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Ormat Technologies’ (ORA) CEO Isaac Angel on Q4 2015 Results – Earnings Call Transcript

Operator Good morning and welcome to the Ormat Technologies’ Fourth Quarter and Full-Year 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Rob Fink of Hayden, IR. Please go ahead. Rob Fink Thank you, operator, and thank you everyone for joining us today. Hosting the call are Isaac Angel, Chief Executive Officer; Doron Blachar, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations. Before beginning, we’d like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company’s plans, objectives, and expectations for future operations and are based on management’s current estimates and projections of future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of risks and uncertainties, please see Risk Factors as described in Ormat Technologies’ Annual Report on Form 10-K filed with the SEC. In addition, during the call, we will present non-GAAP financial measures such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management reasons for presenting such information is set forth in the press release that was issued last night, as well as in the slides posted on our website. Because these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP. Before I turn the call over to management, I would like to remind everyone that the slide presentation accompanying this call may be accessed on the company’s website at ormat.com, under the Events & Presentations link that’s found on the Investor Relations tab. With all that said, I’d now like to turn the call over to Isaac. Isaac, the call is yours. Isaac Angel Thank you very much, Rob, and good morning everyone. Thank you for joining us today for the presentation of our fourth quarter and full-year 2015 results and our outlook for 2016. Starting with Slide 4, this was a very strong conclusion to a very good year for Ormat. Our product segment outperformed our expectations, growing 23% for the year. Balancing headwinds related to the commodity prices with segment revenue in our Electricity segment. Our Electricity segment delivered 8.6% growth in generation that will support our future revenues growth. Despite challenges related to commodity prices, we maintained solid margin levels. This performance peaks to both our balanced business model and our methodical efforts to improve operational efficiency, improve profit margins, and diversify revenue. Our strong financial performance was only a small part of our achievements. In 2015, we took meaningful steps to increase shareholder value by completing the Northleaf and restructuring transactions, building our strategy, and starting to implement it. We continue to enhance all aspects of Ormat’s value chain to improve our performance as well as to progress with near and long-term strategic initiatives in our core geothermal business and in new activities to continue and provide long-term and sustainable growth. I will elaborate on the progress we have made and our plans for the future after Doron will review the financial results. Doron? Doron Blachar Thank you, Isaac, and good morning everyone. Let me start by providing an overview of our financial results for the full-year ended December 31, 2015. Starting with Slide 7, total revenues for 2015 were $594.6 million, up 6.3%, compared to $559.5 million in 2014. The increase was driven by increased revenues in our Product segment of 23.4% compared to 2014 and was partially offset by 1.7% decrease in our Electricity segment, which represented 63.2% of total revenues. In our Electricity segment, as you can see on Slide 8, revenues were $375.9 million in 2015 compared with $382.3 million last year. The decrease in this segment was mainly due to a $30 million reduction in the revenues generated in the power plants that are tied to oil and natural gas prices, as well as lower revenues in Puna power plant having lower generation as a result of last year [indiscernible]. The decrease was offset mainly by additional revenues generated by the second phase of McGinness Hills and Don Campbell power plant in Nevada, which commenced operation in February and September 2015 respectively. In the Product segment, on Slide 9, full-year revenues were $218.7 million, compared to $177.2 million in 2014, which represented 23.4% increase. This increase was primarily due to the increased backlog we had at the beginning of the year and commencing revenue recognition on the new contracts as we signed early in the year. Moving to Slide 10, the Company’s combined gross margins for 2015 was 36.7% compared to 36.4% in 2014. In the Product segment, gross margin was 38.8% compared to 38.4% in the prior year. The increase was driven primarily by a shift in product mix and different margin in the various sales contracts for 2015, and improvements made in our – at our Ormat Manufacturing Facility. In the Electricity segment, gross margin was 35.5%, similar to 2014. Despite, the $30 million decrease in our annual revenues, as a result of lower natural gas and oil prices, we were able to maintain the same margin due to the operational improvements we conducted in our power plant as well as the addition of the second phase power plant in McGinness Hills and Don Campbell that came online in 2015 and in which we benefited from the economical scale. In 2015, 40% of our electricity revenues were tied to oil and natural gas prices. In February, we held our exposure to natural gas for 2016. In the past, we use forward contracts to hedge our revenue and adjusted EBITDA. This year, in light of the low natural gas and oil prices, we decided to hedge on natural gas exposure by setting coal option. This hedging strategy together with a transition to a fixed price PPA for Heber 1 power plant significantly reduces our exposure and we believe revenue and adjusted EBITDA in 2016 will be less vulnerable than in 2015. Moving to Slide 11, 2015 full-year operating income was $164.1 million compared to $143.5 million in 2014. Operating income attributable to our Electricity segment for 2015 was $99.3 million compared to $90.4 million for 2014. Operating income attributable to our Product segment was $64.7 million compared to $53.1 million in 2014. Moving to Slide 12, interest expense net of capitalized interest for 2015 was $72.6 million compared to $84.7 million in 2014, a 14.3% decrease year-over-year. This decrease was primarily due to lower interest expense as a result of principal payment of long-term debt and the revolving credit line with bank, a decrease in interest related to the sale of tax benefits and a slight increase related to interest capitalized to project. The decrease was partially offsets by an increase in interest expense related to a loan received to finance the construction of the second phase of the McGinness Hills power plant. Moving to Slide 13, net income attributable to the Company’s stockholders for 2015 was $119.6 million, or $2.43 per diluted share, compared to $54.2 million, or $1.18 per diluted share for 2014. The net income includes approximately $48.7 million non-recurring and non-cash income tax benefit and related expenses recorded in the third quarter of 2015 relating to new tax law in Kenya, which extended the period of utilizing investment deductions from five years to ten years for our Olkaria 3 power plant in Kenya. Excluding the non-recurring income tax benefit and related expense, net income attributable to the company’s shareholders was $70.9 million, or $1.44 per diluted share, compared to $54.2 million, or $1.18 per diluted share, in the third quarter of 2014. Now, I’d like to go over a few quarterly financial highlights beginning with Slide 14. For the fourth quarter of 2015, total revenues increased 14.6% to $171.1 million, compared to $149.2 million in the fourth quarter of 2014. Revenues in the Electricity segment increased 4.8% to $97.8 million in the fourth quarter of 2015, up from $93.3 million in the fourth quarter of last year. Revenues in the