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U.S. Geothermal’s (HTM) Management Discusses on Q4 2014 Results – Earnings Call Transcript

U.S. Geothermal Inc. (NYSEMKT: HTM ) Q4 2014 Earnings Conference Call March 17, 2015 11:00 AM ET Executives Douglas J. Glaspey – President and Chief Operating Officer Kerry D. Hawkley – Chief Financial Officer Jonathan Zurkoff – Treasurer and Executive Vice President of Finance Analysts James P. McIlree – Chardan Capital Markets, LLC Operator Greetings, ladies and gentlemen and welcome to the U.S. Geothermal’s 2014 Year-End Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now pleasure to introduce your host Mr. Doug Glaspey. Thank you, sir. You may begin. Douglas J. Glaspey Thank you, operator, and good morning, everybody. Thank you all for joining us on today’s call and for your continuing interest in U.S. Geothermal. My name is Doug Glaspey, I am the President and Chief Operating Officer. Dennis Gilles, our CEO is not able to join us today, he is recovering from recent surgery, we do expect to have him back in the office next week. Joining me on today’s call will be Kerry Hawkley, our Chief Financial Officer and Jonathan Zurkoff, our Executive Vice President of Finance. Jonathan will be presenting Dennis’s prepared comments summarizing the highlights of the year. Before we go any further I would like to make a note that on our March 4, news release regarding earnings call there was a typo some people have noticed that, its was a 100 megawatts production for our growth strategy to 2020, our plan has not changed it is 200 megawatts of growth by 2020. So I just want to make sure everybody understood that we hadn’t changed our strategy. The Company’s performance in 2014 was strong with our operating revenue up 13% compared to 2013. Adjusted EBITDA was up 12% over 2013 and net income up approximately 263% over 2013. Our plans continue to outperform industry standards for operational availability and we are focused on brining the next phase of growth to our shareholders. Kerry Hawkley will now provide you with a summary of our financial results for 2014. Kerry? Kerry D. Hawkley Thank you, Doug. And good morning to our listeners on this call. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecast and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the Company’s plans, objectives and expectations for future operations, and are based on management’s current estimates and projections of future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. During the call we will present non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted net income, reconciliation to the most directly comparable GAAP measures and management’s reasons for presenting such information is set forth in the press release that was issued last night. Because these measures are not calculated in accordance with U.S. GAAP, it should not be considered in isolation from our financial statements prepared in accordance with GAAP. I’ll now discuss the financial statements of U.S. Geothermal for the year ended December 31, 2014. On our balance sheet, total assets are at $232.9 million. Our total liabilities are $102.0 million. Non-controlling interests are at $46.4 million, and our net stockholders equity is now at $84.5 million. On our statement of operations our 12-month net income of $11.6 million in 2014 is comparable to the $1.9 million for the same period last year. And adjusted net income for 2014 eliminating the deferred tax asset gain in the impairment loss for Granite Creek is $1.8 million. For the year revenues were up $3.6 million or 13% over 2013. Energy production was up 29,401 megawatt hours or 9.5%. Plant production expenses were up $1.8 million, primarily insurance and maintenance costs. Drilling costs in 2014 that were capitalized were at El Ceibillo, San Emidio Phase II and Crescent Valley. The interest expense at San Emidio $319,000 over last year, primarily because a portion of the interest in 2013 was capitalized. This will have a direct impact to the net income attributable to U.S. Geothermal since San Emidio 100% owned by U.S. Geothermal. Our stock-based compensation is up $583,000 due to options in shares granted to our employees, executives, and directors in April of 2014. These costs are non-cash and align the interest of our employees, officers and directors with shareholders. We incurred exploration drilling costs during the year of $449,000 at our Gerlach Project. We’ve recognized a loss of $452,000 on an impairment associated with our decision to abandon the development of our Granite Creek Project. We also recognized a gain of 10.3 million on a deferred tax assets that we have recorded based on our more likely than not criteria. Adjusted EBITDA for 2014 was $17.2 million, versus $15.3 million in 2013. Our statement of cash flow, cash and cash equivalents at the beginning of the year were $28.7 million. 12 months, cash generated by operations were $12.8 million. Notes payments reduced our total debt by $4.6 million. Payment to our non-controlling interest partner Enbridge were $15 million. We acquired the WGP Geysers project for $6.8 million, inclusive of legal cost. We capitalized drilling at San Emidio, El Ceibillo and Crescent Valley this year and that totaled $3.7 million in. Through the exercise of warrants and options we received $1.6 million in cash, so at the end of the year our cash and cash equivalents were $13.0 million. Please note that our exploration development budget for 2015 requires approximately $5.5 million in cash from U.S. Geothermal, which can be funded internally by cash flows from operations. On our statement of changes in stockholders equity, we’ve added the net income of $11.6 million during the year should be noted that the accumulated deposit is now reflected net of tax or $19.3 million. Shares of common stock issued upon exercise of stock purchases warrants were $2.6 million, shares of common stock issued upon exercise of stock options were $1.1 million. We granted 559,000 shares of common stock to our employees, executives, and directors in Q2 that had a one-year restriction. We just have cash of $15 million that was distributed to Enbridge, we issued 693,000 shares in Q4 to acquire 100% of the shares of Earth Power Resources. So at the end of the year 12/31/2014 are issued an outstanding shares in our totals of 107.0 million shares. Now as we mentioned briefly in the third quarter earnings call regarding our provision for income tax we have now met to more likely to not criteria set for recording the deferred tax asset on the balance sheet. During the fourth quarter, the company discontinued the 100% valuation allowance on our deferred tax asset. The impact to the financial statements net of tax on the income in 2014 was $10.3 million. In other words, we have been profitable now for over two years and we anticipate being profitable going forward as our projects are reliable and the revenues are predictable. Our deferred tax assets will offset future taxes and same as cash. Also in response to the apparent confusion noted during the last earnings call we have added additional disclosure on Page 85 in the MD&A regarding the net income attributable to the non-controlling interest and the net income attributable to U.S. Geothermal and its shareholders, which we hope provide you the clarity thought. The table on Page 85 shows the contribution our three operating projects provides the net income attributable to U.S. Geothermal and it also shows the cost associated with our exploration activities, corporate costs, the deferred tax asset gain and the impairment loss. You will see that Neal Hot Springs contributed $5.9 million, San Emidio contributed $0.5 million, Raft River contributed 300,000 for a total contributed to U.S. Geothermal of $6.7 million from these three projects. From that exploration activities and corporate overhead cost $4.9 million if you exclude the deferred tax and impairment adjustments. This last category includes the Company’s cost of existence including the listed on two stock exchanges legal accounting and professional fees, filings with government agencies, stock-based compensation in the costs of evaluating and developing new projects. These costs are almost 100% U.S. Geothermal costs and reduce the net income attributable to U.S. Geothermal. However as we grow the company by adding income generating projects in the future, this category will not increased significantly from current levels. Allowing the net income from the new projects to increase the bottom line almost dollar per dollar, we believe that company as well-positioned to take advantage of many future opportunities. Thank you for your continued interest in U.S. Geothermal and I will turn the call back over to Doug. Douglas J. Glaspey Thank you, Kerry. I will now provide the highlights of our operations performance for this fourth quarter and for the full-year 2014 as well as the summary of our current development activities. Generation for the fourth quarter from all three plants was 96,831 megawatt hours, and that’s compares 96,508 megawatt hours in the fourth quarter of 2013. Generation for the year 2014 totaled 339,086 megawatt hours, compared to 309,687 megawatt hours for 2013, which