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Endesa Chile’s (EOC) Q4 2014 Results – Earnings Call Transcript

Endesa Chile (NYSE: EOC ) Q4 2014 Results Earnings Conference Call January 30, 2015, 9:00 am ET Executives Fernando Gardeweg – Chief Financial Officer Analysts Nicholas Schild – Santander Operator Good morning, ladies and gentlemen. Welcome to the year-end 2014 Endesa Chile SA ADS earnings conference call. My name is Kathy and I will be your operator for today. At this time, all participants are in listen-only mode, we will conduct a question-and-answer session towards the end of this conference. [Operator Instructions]. As a reminder, this call is being recorded for replay purposes. During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements could include statements regarding the intent, belief or current expectations of Endesa Chile and its management with respect to, among other things, Endesa Chile’s business plans, Endesa Chile’s cost reduction plans, trends affecting Endesa Chile’s financial conditions or results of operations, including market trends in the electricity sector in Chile or elsewhere, supervision and regulation of the electricity sector in Chile or elsewhere and the future effect of any changes in the laws and regulations applicable to Endesa Chile or its affiliates. Such forward-looking statements reflect only our current expectations, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors include a decline in the equity capital markets of the United States or Chile, an increase in the market rates of interest in the United States or elsewhere, adverse decisions by government regulators in Chile or elsewhere and other factors described in Endesa Chile’s Annual Report on Form 20-F, including under Risk Factors. You may access our 20-F on the SEC’s website www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of that date. Endesa Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate. I would now like to turn the presentation over to Mr. Fernando Gardeweg, CFO of Endesa Chile. Please proceed, sir. Fernando Gardeweg Thank you, Kathy. Good morning everyone and welcome to Endesa Chile’s conference call to review 2014 year-end results. I am Fernando Gardeweg, CFO of the company and joining me today is Mrs. Susana Rey, Endesa Chile Investor Relations Director and our IR team. As always, we will be available to assist you and answer any questions you might have after the call. Slide two. First of all, I would like to highlight the following issues. One, operating revenues increased 21%, mainly due to higher energy sales, as a consequence of higher average sale price of electricity in Chile, Colombia and Peru. Two, hydro generation increased 10% due to better hydrology in Chile, Colombia and Argentina. Three, operating costs increased by 35% due to higher energy purchases and fuel consumption in Chile and Peru, along with higher transportation cost and other services expenses in Colombia and Peru. Four, consolidated EBITDA increased by 12%. Five, net income attributable to Endesa Chile’s shareholders decreased 5%, primarily due to non-recurring accounting effects related to the HidroAysen and Punta Alcalde. Six, consolidated generation declined only 3% despite lower thermal availability mainly explained by the Bocamina II stoppage. Let’s move to slide three. The most important consolidated changes are as follows. Net income attributable to our controlling shareholders decreased by 5% amounting $587 million, primarily due to 21% higher revenues mainly attributable to higher energy sales as a consequence of higher average sales prices of electricity in Chile, Colombia and Peru. 35% higher cost, primarily due to higher energy purchases and fuel consumption costs in Chile as a consequence of the temporary shutdown of Bocamina II. 50% lower net financial expenses mainly as a result of higher financial income in Argentina, explained by the renegotiation of Costanera debt with Mitsubishi, offset by a greater exchange difference expenses in Chile. 94% lower related company results, mainly due to the impairment of HidroAysen and the lower net income from Enel Brasil caused by lower profits from the generation business. 16% increase in taxes mainly due to higher taxable base in Colombia and Peru and higher tax rate in Chile. Lastly, consolidated EBITDA increased 12% for 2014 in comparison to 2013. In slide four, you can see each country’s contribution to our EBITDA. From the total amount of $1,920 million, 45% comes from Colombia, 34% from Chile, 17% from Peru and 4% from Argentina. Our operations in Brazil are accounted for under the equity method and contributed to a total of $109 million. In slide five, regarding our commercial policy. The company sold 16,244 gigawatt hours on the spot market. From this amount, 6% of our energy sales in Chile were sold on the spot market, 30% in Colombia, 6% in Peru and 92% in Argentina. In slide six, let’s look at