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Recent Volatility Providing Potential Buying Opportunity In The Biotechnology Space

Summary IBB was pulled back roughly 20% from its 52-week high this week with shares plunging from $400 to $320 per share during the recent market weakness. Persistently low oil prices, fear of an imminent rate hike and weakness in China have indiscriminately pulled down all indices over the past week. These external events are largely extraneous to the biotechnology sector and thus may present a buying opportunity throughout pullbacks if adding to a position or initiating a new position. Medical and prescription drug expenditures are projected to grow at an average rate of 5.8% and 6.3% annually through 2024, respectively. Taken together, this may present a potential buying opportunity especially given the recent market volatility. Introduction: The confluence of persistently lower oil prices, fear of an imminent rate hike and more notably weakness in China have indiscriminately plummeted all indices over the past week. These external events are largely extraneous to the biotechnology cohort yet this group has been taken along for the downhill ride with the broader indices. The biotechnology sector has been on an unprecedented performance streak in both annual and cumulative performance over the past 10 years and accentuated during the latest 5 year timeframe however lately this streak has been tested during the recent market volatility. The biotechnology sector can be highly volatile, however I posit that this cohort has not only established itself as a secular growth sector but these latest events are unrelated to the biotech sector and thus this recent pullback may provide a potential opportunity to add to a current position or initiate a position over time as this correction unfolds. Using The iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ) as a proxy, based on annual and cumulative performance throughout both bear and bull markets, IBB may provide the opportunity investors have been waiting for in the face of the current market downturn. IBB is touched down to register a 20% decline from its 52-week high, shares have plunged from $400 to $320 at one point per share during the recent market weakness, presenting a potential buying opportunity. Growth expenditures as a rational for buying on major pullbacks: Per the Centers for Medical and Medicaid Services, medical expenditures are projected (from 2014 through 2024) to grow at an average rate of 5.8% per year. This translates into 1.1% faster than GDP throughout this time period thus the healthcare expenditures as a percentage of GDP are expected to rise from 17.4% in 2013 to 19.6% by 2024. Despite several years of growth below 5%, health spending is projected to have grown 5.5% in 2014. Faster health spending due mainly to ACA health insurance coverage and rapid growth in prescription drug spending. The domestically insured is projected to have increased from 86% in 2013 to 89% in 2014 as 8.4 million individuals are projected to have gained coverage. Post 2014, national health spending is projected to grow at a 5.3% clip in 2015 and peak at 6.3% in 2020. Given these projections, this scenario bodes well for the biotechnology sector as more individuals have access to health coverage and prescription drugs. In terms of prescription drug expenditures, spending is projected to have grown 12.6 percent in 2014 to $305.1 billion. Driving growth were new specialty drugs and increased prescription drug use among people who were newly insured. Prescription drug spending growth is projected to average 6.3% annual growth from 2015 through 2024. Taken together, as the biotechnology sector continues its innovation and continuous supply of medications to treat and cure many different diseases coupled with the growth in overall medical spending may present an investment opportunity especially given the recent market volatility. Secular growth case for buying on major pullbacks: In addition to case outlined above (e.g. highlighting the disconnect between the events bringing down the broader indices and the biotechnology sector on a whole) the biotech sector has displayed its resilience in both bear and bull markets with secular growth. The returns for IBB have been very impressive in both annual and cumulative performance, unparalleled by any major index. Over the past 10 and 5 year time frames, IBB has posted cumulative returns of over 360% and 325%, respectively. These results are unrivaled by any major index, outperforming on a 10 year cumulative basis of 295%, 240% and 300% for the S&P 500, Nasdaq, and Dow Jones respectively (Figure 1). These returns are accentuated during the previous 5 years. IBB notched cumulative returns of 325%, outperforming the S&P 500, Nasdaq and Dow Jones by 245%, 215% and 265%, respectively (Figure 2). IBB has cumulatively outperformed all indices by roughly 3-fold and 2.5-fold over the 10 year and 5 year time frames, respectively (Figures 1 and 2). (click to enlarge) Figure 1 – Google Finance comparison of IBB returns relative to the S&P 500, Nasdaq, Dow Jones over the previous 10 years (click to enlarge) Figure 2 – Google Finance comparison of IBB returns relative to the S&P 500, Nasdaq, Dow