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Exelon (EXC) Christopher M. Crane on Q1 2016 Results – Earnings Call Transcript

Exelon Corp. (NYSE: EXC ) Q1 2016 Earnings Call May 06, 2016 11:00 am ET Executives Dan L. Eggers – Senior Vice President-Investor Relations Christopher M. Crane – President, Chief Executive Officer & Director Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP Joseph Nigro – Executive Vice President, Exelon; Chief Executive Officer, Constellation, Exelon Corp. Analysts Steve Fleishman – Wolfe Research LLC Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Julien Dumoulin-Smith – UBS Securities LLC Praful Mehta – Citigroup Global Markets, Inc. (Broker) Operator Good morning and welcome to the Exelon Corporation’s Q1 2016 Earnings Conference Call. My name is Prasanthi and I’ll be facilitating the audio portion of today’s – and active broadcast. All lines have been placed on mute to prevent any background noise. For those of you on this stream, please take note of the options available in your event console. At this time, I would like to turn the show over to Dan Eggers, Senior Vice President of Investors Relations. Dan L. Eggers – Senior Vice President-Investor Relations Thank you, Prasanthi. Good morning, everyone, and thank you for joining our first quarter 2016 earnings conference call. Leading the call today are Chris Crane, Exelon’s President and Chief Executive Officer; and Jack Thayer, Exelon’s Chief Financial Officer. They are joined by other members of Exelon’s senior management team who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning along with the presentation, both of which can be found in the Investor Relations section of the Exelon’s website. The earnings release and other matters which we discuss during today’s call contain forward-looking statements and estimates that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today’s material, comments made during this call, and our Risk Factors section in the earnings release, and the 10-Q, which we expect to file on May 10. Please refer to today’s 8-K, the 10-Q, and Exelon’s other filings for a discussion of factors that may cause results to differ from management’s projections, forecasts and expectations. Today’s presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for a reconciliation between the non-GAAP measures to the nearest equivalent GAAP measures. We’ve scheduled 45 minutes for today’s call. I’ll now turn the call over to Chris Crane, Exelon’s CEO. Christopher M. Crane – President, Chief Executive Officer & Director Good morning. Thanks for joining us this morning. Once again we had a great quarter financially, where we closed near the upper end of the range even with the milder weather. And operationally, our utilities and plants continue to operate at high levels. The big news for the quarter is we closed the Pepco Holdings transaction in March. We are excited to have Pepco utilities as part of the Exelon family. We know this has been a long journey and it took much longer than any of us anticipated, but we appreciate the patience of our investors as we pursued the merger. Our employees who worked tirelessly from the inception to the completion of the deal and the many stakeholders who’ve supported was critical to getting the deal done. PHI is an important piece of our strategy to become a more regulated company with more stable earnings streams. While we are still in the early stages of integrating PHI, PHI’s earnings outlook is consistent, if not better, than what we showed you at EEI. It brings meaningful benefits to our customers, communities in Delaware, District of Columbia, Maryland, New Jersey, including bill credits and reliability investments. More than $500 million in total commitments have been made and will be achieved due to this merger. We’re now focused on integrating Pepco into Exelon. We will bring our management model and our best practices to improve the experience of our customers. The transaction confirms Exelon’s role as a leader in the industry. We serve 10 million customers, more than any other utility company. We will spend nearly $23 billion in capital across our utilities and generating business over the next three years, which is the second-highest among our peers. We are the largest pure T&D by rate base and within the top five when including rate base generation. We are the second-largest generator of electricity in the country, the largest competitor by a factor of nearly two, while producing power at the lowest carbon intensity of any large generator. We are the leader in the retail electric provider in the country serving 139 terawatts. The culture of the industry leadership is found throughout our organization, positioning us very well for the future. Switching to operational performance. Our first quarter operating performance was strong and we’re on track for a strong year. At our legacy utilities, our SAIFI and CAIDI are on track to meet reliability targets; we are in top quartile in both. At the GenCo, our nuclear plants ran at a capacity factor of 95.8%, our solar and wind assets outperformed their energy capture targets. Switching to Illinois in the nuclear plants. While there is much to celebrate this quarter, we also need to make tough decisions on the future of Clinton and Quad Cities nuclear stations in Illinois. The board has given me authority to go forward with early retirements for Clinton and Quad Cities plants, if for Clinton adequate legislation is not passed during the spring legislative session that is scheduled to end May 31, and if for Quad Cities adequate legislation is not passed and the plant does not clear the upcoming PJM auction. Otherwise, we plan to retire Clinton on June 1, 2017, and Quad Cities on June 1, 2018. This is consistent with planned refueling outage and capacity market obligations. We committed to our employees, our shareholders and the communities to try to find a path to profitability for our distressed assets. This is because these plants are vital to the communities that they are located in and provide economic and environmental value to the state. The state’s own analysis showed that closing Clinton and Quad Cities would result in $1.2 billion in lost economic activity and 4,200 jobs lost, and a significant reduction of supply of reliable electricity for Illinois residents and businesses. We worked hard over the last few years to find a path to sustainable profitability. To bring $120 million in strategic capital to these plants, we’ve pursued legislation and regulatory market changes. We’ve been successful in some areas: the PJM market reforms that were put into place last year, the cost reductions that we’ve achieved, and the large number of stakeholders who have worked so hard to help in this fight. We have strong allies in our cause, our employees, our plant communities, the bill sponsors and co-sponsors, our partners in labor, and our vendors among others. I want to thank them all very much for their support and regret the impact on this decision that we have on them. But for reasons outside of our control, we have not seen progress in Illinois policy reforms, also the Supreme Court stay creates uncertainty regarding the EPA’s Clean Power Plan. Power prices have fallen to a 15-year low in PJM, causing the economics of Clinton and Quad Cities to further deteriorate. These plants have lost $800 million in cash flow from 2009 to 2015. Just to be clear, we are not covering our operating costs or our risks, let alone receiving a return on our invested capital. We’ve done all we can up to this point and we continue to work through the spring legislative session to enact the much needed reforms. However, without adequate legislation we no longer see a path to profitability and no longer can sustain the ongoing losses. On a more positive note, we continue to see a pathway to reform in New York where Governor Cuomo, the legislature, the Public Service Commission have recognized a need to preserve the state’s nuclear plants. New York is quickly moving forward to implement a clean energy standard that will allow us to continue to operate our challenged Ginna and Nine Mile plants. I’ll turn the call over to Jack to discuss the first quarter results further. Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP Thank you, Chris, and good morning, everyone. My remarks today will cover our first quarter results, 2016 guidance, update our gross margin disclosures and provide an update on developments since Q4. I’ll start on slide eight. As Chris stated, we had a strong quarter financially and operationally across the company. For the first quarter we delivered adjusted non-GAAP operating earnings of $0.68 per share, near the top of our guidance range of $0.60 per share to $0.70 per share. This compares to $0.71 per share for the first quarter of 2015. Exelon’s utilities delivered a combined $0.37 per share. During the quarter, we saw unfavorable mild weather at PECO and ComEd versus planned, which was partially offset by lower bad debt expense at BGE. There are only eight days of PHI included in our results, which had a minimal impact on the quarter. Generation had a great quarter, earning $0.34 per share. We had strong performance from our nuclear assets with better capacity factors than budgeted. And while weak power prices and lower volatility were a drag, our Constellation team delivered strong results. Our generation to load matching strategy continues to provide value and we benefited from a lower cost to serve our customers. For the second quarter, we are providing guidance of $0.50 to $0.60 per share. This compares to our realized earnings of $0.59 per share for the second quarter of 2015. The appendix contains details on our first quarter financial results compared to the first quarter of 2015 results by operating company on slide 16 and 17. Turning to slide nine, we are affirming our full-year guidance range of $2.40 to $2.70 per share which now includes the contribution from PHI and assumes an average of 926 million shares outstanding for 2016. This should help calibrate your segment models. On slide 10, we are still working through a comprehensive financial plan now that we have closed the PHI deal, but want to address the pieces that we can today. We are reaffirming our earnings growth at our legacy utilities of 7% to 9% per year from 2015 to 2018. On PHI, we are still working through the plan, but see the contribution equal to or better than what we showed you at EEI and consistent with sustaining our 7% to 9% utility growth target. On slide 11, to meet these growth targets we are going to be busy on the regulatory front. The PHI utilities have been out of rate cases for at least two years. We are continuing to invest $800 million per year to improve reliability and customer service leading to the low-earned ROEs that we show on slide 30 in the appendix. However, by the third quarter, we plan to file distribution cases in all of PHI’s jurisdictions and expect decisions in all cases by the middle of next year providing needed revenue release. Atlantic City Electric and Pepco Maryland have already filed their cases. ACE filed an electric distribution base rate case on March 22 with the New Jersey Board of Public Utilities requesting an $84 million revenue increase and a 10.6% return on equity. It also included PowerAhead, a five-year $176 million grid resiliency plan. On April 19, Pepco requested a rate increase of $127 million with the Maryland’s Public Service Commission. The rate cases include smart meter recovery and a two-year $32 million grid resiliency plan. In addition to reducing the number and length of outages, Pepco’s five-year smart grid program is generating nearly $4 in customer benefits for every $1 invested. In addition, ComEd made its annual formula rate filing with the Illinois Commerce Commission. ComEd requested a revenue requirement increase of $138 million reflecting approximately $2.4 billion in capital investments made in 2015. Those investments, which included $663 million for smart grid-related work has helped strengthen and modernize the electric system, resulting in record power reliability and customer satisfaction, operational savings, and new ways to save on electric bills for ComEd customers. More details on the rate cases can be found on slide 33 – slides 34 through 37 in the appendix. Slide 12 provides our first quarter gross margin update. In 2016 total gross margin is flat to our last disclosure. During the quarter we executed on $200 million of power new business and $100 million of non-power new business. We are highly hedged for the rest of this year and well-balanced on our generation to load matching strategy. Total gross margin decreased in the first quarter by $150 million in 2017 and $200 million in 2018, as PJM power prices moved approximately $1.60 to $2.10 lower since the beginning of the year. We ended the quarter approximately 5% to 8% behind ratable in both of these years when considering cross-commodity hedges with a majority of modeling concentrated in the Midwest to align to our fundamental view of spot market upside at NiHub. Power prices have risen since the start of the second quarter and we are timing our hedging activity to lock in the value of the recent price increases while remaining well positioned to capture our fundamental view. On slide 13, I wanted to give you a quick update on some tax implications that are associated with the completion of the PHI merger. With the inclusion of PHI, we expect to realize $700 million to $850 million of additional cash from 2017 to 2019 related to legacy NOLs and the impacts of bonus depreciation. However, now, as a very modest cash tax payer for 2018, we have less ability to take the domestic production activities deduction, or DPAD, in 2018 which effectively increases our overall consolidated tax rate by as much as 200 basis points or the equivalent of $0.06 to $0.08 per share in 2018. Although this is a one-time negative impact to 2018 ExGen earnings, it comes with significant positive cash flow and we expect to return to normalized tax rates in 2019. With the variability of interest rates, I’d like to remind you that ComEd’s allowed ROE is based on a 30-year treasury rate plus 580 basis points, and thus sensitive to moves in this rate. Every 25 basis point move in treasury rates results in a $0.01 move in EPS. Before turning the call over to Chris, I wanted to raise a few scheduling points. We’ll be hosting an Analyst Day on August 10 in Philadelphia and we’ll get details around shortly. Therefore, we will not be having a second quarter earnings call and will release earnings before Analyst Day. I will now turn the call back to Chris for his closing remarks. Christopher M. Crane – President, Chief Executive Officer & Director Thanks, Jack. Just closing out on slide 14, the capital allocation philosophy. I want to cover that before we turn it over to Q&A, and take a moment to reiterate our capital allocation philosophy. Balance sheet strength remains a top financial priority. We have a strong strategy to deliver stable growth, sustainable earnings, and an attractive dividend to our shareholders. We will be growing that dividend at 2.5% each year for the next three years, starting with the dividend payable in June. From a capital deployment perspective, we will continue to harvest free cash flow from the generation business to invest primarily in our utilities to benefit our customers, invest in long-term contracted assets which meet our return requirements, and return capital to our shareholders. This is the right strategy for our markets and our assets. Thanks and we’ll open the line up now for your questions. Question-and-Answer Session Operator And we do have audio question from Stephen Byrd (17:13). Christopher M. Crane – President, Chief Executive Officer & Director Hey, Steve (17:15). Unknown Speaker Start on the Illinois legislation. And wonder if you could speak to the breadth of support that you have for the proposal. And then also if you could just go through the mechanics of if it was implemented, how it’d work? So we can start to think about modeling the impacts. Christopher M. Crane – President, Chief Executive Officer & Director Joe, you want to cover that? Joseph Nigro – Executive Vice President, Exelon; Chief Executive Officer, Constellation, Exelon Corp. Sure. Steve (17:36), the support is the same support we had for the original bill, labor, the host communities. And in addition, we now have the support of some groups that represent climate scientists and others that are concerned with greenhouse gas emissions. In terms of how the program would work, let me just start with a policy analogy that I think all of you are familiar with. Existing state RPS programs for renewables provide compensation of qualified resources through renewable energy credits, RECs. The REC value is the difference between available wholesale revenues and the costs needed to keep the existing renewables in operation and get new renewables built. All this is done in order to get the benefit of greenhouse gas reductions while protecting customers. If wholesale revenues go up, the needed REC payment goes down. We see that happening every day in REC spot markets. The ZEC program is designed the same way. It’s a payment for the state value of zero emission credits from nuclear plants which represents the difference between the needed revenues and the costs of operating the plants. In the case of the New York and Illinois programs, the way it would work is that experts at the Commissions will determine on a prospective basis the cost of operating the plants plus risks, less available market revenues. And where there is a delta between that, in other words where the costs and risks are not covered by available market revenues, the ZEC program will kick in and provide compensation for greenhouse gas avoidance. The program is not a PPA or a contractor difference. If revenues or costs are different, there is no true-up. And – so, Steve (19:26), I think if you have additional questions, perhaps after the