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PNM Resources’ (PNM) CEO Pat Vincent-Collawn on Q4 2015 Earnings Guidance Conference – Call Transcript

Operator Hello, and welcome to the PNM Resources Fourth Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jimmie Blotter, Director of Investor Relations. Please go ahead. Jimmie Blotter Thank you, Carrie and thank you everyone for joining us this morning for the PNM Resources fourth quarter 2015 earnings conference call. Please note that the presentation for this conference call and other supporting documents are available on our website at pnmresources.com. Joining me today are PNM Resources Chairman, President and CEO, Pat Vincent-Collawn and Chuck Eldred, our Executive Vice President and Chief Financial Officer as well as several other members of our Executive Management team. Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward-looking statements, pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward looking statements are based upon current expectations and estimates and that PNM Resources assumes no obligation to update this information. For a detailed discussion of factors affecting PNM Resources results, please refer to our current and future Annual reports on Form 10-K, Quarterly Reports on Form 10-Q, as well as other reports on Form 8-K filed with the SEC. And with that, I will turn the call over to Pat. Pat Vincent-Collawn Thank you, Jimmie. Good morning, everyone. And thank you for joining us as we close out our discussion on 2015 which is a very productive year for the company. We’ll begin the presentation today on slide four with a look at our regulatory and operational achievement over the year. 2015 was to say the least an interesting year. I am very proud that we are able to successfully over several challenges and finished the year on a strong note. Our most significant accomplishment was PNM obtaining final approval for the San Juan Generation Station BART plan. We received that approval two years from when we filed with the commission. Many things were dependant on a positive decision and we are now able to move forward with our comprehensive plan. It is the most cost effective path forward and the best option for our customers who are already seeing lower build as a result of the new core supply agreement. It will also benefit the entire state by minimizing economic impact and providing significant environmental improvements. Ultimately, the position that we and other utilities had regarding the definition of what constitutes the future test year was upheld. The commission revised its definition in a way that agrees with our understanding as the New Mexico Supreme Court has dismissed the appeal. We are also pleased that we were able to settle our first transmission formula rate case. The settlement is awaiting final approval from FERC. In Texas, TNMP successfully implemented two TCOS increases totalling $5.8 million annually. In addition, on January 8th of this year, the staff of the Public Utility Commission of Texas recommended that the Commission approve without changes TNMPs filing for reconciliation regarding its AMS deployment. We anticipate the commission to rule at its open meeting on March 24. We turn to our operational highlights. You always hear me talk about reliability being our customer’s number one priority. I am proud to say that in 2015 PNM delivered strong reliability and was recognized with a ReliabilityOne award for outstanding Midesize Utility. TNMP also continued to deliver excellent reliability despite extreme weathers throughout the year in Texas. As a result of PNMs excellent reliability and focus on customers, in 2015 we continued to improve our J.D. Power customer service ratings. In July and August, PNM achieved its highest scores ever. At the same time, the number of merited complaints with the New Mexico Commission remained at the lowest level in the past five years. That’s especially significant during the rate case year. In 2015, PNM stayed on track with plans to increase generation capacity. We added four new solar facilities totaling 40 megawatts, and the new La Luz 40 megawatt gas peaker is also now online. We are also proud of the fact that once again TNMP received Energy Star’s Market Leader Award for its energy efficiency programs. That’s the 11th consecutive year that TNMP has earned that honour. We continue to move forward with the AMS roll out at TNMP. We’re now at 91% completion. In conjunction with the AMS deployment, we’ve implemented a new outage management system. This will be an important tool in improving response time, reducing outage time and increasing both reliability and customer satisfaction. Let’s now go to slide five for a snapshot of fourth quarter and year end results. As you can see there is a significant difference between our GAAP and ongoing earnings, which is primarily due to a GAAP write off related to the shutdown of units 2 and 3 at the San Juan Generating Station. Our GAAP EPS for fourth quarter 2015 was a loss of $1.15 compared to earnings of $0.24 in the fourth quarter of last year. For the year, GAAP earnings per share were $0.20 compared to $1.45 in 2014. For the fourth quarter, ongoing earnings per share were $0.23 compared to $0.24 from the fourth quarter last year. For the year, ongoing earnings totaled $1.64 up $0.15 from 2014. We are also affirming our 2016 