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National Fuel Gas Company’s (NFG) CEO Ron Tanski on Q2 2016 Results – Earnings Call Transcript

National Fuel Gas Company (NYSE: NFG ) Q2 2016 Results Earnings Conference Call April 29, 2016 11:00 AM ET Executives Brian Welsch – Director of Investor Relations Ron Tanski – President and Chief Executive Officer Dave Bauer – Treasurer and Principal Financial Officer John McGinnis – Chief Operating Officer Analysts Kevin Smith – Raymond James Holly Stewart – Scotia Howard Becca Followill – U.S. Capital Advisors Operator Good day, ladies and gentlemen and welcome to the National Fuel Gas Company second-quarter 2016 earnings conference call. [Operator Instructions] I would now like to introduce your host for today’s conference, Mr. Brian Welsch, Director of Investor Relations. Please go ahead, sir. Brian Welsch Thank you, Christie and good morning. We appreciate you joining us on today’s conference call for a discussion of last evening’s earnings release. With us on the call from National Fuel Gas Company are Ron Tanski, President and Chief Executive Officer, Dave Bauer, Treasurer and Principal Financial Officer, and John McGinnis, Chief Operating Officer of Seneca Resources Corporation. At the end of the prepared remarks, we will open the discussion to questions. The second-quarter fiscal 2016 earnings release and April investor presentation have been posted on our investor relations website. We may refer to these materials during today’s call. We would also like to remind you that today’s teleconference will contain forward-looking statements. While National Fuel’s expectations, beliefs and projections are made in good faith, and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made and you may refer to last evening’s earnings release for a listing of certain specific risk factors. With that I will turn it over to Ron Tanski. Ron Tanski Thanks, Brian and good morning everyone. Thanks for joining us for today’s call. As you saw in our earnings release last evening, we had a pretty steady second quarter although earnings were slightly down from last year. Earnings in our utility segment were lower due to warmer than normal weather and the lower commodity prices decreased earnings in our Exploration and Production segment. Dave Bauer will go into the details of the major earnings drivers later in the call. Overall, activities in the field for each of our operating segments moved right along as planned. We are just gearing up for the construction season for our regular pipeline renewal projects in our utility and our Pipeline and Storage segments. At the same time, we’ve slowed the drilling activities at Seneca Resources by moving to a single rig drilling program. Our reduced drilling level combined with getting a partner to fund a large portion of this year’s drilling program has cut our spending to allow us to leave within cash flow for the year. Our current plans allow us to stay to single drilling rig for at least a year before we need to ramp up drilling and completion activities again in order to have enough production to fill the pipeline capacity that will come online in November of 2017, the targeted completion date of our Northern Access pipeline. With respect to our Northern Access project, we received some good news from the Federal Energy Regulatory Commission. At April 14th, FERC issued its notices schedule for environmental review for the project and it confirmed their intention to develop an environmental assessment or EA for the project and announced the July 27, 2016 target date for the EA. Now that fits within our timeline for November 2017 in-service date. The other recent news on the regulatory front is the denial by the New York DEC of the Federal Water Quality Certification for the Constitution Pipeline project in Southeastern New York. We submitted our own permit filings to the New York DEC, the Pennsylvania Department of Environmental Protection and the U.S. Army Corps of Engineers for our project just last month. We delayed our filing by three months after a number of pre-filing meetings with the staff of the DEC in order to make sure that our application was complete and address their stated concerns. Based on those pre-filing meetings and gleaning what information we can from the Constitution denial letter, we feel our application is in pretty good shape. A big plus for our project is that more than 75% of the pipeline route will be co-located along existing utility corridors. We also believe that we worked well with the DEC in the past. We already owned and operated thousands of miles of pipeline assets in the state and during our ongoing maintenance and renewal of those lines we’ve dealt with them on a regular basis, addressing many project specific issues. Suffice it to say that we are confident that our project will continue to move along. On the federal rate regulatory front, our team has been busy filing the required cost and revenue study for our Empire Pipeline and answering interrogatories from FERC staff regarding the filing. The schedule is set out by the administrative law judge is a target completion date for the proceeding is set for February of 2017. So, we will keep you posted in future calls if anything major happens in that case. Switching to our utility and state rate regulation, our utility rate team filed a request for a rate increase in New York yesterday. This is the first rate increase request the utility has made since early 2007. The filing supports a $41.7 million increase in base rates, an increase of approximately $5.75 per month for an average residential customer. As is typical in the New York rate proceeding, any new rates would not become effective for 11 months. So, we wouldn’t expect any earnings impact until the second half of next fiscal year. We have a pretty clear line of sight through the end of this fiscal year with respect to our earnings projections and you can see that we’ve tightened up our earnings guidance range. With respect to our oil and gas production, we are well hedged for the remainder of this fiscal year and next fiscal year. And as you can see in the back pages of our earnings release, we are continuing our normal practice of layering in hedges for our oil and gas production as commodity prices in the futures market for our fiscal 2018 and beyond have begun to firm up. We see the market getting more bullish