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The Good And Bad News About Those ‘Driverless Investment Vehicles’

New technologies always excite the animal spirits. Take commercial drones, for instance. At first blush, these pilotless aircraft offer nothing but excitement and good news. Ah, but, there’s “the other side.” And the same is true of “robo-investing” … robo-anything! Amazon (NASDAQ: AMZN ) would be shipping goods to our doorstep via drones, people could watch sporting events up close and personal without having to buy a ticket, you could borrow a cup of sugar from your mom who lives a few miles away, and there would be fewer trucks and vans on our roadways. Sounds pretty good, doesn’t it? Well, put away your Jetsons fantasy for a moment, anyway. It could all happen but, along the way, we need to face the reality that any idiot can buy a drone and do any damn-fool thing they want. That includes voyeurs who want to peep into your private lives. Do you need to keep the curtains closed instead of enjoying a beautiful day or night? It includes pyro-voyeurs flying their drones into wildfire suppression areas, preventing retardant and water carrying aircraft from flying, and increasing the risk of death to firefighters. It includes flying their new toys higher than legally allowed, increasing the risk of mid-air collision with piloted aircraft. You think a bird strike is bad? Add the velocity and weight of even a small drone and imagine the results. Or consider a lone wolf terrorist who doesn’t care what the ultimate regulations might be for controlling drone traffic. What if he launches a few directly into the engine of an A-380 while its engines are running as it awaits its turn to take off on a crowded runway? Then there are the driverless cars being touted as the way to relieve urban traffic congestion; let you read, watch TV or play video games on your daily commute; reduce accidents; and clean up the environment. Let’s talk about vehicle safety. Have you seen the video where a Jeep driven by a human journalist has the systems overridden by faraway hackers and driven into a ditch? (Gently driven into a ditch; this was, after all, a controlled experiment.) Now imagine if a terror group or sovereign state like, say, Iran, Russia or China, with vast cyber-hacking armies under their command, decided to reverse the accident-avoidance systems of cars in the 25 largest American cities just before rush hour, sending vehicles with no allowance for human override careening into each other at high speeds. I love new technologies. But it bears pointing out that there are many sides to every innovation – and that human intervention should be part of any fail-safe robotic system. Otherwise we all become subjects of the old joke about the new pilotless commercial aircraft, where the announcement comes on after takeoff, “Ladies and gentlemen, welcome to USAmDeltaUnited flight # 65492 from Detroit to Puerto Rico. Embracing new technology, we are proud to announce there are no pilots aboard the aircraft and a cabin crew is not necessary since anything you need, our automated robotic attendants can provide. So relax, sit back and enjoy the flight. And remember, nothing can go wrong, hic!, nothing can go wrong, hic!, nothing can go wrong…” Remotely Piloted Aircraft – Test Flight with Passengers (and, for now, a human pilot on board to do the take-off and landing…) (click to enlarge) Like these two new technologies, a certain style of investment management and portfolio allocation has risen its head yet again – as it always does after a 5 or 6 year bull market. The benefit of these approaches is that they don’t require any decision-making. These are automated investment plans that take one of two typical variations: (1) The Bogle School, whose mantra is “Wall Street is a Random Walk so don’t try to beat the market. Just buy and hold a diversified ETF or mutual fund that mirrors a broad-based benchmark like the S&P 500. Never sell until you need to take some funds out for retirement, college or some other important life event.” (2) “Use a robot!” This will be either some quant black box approach that determines when to buy and sell or, better, rebalances a diversified portfolio tied to many different benchmarks like emerging markets, small cap US, large cap international, etc. The rebalancing forces you to buy low and sell high. When one part of the portfolio performs better than the others and another performs worse, the percent of each held will deviate from your chosen parameters, and you’ll rebalance. This approach assumes a steady reversion to the mean so you are, theoretically, selling a part of your winners and adding to your losers, which will revert to the mean and become winners. Our firm starts with something like #2 here but we then add enhancing strategies to tell us what and when to sell and what and when to buy. But for now let’s forget about adding the human element we use, and just take a look at these two very-popular-today “driverless investment vehicles.” Buy-and-hold is great. Until it isn’t. There are two problems with buy-and-hold. As sure as the sun will rise tomorrow, the market will at some point enter a bear market. If there were no bear markets, there’d be no risk and hence no reward. One of two things will happen to buy-and-hold investors during a bear market: either they will hold on or they won’t. Neither are attractive alternatives. In 2008, the S&P 500 lost 38.5% of its value. $100,000 became $61,500. If Mr. Buy-and-Hold held on, he was rewarded when, in 2009, the market rebounded 23.5%. (From March 9 forward, that is; he was down even further in Jan/Feb 2009.) Not too bad, right? Ummm… Not so fast. A 23.5% rise on $63,500 is not the same as a 23.5% rise on $100,000. That rebound in 2009 only took his portfolio back to $75,953. In 2010 a 12.8% rise in the S&P, however, got him back to $85,675! Regrettably, 2011 was exactly flat on the S&P so he spent another year underwater at $85,675. 2012 was a good year and his portfolio increased to $97,156. Then, finally, in early 2013, he broke even. So if Mr. Buy-and-Hold held on for 4 years (dividends would have reduced this holding period somewhat) he’d have suffered confidence, despair, hope, relief and, today, with the unusually strong bull of the last two years, perhaps a misplaced hubris. The alternative would have likely been worse. If Mr. Buy-and-Hold threw in the towel somewhere along the way, maybe in January 2009, he’d have lost 40% and would have gotten back in…when? After the market was up 10%? 20%? 30% ? At some point of emotional despair, Mr. Buy-and-Hold became Mr. Buy-and-Panic and might still not have recouped his losses. That brings us to the latest fad, “Do it Yourself on our Website!” These are the new “robo-investing” sites that tell you that you shouldn’t pay someone else when you could be paying the robo-site much less. I believe a robo-investing site that rebalances regularly but without any human understanding or input about market history, technical analysis, fundamental analysis as to the external economic environment, or behavioral analysis of investor and consumer sentiment is a dangerous place to be – a la the automated airplane. (“Nothing can go wrong, hic!, nothing can go wrong, hic!, nothing can go wrong…”) The problem with robo-investing is that one “might” never experience as serious a loss as Mr. Buy-and-Hold, but Ms. Rebalance-with-Regularity will also never hold on long enough to enjoy long-term sector outperformance. By selling on the basis of an arbitrarily-selected date and a graven-in-stone universe of geographic (US, international, emerging market, etc.) and/or capitalization-weighted (US large cap, foreign mid-cap, etc.) one decides, in advance, to leave much on the table in exchange for not losing big. How much is too much? Besides, if it isn’t possible to beat the benchmarks, then what accounts for the steady outperformance over many years of some of my colleagues with whom I exchange ideas every month? By coincidence the latest issue of Gray Cardiff’s Sound Investing just hit my inbox as I’m writing this. In it, Gray notes that The Hulbert Financial Digest verifies that Sound Advice has earned 11.3% annually since 3/31/2000 versus 2.2% for the S&P 500. And I should note, immodestly, that our own G&V Portfolio has returned 9.4% annually versus the S&P’s 5% over a slightly longer period from 1/1/1999. (My numbers include all S&P dividends.) Maybe Gray and I and all the other colleagues I credit in these pages from time to time have just been lucky for a decade or more. Or maybe it pays to have a human driver; it doesn’t have to be a registered investment advisor – it could be you, me, or someone else you trust, as long as they focus steadily on the road ahead