call we could work with Dan and Emily to set up a meeting, go through more programmatic details. Unknown Speaker That’s great. That’s a great start. Thank you. And then just shifting over to renewables more broadly, could you just speak to your degree of appetite for more acquisitions? It sounds like you’ll be a full taxpayer, I believe, in 2019, if I have that correct. But just broadly, what degree of opportunities do you see out there in renewables? Is this an area that you would expect that you’ll see further growth in? Christopher M. Crane – President, Chief Executive Officer & Director It is definitely throttled based off of our tax capacity and we are looking at that now. You do get a certain amount of dilution with delaying the benefits of the tax attributes of the project, so we have some projects in the pipeline now and are re-evaluating others to see if they’re – they would be viable to go forward in the near-term. Unknown Speaker Understood. Thank you very much. Operator And your next question comes from the line of Steve Fleishman. Christopher M. Crane – President, Chief Executive Officer & Director Hi, Steve. Steve Fleishman – Wolfe Research LLC Hi. Good morning. A couple of – first, a logistical question. The Ginna $101 million that you mentioned that you’re getting, is that – is kind of a trued-up amount including past years, is that in your guidance for this year? Or is that kind of like a one-time item or how are you treating that? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP Steve, that’s in our guidance. Steve Fleishman – Wolfe Research LLC Okay. Including any back from prior periods? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP That’s correct. Steve Fleishman – Wolfe Research LLC Okay. And then a question just – is there any way you can give us some sense on the cash flow or losses from Clinton and Quad Cities, let’s say, in your guidance for last year or something of that sort? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP So we’ve stated that it’s greater than $800 million since 2009. There are some variables in there on cash savings going forward or cash losses going forward, power prices coming down, cost cutting initiatives; and we do have an element of overheads that would not be as controllable. So you would see the run rate to be similar to what has happened in the past. Steve Fleishman – Wolfe Research LLC Okay. Christopher M. Crane – President, Chief Executive Officer & Director Steve, you know, on this point – so for 2017, the cost exceeded available market revenues or at current marks (22:12) by $140 million. But I think importantly and Joe raised this point, it’s not the whole picture. The closure also avoids millions of dollars in basis and unit-contingent risks that we face by operating the plants. And stated differently, in order to reverse course we need Illinois as well as New York to provide a structure that allows us to cover our cash costs plus normal operating risks in order to reverse this course. Steve Fleishman – Wolfe Research LLC Okay. And $140 million that’s kind of cash flow? Does that include like CapEx, or is that just kind of cash flow without CapEx? Christopher M. Crane – President, Chief Executive Officer & Director That’s cash flow. Steve Fleishman – Wolfe Research LLC Okay. One last question just on the – in the event legislation doesn’t happen and you need to shut the plants, what – is there any cost related to that? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP As you saw in the K, and we reiterate in the Q, there is some unfunded liabilities on the decommissioning trust. Those numbers are in there at full 100% ownership of the plants. And so the way that we would have to handle that is – you know, you can start out with parent guarantees, but you have to have it funded over a 10-year period, I think 60% by the end of the fifth year, and then the rest by the end of the 10 years. Steve Fleishman – Wolfe Research LLC Okay. Those numbers in the K are still good then, so that we just can use those? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP They’re updated in the Q. Christopher M. Crane – President, Chief Executive Officer & Director That’ll be coming Tuesday. Steve Fleishman – Wolfe Research LLC Okay. Thank you. Operator And your next question comes from the line of Jonathan Arnold. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Hey, good morning, guys. Christopher M. Crane – President, Chief Executive Officer & Director Good Morning. Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP Good Morning. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Just to clarify one thing on the current proposal that I think was emerged last night around the legislation. So originally this applies to all nuclear plants in the state, but is it correct that this would just be Clinton and Quad? And can you just explain how that works in terms of the discussion of the ZEC structure? Christopher M. Crane – President, Chief Executive Officer & Director Joe? Joseph Nigro – Executive Vice President, Exelon; Chief Executive Officer, Constellation, Exelon Corp. Sure. Jonathan, all plants could apply, but quite obviously the only plants that would receive revenue under this program would be those where the costs exceed the revenues. And so there is – it’s a 20 terawatt-hour cap which has enough room in it to accommodate Clinton and Quad Cities. And our expectation is that Exelon would seek to have those two plants participate. The other plants would not participate. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. And that’s sort of nuanced in how the legislation’s worded effectively? Joseph Nigro – Executive Vice President, Exelon; Chief Executive Officer, Constellation, Exelon Corp. That’s correct. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. Joseph Nigro – Executive Vice President, Exelon; Chief Executive Officer, Constellation, Exelon Corp. It’s the same offer to you, Jonathan; if you’d like, after the call, we could sit down and work through some of the details. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. That’ll be great. And is there any… Christopher M. Crane – President, Chief Executive Officer & Director And, Jonathan, just to interject just to make the clear point, they would provide the opportunity to be compensated for cost plus risk. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. That was one thing. The second thing, in your fourth quarter deck, you have this forecast around leverage ratios and the like going out through 2018, which, I believe, was assuming that Pepco would not happen. This was of the ExGen. Can you give us a sense of how that progression would look if you kind of market to the – with Pepco scenario? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP Sure. So, Jonathan, we still anticipate reducing leverage of ExGen by $3 billion over the five-year planning period, albeit this is not to the extend that we would have under the standalone scenario, because ExGen’s free cash flow is now being deployed to help fund PHI’s capital spending program. And we’ll provide more detail on the puts and takes of that at the Analyst Day in August. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. So $3 billion is kind of the new ExGen delevering number? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP That’s right. That’s over the next five years, we have a large maturity. And I believe it’s 2019, that we would look to retire at maturity. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. So that’s over five years? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP That’s correct. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. And then the 2.3 ExGen debt-to-EBITDA that you were looking at for 2018, roughly what does that look like now? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP It, over the five-year period, would go to right around three times. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. So that’s again over five years, rather than three years? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP That’s correct. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay, great. Thank you. And then I guess you mentioned in the prepared remarks the prices have rebounded… Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP So, Jonathan – sorry, just let me correct, 2.7 times at the end of the five-year period. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. So whereas you have 2.3 times in 2018, it’s now 2.7 times after five years? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP Yes. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay, great. Thank you. And then you mentioned that prices have rebounded. So can you give us a rough sense of how the kind of gross margin mark would look if you use more like today’s prices? Joseph Nigro – Executive Vice President, Exelon; Chief Executive Officer, Constellation, Exelon Corp. Yeah. Jonathan, good morning. It’s Joe Nigro. I think if you look at our hedge disclosure at the end of the quarter and then factor in the changes since the end of March, you would see all of that drop in 2017 and 2018 being recovered. We’ve seen an appreciable move, as you know, in prices since the end of March. We’re actually higher in NiHub than we were at the end of the year. We’re higher at West Hub than we were at the end of the year, so we would have recovered all that drop and probably adding to it. We calculated that a couple of days ago, but the market has continued to move higher, so we probably have seen it actually go over where it ended the quarter. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Great. Okay. That’s it. Thank you very much, guys. Christopher M. Crane – President, Chief Executive Officer & Director Thanks. Operator And your next question comes from the line of Julien Dumoulin-Smith. Julien Dumoulin-Smith – UBS Securities LLC Yeah. Hi. Good morning. Christopher M. Crane – President, Chief Executive Officer & Director Good morning. Julien Dumoulin-Smith – UBS Securities LLC So perhaps to follow up on the same theme, can you elaborate a little bit on the balance of the nuclear portfolio that is ex-Clinton, ex-Quad? How you think about their cash flow profile? And if you don’t get this legislation, what the prospects are for further rationalization? I don’t mean to jump the gun too much here, but just talking about the future a little bit more? Christopher M. Crane – President, Chief Executive Officer & Director So there’s varying cash flows by assets depending on their location. They are positive at this point. If you look at the other units that are more challenged, you’re looking at Ginna and Nine Mile. One – we know about Oyster Creek and it’s coming up in 2019, the other one that has a real focus on it right now is Three Mile Island. Julien Dumoulin-Smith – UBS Securities LLC Got it. And specific to Illinois, is there any commentary around – so let’s say we don’t get it in 2016 or 2017, does that trigger another set of reviews? Again, not to push it too much. Christopher M. Crane – President, Chief Executive Officer & Director At this point we’ll have to watch the capacity auction clearing in the out years. It’s tight on energy at some of the assets, but they are positive. Julien Dumoulin-Smith – UBS Securities LLC Got it. Okay, great. And then turning back to the utilities real quickly, can you comment, or I’m curious, if you will, what the earned ROEs embedded at Pepco for 2016 – just what’s the baseline on the Pepco side as far as you see it post the close? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP Julien, in terms of – I think we included it on slide, I believe it’s 30, the earned for 2015. Obviously, while we’re in the pendency period during the rate cases that – obviously, there’s regulatory lag, so we’re going to see that decline, but we’ll have a much deeper dive in the PHI as part of the August 10 meeting. You can see on slide 29 the rate base statistics and I think can work through some assumptions on regulatory lag using that information. Julien Dumoulin-Smith – UBS Securities LLC Got it. And perhaps not to jump the gun too much on the Analyst Day, but what is the thought process on the baseline for a future regulated CAGR? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP I think the thought is the 7% to 9% that we confirmed on the call and PHI is absolutely consistent with that expectation. We, as we mentioned, are seeing improvement relative to what we forecasted or projected at EEI using PHI’s internal forecast. And Dennis and team continue to work to identify further opportunities around efficiency as well as regulatory policy to work to get those earned and allowed ROEs in line with the success we’ve experienced within Maryland, Pennsylvania and Illinois. Julien Dumoulin-Smith – UBS Securities LLC Got it. You wouldn’t roll it forward though? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP I’m not certain I understand what do you mean roll it forward? Julien Dumoulin-Smith – UBS Securities LLC The 7% to 9%, just roll it forward to CAGR off a 2016 base? Christopher M. Crane – President, Chief Executive Officer & Director We’ll address that at the Analyst Day. Julien Dumoulin-Smith – UBS Securities LLC All right. No worries. Thank you. Christopher M. Crane – President, Chief Executive Officer & Director I mean, embedded in there is 7% to 9% through 2018, so just thinking it through, it’s in there. Julien Dumoulin-Smith – UBS Securities LLC Got it. Thank you. Operator And your next question comes from the line of Brian Chen (32:25). Christopher M. Crane – President, Chief Executive Officer & Director Hey, Brian (32:30). Unknown Speaker Going over to slide 13, the EPS impact that you’ve laid out in that top table, I just want to verify that that is not including the use of capital from that positive cash flow impact that you’ve got on the second row right? Christopher M. Crane – President, Chief Executive Officer & Director That’s right, Brian (32:46). Unknown Speaker Okay. Great. And then I just want to verify that Quad Cities didn’t clear in the 2018 and 2019 auction, correct? So the closure of Quad Cities shouldn’t have any sort of residual obligation that you have for the 2018, 2019 capacity through (33:03)? Christopher M. Crane – President, Chief Executive Officer & Director That’s correct. Unknown Speaker Great. Thanks a lot. Operator And your next audio question comes from Praful Mehta. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Hi, guys. Christopher M. Crane – President, Chief Executive Officer & Director Good morning. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Good morning. So just on the leverage a little bit, just to ensure we understand both at the holding company level and at ExGen. You’ve kind of talked about the ExGen debt and what you see over the 20 – the five year period. How are you looking at holding company debt given the leverage you’ve assumed post Pepco transactions? Is there any objective to delever a little bit at the holding company as well? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP So Praful, as you’ve heard us comment in the past, we do target at 20% FFO to debt on a consolidated basis and that was one of the benefits of adding PHI to the Exelon family. And so we will certainly be looking at our leverage ratios at the GenCo. I think you’ll also see us consider to the extend we have available cash at the holding company as well, we just need to see as we get further out what the realized power prices are and what the free cash flow coming off of the GenCo is in those five years. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Got you. And just so if you think about from the sources/uses perspective, the source is primarily out of ExGen coming to fund CapEx at the utilities and then deleveraging both at ExGen and the parent. Is that a fair way to think of it or is there some cash generation coming out of the utilities as well over the next two year, three year period? Jonathan W. Thayer – Chief Financial Officer & Senior Executive VP I would say, on a net basis, utilities are consumers of cash. So you’re correct. That ExGen cash flow as well as debt raise at the utilities is the primary source for funding the significant CapEx that we see, $25 billion over the next five years at the utilities. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Got you. Thank you. And then just finally, we saw that the power new business and the to-go business, the EBITDA, or the growth margin of that is going from $250 million in 2016 up to about a $1 billion by 2018. Could you just give us a little bit of context of what’s driving that significant ramp-up in that side of the business? Joseph Nigro – Executive Vice President, Exelon; Chief Executive Officer, Constellation, Exelon Corp. Yeah. Hi. It’s Joe Nigro. That’s pretty standard shape that we have. If you go back and look at disclosures over the years, you would expect to see much less new business in the prompt years – in the prompt year, in this case 2016, than you would in the out years, for example, in 2017 and 2018. Embedded in that power new business is things like the execution of our retail business and the margins associated with that. So as we get closer to the swap period more and more of those contracts get layered in, we begin to reduce that bucket of power new business. I mean, there’s other elements of our business that follow that same timing shape, so this isn’t unique in the sense of seeing a ramp up between the prompt year to two years forward and we’re very comfortable with the numbers that we’ve put out there. Praful Mehta – Citigroup Global Markets, Inc. (Broker) Got you. Thank you so much guys. Operator And this does conclude today’s conference call. You may now disconnect. Christopher M. Crane – President, Chief Executive Officer & Director Thank you. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. 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Apple Stock Hits 2016 Low Amid Doubts About Its Future

