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Chesapeake Utilities’ (CPK) CEO Mike McMasters on Q4 2015 Results – Earnings Call Transcript
Operator Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Beth Cooper, Senior Vice President and Chief Financial Officer, you may begin your conference. Beth Cooper Thank you, Nicole, and good morning, everyone. We appreciate you joining us today to review our fourth quarter and 2015 annual results. Joining me on the call today is Mike McMasters, President and CEO. In addition to Mike, we also have several members of our management team here with us to answer questions. The presentation to accompany our discussion can be accessed on our website under the Investor section and Events and Webcasts subsection or via our IR app. Moving to Slide 2, before we begin, let me remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. These forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of the company’s 2015 Annual Report on Form 10-K will provide further information on the factors that could cause of such statements to differ from our actual results. I would like to begin today’s presentation by highlighting the company’s record performance. As shown on Slide 3, the year 2015 culminated in the ninth consecutive year of record earnings generated by the company, both in terms of net income and earnings per share. In addition, as the slide highlights, Chesapeake has generated very strong returns on equity ranging from 11% to 12.2% over this nine-year period. These results have been driven by our successful capital investments in organic growth opportunities and acquisitions like FPU, Sandpiper Energy, and Aspire Energy of Ohio. The returns that we have generated on these investments have resulted in a compound annual growth rate of 9.8% in earnings-per-share over the nine-year period. Moving to Slide 4, yesterday, we reported results for both the year and the fourth quarter ended December 31, 2015. Net income for the year was $41.1 million, or $2.72 per share, which represents an increase of $5 million, or $0.25 per share, compared to 2014. Year-over-year earnings per share grew by 10.1%. For the fourth quarter of 2015, the company reported net income of $8.6 million, or $0.56 per share. This represents a decrease of $1.5 million, or $0.13 per share, compared to the same quarter in 2014. The decline in the quarter-over-quarter results was caused by lower energy consumption due to warmer temperatures that reduced earnings by $2.5 million, or $0.17 per share. The fourth quarter of 2015 was the warmest fourth quarter in the past 30 years in our operating territories. As you know, gas consumption is impacted by the variability in heating degree days in the winter months. I will now highlight the accomplishments and results for the two business segments for the year. Detailed discussions of our results for the quarter and year ended December 31, 2015 are provided in our press release, which was filed yesterday and will be included in our Annual Report on Form 10-K, which will be filed Monday. Turning to Slide 5, Chesapeake’s regulated energy businesses, which include our natural gas distribution and transmission and electric distribution operations generated operating income of $61 million in 2015, compared to $50.5 million for 2014. The increase in regulated energy operating income was generated from strong growth in the regulated energy businesses. The impact of several nonrecurring items also enhanced 2015’s results. Gross margin increased by $13.2 million as a result of service expansions, the Florida Gas Reliability Infrastructure Program, or GRIP, as we refer to it, natural gas customer growth and the Florida electric rate case. The higher gross margin was partially offset by lower margin as a result of warmer weather and an increase in other operating expenses reflecting the incremental cost of service, ultimately resulting in an increase of $2.6 million in 2015 operating income. The nonrecurring items included non-cash pretax impairment charges recorded in 2014 in the aggregate amount of $6.4 million and a gain from a customer billing system settlement of $1.5 million recorded in 2015. The impact of these nonrecurring items resulted in additional operating income of $7.9 million in 2015, compared to 2014. As shown on Slide 6, the unregulated energy segment reported operating income of $16.4 million, compared to $11.7 million for 2014. Operating income excluding a $432,000 nonrecurring charge in 2014 increased by $4.2 million. Higher retail propane margins and margin generated by Aspire Energy were the largest drivers of the $12.4 million increase in gross margin generated by the segment. The increased gross margin was partially offset by the warmer weather, lower results for Xeron, operating expenses from the addition of Aspire Energy and additional expenses as a result of the year’s strong performance. The key variances in terms of net income and earnings per share contribution between 2015 and 2014 are highlighted on Slide 7. This table is a summarized version of what is included in our filings and provided in the appendix. For 2015, as mentioned previously, earnings per share increased $0.25, or 10.1%, to $2.72 per share. Gross margin increased $0.95 per share, higher operating expenses largely to support growth offset the gross margin increase by $0.48 per share. Unusual items resulted in a $0.13 decrease in earnings per share for 2015, the largest component of which was the warmer weather in 2015, compared to 2014. While approximating normal weather, 2015 was significantly warmer than 2014, which impacted results year-over-year by $0.18 per share. In our regulated energy segment, an increase in gross margin of $0.65 per share was generated from natural gas customer growth, service expansions in the natural gas transmission businesses, continued investment in the Florida GRIP to enhance infrastructure reliability and safety and the full-year impact of the 2014 electric rate case. In the unregulated energy segment, gross margin increased $0.30 per share largely due to higher retail propane margins, which added $0.37 per share partially offset by lower contribution from propane wholesale marketing and sales. The inclusion of nine months for Aspire Energy lowered Chesapeake’s earnings per share by $0.06, including the impact of issuing approximately 593,000 shares for the acquisition. Finally, interest and other changes reduced year-to-date net earnings per share by $0.03. Slide 8 shows our history of capital expenditures as a percentage of total capitalization. For 2015, we