Jones over the previous 5 years IBB has displayed impressive resilience in the face of the market crash in 2008, the bear markets of 2011 and the very volatile market thus far in 2015. During the market crash of 2008, IBB posted an annual return of -12.2% while the S&P 500, Nasdaq and Dow Jones posted returns of -37.0%, -40.0% and -31.9%, respectively (Figure 3). During the bear market of 2011, IBB posted an annual return of 11.7% while the S&P 500, Nasdaq and Dow Jones posted returns of 2.1%, -0.8% and 8.4%, respectively (Figure 3). Thus far during the highly volatile market of 2015, IBB posted an annual return of 13% while the S&P 500, Nasdaq and Dow Jones posted returns of -5.8%, -0.8% and -8.6%, respectively (Figure 4). These data suggest that IBB outperforms during bear markets and thus has established itself as a secular growth sector and in the face of unrelated economic events may provide a buying opportunity. (click to enlarge) Figure 3 – Morningstar comparison of IBB annual returns relative to the Nasdaq over the previous 10 years (click to enlarge) Figure 4 – Google Finance comparison of IBB annual performance thus far in 2015 relative to the S&P 500, Nasdaq and Dow Jones Conclusion: As the confluence of these economic events seemingly disconnected in bringing down the biotechnology sector coupled with expenditure growth in overall health and prescription drug spending, it may be a good time to consider capitalizing on this correction via adding to existing positions or initiating a new position in this cohort given this opportunity. Being opportunistic and capitalizing on the recent volatility on pullbacks to slowly add to or initiate a position may be the opportunity investors have been waiting on to pounce on IBB. Data suggests, provided a long-term position that volatility within the biotech sector is negated by its long-term performance that is unparalleled by any major index. This sector provides high returns unrivaled by any major index with moderate risk (based on its resilience during the bear markets of 2008 and 2011 and thus far in 2015) and volatility. IBB may be providing investors with a great opportunity to add or initiate a position for any long portfolio desiring exposure to the biotechnology sector with a long-term time horizon given the recent market conditions. References: CMS.gov Statistics Trends and Reports Disclosure: The author currently holds shares of IBB and is long IBB. The author has no business relationship with any companies mentioned in this article. I am not a professional financial advisor or tax professional. I wrote this article myself and it reflects my own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. I am an individual investor who analyzes investment strategies and disseminates my analyses. I encourage all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, I value all responses. Disclosure: I am/we are long IBB. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Spark Energy’s (SPKE) CEO Nathan Kroeker on Q2 2015 Results – Earnings Call Transcript

Spark Energy (NASDAQ: SPKE ) Q2 2015 Earnings Conference Call August 13, 2015, 11:00 AM ET Executives Andy Davis – Head of Investor Relations Nathan Kroeker – Director, President and Chief Executive Officer Georganne Hodges – Chief Financial Officer Analysts Selman Akyol – Stifel Operator Good morning, ladies and gentlemen. Welcome to the Spark Energy, Inc.’s second quarter 2015 earnings conference call. My name is Shannon, and I’ll be your operator for today. [Operator Instructions] I would now like to turn the conference over to Mr. Andy Davis, Head of Investor Relations for Spark Energy, Inc. Please go ahead. Andy Davis Good morning and welcome to Spark Energy, Inc. second quarter 2015 earnings call. This morning’s call is being broadcast live over the phone and via webcast, which can be located under Events and Presentations in the Investor Relations section of our website at www.sparkenergy.com. With us today from management is our President and CEO, Nathan Kroeker; and our CFO, Georganne Hodges. 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. Management may make forward-looking statements concerning future expectations, projections of our operations, economic performance and financial condition. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we give no assurance that such expectations will be realized. We urge everyone to review the Safe Harbor statement provided in yesterday’s earnings release as well as the risk factors contained in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise 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 yesterday’s earnings release. With that, I’ll turn the call over to Nathan Kroeker, our President and Chief Executive Officer. Nathan Kroeker Thank you, Andy. I’d like to welcome our shareholders and analysts to Spark’s second quarter 2015 conference call. I will make a few opening remarks about our operating results and the two acquisitions we closed recently. And then our Chief Financial Officer, Georganne Hodges, will provide some detail on the financial results. We will then conclude with questions from analysts. Georganne will give you the financial details of our second quarter results in a moment, but I will tell you that we are very