represents a 9.5% increase in generation year-over-year. The fourth quarter is typically one of our best generation quarters of the year as you all know, due to the cooler winter temperatures. But I will note, that while the East has had a very cold winter, the West is actually had a relatively mild winter. At Neal Hot Springs, generation for the quarter was 54,472 megawatt hours with average hourly generation of 25.08 net megawatts hours for hour of operation. The facility operated at 98.3% availability for the fourth quarter and 98.5% availability for the year, excluding scheduled maintenance hours. Generation for 2014 at Neal was 183,394 megawatt hours, compared to 155,428 megawatt hours in 2013 an 18% increase year-over-year at Neal Hot Springs. We’re proud to say that the geothermal reservoir at Neal continues to outperform our reservoir model, with over two years of stable temperature and flow rate. At San Emidio, our generation for the quarter was 21,745 megawatt hours with average hourly generation of 9.93 net megawatt hours per hour. Operating availability was 99.2% for the fourth quarter and 98.5% for the year, again excluding scheduled maintenance and hours. Generation for the year was 76,894 megawatt hours compared to generation of 76,697 megawatt hours in 2013. You can see that San Emidio has reached its plateau on this particular case, we think we will see a little bit better generation this year because of the addition of Well 6121 that was added in September and it increased the brand temperature feeding the plant by 3.3 degrees. San Emidio plant of course continues to run very smoothly, we’re very pleased with the plant and the reservoir remains within its projected parameters. At Raft River generation was 20,614 megawatt hours for the quarter with an average hourly generation of 9.59 net megawatts. Raft River operated at 97.3% availability during the fourth quarter and 99.5% for the year. Generation for 2014 was 78,798 megawatt hours compared to generation of 77,561 megawatt hours in 2013. Raft River which is our oldest facility continues to operate at consistent, high availability, with stable generation. I will note that Raft River will have an extended maintenance outage of 14 days in the second quarter of 2015 and it will be undergoing its first turbine overhaul since the plant started in 2008. We are very pleased with the performance of all three plants during the fourth quarter and for all of 2014. Our operations team has produced outstanding operation availability at all of the facilities which equates to our high level of power generation. On the development front, at San Emidio Phase II, the project continues to be dependent upon successful drilling and expansion of the currently known geothermal resource. Before we make the decision to move forward with building the second power plant we have to be successful with drilling additional production and injection wells that will support that second plant. We drilled two new wells in the South Zone during 2014 and expanded the high temperature anomaly farther South from the current well field. We did not plan commercial permeability in either one of those wells, we did find increasing temperature and it’s an important indicator of an active geothermal system. This temperature data is in effect an arrow pointing toward a potential source of the geothermal flow path farther South and we are going follow up on it. The South Zone area is held by federal leases and it takes anextraordinary amount of time to permit drilling activities on these lands. We are currently in the process of permitting a series of temperature gradient wells to extent our information on the area. And if the temperature gradient wells outline an attractive targets, we’ll follow up with observation wells or slim holes as they are known, to explore for the source of the high temperature fluid. This is an iterative process and it takes time, but after finding fluid temperatures of over 321 degrees in the South Zone it’s well worth following up. During the year we also constructed cross tie pipeline between the Phase I plant and the Phase II project area that was built in the third quarter and began producing fluid from well 61-21 early in the fourth quarter. This was all part of a long-term flow test for the South Zone. This well remains in production as we collect reservoir data and the plus side is it also increased our generation from the Phase I plan. Through the year we continued on with the interconnection studies with the Phase II plants and received the first phase study called the System Impact Study back from NV Energy on December 24. We might recall we’ve already have 16 megawatts of reserve transmission of San Emidio and we are requesting an additional 3.9 megawatts in order to accommodate a second full-size plan. The System Impact Study indicated that the additional 3.9 megawatt of transmission can be added to the NVE transmission system with a cost of approximately $270,000. A second phase study called the Facilities Study was started by NV Energy in January 2015. Now this series of studies for transmission happens at all of our projects it’s a FERC mandated process and all of the utilities have to go through it, we have to pay for everyone of these studies. So it just one of the areas in power generation that we have to go through. NV Energy issued a request for proposal on October 1, for 100 megawatts of renewable energy that would be contracted in 2015 for consumption in Southern Nevada. We responded to the RFP with a proposal for San Emidio Phase II on November 12. In early December NV Energy asked the Nevada Public Utilities Commission to allow them to combine the 2014 and 2015 renewable RFPs for a total of 200 megawatts under request. This request was approved and subsequent to the end of the year, we resubmitted our proposal for the Phase II plant and were notified on March 3 that our bid was advanced to the initial shortlist for Geothermal projects. NV Energy schedule indicates that the anticipate selecting the final shortlist projects before the end of April. At El Ceibillo and Guatemala, early this year we completed nine temperature gradient wells at El Ceibillo. The wells were shallow from 650 to 1,300 feet deep and we found temperatures ranging from a 176 to 413 degrees Fahrenheit, extraordinarily high for this shallow of a well. Results, from these wells effectively moves a high temperature resource target area approximately half a kilometer Northwest of our initial target zone. This change in our target location required us to acquire additional service leases before we could enter into our next phase of drilling. Keep in mind that while we have a concession to exploit the Geothermal resource from the Guatemalan government, we also need to have leases for surface access from private individuals. After extensive negotiations we were able to finalize a lease on an additional 80 acres of land that covers us new target area on October 15. Once the lease was signed, we prepare to drill pads for our planned well EC2, which will be a car hole design exactly like the EC1 well we drilled in 2013. The planned depth for EC2 is 2,330 feet deep, at 600 to 1000 meters based on our temperature gradient wells we do have a target in mind as far as depth also for temperatures, so we are anxious to get started on this next well. Our next hurdle, however before we resume drilling is to secure approval from the Guatemalan government to modify our development schedule under the terms of the concession. Based on the new schedule and the subsequent delays for approval you might recall we’ve been seeking this approval for over a year. Our online data’s moved out from the second quarter of 2018. Again this schedule is contingent on the drilling, finding the commercial resource on the project, which we are optimistic about but given the results obtained from our recently completed temperature gradient drilling program. Also at El Ceibillo our memorandum of understanding for a PPA that was held by the project was based on our original development schedule for the project. We met with the purchaser through the year who is one of the largest power brokers in Central America. But due to the delays and approval of the modified development schedule with the Guatemalan Ministry of Energy the purchaser declined to extend the agreement. We are continuing discussions with them and are approaching other power consumers in Guatemala and Central America. Central America still has a growing demand for power especially base load type resources. So we believe there is a very good market in the area. At our WGP Geysers Project, we are continuing to pursue two paths for development of the project. To secure a new power purchase agreement for the sale of electricity and if we’re successful in doing so, we will construct a new power plant and sell energy or to produce steam for sale to one of the other power plant operators in the Geysers. We keep the project ready for either development path; a 12 month extension for the Sonoma County Conditional Use Permit to construct the power plant was applied for and approved in June. We are currently preparing to file a new Conditional Use Permit application in 2015 to maintain