invested 28.3% of total capitalization, 20.7% of which came from organic growth capital investments and 7.6%, which related to the purchase of Aspire Energy. Since 2011, we have made capital investments of $545 million, including acquisitions, which equates to an average 21% of capital expenditures to total capitalization annually. In terms of the dollars invested during 2015, we invested $142.7 million in our existing businesses, including $98 million in our regulated energy segment. Adding in the Gatherco acquisition that was completed in 2015 for $52.5 million, this increases our total capital expenditures for the year to a record of $195.2 million. The execution of our strategic plan continues to generate significant opportunities for profitable capital investment. The current capital budget for 2016 projects investments of $179 million to support and grow our existing businesses. We are pursuing several other projects, which could further increase our level of capital spending. Of the total capital budget for 2016, approximately $30 million represents capital expenditures that are in early project development stage. We are excited about these investments, but recognize that the review and approval process by the regulatory bodies may take longer then we experienced in our previous applications. Slide 10 highlights the company’s commitment to maintaining a strong balance sheet, which should facilitate access to competitively priced capital to fund our growth initiatives. Our equity to permanent capitalization and equity to total capitalization, including short-term borrowings, was 70.6%, and 51.9%, respectively, as of December 31, 2015. We target to maintain a ratio of equity to total capitalization, including short-term borrowings of 50% to 60%. As of December 31, 2015, our short-term debt, including the current portion of long-term debt, was $183 million, which also includes $35 million borrowed under our $150 million revolving credit agreement. Available for five years, we can utilize this facility to bridge financing to long-term debt. Given the level of capital expenditures in 2015 along with the 2016 capital budget, we anticipate securing longer-term permanent capital to maintain our targeted equity to total capitalization ratio and will seek to align such financing with the earnings generated from the larger projects. In this regard, on Slide 10, we have highlighted one possible means of securing new long-term debt capital, a Shelf Facility with executed with Prudential Investment Management in late 2015 also for $150 million. In May of 2015, the Board of Directors increased our annualized dividend by $0.07, or 6.5%, to result in an annualized dividend of $1.15 per share as shown on slide 11. We are firmly committed to dividend growth supported by earnings growth. Chesapeake Utilities has paid a dividend continuously for 55 years. Our Board of Directors will be revisiting the dividend level again in May 2016. Given broad market uncertainty and investors current expectations for income and security, we understand the desire for reliable dividends. We expect a significant growth potential in our businesses to continue to provide potential for superior dividend growth in the future, just as it has in the past. Before I dig into the details regarding the gross margin growth we achieved in 2015 as well as our estimates for future margin growth, I would like to spend just a few moments highlighting the overall key financial accomplishments for the year. We have highlighted many of these accomplishments on Slide 12. First, as we mentioned earlier, we increased earnings per share by 10.1%, achieving record earnings for the ninth consecutive year. Our capital expenditures, including the Gatherco acquisition, were $195.2 million, the largest level of annual capital expenditures in our history. This level of investment fostered growth in our overall asset base, which surpassed $1 billion for the first time in 2015. Achieving record earnings enabled us to generate a solid return on equity of 12.1%. We are proud of the growth in our businesses and the returns we have generated for shareholders, which Mike will elaborate on later including a 16.7% total shareholder return for 2015 that included a 6.5% dividend increase. Finally, at year-end, our market capitalization had grown to approximately $867 million. As recently as yesterday, this had escalated further as we closed at a market capitalization of approximately $975 million. Slide 13 shows a snapshot of the consolidated gross margin impact of major projects and initiatives completed since 2014, as well as major projects and initiatives announced and underway. As you can see, these projects and initiatives add a gross margin of $18.2 million in 2015 and are expected to add incremental gross margins of $19.1 million in 2016 and $10.3 million in 2017. We have included a slide in the appendix that provides the detail for the completed projects and their margin contribution for 2014, to 2017. We have a number of other projects and initiatives in place to expand margins in 2017 and beyond and as their timing related to in service is solidify, we will update our projections accordingly. Slide 14 provides detail on projects and initiatives underway as referenced on the previous slide. These investments will be completed over the next year and are expected to produce gross margin of approximately $7.2 million, in 2016 and $18.2 million, in 2017. As our results over the past nine years demonstrate, our team is relentless in identifying and pursuing opportunities to enhance our growth and further increase our gross margin. As always, thank you for your support and interest in our growing company. These continue to be very exciting times for Chesapeake Utilities, as exemplified through our strong financial results. Now I will turn the call over to Mike, who will expand on our strategic growth initiatives, long-term performance results and commitment to continued growth for shareholders. Mike McMasters Thanks, Beth. Good morning everyone. Slide 15 illustrates how we approach achieving sustainable growth. Chesapeake Utilities’ success story starts with engaged, dedicated, and capable employees who are committed to expanding our infrastructure, to meet the energy needs of our customers and communities. Our employees continually seek opportunities to further engagement with the local communities. They construct and operate safe, reliable energy delivery systems whether they are pipelines, wires or trucks. Our employees do a remarkable job of identifying, developing, and transforming opportunities