our strong financial position. We have a healthy debt maturity profile. On the total debt of $3.5 billion, only 18% matures within the next two years and 89% came from Chile and Colombia. Our consolidated debt has an average life of eight years and an average cost of 7.2% when adjusted for maturity and duration. We have $552 million in cash and cash equivalent plus access to an additional $481 million of committed undrawn revolving credit line. Our leverage amounted to one times and interest coverage ratio was 7.7 times. In slide seven, you can see our free cash flow increased by 3% amounting to $643 million, as a consequence of higher EBITDA and lower net financial expenses. I would like to now give a brief summary of our operating performance on a country-by-country basis starting with slide eight. Argentina, regarding the Argentinean energy sector, energy demand in the system increased 1% reaching 126,396 gigawatt hours and price continued to be kept at 120 Argentine pesos per megawatt hour, approximately $14 per megawatt hour, as a consequence of Resolution 240 of 2003. EBITDA from our Argentina operation decreased 18% amounting to $80 million, primarily explained by 46% lower energy sale as a consequence of less sales to regulated customers in the spot market. Let me highlight that as of December, Argentine net income has increased by $116 million, following the refinancing of Endesa Costanera’s debt with Mitsubishi. The estimate FX for Endesa Chile will be additional earnings of $104 million and a reduction of financial debt of $138 million. In Chile, slide nine. Regarding the Chilean energy sector, total physical energy sales accumulated in Chile as of December 2014 were 3% higher than for the same period last year, amounting to 64,857 gigawatt hours. Total hydrology available from water flows during the year were consistently below average. In August, levels start to recover exceeding historical average level and reaching 81% of historical water flows. The total level of water stored in dams as of December 2014 had reached 30% of capacity, an improvement of 499 gigawatt hours of energy equivalent. As of December 2014, the average marginal cost reached $117 per megawatt hour, 23% lower than in 2013. EBITDA from operations in Chile increased by 2% reaching $649 million due to 7% higher physical energy sales and a greater average electricity sales price expressed in Chilean pesos. The full consolidation of GasAtacama represent an additional $80 million in EBITDA. In Colombia. Regarding the Colombian energy sector, 2014 demand in the season was 63,569 gigawatt hours, a 4% increase compared to 2013.. The total level of water stored in dams at 2014 reached 85% of capacity, representing on improvement of 310 gigawatt hour of energy equivalent. As of December 2014 the marginal cost average $58 per megawatt hour, decreasing significantly with respect to June 2013, a consequence of better hydrology. Colombian EBITDA increased by 23% reaching $866 million due to 17% higher energy sales explained by better hydro generation, lower power purchase and lower fuel costs. Also, during 2014we benefit from the regional generation resulting from the Salaco’s capacity optimization. In Peru, slide 11. Regarding the Peruvian energy sector, electricity demand reached 57,457 gigawatt hours, 5% higher than 2013, one of the highest growth rates in two years. During 2014, Edegel real water levels were similar to historical average recobering in the month of December and reaching 121% of the historical average. The total level of water storage in Edegel dams in 2014 reached 52% of capacity, similar to 2013. Marginal price in the Peruvian spot averaged $15 per megawatt hour decreasing significantly with respect to June at $32 per megawatt hour. Peruvian EBITDA increased by 17% reaching $324 million due to 14% higher energy physical sail to regulated and unregulated customers as a consequence of higher thermal generation. Finally, in slide 12. Enel Brasil EBITDA increased by 8% to $1045 million due to favorable results from the [indiscernible] primarily due to 49% higher EBITDA in [indiscernible]. Remind you that Enel Brasil is accounted for under the equity method and over 37% ownership amounted to $109 million of net attributable income from the year 2014. Regarding the Brazilian energy sector, demand for the Brazilian CIEN was 558,158 gigawatt hours, a 2% increase compared to the same period in 2013. On average, the spot price in the [indiscernible] system reached $275 per megawatt hour, 163% higher than 2013, due to lower water availability. Now let me focus in our investment during the period. In slide 13, on December 22, Laguneta, the last remaining power plant of the Salaco optimization project started its operation. With its completion, Salaco has 145 megawatts of new capacity resulting 482 gigawatt hours of estimated additional generation yearly. By the end of 2014, the project has generated 324 