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Eversource Energy (ES) James J. Judge on Q1 2016 Results – Earnings Call Transcript

Eversource Energy (NYSE: ES ) Q1 2016 Earnings Call May 05, 2016 9:00 am ET Executives Jeffrey R. Kotkin – Vice President-Investor Relations James J. Judge – President & Chief Executive Officer Philip J. Lembo – Senior Vice President, Chief Financial Officer and Treasurer Leon J. Olivier – EVP-Enterprise Energy Strategy and Business Development Analysts Michael Weinstein – UBS Securities LLC Travis Miller – Morningstar, Inc. (Research) Caroline V. Bone – Deutsche Bank Securities, Inc. Operator Good morning, and welcome to the Eversource Energy First Quarter Earnings Conference Call. My name is Brandon, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded. And at this time, I will turn it over Jeff Kotkin. You may begin, sir. Jeffrey R. Kotkin – Vice President-Investor Relations Thank you, Brandon. Good morning, and thank you for joining us. I’m Jeff Kotkin, Eversource Energy’s Vice President for Investor Relations. As you can see on slide one, if you’ve gone into our slides, which are on our website, some of the statements made during this investor call may be forward-looking as defined within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. Some of these factors are set forth in the news release issued yesterday. Additional information about the various factors that may cause actual results to differ can be found in our Annual Report on Form 10-K for the year ended December 31, 2015. Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and the slides we posted last night on the website under Presentations & Webcasts and in our most recent 10-K. Turning to slide two, speaking today will be Jim Judge, who yesterday became Eversource Energy’s President and CEO; and Lee Olivier, our Executive Vice President for Enterprise Energy Strategy and Business Development. Also joining us today are Werner Schweiger, our Executive Vice President and Chief Operating Officer; Phil Lembo, our new Senior Vice President and CFO; Jay Buth, our Vice President and Controller; and John Moreira, our Vice President of Financial Planning and Analysis. Now, I will turn to slide three and turn over the call to Jim. James J. Judge – President & Chief Executive Officer Thank you, Jeff, and thank you all for joining us this morning. I also wanted to thank many of you on our call today for the notes you’ve sent me since our announcement last month of Tom’s retirement. Tom’s record of providing value and service to customers and investors as CEO first of Boston Edison, then NSTAR, Northeast Utilities and Eversource Energy, was unsurpassed in our industry. I was both honored and tremendously excited by being our Board’s choice to succeed him. This company has a tremendous future ahead. We continue to identify investment opportunities to enable our region to successfully implement the state and federal energy policies that continue to shape our region. We also have what I consider to be the best group of 8,000 employees in the industry and a very talented and very experienced management team. I look forward to continuing to work closely with our investors as our company continues to deliver to you attractive returns by providing the highest level of service to customers. As Jeff mentioned, pleased to share with you that yesterday the Eversource Board of Trustees elected Phil Lembo as the company’s Senior Vice President, Chief Financial Officer and Treasurer. Most of you know Phil well. He’s been a key contributor for us for years. So congratulations, Phil, and I’d like you to say a few words. Philip J. Lembo – Senior Vice President, Chief Financial Officer and Treasurer Yeah. Thank you, Jim. I would echo Jim, thank you for those notes and congratulations and calls I received. So thank you very much. I know I’ve known a lot of you for many years going back to the investor relations days several years ago. But I’m looking forward to meeting those of you who I haven’t had a chance to meet yet and working with you closely over the weeks and months ahead. I know I have some big shoes to fill and I’m excited about the opportunity. Just also want to close it and say I’ll be part of the Eversource team that’s at the AGA Conference down in Naples and I hope that I’ll get to meet you in person at that event. So thank you, Jim, and I’ll turn it back to you. James J. Judge – President & Chief Executive Officer Thanks, Phil. Today, I will cover our first quarter financial results, strong operating performance results for the quarter, an update on certain transmission projects and regulatory dockets. Starting with our financial result in slide four, we earned $244 million or $0.77 per share in the first quarter of 2016, compared with earnings of $253 million or $0.80 per share in the first quarter of 2015. Both of those are GAAP numbers since we are no longer separating our merger integration costs in reporting our results. These results represent a solid start to 2016 despite the very mild weather in the first quarter. These results also support our full year EPS estimate of $2.90 to $3.05 per share as well as our long-term earnings growth rate of 5% to 7%. Our transmission segment earned $0.27 per share in the first quarter of 2016 compared with $0.21 per share in the first quarter last year. The first of two principle drivers of that increase was the absence of a $0.04 charge we recorded in the first quarter of 2015 after FERC issued its final decision in the first New England Transmission ROE complaint. The second factor was the earnings growth we are experiencing as a result of our continued investment in the reliability of the New England power grid. That rate case growth added $0.02 per share in the first quarter of 2016. On the electric distribution side, we earned $0.34 per share in the first quarter this year compared with earnings of $0.41 per share in the first quarter of 2015. Three principle factors contributed to this $0.07 per share reduction in earnings. The primary driver was the absence in 2016 of about $0.09 of benefits we realized in the first quarter last year from settling several longstanding dockets at NSTAR Electric. Milder weather in the first quarter of 2016 reduced earnings at NSTAR Electric and PSNH where distribution revenues are not fully decoupled, and that cost us about $0.02 per share. Partially offsetting those impacts were lower O&M and other items, including our second quarter 2015 accumulated deferred income tax settlement at Connecticut Light and Power. Altogether, those factors added about $0.04 per share in the first quarter. On the natural gas distribution side, we earned $0.16 per share in the first quarter this year compared with earnings of $0.18 per share in the first quarter of 2015. Warmer weather was a principle factor with lower gas revenues costing us $0.05 per share despite a nearly $16 million annualized rate increase at NSTAR Gas. We had a very cold first quarter in 2015 and a very mild first quarter in 2016. Heating degree days in the Boston area were 21% above normal in the first quarter of 2015 when NSTAR Gas did not yet have decoupling. In Connecticut, where Yankee Gas is not yet decoupled, heating degree days were about 10% below normal in the first quarter this year compared with 18% above normal in the first quarter of 2015. The weather impact was partially offset by lower O&M, a rate increase at NSTAR Gas and other factors that together added $0.03 per share to earnings. Turning from our financial results to operations, our transmission investments totaled $140 million in the first quarter of 2016, and we continue to target transmission capital investments of $911 million for the full year. As you can see on slide five, we continue to move ahead on our major reliability transmission projects across the system. We are making solid progress on our two large families of reliability projects, the Greater Boston Reliability Solutions and the Greater Hartford/Central Connecticut Solutions. We have now invested more than $130 million in those projects with many elements now completed, under construction, or before regulators for approval. By 2019, we expect to invest $900 million in these comprehensive solutions to our region’s energy – long-term reliability challenges. The New Hampshire Site Evaluation Committee has a number of projects before it, including Northern Pass. Last month, we filed our application with the Site Evaluation Committee to build the $77 million Seacoast Reliability Project in Southeastern New Hampshire. We expect a decision on our application by mid-2017, and to complete the Seacoast project by the end of 2018. We also continue to expand our natural gas delivery system in the first quarter. We’ve added about 2,500 natural gas heating customers in the first quarter, up about 20% from the 2,050 we added in the first quarter of 2015, and very consistent with our full year 2016 goal of 12,500 new heating customers. We added a 72nd town to the Yankee Gas service territory, the town of Bozrah in Eastern Connecticut. And despite the mild winter, we did have one frigid weekend around President’s Day, when both Yankee Gas and NSTAR Gas set all-time records for the amount of natural gas delivered in a single day. On February 