Product segment was $73.3 million, an increase of 31%, compared to $56 million in the fourth quarter of last year. Now on Slide 15; operating income for the fourth quarter of 2015 increased to $49.1 million, compared to $34.8 million in the fourth quarter of 2014, representing 41.1% increase. Net income attributable to the company’s stockholders, for the fourth quarter of 2015, were $23 million, or $0.46 per diluted share, compared to $7 million, or $0.15 per diluted share, in the fourth quarter of 2014. Please turn to Slide 16 on adjusted EBITDA. Adjusted EBITDA for 2015 was $291.3 million, compared to $272.7 million in the same period last year, which represents a 6.8% increase. This increase was despite $22 million reduction in our annual adjusted EBITDA as a result of lower natural gas and oil prices. Adjusted EBITDA for the fourth quarter of 2015 was $79.1 million, compared to $68.3 million in the same quarter last year, which represents a 15.8% increase. Reconciliation of the EBITDA and adjusted EBITDA is described on the appendix slide. Turning to Slide 17, cash and cash equivalents, as of December 31, 2015, was $185.9 million. We generated $190 million in cash from operating activities, and invested $152.5 million in CapEx. The accompanying slide breaks down the use of cash during the year. Our long-term debt, as of December 31, 2015, and the payment schedules are presented in Slide 18 of the presentation. The average cost of debt for the company stands at 5.9%. I would also like to mention that Ormat’s equity passed for the first time the $1 billion mark [ph] in which $1.08 billion. On February 23, 2016, Ormat’s Board of Directors approved the payment of a quarterly dividend of $0.31 per share for the first quarter. The dividend will be paid on March 29, 2016 to shareholders of record as of the closing business on March 15, 2016. In addition, the Company expects to pay a quarterly dividend of $0.07 per share in the next three quarters. That concludes my financial overview. I would like now to turn the call to Isaac for an operational and business update. Isaac? Isaac Angel Thank you very much, Doron, starting with Slide 20 for an update on operations. As I mentioned in my opening remarks, this was a very good year for Ormat, and I would like to elaborate on some of the achievements being accomplished. We have discussed few times in 2015, the joint venture with Northleaf Partners through which we monetize the portion of our portfolio and provided the company with additional capital for expansion. The partnership has progressed exactly as we hoped it would and we expect to add the second phase of Don Campbell power plant with the joint venture in the first half of 2016. We also successfully completed the share exchange transaction with our former parent entity, Ormat Industries. The net result of this transaction increase the public float of our stock from approximately 40% to approximately 76% of our total shares outstanding, which helped to expand and improve our liquidity. This transaction also streamlined and simplified Ormat’s corporate structure. With these two milestones, serving as a foundation, we share with the market a new multi-year strategic plan for long-term sustainable growth at an Analyst Day in March in New York. This plan involved facility optimization to maximize profitability, geographic expansion, and market expansion involving Ormat transitioning from a leader in geothermal energy to a global leader in renewable energy. During the year, we have refined and started to implement a number of the elements of the new plant and pleased to report that we made significant steps to gain each of these components of our strategy. Moving to Slide 21; we made improvements in all aspects of our value chain with using manufacturing lead-time, improving management control and procurement. This process translates into a significant improvement in gross margin and adjusted EBITDA margin, if [indiscernible] on the Electricity segment on Slide 22, generation in 2015 was 4.8 million megawatt hour compared to 4.5 million megawatt hour in 2014, which represents 8.6% increase primarily as a result of the second phase of Don Campbell and McGinness power plants that commenced operation in 2015. We have made planned level adjustments, designed to optimize our electricity generation including the elimination of older or less efficient components with the goal of improving profitability. This progress is evident in the financial results we are reporting today. We see improvement in the adjusted EBITDA per megawatt with the similar levels in 2015 compared to 2014, despite commodity impact on revenues. We see a significant reduction in O&M cost and we see a reduction in CapEx per megawatt from a range of $4.5 million to $5 million per megawatt to a range of $4 million to $4.5 million per megawatt. We believe that new capacity that was recently added from Olkaria power plant in Kenya should further improve operation margins, which will in turn drive higher levels of adjusted EBITDA and profitability. Turning to Slide 23, we also made progress in our geographic expansion goals as evidenced by the recent announcement the signing of binding Memorandum of Understanding to acquire, gradually, 85% of geothermal power plant in the Island of Guadeloupe. As we stated at the Analyst Day, growth through M&A is a key part of our overall strategy. Our strong balance sheet positions Ormat well to execute additional strategic execution – acquisitions. As it relates to our goal of expanding our technological and geographical base in the geothermal market, we announced the milestone collaboration with Toshiba. For nearly five decades, Ormat is focused on and maintain a leadership position with low to medium to the geothermal projects. Toshiba is the recognized leader in the higher-end of the technology. Together, Ormat and Toshiba are well positioned to bid on and win product contracts as well as potential projects based on the combined technologies of these two leaders. Already we are seeing expansion of opportunities related to this collaboration. Finally, looking this market expansion to new activities, we are evaluating several solar PV projects outside the U.S., as well as storage projects in the U.S. Turning to Slide 24 to an operation update. Our current generation capacity increased to nearly 700 megawatts. We made a few adjustments to reflect the updated status of our generating capacity. We increased McGinness Hills and Don Campbell complexes generating capacity to 83 megawatts and 41 megawatts respectively to reflect the enhanced performance of these plants. The generation capacity of Ormesa complex was reduced to 42 megawatts mainly to a permanent shutdown of one of the steam turbines and some of the old OECs not that we optimized plant performance. Turning to Slide 25; we’ve continued to expand our portfolio of geothermal plants. In January, we’ll reach commercial operation of Plant 4 in Olkaria III complex in Kenya. This expansion increased the complex total generation capacity by 29 megawatts to 139 megawatts. Together with the McGinness Hills and Don Campbell second phase in the last 12 months, we commenced commercial operation of three new power plants in an aggregate capacity of over 90 megawatts. All three plants were constructed and start operation well ahead of planned schedule and will contribute to 2016 revenues. We will not have been achieved – we will not have been able to achieve this, if we don’t have an in-house products division. Again reinforcing the importance are vertically integrated and well balanced business model. Moving to Slide 26 for an update on projects under construction. We plan to add 160 megawatts to 190 megawatts by the end of 2018 by bringing new plants online, expanding existing plants as well as adding capacity from a recent acquisition. As part of this expansion plan, we recently announced the commencement of construction of the Platanares geothermal project in Honduras. In December 