gigawatt hours. In slide 14, as a result of the acquisition of GasAtacama in April 2014, Endesa Chile EBITDA increased by $80 million. In slide 15. El Quimbo, our 400 megawatt installed capacity hydroelectric project continues its construction on schedule. As of December 2014, the project had reached 86% completion. We have continued securing agreements with local residents and the necessary contract to be able to carry out work on dam. We expect to begin operation of the first unit at the end of the first half of 2015. In slide 16, regarding Los Cóndores, a run of the river hydro power plant located in Chile, as of December 2014, the level of completion reached 9%. On August 2014, we signed the treatment contract and currently is under review. On November 2014, we will reach 100% of the civil work of the basic engineering of the tunnel and 40% of the backup continuing. Currently we are more than half of the assessment contract signed for the transmitter line. We expect to have most of the land available at the end of this year. In slide 17, regarding our projects. In the next five years, we are adding 670 MW and our plan includes the development of and additional 678 MW. Before ending this conference call, in slide 18, I would like to highlight the most important issues during this period. One, better operating results for 2014. Consolidated managing increased 11% mainly due to better margin in future Chile, Colombia and Peru, benefiting from our portfolio diversification. Two, diversified portfolio. Having operations in five different countries allows us to diversify risks inherent to each country. We continue to profit from our prudent commercial policies and an efficient mix of generation assets. Even though we face challenge, we improved EBITDA by 12%. Three, HidroAysen impairment, during the year, there have been two administrative resolution that forced us to rethink the project. In May 2014, the Ministers’ Committee revoked the environmental qualification resolution of the project and in January 2014, the general direction of water denied the additional water rights needed to make the project viable. Endesa Chile manifested its willingness to keep defending the water rights and the environment approval grants, continuing legal action are already underway for implementing new administrative or judicial actions to this dam. We maintain the conviction that the ecologic resources of the CIEN/Rio region are important for the country energy development. However, in the current situation there is uncertainty about the recovery of the investment made so far, since it depends on both judicial decisions and definition on matters on the energy agenda that today we are not able to provide. HidroAysen is not an immediate project of our portfolio. The company reminds that the original transmission line studies, the generating studies of the plant and the environmental were non-recoverable assets. Consequently the company decided to record a provision for impairment of $121 million, reducing net income for 2014. Four, Punta Alcalde impairment. As it has its environmental qualification resolution approved, but to complete its environmental approval, we also need the approval of the environmental impact assessment associates with the transmission line which now came in. Endesa Chile’s engineering team with the support of our coal technology experts have studied the possibilities of adapting Punta Alcalde to make it a profitable and technology more sustainable project. The conclusion they reached after one year of study is that such adaptation will involve major modifications to the approved environmental qualification resolution making the process much more difficult. The company has decided also to stop the development Punta Alcalde and the Punta Alcalde Maitencillo Transmission project, waiting to be able to clear the uncertainty about its profitability. Therefore, the company has decided to record an impairment of $22 million as of December 2014. Five, Bocamina II temporary shutdown. On November 6, 2014, the supreme court suspended the injunction and state the steps required to start operations. Endesa Chile should give warranties related to the desulfurizer and seawater suction. We are waiting for the Environmental Superintendent to certify this warranties so the plant can begin operations again. Additionally, we are still waiting for one, the outcome of the environmental court of Valdivia in order to request the annulment of the sanction under reduction of the fine received from the Environmental Superintendent and to the resolution of the environmental evaluation service of Concepcion regarding the new environmental impact study to optimize the plant. Six, Tecnimont agreement. The Board of Directors of Endesa Chile in an organization held yesterday has accepted and approved all the terms and conditions through which all the parties can end the arbitration and provide a mutual supplement