and keep their hands firmly on the wheel. Here’s what I personally see as I look down that road… I expected great things from 2015 at the beginning of the year. It looked as if the economy was going to be able to stand on its own without Fed intervention; it was the third year of the presidential election cycle, a time when the party in power typically juices the economy and the markets; and it seemed as if China, India and Europe were all getting their act together. That’s what it still looks like – in the rear view mirror. Looking ahead, however, I see… The Hotel California in China “Relax” said the night man, “We are programmed to receive.” “You can check-out any time you like, but you can never leave!” These last words from the Eagles 1977 hit song ‘Hotel California’ pretty much sum up the state of things in China right now. You can buy all the stock you like; heck, they’ll even encourage you to buy it on margin. But sell it? How dare you? That would bring the whole Ponzi scheme down in days! (‘Hotel California’ is actually a doubly appropriate reference here; according to the Eagles, the song is about the phoniness and materialism they encountered in L.A. as they began to go from sort-of-known to hitting the big time. If the shoe fits…) At this point, the Chinese authorities have demanded internal records from Chinese and foreign brokerage firms who must prove they never helped fund or facilitate any short-selling; accused a US hedge fund of plotting to bring down prices; instructed the large Chinese state-owned companies with cash in the till to buy additional shares of Chinese companies; stopped all IPOs that may take funds away from current stock purchases; directed more state companies to invest in stocks rather than real estate; and (de facto) instructed Chinese pension funds and mutual funds to invest less in bonds and more in Chinese stocks. That’s a pretty Draconian reaction to a stock market correction that still leaves the Shanghai and Shenzhen exchanges solidly in the black for the year. Which leads me to wonder – what does the Chinese leadership know that we don’t know? My best guess is that they know that the productivity, GDP, real estate values, labor and other numbers being sent out for public consumption are less than wonderful. Basically, they don’t want anyone to look behind the curtain and see what Oz really looks like. We not only won’t be buying this correction, we are now shorting China. As Cnut (‘Canute’), king of Denmark, England and Norway, is alleged to have said to his courtiers and toadies back in the 1020s or so, when they told him he was so powerful he could stop the incoming tide, “No… I can’t.” (Okay, what Henry of Huntingdon reports Cnut really said was “Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth and sea obey by eternal laws.” In other words, “No… I can’t.”) It seems the autocrats and oligarchs that constitute China’s elite Party members have yet to learn Cnut’s humility. It may take a while to work out, but when it comes to choice between the dictates of rulers and market forces, I’ll take market forces every time. The Presidential Election Cycle Typically, the year before a US Presidential election is a darn good one. And this may yet to prove to be, after we get through the dog days of summer. But for now things are not looking good. Indeed, unless we can mount a rally in the next six to eight weeks, it may be a long cold winter that follows this long hot summer before we can get back to moving forward. That’s because the markets hate uncertainty and the uncertainty markets hate most is which political scourge or savior will replace the current president and, by reflection, who he or she will select as their senior advisors and which representatives may be swept in on their coattails. The chart following is not graven in stone. The chart below is only the average of all years since 1896, and it is only on the Dow Industrials which may be disconnected from other benchmarks. Still, in the event this election cycle is somewhere near the average, it means we are in for a yawner for the next eight months or so, followed by a 2016 summer of discontent before we get the election uncertainty behind us and the market moves ahead smartly for a few months in the reflected glow of “Hope and Change” or whatever the next occupant at 1600 Pennsylvania has promised. Please note that the quarter that ended June 30 (bar 3 on “Year 3” above) was pretty much flat, not nearly as good as the “average.” One might interpret this as meaning there is pent-up demand, or that the handwriting is already on the wall for a queasy next few months, or that, pshaw, it’s just a bunch of numerology that don’t mean nuthin’. I lean toward door #2. As a rapt student of market history, I’ve lived through a lot of these, and that uncertainty thingy tends to get us every time. Not that there’s anything uncertain about 17 Republican presidential candidates and at least 3, maybe more, Democratic candidates, with a strong likelihood that, if not selected, Mr. Trump’s natural narcissism will cause him to run as an independent, continuing his clever way of telling us what we want to hear whether he believes it or not. Yes, 2016 could be complicated this time around. The Fed, Greece, ISIS, Ukraine, Iran, Russia, Etc. You don’t really need me to re-hash all these, do you? Any one of them could (continue to) create even more uncertainty. And, of course, there’s always some economic or political event over the horizon that we can’t see yet. So let’s just move on to… What Are We Doing About It? We’re reallocating our portfolio strategy to reflect what we believe to be the likelihood of a dull market that vacillates between heightened expectations and dashed expectations. That means lightening up on developing markets, energy, industrials, materials, utilities and even some technology firms. It means keeping our health care exposure and adding a bit to the consumer discretionary sector, one of the few bright spots we see as American consumers, tired of belt-tightening, loosen up a little and spend on something fun. It means looking for financials that will benefit as rates rise, which they inevitably will. We’ll leave it to others to benefit via shorting Treasuries and so on; we’ll instead buy insurers and regional banks that are already selling for single digit PEs. We’ll buy some defensive issues in the food and beverage area. And we will hedge our longs with a couple of good inverse ETFs. To wit… We will keep our Wisdom Tree Europe Hedged Equity (NYSEARCA: HEDJ ) because I see continued strength in the US $, making Euro exports relatively cheaper, but we will protect our gains with trailing stops. We’ll sell all shares of Guggenheim S&P 500 Pure Growth (NYSEARCA: RPG ) however. We’ll keep our shares of Royal Dutch Shell (NYSE: RDS.B ) and add to them if prices continue to decline, and we’ll trailing-stop some shares of Wisdom Tree Germany (NASDAQ: DXGE ). We’ll hold onto Marathon Petroleum (NYSE: MPC ) and BP (NYSE: BP ) — for now. At our cost basis and yield-to-cost, we’ll hold Royal Bank of Scotland (NYSE: RBS ) until they force redemption upon us, which they will some day. We feel strongly about the fine portfolio of Tekla Health (NYSE: THQ ), even though it has done nothing so far, so it’s a keeper. We’ll add a bit to our Franco Nevada (NYSE: FNV ). Even if the price of gold and silver don’t recover, FNV is so well-managed that I’m certain there are price-decline and bankruptcy provisions in the loans they make to smaller gold producers that will allow them to emerge from any gold price decline or range-bound trading with a greater share of the gold that is actually produced. Gold won’t stay down forever and it often does best in times of uncertainty. As an income play, I like the preferreds of Public Storage (NYSE: PSA ), particularly the A, T and V preferreds. A better jobs picture means lots more mobility and relocation. Relocation means more people put stuff in storage – as do empty-nesters downsizing and businesses that need a place to store inventory without taking on long-term leases for more space. PSA is the class act in this industry so I see their preferreds, all yielding around 5%, as a great way to invest for income without seeing anything more than a miniscule decline if US interest rates rise. Since we have no real hedge against a serious market decline in this portfolio, I’m also adding some shares of ProShares UltraShort S&P 500 (NYSEARCA: SDS ), which moves inverse to the S&P 500 at double the rate of movement, as well as shares of the iPath S&P 500 VIX (NYSEARCA: VXX ), which is a reflection of the volatility I imagine we’ll be seeing more of in the coming weeks and months. Also we’ll buy, not as a hedge for our long positions but as an outright short on hubris and autocracy, shares of Direxion CSI 300 China A Shares (NYSEARCA: CHAD ). CHAD is an unleveraged short on the 300 largest and most liquid Chinese A Share companies. The Chinese government will do their best to thwart this investment but I say free markets will triumph and we could see rather large profits from this ETF. Finally, we will buy one additional ETF: Fidelity MSCI Consumer Discretionary (NYSEARCA: FDIS ). While it is capitalization-weighted, it covers the entire MSCI (Morgan Stanley Capital International) index so it also includes some non-US firms that I believe will benefit from selling consumer discretionary goods and services to US consumers. As Registered Investment Advisors, we believe it is essential to advise that we do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as “personalized” investment advice. Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund one year only to watch it plummet the following year. We encourage you to do your own due diligence on issues we discuss to see if they might be of value in your own investing. We take our responsibility to offer intelligent commentary seriously, but it should not be assumed that investing in any securities we are investing in will always be profitable. We do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about. Disclosure: I am/we are long FDIS, PSA-T, THQ, BP, FNV, RBS, VXX, CHAD, HEDJ, MPC, SDS. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Vectren’s (VVC) CEO Carl Chapman on Q2 2015 Results – Earnings Call Transcript

Vectren Corp (NYSE: VVC ) Q2 2015 Results Earnings Conference Call August 06, 2015, 11:00 AM ET Executives Naveed Mughal – IR, Treasurer Carl Chapman – CEO Susan Hardwick – CFO Analysts Matt Tucker – KeyBanc Capital Markets Paul Patterson – Glenrock Associates Operator Good morning. My name is Jessica and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Vectren Corporation’s Second Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Naveed Mughal, Treasurer and Vice President of Investor Relations. Mr. Mughal, you may begin your conference. Naveed Mughal Thank you, Operator. Good morning and thank you for joining us on today’s call to review Vectren’s 2015 second quarter results. This call is being webcast and shortly following its conclusion, a replay will be available on our website at www.vectren.com under the Investors link at the top of the page. Yesterday, we released our second quarter results and this morning we filed our Form 10-Q with the SEC. Under the Investors link on our website, you can find copies of the earnings release, today’s slide presentation and the 10-Q. As further described on Slide 2, I would like to remind you that many of the statements we make on this call are forward-looking statements. Actual results may differ materially from those discussed in this presentation. Carl Chapman, Vectren’s Chairman, President and CEO, will provide opening comments on the quarter’s financial results and our outlook for the remainder of the year. He will then turn it over to Susan Hardwick, Senior Vice President and CFO, who will discuss in more detail our utility and non-utility results. Lastly, joining us on today’s call is Ron Christian, Executive Vice President and Chief Legal and External Affairs Officer. Following our prepared remarks, we will be glad to answer questions you may have. With that, I’ll turn it over to Carl. Carl Chapman Thank you, Naveed. And before we go further, I’d like to officially welcome Naveed to Vectren and our management team since this is his first earnings call with us. For those of you who don’t know, Naveed joined as our new Treasurer and Vice President of Investor Relation just a few weeks ago. He comes to us from NV Energy, where he most recently held the Treasurer position. Naveed’s recent utility industry experience combined with his extensive treasury experience adding prior to NV Energy should make for a smooth transition. Naveed, welcome. I’d also like to wish our outgoing Treasurer and colleague, Robert Goocher, the best in his recent retirement, which began just a few days ago. Robert was an integral part of our successful navigation of the capital markets over the past 13 years. We thank Robert for all he has done for Vectren. With that, let’s turn to Slides 4 and 5 as we begin our review of second quarter results. I’d like to remind everyone we have excluded the 2014 results of coal mining, specifically the $0.23 loss in the 2014 second quarter results related to the exit. You will find a reconciliation of GAAP and non-GAAP measures at the end of the appendix. 2015 second quarter consolidated net income was $35.8 million or $0.43 per share compared to $30.1 million or $0.37 per share in 2014. In the quarter, we continued to see earnings growth anchored by solid utility results that achieved second quarter earnings per share of $0.29, an increase of $0.01 over 2014. In addition, improved results from both Vectren Infrastructure Services and Vectren Energy Services, which were both slightly better than expected, allowed the non-utility group to earn $0.14 per share in the second quarter, up $0.05 compared to the prior year. Utility performance year-to-date and for the quarter has been strong and the outlook is positive for the remainder of the year as return on the investment in new gas infrastructure continues to grow. In addition, the economic environment in Indiana and Ohio remains positive with June unemployment rates of 4.9% in Indiana and 5.2% in Ohio, both below the national rate of 5.3%. At Vectren Energy Services results for the quarter, while a slight loss, were improved over the prior year. Revenues for the quarter were $44 million compared to $33 million in the same period last year and $23 million in the first quarter of 2015. For the quarter, VESCO saw new contract signings totaling $53 million compared to $34 million in the prior year. In addition, on August 5, a large contract with NASA’s Johnson Space Center was signed, which as expected will be significant to VESCO’s third quarter and second half results. Also in the second quarter, Vectren Infrastructure Services achieved improved results that were up $2.9 million over the prior year driven by very strong demand for construction work in the gas distribution market. However, competition in the transmission market has put some margin pressure on VISCO’s expected second half results, which Susan will describe in greater detail. Overall, based on the continued strength of our utility outlook, we are affirming our 2015 consolidated earnings per share guidance of $2.40 to $2.55, while there are headwinds facing VISCO over the remainder of the year that could pressure us toward the lower end of the guidance range. We have full confidence in VISCO’s leadership team and therefore our ability to manage through these market conditions. Turning to Slide 6. I’d like to reiterate our long-term targets that we announced last November. We have been executing on our strategy for several years now which has led to a track record of earnings growth that we believe will continue into the future. On the utility side, we have approvals in place for gas utility infrastructure investments and a framework for current recovery of those investments. Company-wide, we’ve created a culture of performance management that focuses on limiting operating cost increases. And on the non-utility side, we have concentrated our efforts on our strategic investments in VISCO and VESCO. In the graph on the bottom left, one I’m sure you’ve seen before and we’ll see again as we’re quite proud of it. You can see over the past several years, we’ve put Vectren in a position to have achieved higher, more reliable and consistent consolidated earnings growth. As we work through the exit of nonstrategic businesses and kept our annual dividend increases modest, we were able to drive the payout ratio down from roughly 80% toward our new target of 60%. All this positioned us to roll out new long-term targets last November that are shown on the right, the primary ones being the consolidated earnings and dividend growth targets of 5% to 7%. Of course aligning the two provides the foundation to deliver the shareholders of total return target of 9% to 11%. In conjunction with the lower payout ratio and these new growth targets, last November we announced a dividend increase of $0.02 per share or 5.6%. This was the largest dividend increase for Vectren or its predecessor since the early 1990s and extended our streak to 55 consecutive years of increasing the dividends paid. And as we said in November and I want to make clear, we expect the annual dividend to grow with our earnings also at 5% to 7%. With that review of the overall story of Vectren which, we believe, compares