2015, we concluded the drilling activity as well as extensive tests that support our decision to construct a 35 megawatt project, which is larger than initially estimated. The project expects to reach commercial operation by the end of 2017. We also initiated development of efforts in two projects in Nevada: Tungsten Mountain and Dixie Meadows are each expected to generate 25 megawatts to 35 megawatts, once they come online in 2017 or 2018. We have drilled several exploration wells both sides. And while drilling activities ongoing, we are making progress towards securing PPAs. We believe that these projects may qualify for the production tax credit. In Sarulla, Indonesia, engineering and procurement for the first phase is completed, while in progress for the other two phases. The construction for the first phase is in progress. The infrastructure work has been substantially completed. The major equipment including Ormat’s OECs and Toshiba’s steam turbine for the first phase have arrived to the country, larger portion already at the site. The drilling of production injection wells is also in-progress for all three phases, but currently the project company is experiencing some delays mainly in the meeting some of the drilling milestones as well as few EPC milestones. It should also be noted that project is facing some cost overruns resulting mainly from drilling. The consortium members are examining the significance of these cost overruns and their potential implications for the project’s budgets as well as for the financing of the project since the cost overruns and drillings delays may impact the project’s ability to drove on the debt financing and force additional equity investment by the consortium members. All contracting milestones under Ormat supply agreement were achieved and the manufacturing work is currently progressing as planned. The first phase of operation is expected to commence towards the end of 2016. And the remaining two phases of operations are scheduled to commence within 18 months thereafter. We also expect to close the acquisition of Bouillante Geothermal Power Plant in Guadeloupe Island by May 2016, which will be immediately accretive to Ormat’s EPS. The projects are just described as well as additional projects including Menangai in Kenya are under various stages of development and expected to support our expansion by the end of 2018. Besides the investment in new projects, we are continuing our exploration and business development activities to support future growth. If you could please turn to Slide 27, you’d see that our CapEx requirement for 2016 is approximately $264 million. We plan to invest a total of approximately $83 million in capital expenditures, on new projects, under construction and enhancements and additionally approximately $101 million are budgeted for exploration activities. Development of new project is investment in new activities that reflects expenditure under the new strategic plan and maintenance CapEx for operating projects. In addition, $63 million will be required for debt repayment. Turning to Slide 28 for an update on our Product segment. Our backlog, as of February 23, 2016, stands approximately $256 million. Our backlog together with the new contract that we expect to sign will support our financials. Moving to Slide 29 for a regulatory update. Increasingly, government and private sectors are taking actions to fight climate change and move towards to low carbon resilient and sustainable future. We have seen this in the United States as key states set long-term goals, established minimum requirements and create incentives for the use of renewable energy. As we have previously noted, in October, California expended on its existing renewable portfolio standard or RPS policy. The new low requires that utilities procure 50% of their electricity from renewables by 2030, an increase of 33% required by 2020. Hawaii is an even more aggressive low requiring that 100% of its energy come from renewables by 2045. And in December, the United States Congress agreed to grant extension to the tax credit for geothermal energy as part of the broader production tax credit program. While these programs within the United States are encouraging, in December we also saw action on a global level. In December 2015, 195 countries signed a historic agreement at the Paris Climate Change Conference, held in Paris. For the first time, all countries committed to setting nationally climate targets and reporting on their progress. We believe that submission of national targets in five years cycles signal to investment within technology innovators that the world will demand increased use of renewable energy in the decades to come. This comes after a group of 20 countries including the U.S., U.K., France, China, and India pledged to double their budget for renewable energy technology over the next five years as part of a separate initiatives called mission innovation. World leaders are clearly increasing the focus on renewable energy. Geothermal is based on the energy is uniquely positioned to benefit from this trend and Ormat is focused on remaining a global leader in this space. Turning to Slide 30 for our 2016 guidance. In 2016, we expect total revenue to be between $620 million and $640 million. We expect revenue in our Electricity segment to be between $410 million and $420 million. The Electricity segment revenue guidance assumes current oil and natural gas crisis. For the Product segment, we expect revenues to be between $210 million and $220 million. We expect 2016 adjusted EBITDA from $300 million to $310 million. This estimate includes approximately $9 million of expected income related to tax equity transactions compared to $25 million in 2015. Excluding this demand, the expected increase in adjusted EBITDA should reflect an operational growth of between 9% to 13%. We expect annual adjusted EBITDA attributable to minority’s interest to be approximately $17 million. This amount assumes the inclusion of the second phase of Don Campbell power plant in the joint venture with Northleaf. In summary, 2015 was a very good year for Ormat and I’m excited about our future. The significant declines in the price of oil and natural gas have impacted many industries and we are not immune, while we cannot predict what will happen in the commodity markets during 2016. We can state with growing confidence that the demand for renewable energy is growing. Volatility of fossil fuels only contributes to this demand. This creates an environment where leaders, like Ormat, can grow and expand their market share. It is truly an exciting time to be a part of this great company, and I’m optimistic about the future of Ormat into geothermal industry in general. This concludes our remarks for today and I thank you very much for your ongoing and continued support. Operator? Question-and-Answer Session Operator Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Paul Coster of JP Morgan. Please go ahead. Mr. Coster, you may proceed. Paul Coster Sorry I had my mute on there. Thank you very much for taking my questions. Congratulations on concluding an excellent year. So looking forward, I wonder if perhaps you can take us through your sort of cash outlook for the year, it looks to me like you’ll be using in excess of $100 million of your cash balance, unless you tap into new sources of finance. So perhaps you can talk us through that please? Doron Blachar Hi, Paul, thank you. This is Doron. Basically, when we look, we do need – we do have an increased capital plan and increased gross plan. As the PTCs were extended, we are planning to do one or two tax equity transactions. And in addition to that some of the projects that we are constructing like in Honduras or one of the two projects in Nevada that we’re now finishing the exploration phase in Tungsten and Dixie, we will do project finance for them. So the construction will be financed with the specific loan program. Paul Coster Okay. So, you’re not going to be – you