14, NSTAR Gas delivered over 8.5% more natural gas to our customers than the previous record set back in January, 2014. Now, I will turn to our regulatory calendar in slide six. We are awaiting a decision from the New Hampshire PUC on our comprehensive settlement with numerous state officials and other parties to divest PSNH’s generating assets. To remind you, PSNH generating rate base, including under-appreciated plants, fuel and inventory, totals approximately $700 million. Any investment we have in our generation business that is not recovered through the plant sale process will be recovered through securitization. We continue to expect the entire sale and securitization process to be completed by this time next year. Moving from New Hampshire to Washington, on March 22, the administrative law judge at FERC handling complaints number two and complaint number three involving the ROEs earned by all New England transmission owners issued his initial recommendation. For the 15-month refund period ended in March 2014, the 400-page recommendation called for a base ROE of 9.59% and a cap of 10.42%. For the 15-month period ending October 2015, the decision called for a base ROE of 10.9% and a cap of 12.19%. Our currently allowed ROE is 10.57% and our current cap is 11.74%. So if the FERC were to adopt the ALJ recommendation, we would find ourselves under-reserved for the earlier refund period by $34 million after tax and over reserved for the later refund period by $8 million after tax. Because we cannot be certain how FERC commissioners will ultimately decide the case, we didn’t book any charges this quarter due to the ALJ recommendation. We will reexamine the issue as this process moves forward. If FERC were to adopt the ALJ recommendation, we would have a one-time net charge of approximately $0.08 per share. Going forward, however, we would earn a higher ROE of 10.9% compared with the current base of 10.57%. Parties to the case filed comments on the ALJ recommendation on April 21. We continue to expect the final FERC decision around the end of this year or early 2017. I should note that after six months of no additional complaints, a fourth complaint was filed this past Friday by Eastern Massachusetts Municipal Electric Companies. We await FERC action on this fourth complaint. Turning to financing, Eversource parent issued $500 million of senior notes in March, $250 million of five-year notes with a coupon of 2.5%, and $250 million of 10-year notes with a coupon of 3.35%. Proceeds were used to pay down short-term debt. The issuances were several times oversubscribed, and we’re very pleased with the rates we received. Now, I’ll turn the call over to Lee. Leon J. Olivier – EVP-Enterprise Energy Strategy and Business Development Okay. Thank you, Jim. I’ll provide you with a brief update on our major investment initiatives and then turn the call back to Jeff for Q&A. Let’s start with Northern Pass on slide eight. The review process for Northern Pass continues to move along according to schedule. March was an important month from the standpoint of receiving public input on our project. A total of seven public meetings were held around this date in the month, three by the New Hampshire Site Evaluation Committee, two by the U.S. Department of Energy, and two jointly between these two primary permitting agencies. The Site Evaluation Committee will hold two additional public meetings on some follow-up items, one later this month and another in June. April 4 was the deadline for the written comments on the draft environmental impact statement, and we expect a final environmental impact statement from the DOE in the fourth quarter of this year. On the state side, the New Hampshire SEC recently established a near-term schedule through the end of June, providing for commencement of the discovery process in mid-May. The dates are similar to what we had proposed. Under the state statute, we would expect the New Hampshire SEC to hold evidentiary hearings and issue a decision before the end of the year. We are aware that some interveners have requested a more prolonged review period, and we expect a ruling soon on those requests and establishment of a firm schedule. Assuming the final schedule is consistent with the statutory deadline, as you can see on slide nine, it would support the issuance of a presidential permit from the Department of Energy early next year and the commencement of construction shortly thereafter. We continue to see support for the project building in New Hampshire, and we were gratified by the number of favorable comments in the public meetings, particularly from the labor and business communities of New Hampshire. We believe this is a sign of growing public support for the project and the billions of dollars of benefits it will bring to New Hampshire. As stated in our February Earnings Call, we bid both Northern Pass and the Clean Energy Connect into the three-state electric RFP. Clean Energy Connect would allow 600 megawatts of carbon-free energy to flow from New York into New England. The review process for our projects and the other approximately 20 that were bid into the process continues, and we expect the states involved in the RFP, Massachusetts, Connecticut and Rhode Island, to announce the winning bids this summer. I will now turn to slide 10 and the Access Northeast project we plan to build with our partners Spectra Energy and National Grid. To remind you, Access Northeast is a $3 billion project to upgrade the existing Algonquin pipeline and add 6.8 billion cubic feet of LNG storage in Acushnet, Massachusetts, to bring firm natural gas supplies to power generators in New England. Our share of Access Northeast is 40%, or $1.2 billion. The project is designed to provide 900 million cubic feet per day of additional natural gas supplies to serve the region’s power generators during cold winter periods. That will allow up to 5,000 additional megawatts of the region’s most efficient low-cost units to remain online when winter temperatures drop, saving New England customers approximately $1.5 billion to $2 billion in a typical winter and approximately $3 billion in an extreme winter such as the 2013 and 2014 period. Access Northeast builds up the existing Algonquin footprint which already touches 60% of the power generation in New England, a percentage that will soon grow as nearly 2,600 megawatts of new proposed plants are built and connected to the project. Access Northeast allows direct last-mile deliveries to the power plants to ensure greater reliability and cost benefits. Business model is that electric utilities sign long-term contracts with Access Northeast and then retain an independent capacity manager to market that capacity to generators out of market price. Without Access Northeast, those generators are frequently without fuel to run their units during cold winter weather when the region’s existing pipeline capacity is used primarily to heat homes and businesses. If a large amount of new pipeline capacity is set aside to meet the fuel supply needs of natural gas generators, we can depend less on more costly and higher emitting coal and oil plants that typically operate when the region’s natural gas suppliers are short. We continue to make significant progress on securing and seeking approval of contracts with New England Electric distribution companies. The current status of the state reviews is on slide 11. You will recall the following in RFP this past fall, NSTAR Electric, Western Mass Electric, and two National Grid electric distribution companies filed with the Massachusetts DPU seeking approval of contracts for pipeline and storage capacity with Access Northeast. Our two utilities asked for a decision by October 1 of this year. The DPU has established a schedule to review that filing that would support a decision in the early fall. Evidentiary hearings on all of the contracts are scheduled for this summer. Once approved by the Department of Public Utilities, these contracts will account for more than 40% of Access Northeast targeted capacity. In Connecticut, we expect the State Department of Energy and Environment Protection to issue request for proposals for natural gas capacity shortly. We expect this process to be complete with approved contracts late this year or early in 2017. In New Hampshire, you may recall that the Public Utilities Commission issued an order on January 19 in which they accepted a staff report that concluded that the Public Utility Commission had sufficient authority to approve electric distribution contracts, financial gas supplies if those contracts were shown to be in customers’ interests. On February 18, Public Service of New Hampshire filed with state regulators a natural gas contract with Access Northeast that was similar to what the four Massachusetts electric utilities filed in their state. If the New Hampshire Public Utility Commissioners agree with the staff that they have sufficient authority to approve such agreements, they would then determine whether the specific contracts submitted were in the customer’s best interest. A technical session on the docket scheduled was held yesterday. We are optimistic that the commissioners will agree with the staff that they have authority to approve a contract with Public Service of