into profitable earnings growth. Finally, we employ a disciplined capital allocation process to produce superior returns to shareholders. Turning to Slide 16, our success in delivering returns is due to the hard work of our employees, our strategic planning process, and discipline in executing our strategic plan. Strategic planning is a continuous process for our company. We update our strategic plan every year and we ask our business unit leaders and our strategic business develop team, to take a new look at market conditions and the new opportunities are evolving in the market. Then we challenge our teams to identify ways to grow at rates faster than they could if they simply continue doing what they are doing today. This keeps our thinking fresh and our focus on generating sustainable long-term growth. Turning to Slide 17, the performance quadrant is one of the ways that we monitor the results of our strategic plan and its execution. We believe that one of the keys to our success is our ability to deploy significant amounts of capital with attractive returns on investment. Chesapeake continues to rank in the upper quartile of gas distribution, electric, and combination utility companies in terms of capital invested and return on capital over the past three years. Our ability to achieve higher than industry average returns, while investing higher levels of capital relative to our size is result of our ability to identify and develop profitable growth opportunities, maintain our disciplined capital investment decision-making process, execute on our growth opportunities and achieve our targeted financial results. Turning to Slide 18, the environmental and economic advantages of natural gas and propane provide opportunities for expanded use in our service territories and across the United States. Natural gas is abundant, clean, efficient, domestic and affordable. The abundance of clean natural gas in the United States continues to provide security of supply, energy reliability, and stable prices to Americans every day. As shown on Slide 18, natural gas and propane continue to have price stability, compared to oil and are expected to maintain this advantage for the foreseeable future. This price stability creates opportunities to satisfy new customer demand at affordable prices. And has helped to create opportunities that our team has developed to drive growth in margins, earnings, and ultimately dividends. Turning to Slide 19, one such opportunity is the White Oak expansion project to increase mainline capacity to serve Calpine’s new power plant in Dover, Delaware. Eastern Shore plans to invest between $32 million and $35 million, which could be used to build 7.2 miles of pipeline looping an additional compression facilities to provide natural gas to the power plant. The estimated annual gross margin resulting from this project, under the 20 year service agreement will be approximately $5.8 million. In 2016, we expect to generate approximately $5 million of incremental margin. As part of our ongoing commitment and efforts to provide reliable service to our customers, Eastern Shore has proposed a $32 million reliability project that is highlighted on Slide 20. The project includes the installation of one compressor and 10.1 miles of 16-inch pipeline looping. These facilities are necessary to provide optimal system reliability and design. FERC issued a scheduling notice to establish a deadline of April, 2016 for the environmental assessment and July 2016 for all other federal agency decisions. The project will be included in the Eastern Shore’s upcoming 2017 rate chase filing. Once the cost is included in our rates, the estimated annual margin associated with this project will be approximately $4.5 million. As a company, we are committed to offering our customers supply, diversification opportunities and access to the lowest cost of natural gas. One such example is highlighted on Slide 21. Eastern Shore is moving forward with making certain modifications to its interconnect with Texas Eastern transmission, TETCO, that will increase the availability of natural gas at the interconnect point by 53,000 dekatherms a day. FERC’s approval to move forward with these modifications was granted in December 2015. These modifications, which are scheduled to be completed and in service during March 2016, will allow customers to have access to additional TETCO supply and the opportunity to secure lower cost natural gas. This 53,000 dekatherms equates to $2.8 million, in incremental annual margin for Eastern Shore. Turning to Slide 22, safety is a top priority for our company. Our Florida GRIP pipeline replacement program is an example of one of our initiatives designed to increase service reliability and operation safety for the communities we serve. The GRIP program enables the company to accelerate the replacement of cast-iron and bare steel mains, and service lines. GRIP also authorizes a company to accelerate the recovery of pipeline replacement investments including a return on those investments, as well as the recovery of certain program related costs. Our GRIP investments totaled $32.8 million, in 2015, and are approaching $80 million, since the program’s inception. To date, we have replaced 162 miles of pipeline and over 4,300 service lines. The gross margin generated from these investments was $7.5 million at 2015 and is projected to be $11.4 million, in 2016. Turning to Slide 23, our Eight Flags Energy subsidiary is constructing a combined heat and power plant located in our electric and natural gas distribution territory on Amelia Island, Florida. The plant will produce approximately 20 megawatts of base load power to be sold to our electric distribution system on the island. Steam from the plant will be sold to Rayonier’s Advanced Materials paper mill. The combined heat and power plant and the related facilities will cost approximately $40 million to construct. Site construction is moving forward on schedule. In terms of timing, the project is expected to be online in the third quarter of 2016. In addition to generating approximately $7.3 million in incremental annual gross margin, the electric output from the plant is excited to generate savings for our electric customers of approximately $3 million to $4 million annually. As shown on slide 24, the Eight Flags project is an example of the diverse capabilities that we have to provide value-added service to our customers and the communities we serve. In this case, our financial pipeline company transports the natural gas to FPU’s natural gas distribution system. FPU in turn