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Laclede Group, Inc. (NYSE: LG ) Q3 2015 Earnings Conference Call August 5, 2015 9:00 AM ET Executives Scott Dudley – Director-Investor Relations Suzanne Sitherwood – President and Chief Executive Officer Steve Rasche – Executive Vice President and Chief Financial Officer Analysts Dan Eggers – Credit Suisse Spencer Joyce – Hilliard Lyons Selman Akyol – Stifel Operator Ladies and gentlemen, thank you for standing by. And welcome to the Laclede Group’s Third Quarter Earnings 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] I will now turn the call over to Scott Dudley, Managing Director, Investor Relations. You may begin your conference. Scott Dudley Thank you and good morning, welcome to the Laclede Group earnings conference call for the third quarter of fiscal 2015. We announced our financial results this morning and you may access the news release on our website at thelacledegroup.com, and you can find that under the News Releases tab. Today’s call is scheduled for up to an hour and will include discussion of our results, and question-and-answer session. Prior to opening up the call for questions, the operator will provide instructions on how you may join the queue to ask a question. Presenting on our call today are Suzanne Sitherwood, President and CEO; and Steve Rasche, Executive Vice President and CFO. Also in the room with us is, Steve Lindsey, Executive Vice President and Chief Operating Officer of Distribution Operations. Before we start, let me cover our Safe Harbor statement and discussion of our use of non-GAAP earnings measures. Today’s earnings conference call, including responses during the Q&A session, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements speak only as of today and we assume no duty to update them. Although our forward-looking statements are based on reasonable assumptions, various uncertainties and risk factors may cause future performance or results to be different than those anticipated. A description of the uncertainties and risk factors can be found in our annual report on Form 10-K and quarterly report on Form 10-Q, which will be filed later today. In our comments, we will be discussing financial results in terms of net economic earnings and operating margin, which are non-GAAP measures used by management when evaluating the company’s performance. Net economic earnings exclude from net income, the after-tax impacts of fair value accounting and timing adjustments associated with energy-related transactions, as well as the impacts related to acquisition, divestiture and restructuring activities, including costs related to the acquisition and integration of Missouri Gas Energy and Alabama Gas Corporation. Operating margin adjusts operating income to include only those costs that are directly passed on to customers and collected through revenues, which are the wholesale cost of natural gas and propane, as well as gross receipts taxes. A full explanation of the adjustments and a reconciliation of these non-GAAP measures to their GAAP counterparts are contained in the news release we issued this morning. So with that, I’ll turn the call now over to Suzanne. Suzanne Sitherwood Thank you, Scott, and welcome everyone. I’m proud to report we turned in another quarter of solid performance, as we continue to execute on our growth initiative. I’ll begin with the quick summary of our results and then I will provide an update of other items related to achieving our strategic objectives. Steve Rasche will follow me with a more detailed discussion of our operating results and financial position, as well as some commentary on our outlook. This morning, we reported net economic earnings at $0.25 per share for the third quarter and $3.56 [ph] per share for the nine-month period. Steve will discuss the details in a moment, but I’m pleased to note that these results are in line with our expectations and we remain on track to achieve our growth target for the year. At the AGA Financial Forum in May, we had an opportunity to meet with many of you to discuss our achievements relative to our strategic growth initiatives. I like to spend a few minutes recapping that discussion and providing a few updates. We remain focused on transforming our business and continuing to deliver long-term growth by executing on the four pillars of our strategy. First, we are growing our core Gas Utility business through investment and further pipeline infrastructure upgrades and organic growth initiatives. Second, as we demonstrated, we are growing to acquire another gas utility and successfully integrating them to create value for investors, customers and the communities we serve. Third, we are working to further leverage our natural gas industry expertise to optimize our current and future investments in natural gas transportation, source and supply assets across both our regulated gas facilities and our gas marketing business. And fourth, we are investing in innovation and emerging market. I’ll start with our initiatives to grow our Gas Utility business. As you know, a significant driver of growth for our Gas Utility businesses is capital investment, particularly for upgrade to our distribution infrastructure. In 2015, we have continued to ramp up our pipeline replacement efforts across both Missouri and Alabama. Our commitment to prudent investment in our infrastructure is designed to improve safety and reliability, while lowering operating cost. As far this year, we have invested more than $200 million in capital and we remain on track for approximately $300 million we spent for the full year