New Hampshire and Access Northeast. The PUC’s consideration of whether the contracts provide benefits to customers would follow its legal ruling on the issues. In Maine, where regulators have been engaged in natural gas contracting issue for some time, state regulators are scheduled to reach a decision on recommended solutions by the early fall. In Rhode Island, National Grid issued in RFPs in the fall with bids received November 13, around the same time as the Massachusetts electric distribution companies had their RFP. We expect the National Grid to make a decision and file with Rhode Island regulators by early this summer. In Vermont, the state has expressed support for additional natural gas infrastructure, but its level of participation is yet to be determined. We expect that the state processes will be sufficiently advanced by the end of this year so that we can promptly file a formal application with FERC and bring additional natural gas supplies into New England for the winter 2018 to 2019. We continue to believe that Access Northeast offers an excellent near-term and long-term answer to the region’s intensifying winter energy challenges. And now, I’d like to turn the call back over to Jeff for any Q&As. Jeffrey R. Kotkin – Vice President-Investor Relations All right. And I’m going to turn it back to Brandon just to remind you how to answer questions. Question-and-Answer Session Operator Thank you, sir. Jeffrey R. Kotkin – Vice President-Investor Relations All right. Thank you. Our first question this morning is from Mike Weinstein from UBS. Good morning, Mike. Michael Weinstein – UBS Securities LLC Hey. Good morning. I was just wondering if we could talk about the – whether the current status of the RFPs and expected approvals for gas contracts support beginning construction in 2017 for getting major sessions with the pipe online for the winter of 2018 and 2019, generally speaking broadly. Leon J. Olivier – EVP-Enterprise Energy Strategy and Business Development Yeah, Mike. This is Lee Olivier. The construction period would start for the project in 2018, will start in early 2018, approximately the April-May timeframe and then the first sections would go in on the piping for the winter of 2018. So you’re talking about the November timeframe of 2018. I would say right now we’re still on schedule. We will be prepared to file the comprehensive filing at FERC in the November-December timeframe. We believe the timing in and around the other states, including Connecticut, even though Connecticut is built inside of their process, they have 90 days to negotiate precedent agreements with the EDCs, we think that could be done in approximately 30 days or 35 days. Their approval process through their regulatory body PURA is a very short term, it’s about 60 days. So we think all of these schedules line up right now for conclusion by the end of this year and filing with FERC and start with construction in the spring of 2018 for the first phase of the pipeline. Michael Weinstein – UBS Securities LLC Are you seeing more support for the project, just broadly speaking, as a result of the cancellation of Northeast Energy Direct? Leon J. Olivier – EVP-Enterprise Energy Strategy and Business Development I would say, although, the two projects were designed somewhat differently, we were designed to supply gas to generators to firm up 5,000 megawatts and they – ostensibly the (24:55) all around providing LDC power supplies. I think the fact that they’re not going to be there obviously puts more pressure on the overall gas supplies of the region. So I believe that there is more support firming up around Access Northeast, both in the business community and with policymakers as well. Michael Weinstein – UBS Securities LLC And just one last one. Can you give us an update on Massachusetts legislation and work for renewables in the state, how that might impact things like the Clean Energy Connect project, things like that? James J. Judge – President & Chief Executive Officer Sure, Mike. This is Jim. We had solar legislation that was approved in Massachusetts that increases that needling cap and actually extends the opportunity for utilities to consider a utility-owned solar. There is also proposed legislation that the governor is endorsing which recommends hydroelectric commitments as well as offshore wind is being discussed as well. Those are only in draft form of proposed, it’s only until the solar legislation is passed today. Michael Weinstein – UBS Securities LLC Okay. Thanks a lot. Jeffrey R. Kotkin – Vice President-Investor Relations All right. James J. Judge – President & Chief Executive Officer Thank you. Jeffrey R. Kotkin – Vice President-Investor Relations Thanks, Mike. Our next question this morning is from Travis Miller from Morningstar. Good morning, Travis. Travis Miller – Morningstar, Inc. (Research) Good morning. Thanks. I was wondering just on the demand, so electric demand in particular. How much of that was weather do you estimate? I know it’s tough to do. James J. Judge – President & Chief Executive Officer Travis, it’s a tough question because you have such an extreme change from one year to the next, a very, very cold winter in the first quarter, a very mild winter this quarter resulting in a sales decline in the electric side of 8.5%. I would say that virtually all of that is weather-driven. I think without the – if we had had normal weather, I think the sales would have been close to flat, is my estimate. Travis Miller – Morningstar, Inc. (Research) Correct. Is that – remind me what your outlook is for this year in terms of electric sales growth. James J. Judge – President & Chief Executive Officer Flat is the estimate that we provided. Travis Miller – Morningstar, Inc. (Research) Okay. And is that – if we look out, call it five years or something, what kind of trends are you seeing in terms of what would keep electric demand flat or 0.5%, something well below what we’ve seen historically? Are there particular specific trends and programs perhaps that you would see depressing that type of demand? James J. Judge – President & Chief Executive Officer Yeah. We’re estimating the long-term growth rate on the electric side to be flat as well. As you know, we are decoupled in a number of our franchises. And as we have future rate cases, we’ll be decoupled everywhere, I expect. But we are forecasting flat on the electric side, but because of the gas conversions going on, we think there’ll be 2% to 3% growth in gas sales annually. And really I think the primary driver to that flat growth has got nothing to do with the economy, in particular in the Boston area the economy is moving. There’s lots of construction going on. But we as a company spend $500 million a year, $0.5 billion a year on energy efficiency, and I think that has a significant impact – 2% impact on the sales results for the company. Now, fortunately, the rate-making mechanism for energy efficiency spending makes us whole, either decoupling our loss-based revenues reimburse us. If we actually do a good job on the projects, we’re able to earn an incentive. And at the same time, we’re recovering our costs as we incur them each year. So the cash flow is positive as well. So, yeah, were it not for energy efficiency, I think we’d be looking at 2% or higher sales volume growth. Travis Miller – Morningstar, Inc. (Research) Okay, great. I appreciate the thoughts. Thanks. Jeffrey R. Kotkin – Vice President-Investor Relations Thank you, Travis. Our next question is from Caroline Bone from Deutsche Bank. Good morning, Caroline. Caroline V. Bone – Deutsche Bank Securities, Inc. Hey. Good morning, and first of all congratulations, Jim and Phil. That’s wonderful news. James J. Judge – President & Chief Executive Officer Thank you very much. Philip J. Lembo – Senior Vice President, Chief Financial Officer and Treasurer Thank you. Caroline V. Bone – Deutsche Bank Securities, Inc. You’re welcome. So I just have one question. Last call, I believe you guys discussed the possibility of share buybacks. And I was just wondering if you could kind of review with us the circumstances in which we might see such a program? James J. Judge – President & Chief Executive Officer Sure. We have a lot of positive cash flow items, right? Our fundamental business is strong to begin with. We’ve got bonus depreciation that’s been extended. We have $700 million of cash coming in the door next year from the divestiture and securitization. And what we have said in the past is that to the extent that we can’t find additional projects to pursue, to redeploy that cash, ultimately it’s shareholders’ monies and so obviously we would pay off some debt as well. But we would consider a share buyback if there wasn’t a better use of the proceeds. That being said, I wouldn’t expect any announcement this year. I mean, we are certainly executing to our plan for 2016. As we reaffirm guidance today, we continue to believe that we’re going to be able to achieve those results and those results for 2016 do not assume a buyback is in place. Caroline V. Bone – Deutsche Bank Securities, Inc. Okay. Thank you. That’s very clear. Jeffrey R. Kotkin – Vice President-Investor Relations Thanks, Caroline. We don’t have any other questions this morning. So we want to thank you for joining us. We look forward to seeing you at many conferences over the next couple of weeks, and have a good rest of the day. Operator Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may now disconnect. Jeffrey R. Kotkin – Vice President-Investor Relations Thanks, Brandon. Operator You bet. Take care. Jeffrey R. Kotkin – Vice President-Investor Relations All right. 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Consolidated Water’s (CWCO) CEO Rick McTaggart on Q4 2015 Results – Earnings Call Transcript