guidance range of $1.55 to $1.76. Couple of quick regulatory updates. We are moving forward with the implementation of our BART plan at San Juan. The SNCR and Balanced Draft equipment are now in full operation on units 1 and 4 and savings from the new coal supply and restructuring agreements are now flowing to our customers and the 40 megawatts of solar that was in our replacement plan is now online. We are also on track with the rate case we filed last August. PNM and the interveners filed Rebuttal testimony this past Monday and the hearing is currently scheduled to run from March 14 to March 25. On January 29, TNMP made its latest TCOS filing requesting an annual increase of $4.3 million. We expect that these rates will go into effect in March. This reflects a $25.8 million increase in transmission rate base over our last filing. I’ll now turn it over to our Chief Financial Officer, Chuck Eldred for a more comprehensive look at the numbers. Chuck Eldred Thank you, Pat and good morning everyone. We continue to make progress towards achieving our goal. The Westmoreland coal contract that became effective February the 1st brings substantial savings to customers. We received approval on the BART and resolution of the future test year definitions under New Mexico Commission in December. We also ended 2015 with an improvement in earnings compared to our revised guidance range. So beginning on slide seven, let’s start by reviewing load of both PNM and TNMP. Both were within the guidance ranges that we had for the year. At PNM, 2015 was down 1.4% compared to 2014. I want to point out the residential loan was flat both for the fourth quarter and for the entire year. Customer growth came in higher than our expectations at 0.8% for fourth quarter and 0.7% for the year. The economy in New Mexico continues to have mixed indicators. The employment growth recently in Albuquerque Metro area has been strong and you can see that even on a 12-month rolling average its moving up with the strongest numbers we have seen in three years. The state overall is not faring as well though. That softness is driven primarily by the low oil and natural gas prices. While we do not serve the regions of the state that produce oil and gas, we do expect the impacts of layoffs and the decrease in state royalty revenues will somewhat soften the economies in our service territory, particularly in Albuquerque metro area in Santa Fe as the state deals with budget shortfalls. We continue to expect 2016 load to be flat to down 2% for the year. Moving to TNMP, load for 2015 was up 2.6% compared to 2014. Customer growth was higher than forecast at 1.5% for Q4 and for the year. The Texas economy continues to be strong but the Houston area in particular is feeling the impact of low oil and natural gas prices. While Houston property is suffering, we are not seeing the economy in our service territory softened. This is because of a couple of factors. We serve many refiners and petrochemical manufacturers who continued to have strong production. Additionally, we see some production movements into the smaller communities outside the Houston Metro area, population movements into the smaller communities outside the Houston area. TNMP serves some of those areas and therefore, we are actually seeing customer increases rather than decreases. For 2016, we continue to expect load to be up 2% to 3%, as refiners and petrochemical manufacturers continue strong production and our service territories near Dallas and Forth Worth continues to have a strong economy. On slide 8, as I said before, we ended the year exceeding the upper end of 2015 guidance range, with the $1.64 consolidated ongoing earnings. All of our segments performed well during the year. PNM came in $0.02 higher than guidance. TNMP at the upper end of the guidance range and Corporate and Other was also $0.01 better than guidance. Now moving to slide 9. Ongoing earnings came in at $0.23 for fourth quarter compared to $0.24 in the fourth quarter 2014. PNM was down $0.03 and TNMP was flat. Corporate and other came in $0.02 better than last year, driven by improvements in interest expense related to the repayment of the $119 million and a 0.0025% debt in May of 2015. On slide 10, let’s look at the drivers for PNM and TNMP. Beginning with PNM, AFUDC improved $0.03 compared to the fourth quarter of 2014. This was caused by higher capital spending and higher quid balances, including the SNCR and balanced draft equipment in San Juan, the construction of the 40 megawatt La Luz gas peaker and 40 megawatts of solar. As we’ve seen through 2015, the half price of the Palo Verde Unit 1 leases contributed $0.03. Weather was an improvement of $0.02 between the quarters, as weather reduced fourth quarter 2014 earnings by $0.01 and improved fourth quarter 2015 by $0.01. The heating degree days for fourth quarter 2015 were not the driver for weather, as they were only 8% higher than last year but 2% below normal. Instead it was our cooling season that extended into October, with temperatures that were warmer than normal and warmer than 2014. We have been migrating to the Palo Verde Unit 3 Nuclear Decommissioning Trust from a shareholder asset to a regulated asset. This involves rebalancing the portfolio to reduce the percentages held in equity investments to better match the regulated assets. As we do this, we have opportunistically