don’t anticipate tapping the debt or equity markets this year? Doron Blachar No, to the extent no – unless, we will increase our accelerated growth, which is expected. Paul Coster Right. Can you – you talked to us a little bit about the Toshiba partnership? You alluded to sort of benefiting you already. What is the nature of the benefit you’re seeing? Isaac Angel Hi, Paul. This is Isaac. I think it’s one of the best things happened during the last year. In the last six months, we have exposure to much more projects than we did in the past because of the fact that both companies are approaching a high-end, low-end and middle-end of the projects together. Actually, we have even a win, which I cannot speak about it as of now, but we will talk about it in the very near future. And I’m very, very optimistic that this collaboration will bring in 2016 more and more projects, specifically in other countries mainly in Europe and Southeast Asia. Paul Coster Okay. My last question is looking at your anticipated deployment activity, it looks to me like revenues and I assume EBITDA should accelerate a little bit in 2017, just eyeballing the megawatts that come online. Is that a reasonable assumption to make? Isaac Angel It was a short answer and unfortunately I have a long – it was a short question and I have a long answer. As you realize with the year passing through and we have $256 million contract in Sarulla, which will be ending in sometime during 2017. We have to accelerate our Product segment, but you realize that it will be difficult to staying the same growth in Product segments with this project ending. But on the other hand realizing that and we announced it on March in New York, the company is making tremendous efforts to accelerate the Electricity segment and we believe we will continue – we will sustain growth, but not necessarily it will be divided in the same percentage between products and electricity looking forward. On the other hand, I should say, we’re not giving any outlook for 2017 or 2018, and the only outlook that we’re giving is in 2016. But, in general, if you look within the next five years, we are expecting a step-up function in our Electricity segment, and the company is doing tremendous efforts and as part of the accelerated CapEx that you’re seeing to build more and more power plants internally and also externally. Paul Coster Very good, thank you very much. Isaac Angel Thank you. Operator Our next question comes from Dan Mannes of Avondale Partners. Please go ahead. Dan Mannes Good morning and also congratulations on a strong quarter and a strong year. Isaac Angel Thank you very much, Dan. Dan Mannes A couple of follow-ups. First, the acquisition in Guadeloupe – first, congratulations on getting an acquisition done. Can you give us a little bit more color maybe on the structure of the PPA, they’re number one. And number two, is this – the closing of this transaction included in your guidance for 2016 or not. Doron Blachar Hi, Dan. It’s Doron. For the second part, yes. The guidance includes the acquisition of Guadeloupe response. The first part basically, the PPA in Guadeloupe has a capacity payment and has an energy payment. We cannot – we still don’t own the assets at closing, haven’t happened. So we cannot discuss too much in details, because we still don’t own the power plant, but there is a capacity and an energy payment that grows up – goes up as the generation goes up. Dan Mannes Okay. And maybe could you walk through the structure of the purchase, does it face – you’re going to own all – 85% of all 15 megawatts this year or you own a piece of that and then it grow – then there are multiple payments to them? Could you maybe just walk us through how that works? Doron Blachar We’re going to own upon closing 80% of the facility, and then the investment – the acquisition and the investment structure says that in the next two years from the closing. Recently, Ormat will increase its capital investments to the company and by putting in more cash into the company; the percentages will go up and will reach once all the cash is invested to 85% ownership by Ormat. Since, we are going to have 80% on closing. We will consolidate obviously the company. We are the controlling shareholders. And our people actually have been there already and analyzing the projects to see how we can expand it sooner rather than later. Dan Mannes Got it. A real quick one on Tungsten and Dixie Meadows, it’s great to see you guys are finding some more drilling success. Can you talk at all about the PPA market for those plants, the last several Nevada plants, you’ve sold into California. Alternatively, is this an opportunity to perhaps get a commercial PPA? If you could talk to us about the PPA environment, that would be helpful? Doron Blachar Dan, do you know as I know that the PPA environment in the U.S. is a bit suffering in the last few years. On the other hand, Ormat was – we successfully achieved few PPAs in the last year or so. And even though I cannot talk on the details, but I’m optimistic that our future growth in the Electricity segment will come both from the U.S. and from the other countries. And I’m very optimistic that we will be able to gain PPAs for these two power plants and more in the U.S. Dan Mannes Okay. Doron Blachar But unfortunately, I’m not in a position to talk about terms, numbers and so on. I really hope that this will be an outline very soon. Dan Mannes Okay. Olkaria 3 with the completion of the most recent phase, can you maybe help us to understand the new agreement you have and your ability to expand this and also is this included in the some portion – is another leg of Olkaria 3 included in the 160 megawatts to 190 megawatts that that you’ve laid out through 2018? Doron Blachar Well, no – first of all, no doubt that Olkaria is one of our most successful prospects. And there is an opportunity to increase Olkaria to the third phase as we already have assigned PPA. I don’t know if we disclosed it, but it is 400 megawatts, which 29 of them are already consumed. And there is a possibility to increase it to Olkaria 5, but it is not in the numbers that mentioned in the 180 megawatts – sorry, 160 megawatts to 190 megawatts. Isaac Angel I would like maybe just to add a little bit color. In the 160 megawatts to 190 megawatts, obviously, we have projects that are not finalized or have final PPAs and finish exploration. These are projects that are in the process. And at the end of the day, we don’t know exactly all the projects that will come in. We have seen today, this next phase is not in the numbers, but exploration and resources tend to change over time. And so we might see that there is additional result and may be an addition to increase it or not, so it’s not in the initial estimate, but it can obviously come in, if that is something that will go out or whatever. Doron Blachar Dan, I will reiterate, what I just said to Paul before. We are working very, very diligently to make this step up function as I talked about it in our meeting last year and I think that this will fuel the growth of Ormat in the next upcoming five years or more. And it will come both from the U.S. as I said and elsewhere, specifically from African countries and Southeast Asia. Dan Mannes On that note, one of the major geothermal owners in Southeast Asia at least through some trade publications is reportedly considering selling and this will be a very major asset that could be a step change in terms of your output if you pursed it. Is that – without discussing a particular M&A opportunity, how serious are you on M&A at this point and would you consider kind of assets of that time – type of scope and scale? Isaac Angel Dan, it’s very, very premature way. We got the same teaser yesterday and we are looking into it. Don’t forget that we are talking about an asset of over maybe $2 billion. So, it’s something that we should certainly look into, but it’s very early to talk about it seriously. Dan Mannes Okay. And then my final question, as