very favorably to our peers, I’ll turn it over to Susan who will provide more detail on each of our business’ results for the quarter and outlook for the rest of the year before we open it up for questions. Susan? Susan Hardwick Thanks, Carl. Let’s turn to Slide 7 where we’ll start with the utility. Improved utility results for the quarter were driven by higher returns from gas infrastructure investments in both the Indiana and Ohio and lower O&M related to performance-based compensation expense. These were partially offset by decreased margin from wholesale power sales. On the regulatory front, we continue to see support for our approach to infrastructure investments and recovery. In June, the Indiana Court of Appeals found in our favor on the appeal by the Utility Consumer Counselor to the single item in the Commission’s order issued in August 2014 approving Vectren’s initial infrastructure plan under Senate Bills 560 and 251. On April 1, Vectren filed its second request for recovery of investment related to our gas infrastructure plan in Indiana, something we’ll do semi-annually throughout the seven-year plan period. And then in June, we amended our case to delay the recovery of a portion of the investment made in the second half of 2014 related to approval through Senate Bill 560 under our next filing in October — until our next filing in October of this year. We did that because of the recent activity around these types of filings in the state and to ensure that we had sufficient opportunity to include the appropriate level of detail regarding the projects in our filings, which will expedite the Commission’s and other party’s review. In July, the Commission issued an order that substantially approved our approach to rate recovery of our investments. The Commission also agreed with our approach to address in our October filing the consideration of whether enhancements to our seven-year plan relating to the sufficiency of the project and cost details will be appropriate. The Commission did make one modification in this order requiring that we use an updated weighted cost of capital in each filing. We do not view this as a material change and to be expected the Commission continue to work through implementation of this new law. With these Commission orders in place, Vectren expects to continue with this gas infrastructure program and investments as planned. Finally, as you all know, on August 3, EPA issued the final rule under the clean power plan. We’re currently evaluating the rule including the reduction goals and how the plan might impact our customers and we’ll work with the State of Indiana on its response to this action. For any investments required to comply with these goals, as always, we will consider the cost implications for our customers since we would expect timely recovery under Senate Bill 251 related to federal mandates or Senate Bill 29 related to clean coal. Turning to Slide 8. As Karl mentioned, Vectren Energy Services’ second quarter results were improved over the prior year, of $0.4 million. This included solid increases in revenues and new contracts signed versus the 2014 period reflecting continued positive momentum. I’m also pleased to report that VESCO has now signed contracts for the three major projects we referenced in May totaling nearly $80 million, one of which I’ll describe further in just a minute. Because of VESCO’S continued success with contract signings in the quarter, backlog has again increased versus the prior quarter end. At June 30, backlog was $175 million compared to $161 million at March 31 and $144 million at December 31, 2014. In addition, as Carl mentioned earlier, VESCO secured a large contract with NASA’s Johnson Space Center just yesterday. The project’s objective is to maximize energy cost savings by constructing a new combined heating power plant and making improvements to a chilled water plant. The contract includes the construction cost of approximately $47 million that will be added to backlog now that the contract is fully executed. The contract also includes a 22-year operations and maintenance agreement. The sales funnel, which includes contracts that have been awarded, but are not yet signed, remains very high at over $360 million as of June 30 even with the significant project signings in the second quarter. As we described previously, one of the biggest obstacles VESCO faces is the length of time it takes customers to sign contracts on projects that have already been awarded. VESCO continues to work to improve the sales cycle process including the standardization of procedures and timelines for project procurement, documentation and implementation. In June of this year, the Energy Services Coalition, which is one of the two primary trade associations for the energy services industry and has been led by one of our colleagues here at Vectren, was awarded a three-year contract with the US Department of Energy that includes funding for multiple initiatives to help accelerate the successful implementation of energy savings performance contracting, including sales cycle efficiency improvement. The DOE’s aim for funding the Energy Services Coalition is to have it lead outreach programs and provide technical assistance to states helping them build capacity for performance contracting initiatives and improve project procurement processes and timeline. We think this is yet another step in helping to improve the timeliness of this process. Let’s move onto Slide 9. Vectren Infrastructure Services had an excellent second quarter, improving earnings $2.9 million over the prior year. Year-to-date results are up more than $5.5 million compared to last year. And similar to the first quarter, demand for construction services was strong as VISCO achieved record second quarter revenue levels, which were $53 million higher than the same period in 2014. Earnings from operations in the second quarter were up more than $5 million over last year, driven largely by working the distribution market including work done by A&B Trenching. As you recall, A&B was acquired in May of this year and has performed well and as planned. The outlook for VISCO, second half of the year looks promising from a demand and revenue standpoint. Estimated backlog remains strong at approximately $575 million as of June 30, down slightly compared to $610 million at March 31. On the distribution side of the business, we have continued to add workers and expect to continue to significantly outpace 2014 revenues this year, as demand from utilities continues to grow. The record second quarter revenues contributed somewhat to the decline in June 30 backlog, but also VISCO was unsuccessful in a bid for significant transmission maintenance work that was included in the recent backlog. They had expected to perform this work in the second half of 2015. The VISCO team is diligently working to replace this loss of business and the prospects to do so are very good, but it is possible the margins for new projects may be lower than the maintenance work that was planned and therefore may result in pressure towards the lower end of our original 2015 earnings expectations for VISCO. However with significant projects announced and plans to start in mid-2016, our ability to grow the transmission business in 2016 and beyond should not be significantly impacted as market demand is expected to be very high over the next few years. Turning to Slide 10, here are just a few key drivers of our positive outlook. First, utility earnings will continue to grow as we execute detailed investment plans with approved recovery mechanisms in both Indiana and Ohio. Vectren Energy Services’ earnings prospects continue to strengthen as the national focus on energy conservation, renewable energy and sustainability expands given the widespread attention and expected rise in power prices across the country. VESCO is well-positioned to compete in all three market segments; federal, public sector and sustainable infrastructure. And finally, Vectren Infrastructure Services is well-positioned to compete for market share demand continues to grow from the newly announced distribution replacement programs, additional federal pipeline regulations likely to come, and while we and others expect to be very high market demand for transmission projects for which construction will begin in mid-2016 through 2018. Concluding on Slide 11. I want to reiterate our belief that Vectren merits premium valuation consideration. We have worked to position the Company to deliver greater stability and higher consistent earnings growth. The utility remains our core business having demonstrated a very strong track record of earnings has allowed returns. Gas infrastructure investments backed by approved recovery plans will continue to be the growth engine, driving utility earnings growth targeted at 4% to 6%. These investments will also drive it in the relatively near-term to being a predominantly gas utility from an earnings perspective and therefore deserving a more gas-like multiples. And complementing our premier utility operations is our high-quality, non-utility business mix with the growth driven by long-term demand for infrastructure investments, energy efficiency and sustainable infrastructure across the nation. Based on our EPS guidance and expectations, our streak of several years of consistent earnings growth should continue in 2015. While we fully expect to be in the range even at the very low end of our EPS guidance range of $2.40 per share, we would still see growth of 5.3% compared to 2014. So, in conclusion, our 5% to 7% earnings and dividend growth targets, coupled with our 60% payout target and a 55-year history of growing dividends, serve us strong anchors for our annual total shareholder return target of 9% to 11%. We are very confident in our ability to deliver on all of these targets. And with that, operator, we are now ready for questions. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from Matt Tucker with KeyBanc Capital Markets. Your line is now open. Matt Tucker Good morning and nice quarter. Few questions, first on VISCO, could you give us a sense of how much transmission represents right now in terms of your revenue or backlog mix? Carl Chapman Yes, Matt, as you know, we really don’t give a split on distribution and transmission. We certainly have indicated the distribution has been growing very nicely and we did have the one maintenance work that we didn’t retain. So, that put it in a perspective for you, but in terms of a split, this is not something that we provide. Matt Tucker Fair enough. And when you talk about transmission, is that mostly with non-utility customers, non LDCs? Carl Chapman Yes. I think that when we talk about distribution, that’s really the LDCs. And as we suggested, that actually has been growing faster than we expected. And so when we talk about transmission, it is going to be either big pie first of all gas or oil. It could be liquids, you know, other kinds of liquids, but it’s mostly going to be gas or oil. Matt Tucker Got it. So, looking at your current backlog now, how much, if any, do you view as being at risk due to competition like what you saw with this [indiscernible]? Carl Chapman Well, obviously, we would not describe it as backlog if we had great concern about it. We try to always acknowledge that our backlog numbers are estimates, we describe in our appendix with our metrics, we describe how we come up with the backlog, and so we always want to make sure that everyone understand that is an estimate, but on the other hand, it is a well thought-out estimate and we feel very good about the numbers we are sharing. Matt Tucker One other follow-up to that. I noticed the mix shift in the backlog moved fairly significantly toward bid work away from blanket contracts more than just at $35 million that you mentioned. Any color you can provide on what’s going on with that mix shift? Carl Chapman I don’t think there is a whole lot to add. We tried to share in our discussion and in our comments that we are seeing by our customers a greater desire for bid kind of contracts, so I think there’s just a bit of a change in the market right now. We’re not prepared to say that’s a permanent change, particularly when we see the additional work, but we’d just have to monitor and see how that unfolds. There’s still a lot of work being done under blanket. Matt Tucker Okay, thanks. And then just one more from me. I noticed in your first quarter slides, you provided the guidance metrics for the non-utility businesses that you provided earlier in the year, I don’t see that in the slides today, should we consider that guidance stale at this point or do they just like not have space to put it on the slide or something? Carl Chapman I think that what we did say is we focused on the consolidated, I don’t know that we consider it stale, we just don’t have any reason to provide it again, but we feel pretty good again by acknowledging and confirming our original guidance, we feel pretty good about the pieces of it. Matt Tucker Okay. Thanks, Carl. Carl Chapman Thank you. Operator [Operator Instructions] Your next question comes from Paul Patterson with Glenrock Associates. Your line is now open. Paul Patterson Good morning. So, just to follow up on Matt’s question on the backlog. What would happen if you would just for accounting backlog from contracts that were actually awarded versus your estimation of bid. I mean, is that a possibility to serve the idea of just maybe estimating your backlog on what exactly was awarded as opposed to your estimation of what was bid and what, you think, will be awarded? Carl Chapman Yes, I think we covered this in prior calls and even when we came out with the backlog, the reality is that you never can do that with blankets and there’s a pretty significant portion of the backlog, or it could be in blanket, it may vary quarter-by-quarter or at any point of time how much is the bid approach versus the blanket approach, but I think that you know it’s going to always be an estimate. So, I don’t think that we have a need to provide any more detail in that regard because what we’re trying to do with backlog is give you a sense of what’s going on out there in terms of what’s the business look like and clearly there’s lots of bidding going on. So, there’s plenty of opportunity, which we tried to share, we’ve seen no slowdown in the opportunities and so we feel like it’s the best backlog approach that we can provide. We certainly have debated that over time. I think we’re pretty comfortable. This is the best approach to give you a real sense where the business is going. Paul Patterson Okay. And then just in terms of the competitive environment that you guys described, any outlook on that and how that might work, do you see any potential shakeout or do you see it increasing, due you see more accompanying, do you see potential for the competitive levels to increase or just any outlook you might have with respect to that? Carl Chapman Sure. Well, the first thing I’d say is that we really are sitting here and talking about this because we lost a certain amount of work. We are not seeing tons of changes, but what happens is that it’s a mix of work issue. So, now we are looking at additional mix of work, we’re not going to change our risk profile what we’re willing to look at, in anyway, we won’t take additional risk if you will, but there is a change in the mix of the work and that really drives this margin issue as much as anything. And I also believe that because the industry does see such a strong, call it, the mid-2016, but sometime in 2016 to 2018 see such a strong amount of work that’s been announced, I think you see a lot of people making sure that they’re positioned well for that and that has an impact on margin as you try to make sure that you’ve got your people and make sure you’re positioned when that pick-up occurs in a very big way. Paul Patterson So in other words, you will see margins improving in 2016. Carl Chapman Well, I don’t know that we’re prepared to say they’re going to improve. We’ll have to monitor them and see. I certainly think they have the potential to do that, but we’ll have to see how the competition reacts. Paul Patterson Okay. I appreciate it. Thank you very much. Operator [Operator Instructions] And your next question comes from Matt Tucker with KeyBanc Capital Markets. Your line is now open. Matt Tucker Just a couple of questions on VESCO now, congrats on the NASA contract by the way, of the $80 million large contracts you mentioned that have now been booked and I assume the NASA was part of that, was the rest booked in the second quarter? Carl Chapman Yes. What we did there is we would’ve loved it if NASA had gotten signed on June 30, just a little bit later than that, but what we shared at the end of the last quarter was those three contracts totaling $80 million would get signed and they now are signed. Yes, NASA was just a little later than we would have preferred, so the other two were signed as well as other contracts of course, but what we really wanted to demonstrate there was the business is doing what we said it would do, and those contracts were signed and they are working on. Matt Tucker And then with respect to the sales funnel and like the $360 million, are there other large projects in a similar size to this, and then it was thought that or have you seen any change in the duration of the sales cycle? Carl Chapman Well, I think Susan went through in some detail, some of the work that’s