Consolidated Water Co. Ltd. Q4 2015 Earnings Conference Call March 16, 2016 11:00 AM ET Executives Rick McTaggart – President & CEO David Sasnett – CFO Analysts Michael Gaugler – Janney Montgomery Scott LLC Steve Percoco – Lark Research John Bair – Ascend Wealth Advisors Operator Good morning. And welcome to the Consolidated Water Company’s Fourth Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. The information that will be provided in this conference call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Including but not limited to statements regarding the company’s future revenues, future plans, objectives, expectations and events, assumptions and estimates. Forward-looking statements can be identified by use of the word or phrases well, likely result, are expected to, will continue, estimate, project, potential, belief, plan, anticipate, expect, intend or similar expressions and variations of such words. Statements that are not historical facts are based on the company’s current expectations, belief, assumptions, estimate, forecast and projections for its business and industry and markets related to its business. Any forward-looking statements made during this conference call are not guarantees of future performance and involves certain risks and uncertainties and assumptions which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward looking statement. Important factors which may affect these actual outcomes and results include without limitation tourism and weather conditions in the areas of the company served, the economies of the US and other countries in which the company conducts business, the company’s relationship with the government it serves, regulatory matters including resolution and negotiations for the renewal of the company’s retail license on Grand Cayman. The company’s ability to successfully enter new markets including Mexico, Asia and the United States and other factors including those risk factors that force under part one item 1a risk factors in the company’s annual report on Form 10-K. Any forward looking statements made during this conference call speak as of today’s date. The company expressly disclaims any obligations or undertaking to update or revise any forward looking statement made during this conference call to reflect any change in its expectations with regard there to or any change in events. Conditions or circumstances on which any forward looking statement is based except as may be required by law. Please note this event is being recorded. I would now like to turn the call over to. Rick McTaggart, CEO. Please go ahead. Rick McTaggart Thank you, Amelie. Good morning, ladies and gentlemen. I am traveling this week in connection with our upcoming public tender submission for our Mexico project. So my comments this quarter maybe bit brief than the normal to provide more time for your questions-and-answers. Our CFO, David Sasnett is joining me on the call this morning from our Florida office. The company’s net income increased in 2015 to approximate $7.5 million, or $0.51 per fully diluted share, net result from $6.3 million, or $0.42 per fully diluted share in 2014. This increase in net income reflects higher operating efficiencies, successful water loss mitigation efforts and construction activities that enable us to maintain our gross profit and now is essentially equal to that of 2014 despite the drop in revenues. The lower and the loss resulted from lower G&A expenses relating to our development project in Mexico. Consolidated gross profit decreased only slightly to approximately $22.9 million last year compared to $23.1 million in 2014. And again this is even more consolidated revenues fall by approximately $8.4 million over the same period. This drop in consolidated revenues is due to the significant reduction in the cost of energy introduced to concurrent of their water rates that are linked to energy prices and to a lesser extent resulted from lower water sales volume in Bahamas and Cayman Island Bulk water operations. Retail revenues declines slightly to approximate $23.3 million last year compared to approximately $24.1 million in 2014. This was due to this lower energy cost we charges to our customers. Retail gross profit in terms of dollar is actually improved slightly due to higher operating efficiencies during 2015. Negotiations with the Water Authority-Cayman for a new retail license in Grand Cayman we commenced during the third quarter of 2015 and we are meeting with them more or less on monthly basis now during the negotiations. So far the negotiation with them productive but we cannot say within the certainly when they will be completed or what the final terms of the new license would be. The current license is set to expire at the end of 2015. However, we have been informed by the Water Authority that this license has been extended through mid 2016 and they are waiting final complete order from the government. Looking at our Bulk operations. Bulk water revenues declined to approximately $31.8 million last year compared with approximately $39.2 million in 2014. And this was due to reasons mentioned earlier as well as lower tariff that we charged through Water Authority Cayman resulting from the two year extension of the North Sound operating contract early in 2015. Bulk segment gross profit fell by approximately $1 million from 2014 to 2015, this was due to higher maintenance and repair cost at Bahamas operations and also to the lower revenues in the Bahamas and Cayman Island businesses. Our service segment revenues declined about $200,000 from 2014 to 2015 but the segment generated a gross profit of approximately $280,000 last year versus a loss in 2014. And this was due to more profitable construction activity in 2015. I’d like to say a few words about our recently completed acquisition and our equity interest in Aerex Industries. We’ve known Aerex Industries for many years during the latter half of 2015. And we saw potential to acquire that business. After customary negotiations and due diligence we were able to purchase 51% ownership of Aerex in February of this year. We also had an option which is exercisable two years after the purchase for the remaining 49%. Aerex is headquartered in Fort Pierce, Florida. It’s OE manufacturer and service provider of a wide range of products and services for municipal industrial water treatment. And they surely one of our most highly respected and valued suppliers since the early 90s. We believe that Aerex’s present business as it is now is an excellent ambition to Consolidated Water and further that Aerex’s market footprint in US and its excellent reputation gives us access to new potential customers that maybe looking for build and operate type deals which have been our bread and butter for many years. We are excited about the capabilities to boost to the occasion and opportunity give up kind of this acquisition provided us and we plan to file preliminary 8-K during the April where we provide investors with more detailed financial information on Aerex and its historical acts for 2015. Now just looking at our Mexico project. As previously discussed, the deadline for submission in bids to State of Baja, California, Mexico for our proposed 100GB desalination projects in Rosarito beach is next Wednesday that’s 24. We presently engaged with our partners in completion of the tender document which is quite extensive and complicated due to the scope of the project. And we are on track to meet the submission deadline. We are confident that we resemble the strong partnership and that our proposal will constitute a highly credible and technical proven and economically attractive response to the government’s request for tender. So obviously we will keep investors — as that process, develops over the next few months. So any questions from anybody? Amelie? Question-and-Answer Session Operator [Operator Instructions] Our first question is from Michael Gaugler of Janney Montgomery Scott. Please go ahead. Michael Gaugler Good morning, Rick. Good morning, Dave. I’ll start I guess with Rosarito. Just wondering if there is any indication from your sources there as to whether or not others are planning to bid and what the potential timeline for a decision might be? Rick McTaggart Well, yes, I mean we were aware of government’s letter actively trying to develop and I guess proposals to the government and the government has indicated that they will take a decision I think by May and I am not — probably as well as the bid announcement. Michael Gaugler Okay. And then just one other here in the first quarter whether on Grand Cayman thus far, wondering how it shaping up versus last year and if there are any items affecting water volumes sales year-over-year we should be aware of? Rick McTaggart For the first quarter I