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Alliant Energy’s (LNT) CEO Pat Kampling on Q4 2015 Results – Earnings Call Transcript

Operator Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy’s Yearend and Fourth Quarter 2015 Earnings Conference Call. AT this time, all lines are in a listen-only mode and today’s conference is being recorded. I would now like to turn the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy. Susan Gille Good morning. I would like to thank all of you on the call and on the webcast for joining us today. We appreciate your participation. With me here today are Pat Kampling, Chairman, President and Chief Executive Officer; Tom Hanson, Senior Vice President and CFO; and Robert Durian, Vice President, Chief Accounting Officer and Controller; as well as other members of the Senior Management Team. Following prepared remarks by Pat and Tom, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy’s yearend and fourth quarter 2015 earnings, affirmed 2015 earnings guidance and provided updated 2016 through 2019 capital expenditure guidance. This release, as well as supplemental slides that will be referenced during today’s call, are available on the investor page of our website at alliantenergy.com. Before we begin, I need to remind you the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy’s press release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. In addition, this presentation contains non-GAAP financial measures. The reconciliation between non-GAAP and GAAP measures are provided in the earnings release, which are available on our website at alliantenergy.com. At this point I’ll turn the call over to Pat. Pat Kampling Thank you, Sue. Good morning and thank you for joining us for our yearend earnings call. I’ll begin with an overview of 2015 performance and then provide an update on our forecasted capital expenditures and rate base. I’ll also share the progress made in transforming our generation fleet, modernizing our electric system and expanding our natural gas system. I’ll then turn the call over to Tom to provide details on our 2015 results and 2016 guidance as well as review our regulatory calendar. I am pleased to report we’ve had another solid year achieving a $3.57 midpoint of our November 2015 guidance range when adding back to negative temperature impact of $0.08 per share to the non-GAAP earnings of $3.49 per share. Our 2015 non-GAAP temperature normalized earnings reflect an increase of over 5% from comparable 2014 earnings as shown on Slide 2. The temperatures of late 2015 did impact our actual yearend results. For the first 10 months of 2015, our financial results were basically temperature neutral, but the one winter we experienced, especially in December resulted in a negative $0.08 per share variance in 2015 earnings. This was quite the opposite for 2014 where we experienced a $0.09 per share positive variance to earnings. Therefore, temperature swings did lead to a significant year-over-year variance of $0.17 per share. We also issued an updated capital expenditure plan for 2016 through 2019, totaling $5 billion as shown on Slide 3. In addition, we have provided a walk from the previous 2016 to 2019 capital expenditure plan to our current plan on Slide 4. As you can see, the $260 million increase in our forecasted 2016 through 2019 capital expenditure plan is driven primarily from accelerated investments from our electric and gas distribution systems. The December 2015 extension of bonus depreciation for certain investments through 2019 has given us the opportunity to bring forward some infrastructure projects that will benefit our customers for years to come. I do want to point out that with this revised capital plan, we expect no material change to the rate base forecast that we provided last November for IPL and WPL through 2018. We anticipate the increase in forecasted capital expenditures will offset the impact resulting from the extension of bonus depreciation. During the past few years, we’ve been executing on a plan for the orderly transition of our generation fleet in an economical manner to serve our customers. We made significant progress in building a generation portfolio that have lower emissions, greater fuel diversity and is more cost efficient. The transition included installing emission controls and performance upgrades at our largest coal-fired facilities retiring all the less efficient coal units and increasing levels of natural gas fired and renewable energy generation. Since 2010, Alliant Energy has retired or repowered over 1,150 megawatts of coal-fired generation for about one third of our 2009 coal linked plate capacity. These retirements have been replaced with highly efficient gas-fired generation, which produces approximately half of the carbon emissions when compared to coal-fired generation. Though natural gas prices in 2015 resulted in significant changes to the capacity factors of our gas units. Riverside had an approximately 50% capacity factor last year, more than doubled its prior five-year average. Our Emery combined cycle facility also experienced significant increase in operating hours during 2015. With lower gas prices, the additional gas generation in our portfolio resulted in savings for our customers in 2015. Now let me brief you on our construction activities. 2015 was again a very active construction year with over $1 billion deployed. Our investments included approximately $360 million for electric and gas distribution systems. This was one of the largest annual investments in those systems and will be an area of growing investment. These projects are driven by customer expectations to make our electric system more reliable and resilient and to expand natural gas services, especially to communities that did not have access before. In Iowa, the Marshalltown natural gas-fired generating facility is progressing well and is now approximately 75% complete. Forecasted capital expenditure for this project is approximately $700 million excluding AFUDC and transmission. Marshalltown is on time and on budget and is expected to go in service in the spring of 2017. In Wisconsin, progress continues on the installation of a scrubber and baghouse at Edgewater Unified. This project is approximately 90% complete and is on time and below budget. Capital expenditure forecast for this project are approximately $270 million and it is expected to be in service later this year. Driven upgrades and pulverizing replacement work continues at Columbia and these performance improvements projects are expected to be complete next year. This spring construction of a Columbia unit to SCR will begin. WPLs capital expenditure for this project is approximately $50 million and it is expected to go in service in 2018. In 2013, WPL announced that it will retire several older coal facilities and natural gas peaking units and therefore more than 50 years of dependable operation Nelson Dewey and Edgewater Unit 3 were retied in December. The retirement of these units puts several other retirements through 2019 but will result in a reduction of WPL capacities for approximately 700 megawatts. As a result, WPL proposed to construct the 700 megawatt highly efficient natural gas generating facility referred to as a Riverside Energy Center expansion. We anticipate the Public Service Commission will issue its decision on the Riverside expansion in the second quarter. Earlier this month, we announced that we have negotiated options with neighboring utilities and electric cooperatives for partial Riverside ownership of up to 55 megawatts during the construction facility and up to an additional 250 megawatts during the first five years of the facility is operating. With this agreement, the cooperatives have extended their wholesale electric contracts at WP&L by four years through 2026. We’re pleased that our neighbor utilities realize the benefits of our proposed facility and want to be involved in this exciting and innovative project. While we now expect the other from the Riverside units to be close to 700 megawatts, the capital expenditure for Riverside remains at approximately $700 million excluding AFUDC and transmission. The targeted and service days has changed from early 2019 to early 2020. Therefore the timing of the capital expenditure have been updated and are reflected on Slide 3 based on input from the EPC bidders. The expenditures presented for Riverside do not reflect the possible capital