our readiness. We also filed a new transmission interconnection request to the California independent system operator so that the project can be placed in the transmission queue. Again, we have to go through these transmission studies to make sure our power plant built on the site can be interconnected into the transmission system, so we can deliver our power to a purchaser. Since the four production wells were drilled in 2008 and 2009 the previous owner did not conduct long enough flow tests for bankable reservoir model. An Air Quality Permit was obtained for extended flow test Sonoma County Air Quality Board and we have scheduled a flow test of the existing wells during the second quarter of 2015 that time is coming up very rapidly. Additionally, we’ve been doing engineering optimization studies of the power plant design, the new reservoir model will reflect the hybrid plant design and includes both water cooling in the summer and air cooling in the winter. Hybrid cooling will provide a significant increase from a traditional 20% increase into 65% in the volume of water available for injection back into the reservoir providing longer term stable steam production. This kind of optimization is critical to maximize the power generation from the property. Three California base requests for proposals for renewable energy PPAs were used at late 2014 and early 2015, submitted the WGP Geysers all three. We were not short listed on the first two and are waiting the results of the third. Direct bilateral discussions are also being held with both power purchasers and steam sale purchasers. The results of the flow test we have scheduled for this spring and the bankable reservoir model will play a key role in making the best decision on how the project is developed. Moving to the exploration front, at Crescent Valley in Nevada which is one of the properties we acquired in the Earth Power Resources acquisition, in late November we conducted a gravity survey in the area with Hot Springs and strong faulting with intense solidification that already had a number of temperature gradient wells drilled that exhibited high results. We located and permitted a well on private property an initiated drilling in December starting construction to qualifying the project for the 30% investment tax credit. The well is currently at just over 900 feet deep and we expect to complete it within this next month. Additional program of deep 1000 foot temperature gradient wells over much larger area are also planned for 2015. So we’re just starting to explore Crescent Valley it’s a great looking prospect. At Gerlach we completed well 1810A to a depth of 2889 feet that was completed in November. This well was a follow up on a historic well that was reported to have encountered a significant loss circulation zone at depth but had no temperature information. Gerlach is some of the largest Hot Springs in Nevada and geothermometer temperatures of 338 to 352 degrees Fahrenheit which made it an excellent exploration target. The well founds some modest production mid-depth but no permeability deep in the well and the maximum temperature found in the well was 275 degrees Fahrenheit. We are reviewing the results of further work at Gerlach but it will be dependent on additional funding from the joint venture. I will now turn the meeting over to Jonathan Zurkoff to provide Dennis’s remarks. Jonathan? Jonathan Zurkoff Thank you, Doug. I will summarize our notable highlights for 2014. First on our consolidated financial performance revenues were up 13% coming in for the year at $31 million, compared to $27.4 million for the 2013 period. Adjusted EBITDA of 12% for the year at $17.2 million compared to $15.3 million in 2013. EBITDA was up for the year yielding $14.9 million, compared to $14.5 million for 2013. Net income up 263% with the total for the year at $14.9 million compared to $4.1 million in 2013. Cash flow from operations was $12.8 million for the year compared to $10.6 million for 2013, an increase of approximately 21% and long-term debt reduced by $4.8 million. Looking at the financial performance attributable to U.S. Geothermal that is after eliminating minority interest which represents our partner share Neal Hot Springs and Raft River. Our net income for the year was up 497% with the total for the year of $11.6 million compared to $1.9 million for 2013. Adjusted net income for the year was $1.8 million versus $1.9 million in 2013, adjustments include both the one-time gain from the recognition of the deferred tax assets and a one-time impairment for the write-off of the development cost associated with our Granite Creek project. We ended the fourth quarter with cash and cash equivalents of $13 million a $2.3 million increase over the prior quarter, relative to operating performance generation for the year was up 9.5% over the last year, mostly resulting from the higher unit availabilities. Our fleet-wide average operating availability for the year was an impressive 98.7% on equally impressive 96.2% with planned maintenance outages included. On the growth side, at our El Ceibillo project and Guatemala we continue to work with the Ministry of Energy and Mines and are very pleased to report that we now have lowered movements on our request to modify the construction schedule and there are Geothermal concessions. We are ready to drill our next well after we obtain final approval of our new schedule from the Energy Minister. Our team in Guatemala is also holding discussions with our former as well as potentially new off-takers for the energy and we are examining, other new prospects in the country. The acquisition of Earth Power Resources was completed on December 12, bringing three additional high quality geothermal prospects into our development pipeline. We began work immediately on the Crescent Valley project by starting the drilling of a production well before year-end, qualifying this project for a 30% investment tax credit which became available with the federal tax extender legislation that was past late last year. At San Emidio II we completed well 6121 installed the production pipeline and continue to produce well 6121 in the South Zone to the Phase I plan. We are also permitting an underground it drilling in the South Zone to verify and expanded resource. Further we have interconnection studies continuing with NV Energy we have submitted two proposals to NV Energy for the 2014 and 2015 request for proposals for 200 megawatts of renewable energy, and we’ve been notified that our proposal have been short listed. At WGP Geysers, we are approaching potential off-takers for the power from the proposed power plant, we’ve responded to request for a proposal as well as started bi-lateral discussions with interested parties and continued discussions for an alternative possible steam sell . A flow tested existing wells is planned for this spring, which will provide valuable information on this resource as it’s needed to optimize the design of either a power plant or pipeline to deliver steam. Capital and operating costs for both potential operating scenarios are being refined and budgetary bids have been received. We have also reapplied for a transmission interconnection agreement. We continue evaluating a number of other potential acquisitions that could drive our growth both in the near-term and now to our long-term portfolio. Regarding our development budget for 2015, expense activities for our early stage exploration projects are budgeted at $1.5 million. Capital expenditures on our more advanced development projects have been budgeted for up to $3.9 million. These budgets are based on our current portfolio and maybe altered depending on the results of early stage work or new opportunities. On the legislative front in late 2014, Congress passed a tax extender result that will allow us to potentially use a 30% investment tax credit on our projects and start a construction prior to the end of 2014, we believe our Geysers project, our San Emidio II and our Crescent Valley projects are currently qualifying. There are also indications that congress will take up an energy bill in 2015. In California which is the largest geothermal market in the United States, Governor Brown announced a new goal of 50% renewable energy by 2030. The California PUC will also be implementing newly passed AB 2363 which requires the establishment of rules for inclusion of integration cost for renewable. Intermittent technologies such as wind and solar will likely have to include the permitting cost for these resources. Moving on to guidance, our guidance for 2015 is based solely on our existing operations and does not include any impact that may be provided by acquisitions we are currently evaluating. These figures are forecast only and considered forward looking statements. Our guidance for 2015 is as follows. Our revenues $28 million to $33 million, Adjusted EBITDA $15 million to $19 million, EBITDA $12 million to $16 million and net income of $1.9 million to $5.9 million. So Doug, I’ll turn it back to you. Douglas J. Glaspey Thank you Jonathan. In summary with our strong cash flow from operations, we continue to have adequate cash on hand to support both our ongoing operations and early stage developments