mean that’s usual bid list time of the year, we get [twos and arrive] — or I haven’t seen anything inconsistent with historical sales but really we should know certainly by the — by early April and we are not — Michael Gaugler Okay. I was just wondering if there any weather disruptions. I think you had wet first quarter last year so I just kind of want to take a pass at that but otherwise that’s all I have. Operator [Operator Instructions] And the next question is from Steve Percoco of Lark Research. Please go ahead. Steve Percoco Thank you. You indicated that your development expense in Mexico could be significantly higher in 2016 presumably if you win this bid. Can you give us any idea of what they would be in 2016 and how development expenses might ramp if you are successful in the project? Rick McTaggart Actually I think we expect them to decrease compare to previous years. We are at the end of the project development phase and once we bid the project either those expenses go away because we didn’t get it or we just hope will not the case or get starting to another phase where capitalizing or other cost for truly development and actual construction once we get a contracts. I would expect the development expenses to be less than previous years. Steve Percoco Okay. Well, I guess I was just going by a statement that was made in your risk factors in the 10-K. My second question is you’ve indicated that the negotiations have been productive with the Cayman Water Authority and I was wondering I know you can’t be specific about it but can you give us any tangible signs of progress that cause you to make that statement that the negotiations have been productive. For example, have they submitted their regulatory model to you, the return on capital model to you as they had indicated they would allow back? Rick McTaggart Yes. They did. We mentioned in the K that we’ve received draft license from them, I think we said in the third quarter of last year and the negotiations have been based on that. License which we are using what they call arching of model so made in last year that we negotiate on the basis of our camp and I think that’s really what’s that’s jump started thing and it’s already — we have a common view on where we want to be at the end of this thing. So that’s why I said it has been productive. We are not — we are not at hard on the — but basically issues related to the license. This could be model point. Steve Percoco Okay. And finally I wondered if you could give us just kind of a status update on Bali. I noticed that water sales they were lower this year. Do you expect more of the same in 2016? Do you anticipate that this situation might change at all? David Sasnett Yes. First of all, Steve, this is Dave Sasnett. I want to clarify something regarding the Mexican development expenses. I think the disclosure we have in our K insisted our development expenses next year for Mexico will continue to be significant. I don’t think we said that they will be more than they were this year. We will still — we have an operation in Mexico that we established and pursue this project and the administrative cost associated with that project are going to be still hitting our financial statements. But we don’t expect the volume of the expenses that we’ve incurred in Mexico in 2016 to be comparable of what we had in previous years. As Rick said earlier, if we win the bid and start capitalizing expenses or someone else will win and we no longer be incurring expenses to pursue that project. With respect to Bali, the situation — excuse me, did you have a follow up question? Steve Percoco Well, I was just going to say that the statement that you made I believe says we expect to expand significant additional funds in 2016 to continue to pursue this project. David Sasnett And that’s correct. We will have six months at least of continued administrative expenses. And once the decision is made, those administrative expenses will either be capitalized and therefore they will not — now or we won’t win the bid and they will be terminated. Steve Percoco Okay. But even if they are capitalized they represents a cost something that potentially maybe need to be funded or may come obviously out of cash. And that’s why we are just wondering if you could give us any sense of how the expenditures might ramp up in 2016 and beyond if you are successful in the bid. David Sasnett We haven’t providing any estimate to that, Steve. Don’t feel comfortable doing that. Steve Percoco Okay. Bali? David Sasnett Well, the situation in Bali is quite simple. The Bali still has a water crisis but the economy in Bali is very weak. And as a result the hotels in the area who we do business really don’t have their financial liability at the moment to buy water from us because they are continuing to use the local fresh water aqua for wells that are on their properties to get water of very low quality, the water is nevertheless free to them. But we are holding discussions even as we speak with the government or utility, their PDAM another parties because all parties on Bali realize that the current situation can’t continue for much longer. Will that translate into water revenues for us and new contracts? We certainly hope so. But ultimately they’ve recently passed a regulation in Bali so that now it really affects all of Indonesia. So now that all these new water contract have sort to be coordinated and review by the water utility because they need some kind of master strategy for the entire island. So we are continuing to be optimistic about the long-term prospects for Bali. But on the short term we don’t see any indication that there going to be any significant increases in revenues in the short term. Hopefully at some point time these companies that we have targeted will ultimately step up and sign a long- term contracts for this. But at the moment, the economy so poor there, they are struggling to the point where they can’t afford to pay any money for water. So they are continuing to use their own wells as long as they can. Operator Our next question is from John Bair from Ascend Wealth Advisors. Please go ahead. John Bair Thank you and good morning. I was wondering if you could tell us if the Aerex acquisition will be accretive to your earnings this coming year. And what markets did they have historically served? Is it primarily domestic or do they serve markets outside of the United States? David Sasnett This is David speaking. We are going to follow 8-K as we mentioned with pro forma result for Aerex and our company. And until we do that we are not — we haven’t decided to disclose anything regarding Aerex’s results last year, whether not the acquisition will be accretive to us. So we would like — we hold to further question till we actually do our public filing. Rick would you like to talk about Aerex, its market a little bit. Rick McTaggart Yes. They primarily do business in the US and they also done business in the past in China and also Japan. So it’s mostly around island, areas of the Caribbean as well obviously it supplied its equipment over the years. So they are primarily the US market. John Bair And maybe I didn’t catch this but when do you anticipate roughly following that 8-K on the Aerex? David Sasnett Mid April I think, it’s — the deadline for filing the document is 71 days after the acquisition date of February 11. So we will file it shortly before the deadline. So maybe 70 days or so after February 11. John Bair Okay. Thank you very much. Good luck on your bid. Rick McTaggart Thank you. We need it. Operator [Operator Instructions] There are no additional questions, conclude our question-and-answer session. I’d like to the conference back over to Mr. McTaggart for any closing remarks. Rick McTaggart Yes. I just like to thank everybody for calling in today. As David mentioned we will be filing an 8-K in the Aerex acquisition in April, mid April. And I look forward hope to speaking with you all again in May when we release our first quarter results for this year. Thank you. Operator The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect. 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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Empire District Electric’s (EDE) CEO Brad Beecher on Q4 2015 Results – Earnings Call Transcript