reduction if the cooperatives exercise their 55 megawatt purchase option during construction. In addition to the Riverside joint ownership option, hub service and MG&E will have the option to limit their capital expenditures at Columbia to paying for only the SCR during the time that Riverside is being constructed. Our capital expenditure plan does not reflect this option being executed. However, we expect that any increase in our capital expenditures at Columbia would be largely offset if the electric co-ops exercise their purchase option 55 megawatts of Riverside. Earlier this month the United States Supreme Court effectively delayed implementation of the clean power plant until legal challenges to the EPAs rules are resolved. This stay will not change our current resource or capital expenditure plan as they were not based on compliance with the clean power plant. As we planned for our future generation needs, we aim to minimize emissions while providing safe, reliable and affordable energy to our customers. We believe that with the transition of our generation fleet and the availability of lower natural gas prices, our carbon emissions will continue to decrease. We’re very fortunate to operating states that have a long history of support for renewable energy and a strong commitment to environmental storage ship. We have and will continue to invest in purchase renewable energy. The currently owned 568 megawatts of wind generation and our 10-year capital plan includes additional wind investments to the customer energy needs. In addition, we currently purchase approximately 470 megawatts of energy from renewable sources. Wind energy provided approximately 8% of our customer’s energy needs in 2015. Also your several solar projects under development from which we anticipate gathering valuable experience on how best to integrate solar in a cost effective manner into our electric system. At our Madison headquarters with 1300 solar panels have been installed and they’re now generating power for the building. Construction has also started on Wisconsin’s largest solar farm on our Rock River landfill, which is adjacent to Riverside. In an Iowa we’ll be owning and operating the solar panels at the Indian Creek Nature Center in Cedar Rapids and are reviewing responses to the RFP we issued for additional solar in our portfolio. There is a sense of excitement as you work to transform the company to meet our customer’s evolving expectations. A major improvement to our customer experience just happened as we went live with our new customer care and billing system. The $110 million investment we placed the interim systems from the 1980s. Our new billing system will make communication with our customers more convenient and timely and will allow for us provide innovative service options. This project was another well executed major initiative. I do want to thank everyone that worked so hard for years to transform our customer experience. At Alliant Energy we’ve already made great progress transitioning our utilities to a cleaner more modern energy system. This would not have been possible without the hard work and commitment of our employees who keep the customer at the center of everything we do. Let me summarize the key messages for today. We had a solid 2015 and we work hard to also deliver 2016’s financial and operating objectives. We anticipate no material change for the rate base growth through 2018 as the updated capital expenditure plan while offset any impact from the extension of bonus depreciation. Our plan continues to provide for 5% to 7% earnings growth and a 60% to 70% common dividend payout target. Our targeted 2016 dividend increased by 7% over the 2015 dividend target. The central execution on our major construction projects include completing projects on time and at or below budget in a very safe manner. Working with our regulators, consumer advocates; environmental groups, neighboring utilities and customers in a collaborative manner. Reshaping our organization to be leaner and faster while keeping the focus on serving our customers and being good partners in our communities and we will continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost effective customers. Thank you for your interest in Alliant Energy and I will now turn the call over to Tom. Tom Hanson Good morning, everyone. We released 2015 earnings last evening with our non-GAAP earnings from continuing operations of $3.49 per share and our GAAP earnings from continuing operations of $3.38 per share. The non-GAAP to GAAP differences are due to a $0.07 per share charge resulting from the sale of IPOs Minnesota electric and gas distribution assets and a $0.04 per share charge resulting from the approximately 2% of employees accepting voluntary separation packages as we continue focusing on managing cost for our customers. Comparisons between 2015 and 2014 earnings per share are detailed on Slide 5, 6 and 7. Retail, electric, temperature normalized sales increased approximately 1% or $0.04 per share at IPO and WP&L between 2015 and 2014. This excludes the impacts of the Minnesota sale. The industrial segment continues to be the largest sales growth driver year-over-year. The 2015 results include an adjustment to our ATC earnings to reflect an anticipated decision from FERC expected to lower ATCs current authorized ROE of 12.2%. We reserve $0.06 per share for 2015 reflecting an anticipated all in ROE of 10.82%. This is a result of the FERC Administrative Law Judge’s initial decision issued in December 2015. Now let’s review our 2016 guidance. In November, we issued our consolidated 2016 earnings guidance range of $3.60 to $3.90. The key drivers for the 5% growth in earnings relate to infrastructure investment such as the Edgewater 5 and Lansing emission control equipment and higher AFUDC related to the construction of the Marshalltown generating station. The 2016 guidance range assumes normal weather and modest retail electric sales increases of approximately 1% for IPO and WP&L excluding the impacts of the Minnesota sale. Also the earnings guidance is based upon the impacts of IPOs and WP&Ls previously announced retail electric base rate settlements. The IPO settlement reflected rate-based growth primarily from placing the Lansing scrubber in service in 2015. In 2016, IPO expects to credit customer builds by approximately $10 million. By comparison the billing credits in 2015 were $24 million. During 2016 IPO also expects to provide tax benefit rider billing credits to electric and gas customers of approximately $62 million compared to $72 million in 2015. As in prior years the tax benefit riders may have a quarterly timing impact but are not anticipated to impact full year results. The WPL settlement reflected electric rate base growth for the Edgewater 5 scrubber in baghouse projected to be placed in service in 2016. The increase in revenue requirements in 2016 for this and other rate base additions was completely offset by lower energy efficiency, cost recovery amortizations. Also included in WP&Ls rate settlement was an increase in transmission cost, primarily related to the anticipated allocation of SSR cost. As a result of a third quarter issued after the settlement, the amount of the transmission cost build to WP&L in 2016 will be lower than what was reflected in the settlement. Since the PSCW approved escrow accounting treatment for transmission costs, the difference between the actual transmission costs billed to WP&L and those reflected in the settlement has been accumulated in a regulatory liability. We estimate that this regulatory liability will have a balance of approximately $35 million by the end of 2016. This regulatory liability is another mechanism we can use to minimize future rate increases for our Wisconsin retail electric customers. Slide 8 has been provided to assist you in modeling the effective tax rates for IPO, WP&L and AEC for 2016 and provides you the actual effective tax rates for 2015. Turning to our financing plans, our current financing forecast incorporates the extension bonus depreciation deductions for certain capital expenditures for property through 2019. As a result of the five year extension to bonus depreciation, Alliant Energy currently does not expect to make any significant federal income tax payments through 2021. This forecast is based upon the current federal net operating losses and the credit carry-forward positions as well as future amounts of bonus