captured gains. In addition to that, we change some of our managers which resulted in further rebalancing of the investment portfolios. Together these actions resulted in higher gains of $0.02 compared to fourth quarter 2014. Renewable also improved results by $0.01. We had higher O&M expenses of $0.03 in the quarter, which brings our year-to-date expenses in line with our guidance range. Outage costs were $0.02 higher. This was caused largely by the San Juan Unit 4 outages and saw SNCR and balanced draft equipment. We took $0.02 write-off in fourth quarter 2015 for items on our balance sheet related to the exploration of alternative fuel supply contracts for San Juan. With the completion of the Westmoreland contract, we determine that it was appropriate to write-off these assets. Interest expense was $0.02 higher related to the additional debt that PNM entered into August of 2015. Load was down a $0.01. Transition margins were down a $0.01, compared to fourth quarter 2014. We had two long-term point-to-point contracts expired during the year, which is the primary cause of this change. We also had higher depreciation and property tax expense of $0.01. Finally, we capitalized ANG load on capital projects as lower than it was last year. This is primarily relating to the timing of capital projects At TNMP, rate relief from TCOS filings was up one penny compared to fourth quarter 2014. Weather was down $0.01. Heating degree days were 28% lower than fourth quarter of 2014 and 27% lower than normal. Depreciation and property taxes were also higher by a $0.01. Now turning to slide 11. Before we review the 2016 forecast, I want to mention how the five-year bonus depreciation extension affects us. As you are aware, we have an NOL at PNM for income tax purposes that have been expected to be fully utilized in 2018. The extension of bonus depreciation will cost the NOL to last for a longer period of time, now carrying us into 2019. While the additional deferred tax from bonus depreciation decreases rate base, the NOL increases rate base. As a result, we do not expect to see significant change in our rate base. Looking at 2016, bonus depreciation does not impact our ongoing earnings guidance. We have included our rate base projection on this slide for the expected impact of bonus depreciation and the extension of the NOL. The impact of bonus depreciation does not change our 2016 rate case numbers except the TNMP, which does not have an NOL. However, regardless of rate base change, our EPS expectations for 2016 are ineffective. As a reminder, we expect to update guidance in middle of this year after we resolve the ongoing rate case at PNM. In the appendix to today’s presentation, you will find the 2017 to 2019 potential earnings power slide. This is also been updated for bonus depreciation. As for 2016, PNM does not have a significant change and TNMP’s rate base is reduced from our prior presentation by approximately $50 million in each period. Overall, the changes are not as significant earnings driver for the company. Since the NOL’s expected to be utilized in 2019, bonus depreciation will have an impact in our 2020 rate case. We are currently viewing the capital projections and identifying which projects should be funded. We will provide those updates later this year. Finally on slide 12, we are focused on achieving our strategic goals. We expect to continue delivering above industry average earnings and dividend growth, which is displayed to the potential earnings power of the business and supports our 7% to 9% growth rate. As I wrap up today, I want to express that 2015 ended with good results. We are optimistic about 2016 and we recognize the importance of PNM’s rate case on this year’s financial results and the need to bring it to a good resolution. We also expect to file our 2018 rate case in December of this year. That filing will include the major elements of the BART case. The abandonment of San Juan’s Unit 2 and 3, additional megawatts in San Juan Unit 4 and the inclusion of Palo Verde Unit 3 rates. The rate base valuations for each of these items have already been set for the BART process. Pat, I will turn the call back over to you. Pat Vincent-Collawn Thanks, Chuck. As Chuck said, we are very proud of what we accomplished in 2015. We reached positive conclusions on key regulatory filings. The company delivered another solid financial performance and most importantly, we continued to focus on serving our customers with reliable, affordable and environmentally responsible electricity. Given the challenges and oppositions we faced through this year and continue to face, these achievements confirm that our strategy is sound and our hard work is creating positive results. Going forward, we plan to stay the course and continue to work in the best interest of our customers, the communities we serve, our employees and our shareholders. One more note about our rate case. No one likes rate increases. We understand that and we take it very seriously. This request is driven primarily by capital improvements to our system designed to ensure continued reliability for our customers. As filed, the rate case would increase rates by 14%, but when you consider the customer benefits from the Westmoreland coal contract and other items, the total increase is about 5%. That’s an average of about 1% a year since our last increase. I want