with a little more than half of this total dedicated to infrastructure upgrade. Our 2015 plan in perspective, for fiscal 2014, our capital expenditures were about $170 million and the very [ph] the Infrastructure System Replacement Surcharge or ISRS provides us with a more timely regulatory recovery of our prudent infrastructure investment. Effective May 22, the Missouri Public Service Commission approved an annual increase in ISRS of $5.4 million for Laclede Gas and $2.8 million for MGE. On Monday of this week we filed for additional ISRS to cover our investments for the period running from March 1 to August 31. The filing requests $4.3 million from a fleet gas and $1.8 million for MGE. We expect that approved amount to be effective later this calendar year. We are also seeing results from our organic growth initiative, targeting increasing revenue and margins while also improving our cost efficiency. We have been testing the growth potential on the various markets we serve, starting with St. Louis and Kansas City, and learning from Alagasco’s experiences. In LA, we are getting back to the basics [ph] of understanding our customers and their energy needs and identifying opportunities to better serve them. In doing that we are striving to grow our customer base and [indiscernible] and improve the retention of existing customers in both traditional and creative ways. Our initial focus area has been to deal commercial and industrial loans conversion from alternate fuel. While I can’t state to specific customer, I’m proud to say we are running success in converting several industrial customers to natural gas, representing a meaningful amount of incremental margin. And I would note that we are seeing modest customer growth across our entire gas facility footprints. We are also now pursuing service extensions within our franchising areas and acquiring integrating gas facility. As we work to grow revenues and margins, we are offset for greater cost efficiency and how we serve our customers. We are deploying enhanced technology and communications tool to improve the quality of the interactions we have with our customers and to ultimately deliver service more effectively. We are also leveraging our shared services model and looking for and stocking process improvement across our organization. These initiatives are tied in part to our integration efforts for MGE and Alagasco. As I mentioned last quarter, we’re nearly complete with the integration at MGE with final item, system implementation next month and our integration work at Alagasco is well under way. Now let me turn to optimizing gas supply assets. As I narrated last quarter, we have undertaken a thorough evaluation of our mix with natural gas stores, transportation, and supply assets to ensure we have diversity to access to gas supply from various states and transportation sources. Due to the introduction of Shell Gas, such an evaluation should improve diversity and the liability for years to come. We started this effort in Eastern Missouri evaluating access to Shell Gas in the Northeast supply basin and Western Missouri and Alabama are earlier in the process. However, by the end of the calendar year, we expect to be in a position to outline some initial step we will take to realize value both for our customers and shareholders. Now, I’d like to close on positive merits. Last week, Laclede Board of Directors declared a common stock dividend of $0.46 per share, payable October 2. This is the same quarterly rate declared since the annualized dividend was increased 4.5%, effective January 2. We are proud of our track record applied in consecutive years, I mean keeping dividend, as we continue to make good on commitments to deliver a shareholder value. With that, now let me turn the call over to Steve Rasche to review our third quarter results. Steve? Steve Rasche Thanks, Suzanne. Good morning, everyone. We announced three quarter earnings earlier this morning that came in to the top end of our expectations, due to timing and a slight improvement in our income tax rate. Let me take a few minutes to review those results with you and talk a little bit about the rest of this year and 2016. Starting with the third quarter results, total operating revenues were just over $275 million, up 14% from last year. Operating margins or earnings contribution after gas cost and gross receipt taxes of $177 million was 36% higher than last year. Our business segment, Gas Utility margins of $173 million were up $50 million from last year, as the addition of Alagasco contributed $54 million in margin, while the operating margin of our Missouri utilities, declined by $4 million. This decline reflects interest revenues that were higher in the quarter, but they were more than offset by the change in Missouri Gas Energy’s rate design. As we noted in previous quarters, MGE’s rates now include a variable user space component, which has shifted the margin into the first and second quarters of the fiscal year and decreased margins in the third and fourth quarters. Gas marketing delivery operating margins of $3.1 million down from $6.5 million last year, this decline reflects the return of normal weather and market conditions in the Midwest, as compared to the higher volatility and wider price differentials prevalent in the prior year. Remember that last year the overall market was recovering from the record cold winter of 2014 and the market dynamics were still working to return to the new normal, so to speak, that we are seeing again this year. Returning to the income statement, other operations and maintenance expenses of just under $91 million include the benefit of $7.6 million nonrecurring gain on sale of utility’s property, related to the consolidation of our St. Louis offices. Excluding that gain, run rate operating and maintenance expenses of approximately $98 million or $25 million higher than last year, reflecting; first, the addition of Alagasco, which added roughly $36.5 million to O&M cost and second, lower expenses at Missouri utilities, driven by lower bad debt expense, lower labor costs, offset in part by higher integration expenses. Depreciation and amortization of $32 million was up $14 million from last year, with $12 million attributable to the addition of Alagasco and the remainder reflecting the higher level of capital spent in the last 12 months. Taxes other than income of $26 million were up $4 million, reflecting mainly the addition of Alagasco, offset in part by lower Missouri gross receipt taxes. Interest expense for the quarter of $18 million was higher year-on-year by just under $7 million and reflects the debt assumed and issued in conjunction with the Alagasco acquisition. Income tax expense was $4.6 million, compared to a net tax benefit in 2014. The effective rate for the current year now stands at 31.6%. And the provision for the quarter reflects the year-to-date change to that new run rate. During the quarter we filed our annual income tax returns and recognized the onetime benefit associated with the retroactive components of the tax extenders that were passed in late 2014. We anticipate our full-year effective tax rate to remain close to this run rate. The resulting GAAP net income for the quarter was approximately $14 million or $0.33 per diluted share. Net economic earnings for the quarter were $11.1 million, down from $14.5 million last year. As noted in our press release, our net economic earnings this quarter, excludes that gain on sale of property and after tax benefit of $4.7 million, to provide a truer picture of our run rate earnings. Looking at the earnings by segment the Gas Utility segment delivered net economic earnings of $16.5 million, compared to $13.3 million, a year ago. This increase reflects the additional earnings from Alagasco and the increase in [indiscernible] revenues offset in part by the impact of MGE’s rate design change. Gas marketing earnings are $0.5 million, down from $1.9 million last year reflect the change in market conditions I noted a minute ago. Other net cost in 2015 of $5.9 million reflect primarily the interest cost associated with the lead group debt issued to finance the portion of the Alagasco acquisition. On a per share basis, third quarter net economic earnings were $0.25 per diluted share, compared to $0.44 per share last year. This comparison reflects the change in the quarterly distribution of earnings, as well as the weighted average impact of the additional 10.4 million shares issued to finance the Alagasco acquisition, last year. Let me turn briefly to our year-to-date results. Overall net economic earnings for the first nine months of our fiscal year were just over $154 million or $3.56 per share. This compares to the prior year earnings of $102 million or $3.12 per share. This increase of nearly $52 million is due to growth in our Gas Utilities segment reflecting not only the addition of Alagasco, but also growth of our Missouri Utilities. Gas marketing earnings were lower than the last prior year period due to more favorable weather and market conditions in the prior year. Switching to cash flow statement, cash provided by operating activities for the first nine months of 2015 essentially doubled from a year ago to $366 million. Alagasco added $120 million of that operating cash flow and the remainder reflects favorable timing of collections the Missouri cost under our purchase gas adjustment cost, as well as lower inventory values. And as Suzanne mentioned, year-to-date capital expense was nearly $203 million up more than $93 million from last year with approximately $57 million of that increase attributable to Alagasco and we remain on track for our targeted capital spend $300 million this year. Our balance sheet at June 30 remains very strong with solid long-term capitalization of 51% equity and 49% debt. And short-term borrowings were approximately $211 million down from last quarter, reflecting our ongoing plans delever the business. Our liquidity remains excellent and we have ample capacity in our credit facilities and commercial paper program. During the quarter, we finalized our private placement of two tranches of Alagasco senior notes. These notes will fund later this calendar year to better match our seasonal cash dues [ph] with $35 million in ten-year notes with an effective interest rate of 3.2% funding on September 15, essentially replacing a similar north of high rate notes that we called in January of this year. In addition, we will plan $80 million in 30-year notes and an effective rate of 4.1% on December 1, and current with the maturity of life amount of debt that carries an interest rate of approximately 5.4%. In both instances our customers in Alabama will benefit from the lower interest rates since interest expenses recovered currently and trued up quarterly. Looking out to the rest of the year, our results continue to demonstrate the success of our growth strategies and we remain on track to meet our full year 2015 earnings targets. As a reminder, due to the change in MGE’s rate design, and the acquisition of Alagasco, our distribution of earnings becomes more seasonal and as a result we anticipate an operating loss in the fourth quarter, hot summer season in our service