you look at the Product segment, we’ve been really impressed with the way you’ve been able to maintain margins last year, a lot of that you guys have done internally in terms of improving operations. Historically, you’ve kind of managed expectations as it relates to product margins, maybe a little bit lower than what you put up the last year. Can you maybe help us out a little bit in terms of how to think about sequential margins in the Product segment for 2016 and beyond? And secondarily, as you mentioned your backlog of 260, most of that’s going to go out the door in 2016. It sounds like you have pretty high confidence you’re about to bring in some more material backlog in the fairly near-term? Isaac Angel On the margin sides, we are confident that we will be able to keep somehow the margins on the levels that we are. It might deviate a bit depending on the product mix that in the countries that we are operating in. On the second thing, as I said before, it will be very difficult to maintain the same levels of product going forward when you lose or not lose – losing is not the right word, when you finish successfully a $256 million projects. On the other hand, we are bringing in new products – product constructs. But as I said before, I’m not really worried because our strategy that calls for increasing rapidly the growth in the electricity demand will basically fuel the growth of the Company as a total, and not necessarily we will be able to keep – to maintain the same ratio as we have today, which is pretty high as you have noticed in the last year. So I’m optimistic for the future, but not necessary in the same ratio in numbers. And to conclude I believe that the profitability is sustainable. Dan Mannes Sounds good. Thanks so much for all the color. Isaac Angel Thank you. Operator [Operator Instructions] Our next question comes from Ella Fried of Leumi. Please go ahead. Ella Fried Hey, I also like to congratulate you on the result. I have two questions. First is regarding the Toshiba Corporation, what do you say that it is already reflected in the Product segment or do you see it affecting the product segment beyond Sarulla? Isaac Angel Hi, Ella. Thanks for your congrats. And first of all, it’s not reflected in 2015 numbers, but it is reflected in 2016 and the backlog as it stands now, still not a very substantial number, but we expect that this number will grow looking forward. And to the second part, it’s pretty much the same answer as I gave to Dan and Paul before on the mix of Electricity and the products looking forward. Ella Fried Thank you. And the second question is regarding your hedge for the next year. Could you elaborate basically or maybe give some numbers regarding this hedge? Isaac Angel Basically, what we did – basically in light of the very low oil and natural gas prices and since we have exposure to this commodity and we’ve decided to sell a call option, basically it hedges Ormat on the downside, not 100% on the downside, but it hedges Ormat up to a certain point on the downside and generates additional EBITDA to the company. The main idea of this hedge is to hedge the budget, which is the basis for the guidance. So we can keep it. So it’s a bit of different structure than a simple forward and standard forward has a selling of a call and buying a put, so we actually exercised half of the forward selling at call only. Ella Fried So you had there like most of the cash flow of Puna? Isaac Angel Puna on the oil and on the gas Ormesa and the left part of Heber that is still on – on the gas part. Ella Fried Okay. Well, thank you and again very impressive results. Isaac Angel Thank you very much. Operator Our next question comes from [indiscernible]. Please go ahead. Unidentified Analyst Hi, good morning or good evening. Also congratulations on your great 2015 results. Two questions. First of all with 2015 ahead, are you planning any divestments of power plants like you did or joint ventures like you did with Northleaf. And the second question is what’s going to happen in 2018 when the contract for Ormesa has come to expire? Doron Blachar Okay, Daniel, for us it’s good morning as we are in Reno. And for the first part, we are happy with our partnership with Northleaf and we are pooling in the second part of Don Campbell to the joint venture. We don’t have current partnerships plan in any other power plants and if [indiscernible] obviously we will notify the market on that. And on Ormesa, 2018, I wouldn’t be worried about it. We are working on it since last year and I’m optimistic that we will be able to resign PPA, which will not be linked to the gas prices in Ormesa. Daniel Wasserman And how many CapEx would be necessary in order to keep the reserve or to keep it going? Doron Blachar There is no CapEx required at this stage. We made lots of modifications in Ormesa. Last year, we shutdown a steam turbine part of the older equipment, re-change the structure of the operations. And at the end of the day even though we decreased the output of the power plant, we increased seriously the profitability. And there is – at this stage, there is no serious CapEx – any serious CapEx requirement over there. And Ormesa will serve our growth 2018 and onwards. And again – it will again decrease our exposure to natural gas prices by another one-thirds. Daniel Wasserman Okay, thank you. Doron Blachar Thank you. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. 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. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

How Big Is Managed Futures’ AUM, Exactly?

By The Alts Team We tweeted the other day that Managed Futures mutual funds had seen 20 straight months of inflows, and that got us to thinking it was high time to do our annual look at how many assets there are under management in the managed futures industry. Now, for those who don’t know – we have a bit of a problem with the usual numbers reported as assets under management in the space by BarclayHedge, who include the world’s largest hedge fund Bridgewater in the managed futures asset total. In our opinion, this does a disservice to investors, vendors, and business people in the industry trying to gauge the size of the space and where they fit into it. Add to that the fact that Winton is a $30 Billion+ manager who tends to dominate the asset raising in the space, and it’s not too big of a stretch to say the majority of assets as reported by BarclayHedge are from just two firms (Bridgewater and Winton). That’s led us to pick apart the numbers a bit and report what the “real” assets and asset growth look like without those two stalwarts (one of which is not managed futures based at all). Without further ado, here’s what the rest of the space looks like: What about the Growth in assets: Here’s where things get interesting, because while stripping out Bridgewater and Winton in years past showed a shrinking industry (the “field”) without those two big dogs, 2015 showed quite the opposite. The so-called “field” added around $18 Billion in 2015 (22% growth), although we can see from the graphic that assets are still down from their 2008 levels with the growth just negative since then. Assets of “the field” grew by 22% in 2015. Assets of “the field” is still down $4 Billion since ’08. “The field” raised $22 Billion in the final 3 quarters of ’15. AQR is, for now, a member of our ‘field’, but at $10.9 Billion and $2.6 billion raised in 2015, may need to be split out in the near future. What’s the takeaway? The larger takeaway is that investors who seemingly forgot about the 2008 financial crisis and how well managed futures do in such periods are starting to remember where they put the diversification keys… and are starting to put real money to work with real managers , not just the Wintons and AQRs of the world – who need more assets like a hole in the head. Here’s to more growth ahead, not just from investors allocating funds, but from the managers multiplying those funds via their trading strategies as well.