pleased with these results. We saw enhanced unit margins in both our Retail Natural Gas and Retail Electricity segments during the second quarter. This was a result of margin expansion, coupled with declining wholesale prices and our ability to capture higher margins on our variable book. In terms of customer count, we saw organic growth of 4% in the second quarter, driven by strong success with our electric sales campaigns in PPL and NSTAR as well as consumers in PG&E on the natural gas side and dual fuel offerings in [indiscernible]. I will discuss our two recent acquisitions in a moment, but I will say that I’m very excited about the addition of 20 new markets from these acquisitions. In the first few weeks, we have launched several dual fuel products where, for example, we are now selling Oasis electricity combined with Spark gas in the same customer sales experience. In addition, we are in the process of broadening our broker relationships, providing brokers new electric and gas markets, leveraging our suite of brand. As we signaled last quarter, we continued to see the heightened level of attrition in Southern California, as a result of our more aggressive collection efforts in that market. In line with our expectations with the closing of the Entrust acquisition, we saw higher attrition as a result of required customer communications, as those customers came on flow in the second quarter. We have taken a series of steps, aimed at reducing attrition, and we are already seeing success. If you dig into the second quarter, attrition was at its highest point in April, and has been trending down through June, and we’re seeing this trend continue in the early part of the third quarter. While I expect our attrition to continue to improve over the next few quarters, I don’t expect it to return to the levels of a few years ago, as the composition of our business has shifted overtime at higher-margin lower-volume customers that tend to experience higher attrition levels. All of this attrition is factored into our pricing strategies and our customer likes on value analysis. On July 8, we acquired CenStar Energy, a retail energy company with approximately 75,000 RCEs across 20 utilities in New York, New Jersey and Ohio. CenStar provides us with the access to 13 new utilities service territories as well as several new products to support our continued organic growth efforts. Censtar has a strong brand as well as a number of broker infinity relationships that we intend to leverage, as we grow this business. On July 31, we completed our Oasis Energy acquisition. Oasis operates in six states across 18 utilities and has approximately 40,000 natural gas and electricity customers. Oasis provides the seven new utilities, providing additional organic growth opportunities for Spark. As discussed on the last call, we intend to maintain the Oasis brand in sales and marketing operations, given their ability to add customers at a competitive cost, and realize electricity unit margin that are significantly higher than our historical margins, while only experiencing slightly higher attrition rates. We expect both businesses to be accretive through adjusted EBITDA in 2015, inclusive of integration costs expected in the third and fourth quarters. On June 15, we paid a quarterly cash dividend for the first quarter of $0.3625 per share. More recently, on July 23, we announced that our second quarter dividend of $0.3625 per share will be paid on September 14. We expect to pay this quarterly dividend on a go-forward basis. And as we have previously communicated, we expect 2015 adjusted EBITDA to exceed our planned 2015 dividends and all required distributions and tax payments. And now with our two recent acquisitions, our adjusted EBITDA should be further increased by a meaningful amount. And I want to reiterate that management does not anticipate any changes to the dividend policy in 2015. Thanks for your attention. And with that, I will now turn the call over to Georganne Hodges, our Chief Financial Officer, for more financial review. Georganne? Georganne Hodges Thank you, Nathan. Strong unit margins underpinned by lower supply costs across several of our market led to an adjusted EBITDA of $4.6 million for the second quarter. This compared to $1.4 million for the second quarter of 2014. Retail gross margin was $23.1 million compared to $17.9 million in 2014. This increase was driven by increased unit margins across both our retail natural gas and electricity segments. Although, customer account was 17% higher in the second quarter of 2015 as compared to 2014, our gas volumes were slightly lower reflecting a shift in our overall geographic mix. G&A expenses for the quarter were $13 million compared to $9.7 million in 2014. This increase is primarily due to increased billing and other variable costs associated with customer account growth and increased costs associated with being a public company. Customer acquisition spending for the quarter was $6.2 million compared to $6.4 million spent in the second quarter of ’14. Approximately, 82,000 new customers came on flow in the quarter, which includes approximately 25,000 from our Entrust acquisition, which we closed in the first quarter. Our net income for the quarter was $4.6 million