depreciation expected to be taken under federal income tax returns over the next five years. Cash flows from operations are expected to be strong given the earnings generated by the business. We believe that with our strong cash flows and financing plan, we will maintain our targeted liquidity and capitalization ratios as well as high quality credit ratings. Our 2016 financing plan assumes we’ll be issuing approximately $25 million of new common equity through our share owner direct plan. The 2016 financing plan also anticipates issuing long-term debt up to $300 million at IPO and approximately $400 million at the parent and Alliant Energy resources. $310 million of the proceeds at apparent and Alliant Energy resources are expected to be used to refinance maturity of term loans. We may adjust our financing plans as deemed prudent if market conditions warrant and as our debt and equity needs continue to reassessed. As we look beyond 2016, our equity needs will be driven by the proposed riverside expansion project. Our forecast assumes that capital expenditures for 2017 and 2018 would be financed primarily by a combination of debt and new common equity. Before the five-year extension bonus depreciation, we were not expected to make any material federal income tax payments through 2017. Thus, the extension of bonus depreciation is not expected to change our financing needs for the next two years. We have several current and planned regulatory dockets of note for 2016 and 2017, which we have summarized on Slide 9 during the second quarter of 2016 we anticipate a decision from the PSCW on the riverside expansion proposal and we anticipate filing a WP&L retail electric and gas rate case for 2017 and 2018 rates. For IPL, we’ll be filing our five-year emission plan and budget in the first quarter and expect a decision regarding the permanent application for the approximately $60 million Clinton Natural Gas pipeline in the second quarter. The next Iowa retail electric and gas based rate cases are expected to be filed in the first quarter of 2017. We very much appreciate your continued support of our company and look forward to meeting with you throughout the coming year. At this time I’ll turn the call back over the operator to facilitate the question-and-answer session. Question-and-Answer Session Operator Thank you, sir. [Operator Instructions] Alliant Energy’s Management will take as many questions as they can within the one hour timeframe for this morning’s call. [Operator Instructions] We will take our first question from Brian Russo with Ladenburg Thalmann. Brian Russo Hi. Good morning. Pat Kampling Good morning, Brian. Brian Russo Would you be able to possibly quantify the amount of equity you might need to help finance the riverside expansion? Tom Hanson Brian, as we said, our objective is to continue to maintain the targeted equity levels at both IPL and WP&L. So you can assume that with largest project here at WP&L that we will have incremental equity needs. We’ll be sharing specifics as we issue guidance in later years, but what’s important are targeted incremental equity is included in our forward-looking guidance. So the delusion is reflected in our 5% to7% targeted growth rate. Brian Russo Okay. Great and it looks like ’15 over ’14 and ’16 over ’15 you got to kind of gravitating towards the lower end of the 5% to 7% EPS CAGR. Is there something structural there that as rate base grows its harder to get in the middle or the higher end or is it just a function of lumpiness of the CapEx? Pat Kampling Yes, what really is Brian is that our sales forecast has come down a little bit. Originally we were about 2% at Wisconsin 1% in Iowa. Now we see it as overall 1% and that’s what’s really brought us down to more to the midpoint of the range, not to the higher end of the range. Brian Russo Okay. And just to clarify, fourth quarter weather versus normal is negative $0.08? Pat Kampling That’s correct. Brian Russo Okay. And what quarters did those two charges occur? Were they in the fourth quarter or earlier? Tom Hanson The third quarter we recorded the Minnesota charge and I believe second quarter was Minnesota’s charge and then the third quarter was the charge associated with voluntary separation package. So second third quarter. Sorry Brian. Brian Russo Okay. Great. Thank you. Operator We’ll take our next question from Andrew Weisel with Macquarie Capital. Andrew Weisel Thanks. Good morning, everyone. Pat Kampling Good morning, Andrew. Andrew Weisel First question on the CapEx update. Help me understand is the $260 million net increase over the years, is that pulling forward from the existing 10-year CapEx plan or would that be incremental to the $10.6 billion that you’ve forecast through 2020 for? Pat Kampling Yes so this is — it’s incremental to what we had shown you in the 10-year plan. Andrew Weisel Okay great. Next question I have is on a lot of the announcements you made on Riverside, I believe if I heard you correct, you said that the cash associated with incremental Columbia CapEx would be roughly offset by Muniz exercising the option for 55 megawatts, is that right and is there a scenario where you have one but not the other? Pat Kampling Andrew that is correct that they should offset each other as they both have been. We’re not revising the CapEx until we know exactly what’s going to happen with the gracious options at this point, but the additional capital for Columbia would be offset by the co-ops purchasing Riverside. But it is possible that one of the options could occur without the other. They’re very independent of each other. Andrew Weisel Okay. Could that be big enough to move the needle on equity needs? Pat Kampling I don’t think so. We’re talking capital of under $100 million here. Andrew Weisel Okay. Great. Then lastly I might be reading the subtleties of the wording a little too closely, but in the press release, you added — you have the expression striving to achieve the projected earnings growth rate. And the last question you just talked about the lower sales growth. Any reason to think that the next years might be toward the low end of that range or do you still feel comfortable with the midpoint through the construction and maybe just commentary on how that — how the outlook looks over the next several years. Pat Kampling Yeah, no, we’re very confident and in keep in mind the reason we’re gravitating towards the lower end right now is that when rate freezes and the sales forecast change from the timing you agree to rate freezes, but we’re still very confident with our plan going forward especially as we enter rate cases about jurisdictions. Andrew Weisel Great, thank you very much. I appreciate the detail. Pat Kampling Sure. Operator We’ll take our next question from Steve Fleishman with Wolfe Research. Steve Fleishman Hi, good morning. Pat Kampling Good morning. Steve Fleishman Couple questions just to follow up on the one with you mentioned on Riverside and Columbia and the co-ops how about also with Wisconsin energy and MGE just how do we think about both the impact of what they decide and when they likely decide on whether they’re going to take more Riverside and share some of Colombia. Pat Kampling Yeah. So the Colombia is — that change is happening during the Riverside construction that’s between now and 2019. The purchase option is 2020 and beyond and that’s really not in our CapEx plans. That’s something we’re going to need to monitor. We’ll be working with the other utilities as they develop their resource plans as well. But that’s not something that we can actually estimate the probability of right now. Steve Fleishman So that would be after the plant fully done and operating basically. Pat Kampling Except for the 55 megawatts for co-ops, that’s during construction. Steve Fleishman Okay. And just the growth rate the 5 to 7 is that through 2018 or 2019 to follow the CapEx period? Pat Kampling Yes, it does. Yes, the CapEx period Steve, that’s right. Steve Fleishman So it’s 2019? Pat Kampling Yes. Steve Fleishman Okay. And then a question on the — as I’m sure you’re aware, we had a recent acquisition announcement of ITC and you have the transmission involvement there I’m just curious if you’re likely to get involved and have any issues with that transaction or any intervention? Pat Kampling Steve, we wish we’re analyzing the transaction as you can imagine. We’re very large customer of ITC. So this is of quite interest to us as you