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ETF Stats For February 2015 – Actively Managed Assets Jump 10%

The ETF industry roared back in February after beginning the year with a negative start in January . Twenty-two new products came to market during the month and seven shuttered operations. Assets jumped 5.3% to $2.1 trillion, which by our calculations allowed month-end assets to close above the $2 trillion mark for the first time. Readers should note that we exclude fund-of-fund assets in our calculations to avoid double counting. As such, our year-end 2014 data put assets just a sliver short of that threshold. February’s net addition of 15 active listings brought the year-to-date count back into positive territory at plus five. The month’s launches were heavily skewed with 21 ETFs and just one ETN coming to market. Additionally, six of the seven closures were ETNs, putting month-end listings at 1,667 consisting of 1,462 ETFs and 205 ETNs. Actively managed ETFs saw four additions and one closure. Their count now stands at 123, which is a decline of two for the year. However, actively managed assets surged 10.6% for the month, are up 13.0% year-to date, and now total $19.5 billion. ETFs with more than $10 billion of assets increased by two and now number 49. Although they represent less than 3% of products, they hold more than 58% of industry assets. Products with $1 billion or more in assets increased by nine to 259 and have a better than 89% market share. The smallest 830 products (nearly half) account for just 1% of assets. Trading activity plunged more than 28% with just $1.3 trillion worth of ETFs and ETNs changing hands. There were only 19 trading days in the month, which only partially accounts for the decline. The quantity of products averaging more than $1 billion a day in trading activity dropped from twelve to eight, yet they still accounted for 48.7% of industry dollar volume. February 2015 Month End ETFs ETNs Total Currently Listed U.S. 1,462 205 1,667 Listed as of 12/31/2014 1,451 211 1,662 New Introductions for Month 21 1 22 Delistings/Closures for Month 1 6 7 Net Change for Month +20 -5 +15 New Introductions 6 Months 98 6 104 New Introductions YTD 34 1 35 Delistings/Closures YTD 23 7 30 Net Change YTD +11 -6 +5 Assets Under Mgmt ($ billion) $2,058 $27.6 $2,085 % Change in Assets for Month +5.3% +5.4% +5.3% % Change in Assets YTD +4.3% +2.7% +4.3% Qty AUM > $10 Billion 49 0 49 Qty AUM > $1 Billion 254 5 259 Qty AUM > $100 Million 765 39 804 % with AUM > $100 Million 52.4% 19.5% 48.2% Monthly $ Volume ($ billion) $1,282 $50.2 $1,333 % Change in Monthly $ Volume -28.6% -28.2% -28.6% Avg Daily $ Volume > $1 Billion 7 1 8 Avg Daily $ Volume > $100 Million 80 3 83 Avg Daily $ Volume > $10 Million 296 12 308 Actively Managed ETF Count (w/ change) 123 +3 mth -2 ytd Actively Managed AUM ($ billion) $19.5 +10.6% mth +13.0% ytd Data sources: Daily prices and volume of individual ETPs from Norgate Premium Data. Fund counts and all other information compiled by Invest With An Edge. New products launched in February (sorted by launch date): RevenueShares Global Growth Fund (NYSEARCA: RGRO ) , launched 2/2/15, holds about 100 securities based on two main selection criteria. First, 5 developed and 5 emerging countries will be chosen by selecting those with the highest percentage growth of their year over year GDP from the prior 2 quarters, with each country getting a 10% weighting. Second, the top 10 revenue-producing companies in each country are weighted by revenue, but they are limited to a 5% portfolio allocation. The expense ratio will be capped at 0.70% until 11/25/15 ( RGRO overview ). ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN (NYSEARCA: SMHD ) , launched 2/4/15, is an exchange-traded note that provides 2x (200%) leveraged exposure (reset monthly) to an index of small-cap stocks having dividend yields that are relatively high compared to other small-cap stocks in the U.S. market. The ETN pays a variable monthly coupon linked to two times the cash distributions paid by index constituents. SMHD has an estimated yield of 16.8% and sports an expense ratio of 0.85% ( SMHD overview ). Fidelity MSCI Real Estate Index ETF (NYSEARCA: FREL ) , launched 2/5/15, is designed to represent the performance of the real estate sector in the U.S. equity market. The fund will not hold all of the positions in the underlying index, MSCI USA IMI Real Estate Index, but will instead select a representative sample of securities that collectively has an investment profile similar to the index. Investors will pay 0.12% annually to own this fund ( FREL overview ). ProShares Russell 2000 Dividend Growers ETF (NYSEARCA: SMDV ) , launched 2/5/15, invests in the companies of the Russell 2000 Index with at least 10 consecutive years of dividend growth. The fund will hold a minimum of 40 stocks equally weighted, and right now it holds 55. The top sectors represented in the fund are Financials and Utilities, each at about 23%. SMDV has an estimated yield of 2.4% and expects to pay dividends quarterly. The fund’s expense ratio will be capped at 0.40% until 9/30/16 ( SMDV overview ). ProShares S&P MidCap 400 Dividend Aristocrats ETF (NYSEARCA: REGL ) , launched 2/5/15, will invest in the companies of the S&P 400 MidCap Index that have at least 15 consecutive years of dividend growth. The fund will hold a minimum of 40 stocks equally weighted, and right now it holds 47. Financials leads the sector lineup at nearly 30%, and the next closest is Materials at 17%. The estimated yield for REGL is 1.8%. The fund’s expense ratio will be capped at 0.40% until 9/30/16 ( REGL overview ). SPDR S&P 500 Buyback ETF (NYSEARCA: SPYB ) , launched 2/5/15, provides exposure to companies in the S&P 500 that have high buyback ratios compared to other stocks. The fund may either hold all of the positions in the underlying index, S&P 500 Buyback Index, or it could instead select a representative sample of securities that collectively has the same risk and return characteristics of the Index. The Index provides exposure to the 100 companies in the S&P 500 that have the highest buyback ratio in the last 12 months, and currently the fund holds 101 positions. The fund sports a 0.35% expense ratio ( SPYB overview ). Guggenheim S&P High Income Infrastructure ETF (NYSEARCA: GHII ) , launched 2/11/15, invests in 50 high-yielding securities of companies in developed markets that engage in various infrastructure-related industries. Sector representations in the fund include Utilities 50.2%, Industrials 33.2%, and Energy 16.7%. Investors will pay 0.45% annually to own this fund ( GHII overview ). KraneShares FTSE Emerging Markets Plus ETF (BATS: KEMP ) , launched 2/13/15, invests in large- and mid-cap companies in emerging market countries and weights the country allocations by gross domestic product. As of the end of 2014, the largest markets represented were China (43.5%), India (17.7%), Brazil (5.2%), Mexico (4.5%), and Russia (3.9%). The fund’s largest holding at 17.5% is KraneShares Bosera MSCI China A ETF (NYSEARCA: KBA ), and it has a 0.68% expense ratio ( KEMP overview ). ProShares Ultra Gold Miners (NYSEARCA: GDXX ) , launched 2/13/15, seeks a daily return that is 2x (200%) the daily performance of an index made up of publicly traded companies involved in gold and silver mining. Companies whose revenues lean toward silver mining are limited to 20% of the holdings. Canada has the largest geographic allocation at 60%. The expense ratio will be capped at 1.11% until 9/30/16 ( GDXX overview ). ProShares Ultra Junior Miners (NYSEARCA: GDJJ ) , launched 2/13/15, seeks a return that is 2x (200%) the daily performance of an index made up of micro- and small-cap companies involved in gold and silver mining that generate at least 50% of their revenues from those activities. Companies whose revenues lean toward silver mining are limited to 20% of the holdings. Canada takes top billing in the geographic allocation at 64%. The expense ratio will be capped at 1.12% until 9/30/16 ( GDJJ overview ). ProShares UltraShort Gold Miners (NYSEARCA: GDXS ) , launched 2/13/15, seeks a daily return that is 2x inverse (-200%) the daily performance of the same index underlying GDXX. The expense ratio will be capped at 0.95% until 9/30/16 ( GDXS overview ). ProShares UltraShort Junior Miners (NYSEARCA: GDJS ) , launched 2/13/15, seeks a daily return that is 2x inverse (-200%) the daily performance of the same index underlying GDJJ. The expense ratio will be capped at 0.95% until 9/30/16 ( GDJS overview ). AdvisorShares Pacific Asset Enhanced Floating Rate ETF (NYSEARCA: FLTR ) , launched 2/19/15, is an actively managed ETF designed to produce a high level of current income. The ETF invests in senior secured and unsecured floating rate loans, secured second lien floating rate loans, and other floating rate debt securities of domestic and foreign issuers. The portfolio manager can choose to invest as little as 80% of the fund or can leverage the portfolio up to 130%. Although the fund is focused on income, an estimated yield is not currently provided on the fund’s website. The expense ratio will be capped at 1.10% until at least 2/13/16 ( FLTR overview ). Sit Rising Rate ETF (NYSEARCA: RISE ) , launched 2/19/15, has an objective to profit from rising interest rates by using futures contracts and options on futures on 2-, 5-, and 10-year U.S. Treasury securities. The underlying index targets a negative 10 year duration, making it an inverse bond fund. The weighting of the instruments are expected to be from 30% to 70% for the shorter duration securities and 5% to 25% for those with 10 year maturities. RISE will issue K-1 tax reports instead of the easier to use 1099. It has an expense ratio of 1.64% based on the breakeven analysis in the prospectus ( RISE overview ). Greenhaven Coal Fund (NYSEARCA: TONS ) , launched 2/20/15, is designed to track the daily price movements of coal futures. The fund will hold an equal number of futures contracts in each of the three months making up the closest calendar quarter. The positions will be rolled over to the next calendar quarter four times a year. TONS will issue K-1 tax reports instead of the more investor friendly 1099. Based on the breakeven analysis in the prospectus, the expense ratio will be 1.23% ( TONS overview ). SPDR DoubleLine Total Return Tactical ETF (NYSEARCA: TOTL ) , launched 2/24/15, is an actively managed income fund designed to provide investors with maximum total return. The fund’s manager, Jeffrey Gundlach, invests in fixed income securities of any credit quality and may include mortgage-backed securities, high yield securities, foreign-denominated instruments, and securities tied to emerging market countries. TOTL characteristics include a current yield of 4.8% and a duration of 3.1 years. The fund’s expense ratio will be capped at 0.55% until 10/31/16 ( TOTL overview ). Tuttle Tactical Management U.S. Core ETF (NASDAQ: TUTT ) , launched 2/25/15, is an actively managed fund-of-funds seeking to deliver relative returns during market uptrends and capital preservation during market downtrends. The fund will combine multiple, uncorrelated tactical strategies. The top two holdings are iShares 7-10 Year Treasury Bond (NYSEARCA: IEF ) at 26.6% and Pimco Enhanced Short Maturity (NYSEARCA: MINT ) at 20.0%. TUTT sports a 1.34% expense ratio ( TUTT overview ). iShares U.S. Fixed Income Balanced Risk ETF (BATS: INC ) , launched 2/26/15, is an actively managed ETF investing in U.S. dollar denominated investment-grade and high-yield fixed-income securities. The portfolio will be designed so that, in the aggregate, the fund’s exposure to credit spread risk and interest rate risk should be equal. In order to achieve the balanced goal, the fund may take short or long positions in U.S. Treasury futures. The fund is currently leveraged with a 25% short position in cash and/or derivatives. The expense ratio will be capped at 0.25% until 2/29/16 ( INC overview ). Lattice Developed Markets (ex-US) Strategy ETF (NYSEARCA: RODM ) , launched 2/26/15, invests in a broad range of companies showing favorable valuation, momentum, and quality characteristics that are located in major developed markets of Europe, Canada, and the Pacific Region. There are currently about 340 holdings. Japan leads the country allocation at 18.6%, and the U.K. follows with 13.7%. Investors will pay 0.50% annually to own this fund ( RODM overview ). Lattice Emerging Markets Strategy ETF (NYSEARCA: ROAM ) , launched 2/26/15, strives to balance risk across emerging market countries, currencies, and companies. It will provide increased exposure to smaller, more locally driven emerging economies and enterprises that have encouraging valuation, momentum, and quality characteristics. ROAM sports a 0.65% expense ratio ( ROAM overview ). Lattice U.S. Equity Strategy ETF (NYSEARCA: ROUS ) , launched 2/26/15, will invest in large-cap U.S. equities that have solid valuation, momentum, and quality characteristics. Financials leads the sector allocation at 19.2%, and Information Technology comes in second at 16.1%. ROUS has an expense ratio of 0.35% ( ROUS overview ). Arrow QVM Equity Factor ETF (NYSEARCA: QVM ) , launched 2/27/15, consists of 50 equally weighted domestic equities selected based on a combined ranking score of their quality, value, and momentum characteristics. To be considered, stocks must have daily dollar volume above $1 million for the last three months and at least a $5 share price. The portfolio is constructed at the end of January and July and is rebalanced quarterly to maintain equal weighting. The expense ratio will be capped at 0.65% until 5/31/16 ( QVM overview ). Product closures/delistings in February : WisdomTree Euro Debt (NYSEARCA: EU ) PowerShares DB 3x Italian T-Bond Futures ETN (NYSEARCA: ITLT ) PowerShares DB 3x Long USD Index Futures ETN (NYSEARCA: UUPT ) PowerShares DB 3x Short USD Index Futures ETN (NYSEARCA: UDNT ) PowerShares DB Italian T-Bond Futures ETN (NYSEARCA: ITLY ) PowerShares DB US Deflation ETN (NYSEARCA: DEFL ) PowerShares DB US Inflation ETN (NYSEARCA: INFL ) iShares moved its four allocation ETFs to its Core lineup effective February 2. Deutsche Bank and Invesco ended their agreement to market DB issued ETNs under the PowerShares brand. The 26 ETNs were renamed effective 2/24/15. The role of “managing owner” for 11 PowerShares DB ETFs transferred from Deutsche Bank to Invesco effective 2/25/15 resulting in the temporary suspension of creation units on the affected funds. Creations were resumed by the following day. The only disruption we noted was PowerShares DB Oil Fund (NYSEARCA: DBO ) traded with about a 3.5% premium for a few hours the morning of 2/25/15. Previous monthly ETF statistics reports are available here . Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Cleco (CNL) Bruce A. Williamson on Q4 2014 Results – Earnings Call Transcript

Cleco Corp. (NYSE: CNL ) Q4 2014 Earnings Call March 02, 2015 9:30 am ET Executives Robbyn Cooper – Manager, Investor and Public Relations Bruce A. Williamson – Chairman, President & Chief Executive Officer Thomas R. Miller – Senior Vice President and Chief Financial Officer Darren J. Olagues – President, Cleco Power LLC Analysts Paul T. Ridzon – KeyBanc Capital Markets, Inc. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Operator Welcome to the Cleco Corporation Fourth Quarter 2014 Earnings Call. My name is Laura, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Ms. Robbyn Cooper, Manager of Investor and Public Relations. Robbyn, you may begin. Robbyn Cooper – Manager, Investor and Public Relations Good morning, and welcome to Cleco Corporation’s 2014 fourth quarter and year-end earnings call. You can access this call and slide presentation live via the Internet from Cleco’s website at www.cleco.cominvestors. Telephone and Internet replays can be accessed through our website. The dial-in number for the telephone replay is 888-843-7419 if in the U.S., or 630-652-3042 if outside the U.S. The conference ID is 38458256. With me on the call today is Bruce Williamson, Chairman, President, and Chief Executive Officer of Cleco Corporation; and Tom Miller, Senior Vice President, Chief Financial Officer and Treasurer; along with other members of Cleco management. Before we begin, please keep in mind that during the conference call, we will make some forward-looking statements. These statements are subject to many risk and uncertainties. Actual results may differ materially from these contemplated in our forward-looking statements. Please refer to our cautionary note regarding forward-looking statements and risk factors in various reports filed with the U.S. Securities and Exchange Commission, including our 2014 Annual Report on Form 10-K and current reports on Form 8-K. In addition, please note that the date of this conference call is March 2, 2015, and any forward-looking statements that we may make today are based on assumptions as of this date. And with that, I will turn the call over to Bruce. Bruce A. Williamson – Chairman, President & Chief Executive Officer Thanks, Robbyn. Good morning and thank you for joining us. This morning, we’ll review the 2014 fourth quarter and full year results. Let’s start with the agenda for today’s call, which is on slide 3 of our presentation for those of you following along via the webcast. I’ll begin today’s call with an update on the merger transaction and a recap of 2014 accomplishments. Tom will then discuss fourth quarter and year-end financial results and I’ll finish up the call with a discussion of our objectives for 2015 and then we’ll move to Q&A. Please turn to slide 4. As discussed in our previous call last October, the company announced an agreement to be acquired by a group of North American-based long-term infrastructure investors led by Macquarie Infrastructure and Real Assets or MIRA and British Columbia Investment Management Corporation, also known as BCIMC. In February, we were pleased to receive notification that all four corporate governance and shareholder advisory firms had joined our board in recommending that both the merger-related votes be approved. Last Thursday, we held a meeting of our shareholders to vote on the proposals related to the merger. I’m pleased to report that our shareholders overwhelmingly approved the merger transaction. The merger proposal passed with a vote of more than 94% of votes cast, which is equal to approximately 77% of all shares outstanding. This overwhelming vote of confidence for management, the board of directors and the transaction shows that we structured a transaction that our shareholders see value in. We’ll now turn our focus towards the remaining regulatory approvals needed to close the transaction. On February 10, we filed our merger application with the Louisiana Public Service Commission and that filing can be found on our homepage. Independent consultants and legal counsel selected by the LPSC in December will help them review the application. The LPSC staff has begun the discovery phase of the review and, in the coming months, an administrative law judge will set a procedural schedule for the timetable for the application process. The remaining applications, including among others the Federal Energy Regulatory Commission or FERC, Hart-Scott-Rodino or HSR are expected to be filed later this month. In structuring the merger agreement, we work to ensure that Cleco will remain a Louisiana-based company with local operations and local management. We believe our proposed regulatory commitments address the LPSC’s concerns and represent our commitment to our employees, retirees, customers, and the communities we serve. We’re exceptionally pleased with the outcome of the shareholder vote and will continue to work through the approval process to obtain the remaining regulatory approvals. We still expect the transaction to close in the second half of 2015. I’ll now turn to slide 5 to recap 2014 accomplishments. In addition to announcing the strategic transaction, we also delivered on key regulatory and strategic initiatives. We produced another strong year and reported operational earnings of $2.74 per share, up $0.21 per share when compared to 2013, which puts us near the top-end of our earnings guidance range of $2.65 per share to $2.75 per share. Positive drivers for the year included higher revenues associated with the start of the wholesale contract with Dixie Electric Membership Corporation or DEMCO, a favorable multi-year settlement with taxing authorities and ongoing cost management efforts. These positive drivers helped to offset mild weather for the year, and the rate decrease and customer refund associated with our formula rate plan extension that began in July. Our strong financial position prompted us to raise the annual