efforts and we continue to add cash to our balance sheet in preparation for our next construction project or acquisition. We also believe we are appropriately prepared to be responsive to many of the additional growth opportunities that we are currently evaluating. In closing, we have now had nine consecutive quarters of positive EBITDA and cash flow. Our fleet of power plants continues to perform well. We are pleased with the performance of our resources, we are pleased with the new growth opportunities recently added to our portfolio and optimistic regarding the other growth opportunities we are currently evaluating. We thank you for your continuing support and operator, I would now like to open the call for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] We have a question from the line of [indiscernible] Private Investor. Please proceed with your question. Unidentified Analyst Yes, hello. Douglas J. Glaspey Yes, Steven we can hear you. Unidentified Analyst On Neal Hot Springs you are talking about adding a hybrid system there, adding water. What kind of megawatt improvement would that make? Douglas J. Glaspey Steven you are exactly right we are going to be evaluating the possibility of using the wet cooling in the summer months. I think everybody understands that Neal Hot Springs is an air cooled facility, and in the hot summer hours can dip as low as seven to eight megawatts. We think we can double that with water cooling, so it would be similar to other projects in the summer time. I don’t have a number for you for a total impact of megawatt hours for the year. But we think it’s substantial and, of course it’s something we can do on the surface that doesn’t take drilling. So we should be drilling a water well early this hopefully within the next month or so to see if we can find a suitable water resource that would supply that cooling system, and then we are going to test several different possibilities conventional water cooling towers and mist cooling are the two we are going to looking at and hopefully by the end of this season we’ll have an idea of if we can add that water cooling. But thank you for the question its one of the ways we can increase generation without spending a lot of capital. Unidentified Analyst I had another question on the Geysers and the flow test, or fewer on your on your presentation where you make whatthe 38 megawatts. If you did that, would you be able to be more competitive on your megawatt price and the bidding for PPA with a bigger plan? Douglas J. Glaspey Yes, thank you Steven the of course of the size of the plan has an impact typically on capital cost per megawatt hour that 38 megawatt size is the growth generation from the currently permitted plant. So that’s one of the things that flow test is going to tell us this spring – exactly what size plant we can build and operate over the long-term we don’t just look at what the short-term generation is of course. We are going to be looking at time periods of 20 years to 25 years and that’s the number we are seeking from the flow test this year. Unidentified Analyst Okay and then on your net income guidance that’s just U.S. Geothermal that’s excludes the non-consulting interest right? Kerry D. Hawkley That is correct. Unidentified Analyst Okay. All right well thanks a lot and everything looks good. Keep up the good work. Douglas J. Glaspey Thank you. Kerry D. Hawkley Thank you, Steven. Operator Thank you. Our next question comes from the line of Jim McIlree with Chardan Capital. Please proceed with your question. James P. McIlree Yes, thanks and good morning. Douglas J. Glaspey Good morning. James P. McIlree When do you think that you would arrive at a decision on Geysers, which direction you would go either the electricity or the steam? Douglas J. Glaspey Good morning Jim. My expectation is certainly before the end of this year and I would like to have that decision somewhere around mid-year. James P. McIlree And so if it were – let’s take year-end instead. So if it were year-end decision what does that imply in terms of when it comes online starts generating revenue? Douglas J. Glaspey If it was a year-end decision we would have at least two years of construction. Kerry D. Hawkley If it was a power plant. Douglas J. Glaspey If it’s a power plant. If it’s a steam sell it could potential be as short as nine to 12 months. James P. McIlree And similar question for the Crescent Valley and Gerlach efforts. A timeframe as to when those could be online if all goes well. Douglas J. Glaspey Little bit longer timeframe, we still have to define resources of those projects and lets say we’re successful this year, so by the end of the year we have resource defined, we have a PPA in hand and you are looking at, at least two years of construction, before you would be online and generating electricity. James P. McIlree And is there any additional information you can provide as to why the Guatemala power buyer side is not renewed at contracts for the MOU. Kerry D. Hawkley Well I think there is probably several reasons Jim, the power situation in the country has changed a little bit and it’s a little uncertain right now, there was a large coal fired power plant that was supposed to be built in Guatemala that is only partially been built now, they have had a lot of trouble with their hydro facilities, actually they are having a bit of a drought down there as well so hydro has not turned out to be as consistent as they would like. So I think its really more uncertainty than anything else. You might recall too that that MOU covered flat priced PPA, so one of the things we’re looking at with them is shaping that PPA price overtime putting an escalator in it which it didn’t have before. So I think there is a number of issues that I guess I can’t tell you exactly why, but those are my feelings. James P. McIlree Okay, great. That’s very helpful. Thank you. Kerry D. Hawkley Thanks Jim. End of Q&A Operator [Operator Instructions] It seems there are no further questions at this time. I would like to turn it back to management for closing comments. Douglas J. Glaspey Great, I would like to thank everybody again for being on the call. We’re looking forward to a very exciting 2015, we’ve got a lot of things that we’re evaluating and as far as new projects are concerned we have a lot of work to do on our existing development and exploration projects. So keep a close eye on us and we look forward to talking to you next quarter. Thank you very much. Operator Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

European Funds See Inflows For 6-Consecutive Weeks

Stock funds attracted $8.4 billion for the week ending Mar 4, according to data from Lipper. This was the biggest inflow since late December. Of these, $6.9 billion was invested in non-U.S. stock funds. U.S.-focused stock funds added $1.5 billion. This came just a week after the U.S. investors had poured the most money into non-domestic stock funds since 2013. Jeff Tjornehoj, head of Lipper Americas Research said: I think those investors are expecting a rally in European stocks after the ECB opens the QE (quantitative easing) spigots next week. As for the broader markets, it has been a mixed week so far. Optimism that the U.S. economy was gradually picking up the pace had boosted benchmarks to record highs on Monday. Nasdaq had closed above the 5k mark for the first time since Mar 2000 boosted by a new deal in the technology sector. However, markets then dropped for two consecutive days, dragged down by dismal monthly car sales and a drop in private-sector employment gains in February, among other factors. Markets rebounded on Thursday, somewhat boosted by the ECB announcing a trillion-dollar stimulus plan that will kick off on Monday. Till close of markets on Mar 5, the Dow and Nasdaq are up just 0.02% and 0.07%, while the S&P 500 is down 0.2%. Funds Flow Data As mentioned, while $6.9 billion was poured into non-U.S. stock funds, U.S.-focused stock funds added $1.5 billion. U.S.-focused stock funds were able to witness inflows, after it lost $3.1 billion in outflows in the prior week. This was the biggest outflow in three weeks. Coming back to this week, U.S.