territories. We anticipate our fourth quarter loss being higher than last year and a little above the top end of the 9% to 11% range of full year net economic earnings per share we first introduced last fall. These expectations reflect the adjustments I noted earlier for a slightly lower effective tax rate and the timing of operating and maintenance expenses in the fourth quarter. Again, putting all this together, we remain on track for meeting our commitment of growth in 2015 above 6% after moving last year’s gas marketing weather benefit. And we’re already well into preparing for fiscal 2016, especially our budget and long range of plan. All are on track with our long-term EPS growth target up 4% to 6% and the expectation that 2016 will again be above that range. I would also note that as part of that detailed planning process we are assessing the launch of more formal, annual earnings guidance. More later as we complete the hard work internal with our team to get our 2016 plans in place. Now, let me turn it back over to you Suzanne. Suzanne Sitherwood Thanks, Steve. So summarize, we continue to execute on our strategy and delivered results in line with our expectations, including our earnings per share growth target. We are executing well and we continue to transform Laclede to effectively integrating and bringing together our utility companies and improving the business models of our non-regulated businesses. This transformation includes the shift in our corporate culture to reflect where we are today, a larger, growing company, to serve gas utility customers across two states and provide other gas services across the Midwest and other parts of the country. We continue work to build stronger connections and communications at all of our constituencies, sharing our changes and our plans. Our recent AGA presentation had simplified they’re reflected truly are the company. The slide depicts the community with a description, the description is energy exists to help to live their lives, relative businesses, advance the community. This is simple idea that had won the heart of our business. In that spirit I offer things are more than 3,000 employees for their commitments through our simple idea. And months ahead, you can expect that we will continue our efforts to focus and solidify our emerging messages to our stakeholders, and continue to deliver on our product. Operator, we are now ready to take questions. Thank you. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from Dan Eggers with Credit Suisse. Dan Eggers Hey, good morning guys. Hey, good morning, sorry about that. Just a couple of questions, Suzanne you’ve made mentioned to the Muni system acquisitions or something about Muni’s in your prepared remarks. I just wanted if you could just, maybe elaborate a little bit more on that or tell me if I just misheard you? Suzanne Sitherwood Here I’ve given a little bit more expansion regarding organic growth. We’ve shared just a couple of calls ago, we had hired our Vice President of Organic Growth, and he’s done a lot of preliminary work in terms of areas that we should be focused on. And one of those areas on the resistible [ph] and also with the acquisition of Alagasco, there’s several municipals [ph] on that scale, as well as even some in Missouri too. We are just focused right now on understanding who they are and we also think about it in terms of all the pipeline regulations and Steve Lindsey is at the table and he can talk a little bit more that if you’d like but some of these municipals are actually reaching out to gas company because they have a stronger need in understanding what [indiscernible] and Steve if you want to add. Steve Rasche I think we’re [indiscernible] exactly where we’re really seeing a trend nationally that has enhanced pipeline safety regulation moving at the place. Some of these near to operators are looking for business either in the operation or exist in more perhaps concluding divesting our existing system. So we are out in market, we’re making ourselves available to have discussions with those long [indiscernible] and we do these as part of our organic growth. Dan Eggers Again we’ve in the water space where it makes tremendous amount of sense for the communities probably to be selling their systems because of the capital obligations and operational challenges, yet they seem not to show a whole lot of willingness to do it. As you guys are kind of looking into this, are you seeing interest either from the communities [ph] or the people in the communities would suggest, this is something you guys get yourself more actively involved in? Steve Rasche Well, yes, I think again as you mentioned some of the operational characteristics of the system have changed, as well as leadership looking at different municipalities. So I think again, our overall work right now is to evaluate where those opportunities to exist, have those discussions, and if those opportunities present themselves be ready and take a little bit more of a proactive approach that we have in the plans. Suzanne Sitherwood And you know what are the plans is, capital constrains, some of the communities have, especially coming out of the sort of the 2008 recession period and then you layer on this additional on Federal regulation. I still have the volume capacity and other capital resources to terms to you. So that’s part of what’s driving interest to your point. Steve Lindsey Do you think this is – is there an opportunity to kind of be a manager of their systems instead you get paid in a little capital way, you pay their management fee effectively to run it for them