dividend on the company’s common stock to $1.60 per share, which represents a 10% increase. This marks the sixth dividend increase in the last 4.5 years. Finalizing the formula rate plan was perhaps the most important regulatory accomplishment. The rate plan extension, which went into effect July 1, extends our previous rate plan design by four years. The extension did reduce our target ROE to 10% from 10.7%, but it also retained some customer sharing provisions. Importantly, the extension finalized the rate treatment of the Coughlin Power Station, which we transferred to our regulated utility in March. And overall it reduced forward rates to customers by about $34 million annually, which is in large part due to cost management efforts of the last 3.5 years along with the reduction in target ROE and thereby reset our earnings downward to the guidance range that we issued in late 2014. Coughlin Power Station was the last remaining asset in our unregulated business. Following the completion of the transfer, our company is streamlined to focus on the regulated utility subsidiary. Coughlin is a combined cycle gas-fired unit and it increases the efficiency of the generation fleet and provides low-cost power for all retail and wholesale customers. Moving on, last year we were successful in negotiating a tax settlement with a state taxing authority. The settlement produced a benefit to earnings that was recorded in the third quarter of 2014 and the settlement is favorable for both the company and the state, and will provide clarity on future tax treatment of agreed-upon items. And with that, I’ll now turn the call over to Tom to discuss our fourth quarter and year-end financial results. Thomas R. Miller – Senior Vice President and Chief Financial Officer Thanks, Bruce. (7:24-7:29) of our fourth quarter operational results. GAAP earnings were $0.35 per share for the fourth quarter of 2014, a $0.06 decrease compared to the fourth quarter of 2013. Operational earnings for the quarter were $0.60 per diluted share, a $0.19 increase compared to the fourth quarter of 2013. Lower O&M related to outages at our generation facilities and a gain on the sale of property drove operational earnings for the quarter. Operational earnings exclude items associated with tax levelization expense, which was $0.05, and merger transaction cost, which were $0.20 in the fourth quarter. Looking from left to right on the operational reconciliation chart, Cleco Power’s non-fuel base revenue declined $0.09 per share from this time last year. Higher revenues primarily to a new wholesale customer increased earnings by $0.06 per share. A lower rate refund associated with site specific customers increased earnings by a $0.01. These increases were offset by $0.09 per share as a result of lower retail customer usage and milder weather. And the 2014 formula rate plan extension decreased revenue by $0.07 per share. Other expenses increased earnings by $0.21 per share due to $0.13 per share related to fewer planned outages at our generation facilities this past quarter compared to the fourth quarter last year; $0.06 per share related to a gain on the sale of property, $0.05 per share of lower taxes other than income and $0.03 per share related to lower depreciation and amortization expense. These increases were partially offset by $0.03 per share from the absence of the recovery of capacity expense related to the Coughlin tolling agreement, $0.02 per share related to higher capacity cost associated with wholesale contracts and $0.01 per share of higher miscellaneous expenses. Interest expense was lower and increased earnings by $0.03 per share. $0.02 were related to the absence of a surcredit customer giveback, which is now included in base rates as a result of the FRP extension, and $0.01 per share of lower miscellaneous charges. And finally, lower income taxes increased earnings by $0.04 per share due to $0.03 per share of miscellaneous tax items and $0.02 per share of tax expense to reflect the annual projected tax rate. This was partially offset by $0.01 per share due to lower tax credits. Now, please turn to slide 7 for a review of year end results. For 2014, GAAP earnings were $2.55 per diluted share, a $0.10 decrease compared to 2013. Operational earnings for 2014 were $2.74 per share, a $0.21 increase compared to 2013. As a reminder, operational earnings exclude non-operational items associated with $0.01 benefit from Acadia Unit 2 indemnifications, a $0.03 gain from insurance policies and $0.23 associated with the merger. Again, looking from left to right on the reconciliation chart, Cleco Power’s non-fuel base revenue was up $0.08 per share from this time last year. Higher revenues primarily from wholesale business growth including the contract with DEMCO increased the earnings by $0.35 per share. These increases were offset by a $0.22 decrease related to the one-time customer refund in September as part of the formula rate plan extension and $0.05 per share related to lower customer usage and mild weather for the year. Other revenue increased earnings by $0.03 per share due to transmission revenue as a result of joining MISO. Other expenses decreased earnings by $0.15 per share, primarily due to $0.18 per share from the absence of the recovery of capacity expense related to the Coughlin tolling agreement. As Bruce stated earlier in the call, Coughlin Power Station has now included base rates as part of the FRP extension. $0.04 per share related to higher depreciation and amortization expense, $0.04 per share related to higher capacity cost associated with wholesale contracts, and $0.02 per share related to higher planned outages at our generation facilities. These decreases were partially offset by $0.06 per share of lower taxes other than income, and lower taxes related to favorable settlement with taxing authorities. $0.06 per share related to the gain on the sale of property, and $0.01 per share, related to lower loss on disposal of assets related to the Coughlin outage. Interest expense was lower and increased earnings by $0.11 per share due to $0.06 per share from favorable settlements with taxing authorities, $0.04 related to the absence of a surcredit credit customer give back, and $0.01 per share of lower miscellaneous charges. AFUDC earnings – increased earnings by $0.02 per share due to MATS capital spend. And finally, lower income taxes increased earnings by $0.12 per share, primarily due to $0.18 per share of lower taxes due to favorable settlements with taxing authorities, and $0.02 per share of lower miscellaneous tax items. These benefits were partially offset by a $0.08 per share due to lower tax credit. I will now turn to slide 8 to discuss our 2015 earnings guidance. On last quarter’s earnings call, we issued our 2015 consolidated operational earnings guidance of $2.28 to $2.38 per diluted share. This earnings guidance is based on normal weather, reflects a full year of operations