on commodity prices in the out years as production volumes have started to level off and the rig count stays low. For the foreseeable future, we will continue to watch our spending, protect our balance sheet and work to get our Northern Access pipeline build that will deliver Seneca’s production to an attractive pricing point. Now, I will turn the call over to John McGinnis, who will be stepping into the role of President at Seneca, when Matt Cabell’s retirement becomes effective next week. John McGinnis Thanks, Ron, and good morning everyone. For the fiscal second quarter, Seneca produced 39.2 Bcfe, which suggest over a Bcf more than we produced in our first quarter. In Pennsylvania, we curtailed approximately 9.1 Bcf of potential spot sales due to low prices and as a result, no spot gas was sold during the first half of our fiscal year. In April, however, prices have actually improved to the point but we have intermittently produced into the spot market at both our Tennessee and Transco receipt points. Though not a large volume totaling just over a Bcf, this was the first time we have sold meaningful spot volumes since December of 2014. In Pennsylvania after beginning the year with three rigs, we have now dropped to a single rig as of March. We plan on keeping this rig active for the remainder of the year to ensure we have sufficient inventory of DUCs to help fill Northern Access now scheduled to be online late next year. We have also reduced the activity level related to our completions crew to daylight-only operations. At this reduced pace, we typically complete five to six stages per day, which allows us to continue to recycle all of our produced water and avoid costly water disposal. Even with our frac crew operating at half pace, we continued to drop our well costs. For the first half of 2016, our development program has averaged under $5 million per well for a 7,400 foot lateral, which equates to costs of around $675 per foot. The key drivers for this continued drop in costs include the impact of the new frac contract executed in September of 2015 and a significant reduction in water costs. We now average less than a dollar per barrel in water costs, compared to about $3 per pad early in our development program. Moving now to the Utica/Point Pleasant, we have drilled and completed our first Clermont area at Utica horizontal at an estimated cost of just over $7 million. This well was drilled with a relatively short lateral length of 4,500 feet to better understand productivity on a per foot basis. Once we have completed all of 11 wells on this pad, 10 of which are in the Marcellus, we will bring this pad into production later this summer. The rig has recently moved to a new pad also in the Clermont area where we are currently drilling our second Utica well. This well is scheduled to be tested early in 2017. On the marketing front, when the opportunity arises, we continue to layer in fixed price sales and firm sales tied to financial hedges. This has allowed us to slowly grow production and realize acceptable pricing during an exceedingly difficult period for commodity prices. For the remainder of our fiscal 2016, the vast majority of our natural gas production forecast around 64 Bcf is locked in both physically and financially at an average realized price of $3.20. This $3.20 is net of firm transportation. We also have an additional 4 Bcf of basis protection and with the recent improvement in futures pricing, we are actively pursuing additional opportunities to add to our physical sales portfolio and hedge book. In California, production was nearly flat quarter-over-quarter, even though we have significantly cut our spending in California this year. We’re targeting to spend just under $40 million in 2016, almost a 30% reduction in compared to last year and half of what we spent just two years ago. All of our development activity is focused in Midway Sunset and will remain so until prices rebound. As a result of our recent farm-ins, however, we believe we can keep production flat to slightly growing over the next couple of years, even with these capital cuts. Thus far in 2016, we have cut E&P capital expenditures by almost 70% compared to 2015 levels to a forecasted range of $150 million to $200 million. Even with these cuts, we expect to grow our production slightly this year and maintain our DUC count ahead of Northern Access in-service date. The key drivers in achieving this result include our recent joint development agreement with IOG, dropping to a single rig and moving to daylight-only frac operations in Appalachia, combined with again, a significant reduction in our California capital expenditures. I’d like to now turn the call over to Dave Bauer. Dave Bauer Thanks, John. Good morning, everyone. Excluding the ceiling test charge, earnings for the quarter were $0.97 per share, down $0.05 from last year. The unseasonably warm weather in our service territory relative to last year’s record cold, lowered earnings by a combined $0.11 in our utility and Pipeline and Storage businesses. Meanwhile, our ongoing focus on cost control across the system helped to offset the continued weakness in oil and gas prices, which lowered earnings by about $0.25 per share. All told, considering the twin headwinds of weather and commodity pricing, both of which are largely beyond our control, the second quarter was a good one for National Fuel. Seneca’s production was up nearly 10% over last year’s quarter and 3% on a sequential basis. This increase is largely attributable to Seneca’s firm transportation capacity and associated firm sales related to the Northern Access 2015 project, which was placed in service late in calendar 2015. As a reminder, this was a joint project between our NFG Supply Corporation subsidiary and Tennessee Gas Pipeline designed to move a 140,000 dekatherms per day from our WDA acreage to the Canadian border at Niagara. For the quarter, this project contributed over $3 million in revenues to our Pipeline and Storage segment. In addition to benefiting Seneca and Supply Corp, the increase in Seneca’s production combined with our partner IOG’s share of the volumes from the joint development wells also helped our gathering business where revenues were up by $4.2 million or nearly 25%. Controlling operating costs was a focus across the system and we saw excellent results during the quarter. At Seneca, per unit LOE was $0.96 per