort of ongoing cost management opportunities? This is the first time in a decade that you haven't had to turn around and just file another rate case after resolving a regulatory uncertainty.
And last time we spoke, you talked about a whole number of sort of operating efficiency and cost-cutting measures that you were looking at. Is there any update on that?
James R. Hatfield
Yes. I would say we're executing against our plan, I'm very pleased on where we are.
If you look at the first quarter, you really have a couple of drivers that caused the $0.07 comparison. And one is the stock compensation, and that's just based on stock price all-time high.
And the second is really the deferral, amortization of deferral from our 2009 rate case on pension, which, theoretically, we got recovery for in the nonfuel base rate increase. So I'm very pleased.
The IT cost that I mentioned being higher quarter-to-quarter, we've decided to make some strategic investments in IT that should drive down cost beginning 2014 and beyond. So it's a very conscious thing on our part to take this opportunity to invest in the future.
Other than that, costs would have came in flat year-over-year.
Donald E. Brandt
Greg, Don here. Let me add to that, too, as I know you and others that were out for our Analyst Day last fall saw the extensive presentations that both Jim and -- Jim Hatfield here and Mark Schiavoni covered, and they're spearheading this effort with the entire officer team.
And I don't characterize it, as you know, as cost-cutting, but we're putting in processes and -- that's better coordinated across operating units within the company, streamlining some of the efforts. And we're seeing the results of that.
I'm very optimistic about continuing results through the balance of this year, and frankly, for years well into the future.
Greg Gordon - ISI Group Inc., Research Division
So Don, would it be fair to say, if the economy in Arizona and Phoenix has continued to accelerate and you have some success in these cost control initiatives, that Arizona Public Service is actually earning its authorized return? Is this sort of possible over the forecast period for the first time in a long time?
Donald E. Brandt
Yes, very much so.
Operator
Our next question comes from the line of Kevin Cole with Crédit Suisse.
Kevin Cole - Crédit Suisse AG, Research Division
Don, Jim, I guess on the back of Greg's question, does the stronger realized performance, and I guess now, expectations change your dividend recommendations to the Board from the 4% annual increase?
Donald E. Brandt
Kevin, we visit that with the Board in the fall at the October meeting, and I think our aspirations that we've laid out, at least right now, remain the same going forward.
Kevin Cole - Crédit Suisse AG, Research Division
Okay. And then I guess with the ACC's review of net metering in the states, I think 22% energy efficiency standard, is this a result in change of tone or realization that the programs are becoming increasingly regressive as they scale up?
I guess, is it also safe to say that the study has not become more accommodative towards net metering?
Donald E. Brandt
I wouldn't characterize it as not more accommodating or less accommodating. I think the -- both we -- right now, we're in a series of information-gathering meetings and open to the public, and interested parties voice concerns in that, and our primary interest is to make certain that, one, all the parties and the commission understands what, in fact, the subsidies are, that they're transparent and that there are some clear policy decisions being made going forward.
And our primary interest is creating a sustainable energy future for Arizona. And clearly, we've been supportive, as the record indicates, of solar across the board, utility-scale owned by us, utility-scale owned by others like Abengoa's project that will be the largest of its kind in the world when it's done in a couple of months.
And rooftop solar has been a big -- residential rooftop solar has been a big component. And I expect it to continue to be so in Arizona.
Kevin Cole - Crédit Suisse AG, Research Division
Can you run any additional numbers to see how, like what the impact of net metering or of energy efficiency if it gets like, let's say, beyond low-hanging fruit to something like the 10% order of magnitude? Like what sort of impact that has on these skewing rates from -- towards the lower income folks, I guess, skewing rates downwards?
Donald E. Brandt
We've got a variety of different scenarios we've run and we've got the cost, and that's what we're basically talking to all the parties about. Here are the facts, and how does -- going forward, what might our recommendations to the commission, what might be their recommendations to the commission on how to design rates to basically create an environment that's fair to all customers.