under the new FRP extension, assumes an effective tax rate of approximately 36%, and excludes adjustments related to life insurance policies and merger transaction cost. Cleco will continue to operate in the ordinary course of business until the merger closes. Prior to the closing of the transaction, Cleco’s ability to buy back stock or make tax-based investments without the consent of the new owners is generally limited to the ordinary course of business. Bruce will give some closing marks. Bruce A. Williamson – Chairman, President & Chief Executive Officer Thanks, Tom. Before going to Q&A, I want to take a few minutes to address our near-term strategic objectives and then we’ll take your questions. Our most important task for 2015 is obviously to finalize the regulatory and other approvals required to complete the merger transaction. As I stated earlier on the call, we anticipate a closing date in the second half of 2015. Over the last four years, our shareholders have received an exceptional return on their investment as shown by an approximate 90% total shareholder return, including the premium associated with the upcoming merger. Another way to think about the value of the transaction is when you apply 2015 earnings to the offered share price of $55.37, we’re trading CNL through the transaction at a PE multiple of approximately 23.8 times the midpoint of our 2015 operational earnings guidance, which is about 50% to 60% higher than where the electric utility industry trades today. Lastly, another way to think about it is our earnings or rate base which drives the earning power would need to be 50% to 60% higher than what it is today to realize enough earnings to support this price point. In summary, we achieved a very full valuation for our public shareholders and their support of the merger vote shows they understand this. Importantly, however, this transaction also benefits all of our stakeholders. Our new owners will ensure that Cleco remains to be locally managed and operated, and the transition for our customers and communities will be seamless. Our employees and retirees will retain the same pay and benefits and Cleco will remain dedicated to its core business of safe operations and reliable power and prompt customer service. And with that, we’ll open the call for questions. Question-and-Answer Session Operator And our first question comes from Paul Ridzon. Paul, your line is open. Paul T. Ridzon – KeyBanc Capital Markets, Inc. When do you expect the procedural schedule to be filed? I’m sorry, I missed that. Bruce A. Williamson – Chairman, President & Chief Executive Officer Paul, I’ll let Darren answer that one. Darren J. Olagues – President, Cleco Power LLC Paul, we have to get through the intervention period first, right, which ends on March the 10. Then we’ll proceed towards that as part of the next step. So I don’t have a specific answer for you right now, but I guess the next milestone, if you will, now that the application has been filed with the 30-day window for the interveners, is this March 10 date. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Okay. And then, is there some weather sensitivity at the industrial side? They were down I think 13% this quarter or is that just some planned outage or something? Bruce A. Williamson – Chairman, President & Chief Executive Officer One of our customers has a planned outage that brought down some of the industrial use, that is true. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Okay. Thank you. Operator And our next question comes from Brian Russo. Brian, your line is now open. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Hi. Good morning. Bruce A. Williamson – Chairman, President & Chief Executive Officer Hey, Brian. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Just curious on the independent consultant review of the merger agreement. Is there some sort of formal process there, meaning will that analysis be made public and/or be discussed in some sort of upcoming open meeting? Bruce A. Williamson – Chairman, President & Chief Executive Officer Darren? Darren J. Olagues – President, Cleco Power LLC Yeah. I mean, ultimately we – like our past practices, we hope to have a settlement proceed towards the commission ultimately for the vote. And in that, there is testimony that’s provided by the consultants in that, and so, the essence of their analysis will be reflected in that testimony. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Got it. Okay. Great. Thank you very much. Operator Okay. And I’m actually seeing no questions at this time. Bruce A. Williamson – Chairman, President & Chief Executive Officer Okay. Thank you for your questions this morning. As we close this investor call, I’d like to recognize the work of Sybil Montegut and Mallory Biegler who comprise our investor team. They were nominated as finalists by institutional investors to be an all American IR team, and it’s an honor to have them be named as finalists by the input and voting of our largest institutional investors. Obviously, if anyone has any questions after the call today, please give Mallory or Sybil a call. I’d also like to commend (19:38) and the rest of the safety department along with all of our employees for their continued focus on employee safety. We initiated a complete top to bottom rework of our safety program in late 2011 and they’ve continued to seek best practices over historic practices in all facets of safety, and today we’re firmly among the best performing utilities in terms of safety performance. We do not take this performance improvement lightly, however, and we want every employee to continue to focus in 2015 and strive for Target Zero. I also would like to end the day with just a final thanks for our shareholders to their resounding support for the strategic transaction with Macquarie and the BCIM led investor group. Thank you. Operator Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. 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. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. 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Northwest Natural Gas’ (NWN) CEO Gregg Kantor on Q4 2014 Results – Earnings Call Transcript