El Paso Electric Company’s (EE) CEO Mary Kipp on Q4 2015 Results – Earnings Call Transcript

Operator Good day. And welcome to the El Paso Electric Company Fourth Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Lisa Budtke. Please go ahead. Lisa Budtke Thank you, Diana. Good morning, everyone. Thank you for joining the El Paso Electric Company fourth quarter 2015 earnings call. My name is Lisa Budtke, and I’m the Director of Treasurer Services and Investor Relations for El Paso Electric. On the call with us today are CEO, Mary Kipp; CFO, Nathan Hirschi; and other members of the senior management. You should have a copy of our press release and today’s presentation. And if you do not, you can obtain them from the website on our Investor Relations page. We currently anticipate that our 2015 Form 10-K will be filed with the Securities and Exchange Commission on or before Monday, February 29, 2016. A replay of today’s call will be available shortly after our call ends, and will run through March 9. The details as they relates to the replay are disclosed in our press release. On Slide 2 of our presentation you will see our Safe Harbor provisions. In summary, our earnings presentation, comments and answers to your questions may include statements that are not historical and that constitute forward looking statement. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results in future periods to differ materially from the expectations stated here. As the format of this presentation does not permit a full discussion of these risks, please refer to our Form 10-K and other SEC filings for a discussion of risk factors that should be considered. These filings may be obtained upon request from the Company, on our website or from the SEC. The Company cautions that the risk factors discussed in these filings are not exhaustive, and do not undertake to update any forward-looking statement that maybe made from time to time by or on behalf of the Company. At this time, I would like to turn the call over to Mary. Mary Kipp Good morning, everyone. On Slide 3 of the presentation I’ll briefly cover our financial performance in 2015. During the fourth quarter, we were able to record positive earnings of $0.02 per share despite the negative impact resulting from regulatory lag associated with the placement of new assets into service in the first quarter of 2015 without a corresponding increase in revenues. For the year, we reported net income of $81.9 million, or $2.03 per share which was right at the mid point of our guidance range issued during our third quarter earnings call. Also of note on January 28, 2016 the Board of Directors declared a quarterly cash dividend of $0.295 per share payable to shareholders on March 31, 2016. If you now turn to Slide 4 of the presentation, I’d like to point out some of the significant highlights that the company achieved in 2015. As I look back on all of the challenges we faced at 2015, I am extremely proud of the achievements made by the company during a very dynamic year. We began the year by completing construction of the first two generating units at the Montana Power Station. These first two units were completed on schedule and are currently providing enough energy to serve 80,000 homes in our growing service territory. We also completed construction of our new 100,000 square foot Eastside Operation Center in early 2015. The new operation center incorporates green design features which include energy efficiency and water conservation concepts. The operation center will also consolidate many of our El Paso warehousing, fleet, line crew and engineering personnel into one location, allowing us to improve the efficiency of operations, including outage response time. One of the biggest accomplishments in 2015 was the filing of rate cases in both Texas and New Mexico. The cases were necessary to seek recovery of approximately $1.3 billion that has been invested in new electric plant to meet customer growth and grid modernization since June 2009. I am also pleased with the progress of construction on the latest addition to our portfolio of local generation. Construction of Montana units 3 and 4 is on schedule on budget and is progressing well. In 2015, our consistently growing service territory and hotter than normal summer weather combined to create another native peak record of 1,794 megawatts achieved on August 6, 2015. This was the second native peak record achieved by the company during 2015. El Paso Electric has set a new native peak record in 10 out of the last 11 years. I am also pleased that Palo Verde had another stellar year in 2015 increasing its capacity factor to 94%. Palo Verde recorded its highest output ever in 2015 and once again ranks as the nation’s largest power producer for the 24th consecutive year. Also during 2015, the company was able to successfully implement a management transition strategy. Several key management positions were filled from within the company in 2015 which will leave the company well positioned for the future and will enable us to provide the safe and reliable service that our community has grown to know. Also in 2015, our employees’ commitment to excellence and our continued focus on our customers allowed us to maintain favorable customer satisfaction rating. I am also happy to see how the El Paso Electric family came together to benefit the local community last year. Our employees devoted their time and effort by volunteering almost 10,000 hours to our communities. At this time, I’d like to turn to Slide 5 where I will discuss the company’s 2016 objectives. Construction of Montana units 3 and 4 continues as planned. We expect unit 3 to be available for commercial operation in time for our summer peak and we anticipate that unit 4 will be placed into service by the end of this year, which are among our main objectives for 2016. Placing these two generating units into commercial operation by the end of the year is one of the main objectives for the company. Also in 2016, we anticipate further lowering our carbon footprint by becoming a coal free utility. We intend to sell our 7% ownership interest in Four Corners the Units 4 and 5 and associated common facilities to Arizona Public Service Company in July pending regulatory approval. This transaction will not only allow us to become a cleaner utility but it will help limit the company’s financial obligations relating to changing environmental regulations. Our 2016 objectives also include the negotiations of a new collective bargaining agreement with the International Brotherhood of Electrical Workers Local 960, which represent approximately 38% of our local workforce. The current agreement expires in September of this year. We look forward to working with our union to reach a new agreement that allows us to continue to provide our customers with a high level of service. The addition of affordable large scale solar projects to our generation mix has been an objective of the company for several years now. We currently receive over 5% of our total generating capacity from solar resources. As the cost of producing large scale solar continues to decrease, we’ll be exploring the possibilities for expanding this resource. In the near term, our integrated resource plan called for the addition of 8 megawatts of large scale solar to be added to our system by year end. Over the past several years El Paso Electric has consistently ranked near the top for grid reliability as complied by the Public Utility Commission of Texas. And we are confident we will continue on that trend in 2016. In addition, our customer care department has made it a priority to always try to improve upon the good results of recent customer satisfaction surveys. And additional objective that is very important to our company is to continue to improve communication and relationships with all our stakeholders. Last but not least the next round of rate cases will be primarily driven by the need to recover cost for Montana Units 3 and 4. These cases are currently anticipated to be filed in early 2017. If you will now turn to Slide 6, I’ll provide some details on our current rate case filings in Texas. In Texas, we initially filed for an increase in non-fuel base revenues of $71.5 million which was then revised to $63.3 million. The filing also included a requested return on equity of 10.1% and in equity ratio of 49.5%. On January 21, 2016, the company filed a joint motion to abate the procedural schedule for our Texas rate case filings. The joint motion was filed on behalf of the company, the city of El Paso, the Public Utility Commission of Texas Staff, the Office of Public Utility Council and the Texas Industrial Energy Consumers. The motion to abate the procedural schedule was filed in order to facilitate ongoing settlement talks. We continue to work towards a settlement with all parties and we will continue to file weekly updates with the PUCT regarding progress. We anticipate that the company will begin billing customers for the new rates during the second quarter of this year, but pursuant to legislative changes, we have the ability to surcharge customers for new rates relating back to consumption beginning on January 12, 2016. On Slide 7, I’ll provide a brief update of our New Mexico regulatory