Apple ( AAPL ) CEO Tim Cook should keep CNBC host Jim Cramer on speed dial. The only day that Apple shares have risen during the past two weeks was the day after Cook appeared on Cramer’s financial news show “Mad Money.” Cook reassured investors on the May 2 show that Apple’s business is healthy and has a great future. His calming appearance on the show stopped an eight-day losing streak for Apple stock. Not everyone was swayed by Cook’s comments. Chamath Palihapitiya, CEO of venture capital firm Social Capital Partnership, told CNBC that Cook’s television interview was “like human Ambien. I mean, it was pretty boring.” Palihapitiya criticized the Apple boss for leaving so much money “rotting” on its balance sheet and spending more money on its new campus than on research and development, Business Insider reported . Apple ended the March quarter with $233 billion in cash and securities. Apple stock hit a 2016 low of 91.85 in intraday trading on the stock market today . Apple shares ended the regular session Friday down 0.6%, at 92.72. Apple stock has fallen for 14 of the last 16 trading days. Apple shares have been hammered by a downbeat March-quarter earnings report and the perception that the company is lacking innovation. In its fiscal second quarter, Apple reported its first year-over-year sales decline since 2003 and first-ever drop in iPhone unit sales. Apple also is facing slowing sales in China and growing interference by Chinese regulators. Cook is scheduled to travel to China this month to meet with high-level government officials, Reuters reported Friday . Last month, Chinese authorities shut down Apple’s online book and video services, following the introduction of regulations that imposed strict curbs on online publishing, especially for foreign companies, Reuters said. The next possible catalyst for Apple stock is not expected to come until June 13-17, when the company hosts its annual Worldwide Developers Conference in San Francisco. At WWDC, Apple is expected to unveil an overhaul of its Apple Music subscription service, 9to5Mac reported earlier this week . The Apple Music revamp will feature a redesigned user interface, simplified features and several new features such as adding song lyrics. At the conference, Apple also is expected to announce new versions of its Mac and Apple Watch operating systems.

Chesapeake Utilities’ (CPK) CEO Mike McMasters on Q1 2016 Results – Earnings Call Transcript

Chesapeake Utilities Corporation (NYSE: CPK ) Q1 2016 Earnings Conference Call May 6, 2016 10:30 am ET Executives Beth Cooper – SVP and CFO Mike McMasters – President and CEO Analysts Nathan Martin – BB&T Capital Markets Operator Good morning. My name is Chrystal and I will be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities first quarter financial results 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. I would now like to hand the conference over to Beth Cooper. Please go ahead ma’am. Beth Cooper Thank you, and good morning, everybody. I’d like to welcome you to our first quarter 2016 earnings conference call. Joining me today is Mike McMasters, President and CEO. And in addition to Mike, we’re joined by other members of our management team. For those on the phone today, we’re actually hosting today’s call live from Salisbury University in Salisbury, Maryland. The call is being held within the Perdue School of Business, so as Mike and I are alumni of that school, and we owe special thanks to Dr. William [ph] for enabling us to have the call here today, and included within our meeting we have members of the local financial community here in Salisbury. We have a board member. We have distinguished faculty and also many students here in the room. We are very happy here as I said. As usual today, presentation can be found on our website under the Investors section, the Events and Webcasts subsection or you can access our presentation via our IR app. One of the things I maybe like to point out on Page 1 of presentation, when trying to think about the themes and typically at the beginning of each year, we try to look at what are themes going to be for this as presentation. I pulled something from actually Mike’s President Letter in the annual report and basically within his letter he talks about that we’re driving growth by focusing on long-term sustainable growth opportunities. And hopefully today you will see that that’s really been the case our past – in terms of our past success, as well as what we think in terms of our future opportunities for continued earnings and dividend growth. Turning to Slide 2, this is the typical forward looking and other disclosures section. This presentation today will include forward-looking information. I encourage everyone to take a look at our Form 10-K, there is a section called Safe Harbor for forward looking information. Because some of the information that we talk about may actually differ from our actual results, and we discuss those factors that could cause our forward looking information to differ from the actual results. Turning to Slide 3, I’m now going to begin to touch on the first quarter results. And so what you’ll see is for the first quarter, we reported net income of $20.4 million as compared to last year of $21.1 million, a slight decline of about $740,000 over the prior quarter of last year. On the surface, earnings are down, yes, but certainly it’s driven by the weather. Weather represented for us about $0.27 in terms of decline in earnings per share for the quarter. Our growth that we experienced across – a good part of our businesses helped offset the weather impact and ultimately resulted in net income only being down by about 3.5% for the quarter — pretty remarkable. And that’s really been driven by – and we’ll talk about it a little bit later on — growth in our natural gas businesses, service expansions and customer growth and also the contribution of a new acquisition that we did last year. I’m next going to touch on our results by our segments. And included in our press release that we filed on Wednesday, as well as in our Form 10-Q that we filed yesterday, we provide detailed information about the accomplishments and results for our segments. And so I encourage you to take a look at that for more detailed information. In terms of our regulated energy segment, you will see that we generated an increase in gross margin growth of about $1.9 million. That $1.9 million of gross margin growth actually made its way to the bottom line to generate $2.1 million in terms of increased operating income. Overall, we saw an increase of $4.3 million in gross margin, that was driven by $1.9 million related to natural gas service expansions, our Florida Gas Reliability Infrastructure Program which we refer to as GRIP, generated an additional $1.1 million of margins, and natural gas customer growth, driven basically about half on the Delmarva Peninsula and half in Florida, contributed to an additional $745,000. The gross margin was up about $4.3 million, weather that was much warmer than the prior year offset that by about $2.4 million, resulting in that $1.9 million of margin increase that we saw. You will see expenses were pretty flat year over year, actually a slight decline which resulted in a $2.1 million increase in our regulated businesses, that once again helped to offset that significant weather impact in the first quarter. Turning to our unregulated businesses, which are certainly more weather sensitive, and you will see that here in the results. Our gross margin was down by $2.2 million. That was comprised of basically lower volumes of propane gallon sold which represented about $4.3 million. Our margins per gallon – we were anticipating that those would begin to return to more normal levels and we saw that start to happen. That represented about $1.8 million. And then weather basically — the combination of those two, when you think about, first, the $4.3 million and then the lower margins per gallon, that’s about $6.1 million. That was partially offset, as I mentioned, with the inclusion of Aspire Energy’s results in the first quarter. We acquired that last year on April 1, April Fool’s Day. And so we didn’t have them in our results for last year and they added about $4.2 million. So ultimately ending in the $2.2 million decline that you see here. Additionally we had about $1 million of higher expenses. Those were the result of Aspire being part of our operations. So overall this business was down about $3.3 million in operating income for the quarter, but all driven by the weather and then the lower retail margins which we had anticipated. The next page is actually a summary of a chart that we include within our 10-Q and also within our press release, looking at the factors from an earnings per share standpoint. And you will see, once again, I started off by saying that earnings last year for the quarter were $1.44. Weather contributed basically to a decline of $0.27. But you will see that growth in our regulated businesses added back $0.15 and the Aspire which is basically $0.06 also added to our earnings. So really a $0.27 per share decline was offset with