can imagine. So we’ve had open dialogue with the folks at ITC and we just plan on having the open dialogue and we’ll figure out exactly what our position is in their dockets, they have several dockets over the next several months. Steve Fleishman Is you intention just to file at FERC or do you think Iowa has a role at all? Pat Kampling We’re still looking at what the different options are at this point Steve. Steve Fleishman Okay. Thank you. Operator Our next question comes from [Raza with L&T Capital]. Unidentified Analyst Thank you. Just a quick question, on the rate base that you commented on earlier, is the deferred tax portion of rate base going up while the entire rate base total phase constant versus your prior guidance. Is that the best way to think about it? Tom Hanson I would characterize it that the NOLs along with the additional CapEx are offsetting the effect of the bonus depreciation. Unidentified Analyst The earnings base stays constant? Tom Hanson Yes. Pat Kampling Yeah, I would say the net rate base remains constant. Unidentified Analyst Net rate base, okay and then I think you commented on it a little bit earlier, but this incremental CapEx that you added, how does that affect financing plans over this period? Does it potentially lead to little more equity or not or how should we think about that? Tom Hanson The modest amounts that we’re adding will not significantly change our equity needs. As Pat made reference, some of this is due to the timing of Riverside. Some of that cost is being pushed out and then we do have the opportunity to backfill as Pat mentioned with some of the electric gas distribution. So it’s not going to be materially changing any of our financing needs. Unidentified Analyst And then the load growth you talked about, I’m sorry if I missed this earlier, but what is the forecasted load growth for your planning period? Pat Kampling Sure. We’re using 1% now to book utilities. But I would say the growth is out of the 1%. It’s higher in the industrial sector and lower in the residential sector. Unidentified Analyst Okay. Thank you very much. Pat Kampling Sure. You’re welcome. Operator We’ll take our next question from Jay Dobson with Wunderlich Jay Dobson Hey good morning, Pat and good morning, Tom. Question just to follow-up on Raza’s question. So the rate base with the change in bonus depreciation and CapEx is the expectation are flat. So the earnings growth will be flat. But it doesn’t really change your tax position. So cash flow we would anticipate would in fact be negatively impacted by the rise in CapEx, which facilitates the increase modest as you just said Tom, increase in financing needs. Do I have it right? Tom Hanson In the near term, yeah because when we had our previous forecast assuming no depreciation or potential bonus depreciation we were looking at making modest tax payments beginning in ’17 and ’18 and now with the extension, we won’t have that, but that delta in terms of cash is not that significant certainly in the ’17 and ’18 timeframe. Jay Dobson Right. Okay, great. And then earned ROEs at the utilities subs what were those in ’15 on sort of a non-weather adjusted basis understanding that weather is going to. Pat Kampling Yes we definitely earned our authorized return with [them] which was about 10.4 and then in Iowa is around the around 10% again excluding the Minnesota sale though. Jay Dobson Got it. And those are weather adjusted or — so that would reflect that $0.08 adjustment or maybe more like a $3.57 number. I know it’s not fair to say that on a jurisdictional basis but… Pat Kampling Right I would say it’s all in including the weather. Jay Dobson Got you. Okay fine. And then last one on trended, the transportation segment just what you see going forward there obviously a tough year in 2015 for that segment though it developed throughout the year. So not a great surprise but you look forward through ’16 and beyond just volume trends you’re seeing. Pat Kampling Trend it’s actually going through our strategic planning process. Right now looking at other opportunities and where they can expand their current footprint. So I’m very optimistic about some possibilities that they’re looking at right now, but they’ve been very proactive knowing the reduction in their business these are really basically cold transportation. They’re looking forward at some other opportunities for them right now, some more to come on that. Jay Dobson Got it. But if we’re thinking about ’16 and it’s probably within a broad range of guidance would you — we certainly couldn’t get back to the 2014 level of earnings from [Krandex but] probably do see some improvement with some of the strategic initiatives there we’re reviewing currently, is that fair. Pat Kampling I would say it might be beyond ’16. It would be hard to execute on projects for ’16, but definitely going into ’17. Jay Dobson Got it, no that’s fair. Thanks so much Tom thank you. Pat Kampling Sure. Operator We’ll take our next question from Paul Patterson with Glenrock Associates. Paul Patterson Good morning, guys. Pat Kampling Good morning, Paul. Paul Patterson Just what was the 2015 weather adjusted sales year-over-year? What was the growth rate? Tom Hanson It was 1% in both of our two utilities. Again that’s adjusting for the Minnesota sale. Paul Patterson Okay. And then the sales forecast is now 1% what was it previously I apologize. Pat Kampling Sure previously and this goes back to year ago, it was 2% Wisconsin and 1% in Iowa and now it’s 1% in both jurisdictions. Paul Patterson Okay. And then the incremental CapEx, I’m not exactly — this is incremental above, this isn’t bringing it forward from what I understand. This is new stuff. What is that and what’s driving that? Tom Hanson We have provided a slide in our supplemental slides that kind of highlight that but I would put it basically in two big buckets. The first is dealing with our electric area in terms of certainly continuing to replace existing distribution lines. So it’s really trying to upgrade the distribution system and we also have then some modest gas expansion as well. Paul Patterson Okay. And I guess so I’m wondering though is that if this is incremental over a 10-year forecast that would indicate that something is driving those. I saw the slide, I guess what I’m wondering is what’s kind of driving this. Is it something forward that would indicate that you guys see some new need and I am just wondering what that is or if there is one, what I am missing? Pat Kampling Yeah, I would just say that we’re actually just taking the opportunity to expand some of these projects. We’ve had a replacement program for our overhead and underground system for years and we’re just really increasing that taking the opportunity now to increase that and where we evaluate after this five-year program because actually for the next five years and if we want to accelerate even more in the second five-year time frame and again our customer’s expectations are in liability and resilience you just keep increasing. Paul Patterson Okay. Pat Kampling This is our first stage of looking at that and putting good dollars to work for our customers. Paul Patterson And then just the Kewaunee power plant, I believe that the Wisconsin has halted implementation of that. Is there any impact that you guys see of that or how are you guys dealing with that served just on a high level. Any thoughts we should have on that? Pat Kampling Yes, at a high level, yes the safest [comment] is that they’re not going to put any resources to work on any clean power plant implementation. However, the utilities are still working together to try to understand their own circumstances into the plan. So we’re working very proactively with the other utilities and we’ll just have to see how this plays out in the State. Paul Patterson Okay. My other questions have been answered. Thanks so much. Pat Kampling Sure. You’re welcome. Operator And there are no further questions. I would like to turn the call — we actually have a follow-up question from Brian Russo with Ladenburg Thalmann. Brian Russo Yes, hi. Thanks for the follow-up. Just can you remind us what the base year and adjusted EPS is to formulate the 5% to 7% CAGR? Tom Hanson Brian, we update that every single year. You would want it, our non-GAAP temperature adjusted so similar to what we did in ’14. So you would want to rebase that now that we reported our actuals for 2015. So the base for purposes that calculation would be $3.57. Brian Russo Okay. Thanks a lot. Operator And there are no further questions at this time. I would like to turn the conference back over presenters for any additional or closing remarks. Susan Gille With no more questions, this concludes our call. A replay will be available through March 01, 2016, at 888-203-1112 for U.S. and Canada, or 719-457-0820 for international. Callers should reference conference ID 8244179. In addition, an archive of the conference call and a script of the prepared remarks we made on the call will be available on the Investor section of the company’s website later today. We thank you for your continued support of Alliant Energy and feel free to contact me with any follow up questions. Operator And that concludes today’s presentation. 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Add Diversified Yield To Your Dividend Growth Portfolio With 7 Equity ETFs