compared to $200,000 in 2014. Our EPS for the quarter was $0.23, which was positively impacted $0.02 by an unrealized gain on our hedges of future supply positions. In the second quarter, we paid down our working capital facility by $11 million, ending the quarter with a loan balance of $9 million. On July 8, we amended and restated our senior credit facility to include a $25 million secured revolving line of credit to be used specifically for the financing of permitted acquisitions, along with our revolving working capital facility of $60 million. As of today, the loan balance on the revolving acquisition tranche is $21.2 million, while the balance on the working capital facility is $20.3 million. I would point out that the balance on the working capital facility reflects the purchase of working capital for both CenStar and the Oasis acquisitions. Additionally, on July 8 and July 31, in conjunction with the closing of these acquisitions, we executed a total of $7.1 million of convertible subordinated debt with an affiliate of our founder. That concludes my prepared remarks. I’ll now turn the call back over to Nathan. Nathan Kroeker Thanks, Georganne. In summary, we are very pleased with the strong adjusted EBITDA and retail gross margin we realized in the second quarter. As we move through the third quarter, we are very focused on the integration of our two new acquisitions, taking advantage of the new market opportunities for organic customer acquisitions. We will now open up the line for questions from our analysts. Operator? Question-and-Answer Session Operator [Operator Instructions] Our first question comes from Selman Akyol with Stifel. Selman Akyol As we sit there and look at the gross margin, and I know represented in your early comments that you had, I guess, favorable supply contracts on as well. How long do those — is the gross margin due to the acquisitions, higher selling prices? Is it due more to the favorable acquisition prices of energy? And if so, how long do those contracts run for? Just trying to get a feel for how durable those margins are? Nathan Kroeker Let me make sure I understand your question, Selman. So you’re asking how much of it is due to us increasing revenue and how much of it is due to us having lower costs and how long can we expect that to continue for? Selman Akyol That’s a very good summary of it, yes. Nathan Kroeker It’s really a combination of both. So on the supply side, we saw commodity prices coming down through the quarter. And when we see commodity prices coming down like that, it gives us the opportunity to expand our unit margins in that period of time. Similarly, we do have a pretty significant portion of our book that’s on variable price contracts. With milder weather in the quarters, smaller builds for consumers, we were able to have slightly higher variable margins, raise the revenue on those customers. So it’s really a combination of both. I don’t think it has much to do with the supply hedges out into the future as it is the situation in the quarter. That said, I mean I think we’ve proven that we can achieve higher unit margins than what we had last year, and we expect to continue to manage the business in a similar way going forward. So I definitely think you’re going to see higher unit margins even through the balance of the year than we had last year. Selman Akyol And then, can you talk about attrition within the quarter? Georganne Hodges We saw attrition numbers — you saw attrition numbers, they were higher than we would like. Within that, it has been trending down throughout the second quarter. And as I said a moment ago, I mean also trend it down even in the first part of the third quarter. Full quarter number was 7.7. Our June attrition, on a standalone basis for the month of June, was actually 6.8, and we see that trend continuing in July. I don’t necessarily see attrition getting all the way back down to the historical levels that we had a couple of years ago, because the makeup of our customer book has changed, really shifted a lot of our focus to higher margin, lower volume customers. And those customers tend to have inherently higher attrition. But as I also said a moment ago, I mean all of that attrition is factored into our pricing decisions, our pricing models and our lifetime value strategies. So I think we have done a pretty good job of managing it. Selman Akyol And then last one from me, just on sort of the acquisition outlook. So are you seeing lot of opportunities out there? Nathan Kroeker Absolutely, I mean I will say the management team is very focused on integrating the two deals we just did in July. But we do have a founder that’s very committed to helping us grow through M&A, willing to continue to leverage his balance sheet in order to do that. So we’re absolutely continuing to look at additional opportunities. Whether there would be something we do directly in Spark or whether it’s something that we do with the parent company and then leverage subordinated debt in order to drop those down at a later date, but we’re willing to look at pretty much anything that we think is on strategy for us. Operator We have no further questions at this time. I would now like to turn the call back over to Nathan Kroeker for closing remarks. End of Q&A Nathan Kroeker Thanks everybody for participating in today’s call. And we look forward to talking to you soon. Operator Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. 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Great Plains Energy’s (GXP) CEO Terry Bassham on Q2 2015 Results – Earnings Call Transcript