filing. In New Mexico, our original rate case filing requested a non-fuel base rate increase of $8.6 million, which we subsequently lowered to $6.4 million. Hearings on the merits of the general rate case took place in mid- November. Last week the hearing examiner recommended a $640,000 non-fuel base rate increase. Although we are not in agreement with all the items contained within the hearing examiner’s recommendation, we recognized that this is just another step in the process and look forward to making our case before the full New Mexico Commission. The commission currently is schedule to issue a final order by April 8, 2016 although this deadline maybe extended by the commission up to two months. All parties in the case will be filing exceptions to the hearing examiner’s recommendation in the coming weeks. After which there will be an opportunity for parties to respond to those exceptions. The primary reason for the difference between our request of $6.4 million and the hearing examiner’s recommendation of $640,000 is due to approximately $97.7 million for pension and other post employment benefit liabilities on a total company basis being included as a rate base offset. Another reason for the difference between our ask and the hearing examiner’s recommendation involves return on equity. We’ve requested an ROE of 9.95% and the hearing examiner’s recommended an ROE of 9.6%. These two items comprise a little over 1/2 the difference. Several smaller cost of service items make up the remaining difference. A critical component of the hearing examiner’s recommended decision is that substantially all of our plant in service was deemed reasonable and necessary. The treatment of our pension and other post employment benefit liability as a rate base offset is one of the items to which we will file an exception. Our attorneys and other members of the regulatory team are still evaluating the recommended decision and are identifying all items to which we will accept. We currently anticipate that a final order from the New Mexico Commission could be issued in the second quarter. Also along the regulatory front in New Mexico, we recently participated in hearing regarding the sale and abandonment of our 7% ownership in Units 4 and 5 and related facilities at the Four Corners plant. On February 2, the company filed an opposed joint stipulation reflecting a settlement agreement. We anticipate receiving a final order by the first half of this year. In December 2015, the Federal Energy Regulatory Commission authorized Arizona Public Service Company to purchase our ownership interest in Units 4 and 5 and common facilities of Four Corners. So we anticipate closing this transaction in July of 2016. If you will turn out to Slide 8, our potential timeline for the next round of rate cases has not changed. In New Mexico, the company anticipates filing a rate case in a first quarter of 2017 using an historic test year ended September 30, 2016. Although Montana Power Station unit 4 is not scheduled to be placed into service until December of 2016, precedent in New Mexico allows us to include in rate base plant addition completed within five months of the test year and date. A final order in new rates would then be anticipated to take effect during the first quarter of 2018. Looking at the Texas timeline, we also anticipate filing our rate case in the first quarter of 2017 using an historic test year ended September 30, 2016. Our timeline reflects a potential final order to be issued during the first quarter of 2017. However, due to legislative changes we have the ability to surcharge customers for new rate relating back to consumption beginning on the 155th day after the rate case is filed. This means the effective date for new rates could be applied as early as the third quarter of 2017 even if the schedule for the rate case were to be extended. I’d now like to turn the call over to Nathan who will discuss our financial results. Nathan Hirschi Thank you, Mary. Turning to Slide 9, we list the key earnings drivers for the fourth quarter and the year compared to the prior year. Beginning with the negative drivers for the quarter, earnings were lowered by $0.07 per share due to decreased AFUDC resulting from lower balance of the construction work in process. As we’ve discussed, this was primarily due to the placement of service of Montana Units 1 and 2 and the Eastside Operation Center in the first quarter of 2015. Placing these assets into service also contributed to increase depreciation expense resulting in a $0.03 per share reduction in earnings for the quarter. The impact of regulatory lag associated with placing these assets into service without a corresponding increase in revenue was expected and is the primary reason that we have filed the rating for rate increases in Texas and New Mexico. Increased administration and general expense also decreased earnings per share by $0.04 for the quarter and was primarily due to increased payroll cost and employee incentive compensation as well as increased payroll and benefits cost. Also during the quarter, interest accrued on $150 million senior notes issued in December 2014 negatively impact earnings by $0.02 per share. Earnings also declined during the quarter by $0.02 per share due to decrease deregulated Palo Verde Unit 3 revenues reflecting a decline in the price of natural gas when compared to the same period of last year. On the positive side, net income for the fourth quarter of 2015 compared to the same period last year was positively affected by a decrease in operation and maintenance expense related to our fossil fuel generating units. The decrease in expense was primarily due to decrease maintenance at the Four Corners and Newman plants. The lower level of O&M expense resulted in an increase in earnings of $0.06 per share. However, a planned outage at Four Corners was moved from the fourth quarter of 2015 to the first quarter of 2016. So we will have a corresponding increase in the first quarter. Retail non-fuel base revenues also increased during the fourth quarter primarily driven by an increase in number of customer in a residential customer class and slightly more favorable weather conditions. Non-fuel base revenues increased earnings by $0.02 per share when compared to the same period of 2014. As you can see on the same slide, many of the same drivers then impacted the fourth quarter earnings also serve as drivers for the year-to-date results of $2.03 per share. The earnings drivers that impacted the year-to-date results that were not already mentioned for the fourth quarter were investment and interest income and the Palo Verde performance rewards. Investment and interest income had a positive impact on earnings for the year due to gains resulting from the further diversification and rebalancing of our Palo Verde decommissioning trust portfolio, which increased earnings by $0.07 per share. Palo Verde performance rewards impacted the year negatively by $0.04 per share due to the performance rewards associated with the 2009 to 2012 performance periods being recorded in 2014 with no comparable amount in 2015. As these amounts are normally recorded upon the completion of our Texas fuel reconciliation filings. If you now turn to Slide 10, we have provided a chart to illustrate the weather conditions experienced in our service territory during the past 10 years. The chart includes a comparison of normal weather to the actual weather recorded in our service territory. As you can see heating degree days in 2015 were 10.3% higher than the same period last year but remain 3.6% below the 10 year average. In 2015, cooling degree days were 5.3% higher than the 10 year average and 6.3% higher than 2014, which helped to drive the increase in revenues from our residential customers and primarily impacted our third quarter results. Now turning to Slide 11, we’ve provided a comparative analysis of the changes in retail non-fuel base revenues and megawatt hour sales by customer class for the fourth quarter of 2015 compared to the same period of 2014. During the quarter, total retail non-fuel base revenues increased by $1.4 million pretax, or 1.2% over the same period in 2014. The increase was primarily due to a 2.6% increase in megawatt hour sales to the residential customer class which also recorded a 3% increase in non-fuel base revenues reflecting favorable weather and 1.4% increase in the average number of customer served. As we have provided the same analysis for the year on Slide 12. For the year total retail non-fuel base revenues increased by $14.3 million, pretax were 2.6% over the same period in 2014. Most of this was attributable to increase sales to the residential class, hotter than normal summer weather was largely responsible for the 5.1% increase in residential non-fuel base revenues when compared to the same period in 2014. Now turning to the Slide 13, our cash capital expenditures for 2015 for additions to electric utility plant were $281.5 million. In terms of cash dividends, we paid $47.1 million during the 12 months ended December 31, 2015. On December 31, 2015 we have liquidity of approximately $166 million including a cash balance of $8.1 million and borrowing capacity available to us on our credit facility. As we continue to make