to emphasize that it is of great importance that we achieved timely rate recovery in this proceeding and we are confident that we have strong justification for the revenue requirement. As we have been saying all along, given the number of interveners in this case, it is likely that the best way to achieve this will be through litigation. And in closing, I cannot say enough about the tremendous effort of our employees. They are responsible for our ongoing success and progress and they make us proud every day. Operator, let’s now open it up for questions. Question-and-Answer Session Operator We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Anthony Crowdell of Jefferies. Please go ahead. Anthony Crowdell Good morning. Pat Vincent-Collawn Good morning, Anthony. Anthony Crowdell I have a couple questions. One is I wanted to know, what’s left on your Palo Verde leases after you file for the rate case at the end of this year for new rates in 2018? Chuck Eldred Yeah. Anthony, the leases about 114 megawatts and still remain, but actually extend on half price as a path through to O&M through 2022, 2023. Anthony Crowdell Okay. Great. Since I guess the BART filing in December or maybe even the third quarter call, you had given this, I don’t want to use the word guidance but maybe a rough estimate of the potential loss to the unregulated portion of the San Juan plant would be. Power prices have since maybe taken another downturn. Could you give us an update on what your estimate would be for the unregulated portion of power of San Juan? Chuck Eldred Yeah. Anthony as you know, the 65 megawatts actually doesn’t affect us until the BART implementation in 2018 when we taken on the 65 megawatts. And as you recall in our projections, we use spot prices, real-time prices of the markets. So you are right, prices have decreased considerably since we’ve last talked about it. I think we are around of $0.03 losses and with the additional lower prices, which are close to little less than $30 a megawatt hour is a breakeven in the mid $40 a megawatt. For San Juan 65 megawatt, we are probably additional $0.03 or $0.04. But let me just also comment that as you are aware, with the Westmoreland contract, the financing that we have done through Westmoreland to support the closing of the purchase of the mine that there are some additional earnings that begin to reflect as a result of the financing and the basis spreads between what we were able to financed at PNM versus PNM Resources versus what Westmoreland was charged to reflect more of their credits. That benefit, if you will is roughly around $0.04 or so because it would offset the losses that we would have at the 65 megawatts I just referred to. So, we remain kind of neutral that overall we are on the course that we said we’d be on and we are not really receiving an impact even with the lower prices at the 65. Anthony Crowdell Okay. And just lastly, Pat, I know you had said you think the best way of achieving what you’ve requested in the rate proceeding given the large number of interveners, it looks like you went to dug in their positions was through a litigated decision. Would you comment at all, if there is even a potential for a settlement or it just seems like it’s not really going to happen here? Pat Vincent-Collawn There is always a potential but I think in this case, litigation is probably the best path forward because it’s the most expeditious and the quickest path forward. Anthony Crowdell Great. Thanks for taking my questions. Pat Vincent-Collawn Thank you. Chuck Eldred Thanks. Pat Vincent-Collawn Thanks, Anthony. Operator Our next question comes from Brian Russo of Ladenburg. Please go ahead. Brian Russo Hi. Good morning. Pat Vincent-Collawn Good morning, Brian. Brian Russo You mentioned that when the NOLs runoff at the end of 2019, there will be an impact to your rate base for bonus depreciation in 2020, can you quantify that? Chuck Eldred Yeah. We actually haven’t put out the 2020 rate base at this point. But it pretty much keeps the rate base slightly lower than what we have through 2019, but we haven’t quantified at this point, Brian. So, I’d rather wait till we really run through the numbers and look to see if there is some additional capital funding that we can benefit from the bonus depreciation and additional cash flow and then we will update the number and provide them to you. Brian Russo Well. Maybe I will ask in a different way. In 2016 rate base, hypothetically, if you didn’t have the NOL, what would the impact to your rate base be, if you can answer that? Chuck Eldred 2016? Brian Russo Or 2015. Chuck Eldred I don’t know I have 2015. Let me get — we will just have to get back with you on that. I have got the numbers of 2016. I don’t have 2015 with me. Brian Russo Okay. So could you share with us for the 2016? Chuck Eldred Yeah. 2016, if you would, roughly with the effects, without NOL, the net effect of that looks like it would be about 2.6 to 2.4 about $200 million net. Brian Russo Okay. Thank you very much. Operator [Operator Instructions] Our next question comes from John Allie [ph] of Castleton. Please go ahead. Unidentified Analyst Good morning, guys. Pat Vincent-Collawn Good morning, John. Unidentified Analyst Just two quick questions. You said the litigation is the quickest route, what’s the timeline you guys are thinking for that? And then secondly, do you