Mcfe, down $0.07 from the first quarter. Most of this decrease was attributable to our California operations. In light of lower oil prices, our team has kept a tight lid on expenses, limiting our spending to only highly economic work-over activity and to areas that are critical to the safety and integrity of our assets. Also, lower natural gas prices caused steam fuel cost to be lower than we expected. In Appalachia, lower water disposal costs were also a factor. As John said, Seneca is now reusing almost 100% of our produced water. Road maintenance expense was also lower due to the relatively mild winter. Given all of these factors, we now expect our full-year per unit LOE rate will be in the range of $0.95 to a $1.05 per Mcfe, down $0.05 from our previous guidance. Seneca’s per unit G&A expense was $0.49 per Mcfe. During the quarter, Seneca implemented a reduction in force that trimmed our staffing complement by about 10%. As part of that effort, we paid out severance costs of about $1.5 million, which caused Seneca’s per unit G&A to be about $0.04 higher than it otherwise would’ve been. We’ll start to see lower personnel costs in the second half of the year. Per unit G&A for the rest of the fiscal year should be in the range of $0.35 to $0.40 per Mcfe. At utility, O&M costs were down over $5 million from last year. About a third of this decrease was caused by lower bad debt expense. A combination of historically warm weather and exceptionally low natural gas prices caused our customers winter heating bills to be the lowest they’ve seen in decades and has had a meaningful impact on our bad debt expense. The remainder of the decrease was caused by a variety of factors, including lower maintenance expense that was the result of the mild winter and lower pension and personnel-related expenses. In the Pipeline and Storage segment, revenues were up just about a $1 million from last year. While this may seem light, given the projects that were placed in service in the first quarter of the fiscal year, the swinging weather year-over-year had a significant impact on revenues from short-term firm services which decreased by approximately $5 million from last year. We expect larger favorable variances in revenue for the last two quarters of the year and still expect revenues in the segment to total between $300 million and $310 million for the full year. Looking to the remainder of the year, we are tightening our earnings and production guidance ranges. Our new earnings guidance while unchanged at the midpoint is a little tighter at $2.80 to $2.95, excluding ceiling test charges. Seneca’s updated production forecast is now a 158 to a 175 Bcfe. We up the low end of our previous guidance range of 150 to a 180 Bcfe to reflect new firm sales that were done this quarter, as well as some minor changes in our operations schedule. We lower the high end to reflect curtailments from the second quarter. As in prior quarters, the difference between the high and low end of our production range is driven entirely by curtailments. The low-end assumes we curtail a 100% percent of our spot production while the high-end assumes we have no curtailments. While we didn’t have any spot sales during the first six months of the year, as John mentioned we’ve sold about a Bcf spot sales in April which is encouraging. We have also made a modest change to our NYMEX natural gas price assumption which is now $2.15, down $0.10 from our previous guidance. Our oil price assumption is unchanged at $40 a barrel. We are well hedged for fiscal ‘16 for the remainder of the fiscal year and assuming the midpoint of our production guidance, we are about 80% hedged for natural gas and 55% for crude oil. Therefore, any changes in commodity prices should have a relatively modest impact on our cash flows. We continue to actively pursue incremental hedges in firm sales to lock in the economics of our program, as we grow into the volumes that are required to fill the Northern Access and Atlantic Sunrise projects. Just recently, we added a modest layer of Dawn and NYMEX-based hedges for 2018 to 2021 time period at about $3 per MMbtu. Consolidated capital spending for fiscal ‘16 is expected to be in the range of $445 million to $545 million, down $20 million from our previous range. Substantially, all of the change is related to the timing of spending between 2016 and 2017. Details of capital spending plans by segment are included in the new IR deck on our website. From a liquidity standpoint, we continued to be in great shape. Assuming the midpoint of our earnings and capital spending guidance, we expect we are very close within cash flows for the fiscal year. With that I will close and ask the operator to open the line for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] Our first question comes from the line of Kevin Smith of Raymond James. Your line is open. Kevin Smith Thank you and good morning, gentlemen. John McGinnis Hi, Kevin. Kevin Smith John, congrats first on joining the earnings call but with that, I will kick off the question. Can you discuss current shut-in volumes in the Marcellus and maybe how much you’ve been able to sell to spot since differentials have been tightening? John McGinnis Say that again. I’m sorry, you are breaking up. Kevin Smith I apologize about that. Can you discuss current shut-in volumes in the Marcellus and then maybe how much you’ve been able to sell into spot and what that’s looked like over the last month? John McGinnis Yes. We’ve sold essentially nothing in spot for the second quarter, a little over a Bcf in April because prices had improved upon we could, both on Tennessee and Transco sell into the spot market. But recently though pricing has dropped off again so we are shut-in. But I think we are about $40 million to $50 million of available spot in our Tioga area and a little over 100, 120 in Lycoming if I remember correctly. Kevin Smith Got you. That’s helpful. And would you mind providing some more details about the new firm sales agreements? Basically what’s the length of those contracts? Dave Bauer Yes. Sure, Kevin. This is Dave. We did — well for fiscal ’16, we did about 5 Bcf of additional firm sales and then looking out into ’17, ’18, ’19, we did a bunch of fixed sales ranging, call it from 10 to 30 Bcf per year, kind of in the high but just under $2 range. Kevin Smith Okay. Great. That’s extremely helpful. That’s all I had. Thanks. Dave