the exception of $0.11. This is another chart – turning to Slide 7 – that actually shows the weather impact. And on this chart, we actually show a comparison relative to normal weather. Because it’s one thing to show a comparison relative to the prior year but compared to normal, what you will see is that we were down in Delmarva by 13% and down in Ohio by 10%. So we talked a little bit about the growth that we’ve experienced as a company. Strong growth in our natural gas businesses, I know this year, is somewhat offset in the first quarter by weather. But that growth has really been driven by the capital expenditures that we as a company have made, those investments have been made to earn either our target returns or greater than our target returns, and the dollars that we have invested have been very substantial. If you look at last year, we invested approximately $195 million in capital expenditures, $52.5 million of which was related to the Aspire Energy of Ohio acquisition. This year we’re projected to invest another $179 million. And when you look at that just a couple of key points relative to benchmark about those numbers. First, $179 million this year represents just under 30% of our total book capitalization. Our equity long term debt and short term debt are very substantial. When you look at this over the five year period, you will see that we’ve invested — will have invested $679 million. Our total book capitalization today once again is about $700 million. So huge investment that has happened over the last five years and are continuing this year. Our projects this year are comprised of about 82% regulated investments in our natural gas and electric businesses and the key projects that are underway include our Eight Flags combined heat and power plant that we expect to complete mid-year this year. Also, we’re expanding facilities to serve Calpine power plant in Dover, Delaware. We have a reliability project that’s underway and our Gas Reliability Infrastructure Program which replaces qualifying pipes and mains in Florida is another large component of our capital expenditure budget this year. So a very substantial project, the largest of which is our CHP plant, that’s about $40 million. And there are other projects that we’re constantly looking at to hopefully add to our pipeline to add further earnings growth as we move from this point forward. Some of those projects we know will not necessarily be incurred this year but may be incurred next year and we’re constantly looking for new opportunities. So while we have all these capital expenditures, it’s very important for us to have a balance sheet that supports those levels of expenditures. And so as you look at our balance sheet, as I mentioned we’re sitting with about $700 million in total book capitalization at the end of March. Breaking that down, when you look at it from a permanent capital perspective, our equity represents about 71% of that balance. When you look at it from a total capitalization, we’re capitalized about 53% equity and our target is 50% to 60% equity to total capitalization. Wanting to have that strong balance sheet, so we can make the investments that we need for continued future earnings growth. Last year we put into place several facilities with the amount of capital that we’ve expanded. We want to try to align as much as possible of the financing with those projects and those projects coming online. We executed a $150 million revolver agreement with five different banks. Currently at the end of March, we borrowed $40 million under that $150 million revolver. But it’s very important as we’re expanding the levels of capital that we have that short term debt capacity available. We’d also entered into a $150 million private placement shelf agreement with Prudential. And that enables us to basically take that shorter term debt and as those projects are placed into service, we can then finance the long term. And we will seek to utilize those mechanisms, those particular options that we have as well as access the equity markets as needed to always ensure that we’re looking towards that target capital structure that I mentioned. Given the growth opportunities we have, we talked a little bit about on past conference calls and a little bit earlier here in the room, that we recognized last year our ninth consecutive year of record earnings for the company. And we’re hopefully going to continue that trend. But looking at what we’ve accomplished and always trying to align our dividend growth, so it is supported by earnings growth. Earlier this week, our board increased our dividend by $0.07 which represented a 6.1% increase in our dividends, moving it from $1.15 to $1.22. What’s important also to note is that this was a 13 th consecutive year of dividend increases upon the prior year. So it’s not that we’re just increasing our dividend at the prior year’s amount, we’re actually stepping it up beyond that. We paid a consistent dividend for over 55 years. For the last 13, we’ve been constantly increasing each year. And as I mentioned, our focus is on dividend growth that’s supported by earnings growth and we expect a significant growth potential that we see in our businesses to continue to provide the opportunity for superior dividend growth in the future, just as it has in the past. Just a little bit of information, turning to Slide 11 in regards to our gross margin, I talked a little bit about our growth. You will see that last year in the middle of the chart, basically we recognized about $25 million from projects that we had placed into service in 2014 and thereafter. Those projects coupled with new projects that are coming online are expected to result in gross margin this year of about $44 million. So we’ve identified $19 million of margin increase that we’re expecting this year and those same projects are going to add an additional $7 million beyond that next year. So where is some of that gross margin growth coming from? I talked a little bit about the Aspire Energy transaction that we did, and you will see on here that basically that added — third column – that added about $4.2 million of gross margin for the quarter. Serving the Calpine power plant in Dover is at a considerable margin. They’re operating right now under our short term service agreement and ultimately when we place additional services into place next year at the beginning of the year, they’ll be under a long term contract for approximately 20 years. That added additional margin for us. And then last, the Gas Reliability Infrastructure Program added $1.1 million that I talked about earlier. So you will see from projects that have really already been done or set into motion, $15 million. We have two additional projects that are underway, that are going to add some incremental margin, the Eight Flags project, combined heat and power plant, that’s going to add $3.7 million and then next year will add $7.3 million dollars on a fully annualized basis. So a lot of growth that’s happened in the last several years. A lot of growth that we see happening from here on out in terms of projects that we’ve identified, and there are also many other projects on the drawing board. As always, thank you for your support and interest in our growing company. I believe this continues to be very exciting time for Chesapeake, as exemplified by our strong financial results. And certainly the weather was a downer in the first quarter but the amount of growth that the company experienced was able to match a large part of that weather impact. Now I will turn the call over to Mike who will expand on our strategic growth initiatives, our long term performance results and our commitment to continued growth for our shareholders. Mike McMasters Thanks, Beth. I guess I want to turn to Slide 13, 14 I guess – Slide 14, I am going to start talking about our strategic platform for growth. This is a pretty important slide for us as a company. We actually show this to our employees quite a bit, in addition to our board of directors and investors. We start at the bottom and work our way up engagement strategies, basically what we are trying to do is to get our employees more engaged in the company’s efforts. And we do that by allowing them, I guess, the opportunity to get more engaged in the communities that we’re serving. And so what we’re finding. I guess, with our efforts to do that is that we’re getting — I’m going to say — improved community relations. We’re getting improved productivity and therefore improved growth. And one of the key things that we have to do as a company, I guess, the first job really is safety. And so if we can maintain a safe system, we can maintain a reliable system, we take care of our customers and the communities, then we’re positioned for growth. Without those strategic ingredients, growth becomes more difficult. It’s fairly easy to sell services when they look at your track record and see that you’re doing – you’re in a very good development. The next step in the process, moving up the triangle, is developing