Operator Welcome to the Empire District Electric Company Year-End Fourth Quarter and 2015 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Dale Harrington, Secretary and Director of Investor Relations. Please go ahead, sir. Dale Harrington Thank you, Dan and good afternoon, everyone. Welcome to the Empire District Electric Company’s year-end 2015 earnings conference call. Our Press Release announcing fourth quarter and year-end 2015 results was issued yesterday afternoon. The Press Release and a live webcast of this call, including our accompanying slide presentation, are available on our website at www.empiredistrict.com. And a replay of the call will be available on our website through May 5, 2016. Joining me today are Brad Beecher, our President and Chief Executive Officer and Laurie Delano, our Vice President, Finance and Chief Financial Officer. In a few moments, Brad and Laurie will be providing an overview of the fourth quarter and year-end 2015 results and 2016 expectations as well as highlights on some other key matters. But before we begin, let me remind you that our discussion today includes forward-looking statements and the use of non-GAAP financial measures. Slide 2 of our accompanying slide deck and the disclosure in our SEC filings present a list of some of the risks and other factors that could cause further results to differ materially from our expectations. I’ll caution these lists are not exhaustive and the statements made in our discussion today are subject to risks and uncertainties that are difficult to predict. Our SEC filings are available upon request or may be obtained from our web site or from the SEC. I would also direct you to our earnings Press Release for further information on why we believe the presentation of estimated earnings per share impact of individual items and the presentation of gross margin, each of which are non-GAAP presentations, is beneficial for investors in understanding our financial results. With that I’ll now turn the call over to our CEO, Brad Beecher. Brad Beecher Thank you, Dale. Good afternoon, everyone. Thank you for joining us. Today we will discuss our financial results for the fourth quarter and 12 months ended December 31, 2015, period as well as recent activities impacting the Company. As communicated in yesterday’s earnings release, with regard to the strategic alternatives process confirmed in our December 13, 2015, news release we have no update. Moving on to our year-end results, we expected 2015 earnings to be impacted by a regulatory lag associated with the Asbury Air Quality Control System project and they were. Unfortunately, mild weather, particularly in the fourth quarter, also negatively affected earnings. In terms of heating-degree days, December and the fourth quarter 2015 were the mildest in over 30 years. Despite the mild weather, we achieved success in many areas. Our retained earnings reached $100 million for the first time. We have a healthy balance sheet and a sustainable dividend. We continued to improve service reliability for our customers and it was another good year for our employee safety performance. As shown on slide 3, yesterday we reported consolidated earnings for the fourth quarter of 2015 of $9.9 million or $0.23 per share compared to the same quarter in 2014 when earnings were $11.1 million or $0.26 per share. Earnings for the year ended December 31, 2015, were $56.6 million or $1.30 per share, $1.29 on a diluted basis, compared to 12 months ended 2014 earnings of $67.1 million or $1.55 per share. During their meeting yesterday, the Board of Directors declared a quarterly dividend of $0.26 per share, payable March 15, 2016, for shareholders of record as of March 1. This represents a 3.5% annual yield at yesterday’s closing price of $29.45. I’m pleased to report our largest single construction project for the year, the Riverton 12 combined cycle unit, is progressing on schedule. During the fourth quarter, we completed construction work in the equipment integration outage. This past weekend, the project team successfully ran the steam turbine at full operational speed for the first time. I’m happy to report as of this morning, the unit was synchronized to the grid or in other words produced electricity for the first time. Additional operational performance and in-service tests will occur over the next several weeks. We remain on target to complete the project late in the first quarter or early in the second quarter of 2016. Our current projections indicate the combined cycle unit will come in at the lower end of the $165 million to $175 million budget range; however, this is dependent upon the amount of test fuel burned, test energy sales margin and any other unforeseen issues. As we reach the final stages of the Riverton project, the completion of our multi-year compliance plan to reduce fossil fuel emissions is nearing conclusion. We have adequate production capacity and continue to be fully compliant with all current environmental standards. We remain engaged at the local state and federal levels relating to the development of implementation plans for the Environmental Protection Agency’s clean power plan. We believe this regulation will drive significant change in the way electricity is generated in the future, even though there is still uncertainty surrounding the details of implementation plans. You will recall we filed a Missouri rate case last October, primarily to recover costs associated with the Riverton investment. The filing seeks an increase in base rate revenues of approximately $33.4 million or about a 7.3% increase. The procedural schedule provides for a trueup of expenditures incurred through March 31, 2016. This includes rate base items associated with the Riverton project provided it meets in-service criteria by June 1, 2016. The Missouri Commission has scheduled local public hearings for the case in April and evidentiary hearings in Jefferson City beginning May 31. We expect new rates to become effective late in the third quarter. We have also made a corresponding filing in Oklahoma. An administrative rate reciprocity rule now in effect provides for our approved Missouri rates to be applied in our Oklahoma jurisdiction, of course, subject to approval by the Oklahoma Commission. As a reminder, we’re currently recovering our Asbury Air Quality Control system investment through riders in both Kansas and Arkansas. We have a separate rider in place in Kansas to recover increased property taxes. In January, we filed a request to increase the rider by $0.2 million to reflect increased property taxes for the Riverton project. We expect to file a full-year full rate case in Kansas by the end of the third quarter and in Arkansas no later than the end of the year. For 2016, we expect earnings to be within a weather-normalized range of $1.38 to $1.54 per share. This reflects a full year of recovery for expenses related to the Asbury Air Quality Control system and the expectation of a partial year of new rates for the Riverton project. I will now turn the call over to Laurie to provide additional details of our financial and our 2016 earnings guidance. Laurie Delano Thank you, Brad. Good afternoon, everyone. As always, the information I’m about to discuss today will supplement the Press Release we issued late yesterday and as always the earnings-per-share numbers referenced throughout the call are provided on an after-tax estimated basis. I I’ll briefly touch on our 2015 fourth quarter results before I discuss our annual results. Our fourth quarter earnings of $0.23 per share is reflective of much milder winter weather when compared to the previous year’s fourth quarter. In particular, mild December 2015 weather resulted in the lowest number of heating-degree days in 30 years, so the mild quarter weather was the primary driver of a 6.3% decrease in quarter-over-quarter electric sales. Slide 5 shows the quarter-over-quarter changes that impacted earnings per share. Electric segment gross margin or revenues less fuel and purchase power expense, increased $2.3 million, increasing earnings by $0.02 per share. Increased customer rates of about $6.2 million, net of an estimated $1.8 million decrease in Missouri-based fuel recovery, increased revenue $4.4 million quarter-over-quarter. This added an estimated $0.09 per share to margin. This increase was almost entirely offset by the impact of the mild weather and other volumetric factors which decreased revenue by about $8 million, negatively impacting margin by about $0.08 per share when compared to last year. Positive customer growth contributed about $0.01 to earnings per share. Other items including Southwest Power Pool integrated market activity and the timing of our fuel deferrals along with our non-regulated revenues combined to add another estimated $0.02 per share to margin when compared to the fourth quarter of 2014. Mild weather also impacted our gas segment retail sales quarter-over-quarter, driving a decline of just over 27% in total sales volume. This resulted in a decrease in gas segment margin of about $0.02 per share. Consolidated operating and maintenance expenses were relatively flat compared to the 2014 quarter, but added another $0.01 to earnings per share. Higher depreciation and amortization expense reflective of higher levels of plant and service, primarily due to our Asbury project reduced earnings per share around $0.03. Changes in interest costs, AFUDC and other income and deductions reduced earnings per share another $0.03 compared to the prior-year quarter. Turning to our annual results, our net income decreased approximately $10.5 million or around $0.25 per share compared to the 2014 full-year results. Slide 6 provides a breakdown of the various components that resulted in this year-over-year earnings-per-share decrease. Consolidated gross margin increased $6 million over 2014, adding an estimated $0.09 per share. As shown in the callout box on slide 6, we estimate that increased customer rates from our July 2015 Missouri rate case added about $0.15 per share to margin. This is reflective of increased customer rates of about $10.4 million netted with a $3.3 million lowering of our base fuel recovery, ultimately adding an estimated $7.1 million to revenue. We estimate the impacts of weather