Bauer Sure. Operator Thank you. [Operator Instructions] And we do have a question from the line of Holly Stewart of Scotia Howard. Your line is open. Holly Stewart Good morning, gentlemen. John McGinnis Hi, Holly. Holly Stewart Maybe just one on sort of what you see on the capacity market in Northeast PA. I mean the rig count, I think in Northeast PA has dropped to maybe three now. Just curious if you’ve seen a pickup in capacity being offered out there and sort of what you are looking at in terms of volume, maybe a pickup in order to bring some of that volume on — some of your shut-in volume online? John McGinnis I think it’s actually down to two rigs now. I was just looking at that the other day. It continues to fall. We haven’t seen any help on the capacity side as of yet. Whether producers are bringing on wells as they had shut in, we just — we haven’t seen additional, at least significant additional capacity available in that part of the state. Holly Stewart Okay. Okay. Great. And then maybe you could just help us think about the progression of production for the next few quarters, give us your wells turned to sales during this past quarter and then sort of the remaining target for the year? John McGinnis Yes. I can give you our target for the year. I can’t tell you what the second quarter was. We are targeting for fiscal ‘16 about 50 wells to drilled, 45 to be completed. We will end the year with about 60 to 65 DUCs. And in terms of the well count, back half of the fiscal year, we are looking at bringing on an additional about 25 wells. Holly Stewart Okay. Great. Thanks, John. John McGinnis Yes. Operator Thank you. And our next question is from Becca Followill of U.S. Capital Advisors. Your line is open. Becca Followill Hi guys. John McGinnis Hi Becca. Becca Followill You talked a little bit. I know you’ve had the one-rig program. What does it take to start to ramp that back up again? John McGinnis Well, part of why we want to keep a single rig going is that it keeps in the half, sort of the daylight-only or what I call a half frac crew is that it keep our DUC count relatively flat. And so really to ramp-up, it doesn’t really — we are not going to necessarily need to bring in an extra rig. What we will end up doing is we will go to 24-hour frac crew and potentially two frac crews, obviously — depending on the ops and the in-service date related to Northern Access. So really it’s more to bring in an additional frac crews as opposed to a rig count. Becca Followill Thank you. And then on the water permit, what is the timing you’re expecting to get that permit from the DEC? John McGinnis Well, assuming that it takes the full year, Becca, it would be the beginning of March of 2017. Are you getting that? Becca Followill Do you think it will take the full year? John McGinnis I think we’ve — that’s kind of what we have planned at the outside. We had the luxury of being on 98% of the route sites, so that we had what we think was a very, very complete application. Whether that state will move it along any faster, we can’t guarantee. We just know that there is a year timeframe from filing. So that’s what we are planning on. Becca Followill Thank you. And then lastly on the Empire open season. I think there was something in the slide deck about precedent agreements were tendered in February. So, can you talk a little bit about that expansion? John McGinnis Well, we are working through that. We did have a good open season for the Empire North project. It was — to a certain degree it was oversubscribed because certain parties tried to put together different combinations of transportation routes and so that’s really what we’re working through, Becca, in order to kind of rationalize the best flows and the best combination and get that worked in to precedent agreements. We don’t have any of them signed just yet and we just continue to work away at that. Becca Followill Okay. Thank you. Operator Thank you. And our next question is from Chris Sighinolfi of Jefferies. Your line is open. Unidentified Analyst Hey guys. Good morning. This is actually Chris Dillon [ph] on for Sighinolfi. How are you? John McGinnis Hi, Chris. Dave Bauer Good, Chris. Unidentified Analyst I was just wondering if you could provide an update on the JV and whether or not you feel like the partner is likely to exercise the option there as we approach that date and what I guess, kind of conversations you are having and what might be under consideration from their side? John McGinnis The relationship is great. We drilled 30 of the 42 wells. With those pads just — they are early. They are just now coming online. Our costs have been about 10% or more down which they are pleased with. We have conversations around entering into the second tranche, but really that’s a decision that they are going to make in July and that’s really all I can speak to right now on that. Unidentified Analyst Okay. That’s fair. That was it for me. Thanks guys. Operator Thank you. And that does conclude our Q&A session for today. I would like to turn the call back to Mr. Brian Welsch for any further remarks. Brian Welsch Thank you, Christie. We would like to thank everyone for taking the time to be with us today. A replay of this call will be available at approximately 3 p.m. Eastern Time on both our website and by telephone and will run through the close of business on Friday, May 6, 2016. To access the replay online, please visit our investor relations website at investor.nationalfuelgas.com. And to access by telephone call 1-855-859-2056 and enter the conference ID number 84814628. This concludes our conference call for today. Thank you and goodbye. Operator Ladies and gentlemen, thank you for participating in today’s conference. This does conclude 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. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. 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Timely Dow 2 Signal For 2016