new business lines and executing existing business unit growth. You think about a utility — as the utility matures, it becomes more and more difficult to grow, and you will see that a lot in the electric industry today. And so what we’re having to do is, so let’s think about things differently. Let’s not just stick to the same services we’re providing, now let’s expand the services that we can provide. In addition, let’s look beyond our current service territories and see if we could grow outside of our territories to help increase our growth, and that’s how you get numbers like the $100 million worth of CapEx et cetera. And then finally, all that shows up in results. And you can see safety awards, community service awards, achieving top quartile growth in earnings, achieving top quartile growth in shareholder return. Turning to Slide 15, there are several things here, and just in a moment ago, I want to point to the last bullet on the slide. This is the fourth consecutive year for the Chesapeake, it was recognized as the Top Workplace. Well the significance of that just says, the engagement strategies are working. It is allowing employees that participate in community service activities. Our executives generally, I want to say almost every time, are also participating whether it’s the Food Bank, Steve is on a couple of different boards, at the time the humanity, for building homes, also and the Food Bank, Steve joined that network as well, these different services. So there is also of different things that our executives are doing and our employees are doing and that’s driving team work and engagement. Turning to Slide 16, I guess to the community side, we get a lot of stuff here but one of the things I will point out here. There are several awards here that were very important to us. The second bullet — Central Delaware Chamber of Commerce Excellence in Business Award for Corporation of The Year. Again, that was based on our community contributions, and the last bullet, just last few months, we got an award — Jefferson Awards in Delaware for Outstanding Service by a Major Company. And so it’s these types of awards that are telling us that we are accomplishing something that our employees –our employees are doing great things and the communities are recognizing what we’re doing. Strategic planning and thinking is one of the key processes that we have for growth. The way we attack I guess strategic planning and thinking is that we set very high growth targets in our strategic planning process – targets that really we could not hit if we kept doing the same thing. So it forces us every year to help — what are we going to do differently tomorrow to help accelerate our growth. We involve every business unit. Just about every employee in the company, at some point of time is involved in the strategic planning process. Every business unit is very much involved in the strategic planning and process. If you roll the clock back probably 10 years, maybe 15, I don’t know how far back it was, we used to do the strategic planning in the corner office. And so the slower speed we’re getting — we would talk about all this stuff and we would write this plan out and we’d put it on the shelf. And next year we go pull it off the shelf. Do it again and nothing ever really happened. So we changed the whole way we approached that and said, okay, let’s get the business units in here. Let’s ask them, what do they see happening in their markets and how can we grow the company, and through that change in the process it took two or three years. But we all of a sudden started getting great ideas coming in the door and the business units were engaged and empowered to execute those plans. That’s a significant change for us. We monitor the conditions that we’ve –or the assumptions that we had in the strategic plan. Constantly, we update the board on that constantly. And we make changes to the plan if necessary when circumstances dictate. Turning to Slide 18, this is another part of the process — part of our growth process. We formed a Growth Council several years ago. The Growth Council — same type of approach. We want to get all the business units involved in the growth council. What the council does is it evaluates the strategic objectives or plans, or actually initiatives that we’re working on, if you bring in specific projects, they’re involved with challenging, the business unit leader that brought the project in, asking good questions, forcing a real thorough evaluation of the project. In that council we had legal counsel, we’ve got engineers, accountants, every business – just operations people, a whole variety of people that you look at the same thing from a variety of perspectives. And that actually is part of our key to sustaining our growth as well. If we’re making good investments we’re going to get returns. We’re going to be able to continue to attract capital. And obviously you can’t grow if you’re not getting the capital. I guess a follow-on here, to give you an idea of how we look at these things – this is a form of illustration but you can see, start with information gathering, identifying opportunities. About 50% of the projects that we’re looking at are in that category. We weed out some of those, we get down to feasibility analysis. About 20% of the project would be expected to be in that category. And then proposal development, offer negotiation, and execution, as you can see, we’re weeding projects out of the opportunities that we see as we work our way down. It was probably a year ago, I think Beth and I were in Boston and somebody asked me, if we ever rejected a project. And I was sitting there, I was actually stumped for a minute, and I think, we reject almost all the projects. And then I’ve been thinking about it, after it occurred to me that, I guess that would be a question if you’re doing a lot of – making a lot of capital investments, the expectation might be from the other side as well. You guys are just doing everything that you come across the table and we do have a strategic set of criteria on these projects as well. So we’re not just doing anything that looks like to be profitable or making sure we’re sticking to things that we understand and that’s what we know how to do with this with our strategic plans. Turning to Slide 19, it’s something about — looking around what are the results of all the stuff. Beth gave you a pretty good picture of that. But this is just something that we look at all the time. So you’re looking at the ROE which is the vertical axis and you’ve got the capital expenditures force horizontally. And you’ll see Chesapeake in the top right hand quadrant, which simply means that we are above the 50% in both ROE and also CapEx, so we’re deploying a tremendous amount of capital. And we’re maintaining returns and that’s a pretty big challenge. You can see how few companies are over there near us and when you do that you’re going to drive EPS growth. All these other dots are just a variety of companies. It’s the electric and combination companies, it’s also an industry index for people that we use in our index for marketing our performance and then Chesapeake. So it’s not cherry picking of the peer group, it’s actually a broad range of companies. So then what happens – Beth talked about nine years of record earnings, so if you look at the blue line, I am on Slide 20, look at the blue line. Record earnings per share, the blue line climbing from roughly, you can see that $1.20 up to almost $2.80. Over this time period, ROEs maintained, actually climbing a little bit which is pretty hard to do in that kind of environment, up to little over 12. So it’s been a very successful process that we’ve been implementing and it requires a lot of discipline. So also shareholder returns, so what happens with this. We’ve looked at broader comparisons. This was something Beth was just I guess thinking about one day and did a lot of work to come up with some numbers. And when we looked at and we thought these numbers were little scary, little high. It was, what we can — nobody’s going to believe us. So we asked one of our investment bankers to tell us – help us with the analysis and they put together their own and so we use theirs. The numbers are consistent. But as you can see 84 th percentile in five years and then after that you get 86 th percentile for one year, 80 th percentile for three and then 89 th , 10. So substantial I guess [indiscernible] measure there. With an annual large shareholder returns, you see the median — we joke around about this too. Utility business sometimes is pretty tough to grow as you get bigger. So you will see a negative 5.1% could be weather related, could be pricing relate type of thing. And you can see Chesapeake over the 75 th percentile in all four periods. Once again we go to the S&P 500 — maybe the NYSEs big in our peer group. If you go the S&P 500 similar type results for 73th percentile in five years and then up over 75 in the other two periods. So it’s just I guess a measurement of our discipline. This