being done and I think that we do feel better about the sales cycle, what will happen to us at times, particularly in a large contract, it’s that one contract we want to try to give some transparency on and it may turn out to be much longer timeframe. That obviously happened with the NASA contract, but I think we are seeing some positive signs in terms of the sales cycle. And I think we’ll continue to focus on that. As Susan described, we had some deal with E-dollars provided to one of the trade agencies. In terms of the funnel itself, I don’t think that the funnel is unusual at all in its make-up right now. There certainly are some large contracts and a lot of small contracts and we feel pretty good about where that funnel is at this point as we try to move those to signing. Matt Tucker Thanks, Carl, that’s helpful. And then actually just one more on VISCO. You mentioned the PHMSA rules potentially driving increased customer spending. Could you expand a little bit on that? Susan Hardwick Yes. I think, Matt, let me make just a couple of comments and Carl certainly can way in here too. We think the rules that have been finalized in 2015 really were more administrative in nature, didn’t have a whole lot of impact on us. We do believe there are some additional rules yet to come around operating pressures and vales and inline inspection work. There could very well be some implications for everybody that does this type of work, but in our particular case, we feel like we again are well-positioned. We’ve been doing a number of these procedures for some time and have many of those proposed or expected requirements built in our plans already. So, again, the expected implications to us should be hopefully pretty insignificant once the rules come out. Again, that’s based on our current view of what those rules are likely to evolve into and again that could change, but we, again, feel pretty strongly about our plans and how we’ve developed our plans around those expected requirements. Carl Chapman And as Susan mentioned, if those opportunities are to be greater, obviously we’ll work with our regulators and have opportunity in our utility, but also of course that’s a real positive for Miller and I don’t mean related to our utilities, but across the country, other utilities would be doing that additional work if it turns out that way. Matt Tucker Makes sense. Thanks, Carl. Thanks, Susan. That’s all I had. Carl Chapman Thank you. Operator Now, we have no further questions at this time. I’ll turn the call back over to the presenters. Naveed Mughal I’d like to thank everyone for joining us on the call today. I look forward to meeting many of you over the coming months. On behalf of our entire team, we appreciate your continued interest in Vectren. With that, we’ll conclude our call for today. Thanks again for your participation. Operator This concludes today’s conference call. You may now disconnect. 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Alliant Energy’s (LNT) CEO Pat Kampling on Q2 2015 Results – Earnings Call Transcript

Alliant Energy Corporation (NYSE: LNT ) Q2 2015 Earnings Conference Call August 6, 2015, 10:00 am ET Executives Susan Gille – Manager, IR Pat Kampling – Chairman, President & CEO Tom Hanson – SVP & CFO Analysts Andrew Weisel – Macquarie Capital Paul Patterson – Glenrock Associates Operator Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy’s Second Quarter 2015 Earnings Conference Call. At this time, all lines are in a listen-only mode. Today’s conference call is being recorded. I would now like to turn the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy. Susan Gille Good morning. I would like to thank you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Pat Kampling, Chairman, President and Chief Executive Officer; Tom Hanson, Senior Vice President and CFO; and Robert Durian, Vice President, Chief Accounting Officer and Controller; as well as other members of the senior management team. Following prepared remarks by Pat and Tom, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy’s second quarter 2015 earnings and reaffirmed 2015 earnings guidance. This release as well as supplemental slides that will be referenced during today’s call are available on the Investors Page of our Website at www.alliantenergy.com. Before we begin, I need to remind you that the remarks we make on this call and our answers to your questions include forward looking statements. These forward looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy’s press release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward looking statements. In addition, this presentation contains non-GAAP financial measures. A reconciliation between non-GAAP and GAAP measures are provided in the supplemental slides which are available on our website at www.alliantenergy.com. At this point, I will turn the call over to Pat. Pat Kampling Thanks, Sue. Good morning and thank you for joining us today. I am pleased to report that we had another solid quarter with second quarter 2015 earnings in line with our expectations. Tom will discuss the financial details of the quarter. I am pleased to let you know for the first time in years temperatures did not have a significant impact on earnings per share for the first seven months of 2015. Therefore our year end earnings guidance is trending toward the midpoint of our guidance issued in November 2014. Environmental regulations are in the news again and it is very important to step back for a moment and review the orderly transition of our generating fleet during the past six years. We have been planning for sweeping environmental rules that would impact our industry and developed a strategic plan that would position us and our customers well for that future. We completed many components of that plan, including installing of our 500 megawatts of wind, spending over $1 billion related [ph] emissions controls to our largest and most efficient generating stations and have decided to either close or convert to natural gas several older less efficient coal generating stations. To further diversify our generating fleet, we added natural gas fired generation with the purchase of the 675 megawatts Riverside Energy Center and have another 650 megawatts under construction in Marshalltown, Iowa. And in Wisconsin, we are proposing to build another 650 megawatt natural gas fired generating station. We’ve had a very deliberate plan that transformed our generating fleet to one that is diversified, flexible, has lower emissions but ensuring that we continue to deliver reliable affordable energy to our customers. 2015 is a significant year for our industry in how we utilize and dispatch our generating fleet. We experienced some remarkable performance at our Riverside and Emery combined-cycle natural gas generating stations. During the first half of the year, they achieved capacity factors averaging approximately 45% which is about doubled they experienced in the first half of 2014. Also, our wind generation has remained consistent with capacity factors for the first half of 2015 averaging over 35%. Lastly, our coal units have operated well with the recently installed environmental controls. We have a robust capital expenditure plan for 2015 which totals over $1 billion. Approximately 35% of this year’s capital budget is for improvement and expansion of our electric and gas distribution systems, including bringing natural gas to underserved communities. Approximately 30% of this year’s capital budget is to improve the efficiency and environmental profile of our generating units. Also, approximately 30% of this year’s capital budget is for the construction of the Marshalltown Generating Station. Now let me update you on our large construction projects. In Wisconsin, the installation of a scrubber and baghouse at Edgewater Unit 5 is approximately 65% complete. It’s expected to be in service in the second quarter of 2016. Capital expenditures forecasted for this project are approximately $300 million. At Columbia, comprehensive asset management program to improve the efficiency of the units started with the installation of two new cooling towers completed in 2014 and the remaining projects are expected to be completed by the end of 2017. WPL’s share of the total estimated capital expenditure for these projects is approximately $60 million. We also expect to start construction of the PSCW approved Columbia Unit 2 SCR during the first quarter of 2016. Our estimated capital expenditure for the SCR is approximately $70 million. In Iowa, the Lansing Generating Station dry scrubber has been placed in service at a capital expenditure of approximately $55. As we previously announced, in order to replace retiring facilities and further increase the amount of natural gas