delivers that gas to the Eight Flags CHP plant. Eight Flags then generates the power for delivery to FPU’s electric distribution system and the steam for delivery to Rayonier Advanced Materials plans. When all of this is said and done, we save Rayonier Advanced Materials money, save our electric customers on the island money and returns on capital for investors. Slide 25 illustrates the aspired energy of Ohio business model, which operates over 2500 miles of pipelines pipeline in the areas in and around the Utica Shale, and Eastern and Central Ohio. We operate 16 gathering systems for conventional producers in the area. Over 80% of Aspire’s margin is derived from the sale of natural gas, to two local distribution companies that are connected to our gathering system and serve more than 20,000 end use customers. The addition of new producers to our system presents an opportunity for increased reliability for our local distribution customers and increased margins for the company. Finally, we also own rights-of-way that we expect will present additional opportunities for growth over the long-term. Over the last 10 months, since April 1, there has been a significant progress and success with integrating Aspire Energy into the Chesapeake family of companies. Our management team lead with focus and drive to strategically develop, Aspire Energy organization and align the business with the vision, strategies and cultural of our parent company. The team has maintained the momentum of operating the existing business and customer needs, while also focusing on the future growth of the business. Our Aspire Energy employees are actively engaged in developing a strategic growth plan and have already begun to successfully identify and develop new growth opportunities. As a result of our team’s efforts, Aspire energy generated $6.3 million in gross margins since April 1 and is expected to generate approximately $13 million in gross margin in 2016. We continue to be excited about the opportunities presented by the latest addition to the Chesapeake family and continue to expect the Aspire Energy to be accretive to earnings in the first full year of operations. Turning to Slide 26, in 2014, we found a rate increase for our electric operations in Florida which increased rates by approximately $3.7 million annually. As the rate case was approved last year, 2015’s results include a full-year impact of the new rates. On December 1, 2015, we found a rate increase application for $1 million, to increase our Sandpiper subsidiaries operating – returns in Worcester County, Maryland. The following was required as part of the Maryland PSC’s approval of the Sandpiper acquisition and regulatory plan. A decision on the application is expected during the second quarter of this year. We found a $4.7 million rate case in Delaware in December 21, 2015 included in our application, our new service offerings to promote growth and a revenue decoupling mechanism for residential and small commercial customers. The decision on the application is expected during the third quarter of 2016. Pending the decision, the Delaware division implemented an interim rate increase of $2.5 million, on February 19, 2016. Our last rate case in Delaware dates back to 2007. Finally, our Eastern Shore natural gas subsidiary will follow a rate case with the FERC new rates effective February 1, 2017. The filing is required as part of a settlement of our last rate case. Our application will be submitted by the end of 2016. As the chart on Slide 27 shows, Chesapeake provide a total shareholder return of 17%, for 2015. For each of the five periods shown, Chesapeake shareholders have earned more than 14% returns on a compound annual basis. In addition, before the five periods shown, the Chesapeake’s performance exceeded the 75th percentile of the peer group. Slide 28 shows our financial performance of the past one, three, and five years. I am proud to say that our employees have delivered top quartile performance in 18 of the 20 categories. Further, our 10 and 20 year compound annual total shareholder returns of 14.4% and 14% respectively, ranked first amongst our peers. In fact, when you compare our the shareholder returns to the broader market, you could evaluate our performance relative to this larger group. As Slide 29 shows, when you compare us to more than 2,200 companies listed on the New York Stock Exchange, our performance exceeds 84th percentile. Similarly, as shown on Slide 30, when we compare performance to the company’s comprising S&P 500, for all periods shown, our returns range from the 703rd, to the 81st percentile. We are very pleased with our strong performance after the broad market as measured by either of these two larger groups. In closing, our employees’ determination for excellence and consistently high performance, enables us to deliver clean, liable, low-cost energy solutions to our customers while achieving strong growth and earnings and return to shareholders equity, and therefore delivering superior shareholder value. We will now be happy to take questions. Question-and-Answer Session Operator Mike McMasters Well I just want to thank everyone for joining us on our call today and for your interest in Chesapeake Utilities. We’re proud of what our team has accomplished for shareholders in the past and remain committed to working hard to deliver superior shareholder returns in the future. Thank you. 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Great Plains Energy’s (GXP) CEO Terry Bassham on Q4 2015 Results – Earnings Call Transcript
Operator Good day, ladies and gentlemen, and welcome to the Great Plains Energy Incorporated Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today’s conference, Ms. Lori Wright, Vice President of Investor Relations and Treasurer. Ma’am, you may begin. Lori Wright Thank you, operator and good morning. Welcome to Great Plains Energy’s Yearend 2015 earnings conference call. On our call today will be Terry Bassham, Chairman, President and Chief Executive Officer and Kevin Bryant, Senior Vice President, Finance and Strategy and Chief Financial Officer. Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L is also with us this morning as our other members of our management team who will be available during the question-and-answer portion of today’s call. I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. Slide 2 and the disclosure in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. I also want to remind everyone that we issued our earnings release and 2015 10-K after market closed yesterday. These items are available, along with today’s webcast slides and supplemental financial information regarding the fourth quarter and full year 2015 on the main page of our website at greatplainsenergy.com. Summarized on Slide 3 are the topics that will be covered in today’s presentation. Terry will provide a financial overview and an update of our legislative and regulatory priorities followed by a discussion of our strategic plan. Kevin will discuss our financial results as well as our long-term target. With that, I will now hand the call to Terry. Terry Bassham Thanks Lori, and good morning, everybody. I’ll start on Slide 5. Yesterday we announced fourth quarter and full year 2015 results, earnings for the quarter were up $0.15 per share compared to $0.12 per share in 2014. Full year earnings per share were $1.37 compared to $1.57 a year ago. Our results were within our communicated guidance range of $1.35 to $1.45. Our 2015 results reflect continued disciplined management of our business of solving the regulatory lag typical of our Missouri electric utility prior to new retail rates going into effect. Also weather when compared to normal negatively impacted earnings were approximately $0.09 for the year. During the quarter, we saw the impact of the recently concluded KCP&L Missouri and Kansas rate cases. We also put in place several new riders and trackers including a fuel recovery mechanism in Missouri, and both the transmission delivery charge rider and a CIPS/Cybersecurity tracker in Kansas. Kevin will discuss quarter and yearend-to-date drivers in his remarks Looking forward we’re introducing our 2016 earnings guidance range of $1.65 to $1.80 per share in our long-term expectations and commitment to drive continued dependable shareholder returns through a combination of earnings and dividend growth. As reflected in our press release last night, we’re targeting annualized earnings growth of 4.5% through 2020 of the year’s guidance range. This growth will be consistent with our regulatory frameworks and will be driven by targeted investment in customer and grid operations, continued environmental compliance and disciplined cost management. In addition, continued investment in national transmission and in a growing regional economy support our earnings growth rate. For the decade long investment cycle behind us, increased investment flexibility and improving cash flows, we’re in a stronger position to grow our dividend moving forward. This confidence is reflected in an increased long-term annualized dividend growth target of 5% to 7% through 2020 and a narrowed dividend payout ratio target of 60% to 70%. Turning now to Slide 6, as we reflect on 2015, there is no doubt the outcomes resulting from the traditional elements of our 2015 Missouri and Kansas KCP&L rate proceedings were constructive with virtually no disallowances and allowed returned consistent with regional presence. However, we continue to be disappointed by the inability to gain traction on some of the more responsive and commonly accepted regulatory reforms we’ve pursued in our Missouri case to better respond to the current environment in which we operate. Bottom line, there is also no doubt, the current regulatory construct that has been in place for the last century is in need of a refresh. As a result, we’re working with others to bring about comprehensive, performance-based statewide energy legislation in Missouri that will enable us [supporting] energy infrastructure investments and evolve our regulatory construct the one that meets the needs of all stakeholders. These reforms will provide robust customer protections, support modernization of the grid to address aging infrastructure, improve reliability enhance infrastructure security and facilitate the transition to a cleaner, more diverse mix of energy resources. We believe those common sense reforms will create and help retain thousands of jobs and will completely position Missouri for economic growth. Effectuating this topic of regulatory reform requires hard work, significant stakeholder education and rigorous coalition building. We continue to work with other Missouri utilities, our customers and other stakeholders to advocate for energy and policy advancements in order to bring longer term solutions that benefit customers and shareholders. We’ll keep you posted of these efforts in advance throughout the year. While we’re encouraged by the prospects for real regulatory reform, we continue to also plan to invest consistent with our regulatory frameworks and make active general rate case filings until such changes materialize. To that end, two days ago, we filed a general rate case at our GMO jurisdiction, requesting an increase of $59.3 million on a rate base of approximately $1.9 billion, using a return on equity of 9.9%. The primary drivers of this requested increase includes new infrastructure investments and continued increases in transmission cost and property taxes. New rates are anticipated to be effective early 2017 and summary of the key components of the case can be found in the appendix. We are also in the planning stages for the next round of rate cases at KCP&L. In Kansas we’re required to file an abbreviated rate case by November 2016 to true up our cost for the La Cygne environmental project. In Missouri, we’re evaluating the timing of our next case, which will likely be during the second half of 2016. As a reminder, the rate case process in Missouri is 11 months, while Kansas is approximately eight months. Finally as you know recently the U.S. Supreme Court granted a stay of the clean power plant pending judicial review of the rule. The stay will remain in effect pending Supreme Court review till such review is solved. While we’ve previously worked to improve the emission profile of our generation with nearly 75% of our co-fleet scrubbed, we continue to evaluate the implications of the recent court action. Investments we’ve made over the last several years have afforded us flexibility, response or combination of strategies, including optimization of the operation of our existing generation fleet and investments in new renewable resources and the shutdown of our older less efficient unit. We will continue to monitor these developments and we’ll balance the need to transition to a cleaner energy portfolio with managing the cost impact to our customers. Slide 7 highlights our simple and clear strategy as predicated and closely managing our existing business, promoting economic growth and improving our customer experience. We remain focused on operational excellence and meeting the changing needs of our customers. For