is a table that we use periodically on Slide 23. The lightly shaded blue or those metrics where we didn’t hit to 75 th percentile, all the others we were at 75 th percentile. We have another table that shares — we have basically, 18 out of 20 times was 75 th percentile. So again things that we’re very proud of, and again you can go back to the processes that we talked about earlier, that are responsible for that, obviously the people that are executing on those processes. So now what are we doing tomorrow? We talked about what we did yesterday. One of our key I guess brand values is simply that we don’t rest on our laurels and so we like to celebrate the victories but we know that really it’s about what we do today and tomorrow, that’s going to count. And so here’s a few of the projects that we actually mentioned these. You can see we’ve got three projects here on Delmarva, the White Oak expansion, Beth talked a little bit about the impact of that on earnings. That’s just obviously a significant project for us. We’ll be constructing that soon. I guess we’re still working with FERC to get approval to do that. The TETCO capacity expansion in the second row is an interesting opportunity that comes and goes really. With the TETCO, it’s obviously connected to TETCO, Texas Eastern. And there’s lower cost of gas on Texas Eastern than there are on other pipelines that are nearby. And so what happens is customers may not have subscribed to move gas on that pipe, that section of the pipe, but when those prices change and TETCO become significantly cheaper than the other place, all the companies or the major companies are interested in trying to get more gas off of TETCO, that are subscribed to use long term capacity or just to use short term interruptible capacity to do that, so we get some earnings supplements from that line. The next box down, Eastern Shore Natural Gas System Reliability, going back to the polar vortex that showed some weaknesses and some upstream systems, and that’s flowed through to us. We also learned things about our system so we’ve done – we’re working on a distribution system to improve that. We also have a filing with the FERC to improve our transmission systems and we have to be ready for low gas pressures coming into our system lower than we historically had seen in the past. So it’s an important thing and reliability is obviously a critical issue for us. Florida and Ohio. Florida Public Utilities has a Gas Reliability Infrastructure Program, Beth talked about that. Once again that’s about safety and reliability. It was a very little to natural gas prices now. It was an opportune time to look at and is strengthening your system, so we’re doing that. Eight Flags, Beth talked a little about that as well. That project is expected to come online in June or July of this year, so it’s I think over 90% complete, was the last number we heard, just as strong as we get actually. Aspire Energy of Ohio, that was the acquisition we did last year. So all of these things, if you look at these Eight Flags, it’s a completely new service we never provided. Aspire Energy of Ohio, completely new service territory. We weren’t serving — and the services are slightly different than what we provided. So you’re getting two out of the six big projects are either new service or new territories. And it’s a picture of Eight Flags, it’s actually – the picture was taken with them celebrating the safety. I mean there was – I forgot the number of days now per hour – 60,000 hours of — without an injury, without an incident. So there’s safety, there is special celebration going on there. But the significance of Eight Flags, first, it’s a new service, we didn’t know how to do that. I want to go back even to the beginning. We got a phone call, that hey, we’re considering. This is Rayonier on – that we’re considering going off the grid, really electric utility on to the aisle. And so that means okay, we’re not going to use the electricity. And so we were looking at things, concerns about earnings deteriorating. So the team in Florida walked into the plant, just did a tour, brought some experts and got some experts involved to help us look at opportunities in the plant. And they came up with the idea, well, we could build a combined heat and power plant here and lower your steam costs. And we can scale it up on the electric generation side, because we’re the electric utility and we can buy the power cheaper from this facility than we can buy from on the grid — from the grid. So we turned what was a loss into a win. So as a result of this, Rayonier is saving money. They’re actually expanding their facility now. Two big wins are for Rayonier. For us, we have lower cost power coming into our electric system. So that’s going to help the customers on Amelia Island as millions of dollars of savings associated with that, and in early we had higher earnings. So it was a very big deal, very creative, it was a new service, a good job. And on top of all of that, we used a lot of our different capabilities. Obviously the electric utility was involved, had to build a pipeline, reinforced our pipeline there, we had a gas pipeline. So our gas, or distribution company – gas distribution companies involved and then also we have a company that’s marketing — natural gas marketer that was involved in solving the problem as well. So we took a variety of skills that we had across our entire company to help solve that problem. So that’s really talked about our strat plan and what we’re trying to do, be flexible, be able to do a lot of different things, solve customers’ problems has been a key factor in our success. So with that, I’ll turn it over to questions. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Nathan Martin with BB&T Capital Markets. Nathan Martin Good morning everybody. Thanks for taking my questions. I guess, first just kind of given the current gas LDC M&A environment and obviously your clear goals to grow, would it be reasonable to assume you guys would execute possibly another deal or two by the end of this year? And kind of – if so, you mentioned you’re continuing to look at opportunities outside of your current territories. Are there any certain types of geographies you’re prioritizing, or would you basically consider anything if the returns and strategic fit are there? Mike McMasters I guess, let me do the first question first. When it comes to acquisitions, we are constantly looking for acquisitions. And you know how that works, you have a hard time, that you can look at it, 10, 100 — you look at a lot of acquisitions. And it’s very difficult to get anyone in particular to the finish line. And so forecasting out is just extremely difficult to do that. At least we just don’t do that but we are looking at several opportunities in that regard and we’re probably — always will be looking at several opportunities. You know that, funnel when you have that first – the top piece of the funnel, and you’ll have a lot of things in there that fully won’t come to fruition. Very few actually get through. So we can’t really forecast that. I’m trying to think the second question now. Nathan Martin Basically as far as geographies — you guys are continuing to look at opportunities outside of your current territory – Mike McMasters There’s maybe a natural tendency for us to be focusing on primarily the East Coast. We’ve been in Florida since the 80s, and so we are comfortable in Florida. And when we’re comfortable in Florida, that we’re going to be comfortable as we look to Georgia et cetera, in contiguous states. And we’ve got — I think primarily the focus is on the East Coast. If we saw something good that was East Coast – I am including Ohio in the East Coast, in that definition. As we get much further west of Ohio it maybe becomes – I don’t know, we’re having seen anything over there actually, so we don’t spend whole lot of time looking that far west. But that’s not to say that tomorrow if we don’t find something that’s attractive and strategic fit that we would look at it. Nathan Martin Thanks for that color. And then just in the same vein, I mean, looking at these opportunities, just trying to figure out where you lean more towards regulated, unregulated, or again is it just come down to strategic fit? Mike McMasters We are a different right — the regulated and unregulated. Aspire Energy of Ohio has basically gathering system delivering gas to either interstate pipelines or delivering gas to LDCs. And so we’re perfectly comfortable in that business. There is some commodity risk associated with that business. But we’re comfortable with that. So it is not whether it’s regulated or unregulated, it’s really what’s the opportunity and the strategic fit. End of &A Operator [Operator Instructions] There are no further questions at this time. I would like to turn the call back over to President and CEO Mike McMasters. Mike McMasters Thanks everyone for joining us on the call today and for your interest in Chesapeake Utilities. 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