The following is from this year’s Note 16 of The Kelly Letter, which went out to subscribers last Sunday morning. The market continues confounding bearish pundits. The Dow Jones Industrial Average closed above 18,000 for the first time since last July, and from its Friday close at 18,005 requires only a 1.5% rise to eclipse its all-time high of 18,272 recorded last May. The year is going well for us, helped along by the strong outperformance of our preferred small- and mid-cap stock sectors in the past two weeks, and I’m already tempted to declare the changes in Tier 3 a success. Our goal there was to reduce the drag of forecasting on the overall portfolio by putting an even larger percentage of capital under the guidance of reactive systems. The two new ones in Tier 3 are Dow 2 and Mo 1, with the speculative portion of the tier reduced to just a fifth of the allocation. Dow 2 sensed the time to move out of Intel ( INTC $31.64) and into Wal-Mart ( WMT $68.72), which has been great. As Intel works to realign itself with a growing emphasis on mobile devices at the expense of personal computers, its stock price is struggling. As Wal-Mart benefits from a turnaround plan that’s farther along and should produce a leaner retailer, its stock price is appreciating. The differential between the two stocks, with INTC down 8.2% and WMT up 12.1%, is a 20.3-point spread. This translates into a significant improvement for us, given our high allocation to the Dow 2 plan. We invested $69,091 in WMT on January 4. It’s now worth $78,478. Had it remained in INTC, which we sold that day at $33.93, it would be worth just $64,427. We’re $14,051 ahead, thanks to the Dow 2 signal. … The last two weeks have provided a convenient case-in-point for why our reactive systems are such a fine way to benefit from the financial markets. They are low-stress and run on autopilot, beating the frantic pros who continue demonstrating their shortcomings with newly failed predictions. I was able to leave the plans alone through a busy schedule that included major earthquakes [in Kumamoto, Japan] as a disruption, and what did I find upon returning? Our money beating the market and therefore most professional money managers. The S&P 500 is up only 3% so far this year. We’re up 5.6%. Even more impressive, unlike most price-only comparisons, these are more accurate total-return comparisons. Stay true to intelligently reactive plans built on decades of market behavior. They are beatable by dumb luck only, which pundits call skill, and which we know to be unreliable. Guessing is best reserved for fun and games, not money management for a better future. In the end, steadily and surely, automated intelligent reaction outdistances professional guessers by a wider and wider margin, while costing far less in fees. Just ask Bill Ackman at Pershing Square, the billionaire hedge fund manager who lost 20.5% last year and another 25% in this year’s first quarter. That’s some bang-up expertise for hire at a high price, eh? No thanks. We’ll stick with what works, and what’s cheap. How convenient that they’re the same thing.

PPL (PPL) William H. Spence on Q1 2016 Results – Earnings Call Transcript

PPL Corp. (NYSE: PPL ) Q1 2016 Earnings Call April 28, 2016 8:30 am ET Executives Joseph P. Bergstein – Vice President-Investor Relations and Treasurer William H. Spence – Chairman, President & Chief Executive Officer Robert A. Symons – Chief Executive Officer, Western Power Distribution, PPL Corp. Vincent Sorgi – Chief Financial Officer & Senior Vice President Gregory N. Dudkin – President & Director, PPL Electric Utilities Corp. Analysts Paul A. Zimbardo – UBS Securities LLC Operator Good morning, and welcome to the PPL Corporation First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. After this presentation there will be an opportunity to ask questions. Please note, this – that it’s (00:38) being recorded. I would now like to turn the conference over to Joe Bergstein, Vice President of Investor Relations. Please go ahead. Joseph P. Bergstein – Vice President-Investor Relations and Treasurer Thank you. Good morning, everyone, and thank you for joining the PPL conference call on first quarter results and our general business outlook. We’re providing slides of this presentation on our website at www.pplweb.com. Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to differ is contained in the Appendix to this presentation and in the company’s SEC filings. We will refer to earnings from ongoing operations or ongoing earnings, a non-GAAP measure, on this call. For reconciliations to the GAAP measure, you should refer to the press release, which has been posted on our website and has been filed with the SEC. At this time I’d to turn the call over to Bill Spence, PPL Chairman, President and CEO. William H. Spence – Chairman, President & Chief Executive Officer Thank you, Joe. Good morning, everyone. We’re pleased that you’ve joined us this morning. With me on the call today are Vince Sorgi, PPL’s Chief Financial Officer; and the Presidents of our U.S. and U.K. utility businesses. Moving to slide three, our agenda this morning starts with a discussion of our 2016 ongoing earnings forecast, an overview of our first quarter 2016 earnings results, and an operational overview. Following my remarks, Robert Symons, Chief Executive of our Western Power Distribution subsidiary, will provide an update on expected U.K. incentive revenues for 2017 and 2018, which we are increasing today. And Robert will also provide a general update on the completion of our first year under RIIO-ED1. Vince will then review our segment financials and provide a more detailed financial overview. Let’s move to slide four for a discussion of our 2016 earnings forecast. As we note on this slide, we’re reaffirming our 2016 forecast of $2.25 to $2.45 per share. The midpoint of this range, $2.35 per share, represents growth of 6.3% compared to 2015 earnings from ongoing operations. Our first quarter results were in line with our expectations, and we remain on track to deliver on this forecast despite the warmer-than-normal weather we experienced across our service territories to start this year. The significant investments we continue to make to build tomorrow’s energy infrastructure, coupled with our ability to begin recovering more than 80% of that investment in near real time, will drive our long-term sustainable growth. We expect to achieve compound annual EPS growth through 2018 of 5% to 6% off of our adjusted 2014 earnings from ongoing operations of $2.03 per share. We continue to expect strong EPS growth of 11% to 13% through 2018 from our U.S. operations, with 1% to 3% growth expected in the U.K. Turning to slide five. Today we announced first quarter 2016 reported earnings of $0.71 per share, compared with $0.96 per share from our first quarter 2015 results. Adjusting for special items, first