Operator
Our next question comes from Neil Mehta with Goldman Sachs.
Neil Mehta - Goldman Sachs Group Inc., Research Division
How are you thinking about the timing of your next rate case, especially given some operational execution with the last couple of quarters? And how does that timing impact the way you think about issuing equity?
James R. Hatfield
Well, as we said before, Neil, we have the option to file a case in May 31, 2015. We're not obligated to file a case, so we'll obviously look at interest rates, a lot [ph] of ROEs and how we're performing to make a determination there.
And as we've said before, the commentary around 2014 assumes that, that's a test year and believe we have the ability to not issue at '14 if '14 doesn't become a test year. So we're really looking at equity.
At the same time, we're really looking at what a test year scenario would be.
Neil Mehta - Goldman Sachs Group Inc., Research Division
Got it. And then related to transmission, which has obviously been a big part of the rate base growth story here, can you see upside to your transmission CapEx program over the next couple of years?
James R. Hatfield
Not over the next couple of years, though. No, Neil.
Neil Mehta - Goldman Sachs Group Inc., Research Division
Okay. And then finally, when is the earliest you would need new generation in Arizona?
James R. Hatfield
Well, we don't see a need for baseload until into the next decade at some point.
Operator
Our next question comes from the line of Paul Ridzon with KeyBanc Capital Markets.
Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division
What was the impact of the roll-off of pension deferral?
James R. Hatfield
In terms of the quarter?
Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division
Yes.
James R. Hatfield
The pension deferral in the quarter, I think, was about $0.06.
Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division
$0.06? Is that going to be ratable through the year?
James R. Hatfield
It'll be ratable for the second quarter and then we'll have an even comparison from starting the July 1, 2012 rate case.
Operator
Our next question comes from the line of Ali Agha with SunTrust.
Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division
Jim, listening to your comments, fair to say that Q1 came in ahead of your internal budget? And was it weather?
And can you just confirm that, and how much ahead was it in the -- if we look at the final numbers?
James R. Hatfield
Well, I'm not going to comment on how it compared to budget, but I will say we were positive -- we were -- positively view the customer growth number and sales growth, which obviously were ahead of expectations since we had talked about flat sales growth. I think we're very pleased as well with the execution on the cost management side.
So we did have a good quarter and we are executing it to plan.
Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division
And also to clarify your remark with regards to the range for the year, clearly, the bias is to the upside and is it -- I mean, when you talk about load interest later in the year perhaps causing to go above that or reconsidering that, can you just clarify that to your other remark that there is no refinancing opportunity for you for the rest of the year? So is it load growth or what would cause you to change that range of the year?
James R. Hatfield
Well, I think we've, like I said earlier, we’ve had positive sales growth the last 2 quarters. And I said, I was talking to investors, that we're very loathe to look at a fourth quarter, first quarter scenario and talk about that's a trend because you get a lot of abnormalities on a shoulder quarter as it relates to revenue and pricing.
So continuation of load growth, continuation of the execution of the cost management would be things to look at after the second quarter, and just ensure that we're executing on the year.
Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division
Yes. And also to clarify, the 6% rate base growth annual number, '13, '15, period, just -- I mean, is that using the '12 actual and then -- and rolling it over '12 to '15 or is that '13 actual and then '13 over '15?
James R. Hatfield
It's '12.
Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division
'12 actual to '15 on a compound annual basis?
James R. Hatfield
Yes.
Operator
Our next question comes from the line of Julien Dumoulin-Smith with UBS.
Julien Dumoulin-Smith
First question here, just to make sure I heard you crystal clear. You talked about guidance here.
You alluded to adjusting your guidance plan later this year. Is that a 2Q update in your mind or do you really need to wait to the summer heating season?
I just want to be very clear about that.
James R. Hatfield
Well, we review guidance every quarter and we'll review it again at the end of the second quarter. And so, I guess it would be -- I'd say it's ongoing from how we evaluate that.