progress on our current construction program, we anticipate returning to the debt markets in the first half of 2016 to issue long-term debt. Now turning to Slide 14, I’d like to provide our five years projections of capital expenditures. On this chart you will see that we plan to spend $231 million on construction expenditures in 2016. Over the next five years, we currently anticipate spending approximately $1.1 billion to ensure that we have the generating capacity required to meet our customers’ growing demand for electricity. The projection also includes expanding and updating our transmission and distribution infrastructure. These amounts are subject to revision as we continue to adjust and revise our construction plans. Now turning to Slide 15, I would like to discuss everybody’s rate base projection based on our current construction plan. As Mary mentioned earlier, we anticipate Montana Units 3 and 4 to be placed in commercial operation by the end of 2016. After the completion of these two units, total rate base is expected to grow to approximately $2.1 billion. This amount is an approximation of our rate base at the time of our next rate case filings in 2017. Turning to Slide 16, I would like to wrap up today’s presentation with some comments regarding our 2016 earnings drivers. Once we get further down the road on our rate cases, we will provide specific guidance. For now, we will discuss some key earnings drivers for 2016. As you can see there are several factors that will negatively impact earnings in 2016. Most of the negative drivers are directly related to the regulatory lag which will especially impact the first quarter and in fact could result in negative earnings per share for the first quarter of 2016. The primary components of regulatory lag in 2016 are higher property taxes, lower AFUDC, increased O&M, depreciation expense and interest expense. Other items that are anticipated to negatively impact earnings include a higher effective tax rate, a return to normal weather conditions and a decrease in investment and interest income. The effective tax rate is anticipated to increase to approximately 36% for the next several years due to higher state income taxes and a reduction in the manufacturing credit due to bonus depreciation being extended through 2016. Earnings are anticipated to be positively impacted by rate increases in Texas and New Mexico as well as customer growth. Again just emphasize the point it is possible that we could have negative earnings per share in the first quarter of 2016. At this time, I’d like to turn the call back over to Lisa. Lisa Budtke Thanks, Nathan. Diana, please open the call for questions. Question-and-Answer Session Operator [Operator Instructions] We will go first to Brian Russo of Ladenburg Thalmann. Brian Russo Hi, good morning. Good, thanks. Can you quantify if any the impact to rate case from bonus depreciation? Nathan Hirschi Yes. The bonus depreciation will help us out — will give us about $30 million effect in 2016, and then over the next — until it expires in 2019 it will be about $65 million benefit. So a moderate benefit and it has been factored into that to the rate base charge that we showed on schedule on 15. Brian Russo Okay. So and I apologize but I didn’t — wasn’t — didn’t have time to compare slide 15 with your prior update but there have been some adjustments on that slide. Nathan Hirschi Some adjustments although it’s pretty consistent with what we’ve shown in the past. Brian Russo Okay. So I guess the $65 million is the cash flow benefit. Is there any rate base offset? Nathan Hirschi Yes. That it will both be a cash flow benefit and the rate base offset. But that’s at the end of the four year period. For 2016, it kind of have an offsetting effect, we think we will be in NOL position so it won’t really have that dramatic effect for 2016. It will — we will generate bonus depreciation that we didn’t initially anticipate. Some of that will be offset by some NOLs. So won’t have that dramatic effect. Brian Russo Okay. Understood. And then on the CapEx slide, it looks like there were some upward increases in the annual CapEx. Can you maybe talk about that? Nathan Hirschi Well, yes, it’s very comparable to what we saw last year actually. What we had was we had — what we had last year is relatively high year in 2015, that is $281 million that we expanded this year right. But we added a relatively high year in 2020 when we anticipate building the next two combined cycles. So we ended the year slightly below with the five year projection at $284 million– I am sorry $1.084 billion, which is slightly below what we had in the five year projection last year. But so that stays relatively consistent to what we had last year on a five year basis. Brian Russo Okay. And can you talk about whether normalized load growth in 2015 and kind of what your outlook is? Nathan Hirschi Yes. Well, obviously we had a very good year last year from a revenue perspective and from NOL that was obviously attributable to the very hot summer. If you remember we had — we had 106 days in a row what was over 90 degree. So we had a very nice summer and of the revenue growth we think about half of it was attributable to above average weather. So we think of course we saw solid customer growth which we continue to see at the 1.4% and that’s real positive. And so some of the growth was clearly related to customer growth and they are expanding service territory. And perhaps about $5 million about half of the — $5 million to $6 million about half the growth was revenue — was weather related. Brian Russo All right. And then just with the new legislation and taxes and your ability to capture the rate increase 155 days prior to when rates are effective. How does it kind of like flow through the income statement and it’s kind of like conceptually the margin impact from that. Nathan Hirschi Yes. That’s why the first quarter looks kind of challenging. Although at the day — when we ultimately when we settled the Texas rate case, we will be able to relate back to revenues to usage to January 12. But we won’t record that in the first quarter. We won’t — we don’t have the certainty of the amount of the rate increase or that until we have a final order. So when we have the final order which we anticipate would be likely in the — during the second quarter, that’s when we would pick up the revenue that would relate back and then would be built as a surcharge over perhaps an 18 months period to recover that. So that’s one of the reasons why we have a kind of challenging first quarter that revenue would not — we don’t feel comfortable recording that revenue until the second quarter assuming all the regulatory works out as we had hoped. Brian Russo Okay. So when new rates go into effect you will collect over an 18 months period conceptually rate effective starting in January of 2016. Nathan Hirschi Yes. That’s how we envision it working, yes. Operator Thank you. [Operator Instructions] We will go next to Ben Budish of Jefferies. Ben Budish Hey, good morning, guys. How are you doing? I have a quick question on the Mexico. It looks like with Texas it should be fairly easy to push those rates back to January, is there any kind of sensitivity to like the delay in implementation of rates if –get pushed back into June. Or any guidance on that? Nathan Hirschi Yes. I mean that is one of the issues. We had originally anticipated putting in new rates perhaps April 1 in New Mexico. And as the case continues it will be pushed back a little bit later in the year. We are not sure exactly how quickly it could move pretty — it could move relatively fast from here but it could delay further in the year. We think probably June 30 — June 1 is probably a reasonable day assumption. Mary Kipp And yes because so much of our revenue is dependent on second and third quarters. We are hopeful that we’ll have the new rate in time to take advantage of them during this quarter. Ben Budish Okay, great. And then I saw one of the — obviously the year-over-year drivers below AFUDC. In the release you had mentioned that it was due both to Montana 1 and 2 being put into service and reduction in the rate base, sorry AFUDC rate, is that reduction significant or is that only you are probably looking forward like when 3 and 4 going, I am thinking about the timing and comparing that to one to one end? Nathan Hirschi I am sorry the rate — Ben Budish AFUDC rate, yes. Nathan Hirschi Yes. Now the rate should be relatively constant from what we have now. We just have a more outstanding balance on our short — on our revolving credit facility which kind of drop cause the rate to go down a bit. So you’ll see the rate that we disclose in the 10-K coming up when we file that, that should be pretty close to the rate that we have going forward. Operator [Operator Instructions] And it appears we have no further questions. I’d like to turn the conference back over for additional or closing remarks. Lisa Budtke Thank you, Diana. I just want to thank everyone for joining us on today’s call. And please be safe. Operator Thank you for your participation. That does conclude today’s conference. You may now disconnect. 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. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!