fired generation, we are constructing the Marshalltown Generating Station and have proposed the Riverside Energy Center expansion. In Iowa, site construction is well underway at IPL 650 megawatt combined cycle natural gas fired Marshalltown generating station as you can see on Slide 2. Lehmans [ph] delivered the first combustion turbine in June and we expect delivery of the second CT this month. We plan to complete the construction of the gas pipeline to the facility this month and the transmission upgrades are underway. The transition upgrades for Marshalltown are projected to cost less than $25 million. So we now expect the total project to come in over $100 million below the $920 million cost cap. The reduced cost for the transition upgrades will not have an impact on our capital expenditure or rate base forecast since ITC will be funding the transmission. Marshalltown is expected to be in service by the second quarter of 2017. In 2013, WPL announced that it would require several older coal facilities and natural gas peakers. The forecasted accredited capacity loss from this retirement is approximately 640 megawatts. As a consequence, WPL evaluated a wide range of alternatives to meet the long-term energy and capacity needs for its customers. In June 2014, WPL issued an RFP from market-based options. After evaluating all of our options, we concluded that expanding the Riverside Energy Center was in the best interest of our customers. The proposed Riverside Energy Center expansion located at our existing Riverside site near Beloit, Wisconsin is approximately 650 MW highly efficient natural gas generating facility at an estimated cost of $750 million, excluding AFUDC and transmission. This past April, WPL applied for a certificate of public convenience and necessity or CPCN with the Public Service Commission of Wisconsin for the proposed expansion. During a recent prehearing conference, questions arose over Wisconsin Electric Power Company’s intervention and whether WEPCo will be allowed to propose for the first time a short-term PPA as an alternative to Riverside. Later this morning, the commission will decide WEPCo’s intervention request. Our competitive RFP and alternative analysis with diligence, and we believe Riverside is and will be found to be in the best long-term interest of our customers. The current procedural schedule for the CPCN is provided on Slide 3. The proposed Riverside Energy expansion includes an approximate 2 MW solar on the properties. We also have several other solar projects under development. We’re doing them for us to gain valuable experience on how to best integrate solar on a cost-effective manner into our electric system. We will own and operate the solar panels at the Indian Creek Nature Center in Iowa as well as our Madison Corporate Headquarters which are our two projects currently under development. These solar projects were part of the capital expenditure guidance we provided in November 2014. In July, IPL announced a settlement with EPA, the Sierra Club in the state of Iowa and Linn County in Iowa to resolve potential Clean Air Act claims and to avoid unnecessary delays and ongoing uncertainty associated with litigation. The terms negotiated in the settlement were consistent with our long-term plan for cleaner energy and most of the projects included in the settlement have already been completed or at plan. The EPA meetings earlier this week issued its final rule to reduce carbon emissions from electric utilities. This rule is widely referred to as the Clean Power Plan. We understand that this is just one more step on what will be a long process that includes legal challenges and the development of compliance plans. As we work with our state regulators to develop strategies to comply we will continue to take the approach of doing what was best for our customers. We are fortunate that we operate in states that have a long history of energy efficiency programs, environmental stewardship and support for renewable energy. How we spend our capital dollars and the pace of our capital spend is focused on ensuring we manage costs, use our resources responsibly while providing energy services and solutions to our customers. As we plan for future rate cases and work with stakeholders in developing the state clean power plants, these goals will be top of mind. Let me summarize the key messages for today. We had a solid first half of the year and are well-positioned to deliver on this year’s financial and operating objectives. Our plan continues to provide for a 5% to 7% annual earnings growth objective and a 60% to 70% common dividend payout target. Our targeted 2015 dividend increased by 8% over the 2014 dividends paid. And we continue to successfully execute on our capital plans, completing projects on time and at or below budget. We will continue to work with our regulators, consumer advocates, environmental groups and customers in a collaborative manner. We will continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost impact to customers. And finally, I must acknowledge and give thanks again to our dedicated workforce which not only provides reliable energy to our customers but also delivers the financial results we are discussing today. At this time, I will turn the call over to Tom. Tom Hanson Good morning everyone. We released second-quarter earnings last evening with our adjusted earnings from continuing operations of $0.67 per share. Second-quarter 2015 adjusted earnings are $0.11 higher than second quarter 2014. Comparisons between second quarter 2015 and 2014 earnings-per-share are detailed on Slides 4, 5, and 6. The adjusted or non-GAAP second-quarter earnings from continuing operations exclude a charge of $0.06 per share from the sales of IPL, Minnesota electric and gas distribution assets. The premium over the property, plant and equipment book value was more than offset by the elimination of the applicable tax related regulatory assets resulting in the charge recorded in the second quarter. We estimate the second quarter 2015 temperature impact on sales when compared to normal temperatures resulted in lower earnings of $0.03 per share. This was $0.05 lower than second quarter 2014 temperature impact of a positive $0.02 per share. On a temperature normalized basis, Alliant energy’s residential electric sales were flat whereas commercial and industrial sales increased approximately 1% quarter over quarter. Taking into consideration the first half results, we are currently forecasting modest increase in temperature normalized sales of approximately 1% for IPL and WP&L when compared to 2014. The 2015 EPS guidance range factors in retail rate based settlements at IPL and WP&L. These settlements reflect rate-based increases at both utilities, offset by a reduction of energy efficiency cost recovery amortization at WPL and the elimination of the Duane Arnold Purchase Power capacity payments at IPL. IPL will credit customer bills by approximately $25 million ratably over 2015. By comparison, the billing credits in 2014 were approximately $70 million and occurred from May through December. Also included in WP&L’s rate settlement was an increase in transmission costs related primarily to the anticipated allocation of SSR costs. As a result of a FERC order issued after the settlement, the amount of the transmission costs billed to WP&L in 2015 will be lower than what was reflected in the settlement since the PSC approved escrow accounting treatment for transmission costs. The difference between the actual transmission costs billed to WP&L and those reflected in settlement will accumulate in a regulatory liability. We estimate that this regulatory liability will have a balance of approximately $40 million at the end of 2016. We view this regulatory reliability as another mechanism we can use to minimize future rate increases for our Wisconsin retail electric customers. During 2015 IPL will provide tax benefit rider billing credits to electric and gas customers of approximately $72 million compared to $82 million in 2014. As in prior years, the tax benefit riders have a quarterly timing impact but are not anticipated to impact full year 2015 results. The IUB has approved a second tax benefit rider. Like the first tax benefit rider, we will accumulate benefits from two accounting method changes and a regulatory reliability which will then be passed through to customers as billing credits. The total expected billing credits are approximately $75 million. These accounting method changes are still subject to final IRS approval. We propose a credit customer bills with the second tax benefit rider after 2016 which is when the regulatory reliability related to the first tax benefit rider is expected to be fully utilized, and when we expect to