-based European stock funds witnessed inflows for the sixth-consecutive week, adding $708 million for week ending Mar 4. Inflows into these funds may have been due to investors’ expectation of a rally as the ECB begins the bond repurchase plan. Emerging market stock funds added $1.4 billion, the most since Jun 2014. Separately, Taxable bond funds and high-yield “junk” bond funds registered their ninth and sixth consecutive week of inflows, respectively. While taxable bond funds added $170 million, the latter attracted $309 million. U.S. Treasuries funds had the biggest outflows since Jun 2014, losing out on $2.8 billion. On the other hand, the Investment Company Institute reported total money market fund assets were $2.67 trillion for the week ended Mar 4, down by $18.60 billion. Markets and Key Developments This Week On Monday, Nasdaq closed above the 5000 mark for the first time since Mar 2000 boosted by a new deal in technology sector. The Dow and the S&P 500 also touched record highs as the U.S. economy is seen to be gradually picking up the pace. Markets ended in the green, despite reports of a slowdown in manufacturing activity and consumer spending. Meanwhile, interest cuts in China also drove benchmarks higher on Monday. The S&P 500 and Dow closed at a record high for the fifth and fourth time this year, respectively. Dismal monthly car sales report dragged benchmarks down from their record highs in light volume trade on Tuesday. Profit taking also retreated Nasdaq from its key 5K level. Also affecting the markets was Israeli Prime Minister Benjamin Netanyahu’s criticism of White House and Iran’s attempts of a nuclear deal. Markets ended in the red for the second consecutive day on Wednesday, handing the Dow and S&P 500 their worst closing levels since Feb 19. Some opined there was no real panic in the markets. Private-sector employment gains in February were lower than prior month. Separately, ISM services index showed modest improvement. Markets snapped a two-day losing streak on Thursday, somewhat boosted by the ECB announcing a trillion-dollar stimulus plan that will kick off on Monday. Higher-than-expected initial claims numbers had offset some gains on Thursday. It was the year’s second lightest trading session, as investors refrained from betting big bucks ahead of Friday’s nonfarm payroll report. The jobs number may influence the timing of the rate hike decision. ECB Stimulus : The European Central Bank (ECB) announced a 1 trillion euro ($1.1 trillion) bond-buying program. The repurchase is due to start from coming Monday, Mar 9. As announced in January, ECB will buy government bonds worth 60 billion euros a month through a quantitative easing program. The QE program will continue till Sep 2016. ECB President Mario Draghi said this time that ECB would purchase these bonds even if they have a negative yield. However, the negative yield should not cross -0.2%, as they need to be within the level of ECB’s deposit rate. The bank also increased growth and inflation targets. Growth estimates were revised up to 1.5%, 1.9% and 2.1% for 2015, 2016 and 2017 respectively. Draghi said: The substantial, additional easing of our monetary policy stands, supports and reinforces the emergence of more favorable developments of the euro area economy, financial market conditions and the cost of external finance for the private economy have eased further. Borrowing conditions for firms and households have improved considerably. Obamacare in Court : Another key event of this week has been the commencement of the third hearing on Obamacare in the U.S. Supreme Court. King v. Burwell is the biggest challenge Obamacare has had to deal with till now and threatens to derail President Obama’s signature policy measure. 3 Mutual Funds to Buy Given the continued inflows into the non-US stock funds and particularly in the U.S.-based European stock funds, we would suggest 3 Non-US Equity funds, that are likely to see further upside. These funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. Also, the funds have high total return over the last four weeks, carry no sales load and have low expense ratio. The minimum initial investment in these funds is $5000. Henderson European Focus Fund (MUTF: HFEIX ) seeks capital growth over the long term. The fund invests a majority of its net assets in equities of European firms. The fund has no limits regarding geographic asset distribution within Europe. It may invest in one country or limited number of countries. HFEIX carries a Zacks Mutual Fund Rank #2. It has returned 8.1% over the last four weeks. It carries an expense ratio of 1.11% as compared to category average of 1.50%. Ivy International Core Equity Fund (MUTF: ICEIX ) invests a lion’s share of its assets, and borrowings, in equities that are mostly traded in developed European and Asian/Pacific Basin markets. To boost return, the fund may also invest in those issuers who are either located or operate in emerging market countries. ICEIX carries a Zacks Mutual Fund Rank #1. It has returned 5.5% over the last four weeks. It carries an expense ratio of 1.04% as compared to category average of 1.19%. VY T. Rowe Price International Stock Portfolio (MUTF: IMASX ) seeks capital appreciation over the long term. The fund invests a majority of its assets in stocks of companies located outside the U.S. For diversification, the fund invests in among developed and emerging countries. The fund emphasizes large-cap companies, and to an extent also invests in mid-cap firms. However, the fund may invest in companies of all sizes. IMASX carries a Zacks Mutual Fund Rank #2. It has returned 5.5% over the last four weeks. It carries an expense ratio of 0.77% as compared to category average of 1.37%.

IDACORP’s (IDA) CEO Darrel Anderson on Q4 2014 Results – Earnings Call Transcript

IDACORP Incorporated (NYSE: IDA ) Q4 2014 Earnings Conference Call February 19, 2015 04:30 PM ET Executives Lawrence Spencer – Director, IR Steve Keen – SVP, CFO and Treasurer Darrel Anderson – President and CEO Vern Porter – VP, Idaho Power Analysts Paul Ridzon – KeyBanc Capital Markets Brian Russo – Ladenburg Thalmann Andy Levi – Avon Capital Advisors Operator Welcome to IDACORP’s Fourth Quarter 2014 Conference Call. Today’s call is being recorded and webcast live. A complete replay will be available from the end of the day for a period of 12 months on the Company’s Web site at www.idacorpinc.com. [Operator Instructions] At this time, I would like to turn the call over to IDACORP’s Director of Investor Relations, Mr. Lawrence Spencer. Please go ahead. Lawrence Spencer Thank you and good afternoon. As you have probably seen we issued our earnings release and Form 10-K before the markets opened today and they are both posted to the IDACORP Web site. We will be using a few slides to supplement today’s call, and you can also find those on our Web site. We will refer those slides as we work our way through today’s presentation. On today’s call we have Darrel Anderson, IDACORP’s President and Chief Executive Officer; and Steve Keen, IDACORP’s Senior Vice President, Chief Financial Officer and Treasurer. We also have other individuals to help answer your questions during the Q&A period. Before turning the presentation over to Steve, I’ll cover our Safe Harbor statement on Slide 3. Our presentation today will include forward-looking statements. While these forward-looking statements represent our current judgment or opinion of what the future holds, these statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. So we caution you against placing undue reliance on these forward-looking statements. Some of the factors and events that could cause future results to differ materially from those included in forward-looking statements are listed on Slide 3 and included in our filings with the Securities and Exchange Commission, which we encourage you to review. On Slide 4, we present our quarterly and year-to-date financial results. IDACORP’s fourth quarter 2014 earnings per diluted share were $0.69, an increase of $0.14 per share from last year’s fourth quarter. For the 2014 earnings per diluted share were $3.85, $0.21 more than last year’s comparable period. I’ll now turn it over to Steve to discuss the end results in greater detail and review our estimated 2015 key operating metrics. Steve Keen Thanks, Larry and good afternoon, everyone. I’ll cover the reconciliation of earnings from 2013 to 2014, our cash flow and liquidity positions and as Larry mentioned some estimated 2015 key operating and financial metrics. To help understand our 2014 results on Slide 5 we present a reconciliation of earnings from 2013 to 2014. Overall net income increased by $11.1 million largely due to lower income tax expense resulting from a tax method change that I will discuss in a moment. Idaho Power’s operating income declined by $38 million from 2013 to 2014. Lower overall usage in the residential and irrigation customer classes due to more moderate temperatures and greater precipitation reduced operating income $38.1 million year-over-year. Those impacts were partially offset by increased sales from customer growth which benefited operating income by $9.1 million compared to 2013 the weather in 2014 was much more moderate. In 2013 we experienced increase heating and cooling degree days throughout the year at records level compared with the previous 10 years. Operating expenses in 2014 were also higher by $8.4 million due to greater labor related expenses along with increased depreciation and property taxes. Increased revenue sharing also reduced our operating income slightly as we will again share benefits with our Idaho customers under our Idaho regulatory settlement. Greater average construction work in progress representative of our ongoing construction activity resulted in a $3.9 million increase in the allowance for funds used during construction also an $11.6 million gain on sale of investments in 2013 did not repeat in 2014. The $29.1 million decrease in income tax as shown in the table represents the impact of a tax method change related to Idaho Power’s capitalized repairs deduction. This amount reflects the combined impact of $4.6 million of tax expense recorded in 2013 and $24.5 million of tax benefit recorded in 2014. We and others in the utility industry originally