Great Plains Energy Inc. (NYSE: GXP ) Q2 2015 Earnings Conference Call August 7, 2015 9:00 a.m. ET Executives Lori Wright – VP of IR and Treasurer Terry Bassham – Chairman, President and CEO Jim Shay – SVP, Finance and CFO Analysts Ali Agha – SunTrust Paul Ridzon – KeyBanc Shar Pourreza – Guggenheim Partners Brian Russo – Ladenburg Thalmann David Paz – Wolfe Research Operator Good day, ladies and gentlemen, and welcome to the Great Plains Energy Second 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 may be recorded. I would now like to turn the conference over to our host for today’s conference, Ms. Lori Wright. You may begin. Lori Wright Thank you, operator, and good morning. Welcome to Great Plains Energy’s second quarter 2015 earnings conference call. Today, Terry Bassham, Chairman, President and Chief Executive Officer; and Jim Shay, Senior Vice President, Finance, and Chief Financial Officer will provide an overview of our second quarter results. Scott Heidtbrink, Executive Vice President and Chief Operating Officer of KCP&L and Darrin Ives, Vice President, Regulatory Affairs are 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 second quarter 2015 10-Q after the market closed yesterday. These items are available, along with today’s webcast slides, and supplemental financial information regarding the quarter on the main page of our website at greatplainsenergy.com. With that, I’ll now hand the call to Terry. Terry Bassham Thanks, Lori. And good morning everybody. As you saw in the 8-K that was filed yesterday, we are announcing a change in our officer team. Jim Shay will be leaving the company effective September 2 to take a new role as CFO at Hallmark Cards here in Kansas City. It’s truly been an honor and pleasure to work with Jim and we appreciate his leadership. Replacing Jim as Senior Vice President Finance, Strategy and Chief Financial Officer will be Kevin Bryant. Many of you know and have already worked with. Kevin is currently our Vice President, Strategy Planning and has been with Great Plains Energy for 12 years. His responsibilities at the company include Vice President of Investor Relations and Treasurer and Vice President of Energy Solutions. He is very eager to assume his new responsibilities and in particular working with each of you. I hope you’d join me to wishing Jim the best in his new opportunity and welcoming Kevin to his new role. On our call this morning, we will discuss our second quarter results and provide an update on KCP&L’s rate cases in Missouri and Kansas. We’ll also give an operations update and an overview of Transource’s new project in West Virginia. I will begin with Slide 4 in the presentation. Yesterday, we announced second quarter 2015 earnings of $44 million or $0.28 per share compared to $52 million or $0.34 per share in 2014. Drivers for the quarter included favorable operations and maintenance expense, positive weather normalized demand growth and milder weather with cooling degree days 15% below the second quarter 2014. We also reaffirmed our 2015 EPS guidance range of $1.35 to $1.60. Jim will discuss more details on the quarter in his comments. On the regulatory front, KCP&L’s rate cases are on schedule to be completed during the third quarter. In Missouri evidentiary hearings were completed in July and founder reply briefs were filed earlier this week. KCP&L’s initial request in revenue increase of $120.9 million was subsequently adjusted to $112.7 million as a result of updates to the case and negotiated partial stipulations and agreements. As a reminder, KCP&L’s request is based on a return of equity of 10.3%. Missouri Public Service Commission staffs recommended revenue increase ranges in the $76.8 million to $87.3 million predicated on our ROE range of 9.0% to 9.5%. The partial stipulations and agreements that have already been approved by MPSC resolved several issues in the case. The remaining unresolved items include ROE as well as the company’s ability to utilize a fuel clause and trackers for property taxes and critical infrastructure protection standards or CIPS cybersecurity expenses. In Kansas, evidentiary hearings concluded in June and reply briefs were filed earlier this week. KCP&L requested a revenue increase of $67.3 million based on a return of equity of 10.3. The Kansas Corporation Commission staff recommended a revenue increase of $44 million based on an ROE of 9.25. Turning to the Missouri case, we were able to resolve a majority of the issues in our Kansas case and partial stipulations and agreements were filed in June. The agreements include the ability for KCP&L to implement a transmission delivery charge rider and a CIPS cybersecurity tracker. Stipulations and agreements have yet to be approved by KCC. With most of these issues settled, ROE remains as one of the few unresolved items in the Kansas case. We anticipate new rates to be effective in both KCP&L’s jurisdictions by the beginning of the