the past several years we’ve implemented information technology projects that include an automated leader infrastructure upgrade, leader data management installation and an outage management system replacement. All are part of our broader strategic focus of providing top tier customer satisfaction and operational excellence. We recently initiated a project to replace our customer information system that will further enhance our interactions with our customers. The installation and operation of our Clean Charge Network one of the nation’s first major electric vehicle charging networks has made Kansas City one of the best places to own an electric vehicle and as you’ll hear from Kevin, economic activity in our region continues to improve. With that, I’ll now turn the call over to Kevin. Kevin Bryant Thank you, Terry and good morning, everyone. I’ll begin with an overview of our financial performance on Slide 9. As you can see, earnings for the fourth quarter were $0.15 per share compared with $0.12 a year ago. Full year earnings were $1.37 per share compared to $1.57 per share last year. As detailed on the slide the $0.03 increase for the quarter was driven by new KCP&L retail rates in Kansas and Missouri and an increase in other margins resulting from a change in customer mix, lower fuel and purchase power expenses that do not go through a fuel recovery mechanism and an increase in transmission cost recovered through a transmission recovery mechanism. An increase in weather normalized demand also contributed to the increase. These impacts were partially offset by milder weather, increased O&M, depreciation and amortization expense and lower AFUDC. For the full year, the $0.20 decrease was driven by mild weather, lower AFUDC, higher depreciation and amortization expense and a tax benefit impacting 2014 that did not reoccur in 2015. The decline in wholesale margins due to lower gas prices in KCP&L Missouri were a fuel cost recovery mechanism was implemented late in the year also contributed to the decline. However, we were pleased to implement the fuel recovery mechanism in the quarter as it minimizes margin risk moving forward. These negative impacts were partially offset by new retail rates and increase in weather normalized demand, lower fuel and purchase power cost and higher other margins. We continue our laser focus on managing cost. For the year O&M exclusive of items with direct revenue offset, declined approximately 1%. Over the last five years as a result of our continued commitment to cost management, annualized O&M growth exclusive of those same items increased less than 1% despite increased pressure from emerging regulatory grid security requirements such as CIPS and cyber security. Demand growth also remains a key focus area. 2015 weather normalized demand growth grew 0.4% net of our energy efficiency program, marking our third consecutive year of demand growth. We plan active role in supporting this growth through competitive retail rates, providing customers with Tier one service and by partnering with our communities to offer tools that promote the economic strength of the region. More globally we continue to be encouraged by the broader economic climate in the Kansas City region. Year-to-date December 2015, the unemployment rate in Kansas City was 3.8%, well below the national average of 4.8%. The residential real estate market remained strong. The number of single family residential real estate permit issued in 2015 increased 10% over 2014. Including multifamily permits, the total for 2015 increased 7% over the same year — same prior year period. Turning to Slide 10 as Terry mentioned, we are introducing our 2016 EPS guidance range of $1.65 to $1.08. The primary drivers of this range include a full year of new retail rates in our KCP&L Missouri and Kansas jurisdictions; weather normalized demand growth, consistent with recent trends of flat to 0.5% net of the estimated impact of our energy efficiency programs and continued discipline cost and capital management. While we will likely see a bit of an increase in O&M for the year due to our strong actions and performance in 2015, we continue our laser focus on managing our business in the current environment. And on the weather front, the year is off to a bit of a mild start, but we have the rest of the year ahead of us and are confident in our ability to manage the year. In the capital markets area supported by our strong NOL position, we have no activity planned in 2016 and have no equity needs for the foreseeable future. Turning to Slide 11, we are excited about our long term opportunity to grow our business while meeting the increasing needs of our customers. As we look forward, we’re targeting annualized earnings growth of 4% to 5% through 2020 off of this year’s guidance range of $1.65 to $1.08. This earnings growth will be driven by annualized rate base growth of 2% to 3% resulting from more targeted investment to empower customers and optimize our grid. I won’t belabor the point, but we will remain disciplined in our cost and capital management. As we look at our O&M profile over the next five years, we’ll be working hard to manage our annualized growth rates to be in line with or below the historical rate of inflation. And as evidenced by our modest ate base growth plan, we will be intentionally focusing our investment consistent with our regulatory frameworks for regulatory lag in the material ongoing challenge. In addition we will continue to develop our national transmission business and our regional economy is healthy and supports our earnings growth profile. At a higher level and as you can likely go in from our comments this morning, our focus remains on minimizing regulatory lag. As Terry mentioned, we are actively working with a broad stakeholder group towards regulatory policy change in Missouri and are committed to evolving the regulatory construct. That said, change is not always easy and we are proactively responding to the existing regulatory construct by filing more frequent rate case. Bottom line is that our team is actively working to eliminate the dips in earnings we have historically experienced and believe this is our current best tool along with tightly managing our investment activities to minimize lag. However there are limits to this strategy as Missouri is based on a historical test year and 11 month rate case process. So given our plans for more frequent and sometimes staggered rate cases over the next few years, we do not expect the smooth upward earnings trajectory through 2020 as a material regulatory reform, but we’ll continue