expected the new regulations to have a negative impact on capitalized repairs deduction. This expectation let us to accrue the $4.6 million of tax expense in 2013. New guidance from treasury in mid-2014 modified our interpretation and increased our expected benefits. This updated guidance was reflected in our 2013 tax return which we filed in September of 2014. A resulting additional tax benefit for the 2013 tax year was included in our third quarter 2014 financial results. In the fourth quarter of 2014, we completed our adoption of the new method for all years prior to 2013. The $29.1 million decrease in income tax is on the table reflects the impacts of the method change on all tax years through 2013 as well as the reversal of $4.6 million tax accrual recorded in calendar year 2013. The methodology underlying this change is expected to deliver a level of increased benefit annually based on the nature and amount of capital work performed each year. The table reflects that we recorded $7.8 million of additional tax benefit related to capitalized repairs in 2014, compared to the original tax accrual for 2013 which was based on the prior capitalized repairs methodology. And note 2 of the financial statements in the 10-K we filed today, the federal tax portion of this deduction is included in the line titled Capitalized Repairs Cost and the change from 2013 to 2014 is reflective of the single year federal income tax benefit from the new repairs methodology. The previously discussed $29.1 million of tax method change is reflected on the following line titled tax method change, capitalized repairs where the comparison of 2013 to 2014 reveal the impacts related to prior years. As we look at our potential future results we generally excluded the tax method change impacts from our earnings estimates. We are not currently aware of any additional forthcoming changes in tax policy that might cause adjustments to prior years. Please note that the capitalized repairs deduction originates in Idaho Power. An effective tax rate in the low 20s is what we currently estimate for Idaho Power next year. The remaining $19.8 million reduction in income taxes for 2014 primarily resulted from lower pre-tax income in 2014 compared with 2013. Moving now to Slide 6, we show IDACORP’s operating cash flows for 2014 and the liquidity position at December 31. Cash flows from operations for 2014 were $364 million, an increase of approximately $59 million over 2013. Changes in power supply cost collected under the Idaho Power cost adjustment mechanism drove most of the increase in operating cash flows. IDACORP and Idaho Power currently has in place the credit facilities of $125 million and $300 million respectively to meet short-term liquidity and operating requirements. The liquidity available under the credit facilities is shown on the bottom of Slide 6. Also there are 3 million IDACORP common shares available for issuance under IDACORP’s continuous equity program, no shares were issued during 2014 and we did not expect to issue new equity during 2015, except for modest amounts relating to employee compensation plans. Turning now to Slide 7, we are estimating 2015 O&M at between $340 million and $350 million. As you can tell from Slide 7 this is less than the actual 2014 expense of $355 million which I will speak to in a moment. Also we did not amortize any additional accumulated deferred investment tax credits in 2014, instead under our Idaho regulatory settlement in 2014 we recorded $8 million of current revenues to be refunded to Idaho customers and $16.7 million of additional pension expense further reducing the amount of pension benefits needed to be collected from customers in the future. Our 2014 O&M expense included the $16.7 million, removing this impact we anticipate only a modest increase in O&M for 2015 reflecting our ongoing diligence around actively managing cost. Our estimated capital expenditure range for 2015 is between $300 million and $310 million which includes between $45 million and $50 million for emission control equipment at the Jim Bridger plant. Page 54 in the Form 10-K filed today details some examples of anticipated ongoing infrastructure projects. For 2016, the estimated capital expenditure range is also from $300 million to $310 million. In total over the next five years we expect capital expenditures to approximate $1.5 billion. On the next role of Slide 7 we show that our expected 2015 hydroelectric generation ranges from 7.0 million to 9.0 million megawatt hours. As a reminder the median annual hydroelectric generation is 8.5 million megawatt hours. Finally we are initiating our 2015 earnings per share guidance in the range of $3.65 to $3.80 per diluted share which reflects normal weather conditions in our expectations of continuing effective cost management. As of today we do not expect to amortize additional accumulated deferred investment tax credits in 2015 under our new Idaho regulatory settlement. I’ll now turn the presentation over to Darrel. Darrel Anderson Thanks, Steve and good afternoon everyone. For 2014 we saw our seventh consecutive year of net income growth. In addition to that achievement I want to highlight a few of these 2014 items before looking forward. First Idaho Power’s 2014 return on year-end equity in the Idaho jurisdiction exceeded 10.5% which resulted in the company using no additional amortization of accumulated deferred investment tax credits under the 2011 Idaho regulatory settlements. In fact we got another year Idaho Power will share earnings with Idaho customers of almost $25 million. Over the last six years the company has returned over $118 million to customer reflecting a fact that the mechanism has been a win for customers as well as for shareholders. Additionally as illustrated on Slide 8 and as we have previously discussed we executed a new settlement during 2014 that extends many of the benefits of the 2011 settlement potentially through 2019. Which we again believe is a benefit to both shareholders and customers. As a final note on regulatory matters we have no intention to file a general rate case in 2015. Second as to our large infrastructure projects at the end of 2014 we achieved a notable milestone in one of Idaho Power’s two 500 kilovolt transmission projects the 300 mile Boardman to Hemingway line. On December 19th the Bureau of Land Management released the draft environmental impact patch statement for the project. Comments are due in March of this year with the expectation that a final environmental impact statement will be issued by the BLM during 2016. Third in 2014 we implemented safety for life an initiative to increase employees’ safety awareness and improve employees’ safety behaviors and practices while maintaining OSHA recordable injury rates well below utility industry national averages. For 2014 we saw a 40% reduction in the company’s OSHA recordable rate compared to 2013. Safety is one of Idaho Power’s core values and our employees have worked hard to focus on safety asses the hazards of our work make safe choices on how we work and speak up when see hazardous situations. We have made good progress and we will work to continue that positive safety momentum in 2015 and beyond. Finally in 2014 Public Utilities Fortnightly named Idaho Power to its prestigious list of 40 best energy companies. Our company made a substantial jump in the rankings from 29 to 17 with our fully integrated business model cited as a key to the company’s continued success. Looking forward on the resource planning side Idaho Power intends to file its 2015 integrated resource plan by mid-year. This by annual planning document is our 20 year roadmap for meeting customer demand in a responsible cost effective way. In addition Idaho Power will continue its optimization efforts targeted to prudently managing both operating and maintenance expenses and capital expenditures. While we continue that focus on cost management we will also continue our active promotion of growth in Idaho Power service area. During the past four years we have experienced growth in our customer count and we have seen and helped to promote positive economic development. We are seeing those efforts pay off as a number of large businesses have elected to locate or expand their operations in our service territory. Slide 9 shows our customer growth increase of 1.4% from 2013 to 2014. During 2014 Idaho Power’s customer count grew by more than 7,300 customers. We believe that this growth will continue our most recent load forecast which we expect to incorporate into the 2015 integrated resource planning process predicts a 1.4% five year compound annual growth rate in residential loads and a 2.1% five year compound annual growth rate in residential customers. Other indicators of the economic condition of our service area include in an unemployment rate in our Idaho service area of 3.6% at December 31, 2014 compared to 5.3% a year ago and a national rate of 5.6%. In addition gross area product for our service area as reported by Moody’s Analytics grew by 1.9% in 2014 and is projected to grow 3.1% and 3.5% in 2015 and 2016 respectively. Slide 10 is a look at the projected March to May weather outlook. Temperatures for January were 2 to 6 degrees