for liabilities under the construction contract. As of September 2014, our financial statement on paying the claims against Endesa Chile for an amount of $1,294 million in the case of Tecnimont claims and $15 million in the case of SES with the agreement will eliminate this. Finally, as a result of the transaction, the final effect for Endesa Chile and Bocamina II project in particular will be the recognition of greater investment of $125 million. Seven, non-operating assets. Nonrecurring accounting assets related to HidroAysen and Punta Alcalde, lower results in Enel Brasil mainly due to higher energy costs in the [indiscernible] company as a result of the drought affecting Brazil, full consolidation of GasAtacama, increase in tax payment as a consequence of higher taxable base in Colombia and Peru and higher tax rate in Chile due to the recently approved tax reform and five, a larger negative foreign currency exchange affecting primarily in Argentina. As a consequence of the above mentioned, net income attributable to Endesa Chile shareholders decreased 5%. This concludes our review of Endesa Chile financial results for 2014. Now I will be glad to answer any questions you may have. Operator? Question-and-Answer Session Operator [Operator Instructions]. Sir, you have no questions at this time. [Operator Instructions]. The first question comes from Nicholas Schild from Santander. Nicholas Schild Hi. Good morning, Fernando, Thank you for taking my question. I have two questions regarding the use of cash for this year. On one side, I wanted to know if you had a final solution for the situation in San Isidro, where you are having problems for the steam tubing regarding the availability of water? And the second question is that, I noted that you were leasing a facility to AES Gener, which is Nueva Renca and I was wondering if adding Nueva Renca to supply this project in San Isidro too? Or you could have the three power plants working at full capacity at the same time and using this maybe to sell a portion on the spot market or to supply your contract in the first half of this year. Thank you. Fernando Gardeweg Thank you for your question, Nicholas. Regarding the San Isidro, since July 17, 2014 to-date, San Isidro is operating in open cycle due to the lack of water necessary for the operation of the steam cycle, the cooling systems supply. As a consequence, power generation will decrease this year of this power plant. Regarding the Endesa Chile, Gener, indeed, we signed an agreement with Gener. It is usual that generator exchange gas when they show some profit or deficit in the energy balances. Endesa Chile has made several of these exchange agreements at market prices in the past. This is a non-public bilateral short-term agreement that benefits both generators given a specific situation in the market and cannot be considered as a stable long-term contract. This type of arrangements have been done before and also been a part of the system as a whole. Nicholas Schild Okay. Thank you. Just to be sure, so the limitation of capacity is going to be also for 2015? Because I think someone told me that you built a new or the regulator authorized you to build a new well that might have a final solution for the lack of water in that facility in San Isidro specifically. Fernando Gardeweg Nicholas, we are working in trying to solve the problem. It will take us couple or maybe half a year or some many months. But we are trying to solve and reach the capacity of this power plant or the generation of the capacity of this power plant. Nicholas Schild Okay. Thank you, Fernando. Operator We have no further questions. I would now like to turn the call over to Mr. Fernando Gardeweg for closing remarks. Fernando Gardeweg Thank you, Kathy. Since there are no further question, I would like to thank you for participating in today’s conference call. If you need further assistance, our investor relations teams will gladly help you. I also invite you to visit our website where you can obtain the most relevant data concerning our company. At our website, we have also posted the complete set of financial statements. Thank you very much. Operator Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good 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. 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Unitil’s (UTL) CEO Bob Schoenberger on Q4 2014 Results – Earnings Call Transcript