Julien Dumoulin-Smith
And not to parse in about too much, but given where you are relative to your targets thus far this year, if you were to continue on the same trend, could you make an assumption to say that you would be ahead of expectations by second quarter?
James R. Hatfield
Well, we had $0.05 of weather to benefit. I guess if that continued on $0.05 every quarter, obviously, we would be ahead of where we thought we would since it's a -- we assume normal weather.
But other than that, I'm really not going to comment on comparison to internal budgets.
Julien Dumoulin-Smith
And then just a little detail here I wanted to follow up on, from a transmission recovery perspective, I think you had some positive changes year-on-year in terms of the timing of new rates. Could you talk about that and what kind of upside -- of sort of year-on-year uplift that would provide...
James R. Hatfield
Yes, well, we file every -- we'll file our formal rate on May 15. We're still going through the formula now.
And those rates will go into effect on June 1, both at the FERC level and at the Arizona jurisdictional level. We don't have a number at this point, so I really can't talk magnitude.
Julien Dumoulin-Smith
But just to be clear, when would they have conventionally gone into service or into effect?
James R. Hatfield
It would typically go into effect June 1.
Operator
Our next question comes from the line of Sarah Akers with Wells Fargo.
Sarah Akers - Wells Fargo Securities, LLC, Research Division
Just a quick follow-up on the regulatory discussion. I think you mentioned needing recovery of infrastructure investments.
I'm curious, is there anything being discussed that could support new recovery mechanisms for CapEx that's not currently being covered by riders or initiatives approved in the last settlement?
James R. Hatfield
Nothing at this point, Sarah.
Operator
[Operator Instructions] Our next question comes from the line of Paul Patterson with Glenrock Associates.
Paul Patterson - Glenrock Associates LLC
Just to go back to Greg's question on the sales growth, as I recall, you guys had expected 2.5% sales growth prior to the effects of conservation and energy efficiency and distributed generation. Is that still the case?
And do you guys expect less of the offset from distributed generation and energy efficiency or has that increased?
James R. Hatfield
Well, it was around 2.5% as we got out to 2015. I don't think anything's changed on the DE EE [ph] customer conservation side.
What we're seeing now is a little higher levels of customer growth, I guess.
Paul Patterson - Glenrock Associates LLC
Okay. Because it looks like it's the same number that you guys had expected before, which was 2% annually when I look at these slides.
So I guess what I'm -- let me ask it more simply. What is it that's driving the sales growth higher in your opinion?
Is it a better economy? Just, I mean -- or do you know?
I mean I don't know. I mean you guys mentioned that there were 2 quarters that came in good, but I just was wondering if you could just elaborate a little bit more about what's driving it.
Donald E. Brandt
Yes, Paul, Don here. I think it's a variety of factors.
One, it's clearly a better economy, I think some consumer confidence is coming back. We see that in usage patterns, also, the housing inventory, we're down to right at about 20,000 units of housing, which is kind of equilibrium.
I wouldn't say we've got a homebuilding boom going on, but they're -- homebuilders have become active. They usually end up talking to us 12 to 18 months before projects go.
There are some homebuilding going on. We've seen homebuilding prices -- or excuse me, home prices come up since clearly last spring when real residential buyers as opposed to investors came into the market, drove that.
So I think overall, it's generally trended positive last 2 quarters.
Paul Patterson - Glenrock Associates LLC
Okay. So then just when we look at sort of policies or what you guys are baking in, in terms of policies for energy efficiency and distribution, you guys haven't -- I mean, because there has been some activity, as you guys are obviously well aware of, that might suggest you might get scaled back.
None of that's getting involved, and this is sort of how we should think about it? Just basically sort of you’re sort of fine-tuning the estimates given what you're experiencing right now?
Is that sort of how we should think about it as opposed to a significant change of policy outlook or something?
Donald E. Brandt
Right. I think that's correct.
We haven't assumed any kind of change in those underlying policies on the energy efficiency side.