to see material revenue steps when new rates in the various jurisdiction become effective, offsetting the lag from jurisdictions for new rate have not gone into effect. Slide 12 contains a list of considerations for 2017 through 2020 much of which we’ve covered in our presentation today. I’d also like to highlight one additional item. The expansion of bonus depreciation while dampening our rate base growth rate did increase future income tax benefits to nearly $1 billion at yearend 2015. As a result we do not anticipate paying significant cash income taxes through approximately 2024 that eliminates the need for additional equity in the foreseeable future. The details of our NOLs and tax credits can be found in the appendix. And again our expectations for demand growth moving forward are consistent with the recent trends and we will continue our focus on operational excellence and tight cost management that separates again and active management of the rate case calendar to minimize lag. As we wrap up on Slide 13 I’d note that with a decade long investment cycle behind us and increasing cash flexibility, we are in a much stronger position for the next decade. Our confidence drives our increased long-term annualized dividend growth target of 5% to 7% with emphasis towards the top side of the range. This strong dividend growth target will lead to a dividend payout ratio of 60% to 70% with the flexibility for potential share repurchases in the later years of the target window. We’re excited to deliver the opportunities in front of us and have a clear commitment to strengthen our utility infrastructure and regulatory frameworks to promote regional growth and in fact — and exceed customer expectations while delivering dependable shareholder returns. Thanks for your time this morning. We’re now happy to answer any questions you might have. Question-and-Answer Session Operator [Operator Instructions] And our first question comes from the line of Charles Fishman of Morningstar. Your line is now open please go ahead. Charles Fishman Thank you. Terry the partnering that you’re talking about doing with other stakeholders in Missouri, is that the [10.28 house 24.95]? Terry Bassham Yeah. That’s what I was talking about. Charles Fishman And then I’m sorry are you getting the feedback like I am on my phone? Terry Bassham I’m not, but you’re a little fuzzy but… Charles Fishman Okay/ I’m on a headset, but let me keep trying. All right, just one other question I guess, we had this bankrupt — there was that aluminum smelter in the Southern part of the state and my impression was they never saw a rate increase or a tracker, they never saw one they liked and they always voted against or at least had their legislative representative vote against it and they were pretty influential. With their bankruptcy, does that — it’s unfortunate certainly for the employees, for the region, but does that give this thing, the new legislation a higher profitability than we’ve seen in the past? Terry Bassham Yes, certainly. You’re talking about Noranda, which happen to be the largest user of electricity in the State of Missouri and is an Ameren customer and certainly that has been one of our challenges in the past and with — I would just say that with the current process, we’re working through, we’re partnering with them as well. They were Ameren obviously, but yeah I would say that they are with us in terms of a final solution that would help solve several issues and that is one of the things that’s different about this session than has been probably in the last four or five sessions. Charles Fishman So my impression is after a — they were very little ensuring if they’re out of the process, that sort of sucks the oxygen out of opposition? Terry Bassham And it more than out of the process, they’re actually in the process in support of what we’re trying to do here. So it is a definite change to what’s been happening in the past. Charles Fishman Okay. Thank you very much. That was it. Terry Bassham Thank you. Operator Thank you. And our next question comes from the line of Brian Russo of Ladenburg Thalmann. Your line is now open. Please go ahead. Brian Russo Hi good morning. Terry Bassham Good morning. Brian Russo Just on slide 11, you noticed rate case, long term growth rate in 2% to 3% but an EPS growth rate of 4% to 5%. How do you try to capture the incremental EPS growth versus the rate base growth? Kevin Bryant Yeah so Brian that comes in a couple of forms. One is continued cost management, but more importantly as you look at us towards the end of an investment cycle, our equity ratios for regulated purposes have dipped a bit. We expect for our cash position to create an opportunity for us to improve our equity ratios as we come out of that side of the build cycle and so that combination with solid management and little growth we think leads to a solid 4% to 5% earnings growth trajectory. Brian Russo Okay. Got it and just the midpoint of your 2016 guidance, it looks like it’s kind of in line below 8% earned ROE, is that accurate? Kevin Bryant Yeah, it’s about a 150 basis points of regulatory lag. Brian Russo Okay. And you mentioned potential share repurchase flexibility in the future, maybe you could just elaborate on that a little bit? Kevin Bryant Yeah that’s something we wanted to just to put out there publicly. As we get to the end of a five-year cycle with an improving cash flow and a moderating CapEx profile consistent with our regulatory construct, we think we’ll have cash flexibility and so amongst other things not only improving our equity ratio, but we think that there may be potential for share repurchases in the latter edge of that timeframe. So it’s something we’re going to make sure we talk to focus about. Obviously several years away, but something that could be utilization of cash. Brian Russo Okay. And then just lastly what’s next kind of on the legislative calendar that we should be looking out for on these senate bills and the house bill line of utility regulations? Terry Bassham Yeah this is Terry the next step would be senate hearings. So that will happen in the coming weeks and it will probably work through that process before the house picks up and does anything, but we would expect senate to have hearings in the coming weeks. Brian Russo Okay. Great, thank you. Terry Bassham Thank you. Operator Thank you. And our next question comes from the line of Gregg Orrill of Barclays. Your line is now open please go ahead. Gregg Orrill Yeah. Thank you. Do you have year-end rate base numbers for KCP&L jurisdictions? Kevin Bryant I don’t think we