above normal for the entire region with the exception of the lower Treasure Valley which averaged 1 degree below normal. Precipitation was below normal for the entire region. During February, we expect temperatures to be slightly above normal. March through May projection suggests that there is an equal chance for above or below normal precipitation in Idaho Power service area and a 40% to 50% chance of above normal temperatures. An additional area of focus I want to mention today has been IDACORP’s dividend. From the beginning of 2012 to 2014, IDACORP’s Board of Directors has approved a collective 57% increase in the quarterly dividend from $0.30 to $0.47 per share. You may remember that in September of last year the IDACORP Board approved an increase in the quarterly dividend rate from $0.43 per share to $0.47 per share, a 9.3% increase. This was continued progress toward achieving IDACORP’s previously adopted target dividend payout ratio of between 50% and 60% of sustainable IDACORP earnings. Management continues to anticipate recommending to the Board additional annual increases of over 5% until the dividend reaches the upper end of the target dividend payout ratio. One last bit of news for you is that the Governor of Idaho, Butch Otter announced yesterday in a news release that Kristine Sasser, a veteran legal counsel for the Idaho Public Utilities Commission will succeed retiring Commissioner Marsha Smith on a three-member commission. Commissioner Smith is retiring after serving on the commission since being appointed in 1991. Like Commissioner Smith, Sasser is a Democrat and will serve a six-year term as commissioner. Sasser’s final appointment is subject to Idaho Senate confirmation. And now I and others on the call will be happy to answer questions you may have. Question-and-Answer Session Operator Thank you. Ladies and gentlemen, we will begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Paul Ridzon of KeyBanc. Your line is now open. Paul Ridzon Was weather in ’14 I know is below that of ’13, but how did it compare to normal? Darrel Anderson Paul, we will say it is pretty close to normal if anything it may have been slightly on the low side, but it’s very close, it was much more would approximate a normal year than ’13. Paul Ridzon And I saw you had 10% industrial sales growth in the year what drove that? Darrel Anderson Well, Paul I’d say that most of our growth is coming from items that you would say are not headline news, it’s not big customers it’s kind of some growth with our customers that have already been here, we’ve had some expansions, we’ve had announcements that we have put out a few years ago that some of those are now coming online and expanding their lines of operations and it’s really been small increments across the board but I think industrial picked up and we continue to have residential inflow as the State of Idaho still looks like a favorable place to live. Paul Ridzon And you said, you indicated low 20s for your effective tax rate in this year? Darrel Anderson That’s correct Paul. Paul Ridzon And where do you see that going in the next couple of years? Darrel Anderson Paul based on the primary impact on that is the repairs deduction and with our planned expenditures being fairly close to what we did this year and fairly level over the next few years around $300 million, we don’t expect major shifts. It is based on the type of additions you do each year and it’s a very technical process that is work order by work order but as we would just look ahead, we would think that we don’t see wild changes in that as we move forward. So that’s the primary change from where we have been is the stepped up benefit coming out of the repair side. Paul Ridzon So kind of think low 20s for the next few years? Darrel Anderson Yes we didn’t — I haven’t looked at the rate beyond next year, the rate for us I would give you one cautionary thing there is the rate is sensitive to changes in the top-line. So as our revenues go up, the flow through items don’t necessarily move up and down based on changes in the top-line and ’13 is a good example of that, if you go run the numbers for 2013, you’ll see that income before taxes is a lot higher while there is flow through doesn’t necessarily lift up in proportion and so what happens as you get a higher tax rate because you’re not getting additional flow through items for those additional revenues to show up. So part of predict down in the future in our 20% — low 20s is really related to next year, as we sit here today. Paul Ridzon And Darrel I had one question, do you think it will be okay if Steve and his guys didn’t make cash for this year? Darrel Anderson I will let Steve respond to that one. Steve Keen Paul I am not worthy of that Dean Marko and his team are probably the ones you need to talk to on that, they do a fine job for it that is for sure. Operator Thank you. Our next question comes from Brian Russo, Ladenburg Thalmann. Your line is now open. Brian Russo Just to clarify your response to the last question is the below 20% tax rate is that for 2015 or is that for 2016? Darrel Anderson 2015. Brian Russo Okay. Darrel Anderson That is through the NSDM but yes that is 2015. Brian Russo And your guidance it doesn’t assume any sharing does it? Darrel Anderson We didn’t really address that but if you look at where we were first of last year where we said zero to $5 million of ADITC that’s an indicator we’re down near the floor where we are bumping into the 9.5%. There is a band of roughly $10 million I would say between there and where we begin this year you add in this for the tax item added little over $7 million last year it doesn’t necessarily drive the up to level where you look at sharing. So because we didn’t actually published the exact number we had in our early forecast somewhere between zero and five for last year. And we move somewhere above the 9.5 line but my guess is that it’s not enough to shift with the sharing. Steve Keen By the line is Brian that range that we have out there. We would anticipate that we’re within that debt band area because obviously we’re not using credits and so we’re kind of living that debt band for with the range that we provided. Brian Russo And could just elaborate on some of the commentary in the 10-K around the EIRP you guys say that you’ll be able to meet near term peak capacity deficit until Boardman to Hemingway is completed in 2021. Can you just maybe elaborate on that? Darrel Anderson So as you know we are right now in the middle of the IRP process we’re kind of going though the IRPAC process and meeting with constituents that work on that process. And if you look at our disclosure around on Page 15 of our 10-K we do talk a little bit about what some of those assumptions are that give rise to the date being what we’re say right now is in 2021 or so. So there are number of things the impact that probably one of the biggest things right now we don’t have a really good answer for us what might be the impact of one 11-D. As you know we made hear something back from BPA later this year on that — that could have an impact our growth numbers may have an impact. We talk about new large loads that could have an impact. But based on the assumptions that we have in there today we are seeing that from a capacity perspective as we sit today on peak hour basis 2021 or beyond is where we stand right now. Which does think up at least today with respect to what we are anticipating the potential in service date that we could see for Boardman to Hemingway again what I would tell you is we’re right in the middle of that process and we’re going have to let that process play out. We get a chance to update you on that likely at end of our first quarter call because we’ll be pretty close to that will be well down the line as it relates to the IRP. So you’ll some insights there as to what direction that might be headed. I wish I could give you more definitive answers but right now it would be the cart way before the horse is based on where that process is today. Brian Russo And then just to clarify the change in the capitalized repair cost from ’13 to ’14 roughly $7 million to $8 million, that’s what ongoing correct? Darrel Anderson That’s representative an annual amount. So that’s why we highlighted that pulled it out of the prior year adjustment. It could vary it’s going to vary based on the actual capital that we spend and what kind of items that we might get called by this repair but we think that representative of what we expect in the future. Brian Russo And then just lastly just an update on Gateway West transmission line. Darrel Anderson What kind of update would like Brian it’s ongoing well I can do is that Vern Porter who is with us today. Who will be able to speak to Gateway West? Vern Porter So back in November 2013 if you remember the deal initiative record to a decision for most of the project and we are continuing to work on the two most Western segment 89 that travel through the birds of prey area here before I get to the Hemingway substation. So the decision has been made to do a supplemental EIS environmental impact study for that project and we expect that the BLM issues a record decision sometime in 2016 with respect to that. So worker is