fourth quarter of the year. You can find summaries of the rate cases in the appendix of this presentation. We remain confident in our ability to deliver constructive regulatory outcomes in our current proceedings, reinforcing our commitment to deliver 4% to 6% earnings growth from 2014 to 2016. In addition, we remain on target to grow rate base to 6.5 billion by 2016. Turning to operations. Earlier this week, the Environmental Protection Agency issued the final standards for its Clean Power Plan. As we analyze the more than 1500 page document we are getting a better understanding of the plan and its potential impact. Although KCP&L and the electric power industry have spent more than a year working with EPA on a viable solution, the final version of the Clean Power Plan has significantly changed from the draft, we will continue evaluating the new rules. In recent months, our service territory has been impacted by the number of severe weather events, including a storm in late June that led to our largest customer outage since 2002. Storms uprooted or caused significant damage to over 50,000 trees, left over 150,000 customers without power. Our employees and our neighboring utilities worked diligently and safely to restore power to our customers, and I’d like to take this opportunity to thank everyone for their efforts and execution. I will wrap up with a few comments on transmission. We are pleased that Transource, our joint venture with AEP, was selected by PJM to develop the competitive portions of the thoroughfare area project in West Virginia. Construction on the 60 million 138 KV line is expected to begin in 2017 and to be in service in 2019. This win in the emerging competitive transmission market combined with its existing SPP projects reinforces our belief that Transource is well-positioned to successfully compete and deliver innovative solutions. I’ll now turn the call over to Jim to discuss our financial performance. Jim Shay Thank you, Terry and good morning everyone. I will begin with Slide 6 which presents a comparison of the second quarter and year-to-date earnings-per-share results for 2015 compared to 2014. As Terry indicated, our second quarter 2015 earnings was $0.28 per share compared to $0.34 per share last year. Lower operating and maintenance expense, positive weather normalized demand growth and new retail rates in Kansas were positive drivers that were more than offset by milder weather, decrease in AFUDC and increases in depreciation and amortization. For the year-to-date period, earnings were $0.40 per share compared to $0.49 per share last year. Through the first half of 2015, we’ve seen favorable O&M expense driven by diligent cost management and lower cost at Wolf Creek, related to the planned 2014 mid-cycle maintenance outage and lower refueling amortization. For the second half of 2015, we expect our O&M expenses to increase above the 2014 level. Consistent with our 2015 guidance, we expect overall O&M for the full year to increase 3% to 4% which include increases in regulatory amortizations and items which have direct revenue offsets. As a reminder, the O&M items with direct revenue offsets include our Missouri Energy Efficiency Investment Act programs. These investments allow us to invest in our customers by providing long-term energy solutions and ability to generate shareholder returns. We recover program costs and a throughput disincentive for these programs, which is included in our gross margin. Our projected O&M increase for the full-year 2015, exclusive of regulatory amortizations and items which have direct revenue offsets, is 1% to 2%. Turning to Slide 7. As we think about the third quarter compared to a year ago, we will be impacted by a decrease in AFUDC and increasing O&M. We will also expect continued lag from property taxes, transmission costs and depreciation until new rates are in effect. Lower natural gas prices are negatively impacting off-system sales, which have an earnings impact to KCP&L and Missouri, where we do not have a fuel clause. As Terry discussed, KCP&L’s ability to utilize a fuel clause is one of the remaining items to be determined by the commission in the Missouri rate case. A fuel clause would mitigate the exposure to off-system sales going forward. Finally, in the third quarter of 2014 we had unrecognized tax benefits that will have an unfavorable year-over-year comparison. As a result of these drivers, we expect third quarter 2015 earnings will be lower than the same period in 2014. Weather normalized demand, net of the impact of our energy efficiency programs, was up 1.2% for the quarter and up 0.6% year-to-date through June. The results are in line with our full year projection of flat to 1.5% net of energy efficiency. Year-to-date we’ve seen strong residential and commercial demand partially offset by lower industrial demand which has the lowest margin among the sectors. The Kansas City region has experienced 47 consecutive months of seasonally adjusted job growth and in June the unemployment rate of 5.3% was below the national rate of 5.5%. Construction is well underway at Cerner Corporation’s new Trails Campus in South Kansas City. The first two towers which will accommodate more than 3500 employees are under construction and a move-in