have that broken out in this presentation. It would still be consistent with what we were talking about in the third and fourth quarter as we finalized our cases last year that totaled to the $6.6 billion of rate base in total. Gregg Orrill Got it. Thank you. Operator Thank you. And our next question comes from the line of Paul Ridzon of Keybanc. Your line is now open please go ahead. Paul Ridzon Thanks. My questions have been answered. So I stood out. Thanks. Terry Bassham Thanks Paul. Operator Thank you. And our next question comes from the line of Chris Turnure of JPMorgan. Your line is now open. Please go ahead. Chris Turnure Okay. Good morning Terry and Kevin. I just wanted to get some color on the later years of your CapEx forecast. There is a lot of environmental spend in there and a couple other drivers that kind of increased it in the later years. How can we think about that plan changing at all in response to success in that legislative arena or failure there pardon me, and kind of the same question on the ability for you guys to do a little bit better or get more constructed outcomes in our current rate cases, rate case now and the one later this year? Terry Bassham Yeah. So this is Terry and I’ll let Kevin jump in here as well. The focus for us on this legislation is first and foremost earning our allowed return on our current investments and being able to fully earn the ROEs the commission awards. Certainly if we had more certainty around a process, we would be able to invest additional dollars on certain things, but that would be based on need and potentially additional other legislation in case issues. The CPP from that perspective remember doesn’t have any specific dollars in our CapEx yet and so we wouldn’t remove anything based on that ruling, but it could be additive if in fact we got a specific ruling. So there’s opportunities there as well. Kevin Bryant Yes and the only other thing I might add is that towards the back end of this CapEx disclosure and we’ve extended it out obviously an additional year, what you see in that environmental line it includes investment to comply with the Clean Water Act. So potentially for equipment associated with some of our river plants. Obviously we think we have a little bit of flexibility that CapEx has shifted out in the ’18, ’19, ’20 timeframe, but that forms the basis of the majority of the environmental CapEx in that timeframe. Chris Turnure Got you. And then on the dividend as we look towards November of this year it could potentially be in two rate cases at that time in Missouri depending on your strategy going forward. How can we think about your comfort level during an increase at the same level that you did last year and kind of keeping up within the payout ratio guidance if you are in fact fully speed to regulatory activity at that time? Kevin Bryant Yeah I think we’ve been clear and in fact have done year after year now for many years we’ve taken the position that a healthy utility with growing dividend is important for our state shareholders and all stakeholders and we’re not bothered by the fact that we might have a dividend increase fall within the time period. We’re also considering a rate case and we’ve had good response. Nobody has suggested that that’s not appropriate. So our guidance here obviously around the dividend recognizes the fact you just mentioned and when time comes, we’ll evaluate that with the Board, but the rate case wouldn’t stop us from doing the right thing. Chris Turnure Okay. Good to hear. Thanks. Kevin Bryant Thank you. Terry Bassham And if I might real quick, I think Gregg from Barclays your question I got my act together and got the answer. It’s about $4.7 billion of rate base at year end for KCP&L and Missouri. Hopefully, that answers the previous question. Operator [Operator Instructions] And our next question comes from the line of Andy Levi of Avon Capital. Your line is now open. Please go ahead. Andy Levi Hey, good morning, gentlemen. Terry Bassham Hey Andy. Kevin Bryant Hey Andy. Andy Levi Hey, just quick questions. There is a big background, look at that. So on the growth rate did you say if I heard correctly, that it’s not liner, that it is choppy or… Kevin Bryant That’s right Andy. We’re trying to remind folks that with historical test years and 11-month process, you’re still going to see dips in regulatory lag, which creates the need for rate cases. What our current plan contemplates is more frequent rate cases to smooth out those grips. But again, it’s not just going to be a smooth 4% to 5% growth from this point through 2020. We’re still going to have to manage that current regulatory process unless we get a change in the regulatory mechanism as Terry discussed. Andy Levi So how should we think about this, oh, I am sorry, were you going to say something Terri? Terry Bassham No. Andy Levi Oh, I am sorry, this background thing is… Terry Bassham Sorry about this. Go ahead. Andy Levi So just trying to understand, so we take your 2016 $1.73 I guess that has been deployed and then we grow that 4% to 5% off the $1.73 through 2020, which gives you another not sure which are accompanied and that’s where you plan to get, but in between that it could be choppy, but it could ultimately by 2020 that’s the number we should focus on that you’re trying to say? Kevin Bryant That’s right. And I wouldn’t say choppy, it just won’t be a straight line because for example now we’ve got our GMO case that we’re getting ready to file. We’ve got four years of lag built up at the GMO jurisdiction. So when those new rates come into effect next year we’ll see those new rates, but remember we will have ongoing lag from KCP&L Missouri primarily due to transmission expense and property tax. In the interim and as Terry mentioned, we’ll file a case likely targeting the second half of this year and then those new rates will come in sometime after that case is filed. So we’re trying to eliminate that choppy thing, but it’s not going to be a smooth straight line through 2020. Andy Levi Got it. Okay. Thank you guys. Kevin Bryant All right Andy. Thank you. Operator Thank you. And I am showing no further questions at this time. I would now like to turn the call over to Terry Bassham for closing remarks. Terry Bassham All right. Well thank you, everybody for joining the call. Thank you for your questions and obviously we’ll keep you updated along the way as things progress. Have a good day. Operator Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day. 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. 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