have any thoughts on the formation of the REIT for your taxes as such? Pat Vincent-Collawn I’ll take the first one and let Chuck take the second one. The hearings John start on the 14th of March and go till the 25th of March. We would hope that the effective date would be close to the beginning of Q3. I think you will know that Q3 is our largest quarter, so therefore having the rates in place early in that quarter makes a big impact which is why we want timely rate increase. So that’s probably the schedule we are looking at. Chuck Eldred Yes John in regards to — we’re watching as everyone else to see what the commission ultimately does with the on proposal reactions relative to how they pursue that going forward. And whether they actually allow that to be approved in the regions formed and with Encore. So we’ll monitor that and if we feel that that decision is made as I’m sure all the AT&T companies in Texas will do the rigor and analysis necessary to see if it makes any sense for our structures to consider that as well. So at this point we’re just on the sideline keeping a close eye on it. Unidentified Analyst All right. Thank you. Chuck Eldred Okay. Operator And this concludes our question and answer session. I would now like to turn the conference back over to Pat Vincent-Collawn for any closing remarks. Pat Vincent-Collawn Thank you. And again thank you all for joining us this morning. We appreciate you joining us on this call to hear about our very successful 2015 and our plans for going forward and we look forward to speaking with you and seeing you all throughout the year. Have a great weekend. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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Northwest Natural Gas’ (NWN) CEO Gregg Kantor on Q4 2015 Results – Earnings Call Transcript

Operator Good morning and welcome to the Northwest Natural Gas Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Nikki Sparley, Investor Relations Manager. Please go ahead. Nikki Sparley Thank you, Andrew. Good morning, everyone and welcome to our fourth quarter 2015 earnings call. As a reminder some of the things that will be said this morning contains forward-looking statements. They are based on management’s assumptions, which may or may not come true. You should refer to the language at the end of our press release for the appropriate cautionary statements and also our SEC filings for additional information. We 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 these conference calls are designed for the financial community. If you are an investor and have questions, please contact me directly at (503) 721-2530. Media may contact, Melissa Moore, at (503) 220-2436. Speaking this morning are Gregg Kantor, Chief Executive Officer and Greg Hazelton, Senior Vice President, Chief Financial Officer, and Treasurer. Mr. Kantor and Mr. Hazelton 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 are available to help answer any questions you may have. With that, I will turn it over to Mr. Kantor for his opening remarks. Gregg S. Kantor Thanks Nikki, good morning everyone and welcome to our fourth quarter and year-end earnings call. I will start today with highlights from the year and then I will turn it over to Greg Hazelton to cover our 2015 financial performance. Finally I will wrap up the call with a look forward. In 2015 Northwest Natural successfully navigated a number of challenges while still achieving our key financial and operational goals. Our financial challenges came early in the year with Oregon experiencing the warmest winter on record. The impact was substantially mitigated by our weather normalization mechanism which has been place since 2003. However, we experienced lower volumes and revenues as about 20% of our customer base is not covered by the mechanism. In addition in February 2015, the Oregon Commission approved a mechanism that allows us to recover, prudently incurred environmental clean-up cost allocated to Oregon associated with our historic manufactured gas operations. We began collection of our environmental expenditures through this mechanism known as the SRM in November of last year. However, as part of the February 2015 order, the OPUC disallowed environmental expenses totaling $15 million based on the application of an earnings test for past years when the company earned above its allowed rate of return. As a result, we took an after tax charge of $9.1 million in the first quarter of 2015. In response to the warm winter and the disallowance, management instituted a number of temporary cost saving measures. Through these targeted efforts we reduced budgeted O&M levels by approximately $5 million or about $0.11 per share. And I am proud of our employees whose hard work and commitment allowed us to accomplish this while still remaining dedicated to exceptional service and safety. Despite the financial headwinds our core utility performance remained solid with higher margin and continued customer growth. Part of this performance stems from the strength of our region’s economy and you can see that strength in a number of trends including in migration and housing growth. Oregon is experiencing strong population gains particularly attracting college educated workers between the age of 25 and 34. In fact Oregon ranks sixth in the nation for in migration of degree holders who are beginning or mid