Paul Patterson - Glenrock Associates LLC
Okay, great. And then just on the stock price impacting compensation, what have you.
Could you -- is there a -- just to get a sense of the magnitude or sensitivity, I guess, is a better way to think about it. Is there a sense you could give us in terms of if the stock continues to soar, what that might mean in terms of hit to earnings, whatever that might be?
James R. Hatfield
It was about almost $8 million for the quarter. And I'd have to go back and look at what it was at the end of the year versus what it was at the end of the first quarter.
Paul Patterson - Glenrock Associates LLC
So basically, if we took the price at the end of last year and we look at what it's done at the end of the quarter, that would give us a sense as to -- that price impact created $8 million of pretax. Is that how we should think about it?
James R. Hatfield
Yes, all things equal, that would be correct.
Paul Patterson - Glenrock Associates LLC
And that's pretax, right?
James R. Hatfield
Yes.
Operator
Our next question comes from the line of Charles Fishman with MorningStar.
Charles J. Fishman - Morningstar Inc., Research Division
Not being familiar with the rules and procedures of the Navajo Nation, just want to make sure I understand this. The committee that's been formed, they have the final say on the coal mine transfer and then it's pretty much -- the path is pretty clear to the closing after that?
Donald E. Brandt
Well, the -- generally, I'd say, yes. The Tribal Council is their governing body.
It works very similar to the United States Congress. They approve it and the President of the Nation signs their legislation into law.
And this performed, the special-purpose entity to hold the coal company that would presumably transfer from -- through acquisition from BHP over to the Nation, they put that into play. Now, there are some final contract negotiations to be completed, but essentially, most of the legislation we and they need to complete the Four Corners steps is in place with the vote that was occurred earlier this week.
Charles J. Fishman - Morningstar Inc., Research Division
Okay. And then on the concentrating solar plant, your participation in that is strictly as in the form of a power purchase agreement.
You're not taking any operational risk on that, correct?
Donald E. Brandt
Right, not at all. So they produce it, we take it and we pay for it.
Operator
Our next question comes from the line of Andy Levi with Avon Capital.
Andrew Levi
I think actually more of my questions were asked. I'll just kind of throw one out there kind of left field for you to make you think a little bit.
But stock's done extremely well and congratulations on that. And obviously, your multiple also has dramatically increased relative to some of your peers who surround you, smaller utilities.
What are your thoughts just on consolidation in general in your area?
Donald E. Brandt
I think with the desert Southwest and specifically, Arizona, the intrinsic growth this year, that gives us plenty to manage for many years into the future.
Operator
Our next question comes from the line of Kevin Fallon with SIR Capital Management.
Kevin Fallon
Just to clarify, does the -- do the economics of the LFCR all run through in the first quarter or are they accrued over the periods that they occur? And then, did you accrue second half last year's benefit last year or did it all come in the first quarter?
James R. Hatfield
Yes, we started accruing the LFCR in 2012 at the implementation of the rate settlement. So we started in July 1 of '12.
Kevin Fallon
Okay, great. And then the assumptions behind that, the percentage recovery, there's no change in that.
I think that's what Paul was asking you. I just want to clarify.
James R. Hatfield
No, there's no change in the LFCR.
Kevin Fallon
Okay. And then in terms of the top end of guidance for this year, the $3.60, does that equal APS earnings to authorize or is that a -- would that number be higher than the $3.60?
James R. Hatfield
The $3.60 does not have APS earning their authorized return.
Kevin Fallon
Can you tell us what that would be?
James R. Hatfield
I'd have to calculate it. I don't have the number with me.
Operator
Ms. Hickman, we have no further questions at this time.
I would now like to turn the floor back over to you for closing comments.
Rebecca L. Hickman
Thank you, Kristine, and thank you, all, again, for joining us today. As always, if you need further details about our earnings or other information about our company, please contact us.
This concludes our call.
Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.
Thank you for your participation and have a wonderful day.