continuing and environmental we’ll continue to work on that and secure that record of decision. Brian Russo And remind me what is the total cost of that line is and what at a group share? Darrel Anderson So Brian our estimated cost on that line is $200 million to $400 is what we project that to be. But that’s beyond the high-end forecast periods that we have right now and we would looking to spend those dollars. Brian Russo And just curious if everything goes well with the permitting as you stand today hypothetically when would this transmission line be operational. Darrel Anderson So Brian you’re still speaking to Gateway right. Brian Russo Yes certainly. Darrel Anderson Okay, okay Vern you want to? Vern Porter Yes we expect that the project will built from the east to the west, so we expect it sometime in the maybe end of this decade early decade that pacific core will be building from Eastern Wyoming to cross to our popular substation which is also their popular substation and actually we joint own it, but sometime in that timeframe. And then going all the way across Southern Idaho to Hemingway substation be sometime maybe early to mid next decade. Operator Thank you. Our next question comes from Andy Levi or Avon Capital Advisors. Your line is now open. Andy Levi Just want to make sure I am very-very clear on this, so let’s just call it the 8 million is for the repairs tax it’s about $0.15 a share in ’15 and I guess my understanding is that you have about $300 million of CapEx every year, right? Darrel Anderson Correct, that is our current estimate. Andy Levi And the CapEx is very similar each year. So with the exception of having to go in for rate case which you don’t see for the foreseeable future that $0.15 theoretically should continue in ’16, ’17 and even ’18, so is that kind of a fair way to look at it? Darrel Anderson That is what we’re telegraphing and I would say there is variability around it, could it be off 10%, 20% if things move year-to-year and we’ll watch that as we get closer. But we certainly have stepped up an increment from where we were prior to this new guidance. Andy Levi And what would make it move around just to understand that mechanically either high or lower? Darrel Anderson It’s really dependent on the actual work that we do and… Andy Levi So could you be more specific on that like what quality… Darrel Anderson So example, you could have a storm that blows down effects your line and it is exactly dependent upon how much of line would get replaced and there is a limit that qualifies for a repair and if it goes beyond that then it wouldn’t qualify for repair. I would say that overtime, we tend it to be fairly predictable with our repairs, and if you look at it note 2 that we have it’s a pretty steady number that we’ve had in there in the past. So I… Andy Levi How much is that of your total CapEx if it qualifies for a repair? Darrel Anderson I’ll turn it over here to our tax experts to… Andy Levi Thank you, I am just curious, I want to really understand this. Darrel Anderson If you want to see the gross number, the non-tax effective numbers you to note 2 to the capitalized repairs cost line it’s on Page 91 of our 10-K. Andy Levi Okay. Darrel Anderson And you divide it by 35% you will get a gross number and that would be a gross deduction that will be comparable to what would be seen pulled out of our capital spend as a repair deduction. Andy Levi I don’t understand what Page 91 of the 10-K 35%, which note is it? Darrel Anderson Note 2 the first table in note 2 and the line is called capitalized repair costs. Andy Levi Right, okay. Darrel Anderson $26 million and you divide that by 35% that gives you a gross. Andy Levi Got it, and that’s a total kind of CapEx number, this really not big a number out of the total CapEx I guess? Darrel Anderson That’s about 75 million if you do that math Andy. Steve Keen That’s the portion of the CapEx. Darrel Anderson To be qualified. Steve Keen Yes. Andy Levi So that continues on until either you don’t have that repairs amount, or let’s just assume that you do every year, assume your repairing things all the time, what would make it go away is it a rate case or… Steve Keen Well in terms of how, that is a good question, in terms of how it provides an income lift is it would predominantly be a rate filing, that when you do a rate filing you reset everything that’s included in cost of service and it should be one of the line items that would be part of that, so you would see an adjustment at that time. You could change in the regulations clearly has moved it in this case, it was a change that lifted our expectations for future deductions and just a change in what you are in terms of your expected types of CapEx, and we put we highlighted a few more infrastructure changes in our 10-K this year to give you an idea of the ongoing nature of what we’re doing, but as you look through those we’ll see that they really are things that last over period of time it’s not like a big project, it’s going to be done in six months that’s really things we do each year. Andy Levi And I know categories flow through I guess from what [indiscernible]? Steve Keen Yes, and the flow through relates with why we don’t put the deferred taxes against that which would eliminate it having an income impact it would simply be a cash benefit and that is due to a choice that was really made by our regulator in Idaho that that is the method of accounting we follow for these and it’s a couple of decades old that we’ve been on that methodology. Andy Levi And then it’s really the tax ruling from last year that’s kind of increased the amount I guess right? Steve Keen Right and the repairs regulations impact a lot of industries other than utility. I think prior to this updated regulation utilities were one of the more predominant users of repairs and I know the initial thoughts were that when the regulations were issued. It appears that there might be a little more constrained in terms of what would qualify and what would not and it was really some clarifications that came out mid last year. That explained that in a way that we could see that the products won more benefit we actually brought that back put it into a tax return gave that through the IRS and they looked at it for 2013 and we have a result that has been agreed to for last year that’s now reflected and it’s really that methodology that we drilled into 2014. Andy Levi And IRS doesn’t have to approve it every year right, now it’s kind of like a given right? Steve Keen Well they will look at the tax return every year I mean we do get out of it annually. But the fact that I get some comfort in the fact that they did look at our tax return last year that had a new methodology and we reached an agreement and as Dean’s team goes forward they take what they learn out of each audit supply candidate in the next year. So you have it is not a guarantee they’re going do everything exactly the same year-to-year. But it’s nice to have that current of the year that they have reviewed. Andy Levi And then basically this obviously adds your common equity. So gives you head room as far as you ROE is concerned and obviously [indiscernible] that way and it also allows you between that and your ADITC state of the greater enough for quite some time. But when you do go back whenever that maybe if it’s 2019 or 20 or whenever it is when you go into the rate arena that’s when the rate based would be trued up based on this, is that correct? Steve Keen We would true up everything that we would true up rate base and you would also true up your cost to service line all your expenses would be updated as well. Andy Levi So really behaves you stay out as long as possible at the same time benefits the customer because you’re not going in for rates? Steve Keen Well I would say that repairs deduction does provide cash flow as well you get the deduction and you also get some cash from that. The decision on whether you file a rate case is really more something you look at independently and we watch both the rate base side and the cost service side and it’s really when that gets out a balance and you feel like you need to go recover more ten you go file. Don’t know that this is really viewed as an item keep us out is another change and it does help our earnings little bit and provide some cash flow. But if you spend enough on CapEx you still have the need for rate case. Andy Levi I’m probably getting daggers from people here in New York who wants to go home. So lot of question I had offline but thank you very-very much. Operator [Operator Instruction] That does conclude today’s question-and-answer session Mr. Anderson I will turn the conference back over to you. Darrel Anderson Thank you and thanks everybody for participating on our call this afternoon. We actually also are with you with all the tough weather a lot of you guys have had here this winter and we hope you guys are all surviving and we also appreciate your continued interest in our Company. We look forward to talk to you guys in the future. Thanks a lot. Operator That concludes today’s conference. Thank you for your participation. 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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