Summary ETFs can fill critical gaps in a dividend investor’s portfolio, especially for smaller caps and international exposure. Most so-called dividend growth ETFs have average yields in the low 2% range (scarcely above the 2% yield for the S&P 500/SPY). Screening the universe of ETFs by my DGI and qualitative metrics resulted in 7 ETFs with yields from 3% to 7.5% (DIV, EWA, DBEF, FGD, FUTY, VOE, SCHD). These recommended ETFs represent a diversity of strategies and are sorted by yield with commentary as to the pros and cons of each. (click to enlarge) With so much uncertainty in the markets (valuations, Fed, ISIS, Europe, etc), a well-diversified base of investments (especially those that pay a dividend in good times and bad) is critical. However, many people don’t have the time or expertise to assemble their own diversified holdings (this is especially true for smaller cap or international exposure). While Seeking Alpha readers generally like to be stock pickers, ETFs can provide a critical tool to filling the gaps to gaining the exposure that an investor needs but in a package that is much more practical for many. For the dividend growth investor, ETFs are not without their dangers, especially when it comes to chasing yield. A few broad tips: Understand the fund’s holdings – regardless of the marketing materials, it’s the underlying holdings that drive performance. Keep fees low – fund fees subtract directly from any yield. Avoid closed end funds (CEFs) unless you are very confident in the manager and strategy. Understand fund distribution policies to know when and how the yield will be paid. Unfortunately, most of the current offerings for ‘dividend growth funds’ are hardly better than the S&P 500’s 2% yield (as measured by SPY). For example: Vanguard Dividend Appreciation Index Fund ETF (NYSEARCA: VIG ): 2.29% yield WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ: DGRW ): 2.02% yield iShares Core Dividend Growth ETF (NYSEARCA: DGRO ): 2.25% yield As a dividend growth investor that expects yields in the 3%+ range, I have attempted to locate the ETFs that I feel are most appropriate for the DGI investor looking for a meatier yield. To identify the best ETFs out there, I have developed and applied a screening methodology which yielded 7 attractive tickers that I believe investors should consider for their portfolio. Background Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires. GOAL: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns. STRATEGY: ‘Enhanced’ dividend growth ((NYSE: DGI )) and growth at a reasonable price (GARP) hybrid strategy that focuses on a core of diversified holdings (ETFs and individual companies — my screening criteria are generally: P/E

NRG Yield’s (NYLD) CEO David Crane on Q3 2015 Results – Earnings Call Transcript

NRG Yield, Inc. (NYSE: NYLD ) Q3 2015 Earnings Conference Call November 04, 2015 10:30 AM ET Executives Chad Plotkin – VP of IR David Crane – Chairman and CEO Kirk Andrews – CFO Mauricio Gutierrez – COO Analysts Matt Tucker – KeyBanc Capital Markets Julien Dumoulin-Smith – UBS Daniel Eggers – Credit Suisse Steve Fleishman – Wolfe Research Ava Zar – Deutsche Bank Andrew Hughes – Bank of America Merrill Lynch Michael Lapides – Goldman Sachs Operator Good day, ladies and gentlemen, and welcome to the NRG Yield Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer, and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Chad Plotkin, Vice President of Investor Relations. You may begin. Chad Plotkin Thank you, Nicole. Good morning, and welcome to NRG Yield’s third quarter 2015 earnings call. This morning’s call is being broadcast live over the phone and via webcast, which can be located on our website at www.nrgyield.com under Presentations and Webcasts. Because this call will be limited to 30 minutes, we please ask that you limit yourself to only one question. As this is the earnings call for NRG Yield, any statements made on this call that may pertain to NRG Energy will be provided from NRG Yield’s perspective. Please note that today’s discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Such statements are subject to risks and uncertainties that could cause actual results to differ materially. We urge everyone to review the Safe Harbor statement provided in today’s presentation, as well as the risk factors contained in our SEC filings. We undertake no obligation to update these statements as a result of future events except as required by law. During this morning’s call, we will refer to both GAAP and non-GAAP financial measures of the company’s operating and financial results. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today’s press release and this presentation. And with that, I will now turn the call over to David Crane, NRG Yield’s Chairman and Chief Executive Officer. David Crane Thank you, Chad. Good morning, everyone and thank you for joining us on this, the third quarter 2015 NRG Yield earnings call. Today I am by joined Kirk Andrews, Yield’s Chief Financial Officer who will be delivering a portion of the presentation and also available for Q&A is Mauricio Gutierrez, who is the Chief Operating Officer of NRG Yield. We appreciate everyone joining us today and I am sure maybe you just participated in the NRG Energy earnings call, so in the spirit of keeping this call brief let’s get through it by turning to slide three and the business overview. First let me begin with a quick summary of our financial performance all of which delivered on to our expectations both in terms of being predictable and on target. In the third quarter, we delivered $198 million in adjusted EBITDA and $132 million in cash available for distribution. With the closing of the most recent NRG dropdown, we are now also updating our 2015 guidance to $705 million in adjusted EBITDA and $165 million in cash available for distribution. As we move into 2016, the full-year impact of our acquisitions and the commencement of the Alta X and XI PPAs underpins our guidance of $805 million and $265 million in adjusted EBITDA and cash available for distribution respectively. Looking at the bigger picture, when we first took NRG Yield public in 2013, our goal for NRG Yield was to establish a leader in a new investment class by highlighting the value of key long-term contracted assets within the NRG portfolio that were not from our perspective being appropriately priced within NRG Energy stock price and also by highlighting the growth opportunity arising for long term contracted assets as the power sector entered its post-merchant phase. And over the course of nearly two and a half years since NRG Yield went public, we have grown our dividend by 67% and are on target to growth by over 15% by the end of next year. Our generation portfolio is now at an equivalent of 6 gigawatts versus 2.5 gigawatts at the beginning. EBITDA and CAFD expectations in 2016 are now nearly three times where they were at the end of 2013, all of which has been accomplished through prudent financial management that has permitted a low payout ratio while also continuing to have visibility into significant growth through our sponsor NRG Energy. Obviously this positive self-evaluation does not comport with the market’s assessment as reflected in our recent share price performance. We can list a myriad of reasons why the stock is down, none of which go to the fundamentals described above, but I can tell you that the NRG Yield investment proposition is unchanged. The fundamental economics of the NRG business are solid, but the disconnect with the market means for us