Northwest Natural Gas Co. (NYSE: NWN ) Q4 2014 Earnings Conference Call February 27, 2015 11:00 AM ET Executives Robert Hess – IR Gregg Kantor – President and CEO Steve Feltz – SVP and CFO Analysts Derek Walker – Bank of America Operator Good morning, and welcome to the Northwest Natural Gas Company’s Fourth Quarter Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to Mr. Bob Hess. Please go ahead, Mr. Hess. Robert Hess Thank you, Dana. Good morning, everybody, and welcome to our fourth quarter and full year 2014 earnings call. As a reminder some of the things that will be said this morning contain forward-looking statements. They are based on management’s assumptions, which may or may not come true, and you should refer to the language at the end of our press release for the appropriate cautionary statements and also to our SEC filings for additional information. We do expect to file our 10-K later today. As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note that these calls are designed for the financial community. If you are an individual investor and have questions, please contact me directly at area code 503-220-2388. Media please can contact, Melissa Moore at area code 503-220-2436. Speaking this morning are Gregg Kantor, President and Chief Executive Officer and Steve Feltz, Senior Vice President and Chief Financial Officer. Gregg and Steve have some opening remarks, and then will be available to answer your questions. Also joining us today are other members of our executive team, who will help answer any questions you may have. With that, let me turn it over to Gregg for his opening remarks. Gregg Kantor Thanks Bob. Good morning, everyone and welcome to fourth quarter and year-end review. I’ll begin today with an overview of 2014 and then turn it over to Steve to provide the financial details for the quarter and the year. I’ll wrap up the call with a look-forward. For Northwest Natural 2014 was a year of both opportunity and challenge. Last year our utility performance was solid, with improvements in customer growth and margin. However, those results were offset by losses associated with our gas cost sharing mechanism and the impact of natural gas prices. We also continued to see weakness in the California storage market hampering the financial returns from our Gill Ranch storage facility. In the midst to be varying factors, we delivered earnings of $2.16 per share and 2014 while providing a total shareholder return of approximately 22%. On the growth front, the Northwest economy made positive gains last year with Oregon’s employment rebounding to prerecession levels and unemployment rates continuing to fall. In 2014, we saw a healthy increase in commercial margins and an uptick in commercial new construction activity. The housing sector also improved with Portland home sales up nearly 4% and the average sale price up 7% last year compared to 2013. In addition, United Van Lines ranged Oregon its top moving destination last year, a positive indicator for future housing sector growth. And in Clark County in Washington, the fastest growing county in our service territory, home sales increased 8% with the average sale price increasing about 10%. These improvements help drive up our customer growth rate to 1.4% last year, and in the process we reached a new milestone adding our 700,000 customer. We believe last year’s healthy market improvements coupled with our substantial price advantage over electricity and oil put us in a strong position for additional customer growth going forward. In 2014 we made significant investments in safety and in reliability of our system. We completed several system reinforcement and facility upgrade projects and we continued our aggressive pipe replacement efforts. In fact we plan to remove the last three miles of bare steel pipe in 2015 making us one of the first utilities in the nation to eliminate both cast iron and bare steel pipe throughout our distribution system. In 2014, we reaped the advantages of having a more modern and robust system when extreme winter weather put us in the test. Last February we set a company record with a send out volume hitting 9 million firms in a 24 hour period. That’s almost double the normal send out for a typical winter day. And I’m pleased to report our pipeline system and storage facilities performed very well. I’m also pleased to report that for the fifth time in eight years we ranked first in the west in the annual J. D. Power Gas Utility Residential Customer Satisfaction Study. Last year also marks the seventh time in eight years that we were among the two highest scoring gas utilities in the nation. Now let me shift to the status of our regulatory agenda. Last year we continued to work through three remaining dockets carried over from our 2012 Oregon rate case. Just last week the OPUC issued its decision regarding how the Company’s environmental site remediation and recovery mechanism would be implemented. In the final order the commission found that all but $33,000 of the $114 million of environment remediation expenses incurred from 2003 through March of 2014 were proved. However due to the application of an earnings test from 2003 through 2012 the OPUC disallowed recovery of expenses totaling $15 million. At the same time the order specifies that insured settlements totaling over $150 million were entered into prudently by the Company. Steve will provide more details on how the mechanism works but let me just say that while the write down is disappointing we view our ability to fully recover future environmental cleanup cost as the key issue in a very complex and tough docket and we’re pleased the environmental spend and insurance settlements were deemed prudent. We do have some questions and implementation issues that we will be working on with the commission, but overall we believe the order provides us with a reasonable path forward. We expect the last two proceedings from our 2012 rate case to also be decided on this year. These are the interstate storage sharing and pension dockets. As you know, last year we amended our gas reserves agreement with Encana in response to their sale of the Jonah field. While the new arrangement ended the original drilling program, it also increased our working interest in Jonah and allows us to continue to invest in the field on a well by well basis. Under the new agreement, in 2014 we invested in seven wells and yesterday we filed with the OPUC to recover those costs as part of our utility hedge portfolio. A final important regulatory milestone last year was the filing of our integrated resource plan in Oregon and Washington. The plan covers a variety of issues associated with our ability to serve customers, including the need for additional system investments in Clark County, Washington and at our Newport LNG plant in Oregon. Just a few days ago we received acknowledgement on the IRP from the Oregon commission and we expect to receive notification from the Washington commission by this summer. With that let me turn it over to Steve. Steve Feltz Thank you, Gregg and good morning everyone. In 2014 we made significant progress on a number of fronts, including operational improvements and some important long term growth initiatives in both the utility and gas storage businesses. Additionally as you’ve heard earlier we received an order from the OPUC on how we would recover future environmental costs, which was a significant financial issue carried over from our last rate case in 2012. I’ll talk more about the financial implications of that order later on. But first let me turn your attention to 2014 results. Earnings for the fourth quarter were $1.04 per share on net