and other volumetric factors on the electric side of the business reduced revenues an estimated $10.3 million year-over-year. This negatively impacted margin by about $0.10 per share, partially offsetting the increase in earnings driven by the customer rate changes. Increased customer growth added about $0.02 per share to margin and, as in the quarter, Southwest Power Pool integrated market activity and timing differences of our fuel deferrals and other fuel recovery components drove a $0.07 per share margin increase when compared to the 2014 period. A January 2015 FERC refund to four of our wholesale customers reduced margin about $0.02 per share and other miscellaneous and non-regulated revenues combined to increase margin about $0.01 per share. Again, the mild weather impacted our gas segment, driving a margin decrease of about $2.6 million for the year or about $0.04 per share. Increases in our consolidated operating and maintenance expenses decreased earnings about $0.07 per share. The callout box on slide 6 provides a breakdown of this impact. Increased production maintenance expense was the significant driver of the increase in overall O & M expenses. As I mentioned on our previous call, this increase is reflective of our Riverton 12 maintenance contract which was effective January 1, 2015. In addition, it reflects the planned major maintenance outage for our steam turbine at our State Line combined cycle facility. These added expenses reduced earnings about $0.05 per share. Higher production operations expenses, primarily from the increased use of consumables, reduced earnings another $0.03 per share. And as you can see on the slide, increased transmission operations and employee healthcare expenses were offset by decreases in customer and distribution maintenance expenses. Continuing on slide 6, depreciation and amortization expenses decreased earnings per share about $0.11, driven by higher levels of plant and service, again, primarily as a result of our Asbury project. These higher levels of plant and service also drove an increase in property taxes bringing earnings down another $0.04 per share. Increased interest expense reduced earnings per share about $0.05 year-over-year. This reflects our two $60 million debt issuances completed in December 2014 and in August 2015. Reduced AFUDC levels, changes in other income and deductions and the dilutive effect of common stock issuances under our various stock plans combined to round out the remaining $0.07 decrease in earnings per share. As illustrated on slide 7, our actual 2015 results of $1.30 basic earnings per share were, of course, at the bottom end of our guidance range, due primarily to the mild weather during the fourth quarter of 2015. We estimate the impact of the mild fourth quarter weather reduced earnings about $0.07 to $0.09 per share compared to normal. Absent this weather impact, we would have been very close to the midpoint of our 2015 guidance range. As Brad mentioned earlier, we expect our full-year 2016 weather normalized earnings to be within the range of $1.38 to $1.54 per share. On slide 8, we highlight the drivers of our increase in earnings expectations in 2016. As in the past, our estimates are based on normal weather and modest positive sales growth which, as we have previously disclosed, we still expect to be at a level of less than 1% per year over the next several years. We’re also assuming our Missouri rate case filed last October to recover Riverton 12 combined cycle costs will be effective as filed with rates effective in mid-September of this year. Depreciation expense will increase, reflecting our previously disclosed expectation of the Riverton 12 project in-service date in the early to mid-2016 time period at an estimated 30-year live rate. In addition, depreciation will increase for assets placed in service since our last rate case. The impact on depreciation of the Riverton 12 project alone is estimated at approximately $0.05 to $0.06 per share on an annualized earnings-per-share basis. We will also see increases in property tax and interest expense. The higher interest expense, of course, reflects our previously discussed August 2015 debt issuance. It also reflects the redemption of $25 million of our first mortgage bonds which are due in late 2016 and as indicated previously we’re not planning on refinancing this debt when it matures. And last but not least, our AFUDC impact will be lower in 2016 as the Riverton project comes online. Other factors we considered in our range are variations in customer growth and usage as well as variations in operating and maintenance expense. On slide 9, we have updated our trailing 12-month return on equity chart and as you can see at the end of 2015, our return on equity was approximately 7.1%. I’ll also mention that we have not made any changes to the capital expenditure plan we discussed on our last call. Turning to our recent regulatory activity, slide 10 once again summarizes the key aspects of our Missouri rate case filed October 16, 2015. As filed, we’re seeking a $33.4 million increase in base revenues which is about a 7.3% increase. Our requested return on equity is 9.9% and we’re using a capital structure of approximately 51% debt and 49% equity. The filed Missouri rate base is approximately $1.4 billion. The procedural schedule has been set by the commission. The test year ends June 30, 2015, with trueup expenses through March 31, 2016. Rate based items for Riverton 12 through March 31, 2016, may be included if the in-service criteria for the Riverton 12 project has been met by June 1. As Brad noted, we’re making good progress on meeting the in-service criteria. Slide 12 gives you a projected timeline for the case proceedings. Our solar program compliance costs are also included in this Missouri rate filing and Brad will provide an update on this program in his wrapup of our presentation. Similar to our previous rate case to recover our Asbury environmental expenditures and as you can see on the projected timeline, we will experience a period of lag between the in-service date of the Riverton 12 conversion and the time when new customer rates are put in place. Assuming the Missouri Public Service Commission’s 11-month procedural schedule, new rates will become effective in mid-September 2016. I’ll now turn the discussion back over to Brad. Brad Beecher Thank you, Laurie. This past year we implemented a mandated solar rebate program resulting in 767 customer applications as of December 31. The applications represent a total of 11.5 megawatts of customer- owned solar installation which aid in meeting the solar requirements of the Missouri renewable energy standard. Through the end of the year, we have booked $3.5 million in rebates. And as Laurie mentioned, the recovery of the rebates paid through the end of the year is included in our pending Missouri rate case. Any additional costs or rebates incurred through the trueup period will be reflected in the results of our rate case. We’re also very pleased to report that our customers experienced improved service in 2015 as we continued focus on system reliability. We reduced the average number of outage occurrences and the duration of outages affecting customers by 7% and 13% respectively. Continuous improvement in the efficiency of our operations is the goal of another major project undertaken this past year. After months of preparation, a project team is preparing to launch what we term the power delivery construction bundle of our new work management software platform. The new system will aid in the standardization of the design and construction of transmission, distribution and substation equipment. We expect to realize significant cost savings from these efficiency improvements. It is also been a good year on the economic development front. As we have reported earlier, Owens Corning is establishing a new manufacturing operation just west of Joplin. They’re investing $90 million in a mineral wool installation production facility that will employ over 100 workers. We have a substation upgrade underway to accommodate a June startup for the facility and we’re developing plans to construct a new substation to serve the five to six megawatts of load expected when this facility is fully operational. Excitement continues to remain high for the new medical school being established in Joplin which we reported on earlier this year. The new medical school is being developed by Kansas City University of Medicine and Biosciences and will have over 600 students when it reaches full enrollment in 2020. The project is expected to have an annual economic impact for our region of over $100 million. On the legislative front, Senate Bill 1028 was filed in the Missouri Senate this week which states an intent to modernize the regulatory process for electrical corporations in Missouri. It proposes four general provisions. First, consumer protection such as earnings caps, rate caps and performance standards. Second, more timely recovery of the utilities prudently incurred operating costs. Third, policies that encourage investment in Missouri electrical infrastructure. And finally, globally competitive rates for energy- intensive customers. Details are not included in the bill, but we anticipate that additional language