career. These young working age households are considered vital for both regional economic development and longer term growth. In the last year average monthly employment in the Portland Vancouver metro area increased by about 35000 new jobs equating to an annual employment growth rate of 3.2% which exceeded the average national rate by more than 1%. Over the last 12 months the unemployment rate in the Portland and surrounding metro areas sell 100 basis points to 5.3%. We’re also seeing strong housing growth in the Portland Vancouver area with a 25% increase in single family building permits in the last 12 months. And in the last year, home sales were up about 20% in Portland and average home prices increased by 6.5%. In Park County [ph] Washington where about 11% of our customers are located, home sales were up 19% for the year and average home prices were up 8.6%. All of these factors contributed to a fast growing Oregon economy. In fact Oregon’s economic health index rose the most in the nation through the first three quarters of 2015 according to the latest Bloomberg economic evaluation of states report. These were all good signs our economy continues to move in the right direction. On the operations front we had an excellent year with a continued focus on safety and reliability. We hit a milestone in the fourth quarter when we removed the final known bare steel pipe from our distribution system making our system one of the most modern in the nation. This achievement was supported by trackers established with the help of the commission more than three decades ago. In 2015 we once again reached our emergency response goals of answering 90% of emergency calls within 10 seconds and responding to damage and protocols onsite within 30 minutes on average. During the year we also began several multiyear infrastructure projects to ensure the continued reliability of our system and support customer growth. These ongoing investments include improvements totaling $25 million at our Newport LNG facility to modernize that plant and $25 million of upgrades are being made to our system in Vancouver, Washington also over the next several years to increase pressure levels to support our service territories fastest growing community. Safety and reliability coupled with affordability make natural gas a very competitive fuel source. In 2015 we were able to strengthen that position by reducing residential customer rates in Oregon by 7%, by 14% in Washington. This rate reduction was a reflection of the lowest natural gas commodity prices we’ve seen in 15 years. And finally for the sixth time in nine years we posted the highest score among large gas utilities in West in the 2015 JD Power Residential Customer Satisfaction study. This also marked the eighth time in nine years of ranking among the top two highest satisfaction scores in the nation. These results reflect our continued commitment to operate reliably, safely, and with high quality customer service in the communities we serve. With that let me turn it over to Gregg to cover our financial results and provide the 2016 guidance. Gregory C. Hazelton Thank you, Gregg and good morning everyone. Today I’ll start with a review of the fourth quarter results, followed by a discussion of our annual performance, and close with 2016 earnings guidance including key assumptions for the year. For the fourth quarter we reported improved consolidated results with net earnings of $1.08 per share or $29.7 million compared to $1.04 per share or $28.5 million for the same period last year. Consolidated results were driven by higher utility margin and other income, partially offset by increased O&M expense. Looking at our segment results, for the quarter our utility segment net income increased $1.1 million based on a $2.6 million increase in utility margin and then $1.8 million increase in other income, offset by a $2.4 million increase in O&M expense. The utility margin -– the increase in utility margin was predominantly driven by customer growth with over 3,300 new meter sets installed in the fourth quarter, which is nearly 1% higher than the prior year. In addition, utility margin benefited from the gas cost sharing gains as a result of lower actual gas prices than rates in Oregon -– in the Oregon purchase gas adjustment mechanism. Utility O&M for the quarter increased primarily reflecting higher incentive compensation, retirement, and healthcare costs. During the quarter, our gas storage segment earnings improved slightly reflecting some positive trends. Our Mist gas storage facility continues to perform well and operating results remained strong and comparable to the prior year. Gill Ranch realized an uptick in revenues reflecting higher contract prices for both firm and optimization contracts. Additionally, operating expenses decreased as we managed the business to a lower cost structure which we expect to benefit from in 2016. Also in December we redeemed the remaining Gill Ranch note, prior to its November 2016 scheduled maturity. Turning to our annual consolidated results, net income was $1.96 per share or $53.7 million compared to $2.16 per share or $58.7 million in 2014. As previously discussed, the company recognized a non-cash, after-tax $9.1 million environmental disallowance related to the February 2015 SRRM order. This charge was reported as O&M expenses in the first quarter of 