date likely in early 2017. Over the next 10 years, a total of 16 new buildings containing 4.7 million square feet of office space supporting approximately 16,000 employees are planned, making it the largest economic development project in Missouri’s history. On the industrial front, we were impacted by a customer relocating to a more energy-efficiency facility within our service territory and a general decrease in usage from a handful of customers. Demand at Ford’s Kansas City assembly plant remains strong. Sales of Ford’s F-150 pickup truck had benefitted from gasoline prices that are near a five-year low. The Ford plant is operating with three shifts to keep up with demand for the F-150 America’s best-selling vehicle. On the capital markets front, we expect to issue long-term debt at KCP&L this year with no plans at this time to issue equity. We are reaffirming our 2015 earnings-per-share guidance range of $1.35 to $1.60. We are on plan to deliver on our financial objectives for the year and we remain confident in our ability to deliver 4% to 6% earnings growth from 2014 to 2016. Thanks for your time this morning. We would now be happy to answer any questions you may have. Question-and-Answer Session Operator [Operator Instructions] And our first question comes from Ali Agha of SunTrust. Ali Agha Terry or Jim, in the past, I had a call coming out of the last rate case cycle, you had mentioned that target earnings power for the company, should be between 50 to 100 basis point lag from the authorized ROE. Is that still a good rule to think about as we come out from this better [ph] rate cycle? Terry Bassham Yes, I think that’s what we’ve said all along, as the first year out of the case you should see that kind of range. Obviously what can affect your ability to deliver within that range, so it will be based on the outcomes of these cases. A few issues around riders and trackers and things like that. But certainly coming out as we did in the last cycle, the year after should be better matched to our historical test year. Ali Agha And then on the riders, trackers, fuel adjustment clause, any insights into how the commission may be looking at that, any sense of or conviction level in terms of the ability to get those this time around? Terry Bassham Well obviously we’re still awaiting an order, so probably little premature to have handicapped those. I would say that they remain very important to us. You can see some things that have happened in other cases that could indicate where they ruled on those before. But I will again remind you that we did get the CIPS tracker in Kansas and that’s a positive going forward for sure. We certainly – Commonwealth [ph] is expected to see those orders and rates implemented in this quarter. Ali Agha And assuming you do get those trackers and fuel adjustment clause, is it possible for you to hold on to that earned ROE in the following year like in ‘17 or is that just the natural lag in the way things work that you see some slippage as you go beyond the – on to the next year from the rate case? Terry Bassham Well obviously depend on which of the trackers, obviously we feel confident and think it important that we get the fuel factor itself in Missouri. There is a transmission piece and in the other asks we’ve made. Obviously if we’ve got all of the trackers, riders and asks we’ve made in that front makes it easier the second year, the extent you don’t get on this certainly makes it more difficult. What I would say to you is that if the — we don’t get those riders and trackers because they are considered general rate case type ask we will have to file rate cases on a much more frequent basis and we will do that. That was our response in this case with our prior asks and so what you’ll see from us if we are not allowed to deal with those in that manner is filing general rate cases much quicker. It’s just the nature of what we would assume is an indication from the commission. Ali Agha And lastly can you just remind us when you talked about the ’14 to ‘16 earnings growth outlook, can you just remind us what that base for ’14 is? Jim Shay It’s $1.60, off of the original guidance range. $1.60 was the bottom end of the original guidance range. Operator And our next question comes from Paul Ridzon of KeyBanc. Paul Ridzon Jim, congratulations on your new position and new role. I wish you the best of luck. It’s been a pleasure working with you over the years. Jim Shay Thank you. Paul Ridzon Quick question. How much of a headwind is not having the Missouri fuel clause? Terry Bassham Well, obviously it would be a disappointment and in the way we believe we’re entitled to it, it’d be a great disappointment candidly. In terms of actual financial effect, we already talked about the fact that we would have to file case again pretty quickly and at this point with off-system sales which are embedded in that being a very low level and an update on coal cost at the time it wouldn’t be a bigger drag as it historically has been. But it certainly would be one more challenge we’d have to face but we would again quickly file as appropriate ask for that in the next case. Paul Ridzon So just historically you had a fuel clause but you had to give it up as part of the deal. Is this how you