income of $28.5 million. That was down slightly from $1.07 per share on $29 million a year ago. Results for the quarter reflect an increase in utility earnings largely due to higher margin and lower operating and maintenance expense. The utility increase was more than offset by a decrease from our gas storage segment which was driven by the re-contracting of Gill Ranch capacity at lower prices due to the depressed market conditions in California. The utility realized margin gains despite significantly warmer weather and lower customer usage. During the quarter, temperatures were 25% warmer than average and delivered volumes were down 13% compared to a year ago. The steady margin gains from our utility reflect our consistent customer growth and the effectiveness of our weather normalization and decoupling mechanisms. Now turning to full year results, consolidated earnings were $2.16 per share on net income of $58.7 million in 2014, as compared to $2.24 per share on $60.5 million a year ago. From the utility, net income for 2014 was $58.6 million, up from $54.9 million a year ago. A $12 million increase in margin was driven by customer growth, incremental use by commercial customers on higher margin rate schedules and added rate base recovery from new investments. These margin gains more than offset the impact of weather, a $2.1 million loss from our regulatory gas cost incentive sharing mechanism in Oregon and a $3.2 million increase in depreciation expense. From an operational standpoint, total gas delivery by the utility decreased 5% to 1.09 billion terms. The decrease was largely driven by 13% warmer than average weather and by declining average use for the customer. Despite the 5% decrease in volumes, utility margin increased by more than 3% over last year, including adjustments totaling $19 million from our weather normalization and decoupling mechanisms in Oregon. From our gas storage segment, net income in 2014 was a loss of $400,000, as compared to a gain of $5.6 million a year ago. The $6 million decrease in storage net income primarily reflect an $8.9 million decrease in operating revenues and a $1.8 million increase in operating expenses. As mentioned earlier, the decline in storage revenues was largely tied to lower prices at our Gill Ranch facility in California. Meanwhile, operating expenses at that facility increased, partly due to higher power cost for storage resale following significant withdrawals from last year and higher repair cost. Recently we’ve seen some improvement in summer-winter spreads for the upcoming storage year and because we have short-term contracts for a majority for our capacity, we should realize slightly higher prices in California this year compared to last year. But despite this improvement, we expect continuing challenges in 2015 as current storage values remain lower than the pricing on our original multi-year contract. With regard to operating expenses, for the quarter our O&M costs were 8% or $3.1 million lower than the same period last year. On a full year basis, O&M increased by less than 1% compared to a year ago. The year-over-year increase was mostly attributed to the previously mentioned higher power and repair cost at Gill Ranch, but that was largely offset by lower payroll and other cost savings at the utility. Cash provided by operations during 2014 was $216 million, up from $176 million in 2013. The main differences from year ago were the receipt of $103 million from insurance proceeds partly offset by increases in the deferred gas cost due to higher prices and other changes to working capital accounts. The insurance proceeds in particular helped to improve our liquidity position. With respect to our gas reserves program, we invested $27 million in 2014. Of that total $10 million was under the new amended ownership agreement with Jonah Energy, which we refer to as our post carry well. We recently filed with the OPUC a request to recover the revenue requirement associated with the post carry wells, thereby adding these gas reserves to our utility gas hedge portfolio. Our investment in gas reserves, both from the original contract with Encana and under the new agreement with Jonah Energy totaled $187 million since inception. Before providing earnings guidance for 2015, I’d like to explain some of the financial impacts of the recently issued regulatory order on the recovery of past and future environmental costs. First, the order results in an immediate onetime $15 million pre-tax charge for past environmental costs which we’ll record in the first quarter of 2015. The Oregon commission disallowed this amount based on its determination of how an earnings test should apply to past years from 2003 through 2012. As part of its review, the commission ruled that all but $33,000 of the $114 million in total cost through March 2014 or were deemed to be prudently incurred. Second, the commission ordered that the insurance proceeds received by the Company which amount to about $150 million in total be allocated to past and future costs with one-third of the total supplied for the recovery of past costs through December 2012. The remaining two-thirds would be placed into a secure account earning interest with those amount supplied for the recovery of future cost. In the order, the commission also concluded that all insurance settlement entered into by the Company through March of 2014 for were deemed prudent. After applying roughly $50 million of insurance proceeds towards past costs and deducting the $15 million disallowance, the commission order allows for full recovery of the remaining balance of past cost through 2012, which amount to roughly $30 million. The $30 million of past cost will go into the recovery mechanism which allows for these costs to be collected from customers over a rolling five year amortization period beginning this year. In addition to recovery in our past cost from customers and insurance, the commission also ordered the full recovery of future environmental cost as follows. First, the company will recover the first $5 million each year from customers through a tariff writer effective 2013. The Company will then apply an additional $5 million from the insurance account plus interest accrued on the account during the year to the next portion of environmental cost also effective 2013. If our environmental costs are less than $10 million plus interest, then any unused insurance will roll forward into the next year. If however our annual environment costs exceed the $10 million plus any insurance roll forward from the prior year then the excess will be fully revered through the environmental recovery mechanism. However if the Company earns above its authorized ROE, then the Company would be required to use the amount of earnings above its ROE to cover environmental expenses greater than the $10 million plus any insurance roll forward. In effect the company is provided full recovery of its environmental