2015. Excluding this charge consolidated earnings were $2.29 per share or $62.8 million, an increase of $0.13 over 2014. Annual results were largely driven by higher utility margin and other income, offset by increased O&M expenses. For the year utility net income increased $3.9 million, excluding the impact of the $9.1 million charge. Higher net income was largely driven by a $5.3 million increase in utility margin, a $6.6 million increase in other income, and a $2.4 million decrease in interest expense, offset by $7.2 million increase in O&M expense, and a $1.8 million increase in depreciation expense. In November we began collecting revenues from customers through the environmental mechanism or SRRM. For the -– for 2015, these collections totaled $3.5 million and are included in operating revenues with a corresponding offset for the amortization of environmental regulatory asset. For the year, utility margin increased primarily driven by strong customer growth with the addition of more than 9,700 customers and gains from our gas cost incentive sharing mechanism. These increases were offset by lower margin from customers not covered by weather normalization as the region experienced exceptionally warm weather. The $6.6 million increase in utility, other income was primarily due to the recognition of equity earnings on deferred environmental expenditures as a result of the February 2015 order. Excluding the regulatory disallowance, utility O&M expense increased over last year, primarily due to an increase in compensation and benefit expense, which included higher employee incentive compensation, retirement and healthcare costs, as well a new union labor contract that was effective June 2014. In addition, non-payroll expense increased from higher professional service and insurance cost. In the second half of 2015, management implemented a number of temporary cost saving initiatives to mitigate the unplanned effects of warm weather and the disallowance. These targeted initiatives resulted in approximately $5 million or $0.11 per share of O&M savings. While these measures help the company meet its 2015 financial targets, they are unsustainable and we do not plan to continue them in 2016. Utility interest expense decreased $2.4 million over the last 12 months with the redemption of $40 million of debentures without reissuance. For the year net income for gas storage improved mainly due to a reduction in operating expenses reflecting lower repair and power cost at our Gill Ranch facility. As well as permanent expense savings I previously mentioned. Despite improvement in the fourth quarter, gas storage annual operating revenues declined as a result of higher contracted storage prices in the first quarter of 2014. In addition interest expense increased reflecting the early redemption of the Gill Ranch note. Cash flow from operating activities declined $31 million compared to last year due to over $100 million of environmental insurance recoveries in 2014 offset in part by the decrease in cash flows from changes in deferred gas cost balance. Now I’d like to briefly mention two regulatory updates. In January 2016 we received an order from the OPUC resulting all open matters in our SRRM docket. The order confirmed the recovery of environmental cost eligible to Oregon rate payers under the SRRM and disallowed interest earned on the original $15 million charge from the February 2015 order. As a result we recognized a non-cash $3.3 million pretax charge in January 2016. Also we continually assess our business and economic environment to determine the need for future rate cases. Based on rate based growth since our last Oregon rate case in November 2012 and increases in operating expenses, we are evaluating the need to file in Oregon general rate case within the next 12 to 24 months. And a potential Washington rate case sometime thereafter. Moving to 2016 guidance, capital expenditures are expected to range from a $155 million to $175 million including approximately $15 million of capital expenditures associated with our North Mist expansion. For the five year period ending 2020, we estimate utility capital expenditures to range from $850 million to $950 million excluding any potential future gas reserve investments. This range also includes a $125 million of CAPEX for our North Mist expansion. At this time we expect cash savings from the extension of bonus depreciation to total approximately $90 million through 2019. We are evaluating the impact of this extension on the mix and profile of our investments. Our CAPEX range does not include any potential additional capital investment that may result from this evaluation. We currently do not anticipate the need to issue equity until 2018 with the completion of our North Mist expansion. In addition we are utilizing open market purchases for a dividend reinvestment program as well as certain share based compensation programs. The company initiated 2016 earnings guidance today in the range of $1.98 to $2.18 per share which includes the $3.3 million pretax or $0.07 after tax charge from the January 2016 order. Our adjusted guidance range excluding the charge is $2.05 to $2.25 per share. With that I’ll turn it back over to Gregg for his concluding remarks. Gregg S. Kantor Thanks Gregg, as we turned to 2016 we continued to focus on our regulatory agenda and on growing our company. On the regulatory