file our next electric rate case in Iowa. Drivers to the difference between the statutory tax rates for IPL, WP&L and AEC, and the 2014 actual and 2015 forecast effective tax rates are provided on Slide 7. The consolidated AEC effective tax rate for 2015 is forecasted to be 16%. Turning to our 2015 financing plan. Cash flows from operations are expected to be strong given the earnings generated by the business. We also expect to benefit from not making any material income tax payments in 2015 and 2016. These strong cash flows will be partially reduced by IPL tax benefit riders and customer billing credits. In our 2015 financing plan, we anticipated issuing approximately $150 million of new common equity. In March and April of this year, we issued approximately 2.2 million shares of new common equity with proceeds to $135 million through the at-the-market offering. We plan to issue the remaining approximately $15 million of new common equity through our shareowner direct plan throughout the remainder of the year. In June, IPL retired $150 million of long term debt. The 2015 financing plan assumes we are issuing up to $300 million of long-term debt at IPL. We may adjust our financing plan as deemed prudent, if market conditions warrant and as our debt and equity needs continue to be reassessed. We believe that with our strong cash flows and financing plans, we will maintain the appropriate targeted liquidity, capitalization ratios and credit metrics. The 2015 financing plan assumed the sales of our Minnesota electric and gas distribution assets which were completed last month with proceeds of approximately $145 million, including working capital adjustments and a $2 million promissory note. Turning now to the ROE complaint filed against MISO transmission owners. In December 2014, FERC ordered formal proceedings to begin. To-date, various parties have filed testimony with FERC. A final decision from FERC on the complaint is currently expected in 2016. Year-to-date impact of the anticipated reduction to APC’s authorized ROE has lowered earnings by $0.02 per share. We have summarized our planned regulatory dockets of notes on Slide 8. In Wisconsin, we anticipate receiving a decision on the 2016 fuel monitoring level in the fourth quarter of this year and we anticipate receiving a decision on the Riverside expansion CPCN in the second quarter next year. We very much appreciate your continued support of our company and look forward to meeting with you throughout the year. At this time I’ll turn the call back over to the operator to facilitate the question and answer session. Question-and-Answer Session Operator [Operator Instructions] We’ll go first to Andrew Weisel of Macquarie Capital. Andrew Weisel Good morning guys. Couple questions on the generation fleet. First, I know the governor of Wisconsin is certainly making a claim against the EPA as part of his presidential bid. Any thoughts on how the CPP might impact your specific portfolio and CapEx plans? Pat Kampling Good morning, Andrew. This is Pat. The CPP rule is very different than the one that was originally proposed. So we’re still analyzing this and I can’t speak on behalf of our governor of course but we come from a state that has had always very good environmental rules, renewable and energy efficiency standards. So we will work with our states to make sure that we get implementation plans that work for us but right now we really need to spend the time understanding this new rule because it’s very different than the proposed rule. Andrew Weisel Then the second question is on coal to gas switching, I mean in the short term, not the long term, I understand your gas plants have been running very efficiently at very high capacity factors year to date. What kind of impact does that have in terms of the near term and longer term dispatch plans and financials? Pat Kampling No, it really doesn’t impact anything whatsoever. As you are aware, the transition on our smaller coal fleet to natural gas and keep in mind we actually had natural gas already located at those sites. It’s really a transition for us to get us through the next few years as we talked about. That’s not a long-term solution. The long-term solution is to add new combined cycle generating facility to our fleet. Andrew Weisel Then one other question on the load growth, I appreciate the high level of detail but maybe just an update on the trends in your local economies, especially the Wisconsin industrial side. Tom Hanson Andrew, this is Tom. If we kind of look at it more broad-based we continue to see a modest number of additional residential customers being added to our system but recognizing we are seeing residential use each go down. But we are seeing some expansion in the industrial sector of our business. So that gives you kind of a sense of where we’re at. So as I stated, we are anticipating about a 1% increase in sales year-over-year. Operator [Operator Instructions] We’ll go next to Paul Patterson of Paul Patterson of Glenrock Associates. Paul Patterson Just sort of circle back on Riverside. I guess what the question I sort of had is first of all, I mean this is more of a question for Wisconsin electric. But with the merger, it seems that they are saying that they are now coming up with a lot of extra capacity and that – as you indicated previously in the call, that they can replace Riverside. But I guess what my question is – what is it in Wisconsin that prevents utilities who were not merged from engaging this kind of what would seem to be a savings methodology, do you follow what I am saying? I mean this could have been done without a merger and I am wondering just in general how we should think about that. Pat Kampling Paul, we’ve been very deliberate in our process to make sure we have the lowest cost long-term solution for our customers. And I cannot speak on what WEnergy is thinking right now. And all we really know is what they filed at the Wisconsin Commission, believing that they have a short-term solution to offer to us which we have not seen, where they provided no details. So this is just a very new news and we’ve got to work through the process here and Wisconsin Commission is going to rule later this morning on if they’re allowed to be involved in the case with another proposal. Paul Patterson I mean I guess, basically get interviewed in the cases [ph] I wouldn’t – I mean is that fair to give a utility in the neighborhood – I mean how much of a gating factor should we look at that being in terms of what their proposal is. I don’t get it. I mean that means that their proposal is unlikely to – but I mean in general though, I mean assuming that they are giving it, how should we think about that? Pat Kampling Yes, and Paul, it’s common that other utilities get interviewed in the status in the cases, that’s just very common as you follow the cases. So that’s not unusual. The unusual thing here is that at the 11th hour they want to provide another proposal and they were not part of the RFP process, they did not reply to any — they did not provide any offers when we did the RFP. So this is a little unique. Paul Patterson Now you said that you’ve – just to clarify this. You did say that basically you looked at all these things and this is the cheapest cost. What about this idea of combining with the utilities I guess is what I am sort of wondering here now, like it seems kind of that Wisconsin with the merger with WPL was able to come up with some savings. I am just wondering, is there something that doesn’t allow utilities to cooperate in that manner without a merger? Pat Kampling Paul, just to be clear they merged with WPS. Paul Patterson I am sorry, WPS. I apologize. Pat Kampling That’s okay. No but they were – and again I prefer that you address this with WEnergy but we are not part of their IRP planning process. Paul Patterson But I am just wondering – generically, I am sorry to harp on this. I am just speaking generically. Is that something that you guys look at and when these plans are put forward, the idea of partnering with – Pat Kampling Now our IRP relates to our Wisconsin customers, Paul. We’ll talk to you later on this if you want to follow up. End of Q&A Operator Ms. Gille, there are no further questions at this time. Susan Gille With no more questions this concludes our call. A replay will be available through August 13, 2015 at 888-203-1112 for US and Canada, or 719-457-0820 for international. Callers should reference conference ID 8244179. In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the Investors section of the company’s website later today. We thank you for your continued support of Alliant Energy. And feel free to contact me with any follow-up question. Thanks. 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