quarter 2016 earnings from ongoing operations were $0.67 per share, compared with $0.77 per share a year ago. As expected, we saw a decline in earnings from ongoing operations in the first quarter as a result of lower earnings in the U.K. This stemmed from lower revenues due to the new price control period that began on April 1 of 2015. Higher domestic margins from rate increases at our Kentucky and Pennsylvania businesses were partially offset by lower sales volumes due to milder winter weather. Vince will go into greater detail on first quarter results a little later in the call, including a discussion of the timing of our U.K. earnings. As Vince will discuss, we did expect variability between quarters, with increased earnings weighted towards the back half of this year. Now let’s move to slide six for an update on our utility operations. This month, PPL Electric Utilities energized its Northeast Pocono transmission line a year ahead of schedule. The project includes 60 miles of new transmission lines, three new substations and additional improvements focused on making the grid more reliable, resilient and secure. We’re confident this line will deliver significant benefits for our customers. Completing major transmission project like this one, or like the Susquehanna-Roseland line we completed last spring, takes expertise in construction and project management. It also requires working closely with the public and coordinating with various permitting agencies. We’ve shown our ability to excel in these areas and deliver successful outcomes for our customers and our share owners. Turning to Kentucky, Louisville Gas and Electric and Kentucky Utilities continue to invest in environmental upgrades at existing generation facilities, while strengthening the diversity of our generation fleet. In late January, we filed environmental compliance and cost recovery plans with the Kentucky Public Service Commission, seeking approval and environmental cost recovery for $1 billion in upcoming environmental improvement projects. These projects are largely aimed at ensuring compliance with the EPA’s new Coal Combustion Residuals rule, which took effect the last year. The projects will involve capping and closing remaining ash ponds at our coal-fired power plants, building process water facilities and completing the second phase of a dry storage landfill project at our E.W. Brown generating station. The application review process before the Kentucky Public Service Commission is proceeding as we would expect. We expect to begin investments in these environmental improvements in the second half of 2016, and those will continue through 2023. In addition, we’re on track to complete the final baghouse installation at our Mill Creek generating station by June. This follows previous installations of baghouses at our Trimble County and E.W. Brown generating stations. We also expect to complete Kentucky’s largest solar facility in June. The 10-megawatt facility under construction at our E.W. Brown generating facility represents a cost-effective way to expand the benefits of solar to all customers. While portions of the project continue, we began generating our first solar power from the facility on April 14. Moving to the U.K., we continue to achieve strong performance against our RIIO-ED1 incentive targets, and Robert will now discuss that in more detail. Robert? Robert A. Symons – Chief Executive Officer, Western Power Distribution, PPL Corp. Many thanks, Bill, and good morning. Moving to slide seven. March 31, 2016 marked the end of the first full regulatory year under RIIO-ED1, and we are pleased to be providing an update on our full year performance against the RIIO-ED1 incentive targets. Before I go into the details, I would like to review a few key points of the incentive framework. The primary incentive mechanisms that contribute to incentive revenues include the interruption incentive schemes and the Broad Measure of Customer Satisfaction. Interruption incentive schemes include Customer Interruptions and Customer Minutes Lost. The broad measure of Customer Satisfaction measures the performance of customer satisfaction on a scale from one to 10 against the targets Ofgem has established with customers experiencing interruptions, requesting a connection, or making a general inquiry. Both of these incentive mechanisms are designed to encourage DNOs to invest and operate their networks so as to reduce both the frequency and duration of power outages. Turning to slide eight. On this slide, you will find our full year results against the performance targets set by Ofgem for regulatory year 2015 to 2016. WPD has improved Customer Minutes Lost and Customer Interruptions performance metrics by approximately 8% over the 2014 throughout 2015 regulatory year, which resulted in earning 77% of the maximum potential payout. This year, our operational efforts contributing to this success included several major asset replacement projects, significant rural network automation, and outperforming previous years’ reliability performance. As it relates to broad measure of customer satisfaction, WPD has also received reaccreditation to the U.K. government-sponsored customer service excellence standard and has once again achieved the highest level of compliance, which further demonstrates our continued commitment to excellent customer service. As shown back on slide seven and based on our better-than-expected performance on the quality of service and customer satisfaction, we now expect to achieve $115 million in total incentive revenue in calendar year 2017, above our prior range of $90 million to $110 million for 2017. As a reminder, these incentive revenues, while earned during the 2015 to 2016 regulatory year, will be received in the 2017/2018 regulatory year. These amounts are internal estimates until final determination is received from Ofgem in November 2016. We expect these favorable results to continue into the next regulatory year. Even with targets that get progressively tougher, we are increasing our guidance range from $75 million to $105 million in incentive revenues in calendar year 2018, to $85 million to $115 million. Overall, the first year of RIIO-ED1 is broadly in line with our published business plan as accepted by Ofgem. We are focused on delivering excellent customer service, achieving the outputs and incentives while delivering safe, reliable and sustainable