front we were pleased to reach conclusion on the implementation of our environmental mechanism with the commission’s order this January. Although the additional charge in 2016 is disappointing, this was a complex docket and we believe the mechanism provides a good path forward for all stakeholders. This year we will continue working with the commission and other gas utilities in Oregon on the policy docket exploring commodity hedging. This includes what role gas reserves could play in a balanced natural gas supply portfolio. We’ve also been working with the Oregon Commission and stakeholders on a carbon solutions program under Oregon’s Greenhouse Gas Reduction Legislation. As we’ve discussed before, Senate Bill 844 allows the OPUC to incent natural gas utilities to undertake projects that will reduce emissions. Our first proposal was submitted in June and is designed to further the use of combined heat and power in Oregon. We filed our last briefs a few weeks ago and expect a decision from the commission in the next few months. On the customer growth side, we are working hard on expanding our multi -– our market share in the multi-family housing sector. As I mentioned, the Portland area housing market has seen an upturn, particularly in multi-family apartments. To further our efforts, we have created a cross-functional team to evaluate every aspect of the apartment rental market, a market that is typically underserved with natural gas. Results of a recent market study show that 80% of renters in Portland prefer natural gas entities. This shows a clear gap between what renters want and what’s available and we’ve begun developing a comprehensive marketing program targeting apartment developers. We view rental apartments as an untapped growth opportunity and a priority segment for us moving forward. Now let me give you a quick update on the potential expansion project at our underground storage facility in Mist, Oregon. As you know in 2014 we received approval from Portland General Electric to move forward with the committee and land acquisition work required for the expansion project. The project would provide no notice storage services to PGE’s natural gas power generating plants at Port Westward. It would include a new reservoir providing up to 2.5 billion cubic feet of available storage, an additional compressor station, and a new pipeline. Last April, we submitted an application to the Oregon Energy Facility Siting Council for an amendment to our existing Mist site certificate, a step required to support the expansion. In early October, we held an open-house with the local community near the expansion site and received positive feedback from attendees. And then on March 5th, just a few weeks ago, the Department of Energy published a proposed order. Public comment processed on that order will end on March 7, just a few weeks from now. If there are no challenges to proposed order through the comment process, we could receive the EFSC permit approval later this spring. And currently, we’re in the process of rebidding the EPC portion of the project. Following the approval of the permit and the rebidding process we expect to receive a notice to proceed from Portland General later this year. We continue targeting an in-service date during the 2018, 2019 winter season, a target that depends of course on the permitting process and construction schedule. And the current estimated cost of the project is approximately $125 million. Over many years Northwest Natural has demonstrated the careful planning essential to finding and retaining the talent necessary to drive success. Detailed succession plans are an integral part of the company’s business activities and this past year the benefits of that work were clearly visible. I would like to mention two key changes; first, in June of last year Greg Hazelton joined the management team as CFO and was also recently named Treasurer. And second, this past December, I announced my retirement at the end of 2016 and that David Anderson would be promoted to Chief Executive Officer effective to August 1. I will be working with the Board in Advisory role until the end of December. A smooth transition at the top is critical, but as important is developing the talent for succession in key positions across the organization, and that has been a long held commitment at Northwest Natural, one, that in my opinion, is the true mark of a Board and the management team with foresight. David is an excellent example of this talent. He is a strong leader and he brings great experience and a diverse skill set to the CEO position. I’m confident our company will be in good hands going forward. With that, thanks for joining us this morning and now I’ll open it up for questions. Question-and-Answer Session Operator We will now begin the question-and-answer session. [Operator Instructions]. Gregg S. Kantor Looks like people are ready for the weekend I guess. Operator Okay, well this concludes our question-and-answer session, I would like to turn the conference back over to Gregg Kantor, Chief Executive Officer for any closing remarks. Gregg S. Kantor Well thank you everyone. Thank you again for your interest in our company and for taking the time out this morning to listen in and have a great weekend. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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