Unitil Corporation (NYSE: UTL ) Q4 2014 Earnings Conference Call January 28, 2015 14:00 ET Executives David Chong – Director, Finance and Assistance Treasurer Bob Schoenberger – Chairman, President and Chief Executive Officer Mark Collin – Senior Vice President, Chief Financial Officer and Treasurer Tom Meissner – Senior Vice President and Chief Operating Officer Larry Brock – Chief Accounting Officer and Controller Analysts Shelby Tucker – RBC Capital Markets Dave Parker – Robert W. Baird & Company Operator Good day, ladies and gentlemen and welcome to the Fourth Quarter 2014 Unitil Earnings Conference Call. My name is Tony and I will be your moderator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. David Chong, Director of Finance. Please proceed. David Chong Good afternoon and thank you for joining us to discuss Unitil Corporation’s fourth quarter 2014 financial results. With me today are Bob Schoenberger, Chairman, President and Chief Executive Officer; Mark Collin, Senior Vice President, Chief Financial Officer and Treasurer; Tom Meissner, Senior Vice President and Chief Operating Officer; and Larry Brock, Chief Accounting Officer and Controller. We will discuss financial and other information about our fourth quarter on this call. As we mentioned in the press release announcing the call, we have posted that information, including a presentation to the Investor section of our website at www.unitil.com. We will refer to that information during this call. Before we start, please note that comments made on this conference call may contain statements that are commonly referred to as forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding the company’s financial condition, results of operations, capital expenditures and other expenses, regulatory environment and strategy, market opportunities and other plans and objectives. In some cases, forward-looking statements can be identified by terminology such as may, will, should, estimate, expect or believe, the negative of such terms or other comparable terminology. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties, and the company’s actual results could differ materially. Those risks and uncertainties include those listed or referred to on Slide 1 of the presentation and those detailed in the company’s filings with the Securities and Exchange Commission, including the company’s Form 10-K for the year ended December 31, 2014. Forward-looking statements speak only as of the date they are made. The company undertakes no obligation to update any forward-looking statements. With that said, I will now turn the call over to Bob. Bob Schoenberger Thanks, David. I would also like to thank everyone for joining us today. I will give a summary of our year end financial performance. If you turn to Slide 4 of our presentation, today we announced 2014 net income of $24.7 million or $1.79 per share, an increase of $3.1 million or $0.22 per share compared to 2013. This 14% increase in earnings in 2014 over prior year was driven by higher natural gas and electric sales margins partially offset by higher net operating expenses. Turning to Slide 5, the graph shows that our financial results have increased sharply over the past few years. The continued growth of our natural gas business along with recently completed gas and electric rate cases helped the company to achieve strong financial results in 2014. As we look forward to 2015, the continued expansion of our natural gas utility business and investments in the company’s gas and electric distribution infrastructure will provide a strong foundation for sustained future growth. On Slide 6, we are benefiting from improved economic activity underlying our service areas. Currently, average unemployment is just above 5% in the three states served by Unitil and signs of an improving economy are everywhere. We estimate that there is approximately $0.5 billion of new commercial construction underway in two of the largest cities we serve, Portland, Maine and Portsmouth, New Hampshire. We are benefiting from this economic growth and our focus on converting more and more of our customers to natural gas. Since 2010, our weather normalized gas unit sales have grown annually at 4.7%. And in 2014, our gas customer count grew 2.6%. Slide 7 highlights our historic annual return on equity. Strong customer growth paired with successful base rate cases continues to drive the company’s return on equity. In 2014, we earned a 9.2% return on equity, which is in line with the ROEs allowed by our regulators. As Mark will discuss later, we have long-term capital cost trackers in place to recover a significant portion of current and future capital spending, which we expect will help to maintain the level of earnings across our subsidiaries. Finally, on Slide 8, as you may have already seen, we recently announced an increase to our quarterly dividend from $0.345 to $0.35 a share. This equates to an annual increase in the dividend of $0.02 per share. We recognized the importance of the dividend to our shareholders. This increase reflects the confidence we have in our business. Going forward, we will continue to assess our dividend level to provide this continuing source of value to our shareholders. So, I will turn the call over to Tom Meissner, our Chief Operating Officer, to discuss details of our capital budget for 2015 and other operational highlights. Tom Meissner Thanks, Bob and good afternoon. As Bob mentioned, we have seen significant