network service. We’ve been also recognized by Ofgem for our innovative work on providing quicker and alternative network connections for solar, and we continue to hold stakeholder workshops reviewing our results from the first year of RIIO-ED1, while planning for the future by discussing long-term strategic priorities, such as reporting smart networks and affordability. Vince will now walk you through a more detailed look at segment earnings. Vince? Vincent Sorgi – Chief Financial Officer & Senior Vice President Thank you, Robert. And good morning, everyone. Let’s move to slide 10. Our first quarter regulated utility earnings from ongoing operations decreased from last year, driven primarily by expected lower U.K. Regulated segment earnings as a result of the April 1, 2015 price decrease, as we began our first year under the RIIO-ED1 framework and the effects of foreign currency, offset by an improvement in the Pennsylvania Regulated segment. While the Kentucky Regulated segment and Corporate and Other remained flat compared to a year ago. Let’s briefly discuss domestic weather for the first quarter compared to last year and compared to plan. Mild temperatures during the first quarter of 2016 had an unfavorable impact for our domestic segment, a total of $0.04 compared to the prior year, with $0.02 in Pennsylvania and $0.02 in Kentucky. Compared to our plan, weather had a negative $0.02 impact, with a $0.01 impact in each of the domestic segments. Heating degree days were about 11% lower than normal in the first quarter 2016 for both Kentucky and Pennsylvania. While weather in the U.K. was also unfavorable to plan and the prior year, with Q1 being the mildest winter in recorded history for the U.K., it was not a primary driver of our results for the U.K. segment. And as Bill mentioned in his remarks, despite this unfavorable weather for Q1, we remain confident that we will continue to meet our 2016 earnings guidance of $2.25 to $2.45 per share. Let’s move to a more detailed review of the first quarter segment earnings drivers, starting with the Pennsylvania results on slide 11. Our Pennsylvania Regulated segment earned $0.14 per share in the first quarter of 2016, a $0.01 increase compared to the same period last year. This increase was due to higher distribution margins as a result of the 2015 rate case that became effective January 1, 2016, and higher transmission margins due to additional capital investments, partially offset by lower volumes due to unfavorable weather. Higher margins were partially offset by higher O&M, primarily due to higher support costs and maintenance related work, mostly attributable to timing. Moving to slide 12. Our Kentucky Regulated segment earned $0.16 per share in the first quarter of 2016, flat compared to a year ago. This result was due to lower O&M, primarily due to the closure of the Cane Run and Green River coal stations in 2015, offset by higher financing costs due to higher debt balances to fund CapEx. Higher gross margins from higher base rates that went into effect July 1 of last year were offset by lower sales volumes, primarily due to the less favorable weather. Turning to slide 13. Our U.K. Regulated segment earned $0.39 per share in the first quarter 2016, an $0.11 decrease compared to last year, primarily driven by lower prices in RIIO-ED1 and the effects of foreign currency. In our plan, we had expected about a $0.10 decrease year-over-year for Q1, so the actual results are consistent with our expectations. I’ll provide additional details on the shape of our 2016 U.K. earnings forecast after I walk through the quarter compared to last quarter’s results. The quarter-on-quarter decrease was due to lower gross margins resulting from lower prices as we transitioned to RIIO-ED1 on April 1, 2015 of about $0.08 per share, and unfavorable effects of foreign currency of about $0.03 per share, which included some 2016 restrikes executed during the quarter to hedge 2018 earnings. The other variances for the U.K. were not significant and offset each other. So taking a closer look at our full year U.K. segment forecast. As noted on our year-end earnings call and the 2016 ongoing earnings update that Bill just provided, we are projecting a $0.01 decrease in U.K. segment earnings year-over-year. However, there is significant variability between the quarters with lower earnings in Q1 and Q2 and higher earnings in Q3 and Q4. We expect lower margins in the first half of the year as a result of the RIIO-ED1 revenue reset. That revenue reset occurred at the beginning of the regulatory year on April 1, 2015. And since we report WPD on a one-month lag, we will still see some effect of that revenue reset continue into the second quarter, an additional $0.02 per share above the $0.08 for Q1. This decrease is expected to be primarily offset by the price increase beginning April 1, 2016 and allowed revenues under the RIIO-ED1 framework, and from the recovery of prior customer rebates beginning April 1, 2016 through March 31, 2017, which will positively impact 2016 earnings by about $0.05. We also expect this revenue recovery to positively affect 2017 earnings by another $0.02 to $0.03. In addition, we are projecting lower O&M expenses in the back half of the year, primarily related to higher vegetation management in Q4 of last year and lower expected pension expense in 2016. All of these factors contribute to the shaping of our earnings for the U.K. this year compared to last year. Moving to slide 14. On this slide, we provide an update to our GBP hedging status for 2016, 2017 and 2018, including sensitivities for a $0.05, $0.10 and $0.15 downward movement in the exchange rate compared to our budgeted rate of $1.60 on open positions. First, we are 93% hedged for the remainder of 2016 at an average rate of $1.54. For 2017, we’re still hedged at 89% at an average rate of $1.58. And for 2018, we’ve continued to layer on hedges during the quarter and have increased our hedge percentage from 20% at year-end to 41% today, at an average rate of $1.56. You can see from the sensitivity table that there’s minimal exposure in 2016 and 2017, and about $0.03 of exposure in 2018 for every $0.05 below our budgeted rate of $1.60. As I mentioned during our year-end call, our business plan provided enough capacity to hedge about 50% of our 2018 U.K. earnings exposure through restrikes. However, at this point, we will refrain from