at NRG Yield, however, is that given the prudency with which we have managed our business, we don’t need to rush to judgment or make rash decisions, rather we can continue doing what we have been which is deliver on both results and growth commitments with the means we have available without sacrificing shareholder value. In other words, for the time being at least, we are going to stay the course. However, we do appreciate a persistent underperformance in our share price is not acceptable and in that regard what we will commit to you is that the management team and board of NRG Yield have no intention of waiting forever. We will continue to monitor over the months to come the overall yieldco environment and make strategic decisions as necessary to optimize the long-term value of NRG Yield. With that, I will turn it over to Kirk to go over the financials in great detail. Kirk Andrews Thank you, David. Turning to the financial summary on slide five, NRG Yield is reporting third quarter 2015 adjusted EBITDA of $198 million and cash available for distribution of $132 million, both exceeding our quarterly guidance. Adjusted EBITDA performance for the third quarter was slightly above expectations due to improved performance at our wind assets during the quarter while CAFD outperformed primarily due to the recent project debt repricing at El Segundo which benefitted – resulted rather than in a beneficial revision to that debt amortization schedule and also due to lower than expected maintenance capital expenditures during the quarter, simply reflecting a timing shift of some of those into the fourth quarter. On November 3, the company completed the acquisition of the latest set of right of first offer assets from NRG Energy, specifically it’s 75% interest in the portfolio of 12 wind assets, totaling 814 net megawatts of wind capacity for a total cash consideration of $210 million subject to standard working capital adjustment. NRG Yield funded this purchase with a mix of cash on hand and borrowings from its revolving credit facility. In accordance with GAAP, the company is updating 2015 adjusted EBITDA guidance from $660 million to $705 million to reflect the acquisition of the wind portfolio from NRG as if the 75% stake had been held for the full year 2015. The company is also updating 2015 CAFD guidance from $160 million now to $165 million, which reflects the CAFD impact of the acquisition over the balance of 2015. Moving to slide six, NRG Yield is also initiating 2016 financial guidance of $805 million in adjusted EBITDA and $265 million of CAFD in both cases reflecting the full year impact of the recent wind portfolio acquisition. We continue to target $1 annualized dividend per share by the fourth quarter of 2016, a 15% year-over-year increase. This targeted dividend comprise a payout ratio under 70% based on 2016 CAFD guidance providing increasing liquidity in 2016 and significant headroom for dividend growth in ‘17 and ‘18 without the need for additional dropdowns or new third-party capital. When combined with the robust pipeline of remaining ROFO assets, these factors underscore our confidence in our ability to maintain annual dividend growth consistent with long-term targets. Beginning this quarter we are providing CAFD sensitivity on our aggregate renewable portfolio in an effort to provide our investors clear visibility into the potential impact on CAFD resulting from possible fluctuations in wind velocity and solar inflation. Our 2016 CAFD guidance reflects our revised expected production cases for our wind and solar assets including the reduction to the expected wind production discussed on our second quarter call. The sensitivity charts illustrate the CAFD impact versus guidance of a 5% change in wind and solar production in each hour over the full year 2016. However, it is important to note that due to the seasonality of PPA pricing, which is typically highest from May to September, as depicted in the lower left chart, it is possible that an aggregate 5% change may have a different effect on actual results with a disproportionate amount of that change in concentrated in certain periods. As the chart illustrates, a 5% change in hourly production across the wind portfolio for the full year could increase or decrease CAFD by approximately 20 million, while a 5% change in hourly production across the solar portfolio for the full-year could increase or decrease CAFD by approximately 6 million. Finally, on slide seven, NRG Yield remains well positioned to achieve long-term, sustainable and efficient total shareholder return through superior execution of its business model and long-term strategic plan. With one of the most diverse mixes of conventional and reliable assets in sector, consisting of natural gas plants, thermal combined heat and power and district assets and an array of renewable assets, the company is well positioned to deliver stable, growing and tax efficient dividend growth to its shareholders. We continue to target a 15% annual dividend per share growth and as we have indicated in the prior quarter, this can be achieved through 2018, without the need for additional dropdowns or new third-party capital, as our low payout ratio provides us with the ability to deliver organic dividend growth. Through our right of first offer arrangement with NRG, NRG Yield has access to an estimated 135 million of additional CAFD runway, which excludes additional CAFD, which would be derived from 250 million of additional equity in ROFO dropdown of distributed generation and home solo leases. At NRG Yield’s current position, this represents approximately a 50% increase in CAFD from these ROFO assets alone and that excludes any additional growth from NRG’s efforts in a fast-growing residential and distribution solar market. Lastly, you can see in the lower right of this slide, NRG Yield ended the quarter with 572 million of liquidity versus 515 million at the end of the prior quarter. Pro forma for the recently closed wind acquisition, we have over 350 million remaining liquidity more than sufficient to fund the remaining dropdowns from our home solar and DG partnerships with NRG. We continue to expect this liquidity surplus to grow as our low payout ratio will provide near-term excess capital for incremental growth. And Nicole with that, I think we would like to move directly to Q&A. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question comes from the line of Matt Tucker of KeyBanc Capital Markets. Your line is now open. Matt Tucker Hi, gentlemen. Good morning. Congrats on a nice quarter. David, I just wanted to follow up on the comment you made about not wanting to wait forever and taking steps to optimize NRG Yield’s value. Could you elaborate at all on what type of options may be considered there? David Crane Matt, what I would tell you is the basic message there which is, it seems like right now like we did forever in this extreme downturn, but if you sort of chronicle it back, it’s what four, five months that it is really and my main messages, we think that the fundamental business model of Yield is sound and that’s our dominant paradigm. But if this persists, and I can’t tell you exactly how much longer, six months, whatever, we have to consider all our options and the only thing I am really trying to convey to you and to the market, Matt and I know that the independent directors of NRG Yield feel the same way about this is like everything is on the table. NRG Yield is a public company with its own shareholders and while it’s got a strategic connection with NRG, we have to do what’s right by the shareholder. So you hear all sorts of things, should yields be combined, should they be boiled in, should it go private, and to be frank, we haven’t actually evaluated any of those in any great detail, I’m just sort of telling you that we will not ignore the existing share price performance forever or believe that even if we keep executing against the plan, and it doesn’t recover and what’s the problem is not our performance, but that the yield sector for whatever reason is just not going to attract the public company investors in the way that it did in the past, then we will take whatever steps it makes most sense for the existing NRG Yield shareholders at the time. Matt Tucker Thanks, David. And just as a follow-up to that, thinking just longer term and big picture, how would you address any concerns that the new NRG reset strategy could limit the development