growth in our gas distribution business both in terms of the number of customers served in sales growth as well as the increased level of investment we are making to modernize and expand the reach of our system. Over the next few slides, I will go through our 2015 capital budget highlighting our growth spending, infrastructure replacement programs and our electric substation construction plans. If you turn to Slide 9, we have provided a more detailed look at our 2015 capital budget and our historical growth in rate base. We plan to spend about $58 million on gas projects, $31 million on electric projects, and $9 million on business systems and supporting technology for a total of $98 million of spending in 2015. Spending on new customer additions will be a significant component of this budget. In 2015, we plan to spend about $35 million or 36% of our total capital budget on expansion of our gas and electric distribution systems to achieve new customer growth. Of this, $21 million will be spent on expansion of our natural gas delivery system targeting new customers and increased sales, while on the electric side we plan to spend about $14 million on growth in expansion. Our capital spending plan continues to drive growth in our gas and electric rate base, which has resulted in annual growth rates of 10% and 3% respectively since 2009. We expect our gas rate base to continue to grow on the order of 10% in the future given our system expansion initiatives and infrastructure replacement programs. Now, turning to Slide 10, this slide highlights our infrastructure replacement programs, which consists primarily of cast iron and bare steel placement. We plan to spend about $22 million on infrastructure replacement programs in 2015 and we will be replacing about 14 miles of cast iron and bare steel gas mains annually through 2017. After 2017, our New Hampshire pipe replacement program will be finished and we expect to level out at about 9 miles per year thereafter. As a result of our infrastructure replacement programs, our customers currently enjoy a modern system with over 90% of our gas mains consisting of plastic or protected steel. Lastly, as a reminder, the majority of our infrastructure replacement projects are recovered under a capital cost recovery tracking mechanism, which provides for annual recovery of capital spending. Slide 11 provides an overview of our current electric distribution substation projects in New Hampshire. Construction began in 2014 on two new substations that will be completed over the next three years. These electric substations will be completed at an estimated cost of $12 million and $11 million respectively and will provide the capacity needed for continued load growth on our New Hampshire systems while addressing constraints at existing substations and improving reliability. Now, I will turn the call over to Mark Collin who will discus our financial results for the quarter and year end. Mark Collin Thanks, Tom. Good afternoon. As Bob stated earlier, net income increased by $3.1 million or 14% to $24.7 million for this past year ended December 31, 2014. Results were positively affected by higher natural gas and electric sales margins partially offset by higher net operating expenses. For the quarter, net income was $9.4 million or $0.69 per share compared to net income of $10.3 million or $0.75 per share for the same period in 2013. Earnings in the fourth quarter reflect warmer weather than the fourth quarter of the prior year as well as lower gas margins due to an increase in the amount of margin recovered through fixed charges, which results in less seasonality in our gas margins. That is more of our gas margin is now recovered during the non-heating period of the year. Turning to Slide 12, natural gas sales margins were $97.4 million in 2014, an increase of $12.2 million or 14.3% compared to 2013. Natural gas sales margin in 2014 were positively affected by higher therm unit sales, a growing customer base and recently approved distribution rates. Therm sales of natural gas were up 7.7% in 2014 driven by colder winter weather in the first quarter of 2014 and new customer additions in 2014 compared to 2013. There were 5.9% more heating degree days in 2014 compared to the prior year, which we estimate positively impacted earnings by about $0.06 per share. Excluding the effect of weather on sales, weather normalized gas therm sales in 2014 are estimated to be up a very healthy 5.2% compared to the prior year. Slide 13 highlights our electric business sales and margin. Electric sales margins were $80.8 million in 2014, an increase of $4.6 million or 6% compared to 2013. These increases reflect recently approved electric distribution rates and higher electric kilowatt hour sales and billing demands. Total electric kilowatt hour sales increased 0.6% in 2014 compared to the prior year. Commercial and industrial customer kilowatt hour sales were up 1.4% and