adding additional 2018 hedges until after the U.K. referendum vote on June 23. Moving to slide 15. On this slide, we are providing an update on RPI. Now that 2015/2016 regulatory year has concluded, the final RPI rate was 1.1% and was based on the Office of National Statistics’ average RPI index from April 2015 through March 2016. If you recall, in the third quarter of 2015, we had incorporated a 1.3% RPI rate in our 2015/2016 planning assumptions, compared to the 2.6% included in our tariffs. That true-up will flow through allowed revenues in 2017 and 2018, and has already been incorporated in our earnings growth projections. The additional downside from our budgeted 1.3% rate will not have a material impact on earnings in either 2017 or 2018. Our planning assumptions for 2016/2017, 2017/2018 and 2018/2019 have not changed since our year-end update. And as you can see, the current forecast from the HM Treasury for all periods are in line with our current assumption. That concludes my prepared remarks, and I’ll turn the call back over to Bill for the question-and-answer period. William H. Spence – Chairman, President & Chief Executive Officer Great. Thank you, Vince. And thanks for everyone’s participation on today’s call. I’d like to first summarize by saying that we remain confident in where we’re headed. We’re solidly on track to deliver on our earnings forecast for 2016, and we expect to deliver compound annual EPS growth of 5% to 6% through 2018. We’re pleased the WPD team has had such a successful first year under RIIO-ED1, and have outperformed incentive expectations. As Robert mentioned earlier, we are raising our expectation for incentive revenues from $90 million to $110 million, to $115 million for 2017, and from $75 million to $105 million, to $85 million to $115 million for 2018. This level of performance is consistent with WPD’s long history of operational excellence. Across all of our businesses, we continue to invest in tomorrow’s energy infrastructure, the strength and the diversity of our generation fleet, and to drive continuous improvements aimed at exceeding customer expectations and delivering power safely, reliably and affordably. And as I stated in my recent message to shareowners in the annual report, I am convinced that our best days are ahead, and I’m very excited about our future. With that, operator, let’s open the call to questions, please. Question-and-Answer Session Operator Thank you. We will now begin the question-and-answer session. Our first question will come from Paul Zimbardo of UBS. Please go ahead. Paul A. Zimbardo – UBS Securities LLC Hi, good morning. William H. Spence – Chairman, President & Chief Executive Officer Good morning, Paul. Paul A. Zimbardo – UBS Securities LLC First, I just wanted to confirm that the U.K. environmental spending you discussed on the prepared remarks is included in the CapEx plan? William H. Spence – Chairman, President & Chief Executive Officer In the CapEx plan that we have for U.K., there’s very little that I would classify as environmental spending. You may be referring, perhaps, to the… Paul A. Zimbardo – UBS Securities LLC Sorry, that’s KU. Kentucky. William H. Spence – Chairman, President & Chief Executive Officer Yes. Oh, I’m sorry. Yeah. So, within Kentucky Utilities, yes. The environmental spending for the plans, as articulated, really deal with the match rule (22:25) and a lot of the combustion ash disposal costs that we need to incur. It does not include any Clean Power Plan CapEx spending, which would be incremental, should that come back into play. But with the stay at the Supreme Court level of the CPP, we’re not anticipating to update the capital at this time. Vincent Sorgi – Chief Financial Officer & Senior Vice President But the billion that we filed is in the plan. William H. Spence – Chairman, President & Chief Executive Officer Yes. Paul A. Zimbardo – UBS Securities LLC Okay. Great. And then, turning to Compass, could you give a brief update on kind of the initial segment? And then, with respect to future segments, should we expect the in-service on those is ahead of this one with 2023, or longer dated? William H. Spence – Chairman, President & Chief Executive Officer Okay. I’ll ask Greg Dudkin, President of our Electric Utilities Group in Pennsylvania to address that. Gregory N. Dudkin – President & Director, PPL Electric Utilities Corp. Yeah. So where we are in Compass, we put together an interconnection request for the New York ISO on the 95-mile segment, I guess we call it mini Compass. So what we’re waiting for is for the ISO to come back with an approval that all the specifications and reliability impact is positive and then we proceed with what’s called an Article 7 (23:46) which is a siding application, basically. So that’s where we are there. We’re still, for that portion, at 2021 to 2023 timeframe. We’re continuing to look at the other components of Compass. And at this point, it wouldn’t be before 2021 or 2023, it would be during that time or maybe a little after. Paul A. Zimbardo – UBS Securities LLC Okay, great. Thank you very much. William H. Spence – Chairman, President & Chief Executive Officer Thanks, Paul. Operator Our next question will come from Anthony Crowdell of Jefferies. Please go ahead. Mr. Crowdell? William H. Spence – Chairman, President & Chief Executive Officer Good morning, Anthony. Operator Your line is open, Mr. Crowdell. It may be muted. Mr. Crowdell, your line is open. William H. Spence – Chairman, President & Chief Executive Officer Okay, operator. We’ll move on if there are any other questions in the queue. Operator Okay, thank you. At this time, I am not showing any further questions in the queue. William H. Spence – Chairman, President & Chief Executive Officer Okay. We do have – as far as you can tell, operator, the lines are all open and available for questions, correct? Operator Yes. That is correct. William H. Spence – Chairman, President & Chief Executive Officer Okay. I just wanted to verify. Operator Okay. William H. Spence – Chairman, President & Chief Executive Officer Okay. Well, since there are no further questions, we’ll assume that everything was crystal clear, and that we look forward to the second quarter earnings call. So thanks for joining us today on the call. Thank you, operator. Operator Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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