cost going forward. Today the Company is initiating its 2015 earnings guidance in the range of $1.77 to $1.97 per share for 2015. After adjusting for the one-time $15 million pretax charge previously discussed our earnings guidance for 2015 is $2.10 to $2.30 per share. The Company’s 2015 guidance assumes customer growth from our Utility segment, average weather conditions, slow recovery of the gas storage market in California and no significant changes in prevailing legislative and regulatory policies or outcomes. With that I’ll turn the call back over to Gregg for his concluding remarks. Gregg Kantor Thanks Steve. In 2014 our utility performance was solid with improvements in customer growth and added rate based returns on gas reserves and other system investments. We also made progress on our other growth initiatives. Earlier this month we received approval from Portland General Electric to move forward with the permitting demand acquisition work required for a potential expansion project at Mist, our underground gas storage facility. The project would be designed to provide no notice storage services to PGE’s natural gas bio-generating plants at Port Westward in Oregon. The potential expansion would include a new reservoir providing up to 2.5 billion cubic feet of available storage, an additional compressor station with design capacity of 120,000 dekatherms of gas per day and a 13 mile pipeline to connect the PGE’s gas plants at Port Westward. In 2015 our team will be working to obtain all the required permits and certain property rights and assuming successful completion of those necessary elements the current estimated cost of the expansion is approximately $125,000 million with a potential in service date in the 2018, 2019 winter season, depending on I should say the permitting process in construction schedule. As you may recall Oregon passed a bill effective last year that allows the OPUC to incent natural gas utilities to undertake projects that will reduce greenhouse gas emissions. We view this legislation as an exciting opportunity to make a positive environmental impact while potentially serving our customers and communities in new ways. In 2014 we worked through a rulemaking effort with the OPUC staff and customer advocates rules for what we are referring to as the carbon solutions program were then passed by the Oregon Commission this past December. In parallel to that rulemaking effort last year we began assessing a number of possible projects spanning several areas. Examples of potential projects involve reducing methane emissions during pipeline maintenance and repair, residential oil conversion program and distributed generation projects that use natural gas to increase energy efficiency. At this point, we are refining concepts and meeting with interested stakeholders to discuss our ideas, including the OPUC staff, customer advocates and energy efficiency groups. Our goal this year is to file several projects with the Oregon Commission to consider and hopefully to approve. In my view the carbon solutions program offers an excellent opportunity for us to demonstrate our spirit of innovation to showcase the important role natural gas can play in helping our region meet its environmental goals and add to the Company’s bottom line. In the months ahead we intend to make progress in a number of areas as I’ve said, continuing to grow our utility customer base, completing the last two remaining dockets from our 2012 rate case proceedings, advancing the north Mist expansion project, and doing all of this while continuing to provide safe and reliable service to our customers. Thanks again for joining us this morning and now I’d be happy to open it up for questions. Question-and-Answer Session Operator We will now begin the question-and-answer session (Operator Instructions). Gregg Kantor It’s hard to believe we were that clear on all of this stuff, but it doesn’t appear there are any questions. We’ll wait another few seconds here. Operator Our first question is from Derek Walker of Bank of America. Mr. Walker? Derek Walker Just I appreciate the color going through the order on the environmental piece here. Just a quick follow-up and there was a lot of nuances to it about conditions associated with it, but I think in general in the past or at least at times you’ve been able to achieve little bit above sort of allowed ROE, but does this new mechanism effectively to limit your ability to go slightly above that, the 9.5%? Gregg Kantor It does in those instances where we spend more than what is in the in the tariff writer and the insurance. So we’re spending more than that amount, which is $10 million, it will limit going above our allowed return on equity. Derek Walker And as far as the — just given on the commodity backdrop, as far as additional wells being drilled is there — I guess what you’re seeing on that development side? Gregg Kantor Well, as I said in the remarks we do have the ability to drill on a well-by-well basis. But the way that works though is that Jonah Energy Inc. proposes wells to us and then we get to evaluate and make a decision about on a well-by-well basis whether we’re going to proceed with those wells. Right now there haven’t been any proposed to us, not exactly certain if there will be this year and again we take them on a well-by-well basis. I don’t expect that there will be — even if they do propose wells that they will be large. Again last year there were 10 that were proposed to us. So I don’t think that’s going to be a very large amount if there are wells proposed. The other part of it is that we continue to look at a second overall gas reserve deal as part of a discussion we’re having with the commission on what’s the right amount of gas reserves to have. We call that our hedging docket which was — is going to be open this year and hopefully completed this year and that will tell us whether we’ve got the right amount of gas reserves in our portfolio or not and hopefully we’ll get through that this year and it will give us some direction on a future deal. Maybe just a little bit more follow-up on the first part of your question Derek, which was about over earning, it does in most cases where we’re as I said spending more than $10 million, prevent us from over earning in those years. But I would also say that the important part of this docket I kind of want to underscore was the costs of this are large for the company in the future and our goal here was to make sure we got full recovery and the order does do that and we really believe that this is a very reasonable path forward for us. Operator (Operator Instructions). Gregg Kantor Well, if there are no other questions, thank you all for joining us this morning. We really appreciate your interest in our Company and look forward to seeing you down the road. Thanks. 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. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!