billing demands were also up slightly for this customer group year-over-year. Turning to Slide 14, operation and maintenance expenses increased $4.4 million in 2014 compared to 2013. The change in O&M expenses reflects higher compensation and benefit cost of $2.8 million and higher utility operating cost of $1.6 million. The increase in utility operating costs included $0.7 million in higher electric and natural gas maintenance cost, $0.6 million in higher bad debt expense, and higher all other utility operating costs net of $0.3 million. Depreciation and amortization expense increased $3.6 million in 2014 compared to the prior year reflecting higher depreciation of $2.2 million on higher utility plant assets in service, higher amortization of major storm restoration costs of $1.3 million, and an increase in all other amortization of $0.1 million. The increase to major storm restoration cost amortization is currently recovered in electric rates. Taxes other than income taxes increased $2.2 million in 2014 compared to 2013 primarily reflecting higher local property taxes on higher levels of utility plant in service. Net interest expense increased $2.1 million in 2014 compared to the prior year reflecting lower interest income on regulatory assets and higher interest on long-term debt related to the issuance of $50 million of new long-term debt in October 2014. We also announced in December 2014 that Standard & Poor’s assigned a BBB+ issuer rating to Unitil Corporation and its utility subsidiaries. Now, turning to Slide 15, we have provided an update on our financial results at the utility operating company level. The chart shows the trailing 12 months actual earned return on equity in each of our regulatory jurisdictions. Unitil Corporation on a consolidated basis earned a total return on equity of 9.2% in 2014. Also as we discussed in the past and as shown on the table on the right, we have constructive regulatory rate plans and long-term capital cost trackers in place to recover a significant portion of current and future capital spending, which we expect will help to maintain the level of earnings across our subsidiaries. Now, this concludes our summary of our financial performance for the period. I will turn the call over to the operator who will coordinate questions. Thank you. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Shelby Tucker of RBC Capital Markets. Please proceed. Shelby Tucker Good afternoon guys. I have a question on the dividend and first of all, congratulations on increasing the dividend. Bob, could you maybe go through your policy on the dividend or how you are thinking about the dividend as you continue to grow your gas business? Bob Schoenberger Yes, first, how you are doing, Shelby? Shelby Tucker Good, thank you. Bob Schoenberger Yes, I mean, over the last couple of years, we have been telling our shareholders that as we began to realize the earnings power of the assets that we operate that it was our intent to return to a dividend policy where we would target a payout ratio of 70% to 75%. And once we have achieved that, it was our intent and desire to begin to implement a dividend policy with regular annual dividend increases. So, this $0.02 increase is really kind of a signal that we have full confidence in our business plan. And as we achieve that payout ratio over the next couple of years, our intent is to again begin to implement regular annual dividend increases and the Board will consider that each year based on our forecast. Shelby Tucker So, one of the things about this 2014 was you had the benefit of the first quarter weather. If that does not repeat in fact if weather does not go in your favor in ‘15, does that change how you look at the dividend or are you looking at a consistent level year-in, year-out irrespective of weather? Bob Schoenberger Yes. Again, I think we feel very good about 2015 again the year from a weather point of view, January has been cold. As you may have seen the forecast for the end of January and the beginning of February is very cold that may not rise to the level of last year, but we expect that, that’s going to have a positive impact. We will be bringing on a number of large customers that we connected to our system late last year, which we will begin to see the revenues from that. So, again, we feel good about 2015 and obviously, the Board will consider on a going forward basis how the company is doing compared to its forecast, but again our goal is to get back to a policy of regular dividend increases. And again, I think we can grow our EPS 6% to 8% a year for the next 3 to 5 years and the policy on our dividends will reflect that. Shelby Tucker Great. And then on the – just an update on the storm we just went through, anything should be aware of on your system? Bob Schoenberger Yes, lots of snow up to 3 feet at my house, but zero outages. We had no outages anywhere in our system. So, we came to the storm with flying