without having to do a lot of balance sheet work necessarily? Suzanne Sitherwood I guess I repeat we keep our mind open to you what the interest about, if we go to municipalities and for the Public Service Commission. I think if you will the commission really transactions in different way that we will keep our minds regardless taking the liabilities to the help of that system and our ability to evaluate with the extremely important. And then, secondly how we work with the regulators to get the – it’s a right way to transition that principle into the gas company that works for customers and our shareholders, and there [indiscernible], but we’ve done a lot of homework and we feel pretty confident about our approach. Dan Eggers This is Andy, I think this is the fiscal year 2016 event where we’ll start to see something converter how long [indiscernible] take to make sense of this from our perspective? Suzanne Sitherwood I think the few line items on organic growth, I’m trying to give into the [indiscernible] in terms of mix evaluation clearly wanted to the pillars and we’ve done a lot of analysis regarding to municipals that are in Missouri as well as Alabama and we have – they are working out in the field. So, I guess, time will tell that definitely something that we studied well and we are out looking. Dan Eggers And I guess, probably on the organic front you made mention of kind of looking at your share for shale related infrastructure and that sort of thing. Can you just maybe explain a little bit what the thought process is there? And I guess the timing is you give an update at the end of next quarter’s call up your fiscal year end? Suzanne Sitherwood It’s correctly. You did hear that correctly. So we embarked under my guide by heart leadership as Senior Vice President of Corporate Development Strategy. We started evaluating all the upstream asset that are prior actually to closing Alagasco for our considering utility and we were looking at the historical supply, transportation and stores contracts and sources for serving our customers. So we started evaluation process on how long they service regarding the liability for our customers on the short term and the long-term. As you know again with the introduction of shell gas in the various basement and there is attributes for these basements. As you know that changed the market, as well as the pipeline respond to those supply basements. So I believe and my colleagues believe the responsibility for us to embark on this evaluation, we started in eastern part of the state and we split up for a lot of the modeling therefore physical and logical modeling are now starting to same sort of western side of the state in Alabama and because we’ve started earlier with eastern side in more sophisticated, I mean reliability and then you layer on commercial availability you want some of their supply transportation services pipeline and go forward it. And that some of what you will hear an update for the end of next quarter. Dan Eggers Okay, great. Thank you guys. Suzanne Sitherwood Thank you. Operator Your next question comes from the line of Spencer Joyce with Hilliard Lyons. Spencer Joyce Steve, Suzanne, and Scott good morning, how are you? Steve Lindsey [Indiscernible]. Suzanne Sitherwood Good morning. Spencer Joyce Steve. I like that teaser on the guidance. We are all eagerly weighted queue for now. Steve Lindsey [Indiscernible]. Spencer Joyce Just a quick one here. Steve refreshes on the timing for that reallocation of the earnings kind of across the quarters, those rate structure changes will have anniversary like as of Q4, is that right. So we should have a pretty clean year kind of in the rear view mirror as of next quarter. Steve Lindsey We should but Alagasco will not have been in the mix last year cause you might recall close on that at the end of August. So we kept it out of our net earnings for the full year or so, if that and Alagasco is more seasonal due mainly to the fact of the geographies that it’s providing a natural gas. And so the fourth quarter will still be a little bit kinky, what I would suggest, Spencer is go back to the guidance that we talked about earlier in the year and I did talk about on the call and talk about on the call and we kind of give ranges of the earnings by quarter and that range that we gave for the fourth quarter was a loss of between 9% and 11%. And as I just mentioned, we expect to be a little bit above that range. So a little bit higher than 11%, I mean the loss for the quarter and that’s really timing of expenses as much as it is the change in the seasonality. But I would say that once we get beyond this year that I think we should have a reasonable cadence to work through, as you look at 2016 and beyond. Spencer Joyce Okay, great. So maybe one more kind of noisy or kinky quarter there and that we should be pretty clean? Steve Lindsey Yes, it is real hard. Not to make it noisy and comfortable for you. So – Spencer Joyce Yes, well, I know you all did a great job closing those acquisitions right at the end of the year, which made it nice to work with. Turning up to the income statement, the gain on sale from this quarter was that baked into the O&M line, was that a offset O&M expense or was that in the other income line? Steve Lindsey That was in the O&M expense line and you’d want to take out that $7.6 million essentially reduction in operating expenses in order to get to a better run rate. Spencer Joyce Okay, perfect that’s – and I think that was in the release. I just want to make sure I was understanding that right, that’s kind of a large item. Finally for me, on the