of additional assets that might be suitable for addition to NRG Yield’s ROFO portfolio just down the road in the future? David Crane Well, I mean, I think certainly my sense, speaking as the CEO of NRG Yield is first of all, I mean, there is a pretty big pipeline. I guess what I would say is the concern you’re expressing is not our primary concern at this place, because there is already a pipeline of growth assets that I think would be our first priority from NRG Yield’s perspective is just our ability to bring it what NRG already has in sort of the ROFO pipeline. I think that our understanding on behalf of NRG Yield is that NRG is not going to stop redeveloping its conventional plants with contracted assets nor on the distributed site, are the two companies that have long-term contracted assets, leases and home solar and the business to business solar that a greenco is being built around them and we would expect would continue to have a relationship with us, so we don’t really see what NRG has announced with respect to reset having that much of an impact and I think the bigger issue is the restoration of the value proposition around NRG Yield itself. Matt Tucker I think that makes sense. Thanks a lot. Operator Thank you. Our next question comes from the line of Julien Dumoulin-Smith of UBS. Your line is now open. Julien Dumoulin-Smith Good morning. I will make this super quick. Can you comment a little bit around a contemplated yield and also timing of drop-downs here, CVSR specifically? Obviously, markets evolve. How are you thinking about what a palatable acquisition yield or multiple might be, if you could give us your latest estimate? Kirk Andrews Well, Julian, it’s Kirk. From the perspective of NRG Yield, the company has not yet been efficiently offered CVSR for drop-down, although NRG has indicated it continues to intend to do so. All I can tell you is in much the same context as was the case with the most recent drop-down that yield and the total return associated with that dropdown will take into account the current market circumstances, including the cost of capital and CAFD yield for NRG Yield. It’s obviously important on both of those metrics, we have a total return that is value accretive relative to the cost of capital of NRG Yield, as well as CAFD accretive. And so both of those two, I would expect to be taken into account when we get into the negotiations between the two companies once NRG has actually made that offer. Julien Dumoulin-Smith Right. And CVSR as indicated previously was anticipated for the back half of the year? Kirk Andrews That is correct. That is what NRG has indicated it continues to intend, which is in the latter part of the year to offer that asset for drop-down. David Crane But that said, the offer and not necessarily a completion. Kirk Andrews That’s right. As I have said, that offer has not yet been made. I am simply acknowledging that NRG has repeated its intention to make that offer available sometime last year. Julien Dumoulin-Smith Thank you. Operator Thank you. Our next question comes from the line of Daniel Eggers of Credit Suisse. Your line is now open. Daniel Eggers Hey, good morning guys. Just remind me on the ROFO pipeline, is there a timeline where if NRG offers assets to NYLD and NYLD doesn’t like the price or the availability to capital that that commitment will go away? David Crane What I’d see Dan is that there is a right of first offer and the way you described the first iteration of that is what the commitment that underlies that agreement is. And that is that NRG has an obligation to first offer those assets to NRG Yield and thus far, each time that has taken place including the very latest one, which obviously takes into the current conditions in the market, cost of capital as I have alluded to in my response to Julien’s question, the two companies in being able to arrive at that agreement. I don’t want to speculate other than empirically speaking, we have been on a good path to progress with a favorable outcome under negotiations as to whether or not you can absolutely count on that. That is obviously up to both of those two parties, NRG on the one hand, NRG Yield as governed by the independent directors in those particular context on the other. So I certainly won’t predict on a go-forward basis what that outcome will be, but we’ve had a constructive process thus far. And in the event that that was not the case, NRG having met that obligations, you make that first offer, has the option or the opportunity to monetize that asset elsewhere. It doesn’t necessarily mean that NRG might do so. I can’t speculate on that from NRG Yield’s perspective, but that is the obligation that exists is that offer is first made to NRG Yield. Kirk Andrews I mean, there is no specifically prescribed by contractor or anything else that says that the offer has been outstanding for 120 days or 150 days. If that’s not specified, I don’t really –. David Crane Yeah, NRG Yield, under the ROFO arrangement has 30 days to respond to the offer when it gets made and that’s the process that we pursue each time. Daniel Eggers Okay. And I guess just when you think about evaluating strategic alternatives, because NRG is the majority voter in NYLD, I guess all those decisions will be approved or determined by NRG ultimately? Kirk Andrews Well, I mean, I think that – I mean, obviously NRG say in what NRG Yield does is significant. But I mean – but I think there is fiduciary responsibility, so all the shareholders of the company. So I mean – I think it would probably be difficult for NRG Yield to do something that NRG didn’t wanted to do. But I don’t think it can be done exclusively for the benefit of NRG. I would just add probably the best example of how we can address very important circumstances like that is obviously how we approach the recapitalization. Again, not to say that that’s prescriptive about how things work going forward in strategic alternatives of the like. But we have – from NRG Yield’s perspective certainly seen that NRG has been very mindful of the voice of the public shareholders as it did voluntarily in raising the threshold for the vote and the recapitalization to include a majority of the minority, which was not necessary, but something that NRG voluntarily did. And so I think that’s probably a good indication about the seriousness with which NRG as the majority shareholder, takes major decisions strategically and otherwise where NRG Yield comprehensively is concerned. Daniel Eggers Okay. I guess one last question. When you think about the drop-down potential, is there a price or a cost of equity capital, do you think, for NYLD where you would want to return back into issuing equity to execute more on the pipeline or how do you guys think about when you would be ready to raise outside capital given the fact that you don’t actually need any drop-downs for the next couple years to hit your dividend objectives? Kirk Andrews Yeah, I mean, from my perspective a couple of things come to mind. Obviously, we are certainly very mindful at the prices at which capital has been raised, and certainly that creates one consideration for future equity prices at which we’d begin to consider raising equity. Certainly, we are not at level today and as we have acknowledged, one parameter of that is – as you know, just by a way of example, the CAFD yield, I think under the both the distributed generation and residential solar pipeline on an average basis and of course as a contract is about 7.5%. That’s obviously and probably the lowest among the yields at which drop-downs have occurred and obviously that’s reflective of the fact that that’s really preferred return to NRG Yield with no residual exposure kind of terminal value beyond the contracted period. But judging by that, that CAFD yield would imply a price certainly at a north of $20 a share, which also comports directionally with the lowest price at which we have raised capital to-date. So that’s a long-winded way of saying, just academically speaking, I think certainly a price north of $20 is one that’s probably a decent parameter to look for, not to say prescriptively at whatever level above that we do it, but that’s a good threshold to think about. Daniel Eggers Very good, thank you guys. Kirk Andrews Thanks, Dan. Operator Thank you. Our next question comes from the line of Steve Fleishman of Wolfe Research. Your line is now open. Steve Fleishman Yeah, just on the Alta Wind, could