treat, correct? Terry Bassham No, not really. Back in ‘04 when the original comprehensive energy plan was signed, there weren’t fuel clauses in Missouri. There was some discussed legislation that could create that. And so as we finalized the comprehensive energy plan and the deal, if you will, included gives and takes on both sides. It was agreed by the company not to ask for a fuel clause if and when legislation provided for that for our 10 year period. So that brings us to 2015 as our first opportunity to ask for it. Paul Ridzon And just on the transmission and property tax in Missouri, where does that stand as far as legislation or are you seeking more of a regulatory solution at this point? Terry Bassham Well again we’ve asked for both of those in the case. We will know again this quarter the result of that request from a commission standpoint, certainly if we’re not allowed to get those from the commission’s standpoint that would become part of our legislative agenda for the upcoming session. Operator And our next question comes from Brian Chen [ph] of Bank of America. Unidentified Analyst On the thoroughfare area project, can we get a sense of the spending pattern for that? Is there a ramp up as you sort of gear, should we think about even spending between now and ’19, just a little bit more color there would be great? Terry Bassham It will be about $60 million that will get spent from the period of from 2017 to 2019 would be the run rate. Unidentified Analyst And just as a clarification, the $60 million is the investment opportunity for Great Plains or is that the investment opportunity for the entirety of the project? Terry Bassham For the entire project. Great Plains will have 13.5% of that. Unidentified Analyst And Jim, hey congratulations on the new position. I’m just glad that I won’t have to potentially wear a Kansas Jayhawks tie again. Operator [Operator Instructions] Our next question comes from Shar Pourreza of Guggenheim Partners. Shar Pourreza Just one question, I am curious to get a refreshed viewpoint a little bit on sort of the requested ROE adjustment mechanism that Westar filed and obviously the staff recommended against it but also left it open for potential generic proceedings. I am curious to see if that’s something you would potentially look to go after with your Kansas utility? Terry Bassham Yes, I can mean, obviously each case presents its own issues and opportunities, that was a request from Westar that they left open, and certainly to the extent that there was a discussion on a more statewide level we would want to participate, work with both the commission and the staff and Westar to discuss that opportunity. Shar Pourreza Has conversations begun as far as the joint collaboration yet or is it too preliminary? Terry Bassham The cases they don’t file, settlement just happened. So we’ve been busy getting ready for this call. Operator And our last question comes from Brian Russo of Ladenburg Thalmann. Brian Russo Just curious if we could just talk some more about the lower gas prices and the sensitivity on the wholesale sales at the Missouri utilities. Could you just give us a sense of kind of like the total amount of wholesale sales in terms of megawatt hours, just kind of the mechanics of that, like what’s the base line that the sensitivity is based off of? Terry Bassham We don’t really have a lot of information in the public domain with respect to specifics but you recall in the last case we got offset of off-system sales established in rates and relative to over or under performance we will either get the benefit or give up an opportunity. And we have seen some pressure on gas prices this year which has been putting some pressure on off-system sales but in the upcoming rate case we will get a – we will get that trued up and hopefully a fuel clause and eliminate that volatility moving forward. But we really don’t have any numbers in terms of actual sensitivity in the public domain. And recall that the prices obviously were at lows, so I mean opportunity hopefully will be that they would tick up a little bit but – Operator I am showing a question from David Paz of Wolfe Research. David Paz I just wanted to clarify a statement I think I heard earlier. Can you remind me on the 4% to 6% growth target over the ’14-15 period? What is the base again? Terry Bassham It’s off of the original guidance for ’14 which is $1.60 to $1.75. So a pretty wide range using 4% to 6% growth rate off of that range. David Paz I thought I heard you say $1.60, I just want to make sure – Terry Bassham No, I was pointing to the bottom end of the range but the original – but the guidance target is off of the full range. End of Q&A Operator I am showing no further questions. I’d now like to turn the call back over to management for closing remarks. Terry Bassham Thank you, operator and thank you everybody for joining us this morning. We appreciate as always your participation in the call. Look forward to meeting with many of you in the weeks, months ahead. So thank you and have a good weekend. Operator Ladies and gentlemen this concludes today’s conference. Thank you for your participation and have a wonderful 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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