corporate overhead and sort of the other unallocated expense or earnings line, we’ve obviously seen some wider losses this year, but I’m assuming that should peak somewhat for full year fiscal 2015, and then perhaps draw down a little bit moving forward. Is that kind of, I guess qualitatively the right way to think about those, the other segment, if you will? Steve Lindsey Yes, the other – the magical all other categories is everything that doesn’t set it nice and uniquely into a segment. And you’re right, the vast majority of those expenses are interest expense on the Group debt that we should financially, Alagasco transactions. So, and those are all, mostly at fixed rate some at variable rate, but short-term variable rate, so I until we start retiring that debt, that will be a fairly static number by quarter-to-quarter basis. There is a small amount of what I’ll call unallocated corporate costs that would also fall in that category. Those don’t generally vary much on a quarter-to-quarter basis, a little bit more this quarter because of some integration costs but we would pull those out for an economic earnings purposes. So, I think over time Spencer, as we start delivering the business and we know that in 2017, we delever the business with the – unit mandatory’s, liquidating at least the equity forward component those liquidating. That will definitely see change and the interest component in that other category. Aside from that is probably has a bit more flattish going into 2016. Spencer Joyce Okay. Perfect. So now – a potential drawdown talking point in 2017, but before that you’re looking kind of flattish. Steve Lindsey Yes. Spencer Joyce All right. Nice quarter, that’s all I have. Steve Lindsey Thanks, Spencer. Operator Your next question comes from the line of Selman Akyol with Stifel. Selman Akyol Thank you, good morning. Suzanne Sitherwood Hey, good morning. Selman Akyol A couple of quick questions. On your acquisition related expenses from Alagasco, how much longer do you expect those to be running through? Should we expect to see this continue to bleeding to 2016 as well? Steve Lindsey Yes, we do. We typically look on a broad brush Selman, when we look at integration. It’s generally a two to three-year program, if we look at MGE and that’s a really good marker to take a look at. We do anticipate there being some cost next year which would be the third year of that acquisition. Remember, we’re only coming up on the first anniversary of Alagasco. And as Suzan mentioned in our prepared remarks, we are now implementing the integration plans. So, we would clearly expect those integration cost to continue through 2016 and then perhaps some into 2017 at Alagasco. At that point, probably not much from MGE going forward. Selman Akyol All right. And then I think you said before that MGE was a good marker and maybe up to $20 million of integration expenses there, am I remembering that correctly? Steve Lindsey You are, and that was our original transaction cost guidance and we came in well underneath that. Our integration costs for MGE are running at a level significantly below that. In fact, if you give me just a second here because we do disclose that information every quarter, I’m not sure if I’m going to get it to – I will get it to you separately if I could – Selman Akyol Okay, we can follow-up offline Steve Lindsey Yes. Selman Akyol But so I’m just taking back 2016 in terms of Alagasco, should we expect sort of similar run rates to 2015 or is the bulk behind that is very just kind of quantify that? Steve Lindsey I would suspect that just as with MGE, you’re going to see a fairly consistent run of cost, they run into different categories, depending upon what’s driving them. So I would suspect we’ll see a similar level as we go through 2016 and that embraced our tailing off as we get to 2017. Selman Akyol Great, I appreciate that. And then just looking at the CapEx expenses, I clearly understand what’s being spent in Missouri, can you go through with the $56 million, where that’s being spent for Alagasco? Steve Lindsey Over a half of it was pipeline replacement and that’s clearly what our goal is in fact if you look into 2016 and beyond, we would expect that number to even go a little bit higher. So in terms of the fully 50 – 30 or almost two-thirds of that amount is either pipeline replacement or other things that would be directly associated with pipes or new customers. And then this year, and we see the same thing happening in St Louis or in Missouri, as we do have some facilities costs that are coming in this year, that’s about $10 million at Alagasco this year which we wouldn’t expect to recur next year. From our pipeline replacement perspective, all the three utilities will be at or above the level they were at last year. So we are managing holistically and at Alagasco, there is one large infrastructure expansion and as a surprise or improvement that this year, so that in other major pieces, what’s going on in 2015 Selman Akyol All right. Last one for me on still on the CapEx, $300 million for this year, roughly split two-thirds between Missouri and one-third for Alagasco? Steve Lindsey Yes, sir. Selman Akyol Got it. All right. Thank you very much. Suzanne Sitherwood Thanks, Selman. Steve Lindsey Thanks, Selman. [Operator Instructions] At this time we have no further questions. Management, I’m turning this back to you for closing remarks. Scott Scott Dudley Great, thank you all for joining us and will be available throughout the day for any follow-ups. Thanks for joining us. Operator This concludes today’s conference call. You may now disconnect.