colors and again, largely because it was light fluffy snow, but we did have good wins that were forecasted, but again, I think part of what we are seeing is not only the fact that the snow was light and fluffy, but also I think we are beginning to see the benefit of the enhanced tree trimming program that we have been implementing over the last 3 or 4 years. Shelby Tucker Great. Congratulations guys. Bob Schoenberger Thank you. Mark Collin Thank you, Shelby. Operator Your next question comes from the line of Dave Parker of Robert W. Baird & Company. Please proceed. Dave Parker Good afternoon. I will echo Shelby’s comments. Congratulations on a good year, good couple of years. Bob Schoenberger Thank you, Dave. Mark Collin Thanks, Dave. Dave Parker A couple of questions just on the presentation, thanks for dialing up for us what the continued opportunity is here to grow earnings. If we look past ‘15, I hate to put words in your mouth, but with the pipe replacement program and some of the upgrades you have got going on the electric system that this kind of CapEx rate of close to $100 million is probably sustainable for the next couple of years? Is that a fair observation or fair assessment? Bob Schoenberger Yes. I think obviously you are right about the amount of spending in 2015. In that amount, there is probably $15 million, $20 million of one-time items to two electric substations Tom referred to before and the change out of our customer information system. So, on a going forward basis beyond 2015, I’d say probably our core and correct me if I am wrong, Mark – our core capital spend is probably going to be more on the order of $80 million, $85 million little higher. Tom Meissner Yes, I am not sure it’s going to drop significantly over the next couple of years until we get through 2017. Bob Schoenberger So, same level of spending over the next couple of years. Dave Parker Okay, alright. Alright, good. And then I assume if economic activity continues to expand obviously post ‘17, I know it’s kind of up for grabs, but if your crystal ball is better than mine, then please if you can share with me? But it sounds good enough for me. Another with weather being pretty favorable and obviously you had some benefit for earned ROEs and your trend kind of being for what you earned last year on a combined basis close to the bottom end of the authorized range, do we expect a downdraft do you think in ‘15 from an earned ROE basis or now that you have got rate relief, is it actually – may we see better earned ROEs in the future? Mark Collin Yes, I think there is a couple of aspects to that. One is as we talked about before, the Fitchburg rate cases were completed on the electric side was completed for rates effective June 1, 2014. So, we only got a partial year of that rate case. And that was an important one for us to get the Fitchburg operating subsidiary back up to a more reasonable rate of return. So, we will get a full year of that in ‘15. We will also have some additional cost trackers as part of our rate plans in northern utilities. And we also have a scheduled filing for our Granite pipeline. So, I think when you bring all that together, our goal is to continue to achieve at or about what our authorized rate of return is. And I think we are in that range. I don’t think you are going to see any deterioration of that in the near-term. I think if anything we will be trying to improve upon that. Dave Parker Alright, great. Thanks. Good answer. And on a Granite State, absent that rate filing, any other anticipated regulatory filings in the next couple of years? Mark Collin Well, in addition as I said, we do have the trackers, particularly on the infrastructure replacement. In northern utilities, there is a new tracker that we filed for our gas division in Massachusetts under new legislation there for infrastructure replacement that we expect to be a rate filing that will have regular increases for infrastructure replacement in Massachusetts. And then our rate plan for the electric division in New Hampshire is essentially coming to an end and we would expect to be looking at going back in ‘16 relative to our New Hampshire operations to reestablish a longer term rate plan there, because that’s worked very well for us. And I think it will be good to kind of renew that effort and get on a longer term plan for that. Dave Parker Great, thanks for the update and again congratulations. Mark Collin Thank you. Bob Schoenberger Thank you too. Operator [Operator Instructions] There are no further questions in the queue at the moment. Bob Schoenberger Thank you for joining us for the fourth quarter conference call. We look forward to talking to you next quarter. Thank you and goodbye. Operator Ladies and gentlemen, thank you. That concludes today’s presentation. You may now disconnect and everyone have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. 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