you just talk about how that performed in the quarter and just how you feel about your kind of – you still feel the expectations going forward are, if anything, conservative, fair? David Crane I would not say, Steve that they are conservative. I think as we’ve said, we’ve revised our expected case with respect to wind production taking into account of what we have seen, most recently the averaging of the more recent periods. As to the quarter, we did say, as I alluded to in my prepared remarks, we did see some outperformance and most of that outperformance on the EBITDA side, in fact, practically all of it, was the outperformance of Alta Wind relative to our expectations and the guidance. But I think we feel comfortable having gone back through and reevaluating our expectations, which were reflected in our 2016 guidance. And obviously, we’ve supplemented that with the sensitivities around that revised expected case that we provided today as well. Steve Fleishman Okay. Great. And just one question on kind of strategic thoughts for NRG Yield. I recall during the kind of voting change that there are issues in NRG Yield at some of the projects and contracts with change of ownership. Would that impact, kind of limit some of the things that NRG Yield – that you can do with NRG Yield from a strategic standpoint? David Crane I wouldn’t say necessarily, with absolute certainty that it would prohibit, but as we’ve said before, it is – once there is a change of control, I mean, that’s the way to think about, both of those two circumstances, both in certain instances on the project financing side as well as certain instances on the PPA side, think about those as change of control. So certainly if those strategic alternatives constituted a change of control in terms of the voting shares that NRG has, then obviously it would entail having to take into consideration the impact of that change of control and potentially the reopening around certain of those project financings. Steven Fleishman Alright, thank you. David Crane Thanks Steve. Operator Thank you. And our next question comes from the line of Ava Zar from Deutsche Bank. Your line is now open. Ava Zar Thank you. During the NRG presentation, you highlighted the EBITDA and the debt associated with the ROFO assets. With increased focus on debt at yieldcos, how do you view the debt associated with those ROFO assets? Kirk Andrews I think it’s very important, I think specifically on the NRG side, I think — I don’t think there was a whole lot of discussion specifically about the ROFO assets other than the fact that that was one of the non-recourse subsidiaries. But the important distinction I think that was made is that all of that debt is fully amortizing and the duration of that amortization matches exactly the remaining duration of respective contract behind it. So you have a naturally delevering portfolio of assets. The original leverage levels of which were set and determined by the private finance and the cash flow coverage is there. So certainly we feel comfortable with the original debt levels underscored by the due diligence and all of the engineering that goes into determining what those levels are but important to remind everyone that that part of the debt capital structure both that resides at NRG Yield today as well as in the ROFO assets is fully amortizing. The only debt that is not is the corporate level, which is a very small piece of the overall debt. Ava Zar And with some of those assets not performing up to initial specs, are you still confident that that debt will amortize over the contract period? David Crane I mean are you — this is a question about the assets that are still in the ROFO? I think we’re confident in the amortization of all the assets that are within NRG Yield, if you’re asking us about amortization of assets that are still at NRG, we probably should take that call in the context — take that question in the context of an NRG call not this because NRG Yield doesn’t really have visibility into that. Ava Zar Great. I will follow up. Operator Thank you. And our next question comes from the line of Andrew Hughes of Bank of America Merrill Lynch. Your line is now open. Andrew Hughes Good morning guys, question on future drop-downs. As you look towards the timing of those, including CVSR and then what is behind it, are you or can you consider a cadence or timing there that enables you to avoid equity markets altogether just given — to finance those drop-downs just given where the payout is and your access to your revolver? Kirk Andrews I’d say with respect to the aggregate $135 million of remaining CAFD from the ROFO portfolio. I certainly would not expect all of that is possible or even a significant portion of it will be possible without third-party equity, but as we’ve said, as I said in my prepared remarks, taking into account that both there are — there is the remainder of the existing agreements for residential solar and distributed generation, as well as taking into account NRG’s stated intentions to offer CVSR. We feel comfortable with liquidity as being sufficient and that liquidity obviously building given the low payout ratio into 2016, because that would certainly be sufficient to fund those. Beyond that, I think it’s safe to assume that that would require — anything beyond that would require at this point third-party capital and that will be more likely to be equity in the next iteration of that. Andrew Hughes And then when you do consider those incremental drop-downs, are you thinking about it now more as extending the 15% growth target into the 2020s, or more along the lines of growing faster in the short term? Kirk Andrews I think for the time being the answer to that question is yes, extending the 15%. The ability to accelerate those things will certainly be most notably a function of the equity markets at the end of the day. And also taking into account the ongoing expansion of the ROFO pipeline, both with NRG as it exist today and take into account the potential for future drop-downs, depending upon the nature of business plan comprehensively greenco, as we talked about before. Andrew Hughes And just one last one, if I may. In talking about when you might trigger some of these strategic decisions about what to do with Yield if you are not happy with the valuation, is there a metric that you can point to where you might start contemplating those plans more seriously? Is it the $20 share price? Is it a specific yield number? Is it timing related? Any incremental color would be great. Thanks, guys. David Crane No, I actually don’t think there is any incremental color. If you go through all of our answers some of what I would call more indicators in terms of the time that I talked plus or minus six months, the $20 a share plus or minus what Kirk has summed up. And the third factor and this goes the question of sort of the question whether you want to extend the – we want to extend the 15% growth rate into 2020 and beyond. I mean, the whole yieldco space as well as NRG Yield for its long-term vitality depends on regular access to the capital market. And if that doesn’t come back, then we have to look at all the other alternatives, and so I sort of think those are the three factors, the value of yield what it looks like in terms of access to equity capital and roughly when I say we’re not lasting forever, you can certainly narrow that out. You should think in terms of multiple months rather than multiple years. So I mean Nichole, I think we have time for one more question. I’m sorry, we’ve gone over the hour, but we appreciate your interest. So could you and again, if anyone is left in the queue after this last question, please give us a call we want to follow up and answer your question. Operator Our next question comes from the line of Michael Lapides of Goldman Sachs. Your line is now open. Michael Lapides This will be a very, very quick housekeeping question. Your guidance for 2016 includes or excludes CVSR? Kirk Andrews Excludes CVSR, it is the existing portfolio, including the drop-down we most recently closed but excludes CVSR. Michael Lapides Got it. Thanks, Kirk. Much appreciate it. David Crane Thank you Michael and Nicole, thank you and we appreciate your interest. We look forward to talking to you next quarter. Operator Ladies and gentlemen, thank you for participating in today’s conference that does conclude today’s program, you may all disconnect. Have a great day everyone.