will be added as it moves through the legislative process. I will now turn the call back over to the Operator for your questions. Question-and-Answer Session Operator [Operator Instructions]. Our first question comes from Brian Russo of Ladenburg Thalmann. Brian Russo Just to follow up on the Senate Bill 1028. Maybe you could add your view as to what’s different with this bill proposed versus prior bills that didn’t make it out of committee. Brad Beecher I would tell you this time there is a lot more work on consensus on the front end of the process. And, as you can see, if you’ve looked at Senate Bill 1028, it’s one page and really doesn’t have any details. And that’s because all parties are still working very hard on trying to reach consensus before we try to push this forward in a utility committee. Brian Russo And who are the parties? I would imagine there are some large industrial customers? Brad Beecher It’s the same general set of parties that are always participatory in Missouri proceedings. This time it’s a little bit different because Noranda [ph] is helping try to find a good solution for them as well. But it’s – really the Missouri Industrial Energy consumers group is probably the biggest opponents as we sit here today. Brian Russo Okay, got it. And this is just the electric utilities, right, not all utilities? Brad Beecher Senate Bill 1028 is just an electric bill. There are two other bills, there’s a – and I don’t know the numbers off the top of my head, but there’s a gas esters and there’s also a water decoupling bill that are making their own pathways through the Missouri legislature. But all three bills, to my knowledge, are being supported by all the MEDA entities within Missouri – and, MEDA being the Missouri Energy Development Association. Brian Russo And when does the legislature end? Brad Beecher Sometime around the first of May. That’s not exactly right, but sometime in May. Brian Russo And then, you mentioned your CapEx is the same. Does that imply that your prior rate-base slide is also the same? Laurie Delano Yes, it would, Brian. Brian Russo Okay, so there’s no impact from bonus depreciation? Laurie Delano Yes, in the near term we don’t think there’s much impact from bonus depreciation. What it impacts more is the outer years. And so we will have that updated in our analyst presentation when we file it. Brian Russo And then, the $33.4 million revenue request in the Missouri rate case, how much of that is Riverton? Laurie Delano We estimate that the total effect of Riverton is about $27.4 million of that. And that includes return on and of and expenses associated with Riverton. Brian Russo And will there be a net offset from lower fuel? Laurie Delano We’re not expecting one in base rates, no. Brian Russo And then, just referring to the prior rate-base disclosures. Rate base seems to be leveling off in 2018 versus 2017. I’m just curious, how do you achieve earnings growth as rate base levels off? Is it just less regulatory lag or an ROE improvement or is there incremental CapEx that’s being considered? Brad Beecher That’s the question of the day – how do you grow if you don’t have a lot of plant growth? And so we continue to analyze alternatives to grow rate base in those outer years. Brian Russo Okay. And then, just elaborate on what gets you to the high end of the 2016 guidance range. Is it just a constructive outcome in the rate case or what would drive that? Weather? Laurie Delano A couple of things would drive that. Managing our O&M expenses to under budget is one of our considerations. If the growth in our area would be a bit higher than what we have laid into our budget, those are really the two things that we have that would have the most impact. Brad Beecher Brian, you asked if it was weather. And we give weather-normalized guidance and so our entire guidance range covers just normal weather. Operator The next question comes from Paul Ridzon of KeyBanc. Paul Ridzon Brad, you mentioned you filed in Oklahoma. How do you envision that process unfolding to sync the rates up? Brad Beecher Last year, Oklahoma initiated a process whereby if you had a very small number of customers in Oklahoma and you were next to a state with a larger jurisdiction, you could simply file – in this case – Missouri’s rates in Oklahoma. So we’re the first company to go through that. And so Oklahoma is watching what’s going on in our Missouri case, but we would anticipate, at the conclusion of the Missouri case, working with the Oklahoma staff and Oklahoma Commission to implement those same rates in Oklahoma. But it’s the first time, so we’re not exactly sure how that’s going to work. But, so far, discussions with Oklahoma staff have been going very well. Paul Ridzon And when did you expect those new rates to take effect? Brad Beecher Shortly after the Missouri rates take effect. Paul Ridzon We’re just not sure what the process looks like, so whether they get phased in or whether they can come all in at once? Brad Beecher We have to work with the Oklahoma staff to determine how that works. Paul Ridzon Okay. And then, you said today you thought Riverton was going to come in at the low end of the budget? Brad Beecher That’s correct. Paul Ridzon And there’s a nice pick-up in industrial load in the fourth quarter. What was driving that? Laurie Delano Well, we have, if you’ll recall, in the past discussions, we’ve talked about our new dog-food plants that came to Joplin as a result of the tornado. And then, we’ve just seen some other general increases in some of our other customers, but that would be the main driver of that. Paul Ridzon Then, can you quantify what you expect the lag impact to be on earnings-per-share basis with Riverton? Laurie Delano Well, we’ve said that the depreciation alone would be about a $0.05 to $0.06 earnings per share per year on an annualized basis. Obviously, for 2016, you’re not going to have that much impact for that piece of it. Property taxes, we didn’t really quantify specifically what that was. The depreciation is the biggest direct expense lag that we would have. Paul Ridzon The depreciation is the return of capital and then we’re also lagging on return on capital and then operating expenses? Laurie Delano You’d also have the return on capital. Those would be the two major items. Paul Ridzon And, Brad, I appreciate you’re limited in what you can say. Can we expect that the next commentary you make around strategic review will be an up or down? Give us a final answer, there is a transaction or there is no transaction? Brad Beecher I appreciate the fact that you have to ask, but I have no update on that topic today. Operator Our next question comes from Glenn Pruitt of Wells Fargo. Glenn Pruitt I have two questions. One relating to January weather. Can you give me some indication of January weather, where it is, relative to normal and if there’s any impact to 2016 relative to your guidance range? Brad Beecher You live just on the other side of the state from us, so you know this January was kind of normal. We had some cold days; we had some hot days. But in the end, it wasn’t too far off of a normal. Glenn Pruitt Okay, great. I know you’re hesitant to make any additional comments on the strategic alternative discussion, but I was wondering if you could just give some fact space information on what precipitated this discussion? Was it someone approaching you externally or was it initiated internally? Brad Beecher You get the same answer as Paul did – I have no update. Operator Our next question comes from Julian Dumoulin-Smith of UBS. Paul Zimbardo It’s actually Paul Zimbardo in for Julian. Just a quick question, if you could answer whether you believe you’d be subject to regulatory approval in all of the jurisdiction in the event of a change of control? Brad Beecher Yes, we would believe that. Operator Our next question comes from David Frank of Corso Capital Management. David Frank My question was just asked. Thank you very much. Laurie Delano Thank you. Operator Our next question comes from Paul Patterson of Glenrock Associates. Paul Patterson Just on the sales growth, what was weather normalized, I apologize if I missed it, for 2015? Laurie Delano We generally estimate our total normal sales volume to be about 5 million kilowatt hours – I’m sorry, megawatt hours, so we were just under that. Brad Beecher But we continue to believe our weather-normalized sales is right at 5 million megawatt hours, so not a lot of growth in 2015. Paul Patterson Okay. And then, I guess the rest of my questions have been asked. Thanks. Operator This concludes our question and answer session. I would like to turn the conference back over to Management for any closing remarks. Brad Beecher Thank you. Before we close, I remind you that we’re focused on our vision of making lives better every day with reliable energy and service. We’re committed to meeting today’s energy challenges with least-cost resources while ensuring reliable and responsible energy for our customers, an attractive return for our shareholders and a rewarding environment for our employees. Thank you for joining us today and have a great weekend. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. 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. 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